PROSPECTUS SUPPLEMENT
(To prospectus dated January 24, 2001)
$355,000,000
[MARKEL CORPORATION LOGO]
Liquid Yield Option(TM) Notes due 2031
(Zero Coupon -- Senior)
---------------
The Offering:
We are offering the LYONs at an issue price of $283.19 per LYON (28.319%
of the principal amount at maturity). We will not pay interest on the LYONs
prior to maturity unless contingent cash interest becomes payable. Instead, on
June 5, 2031, the maturity date of the LYONs, a holder will receive $1,000 per
LYON plus contingent additional principal, if any, as described below. The
issue price of each LYON represents a yield to maturity of 4.25% per year
calculated from June 5, 2001, excluding any contingent cash interest and any
contingent additional principal. The LYONs will rank equally with all of our
existing and future unsecured and unsubordinated indebtedness.
Convertibility of the LYONs:
Holders may convert their LYONs into 1.1629 shares of our common stock,
subject to adjustment, only (1) if the sale price of our common stock issuable
upon conversion of a LYON reaches specified thresholds, (2) during any period
in which the credit rating of the LYONs is below a specified level, (3) if the
LYONs are called for redemption, or (4) if specified corporate transactions
have occurred. Our common stock currently trades on the New York Stock Exchange
under the symbol "MKL." The last reported sale price of our common stock on the
New York Stock Exchange on May 30, 2001 was $191.00 per share.
Contingent Cash Interest:
We will pay contingent cash interest to the holders of LYONs during the
six-month period commencing after June 5, 2006 and during any six-month period
thereafter if the average market price of a LYON for a five trading day
measurement period preceding the applicable six-month period equals 120% or
more of the sum of the issue price, accrued original issue discount and
contingent additional principal, if any, for such LYON. The contingent cash
interest payable per LYON in respect of any quarterly period will equal the
greater of .0625% of the average market price of a LYON for the five trading
day measurement period or any regular cash dividends paid by us per share on
our common stock during that quarterly period multiplied by the then applicable
conversion rate. For United States Federal income tax purposes, the LYONs will
constitute contingent payment debt instruments. You should read the discussion
of selected United States Federal income tax considerations relevant to the
LYONs beginning on page S-28.
Contingent Additional Principal:
On June 5, 2002 and June 5, 2004, if the price of our common stock is at
or below specified stock price thresholds based on a measurement period prior
to that date, then contingent additional principal will accrue on the LYONs
beginning on such date at a rate of either 0.50% or 1.00% per year for a period
of two years, as more fully described in this prospectus supplement under the
caption "Description of LYONs--Contingent Additional Principal." No contingent
additional principal will accrue after June 5, 2006.
(Continue on next page)
(Continue from previous page)
Purchase of the LYONs by Markel at the Option of the Holder:
Holders may require us to purchase all or a portion of their LYONs on
June 5, of 2002, 2004, 2006, 2011, 2016, 2021 and 2026 at the prices set forth
in "Description of LYONs--Purchase of LYONs at the Option of the Holder." We
may choose to pay the purchase price in cash or in common stock or a
combination of cash and common stock. In addition, upon a change in control of
Markel occurring on or before June 5, 2006, holders may require us to purchase
for cash all or a portion of their LYONs.
Redemption of the LYONs at the Option of Markel:
We may redeem for cash all or a portion of the LYONs at any time on or
after June 5, 2006 at the prices set forth in "Description of LYONs--Redemption
of LYONs at the Option of Markel".
Investing in the LYONs involves risks, some of which are described in the
"Risk Factors Relating" section beginning on page S-11 of this prospectus
supplement.
---------------
Per LYON Total
-------- -----
Public offering price............................... $283.19 $100,532,450
Underwriting discount............................... $6.37 $2,261,350
Proceeds, before expenses, to Markel................ $276.82 $ 98,271,100
The underwriter may also purchase up to an additional $53,000,000
aggregate principal amount at maturity of LYONs from Markel within 30 days from
the date of this prospectus supplement to cover overallotments, if any.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus supplement or the accompanying prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
The LYONs will be ready for delivery in book-entry form only through The
Depository Trust Company on or about June 5, 2001.
---------------
Merrill Lynch & Co.
---------------
The date of this prospectus supplement is May 30, 2001.
(TM)Trademark of Merrill Lynch & Co., Inc.
TABLE OF CONTENTS
Prospectus Supplement
Page
----
Note on Forward-Looking Statements......................................... S-4
Summary.................................................................... S-5
Risk Factors............................................................... S-11
Use of Proceeds............................................................ S-13
Ratio of Earnings to Fixed Charges......................................... S-13
Capital Stock.............................................................. S-14
Description of LYONs....................................................... S-15
Certain United States Federal Income Tax Considerations.................... S-32
ERISA Considerations....................................................... S-36
Where You Can Find More Information........................................ S-37
Underwriting............................................................... S-38
Validity of the LYONs...................................................... S-39
Index of Defined Terms..................................................... S-40
Prospectus
Markel Corporation.......................................................... 2
Unaudited Pro Forma Condensed Financial Information......................... 2
Risk Factors................................................................ 8
Note On Forward-Looking Statements.......................................... 9
Ratio of Earnings to Fixed Charges.......................................... 10
Use of Proceeds............................................................. 10
Description of Capital Stock................................................ 10
Description of Warrants..................................................... 14
Description of Debt Securities.............................................. 15
Plan of Distribution........................................................ 24
Selling Security Holders.................................................... 25
About This Prospectus....................................................... 26
Where You Can Find More Information about Markel............................ 26
Incorporation of Information We File With the SEC........................... 26
Legal Matters............................................................... 27
Experts..................................................................... 27
S-3
This document is in two parts. The first part is the prospectus
supplement, which describes the specific terms of the securities we are
offering and certain other matters relating to us and our financial condition.
The second part, the prospectus, gives more general information about
securities we may offer from time to time, some of which does not apply to the
securities we are offering. Generally, when we refer to the prospectus, we are
referring to both parts of this document combined.
You should rely only on the information contained in this document or to
which this document refers you. We have not, and the underwriter has not,
authorized anyone to provide you with different information. If anyone provides
you with different or inconsistent information, you should not rely on it. This
document may only be used where it is legal to sell these securities. The
information in this document may only be accurate as of the date of this
document. Our business, financial condition, results of operations and
prospects may have changed since that date.
NOTE ON FORWARD-LOOKING STATEMENTS
This prospectus contains or incorporates by reference forward-looking
statements. Forward-looking statements may be identified by the use of terms
such as "believes," "expects," "estimate," "may," "intends," "plan," "will,"
"should" or "anticipates" or the negative thereof or similar expressions, or by
discussions of strategy. We have based our forward-looking statements on our
current expectations and projections about future events. These forward-looking
statements are subject to risks, uncertainties and assumptions about us,
including:
. uncertainties and changes in government policy, regulatory policy,
statutory law or case law with respect to our companies, brokers or
customers which can impede our ability to charge adequate rates and
efficiently allocate capital;
. the occurrence of man-made or natural catastrophic events;
. the occurrence of significant changes in products or adverse changes
in market conditions;
. changing legal and social trends and the inherent uncertainties of
the reserving process, including potential underwriting exposure to
year 2000 claims;
. loss of the services of any of our executive officers;
. initiatives underway at Markel International to reorganize business
units and to evaluate reinsurance programs and exposures that could
lead to additional changes and expense;
. that Markel International will make steady progress towards
underwriting profitability;
. the impact of United States Federal income tax laws on our foreign
subsidiaries;
. changing rates of inflation and other economic conditions;
. losses due to foreign currency exchange rate fluctuations;
. ability to collect reinsurance recoverables;
. changes in the availability, cost or quality of reinsurance;
. developments in domestic and international financial markets that
could affect our investment portfolios;
. changes in the distribution or placement of risks due to increased
consolidation of insurance and reinsurance brokers; and
. the effects of mergers, acquisitions and divestitures.
We undertake no obligation to publicly update or revise any forward-
looking statements, whether as a result of new information, future events or
otherwise. In light of these risks, uncertainties and assumptions, the forward-
looking events discussed in this prospectus might not occur. Readers are
cautioned not to place undue reliance on any forward-looking statements, which
speak only as at their dates.
S-4
SUMMARY
This summary highlights selected information from this prospectus
supplement and the accompanying prospectus to help you understand the Liquid
Yield Option Notes due 2031 (the "LYONs"). You should carefully read this
prospectus supplement and the accompanying prospectus to fully understand the
terms of the LYONs and the tax and other considerations that are important to
you in making a decision about whether to invest in the LYONs. You should also
carefully review the "Risk Factors" to determine whether an investment in the
LYONs is appropriate for you.
References in this prospectus supplement to "Markel", "we", "us" and
"our" are to Markel Corporation, and references to "Merrill Lynch" are to
Merrill Lynch, Pierce, Fenner & Smith Incorporated, the underwriter.
Markel Corporation
We are a specialty property and casualty insurer. We market and
underwrite specialty insurance products and programs to a variety of niche
markets. In each of these markets, we seek to provide quality products and
excellent customer service so that we can be a market leader. We operate in
four distinct areas of the specialty insurance market:
. the excess and surplus lines market;
. the specialty admitted market;
. the London company market; and
. the Lloyd's market.
Our financial goals are to earn consistent underwriting profits and
superior investment returns to build shareholder value. We are a Virginia
corporation headquartered at 4521 Highwoods Parkway, Glen Allen, Virginia
23060-6148, telephone number (804) 747-0136.
On March 24, 2000, we acquired Terra Nova (Bermuda) Holdings Ltd., which
has become our international division, now known as Markel International, and
our existing U.S. operations became Markel North America. All of the financial
information in this prospectus supplement includes the results of Markel
International only since the date of acquisition.
S-5
The Offering
LYONs.....................
$355,000,000 aggregate principal amount at maturity
($408,000,000 aggregate principal amount at
maturity if Merrill Lynch exercises its
overallotment option in full) of LYONs due June 5,
2031. We will not pay interest on the LYONs prior
to maturity unless contingent cash interest becomes
payable. Each LYON will be issued at a price of
$283.19 per LYON and will have a principal amount
at maturity, unless contingent additional principal
is accrued, of $1,000 per LYON.
Maturity of LYONs......... June 5, 2031.
Yield to Maturity of
LYONs..................... 4.25% per year (computed on a semi-annual bond
equivalent basis) calculated from June 5, 2001,
excluding any contingent cash interest and any
contingent additional principal.
Ranking................... The LYONs will be unsecured and unsubordinated
indebtedness of Markel and will rank equally with
Markel's other existing and future unsecured and
unsubordinated indebtedness. See "Description of
Debt Securities-Ranking of Debt Securities" in the
accompanying prospectus. As of March 31, 2001,
Markel Corporation had approximately $183 million
of senior indebtedness and $150 million of
subordinated indebtedness outstanding issued in
connection with our trust preferred securities.
After March 31, 2001, we increased our credit
facility by $35 million. As of March 31, 2001, our
subsidiaries had outstanding liabilities, including
$175 million face amount of indebtedness.
Original Issue Discount...
We are offering the LYONs at an issue price
significantly below the principal amount at
maturity of the LYONs. The difference between the
issue price and the principal amount at maturity of
a LYON is referred to as original issue discount.
This original issue discount will accrue daily at a
rate of 4.25% per year beginning on June 5, 2001,
calculated on a semi-annual bond equivalent basis,
using a 360-day year comprised of twelve 30-day
months. The accrual of imputed interest income,
also referred to as tax original issue discount, as
calculated for United States Federal income tax
purposes, will exceed the accrued original issue
discount. See "Certain United States Federal Income
Tax Considerations--Accrual of Interest on the
LYONs."
Conversion Rights......... For each LYON surrendered for conversion, if the
conditions for conversion are satisfied, a holder
will receive 1.1629 shares of our common stock. The
conversion rate will be adjusted for reasons
specified in the indenture but will not be adjusted
for accrued original issue discount or contingent
additional principal, if any. Upon conversion, a
holder will not receive any cash payment
representing accrued original issue discount or
contingent additional principal, if any. Instead,
those amounts will be deemed paid by the shares of
common stock received by the holder on conversion.
See "Description of LYONs--Conversion Rights."
S-6
If, as of the last day of any calendar quarter
beginning with the quarter ending September 30,
2001, the closing sale price of our common stock
for at least 20 trading days in a period of 30
consecutive trading days ending on the last trading
day of such quarter is more than a specified
percentage (beginning at 120% and declining .08474%
per quarter thereafter to approximately 110% on the
last day of the quarter ending March 31, 2031) of
the accreted conversion price per share of common
stock on the last day of such quarter, then on and
after the first day of the following quarter
holders may surrender LYONs for conversion into
shares of common stock. The accreted conversion
price per share as of any day will equal the sum of
the issue price of a LYON plus the accrued original
issue discount and any accrued contingent
additional principal to that day, with that sum
divided by the number of shares of common stock
issuable upon a conversion of a LYON.
Holders may also surrender a LYON for conversion
when the credit rating assigned to the LYONs is Ba3
or lower by Moody's Investors Service, Inc.
("Moody's") or BB- or lower by Standard & Poor's
Credit Market Services, a division of The McGraw-
Hill Companies ("Standard & Poor's").
LYONs or portions of LYONs in integral multiples of
$1,000 principal amount at maturity called for
redemption may be surrendered for conversion until
the close of business on the second business day
prior to the redemption date. In addition, if we
make a significant distribution to our common
shareholders or if we are a party to certain
consolidations, mergers or binding share exchanges,
LYONs may be surrendered for conversion as provided
in "Description of LYONs--Conversion Rights." See
"Certain United States Federal Income Tax
Considerations" and "Description of LYONs--
Conversion Rights--Conversion Rights Upon Notice of
Redemption."
Contingent Cash
Interest.................. We will pay contingent cash interest to the holders
of LYONs during any six-month period from June 6 to
December 5, and from December 6 to June 5, with the
initial six-month period commencing after June 5,
2006, if the average market price of a LYON for the
five trading days ending on the third trading day
immediately preceding the first day of the
applicable six-month period equals 120% or more of
the sum of the issue price, accrued original issue
discount and contingent additional principal, if
any, for a LYON to the day immediately preceding
the relevant six-month period.
The contingent cash interest payable per LYON in
respect of any quarterly period will equal the
greater of .0625% of the average market price of a
LYON for the five trading day measurement period or
any regular cash dividends paid by us per share on
our common stock during that quarterly period
multiplied by the number of shares issuable upon
conversion of the LYONs at the then applicable
conversion rate. Notwithstanding the above, if we
declare a dividend for which the record date falls
prior to the first day of a six-month period but
the payment date falls within that six-month
period, then
S-7
the five trading day period for determining the
average market price of a LYON will be the five
trading days ending on the third trading day
immediately preceding such record date.
Contingent cash interest, if any, will accrue and
be payable to holders of LYONs as of the 15th day
preceding the last day of the relevant six-month
period, or if we pay a regular cash dividend on our
common stock during a quarter within the relevant
six-month period, to holders of LYONs as of the
record date for the related common stock dividend.
If we only pay a regular cash dividend on our
common stock during one quarter within the relevant
six-month period, the remaining contingent cash
interest will accrue and be payable as of the 15th
day preceding the last day of the relevant six-
month period. We will make contingent cash interest
payments on the last day of the relevant six-month
period or, if we pay a regular cash dividend on our
common stock during the relevant six-month period
on the payment date for the related common stock
dividend. The original issue discount will continue
to accrue at the yield to maturity whether or not
contingent cash interest is paid and any contingent
additional principal accrues.
Contingent Additional On June 5, 2002 and June 5, 2004, if the price of
Principal................. our common stock is at or below specified stock
price thresholds based on a measurement period
prior to that date, then contingent additional
principal on the LYONs will accrue beginning on
such date at a rate of either 0.50% or 1.00% per
year (computed on a semi-annual bond equivalent
basis) for a period of two years, in accordance
with the schedule set forth below. The applicable
measurement period prior to each date is the 30
consecutive trading days ending three trading days
prior to June 5, 2002 and June 5, 2004, as the case
may be, and the price of our common stock is based
on the closing price on for at least 20 trading
days during that 30 trading day period. No
contingent additional principal will accrue after
June 5, 2006.
June 5, 2002
Stock Price Threshold Contingent
(expressed as a percentage of the accreted Additional
conversion price of the LYONs) Principal Adjusted Yield
Equal to or less than 74% and greater than 72% .50% 4.75%
Equal to or less than 72% 1.00% 5.25%
June 5, 2004
Stock Price Threshold Contingent
(expressed as a percentage of the accreted Additional
conversion price of the LYONs) Principal Adjusted Yield
Equal to or less than 78% and greater than 76% .50% 4.75%
Equal to or less than 76% 1.00% 5.25%
S-8
The LYONs will be debt instruments subject to the
Tax Original Issue United States Federal income tax contingent payment
Discount ................. debt regulations. You should be aware that, even if
we do not pay any contingent cash interest on the
LYONs, you will be required to include interest in
your gross income for United States Federal income
tax purposes. This imputed interest, also referred
to as tax original issue discount, will accrue at a
rate equal to 8.30% per year, computed on a semi-
annual bond equivalent basis, which represents the
yield on our noncontingent, nonconvertible, fixed-
rate debt with terms otherwise similar to the
LYONs. The rate at which the tax original issue
discount will accrue for United States Federal
income tax purposes will exceed the stated yield of
4.25% for the accrued original issue discount and,
if applicable, any adjusted yield resulting from
accrued contingent additional principal.
You will also recognize gain or loss on the sale,
exchange, conversion or redemption of a LYON in an
amount equal to the difference between the amount
realized on the sale, exchange, conversion or
redemption, including the fair market value of any
common stock received upon conversion or otherwise,
and your adjusted tax basis in the LYON. Any gain
recognized by you on the sale, exchange, conversion
or redemption of a LYON generally will be ordinary
interest income; any loss will be ordinary loss to
the extent of the interest previously included in
income, and thereafter, capital loss. See "Certain
United States Federal Income Tax Considerations."
Purchase of LYONs by
Markel at the Option of Holders may require us to purchase all or a portion
the Holder................ of their LYONs on the following dates at the
following prices (these prices would be increased
by accrued contingent additional principal, if
any):
. on June 5, 2002 for a price equal to
$295.35 per LYON,
. on June 5, 2004 for a price equal to
$321.27 per LYON,
. on June 5, 2006 for a price equal to
$349.46 per LYON,
. on June 5, 2011 for a price equal to
$431.24 per LYON,
. on June 5, 2016 for a price equal to
$532.16 per LYON,
. on June 5, 2021 for a price equal to
$656.69 per LYON, and
. on June 5, 2026 for a price equal to
$810.36 per LYON.
We may choose to pay the purchase price in cash or
in common stock (based on the prevailing market
price thereof) or a combination of cash and common
stock. See "Description of LYONs--Purchase of LYONs
at the Option of the Holder."
S-9
Upon a change in control of Markel occurring on or
Change in Control......... before June 5, 2006, each holder may require us to
purchase all or a portion of such holder's LYONs
for cash at a price equal to 100% of the issue
price for such LYONs plus accrued original issue
discount and contingent additional principal, if
any, to the date of purchase. See "Description of
LYONs--Change in Control Permits Purchase of LYONs
at the Option of the Holder."
Redemption of LYONs at
the Option of Markel...... We may redeem all or a portion of the LYONs for
cash at any time on or after June 5, 2006 at
specified redemption prices. See "Description of
LYONs--Redemption of LYONs at the Option of
Markel."
Sinking Fund.............. None.
DTC Eligibility...........
The LYONs will be issued in book-entry form and
will be represented by permanent global
certificates without coupons deposited with a
custodian for and registered in the name of a
nominee of DTC in New York, New York. Beneficial
interests in any such securities will be shown on,
and transfers will be effected only through,
records maintained by DTC and its direct and
indirect participants, and any such interest may
not be exchanged for certificated securities,
except in limited circumstances. See "Description
of LYONs--Depositary DTC Procedures."
Use of Proceeds........... The net proceeds of the offering will be used to
repay or retire a portion of our outstanding debt,
which may include repayment of outstanding amounts
under our $300 million revolving credit facility,
and for other general corporate purposes.
Listing...................
Markel does not intend to list the LYONs on any
securities exchange.
Trading Symbol for our
Common Stock.............. Our common stock is traded on the NYSE under the
symbol "MKL."
S-10
RISK FACTORS
Your investment in the LYONs involves risks. You should carefully
consider the following discussion of risks before deciding whether an
investment in the LYONs is suitable for you.
Risk Factors Relating to the LYONs
We expect that the trading value of the LYONs will be significantly affected by
the price of our common stock and other factors.
The market price of the LYONs is expected to be significantly affected by
the market price of our common stock. This may result in greater volatility in
the trading value of the LYONs than would be expected for nonconvertible debt
securities we issue. In addition, the LYONs have a number of features,
including conditions to conversion, which, if not met, could result in a holder
receiving less than the value of the common stock into which a LYON is
otherwise convertible. These features could adversely affect the value of, and
the trading prices for, the LYONs.
Certain provisions in our articles of incorporation, anti-takeover statutes of
the State of Virginia and applicable insurance laws and regulations concerning
change in control may deter potential acquirors and may depress our stock
price.
Our articles of incorporation as well as the anti-takeover statutes of
the State of Virginia and applicable insurance laws and regulations concerning
change in control contain provisions that could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from attempting to acquire, control of Markel. See "Capital Stock" in this
prospectus supplement and "Description of Capital Stock--Insurance Holding
Company Regulations on Change of Control" in the accompanying prospectus.
Your yield may be lower than the yield on a standard debt security of
comparable maturity.
The amount we pay you may be less than the return you could earn on other
investments. Your yield may be less than the yield you would earn if you bought
a standard senior debt security of Markel with the same stated maturity date.
Your investment may not reflect the full opportunity cost to you when you take
into account factors that affect the time value of money.
The trading market for LYONs may be limited.
The LYONs comprise a new issue of securities for which there is currently
no public market. If the LYONs are traded, they may do so at a discount from
their initial public offering price, depending on prevailing interest rates,
the market for similar securities, the market prices for our common stock, our
financial performance and other factors. The LYONs will not be listed on any
securities exchange, and we do not know whether an active trading market will
develop or be maintained for the LYONs. To the extent that an active trading
market for the LYONs does not develop, their liquidity and trading price may be
harmed.
You should consider the United States Federal income tax consequences of owning
LYONs.
The LYONs will be characterized as indebtedness of ours for United States
Federal income tax purposes. Accordingly, you will be required to include, in
your income, interest with respect to the LYONs.
The LYONs will constitute contingent payment debt instruments. As a
result, you will be required to include amounts in income, as ordinary income,
in advance of the receipt of the cash or other property attributable thereto.
The amount of interest income required to be included by you for each year will
be in excess of the yield to maturity of the LYONs. You will recognize gain or
loss on the sale, purchase by us at
S-11
your option, exchange, conversion or redemption of a LYON in an amount equal to
the difference between the amount realized on the sale, purchase by us at your
option, exchange, conversion or redemption, including the fair market value of
any of our common stock received upon conversion or otherwise, and your
adjusted tax basis in the LYON. Any gain recognized by you on the sale,
purchase by us at your option, exchange, conversion or redemption of a LYON
generally will be ordinary interest income; any loss will be ordinary loss to
the extent of the interest previously included in income, and thereafter,
capital loss. A summary of the United States Federal income tax consequences of
ownership of the LYONs is described in this prospectus supplement under the
heading "Certain United States Federal Income Tax Considerations."
Risk Factors Relating to Markel
Because the risk profile of the business written and the reinsurance program of
recent acquisitions is different from ours, we may incur additional charges.
The risk profile of the business written and reinsurance programs of our
recent acquisitions, Terra Nova and Gryphon, was not wholly consistent with
those of our other operations. For example, each of Gryphon and Terra Nova
historically wrote policies with large limits and purchased reinsurance to
reduce the net retention to a smaller sum. Such reliance on reinsurance may
create credit risk as a result of the reinsurer's inability or unwillingness to
pay reinsurance claims when due. We have begun to implement policies to reduce
this reliance on reinsurance in the future, but must still account for and
collect reinsurance for business written prior to our acquisition.
Deterioration in the credit quality of existing reinsurers or disputes over the
terms of reinsurance could result in additional charges, which may impact our
profitability.
Because loss reserves are estimates based upon historical experience and
statistical data, there can be no assurances that the loss reserves for recent
acquisitions are adequate and that there will not be any future impact on our
financial performance.
It has long been our policy to establish loss reserves at a level that we
believe is more likely to prove redundant rather than deficient. Many other
companies in the insurance industry establish loss reserves that are
"adequate," often defined as the mid-point of an actuarially determined range,
i.e., as likely to be too little as too much. When we acquire a company, we
seek to apply our policy over time to the reserving practices of the acquired
company. However, because loss reserve estimates are based on historical
experience and statistical analyses, we often do not have sufficient
information for a period of time following the date of an acquisition to
implement this policy immediately. As we continue to gather information and
obtain additional experience, we can better implement our approach and,
depending on the relevant experience, this may result in additional charges to
strengthen reserves.
Our ability to effectively manage the integration of Terra Nova is crucial to
our future financial and operational success.
The Terra Nova acquisition presented integration issues that we
anticipated and are in the process of managing. We have downsized staff,
discontinued unprofitable lines of business, integrated or replaced information
systems and most importantly, instilled the "Markel Style," which is focused on
underwriting profitability and superior investment returns to build shareholder
value, in our continuing staff. This process is ongoing at Markel International
and our ability to effectively manage these issues is crucial to our future
financial and operational success. Although we have taken steps to identify and
discontinue operations that are not sufficiently profitable, there may be
additional business lines at Markel International which we will determine to
discontinue in the future and for which we may need to incur additional
charges. There can be no assurance as to the period of time necessary to
complete such implementation or as to the effect on future operations.
S-12
Our ability to service our debt will be primarily dependent on dividend
payments from Markel North America because Markel International will not be in
a position to pay meaningful dividends for a period of time.
Because we are a holding company that conducts all of our operations
through subsidiaries, our ability to repay principal and interest on
outstanding indebtedness is dependent on the level of investments held at our
holding company and earnings and cash flow of our subsidiaries and the ability
of those subsidiaries to pay dividends or to advance or repay funds to us. Due
to its losses and expected capital needs, we do not expect that Markel
International will be in a position to pay any meaningful dividends to us for a
period of time and consequently our obligations must be met from investments on
hand and dividends issued by Markel North America. If Markel North America were
unable to declare dividends in sufficient amounts, either from a lack of funds
or due to regulatory constraints, we might not be able to meet our debt
obligations. We have not in the past and do not intend to declare cash
dividends on our common shares.
USE OF PROCEEDS
We intend to use the net proceeds from the sale of LYONs to repay or
retire a portion of our outstanding debt, which may include repayment of
outstanding amounts under our $300 million revolving credit facility, and for
other general corporate purposes. Borrowings under this facility had a weighted
average interest rate of approximately 6.2% as of March 31, 2001 and the
facility has a maturity of September 30, 2003. Estimated proceeds from this
offering will be approximately $98.1 million, after deducting the discount of
the underwriter and other expenses of the offering. Net proceeds are expected
to be approximately $112.8 million if the underwriter exercises its over-
allotment option in full.
RATIO OF EARNINGS TO FIXED CHARGES
The 2000 and subsequent results we provide below include Terra Nova since
its acquisition by us on March 24, 2000.
The following table sets forth the ratio of earnings to fixed charges for
each of the last five fiscal years and for the three month period ended March
31, 2001.
Three Months
Ended Year Ended December 31,
March 31, ---------------------------
2001 2000 1999 1998 1997 1996
------------ ------- ---- ---- ---- ----
Ratio of earnings to fixed charges.... 1.8 0.1 3.0 4.4 4.1 5.2
Deficiency in the coverage of fixed
charges by earnings before fixed
charges (000's)...................... -- $51,806 -- -- -- --
The ratio of earnings to fixed charges is computed by dividing income
from continuing operations before fixed charges by fixed charges. Fixed charges
consist of interest charges and amortization of debt expense and discount or
premium related to indebtedness, whether expensed or capitalized, and that
portion of rental expense we believe to be representative of interest.
S-13
CAPITAL STOCK
Terms of Our Common Stock
Under our articles of incorporation, we are authorized to issue up to
50,000,000 shares of common stock, no par value and 10,000,000 preferred
shares, no par value. As of March 16, 2001, there were 8,625,061 shares of
common stock and no preferred shares outstanding. Our common stock is traded on
the NYSE. For a description of our common stock, see "Description of Capital
Stock--Common Shares" in the accompanying prospectus and our articles of
incorporation, which are filed as an exhibit to the registration statement of
which the accompanying prospectus is a part.
Common Stock Price Range
Our common stock is listed on the New York Stock Exchange under the
symbol "MKL." The following table sets forth the range of the high and low sale
prices, as reported on the NYSE Composite Tape, for the periods indicated:
Price Range High Low
----------- ------- -------
1999 (1)
First Quarter........................................... $186.00 $160.00
Second Quarter.......................................... $193.00 $174.00
Third Quarter........................................... $192.00 $164.00
Fourth Quarter.......................................... $182.06 $143.25
2000 (1)
First Quarter........................................... $171.00 $111.00
Second Quarter.......................................... $154.50 $136.00
Third Quarter........................................... $155.50 $140.00
Fourth Quarter.......................................... $183.25 $133.50
2001
First Quarter........................................... $190.50 $159.75
Second Quarter (through May 30, 2001)................... $207.47 $181.00
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(1) On March 24, 2000, we acquired Terra Nova and became the holding company
for Markel North America, Inc., which prior to that date was named Markel
Corporation. Prior to March 24, 2000, the price ranges set forth are the
prices for Markel North America, Inc., whose common shares traded on the
NYSE under the symbol "MKL" prior to the reorganization. Markel North
America, Inc. merged into us as of March 31, 2001.
On May 30, 2001, the reported last sale price of the common shares on the
NYSE was $191.00 per share.
The number of shareholders of record as of March 16, 2001 was 1,718.
Dividends
Our current strategy is to retain earnings, permitting us to take
advantage of expansion and acquisition opportunities. Consequently, we have
never paid a cash dividend on our common shares and do not anticipate doing so
in the future.
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DESCRIPTION OF LYONS
We will issue the LYONs as a separate series of securities issued under
an indenture between Markel and The Chase Manhattan Bank, as trustee, to be
dated as of June 5, 2001 and supplemented by a first supplemental indenture to
be dated as of June 5, 2001 (together the "indenture"). The following
summarizes some, but not all, of the provisions of the LYONs and the indenture.
The LYONs are a series of debt securities as described in the accompanying
prospectus. The following description supplements, and to the extent it is
inconsistent, supercedes, the statements under "Description of Debt Securities"
in the accompanying prospectus. We refer you to the accompanying prospectus for
a description of the debt securities. The following summary does not purport to
be complete and is subject to, and qualified by reference to, all of the
provisions of the indenture, which we urge you to read because they define your
rights as a LYONs holder. As used in this description, the words "we," "us,"
"Markel," or "our" do not include any current or future subsidiary of Markel.
General
The LYONs will be limited to $355,000,000 aggregate principal amount at
maturity ($408,000,000 aggregate principal amount at maturity if the
underwriter exercises the overallotment option in full). The LYONs will mature
on June 5, 2031. At maturity of each LYON a holder will receive $1,000 plus
accrued contingent additional principal, if any. The LYONs will be payable at
the office of the paying agent, which initially will be an office or agency of
the trustee, or an office or agency maintained by us for such purpose, in the
Borough of Manhattan, The City of New York.
The LYONs are being offered at a substantial discount from their
principal amount at maturity. Except as described below under "--Contingent
Cash Interest", we will not make periodic payments of interest on the LYONs.
Each LYON will be issued at an issue price of $283.19 per LYON. However, the
LYONs will accrue original issue discount while they remain outstanding.
Original issue discount is the difference between the issue price and the
principal amount at maturity of a LYON. Original issue discount will be
calculated on a semi-annual bond equivalent basis at the yield to maturity of
the LYONs, using a 360-day year comprised of twelve 30-day months. The expected
issue date for the LYONs and the commencement date for the accrual of original
issue discount will be June 5, 2001.
The LYONs will be debt instruments subject to the contingent payment debt
regulations. The LYONs will be issued with original issue discount for United
States Federal income tax purposes. Even if we do not pay any contingent cash
interest on the LYONs, holders will be required to include accrued tax original
issue discount in their gross income for United States Federal income tax
purposes. The rate at which the tax original issue discount will accrue will
exceed the stated yield of 4.25% for the accrued original issue discount and,
if applicable any adjusted yield resulting from accrued contingent additional
principal. See "Certain United States Federal Income Tax Considerations."
The LYONs will rank equally with all of our existing and future unsecured
and unsubordinated indebtedness. See "Description of Debt Securities--Ranking
of Debt Securities; Holding Company Structure" in the accompanying prospectus.
Maturity, conversion, purchase by us at the option of a holder or
redemption of a LYON at our option will cause original issue discount,
contingent cash interest, if any, and contingent additional principal, if any,
to cease to accrue on such LYON. We may not reissue a LYON that has matured or
been converted, purchased by us at your option, redeemed or otherwise
cancelled, except for registration of transfer, exchange or replacement of such
LYON.
S-15
LYONs may be presented for conversion at the office of the conversion
agent, and for exchange or registration of transfer at the office of the
registrar, each such agent initially being the trustee. We will not charge a
service fee for any registration of transfer or exchange of LYONs.
Conversion Rights
Holders may surrender LYONs for conversion into shares of our common
stock only if at least one of the conditions described below is satisfied. The
initial conversion rate is 1.1629 shares of common stock per LYON, subject to
adjustment upon the occurrence of certain events described below. LYONs may be
submitted for conversion in multiples of $1,000 principal amount at maturity. A
holder of a LYON otherwise entitled to a fractional share will receive cash in
an amount equal to the value of such fractional share based on the sale price,
as defined below, on the trading day immediately preceding the conversion date.
Upon determination that LYON holders are or will be entitled to convert
their LYONs into shares of common stock in accordance with the following
provisions, we will issue a press release and publish such information on our
website.
Conversion Rights Based on Common Stock Price. If, as of the last day of
any calendar quarter beginning with the quarter ending September 30, 2001, the
sale price (as defined below) of our common stock for at least 20 trading days
in a period of 30 consecutive trading days ending on the last trading day of
such quarter is more than a specified percentage (beginning at 120% and
declining .08474% per quarter thereafter to approximately 110% on the last day
of the quarter ending March 31, 2031) of the accreted conversion price per
share of common stock on the last day of such quarter, then on and after the
first day of the following quarter holders may surrender LYONs for conversion
into shares of common stock at any time at their option until the close of
business on the business day immediately preceding June 5, 2031. If the LYONs
become convertible pursuant to this provision, they will remain convertible
regardless of future changes in the sales prices of our common stock. The
accreted conversion price per share as of any day will equal the sum of the
issue price of a LYON plus the accrued original issue discount to that day and
any accrued contingent additional principal, with that sum divided by the
number of shares of common stock issuable upon a conversion of a LYON (the
"conversion trigger price").
"Trading day" means a day during which trading in securities generally
occurs on the NYSE or, if the common stock is not listed on the NYSE, on the
principal other national or regional securities exchange on which the common
stock is then listed or, if the common stock is not listed on a national or
regional securities exchange, on the National Association of Securities Dealers
Automated Quotation system or, if the common stock is not quoted on the
National Association of Securities Dealers Automated Quotation System, on the
principal other market on which the common stock is then traded.
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The table below shows the conversion trigger price per share of our
common stock for each of the first 20 quarters. These prices reflect the
accreted conversion price per share of common stock multiplied by the
applicable percentage for the respective quarter. Thereafter, the accreted
conversion price per share of common stock increases each quarter by the
accreted original issue discount for the quarter and the applicable percentage
declines by .08474% per quarter. The conversion trigger price for the second
calendar quarter of 2031 beginning April 1 is $938.92.
(3)
(1) Conversion
Accreted (2) Trigger
Conversion Applicable Price
Quarter* Price Percentage (1) x (2)
-------- ---------- ---------- ----------
2001
Fourth Quarter............................... $246.86 120.00000% $296.23
2002
First Quarter................................ $249.46 119.91526% $299.14
Second Quarter............................... $252.10 119.83052% $302.09
Third Quarter................................ $254.76 119.74578% $305.06
Fourth Quarter............................... $257.46 119.66104% $308.08
2003
First Quarter................................ $260.17 119.57630% $311.11
Second Quarter............................... $262.93 119.49156% $314.18
Third Quarter................................ $265.70 119.40682% $317.27
Fourth Quarter............................... $268.52 119.32208% $320.40
2004
First Quarter................................ $271.35 119.23734% $323.55
Second Quarter............................... $274.22 119.15260% $326.74
Third Quarter................................ $277.11 119.06786% $329.95
Fourth Quarter............................... $280.05 118.98312% $333.21
2005
First Quarter................................ $283.00 118.89838% $336.49
Second Quarter............................... $286.00 118.81364% $339.81
Third Quarter................................ $289.02 118.72890% $343.15
Fourth Quarter............................... $292.08 118.64416% $346.53
2006
First Quarter................................ $295.16 118.55942% $349.94
Second Quarter............................... $298.28 118.47468% $353.39
Third Quarter................................ $301.43 118.38994% $356.86
--------
* This table assumes no events have occurred that would require an adjustment
to the conversion rate. Also assumes that no contingent additional principal
has accrued.
Conversion Rights Based on Credit Ratings Downgrade. Holders may also
surrender a LYON for conversion during any period in which the credit rating
assigned to the LYONs is Ba3 or lower by Moody's or BB- or lower by Standard &
Poor's. The LYONs will cease to be convertible pursuant to this paragraph
during any period or periods in which all of the credit ratings are increased
above such levels.
Conversion Rights Upon Notice of Redemption. A holder may surrender for
conversion a LYON called for redemption at any time prior to the close of
business on the second business day immediately preceding the redemption date,
even if it is not otherwise convertible at such time. A LYON for which a holder
has delivered a purchase notice or a change in control purchase notice as
described below requiring us to purchase the LYON may be surrendered for
conversion only if such notice is withdrawn in accordance with the indenture.
S-17
Conversion Rights Upon Occurrence of Certain Corporate Transactions. If
we are party to a consolidation, merger or binding share exchange pursuant to
which our shares of common stock would be converted into cash, securities or
other property, the LYONs may be surrendered for conversion at any time from
and after the date which is 15 days prior to the anticipated effective date of
the transaction until 15 days after the actual date of such transaction and, at
the effective time, the right to convert a LYON into shares of common stock
will be changed into a right to convert it into the kind and amount of cash,
securities or other property of Markel or another person which the holder would
have received if the holder had converted the holder's LYON immediately prior
to the transaction. If such transaction also constitutes a change in control,
the holder will be able to require us to purchase all or a portion of such
holder's LYONs as described under "Change in Control Permits Purchase of LYONs
at the Option of the Holder."
In the event we elect to make a distribution described in the third or
fourth bullet of the first paragraph under "Conversion Rate Adjustments" below
which, in the case of the fourth bullet, has a per share value equal to more
than 15% of the sale price of our shares of common stock on the day preceding
the declaration date for such distribution, we will give notice to the holders
of LYONs at least 20 days prior to the ex-dividend date for such distribution
and, upon the giving of such notice, the LYONs may be surrendered for
conversion at any time until the close of business on the business day prior to
the ex-dividend date or until we announce that such distribution will not take
place. No adjustment to the conversion rate or the ability of a holder of a
LYON to convert will be made if we provide that holders of LYONs will
participate in the transaction without conversion or in certain other cases.
Delivery of Common Stock. On conversion of a LYON, a holder will not
receive any cash payment of interest representing accrued original issue
discount, contingent additional principal, if any, or, except as described
below, contingent cash interest. Our delivery to the holder of the full number
of shares of common stock into which the LYON is convertible, together with any
cash payment for such holder's fractional shares, will be deemed:
. to satisfy our obligation to pay the principal amount at maturity of
the LYON; and
. to satisfy our obligation to pay accrued original issue discount,
contingent additional principal, if any, and accrued tax original
issue discount attributable to the period from the issue date through
the conversion date.
As a result, accrued original issue discount, contingent additional
principal, if any, and accrued tax original issue discount are deemed to be
paid in full rather than cancelled, extinguished or forfeited.
If contingent cash interest is payable to holders of LYONs during any
particular six-month period, and such LYONs are converted after the applicable
accrual or record date therefor and prior to the next succeeding interest
payment date, holders of such LYONs at the close of business on the accrual or
record date will receive the contingent cash interest payable on such LYONs on
the corresponding interest payment date notwithstanding the conversion. Such
LYONs, upon surrender for conversion, must be accompanied by funds equal to the
amount of contingent cash interest payable on the principal amount of LYONs so
converted, unless such LYONs have been called for redemption, in which case no
such payment shall be required.
The conversion rate will not be adjusted for accrued original issue
discount, contingent additional principal, if any, or any contingent cash
interest. A certificate for the number of full shares of common stock into
which any LYON is converted, together with any cash payment for fractional
shares, will be delivered through the conversion agent as soon as practicable
following the conversion date. For a discussion of the tax treatment of a
holder receiving shares of common stock upon conversion, see "Certain United
States Federal Income Tax Considerations--Sale, Exchange, Conversion or
Redemption."
S-18
To convert a LYON into shares of common stock, a holder must:
. complete and manually sign the conversion notice on the back of the
LYON or complete and manually sign a facsimile of the conversion
notice and deliver the conversion notice to the conversion agent;
. surrender the LYON to the conversion agent;
. if required by the conversion agent, furnish appropriate endorsements
and transfer documents; and
. if required, pay all transfer or similar taxes.
Under the indenture, the date on which all of the foregoing requirements have
been satisfied is the conversion date.
Conversion Rate Adjustments. The conversion rate will be adjusted for:
. dividends or distributions on our common stock payable in our common
stock or other capital stock;
. subdivisions, combinations or certain reclassifications of our common
stock;
. distributions to all holders of our common stock of certain rights to
purchase our common stock for a period expiring within 60 days at
less than the sale price at the time; and
. distributions to the holders of our common stock of our assets or
debt securities or certain rights to purchase our securities
(excluding cash dividends or other cash distributions from current or
retained earnings other than extraordinary cash dividends).
"Extraordinary cash dividends" means the amount of any cash dividend
or distribution that, together with all other cash dividends paid
during the preceding 12-month period, are on a per share basis in
excess of the sum of (i) 5% of the sale price of the shares of common
stock on the day preceding the date of declaration of such dividend
or distribution, and (ii) the quotient of the amount of any
contingent cash interest paid on a LYON during such 12-month period
divided by the number of shares of common stock issuable upon
conversion of a LYON at the conversion rate in effect on the payment
date of such contingent cash interest.
In the event that we pay a dividend or make a distribution on shares of
our common stock consisting of capital stock of, or similar equity interests
in, a subsidiary or other business unit of ours, the conversion rate will be
adjusted based on the market value of the securities so distributed relative to
the market value of our common stock, in each case based on the average sale
prices of those securities for the 10 trading days commencing on and including
the fifth trading day after the date on which "ex-dividend trading" commences
for such dividend or distribution on the NYSE or such other national or
regional exchange or market on which the securities are then listed or quoted.
If we are party to a consolidation, merger or binding share exchange or a
transfer of all or substantially all of our assets, the right to convert a LYON
into common stock will be changed into a right to convert it into the kind and
amount of securities, cash or other assets of Markel or another person which
the holder would have received if the holder had converted the holder's LYONs
immediately prior to the transaction.
S-19
Holders of the LYONs may, in certain circumstances, be deemed to have
received a distribution subject to United States Federal income tax as a
dividend in the amount of:
. a taxable distribution to holders of common stock that results in an
adjustment of the conversion rate; or
. an increase in the conversion rate at our discretion.
See "Certain United States Federal Income Tax Considerations--
Constructive Dividends."
Contingent Cash Interest
Subject to the accrual and record date provisions described below, we
will pay contingent cash interest to the holders of LYONs during any six-month
period from June 6 to December 5 and from December 6 to June 5, with the
initial six-month period commencing after June 5, 2006, if the average market
price of a LYON for the five trading days ending on the third trading day
immediately preceding the first day of the applicable six-month period equals
120% or more of the sum of the issue price, accrued original issue discount and
contingent additional principal, if any, for such LYON to the day immediately
preceding the first day of the applicable six-month period. See "Redemption of
LYONs at the Option of Markel" for some of these values. Notwithstanding the
above, if we declare a dividend for which the record date falls prior to the
first day of a six-month period but the payment date falls within such six-
month period, then the five trading day period for determining the average
market price of a LYON will be the five trading days ending on the third
trading day immediately preceding such record date.
During any period when contingent cash interest shall be payable, the
contingent cash interest payable per LYON in respect of any quarterly period
will equal the greater of .0625% of the average market price of a LYON for the
five trading day measurement period or any regular cash dividends paid by us
per share on our common stock during that quarterly period multiplied by the
then applicable conversion rate.
Contingent cash interest, if any, will accrue and be payable to holders
of LYONs as of the 15th day preceding the last day of the relevant six-month
period or, if we pay a regular cash dividend on our common stock during the
relevant six-month period, to holders of LYONs as of the record date for the
related common stock dividend 15th day preceding the last day of the relevant
six-month period. We will make contingent cash interest payments on the last
day of the relevant six-month period or, if we do not pay a regular cash
dividend on our common stock during the relevant six-month period on the
payment date for the related common stock dividend. The original issue discount
will continue to accrue at the yield to maturity whether or not contingent
interest is paid and any contingent additional principal accrues.
Regular cash dividends mean quarterly or other periodic cash dividends on
our common stock as declared by our Board of Directors as part of its cash
dividend payment practices and that are not designated by it as extraordinary
or special or other nonrecurring dividends.
The market price of a LYON on any date of determination means the average
of the secondary market bid quotations per LYON obtained by the bid
solicitation agent for $10 million principal amount at maturity of LYONs at
approximately 4:00 p.m., New York City time, on such determination date from
three independent nationally recognized securities dealers we select, provided
that if:
. at least three such bids are not obtained by the bid solicitation
agent; or
. in our reasonable judgment, the bid quotations are not indicative of
the secondary market value of the LYONs,
S-20
then the market price of the LYON will equal (a) the then applicable conversion
rate of the LYONs multiplied by (b) the average sale price of our common stock
on the five trading days ending on such determination date, appropriately
adjusted.
The bid solicitation agent will initially be The Chase Manhattan Bank. We
may change the bid solicitation agent, but the bid solicitation agent will not
be our affiliate. The bid solicitation agent will solicit bids from securities
dealers that are believed by us to be willing to bid for the LYONs.
Upon determination that LYON holders will be entitled to receive
contingent cash interest during a relevant six-month period, we will issue a
press release and publish such information on our website as soon as
practicable.
Contingent Additional Principal
On June 5, 2002 and June 5, 2004, if the price of our common stock is at
or below specified stock price thresholds based on a measurement period prior
to that date, then contingent additional principal on the LYONs will accrue
beginning on such date at a rate of either 0.50% or 1.00% per year (computed on
a semi-annual bond equivalent basis) for a period of two years, in accordance
with the schedule set forth below. The applicable measurement period prior to
each date is the 30 consecutive trading days ending three trading days prior to
June 5, 2002 and June 5, 2004, as the case may be, and the price of our common
stock is based on the closing price for at least 20 trading days during that 30
trading day period. No contingent additional principal will accrue after June
5, 2006.
In the event that any contingent additional principal accrues on the
LYONs, the principal amount at maturity of the LYONs will exceed the initial
principal amount at maturity of $1,000 per LYON. Contingent additional
principal will be calculated on a semi-annual bond equivalent basis, using a
360-day year composed of twelve 30-day months.
In the event that any contingent additional principal accrues on the
LYONs, we will disseminate a press release containing this information. In
addition, we will publish this information on our website or through such other
comparable public medium as may be widely in use at that time. We will also
notify the trustee under the indenture of any accrual of contingent additional
principal and resulting increase in the principal amount at maturity per LYON
on a periodic basis. Following receipt of such notice, the trustee will provide
such information to The Depositary Trust Company for dissemination to its
participants.
Purchase of LYONs at the Option of the Holder
On June 5, of 2002, 2004, 2006, 2011, 2016, 2021 and 2026, holders may
require us to purchase any outstanding LYON for which the holder has properly
delivered and not withdrawn a written purchase notice, subject to certain
additional conditions. Holders may submit their LYONs for purchase to the
paying agent at any time from the opening of business on the date that is 20
business days prior to the purchase date until the close of business on the
business day immediately preceding the purchase date.
The purchase price of a LYON will be as set forth below, plus, if
applicable, accrued contingent additional principal:
. $295.35 per LYON on June 5, 2002;
. $321.27 per LYON on June 5, 2004;
. $349.46 per LYON on June 5, 2006;
. $431.24 per LYON on June 5, 2011;
. $532.16 per LYON on June 5, 2016;
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. $656.69 per LYON on June 5, 2021; and
. $810.36 per LYON on June 5, 2026.
The purchase prices shown above are equal to the issue price plus accrued
original discount to the purchase date. We may, at our option, elect to pay the
purchase price in cash, shares of common stock, or any combination thereof. For
a discussion of the tax treatment of a holder receiving cash, shares of common
stock or any combination thereof, see "Certain United States Federal Income Tax
Considerations--Sale, Exchange, Conversion or Redemption."
We will be required to give notice on a date not less than 20 business
days prior to each purchase date to all holders at their addresses shown in the
register of the registrar, and to beneficial owners as required by applicable
law, stating among other things:
. whether we will pay the purchase price of LYONs in cash or common
stock or any combination thereof, specifying the percentages of each;
. if we elect to pay in common stock, the method of calculating the
market price of the common stock; and
. the procedures that holders must follow to require us to purchase
their LYONs.
The purchase notice given by each holder electing to require us to
purchase LYONs shall be given to the paying agent no later than the close of
business on the business day immediately preceding the purchase date and must
state:
. the certificate numbers of the holder's LYONs to be delivered for
purchase;
. the portion of the principal amount at maturity of LYONs to be
purchased, which must be $1,000 or an integral multiple of $1,000;
. that the LYONs are to be purchased by us pursuant to the applicable
provisions of the LYONs; and
. in the event we elect, pursuant to the notice that we are required to
give, to pay the purchase price in common stock, in whole or in part,
but the purchase price is ultimately to be paid to the holder
entirely in cash because any of the conditions to payment of the
purchase price or portion of the purchase price in common stock is
not satisfied prior to the close of business on the purchase date, as
described below, whether the holder elects:
(1) to withdraw the purchase notice as to some or all of the LYONs to
which it relates, or
(2) to receive cash in such event in respect of the entire purchase
price for all LYONs or portions of LYONs subject to such purchase
notice.
If the holder fails to indicate the holder's choice with respect to the
election described in the final bullet point above, the holder shall be deemed
to have elected to receive cash in respect of the entire purchase price for all
LYONs subject to the purchase notice in these circumstances.
A holder may withdraw any purchase notice by delivering a written notice
of withdrawal to the paying agent prior to the close of business on the
purchase date.
The notice of withdrawal shall state:
. the principal amount at maturity of the LYONs being withdrawn;
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. the certificate numbers of the LYONs being withdrawn; and
. the principal amount at maturity, if any, of the LYONs that remain
subject to the purchase notice.
If we elect to pay the purchase price, in whole or in part, in shares of
our common stock, the number of shares we deliver shall be equal to the portion
of the purchase price to be paid in common stock divided by the market price of
a share of common stock.
We will pay cash based on the market price for all fractional shares of
common stock in the event we elect to deliver common stock in payment, in whole
or in part, of the purchase price. See "Certain United States Federal Income
Tax Considerations--Sale, Exchange, Conversion or Redemption."
The "market price" means the average of the sale prices of our common
stock for the five trading day period ending on (if the third business day
prior to the applicable purchase date is a trading day, or if not, then on the
last trading day prior to) the third business day prior to the applicable
purchase date, appropriately adjusted to take into account the occurrence,
during the period commencing on the first of such trading days during such five
trading day period and ending on such purchase date, of certain events that
would result in an adjustment of the conversion rate with respect to our common
stock.
The "sale price" of our common stock on any date means the closing per
share sale price (or if no closing sale price is reported, the average of the
bid and ask prices or, if more than one in either case, the average of the
average bid and the average ask prices) on such date on the NYSE on such other
principal United States securities exchange on which the common stock is traded
or, if the common stock is not listed on a United States national or regional
securities exchange, as reported by the National Association of Securities
Dealers Automated Quotation System or by the National Quotation Bureau
Incorporated. In the absence of a quotation, we will determine the sale price
on the basis of such quotations as we consider appropriate.
Because the market price of our common stock is determined prior to the
applicable purchase date, holders of LYONs bear the market risk with respect to
the value of the common stock to be received from the date such market price is
determined to such purchase date. We may pay the purchase price or any portion
of the purchase price in common stock only if the information necessary to
calculate the market price is published in a daily newspaper of national
circulation or by other appropriate means.
Upon determination of the actual number of shares of common stock to be
issued for each $1,000 principal amount at maturity of LYONs in accordance with
the foregoing provisions, we promptly will issue a press release and publish
such information on our website.
In addition to the above conditions, our right to purchase LYONs, in
whole or in part, with common stock is subject to our satisfying various
conditions, including:
. listing such common stock on the principal United States securities
exchange on which our common stock is then listed or, if not so
listed, on Nasdaq;
. the registration of the common stock under the Securities Act and the
Exchange Act, if required; and
. any necessary qualification or registration under applicable state
securities law or the availability of an exemption from such
qualification and registration.
If such conditions are not satisfied with respect to a holder prior to
the close of business on the purchase date, we will pay the purchase price of
the LYONs of the holder entirely in cash. See "Certain United States Federal
Income Tax Considerations--Sale, Exchange, Conversion or Redemption." We may
not change the form or components or percentages of components of consideration
to be paid for the LYONs once we have given the notice that we are required to
give to holders of the LYONs, except as described in the paragraph above.
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In connection with any purchase offer, we will to the extent applicable:
. comply with the provisions of Rule 13e-4, Rule 14e-1 and any other
tender offer rules under the Exchange Act which may then be
applicable; and
. file Schedule TO or any other required schedule under the Exchange
Act.
Our obligation to pay the purchase price of a LYON for which a purchase
notice has been delivered and not validly withdrawn is conditioned upon the
holder delivering the LYON, together with necessary endorsements, to the paying
agent at any time after delivery of the purchase notice. We will cause the
purchase price of the LYON to be paid promptly following the later of the
purchase date or the time of delivery of the LYON.
If the paying agent holds money or securities sufficient to pay the
purchase price of the LYON on the business day following the purchase date in
accordance with the terms of the indenture, then, immediately after the
purchase date, the LYON will cease to be outstanding and original issue
discount on such LYON will cease to accrue, whether or not the LYON is
delivered to the paying agent. Thereafter, all other rights of the holder shall
terminate, other than the right to receive the purchase price upon delivery of
the LYON.
We may not purchase any LYONs for cash at the option of holders if an
event of default with respect to the LYONs has occurred and is continuing,
other than a default in the payment of the purchase price with respect to such
LYONs.
Redemption of LYONs at the Option of Markel
No sinking fund is provided for the LYONs. Prior to June 5, 2006, we
cannot redeem the LYONs at our option. Beginning on June 5, 2006, we may redeem
the LYONs for cash as a whole at any time, or in part from time to time. We
will give not less than 30 days nor more than 60 days notice of redemption by
mail to holders of LYONs.
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The table below shows the redemption prices of a LYON on June 5, 2006, at
each June 5 thereafter prior to maturity and at stated maturity on June 5,
2031. These prices reflect the issue price plus accrued original issue discount
to the redemption date and assume no contingent additional principal is
payable. The redemption price of a LYON redeemed between such dates would
include an additional amount reflecting the additional original issue discount
accrued since the next preceding date in the table.
(2) (3)
(1) Accrued Original Redemption Price
Redemption Date LYON Issue Price Issue Discount (1) + (2)
--------------- ---------------- ---------------- ----------------
June 5, 2006................. $283.19 $ 66.27 $349.46
June 5, 2007................. $283.19 $ 81.28 $364.47
June 5, 2008................. $283.19 $ 96.93 $380.12
June 5, 2009................. $283.19 $113.26 $396.45
June 5, 2010................. $283.19 $130.29 $413.48
June 5, 2011................. $283.19 $148.05 $431.24
June 5, 2012................. $283.19 $166.57 $449.76
June 5, 2013................. $283.19 $185.89 $469.08
June 5, 2014................. $283.19 $206.04 $489.23
June 5, 2015................. $283.19 $227.05 $510.24
June 5, 2016................. $283.19 $248.97 $532.16
June 5, 2017................. $283.19 $271.82 $555.01
June 5, 2018................. $283.19 $295.66 $578.85
June 5, 2019................. $283.19 $320.52 $603.71
June 5, 2020................. $283.19 $346.45 $629.64
June 5, 2021................. $283.19 $373.50 $656.69
June 5, 2022................. $283.19 $401.70 $684.89
June 5, 2023................. $283.19 $431.12 $714.31
June 5, 2024................. $283.19 $461.80 $744.99
June 5, 2025................. $283.19 $493.80 $776.99
June 5, 2026................. $283.19 $527.17 $810.36
June 5, 2027................. $283.19 $561.98 $845.17
June 5, 2028................. $283.19 $598.28 $881.47
June 5, 2029................. $283.19 $636.14 $919.33
June 5, 2030................. $283.19 $675.63 $958.82
At stated maturity........... $283.19 $716.81 $ 1,000
If we redeem less than all of the outstanding LYONs, the trustee will
select the LYONs to be redeemed on a pro rata basis in principal amounts at
maturity of $1,000 or integral multiples of $1,000 by lot, pro rata, based on
the ownership thereof, or by any other method the trustee considers fair and
appropriate. If a portion of a holder's LYONs is selected for partial
redemption and the holder converts a portion of the LYONs, the converted
portion will be deemed to be the portion selected for redemption.
Change in Control Permits Purchase of LYONs at the Option of the Holder
In the event of a change in control (as defined below) occurring on or
prior to June 5, 2006 with respect to Markel, each holder will have the right,
at its option, subject to the terms and conditions of the indenture, to require
us to purchase for cash all or any portion of the holder's LYONs in integral
multiples of $1,000 principal amount at maturity, at a price for each $1,000
principal amount at maturity of such LYONs equal to the issue price plus
accrued original issue discount and contingent additional principal, if any, to
the purchase date. We will be required to purchase the LYONs no later than 35
business days after the occurrence of such change in control. We refer to this
date in this prospectus supplement as the "change in control purchase date."
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Within 15 business days after the occurrence of a change in control, we
must mail to the trustee and to all holders of LYONs at their addresses shown
in the register of the registrar and to beneficial owners as required by
applicable law a notice regarding the change in control, which notice shall
state, among other things:
. the events causing a change in control;
. the date of such change in control;
. the last date on which a holder may exercise the purchase right;
. the change in control purchase price;
. the change in control purchase date;
. the name and address of the paying agent and the conversion agent;
. the conversion rate and any adjustments to the conversion rate;
. that LYONs with respect to which a change in control purchase notice
is given by the holder may be converted, if otherwise convertible,
only if the change in control purchase notice has been withdrawn in
accordance with the terms of the indenture; and
. the procedures that holders must follow to exercise these rights.
To exercise this right, the holder must deliver a written notice so as to
be received by the paying agent no later than the close of business on the
change in control purchase date. The required purchase notice upon a change in
control must state:
. the certificate numbers of the LYONs to be delivered by the holder;
. the portion of the principal amount at maturity of LYONs to be
purchased, which portion must be $1,000 or an integral multiple of
$1,000; and
. that we are to purchase the LYONs pursuant to the applicable
provisions of the LYONs.
A holder may withdraw any change in control purchase notice by delivering
to the paying agent a written notice of withdrawal prior to the close of
business on the change in control purchase date. The notice of withdrawal must
state:
. the principal amount at maturity of the LYONs being withdrawn;
. the certificate numbers of the LYONs being withdrawn; and
. the principal amount at maturity, if any, of the LYONs that remain
subject to a change in control purchase notice.
Our obligation to pay the change in control purchase price for a LYON for
which a change in control purchase notice has been delivered and not validly
withdrawn is conditioned upon delivery of the LYON, together with necessary
endorsements, to the paying agent at any time after the delivery of such change
in control purchase notice. We will cause the change in control purchase price
for such LYON to be paid promptly following the later of the change in control
purchase date or the time of delivery of such LYON.
If the paying agent holds money sufficient to pay the change in control
purchase price of the LYON on the change in control purchase date in accordance
with the terms of the indenture, then, immediately after the change in control
purchase date, original issue discount and contingent cash interest, if any, on
such LYON will cease to accrue, whether or not the LYON is delivered to the
paying agent. Thereafter, all other rights of the holder shall terminate, other
than the right to receive the change in control purchase price upon delivery of
the LYON.
S-26
Under the indenture, a "change in control" of Markel is deemed to have
occurred at such time as:
. any person, including its respective affiliates and associates, other
than Markel, its subsidiaries or their employee benefit plans, files
a Schedule 13D or Schedule TO (or any successor schedule, form or
report under the Exchange Act) disclosing that such person has become
the beneficial owner of 50% or more of the aggregate voting power of
our common stock and other capital stock with equivalent voting
rights, or other capital stock into which the common stock is
reclassified or changed, with certain exceptions; or
. there shall be consummated any share exchange, consolidation or
merger of Markel pursuant to which the common stock would be
converted into cash, securities or other property in which the
holders of our common stock and other capital stock with equivalent
voting rights immediately prior to the share exchange, consolidation
or merger, have, directly or indirectly, less than a majority of the
total voting power in the aggregate of all classes of capital stock
of the continuing or surviving corporation immediately after the
share exchange, consolidation or merger.
The indenture does not permit our board of directors to waive our
obligation to purchase LYONs at the option of holders in the event of a change
in control.
In connection with any purchase offer in the event of a change in
control, we will to the extent applicable:
. comply with the provisions of Rule 13e-4, Rule 14e-1 and any other
tender offer rules under the Exchange Act which may then be
applicable; and
. file Schedule TO or any other required schedule under the Exchange
Act.
The change in control purchase feature of the LYONs may in certain
circumstances make more difficult or discourage a takeover of Markel. The
change in control purchase feature, however, is not the result of our
knowledge of any specific effort:
. to accumulate shares of our common stock;
. to obtain control of Markel by means of a merger, tender offer,
solicitation or otherwise; or
. part of a plan by management to adopt a series of anti-takeover
provisions.
Instead, a change in control purchase feature is a provision contained
in other LYONs offerings that have been marketed by Merrill Lynch.
We could, in the future, enter into certain transactions, including
certain recapitalizations, that would not constitute a change in control with
respect to the change in control purchase feature of the LYONs but that would
increase the amount of our (or our subsidiaries') outstanding indebtedness.
We may not purchase LYONs at the option of holders upon a change in
control if there has occurred and is continuing an event of default with
respect to the LYONs, other than a default in the payment of the change in
control purchase price with respect to the LYONs.
Events of Default and Acceleration
The following are events of default for the LYONs:
(1) default in payment of the principal amount at maturity, redemption
price, purchase price or change in control purchase price or
contingent additional principal, if any, with respect to any LYONs
when such becomes due and payable;
(2) default in payment of any contingent cash interest, which default
continues for 30 days;
(3) our failure to comply with any of our other agreements in the LYONs
or the indenture upon our receipt of notice of such default from the
trustee or from holders of not less than 25% in aggregate principal
amount at maturity of the LYONs then outstanding, and our failure to
cure (or obtain a waiver of) such default within 60 days after we
receive such notice; or
S-27
(4) (a) the failure of Markel or any subsidiary to make any payment by
the end of any applicable grace period after maturity of
indebtedness, which terms as used in the indenture means obligations
(other than nonrecourse obligations) of Markel for borrowed money or
evidenced by bonds, debentures, notes or similar instruments
("Indebtedness") in an aggregate principal amount in excess of
$20,000,000 and continuance of such failure, or (b) the acceleration
of Indebtedness because of a default with respect to such
Indebtedness without such Indebtedness having been discharged or
such acceleration having been cured, waived, rescinded or annulled
in case of (a) above, for a period of 10 days after written notice
to us by the trustee or to us and the trustee by the holders of not
less than 25% in aggregate principal amount at maturity of the LYONs
then outstanding; however, if any such failure or acceleration
referred to in (a) or (b) above shall cease or be cured, waived,
rescinded or annulled, then the event of default by reason thereof
shall be deemed not to have occurred; or
(5) certain events of bankruptcy or insolvency affecting us.
If an event of default with respect to any LYON has occurred and is
continuing, the amount payable to a beneficial owner of a LYON upon any
acceleration permitted by the LYONs, with respect to each LYON, will be the
issue price of the LYON plus the original issue discount on the LYON accrued
through the date of such acceleration, any accrued and unpaid contingent cash
interest through the date of acceleration and any accrued contingent additional
principal through the date of acceleration. If a bankruptcy proceeding is
commenced in respect of us, the claim of the beneficial owner of a LYON may be
limited, under Section 502(6)(2) of Title 11 of the United States Code, to the
issue price of the LYON plus the original issue discount and any contingent
cash interest and any contingent additional principal which has accrued as of
the commencement of the proceeding.
In case of default in payment of the LYONs, whether at the stated
maturity or upon acceleration, from and after the maturity date the LYONs will
bear interest, payable upon demand of their beneficial owners, at the rate of
4.25% per year, to the extent that payment of any interest is legally
enforceable, on the unpaid amount due and payable on that date in accordance
with the terms of the LYONs to the date payment of that amount has been made or
duly provided for.
The events of default set forth under "Description of Debt Securities--
Events of Default" in the accompanying prospectus are not applicable to the
LYONs.
Modification
In addition to those modifications that require the consent of each
holder set forth under "Description of Debt Securities--Modification and
Waivers" in the accompanying prospectus, the following modifications would
require the consent of the holders of each outstanding LYON:
. alter the manner or rate of accrual of original issue discount,
contingent cash interest or contingent additional principal on any
LYON;
. make any LYON payable in money or securities other than that stated
in the LYON;
. change the stated maturity of any LYON;
. reduce the amount of principal payable upon acceleration of maturity
of the LYONs, following a default;
. reduce the percentage of holders of LYONs whose consent is needed to
modify or amend the indenture;
. reduce the principal amount at maturity, accrued original issue
discount, contingent additional principal, if any, redemption price,
purchase price or change in control purchase price with respect to
any LYON;
S-28
. make any change that affects the right of a holder to convert any
LYON in any adverse manner;
. make any change that adversely affects the right to require us to
purchase a LYON;
. impair the right to institute suit for the enforcement of any payment
with respect to, or conversion of, the LYONs; and
. change the provisions in the indenture that relate to modifying or
amending the indenture.
Markel may modify the indenture or the LYONs without the consent of the
holders to cure any ambiguity, omission, defect or inconsistency, provided that
such modification does not materially adversely affect the rights of any LYON
holder.
Calculations in Respect of LYONs
We will be responsible for making all calculations called for under the
LYONs. These calculations include, but are not limited to, determination of the
average market prices of the LYONs and of our common stock and amounts of
contingent cash interest payments, if any, payable on the LYONs. We will make
all these calculations in good faith and, absent manifest error, our
calculations will be final and binding on holders of LYONs. We will provide a
schedule of our calculations to the trustee, and the trustee is entitled to
rely upon the accuracy of our calculations without independent verification.
Depositary
Description of the Global Securities
Upon issuance, all LYONs will be represented by one or more fully
registered global securities. Each global security will be deposited with, or
on behalf of, DTC (DTC, together with any successor, being a "depositary"), as
depositary, registered in the name of Cede & Co., DTC's partnership nominee.
Unless and until it is exchanged in whole or in part for LYONs in definitive
form, no global security may be transferred except as a whole by the depositary
to its nominee or by such nominee of the depositary or another nominee of the
depositary or by the depositary or any nominee to a successor of the depositary
or a nominee of that successor.
So long as DTC, or its nominee, is a registered owner of a global
security, DTC or its nominee, as the case may be, will be considered the sole
owner or holder of the LYONs represented by the global security for all
purposes under the indenture. Except as provided below, the beneficial owners
of the LYONs represented by a global security will not be entitled to have the
LYONs registered in their names, will not receive or be entitled to receive
physical delivery of the LYONs in definitive form and will not be considered
the owners or holders of the LYONs including for purposes of receiving any
reports delivered by Markel or the trustee under the indenture. Accordingly,
each person owning a beneficial interest in a global security must rely on the
procedures of DTC and, if that person is not a participant of DTC, on the
procedures of the participant through which that person owns its interest, to
exercise any rights of a holder under the indenture. We understand that under
existing industry practices, in the event that we request any action of holders
or that an owner of a beneficial interest in a global security desires to give
or take any action which a holder is entitled to give or take under the
indenture, DTC would authorize the participants holding the relevant beneficial
interests to give or take that action, and those participants would authorize
beneficial owners owning through those participants to give or take that action
or would otherwise act upon the instructions of beneficial owners. Conveyance
of notices and other communications by DTC to participants, by participants to
indirect participants and by participants and indirect participants to
beneficial owners will be governed by arrangements among them, subject to any
statutory or regulatory requirements as may be in effect from time to time.
To ensure that notices of conversion and purchase at the option of a
holder or upon a change in control of Markel (or any other notices or actions
permitted or required to be taken by holders of LYONs under the indenture) are
received by the paying agent by the times required, holders may need to give
substantially
S-29
earlier instructions to their broker or other intermediary. Different brokerage
firms and intermediaries may have different cut-off times for accepting and
implementing instructions from their clients. Therefore, you should consult
with your broker and other intermediary, if applicable, as to applicable cut-
off times, and other notice mechanics.
DTC Procedures
The following is based on information provided by DTC.
DTC will act as securities depositary for the LYONs. The LYONs will be
issued as fully registered securities registered in the name of Cede & Co.,
DTC's partnership nominee. One or more fully registered global securities will
be issued for the LYONs in the aggregate principal amount of such issue, and
will be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. DTC holds securities that its participants deposit with DTC. DTC also
facilities the settlement among participants of securities transactions, such
as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct participants
of DTC include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. DTC is owned by a number of its
direct participants and by the NYSE, the AMEX, and the National Association of
Securities Dealers, Inc. Access to DTC's system is also available to others
such as securities brokers and dealers, banks and trust companies that clear
through or maintain a custodial relationship with a direct participant, either
directly or indirectly. The rules applicable to DTC and its participants are on
file with the SEC.
Purchases of the LYONs under DTC's system must be made by or through
direct participants, which will receive a credit for the LYONs on DTC's
records. The ownership interest of each beneficial owner is in turn to be
recorded on the records of direct and indirect participants. Beneficial owners
will not receive written confirmation from DTC of their purchase, but
beneficial owners are expected to receive written confirmations providing
details of the transaction, as well as periodic statements of their holdings,
from the direct or indirect participants through which the beneficial owner
entered into the transaction. Transfers of ownership interests in the LYONs are
to be made by entries on the books of participants acting on behalf of
beneficial owners.
To facilitate subsequent transfers, all LYONs deposited with DTC are
registered in the name of DTC's partnership nominee, Cede & Co. The deposit of
LYONs with DTC and their registration in the name of Cede & Co. effect no
change in beneficial ownership. DTC has no knowledge of the actual beneficial
owners of the LYONs; DTC's records reflect only the identity of the direct
participants to whose accounts the LYONs are credited, which may or may not be
the beneficial owners. The participants will remain responsible for keeping
account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants, and by direct
participants and indirect participants to beneficial owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to the
LYONs. Under its usual procedures, DTC mails an omnibus proxy to Markel as soon
as possible after the applicable record date. The omnibus proxy assigns Cede &
Co.'s consenting or voting rights to those direct participants identified in a
listing attached to the omnibus proxy to whose accounts the LYONs are credited
on the record date.
S-30
Principal and any contingent cash interest payments made in cash on the
LYONs will be made in immediately available funds to DTC. DTC's practice is to
credit direct participants' accounts on the applicable payment date in
accordance with their respective holdings shown on the depositary's records
unless DTC has reason to believe that it will not receive payment on that date.
Payments by participants to beneficial owners will be governed by standing
instructions and customary practices, as is the case with securities held for
the accounts of customers in bearer form or registered in "street name", and
will be the responsibility of that participant and not of DTC, the trustee or
Markel, subject to any statutory or regulatory requirements as may be in effect
from time to time. Payment of principal, premium, if any, and/or contingent
cash interest, if any, to DTC is the responsibility of Markel or the trustee,
disbursement of those payments to direct participants will be the
responsibility of DTC, and disbursement of those payments to the beneficial
owners will be the responsibility of direct participants and indirect
participants.
Exchange for Certificated Securities
If:
. the depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by us within
60 days,
. we execute and deliver to the trustee a company order to the effect
that the global securities shall be exchangeable, or
. an event of default under the indenture has occurred and is
continuing with respect to the LYONs,
the global LYONs will be exchangeable for LYONs in definitive form of like
tenor and of an equal aggregate principal amount, in denominations of $1,000
and integral multiples of $1,000. The definitive LYONs will be registered in
the name or names as the depositary shall instruct the trustee. It is expected
that instructions may be based upon directions received by the depositary from
participants with respect to ownership of beneficial interests in the global
LYONs.
DTC may discontinue providing its services as securities depositary with
respect to the LYONs at any given time by giving reasonable notice to us or the
trustee. Under these circumstances, in the event that a successor securities
depositary is not obtained, LYONs certificates are required to be printed and
delivered.
We may decide to discontinue use of the system of book-entry transfers
through DTC or a successor securities depositary. In that event, LYONs
certificates will be printed and delivered.
The information in this section concerning DTC and DTC's system has been
obtained from sources that we believe to be reliable, but we take no
responsibility for its accuracy.
Same-Day Settlement and Payment
Settlement for the LYONs will be made by the underwriter in immediately
available funds. We will make all payments of principal and contingent cash
interest, if any, in immediately available funds so long as the LYONs are
maintained in book-entry form.
Governing Law
The indenture and the LYONs will be governed by, and construed in
accordance with, the law of the State of New York.
S-31
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
General
This is a summary of certain United States federal income tax
consequences of the purchase, ownership and disposition of the LYONs. This
summary is based upon laws, regulations, rulings and decisions now in effect,
all of which are subject to change (including retroactive changes) or possible
differing interpretations. The discussion below deals only with LYONs held as
capital assets and does not purport to deal with persons in special tax
situations, such as financial institutions, insurance companies, regulated
investment companies, dealers in securities or currencies, tax-exempt entities,
persons holding LYONs in a tax-deferred or tax-advantaged account, or persons
holding LYONs as a hedge against currency risks, as a position in a "straddle"
or as part of a "hedging" or "conversion" transaction for tax purposes. Persons
considering the purchase of the LYONs should consult their own tax advisors
concerning the application of the United States federal income tax laws to
their particular situations as well as any consequences of the purchase,
ownership and disposition of the LYONs arising under the laws of any other
taxing jurisdiction.
In particular, we do not address all of the tax consequences that may be
relevant to an investor in LYONs. We do not address:
. the United States federal income tax consequences to shareholders in,
or partners or beneficiaries of, an entity that is a holder of LYONs;
. the United States federal estate, gift or alternative minimum tax
consequences of the purchase, ownership or disposition of LYONs;
. U.S. Holders (as defined below) who hold the LYONs whose functional
currency is not the United States dollar;
. any state, local or foreign tax consequences of the purchase,
ownership or disposition of LYONs; or
. any federal, state, local or foreign tax consequences of owning or
disposing of the common stock in to which the LYONs are convertible.
Accordingly, you should consult your own tax advisor regarding the tax
consequences of purchasing, owning and disposing of the LYONs and the common
stock in light of your own circumstances.
A U.S. Holder is a beneficial owner of the LYONs who or which is:
. a citizen or individual resident of the United States, as defined in
section 7701(b) of the Internal Revenue Code of 1986, as amended
(which we refer to as the Code);
. a corporation or partnership, including any entity treated as a
corporation or partnership for United States federal income tax
purposes, created or organized in or under the laws of the United
States, any state thereof or the District of Columbia unless, in the
case of a partnership, Treasury regulations are enacted that provide
otherwise;
. an estate if its income is subject to United States federal income
taxation regardless of its source; or
. a trust if (1) a United States court can exercise primary supervision
over its administration and (2) one or more United States persons
have the authority to control all of its substantial decisions.
Notwithstanding the preceding sentence, certain trusts in existence on August
20, 1996, and treated as U.S. persons prior to such date, may also be treated
as U.S. Holders.
S-32
A Non-U.S. Holder is a holder of LYONs other than a U.S. Holder. We urge
prospective investors that are Non-U.S. Holders to consult their own tax
advisors regarding the United States federal income tax consequences of an
investment in the LYONs, including the application of United States federal
withholding taxes.
No statutory, administrative or judicial authority directly addresses the
treatment of the LYONs or instruments similar to the LYONs for United States
federal income tax purposes. No rulings have been sought or are expected to be
sought from the Internal Revenue Service (which we refer to as the IRS) with
respect to any of the United States federal income tax consequences discussed
below, and no assurance can be given that the IRS will not take contrary
positions. As a result, no assurance can be given that the IRS will agree with
the tax characterizations and the tax consequences described below.
We urge prospective investors to consult their own tax advisors with
respect to the tax consequences to them of the purchase, ownership and
disposition of the LYONs and the common stock in light of their own particular
circumstances, including the tax consequences under state, local, foreign and
other tax laws and the possible effects of changes in United States federal or
other tax laws.
Classification of the LYONs
We have received an opinion from our counsel, McGuireWoods LLP, that the
LYONs will be treated as indebtedness for United States Federal income tax
purposes and that the LYONs will be subject to the special regulations
governing contingent payment debt instruments (which we refer to as the CPDI
regulations).
Accrual of Interest on the LYONs
Pursuant to the terms of the indenture, we and each holder of the LYONs
agree, for United States federal income tax purposes, to treat the LYONs as
debt instruments that are subject to the CPDI regulations. Pursuant to these
regulations, U.S. Holders of the LYONs will be required to accrue interest
income on the LYONs, as described below, regardless of whether the U.S. Holder
uses the cash or accrual method of tax accounting. Accordingly, U.S. Holders
will be required to include interest in taxable income in each year in excess
of the accruals on the LYONs for non-tax purposes and in excess of any
contingent cash interest payments actually received in that year.
The CPDI regulations provide that a U.S. Holder must accrue an amount of
ordinary interest income, as original issue discount for United States federal
income tax purposes, for each accrual period prior to and including the
maturity date of the LYONs that equals:
(1) the product of (i) the adjusted issue price (as defined below) of
the LYONs as of the beginning of the accrual period; and (ii) the
comparable yield to maturity (as defined below) of the LYONs,
adjusted for the length of the accrual period;
(2) divided by the number of days in the accrual period; and
(3) multiplied by the number of days during the accrual period that the
U.S. Holder held the LYONs.
A LYONs issue price is the first price at which a substantial amount of
the LYONs is sold to the public, excluding sales to bond houses, brokers or
similar persons or organizations acting in the capacity of underwriters,
placement agents or wholesalers. The adjusted issue price of a LYON is its
issue price increased by any interest income previously accrued, determined
without regard to any adjustments to interest accruals described below, and
decreased by the amount of any previously scheduled projected payments, as
defined below, with respect to the LYONs (whether or not such projected
payments were actually made).
S-33
Based in part on the advice of McGuireWoods LLP, we intend to treat the
term "comparable yield" as the annual yield we would pay, as of the initial
issue date, on a fixed-rate nonconvertible debt security with no contingent
payments, but with terms and conditions otherwise comparable to those of the
LYONs. For this purpose, contingent payments include both contingent cash
interest and contingent additional principal. Based in part on that advice, we
intend to take the position that the comparable yield for the LYONs is 8.30%,
compounded semi-annually. The precise manner of calculating the comparable
yield is not absolutely clear. If the comparable yield were successfully
challenged by the IRS, the redetermined yield could be materially greater or
less than the comparable yield provided by the US. Moreover, the projected
payment schedule could differ materially from the projected payment schedule
provided by the US.
The CPDI regulations require that we provide to U.S. Holders, solely for
United States Federal income tax purposes, a schedule of the projected amounts
of payments, which we refer to as projected payments, on the LYONs. This
schedule must produce the comparable yield. The projected payment schedule
includes estimates for certain payments of contingent cash interest and an
estimate for a payment at maturity taking into account the conversion feature.
The comparable yield and the schedule of projected payments will be set
forth in the indenture. U.S. Holders may also obtain the projected payment
schedule by submitting a written request for such information to Markel
Corporation, 4521 Highwoods Parkway, Glen Allen, Virginia 23060.
Attention: Investor Relations.
For United States federal income tax purposes, a U.S. Holder must use the
comparable yield and the schedule of projected payments in determining its
interest accruals, and the adjustments thereto described below, in respect of
the LYONs, unless such U.S. Holder timely discloses and justifies the use of
other estimates to the IRS. A U.S. Holder that determines its own comparable
yield or schedule of projected payments must also establish that our comparable
yield or schedule of projected payments is unreasonable.
The comparable yield and the schedule of projected payments are not
determined for any purpose other than for the determination of a U.S. Holder's
interest accruals and adjustments thereof in respect of the LYONs for United
States federal income tax purposes and do not constitute a projection or
representation regarding the actual amounts payable on the LYONs.
Amounts treated as interest under the CPDI regulations are treated as
original issue discount for all purposes of the Code.
Adjustments to Interest Accruals on the LYONs
If, during any taxable year, a U.S. Holder receives actual payments with
respect to the LYONs for that taxable year that in the aggregate exceed the
total amount of projected payments for that taxable year, the U.S. Holder will
incur a "net positive adjustment" under the CPDI regulations equal to the
amount of such excess. The U.S. Holder will treat a "net positive adjustment"
as additional interest income for the taxable year. For this purpose, the
payments in a taxable year include the fair market value of property received
in that year.
If a U.S. Holder receives in a taxable year actual payments with respect
to the LYONs for that taxable year that in the aggregate were less than the
amount of projected payments for that taxable year, the U.S. Holder will incur
a "net negative adjustment" under the CPDI regulations equal to the amount of
such deficit. This adjustment will (a) reduce the U.S. Holder's interest income
on the LYONs for that taxable year, and (b) to the extent of any excess after
the application of (a), give rise to an ordinary loss to the extent of the U.S.
Holder's interest income on the LYONs during prior taxable years, reduced to
the extent such interest was offset by prior net negative adjustments.
If a U.S. Holder purchases LYONs at a discount or premium to the adjusted
issue price, the discount will be treated as a positive adjustment and the
premium will be treated as a negative adjustment. The U.S. Holder must
reasonably allocate the adjustment over the remaining term of the LYONs by
reference to the accruals of original issue discount at the comparable yield or
to the projected payments. It may be reasonable to allocate the adjustment over
the remaining term of the LYONs pro rata with the accruals of original issue
discount at the comparable yield. You should consult your tax advisors
regarding these allocations.
S-34
Sale, Exchange, Conversion or Redemption
Generally, the sale or exchange of a LYON, or the redemption of a LYON
for cash, will result in taxable gain or loss to a U.S. Holder. As described
above, our calculation of the comparable yield and the schedule of projected
payments for the LYONs includes the receipt of stock upon conversion as a
contingent payment with respect to the LYONs. Accordingly, we intend to treat
the receipt of our common stock by a U.S. Holder upon the conversion of a LYON,
or upon the redemption of a LYON where we elect to pay in common stock, as a
contingent payment under the CPDI regulations. Under this treatment, a
conversion or such a redemption will also result in taxable gain or loss to a
U.S. Holder. As described above, holders are generally bound by our
determination of the comparable yield and the schedule of projected payments.
The amount of gain or loss on a taxable sale, exchange, conversion or
redemption will be equal to the difference between (a) the amount of cash plus
the fair market value of any other property received by the U.S. Holder,
including the fair market value of any of our common stock received, and (b)
the U.S. Holder's adjusted tax basis in the LYON. A U.S. Holder's adjusted tax
basis in a LYON on any date will generally be equal to the U.S. Holder's
original purchase price for the LYON, increased by any interest income
previously accrued by the U.S. Holder (determined without regard to any
adjustments to interest accruals described above), and decreased by the amount
of any projected payments, as defined above, scheduled to have been made
through such date. Gain recognized upon a sale, exchange, conversion or
redemption of a LYON will generally be treated as ordinary interest income; any
loss will be ordinary loss to the extent of interest previously included in
income, and thereafter, capital loss (which will be long-term if the LYON is
held for more than one year). The deductibility of net capital losses by
individuals and corporations is subject to limitations.
A U.S. Holder's tax basis in our common stock received upon a conversion
of a LYON or upon a U.S. Holder's exercise of a put right that we elect to pay
in common stock will equal the then current fair market value of such common
stock. The U.S. Holder's holding period for the common stock received will
commence on the day immediately following the date of conversion or redemption.
Constructive Dividends
If at any time we make a distribution of property to our stockholders
that would be taxable to the stockholders as a dividend for United States
federal income tax purposes and, in accordance with the anti-dilution
provisions of the LYONs, the conversion rate of the LYONs is increased, such
increase may be deemed to be the payment of a taxable dividend to holders of
the LYONs.
For example, an increase in the conversion rate in the event of
distributions of our evidences of indebtedness or our assets or an increase in
the event of an extraordinary cash dividend will generally result in deemed
dividend treatment to holders of the LYONs, but generally an increase in the
event of stock dividends or the distribution of rights to subscribe for common
stock will not.
Treatment of Non-U.S. Holders
We intend to treat payments of contingent cash interest made to Non-U.S.
Holders as subject to United States federal withholding tax. Therefore, we
intend to withhold on such payments of contingent cash interest at a rate of
30%, subject to reduction by an applicable treaty or upon the receipt of a Form
W-8ECI from a Non-U.S. Holder claiming that the payments are effectively
connected with the conduct of a United States trade or business. A Non-U.S.
Holder that is subject to the withholding tax should consult its tax advisors
as to whether it can obtain a refund for the withholding tax or a portion
thereof.
S-35
All other payments on the LYONs made to a Non-U.S. Holder, including a
payment in common stock pursuant to a conversion, and any gain realized on a
sale or exchange of the LYONs (other than income or gain attributable to
accrued contingent cash interest payments), will be exempt from United States
federal income and withholding tax, provided that: (i) such Non-U.S. Holder
does not own, actually or constructively, 10 percent or more of the total
combined voting power of all classes of our stock entitled to vote, is not a
controlled foreign corporation related, directly or indirectly, to us through
stock ownership, and is not a bank receiving interest described in section 881
(c) (3) (A) of the Code; (ii) the statement requirement set forth in section
871 (h) or section 881 (c) of the Code has been fulfilled with respect to the
beneficial owner, as discussed below; (iii) such payments and gain are not
effectively connected with the conduct by such Non-U.S. Holder of a trade or
business in the United States; and (iv) our common stock continues to be
actively traded within the meaning of section 871 (h) (4) (C) (v) (I) of the
Code (which, for these purposes and subject to certain exceptions, includes
trading on the NYSE).
The statement requirement referred to in the preceding paragraph will be
fulfilled if the beneficial owner of a LYONs certifies on IRS Form W-8BEN,
under penalties of perjury, that it is not a United States person and provides
its name, address and such other information as the form may require.
If a Non-U.S. Holder of the LYONs is engaged in a trade or business in
the United States, and if interest on the LYONs is effectively connected with
the conduct of such trade or business, the Non-U.S. Holder, although exempt
from the withholding tax discussed in the preceding paragraphs, will generally
be subject to regular United States federal income tax on interest and on any
gain realized on the sale or exchange of the LYONs in the same manner as if it
were a U.S. Holder. In lieu of the certificate described in the preceding
paragraph, such a Non-U.S. Holder will be required to provide to the
withholding agent a properly executed IRS Form W-8ECI (or successor form) in
order to claim an exemption from withholding tax. In addition, if such a Non-
U.S. Holder is a foreign corporation, such Non-U.S. Holder may be subject to a
branch profits tax equal to 30% (or such lower rate provided by an applicable
treaty) of its effectively connected earnings and profits for the taxable year,
subject to certain adjustments.
Backup Withholding Tax and Information Reporting
Payments of principal, premium, if any, and interest (including original
issue discount and a payment in common stock pursuant to a conversion of the
LYONs) on, and the proceeds of disposition or retirement of, the LYONs may be
subject to information reporting and United States federal backup withholding
tax at the rate of 31% if the U.S. Holder thereof fails to supply an accurate
taxpayer identification number or otherwise fails to comply with applicable
United States information reporting or certification requirements. Any amounts
so withheld will be allowed as a credit against such U.S. Holder's United
States Federal income tax liability, provided that the required information is
provided to the IRS.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and Section 4975 of the Internal Revenue Code, as amended (the
"Code"), prohibit various transactions between certain parties and the assets
of employee benefit plans, unless an exemption is available; governmental plans
may be subject to similar prohibitions. Because transactions between a plan and
Markel may be prohibited absent an exemption, each fiduciary, by its purchase
of any LYONs on behalf of any plan, represents on behalf of itself and the
plan, that the acquisition, holding and any subsequent disposition of the LYONs
will not result in a violation of ERISA, the Code or any other applicable law
or regulation.
S-36
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the SEC. Our
SEC filings are available over the Internet at the SEC's website at
http://www.sec.gov. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an
active link. You may also read and copy any document we file at the SEC's
public reference rooms in Washington, D.C., New York, New York, and Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for more information on the
public reference rooms and their copy charges. You may also inspect our SEC
reports and other information at the New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the LYONs and other securities. For further information on us and the LYONs,
you should refer to our registration statement and its exhibits. The prospectus
accompanying this prospectus supplement summarizes material provisions
documents to which we refer you. Because the prospectus may not contain all the
information that you may find important, you should review the full text of
these documents. We have included copies of these documents as exhibits to our
registration statement.
S-37
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement, dated May 30, 2001, between Markel and Merrill Lynch, the
underwriter, we have agreed to sell to Merrill Lynch, and Merrill Lynch has
agreed to purchase from us, $355,000,000 aggregate principal amount at maturity
of the LYONs at a purchase price equal to the initial public offering price set
forth on the front cover of this prospectus supplement, less a discount of
$6.37 per $1,000 aggregate principal amount at maturity of LYONs.
In the underwriting agreement, the underwriter has agreed, subject to the
terms and conditions set forth in the underwriting agreement, to purchase all
of the LYONs being sold under the terms of the underwriting agreement if any of
the LYONs are purchased.
We have agreed to indemnify the underwriter against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments
the underwriter may be required to make in connection with those liabilities.
The LYONs are being offered by the underwriter, subject to prior sale,
when, as and if issued to and accepted by it, subject to approval of certain
legal matters by counsel for the underwriter and other conditions. The
underwriter reserves the right to withdraw, cancel or modify its offer and to
reject orders in whole or in part.
The underwriter has advised us that it proposes initially to offer the
LYONs to the public at the public offering price set forth on the cover page of
this prospectus supplement. After the initial offering, the public offering
price may change.
The following table shows the per share and total public offering price,
the underwriting discount to be paid by us to Merrill Lynch and the proceeds
before expenses to us. The information is presented assuming either no exercise
or full exercise by Merrill Lynch of the overallotment option.
Per LYON Without Option With Option
-------- -------------- ------------
Public offering price............... $283.19 $100,532,450 $115,541,520
Underwriting discount............... $6.37 $2,261,350 $2,598,960
Proceeds, before expenses, to
Markel............................. $276.82 $ 98,271,100 $112,942,560
The expenses of the offering, exclusive of the underwriting discount, are
estimated at $150,000 and are payable by us.
The underwriter has previously marketed (and anticipates continuing to
market) securities of issuers under the trademark "LYONs". The LYONs we are
offering hereby contain certain terms and provisions that are different from
such other previously marketed LYONs, the terms and provisions of which also
vary. See "Description of LYONs".
Overallotment Option
We have granted an option to the underwriter, exercisable for 30 days
after the date of this prospectus supplement, to purchase up to an additional
$53,000,000 aggregate principal amount at maturity of LYONs at the public
offering price set forth on the cover page of this prospectus supplement, less
the underwriting discount. The underwriter may exercise this option solely to
cover overallotments, if any, made on the sale of the LYONs offered hereby.
S-38
No Sales of Similar Securities
We have agreed, with some exceptions, not to directly or indirectly,
without the prior written consent of Merrill Lynch, for a period of 90 days
after the date of this prospectus supplement, offer, sell, contract to sell or
otherwise dispose of any of our securities that are substantially similar to
our common stock, including but not limited to any securities that are
convertible into or exchangeable for, or that represent the right to receive,
common stock or any such substantially similar securities. The foregoing
restriction does not apply to such activities pursuant to our employee stock
purchase plans or employee stock option plans existing on May 30, 2001, or to
our ability to sell the LYONs to Merrill Lynch pursuant to the underwriting
agreement.
Certain of our executive officers have agreed, with some exceptions, not
to directly or indirectly, without the prior written consent of Merrill Lynch,
for a period of 90 days after the date of this prospectus supplement, offer,
sell contract to sell, pledge, grant any option to purchase, make any short
sale or otherwise dispose of any of our common stock. or any options or
warrants to purchase any of our common stock, or any securities convertible
into, exchangeable for or that represent the right to receive common stock of
Markel. The foregoing restriction does not apply to certain gifts and transfers
by certain of our executive officers.
Price Stabilization and Short Positions
Until the distribution of the LYONs is completed, rules of the SEC may
limit the ability of the underwriter to bid for and purchase the LYONs. As an
exception to these rules, the underwriter is permitted to engage in particular
types of transactions that stabilize the price of the LYONs. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the LYONs or the shares of common stock.
If the underwriter creates a short position in LYONs in connection with
this offering, e.g., if it sells more LYONs than are set forth on the cover
page of this prospectus supplement, the underwriter may reduce that short
position by purchasing the LYONs in the open market. The underwriter may also
elect to reduce any short position by exercising all or part of the
overallotment option described above.
In general, purchases of a security to stabilize the price or to reduce a
short position may cause the price of the security to be higher than it might
be in the absence of these purchases.
Neither we nor the underwriter make any representation or prediction as
to the direction or magnitude of any effect that the transactions described
above may have on the price of the LYONs or the shares of common stock. In
addition, neither we nor the underwriter make any representation that the
underwriter will engage in these transactions or that transactions, once
commenced, will not be discontinued without notice.
VALIDITY OF THE LYONs
The validity of the LYONs offered hereby will be passed upon for us by
McGuireWoods LLP, and for the underwriter by Shearman & Sterling. Leslie A.
Grandis, a partner in McGuireWoods LLP is Secretary and a member of the Board
of Directors of our company. As of January 17, 2001, partners of McGuireWoods
LLP owned 20,289 of our common shares, or less than 1% of our common shares
outstanding on that date.
S-39
INDEX OF DEFINED TERMS
Page
----
adjusted issue price....................................................... S-27
change in control.......................................................... S-20
change in control purchase date............................................ S-19
Code....................................................................... S-31
comparable yield........................................................... S-28
conversion trigger price................................................... S-11
contingent additional principal............................................ S-6
contingent cash interest................................................... S-4
depositary................................................................. S-22
ERISA...................................................................... S-31
extraordinary cash dividends............................................... S-13
LYONs...................................................................... S-3
market price............................................................... S-17
Markel..................................................................... S-3
Merrill Lynch.............................................................. S-3
Moody's.................................................................... S-4
net negative adjustment.................................................... S-28
net positive adjustment.................................................... S-28
Non-U.S. Holder............................................................ S-27
original issue discount.................................................... S-3
sale price................................................................. S-17
Standard & Poor's.......................................................... S-4
trading day................................................................ S-11
underwriter................................................................ S-32
U.S. Holder................................................................ S-2
S-40
PROSPECTUS
$420,000,000
Markel Corporation
Common Shares, Preferred Shares, Warrants, And Debt Securities
---------------
From time to time we may offer and sell common shares, preferred shares,
warrants, and debt securities. We will provide specific terms of these
securities in supplements to this prospectus. The terms of the securities will
include the initial offering price, aggregate amount of the offering, listing
on any securities exchange or quotation system, investment considerations and
the agents, dealers or underwriters, if any, to be used in connection with the
sale of these securities. You should read this prospectus and any supplement
carefully before you invest.
In addition, up to 321,060 of our common shares covered by this
prospectus may be offered by selling security holders.
Our common shares are traded on the New York Stock Exchange under the
symbol "MKL."
---------------
Investing in our securities involves risks. See "Risk Factors" beginning
on page 6.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
---------------
The date of this prospectus is January 24, 2001.
MARKEL CORPORATION
General
We market and underwrite specialty insurance products and programs to a
variety of niche markets. In each of these markets, we seek to provide quality
products and excellent customer service so that we can be a market leader. Our
financial goals are to earn consistent underwriting profits and superior
investment returns to build shareholder value.
On March 24, 2000, we completed our acquisition of Terra Nova (Bermuda)
Holdings Ltd. As a result, we realigned our operations with Terra Nova becoming
our international division, Markel International, and our existing U.S.
operations becoming Markel North America. We accounted for the acquisition as a
purchase transaction and accordingly, we have included Markel International in
our operating results since the date of acquisition.
Markel North America includes the excess and surplus lines segment which
is comprised of four underwriting units and the specialty admitted segment
which consists of two underwriting units. The excess and surplus lines segment
writes property and casualty insurance for nonstandard and hard-to-place risks
including:
. catastrophe exposed property,
. professional liability,
. products liability,
. general liability,
. commercial umbrella and
. other coverages tailored for unique exposures.
The specialty admitted segment writes risks that are unique and hard to
place in the standard market but must remain with an admitted insurance company
for marketing and regulatory reasons. These underwriting units write specialty
program insurance for well-defined niche markets and personal and commercial
property and liability coverages.
Markel International includes two segments: the London Company Market and
the Lloyd's Market. The London Company Market consists of the operations of
Terra Nova Insurance Company Limited. The Lloyd's Market includes Markel
Capital Limited, which is the corporate capital provider for four Lloyd's
syndicates managed by Markel Syndicate Management Limited. Markel
International's operating units write specialty property, casualty, marine and
aviation insurance and reinsurance on a worldwide basis. The majority of Markel
International's business comes from the United Kingdom and United States.
Unaudited Pro Forma Condensed Financial Information
The following unaudited pro forma condensed financial information is
based on the historical consolidated statements of operations of Markel for the
year ended December 31, 1999 and the nine months ended September 30, 2000
adjusted to give effect to the March 24, 2000 acquisition of Terra Nova
assuming the acquisition had occurred on January 1, 1999. The pro forma
adjustments are based upon available information and assumptions that
management believes are reasonable.
We accounted for the acquisition of Terra Nova using the purchase method
of accounting. We allocated the purchase price for the acquisition to tangible
and identifiable intangible assets and liabilities based
2
upon management estimates of their fair value with the excess of purchase price
over fair value of net assets acquired allocated to goodwill and amortized over
20 years. For purposes of presenting pro forma results, we made no changes in
revenues and expenses to reflect the results of any modification to operations
that might have been made had the acquisition been consummated on the assumed
effective date of the acquisition.
The unaudited pro forma condensed financial information does not purport
to represent what Markel's results of operations would actually have been had
the acquisition in fact occurred on January 1, 1999 or to project Markel's
results of operations for or at any future period or date.
3
MARKEL CORPORATION
Pro Forma Condensed Consolidated Statement of Operations
Nine Months Ended September 30, 2000
(in thousands, except per share data)
(Unaudited)
Markel and
Markel Terra Nova Pro Forma Terra Nova
(historical) (historical)* Adjustments Pro Forma
------------ ------------- ----------- ----------
OPERATING REVENUES
Earned premiums............ $655,344 $142,833 $ -- $798,177
Net investment income...... 110,818 20,177 (1,769)A 129,226
Net realized losses from
investment sales.......... (3,462) (3,212) -- (6,674)
Other...................... 141 1,765 -- 1,906
-------- -------- --------- --------
Total operating revenues... 762,841 161,563 (1,769) 922,635
-------- -------- --------- --------
OPERATING EXPENSES
Losses and loss adjustment
expenses.................. 511,883 148,119 660,002
Underwriting, acquisition
and insurance expenses.... 236,295 54,078 290,373
Amortization of intangible
assets.................... 15,979 672 4,937 B 21,588
-------- -------- --------- --------
Total operating expenses... 764,157 202,869 4,937 971,963
-------- -------- --------- --------
Operating loss............. (1,316) (41,306) (6,706) (49,328)
Interest expense........... 37,235 2,862 5,209 C 45,306
-------- -------- --------- --------
Loss before income taxes... (38,551) (44,168) (11,915) (94,634)
Income taxes............... (19,180) (21,822) 3,754 D (37,248)
-------- -------- --------- --------
Loss from continuing
operations................ $(19,371) $(22,346) $ (15,669) $(57,386)
======== ======== ========= ========
Loss from continuing
operations per share:
Basic.................... $ (2.85) -- -- $ (7.87)
======== ======== ========= ========
Diluted.................. $ (2.85) -- -- $ (7.87)
======== ======== ========= ========
Weighted average shares:
Basic.................... 6,793 -- -- 7,290
======== ======== ========= ========
Diluted.................. 6,793 -- -- 7,290
======== ======== ========= ========
--------
* Represents the period from January 1, 2000 through March 23, 2000. Terra
Nova was acquired by Markel Corporation on March 24, 2000 and is included in
Markel's results of operations since that date.
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Statements
of Operations.
4
MARKEL CORPORATION
Pro Forma Condensed Consolidated Statement of Operations
Year Ended December 31, 1999
(in thousands, except per share data)
(Unaudited)
Markel and
Markel Terra Nova Pro Forma Terra Nova
(historical) (historical) Adjustments Pro Forma
------------ ------------ ----------- ----------
OPERATING REVENUES
Earned premiums............ $ 437,196 $ 585,281 $ -- $1,022,477
Net investment income...... 87,681 93,829 (7,075)A 174,435
Net realized gains (losses)
from investment sales..... (897) 26,879 -- 25,982
Other...................... 341 3,016 -- 3,357
--------- --------- --------- ----------
Total operating revenues... 524,321 709,005 (7,075) 1,226,251
--------- --------- --------- ----------
OPERATING EXPENSES
Losses and loss adjustment
expenses.................. 283,630 491,243 -- 774,873
Underwriting, acquisition
and insurance expenses.... 156,703 273,875 -- 430,578
Amortization of intangible
assets.................... 5,398 4,089 19,583 B 29,070
--------- --------- --------- ----------
Total operating expenses... 445,731 769,207 19,583 1,234,521
--------- --------- --------- ----------
Operating income (loss).... 78,590 (60,202) (26,658) (8,270)
Interest expense........... 25,150 12,400 21,557 C 59,107
--------- --------- --------- ----------
Income (loss) before income
taxes..................... 53,440 (72,602) (48,215) (67,377)
Income taxes............... 12,826 (37,628) 10,786 D (14,016)
--------- --------- --------- ----------
Income (loss) from
continuing operations..... $ 40,614 $ (34,974) $ (59,001) $ (53,361)
========= ========= ========= ==========
Income (loss) from
continuing operations per
share:
Basic.................... $ 7.27 -- -- $ (7.30)
========= ========= ========= ==========
Diluted.................. $ 7.20 -- -- $ (7.30)
========= ========= ========= ==========
Weighted average shares:
Basic.................... 5,585 -- -- 7,312
========= ========= ========= ==========
Diluted.................. 5,638 -- -- 7,312
========= ========= ========= ==========
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Statements
of Operations.
5
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
1. Basis of presentation
On March 24, 2000, Markel acquired Terra Nova. The Unaudited Pro Forma
Condensed Statements of Operations and related Notes were prepared based on
consideration to each Terra Nova shareholder of $13.00 in cash, .07027 of a
Markel common share and .07027 of a Markel contingent value right (CVR).
Consideration exchanged consisted of the following (in thousands, except per
share data):
Cash.................................................................. $356,500
Markel common shares and Markel contingent value rights issued to
Terra Nova shareholders (1,769 shares at $148.00 per share and 1,769
contingent value rights at $19.00 per right)......................... 295,482
--------
Total purchase consideration.......................................... 651,982
Direct costs of acquisition........................................... 6,423
--------
Total cost of acquisition............................................. 658,405
Less: Fair value of Terra Nova net tangible and identifiable
intangible assets as of purchase date................................ 356,097
--------
Excess of cost over fair value of net assets acquired................. $302,308
========
The acquisition was funded as follows (in thousands):
Available cash........................................................ $117,923
Borrowings under $400 million credit facility......................... 245,000
Markel common shares and CVRs issued to Terra Nova shareholders....... 295,482
--------
Total cost of acquisition............................................. $658,405
========
The accompanying Unaudited Pro Forma Condensed Consolidated Statements of
Operations are provided to illustrate the effect of the acquisition on Markel
and have been prepared using the purchase method of accounting. These unaudited
pro forma financial statements reflect how the statements of operations for the
year ended December 31, 1999 and for the nine months ended September 30, 2000
might have appeared had the acquisition of Terra Nova been consummated on
January 1, 1999. Reclassifications of Terra Nova's historical financial
statements have been made to conform with Markel's historical presentation.
2. Adjustments
The accompanying Unaudited Pro Forma Condensed Consolidated Statements of
Operations for the year ended December 31, 1999 and for the nine months ended
September 30, 2000 reflect adjustments which are explained below and are based
on assumptions made by management. These adjustments are required to give
effect to matters directly attributable to the acquisition. The explanations of
these adjustments are as follows:
(A) Reduction in net investment income due to net cash used in
funding the transaction; the rate of return is calculated at 6%. The 6%
rate of return is based on historical average yields for Markel's
investment portfolio.
(B) Excess of cost over fair value of net assets acquired is
amortized on a straight line basis over 20 years. The estimated life of
the business acquired was determined based on the value of the Lloyd's
franchise, the investment portfolio's earning power and profitable books
of business acquired, as well as the capital requirements and other
barriers to entering the business acquired.
(C) Interest on borrowed funds under revolving lines of credit is
assumed to be 7.84% which is calculated as LIBOR plus 1.25% as specified
in the credit facility. For the year ended December 31, 1999, a change
of 1/8 percent in the interest rate would result in a change in interest
expense and income (loss) from continuing operations of $0.3 million and
$0.2 million before and after taxes, respectively. For the nine months
ended September 30, 2000, a change of 1/8 percent in the interest rate
6
would result in a change in interest expense and income (loss) from
continuing operations of $0.2 million and $0.2 million before and after
taxes, respectively. In addition, a fair value adjustment for Terra
Nova's long term debt, based on an independent third party quote, is
amortized over the remaining lives of those debt instruments.
(D) Taxes on the reduction in net investment income and interest
expense pro forma adjustments are calculated at an assumed 35% statutory
rate. In addition, as a result of the merger, Terra Nova's operations
will be subject to taxation in the United States. Taxes have been
recorded for Terra Nova in accordance with United States tax regulations
assuming the transaction had occurred on January 1, 1999.
7
RISK FACTORS
In addition to the matters addressed in the section entitled "Note On
Forward-Looking Statements" and other information included or incorporated in
this document, interested investors should consider the following risk factors
in determining whether to purchase securities described in this prospectus.
Our Results may be Affected Because Actual Insured Losses Differ From Our Loss
Reserves
Significant periods of time often elapse between the occurrence of an
insured loss, the reporting of the loss to us and our payment of that loss. To
recognize liabilities for unpaid losses, we establish reserves as balance sheet
liabilities representing estimates of amounts needed to pay reported and
unreported losses and the related loss adjustment expense. The process of
estimating loss reserves is a difficult and complex exercise involving many
variables and subjective judgments. As part of the reserving process, we review
historical data and consider the impact of various factors such as:
. trends in claim frequency and severity,
. changes in operations,
. emerging economic and social trends,
. inflation and
. changes in the regulatory and litigation environments.
This process assumes that past experience, adjusted for the effects of
current developments and anticipated trends, is an appropriate basis for
predicting future events. There is no precise method, however, for evaluating
the impact of any specific factor on the adequacy of reserves, and actual
results are likely to differ from original estimates.
We may Experience Losses From Catastrophes
Because we are a property and casualty insurance company, we frequently
experience losses from catastrophes. Catastrophes may have a material adverse
effect on operations. Catastrophes include windstorms, hurricanes, earthquakes,
tornadoes, hail, severe winter weather and fires. We cannot predict how severe
a particular catastrophe may be until after it occurs. The extent of losses
from catastrophes is a function of the total amount of losses incurred, the
number of insureds affected, the frequency of the events and the severity of
the particular catastrophe. Most catastrophes occur in small geographic areas.
However, windstorms, hurricanes and earthquakes may produce significant damage
in large, heavily populated areas.
We are Subject to Regulation by Insurance Regulatory Authorities which may
Affect Our Ability to Implement Our Business Objectives
Our insurance subsidiaries are subject to supervision and regulation by
the insurance regulatory authorities in the various jurisdictions in which they
conduct business. Regulation is intended for the benefit of policyholders
rather than shareholders or holders of debt securities. Insurance regulatory
authorities have broad regulatory, supervisory and administrative powers
relating to solvency standards, licensing, policy rates and forms and the form
and content of financial reports. Regulatory actions may affect our ability to
implement our business objectives. Also, payment of dividends by our insurance
subsidiaries may require prior regulatory notice or approval.
8
Our Investment Results may be Impacted by Changes in Interest Rates, Government
Monetary Policies and General Economic Conditions
We receive premiums from customers for insuring their risks. We invest
these funds until they are needed to pay policyholder claims or until they are
recognized as profits. Many of the policies we issue are denominated in foreign
currencies. Fluctuations in the value of our investment portfolio can occur as
a result of changes in interest rates, government monetary policies and general
economic conditions. Our investment results may be impacted by these factors.
Note On Forward-Looking Statements
This prospectus contains or incorporates by reference forward-looking
statements. Forward-looking statements may be identified by the use of terms
such as "believes," "expects," "estimate," "may," "intends," "plan," "will,"
"should" or "anticipates" or the negative thereof or similar expressions, or by
discussions of strategy. We have based our forward-looking statements on our
current expectations and projections about future events. These forward-looking
statements are subject to risks, uncertainties, and assumptions about us,
including:
. uncertainties and changes in government policy, regulatory policy,
statutory law or case law with respect to our companies, brokers or
customers which can impede our ability to charge adequate rates and
efficiently allocate capital;
. the occurrence of man-made or natural catastrophic events;
. changing legal and social trends and the inherent uncertainties of
the reserving process;
. loss of the services of any of our executive officers;
. initiatives underway at Markel International to reorganize business
units and to evaluate reinsurance programs and exposures which could
lead to additional changes and expense;
. the impact of US tax laws on our foreign subsidiaries;
. changing rates of inflation and other economic conditions;
. losses due to foreign currency exchange rate fluctuations;
. ability to collect reinsurance recoverables;
. changes in the availability, cost or quality of reinsurance;
. developments in domestic and international financial markets that
could affect our investment portfolios;
. changes in the distribution or placement of risks due to increased
consolidation of insurance and reinsurance brokers; and
. the effects of mergers, acquisitions and divestitures.
We undertake no obligation to publicly update or revise any forward-
looking statements, whether as a result of new information, future events or
otherwise. In light of these risks, uncertainties and assumptions, the forward-
looking events discussed in this prospectus or in any supplement to this
prospectus might not occur. Readers are cautioned not to place undue reliance
on any forward-looking statements, which speak only as at their dates.
9
RATIO OF EARNINGS TO FIXED CHARGES
All of the information we provide below that corresponds to the years
1995 through the end of 1999 are based on the historical results of our
predecessor, now known as Markel North America. The 2000 results we provide
below include Terra Nova since its acquisition by us on March 24, 2000.
The following table sets forth the ratio of earnings to fixed charges for
each of the last five fiscal years and for the nine month period ended
September 30, 2000.
Nine Months
Ended Year Ended December 31,
September 30, ------------------------
2000 1999 1998 1997 1996 1995
------------- ---- ---- ---- ---- ----
Ratio of Earnings to Fixed Charges...... 0.0 3.0 4.4 4.1 5.2 6.3
Deficiency in the coverage of fixed
charges by earnings before fixed
charges (000's)........................ $38,551 -- -- -- -- --
The ratio of earnings to fixed charges is computed by dividing pretax
income from continuing operations before fixed charges by fixed charges. Fixed
charges consist of interest charges and amortization of debt expense and
discount or premium related to indebtedness, whether expensed or capitalized,
and that portion of rental expense we believe to be representative of interest.
USE OF PROCEEDS
Unless otherwise indicated in the applicable prospectus supplement, we
will use the net proceeds from the sale of common shares, preferred shares,
warrants or debt securities to repay or refinance our indebtedness, including
our revolving credit agreement, to fund working capital and capital
expenditures, and for other general corporate purposes, and for acquisitions.
We will not receive any proceeds from the sale of common shares that may be
offered by selling security holders, as defined in the section below entitled
"Selling Security Holders."
DESCRIPTION OF CAPITAL STOCK
Our authorized capital consists of 50,000,000 common shares, no par
value, and 10,000,000 preferred shares, no par value. At December 31, 2000,
7,330,918 common shares were outstanding. At that date, no preferred shares
were outstanding.
Preferred Shares
Our preferred shares are issuable in one or more series from time to time
at the direction of the board of directors. The board of directors is
authorized, with respect to each series, to fix its:
. designation,
. relative rights, including voting, dividend, conversion, sinking fund
and redemption rights,
. preferences, including with respect to dividends and on liquidation,
and
. limitations.
10
The board of directors, without shareholder approval, can issue preferred
shares with voting and conversion rights that could adversely affect the voting
power of the holders of common shares. This right of issuance could be used as
a method of preventing a party from gaining control of us.
Common Shares
Each holder of our common shares is entitled to one vote for each share
held of record on each matter submitted to a vote of shareholders. Cumulative
voting in the election of directors is not permitted. As a result, the holders
of more than 50% of the outstanding shares have the power to elect all
directors. The quorum required at a shareholders' meeting for consideration of
any matter is a majority of the shares entitled to vote on that matter,
represented in person or by proxy. If a quorum is present, the affirmative vote
of a majority of the shares voting on the matter at the meeting is required for
shareholder approval. However, approval is required by the affirmative vote of
more than two-thirds of all shares entitled to vote, whether or not represented
at the meeting, in the case of major corporate actions, such as:
. a merger,
. a share exchange,
. the dissolution of Markel,
. an amendment to our articles of incorporation, or
. the sale of all or substantially all of our assets.
These provisions, together with our ability to issue preferred shares
with disproportionately high voting power could be used to, or have the effect
of, preventing or deterring a party from gaining control of Markel, whether or
not beneficial to public shareholders, and could discourage tactics that
involve an actual or threatened change of control of Markel.
Subject to the rights of any holders of our preferred shares, the holders
of common shares are entitled to receive dividends when, as, and if declared by
the board of directors out of funds legally available for that purpose and, in
the event of liquidation, dissolution or winding up of Markel, to share ratably
in all assets remaining after the payment of liabilities. There are no
preemptive or other subscription rights, conversion rights, or redemption or
sinking fund provisions with respect to common shares. All common shares
outstanding upon the consummation of any offering will be legally issued, fully
paid and nonassessable.
Our transfer agent and registrar for common shares is First Union
National Bank.
Contingent Value Rights
On March 24, 2000, we became a holding company for Markel North America,
Inc. and completed our acquisition of Terra Nova (Bermuda) Holdings, Ltd., now
called Markel International. We issued approximately 1.75 million Markel common
shares and contingent value rights, paid approximately $325 million in cash to
Markel International shareholders in the transaction and purchased 1.1 million
Terra Nova shares for $31.1 million prior to the closing of the transaction.
Each whole contingent value right we issued in the acquisition of Terra
Nova represents the right, on September 24, 2002, if the rights have not
previously been extinguished, to receive, in cash or our common shares, at our
option, the amount, if any, by which the current market value, subject to a
minimum or floor of $140.00 per share, of our common shares is less than
$185.00 per share. The current market value is based upon a formula averaging
market prices during 20 consecutive day trading periods during the 60 days
ending on September 24, 2002. The rights will automatically be extinguished if
the current market value of our common shares is $185 or more for any 20
consecutive trading days prior to September 24, 2002. The
11
contingent value rights are issued under the Contingent Value Rights Agreement
between us and a trustee, the form of which we have filed as an exhibit to this
registration statement.
Voting Rights with Respect to Extraordinary Corporate Transactions
Under Virginia law, a corporation may sell, lease, exchange or otherwise
dispose of all, or substantially all, of its property, other than in the usual
and regular course of business, if the proposed transaction is approved by more
than two-thirds of all of the votes entitled to be cast on that matter. A
merger or share exchange plan must be approved by each voting group entitled to
vote separately on the plan by more than two-thirds of all the votes entitled
to be cast on the plan by that voting group. The articles of incorporation may
provide for a greater or lesser vote, but not less than a majority of all the
votes cast on the transaction by each voting group entitled to vote on the
transaction. Our articles of incorporation do not provide for a greater or
lesser vote.
Anti-takeover Statutes
Virginia law, except as to companies that elect not to be covered,
prohibits the following business combinations between a Virginia corporation
and any "interested shareholder:"
. mergers and statutory share exchanges;
. material dispositions of corporate assets not in the ordinary course
of business;
. any dissolution of the corporation proposed by or on behalf of an
interested shareholder; or
. any reclassification, including a reverse stock split,
recapitalization or merger of the corporation with its subsidiaries
that increases the percentage of voting shares beneficially owned by
an interested shareholder by more than 5%.
An interested shareholder is, among others, a person who is, or an
affiliate who was within three years of the transaction, a beneficial owner of
more than 10% of any class of the outstanding voting shares of the applicable
corporation. In these cases, unless the affiliated transaction satisfies "fair
price" criteria or comes within an applicable exemption, the affiliated
transaction must be approved by the affirmative vote of a majority of the
disinterested directors and by the affirmative vote of the holders of two-
thirds of the voting shares other than shares beneficially owned by the
interested shareholder. We have not made any election in our articles not to be
covered by this provision of the Virginia law.
Under Virginia law, voting rights for "control shares" must be approved
by a corporation's shareholders, not including the shares held by interested
parties. "Control shares" are shares whose acquisition entitles the acquiror to
between 1/5 and 1/3, between 1/3 and 1/2, or greater than 1/2 of a
corporation's voting power. If a shareholder has acquired control shares with a
majority of all voting power and these shares have been given voting rights,
all other shareholders have dissenters' rights. Virginia law exempts from these
provisions acquisitions where the corporation is a party to the governing
agreement. We have not made any election not to be governed by these provisions
of Virginia law. Our board of directors can elect not to be governed by these
provisions at any time before four days after receipt of a control share
acquisition notice.
Insurance Holding Company Regulations on Change of Control
We are regulated as an insurance holding company and are subject to state
and foreign laws that restrict the ability of any person to obtain control of
an insurance holding company without prior regulatory approval. Without this
approval or an exemption, no person may acquire any voting security of an
insurance
12
holding company which controls an insurance subsidiary, or merge with the
holding company. "Control" is generally defined as the direct or indirect power
to direct or cause the direction of the management and policies of a person and
is usually presumed to exist if a person directly or indirectly owns or
controls 10% or more of the voting securities of another person.
13
DESCRIPTION OF WARRANTS
We may issue warrants for the purchase of debt securities, preferred
shares or common shares. Warrants may be issued independently or together with
debt securities, preferred shares or common shares offered by any prospectus
supplement and may be attached to or separate from any of the offered
securities. Each warrant will entitle the holder to purchase the principal
amount of debt securities or number of shares of preferred stock or common
stock, as the case may be, at the exercise price and in the manner specified in
the prospectus supplement relating to those warrants. Warrants will be issued
under one or more warrant agreements to be entered into between us and a bank
or trust company, as warrant agent. The warrant agent will act solely as our
agent in connection with the warrants and will not assume any obligation or
relationship of agency or trust for or with any holders or beneficial owners of
warrants. If we offer warrants, we will file the warrant agreement relating to
the offered warrants as an exhibit to, or incorporate it by reference in the
registration statement of which this prospectus is a part.
The prospectus supplement relating to a particular issue of warrants will
describe the terms of the warrants, including the following:
. the title of the warrants;
. the offering price for the warrants, if any;
. the aggregate number of the warrants;
. the designation and terms of the securities purchasable upon exercise
of the warrants;
. if applicable, the designation and terms of the securities with which
the warrants are issued and the number of such warrants issued with
each security;
. if applicable, the date from and after which the warrants and any
securities issued with the warrants will be separately transferable;
. the principal amount of debt securities purchasable upon exercise of
a warrant, if a debt warrant, and the price at which the principal
amount of securities may be purchased upon exercise, which price may
be payable in cash, securities, or other property;
. the date on which the right to exercise the warrants commences and
the date on which the right expires;
. if applicable, the number of common shares or preferred shares
purchasable upon exercise of a warrant and the price at which the
shares may be purchased upon exercise;
. if applicable, the minimum or maximum amount of the warrants that may
be exercised at any one time;
. the currency or currency units in which the offering price, if any,
and the exercise price are payable;
. if applicable, a discussion of material United States federal income
tax considerations;
. whether the debt warrants represented by the warrant certificates or
debt securities that may be issued upon exercise of the warrants will
be issued in registered or bearer form;
. information with respect to book-entry procedures, if any;
. the currency or currency units in which the offering price, if any,
and the exercise price are payable;
. the antidilution provisions of the warrants, if any;
. the redemption or call provisions, if any, applicable to the
warrants; and
. any additional terms of the warrants, including terms, procedures,
and limitations relating to the exchange and exercise of the
warrants.
14
DESCRIPTION OF DEBT SECURITIES
This section describes the general terms and provisions of the debt
securities which may be offered by us from time to time. The prospectus
supplement will describe the specific terms of the debt securities offered by
that prospectus supplement.
We may issue debt securities either separately or together with, or upon
the conversion of, or in exchange for, other securities. The debt securities
are to be either senior unsecured obligations of ours issued in one or more
series and referred to herein as the "senior debt securities," or subordinated
unsecured obligations of ours issued in one or more series and referred to
herein as the "subordinated debt securities." The senior debt securities and
the subordinated debt securities are collectively referred to as the "debt
securities."Debt securities will be issued pursuant to one or more written
agreements, known as an "indenture," to be entered into by us and an
independent third party, known as a "trustee," who will be legally obligated to
carry out the terms of the indenture. We will issue our senior debt securities
under a senior debt indenture and will issue our subordinated debt securities
under a subordinated debt indenture. Together the senior debt indenture and the
subordinated debt indentures are called "indentures." The Chase Manhattan Bank
is the trustee under our senior indenture. The name of the trustee for our
subordinated debt indenture will be set forth in the applicable prospectus
supplement.
We have summarized the principle terms and provisions that will be
included in the indentures, unless provided otherwise in any applicable
prospectus supplement. The summary is not complete. The form of senior debt
indenture and the form of subordinated indenture are each filed as an exhibit
to the registration statement of which this prospectus is a part. If we refer
to particular provisions of an indenture, the provisions, including definitions
of terms, are incorporated by reference as a part of this summary. Each
indenture will be subject to and governed by the Trust Indenture Act of 1939,
as amended. You should refer to the applicable indenture for the provisions
that may be important to you.
General
The indentures will not limit the amount of debt securities that we may
issue. We may issue debt securities up to an aggregate principal amount as we
may authorize from time to time. The applicable prospectus supplement will
describe the terms of any debt securities being offered, including, if
applicable:
. the designation, aggregate principal amount and authorized
denominations;
. the maturity date or the method for determining the maturity date;
. the interest rate, if any, and the method for calculating the
interest rate and the date or dates from which interest will accrue;
. the interest payment dates and the record dates for the interest
payments;
. any mandatory or optional redemption terms or prepayment, conversion,
sinking fund, exchangeability or convertibility provisions;
. the places, date or dates, and where the principal and interest will
be payable or method for determining these, and any right we have to
change the date on which principal is payable;
. whether the debt securities will be issued in the form of global
securities, as defined below in the subsection entitled "Global
Securities," or certificates;
. additional provisions, if any, relating to the defeasance and
covenant defeasance of the debt securities;
. whether the debt securities will be issuable in registered form,
referred to as the "registered securities," or bearer form, referred
to as the "bearer securities" or both and, if bearer securities
15
are issuable, any restrictions applicable to the exchange of one form
for another and the offer, sale and delivery of bearer securities;
. the portion of the principal payable upon acceleration of maturity,
if other than the entire principal;
. if other than denominations of $1,000 or multiples of $1,000 for
registered securities, or denominations of $5,000 for bearer
securities, the denominations the debt securities will be issued in;
. whether the debt securities will be senior debt securities or
subordinated debt securities and, if subordinated debt securities,
the subordination provisions and the applicable definition of "senior
indebtedness;"
. any applicable material U.S. federal tax consequences;
. the dates on which premium, if any, will be payable;
. our right, if any, to defer payment of interest and the maximum
length of the deferral period;
. any listing on a securities exchange;
. if convertible into our common shares or preferred shares, the terms
on which the debt securities are convertible;
. the initial public offering price; and
. other specific terms, including covenants and any additions or
changes to the events of default provided for with respect to the
debt securities.
If the purchase price of any debt securities is payable in a currency
other than U.S. dollars or if principal of, or premium, if any, or interest,
if any, on any of the debt securities is payable in any currency other than
U.S. dollars, the specific terms and other information with respect to the
debt securities and the foreign currency will be specified in the applicable
prospectus supplement.
Debt securities may be issued as original issue discount securities, as
defined in the indentures, to be sold at a substantial discount below their
principal amount. Original issue discount securities may include "zero coupon"
securities that do not pay any cash interest for the entire term of the
securities. In the event of an acceleration of the maturity of any original
issue discount security, the amount payable to the holder thereof upon an
acceleration will be determined in the manner described in the applicable
prospectus supplement. Conditions pursuant to which payment of the principal
of the subordinated debt securities may be accelerated will be set forth in
the applicable prospectus supplement. Material federal income tax and other
considerations applicable to original issue discount securities will be
described in the applicable prospectus supplement.
Under the indentures, the terms of the debt securities of any series may
differ and we, without the consent of the holders of the debt securities of
any series, may reopen a previous series of debt securities and issue
additional debt securities of that series or establish additional terms of
that series, unless otherwise indicated in the applicable prospectus
supplement.
Covenants
Under the indentures, we will be required to:
. pay the principal, interest and any premium on the debt securities
when due;
. maintain a place of payment;
16
. deliver an officer's certificate to the applicable trustee within 120
days after the end of each fiscal year confirming our compliance with
our obligations under the applicable indenture; and
. deposit sufficient funds with any paying agent on or before the due
date for any principal, interest or any premium.
Any additional covenants will be described in the applicable prospectus
supplement.
Registration, Transfer, Payment and Paying Agent
Unless otherwise indicated in a prospectus supplement, each series of
debt securities will be issued in registered form only, without coupons. We
may also issue debt securities in bearer form only, or in both registered and
bearer form. Bearer securities will not be offered, sold, resold or delivered
in connection with their original issuance in the United States or to any
United States person other than to the offices located outside the United
States of some United States financial institutions. Purchasers of bearer
securities will be subject to certification procedures and may be affected by
limitations under United States tax laws. These procedures and limitations
will be described in the prospectus supplement relating to the offering of the
bearer securities.
Unless otherwise indicated in a prospectus supplement, registered
securities will be issued in denominations of $1,000 or any integral multiple
thereof, and bearer securities will be issued in denominations of $5,000.
Unless otherwise indicated in a prospectus supplement, the principal,
premium, if any, and interest, if any, of or on the debt securities will be
payable, and debt securities may be surrendered for registration of transfer
or exchange, at an office or agency of the trustee in the Borough of
Manhattan, The City of New York, provided that payments of interest with
respect to any registered security may be made at our option by check mailed
to the address of the person entitled to payment or by transfer to an account
maintained by the payee with a bank located in the United States. No service
charge will be made for any registration of transfer or exchange of debt
securities, but we may require payment of a sum sufficient to cover any tax or
other governmental charge and any other expenses that may be imposed in
connection with the exchange or transfer.
Unless otherwise indicated in a prospectus supplement, payment of
principal of, premium, if any, and interest, if any, on bearer securities will
be made, subject to any applicable laws and regulations, at the office or
agency outside the United States as specified in the prospectus supplement and
as we may designate from time to time. Unless otherwise indicated in a
prospectus supplement, payment of interest due on bearer securities on any
interest payment date will be made only against surrender of the coupon
relating to the interest payment date. Unless otherwise indicated in a
prospectus supplement, no payment of principal, premium or interest with
respect to any bearer security will be made at any office or agency in the
United States or by check mailed to any address in the United States or by
transfer to an account maintained with a bank located in the United States;
except that if amounts owing with respect to any bearer securities shall be
payable in U.S. dollars, payment may be made at the corporate trust office of
the applicable trustee or at any office or agency designated by us in the
Borough of Manhattan, The City of New York, but only if, payment of the full
amount of the principal, premium or interest at all offices outside of the
United States maintained for this purpose by us is illegal or effectively
precluded by exchange controls or similar restrictions.
Unless otherwise indicated in the applicable prospectus supplement, we
will not be required to:
. issue, register the transfer of or exchange debt securities of any
series during a period beginning at the opening of business 15 days
before any selection of debt securities of that series of like tenor
to be redeemed and ending at the close of business on the day of that
selection;
17
. register the transfer of or exchange any registered security, or
portion thereof, called for redemption, except the unredeemed portion
of any registered security being redeemed in part;
. exchange any bearer security called for redemption, except to
exchange the bearer security for a registered security of that series
and like tenor that is simultaneously surrendered for redemption; or
. issue, register the transfer of or exchange any debt security which
has been surrendered for repayment at the option of the holder,
except the portion, if any, of the debt security not to be so repaid.
Ranking of Debt Securities; Holding Company Structure
The senior debt securities will be unsubordinated obligations of ours and
will rank equally in right of payment with all other unsubordinated
indebtedness of ours. The subordinated debt securities will be obligations of
ours and will be subordinated in right of payment to all existing and future
senior indebtedness. The prospectus supplement will describe the subordination
provisions and set forth the definition of "senior indebtedness" applicable to
the subordinated debt securities, and the approximate amount of the senior
indebtedness outstanding as of a recent date.
Because we are a holding company that conducts all of our operations
through our subsidiaries, our ability to meet our obligations under the debt
securities is dependent on the earnings and cash flows of those subsidiaries
and the ability of those subsidiaries to pay dividends or to advance or repay
funds to us. Payment of dividends or advances from our insurance subsidiaries
may require prior regulatory notice or approval. Holders of debt securities
will generally have a junior position to claims of creditors of our
subsidiaries, including trade creditors, debt holders, secured creditors,
taxing authorities, guarantee holders and any preferred stockholders.
Global Securities
The debt securities of a series may be issued in whole or in part in the
form of one or more global securities that will be deposited with, or on behalf
of, a "depositary" identified in the prospectus supplement relating to that
series. Global debt securities may be issued in either registered or bearer
form and in either temporary or permanent form. Unless and until it is
exchanged in whole or in part for individual certificates evidencing debt
securities, a global debt security may not be transferred except as a whole (1)
by the depositary to a nominee of the depositary, (2) by a nominee of the
depositary to the depositary or another nominee of the depositary or (3) by the
depositary or the nominee to a successor of the depositary or a nominee of the
successor.
The specific terms of the depositary arrangement with respect to a series
of global debt securities and material limitations and restrictions relating to
a series of global bearer securities will be described in the prospectus
supplement.
Redemption and Repurchase
The debt securities may be redeemable at our option, in whole or in part,
or may be subject to mandatory redemption pursuant to a sinking fund or
otherwise, in each case upon the terms, at the times and at the redemption
price together with interest as set forth in the applicable prospectus
supplement on notice given at least 20 days prior to the date of redemption.
Senior debt securities may be subject to repurchase by us at the option of the
holders upon the terms, at the times and at the price together with interest
set forth in the applicable prospectus supplement.
18
We must repay the senior debt securities at the option of the holders
prior to the stated maturity date only if specified in the applicable
prospectus supplement. Unless otherwise provided in the prospectus supplement,
the senior debt securities subject to repayment at the option of the holder
will be subject to repayment:
. on the specified repayment dates; and
. at a repayment price equal to 100% of the unpaid principal amount to
be repaid, together with unpaid interest accrued to the repayment
date.
For any senior debt security to be repaid, the trustee must receive, at
its office maintained for that purpose in the Borough of Manhattan, New York
City not more than 60 nor less than 30 calendar days prior to the date of
repayment:
. in the case of a certificated senior debt security, the certificated
senior debt security and the form in the senior debt security
entitled "Option of Holder to Elect Repayment" duly completed; or
. in the case of a book-entry senior debt security, instructions to
that effect from the beneficial owner to the securities depositary
and forwarded by the securities depositary. Exercise of the repayment
option by the holder will be irrevocable.
Only the securities depositary may exercise the repayment option in
respect of beneficial interests in the book-entry senior debt securities.
Accordingly, beneficial owners that desire repayment in respect of all or any
portion of their beneficial interests must instruct the participants through
which they own their interests to direct the securities depositary to exercise
the repayment option on their behalf. All instructions given to participants
from beneficial owners relating to the option to elect repayment will be
irrevocable. In addition, at the time the instructions are given, each
beneficial owner will cause the participant through which it owns its interest
to transfer its interest in the book-entry senior debt securites or the global
certificate representing the related book-entry senior debt securities, on the
securities depositary's records, to the trustee.
Conversion and Exchange
The applicable prospectus supplement will set forth the terms, if any, on
which debt securities of any series are convertible into or exchangeable for
our common shares, preferred shares, or other debt securities. The terms may
include provisions for conversion or exchange, either mandatory, at the option
of the holders or at our option.
Absence of Limitation on Indebtedness and Liens; Absence of Event Risk
Protection
The applicable prospectus supplement will specify any prohibitions on the
amount of indebtedness, guarantees or other liabilities that may be incurred by
us and any prohibitions on our ability to create or assume liens on our
property. Unless otherwise provided in a prospectus supplement, the indentures
will not require the maintenance of any financial ratios, or specified levels
of our net worth, revenues, income, cash flow or liquidity, and will not
contain provisions which would give holders of the debt securities the right to
require us to repurchase their debt securities in the event of a takeover,
recapitalization or similar restructuring or change in control of Markel.
Consolidation, Merger and Sale of Assets
Each indenture generally permits a consolidation or merger, subject to
specified limitations and conditions, between us and another corporation. They
also permit the sale by us of all or substantially all of our property and
assets. If this happens, the remaining or acquiring corporation must assume all
of our responsibilities and liabilities under the indentures including the
payment of all amounts due on the debt
19
securities and performance of the covenants in the indentures. Unless otherwise
indicated in the applicable prospectus supplement, we must also deliver an
opinion of counsel to the applicable trustee affirming our compliance with all
conditions in the applicable indenture relating to the transaction. When the
conditions are satisfied, the successor will succeed to and be substituted for
us under the applicable indenture, and we will be relieved of our obligations
under the applicable indenture and the debt securities issued under it.
Events of Default
Unless otherwise specified in the applicable prospectus supplement, an
event of default with respect to any debt securities will include:
. default for a period of 60 days in payment of any interest with
respect to any debt security of that series;
. default in payment of principal or any premium with respect to any
debt security of that series when due upon maturity, redemption,
repurchase at the option of the holder or otherwise;
. default in deposit of any sinking fund payment when due with respect
to any debt security of that series for a period of 60 days;
. default by us in the performance, or breach, of any other covenant or
warranty in the applicable indentures other than a covenant or
warranty included solely for the benefit of a series of debt
securities other than that particular series, which continues for 90
days after notice to us by the applicable trustee or the holders of
not less than a fixed percentage in aggregate principal amount of the
debt securities of all series issued under the applicable indenture;
. specified events of bankruptcy, insolvency or reorganization of us;
or
. any other event of default that may be set forth in the applicable
prospectus supplement, including, but not limited to, an event of
default based on other debt being accelerated, or "cross-
acceleration."
No event of default with respect to any particular series of debt
securities necessarily constitutes an event of default with respect to any
other series of debt securities.
Each indenture provides that if an event of default with respect to any
series of debt securities issued under the indentures has occurred and is
continuing, either the relevant trustee or the holders of at least a fixed
percentage in principal amount of the debt securities of the series then
outstanding may declare the principal amount, or if any debt securities of the
series are original issue discount securities, a lesser amount as may be
specified in the applicable prospectus supplement, of all of the debt
securities of the series to be due and payable immediately. However, upon
specified conditions, the declaration and its consequences may be rescinded and
annulled by the holders of a majority in principal amount of the debt
securities of all series issued under the applicable indenture.
The applicable prospectus supplement will provide the terms pursuant to
which an event of default will result in an acceleration of the payment of
principal of subordinated debt securities.
In the case of a default in the payment of principal of, or premium, if
any, or interest, if any, on any subordinated debt securities of any series,
the applicable trustee, subject to specified limitations and conditions, may
institute a judicial proceeding for collection.
No holder of any of the debt securities of any series issued under any
indenture has any right to institute any proceeding with respect to that
indenture or any remedy under that indenture, unless the holders of at least a
fixed percentage in principal amount of the outstanding debt securities of that
series have made
20
written request, and offered reasonable indemnity, to the applicable trustee to
institute a proceeding as trustee, the applicable trustee has failed to
institute a proceeding within 60 days after receipt of the notice and the
applicable trustee has not within the 60-day period received directions
inconsistent with the written request by holders of a majority in principal
amount of the outstanding debt securities of the series. These limitations do
not apply, however, to a suit instituted by a holder of a debt security for the
enforcement of the payment of the principal of, premium, if any, or any accrued
and unpaid interest on, the debt security on or after the respective due dates
expressed in the debt security.
Subject to the provisions of the applicable indenture relating to the
duties of the applicable trustee, if an event of default occurs and is
continuing, the applicable trustee is not under any obligation to exercise any
of its rights or powers under the indenture at the request or direction of any
of the holders unless those holders have offered to the applicable trustee
reasonable security or indemnity. Subject to provisions concerning the rights
of the applicable trustee, the holders of a majority in principal amount of the
outstanding debt securities of any series have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
trustee, or exercising any trust, or power conferred on the applicable trustee
with respect to that series.
The applicable trustee may withhold notice to the holders of debt
securities of any default, except in the payment of principal or interest, if
it considers the withholding of notice to be in the best interests of the
holders. Other than its duties in case of a default, a trustee is not obligated
to exercise any of its rights or powers under the indentures at the request,
order or direction of any holders, unless the holders offer the trustee
reasonable indemnity. If they provide this reasonable indemnification, the
holders of a majority in principal amount of any series of debt securities may
direct the time, method and place of conducting any proceeding or any remedy
available to the applicable trustee, or exercising any power conferred upon the
applicable trustee, for any series of debt securities.
We are required to furnish to the trustees annually a statement as to
compliance with all conditions and covenants under the indentures.
Modification and Waivers
From time to time, we, when authorized by resolutions of our board of
directors, and the applicable trustee, without the consent of the holders of
debt securities of any series, may amend, waive or supplement the indentures
and the debt securities of the series for specified purposes, including, among
other things:
. to cure ambiguities, defects or inconsistencies;
. to provide for the assumption of our obligations to holders of the
debt securities of the series in the case of a merger, consolidation,
conveyance or transfer;
. to add to our events of default or our covenants or to make any
change that would provide any additional rights or benefits to the
holders of the debt securities of that series;
. to add or change any provisions of the indenture to facilitate the
issuance of bearer securities;
. to establish the form or terms of debt securities of any series and
any related coupons;
. to secure the debt securities of that series;
. to maintain the qualification of the indentures under the Trust
Indenture Act;
. to make any change that does not adversely affect the rights of any
holder;
. to appoint a successor trustee; or
. to make provisions with respect to the conversion or exchange rights
of holders.
21
Other amendments and modifications of the indentures or the related debt
securities may be made by us and the applicable trustee with the consent of the
holders of at least a majority of the aggregate principal amount of the
outstanding debt securities of each series that would be affected, with each
series voting as a separate class; provided that no modification or amendment
may, without the consent of the holder of each outstanding debt security that
would be affected:
. reduce the principal amount of, or change the stated maturity of the
principal of, or reduce the rate or modify the calculation of the
rate of interest of the debt securities or any additional amounts, or
any premium payable upon the redemption or repayment or otherwise, or
change our obligation to pay additional amounts;
. reduce the amount of the principal of an original issue discount
security that would be due and payable upon a declaration of
acceleration of the maturity, or the amount provable in bankruptcy;
. adversely affect the right of repayment at the option of any holder
of the debt securities;
. change the place of payment, currency in which the principal of, any
premium or interest on, or any additional amounts with respect to
debt securities are payable;
. impair the right of any holder of the debt securities to institute
suit for the enforcement of any payment on the debt securities or
after the stated maturity, or, in the case of redemption, on or after
the redemption date or, in the case of repayment at the option of any
holder of the debt securities, on or after the repayment date;
. reduce the percentage in principal amount of the outstanding debt
securities of any series, the consent of whose holder is required for
any supplemental indenture, or the consent of whose holder is
required for any waiver of specified defaults hereunder and their
consequences provided for in the indentures;
. reduce the requirements of quorum or voting under the indentures;
. make any change that adversely affects the right to convert or
exchange any of the debt securities for capital stock or other
securities in accordance with its terms; or
. modify the above provisions, except as permitted by the applicable
indenture.
The holders of a majority in aggregate principal amount of the
outstanding debt securities of any series may waive compliance by us with
specified restrictive provisions of the relevant indenture, including any other
restrictive covenants, if any, that may be set forth in the applicable
prospectus supplement. The holders of a majority in aggregate principal amount
of the outstanding debt securities of any series may, on behalf of all holders
of debt securities of that series, waive any past default under the applicable
indenture with respect to debt securities of that series and its consequences,
except a default in the payment of the principal of, or premium, if any, or
interest, if any, on any debt securities of that series or in respect of a
covenant or provision which cannot be modified or amended without the consent
of a larger fixed percentage or by the holder of each outstanding debt security
of the series affected.
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Satisfaction; Discharge
Except as described in this section, we may discharge all of our
obligations to holders of the debt securities issued under the indentures,
which debt securities have not already been delivered to the applicable trustee
for cancellation and which either have become due and payable or are by their
terms due and payable within one year, or are to be called for redemption
within one year, by depositing with the applicable trustee an amount certified
to be sufficient to pay when due the principal, interest and premium, if any,
on all outstanding debt securities. However, some of our obligations under the
indentures will survive, including with respect to the following:
. remaining rights to register the transfer, conversion, substitution
or exchange of debt securities of the applicable series;
. rights of holders to receive payments of principal of, and any
interest on, the debt securities of the applicable series, and other
rights, duties and obligations of the holders of debt securities with
respect to any amounts deposited with the applicable trustee; and
. the rights, obligations and immunities of the applicable trustee
under the applicable indenture.
Defeasance
We will be discharged from our obligations on the debt securities of any
series at any time if we deposit with the applicable trustee sufficient cash or
government securities to pay the principal, interest, any premium and any other
sums due to the stated maturity date or a redemption date of the debt
securities of the series. If this happens, the holders of the debt securities
of the series will not be entitled to the benefits of the applicable indenture
except for registration of transfer and exchange of debt securities and
replacement of lost, stolen or mutilated debt securities.
Under federal income tax law as of the date of this prospectus, a
discharge may be treated as an exchange of the related debt securities. Each
holder might be required to recognize gain or loss equal to the difference
between the holder's cost or other tax basis for the debt securities and the
value of the holder's interest in the trust. Holders might be required to
include as income a different amount than would be includable without the
discharge. We urge prospective investors to consult their own tax advisers as
to the consequences of a discharge, including the applicability and effect of
tax laws other than the federal income tax law.
Governing Law
The indentures and the debt securities will be governed by, and construed
in accordance with, the laws of the State of New York.
Regarding the Trustees
The Trust Indenture Act contains limitations on the rights of a trustee,
should it become a creditor of ours, to obtain payment of claims in some cases
or to realize on some property received by it in respect of those claims, as
security or otherwise. Each trustee is permitted to engage in other
transactions with us and our subsidiaries from time to time, provided that if
that trustee acquires any conflicting interest it must eliminate that conflict
upon the occurrence of an event of default under the relevant indenture, or
else resign.
The Chase Manhattan Bank is the trustee under our senior indenture. We
and some of our affiliates maintain banking relationships with The Chase
Manhattan Bank. The Chase Manhattan Bank also serves as trustee under other
indentures pursuant to which securities of ours and of some of our affiliates
are outstanding. It has purchased, and is likely to purchase in the future, our
securities and securities of our affiliates. The Chase Manhattan Bank
administers its corporate trust business at 450 West 33rd Street, New York, New
York 10001, Attention: Capital Markets Fiduciary Services.
23
PLAN OF DISTRIBUTION
A prospectus supplement will set forth the terms of the offering of the
securities offered by that prospectus supplement, including:
. the name or names of any underwriters and the respective amounts of
the securities underwritten or purchased by each of them;
. the initial public offering price of those securities and the
proceeds to us, if any, and any discounts, commissions or concessions
allowed or paid to dealers;
. any securities exchanges on which those securities may be listed; and
. the number of common shares to be sold by the selling security
holders, as defined in the section below entitled "Selling Security
Holders," if any.
If underwriters are used in the sale of any securities, those securities
will be acquired by the underwriters for their own account and may be resold
from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. Those securities may be either offered to the public
through underwriting syndicates represented by managing underwriters, or
directly by underwriters. Unless otherwise set forth in the applicable
prospectus supplement, the obligations of the underwriters to purchase those
securities will be subject to conditions precedent and the underwriters will be
obligated to purchase all of those securities if any are purchased. Any initial
public offering price and any discounts or concessions allowed or paid to
dealers may be changed from time to time.
The securities may be sold directly by us or through agents designated by
us from time to time. Any agent involved in the offer or sale of the securities
in respect of which a prospectus supplement is delivered will be named, and any
commissions payable by us to the agent will be set forth, in the prospectus
supplement. Unless otherwise indicated in the prospectus supplement, any agent
will be acting on a best efforts basis for the period of its appointment.
If so indicated in the applicable prospectus supplement, we will
authorize underwriters, dealers or agents to solicit offers by institutional
investors to purchase the securities from us at the public offering price set
forth in the prospectus supplement pursuant to delayed delivery contracts
providing for payment and delivery on a specified date in the future. There may
be limitations on the minimum amount that may be purchased by any institutional
investor or on the portion of the aggregate principal amount of the particular
securities that may be sold pursuant to those arrangements. Institutional
investors to which offers may be made, when authorized, include commercial and
savings banks, insurance companies, pension funds, investment companies,
educational and charitable institutions, and other institutions approved by us,
if applicable. The obligations of any purchasers pursuant to delayed delivery
and payment arrangements will be subject only to those conditions set forth in
the prospectus supplement, and the prospectus supplement will set forth the
commission payable for solicitation of those contracts.
Securities offered other than our common shares may be a new issue of
securities with no established trading market. Any underwriters to whom those
securities are sold by us for public offering and sale may make a market in
those securities, but those underwriters will not be obligated to do so and may
discontinue any market making at any time without notice. No assurance can be
given as to the liquidity of or the trading markets for those securities.
Selling security holders, as described in the section below entitled
"Selling Security Holders," may sell their common shares, and this prospectus
may be delivered in conjunction with those sales. We will not receive any
proceeds from the sale of common shares by the selling security holders.
24
The selling security holders may sell their common shares in connection
with one or more offerings of common shares by Markel as described in the
applicable prospectus supplement. The selling security holders and any
underwriters, broker-dealers or agents that participate with the selling
security holders in the distribution of their common shares may be deemed to be
"underwriters" within the meaning of the Securities Act, and any commission
received by them and any profit on the resale of any common shares purchased by
them may be deemed to be underwriting commissions or discounts under the
Securities Act.
The selling security holders will be subject to the applicable provisions
of the Securities Exchange Act, and the rules and regulations under it,
including the applicable provisions of Regulation M. Regulation M may restrict
specified activities of the selling security holders and may limit the timing
of purchases and sales of any common shares by the selling security holders.
Also, under Regulation M, persons engaged in a distribution of securities are
prohibited from simultaneously engaging in market making and other activities
with respect to those securities for a specified period of time prior to the
commencement of that distribution, subject to specified exceptions or
exemptions.
Agents and underwriters may be entitled under agreements entered into
with us to indemnification by us against certain civil liabilities, including
liabilities under the Securities Act of 1933, or to contribution with respect
to payments which the agents or underwriters may be required to make. Agents
and underwriters may be customers of, engage in transactions with, or perform
services for us in the ordinary course of business.
SELLING SECURITY HOLDERS
The following table sets forth, as of January 18, 2001, information on
common share ownership by the selling security holders which in each case
represents all the common shares beneficially owned by each selling security
holder, other than with respect to Donaldson, Lufkin & Jenrette Securities
Corporation, which will own 440 common shares after the sale of the common
shares covered by this prospectus. The registration of the selling security
holders' common shares does not necessarily mean that the selling security
holders will offer or sell any of their shares.
Common Shares
Beneficially
Owned Prior Common Shares
to This Offered for
Name of Selling Security Holders (1) Offering(2) Sale
------------------------------------ ------------- -------------
DLJMB Overseas Partners, C.V. .................... 142,339 142,339
DLJ International Partners, C.V. ................. 67,748 67,748
DLJ Offshore Partners, C.V. ...................... 3,927 3,927
DLJ First ESC L.P. ............................... 37,666 37,666
DLJ Merchant Banking Funding, Inc. ............... 60,622 60,622
Donaldson, Lufkin & Jenrette Securities
Corporation...................................... 9,198 8,758
--------
(1) The address of the selling security holders is c/o CSFB Private Equity,
277 Park Avenue, New York, New York 10172.
(2) In accordance with the SEC's rules, beneficial ownership means voting and
investment power with respect to the common shares shown in the table.
Donaldson, Lufkin & Jenrette, an affiliate of the selling security
holders, has performed investment banking services for Markel and its
subsidiary Terra Nova (Bermuda) Holdings Ltd., which Markel acquired in March
2000. Before Markel's acquisition of Terra Nova, two members of the board of
directors of Terra Nova were Managing Directors of Donaldson, Lufkin & Jenrette
or one or more of its affiliates. Donaldson, Lufkin & Jenrette served as
financial advisors to Terra Nova and rendered an opinion to the Terra Nova
board of directors regarding the fairness to Terra Nova shareholders of the
consideration to be received in connection with Markel's acquisition of Terra
Nova. Markel, the selling security holders and other Terra Nova shareholders
25
entered into a registration rights agreement covering the Markel common shares
and other securities received in connection with Markel's acquisition of Terra
Nova. The common shares of the selling security holders are being registered
pursuant to their "piggyback" registration rights under that registration
rights agreement.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with
the Securities and Exchange Commission using a "shelf" registration process.
Under the shelf process, we may sell any combination of the securities
described in this prospectus in one or more offerings up to a total dollar
amount of $420,000,000. In addition, the selling security holders may sell up
to 321,060 of our common shares. This prospectus provides you with a general
description of the securities we or the selling security holders may offer.
Each time we or the selling security holders sell securities, we will provide a
prospectus supplement that will contain specific information about the terms of
that offering. The prospectus supplement may also add, update or change
information contained in this prospectus. You should read both this prospectus
and any prospectus supplement, together with additional information described
under the heading "Where You Can Find More Information About Markel."
WHERE YOU CAN FIND MORE INFORMATION ABOUT MARKEL
We are subject to the informational reporting requirements of the
Securities Exchange Act of 1934, which requires us to file annual, quarterly
and special reports, proxy statements and other information with the Securities
and Exchange Commission. You may read and copy any document that we file at the
Public Reference Room of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549. Information on the operation of the Public Reference Room may be
obtained by calling the SEC at 1-800-SEC-0330. You may also inspect our filings
at the regional offices of the SEC located at Citicorp, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, New York,
New York 10048, or over the Internet at the SEC's home page at
http://www.sec.gov.
Our common shares are listed on the New York Stock Exchange under the
symbol "MKL." Our reports, proxy statements and other information may also be
read and copied at the New York Stock Exchange at 30 Broad Street, New York, NY
10005.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and later information that we file
with the SEC will automatically update and supersede this information and the
information in the prospectus. We incorporate by reference the documents listed
below and any future filings made by Markel Corporation with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until
we sell all of the securities covered by this prospectus:
Markel Corporation, formerly Markel Holdings, Inc., SEC filings, file no.
001-15811:
1. Our Annual Report on Form 10-K for the year ended December 31,
1999;
2. Our Quarterly Reports on Form 10-Q for the quarters ended March
31, 2000, June 30, 2000, and September 30, 2000 (as amended by Form 10-
Q/A on November 13, 2000);
26
3. Our Current Reports on Form 8-K dated March 24, 2000, April 14,
2000, June 2, 2000, and June 14, 2000;
4. The description of our capital stock contained in our Form 8-A
filed on April 7, 2000 under Section 12(b) of the Securities Exchange
Act of 1934; and
5. The description of our contingent value rights contained in our
Form S-4 filed on February 7, 2000 under the Securities Act of 1933
(Registration No. 333-88609).
Markel Corporation, now Markel North America, Inc., SEC filings, file no.
1-13051:
1. Annual Report on Form 10-K for the year ended December 31, 1999.
Terra Nova (Bermuda) Holdings Ltd., acquired on March 24, 2000, SEC
filings, file no. 1-13834:
1. Annual Report on Form 10-K for the year ended December 31, 1999.
2. Quarterly Reports on Form 10-Q for the quarters ended March 31,
2000, June 30, 2000, and September 30, 2000; and
3. Current Reports on Form 8-K filed on April 10, 2000, April 21,
2000, and May 5, 2000.
You may request a copy of these filings at no cost, by writing or
telephoning the office of Investor Relations, Markel Corporation, 4521
Highwoods Parkway, Glen Allen, Virginia 23060, telephone: (804) 747-0136, or
e-mail Bruce Kay, Vice President of Investor Relations at bkay@markelcorp.com.
LEGAL MATTERS
The validity of the securities in respect of which this prospectus is
being delivered will be passed on for us by McGuireWoods LLP, Richmond,
Virginia. Leslie A. Grandis, a partner in McGuireWoods LLP is Secretary and a
member of the Board of Directors of our company. As of January 17, 2001,
partners of McGuireWoods LLP owned 26,923 of our common shares, or less than
1% of our common shares outstanding on that date.
EXPERTS
The consolidated financial statements of Markel Corporation, now Markel
North America, as of December 31, 1999 and December 31, 1998 and for each of
the years in the three-year period ended December 31, 1999 and the financial
statements of Markel Holdings, Inc., now Markel Corporation, as of December
31, 1999 and for the period from August 25, 1999, inception, through December
31, 1999 have been incorporated by reference herein in reliance upon the
reports of KPMG LLP, independent certified public accountants, incorporated by
reference herein, and upon the authority of that firm as experts in accounting
and auditing.
The consolidated financial statements of Terra Nova (Bermuda) Holdings,
Ltd. as of December 31, 1999 and December 31, 1998 and for each of the years
in the three-year period ended December 31, 1999 have been incorporated by
reference herein in reliance upon the report of PricewaterhouseCoopers,
independent certified public accountants, incorporated by reference herein,
and upon the authority of that firm as experts in accounting and auditing.
27
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$355,000,000
[MARKEL CORPORATION LOGO]
Liquid Yield Option(TM) Notes due 2031
(Zero Coupon -- Senior)
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PROSPECTUS SUPPLEMENT
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Merrill Lynch & Co.
May 30, 2001
(TM)Trademark of Merrill Lynch & Co., Inc.
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