UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
| x |
ANNUAL REPORT PURSUANT
TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
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| For the fiscal year ended December 31, 2005 | |
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OR
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934.
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For
the transition period from
___________to___________
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Commission
file number 1-13619
BROWN
& BROWN, INC.
(Exact
name of Registrant as specified in its
charter)
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Florida
(State
or other jurisdiction of incorporation or
organization)
220
South Ridgewood Avenue, Daytona
Beach, FL
(Address
of principal executive
offices)
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59-0864469
(I.R.S.
Employer Identification
Number)
32114
(Zip
Code)
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Registrant’s
telephone number, including area code: (386) 252-9601
Registrant’s
Website: www.bbinsurance.com
Securities
registered pursuant to Section 12(b) of the Act:
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Title
of each class
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Name
of each exchange on which
registered
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COMMON
STOCK, $0.10 PAR
VALUE
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NEW
YORK STOCK
EXCHANGE
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Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act. Yes x No o
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No x
Indicate
by check mark whether the registrant: (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months, and (2) has been subject to such filing requirements for
the past 90 days. Yes x No o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this
Form 10-K. x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
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Large
accelerated filer x
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Accelerated
filer o
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Non-accelerated
filer o
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act.): Yes o No
x
The
aggregate market value of the voting Common Stock held by non-affiliates of
the
registrant, computed by reference to the last reported price at which the stock
was sold on June 30, 2005 (the last day of the registrant’s most recently
completed second fiscal quarter), was $2,490,874,100.
The
number of outstanding shares of the registrant’s Common Stock, $.10 par value,
outstanding as of March 10, 2006 was 139,397,938.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of Brown & Brown, Inc.’s Proxy Statement for the 2006 Annual Meeting of
Shareholders are incorporated by reference into Part III of this
Report.
ANNUAL
REPORT ON FORM 10-K
FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2005
Disclosure
Regarding Forward-Looking Statements
Brown
& Brown, Inc., together with its subsidiaries (collectively, “we”, “Brown
& Brown” or the “Company”), make “forward-looking statements” within the
“safe harbor” provision of the Private Securities Litigation Reform Act of 1995
throughout this report and in the documents we incorporate by reference into
this report. You can identify these statements by forward-looking words
such as “may,” “will,” “expect,” “anticipate,” “believe,” “estimate,” “plan” and
“continue” or similar words. We have based these statements on our current
expectations about future events. Although we believe the
expectations expressed in the forward-looking statements included in this Form
10-K and those reports, statements, information and announcements are based
on
reasonable assumptions within the bounds of our knowledge of our business,
a
number of factors could cause actual results to differ materially from those
expressed in any forward-looking statements, whether oral or written, made
by us
or on our behalf. Many of these factors have previously been identified in
filings or statements made by us or on our behalf. Important factors which
could cause our actual results to differ materially from the forward-looking
statements in this report include:
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material
adverse changes in economic conditions
in the markets we serve;
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future
regulatory actions and conditions in the
states in which we conduct our business;
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competition
from others in the insurance
agency, brokerage and service business;
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a
significant portion of business written by
Brown & Brown is for customers located in California, Florida,
Georgia, New Jersey, New York, Pennsylvania and Washington. Accordingly,
the occurrence of adverse economic conditions, an
adverse regulatory climate, or a disaster in any of these states
could
have a material adverse effect on our business, although no such
conditions have been encountered in the past;
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the
integration of our operations with those of businesses or assets
we have
acquired or may acquire in the future and the
failure to realize the expected benefits of such integration; and
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other
risks and uncertainties as may be detailed from time to time in
our public
announcements and Securities and Exchange
Commission (“SEC”) filings.
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Forward-looking
statements that we make or that are made by others on our behalf are based
on a
knowledge of our business and the environment in which we operate, but because
of the factors listed above, actual results may differ from those in the
forward-looking statements. Consequently, these cautionary statements qualify
all of the forward-looking statements we make herein. We cannot assure you
that
the results or developments anticipated by us will be realized or, even if
substantially realized, that those results or developments will result in the
expected consequences for us or affect us, our business or our operations in
the
way we expect. We caution readers not to place undue reliance on these
forward-looking statements, which speak only as of their dates. We assume no
obligation to update any of the forward-looking statements.
General
We
are a
diversified insurance agency, brokerage and service organization with origins
dating from 1939, headquartered in Daytona Beach and Tampa, Florida. We
market and sell to our customers insurance products and services, primarily
in
the property, casualty and employee benefits areas. As an agent and broker,
we
do not assume underwriting risks. Instead, we provide our customers with quality
insurance contracts, as well as other targeted, customized risk management
products and services.
We
are
compensated for our services primarily by commissions paid by insurance
companies and fees paid by customers for certain services. The commission is
usually a percentage of the premium paid by the insured. Commission rates
generally depend upon the type of insurance, the particular insurance company
and the nature of the services provided by us. In some cases, a commission
is
shared with other agents or brokers who have acted jointly with us in a
transaction. We may also receive from an insurance company a “contingent
commission”, which is a profit-sharing commission based primarily on
underwriting results, but may also contain considerations for volume, growth
and/or retention. Fees are principally generated by our Services Division,
which offers third-party claims administration, consulting for the self-funded
workers’ compensation insurance market, and managed healthcare services.
The amount of our revenue from commissions and fees is a function of, among
other factors, continued new business production, retention of existing
customers, acquisitions and fluctuations in insurance premium rates and
insurable exposure units.
Premium
pricing within the property and casualty insurance underwriting industry has
historically been cyclical, displaying a high degree of volatility based on
prevailing economic and competitive conditions. From the mid-1980s through
1999,
the property and casualty insurance industry experienced a “soft market” during
which the underwriting capacity of insurance companies expanded, stimulating
an
increase in competition and a decrease in premium rates and related commissions.
The effect of this softness in rates on our revenues was somewhat offset by
our
acquisitions and new business production. As a result of increasing “loss
ratios” (the comparison of incurred losses plus adjustment expenses against
earned premiums) of insurance companies through 1999, there was a general
increase in premium rates beginning in the first quarter of 2000 and continuing
into 2003. During 2003, the increases in premium rates began to moderate
and, in certain lines of insurance, the premium rates decreased. In 2004,
as general premium rates continued to moderate, the insurance industry
experienced the worst hurricane season since 1992 when Hurricane Andrew hit
south Florida. The insured losses from the 2004 hurricane season were absorbed
relatively easily by the insurance industry and the general insurance premium
rates continued to soften during 2005. During the third quarter of 2005, the
insurance industry experienced the worst hurricane season ever recorded.
Primarily as a result of these hurricanes, including Hurricanes Katrina, Rita
and Wilma, the total insured losses are estimated to be in excess of $50
billion. The full impact that the 2005 insured losses will have on the insurance
premium rates charged by insurance companies for 2006 is unknown, however,
there
appears to be a general consensus that there will be upward pressure on at
least
the insurance premium rates on coastal property, primarily in the southeastern
part of the United States.
As
of
December 31, 2005, our activities were conducted in 170 locations in 34 states
as follows:
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Florida
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38
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Arkansas
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3
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California
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12
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Minnesota
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3
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Georgia
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11
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Nevada
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3
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New
York
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10
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South
Carolina
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3
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Texas
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10
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Wisconsin
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3
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New
Jersey
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8
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Montana
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2
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Virginia
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8
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New
Hampshire
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2
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Colorado
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6
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North
Carolina
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2
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Washington
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5
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Connecticut
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1
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Arizona
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4
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Hawaii
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1
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Illinois
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4
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Kentucky
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1
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Indiana
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4
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Massachusetts
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1
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Louisiana
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4
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Missouri
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1
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Michigan
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4
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Nebraska
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1
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New
Mexico
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4
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Ohio
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1
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Oklahoma
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4
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Tennessee
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1
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Pennsylvania
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4
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Utah
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1
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Business
Combinations
Beginning
in 1993 through 2005, we acquired 205 insurance intermediary operations,
excluding acquired books of business (customer accounts), that had aggregate
estimated annual revenues of $570.7 million for the 12 calendar months
immediately preceding the dates of acquisition. Of these, 32 operations
were acquired during 2005, with aggregate estimated annual revenues of $123.0
million for the 12 calendar months immediately preceding the dates of
acquisition. During 2004, 32 operations were acquired with aggregate
estimated annual revenues of $103.3 million for the 12 calendar months
immediately preceding the dates of acquisition. During 2003, 23 operations
were acquired, with aggregate estimated annual revenues of $42.6 million for
the
12 calendar months immediately preceding the dates of acquisition. Additionally
in 2003, we acquired the remaining 25% ownership of Florida Intracoastal
Underwriters, Limited Company that we previously did not own.
See
Note
2 to the Consolidated Financial Statements for a summary of our 2005
acquisitions.
From
January 1, 2006 through March 14, 2006, Brown & Brown acquired the assets
and assumed certain liabilities of three insurance intermediary entities. See
Note 17 to the Consolidated Financial Statements for a summary of our 2006
acquisitions.
DIVISIONS
Our
business is divided into four reportable operating segments: (1) the Retail
Division; (2) the National Programs Division; (3) the Brokerage Division; and
(4) the Services Division. The Retail Division provides a broad range of
insurance products and services to commercial, public entity, professional
and
individual customers. The National Programs Division is comprised of two units:
Professional Programs, which provides professional liability and related package
products for certain professionals; and Special Programs, which markets targeted
products and services designated for specific industries, trade groups, public
entities, and market niches. The Brokerage Division markets and sells
excess and surplus commercial insurance and reinsurance, primarily through
independent agents and brokers. The Services Division provides clients
with third-party claims administration, consulting for the workers’ compensation
insurance market, and comprehensive medical utilization management services
in
both workers’ compensation and all-lines liability arenas.
The
following table sets forth a summary of (1) the commissions and fees revenue
(revenues from external customers) generated by each of our reportable operating
segments for 2005, 2004 and 2003, and (2) the percentage of our total
commissions and fees revenue represented by each segment for each such period:
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(in
thousands, except percentages)
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2005
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%
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2004
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%
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2003
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%
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Retail
Division
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$489,566
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63.1
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% |
$457,936
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71.8
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% |
$395,385
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72.5
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% |
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National
Programs Division
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133,147
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17.2
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111,907
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17.5
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90,385
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16.6
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Brokerage
Division
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125,537
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16.2
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41,585
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6.5
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31,738
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5.8
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Services
Division
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26,565
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3.4
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25,807
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4.0
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27,920
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5.1
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Other
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728
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0.1
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1,032
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0.2
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(141)
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(0.0)
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Total
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$775,543
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100.0
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% |
$638,267
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100.0
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% |
$545,287
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100.0
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% |
See
Note
16 to the Consolidated Financial Statements for additional segment financial
data relating to our business.
Retail
Division
As
of
December 31, 2005, our Retail Division operated in 27 states and employed 2,718
persons. Our retail insurance agency business provides a broad range of
insurance products and services to commercial, public entity, professional
and
individual customers. The categories of insurance principally sold by us
include: property insurance relating to physical damage to property and
resultant interruption of business or extra expense caused by fire, windstorm
or
other perils; casualty insurance relating to legal liabilities, workers’
compensation, commercial and private passenger automobile coverages; and
fidelity and surety bonds. We also sell and service group and individual life,
accident, disability, health, hospitalization, medical and dental insurance.
No
material part of our retail business is attributable to a single customer or
a
few customers. During 2005, commissions and fees from our largest single Retail
Division customer represented less than one percent of the Retail Division’s
total commissions and fees revenue.
In
connection with the selling and marketing of insurance coverages, we provide
a
broad range of related services to our customers, such as risk management
surveys and analysis, consultation in connection with placing insurance
coverages and claims processing. We believe these services are important factors
in securing and retaining customers.
National
Programs Division
As
of
December 31, 2005, our National Programs Division employed 645 persons. Our
National Programs Division consists of two units: Professional Programs and
Special Programs.
Professional
Programs.
Professional Programs provides professional liability and related package
insurance products for certain professionals. Professional Programs
tailors insurance products to the needs of a particular professional group;
negotiates policy forms, coverages and commission rates with an insurance
company; and, in certain cases, secures the formal or informal endorsement
of
the product by a professional association or sponsoring company. The
professional groups serviced by the Professional Programs include
dentists, lawyers, optometrists, opticians, insurance agents, financial service
representatives, benefit administrators, real estate title agents and escrow
agents. The Professional Protector Plan® for Dentists and the Lawyer’s
Protector Plan® are marketed and sold primarily through a national network of
independent agencies including certain of our retail offices, while certain
of
the professional liability programs of our CalSurance® and TitlePac® operations
are principally marketed and sold directly to our insured customers, in some
instances through certain of our retail offices. Under our agency agreements
with the insurance companies that underwrite these programs, we often have
authority to bind coverages (subject to established guidelines), to bill and
collect premiums and, in some cases, to adjust claims. For the programs
that we market through independent agencies, we receive a wholesale commission
or “override”, which is then shared with these independent agencies.
Below
are
brief descriptions of the programs offered to professional groups by the
Professional Programs unit of the National Programs Division.
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Dentists:
The Professional Protector Plan® for Dentists offers comprehensive
coverage for dentists, oral surgeons, dental schools and dental students,
including practice protection and professional liability. This program,
initiated in 1969, is endorsed by a number of state and local dental
societies and is offered in 49 states, the District of Columbia,
the U.S.
Virgin Islands and Puerto Rico.
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•
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Lawyers:
The Lawyer’s Protector Plan® (LPP®) was introduced in 1983, 10 years
after we began marketing lawyers’ professional liability insurance in
1973. This program is presently offered in 43 states, the District
of
Columbia and Puerto Rico.
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•
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Optometrists
and Opticians: The
Optometric Protector Plan® (OPP®) and the Optical Services Protector Plan®
(OSPP®) were created in 1973 and 1987, respectively, to provide
professional liability, package and workers’ compensation coverages
exclusively for optometrists and opticians. These programs insure
optometrists and opticians nationwide.
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•
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CalSurance®: CalSurance®
offers professional liability programs designed for insurance agents,
financial advisors, registered representatives, securities broker-dealers,
benefit administrators, real estate brokers and real estate title
agents.
CalSurance® also sells commercial insurance packages directly to customers
in certain industry niches including destination resort and luxury
hotels,
independent pizza restaurants, and others. An important aspect of
CalSurance® is Lancer Claims Services, which provides specialty claims
administration for insurance companies underwriting CalSurance® product
lines.
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•
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TitlePac®:
TitlePac® provides professional liability products and
services designed for real estate title agents and escrow agents
in 47
states and the District of Columbia.
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•
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Physicians:
Initiated in 1980, the Physicians’ Protector Plan® offered professional
liability insurance for physicians, surgeons and other healthcare
providers in select states. The contract with the underwriting
insurance company on this program expired in March 2003. Since a
replacement insurance company or program could not be negotiated,
we
terminated this program in 2004.
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Special
Programs.
Special Programs markets targeted products and services to specific industries,
trade groups, public entities, and market niches. All of the Special
Programs, except for Parcel Insurance Plan® (PIP®), are marketed and sold
primarily through independent agents, including certain of our retail
offices. Parcel Insurance Plan® markets and sells its insurance product
directly to insured customers. Under agency agreements with the insurance
companies that underwrite these programs, we often have authority to bind
coverages subject to established guidelines, to bill and collect premiums and,
in some cases, to adjust claims.
Below
are
brief descriptions of the Special Programs:
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•
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Florida
Intracoastal Underwriters, Limited Company
(FIU) is a managing general agency that specializes in providing
insurance
coverage for coastal and inland high-value condominiums and apartments.
FIU has developed a specialty reinsurance facility to support the
underwriting activities associated with these risks.
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•
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Public
Risk Underwriters®,
along with our offices in Ephrata, Washington, Norcross, Georgia,
and
Kokomo, Indiana are program administrators offering unique property
and
casualty insurance products, risk management consulting, third-party
administration and related services designed for municipalities,
schools,
fire districts, and other public entities on a national basis.
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•
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Proctor
Financial, Inc.
(“Proctor”) provides insurance programs and compliance solutions for
financial institutions who service mortgage loans. Proctor’s
products include lender-placed fire and flood insurance, full insurance
outsourcing, mortgage impairment, and blanket equity insurance.
Proctor also writes surplus lines property business for its financial
institutions clients and acts as a wholesaler for this line of
business.
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•
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American
Specialty Insurance & Risk Services, Inc.
provides insurance and risk services for the sports and entertainment
industry with clients in professional sports, motor sports, amateur
sports, and the entertainment industry.
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•
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Parcel
Insurance Plan®
(PIP®) is a specialty insurance agency providing insurance coverage to
commercial and private shippers for small packages and parcels with
insured values of less than $25,000 each.
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•
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Professional
Risk Specialty Group
is
a specialty insurance agency providing liability insurance products
to
various professional groups.
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•
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AFC
Insurance, Inc.
(“AFC”) is a managing general underwriter, specializing in unique
insurance products for the health and human service industry. AFC
works with retail agents in all states and targets home healthcare,
group
homes for the mentally and physically challenged, and drug and alcohol
facilities and programs for the developmentally disabled.
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•
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Acumen
Re Management Corporation
is
a reinsurance underwriting management organization, primarily acting
as an
outsourced specific excess workers’ compensation facultative reinsurance
underwriting facility.
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•
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Commercial
Programs serves the insurance needs of certain specialty trade/industry
groups. Programs offered include:
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Wholesalers
& Distributors Preferred Program®.
Introduced in 1997, this program provides property and casualty protection
for businesses principally engaged in the wholesale-distribution
industry.
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Railroad
Protector Plan®.
Also introduced in 1997, this program is designed for contractors,
manufacturers and other entities that service the needs of the railroad
industry.
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Environmental
Protector Plan®.
Introduced in 1998, this program provides a variety of specialized
coverages, primarily to municipal mosquito control districts.
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Food
Processors Preferred ProgramSM.
This program, introduced in 1998, provides property and casualty
insurance
protection for businesses involved in the handling and processing
of
various foods.
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Brokerage
Division
The
Brokerage Division markets excess and surplus commercial insurance products
and
services to retail agencies (including our retail offices), and reinsurance
products and services to insurance companies throughout the United States.
Brokerage Division offices represent various U.S. and U.K. surplus lines
insurance companies and certain offices are also Lloyd’s of London
correspondents. The Brokerage Division also represents admitted insurance
companies for smaller agencies that do not have access to large insurance
company representation. Excess and surplus insurance products include many
insurance coverages, including, personal lines homeowners, yachts, jewelry,
commercial property and casualty, commercial automobile, garage, restaurant,
builder’s risk and inland marine lines. Difficult-to-insure general liability
and products liability coverages are a specialty, as is excess workers’
compensation coverage. Retail agency business is solicited through mailings
and
direct contact with retail agency representatives. At December 31, 2005, the
Brokerage Division employed 806 persons.
In
September 2001, we established Brown & Brown Re, Inc., a subsidiary
headquartered in New York, New York that specializes in treaty and facultative
reinsurance brokerage services. Brown & Brown Re had approximately
$2.0 million in commission revenues in 2005.
On
January 1, 2006, we acquired the assets of Axiom Intermediaries, LLC. (Axiom)
with estimated annualized revenues of $14.0 million. Brown & Brown Re will
be merged into Axiom. The Axiom acquisition will substantially increase our
treaty and facultative reinsurance brokerage services.
In
March
2005, we acquired the assets of Hull & Company, Inc. (Hull) with estimated
annualized revenues of $63.0 million which along with acquisitions of several
other larger brokerage operations, essentially tripled the 2005 revenues of
this
Division over 2004 revenues.
Services
Division
At
December 31, 2005, our Services Division employed 285 persons and provided
the
following services: (1) insurance-related services, including comprehensive
risk
management and third-party administration (TPA) services for insurance entities
and self-funded or fully-insured workers’ compensation and liability plans; and
(2) comprehensive medical utilization management services for both workers’
compensation and all-lines liability insurance plans.
The
Services Division’s workers’ compensation and liability plan TPA services
include claims administration, access to major reinsurance markets, cost
containment consulting, services for secondary disability, and subrogation
recoveries and risk management services such as loss control. In 2005, our
three
largest workers’ compensation contracts represented approximately 61.6% of
our Services Divisions commissions and fees revenue, or approximately
2.1% of our total consolidated commissions and fees revenue. In addition, the
Services Division provides managed care services, including medical networks,
case management and utilization review services, certified by the American
Accreditation Health Care Commission.
In
2004,
we sold our Louisiana-based employee benefits TPA. In 2003, we sold a
similar operation based in Florida. We currently have no operations in the
employee benefits TPA business and have no current plans to re-enter this area
of the services business.
Employees
At
December 31, 2005, we had 4,540 employees. We have agreements with our
sales employees and certain other employees that include provisions restricting
their right to solicit our insured customers and employees after separation
from
employment with us. The enforceability of such agreements varies from state
to
state depending upon state statutes, judicial decisions and factual
circumstances. The majority of these agreements are at-will and terminable
by
either party; however, the covenants not to solicit our insured customers and
employees generally continue for a period of two years after cessation of
employment.
None
of
our employees is represented by a labor union, and we consider our
relations with our employees to be satisfactory.
Competition
The
insurance intermediary business is highly competitive, and numerous firms
actively compete with us for customers and insurance markets. Competition
in the insurance business is largely based on innovation, quality of service
and
price. There are a number of firms and banks with substantially greater
resources and market presence that compete with us in the southeastern United
States and elsewhere. This situation is particularly pronounced outside of
Florida.
A
number
of insurance companies are engaged in the direct sale of insurance, primarily
to
individuals, and do not pay commissions to third-party agents and brokers.
In
addition, the Internet continues to be a source for direct placement of personal
lines business. To date, such direct writing has had little effect on our
operations, primarily because our Retail Division is commercially oriented.
In
addition, the Gramm-Leach-Bliley Financial Services Modernization Act of 1999
and regulations enacted thereunder permit banks, securities firms and insurance
companies to affiliate. As a result, the financial services industry has
experienced and may experience further consolidation, which in turn has resulted
and could further result in increased competition from diversified financial
institutions, including competition for acquisition prospects.
Regulation,
Licensing and Agency Contracts
We
and/or
our designated employees must be licensed to act as agents or brokers by state
regulatory authorities in the states in which we conduct business. Regulations
and licensing laws vary by individual state and are often complex.
The
applicable licensing laws and regulations in all states are subject to amendment
or reinterpretation by state regulatory authorities, and such authorities are
vested in most cases with relatively broad discretion as to the granting,
revocation, suspension and renewal of licenses. The possibility exists that
we
and/or our employees could be excluded or temporarily suspended from carrying
on
some or all of our activities in, or otherwise subjected to penalties by, a
particular state.
Available
Information
We
make
available free of charge on our website, at www.bbinsurance.com, our annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, and amendments to those reports filed or furnished pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the Exchange
Act) and the rules promulgated thereunder, as soon as reasonably practicable
after electronically filing or furnishing such material to the Securities and
Exchange Commission.
The
charters of the Audit, Compensation and Nominating/Governance Committees of
our
Board of Directors as well as our Corporate Governance Guidelines are also
available on our website or upon request. Requests for copies of any of
these documents should be directed in writing to Corporate Secretary, Brown
& Brown, Inc., 3101 West Martin Luther King Jr. Blvd., Suite 400, Tampa,
Florida 33607, or by telephone to (813) 222-4277.
As
referenced, this Annual Report on Form 10-K includes certain
forward-looking statements regarding various matters. The ultimate correctness
of those forward-looking statements is dependent upon a number of known and
unknown risks and events, and is subject to various uncertainties and other
factors that may cause our actual results, performance or achievements to be
different from those expressed or implied by those statements. Undue reliance
should not be placed on those forward-looking statements. The following
important factors, among others, as well as those factors set forth in our
other
SEC filings from time to time, could affect future results and events, causing
results and events to differ materially from those expressed or implied in
our
forward-looking statements. The
risks and uncertainties described below are not the only ones facing Brown
&
Brown Inc. and its subsidiaries. Additional risks and uncertainties, not
presently known to us or otherwise, may also impair our business operations.
WE
CANNOT ACCURATELY FORECAST OUR COMMISSION REVENUES BECAUSE OUR COMMISSIONS
DEPEND ON PREMIUM RATES CHARGED BY INSURANCE COMPANIES, WHICH HISTORICALLY
HAVE
VARIED AND, AS A RESULT, HAVE BEEN DIFFICULT TO PREDICT.
We
are
primarily engaged in insurance agency and brokerage activities and derive
revenues principally from commissions paid by insurance companies. The amount
of
such commissions is highly dependent on premium rates charged by insurance
companies. We do not determine insurance premiums. Premium rates are determined
by insurance companies based on a fluctuating market. Historically, property
and
casualty premiums have been cyclical in nature and have varied widely based
on
market conditions. From the mid-1980s through 1999, general premium levels
were
depressed as a result of the expanded underwriting capacity of insurance
companies and increased competition. In many cases, insurance companies lowered
commission rates and increased volume requirements. Significant reductions
in
premium rates occurred during the years 1986 through 1999. As a result of
increasing "loss ratios" (the comparison of incurred losses plus loss adjustment
expenses against earned premiums) experience by insurance companies through
1999, there was a general increase in premium rates beginning in the first
quarter of 2000 and continuing into 2003. During 2004, there was a rapid
transition as previously stable or increasing rates fell in most markets. These
rate declines were most pronounced in the property and casualty market, with
rates falling between 10% and 30% by year-end. Rate declines continued through
2005, although the pace of decline moderated in the latter part of the
year.
As
traditional risk-bearing insurance companies continue to outsource the
production of premium revenue to non-affiliated brokers or agents such as us,
those insurance companies may seek to reduce further their expenses by reducing
the commission rates payable to those insurance agents or brokers. The reduction
of these commission rates, along with general volatility and/or declines in
premiums, may significantly affect our profitability. Because we do not
determine the timing or extent of premium pricing changes, we cannot accurately
forecast our commission revenues, including whether they will significantly
decline. As a result, our budgets for future acquisitions, capital expenditures,
dividend payments, loan repayments and other expenditures may have to be
adjusted to account for unexpected changes in revenues, and any decreases in
premium rates may adversely affect our operations.
OUR
BUSINESS PRACTICES AND COMPENSATION ARRANGEMENTS ARE SUBJECT TO UNCERTAINTY
DUE
TO INVESTIGATIONS BY GOVERNMENTAL AUTHORITIES AND RELATED PRIVATE
LITIGATION.
The
business practices and compensation arrangements of the insurance intermediary
industry, including us, are subject to uncertainty due to investigations by
various governmental authorities and related private litigation. The
legislatures of various states may adopt new laws addressing contingent
commission arrangements, including laws prohibiting such arrangements, and
addressing disclosure of such arrangements to insureds, and various state
departments of insurance may adopt new regulations addressing these matters.
While it is not possible to predict the outcome of the governmental inquiries
and investigations into the insurance industry’s commission payment practices or
the responses by the market and government regulators, any material decrease
in
our contingent commissions is likely to have an adverse effect on our results
of
operations.
WE
ARE SUBJECT TO A NUMBER OF INVESTIGATIONS AND LEGAL PROCEEDINGS WHICH, IF
DETERMINED UNFAVORABLY FOR US, MAY ADVERSELY AFFECT OUR RESULTS OF
OPERATIONS.
In
addition to routine litigation and disclosed governmental investigations and
requests for information, we have been named as a defendant in two purported
class actions brought against a number of insurance intermediaries and insurance
companies, and have received a derivative demand from counsel for a purported
shareholder which could result in a purported securities class action based
on
claimed improprieties in the manner in which we are compensated by insurance
companies. The final outcome of these and similar matters, and related costs,
cannot be determined. An unfavorable resolution of these matters could adversely
affect our results of operations.
OUR
BUSINESS, RESULTS OF OPERATIONS, FINANCIAL CONDITION OR LIQUIDITY MAY BE
MATERIALLY ADVERSELY AFFECTED BY ERRORS AND OMISSIONS AND THE OUTCOME OF CERTAIN
FACTUAL AND POTENTIAL CLAIMS, LAWSUITS AND PROCEEDINGS.
We
may be
subject to various actual and potential claims, lawsuits and other proceedings
relating principally to alleged errors and omissions in connection with the
placement of insurance in the ordinary course of business. Because we often
assist clients with matters involving substantial amounts of money, including
the placement of insurance and the handling of related claims, errors and
omissions claims against us may arise which allege potential liability for
all
or part of the amounts in question. Claimants may seek large damage awards
and
these claims may involve potentially significant legal costs. Such claims,
lawsuits and other proceedings could, for example, include claims for damages
based on allegations that our employees or sub-agents improperly failed to
procure coverage, report claims on behalf of clients, provide insurance
companies with complete and accurate information relating to the risks being
insured or to appropriately apply funds that we hold for our clients on a
fiduciary basis. We have established provisions against these items which we
believe to be adequate in the light of current information and legal advice,
and
we adjust such provisions from time to time according to
developments.
While
most of the errors and omissions claims made against us have, subject to our
self-insured deductibles, been covered by our professional indemnity insurance,
our business, results of operations, financial condition and liquidity may
be
adversely affected if, in the future, our insurance coverage proves to be
inadequate or unavailable or there is an increase in liabilities for which
we
self-insure. Our ability to obtain professional indemnity insurance in the
amounts and with the deductibles we desire in the future may be adversely
impacted by general developments in the market for such insurance or our own
claims experience. In addition, claims, lawsuits and other proceedings may
harm
our reputation or divert management resources away from operating our business.
WE
DERIVE A SIGNIFICANT PORTION OF OUR COMMISSION REVENUES FROM TWO INSURANCE
COMPANIES, THE LOSS OF WHICH COULD RESULT IN ADDITIONAL EXPENSE AND LOSS OF
MARKET SHARE.
For
the
year ended December 31, 2005, approximately 8.0% and 5.4%,
respectively, of our total revenues were derived from insurance policies
underwritten by two separate insurance companies, respectively. Should either
of
these insurance companies seek to terminate their arrangements with us, we
believe that other insurance companies are available to underwrite the business,
although some additional expense and loss of market share could possibly result.
No other insurance company accounts for 5% or more of our total revenues.
BECAUSE
OUR BUSINESS IS HIGHLY CONCENTRATED IN CALIFORNIA, FLORIDA, GEORGIA, NEW JERSEY,
NEW YORK, PENNSYLVANIA AND WASHINGTON, ADVERSE ECONOMIC CONDITIONS OR REGULATORY
CHANGES IN THESE STATES COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION.
A
significant portion of our business is concentrated in California, Florida,
Georgia, New Jersey, New York, Pennsylvania and Washington. For the years ended
December 31, 2005 and December 31, 2004, we derived $554.8 million, or 70.6%,
and $468.7 million, or 72.5%, of our commissions and fees from our operations
located in these states, respectively. We believe that these revenues are
attributable predominately to clients in these states. We believe the regulatory
environment for insurance agencies in these states currently is no more
restrictive than in other states. The insurance business is a state-regulated
industry, and therefore, state legislatures may enact laws that adversely affect
the insurance industry. Because our business is concentrated in a few states,
we
face greater exposure to unfavorable changes in regulatory conditions in those
states than insurance agencies whose operations are more diversified through
a
greater number of states. In addition, the occurrence of adverse economic
conditions, natural or other disasters, or other circumstances specific to
or
otherwise significantly impacting these states could adversely affect our
financial condition and results of operations.
OUR
GROWTH STRATEGY DEPENDS IN PART ON THE ACQUISITION OF INSURANCE AGENCIES, WHICH
MAY NOT BE AVAILABLE ON ACCEPTABLE TERMS IN THE FUTURE AND WHICH, IF
CONSUMMATED, MAY NOT BE ADVANTAGEOUS TO US.
Our
growth strategy includes the acquisition of insurance agencies. Our ability
to
successfully identify suitable acquisition candidates, complete acquisitions,
integrate acquired businesses into our operations, and expand into new markets
will require us to continue to implement and improve our operations, financial,
and management information systems. Integrated, acquired entities may not
achieve levels of revenue, profitability, or productivity comparable to our
existing locations, or otherwise perform as expected. In addition, we compete
for acquisition and expansion opportunities with entities that have
substantially greater resources. Acquisitions also involve a number of special
risks, such as: diversion of management's attention; difficulties in the
integration of acquired operations and retention of personnel; entry into
unfamiliar markets; unanticipated problems or legal liabilities; and tax and
accounting issues, some or all of which could have a material adverse effect
on
the results of our operations and our financial condition.
OUR
CURRENT MARKET SHARE MAY DECREASE AS A RESULT OF INCREASED COMPETITION FROM
INSURANCE COMPANIES AND THE FINANCIAL SERVICES INDUSTRY.
The
insurance agency business is highly competitive and we actively compete with
numerous firms for clients and insurance companies, many of which have
relationships with insurance companies or have a significant presence in niche
insurance markets, that may give them an advantage over us. Because
relationships between insurance agencies and insurance companies or clients
are
often local or regional in nature, this potential competitive disadvantage
is
particularly pronounced outside of Florida. A number of insurance companies
are
engaged in the direct sale of insurance, primarily to individuals, and do not
pay commissions to agents and brokers. In addition, as and to the extent that
banks, securities firms and insurance companies affiliate, the financial
services industry may experience further consolidation, and we therefore may
experience increased competition from insurance companies and the financial
services industry, as a growing number of larger financial institutions
increasingly, and aggressively, offer a wider variety of financial services,
including insurance, than we currently offer.
PROPOSED
TORT REFORM LEGISLATION, IF ENACTED, COULD DECREASE DEMAND FOR LIABILITY
INSURANCE, THEREBY REDUCING OUR COMMISSION REVENUES.
Legislation
concerning tort reform has been considered, from time to time, in the United
States Congress and in several states. Among the provisions considered for
inclusion in such legislation have been limitations on damage awards, including
punitive damages, and various restrictions applicable to class action lawsuits.
Enactment of these or similar provisions by Congress, or by states in which
we
sell insurance, could result in a reduction in the demand for liability
insurance policies or a decrease in policy limits of such policies sold, thereby
reducing our commission revenues.
WE
COMPETE IN A HIGHLY REGULATED INDUSTRY, WHICH MAY RESULT IN INCREASED EXPENSES
OR RESTRICTIONS ON OUR OPERATIONS.
We
conduct business in most states and are subject to comprehensive regulation
and
supervision by government agencies in the states in which we do business. The
primary purpose of such regulation and supervision is to provide safeguards
for
policyholders rather than to protect the interests of stockholders. The laws
of
the various state jurisdictions establish supervisory agencies with broad
administrative powers with respect to, among other things, licensing to transact
business, licensing of agents, admittance of assets, regulating premium rates,
approving policy forms, regulating unfair trade and claims practices,
establishing reserve requirements and solvency standards, requiring
participation in guarantee funds and shared market mechanisms, and restricting
payment of dividends. Also, in response to perceived excessive cost or
inadequacy of available insurance, states have from time to time created state
insurance funds and assigned risk pools, which compete directly, on a subsidized
basis, with private insurance providers. We act as agents and brokers for such
state insurance funds in California and certain other states. These state funds
could choose to reduce the sales or brokerage commissions we receive. Any such
event, in a state in which we have substantial operations, such as Florida,
Arizona or New York, could substantially affect the profitability of our
operations in such state, or cause us to change our marketing focus. State
insurance regulators and the National Association of Insurance Commissioners
continually re-examine existing laws and regulations, and such re-examination
may result in the enactment of insurance-related laws and regulations, or the
issuance of interpretations thereof, that adversely affect our business.
Although we believe that we are in compliance in all material respects with
applicable local, state and federal laws, rules and regulations, there can
be no
assurance that more restrictive laws, rules or regulations will not be adopted
in the future that could make compliance more difficult or expensive.
Specifically, recently adopted federal financial services modernization
legislation could lead to additional federal regulation of the insurance
industry in the coming years, which could result in increased expenses or
restrictions on our operations.
PROFIT
SHARING CONTINGENT COMMISSIONS AND OVERRIDES PAID BY INSURANCE COMPANIES ARE
LESS PREDICTABLE THAN USUAL, WHICH IMPAIRS OUR ABILITY TO PREDICT THE AMOUNT
OF
SUCH COMMISSIONS THAT WE WILL RECEIVE.
We
derive
a portion of our revenues from profit sharing contingent commissions and
overrides paid by insurance companies. The aggregate of these commissions
generally accounts for 5.4% to 7.1% of the previous years total annual revenues
over the last three years. Profit sharing contingent commissions are special
revenue-sharing commissions paid by insurance companies based upon the volume
and the growth and/or profitability of the business placed with such companies
during the prior year. We primarily receive these commissions in the first
and
second quarters of each year. Override commissions are paid by insurance
companies based on the volume of business that we place with them and are
generally paid over the course of the year. Due to recent changes in our
industry, including the agreement of at least one carrier with government
regulators to cease payment of certain of such commissions and including changes
in underwriting criteria due in part to the high loss ratios experienced by
insurance companies, we cannot predict the payment of these commissions as
well
as we have been able to in the past. Further, we have no control over the
ability of insurance companies to estimate loss reserves, which affects our
ability to make profit-sharing calculations. Because these commissions affect
our revenues, any decrease in their payment to us could adversely affect the
results of our operations and our financial condition.
OUR
BUSINESS, RESULTS OF OPERATIONS, FINANCIAL CONDITION OR LIQUIDITY MAY BE
MATERIALLY ADVERSELY AFFECTED BY ERRORS AND OMISSIONS.
We
have
extensive operations and are subject to claims and litigation in the ordinary
course of business resulting from alleged errors and omissions. Because we
often
assist our clients with matters, including the placement of insurance coverage
and the handling of related claims, that involve substantial amounts of money,
errors and omissions claims against us may in turn allege our potential
liability for all or part of the amounts in question, claimants can seek large
damage awards and these claims can involve potentially significant defense
costs. Errors and omissions could include, for example, our employees or
sub-agents failing, whether negligently or intentionally, to place coverage
or
to notify insurance companies of claims on behalf of clients, to provide
insurance companies with complete and accurate information relating to the
risks
being insured or to appropriately apply funds that we hold for our clients
on a
fiduciary basis. It is not always possible to prevent and detect errors and
omissions and the precautions we take may not be effective in all cases. While
most of the errors and omissions claims made against us have, subject to our
self-insured deductibles, been covered by our professional liability insurance,
our results of operations, financial condition or liquidity may be adversely
affected if in the future our insurance coverage proves to be inadequate or
unavailable or there is an increase in liabilities for which we self-insure.
In
addition, errors and omissions claims may harm our reputation or divert
management resources away from operating our business.
WE
HAVE NOT DETERMINED THE AMOUNT OF RESOURCES AND THE TIME THAT WILL BE NECESSARY
TO ADEQUATELY RESPOND TO RAPID TECHNOLOGICAL CHANGE IN OUR INDUSTRY, WHICH
MAY
ADVERSELY AFFECT OUR BUSINESS AND OPERATING RESULTS.
Frequent
technological changes, new products and services and evolving industry standards
are all influencing the insurance business. The Internet, for example, is
increasingly used to transmit benefits and related information to clients and
to
facilitate business-to-business information exchange and transactions. We
believe that the development and implementation of new technologies will require
additional investment of our capital resources in the future. We have not
determined, however, the amount of resources and the time that this development
and implementation may require, which may result in short-term, unexpected
interruptions to our business, or may result in a competitive disadvantage
in
price and/or efficiency, as we endeavor to develop or implement new
technologies.
QUARTERLY
AND ANNUAL VARIATIONS IN OUR COMMISSIONS THAT RESULT FROM THE TIMING OF POLICY
RENEWALS AND THE NET EFFECT OF NEW AND LOST BUSINESS PRODUCTION MAY HAVE
UNEXPECTED EFFECTS ON OUR RESULTS OF OPERATIONS.
Our
commission income (including contingent commissions but excluding fees), can
vary quarterly or annually due to the timing of policy renewals and the net
effect of new and lost business production. The factors that cause these
variations are not within our control. Specifically, consumer demand for
insurance products can influence the timing of renewals, new business and lost
business, which includes generally policies that are not renewed, and
cancellations. In addition, as discussed, we rely on insurance companies for
the
payment of certain commissions. Because these payments are processed internally
by these insurance companies, we may not receive a payment that is otherwise
expected from a particular insurance company in one of our quarters or years
until after the end of that period, which can adversely affect our ability
to
budget for significant future expenditures. Quarterly and annual fluctuations
in
revenues based on increases and decreases associated with the timing of policy
renewals have had an adverse effect on our financial condition in the past,
and
we may experience such effects in the future.
WE
MAY EXPERIENCE VOLATILITY IN OUR STOCK PRICE THAT COULD AFFECT YOUR INVESTMENT.
The
market price of our common stock may be subject to significant fluctuations
in
response to various factors, including: quarterly fluctuations in our operating
results; changes in securities analysts' estimates of our future earnings;
and
our loss of significant customers or significant business developments relating
to us or our competitors. Our common stock's market price also may be affected
by our ability to meet analysts' expectations and any failure to meet such
expectations, even if minor, could cause the market price of our common stock
to
decline. In addition, stock markets have generally experienced a high level
of
price and volume volatility, and the market prices of equity securities of
many
companies have experienced wide price fluctuations not necessarily related
to
the operating performance of such companies. These broad market fluctuations
may
adversely affect our common stock's market price. In the past, securities class
action lawsuits frequently have been instituted against companies following
periods of volatility in the market price of such companies' securities. If
any
such litigation is instigated against us, it could result in substantial costs
and a diversion of management's attention and resources, which could have a
material adverse effect on our business, results of operations and financial
condition.
THE
LOSS OF ANY MEMBER OF OUR SENIOR MANAGEMENT TEAM, PARTICULARLY OUR CHAIRMAN
AND
CHIEF EXECUTIVE OFFICER, J. HYATT BROWN, COULD ADVERSELY AFFECT OUR FINANCIAL
CONDITION AND FUTURE OPERATING RESULTS.
We
believe that our future success depends, in part, on our ability to attract
and
retain experienced personnel, including its senior management, brokers and
other
key personnel. The loss of any of our senior managers or other key personnel,
or
our inability to identify, recruit and retain such personnel, could materially
and adversely affect our business, operating results and financial condition.
Although we operate with a decentralized management system, the loss of the
services of J. Hyatt Brown, our Chairman, and Chief Executive Officer, who
beneficially owned approximately 16% of our outstanding common stock as
of February 2, 2006, and is key to the development and implementation of
our business strategy, could adversely affect our financial condition and future
operating results. We maintain a $5 million "key man" life insurance policy
with
respect to Mr. Brown. We also maintain a $20 million insurance policy on the
lives of Mr. Brown and his wife. Under the terms of an agreement with Mr. and
Mrs. Brown, at the option of the Brown estate, we will purchase, upon the death
of the later to die of Mr. Brown or his wife, shares of our common stock owned
by Mr. and Mrs. Brown up to the maximum number that would exhaust the proceeds
of the policy.
CERTAIN
OF OUR EXISTING STOCKHOLDERS HAVE SIGNIFICANT CONTROL.
At
February 2, 2006, our executive officers, directors and certain of their family
members collectively beneficially owned approximately 20% of our outstanding
common stock, of which J. Hyatt Brown, our Chairman and Chief Executive Officer,
beneficially owned approximately 16%. As a result, our executive officers,
directors and certain of their family members have significant influence over
(1) the election of our Board of Directors, (2) the approval or
disapproval of any other matters requiring stockholder approval, and
(3) the affairs and policies of Brown and Brown.
RECENTLY
ENACTED CHANGES IN THE SECURITIES LAWS AND REGULATIONS MAY TO INCREASE OUR
COSTS.
The
Sarbanes-Oxley Act of 2002 that became law in July 2002 has required changes
in
some of our corporate governance, securities disclosure and compliance
practices. In response to the requirements of that Act, the Securities and
Exchange Commission and the New York Stock Exchange have promulgated new rules
on a variety of subjects. Compliance with these new rules has increased our
legal and financial and accounting costs, and we expect these increased costs
to
continue indefinitely. We also expect these developments to make it more
difficult and more expensive for us to obtain director and officer liability
insurance, and we may be forced to accept reduced coverage or incur
substantially higher costs to obtain coverage. Likewise, these developments
may
make it more difficult for us to attract and retain qualified members of our
board of directors or qualified executive officers.
DUE
TO INHERENT LIMITATIONS, THERE CAN BE NO ASSURANCE THAT OUR SYSTEM OF DISCLOSURE
AND INTERNAL CONTROLS AND PROCEDURES WILL BE SUCCESSFUL IN PREVENTING ALL ERRORS
OR FRAUD, OR IN INFORMING MANAGEMENT OF ALL MATERIAL INFORMATION IN TIMELY
MANNER.
Our
management, including our CEO and CFO, does not expect that our disclosure
controls and internal controls and procedures will prevent all error and all
fraud. A control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control
system are met. Further, the design of a control system reflects that there
are
resource constraints, and the benefits of controls must be considered relative
to their costs. Because of the inherent limitations in all control systems,
no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the company have been detected. These
inherent limitations include the realities that judgments in decision-making
can
be faulty and that breakdowns can occur simply because of error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the
control.
The
design of any system of controls also is based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future
conditions; over time, a control may become inadequate because of changes in
conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and may not be detected.
IF
WE RECEIVE OTHER THAN AN UNQUALIFIED OPINION ON THE ADEQUACY OF OUR INTERNAL
CONTROL OVER FINANCIAL REPORTING AS OF DECEMBER 31, 2006 AND FUTURE
YEAR-ENDS AS REQUIRED BY SECTION 404 OF THE SARBANES-OXLEY ACT OF 2002,
INVESTORS COULD LOSE CONFIDENCE IN THE RELIABILITY OF OUR FINANCIAL STATEMENTS,
WHICH COULD RESULT IN A DECREASE IN THE VALUE OF YOUR
SHARES.
As
directed by Section 404 of the Sarbanes-Oxley Act of 2002, the Securities
and Exchange Commission adopted rules requiring public companies to include
an
annual report on internal control over financial reporting on Form 10-K
that contains an assessment by management of the effectiveness of the company’s
internal control over financial reporting. In addition, the public accounting
firm auditing the company’s financial statements must attest to and report on
management’s assessment of the effectiveness of the company’s internal control
over financial reporting. While we continuously conduct a rigorous review of
our
internal control over financial reporting in order to assure compliance with
the
Section 404 requirements, if our independent auditors interpret the
Section 404 requirements and the related rules and regulations differently
from us or if our independent auditors are not satisfied with our internal
control over financial reporting or with the level at which it is documented,
operated or reviewed, they may decline to attest to management’s assessment or
issue a qualified report. A qualified opinion could result in an adverse
reaction in the financial markets due to a loss of confidence in the reliability
of our financial statements.
THERE
ARE INHERENT UNCERTAINTIES INVOLVED IN ESTIMATES, JUDGMENTS AND ASSUMPTIONS
USED
IN THE PREPARATION OF FINANCIAL STATEMENTS IN ACCORDANCE WITH GAAP IN THE UNITED
STATES OF AMERICA ANY CHANGES IN ESTIMATES, JUDGMENTS AND ASSUMPTIONS COULD
HAVE
A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF
OPERATIONS.
The
consolidated and condensed Consolidated Financial Statements included in the
periodic reports we file with the Securities and Exchange Commission are
prepared in accordance with accounting principles generally accepted in the
United States (“US GAAP”). The preparation of financial statements in accordance
with GAAP in the United States of America involves making estimates, judgments
and assumptions that affect reported amounts of assets (including intangible
assets), liabilities and related reserves, revenues, expenses and income.
Estimates, judgments and assumptions are inherently subject to change in the
future, and any such changes could result in corresponding changes to the
amounts of assets, liabilities, revenues, expenses and income. Any such changes
could have a material adverse effect on our financial position and results
of
operations.
None.
We
lease
our executive offices, which are located at 220 South Ridgewood Avenue, Daytona
Beach, Florida 32114, and 3101 W. Martin Luther King Jr. Blvd., Suite 400,
Tampa, Florida 33607. We lease offices at each of our 170 locations with the
exception of the following, where we own the buildings in which our offices
are
located: Dansville and Jamestown, New York. In addition, we own a building
in Loreauville, Louisiana where we no longer have an office, as well as a parcel
of undeveloped property outside of Lafayette, Louisiana. There are no
outstanding mortgages on our owned properties. Our operating leases expire
on various dates. These leases generally contain renewal options and rent
escalation clauses based on increases in the lessors’ operating expenses and
other charges. We expect that most leases will be renewed or replaced upon
expiration. We believe that our facilities are suitable and adequate for
present purposes, and that the productive capacity in such facilities is
substantially being utilized. From time to time, we may have unused space
and seek to sublet such space to third parties, depending on the demand for
office space in the locations involved. In the future, we may need to
purchase, build or lease additional facilities to meet the requirements
projected in our long-term business plan. See Note 13 to the Consolidated
Financial Statements for additional information on our lease commitments.
See
Note
13 to the Consolidated Financial Statements for information regarding our legal
proceedings.
No
matters were submitted to a vote of security holders during our fourth quarter
ended December 31, 2005.
Our
common stock is listed on the New York Stock Exchange (NYSE) under the symbol
“BRO”. The table below sets forth, for the quarterly periods indicated, the
intra-day high and low sales prices for our common stock as reported on the
NYSE
Composite Tape and dividends declared on our common stock. All per share amounts
have been restated to give effect to the two-for-one common stock split effected
on November 28, 2005.
|
High
|
Low
|
Cash
Dividends
Per
Common
Share
|
||||||||
|
2004
|
||||||||||
|
First
Quarter
|
$
|
19.72
|
$
|
16.01
|
$
|
0.035
|
||||
|
Second
Quarter
|
$
|
21.84
|
$ |
18.47
|
$
|
0.035
|
||||
|
Third
Quarter
|
$
|
23.08
|
$
|
20.18
|
$
|
0.035
|
||||
|
Fourth
Quarter
|
$
|
23.38
|
$
|
19.30
|
$
|
0.040
|
||||
|
2005
|
|
|||||||||
|
First
Quarter
|
$
|
24.27
|
$
|
21.13
|
$
|
0.040
|
||||
|
Second
Quarter
|
$
|
23.75
|
$
|
21.00
|
$
|
0.040
|
||||
|
Third
Quarter
|
$
|
25.39
|
$
|
21.31
|
$
|
0.040
|
||||
|
Fourth
Quarter
|
$
|
31.90
|
$
|
23.85
|
$
|
0.050
|
||||
On
March
10, 2006, there were 139,397,938 shares of our common stock outstanding, held
by
approximately 1,238 shareholders of record.
We
intend
to continue to pay quarterly dividends, subject to continued capital
availability and a determination that cash dividends continue to be in the
best
interests of our stockholders. Our dividend policy may be affected by, among
other items, our views on potential future capital requirements, including
those
relating to creation and expansion of sales distribution channels and
investments and acquisitions, legal risks, stock repurchase programs and
challenges to our business model.
Equity
Compensation Plan Information
The
following table sets forth information as of December 31, 2005, with
respect to compensation plans under which the Company’s equity securities are
authorized for issuance:
|
Plan
Category
|
Number
of Securities to be issued
upon
exercise
of outstanding
options,
warrants
and
rights (a)
|
Weighted-average
exercise price
of
outstanding
options,
warrants
and
rights (b)
|
Number
of securities remaining available for
future
issuance under equity compensation
plans
(excluding securities reflected
in
column (a)) (c)
|
|||
|
|
||||||
|
Equity
compensation plans approved
by shareholders
|
2,016,988
|
$10.69
|
15,187,482
|
|||
| Equity compensation plans not approved by shareholders |
-
|
-
|
-
|
|||
|
Total
|
2,016,988
|
$10.69
|
15,187,482
|
Sales
of Unregistered Securities
We made
no sales of unregistered securities during the fourth quarter of 2005.
Issuer
Purchases of Equity Securities
We
did
not purchase any shares of Brown & Brown, Inc. common stock during the
fourth quarter of 2005.
ITEM
6. Selected
Financial Data.
The
following selected Consolidated Financial Data for each of the five fiscal
years
in the period ended December 31, 2005 have been derived from our Consolidated
Financial Statements. Such data should be read in conjunction with
Management’s Discussion and Analysis of Financial Condition and Results of
Operations in Item 7 of Part II of this Annual Report and with our Consolidated
Financial Statements and related Notes thereto in Item 8 of Part II of this
Annual Report.
| (in thousands, except per share data, number of employees and percentages) (1) |
Year
Ended December
31,
|
|||||||||||||||
|
2005
|
2004
|
2003
|
2002
|
2001
|
||||||||||||
|
REVENUES
|
||||||||||||||||
|
Commissions
& fees (2)
|
$
|
775,543
|
$
|
638,267
|
$
|
545,287
|
$
|
452,289
|
$
|
359,697
|
||||||
|
Investment
income
|
6,578
|
2,715
|
1,428
|
2,945
|
3,686
|
|||||||||||
|
Other
income
|
3,686
|
5,952
|
4,325
|
508
|
1,646
|
|||||||||||
|
Total
revenues
|
785,807
|
646,934
|
551,040
|
455,742
|
365,029
|
|||||||||||
|
EXPENSES
|
||||||||||||||||
|
Employee
compensation and benefits
|
374,943
|
314,221
|
268,372
|
224,755
|
187,653
|
|||||||||||
|
Non-cash
stock grant compensation
|
3,337
|
2,625
|
2,272
|
3,823
|
1,984
|
|||||||||||
|
Other
operating expenses
|
105,622
|
84,927
|
74,617
|
66,554
|
56,815
|
|||||||||||
|
Amortization
|
33,245
|
22,146
|
17,470
|
14,042
|
15,860
|
|||||||||||
|
Depreciation
|
10,061
|
8,910
|
8,203
|
7,245
|
6,536
|
|||||||||||
|
Interest
|
14,469
|
7,156
|
3,624
|
4,659
|
5,703
|
|||||||||||
|
Total
expenses
|
541,677
|
439,985
|
374,558
|
321,078
|
274,551
|
|||||||||||
|
Income
before income taxes and minority interest
|
244,130
|
206,949
|
176,482
|
134,664
|
90,478
|
|||||||||||
|
Income
taxes
|
93,579
|
78,106
|
66,160
|
49,271
|
34,834
|
|||||||||||
|
Minority
interest, net of tax
|
-
|
-
|
-
|
2,271
|
1,731
|
|||||||||||
|
Net
income
|
$
|
150,551
|
$
|
128,843
|
$
|
110,322
|
$
|
83,122
|
$
|
53,913
|
||||||
|
EARNINGS
PER SHARE INFORMATION
|
||||||||||||||||
|
Net
income per share - diluted
|
$
|
1.08
|
$
|
0.93
|
$
|
0.80
|
$
|
0.61
|
$
|
0.43
|
||||||
|
Weighted
average number of shares outstanding - diluted
|
139,776
|
138,888
|
137,794
|
136,086
|
126,444
|
|||||||||||
|
Dividends
declared per share
|
$
|
0.1700
|
$
|
0.1450
|
$
|
0.1213
|
$
|
0.1000
|
$
|
0.0800
|
||||||
|
YEAR-END
FINANCIAL POSITION
|
||||||||||||||||
|
Total
assets
|
$
|
1,608,660
|
$
|
1,249,517
|
$
|
865,854
|
$
|
754,349
|
$
|
488,737
|
||||||
|
Long-term
debt
|
$
|
214,179
|
$
|
227,063
|
$
|
41,107
|
$
|
57,585
|
$
|
78,195
|
||||||
|
Shareholders'
equity (3)
|
$
|
764,344
|
$
|
624,325
|
$
|
498,035
|
$
|
391,590
|
$
|
175,285
|
||||||
|
Total
shares outstanding
|
139,383
|
138,318
|
137,122
|
136,356
|
126,388
|
|||||||||||
|
OTHER
INFORMATION
|
||||||||||||||||
|
Number
of full-time equivalent employees
|
4,540
|
3,960
|
3,517
|
3,384
|
2,921
|
|||||||||||
|
Revenue
per average number of employees
|
$
|
184,896
|
$
|
173,046
|
$
|
159,699
|
$
|
144,565
|
$
|
144,166
|
||||||
|
Book
value per share at year-end
|
$
|
5.48
|
$
|
4.51
|
$
|
3.63
|
$
|
2.87
|
$
|
1.39
|
||||||
|
Stock
price at year-end
|
$
|
30.54
|
$
|
21.78
|
$
|
16.31
|
$
|
16.16
|
$
|
13.65
|
||||||
|
Stock
price earnings multiple at year-end
|
28.35
|
23.41
|
20.38
|
26.49
|
32.12
|
|||||||||||
|
Return
on beginning shareholders' equity
|
24%
|
|
26%
|
|
28%
|
|
47%
|
|
46%
|
|
||||||
|
(1)
|
All
share and per share information has been restated to give effect
to a
two-for-one common stock split that became effective November 28,
2005.
|
|
(2)
|
See
Note 2 to the Consolidated Financial Statements for information regarding
business purchase transactions which impact the comparability of
this
information.
|
|
(3)
|
Shareholders’
equity as of December 31, 2005, 2004, 2003, 2002 and 2001 included
net
increases of $4,446,000, $4,467,000, $4,227,000, $2,106,000 and
$4,393,000, respectively, as a result of the Company’s applications of
Statement of Financial Accounting Standards (SFAS) 115, “Accounting for
Certain Investments in Debt and Equity Securities,” and SFAS 133,
“Accounting for Derivatives Instruments and Hedging Activities.”
|
GENERAL
The
following discussion should be read in conjunction
with our
Consolidated Financial Statements and the related Notes
to
those Consolidated Financial Statements, included
elsewhere in this Annual Report. All share and per share information has been
restated to give effect to a two-for-one common stock split that become
effective November 28, 2005.
We are a diversified insurance agency, brokerage and services organization
headquartered in Daytona Beach and Tampa, Florida. Since 1993, our stated
corporate objective has been to increase our net income per share by at least
15% every year. We have increased revenues from $95.6 million in 1993 (as
originally stated, without giving effect to any subsequent acquisitions
accounted for under the pooling-of-interests method
of
accounting) to $785.8 million in 2005, a compound
annual
growth rate of 19.2%. In the same period, we increased net income from $8.0
million (as originally stated, without giving effect to any subsequent
acquisitions accounted for under the pooling-of-interests method of accounting)
to $150.6 million in 2005, a compound annual
growth
rate of 27.7%. We have also increased net income per share 15.0% or more for
13
consecutive years, excluding the effect of a one-time investment gain of $1.3
million in 1994 and favorable adjustments to our income tax reserves
of
$0.7
million in 1994 and $0.5 million in 1995, respectively.
Since 1993, excluding the historical impact of poolings, our
pre-tax margins (income before income taxes and minority interest divided by
total revenues) improved in all but one year, and in that year, the pre-tax
margin was essentially flat. These improvements
have resulted primarily from net new business
growth
(new business production offset by lost business), revenues generated by
acquisitions and continued operating efficiencies. Our revenue growth in 2005
was driven by: (i) net new business growth; and (ii) the acquisition of 32
agency entities and several books of business (customer accounts), generating
total annualized revenues of approximately $125.9 million.
Our
commissions and fees revenue are comprised of commissions paid by insurance
companies and fees paid directly by customers. Commission revenues generally
represent a percentage of the premium paid by the insured and are materially
affected by fluctuations in both premium rate
levels charged by insurance companies and the insureds’
underlying “insurable exposure units,” which are units that insurance companies
use to measure or express insurance exposed to risk (such as property values,
sales and payroll levels) so as to determine what premium to charge the insured.
These premium rates are established by insurance companies based upon many
factors, including reinsurance rates, none of which we control. Beginning in
1986 and continuing through 1999, commission revenues were adversely influenced
by a consistent decline in premium rates resulting from intense competition
among property and casualty insurance companies for market share. Among other
factors, this condition of a prevailing decline in premium rates, commonly
referred to as a “soft market,” generally resulted in flat to reduced
commissions on renewal business. The effect of this softness in rates on our
commission revenues was somewhat offset by our acquisitions and net new business
production. As a result of increasing “loss ratios” (the comparison of incurred
losses plus adjustment expenses against earned premiums) of insurance companies
through 1999, there was a general increase in premium rates beginning in the
first quarter of 2000 and continuing into 2003. During 2003, the increases
in
premium rates began to moderate, and in certain lines of insurance, premium
rates decreased. In 2004, as general premium rates continued to moderate, the
insurance industry experienced the worst hurricane season since 1992 when
Hurricane Andrew hit south Florida. The insured losses from the 2004 hurricane
season were absorbed relatively easily by the insurance industry and the general
insurance premium rates continued to soften during 2005. During the third
quarter of 2005, the insurance industry experienced the worst hurricane season
ever recorded. Primarily as a result of these hurricanes, including Hurricanes
Katrina, Rita and Wilma, the total insured losses are estimated to be in excess
of $50 billion. The full impact that the 2005 insured losses will have on the
insurance premium rates charged by insurance companies for 2006 is unknown,
however, there appears to be a general consensus that there will be upward
pressure on at least the insurance premium rates on coastal property, primarily
in the southeastern part of the United States.
The
volume of business from new and existing insured customers,
fluctuations in insurable exposure units and changes in general
economic and competitive conditions further impact
our revenues. For example, the increasing costs of litigation settlements and
awards have caused some customers
to seek higher levels of insurance coverage. Conversely,
level
rates of inflation and the general decline of
economic activity in recent years have limited the increases
in the
values of insurable exposure units. Still, our revenues
continue to grow as a result of an intense focus on net new business growth
and
acquisitions. We anticipate that results of operations will continue to be
influenced by these competitive and economic conditions in 2006.
We
also
earn “contingent commissions,” which are profit-sharing
commissions based primarily on underwriting
results,
but may also reflect considerations for volume, growth and/or retention. These
commissions are primarily received in the first and second quarters of each
year, based on underwriting results and other aforementioned considerations
for
the prior year(s), and, over the last three years, have averaged approximately
6.0% of the previous year’s total commissions and fees revenue. Contingent
commissions are included in our total commissions
and fees in the Consolidated Statements of Income in the year received. The
term
“core commissions and fees” excludes contingent commissions and therefore
represents
the revenues earned directly from specific insurance
policies
sold, and specific fee-based services rendered.
Fee
revenues are generated primarily by our Services Division,
which provides insurance-related services, including
third-party administration and consulting for the self-funded workers’
compensation markets.
In each of the past three years, fee revenues generated by the Services
Division
have declined as a percentage of our total commissions and fees, from 5.1%
in
2003 to 3.4% in 2005. This declining trend is anticipated to continue as the
revenues from our other reportable segments grow at a faster pace.
Investment
income consists primarily of interest earnings on premiums and advance premiums
collected and held in a fiduciary capacity before being remitted to insurance
companies. Our policy is to invest available funds in high-quality, short-term
fixed income investment securities. Investment income also includes gains and
losses realized from the sale of investments.
Acquisitions
During
2005, we acquired the assets of 32 insurance
intermediary operations and several books of business (customer accounts).
The
aggregate purchase price was $288.6 million, including $244.0 million of net
cash payments, the issuance of $38.1 million in notes payable and the assumption
of $6.5 million of liabilities. These acquisitions had estimated aggregate
annualized revenues of $125.9 million.
During
2004, we acquired the assets of 29 insurance intermediary operations, several
books of business (customer accounts) and the outstanding stock of three general
insurance agencies. The aggregate purchase price was $199.3 million, including
$190.6 million of net cash payments, the issuance of $1.4 million in notes
payable and the
assumption of $7.3 million of liabilities. These acquisitions
had
estimated aggregate annualized revenues of $104.1 million.
During
2003, we acquired the assets and certain liabilities of 23 insurance
intermediary operations, as well as the remaining 25% minority interest in
Florida Intracoastal Underwriters, and several books of business (customer
accounts). The aggregate purchase price was $86.2 million including $84.5
million of net cash payments, the issuance of $1.5 million in notes payable
and
the assumption of $0.2 million of liabilities. These acquisitions had estimated
aggregate annualized revenues of $45.8 million.
Critical
Accounting Policies
Our
Consolidated Financial Statements are prepared in
accordance with accounting principles generally accepted in
the
United States of America (GAAP). The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts
of
assets, liabilities, revenues and expenses. We continually evaluate our
estimates, which are based on historical experience and on various other
assumptions that we believe to be reasonable
under the circumstances. These estimates form the basis for our judgments about
the carrying values of our assets and liabilities, which values are not readily
apparent
from other sources. Actual results may differ from these estimates under
different assumptions or conditions.
We
believe that, of our significant accounting policies (see “Note 1 - Summary of
Significant Accounting Policies” of the Notes to Consolidated Financial
Statements), the following critical accounting policies may involve a higher
degree of judgment and complexity.
Revenue
Recognition
Commission
revenues are recognized as of the effective date
of
the insurance policy or the date the policy premium is billed to the
customer,
whichever is later. At that date, the earnings process has been completed,
and
we can reliably estimate the impact of policy cancellations for refunds and
establish reserves accordingly. Management determines the policy cancellation
reserve based upon historical cancellation experience adjusted by known
circumstances. Subsequent commission adjustments are recognized upon
notification from the insurance
companies. Contingent commissions from insurance
companies are recognized when determinable, which is when such commissions
are
received. Fee revenues are recognized as services are rendered.
Business
Acquisitions and Purchase Price Allocations
We
have
significant intangible assets that were acquired through
business acquisitions. These assets consist of purchased
customer accounts, noncompete agreements, and the excess of costs over the
fair
value of identifiable net assets acquired (goodwill). The determination of
estimated useful lives and the allocation of the purchase price to the
intangible assets requires significant judgment and affects the amount of future
amortization and possible impairment charges.
In
accordance with Statement of Financial Accounting Standards (SFAS) No. 141,
“Business Combinations,” all of our business combinations initiated after June
30, 2001 have been accounted for using the purchase method. In connection with
these acquisitions, we record the estimated value of the net tangible assets
purchased and the value of the identifiable intangible assets purchased, which
typically consist of purchased customer accounts
and noncompete agreements. Purchased customer accounts
include the physical records and files obtained from acquired businesses that
contain information about insurance policies, customers and other matters
essential to policy renewals, but it primarily represents the present value
of
the underlying cash flows expected to be received over the estimated future
renewal periods of insurance policies comprising those purchased customer
accounts. The valuation of purchased customer accounts involves significant
estimates and assumptions concerning matters such as cancellation frequency,
expenses and discount rates. Any change in these assumptions could affect the
carrying value of purchased customer accounts. Noncompete agreements are valued
based on the duration and any unique features of each specific agreement.
Purchased customer accounts and noncompete agreements are amortized on a
straight-line basis over the related estimated lives and contract periods,
which
range from five to 15 years. The excess of the purchase price of an acquisition
over the fair value of the identifiable tangible and intangible assets is
assigned to goodwill and is no longer amortized, in accordance with SFAS No.
142, “Goodwill and Other Intangible Assets” (SFAS No. 142).
Intangible
Assets Impairment
Effective
January 1, 2002, we adopted SFAS No. 142, which requires that goodwill be
subject to at least an annual assessment for impairment by applying a fair-value
based test. Amortizable intangible assets are amortized over their useful lives
and are subject to lower-of-cost-or-market impairment testing. SFAS No. 142
requires us to compare the fair value of each reporting unit with its carrying
value to determine if there is potential impairment of goodwill. If the fair
value of the reporting unit is less than its carrying value, an impairment
loss
would be recorded to the extent that the fair value of the goodwill within
the
reporting unit is less than its carrying value. Fair value is estimated based
on
multiples of revenues, earnings before interest, income taxes, depreciation
and
amortization (EBITDA), and pre-tax income.
Management
assesses the recoverability of our goodwill on an annual basis, and of our
amortizable intangibles and other long-lived assets whenever events or changes
in circumstances
indicate that the carrying value may not be recoverable. The
following factors, if present, may trigger an impairment review: (i) significant
underperformance relative to historical
or projected future operating results; (ii) significant
negative
industry or economic trends; (iii) significant decline in our stock price for
a
sustained period; and (iv) significant decline in our market capitalization.
If
the recoverability of these assets is unlikely because of the existence of
one
or more of the above-referenced factors, an impairment analysis is performed.
Management must make assumptions regarding estimated future cash flows and
other
factors to determine the fair value of these assets. If these estimates or
related assumptions change in the future, we may be required to revise the
assessment and, if appropriate, record an impairment charge. We completed our
most recent evaluation of impairment for goodwill as of November 30, 2005 and
identified no impairment as a result of the evaluation.
Reserves
for Litigation
We
are
subject to numerous litigation claims that arise in the ordinary course of
business. In accordance with SFAS No. 5, “Accounting for Contingencies,” if it
is probable that an asset has been impaired or a liability has been incurred
at
the date of the
financial statements and the amount of the loss is estimable, an accrual for
the
costs to resolve these claims is recorded in accrued expenses in the
accompanying Consolidated Balance Sheets. Professional
fees
related to these claims are included in other operating expenses in the
accompanying Consolidated Statements of Income.
Management, with the assistance of outside counsel,
determines whether it is probable that a liability has been incurred and
estimates the amount of loss based upon analysis of individual issues. New
developments or changes in settlement
strategy in dealing with these matters may significantly
affect
the required reserves and impact our net income.
Derivative
Instruments
In
2002,
we entered into one derivative financial instrument - an interest rate exchange
agreement, or “swap” - to manage the exposure to fluctuations in interest rates
on our $90 million variable rate debt. As of
December
31, 2005, we maintained this swap agreement, whereby
we pay a fixed rate on the notional amount to a bank and the bank pays us a
variable rate on the notional amount equal to a base London InterBank Offering
Rate (LIBOR). We have assessed this derivative as a highly effective cash flow
hedge, and accordingly, changes in the fair market value of the swap are
reflected in other comprehensive income. The fair market value of this
instrument is determined by quotes obtained from the related counter-parties
in
combination with a valuation model utilizing discounted cash flows. The
valuation
of this derivative instrument is a significant estimate
that is
largely affected by changes in interest rates. If interest rates increase or
decrease, the value of this instrument will change accordingly.
New
Accounting Pronouncements
See
Note
1 of the Notes to Consolidated Financial Statements for a discussion of the
effects of the adoption of new accounting standards.
RESULTS
OF OPERATIONS FOR THE YEARS ENDED DECEMBER
31, 2005, 2004 AND 2003
The
following discussion and analysis regarding results of operations and liquidity
and capital resources should be considered in conjunction with the accompanying
Consolidated Financial Statements and related Notes.
Financial
information relating to our Consolidated Financial Results is as follows (in
thousands, except percentages):
|
2005
|
Percent
Change
|
2004
|
Percent
Change
|
2003
|
|||||||||||||
|
REVENUES
|
|||||||||||||||||
|
Commissions
and fees
|
$
|
740,567
|
21.9
|
%
|
$
|
607,615
|
18.5
|
%
|
$
|
512,753
|
|||||||
|
Contingent
commissions
|
34,976
|
14.1
|
%
|
30,652
|
(5.8)
|
%
|
32,534
|
||||||||||
|
Investment
income
|
6,578
|
142.3
|
%
|
2,715
|
90.1
|
%
|
1,428
|
||||||||||
|
Other
income, net
|
3,686
|
(38.1)
|
%
|
5,952
|
37.6
|
%
|
4,325
|
||||||||||
|
Total
revenues
|
785,807
|
21.5
|
%
|
646,934
|
17.4
|
%
|
551,040
|
||||||||||
|
EXPENSES
|
|||||||||||||||||
|
Employee
compensation and benefits
|
374,943
|
19.3
|
%
|
314,221
|
17.1
|
%
|
268,372
|
||||||||||
|
Non-cash
stock grant compensation
|
3,337
|
27.1
|
%
|
2,625
|
15.5
|
%
|
2,272
|
||||||||||
|
Other
operating expenses
|
105,622
|
24.4
|
%
|
84,927
|
13.8
|
%
|
74,617
|
||||||||||
|
Amortization
|
33,245
|
50.1
|
%
|
22,146
|
26.8
|
%
|
17,470
|
||||||||||
|
Depreciation
|
10,061
|
12.9
|
%
|
8,910
|
8.6
|
%
|
8,203
|
||||||||||
|
Interest
|
14,469
|
102.2
|
%
|
7,156
|
97.5
|
%
|
3,624
|
||||||||||
|
Total
expenses
|
541,677
|
23.1
|
%
|
439,985
|
17.5
|
%
|
374,558
|
||||||||||
|
Income
before income taxes
|
$
|
244,130
|
18.0
|
%
|
$
|
206,949
|
17.3
|
%
|
$
|
176,482
|
|||||||
|
Net
internal growth rate - core commissions
and fees
|
3.1%
|
|
4.3%
|
|
5.9
|
||||||||||||
|
Employee
compensation and benefits ratio
|
47.7%
|
|
48.6%
|
|
48.7
|
||||||||||||
|
Other
operating expenses ratio
|
13.4%
|
|
13.1%
|
|
13.5
|
||||||||||||
|
Capital
expenditures
|
$
|
13,426
|
$
|
10,152
|
$
|
15,946
|
|||||||||||
|
Total
assets at December 31
|
$
|
1,608,660
|
$
|
1,249,517
|
$
|
865,854
|
|||||||||||
Commissions
and Fees
Commissions
and
fees
revenue, including contingent commissions, increased 21.5% in 2005, 17.1% in
2004 and 20.6% in 2003. Core commissions and fees revenue increased 3.1% in
2005, 4.3% in 2004 and 5.9% in 2003, when excluding commissions and fees revenue
generated from acquired operations and also from divested operations. The 2005
results reflect the continued moderation of the premium rate growth that began
in 2004 compared with the slightly higher premium growth rates that occurred
in
2003.
Investment
Income
Investment
income increased
to $6.6 million in 2005, compared with $2.7 million in 2004 and $1.4 million
in
2003.
The
increases in 2005 over 2004, and 2004 over 2003 were primarily the result of
higher
investment yields earned each sequential year along with higher average
available cash balances for each successive year.
Other
Income, net
Other
income consists primarily of gains and losses from the sale and
disposition of assets. In 2005, gains of $2.7 million were recognized from
the
sale of customer accounts as compared with $4.8 million and $4.0 million in
2004
and 2003, respectively. Although we are not in the business of selling customer
accounts, we periodically will sell an office or a book of business (one or
more
customer accounts) that does not produce reasonable margins or demonstrate
a
potential for growth. For these reasons, in 2004, we sold all four of our retail
offices in North Dakota and our sole remaining operation in the medical
third-party administration services business.
Employee
Compensation and Benefits
Employee
compensation and benefits increased
approximately 19.3% in 2005, 17.1% in 2004 and 19.4% in 2003, primarily as
a
result of acquisitions and an increase in
commissions paid on net new business. Employee compensation and benefits as
a
percentage of total revenues were 47.7%
in 2005,
48.6% in 2004 and 48.7% in 2003, reflecting a gradual improvement in personnel
efficiencies as revenues grow. We had 4,540 full-time equivalent employees
at
December 31, 2005, compared with 3,960 at December 31, 2004 and 3,517 at
December 31, 2003.
Non-Cash
Stock Grant Compensation
Non-cash
stock grant compensation expense represents the
expense required to be recorded under Accounting Principles Board Opinion (APB)
No. 25, “Accounting for Stock
Issued to Employees,” relating to our stock performance
plan,
which is more fully described in Note 11 of the Notes to Consolidated Financial
Statements.
The
annual cost of this stock performance plan increases only when our average
stock
price over a 20-trading-day period increases by increments of 20% or
more
from
the price at the time of the original grant, or when additional
shares are granted and the average stock price increases.
Since
the
first vesting condition for performance stock grants issued in 2001 was
satisfied in 2002, when a 20-trading-day average stock price of $17.50 was
reached, we issued another significant set of performance stock grants in
January 2003 at a grant price per share of $17.50. There will be no expense
relating to this set of performance stock grants until the 20-trading-day
average stock price exceeds the $17.50 performance stock grant price by an
increment of 20%. Additionally, other grants are periodically issued to new
and
existing employees.
During
2004, the average stock price exceeded the $21.00 average price for a
20-trading-day period required for the first 20% of the shares granted in
January 2003 to be awarded, and therefore we began the annual expensing of
such
shares. As a result, the 2004 expense increased to $2.6 million from $2.3
million in 2003. During 2005, the average stock price exceeded the $28.00
average price for a 20-trading-day period required for the second and third
20%
increments of the shares granted in January 2003 to be awarded, and as a result,
the 2005 expense increased to $3.3 million from $2.6 million in
2004.
During
2003, since the average price of our stock never exceeded any of the 20%
thresholds of the grants priced at $17.50 per share, the only expense related
to
our stock performance plan was the annual expense of grants issued prior to
2003, which was then partially offset by expense credits from forfeitures.
As a
result, the 2003 expense decreased to $2.3 million from $3.8 million in
2002.
Other
Operating Expenses
As
a
percentage of total revenues, other operating expenses increased to 13.4% in
2005 from 13.1% in 2004, which in turn was a decrease from 13.5% in 2003. Legal
and professional fee expenses increased $4.4 million in 2005 over the amount
expended in 2004, which in turn was $1.2 million greater than what was expended
in 2003. The increase in legal and professional fee expenses was primarily
the
result of the various ongoing investigations and litigation relating to agent
and broker compensation, including contingent commissions, by state regulators
and, to a lesser extent, by the requirements of compliance with the
Sarbanes-Oxley Act of 2002. Offsetting these expenses in 2004 was approximately
$1.0 million in reductions to our litigation and claims reserve. Excluding
the
impact of these increased legal and professional fee expenses, other operating
expenses declined as a percentage of total revenues each year from 2003 to
2005,
which is attributable to the effective cost containment measures brought about
by our initiative designed to identify areas of excess expense. This decrease
is
also due to the fact that, in a net internal revenue growth environment, certain
significant other operating expenses such as office rent, office supplies,
data
processing, and telephone costs, increase at a slower rate than commissions
and
fees revenue increase during the same period.
Amortization
Amortization
expense
increased $11.1 million, or 50.1% in 2005, increased $4.7 million, or 26.8%
in
2004, and
increased $3.4 million, or 24.4% in 2003. As
part
of our annual impairment assessment as of November 30, 2004, management
determined that the maximum
amortization period for the intangible asset, purchased
customer accounts, should be reduced from 20 years
to
15 years. A change in accounting estimate was recognized
to reflect this decision, resulting in an increase in the 2005 and 2004
amortization expense of $6.4 million, and $0.5 million, a decrease in
net
income of $3.9 million and $0.3 million, and a decrease of $0.03 and nil ($0)
earnings per share, respectively. The
remaining increases
in 2005
and 2004 were due to the amortization of additional intangible assets as a
result of new acquisitions.
Depreciation
Depreciation
increased 12.9% in 2005, 8.6% in 2004 and 13.2% in 2003. These increases were
primarily due to the purchase of new computers, related equipment and software,
and the depreciation associated with new acquisitions.
Interest
Expense
Interest
expense increased
$7.3
million, or 102.2%, in 2005 and $3.5 million or 97.5% in 2004 as a result of
the
funding of $200 million of unsecured senior notes in the third quarter of 2004.
Income
Taxes
The
effective tax rate on income from
operations was 38.3% in 2005, 37.7% in 2004 and 37.5% in 2003. The higher
effective tax rate in 2005, compared with 2004 and 2003, was primarily the
result of increased amounts of business conducted in states having higher state
tax rates.
RESULTS
OF OPERATIONS - SEGMENT INFORMATION
As
discussed in Note 16 of the Notes to Consolidated Financial
Statements, we operate in four reportable segments: the Retail, National
Programs, Brokerage and Service Divisions. On a divisional basis, increases
in
amortization, depreciation
and interest expenses are the result of new acquisitions within that division
in
a particular year. Likewise, other
income in each division primarily reflects net gains on sales
of
customer accounts and fixed assets. Additionally, increases in non-cash stock
grant compensation is more dependent
on increases in the Company’s 20 trading-day average stock price than on the
divisional results. As such, in evaluating the operational
efficiency of a division, management places greater emphasis on the net internal
growth rate of core commissions and fees revenue, the gradual
improvement
of
the ratio of employee compensation and benefits to total revenues, and the
gradual improvement of the ratio of other
operating expenses to total revenues.
Retail
Division
The
Retail Division provides a broad range of insurance products
and services to commercial, public entity, professional
and individual insured customers. More than 96% of the Retail Division’s
commissions and fees revenue are commission-based.
Since the majority of our operating expenses do not
change as premiums fluctuate, we believe that most of any fluctuation
in the commissions that we receive
will be
reflected in our pre-tax income. The Retail Division’s commissions and fees
revenue accounted for 72.5% of our total
consolidated commissions and fees revenue in 2003 but declined to 63.1% in
2005,
mainly due to continued acquisitions in the National Programs and Brokerage
Divisions.
Financial
information relating to Brown & Brown’s Retail Division is as follows (in
thousands, except percentages):
|
2005
|
Percent
Change
|
2004
|
Percent
Change
|
2003
|
||||||||||||||
|
REVENUES
|
||||||||||||||||||
|
Commissions
and fees
|
$
|
461,236
|
6.8
|
%
|
$
|
431,767
|
16.4
|
%
|
$
|
371,004
|
||||||||
|
Contingent
commissions
|
28,330
|
8.3
|
%
|
26,169
|
7.3
|
%
|
24,381
|
|||||||||||
|
Investment
income
|
159
|
(72.0)
|
%
|
567
|
930.9
|
%
|
55
|
|||||||||||
|
Other
income, net
|
1,477
|
(48.1)
|
%
|
2,845
|
(20.3)
|
%
|
3,570
|
|||||||||||
|
Total
revenues
|
491,202
|
6.5
|
%
|
461,348
|
15.6
|
%
|
399,010
|
|||||||||||
|
EXPENSES
|
||||||||||||||||||
|
Employee
compensation and benefits
|
233,124
|
3.4
|
%
|
225,438
|
15.4
|
%
|
195,323
|
|||||||||||
|
Non-cash
stock grant compensation
|
2,198
|
37.5
|
%
|
1,599
|
(12.9)
|
%
|
1,835
|
|||||||||||
|
Other
operating expenses
|
81,063
|
4.2
|
%
|
77,780
|
15.3
|
%
|
67,487
|
|||||||||||
|
Amortization
|
19,368
|
26.5
|
%
|
15,314
|
22.7
|
%
|
12,476
|
|||||||||||
|
Depreciation
|
5,641
|
(1.6)
|
%
|
5,734
|
(0.6)
|
%
|
5,771
|
|||||||||||
|
Interest
|
20,927
|
(4.2)
|
%
|
21,846
|
23.2
|
%
|
17,732
|
|||||||||||
|
Total
expenses
|
362,321
|
4.2
|
%
|
347,711
|
15.7
|
%
|
300,624
|
|||||||||||
|
Income
before income taxes
|
$
|
128,881
|
13.4
|
%
|
$
|
113,637
|
15.5
|
%
|
$
|
98,386
|
||||||||
|
Net
internal growth rate - core commissions
and fees
|
0.6%
|
|
2.7%
|
|
4.0%
|
|
||||||||||||
|
Employee
compensation and benefits ratio
|
47.5%
|
|
48.9%
|
|
49.0%
|
|
||||||||||||
|
Other
operating expenses ratio
|
16.5%
|
|
16.9%
|
|
16.9%
|
|
||||||||||||
|
Capital
expenditures
|
$
|
6,186
|
$
|
5,568
|
$
|
5,904
|
||||||||||||
|
Total
assets at December 31
|
$
|
1,002,781
|
$
|
843,823
|
$
|
623,648
|
||||||||||||
The
Retail Division’s total revenues in 2005 increased $29.9
million to $491.2 million, a 6.5% increase over 2004. Of this increase,
approximately $28.9 million related
to core commissions and fees revenue from acquisitions for which
there
were no comparable revenues in 2004. The remaining increase was primarily
due to
net new business growth. The Retail Division’s net internal growth rate in core
commissions and fees revenue was 0.6% in 2005, excluding revenues recognized
in
2005 from new acquisitions and the 2004 commissions and fees revenue from
divested business. The net internal growth rate of core commissions and fees
revenue for the Retail Division in 2004 and 2003 was 2.7% and 4.0%,
respectively. The decline in the net internal growth rate from core commissions
and fees revenue from 2003 to 2005 primarily reflects the softening of insurance
premium rates during that period.
Income
before income taxes in 2005 increased $15.2 million to $128.9 million, a
13.4%
increase over 2004. This increase was due to revenues from acquisitions,
a
positive net internal growth rate and the continued focus on holding our
general
expense growth rate to a lower percentage than our revenue growth rate.
The
Retail Division’s total revenues in 2004 increased $62.3
million to $461.3 million, a 15.6% increase over 2003. Of this increase,
approximately $59.9 million related
to core commissions and fees revenue from acquisitions for which
there
were no comparable revenues in 2003. The remaining increase was primarily
due to
net new business growth. During
2004, we sold our four retail offices in North Dakota and other books of
businesses in various offices. With
respect to these assets sold during 2004, $6.7 million
of
core
commissions and fees revenue were earned in 2003 for which there were no
revenues recognized in the comparable 2004 period. Therefore, the Retail
Division’s net internal growth rate in core commissions and fees revenue was
2.7% in 2004, excluding revenues recognized in 2004 from new acquisitions
and
the 2003 core commissions and fees revenue from divested business.
Income
before income taxes in 2004 increased $15.3 million to $113.6 million, a
15.5%
increase over 2003. This increase was due to revenues from acquisitions,
a
positive net internal growth rate and the continued focus on holding our
general
expense growth rate to a lower percentage than our revenue growth
rate.
National
Programs Division
The
National Programs Division is comprised of two units: Professional Programs,
which provides professional liability and related package products for certain
professionals
delivered through nationwide networks of independent
agents;
and Special Programs, which markets targeted products and services designated
for specific industries, trade groups, public entities and market niches. Like
the Retail Division, the National Programs Division’s revenues
are primarily commission-based.
Financial
information relating to our National Programs
Division
is as follows (in thousands, except percentages):
|
2005
|
Percent
Change
|
2004
|
Percent
Change
|
2003
|
||||||||||||||
|
REVENUES
|
||||||||||||||||||
|
Commissions
and fees
|
$
|
131,149
|
18.1
|
%
|
$
|
111,080
|
28.0
|
%
|
$
|
86,787
|
||||||||
|
Contingent
commissions
|
1,998
|
141.6
|
%
|
827
|
(77.0)
|
%
|
3,598
|
|||||||||||
|
Investment
income
|
367
|
164.0
|
%
|
139
|
(2.8)
|
%
|
143
|
|||||||||||
|
Other
income (loss), net
|
416
|
804.3
|
%
|
46
|
(154.8)
|
%
|
(84
|
)
|
||||||||||
|
Total
revenues
|
133,930
|
19.5
|
%
|
112,092
|
23.9
|
%
|
90,444
|
|||||||||||
|
EXPENSES
|
||||||||||||||||||
|
Employee
compensation and benefits
|
54,238
|
19.8
|
%
|
45,278
|
37.4
|
%
|
32,951
|
|||||||||||
|
Non-cash
stock grant compensation
|
359
|
52.8
|
%
|
235
|
36.6
|
%
|
172
|
|||||||||||
|
Other
operating expenses
|
20,414
|
23.1
|
%
|
16,581
|
26.5
|
%
|
13,110
|
|||||||||||
|
Amortization
|
8,103
|
37.8
|
%
|
5,882
|
31.1
|
%
|
4,488
|
|||||||||||
|
Depreciation
|
1,998
|
26.2
|
%
|
1,583
|
31.0
|
%
|
1,208
|
|||||||||||
|
Interest
|
10,433
|
21.3
|
%
|
8,603
|
26.3
|
%
|
6,810
|
|||||||||||
|
Total
expenses
|
95,545
|
22.2
|
%
|
78,162
|
33.1
|
%
|
58,739
|
|||||||||||
|
Income
before income taxes
|
$
|
38,385
|
13.1
|
%
|
$
|
33,930
|
7.0
|
%
|
$
|
31,705
|
||||||||
|
Net
internal growth rate - core commissions
and fees
|
3.9%
|
|
4.5%
|
|
11.2%
|
|
||||||||||||
|
Employee
compensation and benefits ratio
|
40.5%
|
|
40.4%
|
|
36.4%
|
|
||||||||||||
|
Other
operating expenses ratio
|
15.2%
|
|
14.8%
|
|
14.5%
|
|
||||||||||||
|
Capital
expenditures
|
$
|
3,067
|
$
|
2,693
|
$
|
2,874
|
||||||||||||
|
Total
assets at December 31
|
$
|
445,146
|
$
|
359,551
|
$
|
273,363
|
||||||||||||
Total
revenues in 2005 increased $21.8 million to $133.9
million, a 19.5% increase over 2004. Of this increase, approximately
$17.9 million related to core commissions and fees revenue from acquisitions
for
which there were no comparable revenues in 2004. The National Program Division’s
net internal growth
rate for core commissions and fees revenue was 3.9%, excluding core commissions
and fees revenue recognized in 2005 from new acquisitions. The majority of
the
internally generated growth in the 2005 core commissions and fees revenue
was
primarily related to increasing insurance premium rates in our condominium
program at our Florida Intracoastal Underwriters (FIU) profit center that
occurred as a result of the 2005 and 2004 hurricane seasons.
Income
before income taxes and minority interest in 2005 increased $4.5 million
to
$38.4 million, a 13.1% increase over 2004, of which the majority related
to the
revenues derived from acquisitions completed in 2005 and the increased earnings
at FIU.
Total
revenues in 2004 increased $21.6 million to $112.1
million, a 23.9% increase over 2003. Of this increase, approximately
$21.6 million related to core commissions and fees revenue from acquisitions
for
which there were no comparable revenues in 2003. During 2004, we discontinued
several programs,
including our professional medical program, which
generated approximately $1.2 million in revenues in
2003
but for which there were no comparable revenues in 2004.
Therefore, the National Program Division’s net internal growth
rate for core commissions and fees revenue in 2004 was 4.5%, excluding core
commissions
and fees revenue recognized in 2004 from new acquisitions and the 2003 core
commissions and fees revenue from divested business. The net internal growth
rate for core commissions and fees revenue for the National Programs Division
in
2003 was 11.2%. The decline in the net internal growth rates from core
commissions and fees revenue from 2003 to 2004 was primarily related to
declining insurance premium rates in our condominium program with our FIU
profit
center.
Income
before income taxes and minority interest in 2004 increased $2.2 million
to
$33.9 million, a 7.0% increase over 2003, of which the majority related to
the
revenues derived from acquisitions completed in 2004, but offset primarily
by
lower earnings at FIU. The ratio of employee compensation and benefits to
total
revenues and the ratio of other operating expenses to total revenue were
higher
in 2004 than 2003, primarily due to two reasons: (1) 2004 total revenues
reflected $2.8 million less profit-sharing contingency commissions income
than
in 2003 due primarily to the impact of the 2004 hurricanes in Florida, and
(2)
the 2003 and 2004 acquisitions reporting in this Division
accounted for 27% of the Division’s total revenues, but
operated at a lower aggregate operating profit margin of approximately 38.0%,
thereby diluting the historical aggregate operating profit margin of this
Division.
Brokerage
Division
The
Brokerage Division markets and sells excess and surplus commercial and personal
lines insurance and reinsurance, primarily through independent agents and
brokers. Like the Retail and National Programs Divisions, the Brokerage
Division’s revenues are primarily commission-based.
Financial
information relating to our Brokerage Division is as follows (in thousands,
except percentages):
|
2005
|
Percent
Change
|
2004
|
Percent
Change
|
2003
|
||||||||||||||
|
REVENUES
|
||||||||||||||||||
|
Commissions
and fees
|
$
|
120,889
|
218.7
|
%
|
$
|
37,929
|
39.5
|
%
|
$
|
27,183
|
||||||||
|
Contingent
commissions
|
4,648
|
27.1
|
%
|
3,656
|
(19.7)
|
%
|
4,555
|
|||||||||||
|
Investment
income
|
1,599
|
-
|
-
|
-
|
-
|
|||||||||||||
|
Other
(loss) income, net
|
(23
|
)
|
(227.8)
|
%
|
18
|
800.0
|
%
|
2
|
||||||||||
|
Total
revenues
|
127,113
|
205.5
|
%
|
41,603
|
31.1
|
%
|
31,740
|
|||||||||||
|
EXPENSES
|
||||||||||||||||||
|
Employee
compensation and benefits
|
59,432
|
200.4
|
%
|
19,782
|
47.3
|
%
|
13,426
|
|||||||||||
|
Non-cash
stock grant compensation
|
164
|
64.0
|
%
|
100
|
(39.0)
|
%
|
164
|
|||||||||||
|
Other
operating expenses
|
19,808
|
153.9
|
%
|
7,800
|
38.9
|
%
|
5,614
|
|||||||||||
|
Amortization
|
5,672
|
649.3
|
%
|
757
|
142.6
|
%
|
312
|
|||||||||||
|
Depreciation
|
1,285
|
153.0
|
%
|
508
|
53.5
|
%
|
331
|
|||||||||||
|
Interest
|
12,446
|
843.6
|
%
|
1,319
|
72.4
|
%
|
765
|
|||||||||||
|
Total
expenses
|
98,807
|
226.5
|
%
|
30,266
|
46.8
|
%
|
20,612
|
|||||||||||
|
Income
before income taxes
|
$
|
28,306
|
149.7
|
%
|
$
|
11,337
|
1.9
|
%
|
$
|
11,128
|
||||||||
|
Net
internal growth rate - core commissions
and fees
|
24.9%
|
|
14.1%
|
|
19.7%
|
|
||||||||||||
|
Employee
compensation and benefits ratio
|
46.8%
|
|
47.5%
|
|
42.3%
|
|
||||||||||||
|
Other
operating expenses ratio
|
15.6%
|
|
18.7%
|
|
17.7%
|
|
||||||||||||
|
Capital
expenditures
|
$
|
1,969
|
$
|
694
|
$
|
824
|
||||||||||||
|
Total
assets at December 31
|
$
|
476,653
|
$
|
128,699
|
$
|
74,390
|
||||||||||||
Total
revenues in 2005 increased $85.5 million to $127.1 million, a 205.5% increase
over 2004. Of this increase, approximately $73.3 million related to core
commissions and fees revenue from acquisitions for which there were no
comparable revenues in 2004. The majority of this acquired revenue was from
the
March 1, 2005 acquisition of Hull & Company, which represented the largest
acquisition in our history. Commissions and fees revenue of Hull & Company
for the twelve months preceding March 1, 2005 was approximately $63.0 million.
The Brokerage Division’s net internal growth rate for core commissions and fees
revenue in 2005 was 24.9%, excluding core commissions and fees revenue
recognized in 2005 from new acquisitions. The strong net internal growth
rate
was generated primarily from two of our operations, one of which focuses
on
property accounts in the southeastern United States, and the other which
focuses
on construction accounts in the western part of the United States. In addition
to the increase in net new business, both of these markets experienced increases
in insurance premium rates during 2005.
As
a
result of the Brokerage Division’s significant acquisitions in 2005 and late
2004, as well as the net new business growth from existing operations, income
before income taxes in 2005 increased $17.0 million to $28.3 million, a 149.7%
increase over 2004. The ratio of employee compensation and benefits
to total revenues and the ratio of other operating expenses
to total revenue improved in 2005 over 2004, primarily due to two reasons:
(1)
the majority of the operations acquired in 2005 and 2004 operated at higher
operating profit margins than the Brokerage Division's 2004 combined margins,
and (2) during 2005, one of our largest brokerage profit center's branch
improved their operating profit margins by over 9%.
Total
revenues in 2004 increased $9.9 million to $41.6 million, a 31.1% increase
over
2003. Of this increase, approximately $7.0 million related to core commissions
and fees revenues from acquisitions for which there were no comparable revenues
in 2003. The Brokerage Division’s net internal growth rate for core commissions
and fees revenues in 2004 was 14.1%, excluding core commissions and fees
revenues recognized in 2004 from new acquisitions. The net internal growth
rate
for core commissions and fees revenues for the Brokerage Division in 2003
was
19.7%. The decline in the net internal growth rates from core commissions
and
fees revenues in 2004 from 2003 was primarily related to the decline in the
net
new business generated by our reinsurance brokerage unit and the gradual
softening of insurance premium
rates.
As
a
result of the Brokerage Division’s net new business growth, income before income
taxes in 2004 increased $0.2 million to $11.3 million, a 1.9% increase over
2003. The ratio of employee compensation and benefits
to total revenues and the ratio of other operating expenses
to total revenue were higher in 2004 than 2003, primarily due to two reasons:
(1) 2004 total revenues
reflected $0.9 million less profit-sharing contingency
commissions than in 2003, and (2) during 2004, we started several new profit
center branches and the start-up salaries and operational costs diluted the
Division’s normal operating profit margins.
Services
Division
The
Services Division provides insurance-related services, including third-party
administration, consulting for the workers’ compensation and employee benefit
self-insurance markets, and managed healthcare services. Unlike our other
segments, approximately 98.0% of the Services Division’s 2005 commissions and
fees revenue is generated from fees, which are not significantly affected by
fluctuations in general insurance premiums.
Financial
information relating to our Services Division is as follows (in thousands,
except percentages):
|
2005
|
Percent
Change
|
2004
|
Percent
Change
|
2003
|
||||||||||||||
|
REVENUES
|
||||||||||||||||||
|
Commissions
and fees
|
$
|
26,565
|
2.9
|
%
|
$
|
25,807
|
(7.6)
|
%
|
$
|
27,920
|
||||||||
|
Contingent
commissions
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||
|
Investment
income
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||
|
Other
income, net
|
952
|
(5.0)
|
%
|
1,002
|
49.3
|
%
|
671
|
|||||||||||
|
Total
revenues
|
27,517
|
2.6
|
%
|
26,809
|
(6.2)
|
%
|
28,591
|
|||||||||||
|
EXPENSES
|
||||||||||||||||||
|
Employee
compensation and benefits
|
15,582
|
4.2
|
%
|
14,961
|
(5.8)
|
%
|
15,876
|
|||||||||||
|
Non-cash
stock grant compensation
|
122
|
13.0
|
%
|
108
|
(32.9)
|
%
|
161
|
|||||||||||
|
Other
operating expenses
|
4,339
|
(11.0)
|
%
|
4,873
|
(23.9)
|
%
|
6,407
|
|||||||||||
|
Amortization
|
43
|
19.4
|
%
|
36
|
(2.7)
|
%
|
37
|
|||||||||||
|
Depreciation
|
435
|
12.4
|
%
|
387
|
(8.5)
|
%
|
423
|
|||||||||||
|
Interest
|
4
|
(94.2)
|
%
|
69
|
(57.4)
|
%
|
162
|
|||||||||||
|
Total
expenses
|
20,525
|
0.4
|
%
|
20,434
|
(11.4)
|
%
|
23,066
|
|||||||||||
|
Income
before income taxes
|
$
|
6,992
|
9.7
|
%
|
$
|
6,375
|
15.4
|
%
|
$
|
5,525
|
||||||||
|
Net
internal growth rate - core commissions
and fees
|
9.2%
|
|
16.6%
|
|
7.9%
|
|
||||||||||||
|
Employee
compensation and benefits ratio
|
56.6%
|
|
55.8%
|
|
55.5%
|
|
||||||||||||
|
Other
operating expenses ratio
|
15.8%
|
|
18.2%
|
|
22.4%
|
|
||||||||||||
|
Capital
expenditures
|
$
|
350
|
$
|
788
|
$
|
234
|
||||||||||||
|
Total
assets at December 31
|
$
|
18,766
|
$
|
13,760
|
$
|
13,267
|
||||||||||||
Total
revenues in 2005 increased $0.7 million net to $27.5
million, a 2.6% increase over 2004. The
Services Division’s net internal growth rate for core commissions and fees
revenue was 9.2% in 2005, excluding the 2004 core commissions and fees
revenue
from divested business. The
positive net internal
growth rates from core commissions and fees revenue primarily
reflect the strong net new business growth from our workers’ compensation and
public entity third-party administration (TPA) businesses.
Income
before income taxes in 2005 increased $0.6 million to $7.0 million, a 9.7%
increase over 2004, primarily due to strong net new business
growth.
Total
revenues in 2004 decreased $1.8 million to $26.8
million, a 6.2% decrease from 2003. Of this decrease,
approximately $6.6 million related to core commissions and fees revenue
from
medical TPA business units sold in 2004 and 2003. These operations were
sold
because their respective operating profit margins were not expected to
exceed
the 10%-12% range, which were not acceptable returns to us in our culture.
The
Services Division’s net internal growth rate for core commissions and fees
revenue was 16.6% in 2004, excluding the 2003 core commissions and fees
revenue
from divested business. The net internal growth rate for core
commissions and fees revenue for the Services Division in 2003 was
7.9%.
The positive net internal
growth rates from core commissions and fees revenue for 2003 and
2004
primarily reflect the strong net new business growth from our workers’
compensation and public entity TPA businesses.
Income
before income taxes in 2004 increased $0.9 million to $6.4 million, a 15.4%
increase over 2003, primarily due to strong net new business growth and
the
elimination of the lower margin medical TPA businesses sold in 2003 and
2004.
Other
As
discussed in Note 16 of the Notes to Consolidated Financial Statements, the
“Other” column in the Segment Information table includes any income and expenses
not allocated to reportable segments, and corporate-related items, including
the
inter-company interest expense charge to the reporting segment.
Quarterly
Operating Results
The
following table sets forth our quarterly results for 2005 and 2004.
|
(in
thousands, except per share data)
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
|||||||||
|
2005
|
|||||||||||||
|
Total
revenues
|
$
|
202,374
|
$
|
195,931
|
$
|
190,645
|
$
|
196,857
|
|||||
|
Income
before income taxes
|
$
|
70,513
|
$
|
60,468
|
$
|
55,689
|
$
|
57,460
|
|||||
|
Net
income
|
$
|
43,018
|
$
|
37,033
|
$
|
34,783
|
$
|
35,717
|
|||||
|
Net
income per share:
|
|||||||||||||
|
Basic
|
$
|
0.31
|
$
|
0.27
|
$
|
0.25
|
$
|
0.26
|
|||||
|
Diluted
|
$
|
0.31
|
$
|
0.27
|
$
|
0.25
|
$
|
0.25
|
|||||
|
2004
|
|||||||||||||
|
Total
revenues
|
$
|
165,565
|
$
|
157,942
|
$
|
160,381
|
$
|
163,046
|
|||||
|
Income
before income taxes
|
$
|
59,360
|
$
|
52,529
|
$
|
48,256
|
$
|
46,804
|
|||||
|
Net
income
|
$
|
36,348
|
$
|
32,153
|
$
|
30,086
|
$
|
30,256
|
|||||
|
Net
income per share:
|
|||||||||||||
|
Basic
|
$
|
0.26
|
$
|
0.23
|
$
|
0.22
|
$
|
0.22
|
|||||
|
Diluted
|
$
|
0.26
|
$
|
0.23
|
$
|
0.22
|
$
|
0.22
|
|||||
LIQUIDITY
AND CAPITAL RESOURCES
Our
cash
and cash equivalents of $100.6 million at December 31, 2005 reflected a decrease
of $87.5 million from
the
$188.1 million balance at December 31, 2004. During
2005,
$215.1
million of cash was provided from operating activities.
Also
during this period, $262.2 million of cash was used for acquisitions, $13.4
million was used for additions
to fixed assets,
$16.1 million was used for payments on long-term debt and $23.6 million was
used
for payment of dividends.
Our
cash
and cash equivalents of $188.1 million at December
31, 2004 reflected an increase of $131.2 million over
the
$56.9 million balance at December 31, 2003. During
2004,
$170.2
million of cash was provided from operating activities,
and $200.0 million was provided from the issuance
of new privately-placed, unsecured senior notes. Also
during this period, $202.7 million of cash was used for acquisitions, $10.2
million was used for additions
to fixed assets,
$18.6 million was used for payments on long-term debt
and
$20.0
million was used for payment of dividends.
Our
cash
and cash equivalents of $56.9 million at December 31, 2003 reflected a decrease
of $11.1 million from our December 31, 2002 balance of $68.0 million. During
2003, $142.7 million of cash was provided from operating activities. Also during
the period, $100.3 million of cash was used for acquisitions, $15.9 million
was
used for additions to fixed assets, $28.0 million was used for payments on
long-term debt and $16.6 million was used for payments of dividends.
Our
ratio of current assets to current liabilities
(the “current ratio”) was 1.06 and 1.48 at December 31, 2005 and 2004,
respectively.
As
of
December 31, 2005, our contractual cash obligations were as
follows:
Contractual
Cash Obligations
|
(in
thousands)
|
Total
|
Less
Than
1
Year
|
1-3
Years
|
4-5
Years
|
After
5 Years
|
|||||||||||
|
|
|
|
|
|
|
|||||||||||
|
Long-term
debt
|
$
|
269,792
|
$
|
55,623
|
$
|
13,806
|
$
|
304
|
$
|
200,059
|
||||||
|
Capital
lease obligations
|
17
|
7
|
10
|
-
|
-
|
|||||||||||
|
Other
long-term liabilities
|
11,830
|
9,174
|
946
|
653
|
1,057
|
|||||||||||
|
Operating
leases
|
85,821
|
20,731
|
32,373
|
21,075
|
11,642
|
|||||||||||
|
Interest
obligations
|
85,709
|
13,129
|
23,775
|
23,326
|
25,479
|
|||||||||||
|
Maximum
future acquisition contingency payments
|
189,611
|
107,277
|
82,325
|
9
|
-
|
|||||||||||
|
Total
contractual cash obligations
|
$
|
642,780
|
$
|
205,941
|
$
|
153,235
|
$
|
45,367
|
$
|
238,237
|
||||||
In
July
2004, we completed a private placement of $200.0 million
of unsecured senior notes (the “Notes”). The $200.0 million
is divided into two series: Series A, for $100.0 million due in 2011 and bearing
interest at 5.57% per year; and Series B, for $100.0 million due in 2014 and
bearing interest at 6.08% per year. The closing on the Series B Notes occurred
on July 15, 2004. The closing on the Series A Notes occurred on September 15,
2004. We have used the proceeds from the Notes for general corporate purposes,
including acquisitions and repayment of existing debt. As of December 31, 2005,
there was an outstanding balance of $200.0 million on the Notes.
In
September 2003, we established an unsecured revolving credit facility with
a
national banking institution that provided for available borrowings of up to
$75.0 million, with a maturity date of October 2008, bearing an interest rate
based upon the 30-, 60- or 90-day LIBOR plus 0.625% to 1.625%, depending upon
our quarterly ratio of funded debt to earnings before interest, taxes,
depreciation, amortization and non-cash stock grant compensation.
A commitment fee of 0.175% to 0.375% per annum
was
assessed on the unused balance. The 90-day LIBOR was 4.53% as of December 31,
2005. There were no borrowings against this facility at December 31,
2005.
In
January 2001, we entered into a $90.0 million, unsecured seven-year term loan
agreement with a national banking institution. Borrowings under this facility
bear interest based upon the 30-, 60- or 90-day LIBOR plus a credit risk spread
ranging from 0.50% to 1.00%, depending upon our quarterly ratio of funded debt
to earnings before interest, taxes, depreciation, amortization and non-cash
stock grant compensation. The 90-day LIBOR was 4.53% as of December 31, 2005.
The loan was fully funded on January 3, 2001, and a balance of $25.7 million
remained outstanding as of December 31, 2005. This loan is to be repaid
in
equal quarterly principal installments of $3.2 million
through
December 2007. Effective January 2, 2002, we entered into an interest rate
swap
agreement with a national banking institution to lock in an effective fixed
interest rate of 4.53% for the remaining six years of the term loan, excluding
our credit risk spread of between 0.50% and 1.00%.
In
1991,
we entered into a long-term unsecured credit agreement with a major insurance
company that provided for borrowings at an interest rate equal to the prime
rate
(9.25% at December 31, 2002) plus 1.00%. In accordance with an August 1, 1998
amendment to this credit agreement, the outstanding balance was repaid in August
2003, thus ending the credit agreement.
All
of
our credit agreements require us to maintain certain financial ratios and comply
with certain other covenants. We were in compliance with all such covenants
as
of December 31, 2005 and 2004.
Neither
we nor our subsidiaries has ever incurred off-balance sheet obligations through
the use of, or investment in, off-balance sheet derivative financial instruments
or structured finance or special purpose entities organized as corporations,
partnerships or limited liability companies or trusts.
We
believe that our existing cash, cash equivalents, short-term
investment portfolio and funds generated from operations,
together with our unsecured revolving credit facility described above, will
be
sufficient to satisfy our normal liquidity needs through at least the end of
2006. Additionally, we believe that funds generated from future operations
will be sufficient to satisfy our normal liquidity needs, including the required
annual principal payments on our
long-term debt.
Historically,
much of our cash has been used for acquisitions. If additional acquisition
opportunities should become
available that exceed our current cash flow, we believe
that given our relatively low debt-to-total capitalization ratio, we would
have
the ability to raise additional capital through either the private or public
debt markets.
In
December 2001, a universal “shelf” registration statement that we filed with the
Securities and Exchange Commission (SEC) covering the public offering and sale,
from time to time, of an aggregate of up to $250 million of debt and/or equity
securities, was declared effective. The net proceeds from the sale of such
securities could be used to fund acquisitions and for general corporate
purposes, including capital expenditures, and to meet working capital
needs.
A
common stock follow-on offering of 5,000,000
shares
in March 2002 was made pursuant to this “shelf” registration statement. As of
December 31, 2005, approximately $90.0 million of the universal “shelf”
registration remains available. If we needed to publicly raise additional funds,
we may need to register additional securities with the SEC.
Market
risk is the potential loss arising from adverse changes in market rates and
prices, such as interest rates and equity prices. We are exposed to market
risk
through our investments, revolving credit line and term loan
agreements.
Our
invested assets are held as cash and cash equivalents, restricted cash,
available-for-sale marketable equity securities, non-marketable equity
securities and certificates of deposit. These investments are subject to
interest rate risk and equity price risk. The fair values of our cash and cash
equivalents, restricted cash, and certificates of deposit at
December 31, 2005 and 2004 approximated their respective carrying values due
to
their short-term duration and therefore such market risk is not considered
to be
material.
We
do not
actively invest or trade in equity securities. In addition, we generally dispose
of any significant equity securities received in conjunction with an acquisition
shortly after the acquisition date. However, we have no current intentions
to
add to or dispose of any of the 559,970 common stock shares of Rock-Tenn
Company, a publicly-held New York Stock Exchange listed company, which we have
owned for more than 10 years. The investment in Rock-Tenn Company accounted
for 68%
of
the total value of available-for-sale marketable equity securities,
non-marketable equity securities and certificates of deposit as of December
31,
2005 and 2004, respectively. Rock-Tenn Company's closing stock price at December
31, 2005 and 2004 was $13.65 and $15.16 respectively. Our exposure to equity
price risk is primarily related to the Rock-Tenn Company investment. As of
December 31, 2005, the value of the Rock-Tenn Company investment was
$7,644,000.
To
hedge
the risk of increasing interest rates from January 2, 2002 through the remaining
six years of our seven-year $90 million term loan, on December 5, 2001 we
entered into an interest rate swap agreement that effectively converted the
floating rate interest payments based on a London Interbank Offering Rate
(LIBOR) to fixed interest rate payments at 4.53%. This agreement did not impact
or change the required 0.50% to 1.00% credit risk spread portion of the term
loan. We do not otherwise enter into derivatives, swaps or other similar
financial instruments for trading or speculative purposes.
At
December 31, 2005, the interest rate swap agreement was as follows:
|
(in
thousands, except percentages)
|
Contractual/
Notional
Amount
|
Fair
Value
|
Weighted
Average
Pay
Rates
|
Weighted
Average
Received
Rates
|
|
|
|
|
|
|
|
Interest
rate swap agreement
|
$25,714
|
$58
|
4.53%
|
3.78%
|
Index
to Consolidated Financial Statements
| Page No. | |
| Consolidated Statements of Income for the years ended December 31, 2005, 2004 and 2003 |
30
|
| Consolidated Balance Sheets as of December 31, 2005 and 2004 |
31
|
| Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2005, 2004 and 2003 |
32
|
| Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003 |
33
|
|
|
|
| Notes to Consolidated Financial Statements for the years ended December 31, 2005, 2004 and 2003 |
34
|
| Note 1: Summary of Significant Accounting Policies |
34
|
| Note 2: Business Combinations |
38
|
| Note 3: Goodwill |
40
|
| Note 4: Amortizable Intangible Assets |
40
|
| Note 5: Investments |
41
|
| Note 6: Fixed Assets |
41
|
| Note 7: Accrued Expenses |
42
|
| Note 8: Long-Term Debt |
42
|
| Note 9: Income Taxes |
43
|
| Note 10: Employee Savings Plan |
44
|
| Note 11: Stock-Based Compensation and Incentive Plans |
44
|
| Note 12: Supplemental Disclosures of Cash Flow Information |
45
|
| Note 13: Commitments and Contingencies |
45
|
| Note 14: Business Concentrations |
47
|
| Note 15: Quarterly Operating Results (Unaudited) |
47
|
| Note 16: Segment Information |
47
|
| Note 17: Subsequent Events |
48
|
|
|
|
| Reports of Independent Registered Public Accounting Firm on Consolidated Financial Statements |
50
|
| Management’s Report on Internal Control Over Financial Reporting |
51
|
| Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting |
52
|
BROWN
& BROWN, INC.
CONSOLIDATED
STATEMENTS OF
INCOME
|
|
Year
Ended December 31,
|
|||||||||
|
(in
thousands, except per share data)
|
2005
|
2004
|
2003
|
|||||||
|
REVENUES
|
||||||||||
|
Commissions
and fees
|
$
|
775,543
|
$
|
638,267
|
$
|
545,287
|
||||
|
Investment
income
|
6,578
|
2,715
|
1,428
|
|||||||
|
Other
income, net
|
3,686
|
5,952
|
4,325
|
|||||||
|
Total
revenues
|
785,807
|
646,934
|
551,040
|
|||||||
|
|
||||||||||
|
EXPENSES
|
||||||||||
|
Employee
compensation and benefits
|
374,943
|
314,221
|
268,372
|
|||||||
|
Non-cash
stock grant compensation
|
3,337
|
2,625
|
2,272
|
|||||||
|
Other
operating expenses
|
105,622
|
84,927
|
74,617
|
|||||||
|
Amortization
|
33,245
|
22,146
|
17,470
|
|||||||
|
Depreciation
|
10,061
|
8,910
|
8,203
|
|||||||
|
Interest
|
14,469
|
7,156
|
3,624
|
|||||||
|
Total
expenses
|
541,677
|
439,985
|
374,558
|
|||||||
|
|
||||||||||
|
Income
before income taxes
|
244,130
|
206,949
|
176,482
|
|||||||
|
Income
taxes
|
93,579
|
78,106
|
66,160
|
|||||||
|
|
||||||||||
|
Net
income
|
$
|
150,551
|
$
|
128,843
|
$
|
110,322
|
||||
|
|
||||||||||
|
Net
income per share:
|
||||||||||
|
Basic
|
$
|
1.09
|
$
|
0.93
|
$
|
0.81
|
||||
|
Diluted
|
$
|
1.08
|
$
|
0.93
|
$
|
0.80
|
||||
|
|
||||||||||
|
Weighted
average number of shares outstanding:
|
||||||||||
|
Basic
|
138,563
|
137,818
|
136,654
|
|||||||
|
Diluted
|
139,776
|
138,888
|
137,794
|
|||||||
|
Dividends
declared per share
|
$
|
0.17
|
$
|
0.1450
|
$
|
0.1213
|
||||
See
accompanying notes to consolidated financial statements.
BROWN
& BROWN, INC.
CONSOLIDATED
BALANCE
SHEETS
|
At
December 31,
|
|||||||
|
(in
thousands, except per share data)
|
2005
|
2004
|
|||||
|
ASSETS
|
|||||||
|
Current
Assets:
|
|||||||
|
Cash
and cash equivalents
|
$
|
100,580
|
$
|
188,106
|
|||
|
Restricted
cash and investments
|
229,872
|
147,483
|
|||||
|
Short-term
investments
|
2,748
|
3,163
|
|||||
|
Premiums,
commissions and fees receivable
|
257,930
|
172,395
|
|||||
|
Other
current assets
|
28,637
|
28,819
|
|||||
|
Total current assets
|
619,767
|
539,966
|
|||||
|
Fixed
assets, net
|
39,398
|
33,438
|
|||||
|
Goodwill
|
549,040
|
360,843
|
|||||
|
Amortizable
intangible assets, net
|
377,907
|
293,009
|
|||||
|
Investments
|
8,421
|
9,328
|
|||||
|
Other
assets
|
14,127
|
12,933
|
|||||
|
Total assets
|
$
|
1,608,660
|
$
|
1,249,517
|
|||
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|||||||
|
Current
Liabilities:
|
|||||||
|
Premiums
payable to insurance companies
|
$
|
397,466
|
$
|
242,414
|
|||
|
Premium
deposits and credits due customers
|
34,027
|
32,273
|
|||||
|
Accounts
payable
|
21,161
|
16,257
|
|||||
|
Accrued
expenses
|
74,534
|
58,031
|
|||||
|
Current
portion of long-term debt
|
55,630
|
16,135
|
|||||
|
Total
current liabilities
|
582,818
|
365,110
|
|||||
|
Long-term
debt
|
214,179
|
227,063
|
|||||
|
Deferred
income taxes, net
|
35,489
|
24,859
|
|||||
|
Other
liabilities
|
11,830
|
8,160
|
|||||
|
Commitments
and contingencies (Note 13)
|
|||||||
|
Shareholders’
Equity:
|
|||||||
|
Common
stock, par value $0.10 per share;
|
|||||||
|
authorized
280,000 shares; issued and
|
|||||||
|
outstanding
139,383 at 2005 and 138,318 at 2004
|
13,938
|
13,832
|
|||||
|
Additional
paid-in capital
|
193,313
|
180,364
|
|||||
|
Retained
earnings
|
552,647
|
425,662
|
|||||
|
Accumulated
other comprehensive income, net of related income tax
|
|||||||
|
effect
of $2,606 at 2005 and $2,617 at 2004
|
4,446
|
4,467
|
|||||
|
Total
shareholders’ equity
|
764,344
|
624,325
|
|||||
|
Total
liabilities and shareholders’ equity
|
$
|
1,608,660
|
$
|
1,249,517
|
|||
See
accompanying notes to consolidated financial
statements.
BROWN
& BROWN, INC.
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY
|
Common
Stock
|
|
Accumulated
|
|||||||||||||||||
|
(in
thousands, except per share data)
|
Shares
Outstanding
|
Par
Value
|
Additional Paid-InCapital
|
Retained
Earnings
|
Other Comprehensive
Income |
Total
|
|||||||||||||
|
Balance
at January 1, 2003
|
136,356
|
$13,636
|
$152,746
|
$223,102
|
$2,106
|
$391,590
|
|||||||||||||
|
Net
income
|
110,322
|
110,322
|
|||||||||||||||||
|
Net
unrealized holding gains on available-for-sale securities
|
1,395
|
1,395
|
|||||||||||||||||
|
Net
gain on cash-flow hedging derivative
|
726 |
726
|
|||||||||||||||||
|
Comprehensive
income
|
112,443
|
||||||||||||||||||
|
Common
stock purchased for employee stock benefit plans
|
(162)
|
(16)
|
(2,318)
|
|
(2,334)
|
||||||||||||||
|
Common
stock issued for employee stock benefit plans
|
920
|
92
|
9,203
|
9,295
|
|||||||||||||||
|
Income
tax benefit from exercise of stock options
|
3,530
|
3,530
|
|||||||||||||||||
|
Common
stock issued to directors
|
8
|
113
|
113
|
||||||||||||||||
|
Cash
dividends paid ($0.1213 per share)
|
(16,602
|
)
|
(16,602
|
)
|
|||||||||||||||
|
Balance
at December 31, 2003
|
137,122
|
13,712
|
163,274
|
316,822
|
4,227
|
498,035
|
|||||||||||||
|
Net
income
|
128,843
|
128,843
|
|||||||||||||||||
| Net unrealized holding loss on available-for-sale securities |
(649
|
)
|
(649
|
)
|
|||||||||||||||
|
Net
gain on cash-flow hedging derivative
|
889
|
889
|
|||||||||||||||||
|
Comprehensive
income
|
129,083
|
||||||||||||||||||
|
Common
stock issued for acquisitions
|
400
|
40
|
6,204
|
6,244
|
|||||||||||||||
|
Common
stock issued for employee stock benefit plans
|
790
|
80
|
10,525
|
10,605
|
|||||||||||||||
|
Income
tax benefit from exercise of stock options
|
234
|
234
|
|||||||||||||||||
|
Common
stock issued to directors
|
6
|
-
|
127
|
127
|
|||||||||||||||
|
Cash
dividends paid ($0.1450 per share)
|
(20,003
|
)
|
(20,003
|
)
|
|||||||||||||||
|
Balance
at December 31, 2004
|
138,318
|
13,832
|
180,364
|
425,662
|
4,467
|
624,325
|
|||||||||||||
|
Net
income
|
150,551
|
150,551
|
|||||||||||||||||
|
Net
unrealized holding loss on available-for-sale securities
|
(512
|
)
|
(512
|
)
|
|||||||||||||||
|
Net
gain on cash-flow hedging derivative
|
491
|
491
|
|||||||||||||||||
|
Comprehensive
income
|
150,530
|
||||||||||||||||||
|
Common
stock issued for employee stock benefit plans
|
1,057
|
105
|
12,769
|
12,874
|
|||||||||||||||
|
Common
stock issued to directors
|
8
|
1
|
180
|
181
|
|||||||||||||||
|
Cash
dividends paid ($0.17 per share)
|
(23,566
|
)
|
(23,566
|
)
|
|||||||||||||||
|
Balance
at December 31, 2005
|
139,383
|
$
|
13,938
|
$
|
193,313
|
$
|
552,647
|
$
|
4,446
|
$
|
764,344
|
||||||||
See
accompanying notes to consolidated financial statements.
BROWN
& BROWN, INC.
CONSOLIDATED
STATEMENTS OF
CASH
FLOWS
|
Year
Ended December 31,
|
||||||||||
|
(in
thousands)
|
2005
|
2004
|
2003
|
|||||||
|
Cash
flows from operating activities:
|
||||||||||
|
Net
income
|
$
|
150,551
|
$
|
128,843
|
$
|
110,322
|
||||
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||||
|
Amortization
|
33,245
|
22,146
|
17,470
|
|||||||
|
Depreciation
|
10,061
|
8,910
|
8,203
|
|||||||
|
Non-cash
stock grant compensation
|
3,337
|
2,625
|
2,272
|
|||||||
|
Deferred
income taxes
|
10,642
|
8,840
|
8,370
|
|||||||
|
Income
tax benefit from exercise of stock options
|
-
|
234
|
3,530
|
|||||||
|
Net
gain on sales of investments, fixed
|
||||||||||
|
assets and customer accounts
|
(2,478
|
)
|
(5,999
|
)
|
(3,836
|
)
|
||||
|
Changes
in operating assets and liabilities, net of effect
|
||||||||||
|
from acquisitions and divestitures:
|
||||||||||
|
Restricted
cash and investments (increase)
|
(82,389
|
)
|
(30,940
|
)
|
(13,550
|
)
|
||||
|
Premiums,
commissions and fees receivable (increase)
|
(84,058
|
)
|
(22,907
|
)
|
(2,553
|
)
|
||||
|
Other
assets decrease (increase)
|
1,072
|
(3,953
|
)
|
(4,605
|
)
|
|||||
|
Premiums
payable to insurance companies increase
|
153,032
|
41,473
|
7,946
|
|||||||
|
Premium
deposits and credits due customers increase
|
1,754
|
9,997
|
5,500
|
|||||||
|
Accounts
payable increase (decrease)
|
4,377
|
3,608
|
(1,732
|
)
|
||||||
|
Accrued
expenses increase
|
14,854
|
7,140
|
5,551
|
|||||||
|
Other
liabilities increase (decrease)
|
1,088
|
186
|
(163
|
)
|
||||||
|
Net
cash provided by operating activities
|
215,088
|
170,203
|
142,725
|
|||||||
|
Cash
flows from investing activities:
|
||||||||||
|
Additions
to fixed assets
|
(13,426
|
)
|
(10,152
|
)
|
(15,946
|
)
|
||||
|
Payments
for businesses acquired, net of cash acquired
|
(262,181
|
)
|
(202,664
|
)
|
(100,270
|
)
|
||||
|
Proceeds
from sales of fixed assets and customer accounts
|
2,362
|
6,330
|
4,975
|
|||||||
|
Purchases
of investments
|
(299
|
)
|
(3,142
|
)
|
-
|
|||||
|
Proceeds
from sales of investments
|
896
|
1,107
|
106
|
|||||||
|
Net
cash used in investing activities
|
(272,648
|
)
|
(208,521
|
)
|
(111,135
|
)
|
||||
|
Cash
flows from financing activities:
|
||||||||||
|
Proceeds
from long-term debt
|
-
|
200,000
|
-
|
|||||||
|
Payments
on long-term debt
|
(16,117
|
)
|
(18,606
|
)
|
(28,024
|
)
|
||||
|
Borrowings
on revolving credit facility
|
50,000
|
50,000
|
-
|
|||||||
|
Payments
on revolving credit facility
|
(50,000
|
)
|
(50,000
|
)
|
-
|
|||||
|
Issuances
of common stock for employee stock benefit plans
|
9,717
|
8,107
|
7,136
|
|||||||
|
Purchase
of common stock for employee stock benefit plan
|
-
|
-
|
(2,334
|
)
|
||||||
|
Cash
dividends paid
|
(23,566
|
)
|
(20,003
|
)
|
(16,602
|
)
|
||||
|
Cash
distribution to minority interest shareholders
|
-
|
-
|
(2,890
|
)
|
||||||
|
Net
cash (used in) provided by financing activities
|
(29,966
|
)
|
169,498
|
(42,714
|
)
|
|||||
|
Net
(decrease) increase in cash and cash equivalents
|
(87,526
|
)
|
131,180
|
(11,124
|
)
|
|||||
|
Cash
and cash equivalents at beginning of year
|
188,106
|
56,926
|
68,050
|
|||||||
|
Cash
and cash equivalents at end of year
|
$
|
100,580
|
$
|
188,106
|
$
|
56,926
|
||||
See
accompanying notes to consolidated financial
statements.
Notes
to Consolidated Financial Statements
NOTE
1 • Summary of Significant Accounting Policies
Nature
of Operations
Brown
& Brown, Inc., a Florida corporation, and its subsidiaries (collectively,
Brown & Brown or the “Company”) is a diversified insurance agency,
brokerage, and services organization that markets and sells to its customers
insurance products and services, primarily in the property and casualty area.
Brown & Brown’s business is divided into four reportable segments: the
Retail Division, which provides a broad range of insurance products and services
to commercial, public entity, professional and individual customers; the
National Programs Division, which is comprised of two units - Professional
Programs, which provides professional liability and related package products
for
certain professionals delivered through nationwide networks of independent
agents, and Special Programs, which markets targeted products and services
designated for specific industries, trade groups, governmental entities and
market niches; the Brokerage Division, which markets and sells excess and
surplus commercial insurance
and reinsurance, primarily through independent agents and brokers; and the
Services Division, which provides insurance-related
services, including third-party administration, consulting for the workers’
compensation and employee benefit self-insurance markets, and managed healthcare
services.
Principles
of Consolidation
The
accompanying Consolidated Financial Statements include the accounts of
Brown
&
Brown, Inc. and its subsidiaries. All
significant intercompany account balances and transactions have been eliminated
in the Consolidated Financial Statements. Any
outside or third-party interests in Brown & Brown’s net income and net
assets are reflected as minority interest in the accompanying Consolidated
Financial Statements.
Revenue
Recognition
Commission
revenue is recognized as of the effective date of the insurance policy or the
date the
policy
premium is billed to the customer, whichever is later. At that date, the
earnings process has been completed and Brown & Brown can reliably estimate
the impact of policy cancellations for refunds and establish reserves
accordingly. The reserve for policy cancellations is based upon historical
cancellation experience adjusted by known circumstances. The policy cancellation
reserve was $5,019,000 and
$3,771,000 at December 31, 2005 and 2004, respectively, and is periodically
evaluated and adjusted as necessary. Subsequent
commission adjustments are recognized upon notification from the insurance
companies. Commission revenues
are
reported net of commissions paid to sub-brokers or co-brokers. Profit-sharing
contingent commissions from insurance companies are recognized when
determinable, which is when such commissions are received. Fee income is
recognized as services are rendered.
Use
of Estimates
The
preparation of Consolidated Financial Statements in conformity with accounting
principles generally accepted in the United States of America (GAAP) requires
management to make estimates and assumptions that affect the reported amounts
of
assets and liabilities, as well as disclosures of contingent assets and
liabilities, at the date of the Consolidated Financial Statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results may differ from those estimates.
Cash
and Cash Equivalents
Cash
and
cash equivalents principally consist of demand deposits with financial
institutions and highly liquid investments having maturities of three months
or
less when purchased.
Restricted
Cash and Investments, and Premiums, Commissions and Fees
Receivable
In
its
capacity as an insurance agent or broker, Brown & Brown typically collects
premiums from insureds and, after deducting its authorized commissions, remits
the net premiums to the appropriate insurance companies. Accordingly, as
reported in the Consolidated Balance Sheets, “premiums” are receivable from
insureds. Unremitted net insurance premiums are held in a fiduciary capacity
until disbursed by Brown & Brown. Brown & Brown invests these unremitted
funds only in cash, money market accounts, commercial paper and debt securities
held for a short term, and reports such amounts
as restricted cash on the Consolidated Balance Sheets. Debt securities held
for
a short term consisted of nil ($0)
and
$62,675,000 of “Auction Rate Securities” (“ARS”) as of December 31, 2005 and
2004, respectively. In certain states where Brown & Brown operates, the use
and investment alternatives for these funds are regulated by various state
agencies. The interest income earned on these unremitted funds is reported
as
investment income in the Consolidated Statements of Income.
34
In
other
circumstances, the insurance companies collect the premiums directly from
the
insureds and remit the applicable
commissions to Brown & Brown. Accordingly, as reported in the Consolidated
Balance Sheets, “commissions” are receivable from insurance companies. “Fees”
are primarily receivable from customers of Brown & Brown’s Services
Division.
Investments
Marketable
debt securities held by Brown & Brown consist of ARS.
These ARS are purchased for their investment yields for short periods of time,
generally 15 to 35 days, between specified “auction dates.” However, since these
securities have underlying stated maturity dates of 20 to 30 years, they are
classified as “trading” and are reported at their fair value. These ARS are
purchased for their short-term interest earnings, and there is generally no
gain
or loss on the sale or “maturity” of these trading securities.
Marketable
equity securities held by Brown & Brown have been classified as
“available-for-sale” and are reported at estimated fair value, with the
accumulated other comprehensive income (unrealized gains and losses), net of
related income tax effect, reported as a separate component of shareholders’
equity. Realized gains and losses and declines in value below cost that are
judged to be other-than-temporary on available-for-sale securities are reflected
in investment income. The cost of securities sold is based on the specific
identification method. Interest and dividends on securities classified as
available-for-sale are included in investment income in the Consolidated
Statements of Income.
As
of
December 31, 2005 and 2004, Brown & Brown’s marketable equity securities
principally represented a long-term investment of 559,970 shares of common
stock
in Rock-Tenn Company. Brown & Brown’s Chief Executive Officer serves on the
board of directors of Rock-Tenn Company. Brown & Brown has no current
intention of adding to or selling these shares.
Non-marketable
equity securities and certificates of deposit having maturities of more than
three months when purchased are reported at cost and are adjusted for
other-than-temporary market value declines.
Net
unrealized holding gains on available-for-sale securities included in
accumulated other comprehensive income reported in shareholders’ equity was
$4,410,000 at December 31, 2005 and $4,922,000 at December 31, 2004, net of
deferred income taxes of $2,584,000 and $2,884,000, respectively.
Fixed
Assets
Fixed
assets including leasehold improvements are carried at cost, less accumulated
depreciation and amortization. Expenditures for improvements are capitalized,
and expenditures for maintenance and repairs are expensed to operations as
incurred. Upon sale or retirement, the cost and related accumulated depreciation
and amortization are removed from the accounts and the resulting gain or loss,
if any, is reflected in other income. Depreciation has been determined using
the
straight-line method over the estimated useful lives of the related assets,
which range from three to 10 years. Leasehold improvements are amortized on
the
straight-line method over the term of the related lease.
Goodwill
and Amortizable Intangible Assets
In
June
2001, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards
(SFAS)
No. 141, “Business Combinations” (SFAS No. 141), which requires all business
combinations initiated after June 30, 2001 to be accounted for using the
purchase method. SFAS No. 141 also includes guidance on the initial recognition
and measurement of goodwill and other intangible assets arising from such
business combinations. The excess of the purchase price of an acquisition over
the fair value of the identifiable tangible and amortizable intangible assets
is
assigned to goodwill.
Effective
January 1, 2002, Brown & Brown adopted SFAS No. 142, “Goodwill and Other
Intangible Assets” (SFAS No. 142), which provides for the non-amortization of
goodwill. Goodwill is now subject to at least an annual assessment for
impairment
by applying a fair-value based test. Amortizable intangible assets are amortized
over their economic lives and are
subject to lower-of-cost-or-market impairment testing. SFAS No. 142 requires
Brown & Brown to compare the fair value
of
each reporting unit with its carrying amount to determine if there is potential
impairment of goodwill. If the fair value of the reporting unit is less than
its
carrying value, an impairment loss would be recorded to the extent that the
fair
value of the goodwill
within the reporting unit is less than its carrying value. Fair value is
estimated based on multiples of revenues, earnings before
interest, income taxes, depreciation and amortization (EBITDA) and pre-tax
income. Brown & Brown completed its most recent annual assessment as of
November 30, 2005 and identified no impairment as a result of the evaluation.
35
Amortizable
intangible assets are stated at cost, less accumulated amortization, and
consist
of purchased customer accounts and noncompete agreements. Purchased customer
accounts and noncompete agreements are being amortized on a straight-line
basis
over the related estimated lives and contract periods, which range from five
to
15 years. Purchased customer accounts primarily consist of records and files
that contain information about insurance policies and the related insured
parties that are essential to policy renewals.
As
part
of Brown & Brown’s annual impairment assessment completed as of November 30,
2004, management determined that the maximum amortization period for the
intangible asset, purchased customer accounts, should be reduced from 20
years
to 15 years. A change in accounting estimate was recognized to reflect this
decision resulting in an increase in the 2005 and 2004 amortization expense
of
$6.4 million and $0.5 million, a corresponding decrease in net income of
$3.9
million and $0.3 million, and $0.03 and nil ($0) impact on earnings per share,
respectively.
The
carrying value of intangibles attributable to each division comprising Brown
& Brown is periodically reviewed by management to determine if the facts and
circumstances suggest that they may be impaired. In the insurance agency
and
brokerage industry, it is common for agencies or customer accounts to be
acquired at a price determined as a multiple of either their corresponding
revenues or EBITDA. Accordingly, Brown & Brown assesses the carrying value
of its intangible assets by comparison of a reasonable multiple applied to
either corresponding revenues or EBITDA, as well as considering the estimated
future cash flows generated by the corresponding division. Any impairment
identified through this assessment may require that the carrying value of
related intangible assets be adjusted; however, no impairments have been
recorded for the years ended December 31, 2005, 2004 and 2003.
Derivatives
Brown
& Brown utilizes a derivative financial instrument to reduce interest rate
risk. Brown & Brown does not hold or issue derivative financial instruments
for trading purposes. In June 1998, the FASB issued SFAS No. 133, “Accounting
for Derivative Instruments and Hedging Activities” (SFAS No. 133), which was
subsequently amended by SFAS Nos. 137, 138 and 149. SFAS No. 133, as amended,
establishes accounting and reporting standards for derivative instruments and
hedging activities. These standards require that an entity recognize all
derivatives as either assets or liabilities in its balance sheet and measure
those instruments at fair value. Changes in the fair value of those instruments
will be reported in earnings or other comprehensive income, depending on the
use
of the derivative and whether it qualifies for hedge accounting. The accounting
for gains and losses associated with changes in the fair value of the
derivative, and the resulting effect on the consolidated financial statements,
will depend on the derivative’s hedge designation and whether the hedge is
highly effective in achieving offsetting changes in the fair value of cash
flows
as compared to changes in the fair value of the liability being hedged.
Stock-Based
Compensation and Incentive Plans
Brown
& Brown has elected to account for its stock-based compensation and
incentive
plans
under the intrinsic value-based
method, with pro forma disclosures of net earnings and earnings per share as
if
the fair value-based method of accounting defined in SFAS No. 123, “Accounting
for Stock-Based Compensation” (SFAS No. 123), had been applied. Under the
intrinsic value-based method, compensation cost is the excess, if any, of the
quoted market price of the stock at the grant date or other measurement date
over the amount an employee must pay to acquire the stock. Under the fair
value-based method, compensation cost is measured at the grant date based on
the
fair value of the award and is recognized over the service period, which is
usually the vesting period. In December 2002, Brown & Brown adopted the
disclosure provisions of SFAS No. 148, “Accounting for Stock-Based Compensation
- Transition and Disclosure,” which requires presentation of pro forma net
income and earnings per share information under SFAS No. 123.
Pursuant
to the above disclosure requirements, the following table provides an expanded
reconciliation for all periods presented that adds back to reported net income
the recorded expense under Accounting Principles Board (APB) Opinion No. 25,
“Accounting for Stock Issued to Employees,” net of related income tax effects,
deducts the total fair value expense under SFAS No. 123, net of related income
tax effects, and shows the reported and pro forma earnings per share
amounts:
|
Year
Ended December 31,
|
||||||||||
|
(in
thousands, except per share data)
|
2005
|
2004
|
2003
|
|||||||
|
Net
income as reported
|
$
|
150,551
|
$
|
128,843
|
$
|
110,322
|
||||
|
Total
stock-based employee compensation cost included in the determination
of
net
income, net of related income tax effects
|
2,061
|
1,638
|
1,412
|
|||||||
|
Total
stock-based employee compensation cost determined under fair
value
method
for all awards, net of related income tax effects
|
(5,069
|
)
|
(3,436
|
)
|
(2,868
|
)
|
||||
|
Pro
forma net income
|
$
|
147,543
|
$
|
127,045
|
$
|
108,866
|
||||
|
Earnings
per share:
|
||||||||||
|
Basic,
as reported
|
$
|
1.09
|
$
|
0.93
|
$
|
0.81
|
||||
|
Basic,
pro forma
|
$
|
1.06
|
$
|
0.92
|
$
|
0.80
|
||||
|
Diluted,
as reported
|
$
|
1.08
|
$
|
0.93
|
$
|
0.80
|
||||
|
Diluted,
pro forma
|
$
|
1.06
|
$
|
0.91
|
$
|
0.79
|
||||
Income
Taxes
Brown
& Brown records income tax expense using the asset and liability method of
accounting for deferred income taxes. Under such method, deferred tax assets
and
liabilities are recognized for the expected future tax consequences of temporary
differences between the financial statement carrying values and the income
tax
bases of Brown & Brown’s assets and liabilities.
Brown
& Brown files a consolidated federal income tax return and has elected to
file consolidated returns in certain states. Deferred income taxes are provided
for in the Consolidated Financial Statements and relate principally to expenses
charged to income for financial reporting purposes in one period and deducted
for income tax purposes in other periods.
Net
Income Per Share
Basic
net
income per share is computed by dividing net income available to shareholders
by
the weighted average number of shares outstanding for the period. Basic net
income per share excludes dilution. Diluted net income per share reflects the
potential dilution that could occur if stock options or other contracts to
issue
common stock were exercised or converted to common stock.
The
following table sets forth the computation of basic net income per share and
diluted net income per share:
|
Year
Ended December 31,
|
||||||||||
|
(in
thousands, except per share data)
|
2005
|
2004
|
2003
|
|||||||
|
Net
income
|
$
|
150,551
|
$
|
128,843
|
$
|
110,322
|
||||
|
Weighted
average number of common shares outstanding
|
138,563
|
137,818
|
136,654
|
|||||||
|
Dilutive
effect of stock options using the treasury stock method
|
1,213
|
1,070
|
1,140
|
|||||||
|
Weighted
average number of shares outstanding
|
139,776
|
138,888
|
137,794
|
|||||||
|
Net
income per share:
|
||||||||||
|
Basic
|
$
|
1.09
|
$
|
0.93
|
$
|
0.81
|
||||
|
Diluted
|
$
|
1.08
|
$
|
0.93
|
$
|
0.80
|
||||
All
share
and per share amounts in the consolidated financial statements have been
restated to give effect to the two-for-one common stock split effected by Brown
& Brown on November 28, 2005. The stock split was effected as a stock
dividend.
Fair
Value of Financial Instruments
The
carrying amounts of Brown & Brown’s financial assets and liabilities,
including cash and cash equivalents, investments, premiums, commissions and
fees
receivable, premiums payable to insurance companies, premium deposits and
credits due customers
and accounts payable, at December 31, 2005 and 2004, approximate fair value
because of the short-term maturity
of these
instruments. The carrying amount of Brown & Brown’s long-term debt
approximates fair value at December 31, 2005 and 2004 since the debt is at
floating rates. Brown & Brown’s one interest rate swap agreement is reported
at its fair value as of December 31, 2005 and 2004.
New
Accounting Pronouncement
In
December 2004, the FASB issued revised SFAS No. 123, “Share-Based Payment,”
which replaces SFAS No. 123, “Accounting for Stock-Based Compensation,” and
supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” This
revised statement, which requires that the cost of all share-based payment
transactions be recognized in the financial statements, establishes fair value
as the measurement objective and requires entities to apply a fair value-based
measurement method in accounting for share-based payment transactions. The
revised statement applies to all awards granted, modified, repurchased or
cancelled after July 1, 2005.
Revised
SFAS No. 123 permits public companies to account for the adoption of this
revised standard using one of two methods: the modified-prospective method
or
the modified-retrospective method. The modified-prospective method requires
a
company to recognize compensation cost based upon fair value for only those
share-based awards granted or modified with an effective date subsequent
to the
company’s date of adoption and share-based awards issued in prior periods that
remain unvested at the date of adoption. The modified-retrospective method
allows a company to restate, based upon pro forma amounts previously disclosed
under the requirements of Revised SFAS No. 123, for either all prior periods
presented or prior interim periods included in the year of adoption.
Effective
January 1, 2006, the company adopted Revised SFAS No. 123 and accounted for
the
adoption using the modified-prospective method. For fair value purposes,
the
company will use a Black-Scholes option-pricing model to estimate the fair
value
of stock option awards.
Brown
&
Brown's
assessment of the estimated
future compensation expense is affected by the stock price as well as
assumptions regarding a number of complex variables and the related tax impact.
Although the adoption of Revised SFAS No. 123 is not expected to have a material
effect on Brown & Brown's results of operations, future changes to various
assumptions used to determine the fair-value of awards issued or the amount
and
type of equity awards granted create uncertainty as to whether future
compensation expense will be similar to the historical SFAS No. 123 pro forma
expense.
NOTE
2 • Business Combinations
Acquisitions
in 2005
During
2005, Brown & Brown acquired the assets and assumed certain liabilities of
32 insurance intermediary operations and several
books of business (customer accounts). The aggregate purchase
price was $288,623,000, including $244,006,000 of net cash payments, the
issuance of $38,072,000 in notes payable
and the assumption of $6,545,000 of other liabilities. All of these acquisitions
operate in the insurance intermediary business and were acquired primarily
to
expand Brown & Brown’s core businesses and to attract high-quality
individuals to the Company. Acquisition purchase prices are typically based
on a
multiple of average annual operating profit (core commissions and fees revenue
over expenses) earned over a one- to three-year period after the acquisition
effective date, within a minimum and maximum price range. The initial asset
allocation of an acquisition is based on the minimum purchase price and any
subsequent “earn-out” payment is allocated to Goodwill.
All
of
these acquisitions have been accounted for as business combinations and are
as
follows:
|
(in
thousands)
Name
of Acquisitions
|
Business
Segment
|
2005
Date
of
Acquisition
|
Net
Cash
Paid
|
Notes
Payable
|
Recorded
Purchase
Price
|
|||||||||||
|
American
Specialty Companies, Inc., et al.
|
National
Programs
|
January
1
|
$
|
23,782
|
$
|
-
|
$
|
23,782
|
||||||||
|
Braishfield
Associates, Inc.
|
Brokerage
|
January
1
|
10,215
|
-
|
10,215
|
|||||||||||
|
Hull
& Company, Inc., et al.
|
Brokerage
|
March
1
|
140,169
|
35,000
|
175,169
|
|||||||||||
|
Weible
& Cahill, LLC
|
Retail
|
October
1
|
17,971
|
-
|
17,971
|
|||||||||||
|
Timothy
R. Downey Insurance, Inc.
|
National
Programs
|
November
1
|
14,302
|
1,374
|
15,676
|
|||||||||||
|
Other
|
Various
|
Various
|
37,567
|
1,698
|
39,265
|
|||||||||||
|
Total
|
$
|
244,006
|
$
|
38,072
|
$
|
282,078
|
||||||||||
The
following table summarizes the estimated fair values of the aggregate assets
and
liabilities acquired as of the date of each acquisition:
(in
thousands)
|
American
Specialty
|
Braishfield
|
Hull
|
Weible
&
Cahill
|
Downey
|
Other
|
Total
|
||||||||||||||||
|
Other
current assets
|
$
|
112
|
$
|
50
|
$
|
173
|
$
|
266
|
$
|
-
|
$
|
1,117
|
$
|
1,718
|
||||||||
|
Fixed
assets
|
370
|
25
|
2,500
|
111
|
89
|
180
|
3,275
|
|||||||||||||||
|
Purchased
customer accounts
|
7,410
|
4,835
|
68,000
|
10,825
|
9,042
|
17,633
|
117,745
|
|||||||||||||||
|
Noncompete
agreements
|
38
|
50
|
95
|
11
|
55
|
887
|
1,136
|
|||||||||||||||
|
Goodwill
|
18,247
|
5,408
|
105,463
|
7,092
|
8,382
|
20,157
|
164,749
|
|||||||||||||||
|
Total
assets acquired
|
26,177
|
10,368
|
176,231
|
18,305
|
17,568
|
39,974
|
288,623
|
|||||||||||||||
|
Other
current liabilities
|
(59
|
)
|
(153
|
)
|
(1,062
|
)
|
(100
|
)
|
(1,892
|
)
|
(709
|
)
|
(3,975
|
)
|
||||||||
|
Other
liabilities
|
(2,336
|
)
|
-
|
-
|
(234
|
)
|
-
|
-
|
(2,570
|
)
|
||||||||||||
|
Total
liabilities assumed
|
(2,395
|
)
|
(153
|
)
|
(1,062
|
)
|
(334
|
)
|
(1,892
|
)
|
(709
|
)
|
(6,545
|
)
|
||||||||
|
Net
assets acquired
|
$
|
23,782
|
$
|
10,215
|
$
|
175,169
|
$
|
17,971
|
$
|
15,676
|
$
|
39,265
|
$
|
282,078
|
||||||||
38
The
weighted average useful lives for the above acquired amortizable intangible
assets are as follows: purchased customer accounts, 15.0 years; and noncompete
agreements, 4.1 years.
Goodwill
of $164,749,000, all of which is expected to be deductible for income tax
purposes, was assigned to the Retail, National Programs and Brokerage Divisions
in the amounts of $19,773,000, $27,144,000 and $117,832,000,
respectively.
The
results of operations for the acquisitions completed during 2005 have been
combined with those of Brown & Brown since their respective acquisition
dates. If the acquisitions had occurred as of January 1, 2004, Brown &
Brown’s results of operations would be as shown in the following table. These
unaudited pro forma results are not necessarily indicative of the actual
results
of operations that would have occurred had the acquisitions actually been
made
at the beginning of the respective periods.
|
Year
Ended December 31,
|
|||||||
|
(in
thousands, except per share data)
|
2005
|
2004
|
|||||
|
(UNAUDITED)
|
|||||||
|
Total
revenues
|
$
|
818,783
|
$
|
769,815
|
|||
|
Income
before income taxes
|
$
|
255,268
|
$
|
246,978
|
|||
|
Net
income
|
$
|
157,420
|
$
|
153,765
|
|||
|
Net
income per share:
|
|||||||
|
Basic
|
$
|
1.14
|
$
|
1.12
|
|||
|
Diluted
|
$
|
1.13
|
$
|
1.11
|
|||
|
Weighted
average number of shares outstanding:
|
|||||||
|
Basic
|
138,563
|
137,818
|
|||||
|
Diluted
|
139,776
|
138,888
|
|||||
Additional
consideration paid to sellers,
or
consideration returned to Brown & Brown by sellers, as a result of purchase
price “earn-out” provisions are recorded as adjustments to intangible assets
when the contingencies are settled. The net additional consideration paid by
Brown & Brown as a result of these adjustments totaled $22,832,000 in 2005
and $965,000 in 2004, of which $23,797,000 was allocated to goodwill. Of the
$22,832,000 net additional consideration paid in 2005, $18,175,000 was paid
in
cash and the issuance of $4,657,000 in notes payable. Of the $965,000 net
additional consideration paid in 2004, $814,000 was paid in cash and the
assumption of $151,000 of other liabilities. As of December 31, 2005, the
maximum future contingency payments related related to acquisitions totaled
$189,611,000.
Acquisitions
in 2004
During
2004, Brown & Brown acquired the assets and assumed certain liabilities of
29 insurance intermediary operations, several
books of business (customer accounts), and the outstanding stock of three
general insurance agencies. The aggregate purchase
price was $199,281,000 including $190,544,000 of net cash payments, the issuance
of $1,430,000 in notes payable
and the assumption of $7,307,000 of other liabilities. All of these acquisitions
operate in the insurance intermediary business and were acquired primarily
to
expand Brown & Brown’s core businesses and to attract high-quality
individuals to the Company. Acquisition purchase prices are typically based
on a
multiple of operating profit earned over a one- to three-year period after
the
acquisition effective date, within a minimum and maximum price range. The
initial asset allocation of an acquisition is based on the minimum purchase
price and any subsequent “earn-out” payment is allocated to
Goodwill.
All
of
these acquisitions have been accounted for as business combinations and are
as
follows:
(in
thousands)
|
Name
of Acquisition
|
Business
Segment
|
2004
Date
of
Acquisition
|
Net
Cash
Paid
|
Notes
Payable
|
Recorded
Purchase
Price
|
|||||||||||
|
Doyle
Consulting Group, Inc., et al.
|
Retail
|
February
1
|
$
|
10,707
|
$
|
-
|
$
|
10,707
|
||||||||
|
Statfeld
Vantage Insurance Group, LLC et al.
|
Retail
|
March
1
|
26,619
|
-
|
26,619
|
|||||||||||
|
Waldor
Agency, Inc.
|
Retail
|
March
1
|
30,412
|
-
|
30,412
|
|||||||||||
|
Proctor
Financial, Inc.
|
National
Programs
|
May
1
|
31,060
|
-
|
31,060
|
|||||||||||
|
The
McDuffee Insurance Agency, Inc.
|
Retail
|
July
1
|
19,020
|
-
|
19,020
|
|||||||||||
|
International
E&S Insurance Brokers, Inc., et al.
|
Brokerage
|
September
1
|
18,387
|
-
|
18,387
|
|||||||||||
|
Others
|
Various
|
Various
|
54,339
|
1,430
|
55,769
|
|||||||||||
|
Total
|
|
$
|
190,544
|
$
|
1,430
|
$
|
191,974
|
|||||||||
39
The
following table summarizes the estimated fair values of the aggregate assets
and
liabilities acquired as of the date of each acquisition:
|
(in
thousands)
|
Doyle
|
Statfeld
|
Waldor
|
Proctor
|
McDuffee
|
Int'l.
E&S
|
Others
|
Total
|
|||||||||||||||||
|
Other
current assets
|
$
|
568
|
$
|
876
|
$
|
-
|
$
|
786
|
$
|
424
|
$
|
-
|
$
|
1,589
|
$
|
4,243
|
|||||||||
|
Fixed
assets
|
100
|
50
|
50
|
200
|
100
|
23
|
451
|
974
|
|||||||||||||||||
|
Purchases
customer accounts
|
4,451
|
8,384
|
10,807
|
16,013
|
6,876
|
11,123
|
27,244
|
84,898
|
|||||||||||||||||
|
Noncompete
agreements
|
151
|
11
|
31
|
-
|
11
|
92
|
477
|
773
|
|||||||||||||||||
|
Goodwill
|
5,494
|
17,495
|
19,524
|
16,935
|
11,655
|
7,271
|
30,019
|
108,393
|
|||||||||||||||||
|
Total
assets acquired
|
10,764
|
26,816
|
30,412
|
33,934
|
19,066
|
18,509
|
59,780
|
199,281
|
|||||||||||||||||
|
Other
current liabilities
|
(57
|
)
|
(197
|
)
|
-
|
(2,874
|
)
|
(46
|
)
|
(122
|
)
|
(3,105
|
)
|
(6,401
|
)
|
||||||||||
|
Deferred
taxes
|
-
|
-
|
-
|
-
|
-
|
-
|
(906
|
)
|
(906
|
)
|
|||||||||||||||
|
Total
liabilities assumed
|
(57
|
)
|
(197
|
)
|
-
|
(2,874
|
)
|
(46
|
)
|
(122
|
)
|
(4,011
|
)
|
(7,307
|
)
|
||||||||||
|
Net
assets acquired
|
$
|
10,707
|
$
|
26,619
|
$
|
30,412
|
$
|
31,060
|
$
|
19,020
|
$
|
18,387
|
$
|
55,769
|
$
|
191,974
|
|||||||||
The
weighted average useful lives for the above acquired amortizable intangible
assets are as follows: purchased customer accounts, 14.8 years; and noncompete
agreements, five years.
Goodwill
of $108,393,000 was assigned to the Retail, National Programs and Brokerage
Divisions in the amounts of $80,793,000, $20,329,000 and $7,271,000,
respectively. Of that total amount, $105,024,000 is expected to be deductible
for income tax purposes.
Additional
consideration paid to sellers, or consideration returned to Brown & Brown by
sellers, as a result of purchase price “earn-out” provisions are recorded as
adjustments to intangible assets when the contingencies are settled. The net
additional consideration paid by Brown & Brown in 2004 as a result of these
adjustments totaled $17,349,000, of which $17,168,000 was allocated to goodwill.
Of the $17,349,000 net additional consideration paid, $12,120,000 was paid
in
cash, $6,244,000 was issued in common stock, and $1,015,000 was taken back
as a
forgiveness of a note payable obligation. As of December 31, 2004, the maximum
future contingency payments related to acquisitions totaled
$107,137,000.
NOTE
3 • Goodwill
Effective
January 1, 2002, Brown & Brown adopted SFAS No. 142, which provides for the
non-amortization of goodwill. Goodwill is now subject to at least an annual
assessment for impairment by applying a fair value-based test. Brown & Brown
completed its most recent annual assessment as of November 30, 2005 and
identified no impairment as a result of the evaluation.
The
changes in goodwill, net of accumulated amortization, for the years ended
December 31, are as follows:
|
(in
thousands)
|
Retail
|
National
Programs
|
Brokerage
|
Service
|
Total
|
|||||||||||
|
Balance
as of January 1, 2004
|
$
|
168,135
|
$
|
60,694
|
$
|
8,868
|
$
|
56
|
$
|
237,753
|
||||||
|
Goodwill
of acquired businesses
|
93,626
|
24,043
|
7,892
|
-
|
125,561
|
|||||||||||
|
Goodwill
disposed of relating to sales of businesses
|
(2,471
|
)
|
-
|
-
|
-
|
(2,471
|
)
|
|||||||||
|
Balance
as of December 31, 2004
|
259,290
|
84,737
|
16,760
|
56
|
360,843
|
|||||||||||
|
Goodwill
of acquired businesses
|
33,243
|
34,313
|
120,990
|
-
|
188,546
|
|||||||||||
|
Goodwill
disposed of relating to sales of businesses
|
(321
|
)
|
(28
|
)
|
-
|
-
|
(349
|
)
|
||||||||
|
Balance
as of December 31, 2005
|
$
|
292,212
|
$
|
119,022
|
$
|
137,750
|
$
|
56
|
$
|
549,040
|
||||||
NOTE
4 • Amortizable Intangible Assets
Amortizable
intangible assets at December 31 consisted of the following:
|
2005
|
2004
|
||||||||||||||||||||||||
|
(in
thousands)
|
Gross
Carrying
Value
|
Accumulated
Amortization
|
Net
Carrying
Value
|
Weighted
Average Life (years)
|
Gross
Carrying
Value
|
Accumulated
Amortization
|
Net
Carrying
Value
|
Weighted
Average
Life
(years)
|
|||||||||||||||||
|
Purchased
customer accounts
|
$
|
498,580
|
$
|
(126,161
|
)
|
$
|
372,419
|
14.9
|
$
|
381,744
|
$
|
(96,342
|
)
|
$
|
285,402
|
14.8
|
|||||||||
|
Noncompete
agreements
|
34,154
|
(28,666
|
)
|
5,488
|
7.0
|
32,996
|
(25,389
|
)
|
7,607
|
7.1
|
|||||||||||||||
|
Total
|
$
|
532,734
|
$
|
154,827
|
$
|
377,907
|
$
|
414,740
|
$
|
(121,731
|
)
|
$
|
293,009
|
||||||||||||
Amortization
expense recorded for other amortizable intangible assets for the years ended
December 31, 2005, 2004 and 2003 was $33,245,000, $22,146,000 and $17,470,000,
respectively.
Amortization
expense for other amortizable intangible
assets for the years ending December 31, 2006, 2007, 2008, 2009 and 2010 is
estimated to be $34,398,000, $33,783,000, $32,897,000, $32,431,000, and
$31,797,000 respectively.
NOTE
5 • Investments
Investments
at December 31 consisted of the following:
|
2005
|
2004
|
||||||||||||
|
Carrying
Value
|
Carrying
Value
|
||||||||||||
|
(in
thousands)
|
Current
|
Non-Current
|
Current
|
Non-Current
|
|||||||||
|
Available-for-sale
marketable equity securities
|
$
|
216
|
$
|
7,644
|
$
|
204
|
$
|
8,489
|
|||||
|
Non-marketable
equity securities and certificates
of deposit
|
2,532
|
777
|
2,959
|
839
|
|||||||||
|
Total
investments
|
$
|
2,748
|
$
|
8,421
|
$
|
3,163
|
$
|
9,328
|
|||||
The
following table summarizes available-for-sale securities at December 31:
|
(in
thousands)
|
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Estimated
Fair
Value
|
|||||||||
|
Marketable
equity securities:
|
|||||||||||||
|
2005
|
$
|
550
|
$
|
7,312
|
$
|
(2
|
)
|
$
|
7,860
|
||||
|
2004
|
$
|
549
|
$
|
8,147
|
$
|
(3
|
)
|
$
|
8,693
|
||||
The
following table summarizes the proceeds and realized gains/(losses) on
non-marketable equity securities and certificates of deposit for the years
ended
December 31:
|
(in
thousands)
|
Proceeds
|
Gross
Realized
Gains
|
Gross
Realized
Losses
|
|||||||
|
2005
|
$
|
896
|
$
|
87
|
$
|
-
|
||||
|
2004
|
$
|
1,107
|
$
|
526
|
$
|
(118
|
)
|
|||
|
2003
|
$
|
106
|
$
|
-
|
$
|
-
|
||||
NOTE
6 • Fixed Assets
Fixed
assets at December 31 consisted of the following:
|
(in
thousands)
|
2005
|
2004
|
|||||
|
Furniture,
fixtures and equipment
|
$
|
83,275
|
$
|
74,358
|
|||
|
Leasehold
improvements
|
6,993
|
5,222
|
|||||
|
Land,
buildings and improvements
|
487
|
655
|
|||||
|
90,755
|
80,235
|
||||||
|
Less
accumulated depreciation and amortization
|
(51,357
|
)
|
(46,797
|
)
|
|||
|
Total
|
$
|
39,398
|
$
|
33,438
|
|||
Depreciation
and amortization expense amounted to $10,061,000 in 2005, $8,910,000 in 2004
and
$8,203,000 in 2003.
NOTE
7 • Accrued Expenses
Accrued
expenses at December 31 consisted of the following:
|
(in
thousands)
|
2005
|
2004
|
|||||
|
Accrued
bonuses
|
$
|
35,613
|
$
|
25,314
|
|||
|
Accrued
compensation and benefits
|
15,179
|
12,596
|
|||||
|
Accrued
rent and vendor expenses
|
6,504
|
4,195
|
|||||
|
Accrued
interest
|
5,302
|
4,560
|
|||||
|
Reserve
for policy cancellations
|
5,019
|
3,771
|
|||||
|
Other
|
6,917
|
7,595
|
|||||
|
Total
|
$
|
74,534
|
$
|
58,031
|
|||
NOTE
8 • Long-Term Debt
Long-term
debt at December 31 consisted of the following:
|
(in
thousands)
|
2005
|
2004
|
|||||
|
Unsecured
Senior Notes
|
$
|
200,000
|
$
|
200,000
|
|||
|
Acquisition
notes payable
|
43,889
|
4,385
|
|||||
|
Term
loan agreements
|
25,714
|
38,571
|
|||||
|
Revolving
credit facility
|
-
|
-
|
|||||
|
Other
notes payable
|
206
|
242
|
|||||
|
269,809
|
243,198
|
||||||
|
Less
current portion
|
(55,630
|
)
|
(16,135
|
)
|
|||
|
Long-term
debt
|
$
|
214,179
|
$
|
227,063
|
|||
In
July
2004, Brown & Brown completed a private placement of $200.0 million of
unsecured senior notes (the Notes). The $200.0 million is divided into two
series: Series A, for $100.0 million due in 2011 and bearing interest at 5.57%
per year; and Series B, for $100.0 million due in 2014 and bearing interest
at
6.08% per year. The closing on the Series B Notes occurred on July 15, 2004.
The
closing on the Series A Notes occurred on September 15, 2004. Brown & Brown
has used the proceeds from the Notes for general corporate purposes, including
acquisitions and repayment of existing debt. As of December 31, 2005 and 2004
there was an outstanding balance of $200.0 million on the Notes.
In
September 2003, Brown & Brown established an unsecured revolving credit
facility with a national banking institution that provided for available
borrowings of up to $75.0 million, with a maturity date of October 2008, bearing
an interest rate based upon the 30-, 60- or 90-day LIBOR plus 0.625% to 1.625%,
depending upon the Company’s quarterly ratio of funded debt to earnings before
interest, taxes, depreciation, amortization and non-cash stock grant
compensation. A commitment fee of 0.175% to 0.375% per annum is assessed on
the
unused balance. The 90-day LIBOR was 4.53% and 2.56% as of December 31, 2005
and
2004, respectively. There were no borrowings against this facility at December
31, 2005 or 2004.
In
January 2001, Brown & Brown entered into a $90.0 million unsecured
seven-year term loan agreement with a national banking institution, bearing
an
interest rate based upon the 30-, 60- or 90-day LIBOR plus 0.50% to 1.00%,
depending upon Brown & Brown’s quarterly ratio of funded debt to earnings
before interest, taxes, depreciation, amortization and non-cash stock grant
compensation. The 90-day LIBOR was 4.53% and 2.56% as of December 31, 2005
and
2004, respectively. The loan was fully funded on January 3, 2001 and as of
December 31, 2005 had an outstanding balance of $25,714,000. This loan is to
be
repaid in equal quarterly installments of $3,200,000 through December
2007.
All
three
of these credit agreements require Brown & Brown to maintain certain
financial ratios and comply with certain other covenants. Brown & Brown was
in compliance with all such covenants as of December 31, 2005 and
2004.
To
hedge
the risk of increasing interest rates from January 2, 2002 through the remaining
six years of its seven-year $90 million term loan, Brown & Brown entered
into an interest rate swap agreement that effectively converted the floating
rate LIBOR-based interest payments to fixed interest rate payments at 4.53%.
This agreement did not affect the required 0.50% to 1.00% credit risk spread
portion of the term loan. In accordance with SFAS No. 133, as amended, the
fair
value of the interest rate swap of approximately $36,000, net of related income
taxes of approximately $22,000, was recorded in other assets as of December
31,
2005, and $455,000, net of related income taxes of approximately $267,000,
was
recorded in other liabilities as of December 31, 2004; with the
related change in fair value reflected as other comprehensive income. Brown
& Brown has designated and assessed the derivative as a highly effective
cash flow hedge.
Acquisition
notes payable represent debt incurred to former owners of certain insurance
operations acquired by Brown & Brown. These notes and future contingent
payments are payable in monthly, quarterly and annual installments through
February 2014, including interest in the range from 3.0% to 8.05%.
Interest
paid in 2005, 2004 and 2003 was $13,726,000, $2,773,000 and $3,646,000,
respectively.
At
December 31, 2005, maturities of long-term debt were $55,630,000 in 2006,
$13,677,000 in 2007, $139,000 in 2008, $147,000 in 2009, $157,000 in 2010 and
$200,059,000 in 2011 and beyond.
NOTE
9 • Income Taxes
Significant
components of the provision (benefit) for income taxes for the years ended
December 31 are as follows:
|
(in
thousands)
|
2005
|
2004
|
2003
|
|||||||
|
Current:
|
||||||||||
|
Federal
|
$
|
72,550
|
$
|
59,478
|
$
|
51,954
|
||||
|
State
|
10,387
|
9,788
|
5,836
|
|||||||
|
Total
current provision
|
82,937
|
69,266
|
57,790
|
|||||||
|
Deferred:
|
||||||||||
|
Federal
|
8,547
|
6,967
|
8,691
|
|||||||
|
State
|
2,095
|
1,873
|
(321
|
)
|
||||||
|
Total
deferred provision
|
10,642
|
8,840
|
8,370
|
|||||||
|
Total
tax provision
|
$
|
93,579
|
$
|
78,106
|
$
|
66,160
|
||||
A
reconciliation of the differences between the effective tax rate and the federal
statutory tax rate for the years ended December 31 is as follows:
|
2005
|
2004
|
2003
|
||||||||
|
Federal
statutory tax rate
|
35.0
|
%
|
35.0
|
%
|
35.0
|
%
|
||||
|
State
income taxes, net of federal income tax benefit
|
3.3
|
3.7
|
2.8
|
|||||||
|
State
income tax credits
|
-
|
(0.5
|
)
|
(0.6
|
)
|
|||||
|
Interest
exempt from taxation and dividend exclusion
|
(0.2
|
)
|
(0.2
|
)
|
(0.1
|
)
|
||||
|
Other,
net
|
0.2
|
(0.3
|
)
|
0.4
|
||||||
|
Effective
tax rate
|
38.3
|
%
|
37.7
|
%
|
37.5
|
%
|
||||
Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes
and
the corresponding amounts used for income tax reporting purposes.
Significant
components of Brown & Brown’s deferred tax liabilities and assets as of
December 31 are as follows:
|
(in
thousands)
|
2005
|
2004
|
|||||
|
Deferred
tax liabilities:
|
|||||||
|
Fixed
assets
|
$
|
3,454
|
$
|
4,416
|
|||
|
Net
unrealized holding gain of available-for-sale securities
|
2,584
|
2,884
|
|||||
|
Prepaid
insurance and pension
|
2,219
|
2,107
|
|||||
|
Net
gain on cash-flow hedging derivative
|
22
|
-
|
|||||
|
Intangible
assets
|
37,379
|
24,609
|
|||||
|
Total
deferred tax liabilities
|
45,658
|
34,016
|
|||||
|
Deferred
tax assets:
|
|||||||
|
Deferred
compensation
|
4,984
|
4,257
|
|||||
|
Accruals
and reserves
|
4,973
|
4,470
|
|||||
|
Net
operating loss carryforwards
|
537
|
485
|
|||||
|
Net
loss on cash-flow hedging derivative
|
-
|
266
|
|||||
|
Other
|
-
|
(89
|
)
|
||||
|
Valuation
allowance for deferred tax assets
|
(325
|
)
|
(232
|
)
|
|||
|
Total
deferred tax assets
|
10,169
|
9,157
|
|||||
|
Net
deferred tax liability
|
$
|
35,489
|
$
|
24,859
|
|||
Income
taxes paid in 2005, 2004 and 2003 were $77,143,000, $72,904,000, and
$60,818,000, respectively.
At
December 31, 2005, Brown & Brown had a net operating loss carryforward of
$8,551,000 for income tax reporting purposes, portions of which expire in the
years 2012 through 2023. This carryforward was derived from insurance
operations acquired by Brown & Brown in 2001 and 1998, and the
operating results of certain profit centers for state income tax purposes.
NOTE
10 • Employee Savings Plan
Brown
& Brown has an Employee Savings Plan (401(k)) under which substantially all
employees with more than 30 days
of
service are eligible to participate. Under this plan, Brown & Brown makes
matching contributions, subject to a maximum of 2.5% of each participant’s
salary. Further, Brown & Brown provides for a discretionary profit-sharing
contribution for all eligible employees. Brown & Brown’s contributions to
the plan totaled $7,762,000 in 2005, $6,569,000 in 2004 and $6,398,000 in 2003.
NOTE
11 • Stock-Based Compensation and Incentive Plans
Stock
Performance Plan
Brown
& Brown has adopted and the shareholders have approved a stock performance
plan, under which up to 14,400,000 shares of Brown & Brown’s stock
(Performance Stock, also referred to as PSP) may be granted to key employees
contingent
on the employees’ future years of service with Brown & Brown and other
criteria established by the Compensation
Committee of Brown & Brown’s Board of Directors. Before participants take
full title to Performance Stock, two vesting conditions must be met. Of the
grants currently outstanding, specified portions will satisfy the first
condition for vesting based on increases in the 20-trading-day average stock
price of Brown & Brown’s common stock from the initial grant price
specified
by Brown & Brown. Performance Stock that has satisfied the first vesting
condition is considered to be “awarded shares.”
Awarded shares are included as issued and outstanding common stock shares and
are included in the calculation of basic
and
diluted earnings per share. Dividends are paid on awarded shares and
participants may exercise voting privileges on
such
shares. Awarded shares satisfy the second condition for vesting on the earlier
of: (i) 15 years of continuous employment with Brown & Brown from the date
shares are granted to the participants; (ii) attainment of age 64; or (iii)
death or disability of the participant. At December 31, 2005, 6,349,298 shares
had been granted under the plan at initial stock prices ranging from $1.90
to
$25.68. As of December 31, 2005, 5,125,304 shares had met the first condition
for vesting and had been awarded, and 497,616 shares had satisfied both
conditions for vesting and had been distributed to the
participants.
The
compensation expense for the Performance Stock is equal to the fair market
value
of the shares at the date the first vesting condition is satisfied and is
expensed over the remainder of the estimated vesting period. Compensation
expense related to this Plan totaled $3,337,000 in 2005, $2,625,000 in 2004
and
$2,272,000 in 2003.
Employee
Stock Purchase Plan
Brown
& Brown has adopted and the shareholders have approved an employee stock
purchase plan (ESPP), which allows for substantially all employees to subscribe
to purchase shares of Brown & Brown’s stock at 85% of the lesser of the
market value of such shares at the beginning or end of each annual subscription
period. Eligible employees may contribute up to 10% of their annual
compensation, up to a maximum of $25,000, towards the purchase of Brown &
Brown common stock. Brown & Brown issued 521,948 and 546,344 shares of
common stock under the ESPP in August 2005 and 2004, respectively. These shares
were issued at an aggregate purchase price of $9,208,000 or $17.64 per share
in
2005, and of $7,256,000 or $13.28 per share in 2004. Of the 12,000,000 shares
of
common stock authorized for issuance under the ESPP as of December 31, 2005,
5,598,784 shares remained available and reserved for future issuance. As
described in Note 1, under the APB No. 25, there has been no expense relating
to
the common stock issued under the ESPP.
Incentive
Stock Option Plan
On
April
21, 2000, Brown & Brown adopted and the shareholders have approved a
qualified incentive stock option plan that provides for the granting of stock
options to certain key employees for up to 4,800,000 shares of common stock.
The
objective of this plan is to provide additional performance incentives to grow
Brown & Brown’s pre-tax income in excess of 15% annually. The options
are granted at the most recent trading days’ closing market price, and vest over
a one-to-10-year period, with a potential acceleration of the vesting period
to
three to six years based on achievement of certain performance goals. All of
the
options expire 10 years after the grant date.
On
October 31, 2001, an additional 10,000 option shares were granted at the most
recent trading day’s closing market price of $14.20. These option shares vest in
2,000-share increments through 2006, if certain performance goals are met.
The
option shares are expensed at the price differential of the closing market
price
at the date of vesting and the option price, times the number of shares vesting.
As of December 31, 2005 and 2004, 2,000 of these option shares became vested
and
were exercisable, and thus a corresponding $5,000 was expensed in each
year.
Stock
option activity under the plan was as follows:
|
Shares
|
Weighted
Average
Exercise
Price
|
||||||
|
Outstanding
at January 1, 2003
|
2,146,536
|
$
|
4.88
|
||||
|
Granted
|
1,080,004
|
$
|
15.78
|
||||
|
Exercised
|
(959,264
|
)
|
$
|
4.85
|
|||
|
Forfeited
|
(40,000
|
)
|
$
|
4.84
|
|||
|
Outstanding
at December 31, 2003
|
2,227,276
|
$
|
10.18
|
||||
|
Granted
|
-
|
-
|
|||||
|
Exercised
|
(154,248
|
)
|
$
|
4.96
|
|||
|
Forfeited
|
-
|
-
|
|||||
|
Outstanding
at December 31, 2004
|
2,073,028
|
$
|
10.56
|
||||
|
Granted
|
12,000
|
$
|
22.06
|
||||
|
Exercised
|
(68,040
|
)
|
$
|
4.84
|
|||
|
Forfeited
|
-
|
-
|
|||||
|
Outstanding
at December 31, 2005
|
2,016,988
|
$
|
10.83
|
||||
|
Exercisable
at December 31, 2005
|
783,672
|
$
|
4.88
|
||||
|
Exercisable
at December 31, 2004
|
698,312
|
$
|
4.86
|
||||
|
Exercisable
at December 31, 2003
|
635,840
|
$
|
4.86
|
||||
The
following table summarizes information about stock options outstanding at
December 31, 2005:
|
Options
Outstanding
|
Options
Exercisable
|
|||||||||||||||
|
Exercise
Price
|
Number
Outstanding
|
Weighted
Average
Remaining
Contractual
Life
(years)
|
Weighted
Average
Exercise
Price
|
Number
Exercisable
|
Weighted
Average
Exercise
Price
|
|||||||||||
|
$4.84
|
918,984
|
4.3
|
$
|
4.84
|
779,672
|
$
|
4.84
|
|||||||||
|
$14.20
|
6,000
|
0.8
|
$
|
14.20
|
4,000
|
$
|
14.20
|
|||||||||
|
$15.78
|
1,080,004
|
7.2
|
$
|
15.78
|
-
|
-
|
||||||||||
|
$22.06
|
12,000
|
2.0
|
$
|
22.06
|
-
|
-
|
||||||||||
|
2,016,988
|
5.9
|
$
|
10.69
|
783,672
|
$
|
4.88
|
||||||||||
There
were 1,537,996 option shares available for future grant under this plan as
of
December 31, 2005 and 2004.
No
compensation expense related to these options is recognized in operations for
2005, 2004 or 2003, except for the 10,000 option shares granted on October
31,
2001 as described above. As disclosed in Note 1, Brown & Brown accounts for
its stock options using the intrinsic value method prescribed in APB No. 25.
Brown & Brown also disclosed in Note 1 the effect on net income and net
income per share if Brown & Brown had applied the fair value recognition
provisions of revised SFAS No. 123 to its granted stock options.
The
weighted average fair value of the incentive stock options granted during 2000
estimated on the date of grant, using the Black-Scholes option-pricing model,
was $2.37 per share. The fair value of these options granted was estimated
on
the
date of grant using the following assumptions: dividend yield of 0.86%; expected
volatility of 29.6%; risk-free interest
rate of
6.3%; and an expected life of 10 years. The weighted average fair value of
the
incentive stock options granted during 2003 estimated on the date of grant,
using the Black-Scholes option-pricing model, was $5.63 per share. The fair
value of these options granted was estimated on the date of grant using the
following assumptions: dividend yield of 0.63%; expected volatility of 37.0%;
risk-free interest rate of 1.5%; and an expected life of six years.
NOTE
12 • Supplemental Disclosures of Cash Flow Information
Brown
& Brown’s significant non-cash investing and financing activities for the
years ended December 31 are summarized as follows:
|
(in
thousands)
|
2005
|
2004
|
2003
|
|||||||
|
Unrealized
holding (loss) gain on available-for-sale securities, net of tax
benefit
of $300
for
2005; net of tax benefit of $530 for 2004; and net of tax effect
of $857
for 2003
|
$
|
(512
|
)
|
$
|
(649
|
)
|
$
|
1,395
|
||
|
Net
gain on cash-flow hedging derivative, net of tax effect of $289 for
2005,
net of tax
effect
of $557 for 2004; and net of tax effect of $445 for 2003
|
$
|
491
|
$
|
889
|
$
|
726
|
||||
|
Notes
payable issued or assumed for purchased customer accounts
|
$
|
42,843
|
$
|
1,976
|
$
|
3,323
|
||||
|
Notes
received on the sale of fixed assets and customer accounts
|
$
|
1,855
|
$
|
6,024
|
$
|
4,584
|
||||
|
Common
stock issued for acquisitions accounted for under the purchase method
of
accounting
|
$
|
-
|
$
|
6,244
|
$
|
-
|
||||
NOTE
13 • Commitments and Contingencies
Operating
Leases
Brown
& Brown leases facilities and certain items of office equipment under
noncancelable operating lease arrangements
expiring
on
various dates through 2017. The facility leases generally contain renewal
options and escalation clauses based on increases in the lessors’ operating
expenses and other charges. Brown & Brown anticipates that most of these
leases will be renewed or replaced upon expiration. At December 31, 2005, the
aggregate future minimum lease payments under all noncancelable lease agreements
were as follows:
| (in thousands) | ||||
|
2006
|
$
|
20,731
|
||
|
2007
|
17,217
|
|||
|
2008
|
15,156
|
|||
|
2009
|
12,156
|
|||
|
2010
|
8,919
|
|||
|
Thereafter
|
11,642
|
|||
|
Total
minimum future lease payments
|
$
|
85,821
|
||
Rental
expense in 2005, 2004 and 2003 for operating leases totaled $28,926,000,
$24,595,000 and $21,844,000, respectively.
45
Antitrust
Actions and Related Matters
As
previously disclosed, Brown & Brown, Inc. is one of more than ten insurance
intermediaries named together with a number of insurance companies as
defendants
in putative class action lawsuits purporting to be brought on behalf
of
policyholders.
Brown
& Brown, Inc. initially became a defendant in certain of those actions
in
October and December of 2004. In February 2005, the Judicial Panel on
Multi-District Litigation consolidated these cases, together with other
putative
class action lawsuits in which Brown & Brown, Inc. was not named as a party,
to a single jurisdiction, the United States District Court, District
of New
Jersey, for pre-trial purposes. One of the consolidated actions, In
Re: Employee-Benefits Insurance Antitrust Litigation,
concerns
employee benefits insurance and the other, styled In
Re: Insurance Brokerage Antitrust Litigation,
involves other lines of insurance. These two consolidated actions are
collectively referred to in this report as the "Antitrust Actions." The
complaints
refer to
an action, since settled, that was filed against Marsh & McLennan Companies,
Inc. (“Marsh & McLennan”), the largest insurance broker in the world, by the
New York State Attorney General in October 2004, and allege various
improprieties and unlawful acts by the various defendants in the pricing
and
placement of insurance, including alleged manipulation of the insurance
market
by, among other things: “bid rigging” and “steering” clients to particular
insurers based on considerations other than the clients’ interests; alleged
entry into unlawful tying arrangements pursuant to which the placement
of
primary insurance contracts was conditioned upon commitments to place
reinsurance through a particular broker; and alleged failure to disclose
contingent commission and other allegedly improper compensation and fee
arrangements. The plaintiffs in the Antitrust Actions
assert a
number of causes of action, including violations of the federal antitrust
laws,
multiple state antitrust and unfair and deceptive practices statutes,
and the
federal anti-racketeering (RICO) statute, as well as breach of fiduciary
duty,
misrepresentation, conspiracy, aiding and abetting, and unjust enrichment,
and
seek injunctive and declaratory relief as well as unspecified damages,
including
treble and punitive damages, and attorneys’ fees and costs.
Brown
& Brown, Inc. disputes the allegations and is vigorously defending itself
in
the Antitrust Actions.
Related
Regulatory Proceedings
Since
the
New York State Attorney General filed the lawsuit referenced above against
Marsh
& McLennan in October
2004, governmental agencies in a number of states have looked or are
looking
into issues related to compensation practices in the insurance industry,
and the
Company continues to actively receive and respond to written and oral
requests
for information and/or subpoenas seeking information related to this
topic. To
date, requests for information and/or subpoenas have been received from
governmental agencies such as attorneys general or departments of insurance
in
the following states: Arkansas (Department of Insurance), Arizona (Department
of
Insurance), California (Department of Insurance), Connecticut (Office
of
Attorney General), Florida (Office of Attorney General, Department of
Financial
Services, and Office of Insurance Regulation), Nevada (Department of
Business
& Industry, Division of Insurance), New Hampshire (Department of Insurance),
New Jersey (Department of Banking and Insurance), New York (Office of
Attorney
General), North Carolina (Department of Insurance and Department of Justice),
Oklahoma (Department of Insurance), Pennsylvania (Department of Insurance),
South Carolina (Department of Insurance), Texas (Department of Insurance),
Vermont (Department of Banking, Insurance, Securities & Healthcare
Administration), Virginia (State Corporation Commission, Bureau of Insurance,
Agent Regulation & Administration Division), Washington (Office of Insurance
Commissioner) and West Virginia (Office of Attorney General). None of
these
governmental agencies has charged or alleged any wrongdoing or violation
of law
by the Company. Agencies in Arizona and Washington have concluded their
respective investigations of subsidiaries of Brown & Brown, Inc. based in
those states with no further action as to these entities.
As
previously disclosed in our public filings, offices of the Company are
party to
contingent commission agreements with certain insurance companies, including
agreements providing for potential payment of revenue-sharing commissions
by
insurance companies based primarily on the overall profitability of the
aggregate business written with that insurance company, and/or additional
factors such as retention ratios and overall volume of business that
an office
or offices place with the insurance company. Additionally, to a lesser
extent,
some offices of the Company are party to override commission agreements
with
certain insurance companies, and these agreements provide for commission
rates
in excess of standard commission rates to be applied to specific lines
of
business, such as group health business, based primarily on the overall
volume
of such business that the office or offices in question place with the
insurance
company. The Company has not chosen to discontinue receiving contingent
commissions or override commissions.
As
previously disclosed, a committee comprised of independent members of
the Board
of Directors of Brown & Brown, Inc. (the “Special Review Committee”)
determined that maintenance of a derivative suit was not in the best
interests
of the Company, following an investigation in response to a December
2004 demand
letter from counsel purporting to represent a current shareholder of
Brown &
Brown, Inc. (the “Demand Letter”). The Demand Letter sought the commencement of
a derivative suit by Brown & Brown, Inc. against the Board of Directors and
current and former officers and directors of Brown & Brown, Inc. for alleged
breaches of fiduciary duty related to the Company’s participation in contingent
commission agreements. The Special Review Committee's conclusions were
communicated to the purported shareholder's counsel and there has been
limited
communication since then. There can be no assurance that the purported
shareholder will not further pursue his allegations or that any pursuit
of any
such allegations would not have a material adverse effect on the
Company.
In
response to the foregoing events, the Company also, on its own volition,
engaged
outside counsel to conduct a limited internal inquiry into certain
sales and marketing practices of the Company, with special emphasis on
the
effects of contingent commission agreements on the placement of insurance
products by the Company for its clients. The internal inquiry resulted
in
several recommendations being made in January 2006 regarding disclosure
of
compensation, premium finance charges, the retail-wholesale interface,
fee-based
compensation and direct incentives from insurance companies, and the
Company has
been evaluating such recommendations and has adopted or is in the process
of
adopting these recommendations. As a result of that inquiry, and in the
process
of preparing responses to some of the governmental agency inquiries referenced
above, management of the Company became aware of a limited number of
specific, unrelated instances of questionable conduct. These matters have
been addressed and resolved, or are in the process of being addressed
and
resolved, on a case-by-case basis, and thus far the amounts involved
in
resolving such matters have not been, either individually or in the aggregate,
material. However, there can be no assurance that the ultimate cost and
ramifications of resolving these matters will not have a material adverse
effect
on the Company.
Some
of
the other insurance intermediaries and insurance companies that have
been
subject to governmental investigations and/or lawsuits arising out of
these
matters have chosen to settle some such matters. Such settlements have
involved
the payment of substantial sums, as well as agreements to change business
practices, including agreeing to no longer pay or accept contingent commissions.
Marsh & McLennan, Aon Corporation, Arthur J. Gallagher & Co., Hilb,
Rogal & Hobbs Company (“HRH”), and Willis Group Holdings Ltd. have each
entered into agreements with governmental agencies, which collectively
involve
payments by these intermediaries to agencies and to certain of their
clients
totaling nearly $1 billion. With the exception of the settlement entered
into by
HRH, which included an agreement that HRH would discontinue acceptance
of
certain types of contingency compensation, these agreements provided
that these
insurance intermediaries would discontinue acceptance of any contingency
compensation.
On
March
14, 2006, the Florida Attorney General and the Florida Department of
Financial
Services, which, as mentioned, have also been seeking information from
the
Company, filed a complaint against Marsh & McLennan on behalf of various
Florida governmental entities, businesses and residents alleging that
Marsh
& McLennan violated Florida’s RICO and antitrust laws. The complaint alleges
that Marsh & McLennan conspired with various insurance companies to rig
quotes for commercial insurance, manipulate the commercial insurance
markets,
inflate insurance premiums, and receive undisclosed, additional compensation,
all of which are alleged to have caused damage to the State of Florida,
governmental entities and Florida businesses and residents. While the
above
Florida governmental agencies have not made demands upon the Company,
which is
headquartered in Florida, or filed suit against it, there can be no assurance
that their inquiries, or any of those of the other various governmental
authorities referenced above, will not result in demands upon the Company
or
suits filed against it, or that any such demands or suits or any resolution
thereof would not have a material adverse effect on the Company.
The
Company cannot currently predict the impact or resolution of the Antitrust
Actions, the shareholder demand or the various governmental inquiries
or
lawsuits and thus cannot reasonably estimate a range of possible loss,
which
could be material, or whether the resolution of these matters may harm
the
Company’s business and/or lead to a decrease in or elimination of contingent
commissions and override commissions, which could have a material adverse
impact
on the Company’s consolidated financial condition.
Other
The
Company
is
involved in numerous pending or threatened proceedings by or against
Brown
& Brown, Inc.
or one
or more of its subsidiaries that arise in the ordinary course of business.
The
damages that may be claimed against the Company in these various proceedings
are
substantial, including in many instances claims for punitive or extraordinary
damages. Some of these claims and lawsuits have been resolved, others are
in the
process of being resolved, and others are still in the investigation or
discovery phase. The Company will continue to respond appropriately to
these
claims and lawsuits, and to vigorously protect its interests.
Among
the
above-referenced claims, and as previously described in the Company’s public
filings, there are several threatened and pending legal claims and lawsuits
against Brown & Brown, Inc. and Brown & Brown Insurance Services of
Texas, Inc. (BBTX), a subsidiary
of
Brown & Brown, Inc., arising out of BBTX’s involvement with the procurement
and placement of workers’ compensation
insurance coverage for entities including several professional employer
organizations. One such action, styled Great
American Insurance Company, et al. v. The Contractor’s Advantage, Inc., et
al.,
Cause
No. 2002-33960, pending in the 189th Judicial District Court in Harris
County,
Texas, asserts numerous causes of action, including fraud, civil conspiracy,
federal Lanham Act and RICO violations, breach of fiduciary duty, breach
of
contract, negligence and violations of the Texas Insurance Code against
BBTX,
Brown & Brown, Inc. and other defendants, and seeks recovery of punitive or
extraordinary damages (such as treble damages) and attorneys’ fees. Although the
ultimate outcome of the matters referenced in this section titled “Other” cannot
be ascertained and liabilities in indeterminate amounts may be imposed
on Brown
& Brown, Inc. or its subsidiaries, on the basis of present information,
availability of insurance and legal advice received, it is the opinion
of
management that the disposition or ultimate determination of such claims
will
not have a material adverse effect on the Company’s consolidated financial
position. However, as (i) one or more of the Company’s insurance carriers could
take the position that portions of these claims are not covered by the
Company’s
insurance, (ii) to the extent that payments are made to resolve claims
and
lawsuits, applicable insurance policy limits are eroded, and (iii) the
claims
and lawsuits relating to these matters are continuing to develop, it is
possible
that future results of operations or cash flows for any particular quarterly
or
annual period could be materially affected by unfavorable resolutions of
these
matters.
NOTE
14•
Business Concentrations
A
significant portion of business written by Brown & Brown is for customers
located in California, Florida, Georgia, New Jersey, New York, Pennsylvania
and
Washington. Accordingly, the occurrence of adverse economic conditions, an
adverse regulatory climate, or a disaster in any of these states could have
a
material adverse effect on Brown & Brown’s business, although no such
conditions have been encountered in the past.
For
the
year ended December 31, 2005, approximately 8.0% and 5.4% of Brown & Brown’s
total revenues were derived from insurance policies underwritten by two separate
insurance companies, respectively. Should these insurance companies seek to
terminate its arrangement with Brown & Brown, Brown & Brown believes
that other insurance companies are available to underwrite the business,
although some additional expense and loss of market share could possibly result.
No other insurance company accounts for 5% or more of Brown & Brown’s total
revenues.
NOTE
15 • Quarterly Operating Results (Unaudited)
Quarterly
operating results for 2005 and 2004 were as follows:
|
(in
thousands, except per share data)
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
|||||||||
|
2005
|
|||||||||||||
|
Total
revenues
|
$
|
202,374
|
$
|
195,931
|
$
|
190,645
|
$
|
196,857
|
|||||
|
Total
expenses
|
$
|
131,861
|
$
|
135,463
|
$
|
134,956
|
$
|
139,397
|
|||||
|
Income
before income taxes
|
$
|
70,513
|
$
|
60,468
|
$
|
55,689
|
$
|
57,460
|
|||||
|
Net
income
|
$
|
43,018
|
$
|
37,033
|
$
|
34,783
|
$
|
35,717
|
|||||
|
Net
income per share:
|
|||||||||||||
|
Basic
|
$
|
0.31
|
$
|
0.27
|
$
|
0.25
|
$
|
0.26
|
|||||
|
Diluted
|
$
|
0.31
|
$
|
0.27
|
$
|
0.25
|
$
|
0.25
|
|||||
|
2004
|
|||||||||||||
|
Total
revenues
|
$
|
165,565
|
$
|
157,942
|
$
|
160,381
|
$
|
163,046
|
|||||
|
Total
expenses
|
$
|
106,205
|
$
|
105,413
|
$
|
112,125
|
$
|
116,242
|
|||||
|
Income
before income taxes
|
$
|
59,360
|
$
|
52,529
|
$
|
48,256
|
$
|
46,804
|
|||||
|
Net
income
|
$
|
36,348
|
$
|
32,153
|
$
|
30,086
|
$
|
30,256
|
|||||
|
Net
income per share:
|
|||||||||||||
|
Basic
|
$
|
0.26
|
$
|
0.23
|
$
|
0.22
|
$
|
0.22
|
|||||
|
Diluted
|
$
|
0.26
|
$
|
0.23
|
$
|
0.22
|
$
|
0.22
|
|||||
Quarterly
financial information is affected by seasonal variations. The timing of
contingent commissions, policy renewals and acquisitions may cause revenues,
expenses and net income to vary significantly between quarters.
NOTE
16•
Segment Information
Brown
& Brown’s business is divided into four reportable segments: the Retail
Division, which provides a broad range of insurance products and services to
commercial, governmental, professional and individual customers; the National
Programs Division, which is comprised of two units - Professional Programs,
which provides professional liability and related package products for certain
professionals delivered through nationwide networks of independent agents,
and
Special Programs, which markets targeted products and services designated for
specific industries, trade groups, governmental entities, and market niches;
the
Services Division, which provides insurance-related services, including
third-party administration, consulting for the workers’ compensation and
employee benefit self-insurance markets, and managed healthcare services; and
the Brokerage Division, which markets and sells excess and surplus commercial
and personal lines insurance, and reinsurance, primarily through independent
agents and brokers. Brown & Brown conducts all of its operations within the
United States of America.
The
accounting policies of the reportable segments are the same as those described
in Note 1. Brown & Brown evaluates the performance of its segments based
upon revenues and income before income taxes and minority interest.
Inter-segment revenues are eliminated.
Summarized
financial information concerning Brown & Brown’s reportable segments is
shown in the following table. The “Other” column includes any income and
expenses not allocated to reportable segments and corporate-related items,
including the inter-company interest expense charge to the reporting segment.
|
Year
Ended December 31,
2005
|
|||||||||||||||||||
|
(in
thousands)
|
Retail
|
National
Programs
|
Brokerage
|
Services
|
Other
|
Total
|
|||||||||||||
|
Total
revenues
|
$
|
491,202
|
$
|
133,930
|
$
|
127,113
|
$
|
27,517
|
$
|
6,045
|
$
|
785,807
|
|||||||
|
Investment
income
|
159
|
367
|
1,599
|
-
|
4,453
|
6,578
|
|||||||||||||
|
Amortization
|
19,368
|
8,103
|
5,672
|
43
|
59
|
33,245
|
|||||||||||||
|
Depreciation
|
5,641
|
1,998
|
1,285
|
435
|
702
|
10,061
|
|||||||||||||
|
Interest
expense
|
20,927
|
10,433
|
12,446
|
4
|
(29,341
|
)
|
14,469
|
||||||||||||
|
Income
before income taxes
|
128,881
|
38,385
|
28,306
|
6,992
|
41,566
|
244,130
|
|||||||||||||
|
Total
assets
|
1,002,781
|
445,146
|
476,653
|
18,766
|
(334,686
|
)
|
1,608,660
|
||||||||||||
|
Capital
expenditures
|
6,186
|
3,067
|
1,969
|
350
|
1,854
|
13,426
|
|||||||||||||
|
Year
Ended December 31,
2004
|
|||||||||||||||||||
|
(in
thousands)
|
Retail
|
National
Programs
|
Brokerage
|
Services
|
Other
|
Total
|
|||||||||||||
|
Total
revenues
|
$
|
461,348
|
$
|
112,092
|
$
|
41,603
|
$
|
26,809
|
$
|
5,082
|
$
|
646,934
|
|||||||
|
Investment
income
|
567
|
139
|
-
|
-
|
2,009
|
2,715
|
|||||||||||||
|
Amortization
|
15,314
|
5,882
|
757
|
36
|
157
|
22,146
|
|||||||||||||
|
Depreciation
|
5,734
|
1,583
|
508
|
387
|
698
|
8,910
|
|||||||||||||
|
Interest
expense
|
21,846
|
8,603
|
1,319
|
69
|
(24,681
|
)
|
7,156
|
||||||||||||
|
Income
before income taxes
|
113,637
|
33,930
|
11,337
|
6,375
|
41,670
|
206,949
|
|||||||||||||
|
Total
assets
|
843,823
|
359,551
|
128,699
|
13,760
|
(96,316
|
)
|
1,249,517
|
||||||||||||
|
Capital
expenditures
|
5,568
|
2,693
|
694
|
788
|
409
|
10,152
|
|||||||||||||
|
Year
Ended December 31,
2003
|
|||||||||||||||||||
|
(in
thousands)
|
Retail
|
National
Programs
|
Brokerage
|
Services
|
Other
|
Total
|
|||||||||||||
|
Total
revenues
|
$
|
399,010
|
$
|
90,444
|
$
|
31,740
|
$
|
28,591
|
$
|
1,255
|
$
|
551,040
|
|||||||
|
Investment
income
|
55
|
143
|
-
|
-
|
1,230
|
1,428
|
|||||||||||||
|
Amortization
|
12,476
|
4,488
|
312
|
37
|
157
|
17,470
|
|||||||||||||
|
Depreciation
|
5,771
|
1,208
|
331
|
423
|
470
|
8,203
|
|||||||||||||
|
Interest
expense
|
17,732
|
6,810
|
765
|
162
|
(21,845
|
)
|
3,624
|
||||||||||||
|
Income
before income taxes
|
98,386
|
31,705
|
11,128
|
5,525
|
29,738
|
176,482
|
|||||||||||||
|
Total
assets
|
623,648
|
273,363
|
74,390
|
13,267
|
(118,814
|
)
|
865,854
|
||||||||||||
|
Capital
expenditures
|
5,904
|
2,874
|
824
|
234
|
6,110
|
15,946
|
|||||||||||||
NOTE
17•
Subsequent Events
From
January 1, 2006 through March 14, 2006, Brown & Brown acquired the assets
and assumed certain liabilities of
three
insurance intermediaries. The aggregate purchase price of these acquisitions
was
$71,852,000, including $61,972,000 of net cash payments, the issuance of $82,000
in notes payable and the assumption of $9,798,000 of liabilities. All
of
these acquisitions were acquired primarily to expand Brown & Brown’s
core businesses and to attract and obtain high-quality individuals. Acquisition
purchase prices are based primarily on a multiple of average annual operating
profits earned over a one- to three-year period within
a
minimum and maximum price range. The initial asset allocation of an acquisition
is based on the minimum purchase price, and any subsequent earn-out payment
is
allocated to goodwill.
All
of
these acquisitions have been accounted for as business combinations and are
as
follows:
|
(in
thousands)
Name
and Effective Date of Acquisitions
|
Business
Segment
|
2006
Date
of
Acquisition
|
Net
Cash
Paid
|
Notes
Payable
|
Recorded
Purchase
Price
|
|||||||||||
|
Axiom
Intermediaries, LLC
|
Brokerage
|
January
1
|
$
|
60,293
|
$
|
-
|
$
|
60,293
|
||||||||
|
Other
|
Various
|
Various
|
1,679
|
82
|
1,761
|
|||||||||||
|
Total
|
$
|
61,972
|
$
|
82
|
$
|
62,054
|
||||||||||
The
following table summarizes the estimated fair values of the aggregate assets
and
liabilities acquired as of the date of each acquisition:
| (in thousands) |
Axiom
|
Other
|
Total
|
|||||||
|
Fiduciary
Cash
|
$
|
9,598
|
$
|
-
|
$
|
9,598
|
||||
|
Other
current assets
|
372
|
-
|
372
|
|||||||
|
Fixed
assets
|
435
|
25
|
460
|
|||||||
|
Purchased
customer accounts
|
17,405
|
835
|
18,240
|
|||||||
|
Noncompete
agreements
|
31
|
43
|
74
|
|||||||
|
Goodwill
|
42,177
|
858
|
43,035
|
|||||||
|
Other
assets
|
73
|
-
|
73
|
|||||||
|
Total
assets acquired
|
70,091
|
1,761
|
71,852
|
|||||||
|
Other
current liabilities
|
(9,798
|
)
|
-
|
(9,798
|
)
|
|||||
|
Total
liabilities assumed
|
(9,798
|
)
|
-
|
(9,798
|
)
|
|||||
|
Net
assets acquired
|
$
|
60,293
|
$
|
1,761
|
$
|
62,054
|
||||
Brown
& Brown’s 2005 Consolidated Statement of Income does not include any results
of these operations since the acquisitions were not effective until January
1,
2006 or later. The following unaudited pro forma results of operations of Brown
& Brown give effect to these acquisitions for the years ended December 31,
as though the transactions had occurred on January 1, 2005.
|
Year
Ended December 31,
|
|||||||
|
(in
thousands, except per share data)
|
|
2005
|
|||||
|
(Unaudited)
|
|||||||
|
Total
revenues
|
|
|
$
|
800,444
|
|||
|
Income
before income taxes
|
|
$
|
248,070
|
||||
|
Net
income
|
|
$
|
152,981
|
||||
|
Net
income per share:
|
|||||||
|
Basic
|
|
|
$
|
1.10
|
|||
|
Diluted
|
|
|
$
|
1.09
|
|||
|
Weighted
average number of shares outstanding:
|
|||||||
|
Basic
|
|
138,563
|
|||||
|
Diluted
|
|
139,776
|
|||||
Additional
consideration was also paid to sellers as a result of purchase price “earn-out”
adjustments. The net additional consideration paid by Brown & Brown as a
result of these adjustments for acquisitions consumated prior to December 31,
2005 totaled $6,861,000, all of which was paid in cash.
Report
of Independent Registered Public Accounting Firm
To
the
Board of Directors and Stockholders of
Brown
& Brown, Inc.
Daytona
Beach, Florida
We
have
audited the accompanying consolidated balance sheets of Brown & Brown, Inc.
and subsidiaries (the “Company”)
as of
December 31, 2005 and 2004, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2005. These financial statements are the responsibility
of
the Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2005 and
2004, and the results of its operations and its cash flows for each of the
three
years in the period ended December 31, 2005 in conformity with accounting
principles generally accepted in the United States of America.
We
have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2005, based on the criteria
established in Internal
Control-Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission and
our
report dated March 14, 2006 expressed an unqualified opinion on management’s
assessment of the effectiveness of the Company’s internal control over financial
reporting and an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
/s/
Deloitte & Touche LLP
Certified
Public Accountants
Jacksonville,
Florida
March
14,
2006
Management’s
Report on Internal Control Over Financial
Reporting
The
Management of Brown & Brown, Inc. and its subsidiaries (“Brown & Brown”)
is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Securities Exchange Act Rule
13a-15(f). Under
the
supervision and with the participation of management, including Brown &
Brown’s principal executive officer and
principal financial officer, Brown & Brown conducted an evaluation of the
effectiveness of internal control over financial reporting based on the
framework in Internal Control - Integrated Framework issued by the Committee
of
Sponsoring
Organizations of the Treadway Commission.
In
conducting Brown & Brown’s evaluation of this effectiveness of its internal
control over financial reporting, Brown & Brown has excluded the following
acquisitions completed by Brown & Brown during 2005: American Specialty
Companies, Inc. et al., Dana R. Hando (sole proprietor), ECC Insurance Brokers,
LLC, Emerald Benefits, Inc., et al., Braishfield Associates, Inc., Hull &
Company, Inc., et al., Nichols & Associates, Alliance Insurance Services,
Weible & Cahill, LLC, Timothy R. Downey Insurance Inc, and de Arrieta
Insurance Agency, Inc. et al. Collectively,
these acquisitions represented 26.1% of total assets as of December 31, 2005,
11.2% of total revenue and 4.1% of net income for the year ended. Refer to
Note
2 to the Consolidated Financial Statements for further discussion of these
acquisitions and their impact
on
Brown & Brown’s Consolidated Financial Statements.
Based
on
Brown & Brown’s evaluation under the framework in Internal Control -
Integrated Framework, management concluded that internal control over financial
reporting was effective as of December 31, 2005. Management’s assessment of the
effectiveness of internal control over financial reporting as of December 31,
2005 has been audited by Deloitte & Touche, LLP, an independent registered
public accounting firm, as stated in their report which is included
herein.
Brown
& Brown, Inc.
Daytona
Beach, Florida
March
14,
2006
| /s/ J. Hyatt Brown | /s/ Cory T. Walker |
| J. Hyatt Brown | Cory T. Walker |
| Chief Executive Officer | Chief Financial Officer |
Report
of Independent Registered Public Accounting Firm
To
the
Board of Directors and Stockholders of
Brown
& Brown, Inc.
Daytona
Beach, Florida
We
have
audited management’s assessment, included in the accompanying Management’s
Report on Internal Control over Financial Reporting that Brown & Brown, Inc.
and its subsidiaries (the “Company”) maintained effective internal control over
financial reporting as of December 31, 2005, based on criteria established
in
Internal
Control - Integrated Framework
issued
by
the
Committee of Sponsoring Organizations of the Treadway Commission. As described
in Management’s Report on Internal
Control over Financial Reporting, management excluded from their assessment
the
internal control over financial reporting
at American
Specialty Companies, Inc., et al., Dana R. Hando (sole proprietor), ECC
Insurance Brokers, LLC, Emerald Benefits, Inc., et al., Braishfield Associates,
Inc., Hull & Company, Inc., et al., Nichols & Associates, Alliance
Insurance Services, Weible & Cahill, LLC, Timothy R. Downey Insurance Inc.,
and de Arrieta Insurance Agency, Inc. et al. (collectively the
“2005
Excluded Acquisitions”), which were acquired during 2005 and whose financial
statements constitute 26.1% of total assets, 11.2% of revenues and 4.1% of
net
income of the related consolidated financial statement amounts as of and for
the
year ended December 31, 2005. Accordingly, our audit did not include the
internal control over financial reporting at the 2005 Excluded Acquisitions.
The
Company’s management is responsible for maintaining effective internal control
over financial
reporting and for its assessment of the effectiveness of internal control over
financial reporting. Our responsibility is to express an opinion on management’s
assessment and an opinion on the effectiveness of the Company’s internal control
over financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control
over
financial reporting, evaluating management’s assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing
such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinions.
A
company’s internal control over financial reporting is a process designed by, or
under the supervision of, the Company’s
principal executive and principal financial officers, or persons performing
similar functions, and effected by the company’s board of directors, management,
and other personnel to provide reasonable assurance regarding the reliability
of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance
of
records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors
of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented
or
detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In
our
opinion, management’s assessment that the Company maintained effective internal
control over financial reporting as of December 31, 2005, is fairly stated,
in
all material respects, based on the criteria established in
Internal Control—Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission. Also,
in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2005, based on
the
criteria established in Internal
Control - Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We
have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements as of
and
for the year ended December 31, 2005 of the Company and our report dated March
14, 2006, expressed an unqualified opinion on those financial statements.
/s/
Deloitte & Touche LLP
Certified
Public Accountants
Jacksonville,
Florida
March
14,
2006
ITEM
9. Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure.
There
were no changes in or disagreements with accountants on accounting and financial
disclosure in 2005.
Evaluation
of Disclosure Controls and Procedures
We
carried out an evaluation required by Rules 13a-15 and 15d-15 under the
Exchange Act (the “Evaluation”), under the supervision and with the
participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer
(“CFO”), of the effectiveness of our disclosure controls and procedures as
defined in Rule 13a-15 and 15d-15 under the Exchange Act (“Disclosure
Controls”). Based on the Evaluation, our CEO and CFO concluded that the design
and operation of our Disclosure Controls provide reasonable assurance that
the
Disclosure Controls, as described in this Item 9A, are effective in
alerting them timely to material information required to be included in our
periodic SEC reports.
Changes
in Internal Controls
There
has
not been any change in our internal control over financial reporting identified
in connection with the Evaluation that occurred during the quarter ended
December 31, 2005 that has materially affected, or is reasonably likely to
materially affect, those controls.
Inherent
Limitations of Internal Control Over Financial Reporting
Our
management, including our CEO and CFO, does not expect that our Disclosure
Controls and internal controls will prevent all error and all fraud. A control
system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met.
Further, the design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative
to their costs. Because of the inherent limitations in all control systems,
no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the company have been detected. These
inherent limitations include the realities that judgments in decision-making
can
be faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the
control.
The design of any system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions; over time, a control may become inadequate because of changes
in conditions, or the degree of compliance with the policies or procedures
may
deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected.
CEO
and CFO Certifications
Exhibits
31.1 and 31.2 are the Certifications of the CEO and the CFO, respectively.
The
Certifications are required in accordance with Section 302 of the
Sarbanes-Oxley Act of 2002 (the “Section 302 Certifications”). This Item of this
report, which you are currently reading, is the information concerning the
Evaluation referred to in the Section 302 Certifications and this
information should be read in conjunction with the Section 302
Certifications for a more complete understanding of the topics presented.
Management’s
Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act
Rule 13a-15(f). Our internal control system was designed to provide
reasonable assurance to our management and board of directors regarding the
preparation and fair presentation of published financial statements. All
internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation.
Under
the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of the effectiveness of our internal control over financial reporting
based on the framework in Internal
Control - Integrated Framework issued
by
the Committee of Sponsoring Organizations of the Treadway Commission. Based
on
our evaluation under the framework in Internal
Control — Integrated Framework,
our
management concluded that our internal control over financial reporting was
effective as of December 31, 2005. Management's Annual Report on Internal
Control over Financial Reporting and the Report of Independent Registered Public
Accounting Firm on Internal Controls over Financial Reporting are set forth
in
Part II, Item 8 of this Annual Report on Form 10-K and are included herein
by
reference.
The
information required by this item regarding directors and executive officers
is
incorporated herein by reference to our definitive Proxy Statement to be filed
with the Securities and Exchange Commission in connection with the Annual
Meeting of Shareholders to be held in 2006 (the 2006 Proxy Statement) under
the
headings “Management” and "Section 16(a) Beneficial Ownership Reporting.” We
have adopted a code of ethics that applies to our principal executive officer,
principal financial officer, and controller. A copy of our Code of Ethics for
Chief Executive Officer and Senior Financial Officers and a copy of our
code of Business Conduct and Ethics applicable to all employees
are posted on our Internet website, at www.bbinsurance.com,
and is
also available upon written request. Requests for copies of our Code of Ethics
should be directed in writing to Investor Relations, Brown & Brown, Inc.,
220 South Ridgewood Avenue, Daytona Beach, Florida 32114, or by telephone to
(352) 732-6522.
The
information required by this item is incorporated herein by reference to the
2006 Proxy Statement under the heading “Executive Compensation.”
The
information required by this item is incorporated herein by reference to the
2006 Proxy Statement under the heading “Security Ownership of Management and
Certain Beneficial Owners.”
The
information required by this item is incorporated herein by reference to the
2006 Proxy Statement under the heading “Management-Certain Relationships and
Related Transactions."
The
information required by this item is incorporated herein by reference to the
2006 Proxy Statement under the heading “Fees Paid to Deloitte & Touche LLP.”
The
following documents are filed as part of this Report:
| (a) | 1. | Financial statements |
| Reference is made to the information set forth in Part II, Item 8 of this report, which information is incorporated by reference. | ||
| 2. | Consolidated Financial Statement Schedules. | |
| All required Financial Statement Schedules are included in the Consolidated Financial Statements or the Notes to Consolidated Financial Statements. |
| 3. | EXHIBITS | ||
| The following exhibits are filed as a part of this Report: | |||
|
3.1
|
Articles
of Amendment to Articles of Incorporation (adopted April 24, 2003)
(incorporated by reference to Exhibit 3a to Form 10-Q for the quarter
ended March 31, 2003), and Amended and Restated Articles of Incorporation
(incorporated by reference to Exhibit 3a to Form 10-Q for the quarter
ended March 31, 1999).
|
||
| 3.2 |
Bylaws
(incorporated by reference to Exhibit 3b
to Form 10-K for the year ended December 31, 2002).
|
||
| 4.1 |
Note
Purchase Agreement, dated as of July 15,
2004, among the Company and the listed Purchasers of the 5.57% Series
A
Senior Notes due September 15, 2011 and 6.08% Series B Senior Notes
due
July 15, 2014. (incorporated by reference to Exhibit 4.1 to Form
10-Q for
the quarter ended June 30, 2004).
|
||
| 4.2 |
First
Amendment to Amended and Restated
Revolving and Term Loan Agreement dated and effective July 15, 2004,
by
and between Brown & Brown, Inc. and SunTrust Bank (incorporated by
reference to Exhibit 4.2 to Form 10-Q for the quarter ended June
30,
2004).
|
||
| 4.3 |
Second
Amendment to Revolving Loan Agreement
dated and effective July 15, 2004, by and between Brown & Brown, Inc.
and SunTrust Bank (incorporated by reference to Exhibit 4.3 to Form
10-Q
for the quarter ended June 30, 2004).
|
||
| 10.1(a) |
Amended
and Restated Revolving and Term Loan
Agreement dated January 3, 2001 by and between the Registrant and
SunTrust
Bank (incorporated by reference to Exhibit 4a to Form 10-K for the
year
ended December 31, 2000).
|
||
| 10.1(b) |
Extension
of the Term Loan Agreement between
the Registrant and SunTrust Bank (incorporated by reference to Exhibit
10b
to Form 10-Q for the quarter ended September 30, 2000).
|
||
| 10.2(a) |
Lease
of the Registrant for office space at 220
South Ridgewood Avenue, Daytona Beach, Florida dated August 15, 1987
(incorporated by reference to Exhibit 10a(3) to Form 10-K for the
year
ended December 31, 1993), as amended by Letter Agreement dated June
26,
1995; First Amendment to Lease dated August 2, 1999; Second Amendment
to
Lease dated December 11, 2001; Third Amendment to Lease dated August
8,
2002; and Fourth Amendment to Lease dated October 26,
2004.
|
||
| 10.2(b) |
Lease
Agreement for office space at 3101 W.
Martin Luther King, Jr. Blvd., Tampa, Florida, dated July 1, 2004 and
effective May 9, 2005, between Highwoods/Florida Holdings, L.P.,
as
landlord and the Registrant, as tenant.
|
||
| 10.2(c) |
Lease
Agreement for office space at Riedman
Tower, Rochester, New York, dated January 3, 2001, between Riedman
Corporation, as landlord, and the Registrant, as tenant (incorporated
by
reference to Exhibit 10b(3) to Form 10-K for the year ended December
31,
2001), and Lease for same office space at Riedman Tower, Rochester,
New
York, dated December 31, 2005, between Riedman Corporation, as landlord,
and a subsidiary of the Registrant, as tenant.
|
||
| 10.3 |
Indemnity
Agreement dated January 1, 1979,
among the Registrant, Whiting National Management, Inc., and Pennsylvania
Manufacturers’ Association Insurance Company (incorporated by reference to
Exhibit 10g to Registration Statement No. 33-58090 on Form
S-4).
|
||
| 10.4 |
Agency
Agreement dated January 1, 1979 among
the Registrant, Whiting National Management, Inc., and Pennsylvania
Manufacturers’ Association Insurance Company (incorporated by reference to
Exhibit 10h to Registration Statement No. 33-58090 on Form
S-4).
|
||
| 10.5 |
Employment
Agreement, dated as of July 29,
1999, between the Registrant and J. Hyatt Brown (incorporated by
reference
to Exhibit 10f to Form 10-K for the year ended December 31,
1999).
|
||
| 10.6 |
Portions
of Employment Agreement, dated April
28, 1993 between the Registrant and Jim W. Henderson (incorporated
by
reference to Exhibit 10m to Form 10-K for the year ended December
31,
1993).
|
||
| 10.7 |
Noncompetition,
Nonsolicitation and
Confidentiality Agreement, effective as of January 1, 2001 between
the
Registrant and John R. Riedman (incorporated by reference to Exhibit
10l
to Form 10-K for the year ended December 31, 2000).
|
||
| 10.8(a) |
Registrant’s
2000 Incentive Stock Option Plan
(incorporated by reference to Exhibit 4 to Registration Statement
No.
333-43018 on Form S-8 filed on August 3, 2000).
|
||
| 10.8(b) |
Registrant’s
Stock Performance Plan
(incorporated by reference to Exhibit 4 to Registration Statement
No.
333-14925 on Form S-8 filed on October 28,
1996).
|
||
| 10.9 |
International
Swap Dealers Association, Inc.
Master Agreement dated as of December 5, 2001 between SunTrust Bank
and
the Registrant and letter agreement dated December 6, 2001, regarding
confirmation of interest rate transaction (incorporated by reference
to
Exhibit 10p to Form 10-K for the year ended December 31,
2001).
|
||
| 10.10 |
Revolving
Loan Agreement Dated as of September
29, 2003, By and Among Brown & Brown, Inc. and SunTrust Bank
(incorporated by reference to Exhibit 10a on Form 10-Q for the quarter
ended September 30, 2003).
|
||
| 21 |
Subsidiaries
of the
Registrant.
|
||
| 23 |
Consent
of Deloitte & Touche
LLP.
|
||
| 24 |
Powers
of Attorney pursuant to which this Form
10-K has been signed on behalf of certain directors and officers
of the
Registrant.
|
||
| 31.1 |
Rule 13a-14(a)/15d-14(a)
Certification by
the Chief Executive Officer of the Registrant.
|
||
| 31.2 |
Rule 13a-14(a)/15d-14(a)
Certification by
the Chief Financial Officer of the Registrant.
|
||
| 32.1 |
Section 1350
Certification by the Chief
Executive Officer of the Registrant.
|
||
| 32.2 |
Section 1350
Certification by the Chief
Financial Officer of the
Registrant.
|
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on its behalf
by
the undersigned, thereunto duly authorized.
|
BROWN
& BROWN, INC.
|
||
|
Registrant
|
||
| |
|
|
| Date: March 14, 2006 | By: | ___________*_____________ |
|
J.
Hyatt Brown
|
||
|
Chief
Executive Officer
|
||
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of the Registrant and in
the
capacities and on the date indicated.
|
Signature
|
Title
|
Date
|
||
|
|
||||
|
*
|
Chairman
of the Board and
|
March
14, 2006
|
||
|
J.
Hyatt Brown
|
Chief
Executive Officer
|
|||
|
(Principal
Executive Officer)
|
||||
|
*
|
President
and Chief Operating
|
March
14, 2006
|
||
|
Jim
W. Henderson
|
Officer,
Director
|
|||
|
*
|
Sr.
Vice President, Treasurer and
|
March
14, 2006
|
||
|
Cory
T. Walker
|
Chief
Financial Officer (Principal
|
|||
|
Financial
and Accounting Officer)
|
||||
|
*
|
Director
|
March
14, 2006
|
||
|
Samuel
P. Bell, III
|
||||
|
*
|
Director
|
March
14, 2006
|
||
|
Hugh
M. Brown
|
||||
|
|
||||
|
*
|
Director
|
March
14, 2006
|
||
|
Bradley
Currey, Jr.
|
||||
|
|
||||
|
*
|
Director
|
March
14, 2006
|
||
|
Theodore
J. Hoepner
|
||||
|
*
|
Director
|
March
14, 2006
|
||
|
David
H. Hughes
|
||||
|
*
|
Director
|
March
14, 2006
|
||
|
John
R. Riedman
|
||||
|
*
|
Director
|
March
14, 2006
|
||
|
Jan
E. Smith
|
||||
|
*
|
Director
|
March
14, 2006
|
||
|
Chilton
D. Varner
|
||||
|
|
||
|
*By:
|
/S/
LAUREL L. GRAMMIG
|
|
|
Laurel
L. Grammig
|
||
|
Attorney-in-Fact
|
57
|
3.1
|
Articles
of Amendment to Articles of Incorporation (adopted April 24, 2003)
(incorporated by reference to Exhibit 3a to Form 10-Q for the quarter
ended March 31, 2003), and Amended and Restated Articles of Incorporation
(incorporated by reference to Exhibit 3a to Form 10-Q for the quarter
ended March 31, 1999).
|
| 3.2 |
Bylaws
(incorporated by reference to Exhibit 3b
to Form 10-K for the year ended December 31, 2002).
|
| 4.1 |
Note
Purchase Agreement, dated as of July 15,
2004, among the Company and the listed Purchasers of the 5.57%
Series A
Senior Notes due September 15, 2011 and 6.08% Series B Senior Notes
due
July 15, 2014. (incorporated by reference to Exhibit 4.1 to Form
10-Q for
the quarter ended June 30, 2004).
|
| 4.2 |
First
Amendment to Amended and Restated
Revolving and Term Loan Agreement dated and effective July 15,
2004, by
and between Brown & Brown, Inc. and SunTrust Bank (incorporated by
reference to Exhibit 4.2 to Form 10-Q for the quarter ended June
30,
2004).
|
| 4.3 |
Second
Amendment to Revolving Loan Agreement
dated and effective July 15, 2004, by and between Brown & Brown, Inc.
and SunTrust Bank (incorporated by reference to Exhibit 4.3 to
Form 10-Q
for the quarter ended June 30, 2004).
|
| 10.1(a) |
Amended
and Restated Revolving and Term Loan
Agreement dated January 3, 2001 by and between the Registrant and
SunTrust
Bank (incorporated by reference to Exhibit 4a to Form 10-K for
the year
ended December 31, 2000).
|
| 10.1(b) |
Extension
of the Term Loan Agreement between
the Registrant and SunTrust Bank (incorporated by reference to
Exhibit 10b
to Form 10-Q for the quarter ended September 30, 2000).
|
| 10.2(a) |
Lease
of the Registrant for office space at 220
South Ridgewood Avenue, Daytona Beach, Florida dated August 15,
1987
(incorporated by reference to Exhibit 10a(3) to Form 10-K for the
year
ended December 31, 1993), as amended by Letter Agreement dated
June 26,
1995; First Amendment to Lease dated August 2, 1999; Second Amendment
to
Lease dated December 11, 2001; Third Amendment to Lease dated August
8,
2002; and Fourth Amendment to Lease dated October 26,
2004.
|
| 10.2(b) |
Lease
Agreement for office space at 3101 W.
Martin Luther King, Jr. Blvd., Tampa, Florida, dated July 1, 2004 and
effective May 9, 2005, between Highwoods/Florida Holdings, L.P.,
as
landlord and the Registrant, as tenant.
|
| 10.2(c) |
Lease
Agreement for office space at Riedman
Tower, Rochester, New York, dated January 3, 2001, between Riedman
Corporation, as landlord, and the Registrant, as tenant (incorporated
by
reference to Exhibit 10b(3) to Form 10-K for the year ended December
31,
2001), and Lease for same office space at Riedman Tower, Rochester,
New
York, dated December 31, 2005, between Riedman Corporation, as
landlord,
and a subsidiary of the Registrant, as tenant.
|
| 10.3 |
Indemnity
Agreement dated January 1, 1979,
among the Registrant, Whiting National Management, Inc., and Pennsylvania
Manufacturers’ Association Insurance Company (incorporated by reference to
Exhibit 10g to Registration Statement No. 33-58090 on Form
S-4).
|
| 10.4 |
Agency
Agreement dated January 1, 1979 among
the Registrant, Whiting National Management, Inc., and Pennsylvania
Manufacturers’ Association Insurance Company (incorporated by reference to
Exhibit 10h to Registration Statement No. 33-58090 on Form
S-4).
|
| 10.5 |
Employment
Agreement, dated as of July 29,
1999, between the Registrant and J. Hyatt Brown (incorporated by
reference
to Exhibit 10f to Form 10-K for the year ended December 31,
1999).
|
| 10.6 |
Portions
of Employment Agreement, dated April
28, 1993 between the Registrant and Jim W. Henderson (incorporated
by
reference to Exhibit 10m to Form 10-K for the year ended December
31,
1993).
|
| 10.7 |
Noncompetition,
Nonsolicitation and
Confidentiality Agreement, effective as of January 1, 2001 between
the
Registrant and John R. Riedman (incorporated by reference to Exhibit
10l
to Form 10-K for the year ended December 31, 2000).
|
| 10.8(a) |
Registrant’s
2000 Incentive Stock Option Plan
(incorporated by reference to Exhibit 4 to Registration Statement
No.
333-43018 on Form S-8 filed on August 3, 2000).
|
| 10.8(b) |
Registrant’s
Stock Performance Plan
(incorporated by reference to Exhibit 4 to Registration Statement
No.
333-14925 on Form S-8 filed on October 28,
1996).
|
| 10.9 |
International
Swap Dealers Association, Inc.
Master Agreement dated as of December 5, 2001 between SunTrust
Bank and
the Registrant and letter agreement dated December 6, 2001, regarding
confirmation of interest rate transaction (incorporated by reference
to
Exhibit 10p to Form 10-K for the year ended December 31,
2001).
|
| 10.10 |
Revolving
Loan Agreement Dated as of September
29, 2003, By and Among Brown & Brown, Inc. and SunTrust Bank
(incorporated by reference to Exhibit 10a on Form 10-Q for the
quarter
ended September 30, 2003).
|
| 21 |
Subsidiaries
of the
Registrant.
|
| 23 |
Consent
of Deloitte & Touche
LLP.
|
| 24 |
Powers
of Attorney pursuant to which this Form
10-K has been signed on behalf of certain directors and officers
of the
Registrant.
|
| 31.1 |
Rule 13a-14(a)/15d-14(a)
Certification by
the Chief Executive Officer of the Registrant.
|
| 31.2 |
Rule 13a-14(a)/15d-14(a)
Certification by
the Chief Financial Officer of the Registrant.
|
| 32.1 |
Section 1350
Certification by the Chief
Executive Officer of the Registrant.
|
| 32.2 |
Section 1350
Certification by the Chief
Financial Officer of the
Registrant.
|
58
Exhibit
10.2(a)
LETTER
OF AGREEMENT
This
agreement made this 26th day of June, 1995, by and between
the Ridgewood Office Building, L. P., LTD., a Delaware Limited Partnership,
("Landlord"), and POE & BROWN, INC., a FLORIDA CORPORATION,
("Tenant").
WHEREAS,
Landlord and Tenant entered into a Lease dated as of August 1, 1987, which
sets
forth the terms of occupancy by Tenant for a portion of the Poe & Brown
Building ("Building") containing 38,738 square feet of Rentable Area. The
commencement date of the Lease is August 15, 1987; and
WHEREAS,
Tenant desires to lease additional space in the Building;
NOW,
THEREFORE, in consideration of the mutual promises contained herein, Landlord
and Tenant agree that:
1. Landlord
shall lease to Tenant an additional portion of the Building containing
1,114
square feet of rentable space in Suite 320, as indicated in Exhibit "A".
The
effective date of the Tenant's occupancy and possession of the additional
space
will be July 1, 1995, and shall continue on a month-to-month basis or until
the
expiration date of the Lease, September 30, 2002.
2. The
rental charge to the Tenant for the additional space described herein is
$3.50
per square foot per year, or $3,899.00, plus 6% sales tax. In addition
to the
rental charge, Tenant agrees to pay Landlord as rent, Tenant's proportional
share of the Building's operating costs as provided in Section 5.3 of the
Lease.
All costs to improve or remodel the additional space will be paid by the
Tenant.
3. Tenant's
occupancy and use of the additional space described herein shall be governed
by
the Lease dated August 1, 1987, and the rental charge will be adjusted
subject
to the same Adjustment Dates and the Base Index as stipulated in the
Lease.
IN
WITNESS WHEREOF, the Parties hereto have duly executed this Agreement as
of the
day and year first written above.
| Signed, sealed and delivered in the presence of: | POE & BROWN, INC. | ||||
| /s/ Mary King | |||||
| By:_____________________________________ |
By:
|
/s/ Jim W. Henderson | |||
| Title: | Exec. Vice President | ||||
| _____________________________________________ | |||||
| Title:____________________________________ |
Tenant
|
||||
| Ridgewood Office Building, Ltd., | |||||
| a Delaware Limited Partnership | |||||
| /s/ Lorie Strickland | |||||
| By:_____________________________________ |
By:
|
Ridgewood, Inc., a Delaware Corporation, | |||
|
its
Corporate General Partner
|
|||||
| /s/ Sharon Korruso | /s/ | ||||
| Title:____________________________________ | William J. Voges, President | ||||
| /s/ | |||||
| Mark O. Blanford, Secretary | |||||
| Landlord | |||||
STATE
OF
FLORIDA
COUNTY
OF
VOLUSIA
FIRST
AMENDMENT TO LEASE
This
First Amendment to Lease is made and entered into by and between Ridgewood
Office Building, L.P., Ltd., a Delaware limited partnership as landlord
(“Landlord”) and Brown & Brown, Inc., (also known as Poe & Brown, Inc.)
a Florida corporation, as tenant (“Tenant”).
W
I T N E
S S E T H:
WHEREAS,
Tenant, entered into that certain Ridgewood Office Building Lease with Chapman
S. Root, Trustee, Chapman S. Root Revocable Trust U/T/A 2/15/87, (said Lease
having been assigned to the Chapman S. Root 1982 Living Trust and subsequently
assigned to Ridgewood Office Building, L.P., Ltd.) for the Premises dated August
1, 1987 which sets forth the terms of occupancy by Tenant for a portion of
the
Building containing 38,738 square feet of Rentable Area (herein after referred
to as “Lease”) and that certain Letter of Agreement dated June 26, 1995 wherein
the Tenant leased an additional 1,114 square feet of Rentable Area.
WHEREAS,
the Landlord and Tenant desire to modify and amend the Lease and the Letter
of
Agreement, as set forth in this First Amendment to Lease and Addendums One,
Two,
Three, and Four.
NOW,
THEREFORE, for and in consideration of the Premises, the sum of Ten and 00/100
Dollars ($10.00) in hand paid by Tenant to Landlord, the mutual agreements
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree to modify
and amend the Lease as follows:
I.
A. As to Section 2. DEFINITIONS.,
the
following subsections thereof are amended to read as follows:
| 2.a. | Base Rent: $533,790.75 per year | ||
| 2.d. | Commencement Date: October 1, 1999 | ||
| 2.g. | Expiration Date: September 30, 2009, unless otherwise sooner terminated in accordance with the provisions of this Lease. | ||
| 2.i. | Landlord’s Mailing Address: | P.O. Box 2860, Daytona Beach, FL 32120-2860 | |
| Tenant’s Mailing Address: | P.O. Box 2412, Daytona Beach, FL 32114-2412 | ||
| 2.j. | Monthly installments of Base Rent: $44,482.58 per month commencing on October 1, 1999. | ||
|
2.k.
|
Parking:
Tenant to have 56 reserved parking spaces - fifteen (15) on the
south side
of the building and forty-one (41) on the west side of the
building.
|
||
|
2.1.
|
Premises:
that portion of the Building containing approximately 45,429 square
feet
of Rentable Area, as indicated on Exhibit “A”.
|
||
|
2.m.
|
Project:
the building of which the Premises are a part (the “Building”) and any
other buildings or improvements on the real property (the “Property”)
located at 220 South Ridgewood Avenue, Daytona Beach, Florida.
The Project
is known as BROWN & BROWN BUILDING.
|
||
| 2.o. | Security Deposit (Article 7): No deposit required. | ||
| 2.q. | Tenant’s First Adjustment Date (Section 5.2): October 1, 2002. | ||
| 2.r. | Tenant’s Proportionate Share: 72.74%. Such share is a fraction, the numerator of which is the Rentable Area of the Premises, and the denominator of which is the Rentable Area of the Project, as determined by Landlord from time to time. The Project consists of one building containing a total Rentable Area of 62,453 square feet. | ||
1
In
addition, the following Definition is added:
| 2.u. | Anniversary Date: The first day of October of each year. All other provisions of Section 2 remain as originally stated. | ||
B.
As to Section 3. EXHIBITS AND ADDENDA.,
said
section is amended to read as follows:
The
exhibits and addenda listed below and attached hereto are incorporated by
reference in this First Amendment to Lease:
a.
Exhibit “A” - Floor Plans showing the Premises.
b.
Exhibit “B” - N/A
c.
Exhibit “C” - N/A
d.
Exhibit “D” - Rules and Regulations
e.
Exhibit “E” - N/A
f.
Addenda:
One
- Additional
Provisions
Two
- Right
of
First Refusal to Lease Additional Space
Three
- Option
to
Decrease Rentable Area in the Premises
Four
- Rent
Credits
C.
As to Section 5. RENT., said
section is amended to read as follows:
5.2(a). Adjusted
Base Rent.
|
The
amount of Base Rent (and the corresponding Monthly installments of
Base
Rent) payable hereunder shall be adjusted commencing on Tenant's
First
Adjustment Date of October 1, 2002 and each three-year period (10/1/05
and
10/1/08) after the Tenant’s first Adjustment Date. Adjustments, if any,
shall be based upon increases (if any) in the Index. The Index in
publication July 1, 1999 shall be the "Base Index." On each Adjustment
Date, the Base Rent shall be increased by a percentage equal to the
percentage increase, if any, in the Index in publication three (3)
months
before the Adjustment Date (the "Comparison Index") over the Base
Index
("adjusted Base Rent"). In the event the Comparison Index is less
than the
prior Comparison Index (or Base Index, as the case may be), the Base
Rent
shall remain the amount of Base Rent payable during that preceding
period.
When the adjusted Base Rent payable as of each Adjustment Date is
determined, Landlord shall give Tenant written notice of such adjusted
Base Rent and the manner in which it was computed. The adjusted Base
Rent
shall thereafter be the "Base Rent" for all purposes under this
Lease.
|
In
addition, the following is added:
5.2(c). Notwithstanding
anything contained in this Lease to the contrary, the increase in Base Rent
on
any Adjustment Date shall not exceed nine (9%) percent.
D.
As to Section 9. SERVICES AND UTILITIES., the
following is added:
Landlord
has advised Tenant that presently Florida Power & Light (“Electric Service
Provider”) is the utility company selected by Landlord to provide electricity
service for the Center. Notwithstanding the foregoing, if permitted by
Law,
Landlord shall have the right at any time and from time to time during the
Lease
Term to either contract for service from a different company or companies
providing electricity service (each such company shall hereinafter be
referred
to as an “Alternate Service Provider”) or continue to contract for service from
the Electric Service Provider.
2
|
Landlord
shall in no way be liable or responsible for any loss, damage, or
expense
that Tenant may sustain or incur by reason of any change, failure,
interference, disruption, or defect in the supply or character of
the
electric energy furnished to the Premises, or if the quantity or
character
of the electric energy supplied by the Electric Service Provider
or any
Alternate Service Provider is no longer available or suitable for
Tenant’s
requirements, and no such change, failure, defect, unavailability,
or
unsuitability shall constitute an actual or constructive eviction,
in
whole or in part, or entitle Tenant to any abatement or diminution
of
rent, or relieve Tenant from any of its obligations under the
Lease.
|
E.
As to Section 19. DESTRUCTION OR DAMAGE.,
the
following subsections are added:
| f. |
Should
the damage occur during the last two (2) years of the original
term or any
extended term and Tenant has an extension or renewal option, Tenant
shall
be obligated to exercise the renewal or extension option as a
pre-condition to restoration of the
Premises.
|
| g. |
Tenant shall not occupy or
use the
Premises or any part thereof, nor permit or suffer the same to
be occupied
or used for any purposes other than as herein limited, nor for
any purpose
deemed unlawful, disreputable, or extra hazardous, on account of
fire or
other casualty. The Premises is a smoke free building. Tenant,
its
employees, contractors, agents, guests and invitees shall not smoke
in any
area of the Premises. Tenant is responsible to insure that no smoking
takes place in the building. Landlord shall designate areas outside
of the
Premises for Tenant, its employees, agents, contractors, guests
and
invitees to smoke. Tenant acknowledges and agrees that the cost
of repairs
and replacement for smoke damage within the Premises is expensive
and
difficult. In addition to any other remedy or right under this
Lease for a
default, Landlord shall have the right to recover 100% of its costs
for
any repairs or replacement required because of smoke damage caused
by
Tenant in violation of this provision as smoke damage under this
Lease is
not considered to be ordinary wear and
tear.
|
II. All
other
terms, covenants and conditions of the Lease are and shall remain in full force
and effect.
III. Landlord
and Tenant hereby acknowledge that the Lease and this Amendment represent the
entire agreement, that no other written or oral agreements exist and that all
other provisions of the Lease not modified herein shall remain in full force
and
effect.
Agreed
and accepted this 2nd day
of August,
1999.
| LANDLORD: | TENANT: |
| RIDGEWOOD OFFICE BUILDING, L.P., LTD., | BROWN & BROWN, Inc. |
| a Delaware limited partnership | a Florida corporation |
| By: /s/ | By: /s/ Jim. W. Henderson |
| Phil Maroney, Vice President | Executive Vice President |
| Attest: | |
| /s/ Caryl Taylor | /s/ Mary F. King |
|
WITNESS
|
WITNESS
|
3
ADDENDUM
NUMBER ONE TO LEASE
ADDITIONAL
PROVISIONS
These
provisions are attached to and made a part of that certain First Amendment
to
Lease dated as of ,
1999,
executed by and between Ridgewood Office Building, L.P., Ltd., (“Landlord”), and
Brown & Brown, Inc. (“Tenant”). Any capitalized term not defined herein
shall have the meaning assigned to it in the Lease.
Year
2000 Disclaimer.
Landlord
hereby disclaims any liability for any and all damages, injuries or other
losses, whether ordinary, special, consequential, punitive or otherwise, arising
out of , relating to or in connection with (a) the failure of any automated,
computerized and/or software system or other technology used in, on or about
the
Property or relating to the management or operation of the Property to
accurately receive, provide or process date/time data (including, but not
limited to, calculating, comparing and sequencing) both before and after
September 9, 1999 and before, after, during and between the years 1999 A.D.
and
2000 A.D., and leap year calculations and or (b) the malfunction, creasing
to
function or providing of invalid or incorrect results by any such technology
as
a result of date/time data. The foregoing disclaimer shall apply to any such
technology used in, on, or about the Property or that affects the Property,
whether or not such technology is within the control of Owner or any of Owner’s
agents or representatives. THE FOREGOING DISCLAIMER INCLUDES A DISCLAIMER OF
ALL
WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, WITH RESPECT TO THE MATTERS
DESCRIBED HEREIN, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE.
Hazardous
Wastes. Tenant
shall not cause or permit the use, generation, storage or disposal in or about
the demised premises of any substance, materials or wastes subject to regulation
under any federal, state or local law from time to time in effect concerning
hazardous, toxic or radioactive materials (hereinafter "Hazardous Materials")
unless Tenant shall have received Landlord's prior written consent, which
consent Landlord may withhold or at any time revoke at its sole discretion.
If
Tenant uses, generates, stores or disposes of any Hazardous Materials in or
about the demised premises, Tenant shall obtain all necessary permits and comply
with all statutes, regulations and rules applicable to such activity. Upon
termination of this Lease, Tenant shall remove all Hazardous Materials, along
with all storage and disposal facilities, from the demised premises, such
removal to be in accordance with procedures approved by the proper governmental
authority. Tenant shall indemnify and hold Landlord harmless from and against
all liability, cost, claim, penalty, expense and fees (including court costs
and
attorneys' fees) arising from Tenant's use, generation, storage, or disposal
of
Hazardous Materials in or about the demised premises. This section shall survive
the expiration or earlier termination of this Lease.
Compliance
with Public Accommodation Laws. Tenant
assumes all responsibility for compliance of the Premises with any and all
applicable laws, regulations and building codes governing non-discrimination
and
public accommodations and commercial facilities ("Public Accommodation Laws"),
including without limitation, the requirements of the American Disabilities
Act,
42 U.S.C. 12-101 and all regulations and promulgations thereunder. Tenant shall
complete any and all alterations, modifications or improvements to the Premises
necessary in order to comply with all Public Accommodation Laws during the
term
of this Lease whether such improvements or modifications are the legal
responsibility of Landlord, Tenant, or a third party. Tenant agrees to
indemnify, defend and hold harmless Landlord from and against any and all
claims, liabilities, fines, penalties, losses and expenses (including attorney's
fees) arising in connection with Tenant's failure to comply with the provisions
of this Section.
The
Landlord shall be responsible for all aspects of the building and adjoining
property to comply with the provisions of the American's With Disabilities
Act,
as same may be amended from time to time, with the exception of the interior
space (including Tenant's private exterior entrance) for which Tenant assumes
the responsibility for such compliance. Each party agrees to indemnify and
hold
the other harmless from and against any loss, costs, damages, expenses or
liabilities, including reasonable attorney's fees, arising out of or in
connection with the failure of such party to fulfill such
obligation.
4
ADDENDUM
NUMBER TWO TO LEASE
RIGHT
OF FIRST REFUSAL TO LEASE ADDITIONAL SPACE
Beginning
from the commencement date of this Lease, such date being October 1, 1999,
and
provided Tenant is not in default under the terms of this Lease, Landlord grants
to Tenant a Right of First Refusal to lease additional space that comes
available in the Building on the same terms and conditions of this Lease, as
Amended under the First Amendment to Lease. In the event Landlord receives
a
bona fide offer to rent space in the Building to any parties other than the
Tenant, the Landlord shall give Tenant written notice of same. Tenant shall
have
fifteen (15) business days following receipt of such notice to notify Landlord
as to whether Tenant desires to lease said space. The leasing of said additional
space shall be under the same terms and conditions as the Lease and, if Tenant
does exercise a Right of First Refusal to lease additional space hereunder,
the
parties shall amend this Lease to incorporate the additional space and
proportionately increase Tenant's Base Rent.
This
Right of First Refusal excludes any Renewal Options in an existing executed
Lease with any other Tenant(s) in the Building.
This
Right of First Refusal shall not, however, obligate Landlord to reserve or
hold
any space for Tenant. Landlord reserves the right to establish the minimum
quantity and location of any additional space that may be added at any one
time
pursuant to this provision.
In
the
event Tenant shall fail to give notice of its intent to lease said additional
space within fifteen (15) days, such Right of First Refusal shall thereafter
be
and become null and void and of no further force and effect.
------------------------------------
5
ADDENDUM
NUMBER THREE TO LEASE
OPTION
TO DECREASE RENTABLE AREA IN THE PREMISES
Beginning
with Year 4 of this Lease, such date being October 1, 2002, and annually each
year thereafter on the Anniversary Date, and provided Tenant is not in default
under any terms of this Lease, Tenant shall have the option to decrease the
Rentable Area of the Premises by an amount not to exceed 11,369 square feet.
It
is understood and agreed that all annual decreases in the Rentable Area of
the
Premises shall be cumulative and shall not exceed 11,369 square feet in the
aggregate and that at no time shall the Premises Landlord leases to Tenant
and
Tenant leases from Landlord contain less than 34,060 square feet of Rentable
Area during the period beginning on October 1, 2002, and ending on the
Expiration Date, September 30, 2009.
Tenant’s
monthly installment of Base Rent and Proportionate Share of Project Operating
costs shall be proportionally adjusted on October 1, 2002, and each Anniversary
date thereafter, to reflect the square feet of Rentable Area then contained
in
the Premises.
Tenant
shall give Landlord written notice of its election to exercise its option to
decrease its Rentable Area of the Premises at least twelve (12) months prior
to
October 1, 2002 and twelve (12) months prior to each Anniversary Date
thereafter. In the event that Tenant shall fail to give Landlord timely written
notice of its election to exercise its option to decrease, such option shall
be
null and void until the next succeeding Anniversary Date.
-------------------------------------
6
ADDENDUM
NUMBER FOUR TO LEASE
RENT
CREDITS
One
Time Rent Credit:
Provided
Tenant is not in default under any terms of this Lease, Landlord shall pay
to
Tenant, on or before January 31, 2000, without demand, deduction or set-off,
One
Hundred Twelve Thousand Five Hundred ($112,500.00) Dollars, as a one-time credit
against the Base Rent due and payable by Tenant for the first three months
(October, November and December 1999) of this Lease (“One Time Rent Credit”).
Additional
Rent Credit:
Commencing
with the lease year beginning October 1, 2002, and each year thereafter, and
provided Tenant is not in default under any terms of this Lease, Landlord shall
pay Tenant an Additional Rent Credit equal to One ($1.00) Dollar for each square
foot of Rentable Area of the Premises occupied in excess of 34,060 square feet
(“Additional Rent Credit”). In no event shall the Additional Rent Credit exceed
Eleven Thousand Three Hundred Sixty Nine ($11,369.00) Dollars for any one lease
year. Landlord shall pay the Additional Rent Credit to Tenant without demand,
deduction of set-off on or before the 31st
day of
the month of January following the end of the lease year for which the credit
is
due.
For
the
purposes of calculation of the Additional Rent Credit, the Tenant’s occupied
Rentable Area of the Premises shall be equal to the average annual Rentable
Area
of the Premises leased during the lease year on a 365 day basis.
7
STATE
OF
FLORIDA
COUNTY
OF
VOLUSIA
SECOND
AMENDMENT TO LEASE AGREEMENT
TO
INCREASE SQUARE FOOTAGE
This
Second Amendment to Lease made this ___ day of __________, 2001, is entered
into
by and between Ridgewood Office Building, L.P., Ltd., a Delaware limited
partnership as Landlord (“Landlord”) and Brown & Brown, Inc., a Florida
corporation, (“Tenant”).
W
I T N E
S S E T H:
WHEREAS,
Tenant, entered into that certain Ridgewood Office Building Lease with Chapman
S. Root, Trustee, Chapman S. Root Revocable Trust U/T/A 2/15/87, (said Lease
having been assigned to the Chapman S. Root 1982 Living Trust and subsequently
assigned to Ridgewood Office Building, L.P., Ltd.) for the Premises dated August
1, 1987 which sets forth the terms of occupancy by Tenant for a portion of
the
Building containing 38,738 square feet of Rentable Area (herein after referred
to as “Lease”), and that certain Letter of Agreement dated June 26, 1995 wherein
the Tenant leased an additional 1,114 square feet of Rentable Area, and that
certain First Amendment to Lease dated August 2, 1999 wherein the Tenant leased
an additional 5,577 square feet of Rentable Area resulting in a total Rental
Area of 45,429 square feet.
WHEREAS,
the Landlord and Tenant desire to modify and amend the Lease as set forth in
this Second Amendment to Lease in order to increase the Rentable Area occupied
by Tenant by an additional 3,851 square feet of Rentable Area for a total
Rentable Area of 49,280 square feet, such additional Rentable Area being the
area contained in Suite 210 on the Second Floor and Suite 330 on the Third
Floor
of the Building.
NOW,
THEREFORE, for and in consideration of the Premises, the sum of Ten and 00/100
($10.00) Dollars in hand paid by Tenant to Landlord, the mutual agreements
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree to modify
and amend the Lease as follows:
I.
A. As to Section 2. DEFINITIONS,
|
2.a.
|
Base
Rent:
$579,040.00 until adjusted according to the terms set forth in the
Lease.
|
|
2.i.
|
Landlord’s
Mailing Address:
275 Clyde Morris Blvd, Ormond Beach, FL
32174
|
|
2.j.
|
Monthly
Installments of Base Rent:
$48,253.33 per month until adjusted according to the terms set forth
in
the Lease.
|
|
2.l.
|
Premises:
Effective January 1, 2002, that portion of the building containing
approximately 49,280 square feet of Rentable Area, as indicated on
Exhibit
“A”.
|
|
2.r.
|
Tenant’s
Proportionate Share:
78.91% effective January 1, 2002. Such share is a fraction, the numerator
of which is the Rentable Area of the Premises, and the denominator
of
which is the Rentable Area of the Project, as determined by Landlord
from
time to time. The Project consists of one building containing a total
Rentable Area of 62,453 square
feet.
|
B.
As to Section 3. EXHIBITS AND ADDENDA,
said
section is amended to read as follows:
The
exhibits listed below and attached hereto are incorporated by reference in
this
Second Amendment to Lease:
| a. |
Exhibit
“A” - Revised Floor Plans showing the
Premises.
|
| b. |
Addenda:
Four - Rent Credit (B) Inducement Rent
Credit
|
1
C.
As to Section 11, CONSTRUCTION, REPAIRS AND MAINTENANCE.,
the
following is added:
Paragraph
11.a. Landlord has constructed Tenant Improvements in Suite 210 and has paid
for
all such improvements per plans and specifications approved by Tenant.
Landlord’s contribution to Tenant Improvements totaled $20,000.00.
Landlord
will construct Tenant Improvements in Suite 330 and pay for all such
improvements per plans and specifications approved by Tenant. Landlord’s
contribution to Tenant Improvements shall not exceed $6,200.00.
D.
As to Section 12. ALTERATIONS AND ADDITIONS., the
following is added:
Paragraph
12.b. Tenant shall reimburse Landlord for all costs to construct Tenant
Improvements in Suite 330 that exceed $6,200.00. Tenant reimbursement for such
excess costs shall be paid to Landlord no later than thirty (30) days after
Tenant receives Landlord’s submitted invoice.
II. As
to ADDENDUM NUMBER FOUR TO LEASE,
the
following is added:
(B)
Inducement Rent Credit
As
an
inducement to Tenant for increasing the Rentable Area occupied by Tenant by
an
additional 3,851 square feet effective January 1, 2002, and provided Tenant
is
not in default under any terms of this Lease, Landlord shall provide, as offsets
against Tenant’s Monthly Installments of Base Rent as they are due and payable,
credits as follows:
| January 2002 | $3,770.77 per month | ||
| February 2002 - September 2002 | $1,524.35 per month | ||
| October 1, 2002 - September 2005 | $1,661.55 per month |
III. All
other
terms, covenants and conditions of the Lease are and shall remain in full force
and effect.
IV. Landlord
and Tenant hereby acknowledge that the Lease and this Amendment represent the
entire agreement, that no other written or oral agreements exist and that all
other provisions of the Lease not modified herein shall remain in full force
and
effect.
| LANDLORD: | TENANT: |
| RIDGEWOOD OFFICE BUILDING, L.P., LTD., | BROWN & BROWN, Inc. |
| a Delaware limited partnership | a Florida corporation |
| By: Root Real Estate Corp., its managing | By: /s/ T. G. Tinsley |
| Typed Name: T. G. Tinsley | |
| By: /s/ | Title: Director of Operations |
| Ronald E. Nowviskie, Vice President | |
| Witnesses: | Witnesses: |
| /s/ A. Caryl Taylor | /s/ Linda Holmes |
|
Typed
Name:A. Caryl
Taylor
|
Typed
Name: Linda
Holmes
|
| /s/ Therese J. Taormina | /s/ Amy Gural |
|
Typed
Name:Therese J.
Taormin
|
Typed
Name:Amy
Gural
|
2
STATE
OF
FLORIDA
COUNTY
OF
VOLUSIA
THIRD
AMENDMENT TO LEASE AGREEMENT
TO
INCREASE SQUARE FOOTAGE
This
Third Amendment to Lease made this 8th day of August, 2002, is
entered into by and between Ridgewood Office Building, L.P., Ltd., a Delaware
limited partnership as Landlord (“Landlord”) and Brown & Brown, Inc., a
Florida corporation, (“Tenant”).
W
I T N E
S S E T H:
WHEREAS,
Tenant, entered into that certain Ridgewood Office Building Lease with Chapman
S. Root, Trustee, Chapman S. Root Revocable Trust U/T/A 2/15/87, (said Lease
having been assigned to the Chapman S. Root 1982 Living Trust and subsequently
assigned to Ridgewood Office Building, L.P., Ltd.) for the Premises dated August
1, 1987 which sets forth the terms of occupancy by Tenant for a portion of
the
Building containing 38,738 square feet of Rentable Area (herein after referred
to as “Lease”), and that certain Letter of Agreement dated June 26, 1995 wherein
the Tenant leased an additional 1,114 square feet of Rentable Area, and that
certain First Amendment to Lease dated August 2, 1999 wherein the Tenant leased
an additional 5,577 square feet of Rentable Area resulting in a total Rental
Area of 45,429 square feet and that certain Second Amendment to Lease dated
December 11, 2001, wherein the Tenant leased an additional 3,851 square feet
of
Rentable Area resulting in a total Rental Area of 49,280 square
feet.
WHEREAS,
the Landlord and Tenant desire to modify and amend the Lease as set forth in
this Third Amendment to Lease in order to increase the Rentable Area occupied
by
Tenant by an additional 5,435 square feet of Rentable Area contained in Suite
301 on the Third Floor of the Building. Tenant also desires to decrease the
Rentable Area occupied by Tenant by 3,480 square feet of Rentable Area contained
in Suite 100 (existing MacDuff) on the first floor of the Building, resulting
in
a total Rentable Area of 51,235 square feet.
NOW,
THEREFORE, for and in consideration of the Premises, the sum of Ten and 00/100
($10.00) Dollars in hand paid by Tenant to Landlord, the mutual agreements
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree to modify
and amend the Lease as follows:
I.
A. As to Section 2. DEFINITIONS,
|
2.a.
|
Base
Rent:
$602,011.25 until adjusted according to the terms set forth in the
Lease.
|
|
2.i.
|
Landlord’s
Mailing Address:
275 Clyde Morris Blvd, Ormond Beach, FL
32174
|
|
2.j.
|
Monthly
Installments of Base Rent:
$50,167.60 per month until adjusted according to the terms set forth
in
the Lease.
|
|
2.l.
|
Premises:
Effective September 1, 2002, that portion of the building containing
approximately 51,235 square feet of Rentable Area, as indicated on
Exhibit
“A”.
|
|
2.r.
|
Tenant’s
Proportionate Share:
82.04% effective September 1, 2002. Such share is a fraction, the
numerator of which is the Rentable Area of the Premises, and the
denominator of which is the Rentable Area of the Project, as determined
by
Landlord from time to time. The Project consists of one building
containing a total Rentable Area of 62,453 square
feet.
|
B.
As to Section 3. EXHIBITS AND ADDENDA,
said
section is amended to read as follows:
The
exhibits listed below and attached hereto are incorporated by reference in
this
Third Amendment to Lease:
| a. |
Exhibit
“A” - Revised Floor Plans showing the
Premises.
|
1
C.
As to Section 12. ALTERATIONS AND ADDITIONS., the
following is added:
Tenant
shall accept the space in broom clean as-is condition and be responsible for
all
improvements and modifications. Landlord shall reimburse Tenant an Improvement
Allowance of $9.75 per square foot on the additional 5,435 square feet of
Rentable Area contained in Suite 301, the total amount being Fifty Two Thousand
Nine Hundred Seventy Five ($52,975.00) Dollars and no cents payable in-cash
or
as an offset against Tenant’s Year 2002 and/or Year 2003 Base Rent.
II. All
other
terms, covenants and conditions of the Lease are and shall remain in full force
and effect.
III. Landlord
and Tenant hereby acknowledge that the Lease and this Amendment represent the
entire agreement, that no other written or oral agreements exist and that all
other provisions of the Lease not modified herein shall remain in full force
and
effect.
| LANDLORD: | TENANT: |
| RIDGEWOOD OFFICE BUILDING, L.P., LTD., | BROWN & BROWN, INC. |
| a Delaware limited partnership | a Florida corporation |
| By: Root Real Estate Corp., its managing general partner | |
| By: /s/ Philip Maroney | By: /s/ T. G. Tinsley |
| Philip Maroney, Vice President | Typed Name: T. G. Tinsley |
| Title: Director of Operations | |
| Witnesses: | Witnesses: |
| /s/ Alicia McKee | /s/ Amy A. Gural |
| Typed Name: Alicia McKee | Typed Name: Amy A. Gural |
| /s/ Amy A. Gural | /s/ Alicia McKee |
| Typed Name: Amy A. Gural | Typed Name: Alicia McKee |
2
STATE
OF
FLORIDA
COUNTY
OF
VOLUSIA
FOURTH
AMENDMENT TO LEASE AGREEMENT
This
Third Amendment to Lease made this 26th day of October, 2004, is
entered into by and between Ridgewood Office Building, L.P., Ltd., a Delaware
limited partnership as Landlord (“Landlord”) and Brown & Brown, Inc., a
Florida corporation, (“Tenant”).
W
I T N E
S S E T H:
WHEREAS,
Tenant, entered into that certain Ridgewood Office Building Lease with Chapman
S. Root, Trustee, Chapman S. Root Revocable Trust U/T/A 2/15/87, (said Lease
having been assigned to the Chapman S. Root 1982 Living Trust and subsequently
assigned to Ridgewood Office Building, L.P., Ltd.) for the Premises dated August
1, 1987 which sets forth the terms of occupancy by Tenant for a portion of
the
Building containing 38,738 square feet of Rentable Area (herein after referred
to as “Lease”), and that certain Letter of Agreement dated June 26, 1995 wherein
the Tenant leased an additional 1,114 square feet of Rentable Area, and that
certain First Amendment to Lease dated August 2, 1999 wherein the Tenant leased
an additional 5,577 square feet of Rentable Area resulting in a total Rental
Area of 45,429 square feet and that certain Second Amendment to Lease dated
December 11, 2001 wherein the Tenant leased an additional 3,851 square feet
of
Rentable Area resulting in a total Rental Area of 49,280 square feet and that
certain Third Amendment to Lease dated August 8, 2002 wherein the Tenant leased
an additional 5,435 square feet of Rentable Area resulting in a total Rental
Area of 51,235 square feet.
WHEREAS,
Tenant exercised its option under Addendum Number Three To Lease, Option To
Decrease Rentable Area In The Premises effective October 1, 2003 wherein the
Tenant decreased the Rental Area by 12,939 square feet such area being the
entire Fourth Floor of the Building resulting in a total Rentable Area of 38,296
square feet.
WHEREAS,
the Landlord and Tenant desire to modify and amend the Lease as set forth in
this Fourth Amendment to Lease, the Premises shall be adjusted such that
effective December 1, 2004 Tenant will occupy the entire Fourth Floor,
consisting of 12,939 square feet and vacate the space it occupies in the south
end of the Second Floor, consisting of 5,577 square feet, resulting in a total
Rentable Area of the Premises being 45,658 square feet.
NOW,
THEREFORE, for and in consideration of the Premises, the sum of Ten and 00/100
($10.00) Dollars in hand paid by Tenant to Landlord, the mutual agreements
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree to modify
and amend the Lease as follows:
I. A.
As to Section 2. DEFINITIONS.
|
2.a.
|
Base
Rent:
Effective December 1, 2004 shall be $513,652.50 per year for all
space
occupied by Tenant until adjusted according to the terms set forth
in the
Lease.
|
|
2.g.
|
Expiration
Date:
The term of the Lease shall be extended for an additional seven (7)
years
ending September 30, 2016.
|
|
2.i.
|
Landlord’s
Mailing Address:
275 Clyde Morris Blvd, Ormond Beach, FL
32174
|
|
2.j.
|
Monthly
Installments of Base Rent:
For the months of October and November, 2004 shall be $35,902.50
and
effective December 1, 2004 shall be $42,804.38 per month until adjusted
according to the terms set forth in the
Lease.
|
|
2.r.
|
Tenant’s
Proportionate Share:
73.11% such share is a fraction, the numerator of which is the Rentable
Area of the Premises, and the denominator of which is the Rentable
Area of
the Project, as determined by Landlord from time to time. The Project
consists of one building containing a total Rentable Area of 62,453
square
feet.
|
B.
As to Section 3. EXHIBITS AND ADDENDA,
said
section is amended to read as follows:
The
exhibits listed below and attached hereto are incorporated by reference in
this
Fourth Amendment to Lease:
| a. |
Exhibit
“A” - Revised Floor Plans showing the
Premises.
|
1
C.
As to Section 5. Rent.,
said
section is amended to read as follows:
5.2(a). Adjusted
Base Rent.
|
The
amount of Base Rent (and the corresponding Monthly installments
of Base
Rent) payable hereunder shall be adjusted commencing on Tenant's
First
Adjustment Date of October 1, 2007 and each three-year period (10/1/10
and
10/1/13) after the Tenant’s first Adjustment Date. Adjustments, if any,
shall be based upon increases (if any) in the Index. The Index
in
publication July 1, 2004 shall be the "Base Index." On each Adjustment
Date, the Base Rent shall be increased by a percentage equal to
the
percentage increase, if any, in the Index in publication three
(3) months
before the Adjustment Date (the "Comparison Index") over the Base
Index
("adjusted Base Rent"). In the event the Comparison Index is less
than the
prior Comparison Index (or Base Index, as the case may be), the
Base Rent
shall remain the amount of Base Rent payable during that preceding
period.
When the adjusted Base Rent payable as of each Adjustment Date
is
determined, Landlord shall give Tenant written notice of such adjusted
Base Rent and the manner in which it was computed. The adjusted
Base Rent
shall thereafter be the "Base Rent" for all purposes under this
Lease.
|
D.
As to Section 12. ALTERATIONS AND ADDITIONS.,
the
following is added:
|
Tenant
shall accept the space in broom clean as-is condition and be responsible
for all improvements and modifications. Landlord shall reimburse
Tenant an
Improvement Allowance of $6.00 per square foot on the additional
7,362
square feet net increase in the Rentable Area on December 15, 2004,
the
total amount being Forty Four Thousand One Hundred Seventy Two
($44,172.00) Dollars and no cents.
|
|
At
its sole cost and expense and prior to December 1, 2004, Landlord
shall
construct a new entrance door in the north wall of the Fourth Floor
elevator foyer.
|
E.
As to ADDENDUM NUMBER THREE Option To Decrease Rentable Area In The
Premises.,
This
Addendum shall terminate and become null and void as of October 1,
2004.
F.
As to ADDENDUM NUMBER FOUR Rent Credits., This
Addendum shall terminate and become null and void as of October 1,
2004.
II. All
other
terms, covenants and conditions of the Lease are and shall remain in full force
and effect.
III. Landlord
and Tenant hereby acknowledge that the Lease and this Amendment represent the
entire agreement, that no other written or oral agreements exist and that all
other provisions of the Lease not modified herein shall remain in full force
and
effect.
| LANDLORD: | TENANT: |
| RIDGEWOOD OFFICE BUILDING, L.P., LTD., | BROWN & BROWN, INC. |
| a Delaware limited partnership | a Florida corporation |
| By: Root Real Estate Corp., its managing general partner | |
| By: /s/ | By: /s/ T. G. Tinsley |
| Ronald E. Nowviskie, Vice President | Typed Name: T. G. Tinsley |
| Title: Director of Operations - Dayton | |
| Witnesses: | Witnesses: |
| /s/ A. Caryl Taylor | /s/ Amy A. Gural |
|
Typed
Name:A. Caryl
Taylor
|
Typed Name: Amy A. Gural |
| /s/ L. Dee Snell | /s/ Robin W. Thomas |
| Print Name: L. Dee Snell | Print Name: Robin W. Thomas |
2
Exhibit
10.2(b)
HIGHWOODS/FLORIDA
HOLDINGS, L.P.
(“Landlord”)
and
BROWN
& BROWN, INC.
(“Tenant”)
OFFICE
LEASE
TABLE
OF CONTENTS
| Section 1: | Basic Definitions and Provisions |
|
|
| a. | Premises |
-5-
|
|
| b. | Term |
-5-
|
|
| c. | Permitted Use |
-5-
|
|
| d. | Occupancy Limitation |
-5-
|
|
| e. | Base Rent |
-5-
|
|
| f. | Rent Payment Address |
-6-
|
|
| g. | Security Deposit |
-6-
|
|
| h. | Business Hours |
-6-
|
|
| i. | Electrical Service |
-6-
|
|
| j. | After Hours HVAC Rate |
-6-
|
|
| k. | Parking |
-6-
|
|
| l. | Construction Fee |
-6-
|
|
| m. | Broker |
-6-
|
|
| n. | Notice Addresses |
-6-
|
|
| Section 2. | Leased Premises | ||
| a. | Premises |
-7-
|
|
| b. | Rentable Square Foot Determination |
-7-
|
|
| c. | Common Areas |
-7-
|
|
| Section 3: | Term | ||
| a. | Commencement and Expiration Dates |
-7-
|
|
| b. | Termination by Tenant for Failure to Deliver Possession |
-7-
|
|
| c.. | Right to Occupy |
-7-
|
|
| d. | Commencement Agreement |
-7-
|
|
| Section 4: | Use | ||
| a. | Permitted Use |
-7-
|
|
| b. | Prohibited Uses |
-7-
|
|
| c. | Prohibited Equipment in Premises |
-8-
|
|
| Section 5: | Rent | ||
| a. | Payment Obligations |
-8-
|
|
| b. | Base Rent |
-8-
|
|
| c. | Additional Rent |
-9-
|
|
| Section 6: | Security Deposit [Intentionally Omitted] |
-9-
|
|
| Section 7: | Services by Landlord |
-9-
|
|
| a. | Base Services |
-10-
|
|
| b. | Landlord's Maintenance |
-10-
|
|
| c. | No Abatement |
-10-
|
|
| d. | Tenant's Obligation to Report Defects |
-10-
|
|
| e. | Limitation on Landlord's Liability |
-10-
|
|
| Section 8: | Tenant’s Acceptance and Maintenance of Premises | ||
| a. | Acceptance of Premises |
-10-
|
|
| b. | Move-in Obligations |
-10-
|
|
| c. | Tenant's Maintenance |
-11-
|
|
| d. | Alterations to Premises |
-11-
|
|
| e. | Restoration of Premises |
-11-
|
|
| f. | Landlord's Performance of Tenant's Obligations |
-11-
|
|
| g. | Construction Liens |
-11-
|
|
| h. | Communications Compliance |
-11-
|
|
i
| Section 9: | Property of Tenant |
-12-
|
|
| a. | Property Taxes |
-12-
|
|
| b. | Removal |
-12-
|
|
| Section 10: | Signs |
-12-
|
|
| Section 11: | Access to Premises |
|
|
| a. | Tenant's Access |
-12-
|
|
| b. | Landlord's Access |
-12-
|
|
| c. | Emergency Access |
-13-
|
|
| Section 12: | Rules and Regulations |
|
|
| a. | Laws |
-13-
|
|
| b. | Rules and Regulations |
-13-
|
|
| Section 13: | Compliance with Laws |
|
|
| a. | Tenant's Compliance |
-13-
|
|
| b. | Landlord's Compliance |
-13-
|
|
| c. | ADA Notices |
-13-
|
|
| Section 14: | Insurance Requirements | ||
| a. | Tenant's Liability Insurance |
-13-
|
|
| b. | Tenant's Property Insurance |
-13-
|
|
| c. | Certificates of Insurance |
-13-
|
|
| d. | Insurance Policy Requirements |
-13-
|
|
| e. | Landlord's Property Insurance |
-14-
|
|
| f. | Mutual Waiver of Subrogation |
-14-
|
|
| Section 15: | Indemnity | ||
| a. | Indemnity |
-14-
|
|
| b. | Defense Obligation |
-14-
|
|
| Section 16: | Quiet Enjoyment |
-14-
|
|
| Section 17: | Subordination; Attornment; Non-Disturbance; and Estoppel Certificate | ||
| a. | Subordination and Attornment |
-14-
|
|
| b. | Non-Disturbance |
-15-
|
|
| c. | Estoppel Certificates |
-15-
|
|
| Section 18: | Assignment - Sublease |
|
|
| a. | Landlord Consent |
-15-
|
|
| b. | Definition of Assignment |
-15-
|
|
| c. | Permitted Assignments/Subleases |
-16-
|
|
| d. | Notice to Landlord |
-16-
|
|
| e. | Prohibited Assignments/Sublease |
-16-
|
|
| f. | Tenant Not Released |
-16-
|
|
| g. | Landlord's Right to Collect Sublease Rents Upon Tenant Default |
-16-
|
|
| h. | Excess Rents |
-16-
|
|
| i. | Landlord's Fees |
-16-
|
|
| j. | Unauthorized Assignment or Sublease |
-16-
|
|
| Section 19: | Damages to Premises | ||
| a. | Landlord's Restoration Obligations |
-16-
|
|
| b. | Termination of Lease by Landlord |
-17-
|
|
| c. | Termination of Lease by Tenant |
-17-
|
|
| d. | Tenant's Restoration Obligations |
-17-
|
|
| e. | Rent Abatement |
-17-
|
|
| f. | Waiver of Claims |
-17-
|
|
| Section 20: | Eminent Domain | ||
| a. | Effect on Lease |
-17-
|
|
| b. | Right to Condemnation Award |
-18-
|
|
| Section 21: | Environmental Compliance | ||
| a. | Environmental Laws |
-18-
|
|
| b. | Tenant's Responsibility |
-18-
|
|
| c. | Tenant's Liability |
-18-
|
|
| d. | Limitation on Tenant's Liability |
-18-
|
|
| e. | Inspections by Landlord |
-18-
|
|
| f. | Landlord's Liability |
-18-
|
|
| g. | Property |
-18-
|
|
| h. | Tenant's Liability after Termination of Lease |
-19-
|
|
ii
| Section 22: | Default | ||
| a. | Tenant's Default |
-19-
|
|
| b. | Landlord's Remedies |
-19-
|
|
| c. | Landlord's Expenses |
-20-
|
|
| d. | Remedies Cumulative |
-20-
|
|
| e. | No Accord and Satisfaction |
-20-
|
|
| f. | No Reinstatement |
-20-
|
|
| g. | Summary Ejectment |
-20-
|
|
| Section 23: | Multiple Defaults |
|
|
| a. | Loss of Option Rights |
-20-
|
|
| b. | Increased Security Deposit |
-20-
|
|
| c. | Effect on Notice Rights and Cure Periods |
20-
|
|
| Section 24: | Bankruptcy | ||
| a. | Trustee's Rights |
-20-
|
|
| b. | Adequate Assurance |
-21-
|
|
| c. | Assumption of Lease Obligations |
-21-
|
|
| Section 25: | Notices | ||
| a. | Addresses |
-21-
|
|
| b. | Form; Delivery; Receipt |
-21-
|
|
| c. | Address Changes |
-21-
|
|
| d. | Notice by Legal Counsel |
-21-
|
|
| Section 26: | Holding Over |
-21-
|
|
| Section 27: | Right to Relocate [Intentionally Omitted] |
-21-
|
|
| Section 28: | Broker’s Commissions | ||
| a. | Broker |
-22-
|
|
| b. | Landlord's Obligation |
-22-
|
|
| c. | Indemnity |
-22-
|
|
| Section 29: | Miscellaneous | ||
| a. | No Agency |
-22-
|
|
| b. | Force Majeure |
-22-
|
|
| c. | Building Standard Improvements |
-22-
|
|
| d. | Limitation on Damages |
-22-
|
|
| e. | Satisfaction of Judgments Against Landlord |
-22-
|
|
| f. | Interest |
-22-
|
|
| g. | Legal Costs |
-22-
|
|
| h. | Sale of Premises or Building |
-22-
|
|
| i. | Time of the Essence |
-22-
|
|
| j. | Tender of Premises |
-23-
|
|
| k. | Financial Statements |
-23-
|
|
| l. | Recordation |
-23-
|
|
| m. | Partial Invalidity |
-23-
|
|
| n. | Binding Effect |
-23-
|
|
| o. | Entire Agreement |
-23-
|
|
| p. | Good Standing |
-24-
|
|
| q. | Terminology |
-24-
|
|
| r. | Headings |
-24-
|
|
| s. | Choice of Law |
-24-
|
|
| t. | Effective Date |
-24-
|
|
| u. | Interlineation |
-24-
|
|
| v. | Patriot Act, Representation |
-24-
|
|
| w. | Landlord's Default |
-24-
|
|
iii
| Section 30: | Special Conditions |
-24-
|
|
| Section 31: | Addenda and Exhibits |
-24-
|
|
| a. |
Lease
Addendum Number One - “Work Letter”
|
||
| b. |
Lease
Addendum Number One - A - “Building Standard
Improvements”
|
||
| c. |
Lease
Addendum Number One - B -- “Approved Space Plan”
|
||
| d. |
Lease
Addendum Number One - C - “Mini-Blind Layout”
|
||
| e. |
Lease
Addendum Number Two - “Additional Rent - Operating Expense Pass
Throughs”
|
||
| f. |
Lease
Addendum Number Two - A - “Annual Statement Form”
|
||
| g. |
Lease
Addendum Number Three -“Option to Renew Lease Term”
|
||
| h. |
Lease
Addendum Number Four -- “Intentionally Omitted”
|
||
| i. |
Lease
Addendum Number Five - “Tenant Parking Agreement”
|
||
| j. |
Lease
Addendum Number Five—A-- " Location of Reserved Parking, LakePointe Two
Garage”
|
||
| k. |
Lease
Addendum Number Five - B - “Parking Reserved for Other Tenants, LakePointe
Two Garage”
|
||
| l. |
Lease
Addendum Number Six - “Radon”
|
||
| m. |
Lease
Addendum Number Seven - “Right of First Offer”
|
||
| n. |
Lease
Addendum Number Seven - A - “First Floor: Right of First Offer
Space”
|
||
| o. |
Lease
Addendum Number Seven - B - “Third Floor: Right of First Offer
Space”
|
||
| p. |
Lease
Addendum Number Eight—"Cleaning Specifications"
|
||
| q. |
Exhibit
A - Premises
|
||
| r. |
Exhibit
B - Rules and Regulations
|
||
| s. |
Exhibit
C - Commencement Agreement
|
||
| t. |
Exhibit
D - Rooftop License Agreement
|
||
| u. |
Exhibit
E - Monument Signage
|
||
| v. |
Exhibit
F - Subordination, Non-Disturbance and Attornment
Agreement
|
||
iv
State
of Florida:
County
of Hillsborough:
OFFICE
LEASE
THIS
LEASE ("Lease"),
made this 1st day of July, 2004, by and between HIGHWOODS/FLORIDA
HOLDINGS, L.P..,
a
Delaware Limited Partnership, By: Highwoods Properties, Inc., as agent,
(“Landlord”) and BROWN
& BROWN, INC.,
a
Florida corporation, (“Tenant”), provides as follows:
| 1. | BASIC DEFINITIONS AND PROVISIONS. The following basic definitions and provisions apply to this Lease: | |||
| a. | Premises. | Rentable Square Feet: | 40,505 | |
| Suite: | 400 | |||
| Building: | Spectrum | |||
| Street Address: | 3101 W. Martin Luther King Boulevard | |||
| City/County: | Tampa / Hillsborough | |||
| State/Zip Code: | Florida / 33607 | |||
| b. | Initial Term. | Number of Months: | 87 | |
| Commencement Date: | As provided in Lease Addendum Number One (the Work Letter). Target Commencement Date is May 15, 2005. | |||
| Expiration Date: | Eighty-seven (87) months from the Commencement Date, as adjusted pursuant to the provisions of Section 3(c). | |||
| Estimated Expiration Date August 14, 2012 | ||||
| c. | Permitted Use. | General office | ||
| d. | Occupancy Limitation. | No more than six (6) persons per one thousand (1,000) rentable square feet (on average). | ||
| e. | Base Rent. | The minimum Base Rent for the Initial Term is $5,161,456.54, payable in monthly installments on the 1st day of each month in accordance with the following Base Rent Schedule: | ||
|
MONTHS
|
RATE
PSF
|
MONTHLY
RENT
|
CUMULATIVE
RENT
|
|
5/15/05
- 5/31/05
|
$16.80
|
$56,707.00
|
$31,097.42
|
|
6/1/05
- 11/30/05
|
$8.40
|
$28,353.50
|
170,121.00
|
|
12/1/05
- 5/31/06
|
$16.80
|
$56,707.00
|
$340,242.00
|
|
6/1/06
- 5/31/07
|
$17.22
|
$58,124.68
|
$697,496.16
|
|
6/1/07
- 5/31/08
|
$17.65
|
$59,576.10
|
$714,913.20
|
|
6/1/08
- 5/31/09
|
$18.09
|
$61,061.29
|
$732,735.48
|
|
6/1/09
- 5/31/10
|
$18.54
|
$62,580.23
|
$750,962.76
|
|
6/1/10
- 5/31/11
|
$19.00
|
$64,132.92
|
$769595.04
|
|
6/1/11
- 5/31/12
|
$19.48
|
$65,753.12
|
$789,037.44
|
|
6/1/12
- 8/14/12
|
$19.97
|
$67,407.07
|
$165,256.04
|
|
BASE
RENT:
|
$5,161,456.54
|
||
This
rent
schedule shall be modified as appropriate according to the provisions of Section
5(c)(ii) of this Lease.
| f. | Rent Payment Address. | HIGHWOODS/FLORIDA HOLDINGS, L.P. | ||
| P.O. Box 406396 | ||||
| Atlanta, Georgia 30384-6396 | ||||
| Attn: Spectrum | ||||
| Tax ID# 56-1993389 | ||||
| g. | Security Deposit. | $0 | ||
| h. | Normal Business Hours. | 7:00 A.M. to 6:00 P.M. Monday through Friday and 7:00 A.M. to 1:00 P.M. on Saturdays (excluding New Years Day, President's Day, Memorial Day, Independence Day, Thanksgiving Day and Christmas Day, together, "Holidays"). | ||
| i. | Electrical Service. | As described in Section 8(k) of the Work Letter. | ||
| j. | After Hours HVAC Rate. | $25.00 per hour, per floor, with a minimum of two (2) hours per occurrence. | ||
| k. | Parking. | Five (5) spaces per 1000 rentable square feet. See Tenant Parking Agreement - Addendum Five. | ||
| l. | Construction Fee. | There will be no Construction Supervision Fee for the work described in the Work Letter. A 10% Construction Supervision Fee will be charged for all alterations performed by Landlord. | ||
| m. | Tenant’s Broker. | Andy May | ||
| Cushman & Wakefield of Florida, Inc. | ||||
| One Tampa City Center | ||||
| Suite 3600 | ||||
| Tampa, Florida 33602 | ||||
| Landlord’s Broker. | Highwoods/Florida GP Corp | |||
| 3111 W. Dr. Martin Luther King, Jr. Blvd. | ||||
| Suite 300 | ||||
| Tampa, Florida 33607 | ||||
| n. | Notice Addresses. | |||
|
LANDLORD:
|
HIGHWOODS/FLORIDA HOLDINGS, L.P. | |||
| 3100 Smoketree Court, Suite 600 | ||||
| Raleigh, North Carolina 27604 | ||||
| Attn: Manager, Lease Administration | ||||
| Facsimile #: 919/876-2448 | ||||
|
with
a copy to:
|
HIGHWOODS PROPERTIES, INC. | |||
| 3111 W. Dr. Martin Luther King, Jr. Blvd. | ||||
| Suite 300 | ||||
| Tampa, Florida 33607 | ||||
| Attn: Lease Administrator | ||||
|
TENANT:
[before
CommencementDate]
|
Brown & Brown, Inc. | |||
| P.O. Box 1348 | ||||
| Tampa, Florida 33601 | ||||
| Attn: Laurel Grammig, Esq. | ||||
|
[after
Commencement Date]
|
Brown & Brown, Inc. | |||
| 3101 W. Dr. Martin Luther King, Jr. Blvd. | ||||
| Suite 400 | ||||
| Tampa, Florida 33607 | ||||
| Attn: Laurel Grammig, Esq. | ||||
ii
2. LEASED
PREMISES.
a. Premises.
Landlord
leases to Tenant and Tenant leases
from Landlord the Premises identified in Section 1a and as more particularly
shown on Exhibit
A,
attached hereto, which will include the elevator lobby area on the fourth
floor.
b. Rentable
Square
Foot Determination.
Landlord
represents that the Rentable Area of the Premises was calculated in accordance
with the American National Standard Method of measuring floor area in office
buildings of the Building Owners and Managers Association (BOMA) International
(ANSI 265.1
-
1966) ("BOMA Standard"), and that the Building contains 146,994 square feet
of
Rentable Area, calculated in accordance with the BOMA Standard.
c. Common
Areas.
Tenant
shall have non-exclusive access to the common areas of the Building. The common
areas generally include space that is not included in portions of the Building
set aside for leasing to tenants or reserved for Landlord’s exclusive use,
including entrances, hallways, lobbies, elevators, restrooms, walkways and
plazas and landscaping, as well as the parking areas and garages identified
in
Lease Addendum Number Five, together with access to the parking areas and
Building (“Common Areas”). Landlord has the exclusive right to (i) designate the
Common Areas, (ii) change the designation of any Common Area and otherwise
modify the Common Areas, and (iii) permit special use of the Common Areas,
including temporary exclusive use for special occasions, provided no such
designation or change shall materially and adversely affect Tenant's access,
parking, or use and enjoyment of the Premises. Tenant shall not interfere with
the rights of others to use the Common Areas. All use of the Common Areas shall
be subject to reasonable rules and regulations promulgated by
Landlord.
3. TERM.
a. Commencement
and Expiration Dates.
The
Initial Term of the Lease commences on the Commencement Date and expires on
the
Expiration Date, as set forth in Section 1b. Tenant has the right to extend
the
Lease Term for up to two (2) Lease Renewal Terms in accordance with Lease
Addendum Number Three. "Lease Term" or "term" means the Initial Term and
exercised Lease Renewal Terms.
b. Termination
by Tenant for Failure to Deliver Possession.
If
Landlord is unable to deliver possession of the Premises by August 15, 2005
(adjusted for any delays resulting from force
majeure
or
Excused Delays as defined in the Work Letter), then Tenant may terminate this
Lease by giving notice to Landlord within fifteen (15) days thereafter. If
for
any reason (including without limitation, force
majeure)
Landlord is unable to deliver possession of the Premises by November 15, 2005,
then Tenant may terminate this Lease by giving notice to Landlord within fifteen
(15) days thereafter.
c. Adjustment
of Expiration Date. If
the
Expiration Date does not occur on the last day of a calendar month, then the
Term shall be extended by the number of days necessary to cause the Expiration
Date to occur on the last day of the last calendar month of the Term. Tenant
shall pay Base Rent and Additional Rent for such additional days at the same
rate payable for the portion of the last calendar month immediately preceding
such extension.
d. Right
to Occupy.
Tenant
shall not occupy the Premises until Tenant has complied with all of the
following requirements: (i) delivery of all certificates of insurance, (ii)
payment of first month’s Rent; and (iii) receipt of a good standing certificate
from the State where Tenant was organized and a certificate of authority to
do
business in the State in which the Premises are located (if different). Tenant’s
failure to comply with these (or any other conditions precedent to occupancy
under the terms of this Lease) shall not delay the Commencement
Date.
e. Commencement
Agreement.
At the
request of either party, Commencement Date, Term, and Expiration Date may be
set
forth in a Commencement Agreement similar to Exhibit
C,
attached
hereto, to be prepared by Landlord and executed by the parties.
4. USE.
a. Permitted
Use.
The
Premises may be used only for Tenant’s Permitted Use as defined in Section 1c
and in accordance with the Occupancy Limitation as set forth in Section
1d.
b. Prohibited
Uses.
Tenant
shall not use the Premises:
iii
| i. |
Intentionally
omitted.
|
| ii. |
In
any manner that constitutes a nuisance or
trespass;
|
| iii. |
In
any manner other than Tenant's Permitted Use which increases any
insurance
premiums, or makes such insurance unavailable to Landlord on the
Building;
provided that, in the event of an increase in Landlord's insurance
premiums which results from Tenant's use of the Premises, Landlord
may
elect to permit the use and charge Tenant for the increase in premiums,
and Tenant’s failure to pay Landlord, on demand, the amount of such
increase shall be an event of default;
|
| iv. |
In
any manner that creates demands for electricity, heating or air
conditioning in excess of that stated in paragraph 1.(i), unless
Tenant
agrees to pay the actual, out-of-pocket costs incurred by Landlord
in
providing such excess electricity, including submetering therefor;
or
|
| v. |
For
any purpose except the Permitted Use, unless consented to by Landlord
in
writing.
|
c. Prohibited
Equipment in Premises.
Tenant
shall not install any equipment in the Premises that requires electrical power
or cooling beyond the Building's electrical and cooling specifications, as
set
forth in Addendum Number One to the Lease, and as identified by Landlord as
exceeding such specifications at the time of Landlord's approval of Tenant's
plans specify such equipment (“High Demand Equipment”) without Landlord’s prior
written consent which consent shall not be unreasonably withheld, conditioned
or
delayed. No such consent will be given if Landlord determines, in its opinion,
that such equipment may not be safely used in the Premises or that electrical
service is not adequate to support the equipment. Landlord’s consent may be
conditioned, without limitation, upon separate metering of the High Demand
Equipment and Tenant’s payment of all engineering, equipment, installation,
maintenance, removal and restoration costs and utility charges associated with
the High Demand Equipment and the separate meter. If High Demand Equipment
used
in the Premises by Tenant affects the temperature otherwise maintained by the
heating and air conditioning system, Landlord shall have the right to install
supplemental air conditioning units in the Premises with the cost of
engineering, installation, operation and maintenance of the units to be paid
by
Tenant. All costs and expenses relating to High Demand Equipment shall be
Additional Rent, payable by Tenant within thirty (30) days after receipt of
invoice.
5. RENT.
a. Payment
Obligations.
Tenant
shall pay Base Rent and Additional Rent (collectively, “Rent”) on or before the
first day of each calendar month during the Term, as follows:
| i. |
Rent
payments shall be sent to the Rent Payment Address set forth in Section
1f.
|
| ii. |
Rent
shall be paid without previous demand or notice and without set off
or
deduction (except as otherwise expressly provided in the Lease).
Tenant's
obligation to pay Rent under this Lease is completely separate and
independent from any of Landlord's obligations under this
Lease.
|
| iii. |
If
the Commencement Date is a day other than the first day of a calendar
month, or if the Expiration Date is a day other than the last day
of a
calendar month, then Rent for such month shall be (i) prorated, and
(ii)
due and payable on the first day of such
month.
|
| iv. |
For
each Rent payment Landlord receives after the fifth (5th) day of
the
month, Landlord shall be entitled to a late charge in the amount
of five
percent (5%) of all Rent due for such month. Notwithstanding the
preceding
sentence, no such late payment shall be due for the first two such
late
payments during the Term (including any extensions or renewals thereof)
unless Tenant fails to make such payment within five (5) days after
written notice from Landlord that such payment is past
due.
|
| v. |
If
Landlord presents Tenant's check to any bank and Tenant has insufficient
funds to pay for such check, then Landlord shall be entitled to the
maximum lawful bad check fee or five percent (5%) of the amount of
such
check, whichever amount is less.
|
b. Base
Rent.
Tenant
shall pay Base Rent as set forth in Section 1e.
iv
c. Additional
Rent.
In
addition to Base Rent, Tenant shall pay as rent all sums and charges due and
payable by Tenant under this Lease (“Additional Rent”), including, but not
limited to, the following:
| i. |
Tenant's
Proportionate Share of the increase in Landlord's Operating Expenses
as
set forth in Lease Addendum Number
Two;
|
| ii. |
Any
sales or use tax imposed on Rent collected by Landlord or any tax
on rents
in lieu of ad valorem taxes on the Building, even though laws imposing
such taxes attempt to require Landlord to pay the same; provided,
however,
if any such sales or use tax are imposed on Landlord and Landlord
is
prohibited by applicable law from collecting the amount of such tax
from
Tenant as Additional Rent, then Landlord and Tenant shall amend this
Lease
to increase the Base Rent payable hereunder by the amount of such
increase
so that the economic effect of this Lease prior to the imposition
of such
tax is maintained; and
|
| iii. |
Any
construction supervision fees in connection with the construction
of
Tenant Improvements or alterations to the
Premises.
|
Base
Rent
and Additional Rent are referred to in this Lease as "Rent".
6. SECURITY
DEPOSIT.
[INTENTIONALLY OMITTED].
7. SERVICES
BY LANDLORD.
a. Base
Services.
Provided
that Tenant is not then in default beyond applicable notice and cure periods,
Landlord shall cause to be furnished to the Building, or as applicable, the
Premises, in common with other tenants the following services:
| i. |
Hot
and cold water (if available from city mains) for drinking, lavatory
and
toilet purposes.
|
| ii. |
Electricity
(if available from the utility supplier) in the capacity specified
in
Lease Addendum Number One.
|
| iii. |
Operatorless
elevator service, 24 hours per day, 7 days per
week.
|
| iv. |
Building
standard fluorescent lighting fixtures; Tenant shall service, replace
and
maintain at its own expense any incandescent fixtures, table lamps,
or
lighting other than the building standard fluorescent light, and
any
dimmers or lighting controls other than controls for the building
standard
fluorescent lighting.
|
| v. |
Heating
and air conditioning for the reasonably comfortable use and occupancy
of
the Premises during Business Hours as set forth in Section 1h; provided
that, heating and cooling conforming to any governmental regulation
prescribing limitations thereon shall be deemed to comply with this
service. Such HVAC system shall incorporate interior variable air
volume
(VAV) distribution and fan powered variable air volume (FPVAV) exterior
distribution. Such system shall maintain interior space conditions,
during
the Building’s Normal Business Hours, of 74+/- 2 degrees Fahrenheit dry
bulb (Fdb), with a relative humidity of 50% +/- 10%, based upon the
following design conditions:
|
| a. |
Summer
outside conditions based upon ASHRAE Fundamentals Climactic Conditions
using the 1% Design dry-bulb and mean coincident wet-bulb from the
nearest
listed City.
|
| b. |
Winter
outside conditions based upon ASHRAE Fundamental Climactic Conditions
using the 99% Design dry-bulb from the nearest listed
City.
|
| c. |
One
person per 200 rentable square
feet.
|
| d. |
Twenty
(20) cfm of outside air per person, based upon one person per 200
rentable
square feet.
|
| e. |
Night/weekend
setback shall not allow the Premises to drop below 55 degrees Fdb
in the
winter. Unoccupied spaces adjacent to the premises shall be maintained
between 65 and 80 degrees Fdb during the normal business hours of
the
Building.
|
v
| vi. |
After
Business Hours, weekend and holiday heating and air conditioning
at the
After Hours HVAC rate set forth in Section 1j, with such charges
subject
to reasonable annual increases so as to reimburse Landlord for the
increased costs of utilities required to provide such
service.
|
| vii. |
Janitorial
services five (5) days a week (excluding Holidays) after Business
Hours in
accordance with the cleaning specifications attached hereto as Lease
Addendum Number Eight.
|
| viii. |
A
reasonable pro-rata share of the unreserved parking spaces of the
Building, for use by Tenant's employees and visitors in common with
the
other tenants and their employees and visitors, as more specifically
provided in Lease Addendum Number Five.
|
| ix. |
Security
in the Tampa Bay Office Park consisting of a roving guard on duty
from
7:00 a.m. to 11:00 p.m., Monday through Friday except Holidays. At
the
request of a Tenant employee, the guard, while on duty and as available,
will escort the employee to his or her vehicle after Normal Business
Hours. At Tenant's request, Landlord shall provide a guard for additional
hours, at Tenant's cost (which will be equal to Landlord's out-of-pocket
cost, without mark-up).
|
b. Landlord’s
Maintenance.
Landlord
shall make all repairs and replacements to the Building (including the
Building's electrical, mechanical, and plumbing systems, elevators, fixtures
and
equipment), Common Areas and Tenant Improvements in the Premises (except for
repairs and replacements that Tenant must make under Section 8) as necessary
to
maintain the Building and Common Areas in a first class condition, similar
to
the condition of comparable office buildings in the Westshore area of Tampa.
Landlord’s maintenance shall include the roof, foundation, exterior walls,
interior structural walls, all structural components, and all Building systems,
such as mechanical, electrical, HVAC, and plumbing. Repairs or replacements
shall be made within a reasonable time (depending on the nature of the repair
or
replacement needed) after receiving notice from Tenant or Landlord having actual
knowledge of the need for a repair or replacement.
c. Abatement.
If for
any reason attributable to either the failure of Landlord to carry out its
obligations hereunder or force
majeure,
a
portion of the Premises becomes unsuitable for Tenant’s employees to perform
their ordinary functions and Tenant shall have ceased its operations in such
portion of the Premises, then after the continuation of such condition for
five
(5) consecutive business days and commencing on the sixth business day, or
alternatively, after the continuation of such condition for more than 12
business days in any calendar year, Base Rent hereunder shall abate
proportionately for such portion of the Premises for the period such condition
persists. Landlord shall have the right to shut down the Building systems
(including electricity and HVAC systems) for required maintenance and safety
inspections (but Landlord shall do so after Normal Business Hours, if
practicable), and in cases of emergency.
d. Tenant’s
Obligation to Report Defects.
Tenant
shall promptly report to Landlord any defective condition in or about the
Premises known to Tenant.
e. Limitation
on Landlord’s Liability.
Landlord
shall not be liable to Tenant for any damage caused to Tenant and its property
due to the Building or any part or appurtenance thereof being improperly
constructed or being or becoming out of repair, or arising from the leaking
of
gas, water, sewer or steam pipes, or from problems with electrical service,
Tenant agreeing to insure against such damage. The preceding sentence is not
intended to release Landlord from its maintenance obligations under this Lease.
8. TENANT'S
ACCEPTANCE AND MAINTENANCE OF PREMISES.
a. Acceptance
of Premises.
Subject
to the terms of the attached Work Letter, Tenant’s occupancy of the Premises is
Tenant’s representation to Landlord that (i) Tenant has examined and inspected
the Premises, (ii) finds the Premises to be as represented by Landlord and
satisfactory for Tenant's intended use, and (iii) constitutes Tenant's
acceptance of the Premises "as is", subject to latent defects and Landlord's
performance of its obligations under the Work Letter. Landlord makes no
representation or warranty as to the condition of the Premises except as may
be
specifically set forth in the Work Letter.
b. Move-In
Obligations.
Tenant
shall schedule its move-in with the Landlord’s Property Manager. Unless
otherwise approved by Landlord’s Property Manager, which approval shall not be
unreasonably withheld, delayed or conditioned, move-in shall not take place
during Business Hours. During Tenant’s move-in, a representative of Tenant must
be on-site with Tenant’s moving company to ensure proper treatment of the
Building and the Premises. Elevators, entrances, hallways and other Common
Areas
must remain in use for the general public during Normal Business Hours. Any
specialized use of elevators or other Common Areas must be coordinated with
Landlord’s Property Manager. Tenant must properly dispose of all packing
material and refuse in accordance with the Rules and Regulations. Any damage
or
destruction to the Building or the Premises due to moving will be the sole
responsibility of Tenant.
vi
c. Tenant’s
Maintenance.
Tenant
shall: (i) keep the Tenant Improvements and fixtures in the Premises (excluding
building systems except when repairs or maintenance are required by Tenant’s
misuse thereof) and the interior surfaces of the Premises in good order; (ii)
make repairs and replacements to the Premises or Building needed because of
Tenant's misuse or negligence; (iii) repair and replace Non-Standard
Improvements, including any special equipment or decorative treatments,
installed by or at Tenant's request that serve the Premises (unless the Lease
is
ended because of casualty loss or condemnation); and (iv) not commit waste.
d. Alterations
to Premises.
Tenant
shall make no structural alterations to the Premises without the prior written
consent of Landlord, which Landlord shall be under no obligation to grant.
If
Tenant desires to make non-structural alterations to the Premises, Tenant shall
be responsible for the design and construction of such alterations, provided
that Tenant obtains Landlord's prior written approval of the plans and
specifications for such alterations, which approval shall not be unreasonably
withheld, conditioned or delayed, and, in that event, Tenant shall ensure that
such alterations are constructed in compliance with Laws and subject to such
reasonable and customary requirements as Landlord may impose on such
construction.
e. Restoration
of Premises.
At the
expiration or earlier termination of this Lease, Tenant shall deliver each
and
every part of the Premises in operable repair and condition, ordinary wear
and
tear and damage by casualty excepted, including all alterations undertaken
by or
at the request of Tenant after the Tenant Improvements are completed, except
that as to any such alteration which is atypical of general office use and
which
imposes upon Landlord materially greater demolition costs as compared to the
Tenant Improvements, Landlord may require Tenant to remove such alterations,
but
only if Landlord so notifies Tenant in writing simultaneously with Landlord's
approval of such alterations. If Tenant has required or installed Non-Standard
Improvements, such improvements shall be removed as part of Tenant’s restoration
obligation, unless at the time of such Non-Standard Improvements were installed,
Landlord agreed in writing that Tenant could abandon such improvements at Lease
expiration. Tenant shall repair any damage caused by the removal of any
Non-Standard Improvements. “Non-Standard Improvements” means such items as (i)
High Demand Equipment and separate meters, (ii) all wiring and cabling from
the
plenum only, (iii) raised floors for computer or communications systems, (iv)
telephone equipment, security systems, and UPS systems, (iv) supplemental HVAC
units and systems, and (v) equipment racks.
f. Landlord’s
Performance of Tenant’s Obligations.
If
Tenant does not perform its maintenance or restoration obligations in a timely
manner, commencing the same within fifteen (15) days after receipt of notice
from Landlord specifying the work needed, and thereafter diligently and
continuously pursuing the work until completion, then Landlord shall have the
right, but not the obligation, to perform such work. Any amounts expended by
Landlord on such maintenance or restoration shall be Additional Rent to be
paid
by Tenant to Landlord within thirty (30) days after demand.
g. Construction
Liens.
Tenant
shall have no power to do any act or make any contract that may create or be
the
foundation of any lien, mortgage or other encumbrance upon the reversionary
or
other estate of Landlord, or any interest of Landlord in the Premises. NO
CONSTRUCTION LIENS OR OTHER LIENS FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED
TO THE PREMISES SHALL ATTACH TO OR AFFECT THE INTEREST OF LANDLORD IN AND TO
THE
PREMISES OR THE BUILDING. Tenant shall keep the Premises and the Building free
from any liens arising out of any work performed, materials furnished, or
obligations incurred by or on behalf of Tenant. Should any lien or claim of
lien
be filed against the Premises or the Building by reason of any act or omission
of Tenant or any of Tenant’s agents, employees, contractors or representatives,
then Tenant shall cause the same to be canceled and discharged of record by
bond
or otherwise within ten (10) days after the filing thereof. Should Tenant fail
to discharge the lien within ten (10) days, then Landlord may discharge the
lien. The amount paid by Landlord to discharge the lien (whether directly or
by
bond), plus all administrative and legal costs incurred by Landlord, shall
be
Additional Rent payable on demand. The remedies provided herein shall be in
addition to all other remedies available to Landlord under this Lease or
otherwise.
TENANT
SHALL NOTIFY ANY CONTRACTOR PERFORMING ANY CONSTRUCTION WORK IN THE PREMISES
ON
BEHALF OF TENANT THAT THIS LEASE SPECIFICALLY PROVIDES THAT THE INTEREST OF
LANDLORD IN THE PREMISES SHALL NOT BE SUBJECT TO LIENS FOR IMPROVEMENTS MADE
BY
TENANT, AND NO MECHANIC’S LIEN OR OTHER LIEN FOR ANY SUCH LABOR, SERVICES,
MATERIALS, SUPPLIES, MACHINERY, FIXTURES OR EQUIPMENT SHALL ATTACH TO OR AFFECT
THE STATE OR INTEREST OF LANDLORD IN AND TO THE PREMISES, THE BUILDING, OR
ANY
PORTION THEREOF. IN ADDITION, LANDLORD SHALL HAVE THE RIGHT TO POST AND KEEP
POSTED AT ALL REASONABLE TIMES ON THE PREMISES ANY NOTICES WHICH LANDLORD SHALL
BE REQUIRED SO TO POST FOR THE PROTECTION OF LANDLORD AND THE PREMISES FROM
ANY
SUCH LIEN. TENANT AGREES TO PROMPTLY EXECUTE SUCH INSTRUMENTS IN RECORDABLE
FORM
IN ACCORDANCE WITH THE TERMS AND PROVISIONS OF FLORIDA STATUTE SECTION
713.10.
vii
h. Communications
Compliance. Tenant
acknowledges and agrees that any and all telephone and telecommunication
services desired by Tenant shall be ordered and utilized at the sole expense
of
Tenant. Unless Landlord requests otherwise or consents in writing, all of
Tenant’s telecommunications equipment shall be located and remain solely in the
Premises. Landlord shall not have any responsibility for the maintenance of
Tenant’s telecommunications equipment, including wiring; nor for any wiring or
other infrastructure to which Tenant’s telecommunications equipment may be
connected. Tenant agrees that, to the extent any telecommunications service
is
interrupted, curtailed or discontinued, Landlord shall have no obligation or
liability with respect thereto unless resulting from Landlord's negligence
or
willful misconduct. Landlord shall have the right, upon reasonable prior oral
notice to Tenant, to interrupt or turn off telecommunications facilities in
the
event of emergency, or other than in event of an emergency, upon three (3)
business days prior written notice to Tenant, to interrupt or turn off
telecommunications facilities as necessary in connection with repairs to the
Building or installation of telecommunications equipment for other tenants
of
the Building, provided such interruption occurs after Normal Business Hours
whenever practicable. In the event that Tenant wishes at any time to utilize
the
services of a telephone or telecommunications provider whose equipment is not
then servicing the Building, the provider shall not be permitted to install
its
lines or other equipment within the Building without first securing the prior
written approval of Landlord, which approval shall not be unreasonably withheld.
Landlord’s approval may be conditioned in such a manner as to protect Landlord’s
financial interests, the interest of the Building, and the other tenants
therein. The refusal of Landlord to grant its approval to any prospective
telecommunications provider shall not be deemed a default or breach by Landlord
of its obligation under this Lease. The provisions of this paragraph may be
enforced solely by Tenant and Landlord, are not for the benefit of any other
party, and specifically but without limitation, no telephone or
telecommunications provider shall be deemed a third party beneficiary of this
Lease. Tenant shall utilize any wireless communications equipment (other than
usual and customary cellular telephones and wireless LAN's), including antennae
and satellite receiver dishes, within the Premises or the Building, only with
Landlord’s prior written consent or in accordance with the Rooftop License
Agreement. Landlord’s consent may be conditioned in such a manner so as to
protect Landlord’s financial interests, the interests of the Building, and the
other tenants therein. At Landlord’s option, Tenant may be required to remove
any and all telecommunications equipment (including wireless equipment)
installed in the Premises or elsewhere in or on the Building by or on behalf
of
Tenant, including wiring from the plenum only, or other facilities for
telecommunications transmittal upon the expiration or termination of the Lease
and at Tenant’s sole cost.
9. PROPERTY
OF TENANT.
a. Property
Taxes.
Tenant
shall pay when due all taxes levied or assessed upon Tenant's equipment,
fixtures, furniture, leasehold improvements and personal property located in
the
Premises.
b. Removal.
Provided
Tenant is not in default, Tenant may remove all fixtures and equipment which
it
has placed in the Premises; provided, however, Tenant must repair all damages
caused by such removal. If Tenant does not remove its property from the Premises
upon the expiration or earlier termination (for whatever cause) of this Lease,
such property shall be deemed abandoned by Tenant, and Landlord may dispose
of
the same in whatever manner Landlord may elect without any liability to
Tenant.
10. SIGNS.
Tenant
may not erect, install or display any sign or advertising material upon the
exterior of the Building or Premises (including any exterior doors, walls or
windows) without the prior written consent of Landlord, which consent may be
withheld in Landlord’s sole discretion. Door and directory signage shall be
provided and installed by the Landlord in accordance with building standards
at
Tenant’s expense, unless otherwise provided in the Work Letter attached as Lease
Addendum Number One. As long as Tenant is occupying a full floor of the
Building, Tenant shall be allowed lobby signage on the fourth floor. Tenant
shall also be allowed, at Tenant’s expense, exterior monument signage located at
the front of the Building as more precisely described in Exhibit
E
attached
hereto.
11. ACCESS
TO PREMISES.
a. Tenant’s
Access.
Tenant,
its agents, employees, invitees, and guests, shall have access to the Premises
and reasonable ingress and egress to common and public areas of the Building
twenty-four hours a day, seven days a week; provided, however, Landlord by
reasonable regulation may control such access for the comfort, convenience,
safety and protection of all tenants in the Building, or as needed for making
repairs and alterations. Tenant shall be responsible for providing access to
the
Premises to its agents, employees, invitees and guests after Normal Business
Hours and on weekends and Holidays, but in no event shall Tenant’s use of and
access to the Premises outside of Normal Business Hours compromise the security
of the Building.
viii
b. Landlord’s
Access.
Landlord
shall have the right, at all reasonable times and upon reasonable prior oral
notice, either itself or through its authorized agents, to enter the Premises
(i) to make repairs, alterations or changes as Landlord deems necessary (but
only upon one (1) business day’s prior written notice to Tenant, explaining the
nature and location of the construction activities, and provided further that
if
Landlord’s work will materially adversely affect Tenant’s use of a portion of
the Premises, then such work will be performed after Normal Business Hours
and
Landlord will assure that appropriate security personnel are present during
such
work), (ii) to inspect the Premises, mechanical systems and electrical devices,
and (iii) to show the Premises to prospective mortgagees and purchasers. Within
three hundred sixty five (365) days prior to the Expiration Date, Landlord
shall
have the right, either itself or through its authorized agents, to enter the
Premises at all reasonable times upon reasonable prior notice to show
prospective tenants.
c. Emergency
Access.
Landlord
shall have the right to enter the Premises at any time without notice in the
event of an emergency.
12. RULES
AND REGULATIONS.
Tenant
shall comply with the Rules and Regulations attached as Exhibit
B.
The
Rules and Regulations may be reasonably modified from time to time by Landlord,
effective as of the date delivered to Tenant or posted on the Premises, provided
such rules are uniformly applicable to all tenants in the Building. Any conflict
between this Lease and the Rules and Regulations shall be governed by the terms
of this Lease.
13. COMPLIANCE
WITH LAWS.
a. Tenant’s
Compliance.
Tenant,
at Tenant’s sole expense, shall comply with all laws, rules, orders, ordinances,
directions, regulations and requirements of federal, state, county and municipal
authorities now in force, which shall impose any duty upon Landlord or Tenant
with respect to Tenant's use or occupation of the Premises including without
limitation, The Americans With Disabilities Act (the “ADA”)
("Laws").
b. Landlord’s
Compliance.
Landlord, at Landlord’s sole expense, shall comply with all Laws, including
without limitation, the ADA, as they apply to the Common Areas, restrooms and
structural and mechanical elements of the Building. Landlord shall not be
required to make changes to the Common Areas or restrooms of the Building to
comply with ADA standards adopted after construction of the Building unless
specifically required to do so by Law.
c. ADA
Notices.
If
Tenant receives any notices alleging a violation of ADA relating to any portion
of the Building or Premises (including any governmental or regulatory actions
or
investigations regarding non-compliance with ADA), then Tenant shall notify
Landlord in writing within ten (10) days of such notice and provide Landlord
with copies of any such notice.
14. INSURANCE
REQUIREMENTS.
a. Tenant’s
Liability Insurance.
Throughout the Term, Tenant, at its sole cost and expense, shall keep or cause
to be kept Commercial General Liability Insurance (ISO CGL Form CG0001 or its
equivalent) naming Landlord and Landlord's Property Manager as additional
insureds, with a combined single limit, each Occurrence and General
Aggregate-per location of at least TWO MILLION DOLLARS ($2,000,000), which
policy shall insure against liability of Tenant, arising out of and in
connection with Tenant's use of the Premises, and which shall insure the
indemnity provisions contained in this Lease. Not more frequently than once
every three (3) years, Landlord may require the limits to be increased if in
its
reasonable judgment (or that of its mortgagee) the coverage is insufficient
when
compared to the insurance requirements for similar buildings in the Westshore
submarket.
b. Tenant’s
Property Insurance.
Tenant
shall also carry the equivalent of ISO Special Form Property Insurance on
Tenant’s Property for full replacement value. For purposes of this provision,
“Tenant’s Property” shall mean Tenant’s personal property and fixtures, and any
Non-Standard Improvements to the Premises. Tenant shall neither have, nor make,
any claim against Landlord for any loss or damage to the Tenant’s Property,
regardless of the cause of the loss or damage. Tenant shall have the right
to
self-insure against damage to Tenant's Property.
c. Certificates
of Insurance.
Prior to
taking possession of the Premises, and annually thereafter, Tenant shall deliver
to Landlord certificates or other evidence of insurance satisfactory to
Landlord. All such policies shall be non-assessable and shall contain language
to the extent obtainable that (i) any loss shall be payable notwithstanding
any
act or negligence of Landlord or Tenant that might otherwise result in
forfeiture of the insurance, (ii) the policies are primary and non-contributing
with any insurance that Landlord may carry, and (iii) that the carrier will
endeavor to give Landlord written notice before such coverages are cancelled,
non-renewed or reduced. If Tenant fails to provide Landlord with such
certificates or other evidence of insurance coverage, Landlord may obtain such
coverage and the cost of such coverage shall be Additional Rent payable by
Tenant upon demand.
ix
d. Insurance
Policy Requirements.
Tenant’s
insurance policies required by this Lease shall: (i) be issued by insurance
companies licensed to do business in the state in which the Premises are located
with a general policyholder's ratings of at least A- and a financial rating
of
at least VI in the most current Best's Insurance Reports available on the
Commencement Date, or if the Best's ratings are changed or discontinued, the
parties shall agree to a comparable method of rating insurance companies; (ii)
name Landlord and current or future Mortgagee as an additional insured as its
interest may appear [other landlords or tenants may be added as additional
insureds in a blanket policy]; (iii) provide that that the carrier will endeavor
to give Landlord written notice before such coverages are cancelled, non-renewed
or reduced; (iv) be primary policies; (v) provide that any loss shall be payable
notwithstanding any gross negligence of Tenant; (iv) have no deductible
exceeding TEN THOUSAND DOLLARS ($10,000), unless approved in writing by
Landlord; and (v) be maintained during the entire Term and any extension
terms.
e. Landlord’s
Property Insurance.
Landlord
shall keep the Building, including the improvements (but excluding Tenant’s
Property), insured against damage and destruction by perils insured by the
equivalent of ISO Special Form Property Insurance in the amount of the full
replacement value of the Building.
f. Mutual
Waiver of Subrogation.
Anything
in this Lease to the contrary notwithstanding, Landlord hereby releases and
waives unto Tenant (including all partners, stockholders, officers, directors,
employees and agents thereof), its subtenants, successors and assigns, and
Tenant hereby releases and waives unto Landlord (including all partners,
stockholders, officers, directors, employees and agents thereof), its successors
and assigns, all rights of recovery, claims, actions, or causes of action
against the other for any cost of damage to the Premises, the Building, or
any
improvements therein or thereon, or any property of such party therein or
thereon, by reason of fire, the elements, or any other cause which would
typically be insured against under the terms of a special form property
insurance policy in Section 14 hereof, regardless of the amount of proceeds
payable under the insurance policies or the cause or origin including negligence
of the other party hereto. As respects all policies of insurance carried or
maintained pursuant to this Lease, Tenant and Landlord each waive the insurance
carriers’ rights of subrogation.
15. INDEMNITY.
Subject
to the insurance requirements, releases and mutual waivers of subrogation set
forth in this Lease, Landlord and Tenant agrees as follows:
a. Indemnity.
Tenant
shall indemnify and hold Landlord, Landlord's mortgagees, any ground lessor
and
their respective partners, stockholders, officers, directors, employees, and
agents harmless from and against any and all claims, damages, losses,
liabilities, lawsuits, costs and expenses (including reasonable attorneys'
fees
at all tribunal levels) arising out of or related to (i) any activity, work,
or
other thing done, permitted or suffered by Tenant in or about the Premises
or
the Building, (ii) any breach or default by Tenant in the performance of any
of
its obligations under this Lease, or (iii) any act or neglect of Tenant, or
any
officer, agent, employee, contractor, servant, invitee or guest of Tenant.
Landlord shall indemnify and hold harmless Tenant and its partners, directors,
officers, agents, and employees from and against any and all claims, damages,
losses, liabilities, lawsuits, costs and expenses (including attorneys' fees
at
all tribunal levels) arising out of or related to (i) any activity, work, or
other thing done, permitted or suffered by Landlord in or about the Common
Areas, and (ii) any act or neglect of Landlord, or any officer, agent, employee,
contractor, servant, invitee or guest of Landlord.
b. Defense
Obligation.
In
connection with the parties' performance of their indemnity obligations under
Section 15.a, above, the indemnitor shall defend the indemnitee through counsel
acceptable to the indemnitee. The provisions of this Section 15 shall survive
the termination of this Lease.
16. QUIET
ENJOYMENT.
Tenant
shall have quiet enjoyment and possession of the Premises provided no default
exists hereunder beyond applicable notice and cure periods.
17. SUBORDINATION;
ATTORNMENT; NON-DISTURBANCE; AND ESTOPPEL CERTIFICATE.
a. Subordination
and Attornment.
Tenant
agrees to execute within ten business (10) business days after request to do
so
from Landlord or its mortgagee an agreement:
x
| i. |
Making
this Lease superior or subordinate to the interests of the
mortgagee;
|
| ii. |
Agreeing
to attorn to the mortgagee;
|
| iii. |
Giving
the mortgagee notice of, and a reasonable opportunity (which shall
in no
event be less than thirty (30) days after notice thereof is delivered
to
mortgagee) to cure any Landlord default and agreeing to accept such
cure
if effected by the mortgagee;
|
| iv. |
Permitting
the mortgagee (or other purchaser at any foreclosure sale), and its
successors and assigns, on acquiring Landlord's interest in the Premises
and the Lease, to become substitute Landlord hereunder, with liability
only for such Landlord obligations as accrue after Landlord's interest
is
so acquired;
|
| v. |
Agreeing
to attorn to any successor Landlord; and
|
| vi. |
Containing
such other agreements and covenants on Tenant's part as Landlord's
mortgagee may reasonably request which do not adversely affect Tenant’s
rights under this Lease.
|
b. Non-Disturbance.
Tenant’s
obligation to subordinate its interests or attorn to any mortgagee is
conditioned upon the mortgagee’s agreement not to disturb Tenant’s possession
and quiet enjoyment of the Premises under this Lease so long as Tenant is in
compliance with the terms of the Lease. Landlord shall deliver to Tenant a
non-disturbance agreement reasonably acceptable to Tenant from the holder of
any
existing Mortgage within fifteen (15) days after the Effective Date. Landlord
hereby represents and warrants to Tenant that Landlord owns fee simple title
to
the Building and the real property on which the Building is located, free and
clear of any encumbrance, mortgage or other lien, except for the lien for real
estate taxes not yet due and payable and the mortgage lien in favor of Northwest
Mutual Insurance Company. Within fifteen (15) days after the Effective Date,
Landlord and Tenant shall execute and deliver, and Landlord shall cause
Northwestern Mutual Life Insurance Company to execute and deliver, a
subordination, non-disturbance and attornment agreement in substantially the
form attached hereto as Exhibit
F.
c. Estoppel
Certificates.
Landlord
and Tenant agree to execute within ten (10) business days after request, and
as
often as reasonably requested, estoppel certificates confirming any reasonable
factual matter which is true to the certifying party's knowledge regarding
this
Lease and the Premises, including but not limited to: (i) the date of occupancy,
(ii) Expiration Date, (iii) the amount of Rent due and date to which Rent is
paid, (iii) whether the certifying party has any defense or offsets to the
enforcement of this Lease or the Rent payable, (iv) any default or breach by
the
other party, and (v) whether this Lease, together with any modifications or
amendments, is in full force and effect. The certifying party shall attach
to
such estoppel certificate a copy of each modification or amendment to the
Lease.
18. ASSIGNMENT
- SUBLEASE.
a. Landlord
Consent.
Tenant
may not assign or encumber this Lease or its interest in the Premises arising
under this Lease, and may not sublet all or any part of the Premises without
first obtaining the written consent of Landlord, which consent shall not be
withheld unreasonably. Factors which Landlord may consider in deciding whether
to consent to an assignment or sublease include (without limitation), (i) the
creditworthiness of the assignee, (ii) the proposed use of the Premises, (iii)
whether there is other vacant space in the Building which would satisfy the
requirements of the proposed transferee, (iv) whether the assignee or sublessee
will vacate other space owned by Landlord, (v) whether Landlord is negotiating
with the proposed sublessee or assignee for a lease of other space owned by
Landlord, and (vi) any renovations to the Premises or special services required
by the assignee or sublessee (unless Tenant or such assignee or sublessee agrees
to pay for such renovations or services). Landlord will not consent to an
assignment or sublease that reasonably might result in a use that conflicts
with
the rights of any existing tenant. One consent shall not be the basis for any
further consent.
b. Definition
of Assignment.
For the
purpose of this Section 18, the word "assignment" shall be defined and deemed
to
include the following: (i) if Tenant is a partnership, the withdrawal or change,
whether voluntary, involuntary or by operation of law, of partners owning thirty
percent (30%) or more of the partnership, or the dissolution of the partnership;
(ii) if Tenant consists of more than one person, an assignment, whether
voluntary, involuntary, or by operation of law, by one person to one of the
other persons that is a Tenant; (iii) if Tenant is a corporation, any
dissolution or reorganization of Tenant, or the sale or other transfer of a
controlling percentage (hereafter defined) of capital stock of Tenant other
than
to an affiliate or subsidiary or the sale of fifty-one percent (51%) in value
of
the assets of Tenant; (iv) if Tenant is a limited liability company, the change
of members whose
xi
interest
in the company is fifty percent (50%) or more. The phrase "controlling
percentage" means the ownership of, and the right to vote, stock possessing
at
least fifty-one percent (51%) of the total combined voting power of all classes
of Tenant's capital stock issued, outstanding and entitled to vote for the
election of directors, or such lesser percentage as is required to provide
actual control over the affairs of the corporation; except that if the Tenant
is
a publicly traded company, public trades or sales of the Tenant’s stock on a
national stock exchange shall not be considered an assignment hereunder even
if
the aggregate of the trades of sales exceeds fifty percent (50%) of the capital
stock of the company.
c. Permitted
Assignments/Subleases.
Notwithstanding the foregoing, Tenant may assign this Lease or sublease part
or
all of the Premises without Landlord's consent to: (i) any corporation, limited
liability company, or partnership that controls, is controlled by, or is under
common control with, Tenant at the Commencement Date; or (ii) any corporation
or
limited liability company resulting from the merger or consolidation with Tenant
or to any entity that acquires substantially all of Tenant's assets as a going
concern of the business that is being conducted on the Premises; provided
however, the assignor remains liable under the Lease and the assignee or
sublessee is a bona fide entity and assumes the obligations of Tenant, and
continues the same Permitted Use as provided under Section 4.
d. Notice
to Landlord.
Except
in the case of assignments or sublettings made pursuant to Section 18.c. above,
Landlord must be given prior written notice of every assignment or subletting,
and failure to do so shall be a default hereunder.
e. Prohibited
Assignments/Subleases.
In no
event shall this Lease be assignable by operation of any law, and Tenant's
rights hereunder may not become, and shall not be listed by Tenant as an asset
under any bankruptcy, insolvency or reorganization proceedings. Acceptance
of
Rent by Landlord after any non-permitted assignment or sublease shall not
constitute approval thereof by Landlord.
f. Limitation
on Rights of Assignee/Sublessee. Any
sublease for which Landlord’s consent is required shall not include the right to
exercise any options to renew the Lease Term, expand the Premises, cancel the
Lease, or similar options, unless specifically provided for in the
consent.
g. Tenant
Not Released.
No
assignment or sublease shall release Tenant of any of its obligations under
this
Lease.
h. Landlord’s
Right to Collect Sublease Rents upon Tenant Default.
If the
Premises (or any portion) is sublet and Tenant defaults under its obligations
to
Landlord beyond applicable notice and cure periods, then Landlord is authorized,
at its option, to collect all sublease rents directly from the Sublessee. Tenant
hereby assigns the right to collect the sublease rents to Landlord in the event
of Tenant default beyond applicable notice and cure periods. The collection
of
sublease rents by Landlord shall not relieve Tenant of its obligations under
this Lease, nor shall it create a contractual relationship between Sublessee
and
Landlord or give Sublessee any greater estate or right to the Premises than
contained in its Sublease.
i. Excess
Rents.
If
Landlord consents to any assignment or sublet pursuant to this Section 18,
then
Tenant shall pay Landlord as Additional Rent, fifty percent (50%) of any Bonus
Rent received by Tenant. For purposes of this Lease, “Bonus Rent” shall mean
sums (i) which Tenant receives pursuant to the terms of the assignment or sublet
which are in excess of total Rent which Tenant is obligated to pay Landlord
under this Lease (to be pro-rated if only a portion of the Leased Premises
is
subject to such transfer); less (ii) (a) leasing commissions paid by Tenant;
(b)
other out-of-pocket costs paid by Tenant, including attorneys’ fees, advertising
costs, and expenses of improvements or other expenses of readying the Leased
Premises for occupancy by the transferee; (c) any consideration paid to the
transferee or any third party to induce the transferee to consummate the
transfer; and (d) out-of-pocket costs paid by Tenant for reasonable tenant
improvement work or allowances, and any reasonable rent concessions, all of
which costs, for the purposes of determining the amounts payable to Landlord
shall be amortized on a straight line basis over the term of the Lease in the
case of an assignment or sublease. In no event shall Bonus Rent be payable
in
connection with an assignment or sublease pursuant to Section 18(c). Tenant
shall provide Landlord with written invoices and receipts reasonably
satisfactory to Landlord evidencing costs and expenses paid by Tenant described
in clause (ii) of the immediately preceding sentence.
j. Landlord’s
Fees.
Tenant
shall pay Landlord $500.00 per assignment or sublease transaction in connection
with an assignment or sublease for which consent is required.
xii
k. Unauthorized
Assignment or Sublease.
Any
unauthorized assignment or sublease shall constitute a default under the terms
of this Lease. In addition to its other remedies for Default, Landlord may
elect
to increase Base Rent to 150% of the Base Rent reserved under the terms of
this
Lease.
19. DAMAGES
TO PREMISES.
a. Landlord’s
Restoration Obligations.
If the
Building, Common Areas or Premises are damaged by fire or other casualty
(“Casualty”), then Landlord shall repair and restore the Building, Common Areas
and Premises to substantially the same condition immediately prior to such
Casualty, subject to the following terms and conditions:
| i. |
The
casualty must be insured under Landlord's insurance policies, and
Landlord’s obligation is limited to the extent of the insurance proceeds
received by Landlord. Landlord’s duty to repair and restore the Premises
shall not begin until receipt of the insurance
proceeds.
|
| ii. |
Landlord’s
lender(s) must permit the insurance proceeds to be used for such
repair
and restoration.
|
| iii. |
Landlord
shall have no obligation to repair and restore Tenant’s trade fixtures,
decorations, signs, contents, or any Non-Standard Improvements to
the
Premises.
|
b. Termination
of Lease by Landlord.
Landlord
shall have the option of terminating the Lease if: (i) the Premises is rendered
wholly untenantable; (ii) the Premises is damaged in whole or in part as a
result of a risk which is not covered by Landlord's insurance policies; (iii)
Landlord's lender does not permit a sufficient amount of the insurance proceeds
to be used for restoration purposes; (iv) the Premises is damaged in whole
or in
part during the last two years of the Term; or (v) the Building containing
the
Premises is damaged (whether or not the Premises is damaged) to an extent of
fifty percent (50%) or more of the fair market value thereof. If Landlord elects
to terminate this Lease, then it shall give notice of the cancellation to Tenant
within sixty (60) days after the date of the Casualty. Tenant shall vacate
and
surrender the Premises to Landlord within fifteen (15) days after receipt of
the
notice of termination, and all Rent shall be prorated through the date Tenant
vacates the Premises.
c. Termination
of Lease by Tenant.
Tenant
shall have the option of terminating the Lease if: (i) Landlord has failed
to
substantially restore the damaged Building or Premises within one hundred eighty
(180) days of the Casualty (“Restoration Period”) as extended by force
majeure;
and
Tenant gives Landlord notice of the termination within fifteen (15) days after
the end of the Restoration Period (as extended by any force
majeure
delays),
or (ii) during the last year of the Term, five percent (5%) or more of the
Rentable Area of the Premises is damaged or the Common Areas are damaged, such
that in either case Tenant is materially impaired in its ability to conduct
its
business operations within the Premises as it has prior to the damage. In the
event of such termination, all Rent shall be prorated through the date of Lease
termination. If Landlord is delayed by force
majeure,
then
Landlord must provide Tenant with notice of the delays within fifteen (15)
days
of the force
majeure
event
stating the reason for the delays and a good faith estimate of the length of
the
delays.
d. Tenant’s
Restoration Obligations.
Unless
terminated, the Lease shall remain in full force and effect, and Tenant shall
promptly repair, restore, or replace Tenant's trade fixtures, decorations,
signs, contents, and any Non-Standard Improvements to the Premises. All repair,
restoration or replacement shall be at least to the same condition as existed
prior to the Casualty. The proceeds of all insurance carried by Tenant on its
property shall be held in trust by Tenant for the purposes of such repair,
restoration, or replacement.
e. Rent
Abatement.
If
Premises is rendered wholly untenantable by the Casualty, then the Rent payable
by Tenant shall be fully abated. If the Premises is only partially damaged,
then
Tenant shall continue the operation of Tenant's business in any part not damaged
to the extent reasonably practicable from the standpoint of prudent business
management, and Rent and other charges shall be abated proportionately to the
portion of the Premises rendered untenantable. The abatement shall be from
the
date of the Casualty until fifteen (15) days after the Premises have been
substantially repaired and restored, or until Tenant's business operations
are
restored in the entire Premises, whichever shall first occur. However, if the
Casualty is caused by the negligence or other wrongful conduct of Tenant or
of
Tenant's subtenants, licensees, contractors, or invitees, or their respective
agents or employees, there shall be no abatement of Rent.
f. Waiver
of Claims.
The
abatement of the Rent set forth above is Tenant’s exclusive remedy against
Landlord in the event of a Casualty. Tenant hereby waives all claims against
Landlord for any compensation or damage for loss of use of the whole or any
part
of the Premises and/or for any inconvenience or annoyance occasioned by any
Casualty and any resulting damage, destruction, repair, or
restoration.
xiii
20. EMINENT
DOMAIN.
a. Effect
on Lease.
If
substantially all of the Premises or Common Areas are taken under the power
of
eminent domain (or by conveyance in lieu thereof), then this Lease shall
terminate as of the date possession is taken by the condemnor, and Rent shall
be
adjusted between Landlord and Tenant as of such date. If only a portion of
the
Premises or Common Areas are taken and Tenant can continue use of the remainder
for operation of Tenant's business without material impairment, then this Lease
will not terminate, but Rent shall abate in a just and proportionate amount
to
the loss of use occasioned by the taking.
b. Right
to Condemnation Award.
Landlord
shall be entitled to receive and retain the entire condemnation award for the
taking of the Building and Premises. Tenant shall have no right or claim against
Landlord for any part of any award received by Landlord for the taking. Tenant
shall have no right or claim for any alleged value of the unexpired portion
of
this Lease, or its leasehold estate, or for costs of removal, relocation,
business interruption expense or any other damages arising out of such taking.
Tenant, however, shall not be prevented from making a claim against the
condemning party (but not against Landlord ) for any moving expenses, loss
of
profits, or taking of Tenant’s personal property (other than its leasehold
estate) to which Tenant may be entitled; provided that any such award shall
not
reduce the amount of the award otherwise payable to Landlord for the taking
of
the Building and Premises.
21. ENVIRONMENTAL
COMPLIANCE.
a. Environmental
Laws.
The term
“ Environmental Laws” shall mean all now existing or hereafter enacted or issued
statutes, laws, rules, ordinances, orders, permits and regulations of all state,
federal, local and other governmental and regulatory authorities, agencies
and
bodies applicable to the Premises, pertaining to environmental matters or
regulating, prohibiting or otherwise having to do with asbestos and all other
toxic, radioactive, or hazardous wastes or materials including, but not limited
to, the Federal Clean Air Act, the Federal Water Pollution Control Act, and
the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as from time to time amended.
b. Tenant's
Responsibility.
Tenant
covenants and agrees that it will keep and maintain the Premises at all times
in
compliance with Environmental Laws. Tenant shall not (either with or without
negligence) cause or permit the escape, disposal or release of any biologically
active or other hazardous substances, or materials on the Property in violation
of Environmental Laws. Tenant shall not allow the storage or use of such
substances or materials in any manner not sanctioned by law or in compliance
with the highest standards prevailing in the industry for the storage and use
of
such substances or materials, nor allow to be brought onto the Property any
such
materials or substances except to use in the ordinary course of Tenant's
business, and then only after notice is given to Landlord of the identity of
such substances or materials. No such notice shall be required, however, for
commercially reasonable amounts of ordinary office supplies and janitorial
supplies. Tenant shall execute affidavits, representations and the like, from
time to time, at Landlord's request, concerning Tenant's best knowledge and
belief regarding the presence of hazardous substances or materials on the
Premises.
c. Tenant's
Liability.
Tenant
shall hold Landlord free, harmless, and indemnified from any penalty, fine,
claim, demand, liability, cost, or charge whatsoever which Landlord shall incur,
or which Landlord would otherwise incur, by reason of Tenant's failure to comply
with this Section 21 including, but not limited to: (i) the cost of full
remediation of any contamination to bring the Property into the same condition
as prior to the Commencement Date and into full compliance with all
Environmental Laws; (ii) the reasonable cost of all appropriate tests and
examinations of the Premises to confirm that the Premises and any other
contaminated areas have been remediated and brought into compliance with all
Environmental Laws; and (iii) the reasonable fees and expenses of Landlord's
attorneys, engineers, and consultants incurred by Landlord in enforcing and
confirming compliance with this Section 21.
d. Limitation
on Tenant’s Liability.
Tenant’s
obligations under this Section 21 shall not apply to any condition or matter
constituting a violation of any Environmental Laws: (i) which existed prior
to
the commencement of Tenant's use or occupancy of the Premises; (ii) which was
not caused, in whole or in part, by Tenant or Tenant's agents, employees,
officers, partners, contractors or invitees; or (iii) to the extent such
violation is caused by, or results from the acts or neglects of Landlord or
Landlord's agents, employees, officers, partners, contractors, guests, or
invitees.
e. Inspections
by Landlord.
Landlord and its engineers, technicians, and consultants (collectively the
"Auditors") may, from time to time as Landlord reasonably deems appropriate,
upon at least ten (10) days prior
xiv
written
notice, or such earlier time as appropriate if the schedule for such Audits
has
been set by or in cooperation with a governmental entity, or in the case
of
emergency, conduct periodic tests and examinations ("Audits") of the Premises
to
confirm and monitor Tenant's compliance with this Section 21. Such Audits
shall
be conducted in such a manner as to minimize the interference with Tenant's
Permitted Use; however in all cases, the Audits shall be of such nature and
scope as shall be reasonably required by then existing technology to confirm
Tenant's compliance with this Section 21. Tenant shall reasonably cooperate
with
Landlord and its Auditors in the conduct of such Audits. The cost of such
Audits
shall be paid by Landlord unless an Audit shall disclose a material failure
of
Tenant to comply with this Section 21, in which case, the cost of such Audit,
and the cost of all subsequent Audits made during the Term and within thirty
(30) days thereafter (not to exceed two (2) such Audits per calendar year),
shall be paid for on demand by Tenant.
f. Landlord's
Liability.
Landlord represents and warrants that, to the best of Landlord’s knowledge,
there are no hazardous materials on the Premises or in the Building as of the
Commencement Date in violation of any Environmental Laws. Landlord shall
indemnify and hold Tenant harmless from any liability resulting from any such
violation.
g. Property.
For the
purposes of this Section 21, the term “Property” shall include the Premises,
Building, all Common Areas, the real estate upon which the Building is located;
all personal property (including that owned by Tenant); and the soil, ground
water, and surface water of the real estate upon which the Building is
located.
h. Liability
After Termination of Lease.
The
covenants contained in this Section 21 shall survive the expiration or
termination of this Lease, and shall continue for so long as Landlord or Tenant
and its successors and assigns may be subject to any expense, liability, charge,
penalty, or obligation against which Landlord or Tenant, as the case may be,
has
agreed to indemnify the other under this Section 21.
22. DEFAULT.
a. Tenant’s
Default.
Tenant
shall be in default under this Lease if Tenant:
| i. |
Fails
to pay when due any Base Rent, Additional rent, or any other sum
of money
which Tenant is obligated to pay, as provided in this Lease, within
five
(5) days after notice of such failure (except that Landlord shall
not be
required to give more than two (2) such notices in any calendar year,
and
after the giving of such two notices in the same calendar year, Tenant's
failure to pay when due any such payment within the same calendar
year
shall be deemed to constitute a default without the giving of notice);
|
| ii. |
Breaches
any other agreement, covenant or obligation in this Lease and such
breach
is not remedied within fifteen (15) days after Landlord gives Tenant
notice specifying the breach, or if such breach cannot, with due
diligence, be cured within fifteen (15) days, Tenant does not commence
curing within fifteen (15) days and with reasonable diligence completely
cure the breach within a reasonable period of time after the
notice;
|
| iii. |
Files
any petition or action for relief under any creditor's law (including
bankruptcy, reorganization, or similar action), either in state or
federal
court, or has such a petition or action filed against it which is
not
stayed or vacated within sixty (60) days after filing;
or
|
| iv. |
Makes
any transfer in fraud of creditors as defined in Section 548 of the
United
States Bankruptcy Code (11 U.S.C. 548, as amended or replaced), has
a
receiver appointed for its assets (and the appointment is not stayed
or
vacated within thirty (30) days), or makes an assignment for benefit
of
creditors.
|
b. Landlord’s
Remedies.
In the
event of a Tenant default which continues beyond applicable notice and cure
periods, Landlord at its option may do one or more of the following:
| i. |
Terminate
this Lease and recover all damages caused by Tenant’s breach, including
consequential damages for lost future
rent;
|
| ii. |
Repossess
the Premises, with or without terminating, and relet the Premises
at such
amount as Landlord deems
reasonable;
|
xv
| iii. |
Declare
the entire remaining Base Rent and Additional Rent immediately due
and
payable, less the reasonable amount of rent which Tenant proves could
be
recovered by reletting the Premises for the remainder of the Term,
with
both such amounts discounted to present value at a discount rate
equal to
the U.S. Treasury Bill or Note rate with the closest maturity to
the
remaining term of the Lease as selected by
Landlord;
|
| iv. |
Bring
action for recovery of all amounts due from
Tenant;
|
| v. |
Seize
and hold any personal property of Tenant located in the Premises
and
assert against the same a lien for monies due
Landlord;
|
| vi. |
Pursue
any other remedy available in law or equity.
|
c. Landlord’s
Expenses; Attorneys Fees.
All
reasonable expenses of Landlord in repairing, restoring, or altering the
Premises for reletting as general office space, together with leasing fees
and
all other expenses in seeking and obtaining a new Tenant, shall be charged
to
and be a liability of Tenant. The prevailing party's reasonable attorneys'
fees
in pursuing any remedy under this Lease, or in collecting any Rent or Additional
Rent or other amount due under this Lease, shall be paid by the other party.
d. Remedies
Cumulative.
All
rights and remedies provided in this Lease are cumulative, and the exercise
of
any one shall not be an election excluding any other remedy. No exercise by
Landlord of any right or remedy granted herein shall constitute or effect a
termination of this Lease unless Landlord shall so elect by notice delivered
to
Tenant. The failure of either party to exercise its rights in connection with
this Lease or any breach or violation of any term, or any subsequent breach
of
the same or any other term, covenant or condition herein contained shall not
be
a waiver of such term, covenant or condition or any subsequent breach of the
same or any other covenant or condition herein contained.
e. No
Accord and Satisfaction.
No
acceptance of a lesser sum than the Rent, Additional Rent and other sums then
due shall be deemed to be other than on account of the earliest installment
of
such payments due, nor shall any endorsement or statement on any check or any
letter accompanying any check or payment be deemed as accord and satisfaction,
and the Payee may accept such check or payment without prejudice to Payee’s
right to recover the balance of such installment or pursue any other remedy
provided in this Lease.
f. No
Reinstatement.
No
payment of money by Tenant to Landlord after the expiration or termination
of
this Lease shall reinstate or extend the Term, or make ineffective any notice
of
termination given to Tenant prior to the payment of such money. After the
service of notice or the commencement of a suit, or after final judgment
granting Landlord possession of the Premises, Landlord may receive and collect
any sums due under this Lease, and the payment thereof shall not make
ineffective any notice or in any manner affect any pending suit or any judgment
previously obtained.
g. Summary
Ejectment.
Tenant
agrees that in addition to all other rights and remedies Landlord may obtain
an
order for summary ejectment from any court of competent jurisdiction without
prejudice to Landlord's rights to otherwise collect rents or breach of contract
damages from Tenant.
23. MULTIPLE
DEFAULTS.
a. Loss
of Option Rights.
Tenant
acknowledges that any rights or options of first refusal, or to extend the
Term,
to expand the size of the Premises, to purchase the Premises or the Building,
or
other similar rights or options which have been granted to Tenant under this
Lease are conditioned upon the prompt and diligent performance of the terms
of
this Lease by Tenant. Accordingly, should Tenant default under this Lease beyond
applicable notice and cure periods on three (3) or more occasions during any
twelve (12) month period, in addition to all other remedies available to
Landlord, all such rights and options shall automatically, and without further
action on the part of any party, expire and be of no further force and
effect.
b. Effect
on Notice Rights and Cure Periods.
Should
Tenant default under this Lease beyond applicable notice and cure periods on
three (3) or more occasions during any twelve (12) month period, in addition
to
all other remedies available to Landlord, any notice requirements or cure
periods otherwise set forth in this Lease with respect to a subsequent default
by Tenant within such twelve (12) month period shall not apply.
xvi
24. BANKRUPTCY.
a. Trustee’s
Rights.
Landlord
and Tenant understand that, notwithstanding contrary terms in this Lease, a
trustee or debtor in possession under the United States Bankruptcy Code, as
amended, (the "Code") may have certain rights to assume or assign this Lease.
This Lease shall not be construed to give the trustee or debtor in possession
any rights greater than the minimum rights granted under the Code.
b. Adequate
Assurance.
Landlord
and Tenant acknowledge that, pursuant to the Code, Landlord is entitled to
adequate assurances of future performance of the provisions of this Lease.
The
parties agree that the term “adequate assurance” shall include at least the
following:
| i . |
In
order to assure Landlord that any proposed assignee will have the
resources with which to pay all Rent payable pursuant to the provisions
of
this Lease, any proposed assignee must have, as demonstrated to Landlord’s
satisfaction, a net worth (as defined in accordance with generally
accepted accounting principles consistently applied) of not less
than the
net worth of Tenant on the Effective Date (as hereinafter defined),
increased by seven percent (7%), compounded annually, for each year
from
the Effective Date through the date of the proposed assignment. It
is
understood and agreed that the financial condition and resources
of Tenant
were a material inducement to Landlord in entering into this
Lease.
|
| ii. |
Any
proposed assignee must have been engaged in the conduct of business
for
the five (5) years prior to any such proposed assignment, which business
does not violate the Use provisions under Section 4 above, and such
proposed assignee shall continue to engage in the Permitted Use under
Section 4. It is understood that Landlord’s asset will be substantially
impaired if the trustee in bankruptcy or any assignee of this Lease
makes
any use of the Premises other than the Permitted
Use.
|
c. Assumption
of Lease Obligations.
Any
proposed assignee of this Lease must assume and agree to be bound by the
provisions of this Lease.
25. NOTICES.
a. Addresses.
All
notices, demands and requests by Landlord or Tenant shall be sent to the Notice
Addresses set forth in Section 1m, or to such other address as a party may
specify by duly given notice.
b. Form;
Delivery; Receipt. ALL
NOTICES, DEMANDS AND REQUESTS WHICH MAY BE GIVEN OR WHICH ARE REQUIRED TO BE
GIVEN BY EITHER PARTY TO THE OTHER MUST BE IN WRITING UNLESS OTHERWISE
SPECIFIED.
Notices,
demands or requests shall be deemed to have been properly given for all purposes
if (i) delivered against a written receipt of delivery, (ii) mailed by express,
registered or certified mail of the United States Postal Service, return receipt
requested, postage prepaid, or (iii) delivered to a nationally recognized
overnight courier service for next business day delivery to the receiving
party's address as set forth above. Each such notice, demand or request shall
be
deemed to have been received upon the earlier of the actual receipt or refusal
by the addressee or three (3) business days after deposit thereof at any main
or
branch United States post office if sent in accordance with subsection (ii)
above, and the next business day after deposit thereof with the courier if
sent
pursuant to subsection (iii) above.
c. Address
Changes.
The
parties shall notify the other of any change in address, which notification
must
be at least fifteen (15) days in advance of it being effective.
d. Notice
by Legal Counsel.
Notices
may be given on behalf of any party by such party's legal counsel.
26. HOLDING
OVER.
If
Tenant holds over after the Expiration Date or other termination of this Lease,
such holding over shall not be a renewal of this Lease but shall create a
tenancy-at-will. Tenant shall continue to be bound by all of the terms and
conditions of this Lease, except that during such tenancy-at-will Tenant shall
pay to Landlord (i) Base Rent at the rate equal to one hundred and fifty percent
(150%) of that provided for as of the expiration or termination date, and (ii)
any and all Operating Expenses and other forms of Additional Rent payable under
this Lease.
27. RIGHT
TO RELOCATE.
[INTENTIONALLY OMITTED]
xvii
28. BROKER'S
COMMISSIONS.
a. Broker.
Each
party represents and warrants to the other that it has not dealt with any real
estate broker, finder or other person with respect to this Lease in any manner,
except the Broker identified in Section 1m.
b. Landlord’s
Obligation.
Landlord
shall pay any commissions or fees that are payable to the Broker with respect
to
this Lease pursuant to Landlord’s separate agreement with the
Broker.
c. Indemnity.
Each
party shall indemnify and hold the other party harmless from any and all damages
resulting from claims that may be asserted against the other party by any other
broker, finder or other person (including, without limitation, any substitute
or
replacement broker claiming to have been engaged by indemnifying party in the
future), claiming to have dealt with the indemnifying party in connection with
this Lease. The provisions of this Section shall survive the termination of
this
Lease.
29. MISCELLANEOUS.
a. No
Agency.
Tenant
is not, may not become, and shall never represent itself to be an agent of
Landlord, and Tenant acknowledges that Landlord's title to the Building is
paramount, and that it can do nothing to affect or impair Landlord's title.
b. Force
Majeure.
The term
“force
majeure”
means:
fire, flood, extreme weather, labor disputes, strike, lock-out, riot, government
interference (including regulation, appropriation or rationing), unusual delay
in governmental permitting, unusual delay in deliveries or unavailability of
materials, unavoidable casualties, Act of God, or other causes beyond the
obligor’s reasonable control.
c. Building
Standard Improvements.
The term
“Building Standard Improvements” shall mean the descriptive narrative of
building standards described in Section 2 of the Work Letter.
d. Limitation
on Damages.
Notwithstanding any other provisions in this Lease, neither party shall be
liable to the other for any special, consequential, incidental or punitive
damages.
e. Satisfaction
of Judgments Against Landlord.
If
Landlord, or its employees, officers, directors, stockholders or partners are
ordered to pay Tenant a money judgment because of Landlord's default under
this
Lease, said money judgment may only be enforced against and satisfied out of:
(i) Landlord's interest in the Building in which the Premises are located
including the rental income and proceeds from sale; (ii) prepaid estimated
Additional Rent; and (iii) any insurance or condemnation proceeds received
because of damage or condemnation to, or of, said Building that are available
for use by Landlord. No other assets of Landlord or said other parties
exculpated by the preceding sentence shall be liable for, or subject to, any
such money judgment.
f. Interest.
Should
either party fail to pay any amount due to the other within 30 days of the
date
such amount is due (whether Base Rent, Additional Rent, or any other payment
obligation), then the amount due shall begin accruing interest at the rate
of
18% per annum, compounded monthly, or the highest permissible rate under
applicable usury law, whichever is less, until paid.
g. Legal
Costs.
Should
one party to this Lease prevail in any legal proceedings against the other
for
breach of any provision in this Lease, then the non-prevailing party shall
be
liable for the costs and expenses of the prevailing party, including its
reasonable attorneys' fees (at all tribunal levels).
h. Sale
of Premises or Building.
Landlord
may sell the Premises or the Building without affecting the obligations of
Tenant hereunder; upon the sale of the Premises or the Building, Landlord shall
be relieved of all responsibility for the Premises and shall be released from
any liability thereafter accruing under this Lease, provided the entity
succeeding to Landlord's interest with respect thereto shall assume all
obligations of Landlord under this Lease accruing after such transfer.
i. Time
of the Essence.
Time is
of the essence in the performance of all obligations under the terms of this
Lease.
xviii
j. Tender
of Premises.
The
delivery of a key or other such tender of possession of the Premises to Landlord
or to an employee of Landlord shall not operate as a termination of this Lease
or a surrender of the Premises unless requested in writing by
Landlord.
k. Financial
Statements. If
Tenant’s financial statements cease to be publicly available, then upon request
of Landlord, Tenant agrees to furnish to Landlord copies of Tenant’s most recent
annual and quarterly financial statements, audited if available. The financial
statements shall be prepared in accordance with generally accepted accounting
principles, consistently applied. The financial statements shall include a
balance sheet and a statement of profit and loss, and the annual financial
statement shall also include a statement of changes in financial position and
appropriate explanatory notes. Landlord may deliver the financial statements
to
any prospective or existing mortgagee or purchaser of the Building.
l. Recordation.
This
Lease may not be recorded without Landlord's prior written consent, but Tenant
and Landlord agree, upon the request of the other party, to execute a memorandum
hereof for recording purposes.
m. Partial
Invalidity.
The
invalidity of any portion of this Lease shall not invalidate the remaining
portions of the Lease.
n. Binding
Effect.
This
Lease shall be binding upon the respective parties hereto, and upon their heirs,
executors, successors and assigns.
o. Entire
Agreement.
This
Lease supersedes and cancels all prior negotiations between the parties, and
no
changes shall be effective unless in writing signed by both parties. Tenant
acknowledges and agrees that it has not relied upon any statements,
representations, agreements or warranties except those expressed in this Lease,
and that this Lease contains the entire agreement of the parties hereto with
respect to the subject matter hereof.
p. Good
Standing.
If
requested by Landlord, Tenant shall furnish appropriate legal documentation
evidencing the valid existence in good standing of Tenant, and the authority
of
any person signing this Lease to act for the Tenant. If Tenant signs as a
corporation, each of the persons executing this Lease on behalf of Tenant does
hereby covenant and warrant that Tenant is a duly authorized and existing
corporation, that Tenant has and is qualified to do business in the State in
which the Premises are located, that the corporation has a full right and
authority to enter into this Lease and that each of the persons signing on
behalf of the corporation is authorized to do so. Landlord hereby represents
to
Tenant that Landlord has full right and authority to enter into this Lease
and
that each of the persons signing this Lease on Landlord's behalf is authorized
to do so.
q. Terminology.
The
singular shall include the plural, and the masculine, feminine or neuter
includes the other.
r. Headings.
Headings
of sections are for convenience only and shall not be considered in construing
the meaning of the contents of such section.
s. Choice
of Law.
This
Lease shall be interpreted and enforced in accordance with the laws of the
State
in which the Premises are located.
t. Effective
Date.
The
submission of this Lease to Tenant for review does not constitute a reservation
of or option for the Premises, and this Lease shall become effective as a
contract only upon the execution and delivery by both Landlord and Tenant.
The
date of execution shall be entered on the top of the first page of this Lease
by
Landlord, and shall be the date on which the last party signed the Lease, or
as
otherwise may be specifically agreed by both parties. Such date, once inserted,
shall be established as the final day of ratification by all parties to this
Lease, and shall be the date for use throughout this Lease as the "Effective
Date".
u. Interlineation.
Whenever in this Lease any printed portion has been stricken, whether or not
any
related provision has been added, Landlord and Tenant specifically agree that
this Lease shall be construed as if the provisions or material so stricken
were
never included herein, and that no inference shall be drawn from the
provisions or material so stricken that would be inconsistent in any way with
the construction or interpretation of this Lease which would be appropriate
if
such provisions or material had never been contained herein.
Landlord and Tenant further agree that no inference shall be drawn from any
provisions or material added that would be inconsistent in any way with the
construction or interpretation of this Lease that would be appropriate if
such provisions or material had been included in the original version of
the Lease.
xix
v. Patriot
Act Representation. Landlord
and Tenant represent and warrant to each other that it is not acting, directly
or indirectly, for or on behalf of any person, group, entity or nation named
by
the United States Treasury Department as a Specially Designated National and
Blocked Person, or for or on behalf of any person, group, entity or nation
designated in Presidential Executive Order 13224 as a person who commits,
threatens to commit, or supports terrorism; and that it is not engaged in this
transaction directly or indirectly on behalf of, or facilitating this
transaction directly or indirectly on behalf of, any such person, group, entity
or nation.
w. Landlord’s
Default. If
Landlord defaults in the performance of any of its obligations under this Lease,
which default results in a condition which materially interferes with Tenant’s
conduct of its business, and such default is not attributable to (i) adherence
to Laws; (ii) the negligent or intentional act or neglect of Tenant or its
agents, employees, contractors, subtenants, licensees or invitees; or (iii)
Force Majeure or any other cause not within the reasonable control of Landlord,
and such default continues for a period of more than thirty (30) days after
receipt of written notice from Tenant specifying such default (except in case
of
emergency, following which such default continues for two business days after
receipt of such notice), or if such default requires more than thirty (30)
days
to cure, then if Landlord fails to commence curing such default within the
thirty (30) day period or fails to thereafter diligently continue curing such
default until completion, then Tenant, in addition to all other rights or
remedies which Tenant is entitled to under this Lease, at law or in equity,
and
provided Tenant is not in default hereunder beyond applicable notice and cure
periods, shall have the right to do or cause to be done, on behalf of and for
the account of Landlord, whatever Landlord is obligated to do under the terms
of
this Lease, and Landlord agrees to reimburse Tenant on demand for any and all
costs and expenses which Tenant may incur in thus effecting compliance with
Landlord’s obligations under this Lease, not to exceed in the aggregate the
amount of one month’s Base Rent, together with Interest through the date such
reimbursement is received by Tenant, and if Landlord fails to make such
reimbursement within ten (10) days after demand for such reimbursement, Tenant
may deduct such costs and expenses from any Rent thereafter accruing hereunder
up to the maximum set-off described herein; provided, however, if Landlord
in
good faith disputes the occurrence of the default or Tenant’s right to offset
the amount claimed, Tenant shall have the right, until such dispute is resolved,
to offset only the amount that is not in dispute. Before doing any work on,
to
or affecting the roof of the Building, Tenant agrees to give Landlord three
(3)
day’s written notice thereof (except in the event of an emergency, when a the
two-business-day notice described above shall suffice, provided such notice
notifies Landlord of Tenant’s intent to do work on, to or affecting the roof of
the Building), setting forth the time such work will be performed, and Landlord
shall have the right to be present when such work is performed.
x. Cable
Television Access Facilities. Landlord
will cooperate to provide cable television access facilities to the Building
in
accordance with it license agreement with Time Warner. Tenant shall coordinate
with the service provider bringing service to the Premises, which shall be
at
Tenant’s expense. Landlord will permit Tenant the ability to install a rooftop
satellite antenna from which Tenant will have the ability to access television
signals. All such access to and use of the roof of the Building will be
conducted pursuant to the Rooftop License Agreement attached hereto as
Exhibit
D.
30. SPECIAL
CONDITIONS.
The
following special conditions, if any, shall apply, and where in conflict with
earlier provisions in this Lease shall control:
None.
31. ADDENDA
AND EXHIBITS. If
any
addenda are noted below, such addenda are incorporated herein and made a part
of
this Lease.
| a. |
Lease
Addendum Number One - “Work Letter”
|
| b. |
Lease
Addendum Number One - A - “Building Standard
Improvements”
|
| c. |
Lease
Addendum Number One - B -- “Approved Space
Plan”
|
| d. |
Lease
Addendum Number One - C - “Mini-Blind
Layout”
|
| e. |
Lease Addendum Number Two - “Additional Rent -
Operating Expense Pass
Throughs”
|
| f. |
Lease Addendum Number Two -A- “Annual Statement
Form”
|
| g. |
Lease
Addendum Number Three - “Option to Renew Lease
Term”
|
| h. |
Lease
Addendum Number Four - “Intentionally
Omitted”
|
| i. |
Lease
Addendum Number Five - “Tenant Parking
Agreement”
|
| j. |
Lease
Addendum Number Five -A-- "Location of Reserved Parking, LakePointe
Two
Garage”
|
| k. |
Lease
Addendum Number Five - B - “Parking Reserved for Other Tenants, LakePointe
Two Garage”
|
| l. |
Lease
Addendum Number Six -
“Radon”
|
xx
| m. |
Lease
Addendum Number Seven - “Right of First
Offer”
|
| n. |
Lease
Addendum Number Seven - A - “First Floor: Right of First Offer
Space”
|
| o. |
Lease
Addendum Number Seven - B - “Third Floor: Right of First Offer
Space”
|
| p. |
Lease
Addendum Number Eight—"Cleaning
Specifications"
|
| q. |
Exhibit
A - Premises
|
| r. |
Exhibit
B - Rules and Regulations
|
| s. |
Exhibit
C - Commencement Agreement
|
| t. |
Exhibit
D - Rooftop License Agreement
|
| u. |
Exhibit
E - Monument Signage
|
| v. |
Exhibit
F - Subordination, Non-Disturbance and Attornment
Agreement
|
IN
WITNESS WHEREOF, Landlord and Tenant have executed this lease in three
originals, all as of the day and year first above written.
| LANDLORD: | |||
| WITNESSES: | HIGHWOODS/FLORIDA HOLDINGS, L.P. | ||
| a Delaware limited partnership | |||
| /s/ Alice Grimm | By: |
Highwoods/Florida GP Corp.,
its general partner
|
|
|
Alice
Grimm
|
By: | /s/ Stephen A. Meyers | |
|
Print Name
|
Stephen A. Meyers | ||
| Title: | Vice President - Tampa | ||
| /s/ Sue E. Wallace | Date: | 7-1-04 | |
| Sue E. Wallace | |||
| Print Name | |||
| TENANT: | |||
| BROWN & BROWN, INC. | |||
| WITNESSES: | |||
| By: | /s/ C. Roy Bridges | ||
| /s/ Laurel L. Grammig | C. Roy Bridges | ||
| Title: | Regional Executive Vice President | ||
| Laurel L. Grammig | |||
| Print Name | Date: | 6-25-04 | |
| /s/ Pam Duval | |||
| Pam Duval | |||
| Print Name | |||
xxi
LEASE
ADDENDUM NUMBER ONE [ALLOWANCE]
WORK
LETTER.
This
Lease Addendum Number One (the “First Addendum”) sets forth the rights and
obligations of Landlord and Tenant with respect to space planning, engineering,
final workshop drawings, and the construction and installation of any
improvements to the Premises to be completed before the Commencement Date
("Tenant Improvements"). This First Addendum contemplates that the performance
of this work will proceed in four stages in accordance with the following
schedule: (i) preparation of a space plan; (ii) final design and engineering
and
preparation of final plans and working drawings; (iii) preparation by the
Contractor (as hereinafter defined) of an estimate of the additional cost of
the
initial Tenant Improvements; (iv) submission and approval of plans by
appropriate governmental authorities and construction and installation of the
Tenant Improvements by the Delivery Date.
In
consideration of the mutual covenants hereinafter contained, Landlord and Tenant
do mutually agree to the following:
1. Allowance.
Landlord
agrees to provide an allowance of $22.00
per
rentable square foot, to design, engineer, install, supply and otherwise to
construct the Tenant Improvements in the Premises that will become a part of
the
Building (the "Allowance"). Tenant is fully responsible for the payment of
all
costs in connection with the Tenant Improvements in excess of the Allowance.
This Allowance is available to Tenant for Tenant’s use only within one (1) year
after the Commencement Date (the “Allowance Use Date”). Any portion of the
Allowance not used by Tenant by the Allowance Use Date shall automatically
terminate and be of no further use to Tenant. Notwithstanding the first sentence
of this paragraph, Tenant may utilize up to $5.00 per rentable square foot
of
the Allowance towards costs associated with moving (the "Moving Cost"), and
Landlord shall pay the invoices of Tenant's movers (but not in excess of $5.00
per rentable square foot) within thirty (30) days after receipt of such invoices
together with Tenant's written instruction to pay the amount set forth in such
invoices. At Tenant’s request, any portion of the Allowance which Tenant is
entitled to require Landlord to pay toward the Moving Costs but which Tenant
has
not required Landlord to pay shall be credited toward Tenant’s next payment(s)
of monthly Base Rent.
2. Space
Planning, Design and Working Drawings.
Tenant’s
architect, Urban Studios (or other architect or engineer selected by Tenant)
(the “Architect”), will do the following at Tenant’s expense (which expense may
be deducted from the Allowance):
a. Prepare
space plans and designs, engineering and construction plans for the Tenant
Improvements to the Premises. Landlord has furnished Tenant and Architect base
building drawings and documents recently created by Dimensions Plus. A
descriptive narrative of building standard materials ("Building Standard
Improvements") is attached hereto as Lease Addendum Number One-A.
b. Attend
a
reasonable number of meetings with Tenant to define Tenant’s
requirements.
c. Complete
construction drawings for Tenant's partition layout, reflected ceiling grid,
telephone and electrical outlets, keying, and finish schedule.
d. Complete
mechanical plans where necessary (for installation of air conditioning system
and duct work, and heating and electrical facilities) for the work to be done
in
the Premises.
e. All
plans
and working drawings for the construction and completion of the Premises (the
“Plans”) shall be subject to Landlord's prior written approval not to be
unreasonably withheld, delayed or conditioned. Landlord shall, within ten (10)
days after receipt thereof from Tenant, either: (i) approve the Plans without
modification but subject to the Long Lead Conditions set forth below, or (ii)
approve the Plans subject to modification to address Landlord’s reasonable and
detailed comments and objections thereto (which will include recommended
modifications to resolve such objections), and subject further to the Long
Lead
Conditions, and Tenant will provide Landlord with any additional information
requested as soon as practicable. Thereafter Landlord and Tenant will work
diligently to reach agreement on changes to be made to the Plans. If Landlord
fails to respond within such ten (10) day period set forth above, Landlord
shall
be deemed to have approved the submitted Plans, subject to the Long Lead
Conditions.
If
the
Contractor bid selection process reveals that the Plans contain design elements
or require materials that would delay Landlord’s delivery of the Premises to
Tenant by up to thirty (30) days after the scheduled Delivery Date, Landlord
may
by written notice to Tenant included in Landlord's submittal of the bids to
xxii
Tenant,
condition its approval of the Plans (the "Long Lead Conditions") on Tenant’s
accepting responsibility for delay (specifically identifying such design
elements or materials and the number of days of anticipated delay), and Landlord
may condition its approval of the Plans on Tenant accepting responsibility
for
any additional costs if the estimated cost for any improvements under the Plans
is more than the Allowance (specifically identifying the additional estimated
cost for such improvements). If the Contractor bid selection process reveals
that the Plans contain design elements or require materials that would delay
Landlord’s delivery of the Premises to Tenant by more than thirty (30) days
after the scheduled Delivery Date, Landlord and Tenant shall fully cooperate
in
substituting reasonably equivalent design elements or materials to permit
Landlord to deliver the Premises by the Delivery Date. Tenant will be
responsible for any additional costs associated with such substitutions.
f. The
Plans
shall be prepared in conformity with all Laws, including, without limitation,
the ADA.
g. Any
changes or modifications Tenant desires to make to the Plans which require
resubmittal to the permitting agency or which involve a change in use or
function of any portion of the Initial Premises shall also be subject to
Landlord's prior approval as set forth in subsection d. above.
h. Notwithstanding
anything to the contrary set forth herein, Landlord shall have the right to
approve or disapprove any improvements that will be visible to the exterior
of
the Premises, or which may affect the structural, mechanical, electrical or
plumbing systems of the Building, which approval will not be unreasonably
withheld, conditioned or delayed.
3. Tenant
Plan Delivery Date.
a. As
of the
date of this Lease, Tenant and Landlord have not approved a final space plan
but
agree that the final plan will be similar to the conceptual space plan attached
hereto as Lease Addendum Number One-B.
b. Tenant
covenants and agrees to work with Architect so that final Plans for the Tenant
Improvements meeting all requirements of the City of Tampa (but which shall
not
require Tenant’s finish schedule unless required by the City of Tampa) are
delivered to Landlord not later than November 1, 2004 (the "Tenant Plan Delivery
Date"), and Tenant’s finish schedule shall be delivered to Landlord within sixty
(60 ) days thereafter. Time is of the essence in the delivery of the final
Plans. Tenant agrees to obtain from Architect and provide to Landlord
preliminary Plans when the Plans are approximately 65% complete. Tenant
acknowledges that it is vital the final Plans be delivered to Landlord by the
Tenant Plan Delivery Date in order to allow Landlord sufficient time to review
such Plans, to discuss with Tenant any changes therein which Landlord believes
to be necessary or desirable, to enable the Contractor to prepare an estimate
of
the cost of the Tenant Improvements, to obtain required permits, and to
substantially complete the Tenant Improvements within the time frame provided
in
the Lease.
4. TI
Work and Materials at Tenant's Expense.
On
Tenant’s behalf, Landlord shall select a licensed general contractor or
contractors (the “Contractor”) to construct and install the Tenant Improvements
in accordance with the Plans (the “TI Work”) at Tenant’s expense (which expense
may be deducted from the Allowance). Landlord shall competitively bid
construction of the TI Work to a minimum of three (3) qualified general
contractors, and shall select the qualified low bidder. Tenant shall have the
right to recommend qualified general contractors to participate in the bidding
process and the right to review all bids, such review not to exceed five (5)
business days from Landlord’s submission to Tenant. Landlord will inform Tenant
of the identity of the Contractors on Landlord’s bid list. Landlord shall
coordinate and facilitate all communications between Tenant and the
Contractor.
a. Prior
to
entering into a contract with the successful bidder or commencing the TI Work,
Landlord shall submit to Tenant the bid of the successful contractor that shall
include the Contractor’s cost for completing the TI Work (including the
Contractor's general conditions, overhead and profit), the Contractor’s defined
general conditions and mechanism for determining fee mark-ups for change orders,
and any changes to the scheduled completion date from that contemplated by
Landlord and Tenant. Tenant shall have five (5) business days to review and
approve the cost of the TI Work. Landlord shall not authorize the Contractor
to
proceed with the TI Work until the cost is mutually agreed upon and approved
in
writing and delivered to Landlord. Thereafter, Landlord will enter into a
guaranteed maximum price construction contract with the successful bidder (the
"Construction Contract"). Tenant shall not be responsible (either through
application of the Allowance or otherwise) for costs in excess of the amount
so
approved unless Tenant authorizes a Change under subsection 4.b., below or
the
excess costs result from Tenant’s design errors.
xxiii
b. At
any
time after Landlord's final approval of the Plans, Tenant may authorize changes
or modifications to the Plans, which authorization must be in writing, signed
by
Tenant (“Changes” or “Change Order”). Within
five (5) business days after the Tenant notifies the Landlord of the requested
Change Order, Landlord shall deliver to Tenant an analysis of the additional
cost or savings involved, and the impact on the Tenant Improvement schedule,
if
any. Calculation of the additional cost or savings shall be based upon the
terms
of the approved Construction Contract. If Tenant fails to approve in writing
the
Landlord’s submission within two (2) business days following receipt thereof,
the same shall be deemed disapproved by Tenant and Landlord shall not make
the
Change. If Landlord fails to timely provide a statement of the delay with the
estimated cost or savings to make the change associated with any requested
Change, or if the delay as anticipated in Landlord's notice fails to occur,
Landlord will not be permitted to claim any such delay. Tenant agrees to process
Change Orders in a timely fashion. Tenant acknowledges that the following items
may also result in Change Orders:
i. Municipal
or other governmental inspectors require changes to the Tenant Improvements.
In
such event, Landlord will notify the Tenant of the required changes, and the
cost of such changes and the responsibility for any delay resulting therefrom
shall be the responsibility of the (A) Tenant, if the required changes result
from Tenant’s design, or (B) Landlord, if the required changes result from the
construction of the Tenant Improvements.
ii. Materials
which Landlord identified in writing to Tenant as long-lead items at the time
of
Contractor bid selection are not readily available, require quick ship charges,
or require substitution.
iii. Due
to a
delay caused by Tenant, the upfit schedule requires expedited review to get
permits, which will increase the costs of the permitting process.
c. Landlord
shall ensure that all TI Work and Landlord Work shall be performed in a good
and
workmanlike manner and in accordance with all applicable Laws and regulations
and with the final approved Plans. Landlord will supervise and coordinate all
construction. All Tenant Improvements shall be deemed the property of Landlord
upon construction or installation.
5. Signage
and Keys.
Landlord
shall provide the following in accordance with building standards at Tenant’s
Expense (which expense may be deducted from the Allowance): (i) door and
directory signage; (ii) suite and Building keys or entry cards.
6. Commencement
Date.
a. The
Commencement Date shall be the earlier of (i) the date on or after May 15,
2005,
which is thirty (30) days after the Delivery Date, and (ii) the date Tenant
begins fully staffed operation of business in all portions of the Premises.
Landlord will proceed diligently and make commercially reasonable efforts to
achieve a Delivery Date of not later than April 1, 2005. The Delivery Date
shall
be the date when both the TI Work and Landlord’s Work have been substantially
completed in accordance with this Work Letter (excluding items of work and
adjustment of equipment and fixtures that can be completed after the Premises
are occupied without causing material interference with Tenant's use of the
Premises -- i.e., "punch list items"). As used herein, “substantially completed”
shall mean the earlier of: (i) the date Landlord has the Premises ready for
occupancy by Tenant as evidenced by (a) a permanent or temporary Certificate
of
Occupancy, and (b) a certificate of substantial completion as to the TI Work
and
Landlord’s Work as issued by the Ludwig Group, Inc., with the fee for issuance
of such certificate being shared equally by Landlord and Tenant, or (ii) the
date Landlord could have substantially completed the TI Work and Landlord's
Work
had there been no Excused Delays. Landlord will permit Tenant access to the
Building and Premises on and after April 1, 2005 (regardless of whether Delivery
Date has occurred) for the purpose of installing cabling and other fixtures
and
equipment. Landlord will deliver to Tenant possession of the Premises on the
Delivery Date for Tenant’s set-up, installation of furniture and equipment,
move-in, and start-up of business operations. Such early occupancy and use
of
the Premises by Tenant will be done in coordination with Landlord and Contractor
and will be carried out with the minimum of interruption and disruption of
Contractor’s construction, and will be subject to the reasonable requirements of
Landlord and Contractor. If Landlord fails to achieve Delivery Date by April
15,
2005 other than as a result of force
majeure
or
Excused Delay, the Commencement Date will be delayed one day for each such
day
or delay, and beginning on the Commencement Date, Landlord will reimburse Tenant
the amount of Tenant’s holdover premium charged by Tenant’s existing landlord
under its existing lease, in an amount of up to $51,395.78 per month, plus
sales
tax (except that if Tenant's existing landlord has notified Tenant that it
is
negotiating with a prospective lessee of Tenant's premises under the existing
lease, the holdover premium for which Landlord shall reimburse Tenant may be
up
to $103,505.56 per month, as more specifically provided in Section 18 of
Tenant's existing lease).
xxiv
b. Notwithstanding
the foregoing, if Landlord shall be delayed in delivering possession of the
Premises as a result of:
i. Tenant’s
failure to approve the space plan within the time specified;
ii.
Tenant's
failure to furnish to Landlord the final Plans on or before the Tenant Plan
Delivery Date;
iii. Tenant's
failure to approve Landlord's cost estimates within the time
specified;
iv. Tenant’s
failure to timely respond to change orders;
v. Tenant's
changes in the Tenant Improvements or the Plans (notwithstanding Landlord's
approval of any such changes);
vi. Tenant's
request for changes in or modifications to the Plans subsequent to the Tenant
Plan Delivery Date;
vii. Inability
to obtain materials, finishes or installations requested by Tenant that are
not
part of the Building Standard Improvements and which were identified as long
lead items by Landlord as part of its comments to the Contractor bid selection
process;
viii. The
performance of any work by any person, firm or corporation employed or retained
by Tenant; or
ix. Any
other
act or omission by Tenant or its agents, representatives, and/or employees
(the
items in subsections 6(b)(i-ix) shall sometimes be referred to herein
collectively as the “Excused Delays”);
then,
in
any such event, for purposes of determining the Delivery Date, the Premises
shall be deemed to have been delivered to Tenant on the date that Landlord
and
the Ludwig Group, Inc., determine that the TI Work and Landlord Work would
have
been substantially completed and ready for delivery if such Excused Delays
had
not occurred. Any Excused Delay must be claimed by Landlord by reasonable
written notice to Tenant within five (5) business days after it became aware
(or
in the exercise of reasonable diligence should have been aware) of the event
claimed to be such a delay.
7. Tenant
Improvement Expenses in Excess of the Allowance.
Tenant
agrees to pay to Landlord, promptly upon being billed therefor, all costs and
expenses in excess of the Allowance incurred in connection with the TI Work.
Tenant will be billed for such costs and expenses as follows: (i) fifty
percent (50%)
of such
costs and expenses shall be due and payable upon Tenant's approval of the cost
estimates for the Tenant Improvements; and (ii) fifty
percent (50%)
of such
costs and expenses shall be due and payable when such work is substantially
completed and the Premises are ready for delivery to Tenant. Within one sixty
(60) days after the Commencement Date, Landlord shall deliver to Tenant a final
reconciliation of costs and expenses paid in connection with the TI
Work.
8. Landlord
Work.
Landlord shall complete the following work (“Landlord’s Work”) in compliance
with Laws, and at its sole cost and expense, within time periods necessary
to
coordinate with and not delay construction of the TI Work (with all such
Landlord Work completed by the Delivery Date):
a. Retrofit
of VAV boxes with new Alerton system (digital control system for
HVAC).
b. Refurbished
restrooms on the fourth (4th)
floor.
Such restrooms shall have adequate ventilation and exhaust and the urinals
and
toilets shall be refurbished and in proper working order and shall be similar
to
what has been completed on the first floor. Landlord will have construction
drawings for such restrooms completed and submitted for permit approval not
later than September 1, 2004.
xxv
c. Landlord
shall install a supplemental HVAC unit, the specifications of which shall be
reasonably agreeable to Landlord and Tenant, on the rooftop, which unit will
be
separately metered. Any costs associated with installing and metering
supplemental HVAC for Tenant’s equipment rooms shall be funded by the Allowance.
d. Sprinkler
system in Premises with main loop installed and ready for final
drops.
e. Fully
operable fire protection and life safety systems supporting the Premises and
Common Areas, into which Tenant may connect its smoke detectors, strobes,
speaker system, panels, and like items within the Premises at no additional
cost, charge or expense, but the cost of connection those items to the life
safety systems and the cost of those items themselves will be part of the
Allowance. Any upgrades to the Base Building systems necessary to accommodate
such items and meet current code will be conducted at Landlord’s expense.
f. Base
Building window treatments, specifically, mini-blinds, on all office and
conference room windows (including atrium windows). The mini-blinds shown on
Lease Addendum Number One - C will be replaced, and all others will be in good
condition and appearance and in good working order.
g. Landlord
shall demolish and remove existing improvements from the plenum of the Premises
in accordance with Tenant's mechanical engineering plan (including without
limitation, demolition and removal of the PA system, as well as non-building
standard electrical equipment, HVAC ductwork, VAV boxes and related equipment,
and cabling). Landlord shall also demolish and remove from the Premises the
data
racks, the UPS equipment and the raised flooring.
h. Landlord
will ensure that the Building envelope is watertight, and will repair all water
damage to windows and drywall to effect such assurance.
i. A
fully
installed and operational heating, ventilating and air conditioning (HVAC)
system which shall incorporate interior variable air volume (VAV) distribution
and fan powered variable air volume (FPVAV) exterior distribution.
j. Landlord
shall provide electrical power at points of supply identified in the Plans
at no
less than 2.55 watts per square foot of rentable area on 120/208 volt,
three-phase/four-wire circuits, and no less than 2.55 watts per square foot
of
rentable area on 277/480 volt, three-phase/four-wire circuits. Landlord
represents that the 277/488 volt, three-phase main power available to the
Building is 8 watts per foot of rentable area. This total wattage includes,
but
is not limited to, applying power for the Building, i.e. mechanical, elevators,
lighting systems and low voltage power electrical outlets.
k. One
(1)
2” domestic water line to Building and Premises at 60 PSI.
Landlord
shall supply utilities and use of freight elevators during Tenant’s construction
and move-in period at no additional charge. Landlord will provide Tenant and
Tenant’s contractors or vendors access to chasers, risers and ceiling areas for
installation of wiring, plumbing and equipment.
9. Repairs
and Corrections.
Landlord
shall provide Tenant a one-year warranty from the date of delivery of the
Premises for defective workmanship and materials. All manufacturers’ and
builders’ warranties with respect to the Work shall be issued to or transferred
without recourse to both Landlord and Tenant. Tenant shall repair or correct
any
defective work or materials installed by Tenant or any contractor other than
the
Contractor selected by Landlord, or any work or materials that prove defective
as a result of any act or omission of Tenant or any of its employees, agents,
invitees, licensees, subtenants, customers, clients, or guests.
10. Inspection
of Premises; Possession by Tenant.
Prior to
taking possession of the Premises, Tenant and Landlord shall inspect the
Premises and Tenant shall give Landlord notice of any defects or incomplete
work
(“Punchlist”). Tenant’s possession of the Premises constitutes acknowledgment by
Tenant that the Premises are in good condition and that all work and materials
provided by Landlord are satisfactory as of such date of occupancy, except
as to
(i) any defects or incomplete work set forth in the Punchlist, (ii) latent
defects, and (iii) any equipment that is used seasonally if Tenant takes
possession of the Premises during a season when such equipment is not in
use.
xxvi
11. Access
During Construction.
During
construction of the Tenant Improvements and with prior approval of Landlord,
Tenant shall be permitted reasonable access to the Premises for the purposes
of
taking measurements, making plans, installing trade fixtures, and doing such
other work as may be appropriate or desirable to enable Tenant to assume
possession of and operate in the Premises; provided, however, that such access
does not interfere with or delay construction work on the Premises and does
not
include moving furniture or similar items into the Premises. Prior to any such
entry, Tenant shall comply with all insurance provisions of the Lease. All
waiver and indemnity provisions of the Lease shall apply upon Tenant’s entry of
the Premises.
xxvii
LEASE
ADDENDUM NUMBER ONE - A
[BUILDING
STANDARD IMPROVEMENTS]
SPECTRUM
BUILDING STANDARD MATERIALS AND FINISHES
Building
Standard Materials:
The
following items or equivalents, are Building Standard Materials that are
required for all tenant improvement projects.
| A. |
WALLS:
|
Note:
All
finished gyp. board shall be painted with two (2) coats latex flat finish
(unless otherwise noted).
| 1. |
Tenant
demising wall (1 Hr. rated):
|
3-5/8”
metal stud walls with 3-½” insulation, 5/8” type “x” g.w.b. each side. Studs
spaced @ 16” on center. (1hr. wall extend to roof deck).
| 2. |
Interior
Walls:
|
3-5/8”
metal studs with 5/8” gyp. board on each side. Studs spaced @ 24” on center.
Walls are to be flush with ceiling grid, except in areas requiring sound
attenuation (e.g. restrooms).
| B. |
DOORS:
|
| 1. |
Interior:
|
3’-0”
x
8’-0” solid core cherry hardwood doors, stain grade finish.
| 2. |
Frame:
|
16-gauge
hollow metal knock down.
| 3. |
Hardware:
|
All
doors
to have passage latchsets unless otherwise noted. All doors over 7’-0” in height
shall have four (4) hinges (minimum). (Schlage or equal lever hardware - brushed
stainless finish, as approved by Landlord).
| C. |
CEILINGS:
|
| 1. |
Tiles
and Grid:
|
2’
x
2’
suspended lay-in scored acoustical white ceiling tile and grid.
| D. |
ELECTRICAL:
|
xxviii
| 1. |
Office
Lighting:
|
2’
x
4’
parabolic fluorescent light fixtures with electronic ballasts. (Approximately
one (1) fixture per 100 square feet of ceiling area).
| 2. |
Office
Outlets:
|
All
electrical wiring in accordance with all national and local electrical codes
(all wiring shall be copper). Approximately three (3) 110-volt duplex
convenience outlets per office.
Open
office areas to have outlets spaced approximately @ 12’-0” o.c.
| E. |
TELEPHONE
|
Outlet
box and ¾” conduit stubbed 6” above ceiling provided at a ratio of 5 per 1000
s.f.
| F. |
HEATING
AND AIR
CONDITIONING
|
| 1. |
HVAC
|
Building
standard heating ventilating and air conditioning system, is a variable volume
system with duct and diffuser distribution and zoned thermostatic controls.
Designed to provide comfortable interior conditions compatible with normal
standard of comfort for one person per 150 square feet of usable area. The
building perimeter shall have linear diffusers, interior space shall have grid
diffusers. Maximum size of each zone will be 1,500 square feet.
| 2. |
Diffusers:
|
2
x 2
perforated face diffusers. Color to match ceiling grid. (Metalaire 72000 series
or equal).
Thermostats/VAV
Boxes:
VAV/PIU
installed with medium pressure duct.
Thermostats
per tenant improvement plans. Additional thermostats and VAV boxes required
by
tenant plans in excess of base building design to be included as a tenant
improvement cost.
| G. |
FLOOR
COVERING:
|
| 1. |
Carpet:
|
Mohawk
nylon cut pile, 30 oz., or nylon loop, 26 oz., both glue down, color to be
selected by Tenant, or equivalent.
| 2. |
Base:
|
2
½
“
rubber cove base, color to be selected by Tenant.
| 3. |
Vinyl
Tile:
|
1/8
inch
vinyl composition tile, color to be selected by Tenant.
xxix
| H. |
LIFE
SAFETY:
|
| 1. |
Sprinkler:
|
Base
building sprinklers to be adjusted by tenant improvement contractor to meet
Tenant Improvement requirements. Additional heads required as a result of tenant
space plan are a Tenant Improvement cost.
| 2. |
Annunciaters
(audible and visual):
|
Per
code.
xxx
LEASE
ADDENDUM NUMBER ONE - B
APPROVED
SPACE PLAN
xxxi
LEASE
ADDENDUM ONE - C
MINI-BLIND
LAYOUT
xxxii
LEASE
ADDENDUM NUMBER TWO [BASE YEAR calendar year]
ADDITIONAL
RENT - OPERATING EXPENSE PASS THROUGHS.
For the
calendar year commencing on January
1, 2006 and
for
each calendar year thereafter, Tenant shall pay to Landlord, as Additional
Rent,
Tenant's Proportionate Share of any increase in Operating Expenses (as
hereinafter defined) incurred by Landlord's operation or maintenance of the
Building above the Operating Expenses Landlord incurred during the Base Year
(as
hereinafter defined).
For
purposes of calculating Tenant's Proportionate Share of real and personal
property taxes, Landlord shall use the Base Year or the year in which the
Building and improvements are completed and are fully assessed, whichever shall
be later. Except as provided below in connection with costs associated with
parking areas, Tenant's Proportionate Share shall be calculated by dividing
the
rentable square feet of the Premises (approximately 40,505) by the rentable
square feet of the Building (approximately 146,994), which equals 27.56%.
If
during any calendar year (including the Base Year) the occupancy of the rentable
area of the Building is less than 95% full, then Operating Expenses (as
hereinafter defined) will be adjusted for such calendar year to a rate of 95%
occupancy. Tenant's Proportionate Share of costs pertaining to parking areas
shall mean a fraction, the numerator of which is the number of parking spaces
which Tenant is permitted to use in the Lakepointe II and Pavilion garages,
and
the denominator of which is the greater of the number of parking spaces in
the
Lakepointe II and Pavilion garages or the number of parking space use rights
granted in such garages.
For
the
calendar year commencing on January
1, 2006 and
for
each calendar year thereafter during the Term, Landlord shall reasonably
estimate the amount the Operating Expenses shall increase for such calendar
year
above the Operating Expenses incurred during the Base Year. Landlord shall
send
to Tenant a written statement on a form substantially similar to the Annual
Statement form, showing the amount of Tenant's Proportionate Share of any
estimated increase in Operating Expenses, and Tenant shall pay to Landlord,
monthly or annually, Tenant's Proportionate Share of such increase in Operating
Expenses. Within ninety (90) days after the end of each calendar year or as
soon
as possible thereafter, Landlord shall send to Tenant a copy of the Annual
Statement on the form attached hereto as Lease
Addendum Number Two - A,
or some
other similar form adopted by Landlord, detailing the prior year's Operating
Expenses and Tenant's Proportionate Share of any increase. Pursuant to the
Annual Statement, Tenant shall pay to Landlord Additional Rent as owed or
Landlord shall adjust Tenant's next due Rent payment(s) if Landlord owes Tenant
a credit. After the Expiration Date, Landlord shall send Tenant the final Annual
Statement for the Term, and Tenant shall pay to Landlord Additional Rent as
owed
or if Landlord owes Tenant a credit, then Landlord shall pay Tenant a refund.
If
there is a decrease in Operating Expenses in any subsequent year below Operating
Expenses for the Base Year then no additional rent shall be due on account
of
Operating Expenses, but Tenant shall not be entitled to any credit, refund
or
other payment that would reduce the amount of other additional rent or Base
Rent
owed. If this Lease expires or terminates on a day other than December 31,
then
Additional Rent shall be prorated on a 365-day calendar year (or 366 if a leap
year). All payments or adjustments for Additional Rent shall be made within
thirty (30) days after the applicable Statement is sent to Tenant.
Notwithstanding
anything to the contrary contained in this Lease Addendum Number Two or the
Lease, Tenant shall not be obligated to pay Controllable Expenses in any
calendar year which exceed by more than five percent (5%) the Controllable
Expenses for the immediately preceding calendar year (including the Base Year).
"Controllable Expenses" means all Operating Expenses except taxes, assessments,
insurance and utilities. In no event will Tenant be obligated to pay estimated
Controllable Expenses in excess of such cap.
The
term
“Base Year” shall mean the twelve month period beginning on the January 1, 2005
and ending on December 31, 2005.
The
term
"Operating Expenses" shall mean all direct costs incurred by Landlord in the
provision of services to tenants and in the operation, repair and maintenance
of
the Building and Common Areas as determined by generally accepted accounting
principles, including, but not limited to ad valorem real and personal property
taxes (calculated at the greatest discount for early payment and paid over
the
greatest number of installments permitted), hazard and liability insurance
premiums, utilities, heat, air conditioning, janitorial service, labor,
materials, supplies, equipment and tools, permits, licenses, inspection fees,
management fees (not in excess of four percent (4%) of Building Base Rent),
and
common area expenses; provided, however, the term "Operating Expenses" shall
not
include depreciation on the Building or equipment therein, interest, executive
salaries, real estate brokers’ commissions, or other expenses that do not relate
to the operation of the Building. The annual statement of Operating Expenses
shall be accounted for and reported in accordance with generally accepted
accounting principles (the "Annual Statement").
The
following items shall be excluded from Operating Expenses:
xxxiii
|
(a)
|
Cost
of decorating, redecorating, or special cleaning or other services
not
provided on a regular basis to tenants of the
Building;
|
|
(b)
|
Wages,
salaries, fees, and fringe benefits paid to executive personnel above
the
level of a Property Manager;
|
|
(c)
|
Any
charge for depreciation or amortization of the Building or equipment
and
any interest or other financing charge, including interest on capital
invested, and any charge for bad debt losses, rent losses and reserves
for
such losses;
|
|
(d)
|
Any
charge for Landlord’s income taxes, excess profit taxes, franchise taxes,
or similar taxes on Landlord’s business, including personal property taxes
on Landlord's personal property;
|
|
(e)
|
All
costs relating to activities for the solicitation and execution of
leases
of space in the Building, including, without limitation, costs of
leasing
commissions, legal, space planning, and
construction;
|
|
(f)
|
All
costs and expenses of operation and maintenance of the parking areas
other
than Lakepointe II and Pavilion parking
facilities;
|
|
(g)
|
All
costs for which Tenant or any other tenant in the Building is being
charged other than pursuant to the operating expense
clauses;
|
|
(h)
|
The
cost of any electric current furnished to the Premises or any rentable
area of the Building for purposes other than the operation of building
equipment and machinery and the lighting of public toilets, stairways,
shaftways, and building machinery or fan
rooms;
|
|
(i)
|
The
cost of structural repairs to the Building, including the correction
of
defects in the construction of the Building or in the Building equipment,
including structural repairs to the roof, curtain wall, foundation,
floor
slabs, except for normal caulking and
maintenance;
|
|
(j)
|
The
cost of any repair made by Landlord because of the total or partial
destruction of the Building or the condemnation of a portion of the
Building;
|
| (k) |
Any increase in insurance premium
to the
extent that such increase is caused or attributable to the use, occupancy
or act of Landlord or another tenant, and insurance on leasehold
improvements in the premises leased or to be leased to other
tenants;
|
|
(l)
|
The
cost of any items for which landlord is reimbursed by insurance,
condemnation awards, other tenants or any other
source;
|
|
(m)
|
The
costs incurred in connection with the original construction of the
Building, or in connection with any additions, capital improvements
or
capital repairs, to the Building subsequent to the date of original
construction;
|
|
(n)
|
The
cost of any repairs, alterations, additions, changes, replacements,
and
other items which under generally accepted accounting principles
are
properly classified as capital expenditures to the extent they upgrade
or
improve the Building as opposed to replace existing items which have
worn
out;
|
|
(o)
|
Any
operating expense representing any amount paid to a related corporation,
entity, or person which is in excess of the amount which would be
paid in
excess of prevailing charges for such
services;
|
|
(p)
|
The
cost of tools and equipment used initially in the construction, operation,
repair and maintenance of the
Building;
|
|
(q)
|
The
cost of any work or service performed for or facilities furnished
to any
tenant of the Building to a greater extent or in a manner more favorable
to such tenant than that performed for or furnished to
tenant;
|
|
(r)
|
The
cost of alterations of space in the Building leased to other
tenants;
|
|
(s)
|
The
cost of overtime or other expense to landlord in curing its defaults
or
performing work expressly provided in this Lease to be borne at Landlord’s
expenses;
|
xxxiv
|
(t)
|
Capital
improvements or expenditures incurred to reduce Operating Expenses
except
that such improvements or expenditures shall be included in Operating
Expenses to the lesser of the annual amortized amount of said improvements
or expenditures (over the useful life of the improvement or item)
or the
actual savings;
|
|
(u)
|
Ground
rent or similar payments to a ground
lessor;
|
|
(v)
|
Costs
arising from the presence of mold, fungus, asbestos or other hazardous
materials or substances in or about or below the land or the Building,
including, without limitation, hazardous substances in the groundwater
or
soil, such costs to include the cost of removal, abatement, or treatment
of mold, fungus, asbestos or any other hazardous material or substance,
except to the extent caused by Tenant, Tenant shall be solely responsible
for such costs;
|
|
(w)
|
Wages,
salaries or other compensation paid to offsite employees or other
employees of Landlord who are not assigned full-time to the operation,
management, maintenance, or repair of the Building in excess of the
pro-rata amount of the value thereof attributable to such activities
relating to the Building;
|
|
(x)
|
The
cost of advertising and public relations and promotional costs associated
with the promotion or leasing of the Building and costs of signs
in or on
the Building identifying the owners of the Building or any tenant
of the
Building;
|
|
(y)
|
The
cost of utilities and other similar expenses incurred directly or
on
behalf of retail tenants in the
Building;
|
(z)
The
cost of any fines or penalties incurred due to the violation by Landlord of
any
governmental rule or authority. This is not intended to exclude costs incurred
in complying with such rule or authority if otherwise includable in Operating
Expenses.
|
(aa)
|
The
cost incurred in connection with disputes with tenants, other occupants,
or prospective tenants, or costs and expenses incurred in connection
with
negotiations or disputes with employees, consultants, management
agents,
leasing agents, purchasers or mortgagees of the
Building;
|
|
(bb)
|
The
cost of allowances, concessions, permits, licenses, inspections,
and other
costs and expenses incurred in completing, fixturing, furnishing,
renovating or otherwise improving, decorating or redecorating space
for
tenants (including tenant), prospective tenants or other occupants
or
prospective occupants of the Building, or vacant leasable space in
the
Building, or constructing or finishing demising walls and public
corridors
with respect to any such space;
|
|
(cc)
|
Costs
incurred in connection with the sale, financing, refinancing, mortgaging,
selling or change of ownership of the
Building;
|
| (dd) | Costs, fines, interest, penalties, legal fees or costs of litigation incurred due to the late payment of taxes, utility bills and other costs incurred by Landlord's failure to make such payments when due; |
|
(ee)
|
Costs
incurred by Landlord which are associated with the operation of the
business of the legal entity which constitutes Landlord as the same
is
separate and apart from the cost of the operation of the Building,
including legal entity formation and legal entity accounting (including
the incremental accounting fees relating to the operation of the
Building
to the extent incurred separately in reporting operating results
to the
Building's owners or lenders);
|
|
(ff)
|
General
overhead, general administrative expenses, accounting, recordkeeping
and
clerical support of Landlord or the management agent not relating
to the
operation of the Building;
|
|
(gg)
|
Rentals
and other related expenses incurred in leasing air conditioning systems,
elevators or other equipment ordinarily considered to be of a capital
nature, except equipment not affixed to the Building which is used
in
providing janitorial or other services;
|
|
(hh)
|
Rent
or rental-related expenses (such as expense reimbursements similar
to the
Additional Rent Tenant pays for Operating Expenses) for Landlord's
leasing
office or other employee office space not used for the purpose
of managing
the Building or for any space in the Building set aside for storage
facilities, or other facilities provided for the benefit of certain
(but
not all) tenants;
|
xxxv
| (ii) | Moving expense costs of tenants of the Building; |
|
(jj)
|
Costs
incurred for any items to the extent covered by a manufacturer's,
materialmen's, vendor or contractor's
warranty;
|
|
(kk)
|
Costs
of overtime HVAC service whether provided to the Tenant or any other
tenant of the Building;
|
| (ll) | The cost of repairs necessitated by the gross negligence of Landlord, its agents or employees, and the costs of repairs, replacements or maintenance required to cure a condition at the Building or Common Areas which violates Laws; |
|
(mm)
|
Consulting
costs and expenses paid by Landlord unless they relate exclusively
to
improving management or operation of the
Building;
|
|
(nn)
|
Vault
rental or other vault charges, except for the rental of one
lockbox;
|
|
(oo)
|
The
cost of services provided or other costs incurred in connection with
the
operation of retail or other ancillary operations owned, operated
or
subsidized by Landlord; and
|
|
(pp)
|
Any
other expense or cost which under generally accepted accounting principles
("GAAP"), would not be considered a normal maintenance or operating
expense of an office building, except for the cost of landscaping
and the
replacement of floor or wall coverings in Common Areas of the Building,
the cost of which shall be amortized on a straight-line basis over
the
reasonably estimated actual useful life of each such
item.
|
Landlord
and Tenant intend that Operating Expenses paid by Tenant under this Lease
reimburse Landlord for any actual increase in Operating Expenses incurred by
Landlord over those incurred during the Base Year but not provide a profit
to
Landlord.
Tenant,
at its expense, shall have the right, on one occasion per calendar year, at
a
reasonable time and at Landlord’s Tampa offices, to audit Landlord's books and
records relating to items affecting Operating Expenses for the Base Year and
any
subsequent calendar year or years; provided that Tenant's right to audit shall
expire within one (1) year after Landlord has furnished to Tenant the Annual
Statement for the applicable calendar year if Tenant has not notified Landlord
in writing of Tenant's election to conduct an audit. Notwithstanding the
foregoing, Tenant may defer its audit of the Base Year until its initial audit
of a subsequent calendar year.
If
Tenant
has timely exercised its option to conduct an audit, Tenant shall have a period
of ninety (90) days in which to complete the audit, which ninety (90) day period
shall commence after Landlord has afforded Tenant full access to such documents
(in a location within the Building) as are necessary to conduct the audit
including, without limitation, work papers prepared by Landlord's bookkeepers
and accountants, canceled checks, invoices, and such other documents as may
be
reasonably required. Landlord shall cooperate with Tenant as to facilitate
the
performance of Tenant's audit.
In
the
event that it is ultimately determined (by agreement of the parties, by a final
court determination, or otherwise) that the actual Operating Expenses for any
year is less than the amount set forth in Annual Statement, then Landlord shall
reimburse Tenant for such overcharge within fifteen (15) days of receipt of
notice thereof. If the overcharge is by an amount in excess of four (4) percent
(4%), Landlord shall also reimburse Tenant for the cost or fees paid by Tenant
in connection with such audit and shall also pay interest at the Maximum Rate
on
the overcharge from the date that the statement of Operating Expenses was
delivered to Tenant until the date that Landlord has reimbursed Tenant for
such
overcharge. In the event that it is ultimately determined (by agreement of
the
parties, by a final court determination, or otherwise) that the actual Operating
Expenses for any year is greater than the amount set forth in Annual Statement,
then Tenant shall pay the additional amount due with its next installment of
Rent due no earlier than fifteen (15) days after such determination. Tenant's
audit and reimbursement rights herein contained shall survive expiration or
termination of this Lease.
xxxvi
LEASE
ADDENDUM NUMBER TWO - A
ANNUAL
STATEMENT FORM
xxxvii
LEASE
ADDENDUM NUMBER THREE
OPTION
TO RENEW LEASE TERM
1. Option
to Extend.
Tenant
shall have the right and option to renew the Lease (the "Renewal Option") for
two (2) additional periods of five (5) years each (the “Renewal Lease Terms”) (a
separate notice is required for each Renewal Lease Term); provided, however,
such Renewal Option is contingent upon the following (i) Tenant is not in
default beyond applicable notice and cure periods at the time Tenant gives
Landlord notice of Tenant’s intention to exercise the Renewal Option; (ii) upon
the Expiration Date or the expiration of any Renewal Lease Term, Tenant has
no
outstanding default beyond applicable notice and cure periods; (iii) Tenant
is
not disqualified by multiple defaults as provided in the Lease; and (iv) Tenant
(or its assignee or subtenant) is occupying the Premises. Following the
expiration of the second (2nd)
Renewal
Term, Tenant shall have no further right to renew the Lease pursuant to this
section.
2. Exercise
of Option. Tenant
shall exercise each Renewal Option by giving Landlord notice no less than nine
(9) months prior to the Expiration Date or the last day of any Renewal Lease
Term. If Tenant fails to give such notice to Landlord prior to the date that
is
nine (9) months prior to the Expiration Date, then Tenant shall forfeit the
Renewal Option. If Tenant exercises the Renewal Option, then during any such
Renewal Lease Term, Landlord and Tenant’s respective rights, duties and
obligations shall be governed by the terms and conditions of the Lease. Time
is
of the essence in exercising the Renewal Option.
3. Term.
If
Tenant exercises the Renewal Option, then during any such Renewal Lease Term,
all references to the term “Term”, as used in the Lease, shall mean the “Renewal
Lease Term”.
4. Base
Rent for Renewal Lease Term.
The Base
Rent for the Renewal Lease Term shall be the Fair Market Rental Rate, determined
as follows:
Definition.
The
term "Fair
Market Rental Rate"
shall
mean the market rental rate for the pertinent Renewal Option for which such
determination is being made for office space in comparable low rise office
buildings in the Westshore office market area ("AREA") for leases of space
of
equivalent quality, size, utility, and location. Such determination shall take
into account all relevant factors, including, without limitation, the following
matters: the credit standing of Tenant; the payment of any real estate
commission; the length of the term; expense stops or base years; the fact that
Landlord will experience no vacancy period and that Tenant will not suffer
the
costs and business interruption associated with moving its offices and
negotiating a new lease; the condition of and alterations required to comparable
premises as compared to the condition of the Premises; construction allowances
and other tenant concessions that would be available to tenants comparable
to
Tenant in the AREA (such as moving expense allowance, free rent periods, and
lease assumption and take-over provisions, if any).
Determination.
Landlord shall deliver to Tenant notice of the Fair Market Rental Rate (the
"FMR
Notice") for the Premises for the Renewal Lease Term in question within thirty
(30) days after Tenant exercises the option giving rise to the need to determine
the Fair Market Rental Rate. If Tenant disagrees with Landlord's assessment
of
the Fair Market Rental Rate specified in a FMR Notice, then it shall so notify
Landlord in writing within thirty (30) days after delivery of such FMR Notice
(the “Objection Notice”), electing either to withdraw Tenant’s exercise of the
Renewal Option or to proceed to determine the Fair Market Rate in accordance
with the procedure set forth in this paragraph (“FMR Arbitration”). If Tenant
fails to give the Objection Notice within the thirty (30) days after delivery
of
the FMR Notice, then Tenant shall be deemed to have withdrawn its exercise
of
the Renewal Option. If Tenant timely gives the Objection Notice, but fails
to
elect either to withdraw its exercise of the Renewal Option or to proceed with
FMR Arbitration, Tenant shall be deemed to have withdrawn its exercise of the
Renewal Option. If in the Objection Notice Tenant elects to proceed with FMR
Arbitration, Landlord and Tenant shall meet to attempt to determine the Fair
Market Rental Rate. If Tenant and Landlord are unable to agree on such Fair
Market Rental Rate within ten (10) business days after delivery of the Objection
Notice, then Landlord and Tenant shall each appoint an independent real estate
appraiser with at least ten (10) years' commercial real estate appraisal
experience in the AREA market, each of whom shall make a determination of the
Fair Market Rental Rate
xxxviii
within
twenty (20) days after their selection hereunder. If Tenant and Landlord are
unable to agree upon and select one of the determinations made by the initial
two (2) appraisers within ten (10) business days after receipt of the two
determinations, the two appraisers shall then, within five (5) days thereafter,
select an independent third appraiser with like qualifications. If the two
appraisers are unable to agree on the third appraiser within such five (5)
day
period, either Landlord or Tenant, by giving five (5) days prior notice thereof
to the other, may apply to the then presiding judge of the Circuit Court for
Hillsborough County, Florida, for selection of a third appraiser who meets
the
qualifications stated above. Within twenty (20) days after the selection of
the
third appraiser, the third appraiser shall make a determination of the Fair
Market Rental Rate by selecting whichever of the two determinations made by
the
initial two appraisers is closer to the actual Fair Market Rental Rate in the
opinion of such third appraiser, which determination shall be binding on
Landlord and Tenant. The third appraiser shall have no discretion other than
to
select one or the other determination of the initial two appraisers as set
forth
herein.
Tenant
and Landlord shall each bear the entire cost of the appraiser selected by it
and
shall share equally the cost of the third appraiser.
Administration.
If
Tenant has exercised the Renewal Option and the Fair Market Rental Rate for
the
Renewal Lease Term has not been determined in accordance with this section
by
the time that Rent for the Renewal Lease Term is to commence in accordance
with
the terms hereof, then Tenant shall pay Rent for the Renewal Lease Term based
on
the Fair Market Rental Rate proposed by Landlord pursuant to this section until
such time as the Fair Market Rental Rate has been so determined, at which time
appropriate cash adjustments shall be made between Landlord and Tenant such
that
Tenant is charged Rent based on the Fair Market Rental Rate (as finally
determined pursuant to this section) for the Renewal Lease Term during the
interval in question.
xxxix
LEASE
ADDENDUM NUMBER FOUR
INTENTIONALLY
OMITTED
xl
LEASE
ADDENDUM NUMBER FIVE
TENANT
PARKING AGREEMENT
1. The
parties hereby acknowledge that they have heretofore entered, or are
contemporaneously herewith entering, a certain lease dated
______________,
2004
(the “Lease”) for premises known as Suite 400
(the
“Premises”) located in the property known as Spectrum
(the
“Property”). In the event of any conflict between the Lease and this Agreement,
the latter shall control.
2. Landlord
hereby grants to Tenant and persons designated by Tenant, for the Term of the
Lease, and for no additional consideration, the right to use 5 parking spaces
per 1000 rentable square feet of space in the Premises in the parking areas
designated herein, which spaces shall include Tenant’s pro-rata share of all
handicapped (0.06/1000 rentable square feet) and visitor (0.07/1000 rentable
square feet) parking in the LakePointe Two and Pavilion garages, such
allocations being subject to change as required by law. Tenant may access and
use four (4) spaces per 1,000 rentable square feet in the LakePointe Two garage.
All remaining spaces to which Tenant is entitled shall be in the Pavilion
garage. Of the spaces Tenant is permitted to use in the LakePointe Two garage,
twenty-one (21) shall be reserved for Tenant’s exclusive use. The location of
the reserved parking spaces shall be as indicated on attached Lease Addendum
Five-A. Each of Tenant’s employees shall be given stickers for their cars
identifying the garage to be used by the employee and shall use only the garage
identified. Landlord shall have the right to convert any existing parking to
secure parking at any time by installing a control device. The Term of this
agreement shall commence on the Commencement Date under the Lease and shall
continue until the earlier to occur of the Expiration Date under the Lease
or,
termination of the Lease. Tenant may, from time to time, request additional
parking spaces, and if Landlord shall provide the same, such spaces shall be
provided and used on a month-to-month basis, and otherwise on the foregoing
terms and provisions, and such monthly parking charges as Landlord shall
establish from time to time. Tenant acknowledges that Landlord has entered
into
agreements with PriceWaterhouseCoopers
and AT&T (and their respective subtentants) and certain other tenants
pursuant to which portions of the parking spaces in the LakePointe Two garage
have been reserved for the exclusive use of those tenants as depicted in Lease
Addendum Five-B. Nonetheless, Landlord
agrees to limit the number of reserved parking spaces in the
Lakepointe
Two
garage to an aggregate of one space per 1000 rentable square feet of space
leased by all tenants using the LakePointe
Two garage, with the total number of such reserved parking spaces in LakePointe
Two garage not exceeding 752 spaces (the "Reserved Parking Limit").
In the
Pavilion garage, Landlord shall, at Landlord’s option, either (i) reserve and
designate for Tenant’s exclusive use 40 parking spaces,
which
spaces shall be located in a contiguous block, shall be located on the third
or
fourth floor of the garage, and shall be near to or adjacent to the north or
south stairwell,
or (ii)
limit the number of reserved parking spaces in the Pavilion garage to one space
per 1000 rentable square feet of space leased by all tenants using the Pavilion
garage (not to exceed 430 reserved parking spaces).
3. Tenant
shall at all times comply with all applicable ordinances, rules, regulations,
codes, laws, statutes and requirements of all federal, state, county and
municipal governmental bodies or their subdivisions respecting the use of the
designated parking area. Landlord reserves the right to adopt, modify and
enforce reasonable Rules governing the use of the designated parking area from
time to time, including any key-card, sticker or other identification or
entrance system. The Rules set forth hereinafter are currently in effect.
Landlord may refuse to permit any person who violates such Rules to park in
the
designated parking area, and any violation of the Rules shall subject the car
to
removal from the designated parking area.
4. Except
as
provided in Section 2 above, the parking spaces hereunder shall be provided
on
an unreserved “first-come, first-served” basis, but Landlord shall not grant
parking rights to tenants or others reasonably anticipated to result in
availability to Tenant of less than 5 parking spaces per 1,000 rentable square
feet contained in the Premises. Tenant acknowledges that Landlord has or may
arrange for the designated parking area to be operated by an independent
contractor, not affiliated with Landlord. In such event, Tenant acknowledges
that Landlord shall have no liability for claims arising through acts or
omissions of such independent contractor, if such contractor is reputable.
Except for intentional acts or gross negligence, Landlord shall have no
liability whatsoever for any damage to property or any other items located
in
the designated parking area, nor for any personal injuries or death arising
out
of any matter relating to the designated parking area, and in all events, Tenant
agrees to look first to its insurance carrier and to require that Tenant’s
employees look first to their respective insurance carriers for payment of
any
losses sustained in connection with any use of the designated parking area.
Tenant hereby waives on behalf of its insurance carriers all rights of
subrogation against Landlord or Landlord’s agents. Landlord reserves the right
to assign specific spaces, and to reserve spaces for visitors, small cars,
handicapped persons and for other tenants, guests of tenants or other parties,
and Tenant and persons designated by Tenant hereunder shall not park in any
such
assigned or reserved spaces. Landlord also reserves the right to close all
or
any portion of the designated parking area in order to make repairs or perform
maintenance services, or to alter, modify, re-stripe or renovate the designated
parking area, or if required by casualty, strike, condemnation, act of God,
governmental law or requirement or other reason beyond Landlord’s reasonable
control. In such event, Landlord shall use commercially reasonable efforts
to
provide a substitute parking area for the period of unavailability if such
parking is available in the vicinity of the Building, located as close to the
Building as possible (which may be located in an unpaved area).
xli
5. If
Tenant
shall default under this Agreement and fails to cure such default within ten
(10) days after notice from Landlord, Landlord shall have the right to remove
from the designated parking area any vehicles hereunder which shall have been
involved or shall have been owned or driven by parties involved in causing
such
default, without liability therefor whatsoever. Tenant shall communicate to
its
employees the Rules set forth at the end of this Lease Addendum Number Five.
In
addition, if Tenant shall default under this Agreement, Landlord shall have
the
right to cancel this Agreement on ten (10) days’ written notice, unless within
such ten (10) day period, Tenant cures such default. Such cancellation right
shall be cumulative and in addition to any other rights or remedies available
to
Landlord at law or equity, or provided under the Lease (all of which rights
and
remedies under the Lease are hereby incorporated herein, as though fully set
forth). Any default by Tenant under the Lease shall be a default under this
Agreement, and any default under this Agreement shall be a default under the
Lease. Notwithstanding anything herein to the contrary, a default or other
failure to observe the rules and regulations by a user of the parking area
shall
not constitute a default by Tenant under the Lease, but rather, such user's
rights to use the parking area shall be revoked if such default or failure
continues for more than two (2) business days after notice to such
user.
RULES
|
(i
)
|
Designated
parking area hours shall be available to Tenant and its employees
24 hours
a day, year round, but there shall be no overnight parking (except
when
the driver is using the Premises or traveling on business).
|
|
(ii)
|
Cars
must be parked entirely within the stall lines painted on the floor,
and
only small cars may be parked in areas reserved for small
cars.
|
| (iii) | All directional signs and arrows must be observed. |
| (iv) | The speed limit shall be five (5) miles per hour. |
| (v) | Spaces reserved for handicapped parking must be used only by vehicles properly designated. |
|
(vi)
|
Parking
is prohibited in all areas not expressly designated for parking,
including
without limitation:
|
|
(vi)
|
Parking
is prohibited in all areas not expressly designated for parking,
including
without limitation:
|
(a) areas
not
striped for parking
(b) aisles
(c) where
“no
parking” signs are posted
(d) ramps
(e) loading
zones
|
(vii)
|
Parking
key cards or any other devices or forms of identification or entry
supplied by Landlord shall remain the property of Landlord. Such
devices
must be displayed as requested and may not be mutilated in any manner.
The
serial number of the parking identification device may not be obliterated.
Devices are not transferable and any device in the possession of
an
unauthorized holder will be void.
|
|
(viii)
|
If
applicable, monthly fees shall be payable in advance prior to the
first
day of each month. Failure to do so within five (5) days after notice
will
automatically cancel parking privileges and a charge at the prevailing
daily parking rate will be due. No deductions or allowances from
the
monthly rate will be made for days on which the designated parking
area is
not used by Tenant or its
designees.
|
|
(ix)
|
Designated
parking area managers or attendants are not authorized to make or
allow
any exceptions to these Rules.
|
|
(x)
|
Every
parker is required to park and lock his own
car.
|
|
(xi)
|
Loss
or theft of parking identification, key cards or other such devices
must
be reported to Landlord or any garage manager immediately. Any parking
devices reported lost or stolen found on any unauthorized car will
be
confiscated and the illegal holder will be subject to prosecution.
Lost or
stolen devices found by Tenant or its employees must be reported
to the
office of the designated parking area
immediately.
|
xliii
|
(xii)
|
Washing,
waxing, cleaning or servicing of any vehicle by the customer and/or
his
agents is prohibited. Parking spaces may be used only for parking
automobiles.
|
|
(xiii)
|
Tenant
agrees to acquaint all persons to whom Tenant assigns parking space
with
these Rules.
|
xliii
LEASE
ADDENDUM NUMBER FIVE—A
LOCATION
OF RESERVED PARKING
LakePoint
Two Garage
xliv
LEASE
ADDENDUM NUMBER FIVE - B
PARKING
RESERVED TO OTHER TENANTS
LakePointe
Two Garage
xlv
LEASE
ADDENDUM NUMBER SIX
RADON
The
following disclosure is made pursuant to Section 404.056 of the Florida
statutes: Radon is a naturally occurring radioactive gas that, when it has
accumulated in a building in sufficient quantities, may present health risks
to
persons who are exposed to it over time. Levels of radon that exceed federal
and
state guidelines have been found in buildings in Florida. Additional information
regarding radon and radon testing may be obtained from your county public
health
unit.
xlvi
LEASE
ADDENDUM NUMBER SEVEN
RIGHT
OF FIRST OFFER
Provided
Tenant is not in default under this Lease, and subject only to the rights
of
current tenant AT&T (and its assignees, excluding Landlord or any affiliate
of Landlord) under the currently existing terms of its lease, Tenant shall
have
an ongoing right of first offer ("Right of First Offer"): (i) to lease space
on
the first floor of the Building, consisting of approximately 3,499 rentable
square feet, as more particularly shown on Lease Addendum Number Seven -
A, and,
(ii) in addition to the right set forth in (i) above, provided that Landlord
has
created a multi-tenant environment on the third floor or otherwise leases
or
desires to lease space on that floor in increments of less than the full
floor,
to lease space on the third floor of the Building, consisting of approximately
4,000 rentable square feet, and as more particularly shown on Lease Addendum
Number Seven - B attached to this Addendum (each "First Offer Space"). Before
Landlord offers either First Offer Space to any prospective or existing tenant,
Landlord shall provide written notice to Tenant of its availability for lease
by
Tenant (the "Offer Notice"). Tenant shall have ten (10) days from receipt
of the
Offer Notice to give written notice of Tenant's intent to exercise the Right
of
First Offer and to lease the First Offer Space identified in the Offer Notice
upon the same terms and conditions as contained in this Lease, including
without
limitation, the Allowance, except that the Base Rent will be the Fair Market
Rental Rate, as defined in accordance with Lease Addendum Number Three and
the
remaining Term under this Lease from the date of Tenant's exercise of the
Right
of First Offer (including any exercised Renewal Term) shall be at least three
(3) years, and if less than three (3) years remain in the Term of this Lease,
the Term of this Lease shall be deemed automatically extended upon Tenant's
exercise of the Right of First Offer so as to expire on the third anniversary
of
such exercise, with Base Rent for any such extended Term equal to the Fair
Market Rental Rate. Failure by Tenant to so notify Landlord within such ten
(10)
day period shall be deemed a waiver of Tenant's rights hereunder as to the
First
Offer Space identified in the Offer Notice, and Landlord may then lease that
First Offer Space to a third party, provided Landlord and such third party
execute a lease which includes that First Offer Space within twelve (12)
months
after Tenant waives, or is deemed to waive, its Right of First Offer for
such
space. Failing that, Landlord shall again offer that First Offer Space to
Tenant
before leasing that space to a third party.
Determination Within
ten (10) days after Tenant exercises its Right of First Offer, Landlord shall
deliver to Tenant notice for the Fair Market Rental Rate (the "FMR Notice")
for
the pertinent First Offer Space. If Tenant disagrees with Landlord's assessment
of the Fair Market Rental Rate specified in a FMR Notice, it shall so notify
Landlord in writing within ten (10) days after receipt of such FMR Notice
(the
“Objection Notice”), electing either to withdraw Tenant’s exercise of the Right
of First Offer or to proceed to determine the Fair Market Rental Rate in
accordance with the procedure set forth in this paragraph (“FMR Arbitration”).
If Tenant fails to give the Objection Notice within ten (10) days after receipt
of the FMR Notice, then Tenant shall be deemed to have withdrawn its exercise
of
the Right of First Offer. If Tenant timely gives the Objection Notice, but
fails
to elect either to withdraw its exercise of the Right of First Offer or to
proceed with FMR Arbitration, Tenant shall be deemed to have withdrawn its
exercise of the Right of First Offer. If in the Objection Notice Tenant elects
to proceed with FMR Arbitration, Landlord and Tenant shall meet to attempt
to
determine the Fair Market Rental Rate. If Tenant and Landlord are unable
to
agree on such Fair Market Rental Rate within ten (10) days after delivery
after
the Objection Notice, then Landlord and Tenant shall each appoint an independent
real estate appraiser with at least ten (10) years' commercial real estate
appraisal experience in the AREA market, each of whom shall make a determination
of the Fair Market Rental Rate within twenty (20) days after their selection
hereunder. If Tenant and Landlord are unable to agree upon and select one
of the
determinations made by the initial two (2) appraisers within ten (10) business
days after receipt of the two determinations, the two appraisers shall then,
within five (5) days thereafter, select an independent third appraiser with
like
qualifications. If the two appraisers are unable to agree on the third appraiser
within such five (5) day period, either Landlord or Tenant, by giving five
(5)
days prior notice thereof to the other, may apply to the then presiding judge
of
the Circuit Court for Hillsborough County, Florida, for selection of a third
appraiser who meets the qualifications stated above. Within twenty (20) days
after the selection of the third appraiser, the third appraiser shall make
a
determination of the Fair Market Rental Rate by selecting whichever of the
two
determinations made by the initial two appraisers is closer to the actual
Fair
Market Rental Rate in the opinion of such third appraiser, which determination
shall be binding on Landlord and Tenant. The third appraiser shall have no
discretion other than to select one or the other determination of the initial
two appraisers as set forth herein. Tenant and Landlord shall each bear the
entire cost of the appraiser selected by it and shall share equally the cost
of
the third appraiser.
Administration.
Tenant
shall design and construct all leasehold improvements in the First Offer
Space,
and Rent will commence 120 days after delivery of the First Offer Space to
Tenant for commencement of construction. If Tenant has exercised the Right
of
First Offer and the Fair Market Rental Rate Term has not been determined
in
accordance with this section by the time that Rent for the First Offer Space
is
to commence in accordance with the terms hereof, then Tenant shall pay Rent
for
the First Offer Space based on the Fair Market Rental Rate proposed by Landlord
pursuant to this section until such time as the Fair Market Rental Rate has
been
so determined, at which time appropriate cash
xlvii
adjustments
shall be made between Landlord and Tenant such that Tenant is charged Rent
based
on the Fair Market Rental Rate (as finally determined pursuant to this section)
for the First Offer Space during the interval in question.
xlviii
LEASE
ADDENDUM NUMBER SEVEN - A
FIRST
FLOOR: RIGHT OF FIRST OFFER SPACE
xlix
LEASE
ADDENDUM NUMBER SEVEN - B
THIRD
FLOOR: RIGHT OF FIRST OFFER SPACE
l
LEASE
ADDENDUM NUMBER EIGHT
CLEANING
SPECIFICATIONS
li
EXHIBIT
A
PREMISES
lii
EXHIBIT
B
RULES
AND REGULATIONS
| 1. |
Access
to Building.
On Saturdays, Sundays, Holidays and weekdays between the hours
of 6:00
P.M. and 8:00 A.M., access to the Building and/or to the halls,
corridors,
elevators or stairways in the Building may be restricted and
access shall
be gained by use of a key or electronic card to the outside doors
of the
Buildings. Landlord may from time to time establish security
controls for
the purpose of regulating access to the Building. Tenant shall
be
responsible for providing access to the Premises for its agents,
employees, invitees and guests at times access is restricted,
and shall
comply with all such security regulations so
established.
|
| 2. |
Protecting
Premises.
The last member of Tenant to leave the Premises shall close and
securely
lock all doors or other means of entry to the Premises and shut
off all
lights and equipment in the
Premises.
|
| 3. |
Building
Directories.
The directories for the Building in the form selected by Landlord
shall be
used exclusively for the display of the name and location of
tenants. Any
additional names and/or name change requested by Tenant to be
displayed in
the directories must be approved by Landlord and, if approved,
will be
provided at the sole expense of
Tenant.
|
| 4. |
Large
Articles.
Furniture, freight and other large or heavy articles may be brought
into
the Building only at times and in the manner designated by Landlord
and
always at Tenant's sole responsibility. All damage done to the
Building,
its furnishings, fixtures or equipment by moving or maintaining
such
furniture, freight or articles shall be repaired at Tenant’s
expense.
|
| 5. |
Signs.
Tenant shall not paint, display, inscribe, maintain or affix
any sign,
placard, picture, advertisement, name, notice, lettering or direction
on
any part of the outside or inside of the Building, or on any
part of the
inside of the Premises which can be seen from the outside of
the Premises,
including windows and doors, without the written consent of Landlord,
and
then only such name or names or matter and in such color, size,
style,
character and material as shall be first approved by Landlord
in writing.
Landlord, without notice to Tenant, reserves the right to remove,
at
Tenant's expense, all matters other than that provided for
above.
|
| 6. |
Defacing
Premises and Overloading.
Tenant shall not place anything or allow anything to be placed
in the
Premises near the glass of any door, partition, wall or window
that may be
unsightly from outside the Premises. Tenant shall not place or
permit to
be placed any article of any kind on any window ledge or on the
exterior
walls; blinds, shades, awnings or other forms of inside or outside
window
ventilators or similar devices shall not be placed in or about
the outside
windows in the Premises except to the extent that the character,
shape,
color, material and make thereof is approved by Landlord. Tenant
shall not
do any painting or decorating in the Premises or install any
floor
cover-ings in the Premises or make, paint, cut or drill into,
or in any
way deface any part of the Premises or Building without in each
instance
obtaining the prior written consent of Landlord, which consent
will not be
unreasonably withheld, delayed or conditioned. Tenant shall not
overload
any floor or part thereof in the Premises, or any facility in
the Building
or any public corridors or elevators therein by bringing in or
removing
any large or heavy articles and Landlord may direct and control
the
location of safes, files, and all other heavy articles and, if
considered
necessary by Landlord may require Tenant at its expense to supply
whatever
supplementary supports necessary to properly distribute the
weight.
|
| 7. |
Obstruction
of Public Areas.
Tenant shall not, whether temporarily, accidentally or otherwise,
allow
anything to remain in, place or store anything in, or obstruct
in any way,
any sidewalk, court, hall, passageway, entrance, or shipping
area. Tenant
shall lend its full cooperation to keep such areas free from
all
obstruction and in a clean and sightly condition, and move all
supplies,
furniture and equipment as soon as received directly to the Premises,
and
shall move all such items and waste (other than waste customarily
removed
by Building employees) that are at any time being taken from
the Premises
directly to the areas designated for disposal. All courts, passageways,
entrances, exits, elevators, escalators, stairways, corridors,
halls and
roofs are not for the use of the general public and Landlord
shall in all
cases retain the right to control and prevent access thereto
by all
persons whose presence, in the judgment of Landlord, shall be
prejudicial
to the safety, character, reputation and interest of the Building
and its
tenants; provided, however, that nothing herein contained shall
be
construed to prevent such access to persons with whom Tenant
deals within
the normal course of Tenant's business so long as such persons
are not
engaged in illegal
activities.
|
| 8. |
Additional
Locks.
Tenant shall not attach, or permit to be attached, additional
locks or
similar devices to any door or window, change existing locks
or the
mechanism thereof, or make or permit to be made any keys for
any door
other than those provided by Landlord. Upon termination of this
Lease or
of Tenant's posses-sion, Tenant shall immediately surrender all
keys to
the Premises. Notwithstanding the foregoing, Tenant shall be
permitted
|
liii
|
to
install keypads or other security locks on
all perimeter and stairwell doors; provided, however, that all
such
facilities shall comply with all local codes and ordinances and
Landlord
will be furnished with keys or other
access.
|
| 9. |
Communications
or Utility Connections.
If Tenant desires signal, alarm or other utility or similar service
connections installed or changed, then Tenant shall not install
or change
the same without the approval of Landlord, which approval will
not be
unreasonably withheld, delayed or conditioned, and then only
under
direction of Landlord and at Tenant's expense. Initial installation
of any
such facilities will be conducted as a part of the work done
pursuant to,
and shall be governed by the terms of, the Work Letter.
|
| 10. |
Office
of the Building.
Service requirements of Tenant will be attended to only upon
application
at the office of Highwoods Properties, Inc. Employees of Landlord
shall
not perform, and Tenant shall not engage them to do any work
outside of
their duties unless specifically authorized by
Landlord.
|
| 11. |
Restrooms.
The restrooms, toilets, urinals, vanities and the other apparatus
shall
not be used for any purpose other than that for which they were
constructed, and no foreign substance of any kind whatsoever
shall be
thrown therein. The expense of any breakage, stoppage or damage
resulting
from the violation of this rule shall be borne by the Tenant
whom, or
whose employees or invitees, shall have caused
it.
|
| 12. |
Intoxication.
Landlord reserves the right to exclude or expel from the Building
any
person who, in the judgment of Landlord, is intoxicated, or under
the
influence of liquor or drugs, or who in any way violates any
of the Rules
and Regulations of the
Building.
|
| 13. |
Nuisances
and Certain Other Prohibited Uses.
Except as otherwise permitted under the Lease, Tenant shall not
(a)
install or operate any internal combus-tion engine, boiler, machinery,
refrigerating, heating or air conditioning apparatus in or about
the
Premises; (b) engage in any mechanical business, or in any service
in or
about the Premises or Building, except those ordinarily embraced
within
the Permitted Use as specified in Section 3 of the Lease; (c)
use the
Premises for housing, lodging, or sleep-ing purposes; (d) place
any radio
or television antennae on the roof or on or in any part of the
inside or
outside of the Building other than the inside of the Premises,
or place a
musical or sound producing instrument or device inside or outside
the
Premises which may be heard outside the Premises; (e) use any
power source
for the operation of any equipment or device other than dry cell
batteries
or electricity; (f) operate any electrical device from which
may emanate
waves that could interfere with or impair radio or television
broadcasting
or reception from or in the Building or elsewhere; (g) bring
or permit to
be in the Building any bicycle, other vehicle, dog (except in
the company
of a blind person), other animal or bird; (h) make or permit
any
objectionable noise or odor to emanate from the Premises; (i)
disturb,
harass, solicit or canvass any occupant of the Building; (j)
do anything
in or about the Premises which could be a nuisance or tend to
injure the
reputation of the Building; (k) allow any firearms in the Building
or the
Premises except as approved by Landlord in
writing.
|
| 14. |
Solicitation.
Tenant shall not canvass other tenants in the Building to solicit
business
or contributions and shall not exhibit, sell or offer to sell,
use, rent
or exchange any products or services in or from the Premises
unless
ordinarily embraced within the Tenant's Permitted Use as specified
in
Section 3 of the Lease.
|
| 15. |
Energy
Conservation.
Tenant shall not waste electricity, water, heat or air conditioning
and
agrees to reasonably cooperate with Landlord to ensure the most
effective
operation of the Building's heating and air conditioning, and
shall not
allow the adjustment (except by Landlord's authorized Building
personnel)
of any controls.
|
| 16. |
Building
Security.
At all times other than normal business hours the exterior Building
doors
and suite entry door(s) must be kept locked to assist in security.
Problems in Building and suite security should be directed to
Landlord at
(813) 673-6050.
|
| 17. |
Parking.
Parking is in designated parking areas only. There shall be no
vehicles in
"no parking" zones or at curbs. Handicapped spaces are for handicapped
persons only and the Police Department will ticket unauthor-ized
(unidentified) cars in handicapped spaces. Landlord reserves
the right to
remove vehicles that do not comply with the Lease or these Rules
and
Regulations and Tenant shall indemnify and hold harmless Landlord
from its
reasonable exercise of these rights with respect to the vehicles
of Tenant
and its employees, agents and
invitees.
|
| 18. |
Janitorial
Service.
The janitorial staff will remove all trash from trashcans. Any
container
or boxes left
|
liv
|
in
hallways or apparently discarded unless
clearly and conspicuously labeled DO NOT REMOVE may be removed
without
liability to Tenant. Any large volume of trash resulting from
delivery of
furniture, equipment, etc., should be removed by the delivery
company,
Tenant, or Landlord at Tenant's expense. Janitorial service will
be
provided after hours five (5) days a week. All requests for trash
removal
other than normal janitorial services should be directed to Landlord
at
(813) 673-6050.
|
lv
EXHIBIT
C
COMMENCEMENT
AGREEMENT
This
COMMENCEMENT AGREEMENT (the “Commencement Agreement”), made and entered into as
of this _______ day of ________________, 2004, by and between HIGHWOODS/FLORIDA
HOLDINGS, L. P., a
Delaware Partnership, with its principal office at 3100 Smoketree Court,
Suite
600, Raleigh, North Carolina 27604 (“Landlord”) and ______________________________________________________________,
a
_________________________________________ Corporation, with its principal
office
at _______________________________________________________________
(“Tenant”);
W
I T N E S S E T H :
WHEREAS,
Tenant and Landlord entered into that certain Lease Agreement dated
___________________ (the “Lease”), for space designated as Suite ________,
comprising approximately ___________ rentable square feet, in the
______________________ Building, located at
___________________________________________, City of _____________, County
of
_______________, State of Florida; and
WHEREAS,
the parties desire to establish the Commencement Date and Expiration Date
as set
forth below,
NOW,
THEREFORE, in
consideration of the mutual and reciprocal promises herein contained, Tenant
and
Landlord hereby agree that said Lease hereinafter described be, and the same
is
hereby modified in the following particulars:
1. The
term
of the Lease by and between Landlord and Tenant actually commenced on
___________________ (the “Commencement Date”). The initial term of said Lease
shall terminate on ___________________ (the “Expiration Date”). Section 3,
entitled “Term”, and all references to the Commencement Date and Termination
Date in the Lease are hereby amended.
2. Except
as
modified and amended by this Commencement Agreement, the Lease shall remain
in
full force and effect.
lvi
IN
WITNESS WHEREOF, Landlord and Tenant have caused this Agreement to be duly
executed, as of the day and year first above written.
| LANDLORD: | |||
| WITNESSES: | HIGHWOODS/FLORIDA HOLDINGS, L.P. | ||
|
a Delaware limited partnership
|
|||
|
By:
|
Highwoods/Florida GP Corp.,
its general partner
|
||
| _____________________________________ | |||
| By: | _____________________________________ | ||
|
_____________________________________
|
Stephen A. Meyers | ||
|
Print
Name
|
Title: | Vice
President -
Tampa |
|
|
|
Date: | ___________________________ | |
|
_____________________________________
|
|||
|
_____________________________________
|
|||
|
Print
Name
|
|||
| TENANT: | |||
| WITNESSES: | |||
|
_______ DO NOT SIGN -- EXHIBIT
ONLY____________
|
|||
| _____________________________________ |
Signature
Line
|
||
| __________________________________________ | By: | _____________________________________ | |
|
Print
Name
|
Print Name | ||
|
|
|||
|
_____________________________________
|
Title: | _____________________________________ | |
|
_____________________________________
|
|||
|
Print
Name
|
Date: |
___________________________
|
|
lvii
EXHIBIT
D
[ROOFTOP
LICENSE AGREEMENT]
ROOFTOP
LICENSE. (a)
Grant.
Landlord
hereby grants to Tenant the non-exclusive right (hereinafter collectively
the
“Rooftop Rights”):
| i. |
To
install, operate, maintain and remove, at Tenant’s sole expense and risk,
certain rooftop communications equipment (hereinafter the “Equipment”) as
described in Exhibit
D-1
attached hereto and made a part
hereof.
|
| ii. |
To
install, maintain, operate, and replace at Tenant’s sole expense and risk,
certain connecting equipment, including, but not limited to,
the cables,
conduits, and connecting hardware necessary for the operation
of the
Equipment (hereinafter the "Connecting
Equipment”).
|
| iii. |
To
pull such Connecting Equipment through the Building Common Areas
(if
existing risers are full, Tenant shall use a separate raceway
to be
installed by Tenant at Tenant’s sole cost and expense with routing as
approved by Landlord) for the purpose of connecting Tenant’s rooftop
Equipment to the related Equipment located in Tenant’s lease
Premises.
|
(b)
Grant
Non-exclusive. The
Rooftop Rights granted herein are not exclusive and Landlord reserves the
right
to grant, renew or extend rooftop communications rights to others; provided
such
rights do not render Tenant’s utilization of the site impractical. If Landlord
grants Rooftop Rights to any future tenant, operator or licensee (“Future
Licensee”), and such Future Licensee’s equipment interferes with Tenant’s
operation and use of it Equipment, Landlord will direct the Future Licensee
to
take all steps reasonably necessary to reduce the level of interference to
a
level that does not materially impair Tenant’s operation and use of its
Equipment. If such Future Licensee cannot or does not reduce the interference
to
a level that does not materially impair Tenant’s operation and use of its
Equipment, Landlord shall terminate the license with such Future Licensee
and
require the Future Licensee to remove the equipment causing such
interference.
(c)
Term.
The
Rooftop Rights granted to Tenant by Landlord shall have an expiration date
co-terminous with the Lease Term (unless sooner terminated by Landlord or
Tenant
as provided herein).
(d)
Use.
Tenant
agrees to use the Equipment and Connecting Equipment exclusively for its
own
use. Tenant shall not use the Equipment or Connecting Equipment to provide
services to any outside party without Landlord’s prior written consent, it being
acknowledged that changes in the use of Tenant’s Equipment or Connecting
Equipment may increase the value of the Rooftop Rights granted herein. Tenant
shall not utilize the Equipment or Connecting Equipment in any manner that
is in
violation of any governmental laws, rules or regulations, whether now existing
or hereinafter enacted or which is in violation of the Building Rules and
Regulations. Tenant may not make any use of the Equipment or Connecting
Equipment that (i) is or may be a nuisance or trespass or otherwise disturbs
the
other tenants in the Building, (ii) increases any insurance premiums, or
(iii)
makes such insurance unavailable to Landlord on the Building under the insurer’s
standard underwriting criteria. Landlord makes no warranty or representation
that the Building, the Building rooftop, or any improvements therein (including
without limitation any existing equipment rooms, conduits, cables, and other
spaces and products related to the operation or installation Tenant’s Equipment)
(hereinafter collectively the “Equipment Space”) are suitable for Tenant’s
intended use. Landlord further makes no warranty or representation that Tenant’s
rooftop equipment will not be affected by or suffer interference from existing
rooftop equipment, provided such existing equipment is operating in compliance
with the terms and conditions allowed by the applicable rooftop agreement.
Tenant acknowledges (i) that Tenant shall perform all necessary studies and
reports to determine the suitability of the Equipment Space for Tenant’s
intended us; (ii) that Tenant has not relied on any statements, representations,
or any other indications (whether verbal, written, or both) made by Landlord,
its employees, officers, agents, representatives, contractors, or brokers
regarding the condition and suitability of the Equipment Space for Tenant’s
intended use; and (iii) that Tenant has inspected the Equipment Space and
accepts the same “as is” and agrees that Landlord is under no obligation to
perform any work or provide any materials in preparation for the installation,
maintenance or operation of Tenant’s Equipment or Connecting Equipment. Tenant
further acknowledges that the Equipment Space may be accessed by Landlord’s
authorized representatives, including but not limited to, authorized personnel
representing other communications carriers, and agents, employees, contractors,
representatives, and subcontractors, of Landlord.
(e)Termination.
Provided Tenant is not then in default, Tenant may terminate its Rooftop
Rights
at any time, with or without cause, with thirty (30) days priors written
notice
to Landlord. Termination rights granted to Landlord and Tenant in the Lease
shall also be fully applicable to the Rooftop Rights granted
herein.
lviii
(f)
Rent.
Intentionally deleted.
(g)
Equipment.
The
Equipment and the Connecting Equipment shall be installed behind the rooftop
screen to be constructed on the roof of the Building, and otherwise in strict
accordance with the covenants of the _______________, the specifications
set
forth in Exhibit D-1 and any subsequent plans and specifications approved
by
Landlord as set forth herein. Tenant shall at all times operate and maintain
the
Equipment and the Connecting Equipment in good condition and in compliance
with
all federal, state, and local laws, ordinances, and rules. Equipment
replacements shall be restricted to equipment substantially similar in function
and size to the Equipment described in Exhibit D-1. The installation of any
additional equipment or equipment dissimilar in function or size to that
described in Exhibit D-1 with Landlord's prior approval, not to be unreasonably
withheld or delayed, shall be deemed an act of default by Tenant. Tenant
shall
not place any load upon any floor or upon the roof of the Building contrary
to
the weight, method of installation and position reasonably prescribed by
Landlord. The Equipment and Connecting Equipment shall remain at the sole
risk
of Tenant, and Landlord shall not be liable for any damage, theft,
misappropriation or loss regardless of the cause thereof, and Tenant expressly
waives any and all claims it may have against Landlord with respect to the
same.
(h)
Equipment Installation.
Prior to
the commencement of any work or the installation of any Equipment or Connecting
Equipment, Tenant shall:
| i. |
Prepare
and deliver to Landlord an outline of the Building rooftop, indicating
the
proposed location of the rooftop Equipment, a description of
the proposed
method of installation, and the proposed routing of any rooftop
Connecting
Equipment. Tenant shall also describe, in reasonable detail,
the proposed
routing of all non-rooftop Connecting Equipment. No work shall
commence
until Landlord has approved, in writing, all construction and
installation
plans, which approval shall not be unreasonably withheld or delayed.
Landlord shall indicate its approval or disapproval and notify
Tenant of
any required changes within ten (10) business days after Landlord
receives
such plans from Tenant. In no event shall Landlord’s approval or change of
such plans be deemed a representation that Tenant’s Equipment and
Connecting Equipment will not cause interference with other systems
in the
Building or that Tenant’s plans comply with applicable laws, rules or
regulations; such responsibility shall remain solely with
Tenant.
|
| ii. |
Tenant
warrants that the installation of the Equipment and Connecting
Equipment
shall be in strict compliance with (i) Exhibit D-1 attached hereto;
(ii)
any subsequent plans and specifications approved by Landlord;
(iii) all
Equipment manufacturer’s recommendations; and (iii) all applicable laws,
rules or regulations. Tenant shall not make any material modifications
to
the Equipment Space without Landlord’s prior written approval, which
Landlord shall determine tin its soles discretion. Tenant shall
also
insure that the installation and construction shall be performed
in a
neat, responsible, and workmanlike manner, using generally accepted
construction standards, consistent with such reasonable requirements
as
shall be imposed by Landlord. Tenant shall promptly notify when
all work
has been completed and all work shall be inspected by Landlord.
Within
five (5) business days following Tenant’s completion of the installation,
Tenant shall provided Landlord with documentation evidencing
that all
applicable permits, licenses, and approvals required for the
installation,
maintenance, and operation of the Equipment and Connecting Equipment
have
been obtained.
|
| iii. |
Tenant
acknowledges that the structural integrity of the load bearing
capability
of the roof, the moisture resistance of the roof membrane, and
the ability
of Landlord to safely access all parts of the roof are of critical
importance to Landlord. Tenant agrees that all specifications
and plans
will provide sufficient specificity to ensure that these concerns
are
protected. Tenant shall not make any penetrations of the roof
membrane
without the Landlord’s prior written approval. Any penetrations of the
roof membrane approved by Landlord shall be made at Tenant’s sole cost and
expense by a qualified roofing contractor selected by Landlord
to ensure
full compliance with the terms of all existing roof warranties.
Tenant
shall be fully liable to Landlord for any unauthorized activities
that
violate the terms of any warranty on the roof membrane and results
in the
full or partial loss of any roof warranty coverage otherwise
available to
Landlord. Tenant shall handle all parts, materials, and substances
capable
of damaging the roof membrane in a manner that fully protects
the
integrity of the membrane. Any roof damage caused by Tenant or
any of
Tenant’s agents, representative, employees, contractors, subcontractors
or
invitees shall be made at Tenant’s sole cost and expense by a roofing
|
lix
|
contractor
selected by Landlord. Landlord, in
its sole discretion, may require Tenant to install, at Tenant’s sole cost
and expense, rooftop walk pads if Landlord considers such pads
necessary
to protect the integrity of the roof
membrane.
|
| iv. |
Tenant,
in the exercise of its Rooftop Rights granted herein, shall not
at any
time (as determined by Landlord in its sole judgment), disrupt
Building
operations, including but not limited to, blocking access to
or in any way
obstructing Building entrances, lobbies, hallways, elevators,
or interfere
or hinder the use of the Building’s loading docks. Any work activities
deemed disruptive to Building operations, including but not limited
to
core drillings, must be performed after normal business hours
as defined
by Landlord.
|
| v. |
Tenant
shall, at is sole cost and expense, repair or refinish any surface
of the
Building damaged by or during the installation, operation, maintenance
or
removal of Tenant’s Equipment or Connecting Equipment and caused by Tenant
or any of its agents, representatives, employees, contractors,
subcontractors, or invitees. In the event Tenant fails to promptly
repair
or refinish any such damage, Landlord may, in its sole discretion,
repair
or refinish such damage to Landlord’s satisfaction and Tenant shall
reimburse Landlord for all costs and expenses incurred in such
repair or
refinishing together with an administrative charge of fifteen
percent
(15%) of such costs and expenses. All such sums shall be deemed
to be
Additional Rent payable to
Landlord.
|
| vi. |
Tenant
shall attach a label to (i) all rooftop Equipment and Connecting
Equipment
located on the rooftop and (ii) to all cabling passing through
all
Building common area equipment and telephone rooms. Each label
shall
included, at a minimum, the following
information:
|
| a. |
Tenant’s
name;
|
| b. |
Rooftop
Lease #;
|
| c. |
If
cabling, the floor where the cable originates and the floor where
it
terminates;
|
| vii. |
Tenant
shall obtain, at its sole cost and expense, prior to the commencement
of
any construction activities or Equipment or Connecting Equipment
installations, any necessary federal, state, and municipal permits,
licenses and approvals. Tenant’s Equipment and Connecting Equipment shall
comply with all applicable safety standards, as modified from
time to
time, of any governing body with jurisdiction over Tenant’s
operations.
|
| viii. |
Any
specialized use of the elevators must be coordinated with Landlord’s
property manager.
|
| ix. |
Tenant
must properly dispose of all packing material and refuse in accordance
with the Rules and
Regulations.
|
(i)Tenant’s
Covenants.
|
a.
|
Tenant
shall at its sole cost and expense, maintain the Equipment and
Connecting
Equipment in proper operating condition and maintain same in a
safe
condition.
|
| b. |
Tenant’s
Equipment and Connecting Equipment shall not disrupt, adversely
affect, or
interfere with (i) the operation of any existing communications
equipment
at the Building, (ii) any tenant’s or occupant’s use or operation of
communications or computer devices, or (iii) the operation of any
Building
system. In the event interference occurs, Tenant shall correct
such
interference within twenty-four (24) hours after receiving written
notice
that such interference is possibly caused by Tenant’s Equipment. Landlord
reserves the right to disconnect power to any of Tenant’s Equipment in the
event Tenant fails to correct such interference within such twenty-four
(24) hour period. Tenant hereby releases Landlord from any and
all
liability and damages, which results or possibly results from any
such
disconnection.
|
(j)
Utility Service.
In the
event Tenant’s Equipment requires utility service beyond the limits set forth in
the Lease, Tenant shall pay for all related utility costs. Subject to
availability as determined by Landlord in its reasonable discretion, Tenant
may
connect to the existing electrical service to the Building provided that
lx
Tenant,
at Tenant’s sole expense, installs an Emon Dmon sub-meter capable of measuring
both electricity consumption and demand. In such event, Tenant shall reimburse
Landlord for the costs of Tenant’s electrical use, including Landlord’s
administrative charge of $20.00 per month for meter reading and administrative
processing. Landlord shall invoice Tenant on a monthly basis (or such other
billing cycle as may be mutually acceptable to both Landlord and Tenant),
and
all sum due related to Tenant’s electrical usage shall be due to Landlord as
Additional Rent. Landlord shall have no liability to Tenant or any third
party
for any interruption, curtailment, stoppage, or suspension of any utility
service.
(k)
Access.
Tenant
hereby acknowledges that for reasons of safety and security, Landlord must
restrict access to the Building rooftop and Building common areas to authorized
personnel only. Landlord agrees that Tenant’s authorized representative shall
have access to the Equipment Space during normal business hours (typically
defined as 7:30 a.m. to 4:30 p.m., Monday through Friday, excluding Holidays)
free of charge. Access after normal business hours will require Landlord
to
dispatch personnel and Tenant shall reimburse Landlord, as Additional Rent,
for
the associated personnel costs at Landlord’s then current overtime hourly
billable rate (Landlord’s overtime rate is currently $52.50 per hour). Except in
the event of an emergency, Tenant agrees to give at least twenty-four (24)
hours
notice to Landlord of its intent to enter the Equipment Space. At the time
such
notice is given, Tenant shall inform Landlord of the names of the person(s)
who
will be accessing the Equipment Space, the reasons for the entry, and the
expected duration of the work to be performed. Tenant acknowledges that Landlord
may not maintain personnel on-site and any requested access without prior
notification may result in unavoidable and unpredictable delays. At no time
shall Tenant or any of Tenant’s agents, employees, contractors, subcontractors,
or representative attempt to connection, tamper with, adjust, alter, or
otherwise affect the operation of any equipment or systems belonging to Landlord
or any other third-party without the prior written approval of Landlord or
the
affected third-party, as appropriate. Landlord reserves the right, in its
sole
discretion, to select or approve any contractor whose work activities will
connect, interact with, or potentially affect any Building equipment or
systems.
(l)
Relocation.
Landlord, at its sole expense and discretion, may require Tenant to relocate
any
or all of the Equipment and Connecting Equipment located on the rooftop or
within the Building, provided that such relocation does not materially and
adversely impair the operation of the Equipment and Connecting Equipment
or
materially degrade the quality of transmission of the Equipment and Connecting
Equipment. In the event Landlord requires Tenant to relocate Tenant’s Equipment
or Connecting Equipment, as the case may be, Tenant shall within sixty (60)
days
either: (i) terminate this License upon written notice to Landlord; or (ii)
commence efforts to relocate the Equipment or the Connecting Equipment, as
the
case may be, and complete their relocation with on hundred twenty (120) days
of
the date of Landlord’s original notice to Tenant to relocate, in which event
Landlord shall reimburse Tenant for any reasonable, actual, out-of-pocket
costs
or expenses paid by Tenant to third parties in connection with such relocation.
Landlord will permit Tenant to perform a standard cutover procedure, if required
by any relocation of Equipment, which will ensure that the relocated Equipment
is operational for services prior to discontinuing service from the old
location. In the event all or a portion of the roof membrane must be repaired
or
replaced, or any other Building maintenance need arises that requires the
temporary removal of the Equipment and Connecting Equipment, Tenant shall
be
fully responsible, at its sole cost and expense, for the removal and
re-installation of all Equipment. Except in the case of emergencies, Landlord
shall provide Tenant with forty-eight (48) hours notice of any planned repairs
or replacements that will require the removal of Tenant’s Equipment, unless
Landlord is unable to provide forty-eight (48) hours notice due to the nature
of
the repair or replacement, in which event Landlord shall provide as much
notice
as reasonably possible. Landlord shall promptly notify Tenant when the repair
or
replacement is complete and the re-installation of the Equipment may commence.
All Equipment shall be re-installed in strict accordance with the specifications
previously approved by Landlord and in effect at the time of the Equipment’s
removal. Landlord shall have no liability to Tenant or any third-party for
any
losses incurred as a result of the relocation and re-installation.
(m)
Removal.
Provided Tenant is not in default under the terms of the Lease or its
obligations under the Rooftop Rights granted herein, Tenant may, prior to
the
Expiration Date, remove its Equipment from the Building; provided, however,
Tenant shall repair all damage caused by such removal and perform such
restoration as may be required under the terms of the Lease. In any event,
Tenant shall remove all of its Equipment and Connecting Equipment (unless
Tenant
obtains Landlord’s prior written consent to allow the Connecting Equipment, or
portions thereof, to remain in place and become the property of Landlord,
such
consent to be at Landlord’s sole discretion) prior to the Expiration Date or
earlier termination (for whatever cause) of Tenant’s Rooftop Rights. In the
event Tenant’s Equipment and Connecting Equipment or any portion thereof
(excepting any Connecting Equipment to remain in place per Landlord’s consent as
described above) is not removed prior to the Expiration Date or earlier
termination of Tenant’s Rooftop Rights, such property shall be deemed abandoned
by Tenant and Landlord may dispose of same in whatever manner Landlord may
elect
without any liability to Tenant. Any expenses incurred by Landlord as a result
of the removal and disposition of
lxi
Tenant’s
Equipment and Connecting Equipment, or any portion thereof, deemed abandoned
by
Tenant shall be paid to Landlord by Tenant within thirty (30) days of Tenant’s
receipt of Landlord’s invoice.
(n)
Assignment - Sublicense.
Tenant
shall not assign, sublicense, or otherwise transfer the Rooftop Rights or
any
portion there of without Landlord’s prior written consent, which Landlord shall
determine in its sole discretion. Not withstanding the foregoing, Tenant
shall
have the right, without Landlord’s consent, but upon written notification to
Landlord, to assign or sublicense Tenant’s Rooftop Rights to any permitted
subtenant or assignee which assumes the obligations of Tenant, and continues
the
same permitted use set for the in the terms and conditions set forth herein.
Landlord must be given prior written notice of any such assignment or
sublicense, and failure to do so shall be a default by Tenant hereunder.
Acceptance of Rooftop Rent payments by Landlord after any non-permitted
assignment shall not constitute approval thereof by Landlord. In no event
shall
Tenant’s Rooftop Rights be assignable by operation of any law, and Tenant’s
rights hereunder may not become, and shall not be listed by Tenant s an asset
under any bankruptcy, insolvency or reorganization proceedings. Tenant is
not,
may not become, and shall never represent itself to be an agent of Landlord,
and
Tenant acknowledges that Landlord’s title is paramount, and that it can do
nothing to affect or impair Landlord’s title. If Tenant’s Rooftop Rights shall
be assigned or sublicensed by Tenant at a Rooftop Rent that exceeds the Rooftop
Rent to be paid to Landlord hereunder, then any such excess shall be paid
over
to Landlord by Tenant.
lxii
EXHIBIT
D-1 TO ROOFTOP LICENSE AGREEMENT
[Equipment]
lxiii
EXHIBIT
E
[MONUMENT
SIGNAGE]
lxiv
EXHIBIT
F
[NON-DISTURBANCE
AND ATTORNMENT AGREEMENT]
(Sample)
RECORDING
REQUESTED BY
_____________________________
WHEN
RECORDED MAIL TO
The
Northwestern Mutual Life Ins. Co.
720
East
Wisconsin Ave. - Rm N16WC
Milwaukee,
WI 53202
Attn:
Loan
No.
SPACE ABOVE THIS
LINE FOR RECORDER’S
USE
NON-DISTURBANCE
AND ATTORNMENT AGREEMENT
THIS
AGREEMENT is entered into as
of , 2004, between Brown & Brown, Inc., a Florida
corporation, whose mailing address is 401 E. Jackson Street, Suite
1700, Tampa, Florida 33602 ("Tenant"), Highwoods/Florida Holdings, L.P.,
a Delaware limited partnership, whose mailing address is 3111 W. Martin
Luther King Boulevard, Suite 300, Tampa, Florida 33607, ("Borrower"), and
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, a Wisconsin corporation
("Lender"), whose address for notices is 720 East Wisconsin Avenue, Milwaukee,
WI 53202, Attention: Real Estate Investment Department, Reference Loan No.
.
RECITALS
A. Tenant
is the
lessee or successor to the lessee, and Borrower is the lessor or successor
to
the lessor under a certain lease dated , 2004 (the
"Lease").
B. Lender
has
made, or will make, a mortgage loan to be secured by a mortgage, deed to
secure
a debt or deed of trust from Borrower for the benefit of Lender (as it may
be
amended, restated or otherwise modified from time to time, the "Lien
Instrument") encumbering the fee title to and/or leasehold interest in the
land
described in Exhibit A attached hereto and the improvements thereon
(collectively, the "Property"), wherein the premises covered by the Lease
(the
"Demised Premises") are located.
C. Borrower
and
Lender have executed, or will execute, an Absolute
lxv
Assignment
of Leases and Rents (the "Absolute Assignment"), pursuant to which (i) the
Lease
is assigned to Lender and (ii) Lender grants a license back to Borrower
permitting Borrower to collect all rents, income and other sums payable under
the Lease until the revocation by Lender of such license, at which time all
rents, income and other sums payable under the Lease are to be paid to
Lender.
D. Lender
has required
the execution of this Agreement by Borrower and Tenant as a condition to
Lender
making the requested mortgage loan or consenting to the Lease, and Tenant
has
required the execution of this Agreement by Lender and Borrower as a condition
to Tenant entering into the Lease.
E. Tenant
acknowledges
that, as its consideration for entering into this Agreement, Tenant will
benefit
by entering into an agreement with Lender concerning Tenant’s relationship with
any purchaser or transferee of the Property (including Lender) in the event
of
foreclosure of the Lien Instrument or a transfer of the Property by deed
in lieu
of foreclosure (any such purchaser or transferee and each of their respective
successors or assigns is hereinafter referred to as "Successor
Landlord").
AGREEMENT
NOW,
THEREFORE, in consideration of the
foregoing, the mutual covenants and agreements contained herein, and other
good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Tenant, Borrower and Lender agree as follows:
1. Tenant
and Borrower
agree for the benefit of Lender that:
|
(a)
|
Tenant
shall not pay, and Borrower shall not accept, any rent or additional
rent
more than one month in advance;
|
|
(b)
|
Except
as specifically provided in the Lease, Tenant and Borrower will
not enter
into any agreement for the cancellation of the Lease or the surrender
of
the Demised Premises without Lender’s prior written
consent;
|
|
(c)
|
Tenant
and Borrower will not enter into any agreement amending or modifying
the
Lease without Lender’s prior written consent, except for amendments or
modifications specifically contemplated in the Lease, including
without
limitation, those confirming the lease commencement date, the rent
commencement date, the term, the square footage leased, the renewal
or
extension of the Lease, or the leasing of additional space at the
Property;
|
|
(d)
|
Tenant
will not terminate the Lease because of a default thereunder by
|
lxvi
Borrower
unless Tenant shall have first given Lender
written notice and a reasonable opportunity to cure such default;
and
|
(e)
|
Tenant,
upon receipt of notice from Lender that it has exercised its rights
under
the Absolute Assignment and revoked the license granted to Borrower
to
collect all rents, income and other sums payable under the Lease,
shall
pay to Lender all rent and other payments then or thereafter due
under the
Lease, and any such payments to Lender shall be credited against
the rent
or other obligations due under the Lease as if made to
Borrower.
|
|
(f)
|
Tenant
will not conduct any dry cleaning operations on the Demised Premises
using
chlorinated solvents nor will Tenant use any chlorinated solvents
in the
operation of their business on the Demised
Premises.
|
|
(g)
|
Tenant
shall pay any and all termination fees due and payable under the
Lease
directly to Lender to be held by Lender/directly to Lender
to be held
in an account satisfactory to Lender and such fees shall be applied by
Lender as follows: [DRAFTER: INSERT LANGUAGE PER STAC 320/321 OF
LOAN
COMMITMENT.]
|
2. Subject
to the terms
of this Agreement, the Lease is hereby subordinated in all respects to the
Lien
Instrument and to all renewals, modifications and extensions thereof, subject
to
the terms and conditions hereinafter set forth in this Agreement, but Tenant
waives, to the fullest extent it may lawfully do so, the provisions of any
statute or rule of law now or hereafter in effect that may give or purport
to
give it any right or election to terminate or otherwise adversely affect
the
Lease or the obligations of Tenant thereunder by reason of any foreclosure
proceeding.
3. Borrower,
Tenant and
Lender agree that, unless Lender shall otherwise consent in writing, the
fee
title to, or any leasehold interest in, the Property and the leasehold estate
created by the Lease shall not merge but shall remain separate and distinct,
notwithstanding the union of said estates either in Borrower or Tenant or
any
third party by purchase, assignment or otherwise.
4. If
the interests of
Borrower in the Property are acquired by a Successor Landlord:
|
(a)
|
If
Tenant shall not then be in default in the payment of rent or other
sums
due under the Lease or be otherwise in material default under the
Lease
(in each case, beyond the expiration of applicable notice and cure
periods), the Lease shall not terminate or be terminated and the
rights of
Tenant thereunder shall continue in full force and effect except
as
provided in this Agreement;
|
lxvii
|
(b)
|
Tenant
agrees to attorn to Successor Landlord as its lessor; Tenant shall
be
bound under all of the terms, covenants and conditions of the Lease
for
the balance of the term thereof, including any renewal options
which are
exercised in accordance with the terms of the
Lease;
|
|
(c)
|
The
interests so acquired shall not merge with any other interests
of
Successor Landlord in the Property if such merger would result
in the
termination of the Lease;
|
|
(d)
|
If,
notwithstanding any other provisions of this Agreement, the acquisition
by
Successor Landlord of the interests of Borrower in the Property
results,
in whole or part, in the termination of the Lease, there shall
be deemed
to have been created a lease between Successor Landlord and Tenant
on the
same terms and conditions as the Lease for the remainder of the
term of
the Lease, except as modified by this Agreement, with renewal options,
if
any; and
|
|
(e)
|
Successor
Landlord shall be bound to Tenant under all of the terms, covenants
and
conditions of the Lease, and Tenant shall, from and after Successor
Landlord’s acquisition of the interests of Borrower in the real estate,
have the same remedies against Successor Landlord for the breach
of the
Lease that Tenant would have had under the Lease against Borrower
if the
Successor Landlord had not succeeded to the interests of Borrower;
provided, however, that Successor Landlord shall not
be:
|
|
(i)
|
Liable
for the breach of any representations or warranties set forth in
the Lease
or for any act, omission or obligation of any landlord (including
Borrower) or any other party occurring or accruing prior to the
date of
Successor Landlord’s acquisition of the interests of Borrower in the
Demised Premises, except for any repair and maintenance obligations
of a
continuing nature as of the date of such
acquisition;
|
|
(ii)
|
Subject
to any offsets or defenses which Tenant might have against any
landlord
(including Borrower) prior to the date of Successor Landlord’s acquisition
of the interests of Borrower in the Demised Premises except to
the extent
that such offsets (a) were used to fund the Allowance (as defined
in the
Lease), including interest, or to fund the repairs, maintenance
or other
actions
|
lxviii
which
would otherwise be an obligation of Successor
Landlord upon its acquisition of the interests of Borrower in the Property
and
(b) in the case of Lender becoming Successor Landlord, concerning which Lender
has in fact received timely notice and an opportunity to cure prior to Tenant
gaining, or taking action by which it would gain, the right to so offset
against
rents;
|
(iii)
|
Liable
for the return of any xecurity deposit under the Lease unless such
security deposit shall have been actually deposited with Successor
Lanlord;Premises to any third party;
|
|
(iv)
|
Bound
to Tenant for any claims arising subsequent to the date upon which
Successor Landlord transfers its interest in the Demised Premises
to any
third party;
|
|
(v)
|
Liable
to Tenant under any indemnification provisions set forth in the
Lease
arising prior to Successor Landlord's acquisition of the interests
of
Borrower in the Property; or
|
|
(vi)
|
Liable
for any damages in excess of Successor Landlord’s equity in the
Property.
|
The
provisions of this paragraph shall be effective and self-operative immediately
upon Successor Landlord succeeding to the interests of Borrower without the
execution of any other instrument.
5. Tenant
represents and warrants that Tenant, to its actual knowledge: (i) is not
a
person or entity with whom Lender is restricted from doing business with
under
regulations of the Office of Foreign Asset Control ("OFAC") of the Department
of
the Treasury (including, but not limited to, those named on OFAC's Specially
Designated and Blocked Persons list) or under any statute, executive order
(including, but not limited to, the September 24, 2001 Executive Order Blocking
Property and Prohibiting Transactions With Persons Who Commit, Threaten to
Commit, or Support Terrorism), or other governmental action; (ii) is not
knowingly engaged in, and shall not knowingly engage in, any dealings or
transaction or knowingly be otherwise associated with such persons or entities
described in (i) above; and (iii) is not a person or entity whose activities
violate the International Money Laundering Abatement and Financial
Anti-Terrorism Act of 2001 or the regulations or orders thereunder.
lxix
6. This
Agreement may
not be modified orally or in any other manner except by an agreement in writing
signed by the parties hereto or their respective successors in interest.
In the
event of any conflict between the terms of this Agreement and the terms of
the
Lease, the terms of this Agreement shall prevail. This Agreement shall inure
to
the benefit of and be binding upon the parties hereto, their respective heirs,
successors and assigns, and shall remain in full force and effect
notwithstanding any renewal, extension, increase, or refinance of the
indebtedness secured by the Lien Instrument, without further confirmation.
Upon
recorded satisfaction of the Lien Instrument, this Agreement shall become
null
and void and be of no further effect.
lxx
IN
WITNESS WHEREOF, the parties hereto
have executed this Agreement as of the day and year first above
written.
| TENANT: | BROWN & BROWN, INC. | |
| |
|
|
| By: | _____________________________________________________ | |
|
|
Attest: |
_______________________________________________
|
| Secretary | ||
|
BORROWER:
|
HIGHWOODS/FLORIDA
HOLDINGS,
L.P.,
a
Delaware limited partnership
|
|
| |
By:
Highwoods/Florida GP Corp.,
its
general partner
|
|
|
By:
|
_______________________________________
|
|
| Stephen A. Meyers | ||
|
Title:
|
Vice President - Tampa | |
|
Attest:
|
_______________________________________
|
|
| LENDER: |
THE
NORTHWESTERN MUTUAL
LIFE
INSURANCE COMPANY, a
Wisconsin
corporation
|
|
| By: |
Northwestern
Investment
Management
Company, LLC, a
Delaware
limited liability
company,
its wholly-owned
affiliate
and authorized
representative
|
|
|
By:
_______________________________
, Managing Director
|
||
|
Attest:
____________________________
,
Assistant Secretary
|
||
lxxi
Exhibit
10.2(c)
LEASE
AGREEMENT
OF LEASE, made and entered into this 31 day of December, 2005, by
and between RIEDMAN CORPORATION, a New York corporation with
offices at 45 East Avenue, Rochester, New York 14604, hereinafter referred
to as
“Landlord”;
and
BROWN
& BROWN OF NEW YORK, INC.,
a New
York corporation with offices at 45 East Avenue, Rochester, New York 14604,
hereinafter referred to as “Tenant.”
W
I T N E S S E T H :
For
and
in consideration of the rent and the covenants herein contained, Landlord hereby
agrees to lease and let to Tenant, and Tenant does hereby take and lease from
Landlord the following described premises (the “Premises”
or
“Demised
Premises”):
approximately 17,814 rentable square feet of office space located on a portion
of the ground floor and all of the seventh and eighth floors in the building
located at 45 East Avenue, Rochester, NY as more particularly shown on plans
attached hereto and made a part hereof as Exhibit “A,” said space to be taken in
its as is condition together with the right with the Landlord and other tenants
to public and common areas within the building; for a term of five (5) years,
or
until such term shall earlier terminate, cease or expire as hereinafter
provided. Said term to commence on the 1st
day of
January, 2006, and to end on the 31st
day of
December, 2010, at rental and additional rental provided herein
below.
The
parties hereto on behalf of themselves, their successors and permitted assigns
do hereby agree and covenant as follows:
RENT
1. For
the initial three
(3) calendar years of the Lease term, Tenant shall pay Landlord rent in the
amount of Two Hundred Fifty-Five Thousand Dollars ($255,000) per annum payable
monthly in advance in the amount of $21,250 on the first day of each and every
month during the term hereof. During the last two calendar years of the Lease
term, Tenant shall pay Landlord rent (the “Percentage Rent”) in the amount of
three (3%) of the annual gross revenues derived from or arising out of the
business conducted by Tenant within or from the Premises (the “Premises
Revenues”)
(regardless of whether for cash or for credit or where the actual revenues
are
recorded) for each such calendar year. During the last two calendar years of
the
Lease term, Tenant shall remit monthly estimates on account of the Percentage
Rent, which estimates shall be paid in advance of the first day of each month.
During the fourth calendar year of the term, the monthly estimates shall be
in
the amount of one-twelfth of the actual Percentage Rent payable for the fourth
calendar year of the term, except that Tenant shall continue to pay monthly
estimates of $21,250 until the final Percentage Rent due for the fourth calendar
year has been finalized. During the last two calendar years of the Lease term,
the Tenant shall, within 30 days after the completion of each fiscal quarter,
deliver to Landlord a certificate that sets forth the Premises Revenues on
a
year-to-date basis and the Percentage Rent due for such quarter. If the actual
Percentage Rent due for such quarter is greater than the amount of the estimates
paid by Tenant for such quarter, then the certificate shall be accompanied
by a
payment equal to the shortfall. If the actual Percentage Rent due for such
quarter is less than the amount of the estimates paid by Tenant for such
quarter, then Tenant shall be entitled to a credit for such overpayment, which
credit may be taken by Tenant against the next monthly estimate(s) due
hereunder. Each quarterly certificate delivered by Tenant shall be signed by
the
Tenant’s Vice President-Finance and shall contain undertaking therein that the
information contained therein is true, accurate and complete, has been derived
from the books and records of Tenant and that Tenant has complied with its
obligations under this Paragraph 1.
All
rent
shall be paid at the address specified herein above for the Landlord or at
such
other place as Landlord may designate in writing, from time to time. All rent
shall be paid without demand and without counterclaim, deduction or
setoff.
For
the
purposes of this Section 1, the term “gross revenues” means the total gross
dollar amount of all sales, charges for the rendering of services, or other
revenues. The parties intend for the foregoing definition to be interpreted
as
broadly as possible.
Tenant
agrees to maintain financial records, which specifically account for gross
revenues for the Premises. Tenant further agrees to refrain from taking any
actions that would tend to manipulate or decrease the gross revenues for the
Premises, including, without limitation, the diversion of gross revenues with
the intent to decrease the amount of rent due hereunder. Landlord shall have
the
right to review the financial records of Tenant with respect to the Premises,
upon the completion of the third year of the Lease term and upon the completion
of each year of the Lease term thereafter. In the event Tenant fails to maintain
such financial records or fails to comply with Landlord’s request to review such
financial records, Landlord may, in its sole discretion, consider Tenant to
be
in breach of this Lease and may take action in accordance with Section 17
hereof.
USE
2. Tenant’s
purpose is to use and occupy the Premises as an insurance and general office
use: and for no other purpose. Landlord represents that the Premises may
lawfully be used for this intended purpose.
REAL
PROPERTY TAXES
3. Tenant
shall
pay, within thirty (30) days after receipt of a bill therefore, as additional
rental, its pro-rata share of any increase in real property taxes levied
against
45 East Avenue, over and above the Monroe County tax including all portions
thereof, and any replacement or substitution therefore for the year 2006;
and
over and above the City of Rochester, City and School tax, including all
portions thereof; or any replacement or substitution therefore and including
any
and all additional charges or assessments thereon whether or not identified
as a
tax, user charge or other designation for the fiscal year, July 1, 2005 to
June
30, 2006; whether said increases arise out of a change in rate, assessments,
or
any other case. Tenant further covenants and agrees to pay its pro-rata share
of
all water pollution charges, including, without limitation, pure water charges
of any kind and nature, and including any replacement or substitution therefore,
regardless of source, levied against 45 East Avenue within thirty (30) days
after receipt of a bill.
2
PRO
RATA SHARE
4. Landlord
and
Tenant agree that the Demised Premises constitute 27.8% of the total rentable
space within the building at 45 East Avenue and wherever this Lease provides
for
pro-rata share, this percentage will be used to make such
computation.
CARE AND REPAIR OF PREMISES AND ALTERATIONS
5. Tenant
shall
commit no act of waste and shall take good care of the Demised Premises and
fixtures and appurtenances therein, and shall, in the use and occupancy of
the
Premises, conform to all laws, orders and regulations of the Federal, State
and
Municipal governments, or any of their departments, and regulations of the
New
York Board of Fire Underwriters, applicable to the Premises; Tenant shall
not do
or permit to be done any act or thing upon the Premises, which will invalidate
or be in conflict with the fire insurance policies covering the building
of
which the Demised Premises form a part, and fixtures and property therein,
and
shall not do, or permit to be done, any act or thing upon said Premises which
shall or might be subject Landlord to any liability or responsibility for
injury
to any person or persons or to property by reason of any business or operation
being carried on upon said Premises or for any other reason. Upon termination
of
the term, Tenant shall surrender the Premises in as good condition as they
were
at the beginning of the term, reasonable wear, and damage by fire, the elements,
casualty, or other cause not due to the misuse or neglect by Tenant or Tenant’s
agents, servants visitors or licensees, expected. Tenant shall not mark,
paint,
drill into, or in any way harm or deface any part of the Demised Premises
or the
building of which they form a part. Landlord has not conveyed to Tenant any
rights in or to the outer side of the outside walls of the building of which
the
Demised Premises are a part, and except as provided herein Tenant shall not
display or erect any lettering, signs, advertisements, awnings or other
projections or do any boring, or cutting, or stringing of wires in or, on
the
Demised Premises or in or on the building of which they form a part, or make
any
alterations, decorations, installations, additions or improvements in or
to the
Demised Premises or in or to the building of which they form a part, without
the
prior written consent of Landlord, and at Tenant’s sole expense. No water
cooler, air-conditioning unit or system or other apparatus shall be installed
or
used by Tenant without the written consent of the Landlord. All alterations,
decorations, installations, additions or improvements upon the Demised Premises,
made by either party, (including paneling, partitions, railings, mezzanine
floors, galleries and the like), but excepting movable trade fixtures shall,
at
Landlord’s option, become the property of the Landlord.
All
property of Tenant remaining on the Demised Premises after the last day of
the
term of this Lease shall conclusively be deemed abandoned and may, at the
option
of the Landlord, be removed and Tenant shall reimburse Landlord for the cost
of
such removal. Landlord may have any such property stored at Tenant’s risk and
expense for a reasonable period of time.
Landlord
specifically reserves the right to approve the choice of any contractors
or
subcontractors employed by, through, or under the Tenant in connection with
any
tenant alterations or repairs.
Landlord
shall be responsible, at its cost and expense, for the repair and maintenance
of
all common areas within 45 East Avenue.
3
SIGNS
6. Tenant
shall not place or cause or allow to be placed any sign or signs of any kind
whatsoever at, in or above the entrance to the building or to the Demised
Premises or any part thereof except in or at such place or places a may be
approved by Landlord in writing. In the event that Landlord shall deem it
necessary to remove any such sign or signs in order to paint and make repairs,
alterations or improvements in or upon said Premises or building or any part
thereof, the Landlord shall have the right to do so and the cost of removing
and
replacing said signs shall be borne by the Tenant.
SUBORDINATION
7. This
Lease is subject and subordinate to all ground or underlying leases and to
all
mortgages which may now or hereafter affect such leases or the real property
of
which the Demised Premises form a part, and to all renewable, modifications,
consolidations, replacements and extensions thereof. This clause shall be
self-operative and no further instrument of subordination shall be required
by
any mortgagee. In confirmation of such subordination, Tenant shall executive
promptly any certificate that Landlord may reasonably request of
Tenant.
Tenant
agrees to give any Mortgagees and/or Trust Deed Holders, by Registered Mail,
a
copy of any Notice of Default served upon the Landlord, provided that prior
to
such notice Tenant has been notified, in writing, (by way of Notice of
Assignment of Rents and Leases or otherwise) of the address of such Mortgagees
and/or Trust Deed Holders. Tenant further agrees that if Landlord shall have
failed to cure such default within the time provided for in this Lease, then
the
Mortgagees and/or Trust Deed Holders shall have an additional thirty (30) days
within which to cure such default or if such default cannot be cured within
that
time, then such additional time as may be necessary if within such thirty (30)
days, any Mortgagee and/or Trust Deed Holder has commenced and is diligently
pursuing the remedies necessary to cure such default, including but not limited
to commencement of foreclosure proceedings, if necessary to effect such cure
in
which event this lease shall not be terminated while such remedies are being
so
diligently pursued.
NO
ASSIGNMENT, NO SUBLETTING
8. Tenant
shall
not pledge, hypothecate, assign, mortgage or encumber this Lease, or sublease
the whole or any portion of the Demised Premises without the prior written
consent and approval of the Landlord. In the event of any assignment of this
Lease or if the Demised Premises or any part thereof be sublet or occupied
by
anybody other than Tenant, Landlord may, after default by Tenant, collect rent
from the assignee, subtenant, or occupant and apply the net amount collected
to
the rent reserved herein, but no such assignment of subletting or occupancy
or
collection shall be deemed a waiver of this covenant or the acceptance of the
assignee, subtenant or occupant as tenant, or a release of Tenant from the
further performance by Tenant of covenants on the part of Tenant contained.
The
consent by Landlord to an assignment or subletting shall not in way be construed
as a waiver if this covenant, nor shall it serve to relieve Tenant from
liability on account hereof nor from obtaining the expressed consent in writing
of Landlord for any further assignment or subletting.
4
PROPERTY
LOSS, DAMAGE, REIMBURSEMENT
9. Landlord
or
its agents shall not be liable for any damage to property of Tenant or of
others
entrusted to employees of the building, nor for the loss of or damage to
any
property of Tenant by theft or otherwise. Landlord or its agents shall not
be
liable for any injury or damage to persons or property resulting from fire,
explosion, falling plaster, steam, gas, electricity, water, rain or snow
or
leaks from any part of said building or from the pipes, appliances or plumbing
works or from the root street or sub-surface or from any other place or by
dampness or by any other cause of whatsoever nature, unless caused by or
due to
the negligence of Landlord, its agents, servants, or employees; nor shall
Landlord be liable for any latent defect in the Demised Premises or in the
building of which they form a part. Tenant shall reimburse and compensate
Landlord as additional rent within five (5) days after rendition of a statement
for all expenditures made by, or damages or fines sustained or incurred by,
Landlord due to non-performance or non-compliance or breach or failure to
observe any term, covenant or condition of this Lease upon Tenant’s part to be
kept, observed, performed or complied with. Tenant shall give immediate notice
to Landlord in case of fire or accidents in the Demised Premises or in the
building or of defects therein or in any fixtures or
equipment.
DESTRUCTION - FIRE OR OTHER CASE
10. If
the
Demised Premises shall be partially damaged by fire or other cause without
the
fault or neglect of Tenant, Tenant’s servants, employees, agents, visitors or
licensees, the damages shall be repaired by and at the expense of Landlord
and
the rent until such repairs shall be made shall be apportioned according
to the
part of the Demised Premises which is usable by the Tenant. But if such partial
damage is due to the fault or neglect of the Tenant, Tenant’s servants,
employees, agents, visitors or licensees, without prejudice to the rights
of
subordination of Landlord’s insurer, the damages shall be repaired by Landlord
but there shall be no apportionment or abatement of rent. No penalty shall
accrue for reasonable delay which may arise by reason of adjustment of insurance
on the part of Landlord and/or Tenant, and for reasonable delay on account
of
labor troubles,” or any other cause beyond Landlord’s control. If the Demised
Premises are totally damaged or are rendered wholly untenantable by fire
or
other cause, and if Landlord shall decide no to restore or not to rebuild
the
same, or if the building shall be so damaged that Landlord shall decide to
demolish it or not to rebuild it, then or in any such events Landlord may,
within ninety (90) days after such fire or other cause, give Tenant a notice
in
writing of such decision, and thereupon the term of this lease shall expire
by
lapse of time upon the third day after such notice is given, and Tenant shall
vacate the Demised Premises and surrender the same to Landlord. If Tenant
shall
not be in default under this Lease then, upon the termination of this Lease
under the conditions provided for in the sentence immediately preceding,
Tenant’s liability for rent shall cease as of the day following the casualty.
Tenant hereby expressly waives the provisions of Section 227 of the Real
Property Law and agrees that the foregoing provisions of this Article shall
govern and control in lieu thereof. If the damage or destruction is due to
the
fault or neglect of Tenant the debris shall be removed by and at the expense
of
the Tenant.
5
INSURANCE;
WAIVERS OF SUBROGATION
11. Landlord
shall insure
the building of which the Demised Premises are a part against fire and other
uses included in standard extended coverage by policies. Tenant shall maintain
throughout the term of this Lease broad from comprehensive general liability
insurance (written on an occurrence basis and including contractual liability
coverage and an endorsement for bodily injury) in minimum amounts carried by
prudent tenants engaged in similar operations but in no event in an amount
less
than Two Million Dollars ($2,000,000.00) combined single limit per occurrence.
Tenant shall also carry property insurance in an amount not less than that
required to replace all of its fixtures, improvements personal property and
all
other contents of the Premises. Tenant further covenants and agrees to cause
all
said insurance to be placed with insurance companies authorized and licensed
to
issue such policies in the State of New York and to maintain such insurance
at
all times during the term of this Lease. Tenant covenants and agrees that each
such policy shall name landlord as additional insured. Tenant shall deliver
a
certificate of such insurance to landlord concurrently with Tenant's execution
of this Lease and at least annually thereafter. Landlord and Tenant each hereby
waive any and all right to recover against the other (or against their
respective officers, directors, trustees, partners, joint venturers, employees
or agents) for any required to be carried by such party pursuant to this or,
if
greater, actually carried by such party. Landlord and Tenant shall secure
appropriate waivers of subrogation from their respective insurance carriers;
and
each party will, upon request, deliver to the other a certificate evidencing
such waiver of subrogation by the insurer.
SERVICES
- ELEVATOR; HVAC, WATER &
CLEANING
12. Landlord
shall
furnish the following services;
(a) Automatic
passenger
elevator service;
(b) Heat,
when and as
required by law, on business days, Monday through Friday, between the hours
of
7:00 AM and 6:00 PM, excluding Saturday, Sunday and legal holidays, unless
special arrangements have been made with the Landlord;
(c) Hot
and cold water
for lavatory purposes without charge;
(d) Cleaning
services
customary in 45 East Avenue from time to time, if the Demised Premises are
used
exclusively for offices;
(e) Electricity
for usual
office requirements;
(f) Air
cooling during
the appropriate season on business days Monday through Friday between the hours
of 7:00 AM and 6:00 PM, and excluding Saturdays, Sundays and legal holidays,
unless special arrangements have been made with the Landlord.
6
NO
OBSTRUCTIONS
13. Tenant
shall neither
encumber nor obstruct the entrance to or halls and stairs of 45 East Avenue
nor
allow the same to be obstructed or encumbered in any way.
ABANDONMENT
14. In
the event the
Tenant shall vacate or abandon the Demised Premises during the term hereof,
and
cease paying rent or in the event the Tenant should fail to take possession
or
to operate its business and cease paying rent, the Landlord may, at its option,
re-enter the Demised Premises and shall have the same rights and remedies as
provided herein upon Tenant's Default.
CONDEMNATION
15. If
the Demised
Premises or any part thereof or any estate therein, or any other part of 45
East
Avenue materially affecting Tenant's use of the Demised Premises, be takes
by
virtue of eminent domain, this Lease shall terminate on the date when title
vested pursuant to such taking, the rent and additional rent shall be
apportioned as of said date and any rent paid for any period beyond said date
shall be repaid to Tenant. Tenant shall not be entitled to any part of the
award
or any payment in lieu thereof, but Tenant may file a claim for any taking
of
fixtures and improvements owned by Tenant, and for moving expenses, if allowed
by law.
INDEMINIFICATION
16. The
Tenant agrees to
and does hereby indemnify and hold Landlord harmless from any and all claims,
demands, costs, expenses, damages and liabilities arising out of or pertaining
to the use or occupancy of the Demised Premises or by the operations acts or
omissions of Tenant, or of its servants, agents, employees, upon or in relation
to the Demised Premises, and further agrees to defend Landlord with respect
to
any and all claims or causes obligations arising out or relating to the
aforesaid use or operation of the Demised Premises by the Tenant, its agents,
servants, employees, guest or invitees.
WAIVER
OF TRIAL BY JURY & RIGHT OF
REDEMPTION
17. It
is mutually agreed
by and between Landlord and Tenant that the respective parties hereto shall
and
they hereby do waive trial by jury in any action, proceeding or counterclaim
brought by wither of the parties hereto against the other on any matters
whatsoever arising our of or in any way, connected with this Lease, the
relationship of Landlord and Tenant, Tenant's use or occupancy of said Premises
and/or any claim of injury or damage, and any emergency statutory or any other
statutory remedy. It is further mutually agreed that in the event Landlord
commences any proceeding for non-payment of rent, Tenant will not interpose
any
counterclaim of whatever nature or description in any such proceeding, Tenant
hereby further waives any right of redemption after summary proceedings and
the
right to a
7
distributes
and assigns and on behalf of all persons or
corporations claiming through or under this Lease, together with creditors
of
all classes and all other persons having an interest therein.
NO
WAIVER
18. Receipt
of any rent
or any portion thereof, whether specifically reserved or payable under any
of
the covenants herein contained, or of any portion thereof, after a default
on
the part of the Tenant (whether such rent is due before or after such default)
shall not be deemed to operate as a waiver of the right of the Landlord to
enforce the payment of any rent or other obligation herein reserved or to
declare a forfeiture of this lease and to recover the possession of the leased
premises, as provided in this Lease. Nor shall the failure to enforce any
covenant after its breach or any provision after default be construed as a
waiver on the part of this Landlord of any rights under this Lease.
DEFAULT,
LANDLORD REMEDIES
19. (a) If
the Tenant shall,
at any time, be in default in the payment of the rents or any other payments
required of the Tenant hereunder, or any part thereof, and such default shall
continue for a period of fifteen (15) days after the due date, of if the Tenant
shall be in default in the performance of any of the other covenants and
conditions of this Lease to be kept, observed and performed by the Tenant,
and
such default shall not been cured) within twenty (20) days after written notice
and demand, or if this leasehold interest shall be levied on and taken on
execution, attachment or other process of law, whereby the Demised Premises
shall be taken or occupied by someone other than the Tenant, or if a receiver,
assignee or trustee shall be appointed for the Tenant or Tenant's property,
and
the appointment of such received be not vacated and set aside within twenty
(20)
days from the date of such appointment, or if this Lease shall, by operation
of
law, devolve upon or pass to any person or persons other then the Tenant, then,
in any of the events enumerated above, the Landlord may, at the Landlord's
option, upon five (5) days notice in writing, served either personally or by
Certified Mail on the Tenant, terminate this Lease, and this Lease and the
terms
thereof shall automatically cease and terminate at the termination date, and
it
shall be lawful for the Landlord, at his option, to enter the Demised Premises,
or any part thereof, and to hold, possess and enjoy the said Premises and remove
all persons therefrom by summary proceedings or by any action or proceeding
or
by force or otherwise, anything herein contained to the contrary
notwithstanding, and any notice required by Section 731 of the Real Property
Actions and Proceedings Law of the State of New York, or any other statute
or
regulation now or hereafter in force is specifically waived by the
Tenant.
In
the event the Landlord recovers the Demised Premises
as a result of a breach of the terms covenants and conditions contained in
this
Lease, as heretofore and hereafter referred to, the Landlord, at his option,
reserves the right to relet the Premises, either in the name of the Landlord
or
Tenant for a term or terms which may, at the Landlord's option, extend beyond
the balance of the term of this Lease; and the Tenant shall pay the Landlord
any
deficiency between the rent hereby reserved and covenanted to be paid and the
net amount of the rents collected on such reletting, as well as any reasonable
expenses incurred by the Landlord in such relation, including, but not limited
to, attorney's fees, brokers' fees, expenses for putting
8
the
Demised Premises in good order and preparing same
for rental. Such deficiency shall be paid in monthly installments upon
statements rendered by the Landlord to the Tenant, any suits brought to collect
the amount of the deficiency for any one or Tore months shall not preclude
any
subsequent suit or suits to collect the deficiency for any subsequent
months.
No
receipt of monies by the Landlord from the Tenant or
the termination in any way of this Lease or after the giving of any notice
shall
reinstate, continue or extend the term of this Lease or affect any notice given
to the Tenant prior to the receipt of such money; it being agreed that after
the
service of notice or the commencement of a suit, or after final judgment for
possession of the Demised Premises, the Landlord any received and collect any
rent due, and the payment of said rent shall not waive or affect said notice,
suit or judgment.
(b) If
the Tenant
defaults in the payment of any of the obligations payable by the Tenant
hereunder, the Landlord may, at its option, pay the same, and the amount
so paid, together with interest at the legal rate thereof may be added as
additional rent to the next installment of rent becoming due on the next rent
day, and the amount so paid, whether or not paid by the Landlord shall be deemed
to rent due and payable on such rent or any subsequent rent day as the landlord
may, at his option elect, but it is expressly convenanted and agreed that
payment by the Landlord of any obligation herein imposed upon the Tenant shall
not be deemed to waived or release the default in the payment thereof by the
Tenant or the right of the Landlord immediately to recover possession, at the
Landlord's option, of the Demised Premises by reason of such
default.
(c) Any
and all rights
and remedies given to the Landlord herein with respect to the recovery of the
Demised Premises by reason of the Tenant's default or breach of any of the
terms
and provisions thereof, including without limitation, the payment of any sums
due pursuant hereto, of the right to re-enter and take possession of the Demised
Premises upon the happening of any such breach or default, or the right to
maintain any action for rent or cumulative remedies; and no one of them, whether
exercised by the Landlord as distinct, separate and deemed to be an exclusion
of
any of the others. In any action by Landlord in, furtherance of its shall be
entitled to collect from Tenant any and all reasonable attorneys fees in
addition to any other costs and expenses allowed by law.
BANKRUPTCY
20. In
order to more
effectively secure to the Landlord the rent and other terms herein provided,
it
is agreed, as a further condition of this lease, that the filing of any
voluntary petition under the Bankruptcy Code, or an assignment for the benefit
of creditors by or against the Tenant shall be deemed to constitute a breach
of
this Lease, and thereupon ipso facto and without entry of any other action
by
the Landlord, this Lease shall become and be terminated, as aforesaid, and
the
Landlord shall have the same rights and remedies as set forth
hereinabove.
9
LANDLORD'S
RIGHT TO CURE
21. If
the Tenant
breaches a covenant or condition of this Lease, Landlord may, on reasonable
notice to Tenant (except that no notice need to given in case of emergency).
cure such breach at the expense of Tenant and the reasonable amount of all
expenses. Including attorneys' fees, incurred by Landlord in doing so (whether
paid by Landlord or not) shall be deemed additional rent payable on demand.
In
the event Landlord shall assign this Lease, Tenant agrees to look only to the
Landlord's assignee for the performance of Landlord's obligations as specified
herein.
MECHANIC'S
LIEN
22. Tenant
shall within
ten (10) days after notice from Landlord discharge any mechanic's lien for
materials or labor claimed to have furnished to the Demised Premises; on
Tenant's behalf. In the event the Tenant shall fail to cause such mechanic's
lien to be discharged by payment or posting of a bond, landlord may thereupon
take any steps it deems reasonably necessary for the discharge of such
mechanic's lien, including the payment of the amounts claimed therein, whereupon
any sums paid by the Landlord for the purpose of securing such discharge,
including any and all reasonable attorneys' fees, shall be deemed additional
rent, payable on demand.
POSSESSION
23. That
Landlord shall
not be liable for failure to give possession of the Premises upon Commencement
date by reason of the fact that Premises are not ready for occupancy or because
a prior Tenant or any other person is wrongfully holding over or is in wrongful
possession, or for any other reason. The rent (including reserved rent to be
apportioned shall not commence until possession is given or is available, but
the term herein shall not be extended.
INTERRUPTION
OF SERVICE OR
USE
24. Interruption
or
curtailment of any service maintained in 45 East Avenue, caused by strikes,
mechanical difficulties, or any causes beyond Landlord's control whether similar
or dissimilar to those enumerated, shall not entitle Tenant to any claim against
Landlord or to any abatement in rent, nor shall the same constitute constructive
or partial eviction, unless Landlord fails to take such measures as may be
reasonable in the circumstances to restore the service without undue delay.
If
the Demised Premises are rendered untenantable in whole or in part, for a period
of over three (3) business days, by the making of repairs, replacements or
additions, other than those made with Tenant's consent or caused by misuse
or
neglect by Tenant or Tenant's agents, servant visitors or licensees, there
shall
be a proportionate abatement or rent during the period of such
untenantability.
10
MARGINAL
NOTATIONS
25. The
marginal
notations in this Lease are included for convenience on and shall not be
taken
into consideration in any construction or interpretation of this lease or
any of
its provisions.
QUIET ENJOYMENT
26. Landlord
covenants that so long as Tenant pays the rent and additional rent provided
for
herein and performs its other covenants herein, Tenant shall peaceably and
quietly have, hold and enjoy the Demised Premises for the term herein mentioned,
subject to the provisions of this Lease.
BILLS & NOTICES
27. Except
as
otherwise in this Lease provided, a bill, statement, notice or communication
which Landlord may desire or be required to give to Tenant, shall be deemed
sufficiently given or rendered if, in writing, delivered to Tenant personally
or
sent by Certified Mail addressed to Tenant at the building of which the Demised
Premises form a part or at the last known residence address or business address
of Tenant or left at any of the aforesaid premises addressed to Tenant, and
the
time of the rendition of such bill or statement and of the giving of such
notice
or communication shall be deemed to be the time when the same is delivered
to
Tenant, mailed, or left at the Demised Premises as herein provided. Any notice
by Tenant to Landlord must be served by Certified Mail addressed to Landlord
at
the address first hereinabove given or at such other address ad Landlord
shall
designate by written notice.
GLASS
28. Landlord
shall replace, at the expense of Tenant, any and all plate and other glass
damaged or broken from any cause whatsoever in and about the Demised Premises.
Tenant shall insure all plate and other glass in and about the Demises Premises.
In the event Tenant fails to do so, Landlord may insure, and keep insured,
at
Tenant’s expense, all plate and other glass in the Demises Premises for and in
the name of Landlord. Bills for the premiums therefore shall be rendered
by
Landlord to Tenant at such times as Landlord may elect for any expense incurred
by Landlord in replacement of the glass, and shall be due from, and payable
by,
Tenant when rendered, and the amount thereof shall be deemed to be, and be
paid
as, additional rent.
SUCCESSORS AND ASSIGNS
29. The
provisions of this Lease shall apply to and bind the Tenant, and its successors
and permitted assigns. The provisions of this Lease shall apply to and bind
and
inure to the benefit of Landlord and its successors and
assigns.
11
ESTOPPEL
CERTIFICATE
30. Tenant
agrees, upon request, to execute and deliver and Estoppel Certificate certifying
that this Lease continues in full force and effect and that the Landlord
is not
in default of any provision hereunder and that there exists no defenses,
setoffs, or counterclaims with respect to the Tenant’s obligations to pay rent
or perform any of its obligations hereunder.
RULES
& REGULATIONS
31. Tenant
shall
observe and comply with any rules and regulations hereinafter set forth, which
are made a part hereof, and with such further reasonable rules and regulations
as Landlord may prescribe, on written notice to Tenant, for the safety, care
and
cleanliness of 45 East Avenue and the comfort, quiet and convenience of other
occupants of 45 East Avenue.
IN
WITNESS WHEREOF, the
parties hereto have duly executed this lease as of the day and year first above
written.
| LANDLORD | ||
| RIEDMAN CORPORATION | ||
| By: | /s/ John Riedman | |
| John Riedman, Chairman | ||
|
TENANT
|
||
| BROWN & BROWN OF NEW YORK, INC. | ||
| By: |
/s/
Thomas E. Riley
|
|
| Thomas E. Riley | ||
12
EXHIBIT
21
BROWN
& BROWN, INC.
ACTIVE
SUBSIDIARIES
Florida
Corporations:
| 1. |
B
& B Insurance Services, Inc.
|
| 2. |
B
& B Protector Plans, Inc.
|
| 3. |
Braishfield
Associates, Inc.
|
| 4. |
Brown
& Brown Disaster Relief Foundation, Inc.
(non-profit)
|
| 5. |
Champion
Underwriters, Inc.
|
| 6. |
Hull
& Company, Inc.
|
| 7. |
Madoline
Corporation
|
| 8. |
Physicians
Protector Plan RPG, Inc.
|
| 9. |
Preferred
Governmental Claim Solutions, Inc.
|
| 10. |
Program
Management Services, Inc.
|
| 11. |
Risk
Management Associates, Inc.
|
Foreign
Corporations:
| 12. |
Acumen
Re Management Corporation (DE)
|
| 13. |
AFC
Insurance, Inc. (PA)
|
| 14. |
American
Specialty Insurance & Risk Services, Inc.
(IN)
|
| 15. |
Balcones-Southwest,
Inc. (TX)
|
| 16. |
Brown
& Brown Agency of Insurance Professionals, Inc.
(OK)
|
| 17. |
Brown
& Brown Insurance Agency of Virginia, Inc.
(VA)
|
| 18. |
Brown
& Brown Insurance Benefits, Inc.
(TX)
|
| 19. |
Brown
& Brown Insurance of Arizona, Inc.
(AZ)
|
| 20. |
Brown
& Brown Insurance of Georgia, Inc.
(GA)
|
| 21. |
Brown
& Brown Insurance of Nevada, Inc.
(NV)
|
| 22. |
Brown
& Brown Insurance Services of El Paso, Inc.
(TX)
|
| 23. |
Brown
& Brown Insurance Services of San Antonio,
Inc.(TX)
|
| 24. |
Brown
& Brown Insurance Services of Texas, Inc.
(TX)
|
| 25. |
Brown
& Brown Metro, Inc. (NJ)
|
| 26. |
Brown
& Brown of Arkansas, Inc. (AR)
|
| 27. |
Brown
& Brown of Bartlesville, Inc.
(OK)
|
| 28. |
Brown
& Brown of California, Inc.
(CA)
|
| 29. |
Brown
& Brown of Central Oklahoma, Inc.
(OK)
|
| 30. |
Brown
& Brown of Colorado, Inc. (CO)
|
| 31. |
Brown
& Brown of Connecticut, Inc.
(CT)
|
| 32. |
Brown
& Brown of GF/EGF, Inc. (ND)
|
| 33. |
Brown
& Brown of Illinois, Inc. (IL)
|
| 34. |
Brown
& Brown of Iowa, Inc. (IA)
|
| 35. |
Brown
& Brown of Kentucky, Inc. (KY)
|
| 36. |
Brown
& Brown of Louisiana, Inc. (LA)
|
| 37. |
Brown
& Brown of Michigan, Inc. (MI)
|
| 38. |
Brown
& Brown of Minnesota, Inc. (MN)
|
| 39. |
Brown
& Brown of Mississippi, Inc.
(MS)
|
| 40. |
Brown
& Brown of Missouri, Inc. (MO)
|
| 41. |
Brown
& Brown of New Hampshire, Inc.
(NH)
|
| 42. |
Brown
& Brown of New Jersey, Inc.
(NJ)
|
| 43. |
Brown
& Brown of New York, Inc. (NY)
|
| 44. |
Brown
& Brown of North Carolina, Inc.
(NC)
|
| 45. |
Brown
& Brown of North Dakota, Inc.
(ND)
|
| 46. |
Brown
& Brown of Ohio, Inc. (OH)
|
| 47. |
Brown
& Brown of Pennsylvania, Inc.
(PA)
|
| 48. |
Brown
& Brown of South Carolina, Inc.
(SC)
|
| 49. |
Brown
& Brown of Tennessee, Inc. (TN)
|
|
|
| 50. |
Brown
& Brown of Washington, Inc. (WA)
|
| 51. |
Brown
& Brown of West Virginia, Inc.
(WV)
|
| 52. |
Brown
& Brown of Wisconsin, Inc. (WI)
|
| 53. |
Brown
& Brown of Wyoming, Inc. (WY)
|
| 54. |
Brown
& Brown Premium Finance Co.
(VA)
|
| 55. |
Brown
& Brown Re, Inc. (CT)
|
| 56. |
Brown
& Brown Realty Co. (DE)
|
| 57. |
Conduit
Insurance Managers, Inc. (TX)
|
| 58. |
ECC
Insurance Brokers, Inc. (IL)
|
| 59. |
Energy
& Marine Underwriters, Inc.
(LA)
|
| 60. |
Graham-Rogers,
Inc. (OK)
|
| 61. |
Hardin
& Wilson, Inc. (AR)
|
| 62. |
Healthcare
Insurance Professionals, Inc. (TX)
|
| 63. |
International
E&S Insurance Brokers, Inc.
(CA)
|
| 64. |
John
Manner Insurance Agency, Inc. (DE)
|
| 65. |
Lancer
Claims Services, Inc. (NV)
|
| 66. |
Payease
Financial, Inc. (OK)
|
| 67. |
Peachtree
Special Risk Brokers of New York, LLC
(NY)
|
| 68. |
Peachtree
Special Risk Brokers, LLC (GA)
|
| 69. |
Peachtree
Special Risk Insurance Brokers of NV, Inc.
(NV)
|
| 70. |
Peachtree
West Insurance Brokers, Inc. (CA)
|
| 71. |
Proctor
Financial, Inc. (MI)
|
| 72. |
Roswell
Insurance & Surety Agency, Inc.
(NM)
|
| 73. |
Technical
Risks, Inc. (TX)
|
| 74. |
TES
Acquisition Corp. (CA)
|
| 75. |
The
Flagship Group, Ltd. (VA)
|
| 76. |
The
Young Agency, Inc. (NY)
|
| 77. |
Title
Pac, Inc. (OK)
|
| 78. |
Unified
Seniors Association, Inc. (GA -
non-profit)
|
Indirect
Subsidiaries:
| 79. |
Axiom
Re, Inc. (FL)
|
| 80. |
Azure
IV Acquisition Corporation (AZ)
|
| 81. |
Brown
& Brown of Indiana, Inc. (IN)
|
| 82. |
Brown
& Brown of Lehigh Valley, Inc.
(PA)
|
| 83. |
Brown
& Brown of New Mexico, Inc.
(NM)
|
| 84. |
Brown
& Brown of Northern California, Inc.
(CA)
|
| 85. |
Brown
& Brown of Southwest Indiana, Inc.
(IN)
|
| 86. |
Ernest
Smith Insurance Agency, Inc. (FL)
|
| 87. |
Florida
Intracoastal Underwriters, Limited Company (FL)
|
| 88. |
Graham-Rogers
of Arkansas, Inc. (AR)
|
| 89. |
Hotel-Motel
Insurance Group, Inc. (FL)
|
| 90. |
MacDuff
America, Inc. (FL)
|
| 91. |
MacDuff
Pinellas Underwriters, Inc. (FL)
|
| 92. |
MacDuff
Underwriters, Inc. (FL)
|
EXHIBIT
23
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
consent to the incorporation by reference in Registration Statements No.
333-75158 on Form S-3; No. 33-41204 on Form S-8, as amended by Amendment No.
1
to Form S-8 No. 333-04888; and Nos. 333-14925 and 333-43018 on Forms S-8 of
our
reports dated March 14, 2006 relating to the consolidated financial statements
and management’s report on the effectiveness of internal control over financial
reporting appearing in this Annual Report on Form 10-K of Brown & Brown,
Inc. and subsidiaries for the year ended December 31, 2005.
/S/
DELOITTE & TOUCHE LLP
Jacksonville,
FL
March
14,
2006
EXHIBIT
24
|
POWER
OF ATTORNEY
|
|
The
undersigned constitutes and appoints Laurel L. Grammig and Thomas
M.
Donegan, Jr., or either of them, as his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for
him and
in his name, place and stead, in any and all capacities, to sign
the 2005
Annual Report on Form 10-K for Brown & Brown, Inc., and to file the
same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting
unto said
attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in
and
about the premises as fully to all intents and purposes as he might
or
could in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitutes, may lawfully
do or
cause to be done by virtue hereof.
|
|
/S/
J. HYATT
BROWN
|
|
J.
Hyatt Brown
|
|
Dated:
January 25, 2006
|
|
POWER
OF ATTORNEY
|
|
The
undersigned constitutes and appoints Laurel L. Grammig and Thomas
M.
Donegan, Jr., or either of them, as his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for
him and
in his name, place and stead, in any and all capacities, to sign
the 2005
Annual Report on Form 10-K for Brown & Brown, Inc., and to file the
same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting
unto said
attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in
and
about the premises as fully to all intents and purposes as he might
or
could in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitutes, may lawfully
do or
cause to be done by virtue hereof.
|
|
/S/
JIM W.
HENDERSON
|
|
Jim
W. Henderson
|
|
Dated:
January 25, 2006
|
|
POWER
OF ATTORNEY
|
|
The
undersigned constitutes and appoints Laurel L. Grammig and Thomas
M.
Donegan, Jr., or either of them, as his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for
him and
in his name, place and stead, in any and all capacities, to sign
the 2005
Annual Report on Form 10-K for Brown & Brown, Inc., and to file the
same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting
unto said
attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in
and
about the premises as fully to all intents and purposes as he might
or
could in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitutes, may lawfully
do or
cause to be done by virtue hereof.
|
|
/S/
SAMUEL P. BELL
III
|
|
Samuel
P. Bell, III
|
|
Dated:
January 25, 2006
|
|
POWER
OF ATTORNEY
|
|
The
undersigned constitutes and appoints Laurel L. Grammig and Thomas
M.
Donegan, Jr., or either of them, as his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for
him and
in his name, place and stead, in any and all capacities, to sign
the 2005
Annual Report on Form 10-K for Brown & Brown, Inc., and to file the
same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting
unto said
attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in
and
about the premises as fully to all intents and purposes as he might
or
could in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitutes, may lawfully
do or
cause to be done by virtue hereof.
|
|
/S/
HUGH M.
BROWN
|
|
Hugh
M. Brown
|
|
Dated:
January 25, 2006
|
|
POWER
OF ATTORNEY
|
|
The
undersigned constitutes and appoints Laurel L. Grammig and Thomas
M.
Donegan, Jr., or either of them, as his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for
him and
in his name, place and stead, in any and all capacities, to sign
the 2005
Annual Report on Form 10-K for Brown & Brown, Inc., and to file the
same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting
unto said
attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in
and
about the premises as fully to all intents and purposes as he might
or
could in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitutes, may lawfully
do or
cause to be done by virtue hereof.
|
|
/S/
BRADLEY CURREY,
JR.
|
|
Bradley
Currey, Jr.
|
|
Dated:
January 25, 2006
|
|
POWER
OF ATTORNEY
|
|
The
undersigned constitutes and appoints Laurel L. Grammig and Thomas
M.
Donegan, Jr., or either of them, as his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for
him and
in his name, place and stead, in any and all capacities, to sign
the 2005
Annual Report on Form 10-K for Brown & Brown, Inc., and to file the
same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting
unto said
attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in
and
about the premises as fully to all intents and purposes as he might
or
could in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitutes, may lawfully
do or
cause to be done by virtue hereof.
|
|
/S/
THEODORE J.
HOEPNER
|
|
Theodore
J. Hoepner
|
|
Dated:
January 25, 2006
|
|
POWER
OF ATTORNEY
|
|
The
undersigned constitutes and appoints Laurel L. Grammig and Thomas
M.
Donegan, Jr., or either of them, as his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for
him and
in his name, place and stead, in any and all capacities, to sign
the 2005
Annual Report on Form 10-K for Brown & Brown, Inc., and to file the
same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting
unto said
attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in
and
about the premises as fully to all intents and purposes as he might
or
could in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitutes, may lawfully
do or
cause to be done by virtue hereof.
|
|
/S/
DAVID H.
HUGHES
|
|
David
H. Hughes
|
|
Dated:
January 25, 2006
|
|
POWER
OF ATTORNEY
|
|
The
undersigned constitutes and appoints Laurel L. Grammig and Thomas
M.
Donegan, Jr., or either of them, as his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for
him and
in his name, place and stead, in any and all capacities, to sign
the 2005
Annual Report on Form 10-K for Brown & Brown, Inc., and to file the
same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting
unto said
attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in
and
about the premises as fully to all intents and purposes as he might
or
could in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitutes, may lawfully
do or
cause to be done by virtue hereof.
|
|
/S/
JOHN R.
RIEDMAN
|
|
John
R. Riedman
|
|
Dated:
January 25, 2006
|
|
POWER
OF ATTORNEY
|
|
The
undersigned constitutes and appoints Laurel L. Grammig and Thomas
M.
Donegan, Jr., or either of them, as his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for
him and
in his name, place and stead, in any and all capacities, to sign
the 2005
Annual Report on Form 10-K for Brown & Brown, Inc., and to file the
same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting
unto said
attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in
and
about the premises as fully to all intents and purposes as he might
or
could in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitutes, may lawfully
do or
cause to be done by virtue hereof.
|
|
/S/
JAN E.
SMITH
|
|
Jan
E. Smith
|
|
Dated:
January 25, 2006
|
|
POWER
OF ATTORNEY
|
|
The
undersigned constitutes and appoints Laurel L. Grammig and Thomas
M.
Donegan, Jr., or either of them, as her true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for
her and
in her name, place and stead, in any and all capacities, to sign
the 2005
Annual Report on Form 10-K for Brown & Brown, Inc., and to file the
same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting
unto said
attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in
and
about the premises as fully to all intents and purposes as she might
or
could in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitutes, may lawfully
do or
cause to be done by virtue hereof.
|
|
/S/
CHILTON D.
VARNER
|
|
Chilton
D. Varner
|
|
Dated:
January 25, 2006
|
|
POWER
OF ATTORNEY
|
|
The
undersigned constitutes and appoints Laurel L. Grammig and Thomas
M.
Donegan, Jr., or either of them, as his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for
him and
in his name, place and stead, in any and all capacities, to sign
the 2005
Annual Report on Form 10-K for Brown & Brown, Inc., and to file the
same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting
unto said
attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in
and
about the premises as fully to all intents and purposes as he might
or
could in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitutes, may lawfully
do or
cause to be done by virtue hereof.
|
|
/S/
CORY T.
WALKER
|
|
Cory
T. Walker
|
|
Dated:
January 25, 2006
|
EXHIBIT
31.1
CERTIFICATIONS
I,
J.
Hyatt Brown, certify that:
1.
I have
reviewed this annual report on Form 10-K of Brown & Brown, Inc.
(Registrant);
2.
Based
on my knowledge, this annual report does not contain any untrue statement of
a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made,
not
misleading with respect to the period covered by this annual
report;
3.
Based
on my knowledge, the financial statements, and other financial information
included in this annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Registrant
as
of, and for, the periods presented in this annual report;
4.
The
Registrant's other certifying officers and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange
Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and
have:
(a)
designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
(b)
designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c)
evaluated the effectiveness of the Registrant's disclosure controls and
procedures and presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this annual report based on such evaluation; and
(d)
disclosed in this annual report any change in the Registrant's internal control
over financial reporting that occurred during the Registrant's fourth fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, the Registrant's internal control over financial reporting.
5.
The
Registrant's other certifying officer(s) and I have disclosed, based on our
most
recent evaluation of internal control over financial reporting, to the
Registrant's auditors and the audit committee of the Registrant's board of
directors (or persons performing the equivalent functions):
(a)
all
significant deficiencies and material weaknesses in the design or operation
of
internal control over financial reporting which are reasonably likely to
adversely affect the Registrant's ability to record, process, summarize and
report financial information; and
(b)
any
fraud, whether or not material, that involves management or other employees
who
have a significant role in the Registrant's internal control over financial
reporting.
Date:
March 14, 2006
/s/
J.
Hyatt
Brown
J.
Hyatt
Brown
Chief
Executive Officer
EXHIBIT
31.2
CERTIFICATIONS
I,
Cory
T. Walker, certify that:
1.
I have
reviewed this annual report on Form 10-K of Brown & Brown, Inc.
(Registrant);
2.
Based
on my knowledge, this annual report does not contain any untrue statement of
a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3.
Based
on my knowledge, the financial statements, and other financial information
included in this annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Registrant
as
of, and for, the periods presented in this annual report;
4.
The
Registrant's other certifying officers and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange
Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and
have:
(a)
designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
(b)
designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c)
evaluated the effectiveness of the Registrant's disclosure controls and
procedures and presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this annual report based on such evaluation; and
(d)
disclosed in this annual report any change in the Registrant's internal control
over financial reporting that occurred during the Registrant's fourth fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, the Registrant's internal control over financial reporting.
5.
The
Registrant's other certifying officer(s) and I have disclosed, based on our
most
recent evaluation of internal control over financial reporting, to the
Registrant's auditors and the audit committee of the Registrant's board of
directors (or persons performing the equivalent functions):
(a)
all
significant deficiencies and material weaknesses in the design or operation
of
internal control over financial reporting which are reasonably likely to
adversely affect the Registrant's ability to record, process, summarize and
report financial information; and
(b)
any
fraud, whether or not material, that involves management or other employees
who
have a significant role in the Registrant's internal control over financial
reporting.
Date:
March 14, 2006
/s/
Cory T.
Walker
Cory
T.
Walker
Chief
Financial Officer
EXHIBIT
32.1
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO SECTION 906
OF
THE SARBANES-OXLEY ACT OF 2002
In
connection with the Annual Report of Brown & Brown, Inc. (Company) on Form
10-K for the fiscal year ended December 31, 2005 as filed with the Securities
and Exchange Commission on the date hereof (Form 10-K), I, J. Hyatt Brown,
Chief
Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
(1)
The
Form 10-K fully complies with the requirements of Section 13(a) or 15(d) of
the
Securities Exchange Act of 1934 (15 U.S.C. § 78m or § 78o(d)); and
(2)
The
information contained in the Form 10-K fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
Dated:
March 14, 2006
/s/
J.
Hyatt
Brown
J.
Hyatt
Brown
Chief
Executive Officer
EXHIBIT
32.2
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO SECTION 906
OF
THE SARBANES-OXLEY ACT OF 2002
In
connection with the Annual Report of Brown & Brown, Inc. (Company) on Form
10-K for the fiscal year ended December 31, 2005 as filed with the Securities
and Exchange Commission on the date hereof (Form 10-K), I, Cory T. Walker,
Chief
Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
(1)
The
Form 10-K fully complies with the requirements of Section 13(a) or 15(d) of
the
Securities Exchange Act of 1934 (15 U.S.C. § 78m or § 78o(d)); and
(2)
The
information contained in the Form 10-K fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
Dated:
March 14, 2006
/s/
Cory T.
Walker
Cory
T.
Walker
Chief
Financial Officer