Notice of 1998
Annual Meeting and
Proxy Statement
April 16, 1998
Dear Shareholder:
You are cordially invited to attend the Annual
Meeting of Shareholders of Gryphon Holdings Inc. to be
held at 4:00 p.m. on Tuesday, May 12, 1998 at The Down
Town Association, 60 Pine Street, New York City.
Notice of the meeting, a proxy card and the Proxy
Statement containing certain information about the
Company are enclosed, together with the Annual Report
to Shareholders for the year ended December 31, 1997.
At this year's meeting you will be asked to elect
three Class II Directors to serve until the Annual
Meeting of Shareholders in 2001.
We recommend that you vote for the three nominees,
whose names appear in the Proxy Statement.
Whether or not you plan to attend the meeting, it
is important that your shares be represented.
Accordingly, we request you to sign, date and mail the
enclosed proxy card in the envelope provided at your
earliest convenience.
Thank you for your cooperation and continued
support.
Sincerely,
Stephen A. Crane
President &
Chief Executive Officer
GRYPHON HOLDINGS INC.
30 Wall Street
New York, New York 10005-2201
Telephone Number: (212) 825-1200
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 12, 1998
To the Shareholders of Gryphon Holdings Inc.:
Notice is hereby given that the Annual Meeting of
Shareholders of Gryphon Holdings Inc., a Delaware corporation
(the "Company"), will be held at The Down Town Association, 60
Pine Street, New York City, on Tuesday, May 12, 1998, at 4:00
p.m. for the following purposes:
1. To elect the three Class II Directors of the
Company; and
2. To transact such other business as may properly
come before the meeting or any adjournments
thereof.
The Board of Directors has fixed the close of business on
April 2, 1998 as the record date for determining shareholders
entitled to notice of and to vote at the Annual Meeting.
A proxy card and return envelope are enclosed for your
convenience.
On behalf of the Board of Directors
ROBERT M. COFFEE
Secretary
April 16, 1998
IMPORTANT
It is important that your shares be represented at the
Annual Meeting. Please complete, sign, date and mail the
enclosed proxy card promptly in the return envelope provided,
regardless of whether you plan to attend the Annual Meeting, so
that your vote may be recorded.
GRYPHON HOLDINGS INC.
30 Wall Street
New York, New York 10005-2201
Telephone Number: (212) 825-1200
PROXY STATEMENT
This Proxy Statement is being furnished to the holders of
the Common Stock, par value $.01 per share (the "Common Stock"),
of Gryphon Holdings Inc., a Delaware corporation (the "Company"),
in connection with the solicitation of proxies by the Board of
Directors for use at the Annual Meeting of Shareholders of the
Company to be held on May 12, 1998, and any adjournments thereof.
A copy of the notice of meeting accompanies this Proxy Statement.
It is anticipated that the mailing of this Proxy Statement will
commence on or about April 16, 1998.
Only holders of record of the Common Stock as of the close
of business on April 2, 1998, the record date for the Annual
Meeting, will be entitled to notice of and to vote at the Annual
Meeting. On the record date, the Company had outstanding
6,739,506 shares of Common Stock, which are the only securities
of the Company entitled to vote at the Annual Meeting, each share
being entitled to one vote. The presence in person or by proxy
of the holders of a majority of the outstanding shares of Common
Stock will constitute a quorum for the transaction of business at
the meeting.
The holders of the Common Stock (the "Shareholders") are
being asked to elect the three Class II Directors of the Company.
Shareholders who execute proxies may revoke them by giving
written notice to the Secretary of the Company at any time before
such proxies are voted. Attendance at the Annual Meeting will
not have the effect of revoking a proxy unless the Shareholder
attending the Annual Meeting files written notice of revocation
of the proxy with the Secretary of the Company at any time prior
to the voting of the proxy.
The Company will bear the cost of the Annual Meeting and the
cost of soliciting proxies, including the cost of mailing the
proxy material. In addition to solicitation by mail, directors,
officers, and regular employees of the Company (who will not be
specifically compensated for such services) may solicit proxies
by telephone or otherwise. Arrangements will be made with
brokerage houses and other custodians, nominees, and fiduciaries
to forward proxies and proxy material to their principals, and
the Company will reimburse them for their expenses, which are
anticipated not to exceed $6,500.
All proxies received from Shareholders pursuant to this
solicitation will be voted, except as to matters where authority
to vote is specifically withheld, in accordance with the
instructions contained thereon. If no instructions are given,
the persons named in the proxy solicited by the Board of
Directors of the Company intend to vote for the nominees for
election as Class II Directors of the Company.
Directors of the Company are elected by a plurality of the
votes present, in person or by proxy, and entitled to vote at the
Annual Meeting, assuming a quorum is present. Any other matters
submitted to the vote of the Shareholders shall be determined by
a majority of the votes present, in person or by proxy, and
entitled to vote at the Annual Meeting. Under applicable
Delaware law, in tabulating votes, broker non-votes will not be
considered present at the Annual Meeting.
The Board of Directors does not know of any matter other
than the matters presented herein that will be presented for
consideration at the meeting. However, if other matters properly
come before the meeting, the persons named in the accompanying
proxy intend to vote thereon in accordance with their judgment.
1. ELECTION OF DIRECTORS
The Company's By-Laws provide for a Board of Directors that
shall not be less than 3 nor more than 15 in number as determined
from time to time by the Board of Directors. The By-Laws provide
that the Board of Directors shall be divided into three classes,
as nearly equal in number as the total number of Directors
constituting the entire Board of Directors permits, with the term
of office of one class expiring each year. The number of
Directors is presently set at ten, comprised of three Class I
Directors, three Class II Directors and four Class III Directors.
Currently, one Class I Director's seat is vacant. At the Annual
Meeting of Shareholders, three Class II Directors will be elected
by the Shareholders of record as of the close of business on
April 2, 1998, to serve for a term that expires at the Annual
Meeting of Shareholders in 2001.
David H. Elliott, Richard W. Hanselman and George L. Yeager,
each a Class II Director of the Company, have been nominated by
the Board of Directors to stand for reelection as Class II
Directors, to hold office until the Annual Meeting of
Shareholders to be held in 2001 and until their successors shall
be duly elected and shall have qualified. If any of the nominees
for Class II Directors should fail or otherwise become
unavailable to serve as a Class II Director for whatever reason,
circumstances not expected by management, the proxies will be
voted for any substitute nominee who may be selected by the Board
of Directors prior to or at the Annual Meeting.
In connection with the pending acquisition by the Company of
The First Reinsurance Company of Hartford ("First Re") and
certain of its affiliates from Dearborn Risk Management, Inc.
("Dearborn"), which acquisition is expected to close during the
second quarter of 1998, the Company has agreed to increase, as
soon as practical following the closing, the number of Directors
to eleven and to elect John A. Dore, President and Chief
Executive Officer of First Re, and John K. Castle, Chairman of
Castle Harlan, Inc., to the Board of Directors of the Company.
See "Acquisition of First Re".
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR
THE ELECTION OF THE NOMINEES FOR CLASS II DIRECTORS.
MANAGEMENT
Directors and Executive Officers
The following table provides information regarding the
Directors and Executive Officers of the Company.
Name Age Position
Stephen A. Crane 52 President, Chief Executive Officer and Director
Hadley C. Ford 62 Chairman of the Board and Director
Robert M. Coffee 52 Senior Vice President, General Counsel & Secretary
Robert P. Cuthbert 50 Senior Vice President & Chief Financial Officer
Robert M. Baylis 59 Director
Franklin L. Damon 53 Director
Robert R. Douglass 66 Director
David H. Elliott 56 Director
Richard W. Hanselman 70 Director
Joe M. Rodgers 64 Director
George L. Yeager 64 Director
The Class I Directors, Messrs. Baylis and Ford, were last
elected for a term that expires at the Annual Meeting of
Shareholders in 2000; the Class II Directors, Messrs. Elliott,
Hanselman and Yeager, were last elected for a term that expires
at the Annual Meeting of Shareholders in 1998; and the Class III
Directors, Messrs. Crane, Damon, Douglass and Rodgers, were last
elected for a term that expires at the Annual Meeting of
Shareholders in 1999. At each Annual Meeting of Shareholders,
successors to the Directors whose term expires at that Annual
Meeting will be elected for a three-year term.
Biographical Information for Directors and Executive Officers
Set forth below are the names, positions and offices held
with the Company, and a brief account of the business experience
during the past five years, of each executive officer and nominee
for and member of the Board of Directors of the Company.
Mr. Crane has served as President, Chief Executive Officer
and a Class III Director of the Company since September 1993.
From April 1993 until December 1993, Mr. Crane served as
Chairman, Strategic Development Group -- North America of Willis
Corroon Corporation, a subsidiary of Willis Corroon Group plc.
From November 1989 until March 1993, Mr. Crane was President
and Chief Executive Officer of G. L. Hodson & Son, Inc., a
reinsurance intermediary and a subsidiary of Willis Corroon
Corporation.
Mr. Coffee has served as Senior Vice President, General
Counsel and Secretary of the Company since November 1994. From
July 1990 until November 1994, Mr. Coffee served as Vice
President, Secretary and Assistant General Counsel of Willis
Corroon Corporation.
Mr. Cuthbert, a certified public accountant, has served as
Senior Vice President and Chief Financial Officer of the Company
since March 1994. From April 1993 to March 1994, Mr. Cuthbert
served as Senior Vice President and Chief Financial Officer of
Coregis Group, Inc., a specialty commercial insurer, and as a
Director of Mt. Airy Insurance Company, California Insurance
Company and Coregis Indemnity Company, all of which are
subsidiaries of Coregis Group, Inc. From January 1992 to May
1992, Mr. Cuthbert served as Senior Vice President and Chief
Financial Officer of Poe & Associates, Inc., an insurance
intermediary. From November 1989 to December 1991, Mr. Cuthbert
served as First Vice President, Chief Financial Officer and
Investor Relations Officer of Willis Corroon Corporation.
Mr. Baylis has served as a Class I Director of the Company
since March 1996. Mr. Baylis retired as Vice Chairman of CS
First Boston Corporation in January 1996 after 33 years of
service. Mr. Baylis served as Chairman and Chief Executive
Officer of CS First Boston Pacific from March 1993 until August
1994, and as Vice Chairman of The First Boston Corporation
("First Boston") from March 1992 until March 1993. Prior to
March 1992, Mr. Baylis was responsible for all investment banking
and merger and acquisition activities for First Boston's
financial institution clients. Mr. Baylis has served as a
Director of New York Life Insurance Company since January 1997,
as a Director of Host Marriott Corp., a hotel real estate
company, since May 1996, and as a Director of Covance Inc., a
contract research organization, since January 1997.
Mr. Damon has served as a Class III Director of the Company
since September 1993. Mr. Damon has been engaged in the practice
of law in the insurance regulatory field for more than twenty
years. From March 1991 to January 1994 he served as of counsel
to the law firm of Sullivan, Roche & Johnson. Since 1986,
Mr. Damon has served as Chairman of the Lawyers Professional
Liability Insurance Committee of the Los Angeles County Bar
Association, and he is presently Special Counsel to the Los
Angeles County Bar Association.
Mr. Douglass has served as a Class III Director of the
Company since September 1993. Since December 1993, Mr. Douglass
has served as of counsel to the law firm of Milbank, Tweed,
Hadley & McCloy. From 1985 until 1993, Mr. Douglass
served as Vice Chairman and as a Director of The Chase Manhattan
Corporation and its principal subsidiary, The Chase Manhattan
Bank, N.A. (collectively, "Chase Manhattan"), which he joined in
1976. Mr. Douglass served as Senior Customer Planning and
Development Officer of Chase Manhattan from 1990 until 1993. Mr.
Douglass served as a Director of Home Holdings Inc. from 1993 to
1995. Mr. Douglass has served as a Director of HRE Properties, a
real estate investment trust, since January 1992 and as Chairman
of the Board of Cedel since May 1994.
Mr. Elliott has served as a Class II Director of the Company
since April 1994. Mr. Elliott has served as Chairman of MBIA,
Inc. and its operating company, MBIA Insurance Corporation,
(collectively, "MBIA") since January 1994, as Chief Executive
Officer of MBIA since January 1992 and as a Director of MBIA
since March 1988. Mr. Elliott served as President of MBIA from
January 1987 through December 1994 and as Chief Operating Officer
of MBIA from January 1987 to December 1991. Mr. Elliott has
served as a Director of Orion Capital Corporation since March
1998.
Mr. Ford has served as the Chairman of the Board and as a
Class I Director of the Company since September 1993. Mr. Ford
is an independent management consultant who has also served as a
Senior Advisor to the insurance industry practice of Andersen
Consulting since October 1992. From 1965 to 1992, Mr. Ford was
employed by BoozAllen & Hamilton, most recently as a Director and
Senior Vice President in charge of the firm's insurance industry
practice. Mr. Ford has served as a Director of U.S. Homecare
Inc. since 1994.
Mr. Hanselman has served as a Class II Director of the
Company since September 1993. Mr. Hanselman has served as a
Director of Arvin Industries, Inc., an automotive supplier, since
1983, as a Director of Becton Dickenson & Co., a medical and
diagnostic equipment manufacturer, since 1981, as a Director of
Bradford Funds Inc., a money market fund, since 1987, and as a
Director of the Foundation Health Systems Inc., a health
maintenance organization, since 1990.
Mr. Rodgers has served as a Class III Director of the
Company since September 1993. Mr. Rodgers has served as a
Director of AMR Corporation/American Airlines, Inc. since January
1989, as a Director of Gaylord Entertainment Company since
October 1991, as a Director of Lafarge Corporation, a cement and
construction materials company, since May 1989, as a Director of
SunTrust Bank, Nashville, N.A. since October 1989, as a Director
of Thomas Nelson, Inc., a publishing company, since August 1992,
as a Director of Tractor Supply Company since April 1995, and as
a Director of Willis Corroon Group plc, a worldwide insurance
intermediary, since October 1990.
Mr. Yeager has served as a Class II Director of the Company
since October 1993. Mr. Yeager was Senior Vice President and
Chief Underwriting Officer for the Crum and Forster Insurance
Companies from 1986 to 1992. Mr. Yeager was a Director of United
States Fire Insurance Company, North River Insurance Company,
Westchester Fire Insurance Company, International Insurance
Company and Constitution Reinsurance Company, all of which were
subsidiaries of Crum and Forster Insurance Companies. Mr. Yeager
served from 1994 to 1997 as a Director of American E&S, a
subsidiary of Acordia, Inc. Mr. Yeager also served on the Board
of Governors for the National Council of Compensation Insurance
from 1988 to 1992. He served as a Director of Insurance
Services Office from 1990 to 1992, as a Director of American
Nuclear Institute from 1990 to 1992, and as a Director of
Industrial Risk Insurance from 1991 to 1992.
Except for certain severance agreements and indemnification
agreements, none of the executive officers has an agreement
relating to the terms of his employment with the Company. See
"Certain Relationships and Related Transactions."
Mr. Damon represents the Company from time to time in
connection with certain insurance regulatory matters, primarily
in the State of California. For such services, Mr. Damon
received $37,226 and $51,875 for 1997 and 1996, respectively.
All of the executive officers and Directors of the Company
are citizens of the United States of America. There are no
material proceedings to which any Director or executive officer
or any associate of any such Director or executive officer is a
party adverse to the Company or any of its subsidiaries or has a
material interest adverse to the Company or any of its
subsidiaries.
Board of Directors
The Board of Directors has the responsibility for establishing
broad corporate policies and for the overall affairs of the
Company. Members of the Board are kept informed of the
Company's business by various reports provided to them by
management, as well as by operating and financial reports made at
Board and Committee meetings by the President and other executive
officers of the Company.
Committees of the Board
The Board has established an Audit Committee, a Compensation
Committee, an Executive Committee, a Governance Committee and an
Investment Committee. The Audit Committee reviews the services
provided by the Company's independent public accountants,
consults with such accountants on audits and proposed audits and
reviews the need for internal auditing procedures and the
adequacy of internal controls. The Compensation Committee
establishes and reviews the overall compensation policy
of the Company, determines the specific terms and conditions of
employment of senior executives of the Company and oversees the
employee benefit programs of the Company. See "Report of the
Compensation Committee." The Executive Committee, during the
interim between meetings of the Board, has been delegated certain
authority of the Board. The Governance Committee reviews and
makes recommendations to the Board regarding: (i) the role and
effectiveness of the Board and its Committees, (ii) criteria for
membership on the Board and (iii) individual candidates for
membership on the Board. The Governance Committee also seeks
potential nominees for Board membership in various ways and will
consider suggestions submitted by Shareholders. Such
suggestions, together with appropriate biographical information,
should be submitted to the Secretary of the Company. The
Investment Committee determines the Company's investment policy
and reviews the performance of the Company's investment managers.
In addition to the foregoing committees, the Board has
established from time to time additional committees to assist it
with special projects. During 1997, the Board established an Ad
Hoc Committee in connection with the negotiation of the pending
acquisition of First Re and certain other subsidiaries of
Dearborn.
The Audit Committee consists of Messrs. Damon, Douglass,
Rodgers (Chairman) and Yeager. The Compensation Committee
consists of Messrs. Douglass (Chairman), Ford, Hanselman and
Rodgers. The Executive Committee consists of Messrs. Crane
(Chairman) and Ford. The Governance Committee consists of
Messrs. Crane, Douglass, Ford (Chairman) and Hanselman. The
Investment Committee consists of Messrs. Baylis, Crane,
Elliott and Hanselman (Chairman). The Ad Hoc Committee consisted
of Messrs. Baylis (Chairman), Douglass, Ford and Elliott.
Attendance of Directors
During 1997, the Board of Directors held five meetings; the
Ad Hoc Committee held one meeting; the Audit Committee held four
meetings; the Compensation Committee held five meetings; the
Executive Committee held no meetings; the Governance Committee
held no meetings and the Investment Committee held four meetings.
All directors attended 100% of the meetings of the Board and the
committees on which they served.
COMPENSATION OF DIRECTORS
Directors of the Company who are employees of the Company or
its affiliates receive no directors' fees. Non-employee
Directors are paid an annual retainer of $20,000, plus $1,000 per
day for attendance at each Board of Directors meeting and for
attendance at meetings of committees of the Board of Directors
occurring on days other than days of Board meetings. The
Chairmen of the Audit Committee, the Compensation Committee and
the Investment Committee receive an annual fee of $3,000 for
serving in such capacity. The Chairman of the Board receives,
effective as of January 1, 1996, an additional annual retainer of
$20,000 for services rendered in such capacity. Non-employee
Directors receive $500 for each meeting of the Board of
Directors, and each meeting of its committees occurring on days
other than days of Board meetings, in which they participate by
telephone. In addition, all Directors are reimbursed for their
reasonable travel expenses incurred in attending these meetings.
Under the terms of the 1995 Non-Employee Director Stock
Option Plan (the "Directors' Plan"), each Director of the Company
who is not an employee of the Company or its affiliates is
entitled to the grant, on the later of (i) May 12, 1995 or (ii)
the date on which such Director is first elected to the Board, of
an initial option to purchase 10,000 shares of Common Stock.
Options under the Directors' Plan are granted at the fair market
value of such shares on the date of grant and become exercisable
in four equal annual installments commencing on the day
immediately preceding the second anniversary of the date of
grant. Options remain outstanding for ten years from the date of
grant, unless terminated earlier in the event of death,
disability, retirement or other circumstances detailed in the
Directors' Plan. On the fifth anniversary of the date of the
initial grant, and continuing on each subsequent anniversary of
such date during a Director's tenure on the Board, such Director
will be granted an option to purchase an additional 2,000 shares
of Common Stock or such lesser proportionate amount as then
remains available for grant. An aggregate of 100,000 shares of
Common Stock have been authorized for issuance upon the exercise
of options under the terms of the Directors' Plan.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee, which is composed of four
independent outside Directors, is responsible for the
establishment and review of the overall compensation policy of
the Company, the general oversight of the employee benefits plans
maintained by the Company and the specific terms and conditions
of employment of senior executives of the Company.
It is the overall policy of the Compensation Committee to
align the interests of management with those of the Shareholders
by making a significant portion of executive compensation depend
upon the Company's performance. The Company's compensation
programs emphasize the following basic principles:
Compensation should be linked to the creation of value for
Shareholders, and executives should be encouraged to acquire
ownership in the Company;
Compensation programs should be designed to attract,
motivate and retain executives with the requisite skills to
effectively pursue the Company's strategic objectives; and
Compensation programs should reward individual performance
through an appropriate balance of base salary, annual bonus
awards and long-term equity incentives.
Compensation Program
The Company's executive compensation program consists of
three major components: base salary, annual bonus awards and long-
term equity incentives. Each of these components supports the
Company's overall compensation policy, which relates pay to
performance.
Base Salary
Amounts paid in base salary, including periodic increases,
are determined primarily by the scope of the executive's
responsibilities, his performance and the salaries offered within
the industry for comparable positions. In connection with its
overall evaluation of the foregoing factors, the Compensation
Committee draws upon its members' general knowledge of
compensation practices within the insurance and financial
services industries and periodically reviews compensation data
regarding other insurance companies, including a peer group of
comparably sized property and casualty insurance companies
established by the Compensation Committee specifically for this
purpose.
Annual Bonus Awards
Annual bonus awards earned by executives are based upon
their achievement of performance objectives established by the
Compensation Committee at the beginning of each fiscal year that
link potential bonus awards to the enhancement of Company
earnings and overall profitability. The Compensation Committee
believes that the use of predetermined performance objectives
provides an excellent link between the value created for
Shareholders and the incentives paid to executives.
Long-Term Equity Incentives
Certain executives of the Company may earn equity-based
incentive awards, the ultimate value of which is related to the
long-term performance of the Company's Common Stock. Long-term
equity incentives may take the form of stock options or
restricted stock.
Stock options have been the principal vehicle of the Company
for the payment of long-term incentive compensation. Stock
options granted to executives under the Company's 1993 Stock
Option Plan provide incentives to executives by giving them a
strong economic interest in building value for Shareholders.
Stock options become exercisable in annual installments
commencing two years after the date of grant, and the exercise
price of each option is the fair market value of the Company's
Common Stock on the date of grant. As a result, executives
benefit from options only through a rise over time in the market
value of the underlying shares.
Restricted stock also motivates executives by providing
incentives tied to Shareholder value. Restricted stock granted
to executives under the Company's Restricted Stock Plan is
subject to restrictions on its transfer that lapse in annual
installments commencing two years following the date of grant.
Accordingly, the ultimate value of restricted stock awards is
linked to the performance of the Company's Common Stock over an
extended period.
Long-term equity incentives are granted by the Compensation
Committee based upon an executive's position and his or her
ability to contribute to the future performance of the Company.
The Compensation Committee is responsible for determining the
form and terms of all such awards.
Compensation of the Chief Executive Officer
The overall compensation of the Chief Executive Officer (the
"CEO") reflects the Compensation Committee's evaluation of (i)
the Company's performance as measured by operating, financial and
strategic objectives, viewed from both a short-term and a long-
term perspective, (ii) the CEO's individual performance in
pursuing the foregoing objectives and (iii) the compensation paid
to chief executive officers of other companies of similar size
and complexity in the insurance and financial services
industries.
Mr. Crane's base salary for 1997 was $330,000. The
Compensation Committee determined this figure based upon a review
of the compensation paid to CEOs of other insurance companies,
including a peer group of comparably sized property and casualty
insurance companies established by the Compensation Committee
specifically for this purpose. The Compensation Committee
considered the Company's overall performance as measured by
operating, financial and strategic objectives established in
connection with annual bonus awards for 1997 and determined that
no such awards would be granted to any of the executive officers
of the Company for 1997. The Committee also determined that no
additional long-term incentive awards would be granted during
1997 to the executive officers of the Company.
Internal Revenue Code Section 162(m)
Section 162 (m) of the Internal Revenue Code of 1986, as
amended (the "Code"), generally disallows a tax deduction to
public companies for compensation over $1 million paid to the CEO
or to any of the other highly compensated executive officers
named in the Company's annual proxy statement. Qualifying
"performance-based compensation" and compensation paid pursuant
to plans or agreements adopted or entered into prior to a
company's initial public offering of securities or subsequently
approved by its shareholders will not be subject to the foregoing
deduction limitation, if certain requirements are met. The
Compensation Committee believes that the compensation to be paid
in 1998 to any of the Company's executive officers will not
exceed the foregoing deduction limitation.
The Company has established and maintains compensation
programs that align the interests of management with those of the
Shareholders and that comply with the principles set forth in
this report. The Compensation Committee intends to take
appropriate actions consistent with such principles to avoid the
unnecessary loss of future deductions under Section 162(m) of the
Code.
COMPENSATION COMMITTEE
Robert R. Douglass, Chairman
Hadley C. Ford
Richard W. Hanselman
Joe M. Rodgers
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee is a former or
current executive officer or employee of the Company or any of
its subsidiaries, nor does any executive officer of the Company
serve as an officer, director or member of a compensation
committee of any entity, one of whose executive officers or
directors is a director of the Company.
EXECUTIVE COMPENSATION
The following information relates to the annual and long-
term compensation paid by the Company and its subsidiaries in
connection with the three fiscal years ending December 31, 1997,
1996 and 1995 to the Chief Executive Officer of the Company and
the three other executive officers of the Company whose earnings
exceeded $100,000 for the fiscal year ended December 31, 1997.
Long-Term
Annual Compensation Compensation Awards
Securities
Underlying All Other
Name and Principal Position Year Salary Bonus Options Compensation(3)
Stephen A. Crane 1997 $330,000 $ 0 0 $18,768
President &
Chief Executive Officer 1996 330,000 0 25,000 18,794
1995 300,000 300,000 0 18,880
John F. Iannucci (1) 1997 257,500 0 0 19,932
Executive Vice President 1996 245,000 0 20,000 19,890
1995 235,000 263,313(2) 0 19,440
Robert M. Coffee 1997 148,750 0 0 14,948
Senior Vice President & 1996 140,000 0 5,000 14,077
General Counsel 1995 132,500 32,500 0 10,263
Robert P. Cuthbert 1997 193,833 0 0 14,831
Senior Vice President & 1996 188,000 0 5,000 14,940
Chief Financial Officer 1995 180,000 108,000 0 11,686
_____________________
(1) Mr. Iannucci resigned on December 31, 1997 as an officer and
Director of the Company and its subsidiaries.
(2) In accordance with the terms of the Annual Incentive Plan
for Key Employees of Gryphon Holdings Inc. and its
Subsidiaries, the portion of the bonus payable to Mr.
Iannucci for 1995 that exceeded his base salary for 1995 was
paid to him in shares of Common Stock. Accordingly, Mr.
Iannucci received 1,500 shares of Common Stock based upon
the fair market value of the shares on March 4, 1996, the
date of the award. These shares, which are not subject to
forfeiture, may not be sold or otherwise transferred by Mr.
Iannucci pending the lapse of a restriction on their
transfer. This restriction will lapse with respect to 25%
of the shares on the second anniversary of the date of the
award and with respect to an additional 25% of the shares on
each of the next three anniversaries of such date. Pending
the lapse of this restriction, Mr. Iannucci enjoys all other
rights of a Shareholder of the Company with respect to such
shares.
(3) These amounts for 1997, 1996 and 1995, respectively,
represent (i) premiums paid by the Company for term life
insurance policies as follows: Mr. Crane $1,440, $1,440 and
$1,440; Mr. Coffee $991, $1,207 and $881; Mr. Cuthbert
$839, $870 and $766; Mr. Iannucci $1,440, $1,320 and $864;
(ii) contributions by the Company under the Gryphon Holdings
401(k) & Profit Sharing Plan as follows: Mr. Crane $13,992,
$14,070 and $14,076; Mr. Coffee $13,957, $12,870 and
$9,382; Mr. Cuthbert $13,992, $14,070 and $10,920; and Mr.
Iannucci $13,992, $14,070 and $14,076; and (iii) the value
attributed to the use of a Company automobile as follows:
Mr. Crane $3,336, $3,364 and $3,364; and, Mr. Iannucci
$4,500, $4,500 and $4,500.
During the Company's last fiscal year ending December 31,
1997, no options, stock appreciation rights or other long term
incentive awards were granted to, or exercised by, any of the
persons named in the Summary Compensation Table set forth on page
8. The following table sets forth for each person named in the
Summary Compensation Table the specified information with respect
to all options outstanding on December 31, 1997.
FISCAL YEAR-END OPTION VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at Fiscal Options at Fiscal
Year-End Year-End(1)
Name Exercisable Unexercisable Exercisable Unexercisable
Stephen A. Crane 56,250 43,750 $210,938 $70,313
John F. Iannucci 37,500 32,500 140,625 46,875
Robert M. Coffee 7,500 7,500 24,825 24,825
Robert P. Cuthbert 15,000 15,000 34,650 34,650
_____________________
(1) Based on $16.75 per share, which was the closing price of
the Common Stock on NASDAQ on December 31, 1997.
COMPARISON OF CUMULATIVE TOTAL SHAREHOLDER RETURN
The following performance graph compares the percentage change
in the Company's cumulative total Shareholder return on shares
of Common Stock with the cumulative total return for (i) the
S&P's 500 Composite Stock Index and (ii) a peer group, composed
of seven other property and casualty insurers, over the period
from December 21, 1993 (the date on which the Common Stock began
to trade on the NASDAQ National Market System, pursuant to an
initial public offering) through December 31, 1997. The
companies included in the peer group for 1997 are Frontier
Insurance Group, Inc., Gainsco, Inc., Markel Corporation, RLI
Corp., The Navigators Group Inc., Capitol Transamerica
Corporation and Philadelphia Consolidated Holdings. Titan
Holdings, Inc., included within the peer group for 1996, has been
dropped from the peer group for 1997 following its acquisition by
another company. The returns of the companies in the peer group
have been weighted according to their respective stock market
capitalizations for purposes of arriving at a peer group average.
PERFORMANCE GRAPH
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Ownership of Common Stock by Management
The following table sets forth as of April 2, 1998
information concerning the ownership of Common Stock by each
Director, by each executive officer named in the Summary
Compensation Table and by all executive officers and Directors of
the Company as a group, together with their respective percentage
ownership of the outstanding Common Stock.
MANAGEMENT OWNERSHIP OF COMMON STOCK
Shares of Shares upon exercise Percent of
Name of Beneficial Owner Common Stock of Stock Options(1) Total(2) Class
Stephen A. Crane 82,664 56,250 138,914 2.1%
John F. Iannucci 46,338 (3) 0 46,338 (3) *
Robert M. Coffee 6,403 7,500 13,903 *
Robert P. Cuthbert 20,909 22,500 43,409 *
Robert M. Baylis 10,000 2,500 12,500 *
Franklin L. Damon 3,500 5,000 8,500 *
Robert R. Douglass 5,000 5,000 10,000 *
David H. Elliott 2,000 5,000 7,000 *
Hadley C. Ford 12,000 5,000 17,000 *
Richard W. Hanselman 3,000 5,000 8,000 *
Joe M. Rodgers 1,000 (4) 5,000 6,000 (4) *
George L. Yeager 1,000 5,000 6,000 *
All Directors and
Executive Officers as a
Group (12 persons) 193,814 123,750 317,564 4.7%
* less than 1%.
______________________
(1) Represents beneficial ownership of shares that may be
acquired by the exercise of stock options which are
currently exercisable or exercisable within sixty days.
(2) The amounts of Common Stock and stock options beneficially
owned are reported on the basis of regulations of the
Securities and Exchange Commission governing the
determination of beneficial ownership of securities.
(3) Includes 500 shares held by Mr. Iannucci's wife and
100 shares held by Mr. Iannucci as trustee for his grandson.
(4) These shares are held by JMR Investments, a Tennessee
general partnership of which Mr. Rodgers' wife is a general
partner and the majority owner.
Except as otherwise noted above, the Company believes the
beneficial holders listed above have sole voting and investment
power regarding the shares of Common Stock shown as being
beneficially owned by them.
Principal Holders of Common Stock
The following table indicates the only persons known by the
Company to be beneficial owners of more than five percent of the
outstanding Common Stock as of April 2, 1998. The Company has no
other class of equity securities outstanding.
BENEFICIAL OWNERS OF GREATER THAN
FIVE PERCENT OF COMMON STOCK
Amount and Nature of Percent
Name of Beneficial Owner Beneficial Ownership of Class
Markel Corporation 661,250 (1) 9.81%
4551 Cox Road
Glen Allen, VA 23060-3382
Pioneering Management Corporation 660,000 (2) 9.79%
60 State Street
Boston, MA 02109
Dimensional Fund Advisors Inc. 437,200 (3) 6.49%
1299 Ocean Avenue
Santa Monica, CA 90401
Oppenheimer Capital 429,100 (4) 6.37%
Oppenheimer Tower
World Financial Center
New York, NY 10281
The Capital Group Companies, Inc. 407,100 (5) 6.04%
333 South Hope Street
Los Angeles, CA 90071
Royce & Associates, Inc. 401,500 (6) 5.96%
1414 Avenue of the Americas
New York, NY 10019
(1) Based upon information obtained from a Schedule 13D, dated
March 30, 1998, which was filed with the Securities and Exchange
Commission by Markel Corporation ("Markel"). The Schedule 13D
reported that Markel beneficially owned 661,250 shares of Common
Stock. Markel had sole dispositive and voting power with
respect to such shares.
(2) Based upon information obtained from a Schedule 13G, dated
January 21, 1998, which was filed with the Securities and
Exchange Commission by Pioneering Management Corporation
("Pioneering"). The Schedule 13G reported that Pioneering owned
660,000 shares of Common Stock. Pioneering had sole voting power
and shared dispositive power with respect to these shares.
(3) Based upon information obtained from a Schedule 13G, dated
February 9, 1998, which was filed with the Securities and
Exchange Commission by Dimensional Fund Advisors Inc.
("Dimensional"). The Schedule 13G reported that Dimensional, a
registered investment adviser, beneficially owned 473,200 shares
of Common Stock which were held in portfolios of DFA Investment
Dimensions Group Inc., a registered open-end investment company,
or in various other investment vehicles managed by Dimensional.
Dimensional had sole dispositive and voting power with respect to
such shares.
(4) Based upon information obtained from a Schedule 13G, dated
February 27,1998, which was filed with the Securities and
Exchange Commission by Oppenheimer Capital ("Oppenheimer"). The
Schedule 13G reported that Oppenheimer, a registered investment
adviser, beneficially owned 429,100 shares of Common Stock.
Oppenheimer had sole dispositive and voting power with respect to
such shares.
(5) Based upon information obtained from a Schedule 13G, dated
February 10, 1998, which was filed with the Securities and
Exchange Commission by The Capital Group Companies, Inc., which
is the owner of six investment companies. The Schedule 13G
reported that The Capital Group Companies, Inc. beneficially
owned 407,100 shares of Common Stock in connection with
investment accounts managed for numerous clients by its
investment companies. No single account held 5% or more of the
outstanding Common Stock. The Capital Group Companies, Inc.,
through its investment companies, had sole dispositive and voting
power with respect to such shares.
(6) Based upon information obtained from a Schedule 13G, dated
February 14, 1998, which was filed with the Securities and
Exchange Commission by Royce & Associates, Inc. and Charles M.
Royce, the controlling person of Royce & Associates, Inc. The
Schedule 13G reported that Royce & Associates, Inc. beneficially
owned 401,500 shares of Common Stock. Charles M. Royce owned no
shares of Common Stock independent of Royce & Associates, Inc.
Royce & Associates, Inc. held sole voting and dispositive power
with respect to such shares.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Severance Agreements
The Company has entered into severance agreements with each
of Messrs. Crane, Iannucci, and Cuthbert, under which each is
entitled to between 6 months and 12 months of salary continuation
payments, as determined by the Board, in the event that he is
terminated without "cause" or for disability, or resigns as a
result of constructive termination. Under the terms of these
agreements, as well as a similar severance agreement between the
Company and Mr. Coffee, in the event that a person acquires more
than 20% of the Company's outstanding voting securities, and
within 24 months thereafter the executive is terminated without
"cause" or for disability or the executive suffers a constructive
termination, as defined in such agreements, the executive is
entitled to a lump sum payment equal to 36 months of his then
current salary.
Indemnification Agreements
The Company's Certificate of Incorporation provides for the
indemnification of the Company's officers and Directors to the
fullest extent permitted by the Delaware General Corporation Law
(the "DGCL") in connection with services provided by such
individuals to or on behalf of the Company. As permitted by the
Certificate of Incorporation and the DGCL, the Company has
entered into indemnification agreements with each of its
executive officers and Directors that detail the procedures by
which such individuals will be entitled to indemnification in the
event they become involved in any proceeding in connection with
such services.
Acquisition of First Re
On February 9,1998, the Company entered into a stock
purchase agreement with Dearborn to buy all of the issued and
outstanding shares (the "Shares") of capital stock of certain
subsidiaries of Dearborn, including First Re. In connection with
the purchase of the Shares, the Company has agreed to elect, as
soon as practicable following the acquisition of the Shares, John
K. Castle, the Chairman of Castle Harlan, Inc., or such other
person nominated by Castle Harlan, Inc. and acceptable to the
Board of Directors (the "Castle Harlan Nominee"), as a Class I
Director of the Company to serve until the Annual Meeting of the
Shareholders in 2000, at which time the Board of Directors shall
recommend a Castle Harlan Nominee to the Shareholders of the
Company for election as a Class I Director. At each subsequent
Annual Meeting of Shareholders of the Company at which the term
of the Castle Harlan Nominee is to expire or a vacancy caused by
the cessation of service of the Castle Harlan Nominee is to be
filled, the Board of Directors shall recommend a replacement
Castle Harlan Nominee to Shareholders of the Company for election
as a Class I Director and shall use all reasonable efforts to
cause the election of such nominee to the Board of Directors.
The foregoing arrangement is subject to termination in various
circumstances outlined in an agreement between the Company,
Dearborn and Castle Harlan Partners II, L.P., a shareholder of
Dearborn. In a separate agreement with John A. Dore, the
President and Chief Executive Officer of First Re, the Company
has agreed to increase the number of Directors of the Company
following the acquisition of the Shares from ten to eleven and to
elect Mr. Dore to the Board of Directors of the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934
requires the Company's executive officers, Directors and persons
who own more than ten percent of a registered class of the
Company's equity securities (collectively, the "Reporting
Persons") to file reports of ownership and changes in ownership
on Forms 3, 4 and 5 (collectively, the "Forms") with the
Securities and Exchange Commission (the "SEC"). These Reporting
Persons are required pursuant to SEC regulations to furnish the
Company with copies of all Forms they file with the SEC. Based
solely on the Company's review of the copies of the Forms it has
received and written representations from certain Reporting
Persons, the Company believes that all transactions by Reporting
Persons relating to ownership and changes in ownership of equity
securities of the Company during the fiscal year 1997 have been
duly reported to the SEC pursuant to the aforementioned Forms.
RELATIONSHIP WITH INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent
auditors to audit the consolidated financial statements of the
Company for 1998. Representatives of KPMG Peat Marwick LLP will
be present at the Annual Meeting of Shareholders, will be given
an opportunity to make a statement if they so desire, and will be
available to respond to appropriate questions relating to the
audit of the Company's 1997 consolidated financial statements.
SUBMISSION OF SHAREHOLDER PROPOSALS
Shareholders of the Company wishing to include proposals in
the proxy material for the next Annual Meeting of Shareholders of
the Company must submit the same in writing so as to be received
at the executive offices of the Company on or before December 9,
1998. Such proposals must also meet the other requirements of
the rules of the SEC relating to shareholder proposals and the
requirements set forth in the Certificate of Incorporation.
A copy of the Company's Annual Report on Form 10-K is
available without charge to any Shareholder who requests a copy
in writing. Requests for copies of this report should be
directed to the Secretary, Gryphon Holdings Inc., 30 Wall Street,
New York, NY 10005-2201.
On behalf of the Board of Directors
ROBERT M. COFFEE
Secretary
April 16, 1998