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Exhibit 7
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
MARKEL CORPORATION and MG )
ACQUISITION CORP., )
)
Plaintiffs, )
) C.A. No. _________
v. )
GRYPHON HOLDINGS INC., STEPHEN A. )
CRANE, ROBERT M. BAYLIS, FRANKLIN )
L. DAMON, ROBERT R. DOUGLASS, )
DAVID H. ELLIOTT, HADLEY C. FORD, )
RICHARD W. HANSELMAN, GEORGE L. )
YEAGER, JOHN DORE and JOHN )
)
CASTLE, )
)
Defendants. )
COMPLAINT FOR
DECLARATORY AND INJUNCTIVE RELIEF
Markel Corporation ("Markel") and MG Acquisition Corp. ("Purchaser,"
together with Markel, "Plaintiffs") for their complaint against defendants
Gryphon Holdings Inc. (the "Company" or "Gryphon"), Stephen A. Crane, Robert M.
Baylis, Franklin L. Damon, Robert R. Douglass, David H. Elliott, Hadley C. Ford,
Richard W. Hanselman, George L. Yeager, John Dore and John Castle
("Defendants") allege, through their attorneys, as follows:
Nature of the Action
1. Markel and Purchaser bring this action against Gryphon and the
members of Gryphon's Board of Directors (the "Board" or the "Individual
Defendants") for injunctive and declaratory relief to prevent the Individual
Defendants from interfering with the ability of Gryphon's stockholders to
realize the substantial benefits offered by a proposed combination of Markel and
Gryphon.
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2. Over the last several years, soft market conditions have
predominated in the insurance industry. As a result, financial size and quality
of service are increasingly important for insurance companies to survive as
stand-alone entities. Markel's presence as a market leader in the specialty
insurance industry and its superior historical financial results would make
Markel an ideal merger partner for Gryphon.
3. In order to realize these substantial benefits, on September 1,
1998, Markel sent a letter to Gryphon indicating an interest in a possible
business combination. This interest came to a head on October 1, 1998, when
Markel delivered to Gryphon a letter proposing a merger of the two companies,
pursuant to which each outstanding share of the common stock of the Company, par
value $.01 per share (the "Common Stock") would be converted into the right to
receive $18.00 in cash.
4. Having received only a noncommittal response to its overture, on
October 20, 1998, Purchaser commenced a fully-financed, non-coercive,
non-discriminatory offer to purchase all outstanding shares of Common Stock not
owned by Markel or its affiliates at a price per share of $18.00 in cash (the
"Tender Offer"). In the event that a holder of the Gryphon Series A 4%
Cumulative Convertible Preferred Stock wishes to tender, such holder must first
convert the preferred shares into shares of Common Stock and then tender the
resulting common shares into the offer. The Tender Offer is conditioned upon (i)
the receipt of regulatory approval, (ii) redemption of the Rights (as defined
herein), (iii) approval pursuant to Section 203 of the General Corporation Law
of the State of Delaware (the "General Corporation Law") by the Board and (iv)
the tender of a minimum number of shares of Common Stock. The Tender Offer is
the initial step in a two-step transaction pursuant to which Purchaser proposes
to acquire all of the outstanding shares of the Common Stock. If successful, the
Tender Offer will be followed by a merger or similar business
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combination with Purchaser (the "Proposed Merger," and together with the Tender
Offer, the "Proposed Acquisition"). Pursuant to the Proposed Merger, it is
currently anticipated that each then outstanding share of Common Stock (other
than shares owned by Markel or any of its subsidiaries, shares held in the
treasury of Gryphon or shares as to which appraisal rights are perfected) would
be converted into the right to receive an amount in cash equal to the price paid
in the Tender Offer.
5. Based on the closing trading price for the Common Stock on September
30, 1998, the last day before public announcement of the Proposed Acquisition,
Gryphon stockholders would receive a 29% premium for their stock. The offer
price also represents a 55% premium over the trading price on the day before
Markel first sent a letter to the Board making an offer, as set forth more fully
below.
6. The Proposed Acquisition represents a unique and compelling
opportunity to enhance value for both sets of stockholders. However, Gryphon has
available various defensive measures -- including, but not limited to, a
stockholder rights plan (the "Poison Pill"), the Delaware Business Combination
Statute, 8 Del. C. ss. 203 ("Section 203"), a classified board and a provision
in the Gryphon certificate of incorporation which prohibits the stockholders of
Gryphon from taking action by written consent in lieu of a meeting -- which may
be used to block the Proposed Acquisition and to deprive the Gryphon
stockholders of their fundamental rights as owners of the Company.
7. Upon information and belief, Defendants will attempt to prevent the
successful completion of the Proposed Acquisition and the concomitant benefits
to the Gryphon stockholders by coercively and improperly wielding their various
anti-takeover devices. Unless prevented from doing so by this Court, the
Proposed Acquisition's value to the Gryphon stockholders may be forever lost.
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8. Given the nature of the Proposed Acquisition and its substantial
value to Gryphon's stockholders, the Board should not be allowed to deprive the
stockholders of Gryphon of the opportunity to decide upon the merits of the
Proposed Acquisition for themselves. Use of Gryphon's anti-takeover devices or
other defensive measures against the Proposed Acquisition represents an
unreasonable response to the Proposed Acquisition in violation of the fiduciary
duties owed by the members of the Board to Gryphon's stockholders.
The Parties
9. Markel is a Virginia corporation with its principal place of
business in Glen Allen, Virginia. Markel is an insurance holding company which
writes specialty insurance products and programs for a variety of niche markets
through its insurance subsidiaries, which have over 800 employees. Markel
competes in two distinct areas of the specialty insurance markets: the excess
and surplus line segment ("E&S") and the specialty admitted segment. The E&S
market focuses on hard to place risks and risks that admitted insurers
specifically refuse to write. Markel is the fifth largest domestic E&S writer in
the United States. The specialty admitted market represents almost 2% of the
entire property and casualty industry. When Markel went public in 1986, the
company had assets of just over $50 million and the stock was offered at $10 a
share. Today, Markel has assets of over $1.5 billion, and the stock is currently
trading at over $130 per share. This success has been achieved through a
combination of the growth of existing businesses and acquisitions. Markel is the
beneficial owner of 791,150 shares of Common Stock, which constitutes
approximately 11.7% of the outstanding Common Stock.
10. Purchaser is a Delaware corporation which is a newly formed,
wholly-owned subsidiary of Markel. Purchaser is the beneficial owner of 100
shares of Common Stock.
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11. Defendant Gryphon is a Delaware corporation with its principal
place of business in New York, New York. Gryphon is a holding company that
operates through its main subsidiary, Gryphon Insurance Group, as a specialty
property and casualty underwriting organization. Gryphon has three wholly-owned
insurance company subsidiaries, Associated International Insurance Company, a
California domiciled insurance corporation, Calvert Insurance Company, a
Pennsylvania domiciled insurance corporation and The First Reinsurance Company
of Hartford, a Connecticut domiciled insurance corporation. Gryphon has
developed expertise in lines of insurance typically not emphasized by standard
lines of insurers, including architects' and engineers' professional liability,
difference in conditions (primarily earthquake coverage), and various other
specialty coverages and focuses on providing coverage for small to medium-sized
insureds.
12. Hadley C. Ford is Chairman of the Board and a director of Gryphon
and has served in those positions since September 1993. Stephen A. Crane has
served as President, Chief Executive Officer and a director of Gryphon since
September of 1993.
13. Robert A. Baylis, Franklin L. Damon, Robert R. Douglass, David H.
Elliott, Richard W. Hanselman, George L. Yeager, John Dore and John Castle are
directors of Gryphon and have been directors at all times relevant to this
action.
The Poison Pill
14. In June 1995, the Board adopted a Poison Pill without seeking or
obtaining stockholder approval. Pursuant to the Poison Pill, the Board declared
a dividend of one right for each share of Common Stock outstanding (the
"Rights"). Each Right entitles the holder to purchase one one-hundredth of a
share of Junior Participating Cumulative Preferred Stock at a price of $50 per
unit, subject to adjustment in certain circumstances.
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15. The Poison Pill is designed to thwart through two mechanisms any
acquisition of Gryphon that does not have the approval of the Board. First,
under the "flip-in" provision, if a person or group (an "Acquiring Person")
acquires a specified percentage of the Common Stock, the Rights would entitle a
holder (other than the Acquiring Person or certain affiliates, associates or
transferees) to buy shares of the Common Stock having a market value of $100 for
only $50. Second, under the "flip-over" provision, if the Company were
subsequently involved in a merger or other business combination with an
Acquiring Person (or any other person if all holders of Common Stock are not
treated alike), the Rights would entitle a holder (other than the Acquiring
Person or certain affiliates, associates or transferees) to buy shares of common
stock of the acquiring corporation having a market value of $100 for only $50.
The Poison Pill provides that at any time prior to the time that any person
becomes an Acquiring Person, the Board has the power to redeem the Rights at the
price of $0.001 per Right.
The Board Lowers the Trigger
16. Without giving advance notice to stockholders, on July 28, 1998,
the Board took certain action related to the Poison Pill. Initially, the Board
would have amended the Poison Pill to lower the threshold for the definition of
an Acquiring Person from beneficial ownership of 20% or more of the shares of
Common Stock to beneficial ownership of 10% or more of the shares of Common
Stock (the "Initial Board Action"). Later that day, after reviewing the
Amendment No. 2 to Schedule 13D filed by Markel, the Board "revised the
implementation" of the Poison Pill (the "Rights Amendment"). Pursuant to the
Rights Amendment, the definition of an Acquiring Person is as follows:
"Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which, together with all
Affiliates and Associates (as such terms are hereinafter
defined) of such Person,
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shall be the Beneficial Owner (as such term is hereinafter
defined) of the percentage of Common Shares (the "Acquiring
Person Percentage") equal to or greater than the lesser of (A)
20% of the Common Shares then outstanding or (B) the greater
of (x) 10% of the Common Shares then outstanding or (y) the
percentage of the Common Shares then outstanding equal to the
number of Common Shares Beneficially Owned as of 4:30 p.m. New
York time on July 28, 1998 by the Person Beneficially Owning
the largest number of Common Shares as of such date and time
divided by the Common Shares outstanding as of such date and
time, but shall not include ... any Person who would otherwise
be an "Acquiring Person" but for the good faith determination
by the Board of Directors of the Company that such Person has
become an "Acquiring Person" inadvertently, provided that such
Person together with its Affiliates and Associates divest
themselves as promptly as practicable of beneficial ownership
of a sufficient number of Common Shares so that such Person
together with its Affiliates and Associates beneficially own a
percentage of the Common Shares then outstanding less than the
Acquiring Person Percentage.
17. Under this language, the Board may contend that Markel is an
Acquiring Person in light of the fact that Markel, as the largest single
shareholder of Gryphon at 4:30 p.m. on July 28, 1998, is "the Beneficial Owner
... of the percentage of Common Shares ... equal to ... the percentage of the
Common Shares then outstanding equal to the number of Common Shares Beneficially
Owned as of 4:30 p.m. New York time on July 28, 1998 by the Person Beneficially
Owning the largest number of Common Shares as of such date and time divided by
the Common Shares outstanding as of such date and time."
18. The language of other provisions of the Rights Amendment and the
language of the press release which was issued at the time of the Rights
Amendment seem to indicate that the Board did not intend, in amending the
definition of "Acquiring Person," to have Markel be deemed to be an Acquiring
Person at its present level of ownership. The failure of the Company to take any
action in the last two months asserting that Markel is an Acquiring Person has
supported that impression.
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19. Markel's counsel had conversations with Gryphon's counsel on
October 2 and 6, 1998, seeking to confirm that Markel is not an Acquiring Person
and was told during the latter conversation that the Company's counsel agreed
with Markel's counsel that the Board has the power under the Poison Pill to
correct the uncertainty created by the language of the Rights Amendment.
However, the Board has taken no such action during the last two weeks.
20. The language of the Poison Pill provides that even after any person
or group of persons becomes an Acquiring Person, the provisions of the Poison
Pill may be amended by the Board in order (i) to cure any ambiguity, (ii) to
correct or supplement any provision contained in the Pill which may be defective
or inconsistent with any other provision therein, or (iii) to change or supplant
or make any other provisions in regard to matters or questions arising under the
Pill which the Company and the Rights Agent may deem necessary or desirable,
which shall not adversely affect the interests of the holders of Rights (other
than an Acquiring Person). The language of the July 28, 1998 definition of
Acquiring Person is inconsistent with other provisions of the Rights Amendment
and the Board should have amended the Poison Pill to correct this inconsistency.
21. Even if the members of the Board did not correct their drafting
mistake, they could also have made a good faith determination that if Markel
became an Acquiring Person, it did so inadvertently and allowed Markel to divest
itself of some shares to fall below the trigger percentage. That good faith
determination should not have been difficult to make in light of the fact that
the Board's own actions caused the problem.
22. The Poison Pill effectively allows the Board unilaterally to block
acquisitions by third parties, even those, such as the Proposed Acquisition,
which nevertheless provide substantial benefits to Gryphon's stockholders.
Triggering of the Rights would substantially dilute the holdings of Markel and
make the Proposed Acquisition prohibitively expensive. Accordingly, the Proposed
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Acquisition cannot be completed unless the Board redeems the Rights or amends
the Poison Pill to make it inapplicable to the Proposed Acquisition. Failure to
take such actions serves only to entrench the Individual Defendants and prevents
the Gryphon stockholders from deciding upon the merits of the Proposed
Acquisition for themselves. Upon information and belief, the Board does not
intend to redeem the Rights or amend the Poison Pill to accommodate the Proposed
Acquisition.
Markel's Attempts to Negotiate
23. On September 1, 1998, Markel sent a letter to the Board making a
proposal to acquire all of the issued and outstanding shares of Common Stock in
a merger transaction. Pursuant to the proposal, each outstanding share of Common
Stock would have been converted into the right to receive total consideration of
$18.00, consisting of $15.50 in cash and $2.50 in notes, subject to possible
offset for adverse developments. The offer price represented a premium of
approximately 55% over the closing trading price on August 31, 1998. Apparently
in response to this overture, the trading price increased by more than $3 during
the next two days.
24. A couple of weeks later, Markel finally received a response. On
September 16, 1998, representatives of Markel met with Messrs. Crane and Ford to
discuss Markel's objectives.
25. Two days later, Markel was presented with a draft confidentiality
and standstill agreement which would have required Markel to agree that it would
not, for up to two years, make any offers to shareholders, seek any proxies from
shareholders of the Company or generally take any steps which Markel felt might
be necessary to maximize value for shareholders, in each case without the
specific consent of the Board.
26. In response, Markel sent a proposed confidentiality and standstill
agreement which would have restricted Markel from acquiring additional shares of
Common Stock for a six-month period, with earlier termination in the event that
Gryphon received or solicited overtures from other bidders.
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27. Markel's proposed confidentiality and standstill agreement was
rejected within minutes.
The $18.00 Offer
28. On October 1, 1998, Markel sent a letter to the Board proposing an
unconditional cash merger offer of $18.00 per share, subject only to required
regulatory and stockholder approval, redemption of the Rights and execution of
definitive documentation. The October 1 letter also stated that Markel "would be
willing to enhance this offer if you can establish that additional value is
warranted" and noted that Markel would be willing to enter into a reasonable
confidentiality agreement to achieve that objective.
29. In response, Mr. Crane sent a letter to Steven A. Markel,
Vice-Chairman of Markel, indicating that the Board "had not yet determined to
take any definitive course of action with respect to a sale of the Company" and
reiterating the demand that Markel sign Gryphon's unreasonable form of
confidentiality and standstill agreement.
30. On October 6, 1998, Markel sent a draft merger agreement to
Gryphon's advisors and made it clear that Markel was prepared to discuss any of
the provisions of the agreement. Gryphon's advisors reacted negatively to the
draft merger agreement, but refused to provide specific comments and
suggestions, saying that they had not been authorized by the Board to do so.
31. On October 14, 1998, Markel sent a revised draft merger agreement
to the Board with a letter asking once again that the Board "determine whether
or not you wish to pursue a negotiated transaction."
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32. Having received no response to the October 14 letter or the draft
merger agreement, on October 20, 1998, Purchaser commenced the Tender Offer.
Delaware Business Combination Statute
33. Section 203 of the General Corporation Law, entitled "Business
Combinations with Interested Stockholders" applies to any Delaware corporation
that has not opted out of the statute's coverage. Gryphon has not opted out of
the statute's coverage.
34. Section 203 was designed to impede coercive and inadequate tender
and exchange offers. Section 203 provides that if a person acquires 15% or more
of a corporation's voting stock (thereby becoming an "interested stockholder"),
such interested stockholder may not engage in a "business combination" with the
corporation (defined to include a merger or consolidation) for three years after
the interested stockholder becomes such, unless: (i) prior to the 15%
acquisition, the board of directors has approved either the acquisition or the
business combination; (ii) the interested stockholder acquires 85% of the
corporation's voting stock in the same transaction in which it crosses the 15%
threshold; or (iii) on or subsequent to the date of the 15% acquisition, the
business combination is approved by the board of directors and authorized at an
annual or special meeting of stockholders (and not by written consent) by the
affirmative vote of at least 66-2/3% of the outstanding voting stock which is
not owned by the interested stockholder.
35. Application of Section 203 to the Proposed Acquisition, which is
neither coercive nor inadequate, would delay the Proposed Merger for at least
three years. Accordingly, three years of the synergies of the proposed
Markel-Gryphon combination will forever be lost. Additionally, any number of
events could occur within those three years which would prevent the Proposed
Merger altogether.
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36. Upon information and belief, the Board intends to refuse to exempt
the Proposed Acquisition from the restrictions of Section 203. Because a refusal
would constitute a breach of fiduciary duty by the members of the Board --
Section 203 should not be used by the Board to obstruct the Proposed
Acquisition, which is non-coercive and non-discriminatory, offers Gryphon's
stockholders a substantial premium for their shares, and poses no threat to the
interests of Gryphon's stockholders or Gryphon's corporate policy and
effectiveness.
DECLARATORY RELIEF
37. The Court may grant the declaratory relief sought herein pursuant
to 10 Del. C. ss. 6501. Gryphon's unwillingness (i) to redeem the Rights, (ii)
to amend the Poison Pill to make it inapplicable to the Proposed Acquisition,
(iii) to clarify that Markel is not an Acquiring Person, (iv) to make a good
faith determination that if Markel became an Acquiring Person, it did so through
inadvertence, and (v) to approve the Proposed Acquisition for purposes of
Section 203 demonstrates that there is a substantial controversy between the
parties. Moreover, utilization of these and other anti-takeover devices will
interfere with the Proposed Acquisition. In addition, in the event that Markel
has become an Acquiring Person through no action of its own, it will suffer
substantial dilution of its interest in Gryphon, regardless of whether Markel
and Purchaser proceed with the Proposed Acquisition.
38. The granting of the requested declaratory relief will serve the
public interest by affording relief from uncertainty and by avoiding delay and
will conserve judicial resources by avoiding piecemeal litigation.
IRREPARABLE INJURY
39. Gryphon's unwillingness (i) to redeem the Rights, (ii) to amend the
Poison Pill to make it inapplicable to the Proposed Acquisition, (iii) to
clarify that Markel is not an Acquiring
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Person, (iv) to make a good faith determination that if Markel became an
Acquiring Person, it did so through inadvertence and (v) to approve the Proposed
Acquisition for purposes of Section 203 will hinder and potentially prevent
Markel and Purchaser from proceeding with the Proposed Acquisition. Should that
occur, Markel and Purchaser will have lost the unique opportunity to acquire
Gryphon. Furthermore, regardless of whether Markel and Purchaser proceed with
the Proposed Acquisition, in the event that Markel has become an Acquiring
Person as a result solely of the Board's own action, Markel will suffer
substantial dilution of its interest in Gryphon. Plaintiffs' resulting injury
will not be compensable in money damages and Plaintiffs have no adequate remedy
at law.
COUNT I
(Declaratory and Injunctive Relief: The Poison Pill)
40. Plaintiffs repeat and reallege each and every allegation set forth
in paragraphs 1 through 39 as if fully set forth herein.
41. The Individual Defendants stand in a fiduciary relationship with
Plaintiffs. As fiduciaries, the Individual Defendants owe Plaintiffs the highest
duties of care, loyalty and good faith.
42. The Proposed Acquisition is non-coercive and non-discriminatory; it
is fair to Gryphon stockholders; it poses no threat to Gryphon's corporate
policy and effectiveness; and it represents a 29% premium over the market price
of the Common Stock prior to the public announcement of the Proposed Acquisition
and a 55% premium over the market price of the Common Stock prior to the time
when Markel first sent a letter to the Board proposing a transaction.
43. The Board may contend that the adoption by the Board of the Rights
Amendment caused Markel to be considered an Acquiring Person under the Poison
Pill. If so, Markel and
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Purchaser may collectively be considered an Acquiring Person under the
definition of the Poison Pill and the Board may therefore have caused a
triggering event under the Poison Pill. Regardless of whether Plaintiffs proceed
with the Proposed Acquisition, a triggering of the Rights solely as a result of
the Board's action would cause substantial dilution of Markel's interest in
Gryphon and thereby impose present economic harm on Markel. In the event that
Plaintiffs elect to proceed with the Proposed Acquisition, the practical effect
of this triggering event is to make any attempt by them to acquire Gryphon
prohibitively expensive.
44. Amending the Poison Pill and thus possibly causing the Poison Pill
to be triggered was not -- as indeed, it could not have been -- proportionate to
any threat posed by, or within the range of reasonable responses to the simple
acquisition by Markel of only 11.7% of the stock of Gryphon. Such an action
would constitute an unprecedented attempt by a company to cause the dilution
feature of a poison pill to be triggered based on a stockholder's prior
acquisition of stock which, at the time, did not trigger such dilution.
Moreover, refusal by the Board to redeem the Rights or to amend the Poison Pill
to make it inapplicable to the Proposed Acquisition is not, and could not have
been, proportionate to any threat posed by, or within the range of reasonable
responses to, the Proposed Acquisition. In addition, the Board's failure to
consider the possibility that the Initial Board Action and the adoption of the
Rights Amendment could cause a triggering event under the Poison Pill was a
breach of the duty of care. In the event that the Board intentionally amended
the Pill to attempt to cause Markel to be deemed an Acquiring Person, that
coercive use of the Poison Pill constituted a breach of the duty of loyalty.
Once the members of the Board became aware of their error and failed either to
amend the Poison Pill to correct their mistake or make a good faith
determination that if Markel had become an Acquiring Person, it did so through
inadvertence, that failure to act was a breach of the duty of loyalty.
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45. Plaintiffs seek (i) a declaration that the Initial Board Action and
the adoption of the Rights Amendment constituted a breach of fiduciary duty,
(ii) a declaration that failure to redeem the Rights or to amend the Poison Pill
to make it inapplicable to the Proposed Acquisition is a breach of fiduciary
duty, (iii) a declaration that the failure of the members of the Board either to
(a) correct their mistake or (b) make a good faith determination that if Markel
had become an Acquiring Person, it did so through inadvertence, was a breach of
fiduciary duty, (iv) an order invalidating the Rights Amendment and/or
compelling Gryphon to amend the Poison Pill to correct the Board's mistake, make
a good faith determination that if Markel became an Acquiring Person, it did so
through inadvertence or clarify that Markel is not an Acquiring Person and
enjoining Gryphon from enforcing the provisions of the Rights Amendment, and (v)
an injunction compelling Gryphon and the Individual Defendants to redeem the
Rights or amend the Poison Pill to make it inapplicable to the Proposed
Acquisition.
46. Plaintiffs have no adequate remedy at law.
COUNT II
(Declaratory and Injunctive Relief: Anti-Takeover Devices)
47. Plaintiffs repeat and reallege each and every allegation set forth
in paragraphs 1 through 46 as if fully set forth herein.
48. The Individual Defendants stand in a fiduciary relationship with
Plaintiffs. As fiduciaries, the Individual Defendants owe Plaintiffs the highest
duties of care, loyalty and good faith.
49. The Proposed Acquisition is non-coercive and non-discriminatory; it
is fair to Gryphon stockholders; it poses no threat to Gryphon's corporate
policy and effectiveness; and it represents a 29% premium over the market price
of the Common Stock prior to the public
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announcement of the Proposed Acquisition and a 55% premium over the trading
price on the day before Markel first sent a letter to the Board making an offer.
50. Adoption of any defensive measures against the Proposed Acquisition
- - -- including, but not limited to, amendments to the Poison Pill, amendments to
by-laws, alternative transactions with substantial break-up fees and/or
lock-ups, friendly stock issuances, or executive compensation arrangements with
substantial payments triggered by a change in control -- that would have the
effect of impeding the Proposed Acquisition or that would prevent a future board
of directors from exercising its fiduciary duties would itself be a violation of
the Individual Defendants' fiduciary duties to Gryphon's stockholders.
51. In addition, the certificate of incorporation of Gryphon prohibits
the stockholders of Gryphon from taking action by written consent in lieu of a
meeting. Plaintiffs and the other stockholders of Gryphon will have no
opportunity to remove any impediments put in place by the Board to entrench
themselves or otherwise express their displeasure with the Board prior to the
next annual meeting which may not take place until next May.
52. Plaintiffs seek (i) a declaration that the adoption of any
defensive measure by the Board which has the effect of impeding, thwarting,
frustrating or interfering with the Proposed Acquisition is a breach of
fiduciary duty and (ii) an injunction prohibiting Gryphon and the Individual
Defendants from adopting any defensive measure which has the effect of impeding,
thwarting, frustrating or interfering with the Proposed Acquisition.
53. Plaintiffs have no adequate remedy at law.
COUNT III
(Declaratory and Injunctive Relief: Section 203)
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54. Plaintiffs repeat and reallege each and every allegation of
paragraphs 1 through 53 as if fully set forth herein.
55. The Individual Defendants stand in a fiduciary relationship with
Plaintiffs. As fiduciaries, the Individual Defendants owe Plaintiffs the highest
duties of care, loyalty and good faith.
56. The Proposed Acquisition is non-coercive and non-discriminatory; it
is fair to Gryphon stockholders; it poses no threat to Gryphon's corporate
policy and effectiveness; and it represents a substantial premium over the
market price of the Common Stock prior to the public announcement of the
Proposed Acquisition.
57. Pursuant to Section 203, the Individual Defendants can render the
statute inapplicable to the Proposed Acquisition by approving the Proposed
Acquisition. As a result of the facts alleged herein, the Individual Defendants'
failure to approve the Proposed Acquisition and to take any other steps
necessary to render Section 203 inapplicable, constitutes a breach of fiduciary
duty.
58. Plaintiffs seek (i) a declaration that the Individual Defendants
have breached their fiduciary duties by not rendering Section 203 inapplicable
to the Proposed Acquisition and (ii) an injunction compelling Gryphon and the
Individual Defendants to render Section 203 inapplicable to the Proposed
Acquisition by approving the Proposed Acquisition.
59. Plaintiffs have no adequate remedy at law.
WHEREFORE, Markel and Purchaser respectfully request that this Court
enter an order:
a. declaring that the Rights Amendment is invalid and that the taking
of the Initial Board Action and the adoption of the Rights Amendment constituted
a breach of fiduciary duty by the Individual Defendants and violated Delaware
law;
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b. declaring that the failure of the members of the Board either to (1)
correct their mistake in adopting the Rights Amendment or (2) make a good faith
determination that if Markel had become an Acquiring Person, it did so through
inadvertence, was a breach of fiduciary duty;
c. compelling Gryphon to amend the Poison Pill to correct the Board's
mistake, make a good faith determination that if Markel became an Acquiring
Person, it did so through inadvertence or clarify that Markel is not an
Acquiring Person and enjoining Gryphon from enforcing the Rights Amendment;
d. declaring that failure to redeem the Rights or to amend the Poison
Pill to make it inapplicable to the Proposed Acquisition and to render Section
203 inapplicable to the Proposed Acquisition constitutes a breach of the
Individual Defendants' fiduciary duties;
e. compelling Gryphon and the Individual Defendants to redeem the
Rights associated with the Poison Pill or amend the Poison Pill to make it
inapplicable to the Proposed Acquisition;
f. declaring that the adoption of any defensive measure which has the
effect of impeding, thwarting, frustrating or interfering with the Proposed
Acquisition constitutes a breach of the Individual Defendants' fiduciary duties;
g. enjoining Gryphon and the Individual Defendants from adopting any
defensive measure which has the effect of impeding, thwarting, frustrating or
interfering with the Proposed Acquisition;
h. compelling Gryphon and the Individual Defendants to approve the
Proposed Acquisition for the purposes of Section 203;
i. temporarily, preliminarily and permanently enjoining Gryphon, its
employees, agents and all persons acting on its behalf or in concert with it
from taking any action with respect
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to the Poison Pill, except to amend the Poison Pill to correct the Board's
mistake, make a good faith determination that if Markel became an Acquiring
Person, it did so through inadvertence, clarify that Markel is not an Acquiring
Person, redeem the Rights or amend the Poison Pill to make it inapplicable to
the Proposed Acquisition and from adopting any other Rights Plan or other
measures, or taking any other action designed to impede, or which has the effect
of impeding, the Proposed Acquisition or the efforts of Markel to acquire
control of Gryphon;
j. temporarily, preliminarily and permanently enjoining Defendants,
their affiliates, subsidiaries, officers, directors and all others acting in
concert with them or on their behalf from bringing any action concerning the
Poison Pill or Section 203 in any other court;
k. awarding Plaintiffs their costs and disbursements in this action,
including reasonable attorneys' and experts' fees; and
l. granting Plaintiffs such other and further relief as this Court may
deem just and proper.
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Of Counsel:
R. Franklin Balotti
David H. Pankey Anne C. Foster
McGuire, Woods, Battle Peter B. Ladig
& Boothe LLP Richards, Layton & Finger
The Army and Navy Club Building One Rodney Square
1627 Eye Street, N.W. P.O. Box 551
Washington, D.C. 20006-4007 Wilmington, DE 19801
(202) 857-1700 (302) 658-6541
Attorneys for Plaintiffs
Thomas E. Spahn
Charles W. McIntyre, Jr.
McGuire, Woods, Battle
& Boothe LLP
One James Center
901 East Cary Street
Richmond, VA 23219
(804) 775-1000
Dated: October 20, 1998
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