SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-1
TENDER OFFER STATEMENT PURSUANT TO SECTION 14(D)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934
AND AMENDMENT NO. 5
TO SCHEDULE 13D
UNDER SECURITIES EXCHANGE ACT OF 1934
GRYPHON HOLDINGS INC.
(NAME OF SUBJECT COMPANY)
MARKEL CORPORATION
MG ACQUISITION CORP.
(Bidders)
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
(Title of Class of Securities)
400515 10 2
(CUSIP Number of Class of Securities)
GREGORY B. NEVERS, ESQ.
CORPORATE COUNSEL
MARKEL CORPORATION
4551 COX ROAD
GLEN ALLEN, VIRGINIA 23060-3382
TELEPHONE: (804) 965-1673
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications on Behalf of Bidders)
WITH A COPY TO:
LESLIE A, GRANDIS, ESQ.
McGUIRE, WOODS, BATTLE & BOOTHE LLP
901 EAST CARY STREET.
RICHMOND, VIRGINIA 23219
TELEPHONE: (804) 775-1000
CALCULATION OF FILING FEE
================================================================================
TRANSACTION VALUATION* $121,324,122 AMOUNT OF FILING FEE** $24,264.83
================================================================================
* For purposes of calculating the filing fee only. This calculation assumes the
purchase of 6,740,229 shares of common stock, par value $0.01 per share (the
"Common Shares"), of Gryphon Holdings Inc. (the "Company") at $18.00 net per
share in cash.
** The amount of the filing fee, calculated in accordance with Rule 0-11(d) of
the Securities Exchange Act of 1934, as amended, equals 1/50th of one percent of
the aggregate value of cash offered by MG Acquisition Corp. for such number of
Common Shares.
[ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form or
Schedule and the date of its filing.
Amount Previously Paid: Not applicable
Filing Party: Not applicable
Form or Registration No.: Not applicable
Date Filed: Not applicable
<PAGE>
SCHEDULE 14D-1 and 13D Page _____of ____
CUSIP No.
1. NAME OR REPORTING PERSON
S.S. OR I.R.S IDENTIFICATION NO. OF ABOVE PERSON
Markel Corporation (E.I.N.: 54-0292420)
- --------------------------------------------------------------------------------
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
(b) [X]
- --------------------------------------------------------------------------------
3. SEC USE ONLY
- --------------------------------------------------------------------------------
4. SOURCE OF FUNDS
BK, WC
- --------------------------------------------------------------------------------
5. CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) [ ]
- --------------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OR ORGANIZATION
Virginia
- --------------------------------------------------------------------------------
7. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
791,250 Common Shares
- --------------------------------------------------------------------------------
8. CHECK BOX IF THE AGGREGATE IN ROW (7) EXCLUDES CERTAIN SHARES [ ]
- --------------------------------------------------------------------------------
9. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7)
11.7%
- --------------------------------------------------------------------------------
10. TYPE OF REPORTING PERSON
CO
- --------------------------------------------------------------------------------
<PAGE>
SCHEDULE 14D-1 and 13D Page _____of ____
CUSIP No.
1. NAME OF REPORTING PERSON
S.S. OR I.R.S IDENTIFICATION NO. OF ABOVE PERSON
MG Acquisition Corp. (E.I.N.: applied for )
- --------------------------------------------------------------------------------
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
(b) [X]
- --------------------------------------------------------------------------------
3. SEC USE ONLY
- --------------------------------------------------------------------------------
4. SOURCE OF FUNDS
AF
- --------------------------------------------------------------------------------
5. CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) [ ]
- --------------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OR ORGANIZATION
Delaware
- --------------------------------------------------------------------------------
7. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
100 Common Shares
- --------------------------------------------------------------------------------
8. CHECK BOX IF THE AGGREGATE IN ROW (7) EXCLUDES CERTAIN SHARES [ ]
- --------------------------------------------------------------------------------
9. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7)
0.0%
- --------------------------------------------------------------------------------
10. TYPE OF REPORTING PERSON
CO
- --------------------------------------------------------------------------------
<PAGE>
This tender offer Statement on Schedule 14D-1 also constitutes an
amendment to Schedule 13D of Parent and Purchaser with respect to the beneficial
ownership of Common Shares of the Company.
================================================================================
ITEM 1. SECURITY AND SUBJECT COMPANY.
(a) The name of the subject company is Gryphon Holdings Inc., a Delaware
corporation (the "Company"). The address of the Company's principal executive
offices is 30 Wall Street, New York, New York 10005-2201.
(b) This Tender Offer Statement on Schedule 14D-1 relates to the offer by MG
Acquisition Corp. ("Purchaser"), a Delaware corporation and a wholly owned
subsidiary of Markel Corporation, a Virginia corporation ("Parent"), to purchase
all of the outstanding shares of Common Stock, par value $0.01 per share (the
"Common Shares"), of the Company, upon the terms and subject to the conditions
set forth in the Offer to Purchase, dated October 20, 1998, and in the related
Letter of Transmittal (which, together with any amendments or supplements
thereto, constitute the "Offer") at a purchase price of $18.00 per Common Share,
net to the tendering shareholder in cash, without interest thereon. According to
information included in the Form 10-Q of Gryphon Holdings Inc. for the quarter
ended June 30, 1998, as filed with the Securities and Exchange Commission on
August 12, 1998, there were 6,740,229 Common Shares outstanding as of June 30,
1998. The information set forth under "Introduction" in the Offer to Purchase
annexed hereto as Exhibit (a)(1) is incorporated herein by reference.
(c) The information set forth under "Price Range of Shares; Dividends" in the
Offer to Purchase is incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d); (g) This Statement is being filed by Purchaser and Parent. The
information set forth under "Introduction" and "Certain Information Concerning
Purchaser and Parent" in the Offer to Purchase and Schedule I thereto is
incorporated herein by reference.
(e)-(f) During the last five years, neither Purchaser, Parent nor any persons
controlling Purchaser, nor, to the best knowledge of Purchaser or Parent, any of
the persons listed on Schedule I to the Offer to Purchase (i) has been convicted
in a criminal proceeding (excluding traffic violations or similar misdemeanors)
or (ii) was a party to a civil proceeding of a judicial or administrative body
of competent jurisdiction as a result of which any such person was or is subject
to a judgment, decree or final order enjoining future violations of, or
prohibiting activities subject to, federal or state securities laws or finding
any violation of such laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY.
(a)-(b) The information set forth under "Introduction," "Background of the
Offer; Contacts with the Company," "Purpose of the Offer and the Merger; Plans
for the Company; Certain Considerations," "Certain Information Concerning the
Company" and "Certain Information Concerning Purchaser and Parent" in the Offer
to Purchase is incorporated herein by reference.
ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a)-(b) The information set forth under "Introduction" and "Source and Amount of
Funds" in the Offer to Purchase is incorporated herein by reference.
(c) Not applicable.
ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER.
(a)-(e) The information set forth under "Introduction," "Background of the
Offer; Contacts with the Company" and "Purpose of the Offer and the Merger;
Plans for the Company; Certain Considerations" in the Offer to Purchase is
incorporated herein by reference.
(f)-(g) The information set forth under "Introduction" and "Effect of the Offer
on the Market for the Common Shares; Exchange Listing and Exchange Act
Registration; Margin Regulations" in the Offer to Purchase is incorporated
herein by reference.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
(a)-(b) The information set forth under "Introduction," and "Certain Information
Concerning Purchaser and Parent" in the Offer to Purchase is incorporated herein
by reference.
ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO
THE SUBJECT COMPANY'S SECURITIES.
The information set forth under "Introduction," "Purpose of the Offer and the
Merger; Plans for the Company; Certain Considerations" and "Certain Legal
Matters; Regulatory Approvals; Certain Litigation" in the Offer to Purchase is
incorporated herein by reference.
ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth under "Fees and Expenses" in the Offer to Purchase is
incorporated herein by reference.
ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS.
The information set forth under "Certain Information Concerning Purchaser and
Parent" in the Offer to Purchase is incorporated herein by reference.
ITEM 10. ADDITIONAL INFORMATION.
(a) Not applicable.
(b)-(c) The information set forth under "Introduction" and "Certain Legal
Matters; Regulatory Approvals; Certain Litigation" in the Offer to Purchase is
incorporated herein by reference.
(d) The information set forth under "Effect of the Offer on the Market for the
Common Shares; Exchange Listing and Exchange Act Registration; Margin
Regulations" in the Offer to Purchase is incorporated herein by reference.
(e) The information set forth under "Certain Legal Matters; Regulatory
Approvals; Certain Litigation" in the Offer to Purchase is incorporated herein
by reference.
(f) The information set forth in the Offer to Purchase and the Letter of
Transmittal, copies of which are attached hereto as Exhibits (a)(1) and (a)(2),
respectively, is incorporated herein by reference.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
(a)(1) Offer to Purchase, dated October 20, 1998.
(a)(2) Letter of Transmittal.
(a)(3) Notice of Guaranteed Delivery.
(a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other
Nominees.
(a)(5) Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
(a)(6) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
(a)(7) Text of Press Release issued by Markel Corporation on October 20, 1998.
(a)(8) Form of Summary Advertisement, dated October 20, 1998.
(b)(1) Credit Agreement dated April 23, 1998 among Markel Corporation, the
Lenders referred to therein and First Union National Bank, as Agent,
filed as Exhibit 4 to Markel Corporation's Form 10-Q for the Quarter
ended March 31, 1998, is incorporated by reference herein.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
(g)(1) Complaint in Markel Corporation and MG Acquisition Corp. v. Gryphon
Holdings Inc. filed in the Court of Chancery of the State of Delaware on
October 20, 1998.
<PAGE>
SIGNATURE
After due inquiry and to the best of its knowledge and belief, the undersigned
certifies that the information set forth in this statement is true, complete and
correct.
Dated: October 20, 1998 MARKEL CORPORATION
By: /s/ Steven A. Markel
-------------------------
Name: Steven A. Markel
Title: Vice Chairman
MG ACQUISITION CORP.
By: /s/ Steven A. Markel
-------------------------
Name: Steven A. Markel
Title: Vice Chairman
<PAGE>
EXHIBIT INDEX
- -------------
(a)(1) Offer to Purchase, dated October 20, 1998.
(a)(2) Letter of Transmittal.
(a)(3) Notice of Guaranteed Delivery.
(a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other
Nominees.
(a)(5) Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
(a)(6) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
(a)(7) Text of Press Release issued by Markel Corporation on October 20, 1998.
(a)(8) Form of Summary Advertisement, dated October 20, 1998.
(g)(1) Complaint in Markel Corporation and MG Acquisition Corp. v. Gryphon
Holdings Inc. filed in the Court of Chancery of the State of Delaware on
October 20, 1998.
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
OF
GRYPHON HOLDINGS INC.
AT
$18.00 NET PER SHARE
BY
MG ACQUISITION CORP.
A WHOLLY OWNED SUBSIDIARY OF
MARKEL CORPORATION
THE OFFER, AND WITHDRAWAL RIGHTS WILL EXPIRE AT 6:00 P.M., NEW YORK
CITY TIME, ON FRIDAY, DECEMBER 4, 1998 UNLESS THE OFFER IS EXTENDED.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1) THERE BEING VALIDLY
TENDERED AND NOT PROPERLY WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A
NUMBER OF COMMON SHARES (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE
RIGHTS) WHICH, TOGETHER WITH SHARES OWNED BY MARKEL CORPORATION ("PARENT") AND
MG ACQUISITION CORP., A WHOLLY OWNED SUBSIDIARY OF PARENT ("PURCHASER"),
CONSTITUTE AT LEAST 51% OF THE COMMON SHARES OUTSTANDING ON A FULLY DILUTED
BASIS ON THE DATE OF PURCHASE, (2) PURCHASER BEING SATISFIED, IN ITS SOLE
DISCRETION, THAT, AFTER CONSUMMATION OF THE OFFER, THE PROVISIONS OF SECTION
203 OF THE DELAWARE GENERAL CORPORATION LAW WOULD NOT PROHIBIT FOR ANY PERIOD
OF TIME, OR IMPOSE ANY VOTING REQUIREMENT IN EXCESS OF MAJORITY SHAREHOLDER
APPROVAL WITH RESPECT TO, THE PROPOSED MERGER OR OTHER BUSINESS COMBINATION
WITH PURCHASER OR ANY AFFILIATE OF PURCHASER, (3) THE PREFERRED STOCK PURCHASE
RIGHTS HAVING BEEN REDEEMED BY THE BOARD OF DIRECTORS OF THE COMPANY OR
PURCHASER BEING SATISFIED, IN ITS SOLE DISCRETION, THAT THE RIGHTS ARE INVALID
OR OTHERWISE INAPPLICABLE TO THE OFFER AND THE PROPOSED MERGER, AND (4) PARENT
AND PURCHASER HAVING OBTAINED ALL INSURANCE REGULATORY APPROVALS NECESSARY FOR
THEIR ACQUISITION OF CONTROL OVER THE COMPANY AND ITS INSURANCE SUBSIDIARIES ON
TERMS AND CONDITIONS SATISFACTORY TO PURCHASER, IN ITS SOLE DISCRETION. SEE
SECTION 14.
THE OFFER IS NOT CONDITIONED UPON PURCHASER OBTAINING FINANCING.
IMPORTANT
Any shareholder desiring to tender all or any portion of such
shareholder's Common Shares should either (i) complete and sign the Letter of
Transmittal (or a facsimile thereof) in accordance with the instructions in the
Letter of Transmittal, have such shareholder's signature thereon guaranteed if
required by Instruction 1 to the Letter of Transmittal, mail or deliver the
Letter of Transmittal (or such facsimile thereof) and any other required
documents to the Depositary (as defined herein) and either deliver the
certificates for such Common Shares and, if separate, the certificates
representing the associated Rights (as defined herein) to the Depositary along
with the Letter of Transmittal (or a facsimile thereof) or deliver such Common
Shares (and Rights, if applicable) pursuant to the procedure for book-entry
transfer set forth in Section 3 prior to the expiration of the Offer or (ii)
request such shareholder's broker, dealer, commercial bank, trust company or
other nominee to effect the transaction for such shareholder. A shareholder
having Common Shares (and, if applicable, Rights) registered in the name of a
broker, dealer, commercial bank, trust company or other nominee must contact
such broker, dealer, commercial bank, trust company or other nominee if such
shareholder desires to tender such Common Shares (and, if applicable, Rights).
Unless and until Purchaser declares that the Rights Condition (as defined
herein) is satisfied, shareholders will be required to tender one Right for
each Common Share tendered in order to effect a valid tender of such Common
Share.
Any shareholder who desires to tender Common Shares (and, if applicable,
Rights) and whose certificates for such shares (and, if applicable, Rights) are
not immediately available, or who cannot comply with the procedures for
book-entry transfer described in this Offer to Purchase on a timely basis, may
tender such Common Shares (and, if applicable, Rights) by following the
procedures for guaranteed delivery set forth in Section 3.
Questions and requests for assistance may be directed to the Information
Agent or the Dealer Manager at the address and telephone number set forth on
the back cover of this Offer to Purchase. Additional copies of this Offer to
Purchase, the Letter of Transmittal or other tender offer materials may be
obtained from the Information Agent.
---------------
The Dealer Manager for the Offer is:
[COCHRAN, CARONIA SECURITIES LLC LOGO]
October 20, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- -------- -----
<S> <C>
INTRODUCTION ............................................................................. 1
1. Terms of the Offer; Expiration Date ............................................ 8
2. Acceptance for Payment and Payment for Shares .................................. 9
3. Procedures for Tendering Common Shares ......................................... 10
4. Withdrawal Rights .............................................................. 12
5. Certain Federal Income Tax Consequences ........................................ 13
6. Price Range of Shares; Dividends ............................................... 14
7. Effect of the Offer on the Market for the Common Shares; Exchange Listing and
Exchange Act Registration; Margin Regulations .................................. 14
8. Certain Information Concerning the Company ..................................... 15
9. Certain Information Concerning Purchaser and Parent ............................ 17
10. Source and Amount of Funds .................................................... 18
11. Background of the Offer; Contacts with the Company ............................ 19
12. Purpose of the Offer and the Merger; Plans for the Company; Certain
Considerations............................................................. 21
13. Dividends and Distributions ................................................... 26
14. Conditions of the Offer ....................................................... 26
15. Certain Legal Matters; Regulatory Approvals; Certain Litigation ............... 29
16. Fees and Expenses ............................................................. 32
17. Miscellaneous ................................................................. 33
SCHEDULE I ............................................................................... 34
</TABLE>
<PAGE>
TO THE HOLDERS OF COMMON STOCK OF GRYPHON HOLDINGS INC.:
INTRODUCTION
MG Acquisition Corp. ("Purchaser"), a Delaware corporation and a wholly
owned subsidiary of Markel Corporation, a Virginia corporation ("Parent"),
hereby offers to purchase all outstanding shares of common stock, par value
$0.01 per share (the "Common Shares"), of Gryphon Holdings Inc., a Delaware
corporation (the "Company"), including the associated Junior Participating
Cumulative Preferred Stock Purchase Rights (including any successors thereto,
the "Rights") issued pursuant to the Rights Agreement, dated as of June 5,
1995, as amended as of July 28, 1998, between the Company and State Street Bank
and Trust Company, as Rights Agent (as such agreement may be further amended
and including any successor agreement, the "Rights Agreement"), at a price of
$18.00 per Common Share, net to the seller in cash, without interest thereon
(the "Offer Price"), upon the terms and subject to the conditions set forth in
this Offer to Purchase and in the related Letter of Transmittal (which, as
amended from time to time, together constitute the "Offer"). Unless the context
otherwise requires, all references to Common Shares shall include the
associated Rights, and all references to the Rights shall include the benefits
that may inure to holders of the Rights pursuant to the Rights Agreement,
including the right to receive any payment due upon redemption of the Rights.
Tendering shareholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, stock transfer taxes on the purchase of Common Shares by Purchaser
pursuant to the Offer. Purchaser will pay all charges and expenses of Cochran,
Caronia Securities LLC, as Dealer Manager (the "Dealer Manager"), First Union
National Bank, as Depositary (the "Depositary"), and MacKenzie Partners, Inc.,
as Information Agent (the "Information Agent"), incurred in connection with the
Offer. See Section 16.
The purpose of the Offer and the proposed second-step merger is to enable
Parent to acquire control of, and ultimately the entire equity interest in, the
Company. The Offer, as the first step in the acquisition of the Company, is
intended to facilitate the acquisition of all of the outstanding Common Shares.
Parent currently intends, as soon as practicable following consummation of the
Offer, to seek to have Purchaser consummate a merger with and into the Company
with the Company continuing as the surviving corporation (the "Proposed
Merger"), pursuant to which each then remaining Common Share outstanding (other
than Common Shares owned by Parent or any of its wholly owned subsidiaries,
Common Shares held in the treasury of the Company, Common Shares held by
shareholders who have demanded and perfected, and who shall not have withdrawn
or otherwise lost, appraisal rights under the General Corporation Law of the
State of Delaware (the "Delaware Corporation Law")), would be converted into
the right to receive an amount of cash equal to the Offer Price. Before the
Proposed Merger, to the extent the Company Series A 4% Cumulative Convertible
Preferred Stock (the "Preferred Shares") are not converted, Parent and
Purchaser intend to cause the Company either (i) to redeem the Preferred Shares
in accordance with the terms of the Preferred Shares or (ii) to engage in a
privately negotiated repurchase of the Preferred Shares.
Preferred Shares may not be tendered pursuant to the Offer. In the event
that a holder of Preferred Shares wants to tender shares pursuant to the Offer,
such holder must first convert the Preferred Shares into Common Shares pursuant
to the terms of the Preferred Shares and then tender such Common Shares
pursuant to the Offer.
In January 1998, Steven A. Markel, Vice-Chairman of Parent, contacted
Stephen A. Crane, President and Chief Executive Officer of the Company. Mr.
Markel expressed interest in discussing the future direction of the Company and
Parent and whether it made sense to discuss a possible combination of the two
companies. No meeting was arranged at that time.
On March 24, 1998, Mr. Markel met briefly with Mr. Crane and again
suggested that a combination of the two companies could be mutually beneficial.
Mr. Markel expressed a willingness to meet with the Company's Board of
Directors (the "Company Board") or a committee of the Company Board to discuss
a potential acquisition of the Company. Mr. Markel also advised Mr. Crane that
Parent had been acquiring Common Shares in the open market and would shortly be
making required filings under federal securities laws. Mr. Markel's request for
a meeting was denied and Mr. Crane indicated the Company was not for sale.
On April 1, 1998, Mr. Markel spoke by phone with Mr. Crane as a follow-up
to the March 24, 1998 meeting. During that conversation, Mr. Markel informed
Mr. Crane that Parent was considering acquiring, through open market
transactions or privately negotiated purchases, additional Common Shares up to
19.9% of the Common Shares outstanding.
Parent determined to seek necessary state insurance regulatory approvals
to acquire up to 19.9% of the outstanding Common Shares as discussed in the
April 1 phone call. The necessary filings were made in early April. Thereafter,
the Company, through its counsel, filed objections in the regulatory
proceedings to Parent's proposed purchases. In late April,
1
<PAGE>
Mr. Markel contacted Mr. Crane and asked him why the Company was opposing
Parent's proposed additional purchases. Mr. Crane did not indicate a
willingness to discontinue the Company's objections to Parent's proposed
additional purchases.
On May 12, 1998, representatives of Parent attended the annual stockholder
meeting of the Company.
On May 26, 1998, Mr. Markel wrote to each of the members of the Company
Board recounting the substance of conversations which had taken place and
requesting that the Company cease its objections in the regulatory proceedings
and that the Company refrain from taking steps such as amending the Company's
shareholders rights "poison pill" plan. This letter was filed by Parent as an
amendment to its report on Schedule 13D on May 28, 1998. Mr. Markel never
received a response to this letter from the Company Board.
On May 29, 1998 and July 22, 1998, Parent received regulatory approval in
the states of California and Pennsylvania, respectively, which allowed Parent
to proceed with its proposed purchase of up to 19.9% of the Company's
outstanding Common Shares. Having previously filed a Disclaimer of Affiliation
with the State of Connecticut, Parent purchased additional Common Shares on
July 23, July 27 and July 28, 1998. On the afternoon of July 28 Mr. Markel was
advised by Mr. Crane that the Company Board had approved an amendment to the
Company's poison pill plan to change the definition of "Acquiring Person" to
mean any person beneficially owning more than 10% of the Common Shares. Mr.
Markel advised Mr. Crane that Parent had already exceeded this threshold.
According to the Company's public filings, the Company then revised the
implementation of the poison pill plan to essentially define an "Acquiring
Person" as any person beneficially owning a percentage of the outstanding
Common Shares equal to or in excess of the percentage held by Parent at the
close of business on July 28, 1998 (approximately 11.7%).
On September 1, 1998, Mr. Markel sent a letter to each of the members of
the Company Board offering total consideration of $18.00 per Common Share
consisting of $15.50 in cash and $2.50 in notes (subject to possible offset for
adverse developments) in a merger transaction. Mr. Markel's letter requested a
response from the Company Board by September 9, 1998. No response was received
from the Company Board other than a letter indicating that the Company would
get back to Parent in due course.
On September 16, 1998, Mr. Crane and Hadley C. Ford, the Chairman of the
Company, had a meeting with Mr. Markel and Gregory B. Nevers, Parent's
Corporate Counsel. In the meeting, Mr. Markel again expressed a desire to
pursue a negotiated acquisition of the Company and indicated that if the
Company Board provided additional information, particularly information which
supported the Company's publicly reported loss reserve estimates, Parent
expected that it could substantially increase its cash offer for the Company.
Mr. Ford indicated that he would make a report to the full Company Board
regarding the meeting and that he would investigate whether the Company could
provide additional information to Parent. On September 21 Parent received a
proposed form of confidentiality and standstill agreement from the Company's
advisors. The form, in addition to addressing the protection of confidential
information, sought to require Parent 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 Parent felt might be necessary to
maximize value for shareholders, in each case without the specific consent of
the Company Board. On September 22, 1998, Parent proposed instead to limit its
activities for a period of six months, subject to certain conditions. This
proposal was rejected by the Company's advisors.
On September 23, 1998, Mr. Markel spoke with Mr. Ford, in an attempt to
resolve the differences in view regarding the standstill agreement. Mr. Ford
deferred the decision on this point to the Company's legal and financial
advisors.
On October 1, 1998, Parent sent a letter to each of the members of the
Company Board proposing a cash merger in which each Common Share would be
converted into the right to receive $18.00, subject to required regulatory and
shareholder approval, redemption of the Rights and the execution of a mutually
acceptable merger agreement containing customary provisions for transactions of
this nature. This offer represented a premium of $6.38 or 55% over the price of
the Common Shares on the day before the September 1, 1998 letter to the Company
referenced above and a premium of $4.00 or 29% over the price of the Common
Shares on September 30, 1998. The letter stated that this proposal would expire
at 5:00 p.m. EST on Monday, October 5, 1998. The letter also stated that Parent
would be willing to enhance its offer if the Company could establish that
additional value is warranted.
On October 5, 1998, Parent received a letter responding to Parent's letter
of October 1, 1998. The letter stated in part "The Gryphon Board of Directors
has not yet determined to take any definitive course of action with respect to
a sale of the Company; however, you may be assured that our Board is
considering your proposal in light of its fiduciary duties and the interests of
all of Gryphon's shareholders." In addition, the Company's letter stated "We
have instructed our legal and financial advisors to communicate with your
advisors to clarify certain aspects of your most recent letter and to encourage
you to reconsider the terms of our proposed confidentiality agreement." On the
afternoon of October 5, 1998, the Company's
2
<PAGE>
legal and financial advisors called Mr. Nevers and the Parent's financial
advisors to discuss Parent's October 1st letter, the Company's response of
October 5, 1998, the proposed confidentiality and standstill agreement and to
ask for Parent's proposed form of merger agreement.
On October 6, 1998, Mr. Markel called Mr. Ford to discuss Parent's October
1 letter and the Company's October 5 response. Mr. Ford requested that Mr.
Markel cease contacting other members of the Company Board. Mr. Ford also
indicated that the Company Board was doing everything it felt was appropriate
and they were willing to include in the "process", which was not described or
defined, those who wanted to be included. Mr. Ford indicated that, in order to
be included, Parent would have to sign a confidentiality and standstill
agreement.
On October 6, 1998, Mr. Nevers forwarded a proposed form of merger
agreement to the Company's legal and financial advisors.
On October 9, 1998, the Company's legal advisors contacted Mr. Nevers and
Parent's legal advisors to indicate their view that the draft merger agreement
was conditional and not consistent with other public merger agreements. The
Company's legal advisors declined to engage in specific negotiations with
respect to the draft merger agreement, indicating they had not been authorized
to do so by the Company Board.
On October 13, 1998, Mr. Markel called Mr. Crane who indicated that the
Company Board had not considered whether the $18.00 per share price proposed by
the Company was fair. Mr. Crane reiterated the need for Parent to sign the
proposed confidentiality and standstill agreement.
On October 14, 1998, Parent sent the following letter to each member of
the Company Board and to the Company's legal and financial advisors:
October 14, 1998
Board of Directors
Gryphon Holdings Inc.
30 Wall Street
New York, NY 10005-2201
Gentlemen:
On October 1, 1998, we sent a letter to the Board offering to enter into a
negotiated merger transaction at $18.00 for each common share. Shortly before
that offer expired on the evening of Monday, October 5, 1998, we received a
letter from Mr. Crane and a call from your advisors asking that we provide them
a draft merger agreement. On Tuesday, October 6, 1998, we sent a draft merger
agreement to your advisors, making clear that we were prepared to discuss any
of the provisions of the agreement.
Late in the evening on Friday, October 9, 1998, your legal advisors
indicated that the draft agreement "did not look like a public company merger
agreement" because it called for opinions of counsel and provided for
resignations at closing. They also stated that the draft was too "conditional"
because some of the representations in the agreement did not contain
sufficiently broad materiality exceptions. When asked to provide specific
comments and suggestions, they declined because they said they had not been
authorized to do so by the Board.
We have reviewed several recent publicly reported merger agreements
involving insurance companies and merger agreements used by your legal advisors
in various other public transactions. Based on this review it is our belief
that the draft merger agreement we sent on October 6 was not substantially
different from these merger agreements. However, in an effort to remove any
concerns about "conditions", we have revised the draft merger agreement to
contain significantly fewer representations than is customary. We are sending
this new draft to your advisors and each of you by overnight mail. Our revised
draft merger agreement contains only 6 representations compared to 21 in both
the Berkshire Hathaway/General Re and AIG/American Bankers merger agreements
and 32 in the USF&G/Titan agreement.
This draft is sent in good faith and is not intended to be a "take it or
leave it" proposal. While we are prepared to execute the merger agreement as
proposed in this draft, we are also more than willing to engage in a discussion
with you about any of its terms.
Your advisors have also insisted that the execution of a standstill
agreement is a precondition to any negotiations. The standstill proposed by
your advisors would prevent Markel from taking a number of actions for two
years. This period of time is much too long under these circumstances and in
these market conditions. In addition, the actions prohibited by the
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standstill would include engaging in a proxy contest or tender offer. We have
received no indication at this point that Gryphon or its advisors wish to
engage in serious merger negotiations. If we enter into a standstill like the
one proposed by your advisors, Gryphon might simply continue to refuse to
negotiate and Markel would be left with no means of exercising its rights as a
shareholder. To make matters worse, the standstill proposed by your advisors
would prohibit us from making a better offer than that which might be offered
by another bidder. This result is not in the interest of Gryphon shareholders.
As you know, when the standstill was first proposed, we sought to
negotiate a more reasonable approach. Your advisors rejected our standstill
proposal within minutes and without justification. Rather than continuing to
argue over the standstill, we believe it would be more productive to proceed
with merger negotiations without access to Gryphon's confidential information.
We are prepared to enter into such negotiations immediately.
We understand from Mr. Crane and your advisors that the Board has not yet
determined whether $18.00 per share is a fair price or even whether the Board
wishes to pursue negotiations with Markel. We believe the fundamental issue
here is whether or not you wish to pursue a sale of the Company. As indicated
in our earlier letters to you, we strongly believe that a sale now is in the
Company's best interest and is absolutely essential to provide shareholders
with any meaningful opportunity to realize value for their investment.
We have in good faith responded to requests for information and
clarification from your advisors. We believe it is now time for you as a Board
to determine whether or not you wish to pursue a negotiated transaction. We and
your other shareholders are entitled to a prompt answer to this very important
question.
Very truly yours,
/s/Steven A. Markel
- ---------------------
Steven A. Markel
Vice Chairman
From January 1998 through October 19, 1998, Mr. Markel and representatives
of Parent had a number of conversations with individual members of the Company
Board and representatives of the Company in which the willingness of the
Company to enter into discussions with Parent concerning a possible business
combination was explored. These conversations did not involve any substantive
negotiations concerning the matters discussed above.
On October 19, 1998 the Company's financial advisors indicated to Parent's
financial advisors that the Company was not prepared to negotiate and sign a
definitive merger agreement with Parent at that time. On October 20, 1998
Purchaser commenced the Offer.
In connection with the Offer and during its pendency, or in the event the
Offer is terminated or not consummated, or after the expiration of the Offer
and pending the consummation of the Proposed Merger, in accordance with
applicable law and subject to the terms of any merger agreement that it may
enter into with the Company, Parent (alone or through affiliates) may explore
any and all options which may be available to it. Parent may also determine,
whether or not the Offer is then pending, to conduct a proxy contest in
connection with the Company's 1999 annual meeting of shareholders seeking,
among other things, to elect new directors designated by Parent. See Section
15. In addition, Parent may seek to acquire Preferred Shares through a tender
offer or exchange offer, upon such terms and at such prices as it may
determine, and after expiration or termination of the Offer, Parent may seek to
acquire Preferred Shares and additional Common Shares, through open market
purchases, privately negotiated transactions, a tender offer or exchange offer
or otherwise, upon such terms and at such prices as it may determine, which, in
the case of Common Shares, may be more or less than the price to be paid per
Common Share pursuant to the Offer and could be for cash or other
consideration.
The Offer does not constitute a solicitation of proxies for any meeting of
the Company's shareholders. Any such solicitation which Parent or Purchaser
might make would be made only pursuant to separate proxy materials complying
with the requirements of Section 14(a) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act").
CERTAIN CONDITIONS TO THE OFFER
THE MINIMUM CONDITION. CONSUMMATION OF THE OFFER IS CONDITIONED UPON THERE
BEING VALIDLY TENDERED AND NOT PROPERLY WITHDRAWN PRIOR TO THE EXPIRATION OF
THE OFFER A NUMBER OF COMMON SHARES (INCLUDING THE ASSOCIATED RIGHTS) WHICH,
TOGETHER WITH SHARES OWNED BY PARENT AND PURCHASER, CONSTITUTE AT LEAST 51% OF
THE COMMON SHARES OUTSTANDING ON A FULLY DILUTED BASIS ON THE DATE OF PURCHASE
(I.E., AS THOUGH ALL OPTIONS
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OR OTHER SECURITIES CONVERTIBLE INTO OR EXERCISABLE OR EXCHANGEABLE FOR COMMON
SHARES HAD BEEN SO CONVERTED, EXERCISED OR EXCHANGED) (THE "MINIMUM
CONDITION").
According to information included in the Form 10-Q of Gryphon Holdings
Inc. for the quarter ended June 30, 1998, as filed with the Securities and
Exchange Commission (the "SEC") on August 12, 1998 (the "Company Form 10-Q")
there were 6,740,229 Common Shares outstanding as of June 30, 1998. According
to information included within Forms S-8 of Gryphon Holdings Inc. filed with
the Securities and Exchange Commission through February 20, 1998, and within
the footnotes to the financial statements of Gryphon Holdings Inc. included
within the Form 10-K of Gryphon Holdings Inc. for the year ended December 31,
1997, there were 790,075 Common Shares subject to issuance pursuant to various
stock option and incentive plans of the Company (the "Incentive Shares") as of
December 31, 1997 (the most recent date such information is available to
Purchaser). In addition, according to the Form 8-K/A of Gryphon Holdings Inc.
dated September 28, 1998, as of that date, 688,077 Common Shares were reserved
for issuance pursuant to the conversion of the 15,440 issued and outstanding
Preferred Shares which the Company had issued as partial consideration for the
acquisitions reported by the Company in such Form 8-K/A. The Company also
reported in that Form 8-K/A the existence of an earnout payment (the "Earnout
Payment") relating to those acquisitions which could be comprised of either
cash or additional Preferred Shares.
Based on the foregoing without giving effect to the indeterminate number
of Preferred Shares (and upon conversion, Common Shares) which may be issued
pursuant to the Earnout Payment, Purchaser believes there are approximately
8,218,381 Common Shares outstanding on a fully diluted basis. Parent and
Purchaser currently own an aggregate of 791,250 Common Shares, which were
acquired in open-market transactions. Accordingly, Purchaser believes that the
Minimum Condition would be satisfied if an aggregate of 3,400,125 Common Shares
are validly tendered pursuant to the Offer. For purposes of the Offer, "fully
diluted basis" assumes (i) no dilution due to Rights, (ii) the issuance of all
of the Incentive Shares, (iii) the conversion of all Preferred Shares into
Common Shares, (iv) no Common Shares were issued or acquired by the Company
after June 30, 1998 (other than Common Shares issued pursuant to clauses (ii)
and (iii) above) and no options, warrants, rights or other securities
convertible into or exercisable or exchangeable for Common Shares, other than
15,440 Preferred Shares, were issued or granted after June 30, 1998 and (v) as
of the date of purchase the Company has no other obligations to issue Common
Shares or other securities convertible into or exercisable for Common Shares.
The number of Common Shares required to be validly tendered for the Minimum
Condition to be satisfied may increase if additional Preferred Shares are
issued as a consequence of the Earnout Payment.
THE AFFILIATED TRANSACTION CONDITION. CONSUMMATION OF THE OFFER IS
CONDITIONED UPON PURCHASER BEING SATISFIED, IN ITS SOLE DISCRETION, THAT, AFTER
CONSUMMATION OF THE OFFER, THE PROVISIONS OF SECTION 203 OF THE DELAWARE
CORPORATION LAW WOULD NOT PROHIBIT FOR ANY PERIOD OF TIME, OR IMPOSE ANY VOTING
REQUIREMENT IN EXCESS OF MAJORITY SHAREHOLDER APPROVAL WITH RESPECT TO, THE
PROPOSED MERGER OR OTHER BUSINESS COMBINATION WITH PURCHASER OR ANY AFFILIATE
OF PURCHASER (THE "AFFILIATED TRANSACTION CONDITION").
The Proposed Merger, including the timing and details thereof, is subject
to, among other things, the provisions of the Delaware Corporation Law,
including Section 203 thereof relating to Business Combinations with Interested
Stockholders. ("Section 203"). In general, Section 203 prohibits a Delaware
corporation such as the Company from engaging in a Business Combination (as
defined in Section 15 hereof) with an Interested Stockholder (as defined in
Section 15 hereof) for a period of three years following the date that such
person became an Interested Stockholder unless (a) prior to the date that such
person became an Interested Stockholder, the board of directors of the
corporation approved either the Business Combination or the transaction that
resulted in the shareholder becoming an Interested Stockholder, (b) upon
consummation of the transaction that resulted in the shareholder becoming an
Interested Stockholder, the Interested Stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding stock held by directors who are also officers of the
corporation and employee stock plans that do not provide employees with the
right to determine confidentially whether shares held subject to the plan will
be tendered in a tender or exchange offer, or (c) on or subsequent to the date
such person became an Interested Stockholder, the Business Combination is
approved by the board of directors of the corporation and authorized at a
meeting of shareholders, and not by written consent, by the affirmative vote of
the holders of at least 66 2/3% of the outstanding voting stock of the
corporation not owned by the Interested Stockholder.
Accordingly, the Affiliated Transaction Condition would be satisfied if
(i) the Company Board approves the acquisition of Common Shares pursuant to the
Offer and the Proposed Merger or other business combination with Purchaser or
any affiliate of Purchaser, or (ii) Purchaser is satisfied, in its sole
discretion, that after consummation of the Offer, the provisions
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of Section 203 would not prohibit for any period of time, or impose any voting
requirement in excess of majority shareholder approval with respect to, the
Proposed Merger or other business combination with Purchaser or any affiliate
of Purchaser.
THE RIGHTS CONDITION. CONSUMMATION OF THE OFFER IS CONDITIONED UPON THE
RIGHTS HAVING BEEN REDEEMED BY THE COMPANY BOARD OR PURCHASER BEING SATISFIED,
IN ITS SOLE DISCRETION, THAT THE RIGHTS ARE INVALID OR OTHERWISE INAPPLICABLE
TO THE OFFER AND THE PROPOSED MERGER (THE "RIGHTS CONDITION").
The summary provided below and in Section 12 hereof is based upon the
Forms 8-K, dated June 5, 1995 (the "Company 1995 8-K") and dated July 28, 1998
(the "Company 1998 8-K"), filed by the Company with the SEC:
Until the close of business on the Distribution Date (as defined in
Section 12 hereof), the Rights will be evidenced by the certificates evidencing
Common Shares (the "Common Share Certificates") and will be transferred with
and only with the Common Share Certificates. As soon as practicable after the
Distribution Date, certificates evidencing the Rights (the "Rights
Certificates") will be mailed to holders of record of the Common Shares as of
the close of business on the Distribution Date, and thereafter the separate
Rights Certificates alone will evidence the Rights. The Rights are not
exercisable until the Distribution Date.
At any time until a person or group of affiliated persons becomes an
Acquiring Person (as defined in Section 12 hereof), the Company may redeem the
Rights in whole, but not in part, at a price of $.001 per Right (the
"Redemption Price"). At any time until a person or group of affiliated persons
becomes an Acquiring Person, the Company Board may extend the time within which
the Company may redeem the Rights outstanding prior to the exercise thereof.
Immediately upon the action of the Company Board ordering redemption of the
Rights, the Rights will terminate, and the only right to which the holders of
Rights will be entitled will be the right to receive the Redemption Price.
On July 28, 1998, the Company announced that the Company Board had
approved an amendment of the Rights Agreement which, among other things, would
change the definition of "Acquiring Person" by lowering the ownership threshold
from 20% of the outstanding Common Shares to 10% of the outstanding Common
Shares. At the time of such announcement, Parent already owned more than 10% of
the outstanding Common Shares, as disclosed in Amendment No. 2 to Schedule 13D
filed by Parent on the same day. Upon learning that Parent's ownership was in
excess of the 10% threshold, the Company announced later that day that it had
revised the "implementation of the plan." As a result of this revision (the
"Rights Amendment"), the term "Acquiring Person" was changed to read, in
pertinent part, as follows:
(a) "Acquiring Person" shall mean any Person . . . who . . . shall be the
Beneficial owner . . . 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.
(emphasis added)
Under this language, Parent may be deemed to have become an Acquiring
Person automatically as a result of the Rights Amendment without any action
being taken on its part. Purchaser believes that the Company did not intend for
the Rights Amendment to have this result. Purchaser bases its belief on (i) the
fact that, to Purchaser's knowledge, such a result would constitute an
unprecedented attempt by an issuer to cause the dilution feature of a
shareholder rights agreement to be triggered retroactively based on a
shareholder's prior acquisition of stock which, at the time thereof, did not
trigger such dilution, (ii) the language used in other provisions of the Rights
Amendment which suggests that a person becomes an Acquiring Person by acquiring
a percentage of the outstanding Common Shares greater than (rather than equal
to) the Acquiring Person Percentage, (iii) to Purchaser's knowledge, the
failure of the Company to take any actions since July 28, 1998 to distribute
the Rights, to give notice of a triggering event to the holders of the Rights
as required under the Rights Agreement or to otherwise assert that Parent is an
Acquiring Person and (iv) the discussions described below between the Parent's
counsel and the Company's counsel.
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On October 2, 1998, Parent's counsel contacted counsel for the Company to
advise them of this apparent mistake and to request that the Company Board take
action to confirm that Parent did not become an Acquiring Person as a result of
the Rights Amendment. Parent and Purchaser believe that the Company Board has
the power under the terms of the Rights Agreement to easily and clearly correct
this mistake. On October 6, 1998, counsel for the Parent was advised by the
Company's counsel of their agreement that the Company Board has the ability to
correct the actions taken by the Company Board on July 28, 1998. However, the
Company has yet to advise Parent or Purchaser as to what actions, if any, the
Company has taken or proposes to take to correct this mistake.
Parent and Purchaser believe that the adoption of the Rights Amendment and
the failure by the Company Board to take appropriate action to correct the
mistake contained in the Rights Amendment constitute a breach of their
fiduciary duties to the shareholders of the Company. In the Delaware
Litigation, Parent and Purchaser are seeking, among other things, a declaration
that the Rights Amendment is invalid and an injunction compelling the Company
and the Company Board to take clear and appropriate actions to correct this
mistake. See Section 15 "The Delaware Litigation".
Based upon Purchaser's interpretation of the Rights Agreement and, to
Purchaser's knowledge, the absence of any actions by the Company to issue
Rights Certificates or otherwise assert that the Rights have been triggered,
Purchaser believes that, as of the date of this Offer to Purchase, the Rights
were not exercisable and the Rights continue to be evidenced by the Common
Share Certificates. Purchaser believes that, as a result of Purchaser's public
announcement of the Offer, the Distribution Date will be no later than November
3, 1998 unless prior to such date the Company Board redeems the Rights or takes
action to delay the Distribution Date.
Purchaser believes that under applicable law and under the circumstances
of the Offer, the Company Board has a fiduciary obligation to redeem the Rights
(or amend the Rights Agreement to make the Rights inapplicable to the Offer and
the Proposed Merger), and the Purchaser is hereby requesting that the Company
Board do so. However there can be no assurance that the Company Board will
redeem the Rights (or so amend the Rights Agreement). In the Delaware
Litigation, Parent and Purchaser are seeking, among other things, an order
compelling the Company Board to redeem the Rights or to amend the Rights
Agreement to make the Rights inapplicable to the Offer and the Proposed Merger
on the grounds that failure to do so would constitute a breach of fiduciary
duty to the shareholders of the Company. See Section 15 "The Delaware
Litigation."
THE INSURANCE REGULATORY APPROVAL CONDITION. CONSUMMATION OF THE OFFER IS
CONDITIONED UPON PARENT AND PURCHASER HAVING OBTAINED ALL INSURANCE REGULATORY
APPROVALS NECESSARY FOR THEIR ACQUISITION OF CONTROL OVER THE COMPANY AND ITS
INSURANCE SUBSIDIARIES ON TERMS AND CONDITIONS SATISFACTORY TO PURCHASER, IN
ITS SOLE DISCRETION (THE "INSURANCE REGULATORY APPROVAL CONDITION").
According to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 (the "Company 1997 Form 10-K") and other publicly
available documents, the Company, directly or through its subsidiaries, owns
United States property and casualty insurance companies. Accordingly, the
acquisition of Common Shares satisfying the Minimum Condition pursuant to the
Offer will require filings with, and approvals of, state insurance regulatory
authorities (the "Insurance Commissions") under the respective insurance codes
(the "Insurance Codes") of California, Connecticut and Pennsylvania, which are
the respective jurisdictions in which the insurance companies owned or
otherwise controlled by the Company are domiciled.
The Insurance Codes of the United States domiciliary states and the rules
that have been promulgated thereunder each contain provisions applicable to the
acquisition of "control" of a domestic insurer, including a presumption of
control that arises from the ownership of 10% or more of the voting securities
of a domestic insurer or of a person that controls a domestic insurer.
Generally, any person seeking to acquire voting securities, such as the Common
Shares, in an amount that would result in such person controlling, directly or
indirectly, a domestic insurer must, together with any person ultimately
controlling such person, file with the relevant Insurance Commission an
application for approval of acquisition of control (generally known as a "Form
A") containing certain information and send a copy of each Form A to the
domestic insurer. On the date of this Offer to Purchase, Parent and Purchaser
made Form A filings, including a copy of this Offer to Purchase and other
related information with respect to the Offer, with the relevant Insurance
Commissions and sent copies thereof to the relevant domestic insurer.
In certain jurisdictions, the Form A filings trigger public hearing
requirements and/or commence statutory periods within which decisions must be
rendered approving or disapproving the acquisition of control of the Company by
Parent and Purchaser. In other jurisdictions, public hearings are discretionary
and/or there are not periods within which such decisions must be rendered. The
periods within which hearings must be commenced or decisions rendered generally
do not begin until the
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relevant Insurance Commission has deemed the Form A filing complete. The
Insurance Commission generally has discretion to request that additional
information be furnished before it deems the Form A filing complete. The
Insurance Codes provide certain statutory standards for the approval or the
disapproval of the acquisition of control of the Company. The Insurance Codes,
however, usually permit the Insurance Commissions discretion in determining
whether such standards have been met. The California Insurance Code provides
that the California Department of Insurance has 60 calendar days after a Form A
filing is complete to approve or disapprove the filing. The California
Department of Insurance may, at its discretion, hold public hearings regarding
the Form A filing. The Pennsylvania Insurance Code provides that the
Pennsylvania Department of Insurance must hold a hearing if requested, within
10 days of the filing, by either the acquiring company or the target company.
The Pennsylvania Department of Insurance may also, at its discretion, hold a
public hearing regarding the Form A. The Connecticut Insurance Code provides
that the Connecticut Insurance Commissioner is required to hold a hearing
within 30 days after the Commissioner determines that the Form A filing is
complete and no earlier than 20 days after notice to the applicant that the
filing is complete. The applicant is required to give certain persons at least
15 days advance notice of such hearing.
THIS OFFER TO PURCHASE AND THE LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH
RESPECT TO THE OFFER.
1. TERMS OF THE OFFER; EXPIRATION DATE.
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any extension or
amendment), Purchaser will accept for payment and pay for all Common Shares
which are validly tendered prior to the Expiration Date (as hereinafter
defined) and not properly withdrawn in accordance with Section 4. The term
"Expiration Date" means 6:00 p.m., New York City time, on Friday, December 4,
1998, unless and until Purchaser, in its sole discretion, shall have extended
the period of time during which the Offer is open, in which event the term
"Expiration Date" shall refer to the latest time and date at which the Offer,
as so extended by Purchaser, shall expire.
The Offer is conditioned upon, among other things, satisfaction of the
Minimum Condition, the Affiliated Transaction Condition, the Rights Condition,
and the Insurance Regulatory Approval Condition. If any or all of such
conditions are not satisfied or if any or all of the other events set forth in
Section 14 shall have occurred prior to the Expiration Date, Purchaser reserves
the right (but shall not be obligated) to (i) decline to purchase any of the
Common Shares tendered in the Offer and to terminate the Offer and return all
tendered Common Shares to the tendering shareholders, (ii) waive or reduce the
Minimum Condition or waive or amend any or all other conditions to the Offer to
the extent permitted by applicable law, and, subject to complying with
applicable rules and regulations of the SEC, purchase all Common Shares validly
tendered, or (iii) extend the Offer and, subject to the right of shareholders
to withdraw Common Shares until the Expiration Date, retain the Common Shares
which have been tendered during the period or periods for which the Offer is
extended.
Purchaser expressly reserves the right, in its sole discretion, at any
time and from time to time, to extend for any reason the period of time during
which the Offer is open, including the occurrence of any of the events
specified in Section 14, by giving oral or written notice of such extension to
the Depositary. During any such extension, all Common Shares previously
tendered and not properly withdrawn will remain subject to the Offer, subject
to the rights of a tendering shareholder to withdraw its Common Shares in
accordance with the procedures set forth in Section 4.
Subject to the applicable regulations of the SEC, Purchaser also expressly
reserves the right, in its sole discretion, at any time and from time to time,
(i) to delay acceptance for payment of, or, regardless of whether such Common
Shares were theretofore accepted for payment, payment for, any Common Shares
pending receipt of any regulatory approval specified in Section 15 or in order
to comply in whole or in part with any other applicable law, (ii) to terminate
the Offer and not accept for payment any Common Shares if any of the conditions
referred to in Section 14 has not been satisfied or upon the occurrence of any
of the events specified in Section 14 and (iii) to waive any condition or
otherwise amend the Offer in any respect by giving oral or written notice of
such delay, termination, waiver or amendment to the Depositary and by making a
public announcement thereof.
Purchaser acknowledges that (i) Rule 14e-1(c) under the Exchange Act
requires Purchaser to pay the consideration offered or return the Common Shares
tendered promptly after the termination or withdrawal of the Offer, and (ii)
Purchaser may not delay acceptance for payment of, or payment for (except as
provided in clause (i) of the first sentence of the preceding paragraph), any
Common Shares upon the occurrence of any of the conditions specified in Section
14 without extending the period of time during which the Offer is open.
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Any such extension, delay, termination, waiver or amendment will be
followed as promptly as practicable by public announcement thereof, with such
announcement in the case of an extension to be made no later than 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date. Subject to applicable law (including Rules 14d-4(c), 14d-6(d)
and 14e-1 under the Exchange Act, which require that material changes be
promptly disseminated to shareholders in a manner reasonably designed to inform
them of such changes) and without limiting the manner in which Purchaser may
choose to make any public announcement, Purchaser shall have no obligation to
publish, advertise or otherwise communicate any such public announcement other
than by issuing a press release to the Dow Jones News Service.
If Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer, or if it waives a material condition of the
Offer, Purchaser will disseminate additional tender offer materials and extend
the Offer to the extent required by Rules 14d-4(c), 14d-6(d) and 14e-1 under
the Exchange Act. The minimum period during which the Offer must remain open
following material changes in the terms of the Offer or information concerning
the Offer, other than a change in price or a change in percentage of securities
sought, will depend upon the facts and circumstances, including the relative
materiality of the changed terms or information. In the SEC's view, an offer
generally should remain open for a minimum of five business days from the date
a material change is first published, sent or given to shareholders. With
respect to a change in price or a change in percentage of securities sought, a
minimum ten business day period is required to allow for adequate dissemination
to shareholders and investor response. As used in this Offer to Purchase,
"business day" has the meaning set forth in Rule 14d-1 under the Exchange Act.
Accordingly, if, prior to the Expiration Date, Purchaser decreases the number
of Common Shares being sought, or increases or decreases the consideration
offered pursuant to the Offer, and if the Offer is scheduled to expire at any
time earlier than the period ending on the tenth business day from the date
that notice of such increase or decrease is first published, sent or given to
holders of Common Shares, the Offer will be extended at least until the
expiration of such 10 business day period.
Purchaser believes that, as of the date of this Offer to Purchase, the
Rights are evidenced by the Common Share Certificates and do not trade
separately. Accordingly, by tendering a Common Share Certificate, a shareholder
is automatically tendering the associated Rights. If, however, pursuant to the
Rights Agreement or for any other reason, the Rights detach and separate Rights
Certificates are issued, shareholders will be required to tender one Right for
each Common Share tendered in order to effect a valid tender of such Common
Share. See Section 12 "The Rights" and Section 15 "The Delaware Litigation."
A request is being made under applicable Delaware law to the Company for
the use of the Company's shareholder list and security position listing for the
purpose of disseminating the Offer to shareholders. Upon compliance by the
Company with such request, this Offer to Purchase and the Letter of Transmittal
will be mailed to record holders of Common Shares and Rights and will be
furnished to brokers, dealers, commercial banks, trust companies and similar
persons whose names, or the names of whose nominees, appear on the shareholder
list and list of holders of Rights, if applicable, who are listed as
participants in a clearing agency's security position listing for subsequent
transmittal to beneficial owners of Common Shares or Rights.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES.
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such
extension or amendment), Purchaser will purchase, by accepting for payment, and
will pay for, all Common Shares which are validly tendered prior to the
Expiration Date (and not properly withdrawn in accordance with Section 4)
promptly after the later to occur of (i) the Expiration Date and (ii) the
satisfaction or waiver of the conditions set forth in Section 14. Purchaser
expressly reserves the right, in its discretion, to delay acceptance for
payment of, or, subject to applicable rules of the SEC, payment for, Common
Shares in order to comply in whole or in part with any applicable law.
Purchaser understands that, in accordance with the applicable rules of the SEC,
any delay in accepting Common Shares, regardless of cause, may not exceed an
unreasonable length of time. Accordingly, if it appears at the time that the
Offer is scheduled to expire that any regulatory approvals specified in Section
14 hereof are not likely to be obtained within a reasonable length of time
thereafter, Purchaser will either extend or terminate the Offer.
Payment for Common Shares purchased pursuant to the Offer will be made
only after timely receipt by the Depositary of (i) the Common Share
Certificates and Rights Certificates, if the Rights are at such time separately
traded, or timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Common Shares (and Rights, if applicable), if such
procedure is available, into the Depositary's account at The Depository Trust
Company (the "Book-Entry Transfer Facility"), (ii) the Letter of Transmittal
(or facsimile thereof), properly completed and duly executed, or, in the case
of a book-entry transfer, an Agent's Message (as defined below) and (iii) any
other documents required by the Letter of Transmittal.
9
<PAGE>
The term "Agent's Message" means a message, transmitted by the Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has
received an express acknowledgment from the participant in the Book-Entry
Transfer Facility tendering the Common Shares (and Rights, if applicable) that
such participant has received and agrees to be bound by the terms of the Letter
of Transmittal and that Purchaser may enforce such agreement against the
participant.
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment, and thereby purchased, Common Shares (including the associated Rights)
validly tendered and not properly withdrawn if, as and when Purchaser gives
oral or written notice to the Depositary of Purchaser's acceptance of such
Common Shares for payment. Payment for Common Shares (including the associated
Rights) accepted pursuant to the Offer will be made by deposit of the purchase
price therefor with the Depositary, which will act as agent for tendering
shareholders for the purpose of receiving payments from Purchaser and
transmitting payments to such tendering shareholders. Under no circumstances
will interest on the purchase price for Common Shares be paid by Purchaser,
regardless of any delay in making such payment. Upon the deposit of funds with
the Depositary for the purpose of making payments to tendering shareholders,
Purchaser's obligation to make such payment shall be satisfied and tendering
shareholders must thereafter look solely to the Depositary for payment of
amounts owed to them by reason of the acceptance for payment of Common Shares
pursuant to the Offer. Purchaser will pay any stock transfer taxes incident to
the transfer to it of validly tendered Common Shares, except as otherwise
provided in Instruction 6 of the Letter of Transmittal, as well as any charges
and expenses of the Depositary and the Information Agent.
If any tendered Common Shares are not accepted for payment for any reason
pursuant to the terms and conditions of the Offer or if Common Share
Certificates are submitted evidencing more Common Shares than are tendered,
Common Share Certificates evidencing unpurchased Common Shares will be
returned, without expense to the tendering shareholder (or, in the case of
Common Shares tendered by book-entry transfer into the Depositary's account at
the Book-Entry Transfer Facility pursuant to the procedure set forth in Section
3, such Common Shares will be credited to an account maintained at the
Book-Entry Transfer Facility), as promptly as practicable following the
expiration or termination of the Offer.
If, prior to the Expiration Date, Purchaser increases the consideration to
be paid per Common Share pursuant to the Offer, Purchaser will pay such
increased consideration for all such Common Shares purchased pursuant to the
Offer, whether or not such Common Shares were tendered prior to such increase
in consideration.
Purchaser reserves the right to transfer or assign, in whole at any time,
or in part from time to time, to Parent or one or more direct or indirect
wholly owned subsidiaries of Parent, the right to purchase all or any portion
of the Common Shares tendered pursuant to the Offer, provided that any such
transfer or assignment will not relieve Purchaser of its obligations under the
Offer and will in no way prejudice the rights of tendering shareholders to
receive payment for Common Shares validly tendered and accepted for payment
pursuant to the Offer.
3. PROCEDURES FOR TENDERING COMMON SHARES.
VALID TENDER OF COMMON SHARES. In order for Common Shares to be validly
tendered pursuant to the Offer, the Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, with any required signature
guarantees, or an Agent's Message (in the case of any book-entry transfer) and
any other required documents, must be received by the Depositary at one of its
addresses set forth on the back cover of this Offer to Purchase prior to the
Expiration Date and either (i) the Common Share Certificates evidencing
tendered Common Shares must be received by the Depositary at one of such
addresses or Common Shares must be tendered pursuant to the procedure for
book-entry transfer described below and a Book-Entry Confirmation must be
received by the Depositary, in each case prior to the Expiration Date, or (ii)
the tendering shareholder must comply with the guaranteed delivery procedures
described below. The method of delivery of Common Share Certificates and all
other required documents, including delivery through the Book-Entry Transfer
Facility, is at the sole option and risk of the tendering shareholder, and the
delivery will be deemed made only when actually received by the Depositary. If
delivery is by mail, registered mail with return receipt requested, properly
insured, is recommended. In all cases, sufficient time should be allowed to
ensure timely delivery.
BOOK-ENTRY TRANSFER. The Depositary will establish an account with respect
to the Common Shares at the Book-Entry Transfer Facility for purposes of the
Offer within two business days after the date of this Offer to Purchase, and
any financial institution that is a participant in the Book-Entry Transfer
Facility system may make book-entry delivery of Common Shares by causing the
Book-Entry Transfer Facility to transfer such Common Shares into the
Depositary's account at the Book-Entry Transfer Facility in accordance with the
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Common Shares may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal (or facsimile thereof),
properly completed and duly executed, with any required signature guarantees,
or an Agent's Message in connection with a book-entry delivery of Common
Shares, and any other required documents must, in
10
<PAGE>
any case, be transmitted to and received by the Depositary at one of its
addresses set forth on the back cover of this Offer to Purchase prior to the
Expiration Date or the tendering shareholder must comply with the guaranteed
delivery procedures described below. Delivery of documents to the Book-Entry
Transfer Facility in accordance with the Book-Entry Transfer Facility's
procedures does not constitute delivery to the Depositary.
SIGNATURE GUARANTEE. Signatures on all Letters of Transmittal must be
guaranteed by a firm which is a bank, broker, dealer, credit union, savings
association or other entity that is a member in good standing of the Securities
Transfer Agents Medallion Program (each, an "Eligible Institution"), unless the
Common Shares are tendered (i) by a registered holder of Common Shares who has
not completed either the box entitled "Special Delivery Instructions" or the
box entitled "Special Payment Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. See Instruction 1 of the
Letter of Transmittal.
If a Common Share Certificate is registered in the name of a person other
than the signer of the Letter of Transmittal, or if payment is to be made, or a
Common Share Certificate not accepted for payment or not tendered is to be
returned, to a person other than the registered holder(s), then the Common
Share Certificate must be endorsed or accompanied by appropriate stock powers,
in either case signed exactly as the name(s) of the registered holder(s) appear
on the Common Share Certificate, with the signature(s) on such Common Share
Certificate or stock powers guaranteed as described above. See Instructions 1
and 5 of the Letter of Transmittal.
GUARANTEED DELIVERY. If a shareholder desires to tender Common Shares
pursuant to the Offer and such shareholder's Common Share Certificates are not
immediately available or time will not permit all required documents to reach
the Depositary prior to the Expiration Date or the procedure for book-entry
transfer cannot be completed on a timely basis, such Common Shares may
nevertheless be tendered if all the following conditions are satisfied:
(i) the tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by Purchaser herewith, is
received by the Depositary as provided below prior to the Expiration Date;
and
(iii) in the case of a guarantee of Common Shares, the Common Share
Certificates for all tendered Common Shares, in proper form for transfer,
or a Book-Entry Confirmation, together with a properly completed and duly
executed Letter of Transmittal (or manually signed facsimile thereof) with
any required signature guarantee (or, in the case of a book-entry transfer,
an Agent's Message) and any other documents required by such Letter of
Transmittal, are received by the Depositary within three Nasdaq National
Market ("Nasdaq NM") trading days after the date of execution of the Notice
of Guaranteed Delivery.
Any Notice of Guaranteed Delivery may be delivered by hand or transmitted
by telegram, facsimile transmission or mail to the Depositary and must include
a guarantee by an Eligible Institution in the form set forth in the Notice of
Guaranteed Delivery.
Notwithstanding any other provision hereof, payment for Common Shares
purchased pursuant to the Offer will, in all cases, be made only after timely
receipt by the Depositary of (i) the Common Share Certificates evidencing such
Common Shares, or a Book-Entry Confirmation of the delivery of such Common
Shares, if available, (ii) a properly completed and duly executed Letter of
Transmittal (or manually signed facsimile thereof) (or in the case of a
book-entry transfer, an Agent's Message) and (iii) any other documents required
by the Letter of Transmittal.
DISTRIBUTION OF RIGHTS. Holders of Common Shares will be required to
tender one Right for each Common Share tendered to effect a valid tender of
such Common Share. Unless and until the Distribution Date has occurred, the
Rights are represented by and transferred with the Common Shares. Accordingly,
if the Distribution Date does not occur prior to the Expiration Date of the
Offer, a tender of Common Shares will constitute a tender of the associated
Rights. If a Distribution Date has occurred, certificates representing a number
of Rights equal to the number of Common Shares being tendered must be delivered
to the Depositary in order for such Common Shares to be validly tendered. If a
Distribution Date has occurred, a tender of Common Shares without Rights
constitutes an agreement by the tendering shareholder to deliver certificates
representing a number of Rights equal to the number of Common Shares tendered
pursuant to the Offer to the Depositary within three Nasdaq NM trading days
after the date such certificates are distributed. Purchaser reserves the right
to require that it receive such certificates prior to accepting Common Shares
for payment. Payment for Common Shares tendered and purchased pursuant to the
Offer will be made only after timely receipt by the Depositary of, among other
things, such certificates, if such certificates have been distributed to
holders of Common Shares. Purchaser will not pay any additional consideration
for the Rights tendered pursuant to the Offer.
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<PAGE>
DETERMINATION OF VALIDITY. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any
tendered Common Shares pursuant to any of the procedures described above will
be determined by Purchaser in its sole discretion, whose determination will be
final and binding on all parties. Purchaser reserves the absolute right to
reject any or all tenders of any Common Shares determined by it not to be in
proper form or if the acceptance for payment of, or payment for, such Shares
may, in the opinion of Purchaser's counsel, be unlawful. Purchaser also
reserves the absolute right, in its sole discretion, to waive any of the
conditions of the Offer or any defect or irregularity in any tender with
respect to Common Shares of any particular shareholder, whether or not similar
defects or irregularities are waived in the case of other shareholders. No
tender of Common Shares will be deemed to have been validly made until all
defects and irregularities have been cured or waived.
Purchaser's interpretation of the terms and conditions of the Offer
(including the Letter of Transmittal and the instructions thereto) will be
final and binding. None of Parent, Purchaser, the Dealer Manager, the
Depositary, the Information Agent or any other person will be under any duty to
give notification of any defects or irregularities in tenders or will incur any
liability for failure to give any such notification.
APPOINTMENT AS PROXY. By executing a Letter of Transmittal as set forth
above, a tendering shareholder irrevocably appoints designees of Purchaser as
such shareholder's proxies, each with full power of substitution, to the full
extent of such shareholder's rights with respect to the Common Shares
(including the associated Rights) tendered by such shareholder and accepted for
payment by Purchaser (and any and all noncash dividends, distributions, rights,
other Shares, or other securities issued or issuable in respect of such Common
Shares on or after the date of this Offer to Purchase). All such proxies shall
be considered coupled with an interest in the tendered Common Shares or Rights.
This appointment will be effective if, when, and only to the extent that,
Purchaser accepts such Common Shares for payment pursuant to the Offer. Upon
such acceptance for payment, all prior proxies given by such shareholder with
respect to such Common Shares and other securities will, without further
action, be revoked, and no subsequent proxies may be given. The designees of
Purchaser will, with respect to the Common Shares and other securities for
which the appointment is effective, be empowered to exercise all voting and
other rights of such shareholder as they in their sole discretion may deem
proper at any annual, special, adjourned or postponed meeting of the Company's
shareholders, by written consent or otherwise, and Purchaser reserves the right
to require that, in order for Common Shares or other securities to be deemed
validly tendered, immediately upon Purchaser's acceptance for payment of such
Common Shares, Purchaser must be able to exercise full voting rights with
respect to such Shares.
To prevent backup Federal income tax withholding with respect to payment
to certain shareholders of the purchase price for Shares purchased pursuant to
the Offer, each such shareholder must provide the Depositary with such
shareholder's correct Taxpayer Identification Number and certify that such
shareholder is not subject to backup Federal income tax withholding by
completing the substitute Form W-9 in the Letter of Transmittal. If backup
withholding applies with respect to a shareholder, the Depositary is required
to withhold 31% of any payments made to such shareholder. See Instruction 9 of
the Letter of Transmittal.
Purchaser's acceptance for payment of Common Shares tendered pursuant to
the Offer will constitute a binding agreement between the tendering shareholder
and Purchaser upon the terms and subject to the conditions of the Offer.
4. WITHDRAWAL RIGHTS.
Tenders of Common Shares made pursuant to the Offer are irrevocable except
that Common Shares may be withdrawn at any time prior to the Expiration Date
and, unless theretofore accepted for payment by Purchaser pursuant to the
Offer, may also be withdrawn at any time after December 18, 1998.
If Purchaser extends the Offer, is delayed in its acceptance for payment
of Common Shares or is unable to accept Common Shares for payment pursuant to
the Offer for any reason, then, without prejudice to Purchaser's rights under
the Offer, the Depositary may, nevertheless, on behalf of Purchaser, retain
tendered Common Shares, and such Common Shares may not be withdrawn except to
the extent that tendering shareholders are entitled to withdrawal rights as
described in this Section 4. Any such delay will be by an extension of the
Offer to the extent required by law.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover of this Offer to Purchase. Any
such notice of withdrawal must specify the name of the person who tendered the
Common Shares to be withdrawn, the number of Common Shares to be withdrawn and
the name of the registered holder, if different from that of the person who
tendered such Common Shares. If certificates for Common Shares to be withdrawn
have been delivered or otherwise identified to the
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<PAGE>
Depositary, then, prior to the physical release of such Common Share
Certificates, the serial numbers shown on such certificates must be submitted
to the Depositary and the signature(s) on the notice of withdrawal must be
guaranteed by an Eligible Institution, unless such Common Shares have been
tendered for the account of an Eligible Institution. If Common Shares have been
tendered pursuant to the procedure for book-entry transfer as set forth in
Section 3, any notice of withdrawal must also specify the name and number of
the account at the Book-Entry Transfer Facility to be credited with the
withdrawn Common Shares and otherwise comply with such Book-Entry Transfer
Facility's procedures.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by Purchaser, in its sole discretion,
whose determination will be final and binding. None of Parent, Purchaser, the
Dealer Manager, the Depositary, the Information Agent or any other person will
be under any duty to give notification of any defects or irregularities in any
notice of withdrawal or incur any liability for failure to give any such
notification.
Any Common Shares properly withdrawn will thereafter be deemed not to have
been validly tendered for purposes of the Offer. However, withdrawn Common
Shares may be retendered at any time prior to the Expiration Date by following
the procedures described in Section 3.
5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES.
The following discussion is a summary of the material federal income tax
consequences of the Offer and the Proposed Merger to holders of Common Shares
who hold their Common Shares as capital assets. This summary is based upon
laws, regulations, rulings and decisions in effect on the date hereof, all of
which are subject to change, retroactively or prospectively, and to possibly
differing interpretations. The discussion set forth below is for general
information only and may not apply to certain categories of holders of Common
Shares subject to special treatment under the Internal Revenue Code of 1986, as
amended (the "Code"), including, but not limited to, banks, tax-exempt
organizations, insurance companies, holders who are not United States persons
(as defined in Section 7701(a)(30) of the Code) and holders who acquired such
Common Shares pursuant to the exercise of employee stock options or otherwise
as compensation. In addition, the discussion does not address the state, local
or foreign tax consequences of the Offer and the Proposed Merger. Furthermore,
this discussion does not address the Federal, state, local or foreign tax
consequences of the Offer and the Proposed Merger to holders of Preferred
Shares or to holders of Common Shares who also own Preferred Shares.
EACH HOLDER OF COMMON SHARES IS URGED TO CONSULT ITS TAX ADVISOR WITH
RESPECT TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE OFFER
AND THE PROPOSED MERGER.
GENERAL FEDERAL TAX CONSEQUENCES OF THE OFFER AND THE PROPOSED MERGER. The
receipt of cash in exchange for Common Shares (and associated Rights, if
applicable) pursuant to the Offer and/or the Proposed Merger would be a taxable
sale for federal tax purposes. Accordingly, a shareholder of the Company who
receives cash pursuant to the Offer and/or the Proposed Merger will recognize
taxable gain or loss equal to the difference between the amount of cash
received and the shareholder's adjusted tax basis in the Common Shares (and
associated Rights, if applicable) surrendered therefor. The gain or loss will
be long-term capital gain or loss if, as of the date of the sale, such
shareholder's holding period for such Common Shares is more than one year.
Under current law, an individual is subject to a maximum federal income tax
rate of 20% on any net long-term capital gains.
If the receipt of cash in exchange for Common Shares (and associated
Rights, if applicable) results in recognition of a capital loss, deductibility
of such loss may be subject to limitation. In general, an individual who
recognizes a capital loss would be permitted to deduct such loss only to the
extent of the sum of (i) net capital gains from other sources, plus (ii) $3,000
($1,500 in the case of a married individual filing a separate return). An
individual would be permitted to carry any net capital loss forward to
succeeding years, subject to this limitation. A shareholder that is a
corporation for Federal income tax purposes would be permitted to deduct any
capital loss from the sale of Common Shares (and associated Rights, if
applicable) pursuant to the Offer and/or the Proposed Merger only to the extent
of its capital gains from other sources, although the corporation would be
permitted to carry any net capital loss back to its preceding three taxable
years and forward to its succeeding five taxable years.
Backup Withholding. Unless a shareholder of the Company complies with
certain reporting or certification procedures or is an "exempt recipient" (in
general, corporations and certain other entities) under applicable provisions
of the Code and Treasury Regulations promulgated thereunder, such shareholder
may be subject to withholding tax of 31% with respect to any cash payments
received pursuant to the Offer and/or the Proposed Merger. A foreign
shareholder of the Company should consult its tax advisor with respect to the
application of withholding rules to it with respect to any cash payments
received pursuant to the Offer and/or the Proposed Merger.
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6. PRICE RANGE OF SHARES; DIVIDENDS.
The Common Shares are listed and principally traded on the Nasdaq NM and
quoted under the symbol "GRYP," according to published financial sources. The
following table sets forth, for the quarters indicated, the high and low sales
prices per Common Share on the Nasdaq NM and the amount of cash dividends paid
per Common Share, as reported in the Company's 1997 Form 10-K and as reported
by published financial sources with respect to periods in 1998:
<TABLE>
<CAPTION>
1998 1997 1996
HIGH LOW HIGH LOW HIGH LOW
--------- --------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
First Quarter ..................................... 18 1/8 14 3/4 $15 1/4 $ 13 $20 1/4 $16 7/8
Second Quarter .................................... 19 3/8 15 7/8 15 3/8 13 7/8 19 1/2 14 5/8
Third Quarter ..................................... 17 11 3/8 17 3/4 15 1/4 15 1/4 12
Fourth Quarter (through October 19, 1998) ......... 16 5/8 14 17 3/4 15 7/8 16 12 1/2
</TABLE>
The Company reported in its 1997 Form 10-K that it has not paid any cash
dividends on its Common Shares since its initial public offering (the
"Offering") and does not anticipate paying any cash dividends in the
foreseeable future.
On August 31, 1998, the day before the Parent's September 1, 1998 letter
to the Company, the closing sales price of the Common Shares on the Nasdaq NM
was $11.63 per Common Share. On September 30, 1998, the day before the Parent's
October 1, 1998 letter to the Company, the closing sales price of the Common
Shares on the Nasdaq NM was $14.00 per Common Share.
On October 19, 1998, the most recent practicable trading day prior to the
announcement date of the Offer, the reported closing sales price of the Common
Shares on the Nasdaq NM was $16 1/8 per Common Share. Shareholders are urged to
obtain a current market quotation for the Common Shares.
7. EFFECT OF THE OFFER ON THE MARKET FOR THE COMMON SHARES; NASDAQ NM
LISTING AND EXCHANGE ACT REGISTRATION; MARGIN REGULATIONS.
The purchase of Common Shares pursuant to the Offer will reduce the number
of Common Shares that might otherwise trade publicly and could reduce the
number of holders of Common Shares, which could adversely affect the liquidity
and market value of the remaining Common Shares held by the public. Following
consummation of the Offer, a large percentage of the outstanding Common Shares
will be owned by Purchaser.
According to the Nasdaq NM published guidelines, the Nasdaq NM would
consider delisting the Common Shares if, among other things, the number of
record holders of at least 100 Common Shares should fall below 400, the number
of publicly held Common Shares (exclusive of holdings of officers, directors
and their families and other concentrated holdings of 10% or more (the "Nasdaq
Excluded Holdings")) should fall below 750,000 or the aggregate market value of
publicly held Common Shares (exclusive of Nasdaq Excluded Holdings) should fall
below $5,000,000. If, as a result of the purchase of Common Shares pursuant to
the Offer or otherwise, the Common Shares no longer meet the requirements of
the Nasdaq NM for continued listing and the listing of the Common Shares is
discontinued, the market for the Common Shares could be adversely affected.
If the Nasdaq NM were to delist the Common Shares, it is possible that the
Common Shares would continue to trade on another securities exchange or in the
over-the-counter market and that price or other quotations would be reported by
such exchange, through Nasdaq or other sources. The extent of the public market
therefor and the availability of such quotations would depend, however, upon
such factors as the number of shareholders and/or the aggregate market value of
such securities remaining at such time, the interest in maintaining a market in
the Common Shares on the part of securities firms, the possible termination of
registration under the Exchange Act as described below and other factors.
Purchaser cannot predict whether the reduction in the number of Common Shares
that might otherwise trade publicly would have an adverse or beneficial effect
on the market price for or marketability of the Common Shares or whether it
would cause future market prices to be higher or lower than the Offer Price.
The Common Shares are currently registered under the Exchange Act. Such
registration may be terminated upon application by the Company to the SEC if
the Common Shares are not listed on a national securities exchange and there
are fewer than 300 record holders of the Common Shares. The termination of
registration of the Common Shares under the Exchange Act would substantially
reduce the information required to be furnished by the Company to holders of
Common Shares and to the SEC and would make certain provisions of the Exchange
Act, such as the short-swing profit recovery provisions of
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<PAGE>
Section 16(b), the requirement of furnishing a proxy statement in connection
with shareholders' meetings pursuant to Section 14(a), and the requirements of
Rule 13e-3 under the Exchange Act with respect to "going private" transactions,
no longer applicable to the Common Shares. In addition, "affiliates" of the
Company and persons holding "restricted securities" of the Company may be
deprived of the ability to dispose of such securities pursuant to Rule 144
promulgated under the Securities Act of 1933, as amended (the "Securities
Act").
If registration of the Common Shares under the Exchange Act were
terminated, the Common Shares would no longer be eligible for Nasdaq reporting.
Based upon publicly available information, Purchaser believes that, as of
the date of this Offer to Purchase, the Rights are registered under the
Exchange Act and are listed on the Nasdaq NM.
Based upon Purchaser's interpretation of the Rights Agreement and, to
Purchaser's knowledge, the absence of any actions by the Company to issue
Rights Certificates or otherwise assert that the Rights have been triggered,
Purchaser believes that as of the date of this Offer to Purchase, the Rights
remain attached to the Common Shares and are not separately transferable. The
Purchaser believes that, as a result of Purchaser's public announcement of the
Offer, the Distribution Date will be no later than November 3, 1998 unless
prior to such date the Company Board redeems the Rights or otherwise takes
action to delay the Distribution Date. According to the Company Form 8-A, as
soon as practicable after the Distribution Date, the Rights Certificates will
be mailed to holders of record of the Common Shares as of the close of business
on the Distribution Date, and thereafter the separate Rights Certificates alone
will evidence the Rights and the foregoing discussion with respect to the
effect of the Offer on the market for the Common Shares, stock exchange listing
and Exchange Act registration would apply to the Rights in a similar manner.
See Section 12 "The Rights" and Section 15 "The Delaware Litigation."
The Common Shares are currently "margin securities" under the regulations
of the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"), which has the effect, among other things, of allowing registered
brokers to extend credit on the collateral of the Common Shares. Depending upon
factors similar to those described above regarding listing and market
quotations, it is possible that, following the Offer, the Common Shares would
no longer constitute "margin securities" for the purpose of the margin
regulations of the Federal Reserve Board and therefore could no longer be used
as collateral for loans made by brokers.
8. CERTAIN INFORMATION CONCERNING THE COMPANY.
The information concerning the Company contained in this Offer to
Purchase, including financial information, has been taken from or based upon
the Company's 1997 Form 10-K and other publicly available documents and records
on file with the SEC and other public sources. None of Parent, Purchaser, the
Dealer Manager, the Depositary or the Information Agent assumes any
responsibility for the accuracy or completeness of the information concerning
the Company contained in such documents and records or for any failure by the
Company to disclose events which may have occurred or may affect the
significance or accuracy of any such information but which are unknown to
Parent, Purchaser, the Dealer Manager, the Depositary or the Information Agent.
According to information filed by the Company with the SEC, the Company is
a Delaware corporation whose principal executive offices are located at 30 Wall
Street, New York, New York 10005-2201.
The Company is a holding company that operates through its main
subsidiary, Gryphon Insurance Group Inc., as a specialty property and casualty
underwriting organization in the United States. The Company's wholly-owned
insurance subsidiaries are Associated International Insurance Company, Calvert
Insurance Company and The First Reinsurance Company of Hartford.
FINANCIAL AND PRO FORMA INFORMATION. Set forth below is certain selected
consolidated financial and pro forma information relating to the Company and
its subsidiaries which has been excerpted or derived from the financial
statements and pro forma information contained in the Company's 1997 Form 10-K,
the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 1998 (the "Company Form 10-Q") the Company's Form 8-K/A dated September 28,
1998 (the "Company Form 8-K") and other documents filed by the Company with the
SEC. More comprehensive financial and pro forma information is included in, and
the financial information and pro forma information that follows is qualified
in its entirety by reference to, the Company's 1997 Form 10-K, the Company Form
10-Q, the Company Form 8-K and such other documents filed by the Company with
the SEC. The Company Form 10-K, the Company Form 10-Q, the Company Form 8-K and
such other documents may be examined at and copies may be obtained from the
offices of the SEC or the
15
<PAGE>
NASDAQ Stock Market in the manner set forth below. The pro forma information
set forth below gives effect to the Company's acquisition of all the issued and
outstanding shares of capital stock of The First Reinsurance Company of
Hartford, Oakley Underwriting Agency, and F/I Insurance Agency, Incorporated,
as reported in the Company Form 8-K.
According to the Company Form 8-K, the Pro Forma Consolidated Statement of
Income for the year ended December 31, 1997 and the six months ended June 30,
1998, give effect to the acquisition as if it had occurred on January 1, 1997.
The Pro Forma Consolidated Balance Sheet gives effect to the acquisition as if
it had occurred on June 30, 1998.
SUMMARY FINANCIAL AND PRO FORMA INFORMATION FOR THE COMPANY
<TABLE>
<CAPTION>
FINANCIAL INFORMATION
- -------------------------------------------------------------------------------------------------------------------------
AT OR FOR THE PERIOD ENDING AT OR FOR THE PERIOD ENDING
DECEMBER 31, JUNE 30,
--------------------------------------------- ---------------------------
1995 1996 1997 1997 1998
------------- ------------- ------------- ------------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Total Revenue ............................ $ 102,885 $ 106,644 $ 128,474 $ 58,030 $ 54,130
Net Income ............................... 12,925 6,163 8,794 4,338 (6,579)
Earnings Per Share (basic) ............... 1.69 0.93 1.32 0.65 (0.98)
BALANCE SHEET DATA
Total Investments ........................ 261,265 280,471 280,810 276,461 300,982
Total Assets ............................. 530,989 526,984 538,985 539,601 589,531
Loss and Loss Adjustment Expense ......... 308,886 309,259 328,911 335,365 364,582
Total Liabilities ........................ 437,767 431,848 434,476 440,343 491,054
Total Stockholders' Equity ............... 93,222 95,136 104,509 99,258 98,477
</TABLE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AT OR FOR THE SIX
DECEMBER 31, MONTHS ENDED JUNE 30,
-------------------- ----------------------
1997 1998
-------------------- ----------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
<S> <C> <C>
INCOME STATEMENT DATA
Total Revenue ............................ $ 149,588 $ 67,874
Net Income ............................... 8,841 (7,540)
Earnings Per Share (basic) ............... 1.32 (1.12)
Earnings Per Share (diluted) ............. 1.27 (1.12)
BALANCE SHEET DATA
Total Investments ........................ 373,999
Total Assets ............................. 714,875
Loss and Loss Adjustment Expense ......... 414,574
Total Liabilities ........................ 603,891
Total Stockholders' Equity ............... 110,984
</TABLE>
- ---------
The Company is subject to the information and reporting requirements of
the Exchange Act and is required to file reports and other information with the
SEC relating to its business, financial condition and other matters.
Information, as of particular dates, concerning the Company's directors and
officers, their remuneration, stock options granted to them, the principal
holders of the Company's securities, any material interests of such persons in
transactions with the Company and other matters is required to be disclosed in
proxy statements distributed to the Company's shareholders and filed with the
SEC. These reports, proxy statements and other information should be available
for inspection at the public reference facilities of the SEC located in
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and also
should be available for inspection and copying at prescribed rates at the
following regional offices of the SEC: Seven World Trade Center, New York, New
York 10048; and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of this material may also be obtained by mail, upon payment of the SEC's
customary fees, from the SEC's principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The SEC also maintains an Internet web site at
http://www.sec.gov that contains reports, proxy
16
<PAGE>
statements and other information. Reports, proxy statements and other
information concerning the Company should also be available for inspection at
the offices of the NASDAQ Stock Market, 1735 K Street, NW, Washington, DC
20006-1506.
9. CERTAIN INFORMATION CONCERNING PURCHASER AND PARENT.
PURCHASER. Purchaser is a newly incorporated Delaware corporation
organized in connection with the Offer and the Proposed Merger and has not
carried on any activities other than in connection with the Offer and the
Proposed Merger. The principal offices of Purchaser are located at 4551 Cox
Road, Glen Allen, Virginia 23060-3382. The Purchaser is a wholly owned
subsidiary of Parent. Until immediately prior to the time that Purchaser
purchases Common Shares pursuant to the Offer, it is not expected that
Purchaser will have any significant assets or liabilities or engage in
activities other than those incident to its formation and capitalization and
the transactions contemplated by the Offer and the Proposed Merger. Because
Purchaser is newly formed and has minimal assets and capitalization, no
meaningful financial information regarding Purchaser is available.
PARENT. Parent is a Virginia corporation with its principal executive
offices located at 4551 Cox Road, Glen Allen, Virginia 23060-3382. Parent is a
New York Stock Exchange listed insurance holding company which was incorporated
in Virginia in 1930, reorganized as a holding company in 1980 and had its
initial public offering in December, 1986. Parent is a holding company for
several insurance companies through which Parent markets and underwrites
specialty insurance products and programs to a variety of niche markets. In
each of these markets, Parent seeks to provide quality products and excellent
customer service so that it can be a market leader. The financial goals of
Parent are to earn consistent underwriting profits and superior investment
returns to build shareholder value.
Parent is subject to the information and reporting requirements of the
Exchange Act and is required to file reports and other information with the SEC
relating to its business, financial condition and other matters. Information,
as of particular dates, concerning Parent's directors and officers, their
remuneration, stock options granted to them, the principal holders of Parent's
securities, any material interests of such persons in transactions with Parent
and other matters is required to be disclosed in proxy statements distributed
to Parent's shareholders and filed with the SEC. These reports, proxy
statements and other information should be available for inspection at the SEC
and copies may be obtained from the SEC. Parent's common stock is listed on the
New York Stock Exchange ("NYSE"), and reports, proxy statements and other
information concerning Parent should also be available for inspection at the
offices of the NYSE, 20 Broad Street, New York, New York.
FINANCIAL INFORMATION. Set forth below are certain selected consolidated
financial information relating to Parent and its subsidiaries which have been
excerpted or derived from the Financial Statements contained in the Parent's
Form 10-K for the year ended December 31, 1997 (the "Parent Form 10-K") and the
Parent's Form 10-Q for the quarter ended June 30, 1998 (the "Parent Form 10-Q")
and other documents filed by Parent with the SEC. More comprehensive financial
information is included in, and the financial information that follows is
qualified in its entirety by reference to, the Parent Form 10-K, the Parent
Form 10-Q and such other documents which have been filed with the SEC,
including the financial information and related notes contained therein, which
are incorporated herein by reference. These documents may be inspected at and
copies may be obtained from the offices of the SEC or the NYSE in the manner
set forth above.
17
<PAGE>
SUMMARY FINANCIAL INFORMATION FOR MARKEL
<TABLE>
<CAPTION>
AT OR FOR THE PERIOD ENDING AT OR FOR THE PERIOD ENDING
DECEMBER 31, JUNE 30,
--------------------------------------------- -----------------------------
1995 1996 1997 1997 1998
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Total Revenue ............................ $ 343,575 $ 366,736 $ 419,047 $ 200,173 $ 208,231
Net Income ............................... 34,492 46,672 50,427 18,512 27,777
Earnings Per Share (basic) ............... 6.38 8.58 9.20 3.38 5.05
Earnings Per Share (diluted) ............. 6.15 8.30 8.92 3.28 4.92
BALANCE SHEET DATA
Total Investments ........................ 908,583 1,130,776 1,408,320 1,331,525 1,450,961
Total Assets ............................. 1,314,537 1,605,297 1,870,100 1,792,051 1,901,050
Loss and Loss Adjustment Expense ......... 734,409 935,582 971,157 956,045 947,498
Total Liabilities ........................ 1,101,095 1,336,962 1,513,296 1,482,844 1,500,142
Total Stockholders' Equity ............... 213,442 268,335 356,804 309,207 400,908
</TABLE>
The name, citizenship, business address, principal occupation or
employment and five-year employment history for each of the directors and
executive officers of Purchaser and Parent are set forth in Schedule I hereto.
During the past 60 days, Parent has not effected transactions in the
equity securities of the Company, except for the transfer of 100 Common Shares
to Purchaser on October 16, 1998. Except as set forth in this Offer to
Purchase, none of Parent or Purchaser or, to the best knowledge of Parent or
Purchaser, any of the persons listed in Schedule I hereto, or any associate or
majority-owned subsidiary of such persons, beneficially owns any equity
security of the Company, and none of Parent or Purchaser or, to the best
knowledge of Parent or Purchaser, any of the other persons referred to above,
or any of the respective directors, executive officers or subsidiaries of any
of the foregoing, has effected any transaction in any equity security of the
Company during the past 60 days.
Except as set forth in this Offer to Purchase, none of Parent or Purchaser
or, to the best knowledge of Parent or Purchaser, any of the persons listed in
Schedule I hereto has any contract, arrangement, understanding or relationship
with any other person with respect to any securities of the Company, including,
without limitation, any contract, arrangement, understanding or relationship
concerning the transfer or the voting of any securities of the Company, joint
ventures, loan or option arrangements, puts or calls, guaranties of loans,
guaranties against loss or the giving or withholding of proxies. Except as set
forth in this Offer to Purchase, none of Parent or Purchaser or, to the best
knowledge of Parent or Purchaser, any of the persons listed in Schedule I
hereto has had any transactions with the Company, or any of its executive
officers, directors or affiliates that would require reporting under the rules
of the SEC.
Except as set forth in this Offer to Purchase, there have been no
contacts, negotiations or transactions between Parent or Purchaser, or their
respective subsidiaries, or, to the best knowledge of Parent or Purchaser, any
of the persons listed in Schedule I hereto, on the one hand, and the Company or
its executive officers, directors or affiliates, on the other hand, concerning
a merger, consolidation or acquisition, tender offer or other acquisition of
securities, election of directors, or a sale or other transfer of a material
amount of assets.
10. SOURCE AND AMOUNT OF FUNDS.
Purchaser estimates that the total amount of funds required to purchase
Common Shares pursuant to the Offer and to pay all related costs and expenses
will be approximately $115 million. See also Section 16. Purchaser plans to
obtain all funds needed for the Offer through a capital contribution from
Parent. Parent plans to obtain such funds from cash accounts and a $250 million
revolving credit facility (the "Credit Facility"), dated April 23, 1998 among
Parent, the lenders referred to therein and First Union National Bank, as Agent
("Agent"). At October 20, 1998, Parent had $250 million of available borrowings
under the Credit Facility.
The Credit Facility provides for revolving loans which bear interest at
the option of Parent, at the Base Rate, the CD rate or the LIBOR Rate plus any
applicable Margin Rate as those terms are defined in the Credit Facility. The
Credit Facility will mature on April 23, 2003.
18
<PAGE>
The Credit Facility contains certain financial covenants as well as
restrictions on, among other things, (i) indebtedness of material subsidiaries,
(ii) liens, (iii) mergers, consolidations, liquidations, dissolutions and sales
of all or any material portion of assets, (iv) sale and leasebacks, (v) changes
in fiscal year and accounting treatment and (vi) certain changes in the
character of business. The financial covenants require Parent to maintain (i)
specified maximum leverage ratios and (ii) minimum combined statutory surplus
of $250,518,000. At June 30, 1998 the combined statutory surplus of Parent's
insurance subsidiaries was $374,084,000.
In connection with the Credit Facility, Parent has agreed to pay the
lenders under the Credit Facility and the Agent, certain fees, and to reimburse
them for certain expenses and to provide them certain indemnities, as is
customary for credit facilities of the type described herein.
It is anticipated that any indebtedness incurred by Parent under the
Credit Facility will be repaid from funds generated internally by Parent and
its subsidiaries, through additional borrowings, or through a combination of
such sources.
The foregoing description of the Credit Facility is qualified in its
entirety by reference to the full text of such Credit Facility, a copy of which
has been filed with the SEC as exhibit 4 to Parent's 10-Q for the quarter ended
March 31, 1998 and is incorporated by reference herein.
11. BACKGROUND OF THE OFFER; CONTACTS WITH THE COMPANY.
In January 1998, Steven A. Markel, Vice-Chairman of Parent, contacted
Stephen A. Crane, President and Chief Executive Officer of the Company. Mr.
Markel expressed interest in discussing the future direction of the Company and
Parent and whether it made sense to discuss a possible combination of the two
companies. No meeting was arranged at that time.
On March 24, 1998, Mr. Markel met briefly with Mr. Crane and again
suggested that a combination of the two companies could be mutually beneficial.
Mr. Markel expressed a willingness to meet with the Company's Board or a
committee of the Company Board to discuss a potential acquisition of the
Company. Mr. Markel also advised Mr. Crane that Parent had been acquiring
Common Shares in the open market and would shortly be making required filings
under federal securities laws. Mr. Markel's request for a meeting was denied
and Mr. Crane indicated the Company was not for sale.
On April 1, 1998, Mr. Markel spoke by phone with Mr. Crane as a follow-up
to the March 24, 1998 meeting. During that conversation, Mr. Markel informed
Mr. Crane that Parent was considering acquiring, through open market
transactions or privately negotiated purchases, additional Common Shares up to
19.9% of the Common Shares outstanding.
Parent determined to seek necessary state insurance regulatory approvals
to acquire up to 19.9% of the outstanding Common Shares as discussed in the
April 1 phone call. The necessary filings were made in early April. Thereafter,
the Company, through its counsel, filed objections in the regulatory
proceedings to Parent's proposed purchases. In late April, Mr. Markel contacted
Mr. Crane and asked him why the Company was opposing Parent's proposed
additional purchases. Mr. Crane did not indicate a willingness to discontinue
the Company's objections to Parent's proposed additional purchases.
On May 12, 1998, representatives of Parent attended the annual stockholder
meeting of the Company.
On May 26, 1998, Mr. Markel wrote to each member of the Company Board
recounting the substance of conversations which had taken place and requesting
that the Company cease its objections in the regulatory proceedings and that
the Company refrain from taking steps such as amending the Company's
shareholders rights "poison pill" plan. This letter was filed by Parent as an
amendment to its report on Schedule 13D on May 28, 1998. Mr. Markel never
received a response to this letter from the Company Board.
On May 29, 1998 and July 22, 1998, Parent received regulatory approval in
the states of California and Pennsylvania, respectively, which allowed Parent
to proceed with its proposed purchase of up to 19.9% of the Company's
outstanding Common Shares. Having previously filed a Disclaimer of Affiliation
with the State of Connecticut, Parent purchased additional Common Shares on
July 23, July 27 and July 28, 1998. On the afternoon of July 28 Mr. Markel was
advised by Mr. Crane that the Company Board had approved an amendment to the
Company's poison pill plan to change the definition of "Acquiring Person" to
mean any person acquiring more than 10% of the Common Shares. Mr. Markel
advised Mr. Crane that Parent had already exceeded this threshold. According to
the Company's public filings, the Company then revised the implementation of
the poison pill plan to essentially define an "Acquiring Person" as any person
acquiring a percentage of the outstanding Common Shares equal to or in excess
of the percentage held by Parent at the close of business on July 28, 1998
(approximately 11.7%).
On September 1, 1998, Mr. Markel sent a letter to each of the members of
the Company Board offering total consideration of $18.00 per Common Share
consisting of $15.50 in cash and $2.50 in notes (subject to possible offset for
adverse
19
<PAGE>
developments) in a merger transaction. Mr. Markel's letter requested a response
from the Company Board by September 9, 1998. No response was received from the
Company Board other than a letter indicating that the Company would get back to
Parent in due course.
On September 16, 1998, Mr. Crane and Hadley C. Ford, the Chairman of the
Company, had a meeting with Mr. Markel and Gregory B. Nevers, Parent's
Corporate Counsel. In the meeting, Mr. Markel again expressed a desire to
pursue a negotiated acquisition of the Company and indicated that if the
Company Board provided additional information, particularly information which
supported the Company's publicly reported loss reserve estimates, Parent
expected that it could substantially increase its cash offer for the Company.
Mr. Ford indicated that he would make a report to the full Company Board
regarding the meeting and that he would investigate whether the Company could
provide additional information to Parent. On September 21, Parent received a
proposed form of confidentiality and standstill agreement from the Company's
advisors. The form, in addition to addressing the protection of confidential
information, sought to require Parent 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 Parent felt might be necessary to
maximize value for shareholders, in each case without the specific consent of
the Company Board. On September 22, 1998, Parent proposed instead to limit its
activities for a period of six months, subject to certain conditions. This
proposal was rejected by the Company's advisors.
On September 23, 1998, Mr. Markel spoke with Mr. Ford, in an attempt to
resolve the differences in view regarding the standstill agreement. Mr. Ford
deferred the decision on this point to the Company's legal and financial
advisors.
On October 1, 1998, Parent sent a letter to each of the members of the
Company Board proposing a cash merger in which each Common Share would be
converted into the right to receive $18.00, subject to required regulatory and
shareholder approval, redemption of the Rights and the execution of a mutually
acceptable merger agreement containing customary provisions for transactions of
this nature. This offer represented a premium of $6.38 or 55% over the price of
the Company's Common Shares on the day before the September 1, 1998 letter to
the Company referenced above and a premium of $4.00 or 29% over the price of
the Company's Common Shares on September 30, 1998. The letter stated that this
proposal would expire at 5:00 p.m. EST on Monday, October 5, 1998. The letter
also stated that Parent would be willing to enhance its offer if the Company
could establish that additional value is warranted.
On October 5, 1998, Parent received a letter responding to Parent's letter
of October 1, 1998. The letter stated in part "The Gryphon Board of Directors
has not yet determined to take any definitive course of action with respect to
a sale of the Company; however, you may be assured that our Board is
considering your proposal in light of its fiduciary duties and the interests of
all of Gryphon's shareholders." In addition, the Company's letter stated "We
have instructed our legal and financial advisors to communicate with your
advisors to clarify certain aspects of your most recent letter and to encourage
you to reconsider the terms of our proposed confidentiality agreement." On the
afternoon of October 5, 1998, the Company's legal and financial advisors called
Mr. Nevers and the Parent's financial advisors to discuss Parent's October 1st
letter, the Company's response of October 5, 1998, the proposed confidentiality
and standstill agreement and to ask for Parent's proposed form of merger
agreement.
On October 6, 1998, Mr. Markel called Mr. Ford to discuss Parent's October
1 letter and the Company's October 5 response. Mr. Ford requested that Mr.
Markel cease contacting other members of the Company Board. Mr. Ford also
indicated that the Company Board was doing everything it felt was appropriate
and they were willing to include in the "process", which was not described or
defined, those who wanted to be included. Mr. Ford indicated that, in order to
be included, Parent would have to sign a confidentiality and standstill
agreement.
On October 6, 1998, Mr. Nevers forwarded a proposed form of merger
agreement to the Company's legal and financial advisors.
On October 9, 1998, the Company's legal advisors contacted Mr. Nevers and
Parent's legal advisors to indicate their view that the draft merger agreement
was conditional and not consistent with other public merger agreements. The
Company's legal advisors declined to engage in specific negotiations with
respect to the draft merger agreement indicating they had not been authorized
to do so by the Company Board.
On October 13, 1998, Mr. Markel called Mr. Crane who indicated that the
Company Board had not considered whether the $18.00 per share price proposed by
the Company was fair. Mr. Crane reiterated the need for Parent to sign the
proposed confidentiality and standstill agreement.
On October 14, 1998, Parent sent a letter to each member of the Company
Board and to the Company's legal and financial advisors which, among other
things, transmitted a revised draft merger agreement. The full text of this
letter is set forth under "Introduction" in this Offer to Purchase.
20
<PAGE>
From January 1998 through October 19, 1998, Mr. Markel and representatives
of Parent had a number of conversations with individual members of the Company
Board and representatives of the Company in which the willingness of the
Company to enter into discussions with Parent concerning a possible business
combination was explored. These conversations did not involve any substantive
negotiations concerning the matters discussed above.
On October 19, 1998 the Company's financial advisors indicated to Parent's
financial advisors that the Company was not prepared to negotiate and sign a
definitive merger agreement with Parent at that time. On October 20, 1998
Purchaser commenced the Offer.
12. PURPOSE OF THE OFFER AND THE MERGER; PLANS FOR THE COMPANY; CERTAIN
CONSIDERATIONS.
GENERAL. The purpose of the Offer and the Proposed Merger is to enable
Parent to acquire control of, and ultimately the entire equity interest in, the
Company. The Offer, as the first step in the acquisition of the Company, is
intended to facilitate the acquisition of a majority of the outstanding Common
Shares. The purpose of the Proposed Merger is to acquire all Common Shares not
beneficially owned by the Purchaser following consummation of the Offer.
Pursuant to the Proposed Merger, each then outstanding Common Share (other
than Common Shares owned by Parent or any of its wholly owned subsidiaries,
Common Shares held in the treasury of the Company, and Common Shares held by
shareholders who have demanded and perfected, and who shall not have withdrawn
or otherwise lost, appraisal rights under the Delaware Corporation Law) would
be converted into the right to receive an amount of cash equal to the Offer
Price. In addition, before the Proposed Merger, to the extent the Preferred
Shares are not converted, Parent and Purchaser intend to cause the Company
either (i) to redeem the Preferred Shares in accordance with the terms of the
Preferred Shares or (ii) to engage in a privately negotiated repurchase of the
Preferred Shares.
Except in the case of a "short-form" merger as described below, under the
Delaware Corporation Law, the approval of the Company Board and the affirmative
vote of the holders of a majority of the outstanding Common Shares (including
any Common Shares owned by Purchaser) and the outstanding Preferred Shares
(including any Preferred Shares owned by Purchaser), voting together as a
single class, would be required to approve the Proposed Merger. If Purchaser
acquires through the Offer at least a majority of the outstanding Common Shares
(which would be the case if the Minimum Condition were satisfied and Purchaser
were to accept for payment Common Shares tendered pursuant to the Offer) and
the Affiliated Transaction Condition and Rights Condition were each satisfied
and the Preferred Shares are redeemed or purchased in a privately negotiated
transaction, Purchaser would have sufficient voting power to ensure approval of
the Proposed Merger by holders of the Common Shares.
The Delaware Corporation Law also provides that if a parent corporation
owns at least 90% of the outstanding shares of each class of stock of a
subsidiary, the parent company can effect a "short-form" merger with that
subsidiary without a shareholder vote. Accordingly, if, Purchaser were to
acquire at least 90% of the outstanding Common Shares and the Preferred Shares
were redeemed in accordance with their terms, and if the Affiliated Transaction
Condition and the Rights Condition were satisfied, then Purchaser could, and
intends to, effect the Proposed Merger without any action by any other
shareholder of the Company.
Purchaser reserves the right to amend the Offer (including amending the
number of Common Shares purchased, the purchase price and the Proposed Merger
consideration) in connection with entering into a negotiated merger agreement
with the Company or to negotiate a merger agreement with the Company not
involving a tender offer pursuant to which Purchaser would terminate the Offer
and the Common Shares would, upon consummation of such merger, be converted
into the right to receive cash, Parent Common Stock and/or other securities in
such amounts as are negotiated by Parent and the Company.
In connection with the Offer and during its pendency, or in the event the
Offer is terminated or not consummated, or after the expiration of the Offer
and pending consummation of the Proposed Merger, in accordance with applicable
law and subject to the terms of any merger agreement that it may enter into
with the Company, Parent may explore any and all options which may be available
to it. Parent may also determine, whether or not the Offer is then pending, to
conduct a proxy contest in connection with the Company's 1999 annual meeting of
shareholders seeking, among other things, to elect new directors designated by
the Parent. In addition, Parent may seek to acquire Preferred Shares through a
tender offer or exchange offer and upon such terms and at such prices as it may
determine, and after expiration or termination of the Offer, Parent may seek to
acquire Preferred Shares and additional Common Shares, through open market
purchases, privately negotiated transactions, a tender offer or exchange offer
or otherwise, upon such terms and at such prices as it may determine, which may
be higher or lower than the Offer Price and could be for cash or other
consideration.
21
<PAGE>
THE OFFER DOES NOT CONSTITUTE A SOLICITATION OF PROXIES FOR ANY ANNUAL OR
OTHER MEETING OF THE COMPANY'S SHAREHOLDERS. ANY SUCH SOLICITATION WHICH PARENT
OR PURCHASER MIGHT MAKE WOULD BE MADE ONLY PURSUANT TO SEPARATE PROXY MATERIALS
IN COMPLIANCE WITH THE REQUIREMENTS OF SECTION 14(A) OF THE EXCHANGE ACT. IN
ADDITION, THE OFFER DOES NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OF PARENT. SUCH AN OFFER MAY BE MADE ONLY PURSUANT
TO A PROSPECTUS PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED.
Whether or not the Offer is consummated, Purchaser reserves the right,
subject to applicable legal restrictions, to sell or otherwise dispose of any
or all Common Shares acquired pursuant to the Offer or otherwise. Such
transactions may be effected on terms and at prices as it shall determine,
which may be higher or lower than the Offer Price and could be for cash or
other consideration.
PLANS FOR THE COMPANY. In connection with the Offer, Parent and Purchaser
have reviewed, and will continue to review, on the basis of publicly available
information, various possible business strategies that they might consider in
the event that the Parent acquires control of the Company, whether pursuant to
the Proposed Merger or otherwise. In addition, if and to the extent that Parent
acquires control of the Company or otherwise obtains access to the books and
records of the Company, Parent and Purchaser intend to conduct a detailed
review of the Company and its assets, corporate structure (including the
holding company structure), dividend policy, capitalization, operations,
properties, policies, management and personnel and, subject to applicable state
insurance regulatory rules and regulations, to consider and determine what, if
any, changes would be desirable in light of the circumstances which then exist.
Such changes are likely to include elimination of the Company's holding company
structure and replacement of the Company Board and management at the holding
company level. However, except as indicated in this Offer to Purchase, neither
Parent nor Purchaser has any present plans or proposals which relate to or
would result in an extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving the Company or any of its
subsidiaries, a sale or transfer of a material amount of assets of the Company
or any of its subsidiaries or any material change in the Company's
capitalization or dividend policy or any other material changes in the
Company's corporate structure or business, or the composition of the Company
Board or management.
DISSENTERS' RIGHTS AND OTHER MATTERS. Pursuant to Section 262 of the
Delaware Corporation Law, holders of Common Shares do not have dissenters'
rights as a result of the Offer. However, if the Proposed Merger is
consummated, holders of Common Shares and holders of Preferred Shares at the
effective time of the Proposed Merger will have certain rights pursuant to the
provisions of Section 262 of the Delaware Corporation Law to dissent and demand
appraisal of their shares. Such holders will also have the right to demand
appraisal of their shares in the event of a merger of the Company with and into
its parent pursuant to Section 253 of the Delaware Corporation Law. Under
Section 262 of the Delaware General Corporation Law, shareholders who have
dissenters' rights, if any, and who comply with the applicable statutory
procedures (and who have not otherwise agreed with the Company as to the value
of their shares) will be entitled to receive a judicial determination of the
fair value of their shares and to receive payment of such fair value in cash,
together, in the discretion of the court, with a fair rate of interest, as
determined by the court. Any such judicial determination of the fair value of
Common Shares could be based upon factors other than, or in addition to, the
value of the consideration to be paid per share in the Proposed Merger or the
market value of the Common Shares. The value so determined could be more or
less than the value of the consideration to be paid per Common Share in the
Proposed Merger.
The foregoing summary of Section 262 of the Delaware Corporation Law does
not purport to be complete and is qualified in its entirety by reference to
such statutory sections.
The Proposed Merger would have to comply with any applicable Federal law
operative at the time of its consummation. The SEC has adopted Rule 13e-3 under
the Exchange Act which is applicable to certain "going private" transactions
and which may under certain circumstances be applicable to the Proposed Merger.
However, Rule 13e-3 would be inapplicable if (i) the Common Shares are
deregistered under the Exchange Act prior to the Proposed Merger or (ii) the
Proposed Merger is consummated within one year after the purchase of the Common
Shares pursuant to the Offer and the amount paid per Common Share in the
Proposed Merger is at least equal to the amount paid per Common Share in the
Offer. If applicable, Rule 13e-3 requires, among other things, that certain
financial information concerning the Company and certain information concerning
the fairness of the proposed transaction and the consideration offered to
minority shareholders in such transaction be filed with the SEC and disclosed
to shareholders prior to consummation of the transaction.
THE COMPANY CERTIFICATE OF INCORPORATION AND THE COMPANY BY-LAWS. The
Company Certificate of Incorporation and the Company By-laws contain several
provisions that may delay a change in control of the Company following the
purchase of Common Shares by Purchaser pursuant to the Offer, including, among
others, (i) a provision that the Company Board
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shall be classified, with each class elected for a term of three years and one
class elected each year at the Company's annual meeting of shareholders (the
number of the Company's directors is currently limited to between 3 and 15
pursuant to Section 1 of Article III of the Company By-laws, and there are
currently 10 directors), (ii) a provision requiring advance notice to the
Company of any shareholder nominations for directors at an annual meeting of
shareholders, (iii) a provision that directors may only be removed for cause,
and only by the affirmative vote of holders of 50% or more of the outstanding
shares entitled to vote in the election of directors, (iv) a provision that
special meetings of shareholders may be called only by the Company Board, the
Chairman of the Company Board or the President of the Company and that
shareholders of the Company may neither call nor request the Board of Directors
or any officer to call a special meeting of shareholders, (v) a provision that
all actions of shareholders must be taken at an annual or special meeting of
shareholders, and may not be taken by any consent in writing by shareholders,
(vi) a provision requiring prior written notice to the Company of any business
to be brought before a shareholders' meeting by a shareholder, (vii) provisions
authorizing the Board of Directors to provide for the issuance of preferred
stock in series and to fix the number, designations, powers, preferences and
rights of the shares of each series and the qualifications, limitations or
restrictions thereof, and (viii) a provision that certain provisions of the
Company Certificate of Incorporation and Company By-laws (including those
provisions described in clauses (i) through (vi) above) may be altered,
amended, repealed or rescinded only by a majority of the entire Company Board
or by the affirmative vote of holders of at least 80% of the outstanding shares
of stock entitled to vote in an election of directors.
If, following consummation of the Offer, the members of the Company Board
in office at such time were to refuse to approve the Proposed Merger (or any
other transaction or corporate action proposed by Purchaser that required
approval of the Company Board), Purchaser, in order to consummate the Proposed
Merger (or any such other transaction or corporate action), would first have to
replace at least a majority of the Company Board with its own designees. As a
result of the classified board provision contained in the Company Certificate
of Incorporation, at least two annual meetings of the Company's shareholders
could be required to enable nominees of Purchaser to comprise a majority of the
Company Board. If the current Company Board opposes the Offer or the Proposed
Merger, Parent may determine, whether or not the Offer is then pending, to take
action necessary to place a majority of its designees on the Company Board,
including without limitation, soliciting proxies from the shareholders of the
Company for use at the Company's 1999 annual meeting of shareholders for the
purpose of amending the Company By-laws to remove certain of the provisions
described above, increasing the number of seats available on the Company Board
for its nominees and electing new directors designated by Purchaser.
THE OFFER DOES NOT CONSTITUTE A SOLICITATION OF SUCH PROXIES AT ANY
MEETING OF THE COMPANY'S SHAREHOLDERS. ANY SUCH SOLICITATION WHICH PARENT OR
PURCHASER MAY MAKE WILL BE MADE ONLY PURSUANT TO SEPARATE PROXY MATERIALS IN
COMPLIANCE WITH THE REQUIREMENTS OF SECTION 14(A) OF THE EXCHANGE ACT.
The foregoing description of the Company Certificate of Incorporation and
the Company By-laws is qualified in its entirety by reference to the full text
of the Company Certificate of Incorporation and the Company By-laws, copies of
which have been filed by the Company as exhibits to documents filed with the
SEC and may be obtained in the manner described in Section 8 (except that
copies may not be available at regional offices of the SEC).
THE RIGHTS. The following is based upon the Company 1995 8-K and the
Company 1998 8-K filed by the Company with the SEC:
On June 5, 1995, the Company Board declared a dividend distribution of one
Right for each Common Share. The dividend was payable on June 19, 1995 to the
shareholders of record on June 5, 1995. On July 28, 1998, the Company adopted
certain amendments to the Rights Agreement. Under the Rights Agreement, subject
to the terms and conditions thereof, each Right entitles the holder to purchase
one one-hundredth of a share of Junior Participating Cumulative Preferred Stock
of the Company ("Junior Preferred Stock") at an exercise price of $50.00. The
exercise price of the Rights and the number of shares of Junior Preferred Stock
or other securities or property issuable upon exercise of the Rights are
subject to adjustment from time to time as provided in the Rights Agreement.
Until the close of business on the Distribution Date (defined below), the
Rights will be evidenced by the certificates evidencing the Common Share
Certificates and will be transferred with and only with the Common Share
Certificates. "Distribution Date" is defined as the close of business on the
earlier of (i) the tenth business day following a public announcement that a
person or group of affiliated persons (the "Acquiring Person") has acquired, or
obtained the right to acquire, beneficial ownership 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
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Shares at such time divided by the Common Shares outstanding at such time or
(ii) the tenth business day, or such specified or unspecified later date as the
Company Board may determine, after the commencement of or announcement by a
person of its intent to commence a tender or exchange offer for an amount of
Common Shares which, together with the Common Shares already owned by such
person, is greater than the Acquiring Person Percentage. As soon as practicable
after the Distribution Date, certificates evidencing the Rights (the "Rights
Certificates") will be mailed to holders of record of the Common Shares as of
the close of business on the Distribution Date, and thereafter the separate
Rights Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights
will expire at the close of business on June 5, 2005, unless earlier redeemed
by the Company as described below. Until a Right is exercised, the holder
thereof, as such, will have no rights as a shareholder of the Company,
including without limitation, the right to vote or to receive dividends.
Each share of Junior Preferred Stock will be entitled to a preferential
quarterly dividend payment equal to the greater of $25 per share or 100 times
the dividend declared per Common Share. In the event of liquidation, the
holders of Junior Preferred Stock will be entitled to a preferential
liquidation payment equal to the greater of $100 per share or 100 times the
liquidation payment to be made per Common Share. In the event of any merger,
consolidation, combination or other transaction in which Common Shares are
changed into or exchanged for other stock or securities, cash and/or any other
property, each share of Junior Preferred Stock will be entitled to receive an
amount per share equal to 100 times the amount into which or for which each
Common Share is changed or exchanged. Each share of Junior Preferred Stock will
have 100 votes, and will vote together with the Common Shares as a single class
except: (i) as provided by law, (ii) with respect to an amendment to the
Certificate of Incorporation that would materially alter or change the powers,
preferences or special rights of the Junior Preferred Stock, and (iii) in the
event the Company fails to pay all accrued and unpaid dividends on the Junior
Preferred Stock for four consecutive quarterly dividend payment dates, the
holders of Junior Preferred Stock will be entitled to elect two directors to
the Board of Directors. The Junior Preferred Stock will not be redeemable.
In the event that any person or group of affiliated persons beomes an
Acquiring Person, proper provision is to be made so that each holder of a Right
(other than the Acquiring Person and certain affiliates, associates and
transferees of the Acquiring Person) will thereafter have the right to receive,
upon exercise, Common Shares (or, in certain circumstances, cash, property or
other securities of the Company) having a value equal to two times the exercise
price of the Right.
If, following the public announcement that a person or group of affiliated
persons has become an Acquiring Person, the Company is acquired in a merger or
consolidation involving an Acquiring Person (or any other person if all holders
of Common Shares are not treated alike in such transaction) or 50% or more of
the Company's consolidated assets, cash flow or earning power is sold or
transferred, each holder of a Right (other than the Acquiring Person and
certain affiliates, associates and transferees of the Acquiring Person) will
thereafter have the right to receive, upon exercise, that number of shares of
common stock of the acquiring company which at the time of such transaction
will have a value equal to two times the exercise price of the Right.
At any time until a person or group of affiliated persons becomes an
Acquiring Person, the Company may redeem the Rights in whole, but not in part,
at a price of $.001 per Right (the "Redemption Price"). At any time until a
person or group of related persons becomes an Acquiring Person, the Board of
Directors of the Company may extend the time within which the Company may
redeem the Rights outstanding prior to the exercise thereof. Immediately upon
the action of the Company Board ordering redemption of the Rights, the Rights
will terminate, and the only right to which the holders of Rights will be
entitled will be the right to receive the Redemption Price.
At any time after any person or group of related persons becomes an
Acquiring Person, but before any person becomes the beneficial owner of 50% or
more of the outstanding Common Shares, the Company Board may exchange the
Rights (other than Rights owned by an Acquiring Person or certain affiliates,
associates or transferees of an Acquiring Person), in whole or in part, for
Common Shares at an exchange ratio of one Common Share per Right, subject to
adjustment.
Any of the provisions of the Rights Agreement may be amended by the
Company Board prior to the time that any person or group of related persons
becomes an Acquiring Person. On and after such time, the provisions of the
Rights Agreement may be amended by the Company Board in order (i) to cure any
ambiguity, (ii) to correct or supplement any provision contained in the Rights
Agreement 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 Rights Agreement which the Company
and the Rights Agent may deem necessary or desirable, which shall not adversely
affect the interests of the holders of Rights Certificates (other than an
Acquiring Person).
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On July 28, 1998, the Company announced that the Company Board had
approved an amendment of the Rights Agreement which, among other things, would
change the definition of "Acquiring Person" by lowering the ownership threshold
from 20% of the outstanding Common Shares to 10% of the outstanding Common
Shares. At the time of such announcement, Parent already owned more than 10% of
the outstanding Common Shares, as disclosed in Amendment No. 2 to Schedule 13D
filed by Parent on the same day. Upon learning that Parent's ownership was in
excess of the 10% threshold, the Company announced later that day that it had
revised the "implementation of the plan." Under this Rights Amendment, the term
"Acquiring Person" was changed to read, in pertinent part, as follows:
(a) "Acquiring Person" shall mean any Person . . . who . . . shall be the
Beneficial owner . . . 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.
(emphasis added)
Under this language, Parent may be deemed to have become an Acquiring
Person automatically as a result of the Rights Amendment without any action
being taken on its part. Purchaser believes that the Company did not intend for
the Rights Amendment to have this result. Purchaser bases its belief on (i) the
fact that, to Purchaser's knowledge, such a result would constitute an
unprecedented attempt by an issuer to cause the dilution feature of a
shareholder rights agreement to be triggered retroactively based on a
shareholder's prior acquisition of stock which, at the time thereof, did not
trigger such dilution, (ii) the language used in other provisions of the Rights
Amendment which suggests that a person becomes an Acquiring Person by acquiring
a percentage of the outstanding Common Shares greater than (rather than equal
to) the Acquiring Person Percentage, (iii) to Purchaser's knowledge, the
failure of the Company to take any actions since July 28, 1998 to distribute
the Rights, to give notice of a triggering event to the holders of the Rights
as required under the Rights Agreement or to otherwise assert that Parent is an
Acquiring Person and (iv) the discussions described below between the Parent's
counsel and the Company's counsel.
On October 2, 1998, Parent's counsel contacted counsel for the Company to
advise them of this apparent mistake and to request that the Company Board take
action to confirm that Parent did not become an Acquiring Person as a result of
the Rights Amendment. Parent and Purchaser believe that the Company Board has
the power under the terms of the Rights Agreement to easily and clearly correct
this mistake. On October 6, 1998, counsel for the Parent was advised by the
Company's counsel of their agreement that the Company Board has the ability to
correct the actions taken by the Company Board on July 28, 1998. However, the
Company has yet to advise Parent or Purchaser as to what actions, if any, the
Company has taken or proposes to take to correct this mistake.
Parent and Purchaser believe that the adoption of the Rights Amendment and
the failure by the Company Board to take appropriate action to correct the
mistake contained in the Rights Amendment constitute a breach of their
fiduciary duties to the shareholders of the Company. In the Delaware
Litigation, Parent and Purchaser are seeking, among other things, a declaration
that the Rights Amendment is invalid and an injunction compelling the Company
and the Company Board to take clear and appropriate actions to correct this
mistake. See Section 15 "The Delaware Litigation".
Based upon Purchaser's interpretation of the Rights Agreement and, to
Purchaser's knowledge, the absence of any actions by the Company to issue
Rights Certificates or otherwise assert that the Rights have been triggered,
Purchaser believes that, as of the date of this Offer to Purchase, the Rights
were not exercisable and the Rights continue to be evidenced by the Common
Share Certificates. Purchaser believes that, as a result of Purchaser's public
announcement of the Offer, the Distribution Date will be no later than November
3, 1998 unless prior to such date the Company Board redeems the Rights or takes
action to delay the Distribution Date.
The foregoing summary of the Rights Agreement does not purport to be
complete and is qualified in its entirety by reference to the Company 1995 8-K
and the Company 1998 8-K and the full text of the Rights Agreement filed as
exhibits thereto with the SEC. Copies of these documents may be obtained in the
manner described in Section 8.
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Purchaser believes that under applicable law and under the circumstances
of the Offer, the Company Board has a fiduciary obligation to redeem the Rights
(or amend the Rights Agreement to make the Rights inapplicable to the Offer and
the Proposed Merger), and the Purchaser is hereby requesting that the Company
Board do so. However there can be no assurance that the Company Board will
redeem the Rights (or so amend the Rights Agreement). In the Delaware
Litigation, Parent and Purchaser are seeking, among other things, an order
compelling the Company Board to redeem the Rights or to amend the Rights
Agreement to make the Rights inapplicable to the Offer and the Proposed Merger
on the grounds that failure to do so would constitute a breach of fiduciary
duty to the shareholders of the Company. See Section 15 "The Delaware
Litigation."
If the Rights Condition is not satisfied and Purchaser elects, in its sole
discretion, to waive such condition and consummate the Offer, and if there are
outstanding Rights which have not been acquired by Purchaser, Purchaser will
evaluate its alternatives. Such alternatives could include purchasing
additional Rights in the open market, in privately negotiated transactions, in
another tender or exchange offer or otherwise. Any such additional purchase of
Rights could be for cash or other consideration. Under such circumstances, the
Proposed Merger might be delayed or abandoned as impracticable. The form and
amount of consideration to be received by the holders of Common Shares in the
Proposed Merger, if consummated, might be subject to adjustment to compensate
Purchaser for, among other things, the costs of acquiring Rights and a portion
of the potential dilution cost of Rights not owned by Purchaser and its
affiliates at the time of the Proposed Merger. In such event, the value of the
consideration to be exchanged for Common Shares in the Proposed Merger could be
substantially less than the consideration paid in the Offer. In addition,
Purchaser may elect under such circumstances not to consummate the Proposed
Merger.
Unless the Rights are redeemed, shareholders will be required to tender
one Right for each Common Share tendered in order to effect a valid tender of
such Common Shares in accordance with the procedures set forth in Section 3. If
separate certificates for the Rights are not issued, a tender of Common Shares
will also constitute a tender of the associated Rights. See Sections 1 and 3.
Consummation of the Offer is conditioned upon the Rights having been
redeemed by the Company Board or Purchaser being satisfied, in its sole
discretion, that the Rights are invalid or otherwise inapplicable to the Offer
and to the Proposed Merger.
13. DIVIDENDS AND DISTRIBUTIONS.
If, on or after the date of this Offer to Purchase, the Company should (i)
split, combine or otherwise change the Common Shares or its capitalization,
(ii) issue or sell any additional securities of the Company or otherwise cause
an increase in the number of outstanding securities of the Company or (iii)
acquire currently outstanding Common Shares or otherwise cause a reduction in
the number of outstanding Common Shares, then, without prejudice to Purchaser's
rights under Sections 1 and 14, Purchaser, in its sole discretion, may make
such adjustments as it deems appropriate in the purchase price and other terms
of the Offer, including, without limitation, the amount and type of securities
offered to be purchased.
If, on or after the date of this Offer to Purchase, the Company should
declare or pay any dividend on the Common Shares, or make any distribution
(including, without limitation, the issuance of additional Common Shares
pursuant to a stock dividend or stock split, the issuance of other securities
or the issuance of rights for the purchase of any securities) with respect to
the Common Shares that is payable or distributable to shareholders of record on
a date prior to the transfer to the name of Purchaser or its nominee or
transferee on the Company's stock transfer records of the Common Shares
purchased pursuant to the Offer, then, without prejudice to Purchaser's rights
under Sections 1 and 14, (i) the purchase price per Common Share payable by
Purchaser pursuant to the Offer will be reduced by the amount of any such cash
dividend or cash distribution and (ii) any such non-cash dividend, distribution
or right to be received by the tendering shareholders will be received and held
by such tendering shareholders for the account of Purchaser and will be
required to be promptly remitted and transferred by each such tendering
shareholder to the Depositary for the account of Purchaser, accompanied by
appropriate documentation of transfer. Pending such remittance and subject to
applicable law, Purchaser will be entitled to all rights and privileges as
owner of any such non-cash dividend, distribution or right and may withhold the
entire purchase price or deduct from the purchase price the amount of value
thereof, as determined by Purchaser in its sole discretion.
14. CONDITIONS OF THE OFFER.
Notwithstanding any other provisions of the Offer, and in addition to (and
not in limitation of) Purchaser's rights to extend and amend the Offer at any
time in its sole discretion, Purchaser shall not be required to accept for
payment or, subject to any applicable rules and regulations of the SEC,
including Rule 14e-1(c) under the Exchange Act (relating to Purchaser's
obligation to pay for or return tendered Common Shares promptly after
termination or withdrawal of the Offer),
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<PAGE>
pay for, and may delay the acceptance for payment of or, subject to the
restriction referred to above, the payment for, any tendered Common Shares, and
may terminate the Offer as to any Common Shares not then paid for, if, in the
sole judgment of Purchaser (1) at or prior to the expiration of the Offer any
one or more of the Minimum Condition, the Affiliated Transaction Condition, the
Rights Condition or the Insurance Regulatory Approval Condition has not been
satisfied, (2) the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), applicable to the
purchase of Common Shares pursuant to the Offer shall not have expired or been
terminated, or (3) at any time on or after October 20, 1998 and prior to the
acceptance for payment of Shares, any of the following events shall occur:
(a) there shall have been threatened, instituted or pending any action,
proceeding, application or counterclaim before any court, governmental
regulatory or administrative agency or commission, authority or tribunal,
domestic, foreign or supranational, by any government, governmental authority
or other regulatory or administrative agency or commission, domestic, foreign
or supranational, or by any other person, domestic or foreign (whether brought
by the Company, an affiliate of the Company or any other person), which (i)
challenges or seeks to challenge the acquisition by Parent or Purchaser or any
affiliate of either of them of the Common Shares, restrains, delays or
prohibits or seeks to restrain, delay or prohibit the making of the Offer or
the Proposed Merger, consummation of the transactions contemplated by the Offer
or any other subsequent business combination, restrains or prohibits or seeks
to restrain or prohibit the performance of any of the contracts or other
arrangements entered into by Purchaser or any of its affiliates in connection
with the acquisition of the Company or obtains or seeks to obtain any material
damages or otherwise directly or indirectly relating to the transactions
contemplated by the Offer, the Proposed Merger or any other subsequent business
combination, (ii) prohibits or limits or seeks to prohibit or limit Parent's or
Purchaser's ownership or operation of all or any portion of their or the
Company's business or assets (including without limitation the business or
assets of their respective affiliates and subsidiaries) or to compel or seeks
to compel Parent or Purchaser to dispose of or hold separate all or any portion
of their own or the Company's business or assets (including without limitation
the business or assets of their respective affiliates and subsidiaries) or
imposes or seeks to impose any limitation on the ability of Parent, Purchaser
or any affiliate of either of them to conduct its own business or own such
assets as a result of the transactions contemplated by the Offer, Proposed
Merger or any other subsequent business combination, (iii) makes or seeks to
make the acceptance for payment, purchase of, or payment for, some or all of
the Common Shares pursuant to the Offer or the Proposed Merger illegal or
results in a delay in, or restricts, the ability of Parent or Purchaser, or
renders Parent or Purchaser unable, to accept for payment, purchase or pay for
some or all of the Common Shares or to consummate the Proposed Merger, (iv)
imposes or seeks to impose limitations on the ability of Parent or Purchaser or
any affiliate of either of them effectively to acquire or hold or to exercise
full rights of ownership of the Common Shares, including, without limitation,
the right to vote the Common Shares purchased by them on an equal basis with
all other Common Shares on all matters properly presented to the shareholders
of the Company, (v) in the sole judgment of Parent or Purchaser, might
adversely affect the Company or any of its subsidiaries or affiliates or
Parent, Purchaser, or any of their respective affiliates or subsidiaries, (vi)
in the sole judgment of Parent or Purchaser, might result in a diminution in
the value of the Common Shares or the benefits expected to be derived by Parent
or Purchaser as a result of the transactions contemplated by the Offer, (vii)
in the sole judgment of Parent or Purchaser, imposes or seeks to impose any
material condition to the Offer unacceptable to Parent or Purchaser or (viii)
otherwise directly or indirectly relates to the Offer, the Proposed Merger or
any other business combination with the Company;
(b) there shall be any action taken, or any statute, rule, regulation or
order or injunction shall be sought, proposed, enacted, promulgated, entered,
enforced or deemed or become applicable to the Offer, the Proposed Merger or
other subsequent business combination between Purchaser or any affiliate of
Purchaser and the Company or any affiliate of the Company or any other action
shall have been taken, proposed or threatened, by any government, governmental
authority or other regulatory or administrative agency or commission or court,
domestic, foreign or supranational, other than the routine application of the
waiting period provisions of the HSR Act to the Offer, that, in the sole
judgment of Parent or Purchaser, might, directly or indirectly, result in any
of the consequences referred to in clauses (i) through (viii) of paragraph (a)
above;
(c) any change (or any condition, event or development involving a
prospective change) shall have occurred or been threatened in the business,
properties, assets, liabilities, capitalization, shareholders' equity,
condition (financial or otherwise), operations, licenses, franchises, permits,
permit applications, results of operations or prospects of the Company or any
of its subsidiaries or affiliates which, in the sole judgment of Parent or
Purchaser, is or may be materially adverse to the Company or any of its
subsidiaries or affiliates, or Parent or Purchaser shall have become aware of
any fact which, in the sole judgment of Parent or Purchaser, has or may have
material adverse significance with respect to either the value of the Company
or any of its subsidiaries or the value of the Common Shares to Parent or
Purchaser;
(d) there shall have occurred (i) a declaration of a banking moratorium or
any suspension of payments in respect of banks in the United States (whether or
not mandatory), (ii) any limitation (whether or not mandatory) by any
governmental
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authority or agency on, or other event which, in the sole judgment of Parent or
Purchaser, might affect the extension of credit by banks or other lending
institutions, (iii) a commencement of a war, armed hostilities or other
national or international crisis directly or indirectly involving the United
States, (iv) any change deemed material in the sole discretion of Parent and
Purchaser in United States or any other currency exchange rates or any
suspension of, or limitation on, the markets therefor (whether or not
mandatory), (v) any change deemed material in the sole discretion of Parent and
Purchaser in the market price of the Common Shares or in the securities or
financial markets of the United States, or (vi) in the case of any of the
foregoing existing at the time of the commencement of the Offer, in the sole
judgment of Parent or Purchaser, a material acceleration or worsening thereof;
(e) other than the redemption of the Rights at the Redemption Price, the
Company or any subsidiary of the Company shall have, at any time after October
19, 1998 (i) issued, distributed, pledged, sold or authorized, proposed or
announced the issuance of or sale, distribution or pledge to any person of (A)
any shares of its capital stock (other than sales or issuances pursuant to
options to acquire Incentive Shares outstanding on October 19, 1998 in
accordance with their terms as disclosed on such date or conversions of the
Preferred Shares in accordance with their terms) of any class (including
without limitation the Common Shares) or securities convertible into any such
shares of capital stock, or any rights, warrants or options to acquire any such
shares or convertible securities or any other securities of the Company, or (B)
any other securities in respect of, in lieu of, or in substitution for, Common
Shares outstanding on October 19, 1998, (ii) purchased, acquired or otherwise
caused a reduction in the number of, or proposed or offered to purchase,
acquire or otherwise reduce the number of, any outstanding Common Shares, or
other securities, (iii) declared, paid or proposed to declare or pay any
dividend or distribution on any Common Shares or on any Preferred Shares or on
any other security or issued, authorized, recommended or proposed the issuance
or payment of any other distribution in respect of the Common Shares or the
Preferred Shares, whether payable in cash, securities or other property, (iv)
altered or proposed to alter any material term of any outstanding security, (v)
incurred any debt other than in the ordinary course of business and consistent
with past practice or any debt containing burdensome covenants, (vi) issued,
sold or authorized or announced or proposed the issuance of or sale to any
person of any debt securities or any securities convertible into or
exchangeable for debt securities or any rights, warrants or options entitling
the holder thereof to purchase or otherwise acquire any debt securities or
incurred or announced its intention to incur any debt other than in the
ordinary course of business and consistent with past practice, (vii) split,
combined or otherwise changed, or authorized or proposed the split, combination
or other change of the Common Shares, the Preferred Shares or its
capitalization, (viii) authorized, recommended, proposed or entered into or
publicly announced its intent to enter into any merger, consolidation,
liquidation, dissolution, business combination, acquisition or disposition of a
material amount of assets or securities, any material change in its
capitalization, any waiver, release or relinquishment of any material contract
rights or comparable right of the Company or any of its subsidiaries or any
agreement contemplating any of the foregoing or any comparable event not in the
ordinary course of business, or taken any action to implement any such
transaction previously authorized, recommended, proposed or publicly announced,
(ix) transferred into escrow any amounts required to fund any existing benefit,
employment or severance agreements with any of its employees or entered into
any employment, severance or similar agreement, arrangement or plan with any of
its employees other than in the ordinary course of business and consistent with
past practice or entered into or amended any agreements, arrangements or plans
so as to provide for increased benefits to the employees as a result of or in
connection with the transactions contemplated by the Offer or any other change
in control of the Company, (x) except as may be required by law, taken any
action to terminate or amend any employee benefit plan (as defined in Section
3(2) of the Employee Retirement Income Security Act of 1974, as amended) of the
Company or any of its subsidiaries, or Parent or Purchaser shall have become
aware of any such action which was not previously disclosed in publicly
available filings, (xi) amended or proposed or authorized any amendment to the
Company Certificate of Incorporation or the Company By-laws or similar
organizational documents, (xii) authorized, recommended, proposed or entered
into any other transaction that in the sole judgment of Parent or Purchaser
could, individually or in the aggregate, adversely affect the value of the
Common Shares to Parent or Purchaser or (xiii) agreed in writing or otherwise
to take any of the foregoing actions or Parent or Purchaser shall have learned
about any such action which has not previously been publicly disclosed by the
Company and also set forth in filings with the SEC;
(f) the Company and Parent or Purchaser shall have reached an agreement or
understanding that the Offer be terminated or amended or Parent or Purchaser
(or one of their respective affiliates) shall have entered into a definitive
agreement or an agreement in principle to acquire the Company by merger or
similar business combination, or purchase of Common Shares or assets of the
Company;
(g) Parent or Purchaser shall become aware (i) that any material
contractual right of the Company or any of its subsidiaries or affiliates shall
be impaired or otherwise adversely affected or that any material amount of
indebtedness of the Company or any of its subsidiaries, shall become
accelerated or otherwise become due prior to its stated due date, in either
case with or without notice or the lapse of time or both, as a result of the
transactions contemplated by the Offer or the
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<PAGE>
Proposed Merger, or (ii) of any covenant, term or condition in any of the
Company's or any of its subsidiaries' instruments or agreements that are or may
be materially adverse to the value of the Common Shares in the hands of
Purchaser or any other affiliate of Parent (including, but not limited to, any
event of default that may ensue as a result of the consummation of the Offer,
consummation of the Proposed Merger or any other business combination or the
acquisition of control of the Company); or
(h) Parent or Purchaser shall not have obtained any waiver, consent,
extension, approval, action or non-action from any governmental authority or
agency which in its judgment is necessary to consummate the Offer; which, in
the sole judgment of Parent or Purchaser in any such case, and regardless of
the circumstances (including any action or inaction by Parent or Purchaser or
any of their affiliates), giving rise to any such condition, makes it
inadvisable to proceed with the Offer and/or with such acceptance for payment
or payment. Parent and Purchaser have the right to rely on any condition set
forth in the immediately preceding sentence being satisfied in determining
whether to consummate the Offer; however, if Parent or Purchaser asserts the
failure of any such condition without relying on the exercise of its reasonable
judgment or some other objective criteria, Parent and Purchaser shall promptly
disclose such assertion and the Expiration Date will be (and, if necessary,
will be extended to be) at least five business days after the date of such
disclosure.
The foregoing conditions are for the sole benefit of Parent and Purchaser
and may be asserted by Parent or Purchaser in their sole discretion regardless
of the circumstances (including any action or omission by Parent or Purchaser)
giving rise to any such conditions or may be waived by Parent or Purchaser in
their sole discretion in whole or in part at any time and from time to time.
The failure by Parent or Purchaser at any time to exercise any of the foregoing
rights shall not be deemed a waiver of any such right and each such right shall
be deemed an ongoing right which may be asserted at any time and from time to
time. Any determination by the Parent or Purchaser concerning any condition or
event described in this Section 14 shall be final and binding upon all parties.
15. CERTAIN LEGAL MATTERS; REGULATORY APPROVALS; CERTAIN LITIGATION.
GENERAL. Except as otherwise disclosed herein, based on a review of
publicly available information by the Company with the SEC, neither Purchaser
nor Parent is aware of (i) any license or regulatory permit that appears to be
material to the business of the Company and its subsidiaries, taken as a whole,
that might be adversely affected by the acquisition of Common Shares and the
indirect acquisition of the capital stock of the Company's insurance
subsidiaries by Parent or Purchaser pursuant to the Offer or the Proposed
Merger, or (ii) any approval or other action by any governmental,
administrative or regulatory agency or authority, domestic, foreign or
supranational, that would be required for the acquisition or ownership of
Common Shares, or the indirect acquisition of the capital stock of the
Company's insurance subsidiaries by Parent or Purchaser as contemplated herein.
Should any such approval or other action be required, Parent and Purchaser
currently contemplate that such approval or action would be sought. While
Purchaser does not currently intend to delay the acceptance for payment of
Common Shares tendered pursuant to the Offer pending the outcome of any such
matter, there can be no assurance that any such approval or action, if needed,
would be obtained or would be obtained without substantial conditions or that
adverse consequences might not result to the business of the Company, Purchaser
or Parent or that certain parts of the businesses of the Company, Purchaser or
Parent might not have to be disposed of in the event that such approvals were
not obtained or any other actions were not taken. Purchaser's obligation under
the Offer to accept for payment and pay for Common Shares is subject to certain
conditions. See Section 14.
STATE INSURANCE APPROVALS. The acquisition of Common Shares pursuant to
the Offer will require filings with, and approvals of, the Insurance
Commissions under the Insurance Codes of California, Connecticut and
Pennsylvania, which are the United States jurisdictions in which the insurance
companies owned or otherwise controlled by the Company are domiciled. The
Insurance Codes each contain similar provisions (subject to certain variations
noted below) applicable to the acquisition of control of a domestic insurer,
including a presumption of control that generally arises from the ownership of
10% or more of the voting securities of a domestic insurer or of any person
that controls a domestic insurer
Generally, a person seeking to acquire voting securities, such as the
Common Shares, in an amount that would result in such person controlling,
directly or indirectly, a domestic insurer must, together with any person
ultimately controlling such person, file a Form A with the relevant Insurance
Commission and send a copy of such Form A to the domestic insurer. Parent and
Purchaser made Form A filings with the relevant Insurance Commissions and sent
copies thereof to the relevant domestic insurers on the date of this Offer to
Purchase.
In certain jurisdictions, the Form A filings trigger public hearing
requirements and/or statutory periods within which decisions must be rendered
approving or disapproving the acquisition of control. In other states, public
hearings are discretionary and/or there are no periods within which such
decisions must be rendered. The periods within which hearings must
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<PAGE>
be commenced or decisions rendered may not begin until the relevant Insurance
Commission has deemed the Form A filing complete, and the Insurance Commission
has discretion to request that Parent and Purchaser furnish additional
information before it deems the Form A filing complete.
The Insurance Codes generally require the relevant Insurance Commissions
to approve the application for the acquisition of control unless the Insurance
Commission determines (in certain states, after a public hearing) that such
application should be disapproved on one or more prescribed regulatory grounds.
The Insurance Codes contain provisions providing generally for judicial review
of an Insurance Commission order. The California Insurance Code provides that
the California Department of Insurance has 60 calendar days after a Form A
filing is complete to approve or disapprove the filing. The California
Department of Insurance may, at its discretion, hold public hearings regarding
the Form A filing. The Pennsylvania Insurance Code provides that the
Pennsylvania Department of Insurance must hold a hearing if requested, within
10 days of the filing, by either the acquiring company or the target company.
The Pennsylvania Department of Insurance may also, at its discretion, hold a
public hearing regarding the Form A. The Connecticut Insurance Code provides
that the Connecticut Insurance Commissioner is required to hold a hearing
within 30 days after the Commissioner determines that the Form A filing is
complete and no earlier than 20 days after notice to the applicant that the
filing is complete. The applicant is required to give certain persons at least
15 days advance notice of such hearing.
ANTITRUST. Under the HSR Act and the rules that have been promulgated
thereunder by the Federal Trade Commission (the "FTC"), certain acquisition
transactions may not be consummated unless certain information has been
furnished to the Antitrust Division of the Department of Justice (the
"Antitrust Division") and to the FTC and certain waiting period requirements
have been satisfied. Parent expects to file such information on the date
hereof. Under the provisions of the HSR Act applicable to the Offer, the
purchase of Common Shares pursuant to the Offer may not be consummated until
the expiration of a 15-calendar day waiting period following the filing by
Parent, unless the Antitrust Division and the FTC terminate the waiting period
prior thereto. If, within such 15-day period, either the Antitrust Division or
the FTC requests additional information or material from Parent concerning such
Offer, the waiting period will be extended and would expire at 11:59 p.m., New
York City time, on the tenth calendar day after the date of substantial
compliance by Parent with such request. Only one extension of the waiting
period pursuant to a request for additional information is authorized by the
HSR Act. Thereafter, such waiting period may be extended only by court order or
with the consent of Parent. Purchaser will not accept for payment Common Shares
tendered pursuant to the Offer unless and until the waiting period requirements
imposed by the HSR Act with respect to the Offer have been satisfied. See
Section 14.
The Proposed Merger would not require an additional filing under the HSR
Act if Purchaser owns 50% or more of the outstanding Common Shares at the time
of the Proposed Merger.
The FTC and the Antitrust Division frequently scrutinize the legality
under the antitrust laws of transactions such as Purchaser's acquisition of
Common Shares pursuant to the Offer. At any time before or after Purchaser's
acquisition of Common Shares, the Antitrust Division or the FTC could take such
action under the antitrust laws as it deems necessary or desirable in the
public interest, including seeking to enjoin the acquisition of Common Shares
pursuant to the Offer or otherwise or seeking divestiture of Common Shares
acquired by Purchaser or divestiture of substantial assets of Parent or its
subsidiaries. Private parties and state attorneys general may also bring legal
action under the antitrust laws under certain circumstances. Based upon an
examination of publicly available information relating to the businesses in
which Parent and the Company are engaged, Parent and Purchaser believe that the
acquisition of Common Shares by Purchaser will not violate the antitrust laws.
Nevertheless, there can be no assurance that a challenge to the Offer or other
acquisition of Common Shares by Purchaser on antitrust grounds will not be made
or, if such a challenge is made, of the result. See Section 14 for certain
conditions to the Offer, including conditions with respect to litigation and
certain governmental actions.
THE DELAWARE LITIGATION. On October 20, 1998, Parent and Purchaser filed a
complaint in the Court of Chancery of the State of Delaware against the Company
and all of the directors of the Company alleging that the directors have
breached their fiduciary duties owed to the shareholders of the Company by,
among other things, (a) adopting the Rights Amendment, (b) failing, to date, to
make a good faith determination that Parent is not an Acquiring Person for
purposes of the Rights Agreement, or to otherwise correct the mistake contained
in the Rights Amendment, (c) refusing to redeem the Rights or to amend the
Rights Agreement to make it inapplicable to the Offer and the Proposed Merger,
and (d) failing to take the actions necessary to render Section 203
inapplicable to the Offer and the Proposed Merger. In the complaint, Parent and
Purchaser ask the Court to enter judgement against the defendants, among other
things: (i) declaring that the foregoing actions are in breach of the fiduciary
duties of the Company Board, (ii) declaring that the Rights Amendment is
invalid, (iii) compelling the defendants to make a good faith determination
that Parent is not an Acquiring Person for purposes of the Rights Agreement, to
otherwise correct the mistake contained in the Rights Amendment, or to clarify
that Parent is not an Acquiring Person (iv) compelling the defendants to redeem
the Rights or to amend the Rights Agreement or otherwise render the Rights
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<PAGE>
Agreement inapplicable to the Offer and the Proposed Merger, (v) declaring that
the adoption of any defensive measure which has the effect of impeding,
thwarting, frustrating or interfering with the Offer and the Proposed Merger
constitutes a breach of the fiduciary duties of the Company Board and enjoining
the defendants from adopting any such defensive measure; (vi) compelling the
defendants to take the actions necessary to render Section 203 inapplicable to
the Offer and the Proposed Merger, and (vii) temporarily, preliminarily and
permanently enjoining the Company, its employees, agents and all persons acting
on its behalf or in concert with it from taking any action with respect to the
Rights Agreement, except to clarify that Parent is not an Acquiring Person, to
redeem the Rights and to render the Rights Agreement inapplicable to the Offer
and the Proposed Merger, and from adopting any other shareholder rights plan or
other measures, or taking any other action designed to impede, or which has the
effect of impeding, the Offer and the Proposed Merger or the efforts of
Purchaser to acquire control of the Company; and (viii) temporarily,
preliminarily and permanently enjoining defendants, their affiliates,
subsidiaries, officers, directors and all other acting in concert with them or
on their behalf from bringing any action concerning the Rights Agreement or
Section 203 in any other court.
STATE TAKEOVER STATUTES. Various states throughout the United States have
enacted takeover statutes that purport, in varying degrees, to be applicable to
attempts to acquire securities of corporations that are incorporated or have
assets, shareholders, executive offices or places of business in such states.
In Edgar v. Mite Corp., the Supreme Court of the United States held that the
Illinois Business Takeover Act, which involved state securities laws that made
the takeover of certain corporations more difficult, imposed a substantial
burden on interstate commerce and therefore was unconstitutional. In CTS Corp.
v. Dynamics Corp. of America, however, the Supreme Court of the United States
held that a state may, as a matter of corporate law and, in particular, those
laws concerning corporate governance, constitutionally disqualify a potential
acquirer from voting on the affairs of a target corporation without prior
approval of the remaining shareholders, provided that such laws were applicable
only under certain conditions.
Except as described in this Offer to Purchase, neither Purchaser nor
Parent has currently complied with any state takeover statute or regulation.
Purchaser reserves the right to challenge the applicability or validity of any
state law purportedly applicable to the Offer or the Proposed Merger and
nothing in this Offer to Purchase or any action taken in connection with the
Offer or the Proposed Merger is intended as a waiver of such right. If it is
asserted that any state takeover statute is applicable to the Offer or the
Proposed Merger and an appropriate court does not determine that it is
inapplicable or invalid as applied to the Offer or the Proposed Merger,
Purchaser might be required to file certain information with, or to receive
approvals from, the relevant state authorities, and Purchaser might be unable
to accept for payment or pay for Common Shares tendered pursuant to the Offer,
or be delayed in consummating the Offer or the Proposed Merger. In such case,
Purchaser may not be obliged to accept for payment or pay for any Common Shares
tendered pursuant to the Offer.
A number of other states have adopted laws and regulations applicable to
attempts to acquire securities of corporations which are incorporated, or have
substantial assets, shareholders, principal executive offices or principal
places of business, or whose business operations otherwise have substantial
economic effects, in such states. Purchaser does not know whether any of these
laws will, by their terms, apply to the Offer and has not complied with any
such laws. Should any person seek to apply any state takeover law, Purchaser
will take such action as then appears desirable, which may include challenging
the validity or applicability of any such statute in appropriate court
proceedings. In the event it is asserted that one or more state takeover laws
are applicable, and an appropriate court does not determine that such law is,
or such laws are inapplicable or invalid as applied to the Offer, Purchaser
might be required to file certain information with, or receive approvals from,
the relevant state authorities. In addition, if enjoined, Purchaser might be
unable to accept for payment any Common Shares tendered pursuant to the Offer,
or be delayed in continuing or consummating the Offer. In such case, Purchaser
may not be obligated to accept for payment any Common Shares tendered. See
Section 14.
SECTION 203 OF THE DELAWARE CORPORATION LAW. Section 203, in general,
prohibits a Delaware corporation such as the Company from engaging in a
"Business Combination" (defined as a variety of transactions, including
mergers, as set forth below) with an "Interested Stockholder" (defined
generally as a person that is the beneficial owner of 15% or more of a
corporation's outstanding voting stock) for a period of three years following
the time that such person became an Interested Stockholder unless (a) prior to
the time such person became an Interested Stockholder, the board of directors
of the corporation approved either the Business Combination or the transaction
that resulted in the shareholder becoming an Interested Stockholder, or (b)
upon consummation of the transaction that resulted in the shareholder becoming
an Interested Stockholder, the Interested Stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding stock held by directors who are also officers of the
corporation and employee stock ownership plans that do not provide employees
with the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer or (c) at or subsequent to
the time such person became an Interested Stockholder, the Business Combination
is approved by the board of directors of the corporation and authorized at an
annual or
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special meeting of shareholders, and not by written consent, by the affirmative
vote of the holders of at least 66 2/3% of the outstanding voting stock of the
corporation not owned by the Interested Stockholder.
Under Section 203, the restrictions described above do not apply to
certain Business Combinations proposed by an Interested Stockholder following
the announcement or notification of one of certain extraordinary transactions
involving the corporation and a person who had not been an Interested
Stockholder during the previous three years or who became an Interested
Stockholder with the approval of a majority of the corporation's directors.
Section 203 provides that, during such three-year period, the corporation
may not merge or consolidate with an Interested Stockholder or any affiliate or
associate thereof, and also may not engage in certain other transactions with
an Interested Stockholder or any affiliate or associate thereof, including,
without limitation, (a) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition of assets (except proportionately as a stockholder of the
corporation) having an aggregate market value equal to 10% or more of the
aggregate market value of all assets of the corporation determined on a
consolidated basis or the aggregate market value of all the outstanding stock
of a corporation; (b) any transaction which results in the issuance or transfer
by the corporation or by certain subsidiaries thereof of any stock of the
corporation or such subsidiaries to the Interested Stockholder, except pursuant
to a transaction which effects a pro rata distribution to all shareholders of
the corporation; (c) any transaction involving the corporation or certain
subsidiaries thereof which has the effect of increasing the proportionate share
of the stock of any class or series, or securities convertible into the stock
of any class or series, of the corporation or any such subsidiary which is
owned directly or indirectly by the Interested Stockholder (except as a result
of immaterial changes due to fractional share adjustments) or (d) any receipt
of the Interested Stockholder of the benefit (except proportionately as a
shareholder of such corporation) of any loans, advances, guarantees, pledges or
other financial benefits provided by or through the corporation.
Accordingly, the Affiliated Transaction Condition would be satisfied if
(i) the Company Board approves the acquisition of Common Shares pursuant to the
Offer and the Proposed Merger or other business combination with Purchaser or
any affiliate of Purchaser, or (ii) Purchaser is satisfied, in its sole
discretion, that after consummation of the Offer, the provisions of Section 203
would not prohibit for any period of time, or impose any voting requirement in
excess of majority shareholder approval with respect to, the Proposed Merger or
other business combination with Purchaser or any affiliate of Purchaser.
The foregoing summary of Section 203 does not purport to be complete and
is qualified in its entirety by reference to the provisions of Section 203.
Parent and Purchaser are hereby requesting that the Company Board adopt a
resolution approving the acquisition of Common Shares pursuant to the Offer and
the Proposed Merger or other business combination with Purchaser or any
affiliate of Purchaser for purposes of Section 203. However, there can be no
assurance that the Company Board will do so.
16. FEES AND EXPENSES.
Except as set forth below, neither Parent nor Purchaser will pay any fees
or commissions to any broker, dealer or other person for soliciting tenders of
Common Shares pursuant to the Offer. Parent has engaged Cochran, Caronia
Securities LLC as Dealer Manager in connection with the Offer and has paid a
fee of $200,000 upon commencement of the Offer. Parent has also engaged
Cochran, Caronia Securities LLC as financial advisor to Parent in connection
with its effort to acquire the Company. Parent has agreed to pay Cochran,
Caronia Securities LLC (in its capacity as financial advisor) a fee of $750,000
upon successful completion of the Offer and related transactions in which
Purchaser acquires all the outstanding Common Shares. Parent has also agreed to
reimburse the Dealer Manager (in its capacity as Dealer Manager) for its
reasonable out-of-pocket expenses, including the reasonable fees and expenses
of its legal counsel, incurred in connection with its engagement, and to
indemnify such firm and certain related persons against certain liabilities and
expenses in connection with its engagement, including certain liabilities under
the Federal securities laws. In the ordinary course of business, the Dealer
Manager and its respective affiliates may actively trade or hold the securities
of the Company and Parent for its own account or for the account of customers
and, accordingly, may at any time hold a long or short position in such
securities. As of the date of this Offer to Purchase, Cochran, Caronia
Securities LLC and its affiliates do not own any Common Shares.
Purchaser has retained MacKenzie Partners, Inc. to act as the Information
Agent in connection with the Offer. The Information Agent may contact holders
of Common Shares by mail, telephone, facsimile, telegraph and personal
interviews and may request brokers, dealers and other nominee shareholders to
forward materials relating to the Offer to beneficial owners of Common Shares.
The Information Agent will receive reasonable and customary compensation for
its services, will be reimbursed for certain reasonable out-of-pocket expenses
and will be indemnified against certain liabilities and expenses in connection
therewith, including certain liabilities under the Federal securities laws.
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<PAGE>
In addition, First Union National Bank has been retained as the
Depositary. The Depositary has not been retained to make solicitations or
recommendations in its role as Depositary. The Depositary will receive
reasonable and customary compensation for its services, will be reimbursed for
certain reasonable out-of-pocket expenses and will be indemnified against
certain liabilities and expenses in connection therewith, including certain
liabilities under the Federal securities laws. Brokers, dealers, commercial
banks and trust companies will be reimbursed by Purchaser for customary mailing
and handling expenses incurred by them in forwarding offering material to their
customers.
17. MISCELLANEOUS.
Purchaser is not aware of any jurisdiction where the making of the Offer
is prohibited by any administrative or judicial action pursuant to any valid
state statute. If Purchaser becomes aware of any valid state statute
prohibiting the making of the Offer or the acceptance of the Common Shares
pursuant thereto, Purchaser will make a good faith effort to comply with such
state statute. If, after such good faith effort, Purchaser cannot comply with
any such state statute, the Offer will not be made to (nor will tenders be
accepted from or on behalf of) the holders of Common Shares in such state. In
any jurisdiction where the securities, blue sky or other laws require the Offer
to be made by a licensed broker or dealer, the Offer shall be deemed to be made
on behalf of Purchaser by one or more registered brokers or dealers which are
licensed under the laws of such jurisdiction.
No person has been authorized to give any information or make any
representation on behalf of Parent or Purchaser not contained in this Offer to
Purchase or in the Letter of Transmittal and, if given or made, such
information or representation must not be relied upon as having been
authorized.
Parent and Purchaser have filed with the SEC a Schedule 14D-1, together
with exhibits, pursuant to Rule 14d-3 of the General Rules and Regulations
under the Exchange Act, furnishing certain additional information with respect
to the Offer. The Schedule 14D-1, and any amendments thereto, may be inspected
at, and copies may be obtained from, the same places and in the same manner as
set forth in Section 8 (except that they may not be available at the regional
offices of the SEC).
MG ACQUISITION CORP.
October 20, 1998
33
<PAGE>
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF PARENT AND THE PURCHASER
1. DIRECTORS AND EXECUTIVE OFFICERS OF PARENT. The following table sets
forth the name and present principal occupation or employment, and material
occupations, positions, offices or employments for the past five years of each
director and executive officer of Parent. Except as noted, each such person is
a citizen of the United States of America. The business address of each such
person is:
c/o Markel Corporation
4551 Cox Road
Glen Allen, Virginia 23060-3382
DIRECTORS
The following individuals serve as directors of Parent as of October 20,
1998:
Alan I. Kirshner, 63
Chairman of the Board of Directors and Chief Executive Officer since
September 1986. President from 1979 to March 1992.
Anthony F. Markel, 56
President and Chief Operating Officer since March 1992. Executive Vice
President from 1979 to March 1992. Director and Chairman of Open Plan
Systems, Inc. and Director of Hilb, Rogal & Hamilton Company of Virginia.
Steven A. Markel, 50
Vice Chairman since March 1992. Treasurer from October 1986 to August 1993.
Executive Vice President from October 1986 to March 1992. Director of
Fairfax Financial Holdings Limited; Lindsey Morden Group Inc.; and S&K
Famous Brands, Inc.
Darrell D. Martin, 50
Executive Vice President and Chief Financial Officer since March 1992.
Chief Financial Officer since 1988.
Leslie A. Grandis, 54
Secretary since February 1989. Partner, McGuire, Woods, Battle & Boothe
LLP, Richmond, Virginia, attorneys-at-law, since 1974. Director of
Cornerstone Realty Income Trust, Inc.; CSX Trade Receivables Corporation.
Stewart M. Kasen, 59
Private Investor; Chairman from January 1994 and President and Chief
Executive Officer, Best Products Co., Inc., Richmond, Virginia from June
1991 to April 1996; Chairman and Director of Factory Card Outlet Corp.;
Director of O'Sullivan Industries Holdings, Inc.; The Bibb Co., K2, Inc.;
and Elder-Beerman Stores Corp.
Gary L. Markel, 52
President, Gary Markel & Associates, Inc., Tampa, Florida, an independent
insurance agency since December 1984. President, Gary Markel Safety
Services, Inc., an independent loss control service company since May 1985.
President, Gary Markel Surplus Lines Brokerage, Inc.
V. Prem Watsa, 48
Partner, Hamblin, Watsa Investment Counsel Limited, Toronto, Canada,
investment advisors, since September 1984. Chairman and Chief Executive
Officer, Fairfax Financial Holdings Limited, Toronto, Canada, since
September 1985. Director of Fairfax Financial Holdings Limited, Lindsey
Morden Group Inc.; FCA International. Mr. Watsa is a Canadian citizen.
EXECUTIVE OFFICERS
The following table sets forth certain information regarding the executive
officers of Parent:
<TABLE>
<CAPTION>
NAME OFFICE OR POSITIONS HELD
- ------------------------- ---------------------------------------------------
<S> <C>
Alan I. Kirshner Chairman and Chief Executive Officer
Anthony F. Markel President and Chief Operating Officer
Steven A. Markel Vice Chairman
Darrell D. Martin Executive Vice President & Chief Financial Officer
</TABLE>
34
<PAGE>
For biographical information concerning Messrs. Alan I. Kirshner, Anthony
F. Markel, Steven A. Markel and Darrell D. Martin, see "Directors" above.
2. DIRECTORS AND EXECUTIVE OFFICERS OF PURCHASER. The following table sets
forth the name and present principal occupation or employment, and material
occupations, positions, offices or employments for the past five years of each
director and executive officer of Purchaser. Each such person is a citizen of
the United States of America and the business address of each such person is:
c/o Markel Corporation
4551 Cox Road
Glen Allen, Virginia 23060-3382
DIRECTORS AND EXECUTIVE OFFICERS
Alan I. Kirshner, Director and Chairman
Anthony F. Markel, Director and President
Steven A. Markel, Director and Vice Chairman
Darrell D. Martin, Director and Vice President, Secretary and Treasurer
For biographical information concerning Messrs. Alan I. Kirshner, Anthony
F. Markel, Steven A. Markel and Darrell D. Martin, see "Directors" under part 1
above.
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<PAGE>
Facsimile copies of the Letter of Transmittal, properly completed and duly
signed, will be accepted. The Letter of Transmittal, certificates for the
Common Shares and any other required documents should be sent by each
shareholder of the Company or his broker, dealer, commercial bank, trust
company or other nominee to the Depositary as follows:
THE DEPOSITARY FOR THE OFFER IS:
FIRST UNION NATIONAL BANK
FACSIMILE TRANSMISSION:
(704) 590-7628
CONFIRM BY TELEPHONE:
(704) 590-7408
<TABLE>
<CAPTION>
IF BY REGISTERED MAIL, CERTIFIED
IF BY FIRST CLASS MAIL MAIL OR OVERNIGHT DELIVERY IF BY HAND ONLY
<S> <C> <C>
First Union National Bank First Union National Bank First Union National Bank
1525 West W.T. Harris Blvd. 1525 West W.T. Harris Blvd. 5th Floor
Reorg. Department Reorg. Department 40 Broad Street
3c3-NC-1153 3c3-NC-1153 New York, NY 10004
Charlotte, NC 28288-1153 Charlotte, NC 28262
</TABLE>
Any questions or requests for assistance may be directed to the
Information Agent or the Dealer Manager at their respective telephone numbers
and locations listed below. Additional copies of the Offer to Purchase, the
Letter of Transmittal and the Notice of Guaranteed Delivery may be obtained
from the Information Agent at its address and telephone numbers set forth
below. Holders of Shares may also contact their broker, dealer, commercial bank
or trust company or other nominee for assistance concerning the Offer.
THE INFORMATION AGENT FOR THE OFFER IS:
[MACKENZIE PARTNERS, INC. LOGO]
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect)
or
CALL TOLL FREE (800) 322-2885
THE DEALER MANAGER FOR THE OFFER IS:
[COCHRAN, CARONIA SECURITIES LLC LOGO]
1 South Wacker Drive
Chicago, Illinois 60606
(312) 425-9335
or
CALL TOLL FREE (800) 248-8163
36
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
OF
GRYPHON HOLDINGS INC.
PURSUANT TO THE OFFER TO PURCHASE,
DATED OCTOBER 20, 1998
BY
MG ACQUISITION CORP.
A WHOLLY OWNED SUBSIDIARY OF
MARKEL CORPORATION
THE OFFER, AND WITHDRAWAL RIGHTS WILL EXPIRE AT 6:00 P.M., NEW YORK CITY
TIME, ON FRIDAY, DECEMBER 4, 1998, UNLESS THE OFFER IS EXTENDED.
THE DEPOSITARY FOR THE OFFER IS:
FIRST UNION NATIONAL BANK
FACSIMILE TRANSMISSION:
(704) 590-7628
CONFIRM BY TELEPHONE:
(704) 590-7408
<TABLE>
<S> <C> <C>
IF BY FIRST CLASS MAIL IF BY REGISTERED MAIL, CERTIFIED IF BY HAND ONLY
MAIL OR OVERNIGHT DELIVERY
First Union National Bank First Union National Bank First Union National Bank
1525 West W.T. Harris Blvd. 1525 West W.T. Harris Blvd. 5th Floor
Reorg. Department Reorg. Department 40 Broad Street
3c3-NC-1153 3c3-NC-1153 New York, NY 10004
Charlotte, NC 28288-1153 Charlotte, NC 28262
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER
THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. YOU MUST SIGN
THIS LETTER OF TRANSMITTAL WHERE INDICATED BELOW AND COMPLETE THE SUBSTITUTE
FORM W-9 PROVIDED BELOW.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
THIS LETTER OF TRANSMITTAL IS TO BE COMPLETED BY SHAREHOLDERS OF GRYPHON
HOLDINGS INC. EITHER IF CERTIFICATES EVIDENCING COMMON SHARES AND/OR RIGHTS
(EACH AS DEFINED BELOW) ARE TO BE FORWARDED HEREWITH, OR IF DELIVERY OF COMMON
SHARES AND/OR RIGHTS IS TO BE MADE BY BOOK-ENTRY TRANSFER TO THE DEPOSITARY'S
ACCOUNT AT THE DEPOSITORY TRUST COMPANY (THE "BOOK-ENTRY TRANSFER FACILITY")
PURSUANT TO THE BOOK-ENTRY TRANSFER PROCEDURE DESCRIBED IN "PROCEDURES FOR
TENDERING COMMON SHARES" OF THE OFFER TO PURCHASE (AS DEFINED BELOW). DELIVERY
OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH SUCH
BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE
DEPOSITARY.
Holders of Common Shares will be required to tender one Right for each
Common Share tendered to effect a valid tender of such Common Share. Until the
Distribution Date (as defined in the Offer to Purchase) has occurred, the
Rights are represented by and transferred with the Common Shares. Accordingly,
if the Distribution Date does not occur prior to the Expiration Date (as
defined in the Offer to Purchase), a tender of Common Shares will constitute a
tender of the associated Rights. If a Distribution Date has occurred,
certificates representing a number of Rights equal to the number of Common
Shares being tendered must be delivered to the Depositary in order for such
Common Shares to be validly tendered. If a Distribution Date has occurred, a
tender of Common Shares without Rights constitutes an agreement by the
tendering shareholder to deliver certificates representing a number of Rights
equal to the number of Common Shares tendered pursuant to the Offer (as defined
in the Offer to Purchase) to the Depositary within three Nasdaq National Market
trading days after the
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<PAGE>
date such certificates are distributed. Purchaser reserves the right to require
that it receive such certificates prior to accepting Common Shares for payment.
Payment for Common Shares tendered and purchased pursuant to the Offer to
Purchase will be made only after timely receipt by the Depositary of, among
other things, such certificates, if such certificates have been distributed to
holders of Common Shares. Purchaser will not pay any additional consideration
for the Rights tendered pursuant to the Offer to Purchase.
Shareholders whose certificates for Common Shares and, if applicable,
Rights, are not immediately available or who cannot deliver such certificates
and all other documents required hereby to the Depositary prior to the
Expiration Date or who cannot complete the procedure for delivery by book-entry
transfer on a timely basis and who wish to tender their Common Shares and
Rights must do so pursuant to the guaranteed delivery procedure described in
"Procedures for Tendering Common Shares" of the Offer to Purchase. See
Instruction 2.
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<PAGE>
[ ] CHECK HERE IF TENDERED COMMON SHARES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER TO THE DEPOSITARY'S ACCOUNT AT THE DEPOSITORY TRUST COMPANY AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution: ----------------------------------------
If Delivered by Book-Entry Transfer to The Depository Trust Company:
Account Number: ---------------------------------------------------------
Transaction Code Number: -------------------------------------------
[ ] CHECK HERE IF TENDERED RIGHTS ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
TO THE DEPOSITARY'S ACCOUNT AT THE DEPOSITORY TRUST COMPANY AND COMPLETE
THE FOLLOWING:
Name of Tendering Institution: -------------------------------------
If Delivered by Book-Entry Transfer to The Depository Trust Company:
Account Number: -----------------------------------------------------
Transaction Code Number: ----------------------------------------
[ ] CHECK HERE IF TENDERED COMMON SHARES ARE BEING TENDERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s): -----------------------
Window Ticket Number (if any): --------------------------
Date of Execution of Notice of Guaranteed Delivery: ------
Name of Institution which Guaranteed Delivery: ------------
If Delivered by Book-Entry Transfer to The Depository Trust Company:
Account Number: --------------------------------------------
Transaction Code Number: -----------------------------------
[ ] CHECK HERE IF TENDERED RIGHTS ARE BEING TENDERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Holder(s): -------------------------
Window Ticket Number (if any): ----------------------------
Date of Execution of Notice of Guaranteed Delivery: -------
Name of Institution which Guaranteed Delivery: ------------
If Delivered by Book-Entry Transfer to The Depository Trust Company:
Account Number: --------------------------------------------
Transaction Code Number: ------------------------------------
3
<PAGE>
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S)
(PLEASE FILL IN, IF BLANK)
<TABLE>
<CAPTION>
DESCRIPTION OF COMMON SHARES TENDERED
<S> <C>
COMMON SHARE CERTIFICATE(S) TENDERED
(ATTACH ADDITIONAL LIST IF NECESSARY)
TOTAL NUMBER OF COMMON SHARES
CERTIFICATE NUMBER(S)* REPRESENTED BY CERTIFICATE(S) NUMBER OF COMMON SHARES TENDERED**
TOTAL COMMON SHARES ..........................................................
</TABLE>
* Need not be completed by shareholders tendering by book-entry transfer.
** Unless otherwise indicated, it will be assumed that all Common Shares being
delivered to the Depositary are being tendered. See Instruction 4.
4
<PAGE>
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S)
(PLEASE FILL IN, IF BLANK)
<TABLE>
<CAPTION>
DESCRIPTION OF RIGHTS TENDERED
<S> <C>
RIGHTS CERTIFICATE(S) TENDERED*
(ATTACH ADDITIONAL LIST IF NECESSARY)
TOTAL NUMBER OF RIGHTS
CERTIFICATE NUMBER(S)** REPRESENTED BY CERTIFICATES(S) NUMBER OF RIGHTS TENDERED***
TOTAL RIGHTS ...........................................................................
*If the tendered Rights are represented by separate Rights Certificates,
provide the certificate numbers of such Rights Certificates. Shareholders
tendering Rights which are not represented by separate certificates will need to
submit an additional Letter of Transmittal if Rights Certificates are
distributed.
**Need not be completed by shareholders tendering by book-entry transfer.
***Unless otherwise indicated, it will be assumed that all Rights being
delivered to the Depositary are being tendered. See Instruction 4.
</TABLE>
The names and addresses of the registered holders should be printed, if
not already printed above, exactly as they appear on the certificates
representing Common Shares and/or Rights tendered hereby. The certificates and
number of Common Shares and/or Rights that the undersigned wishes to tender
should be indicated in the appropriate boxes.
NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE INSTRUCTIONS SET
FORTH IN THIS LETTER OF TRANSMITTAL CAREFULLY.
5
<PAGE>
LADIES AND GENTLEMEN:
The undersigned hereby tenders to MG Acquisition Corp., a Delaware
corporation ("Purchaser") and a wholly owned subsidiary of Markel Corporation,
a Virginia corporation, the above described shares of common stock, par value
$0.01 per share (the "Common Shares"), of Gryphon Holdings Inc., a Delaware
corporation (the "Company"), including the associated Junior Participating
Cumulative Preferred Stock Purchase Rights (including any successors thereto,
the "Rights") issued pursuant to the Rights Agreement, dated as of June 5,
1995, as amended as of July 28, 1998, between the Company and State Street Bank
and Trust Company, as Rights Agent (as such agreement may be further amended
and including any successor agreement, the "Rights Agreement"), pursuant to
Purchaser's offer to purchase all of the outstanding Common Shares, including
the associated Rights, at a price of $18.00 per Common Share, net to the seller
in cash, without interest thereon, upon the terms and subject to the conditions
set forth in the Offer to Purchase, dated October 20, 1998 (the "Offer to
Purchase"), receipt of which is hereby acknowledged, and in this Letter of
Transmittal (which, as amended from time to time, together constitute the
"Offer"). Unless the context requires otherwise, all references herein to the
Common Shares shall include the associated Rights, and all references to the
Rights shall include the benefits that may inure to the holders of the Rights
pursuant to the Rights Agreement, including the right to receive any payment
due upon redemption of the Rights.
The undersigned understands that Purchaser reserves the right to transfer
or assign, in whole at any time, or in part from time to time, to one or more
of its affiliates, the right to purchase all or any portion of the Common
Shares and/or Rights tendered pursuant to the Offer, but any such transfer or
assignment will not relieve Purchaser of its obligations under the Offer and
will in no way prejudice the rights of tendering shareholders to receive
payment for Common Shares validly tendered and accepted for payment pursuant to
the Offer.
Subject to, and effective upon, acceptance for payment of the Common
Shares and Rights tendered herewith, in accordance with the terms of the Offer
(including, if the Offer is extended or amended, the terms and conditions of
any such extension or amendment), the undersigned hereby sells, assigns and
transfers to, or upon the order of, Purchaser all right, title and interest in
and to all the Common Shares and Rights that are being tendered hereby (and any
and all non-cash dividends, distributions, rights, other Common Shares or other
securities issued or issuable in respect thereof or declared, paid or
distributed in respect of such Common Shares on or after October 20, 1998
(collectively, "Distributions")), and irrevocably appoints the Depositary the
true and lawful agent and attorney-in-fact of the undersigned with respect to
such Common Shares, Rights and all Distributions, with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest), to (i) deliver certificates for such Common Shares
(individually, a "Common Share Certificate"), Rights and all Distributions, or
transfer ownership of such Common Shares, Rights and all Distributions on the
account books maintained by the Book-Entry Transfer Facility, together, in
either case, with all accompanying evidence of transfer and authenticity to, or
upon the order of Purchaser, (ii) present such Common Shares, Rights and all
Distributions for transfer on the books of the Company and (iii) receive all
benefits and otherwise exercise all rights of beneficial ownership of such
Common Shares, Rights and all Distributions, all in accordance with the terms
of the Offer.
If, on or after the date of this Offer to Purchase, the Company should
declare or pay any dividend on the Common Shares or make any distribution
(including, without limitation, the issuance of additional Common Shares
pursuant to a stock dividend or stock split, the issuance of other securities
or the issuance of rights for the purchase of any securities) with respect to
the Common Shares that is payable or distributable to shareholders of record on
a date prior to the transfer to the name of Purchaser or its nominee or
transferee on the Company's stock transfer records of the Common Shares
purchased pursuant to the Offer, then, subject to the provisions of Section 13
of the Offer to Purchase, (i) the purchase price per Common Share payable by
Purchaser pursuant to the Offer will be reduced by the amount of any such cash
dividend or cash distribution and (ii) any such non-cash dividend, distribution
or right to be received by the tendering shareholder will be received and held
by such tendering shareholder for the account of Purchaser and will be required
to be remitted promptly and transferred by each such tendering shareholder to
the Depositary for the account of Purchaser, accompanied by appropriate
documentation of transfer. Pending such remittance and subject to applicable
law, Purchaser will be entitled to all rights and privileges as owner of any
such non-cash dividend, distribution or right and may withhold the entire
purchase price or deduct from the purchase price the amount of value thereof,
as determined by Purchaser in its sole discretion.
By executing this Letter of Transmittal, the undersigned irrevocably
appoints Alan I. Kirshner, Anthony F. Markel and Steven A. Markel as proxies of
the undersigned, each with full power of substitution, to the full extent of
the undersigned's rights with respect to the Common Shares and Rights tendered
by the undersigned and accepted for payment by Purchaser (and any and all
Distributions). All such proxies shall be considered coupled with an interest
in the tendered Common Shares and Rights. This appointment will be effective
if, when, and only to the extent that Purchaser accepts such Common Shares and
Rights for payment pursuant to the Offer. Upon such acceptance for payment, all
prior proxies given by the undersigned with respect to such Common Shares,
Rights, Distributions and other securities will, without further action, be
revoked, and
6
<PAGE>
no subsequent proxies may be given. The individuals named above as proxies
will, with respect to the Common Shares, Rights, Distributions and other
securities for which the appointment is effective, be empowered to exercise all
voting and other rights of the undersigned as they in their sole discretion may
deem proper at any annual, special, adjourned or postponed meeting of Company
shareholders, by written consent or otherwise, and Purchaser reserves the right
to require that, in order for Common Shares, Rights, Distributions or other
securities to be deemed validly tendered, immediately upon Purchaser's
acceptance for payment of such Common Shares and Rights, Purchaser or
Purchaser's designee must be able to exercise full voting rights with respect
to such Common Shares and Rights.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Common Shares
and Rights tendered hereby and all Distributions, that the undersigned own(s)
the Common Shares and Rights tendered hereby within the meaning of Rule 14e-4
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), that such tender of Common Shares complies with Rule 14e-4
under the Exchange Act, and that, when such Common Shares and Rights are
accepted for payment by Purchaser, Purchaser will acquire good, marketable and
unencumbered title thereto and to all Distributions, free and clear of all
liens, restrictions, charges and encumbrances, and that none of such Common
Shares, Rights and Distributions will be subject to any adverse claim. The
undersigned, upon request, shall execute and deliver all additional documents
deemed by the Depositary or Purchaser to be necessary or desirable to complete
the sale, assignment and transfer of the Common Shares and Rights tendered
hereby and all Distributions. In addition, the undersigned shall remit and
transfer promptly to the Depositary for the account of Purchaser all
Distributions in respect of the Common Shares and Rights tendered hereby,
accompanied by appropriate documentation of transfer, and, pending such
remittance and transfer or appropriate assurance thereof, Purchaser shall be
entitled to all rights and privileges as owner of each such Distribution and
may withhold the entire purchase price of the Common Shares and Rights tendered
hereby or deduct from such purchase price the amount or value of such
Distribution as determined by Purchaser in its sole discretion.
No authority herein conferred or agreed to be conferred shall be affected
by, and all such authority shall survive, the death or incapacity of the
undersigned. All obligations of the undersigned hereunder shall be binding upon
the heirs, executors, personal and legal representatives, administrators,
trustees in bankruptcy, successors and assigns of the undersigned. Except as
stated in the Offer to Purchase, this tender is irrevocable.
The undersigned understands that tenders of Common Shares and Rights
pursuant to any one of the procedures described in "Procedures for Tendering
Common Shares" of the Offer to Purchase and in the Instructions hereto will
constitute the undersigned's acceptance of the terms and conditions of the
Offer. Purchaser's acceptance for payment of Common Shares and Rights tendered
pursuant to the Offer will constitute a binding agreement between the
undersigned and Purchaser upon the terms and subject to the conditions of the
Offer. The undersigned recognizes that under certain circumstances set forth in
the Offer to Purchase, Purchaser may not be required to accept for payment any
of the Common Shares and Rights tendered hereby.
Unless otherwise indicated herein in the box entitled "Special Payment
Instructions," please issue the check for the purchase price and/or return any
certificates evidencing Common Shares or Rights not tendered or accepted for
payment, in the name(s) of the registered holder(s) appearing above under
"Description of Common Shares Tendered." Similarly, unless otherwise indicated
in the box entitled "Special Delivery Instructions," please mail the check for
the purchase price and/or return any certificates evidencing Common Shares or
Rights not tendered or accepted for payment (and accompanying documents, as
appropriate) to the address(es) of the registered holder(s) appearing above
under "Description of Common Shares Tendered." In the event that the boxes
entitled "Special Payment Instructions" and "Special Delivery Instructions" are
both completed, please issue the check for the purchase price and/or return any
certificates for Common Shares or Rights not purchased or not tendered or
accepted for payment in the name(s) of, and mail such check and/or return such
certificates to, the person(s) so indicated. Unless otherwise indicated herein
in the box entitled "Special Payment Instructions," please credit any Common
Shares or Rights tendered hereby and delivered by book-entry transfer, but
which are not purchased, by crediting the account at the Book-Entry Transfer
Facility. The undersigned recognizes that Purchaser has no obligation, pursuant
to the Special Payment Instructions, to transfer any Common Shares or Rights
from the name of the registered holder(s) thereof if Purchaser does not accept
for payment any of the Common Shares or Rights tendered hereby.
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SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7 OF THIS
LETTER OF TRANSMITTAL)
To be completed ONLY if certificates for Common Shares and/or Rights not
tendered or not purchased and/or the check for the purchase price of Common
Shares and/or Rights purchased are to be issued in the name of someone other
than the undersigned, or if the Common Shares and/or Rights delivered by
book-entry transfer which are not purchased are to be returned by credit to an
account maintained at a Book-Entry Transfer Facility other than that designated
above.
Issue check and/or certificate(s) to:
Name ----------------------------------------------------------------------
(Please print)
Address --------------------------------------------------------------------
(Include Zip Code)
--------------------------------------------------------------------------
(Tax Identification or Social Security Number)
(Also complete Substitute Form W-9 below)
[ ] Credit unpurchased Common Shares and/or Rights delivered by book-entry
transfer to The Depository Trust Company
---------------------------------------------------------------------------
(Account Number)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7 OF THIS
LETTER OF TRANSMITTAL)
To be completed ONLY if certificates for Common Shares and/or Rights not
tendered or not purchased and/or the check for the purchase price of Common
Shares and/or Rights purchased are to be sent to someone other than the
undersigned, or to the undersigned at an address other than that shown above.
Mail check and/or certificates to:
Name ----------------------------------------------------------------------
(Please Print)
Address --------------------------------------------------------------------
(Include Zip Code)
--------------------------------------------------------------------------
(Tax Identification or Social Security Number)
(also complete Substitute Form W-9 below)
8
<PAGE>
PLEASE SIGN HERE
(Complete Substitute Form W-9 on Reverse)
SIGN SIGN
HERE HERE
- --> <--
------------------------------------------------------------------
------------------------------------------------------------------
(SIGNATURE(S) OF HOLDER(S))
Dated: ----------- , 19-
(Must be signed by registered holder(s) exactly as name(s) appear(s) on
Common Share certificate(s) or on a security position listing or by
person(s) authorized to become registered holder(s) by certificates and
documents transmitted herewith. If signature is by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or
others acting in a fiduciary or representative capacity, please provide
the following information. See Instruction 5).
Name(s): -----------------------------------------------------------
(Please print)
Capacity (full title): ----------------------------------------------
Address: ------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone Number: ------------------------------------
Tax Identification or Social Security Number:---------------------
------------------------------------------------------------------
(Complete Substitute Form W-9 on Reverse)
Guarantee of Signature(s)
(See instructions 1 and 5)
Authorized Signature: --------------------------------------------
Name: -------------------------------------------------------------
(Please print)
Title: --------------------------------------------------------------
Name of Firm: --------------------------------------------------------
Address: ------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone Number: ----------------------------------
Dated: ----------- , 19-
9
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by a firm which is
a bank, broker, dealer, credit union, savings association or other entity that
is a member in good standing of the Securities Transfer Agents Medallion
Program (each, an "Eligible Institution"). No signature guarantee is required
on this Letter of Transmittal (a) if this Letter of Transmittal is signed by
the registered holder(s) (which term, for purposes of this document, shall
include any participant in a Book-Entry Transfer Facility whose name appears on
a security position listing as the owner of Common Shares or Rights) of Common
Shares and/or Rights tendered herewith, unless such holder(s) has completed
either the box entitled "Special Delivery Instructions" or the box entitled
"Special Payment Instructions" on the reverse hereof, or (b) if such Common
Shares or Rights are tendered for the account of an Eligible Institution. See
Instruction 5. If a certificate evidencing Common Shares and/or Rights (a
"Certificate") is registered in the name of a person other than the signer of
this Letter of Transmittal, or if payment is to be made, or a Certificate not
accepted for payment or not tendered is to be returned, to a person other than
the registered holder(s), then the Certificate must be endorsed or accompanied
by appropriate stock powers, in either case signed exactly as the name(s) of
the registered holder(s) appear(s) on the Certificate, with the signature(s) on
such Certificate or stock powers guaranteed as described above. See Instruction
5.
2. DELIVERY OF LETTER OF TRANSMITTAL AND COMMON SHARE CERTIFICATES. This
Letter of Transmittal is to be used either if Certificates are to be forwarded
herewith or if Common Shares and/or Rights are to be delivered by book-entry
transfer pursuant to the procedure set forth in "Procedures for Tendering
Common Shares" of the Offer to Purchase. Certificates evidencing all tendered
Common Shares and/or Rights, or confirmation of a book-entry transfer of such
Common Shares and/or Rights, if such procedure is available, into the
Depositary's account at the Book-Entry Transfer Facility pursuant to the
procedures set forth in "Procedures for Tendering Common Shares" of the Offer
to Purchase, together with a properly completed and duly executed Letter of
Transmittal (or facsimile thereof) with any required signature guarantees (or,
in the case of a book-entry transfer, an Agent's Message, as defined below) and
any other documents required by this Letter of Transmittal, must be received by
the Depositary at one of its addresses set forth on the reverse hereof prior to
the Expiration Date (as defined in "Terms of the Offer; Expiration Date" of the
Offer to Purchase). If Certificates are forwarded to the Depositary in multiple
deliveries, a properly completed and duly executed Letter of Transmittal must
accompany each such delivery. Shareholders whose Certificates are not
immediately available, who cannot deliver their Certificates and all other
required documents to the Depositary prior to the Expiration Date or who cannot
complete the procedure for delivery by book-entry transfer on a timely basis
may tender their Common Shares or Rights pursuant to the guaranteed delivery
procedure described in "Procedures for Tendering Common Shares" of the Offer to
Purchase. Pursuant to such procedure: (i) such tender must be made by or
through an Eligible Institution; (ii) a properly completed and duly executed
Notice of Guaranteed Delivery, substantially in the form provided by Purchaser
herewith, must be received by the Depositary prior to the Expiration Date; and
(iii) in the case of a guarantee of Common Shares or Rights, the Certificates,
in proper form for transfer, or a confirmation of a book-entry transfer of such
Common Shares or Rights, if such procedure is available, into the Depositary's
account at the Book-Entry Transfer Facility, together with a properly completed
and duly executed Letter of Transmittal (or manually signed facsimile thereof)
with any required signature guarantees (or, in the case of a book-entry
transfer, an Agent's Message), and any other documents required by this Letter
of Transmittal, must be received by the Depositary within three Nasdaq National
Market trading days after the date of execution of the Notice of Guaranteed
Delivery, all as described in "Procedures for Tendering Common Shares" of the
Offer to Purchase. The term "Agent's Message" means a message, transmitted by
the Book-Entry Transfer Facility to, and received by the Depositary and forming
a part of the Book-Entry Confirmation, which states that the Book-Entry
Transfer Facility has received an express acknowledgment from the participant
in the Book-Entry Transfer Facility tendering the Common Shares or Rights, that
such participant has received and agrees to be bound by the terms of this
Letter of Transmittal and that Purchaser may enforce such agreement against the
participant.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, CERTIFICATES AND ALL
OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER
FACILITY, IS AT THE SOLE OPTION AND RISK OF THE TENDERING SHAREHOLDER, AND THE
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF
DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY
INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ENSURE TIMELY DELIVERY.
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No alternative, conditional or contingent tenders will be accepted and no
fractional Common Shares or Rights will be purchased. By execution of this
Letter of Transmittal (or a facsimile hereof), all tendering shareholders waive
any right to receive any notice of the acceptance of their Common Shares or
Rights for payment.
3. INADEQUATE SPACE. If the space provided herein under "Description of
Common Shares Tendered" is inadequate, the Certificate numbers, the number of
Common Shares or Rights evidenced by such Certificates and the number of Common
Shares or Rights tendered should be listed on a separate schedule and attached
hereto.
4. PARTIAL TENDERS. (Not applicable to shareholders who tender by
book-entry transfer.) If fewer than all the Common Shares or Rights evidenced
by any Certificate delivered to the Depositary herewith are to be tendered
hereby, fill in the number of Common Shares or Rights which are to be tendered
in the box entitled "Number of Common Shares Tendered." In such cases, new
Certificate(s) evidencing the remainder of the Common Shares or Rights that
were evidenced by the Certificates delivered to the Depositary herewith will be
sent to the person(s) signing this Letter of Transmittal, unless otherwise
provided in the box entitled "Special Delivery Instructions," as soon as
practicable after the expiration or termination of the Offer. All Common Shares
or Rights evidenced by Certificates delivered to the Depositary will be deemed
to have been tendered unless otherwise indicated.
5. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Common
Shares or Rights tendered hereby, the signature(s) must correspond with the
name(s) as written on the face of the Certificate(s) evidencing such Common
Shares or Rights without alteration, enlargement or any other change
whatsoever.
If any Common Shares or Rights tendered hereby are owned of record by two
or more persons, all such persons must sign this Letter of Transmittal.
If any of the Common Shares or Rights tendered hereby are registered in
the names of different holders, it will be necessary to complete, sign and
submit as many separate Letters of Transmittal as there are different
registrations of such certificates.
If this Letter of Transmittal is signed by the registered holder(s) of the
Common Shares or Rights tendered hereby, no endorsements of Certificates or
separate stock powers are required, unless payment is to be made to, or
Certificates evidencing Common Shares or Rights not tendered or not purchased
are to be issued in the name of, a person other than the registered holder(s),
in which case, the Certificate(s) evidencing the Common Shares or Rights
tendered hereby must be endorsed or accompanied by appropriate stock powers, in
either case signed exactly as the name(s) of the registered holder(s) appear(s)
on such Certificate(s). Signatures on such Certificate(s) and stock powers must
be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Common Shares or Rights tendered hereby, the Common
Share or Rights Certificate(s) evidencing the Common Shares or Rights tendered
hereby must be endorsed or accompanied by appropriate stock powers, in either
case signed exactly as the name(s) of the registered holder(s) appear(s) on
such Certificate(s). Signatures on such Certificate(s) and stock powers must be
guaranteed by an Eligible Institution.
If this Letter of Transmittal or any Certificate(s) or stock power is
signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or
representative capacity, such person should so indicate when signing, and
proper evidence satisfactory to Purchaser of such person's authority so to act
must be submitted.
6. STOCK TRANSFER TAXES. Except as otherwise provided in this Instruction
6, Purchaser will pay all stock transfer taxes with respect to the sale and
transfer of any Common Shares or Rights to it or its order pursuant to the
Offer. If, however, payment of the purchase price of any Common Shares or
Rights purchased is to be made to, or Certificate(s) evidencing Common Shares
or Rights not tendered or not purchased are to be issued in the name of, a
person other than the registered holder(s), the amount of any stock transfer
taxes (whether imposed on the registered holder(s), such other person or
otherwise) payable on account of the transfer to such other person will be
deducted from the purchase price of such Common Shares or Rights purchased,
unless evidence satisfactory to Purchaser of the payment of such taxes, or
exemption therefrom, is submitted.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATE(S) EVIDENCING THE COMMON
SHARES TENDERED HEREBY.
11
<PAGE>
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check for the purchase
price of any Common Shares or Rights tendered hereby is to be issued, or
Certificate(s) evidencing Common Shares or Rights not tendered or not purchased
are to be issued, in the name of a person other than the person(s) signing this
Letter of Transmittal or if such check or any such Certificate is to be sent to
someone other than the person(s) signing this Letter of Transmittal or to the
person(s) signing this Letter of Transmittal but at an address other than that
shown in the box entitled "Description of Common Shares Tendered," the
appropriate boxes on this Letter of Transmittal must be completed. Shareholders
tendering Common Shares or Rights by book-entry transfer may request that
Common Shares or Rights not purchased be credited to such account maintained at
the Book-Entry Transfer Facility as such shareholder may designate in the box
entitled "Special Payment Instructions" on the reverse hereof. If no such
instructions are given, all such Common Shares or Rights not purchased will be
returned by crediting the account at the Book-Entry Transfer Facility from
which such Common Shares or Rights were delivered.
8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for assistance
may be directed to the Information Agent or the Dealer Manager at their
respective addresses or telephone numbers set forth below. Additional copies of
the Offer to Purchase, this Letter of Transmittal, the Notice of Guaranteed
Delivery and the Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9 may be obtained from the Information Agent or the Dealer
Manager or from brokers, dealers, commercial banks or trust companies.
9. SUBSTITUTE FORM W-9. Each tendering shareholder is required to provide
the Depositary with a correct Taxpayer Identification Number ("TIN") on the
Substitute Form W-9 which is provided under "Important Tax Information" below,
and to certify, under penalties of perjury, that such number is correct and
that such shareholder is not subject to backup withholding of federal income
tax. If a tendering shareholder has been notified by the Internal Revenue
Service that such shareholder is subject to backup withholding, such
shareholder must cross out item (2) of the Certification box of the Substitute
Form W-9, unless such shareholder has since been notified by the Internal
Revenue Service that such shareholder is no longer subject to backup
withholding. Failure to provide the information on the Substitute Form W-9 may
subject the tendering shareholder to 31% federal income tax withholding on the
payment of the purchase price of all Common Shares or Rights purchased from
such shareholder. If the tendering shareholder has not been issued a TIN and
has applied for one or intends to apply for one in the near future, such
shareholder should write "Applied For" in the space provided for the TIN in
Part I of the Substitute Form W-9, and sign and date the Substitute Form W-9.
If "Applied For" is written in Part I and the Depositary is not provided with a
TIN within 60 days, the Depositary will withhold 31% on all payments of the
purchase price to such shareholder until a TIN is provided to the Depositary.
10. LOST, DESTROYED OR STOLEN CERTIFICATES. If any certificate(s)
representing Common Shares or Rights has been lost, destroyed or stolen, the
shareholder should promptly notify the Depositary. The shareholder will then be
instructed as to the steps that must be taken in order to replace the
certificate(s). This Letter of Transmittal and related documents cannot be
processed until the procedures for replacing lost or destroyed certificates
have been followed.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE HEREOF), PROPERLY
COMPLETED AND DULY EXECUTED, WITH ANY REQUIRED SIGNATURE GUARANTEES, OR AN
AGENT'S MESSAGE (TOGETHER WITH COMMON SHARE CERTIFICATES OR CONFIRMATION OF
BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS) OR A PROPERLY COMPLETED
AND DULY EXECUTED NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE
DEPOSITARY PRIOR TO THE EXPIRATION DATE (AS DEFINED IN THE OFFER TO PURCHASE).
IMPORTANT TAX INFORMATION
Under the federal income tax law, a shareholder whose tendered Common
Shares or Rights are accepted for payment is required by law to provide the
Depositary (as payer) with such shareholder's correct TIN on Substitute Form
W-9 below. If such shareholder is an individual, the TIN is such shareholder's
social security number. If the Depositary is not provided with the correct TIN,
the shareholder may be subject to a $50 penalty imposed by the Internal Revenue
Service. In addition, payments that are made to such shareholder with respect
to Common Shares or Rights purchased pursuant to the Offer may be subject to
backup withholding of 31%.
Certain shareholders (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. In order for a foreign individual to qualify as an
exempt recipient, such individual must submit a statement, signed under
penalties of perjury, attesting to such individual's exempt status. Forms of
such statements can be obtained from the Depositary. See the enclosed
Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9 for additional instructions.
12
<PAGE>
If backup withholding applies with respect to a shareholder, the
Depositary is required to withhold 31% of any payments made to such
shareholder. Backup withholding is not an additional tax. Rather, the tax
liability of persons subject to backup withholding will be reduced by the
amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained from the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a shareholder
with respect to Common Shares or Rights purchased pursuant to the Offer, the
shareholder is required to notify the Depositary of such shareholder's correct
TIN by completing the form below certifying (a) that the TIN provided on
Substitute Form W-9 is correct (or that such shareholder is awaiting a TIN),
and (b) that (i) such shareholder has not been notified by the Internal Revenue
Service that such shareholder is subject to backup withholding as a result of a
failure to report all interest or dividends or (ii) the Internal Revenue
Service has notified such shareholder that such shareholder is no longer
subject to backup withholding.
WHAT NUMBER TO GIVE THE DEPOSITARY
The shareholder is required to give the Depositary the social security
number or employer identification number of the record holder of the Common
Shares or Rights tendered hereby. If the Common Shares or Rights are in more
than one name or are not in the name of the actual owner, consult the enclosed
Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9 for additional guidance on which number to report. If the tendering
shareholder has not been issued a TIN and has applied for a number or intends
to apply for a number in the near future, the shareholder should write "Applied
For" in the space provided for the TIN in Part I, and sign and date the
Substitute Form W-9. If "Applied For" is written in Part I and the Depositary
is not provided with a TIN within 60 days, the Depositary will withhold 31% of
all payments of the purchase price to such shareholder until a TIN is provided
to the Depositary.
13
<PAGE>
PAYER'S NAME: FIRST UNION NATIONAL BANK, DEPOSITARY
<TABLE>
<CAPTION>
<S> <C>
Social Security Number
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN OR--------------------------------
FORM W-9 THE BOX AT RIGHT Employer Identification Number
Department of the Treasury AND CERTIFY BY SIGNING AND DATING (If awaiting TIN write "Applied For")
Internal Revenue Service BELOW.
PART 2 -- For Payees Exempt from
Backup Withholding,
see the enclosed Guidelines and
complete as instructed
therein.
PAYER'S REQUEST FOR
TAXPAYER
IDENTIFICATION
NUMBER (TIN) CERTIFICATION -- UNDER PENALTIES OF
PERJURY, I CERTIFY
THAT:
(1) The number shown on this form is my
correct Taxpayer Identification Number
(or a Taxpayer Identification Number
has not been issued to me and either
(a) I have mailed or delivered an
application to receive a Taxpayer
Identification Number to the
appropriate Internal Revenue Service
("IRS") or Social Security
Administration office or (b) I intend
to mail or deliver an application in
the near future. I understand that if
I do not provide a Taxpayer
Identification Number within sixty
(60) days, 31% of all reportable
payments made to me thereafter will be
withheld until I provide a number),
and
(2) I am not subject to backup withholding
because (a) I am exempt from backup
withholding, (b) I have not been
notified by the IRS that I am subject
to backup withholding as a result of
failure to report all interest or
dividends or (c) the IRS has notified
me that I am no longer subject to
backup withholding.
CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting interest or dividends on your tax return. However, if after being
notified by the IRS that you were subject to backup withholding you received
another notification from the IRS that you are no longer subject to backup
withholding, do not cross out item (2). (Also see instructions in the enclosed
Guidelines.)
SIGNATURE: -------------------------------------- DATE: --------------- , 19-
NAME: --------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF
ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU WROTE "APPLIED FOR" IN THE SPACE
PROVIDED FOR THE TIN IN PART I OF SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I CERTIFY UNDER PENALTIES OF PERJURY THAT A TAXPAYER IDENTIFICATION NUMBER HAS
NOT BEEN ISSUED TO ME, AND EITHER (1) I HAVE MAILED OR DELIVERED AN APPLICATION
TO RECEIVE A TAXPAYER IDENTIFICATION NUMBER TO THE APPROPRIATE INTERNAL REVENUE
SERVICE CENTER OR SOCIAL SECURITY ADMINISTRATION OFFICE, OR (2) I INTEND TO MAIL
OR DELIVER AN APPLICATION IN THE NEAR FUTURE. I UNDERSTAND THAT IF I DO NOT
PROVIDE A TAXPAYER IDENTIFICATION NUMBER BY THE TIME OF PAYMENT, 31% OF ALL
REPORTABLE PAYMENTS MADE TO ME WILL BE WITHHELD.
SIGNATURE -------------------------------------- DATE --------------- , 19-
</TABLE>
14
<PAGE>
Questions and requests for assistance or additional copies of the Offer to
Purchase, Letter of Transmittal and other tender offer materials may be
directed to the Information Agent or the Dealer Manager as set forth below:
THE INFORMATION AGENT FOR THE OFFER IS:
[MACKENZIE PARTNERS, INC. LOGO]
156 Fifth Avenue
New York, NY 10010
Call Collect (212) 929-5550
or
CALL TOLL FREE (800) 322-2885
THE DEALER MANAGER FOR THE OFFER IS:
[COCHRAN, CARONIA SECURITIES LLC LOGO]
1 South Wacker Drive
Chicago, Illinois 60606
(312) 425-9335
or
CALL TOLL FREE (800) 248-8163
15
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF SHARES OF
COMMON STOCK
(INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
OF
GRYPHON HOLDINGS INC.
TO
MG ACQUISITION CORP.
A WHOLLY OWNED SUBSIDIARY OF
MARKEL CORPORATION
(NOT TO BE USED FOR SIGNATURE GUARANTEES)
This Notice of Guaranteed Delivery, or one substantially in the form
hereof, must be used to accept the Offer (as defined below) if (i) certificates
("Share Certificates") evidencing shares of common stock, par value $0.01 per
share (the "Common Shares"), of Gryphon Holdings Inc., a Delaware corporation
(the "Company"), including the associated Junior Participating Cumulative
Preferred Stock Purchase Rights (including any successors thereto, the
"Rights") issued pursuant to the Rights Agreement, dated as of June 5, 1995, as
amended as of July 28, 1998, between the Company and State Street Bank and
Trust Company, as Rights Agent (as such agreement may be further amended and
including any successor agreement, the "Rights Agreement"), are not immediately
available, (ii) time will not permit all required documents to reach First
Union National Bank, as Depositary (the "Depositary"), prior to the Expiration
Date (as defined in the Offer to Purchase) or (iii) the procedure for
book-entry transfer cannot be completed on a timely basis. All references
herein to the Common Shares shall include the associated Rights. This Notice of
Guaranteed Delivery may be delivered by hand or transmitted by telegram,
facsimile transmission or mail to the Depositary. See "Procedures for Tendering
Common Shares" of the Offer to Purchase.
THE DEPOSITARY FOR THE OFFER IS:
FIRST UNION NATIONAL BANK
FACSIMILE TRANSMISSION:
(704) 590-7628
CONFIRM BY TELEPHONE:
(704) 590-7408
<TABLE>
<S> <C> <C>
IF BY FIRST CLASS MAIL IF BY REGISTERED MAIL, CERTIFIED IF BY HAND ONLY
MAIL OR OVERNIGHT DELIVERY
First Union National Bank First Union National Bank First Union National Bank
1525 West W.T. Harris Blvd. 1525 West W.T. Harris Blvd. 5th Floor
Reorg. Department Reorg. Department 40 Broad Street
3c3-NC-1153 3c3-NC-1153 New York, NY 10004
Charlotte, NC 28288-1153 Charlotte, NC 28262
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION
OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
THIS FORM IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON A
LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN "ELIGIBLE INSTITUTION"
UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE
APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.
1
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to MG Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of Markel Corporation, a Virginia
corporation, upon the terms and subject to the conditions set forth in the
Offer to Purchase, dated October 20, 1998 (the "Offer to Purchase"), and the
related Letter of Transmittal (which, as amended from time to time, together
constitute the "Offer"), receipt of each of which is hereby acknowledged, the
number of Common Shares specified below pursuant to the guaranteed delivery
procedures described in "Procedures for Tendering Common Shares" of the Offer
to Purchase.
Number of Common Shares (including the associated Rights):
- ---------------------------------------
- ---------------------------------------
Name(s) of Record Holder(s):
- ---------------------------------------
- ---------------------------------------
(Please Type or Print)
Address(es):
- ---------------------------------------
- ---------------------------------------
(Include Zip Code)
Area Code and
Telephone Number:
- ---------------------------------------
Certificate Number(s) (if available):
- ---------------------------------------
- ---------------------------------------
Check box if Common Shares or Rights will be tendered by book-entry transfer:
[ ] The Depository Trust Company
Signature(s):
- ---------------------------------------
- ---------------------------------------
Account Number:
- ---------------------------------------
Dated: ------------------- , 19-
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office or correspondent in the
United States, hereby (a) represents that the tender of Common Shares effected
hereby complies with Rule 14e-4 of the Securities Exchange Act of 1934, as
amended, and (b) guarantees delivery to the Depositary, at one of its addresses
set forth above, of certificates evidencing the Common Shares and Rights
tendered hereby in proper form for transfer, or confirmation of book-entry
transfer of such Common Shares and Rights into the Depositary's accounts at The
Depository Trust Company, with delivery of a properly completed and duly
executed Letter of Transmittal (or facsimile thereof) with any required
signature guarantees, or an Agent's Message (as defined in "Acceptance for
Payment and Payment for Shares" of the Offer to Purchase), and any other
documents required by the Letter of Transmittal, (x) in the case of Common
Shares, within three Nasdaq National Market trading days after the date of
execution of this Notice of Guaranteed Delivery, or (y) in the case of Rights,
within a period ending the later of (i) three Nasdaq National Market trading
days after the date of execution of this Notice of Guaranteed Delivery or (ii)
three business days after the date Rights Certificates are distributed to
shareholders.
The Eligible Institution that completes this form must communicate the
guarantee to the Depositary and must deliver the Letter of Transmittal and
certificates for Common Shares and Rights to the Depositary within the time
period shown herein. Failure to do so could result in financial loss to such
Eligible Institution.
Name of Firm:
- ---------------------------------------
(Authorized Signature)
Address:
- ---------------------------------------
(Include Zip Code)
Area Code and Telephone Number:
- ---------------------------------------
Name:
- ---------------------------------------
(Please Type or Print)
Title:
- ---------------------------------------
Dated: ------------------- , 19-
NOTE: DO NOT SEND CERTIFICATES FOR COMMON SHARES OR RIGHTS WITH THIS NOTICE.
SUCH CERTIFICATES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.
2
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
OF
GRYPHON HOLDINGS INC.
AT
$18.00 NET PER SHARE
BY
MG ACQUISITION CORP.
A WHOLLY OWNED SUBSIDIARY OF
MARKEL CORPORATION
THE OFFER, AND WITHDRAWAL RIGHTS WILL EXPIRE AT 6:00 P.M.,
NEW YORK CITY TIME, ON FRIDAY, DECEMBER 4, 1998 UNLESS THE OFFER IS EXTENDED.
OCTOBER 20, 1998
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
We have been engaged by MG Acquisition Corp., a Delaware corporation
("Purchaser") and a wholly owned subsidiary of Markel Corporation, a Virginia
corporation ("Parent"), to act as Dealer Manager in connection with Purchaser's
offer to purchase all the outstanding shares of common stock, par value $0.01
per share (the "Common Shares"), of Gryphon Holdings Inc., a Delaware
corporation (the "Company"), including the associated Junior Participating
Cumulative Preferred Stock Purchase Rights (including any successors thereto,
the "Rights") issued pursuant to the Rights Agreement, dated as of June 5,
1995, as amended as of July 28, 1998, between the Company and State Street Bank
and Trust Company, as Rights Agent (as such agreement may be further amended
and including any successor agreement, the "Rights Agreement"), at a price of
$18.00 per Common Share, net to the seller in cash, without interest thereon,
upon the terms and subject to the conditions set forth in the Offer to
Purchase, dated October 20, 1998 (the "Offer to Purchase"), and the related
Letter of Transmittal (which, as amended from time to time, together constitute
the "Offer") enclosed herewith. Unless the context requires otherwise, all
references herein to Common Shares shall include the associated Rights, and all
references to the Rights shall include the benefits that may inure to the
holders of the Rights pursuant to the Rights Agreement, including the right to
receive any payment due upon redemption of the Rights. Shares of the Series A
4% Cumulative Convertible Preferred Stock (the "Preferred Shares") of the
Company may not be tendered pursuant to the Offer. In the event that a holder
of Preferred Shares wants to tender such shares pursuant to the Offer, such
holder must first convert the Preferred Shares into Common Shares pursuant to
the terms of the Preferred Shares and then tender such Common Shares pursuant
to the Offer.
Unless the Rights are redeemed prior to the Expiration Date (as defined in
the Offer to Purchase) of the Offer, holders of Common Shares will be required
to tender the associated Rights for each Common Share tendered in order to
effect a valid tender of such Common Share. Accordingly, shareholders who sell
their Rights separately from their Common Shares and do not otherwise acquire
Rights may not be able to satisfy the requirements of the Offer for the tender
of Common Shares. If the Distribution Date (as defined in the Offer to
Purchase) has not occurred prior to the Expiration Date, a tender of Common
Shares will also constitute a tender of the associated Rights. If a
Distribution Date has occurred, certificates representing a number of Rights
equal to the number of Common Shares being tendered must be delivered to the
Depositary in order for such Common Shares to be validly tendered. If a
Distribution Date has occurred, a tender of Common Shares without Rights
constitutes an agreement by the tendering shareholder to deliver certificates
representing a number of Rights equal to the number of Common Shares tendered
pursuant to the Offer to the Depositary within three Nasdaq NM trading days
after the date such certificates are distributed. Purchaser reserves the right
to require that it receive such certificates prior to accepting Common Shares
for payment. Payment for Common Shares tendered and purchased pursuant to the
Offer will be made only after timely receipt by the Depositary of, among other
things, such certificates, if such certificates have been distributed to
holders of Common Shares. Purchaser will not pay any additional consideration
for the Rights tendered pursuant to the Offer.
If a shareholder desires to tender Common Shares and Rights pursuant to
the Offer and such shareholder's Common Share Certificates (as defined in the
Offer to Purchase) or, if applicable, Rights Certificates are not immediately
available
<PAGE>
(including, if the Distribution Date has occurred and Purchaser waives that
portion of the Rights Condition requiring that a Distribution Date not have
occurred, because Rights Certificates have not yet been distributed) or time
will not permit all required documents to reach the Depositary prior to the
Expiration Date or the procedure for book-entry transfer cannot be completed on
a timely basis, such Common Shares or Rights may nevertheless be tendered
according to the guaranteed delivery procedures set forth in Section 3 of the
Offer to Purchase. See Instruction 2 of the Letter of Transmittal. Delivery of
documents to the Book-Entry Transfer Facility (as defined in the Offer to
Purchase) in accordance with the Book-Entry Transfer Facility's procedures does
not constitute delivery to the Depositary.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1) THERE BEING VALIDLY
TENDERED AND NOT PROPERLY WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A
NUMBER OF COMMON SHARES (INCLUDING THE ASSOCIATED RIGHTS) WHICH, TOGETHER WITH
SHARES OWNED BY PARENT AND PURCHASER, CONSTITUTE AT LEAST 51% OF THE COMMON
SHARES OUTSTANDING ON A FULLY DILUTED BASIS ON THE DATE OF PURCHASE, (2)
PURCHASER BEING SATISFIED, IN ITS SOLE DISCRETION, THAT, AFTER CONSUMMATION OF
THE OFFER, THE PROVISIONS OF SECTION 203 OF THE DELAWARE GENERAL CORPORATION
LAW WOULD NOT PROHIBIT FOR ANY PERIOD OF TIME, OR IMPOSE ANY VOTING REQUIREMENT
IN EXCESS OF MAJORITY SHAREHOLDER APPROVAL WITH RESPECT TO, THE PROPOSED MERGER
(AS DEFINED IN THE OFFER TO PURCHASE) OR OTHER BUSINESS COMBINATION WITH
PURCHASER OR ANY AFFILIATE OF PURCHASER, (3) THE RIGHTS HAVING BEEN REDEEMED BY
THE BOARD OF DIRECTORS OF THE COMPANY OR PURCHASER BEING SATISFIED, IN ITS SOLE
DISCRETION, THAT THE RIGHTS ARE INVALID OR OTHERWISE INAPPLICABLE TO THE OFFER
AND THE PROPOSED MERGER, AND (4) PARENT AND PURCHASER HAVING OBTAINED ALL
INSURANCE REGULATORY APPROVALS NECESSARY FOR THEIR ACQUISITION OF CONTROL OVER
THE COMPANY AND ITS INSURANCE SUBSIDIARIES ON TERMS AND CONDITIONS SATISFACTORY
TO PURCHASER, IN ITS SOLE DISCRETION.
For your information and for forwarding to your clients for whom you hold
Common Shares registered in your name or in the name of your nominee, or who
hold Common Shares registered in their own names, we are enclosing the
following documents:
1. Offer to Purchase, dated October 20, 1998;
2. Letter of Transmittal to be used by holders of shares in accepting the
Offer and tendering Common Shares and Rights;
3. Notice of Guaranteed Delivery to be used to accept the Offer if the
certificates evidencing such Common Shares and Rights are not
immediately available or time will not permit all required documents to
reach the Depositary prior to the Expiration Date or the procedure for
book-entry transfer cannot be completed on a timely basis;
4. A letter which may be sent to your clients for whose accounts you hold
Common Shares registered in your name or in the name of your nominees,
with space provided for obtaining such clients' instructions with
regard to the Offer;
5. Guidelines of the Internal Revenue Service for Certification of
Taxpayer Identification Number on Substitute Form W-9; and
6. Return envelope addressed to the Depositary.
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such
extension or amendment), Purchaser will purchase, by accepting for payment, and
will pay for, all Common Shares (and, if applicable, Rights) validly tendered
prior to the Expiration Date promptly after the later to occur of (i) the
Expiration Date and (ii) the satisfaction or waiver of all those conditions set
forth in "Certain Conditions of the Offer" of the Offer to Purchase. For
purposes of the Offer, Purchaser will be deemed to have accepted for payment,
and thereby purchased, tendered Common Shares and Rights if, as and when
Purchaser gives oral or written notice to the Depositary of Purchaser's
acceptance of such Common Shares and Rights for payment. In all cases, payment
for Common Shares and Rights purchased pursuant to the Offer will be made only
after timely receipt by the Depositary of (i) the certificates evidencing such
Common Shares and Rights or timely confirmation of a book-entry transfer of
such Common Shares and Rights, if such procedure is available, into the
Depositary's account at The Depository Trust Company pursuant to the procedures
set forth in "Procedures for Tendering Common Shares" of the Offer to Purchase,
(ii) the Letter of Transmittal (or facsimile thereof), properly completed and
duly executed, or an Agent's Message (as defined in the Offer to Purchase) and
(iii) any other documents required by the Letter of Transmittal.
<PAGE>
Purchaser will not pay any fees or commissions to any broker or dealer or
any other person (other than the Dealer Manager and the Information Agent as
described in "Fees and Expenses" of the Offer to Purchase) in connection with
the solicitation of tenders of Common Shares and Rights pursuant to the Offer.
Purchaser will, however, upon request, reimburse you for customary mailing and
handling expenses incurred by you in forwarding the enclosed materials to your
clients.
Purchaser will pay any stock transfer taxes incident to the transfer to it
of validly tendered Common Shares, except as otherwise provided in Instruction
6 of the Letter of Transmittal.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS
PROMPTLY AS POSSIBLE. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 6:00 P.M.,
NEW YORK CITY TIME, ON FRIDAY, DECEMBER 4, 1998, UNLESS THE OFFER IS EXTENDED.
In order to take advantage of the Offer, a duly executed and properly
completed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, should be sent to the
Depositary, and certificates evidencing the tendered Common Shares should be
delivered or such Common Shares and Rights should be tendered by book-entry
transfer, all in accordance with the Instructions set forth in the Letter of
Transmittal and the Offer to Purchase.
If holders of Common Shares and Rights wish to tender, but it is
impracticable for them to forward their certificates or other required
documents prior to the Expiration Date, a tender may be effected by following
the guaranteed delivery procedures specified under "Procedures for Tendering
Common Shares" of the Offer to Purchase.
Any inquiries you may have with respect to the Offer should be addressed
to the Dealer Manager or the Information Agent at their respective addresses
and telephone numbers set forth on the back cover page of the Offer to
Purchase.
Additional copies of the enclosed materials may be obtained from the
Dealer Manager or the Information Agent at their respective addresses and
telephone numbers set forth on the back cover of the Offer to Purchase.
Very truly yours,
Cochran, Caronia Securities LLC
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR
ANY OTHER PERSON AS AN AGENT OF PARENT, PURCHASER, THE DEPOSITARY, THE
INFORMATION AGENT OR THE DEALER MANAGER, OR ANY AFFILIATE OF ANY OF THE
FOREGOING, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE
ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN
THE DOCUMENTS ENCLOSED AND THE STATEMENTS CONTAINED THEREIN.
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
OF
GRYPHON HOLDINGS INC.
AT
$18.00 NET PER SHARE
BY
MG ACQUISITION CORP.
A WHOLLY OWNED SUBSIDIARY OF
MARKEL CORPORATION
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 6:00 P.M., NEW YORK
CITY TIME, ON FRIDAY, DECEMBER 4, 1998, UNLESS THE OFFER IS EXTENDED.
OCTOBER 20, 1998
To Our Clients:
Enclosed for your consideration is an Offer to Purchase, dated October 20,
1998 (the "Offer to Purchase"), and the related Letter of Transmittal (which,
as amended from time to time, together constitute the "Offer") in connection
with the offer by MG Acquisition Corp., a Delaware corporation ("Purchaser")
and a wholly owned subsidiary of Markel Corporation, a Virginia corporation
("Parent"), to purchase all of the outstanding shares of common stock, par
value $0.01 per share (the "Common Shares"), of Gryphon Holdings Inc., a
Delaware corporation (the "Company"), including the associated Junior
Participating Cumulative Preferred Stock Purchase Rights (including any
successors thereto, the "Rights") issued pursuant to the Rights Agreement,
dated as of June 5, 1995, as amended as of July 28, 1998, between the Company
and State Street Bank and Trust Company, as Rights Agent (as such agreement may
be further amended and including any successor agreement, the "Rights
Agreement"), at a price of $18.00 per Common Share, net to the seller in cash,
without interest thereon, upon the terms and subject to the conditions set
forth in the Offer. Unless context otherwise requires, all references to the
Common Shares shall include the associated Rights, and all references to the
Rights shall include the benefits that may inure to holders of the Rights
pursuant to the Rights Agreement, including the right to receive any payment
due upon redemption of the Rights. Shares of the Series A 4% Cumulative
Convertible Preferred Stock (the "Preferred Shares") of the Company may not be
tendered pursuant to the Offer. In the event that a holder of Preferred Shares
wants to tender such shares pursuant to the Offer, such holder must first
convert the Preferred Shares into Common Shares pursuant to the terms of the
Preferred Shares and then tender such Common Shares pursuant to the Offer.
Unless the Rights are redeemed prior to the Expiration Date (as defined in
the Offer to Purchase), holders of Common Shares will be required to tender the
associated Rights for each Common Share tendered in order to effect a valid
tender of such Common Share. Accordingly, shareholders who sell their Rights
separately from their Common Shares and do not otherwise acquire Rights may not
be able to satisfy the requirements of the Offer for the tender of Common
Shares. If the Distribution Date (as defined in the Offer to Purchase) has not
occurred prior to the Expiration Date, a tender of Common Shares will also
constitute a tender of the associated Rights. If a Distribution Date has
occurred, certificates representing a number of Rights equal to the number of
Common Shares being tendered must be delivered to the Depositary in order for
such Common Shares to be validly tendered. If a Distribution Date has occurred,
a tender of Common Shares without Rights constitutes an agreement by the
tendering shareholder to deliver certificates representing a number of Rights
equal to the number of Common Shares tendered pursuant to the Offer to the
Depositary within three Nasdaq National Market trading days after the date such
certificates are distributed. Purchaser reserves the right to require that it
receive such certificates prior to accepting Common Shares for payment. Payment
for Common Shares tendered and purchased pursuant to the Offer will be made
only after timely receipt by the Depositary of, among other things, such
certificates, if such certificates have been distributed to holders of Common
Shares. Purchaser will not pay any additional consideration for the Rights
tendered pursuant to the Offer.
If a shareholder desires to tender Common Shares and Rights pursuant to
the Offer and such shareholder's Common Share Certificates (as defined in the
Offer to Purchase) or, if applicable, Rights Certificates are not immediately
available
<PAGE>
(including, if the Distribution Date has occurred and Rights Certificates have
not yet been distributed) or time will not permit all required documents to
reach the Depositary prior to the Expiration Date or the procedure for
book-entry transfer cannot be completed on a timely basis, such Common Shares
or Rights may nevertheless be tendered according to the guaranteed delivery
procedures set forth in Section 3 of the Offer to Purchase. See Instruction 2
of the Letter of Transmittal. Delivery of documents to the Book-Entry Transfer
Facility (as defined in the Offer to Purchase) in accordance with the
Book-Entry Transfer Facility's procedures does not constitute delivery to the
Depositary.
THE MATERIAL IS BEING SENT TO YOU AS THE BENEFICIAL OWNER OF COMMON SHARES
HELD BY US FOR YOUR ACCOUNT BUT NOT REGISTERED IN YOUR NAME. WE ARE THE HOLDER
OF RECORD OF COMMON SHARES HELD BY US FOR YOUR ACCOUNT. A TENDER OF SUCH COMMON
SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR
INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR
INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER COMMON SHARES HELD BY US
FOR YOUR ACCOUNT.
We request instructions as to whether you wish to have us tender on your
behalf any or all of the Common Shares held by us for your account, upon the
terms and subject to the conditions set forth in the Offer.
Your attention is invited to the following:
1. The tender price is $18.00 per Common Share, net to the seller in
cash, without interest thereon.
2. The Offer and withdrawal rights will expire at 6:00 p.m., New York
City time, on Friday, December 4, 1998, unless the Offer is extended.
3. The Offer is being made for all of the outstanding Common Shares.
4. The Offer is conditioned upon, among other things, (1) there being
validly tendered and not properly withdrawn prior to the expiration of the
Offer a number of Common Shares (including the associated Rights) which,
together with shares owned by Parent and Purchaser, constitute at least 51%
of the Common Shares outstanding on a fully diluted basis on the date of
purchase, (2) Purchaser being satisfied, in its sole discretion, that,
after consummation of the Offer, the provisions of Section 203 of the
Delaware General Corporation Law would not prohibit for any period of time,
or impose any voting requirement in excess of majority shareholder approval
with respect to, the Proposed Merger (as defined in the Offer to Purchase)
or other business combination with Purchaser or any affiliate of Purchaser,
and (3) the Rights having been redeemed by the Board of Directors of the
Company or Purchaser being satisfied, in its sole discretion, that the
Rights are invalid or otherwise inapplicable to the Offer and the Proposed
Merger, and (4) Parent and Purchaser having obtained all insurance
regulatory approvals necessary for their acquisition of control over the
Company and its insurance subsidiaries on terms and conditions satisfactory
to Purchaser, in its sole discretion.
5. Tendering shareholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, stock transfer taxes on the purchase of Common Shares by
Purchaser pursuant to the Offer.
The Offer is made solely by the Offer to Purchase and the related Letter
of Transmittal and is being made to all holders of Common Shares. Purchaser is
not aware of any state where the making of the Offer is prohibited by
administrative or judicial action pursuant to any valid state statute. If
Purchaser becomes aware of any valid state statute prohibiting the making of
the Offer or the acceptance of Common Shares pursuant thereto, Purchaser will
make a good faith effort to comply with such state statute. If, after such good
faith effort, Purchaser cannot comply with such state statute, the Offer will
not be made to (nor will tenders be accepted from or on behalf of) the holders
of Common Shares in such state. In any jurisdiction where the securities, blue
sky or other laws require the Offer to be made by a licensed broker or dealer,
the Offer shall be deemed to be made on behalf of Purchaser by the Dealer
Manager or one or more registered brokers or dealers licensed under the laws of
such jurisdiction.
If you wish to have us tender any or all of your Common Shares, please so
instruct us by completing, executing and returning to us the instruction form
contained in this letter. An envelope in which to return your instructions to
us is enclosed. If you authorize the tender of your Common Shares, all such
Common Shares will be tendered unless otherwise specified on the instruction
form set forth in this letter. YOUR INSTRUCTIONS SHOULD BE FORWARDED TO US IN
AMPLE TIME TO PERMIT US TO SUBMIT A TENDER ON YOUR BEHALF PRIOR TO THE
EXPIRATION OF THE OFFER.
<PAGE>
INSTRUCTIONS WITH RESPECT TO THE OFFER
TO PURCHASE FOR CASH ALL OF THE OUTSTANDING SHARES OF COMMON STOCK
OF
GRYPHON HOLDINGS INC.
The undersigned acknowledge(s) receipt of your letter and the enclosed
Offer to Purchase, dated October 20, 1998, and the related Letter of
Transmittal (which, as amended from time to time, together constitute the
"Offer"), in connection with the offer by MG Acquisition Corp., a Delaware
corporation ("Purchaser") and a wholly owned subsidiary of Markel Corporation,
a Virginia corporation ("Parent"), to purchase all of the outstanding shares of
common stock, par value $0.01 per share (the "Common Shares"), of Gryphon
Holdings Inc., a Delaware corporation (the "Company"), including the associated
Junior Participating Cumulative Preferred Stock Purchase Rights (including any
successors thereto, the "Rights") issued pursuant to the Rights Agreement,
dated as of June 5, 1995, as amended as of July 28, 1998, between the Company
and State Street Bank and Trust Company, as Rights Agent (as such agreement may
be further amended and including any successor agreement, the "Rights
Agreement"). Unless the context otherwise requires, all references to the
Common Shares shall include the associated Rights, and all references to the
Rights shall include the benefits that may inure to holders of the Rights
pursuant to the Rights Agreement, including the right to receive any payment
due upon redemption of the Rights.
This will instruct you to tender to Purchaser the number of Common Shares
and Rights indicated below (or, if no number is indicated in either appropriate
space below, all Common Shares and Rights) held by you for the account of the
undersigned, upon the terms and subject to the conditions set forth in the
Offer.
NUMBER OF COMMON SHARES AND RIGHTS TO BE TENDERED:*
- ------------------- Common Shares and Rights
Account Number: -------------------
Dated: --------------- , 19-
Sign Here:
- --------------------------------------
Signature(s)
- --------------------------------------
Please type or print name(s)
- --------------------------------------
Please type or print address(es) here
- --------------------------------------
Area Code and Telephone Number
- --------------------------------------
Taxpayer Identification or Social Security Number(s)
- ---------
* Unless otherwise indicated, it will be assumed that all Common Shares and
Rights held by us for your account are to be tendered.
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER -- Social Security numbers have nine digits separated by two hyphens:
i.e. 000-00-0000. Employer identification numbers have nine digits separated by
only one hyphen: i.e., 00-0000000. The table below will help determine the
number to give the payer.
<TABLE>
<CAPTION>
GIVE THE TAXPAYER
FOR THIS TYPE OF ACCOUNT IDENTIFICATION NUMBER OF -
- -------------------------------------------------- ------------------------------------------------------------------------------
<S> <C>
1. An individual's account The individual
2. Two or more individuals The actual owner of the account or, if combined funds, the first
(joint account) individual on the account(1)
3. Husband and wife The actual owner of the account or, if joint funds, either person(1)
(joint account)
4. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
5. Adult and minor (joint account) The adult or, if the minor is the only contributor, the minor(1)
6. Account in the name of guardian or The ward, minor, or committee for a designated ward, incompetent(3)
minor, or incompetent person(3)
7. a. The usual revocable savings trust account The grantor-trustee(1)
(grantor is also trustee)
b. So-called trust account that is not a legal The actual owner(1)
or valid trust under State law
8. Sole proprietorship account The owner(4)
9. A valid trust, estate or pension trust The legal entity (Do not furnish the identifying number of the personal
representative or trustee unless the legal entity itself is not designated in
the account title.)(5)
10. Corporate account The corporation
11. Religious, charitable, or The organization
educational organization account
12. Partnership account held in the The partnership
name of the business
13. Association, club, or other tax-exempt The organization
organization
14. A broker or registered nominee The broker or nominee
15. Account with the Department of Agriculture The public entity
in the name of a public entity (such as a
State or local government, school district, or
prison) that receives agricultural
program payments
</TABLE>
- ---------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number or employer identification number.
(4) Show your individual name. You may also enter your business name. You may
use your social security number or employer identification number.
(5) List first and circle the name of the legal trust, estate, or pension
trust.
NOTE: If no name is circled when there is more than one name, the number
will be considered to be that of the first name listed.
OBTAINING A NUMBER
If you do not have a taxpayer identification number or you do not know
your number, obtain Form SS-5, Application for a Social Security Number Card
(for individuals), or Form SS-4, Application for Employer Identification Number
(for businesses and all other entities), at the local office of the Social
Security Administration or the Internal Revenue Service and apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include
the following:
o A corporation.
o A financial institution.
o An organization exempt from tax under section 501(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), or an individual retirement plan.
<PAGE>
o The United States or any agency or instrumentality thereof.
o A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
o A foreign government, a political subdivision of a foreign government, or any
agency or instrumentality thereof.
o An international organization or any agency or instrumentality thereof.
o A registered dealer in securities or commodities registered in the U.S. or a
possession of the U.S.
o A real estate investment trust.
o A common trust fund operated by a bank under section 584(a) of the Code.
o An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
o An entity registered at all times under the Investment Company Act of 1940.
o A foreign central bank of issue.
o A futures commission merchant registered with the Commodity Futures Trading
Commission.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
o Payments to nonresident aliens subject to withholding under section 1441 of
the Code.
o Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
o Payments of patronage dividends where the amount received is not paid in
money.
o Payments made by certain foreign organizations.
o Payments made to an appropriate nominee.
o Section 404(k) payments made by an ESOP.
Payments of interest not generally subject to backup withholding include the
following:
o Payments of interest on obligations issued by individuals.
NOTE: You may be subject to backup withholding if this interest is $600 or
more and is paid in the course of the payer's trade or business and you have
not provided your correct taxpayer identification number to the payer.
o Payments of tax-exempt interest (including exempt-interest dividends under
section 852 of the Code).
o Payments described in section 6049(b)(5) of the Code to nonresident aliens.
o Payments on tax-free covenant bonds under section 1451 of the Code.
o Payments made by certain foreign organizations.
o Payments of mortgage interest to you.
o Payments made to an appropriate nominee.
EXEMPT PAYEES DESCRIBED ABOVE SHOULD FILE SUBSTITUTE FORM W-9 TO AVOID POSSIBLE
ERRONEOUS BACKUP WITHHOLDING. FILE THIS FORM WITH THE PAYER. FURNISH YOUR
TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND
RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE
DIVIDENDS, ALSO SIGN AND DATE THE FORM. IF YOU ARE A NONRESIDENT ALIEN OR A
FOREIGN ENTITY NOT SUBJECT TO BACKUP WITHHOLDING, FILE WITH PAYER A COMPLETED
INTERNAL REVENUE FORM W-8 (CERTIFICATE OF FOREIGN STATUS).
Certain payments other than interest, dividends, and patronage dividends, that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
PRIVACY ACT NOTICE -- Section 6109 requires most recipients of dividend,
interest, or other payments to give correct taxpayer identification numbers to
payers who must report the payments to the IRS. The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file a tax return. Payers must generally withhold
31% of taxable interest, dividend, and certain other payments to a payee who
does not furnish a correct taxpayer identification number to a payer. Certain
penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER -- If
you fail to furnish your correct taxpayer identification number to a payer, you
are subject to a penalty of $50 for each such failure unless your failure is
due to reasonable cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS -- If you
fail to include any portion of an includible payment for interest, dividends,
or patronage dividends in gross income, such failure will be treated as being
due to negligence and will be subject to a penalty of 20% on any portion of an
underpayment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING -- If
you make a false statement with no reasonable basis that results in no
imposition of backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION -- Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL
REVENUE SERVICE
Exhibit (a)(7)
Contact: Steven Markel Fred Spar/Josh Rosen
Markel Corporation Kekst and Company
(804) 965-1675 (212) 521-4800
FOR IMMEDIATE RELEASE
---------------------
MARKEL CORPORATION ANNOUNCES $18 PER SHARE ALL-CASH
TENDER OFFER FOR GRYPHON HOLDINGS
RICHMOND, VA, OCTOBER 20, 1998 - Markel Corporation (NYSE:MKL) today announced
an all-cash tender offer for all common shares of Gryphon Holdings Inc.
(NASDAQ:GRYP) at a price of $18.00 per share. The all-cash offer commences today
and is scheduled to expire at 6:00 p.m., New York City time, on Friday, December
4, 1998, unless extended.
Markel Vice Chairman Steven Markel said: "We believe this offer is in the best
interests of the shareholders of Gryphon. It is both fair and generous as it
represents a premium of $6.38 or 55% over the price of Gryphon's common stock on
the day prior to our September 1 letter to Gryphon's Board of Directors, and a
premium of $4.00 or 29% over the price of Gryphon common stock on the day prior
to our October 1 letter."
"Since January of 1998, we have attempted on numerous occasions, to hold
meaningful, good faith discussions with Gryphon. We are announcing this tender
offer after our previous efforts, including two bona fide merger offers, failed
to produce meaningful discussions."
"We are confident that the combination of Markel and Gryphon can achieve
substantial benefits for all concerned. Our lines of business, particularly in
the excess and surplus niches, are highly complementary, and we have high regard
for Gryphon's underwriting capabilities. Markel's size and financial strength
will enhance Gryphon's ability to attract and retain business in today's highly
competitive insurance industry environment. Our presence as a market leader and
our excellent historical financial results make us the ideal partner for Gryphon
and all of its constituencies."
The offer is not conditioned upon Markel obtaining financing. The offer is
conditioned upon redemption of Gryphon's poison pill, receipt of required
regulatory approval, there being validly tendered and not withdrawn a number of
shares of Gryphon common stock, which together with shares owned by Markel,
constitute at least 51% of the outstanding shares of Gryphon common stock on a
fully diluted basis and other customary conditions.
Markel also announced that it is commencing litigation in the Delaware Chancery
Court to ensure that Gryphon stockholders will have the opportunity to receive
the benefits of Markel's offer.
Markel has retained MacKenzie Partners, Inc. as the Information Agent and
Cochran, Caronia Securities LLC as the Dealer Manager.
Markel Corporation markets and underwrites specialty insurance products and
programs to a variety of niche markets. In each of these markets, the Company
seeks to provide quality products and excellent customer service so that it can
be a market leader. The financial goals of the Company are to earn consistent
underwriting profits and superior investment returns to build shareholder value.
This news release does not constitute an offer to purchase any securities, nor a
solicitation of a proxy, consent, authorization or agent designation for or with
respect to a meeting of the shareholders of Gryphon Holdings Inc. or Markel
Corporation or any action in lieu of a meeting. Any solicitation will be made
only pursuant to separate materials in compliance with the requirements of
applicable federal and state securities laws.
# # #
This announcement is neither an offer to purchase nor a solicitation of an offer
to sell Common Shares or Rights. The Offer is made solely by the Offer to
Purchase Dated October 20, 1998 and the related Letter of Transmittal and is not
being made to (nor will tenders be accepted from or on behalf of) holders of
Common Shares or Rights in any jurisdiction in which the making of the Offer or
the acceptance thereof would not be in compliance with the laws of such
jurisdiction. In any jurisdiction where the securities, blue sky or other laws
require the Offer to be made by a licensed broker or dealer, the Offer shall be
deemed to be made on behalf of the Purchaser by Cochran, Caronia Securities LLC
or one or more registered brokers or dealers licensed under the laws of such
jurisdiction.
Notice of Offer to Purchase for Cash
All Outstanding Shares of Common Stock
(including the associated Preferred Stock Purchase Rights)
of
Gryphon Holdings Inc.
at
$18.00 Per Share
by
MG Acquisition Corp.
a wholly owned subsidiary of
Markel Corporation
MG Acquisition Corp. ("Purchaser"), a Delaware corporation and a wholly
owned subsidiary of Markel Corporation, a Virginia corporation ("Parent"), is
offering to purchase all outstanding shares of common stock, par value $0.01 per
share (the "Common Shares"), of Gryphon Holdings Inc., a Delaware corporation
(the "Company"), including the associated Junior Participating Cumulative
Preferred Stock Purchase Rights (including any successors thereto, the "Rights")
issued pursuant to the Rights Agreement, dated as of June 5, 1995, as amended as
of July 28, 1998, between the Company and State Street Bank and Trust Company,
as Rights Agent (as such agreement may be further amended and including any
successor agreement, the "Rights Agreement"), at a price of $18.00 per Common
Share, net to the seller in cash, without interest thereon (the "Offer Price"),
upon the terms and subject to the conditions set forth in the Offer to Purchase
dated October 20, 1998 and in the related Letter of Transmittal (which, as
amended from time to time, together constitute the "Offer"). Unless the context
otherwise requires, all references to Common Shares shall include the associated
Rights, and all references to the Rights shall include the benefits that may
inure to holders of the Rights pursuant to the Rights Agreement referred to
above, including the right to receive any payment due upon redemption of the
Rights.
The purpose of this Offer and the proposed second-step merger is to enable
the Parent to acquire control of, and ultimately the entire equity interest in,
the Company. Parent currently intends, as soon as practicable following
consummation of the Offer, to seek to have Purchaser consummate a merger with
and into the Company with the Company continuing as the surviving corporation
(the "Proposed Merger"), pursuant to which each then remaining Common Share
outstanding (other than Common Shares owned by Parent or any of its wholly owned
subsidiaries, Common Shares held in the treasury of the Company, Common Shares
held by shareholders who have demanded and perfected, and who shall not have
withdrawn or otherwise lost, appraisal rights under the General Corporation Law
of the State of Delaware), would be converted into the right to receive an
amount of cash equal to the Offer Price.
THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 6:00 P.M., NEW YORK CITY TIME ON
FRIDAY, DECEMBER 4, 1998, UNLESS THE OFFER IS EXTENDED.
The Offer is conditioned upon, among other things, (1) there being validly
tendered and not properly withdrawn prior to the expiration of the Offer a
number of Common Shares (including the associated Rights) which, together with
Common Shares owned by the Parent and Purchaser constitute at least 51% of the
Common Shares outstanding on a fully diluted basis on the date of purchase, (2)
Purchaser being satisfied, in its sole discretion, that, after consummation of
the Offer, the provisions of Section 203 of the Delaware General Corporation Law
would not prohibit for any period of time, or impose any voting requirement in
excess of majority shareholder approval with respect to, the Proposed Merger or
other business combination with Purchaser or any affiliate of Purchaser, and (3)
the Rights having been redeemed by the Board of Directors of the Company or
Purchaser being satisfied, in its sole discretion, that the Rights are invalid
or otherwise inapplicable to the Offer and the Proposed Merger, and (4) Parent
and Purchaser having obtained all insurance regulatory approvals necessary for
their acquisition of control over the Company and its insurance subsidiaries on
terms and conditions satisfactory to Purchaser, in its sole discretion.
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment, and thereby purchased, Common Shares (including the associated Rights)
validly tendered and not properly withdrawn if, as and when Purchaser gives oral
or written notice to First Union National Bank (the "Depositary") of Purchaser's
acceptance of such Common Shares for payment. Payment for Common Shares
(including the associated Rights) accepted pursuant to the Offer will be made by
deposit of the purchase price therefor with the Depositary, which will act as
agent for tendering shareholders for the purpose of receiving payments from
Purchaser and transmitting payments to such tendering shareholders. Payment for
Common Shares purchased pursuant to the Offer will be made only after timely
receipt by the Depositary of (i) certificates for Common Shares and certificates
for Rights, if the Rights are at such time separately traded, or timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such
Common Shares (and Rights, if applicable), if such procedure is available, into
the Depositary's account at the Book-Entry Transfer Facility (as defined in the
Offer to Purchase), (ii) the Letter of Transmittal (or facsimile thereof),
properly completed and duly executed, or, in the case of a book-entry transfer,
an Agent's Message (as defined in the Offer to Purchase) and (iii) any other
documents required by the Letter of Transmittal. Under no circumstances will
interest on the purchase price for Common Shares be paid by Purchaser,
regardless of any delay in making such payment.
Any extension of the Offer will be followed as promptly as practicable by
public announcement thereof, with such announcement to be made no later than
9:00 a.m., New York City time, on the next business day after the previously
scheduled Expiration Date (as defined in the Offer to Purchase). Subject to
applicable law and without limiting the manner in which Purchaser may choose to
make any public announcement, Purchaser shall have no obligation to publish,
advertise or otherwise communicate any such public announcement other than by
issuing a press release to the Dow Jones News Service.
Tenders of Common Shares made pursuant to the Offer are irrevocable except
that Common Shares may be withdrawn at any time prior to the Expiration Date
and, unless theretofore accepted for payment by Purchaser pursuant to the Offer,
may also be withdrawn at any time after December 18, 1998. For a withdrawal to
be effective, a written, telegraphic or facsimile transmission notice of
withdrawal must be timely received by the Depositary at one of its addresses set
forth on the back cover of the Offer to Purchase. Any such notice of withdrawal
must specify the name of the person who tendered the Common Shares to be
withdrawn, the number of Common Shares to be withdrawn and the name of the
registered holder, if different from that of the person who tendered such Common
Shares. If certificates for Common Shares to be withdrawn have been delivered or
otherwise identified to the Depositary, then, prior to the physical release of
such Common Share Certificates, the serial numbers shown on such certificates
must be submitted to the Depositary and the signature(s) on the notice of
withdrawal must be guaranteed by an Eligible Institution (as defined in the
Offer to Purchase), unless such Common Shares have been tendered for the account
of an Eligible Institution. If Common Shares have been tendered pursuant to the
procedure for book-entry transfer as set forth in Section 3 of the Offer to
Purchase, any notice of withdrawal must also specify the name and number of the
account at the Book-Entry Transfer Facility to be credited with the withdrawn
Common Shares and otherwise comply with such Book-Entry Transfer Facility's
procedures. All questions as to the validity, form, eligibility (including time
of receipt) and acceptance for payment of any tendered Common Shares pursuant to
any of the procedures described above will be determined by Purchaser in its
sole discretion, whose determination will be final and binding on all parties.
None of Parent, Purchaser, the Dealer Manager, the Depositary, the Information
Agent or any other person will be under any duty to give notification of any
defects or irregularities in tenders or will incur any liability for failure to
give any such notification.
The information required to be disclosed by paragraph (e)(1)(vii) of Rule
14d-6 under the Securities Exchange Act of 1934, as amended, is contained in the
Offer to Purchase and is incorporated herein by reference.
THE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE
WITH RESPECT TO THE OFFER.
Questions and requests for assistance or for copies of the Offer to
Purchase, the related Letter of Transmittal and other tender offer documents may
be directed to the Information Agent or the Dealer Manager, as set forth below.
Copies of the tender offer documents will be furnished at the Purchaser's
expense. Neither the Parent nor the Purchaser will pay any fees or commissions
to any broker or dealer or other Person (other than the Dealer Manager, the
Depositary and the Information Agent) in connection with the solicitation of
tenders of Common Shares and Rights pursuant to the Offer.
The Information Agent for the Offer is:
[MacKenzie logo]
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect)
or
CALL TOLL-FREE (800) 322-2885
The Dealer Manager for the Offer is:
[logo]
[Cochran, Caronia Securities LLC]
1 South Wacker Drive
Chicago, Illinois 60606
(312) 425-9335 or
or
CALL TOLL-FREE (800) 248-8163
October 20, 1998
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.
<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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