18
Notice of 1997
Annual Meeting and
Proxy Statement
April 8, 1997
Dear Shareholder:
You are cordially invited to attend the Annual
Meeting of Shareholders of Gryphon Holdings Inc. to be
held at 3:30 p.m. on Thursday May 8, 1997 at The Down
Town Association, 60 Pine Street, New York City.
Notice of the meeting, a proxy card and the Proxy
Statement containing certain information about the
Company are enclosed, together with the Annual Report
to Shareholders for the year ended December 31, 1996.
At this year's meeting you will be asked to elect
three Class I Directors to serve until the Annual
Meeting of Shareholders in 2000.
We recommend that you vote for the three nominees,
whose names appear in the Proxy Statement.
Whether or not you plan to attend the meeting, it
is important that your shares be represented.
Accordingly, we request you to sign, date and mail the
enclosed proxy card in the envelope provided at your
earliest convenience.
Thank you for your cooperation and continued
support.
Sincerely,
Stephen A. Crane
President &
Chief Executive Officer
GRYPHON HOLDINGS INC.
30 Wall Street
New York, New York 10005-2201
Telephone Number: (212) 825-1200
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 8, 1997
To the Shareholders of Gryphon Holdings Inc.:
Notice is hereby given that the Annual Meeting of
Shareholders of Gryphon Holdings Inc., a Delaware corporation
(the "Company"), will be held at The Down Town Association, 60
Pine Street, New York City, on Thursday, May 8, 1997, at 3:30
p.m. for the following purposes:
1. To elect the three Class I Directors of the
Company; and
2. To transact such other business as may properly
come before the meeting or any adjournments
thereof.
The Board of Directors has fixed the close of business on
March 25, 1997 as the record date for determining shareholders
entitled to notice of and to vote at the Annual Meeting.
A proxy card and return envelope are enclosed for your
convenience.
On behalf of the Board of Directors
ROBERT M. COFFEE
Secretary
April 8, 1997
IMPORTANT
It is important that your shares be represented at the
Annual Meeting. Please complete, sign, date and mail the
enclosed proxy card promptly in the return envelope provided,
regardless of whether you plan to attend the Annual Meeting, so
that your vote may be recorded.
GRYPHON HOLDINGS INC.
30 Wall Street
New York, New York 10005-2201
Telephone Number: (212) 825-1200
PROXY STATEMENT
This Proxy Statement is being furnished to the holders of
the Common Stock, par value $.01 per share (the "Common Stock"),
of Gryphon Holdings Inc., a Delaware corporation (the "Company"),
in connection with the solicitation of proxies by the Board of
Directors for use at the Annual Meeting of Shareholders of the
Company to be held on May 8, 1997, and any adjournments thereof.
A copy of the notice of meeting accompanies this Proxy Statement.
It is anticipated that the mailing of this Proxy Statement will
commence on or about April 8, 1997.
Only holders of record of the Common Stock as of the close
of business on March 25, 1997, the record date for the Annual
Meeting, will be entitled to notice of and to vote at the Annual
Meeting. On the record date, the Company had outstanding
6,668,340 shares of Common Stock, which are the only securities
of the Company entitled to vote at the Annual Meeting, each share
being entitled to one vote. The presence in person or by proxy
of the holders of a majority of the outstanding shares of Common
Stock will constitute a quorum for the transaction of business at
the meeting.
The holders of the Common Stock (the "Shareholders") are
being asked to elect the three Class I Directors of the Company.
Shareholders who execute proxies may revoke them by giving
written notice to the Secretary of the Company at any time before
such proxies are voted. Attendance at the Annual Meeting will
not have the effect of revoking a proxy unless the Shareholder
attending the Annual Meeting files written notice of revocation
of the proxy with the Secretary of the Company at any time prior
to the voting of the proxy.
The Company will bear the cost of the Annual Meeting and the
cost of soliciting proxies, including the cost of mailing the
proxy material. In addition to solicitation by mail, directors,
officers, and regular employees of the Company (who will not be
specifically compensated for such services) may solicit proxies
by telephone or otherwise. Arrangements will be made with
brokerage houses and other custodians, nominees, and fiduciaries
to forward proxies and proxy material to their principals, and
the Company will reimburse them for their expenses, which are
anticipated not to exceed $5,000.
All proxies received from Shareholders pursuant to this
solicitation will be voted, except as to matters where authority
to vote is specifically withheld, in accordance with the
instructions contained thereon. If no instructions are given,
the persons named in the proxy solicited by the Board of
Directors of the Company intend to vote for the nominees for
election as Class I Directors of the Company.
Directors of the Company are elected by a plurality of the
votes present, in person or by proxy, and entitled to vote at the
Annual Meeting, assuming a quorum is present. Any other matters
submitted to the vote of the Shareholders shall be determined by
a majority of the votes present, in person or by proxy, and
entitled to vote at the Annual Meeting. Under applicable
Delaware law, in tabulating votes, broker non-votes will not be
considered present at the Annual Meeting.
The Board of Directors does not know of any matter other
than the matters presented herein that will be presented for
consideration at the meeting. However, if other matters properly
come before the meeting, the persons named in the accompanying
proxy intend to vote thereon in accordance with their judgment.
1. ELECTION OF DIRECTORS
The Company's By-Laws provide for a Board of Directors that
shall not be less than 3 nor more than 15 in number. The By-Laws
provide that the Board of Directors shall be divided into three
classes, as nearly equal in number as the total number of
directors constituting the entire Board of Directors permits,
with the term of office of one class expiring each year.
Currently, the Board of Directors of the Company consists of ten
directors divided into three Class I Directors, three Class II
Directors and four Class III Directors. At the Annual Meeting of
Shareholders, three Class I Directors will be elected by the
Shareholders of record as of the close of business on March 25,
1997, to serve for a term that expires at the Annual Meeting of
Shareholders in 2000.
Robert M. Baylis, Hadley C. Ford and John F. Iannucci, each
a Class I Director of the Company, have been nominated by the
Board of Directors to stand for reelection as Class I Directors,
to hold office until the Annual Meeting of Shareholders to be
held in 2000 and until their successors shall be duly elected and
shall have qualified. If any of the nominees for Class I
Directors should fail or otherwise become unavailable to serve as
a Class I Director for whatever reason, circumstances not
expected by management, the proxies will be voted for any
substitute nominee who may be selected by the Board of Directors
prior to or at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR
THE ELECTION OF THE NOMINEES FOR CLASS I DIRECTORS.
MANAGEMENT
Directors and Executive Officers
The following table provides information regarding the
Directors and Executive Officers of the Company.
Name Age Position
Stephen A. Crane 51 President, Chief Executive
Officer and Director
Hadley C. Ford 61 Chairman of the Board and
Director
John F. Iannucci 51 Executive Vice President and
Director
Robert M. Coffee 51 Senior Vice President, General
Counsel & Secretary
Robert P. Cuthbert 49 Senior Vice President & Chief
Financial Officer
Robert M. Baylis 58 Director
Franklin L. Damon 52 Director
Robert R. Douglass 65 Director
David H. Elliott 55 Director
Richard W. Hanselman 69 Director
Joe M. Rodgers 63 Director
George L. Yeager 63 Director
The Class I Directors, Messrs. Baylis, Ford, and Iannucci
were last elected for a term that expires at the Annual Meeting
of Shareholders in 1997; the Class II Directors, Messrs. Elliott,
Hanselman and Yeager, were last elected for a term that expires
at the Annual Meeting of Shareholders in 1998; and the Class III
Directors, Messrs. Crane, Damon, Douglass and Rodgers, were last
elected for a term that expires at the Annual Meeting of
Shareholders in 1999. At each Annual Meeting of Shareholders,
successors to the Directors whose term expires at that Annual
Meeting will be elected for a three-year term.
Biographical Information for Directors and Executive Officers
Set forth below are the names, positions and offices held
with the Company, and a brief account of the business experience
during the past five years, of each executive officer and nominee
for and member of the Board of Directors of the Company.
Mr. Crane has served as President, Chief Executive Officer
and a Class III Director of the Company since September 1993.
From May 1993 until December 1993, Mr. Crane served as Chairman,
Strategic Development Group--North America of Willis Corroon
Corporation, a subsidiary of Willis Corroon Group plc ("Willis
Corroon"). From November 1989 until February 1993, Mr. Crane was
President and Chief Executive Officer of G.L. Hodson & Son, Inc.,
a reinsurance intermediary and a subsidiary of Willis Corroon
Corporation.
Mr. Iannucci has served as Executive Vice President of the
Company since May 1993 and as a Class I Director of the Company
since September 1993. Mr. Iannucci has served as President of
Gryphon Insurance Group Inc. ("GIG"), a management and service
subsidiary of the Company that supports the operations of the
Company's licensed insurance subsidiaries, since January 1996; as
President and Chief Executive Officer of Associated International
Insurance Company ("Associated"), a California corporation and a
subsidiary of the Company, since 1988; and as President and Chief
Executive Officer of Calvert Insurance Company ("Calvert"), a
Pennsylvania corporation and a subsidiary of the Company, since
December 1996.
Mr. Coffee has served as Senior Vice President, General
Counsel and Secretary of the Company since November 1994. From
July 1990 until November 1994, Mr. Coffee served as Vice
President, Secretary and Assistant General Counsel of Willis
Corroon Corporation.
Mr. Cuthbert, a certified public accountant, has served as
Senior Vice President and Chief Financial Officer of the Company
since March 1994. From April 1993 to March 1994, Mr. Cuthbert
served as Senior Vice President and Chief Financial Officer of
Coregis Group, Inc., a specialty commercial insurer, and as a
Director of Mt. Airy Insurance Company, California Insurance
Company and Coregis Indemnity Company, all of which are
subsidiaries of Coregis Group, Inc. From January 1992 to May
1992, Mr. Cuthbert served as Senior Vice President and Chief
Financial Officer of Poe & Associates, Inc., an insurance
intermediary. From November 1989 to December 1991, Mr. Cuthbert
served as First Vice President, Chief Financial Officer and
Investor Relations Officer of Willis Corroon Corporation.
Mr. Baylis has served as a Class I Director of the Company
since March 1996. Mr. Baylis retired as Vice Chairman of CS
First Boston Corporation in January 1996 after 33 years of
service. Mr. Baylis served as Chairman and Chief Executive
Officer of CS First Boston Pacific from March 1993 until August
1994, and as Vice Chairman of The First Boston Corporation
("First Boston") from March 1992 until March 1993. Prior to
March 1992, Mr. Baylis was responsible for all investment banking
and merger and acquisition activities for First Boston's
financial institution clients. Mr. Baylis has served as a
Director of Home State Holdings, Inc., a personal lines property
and casualty insurance company, since December 1995; as a
Director of New York Life Insurance Company since January 1997;
as a Director of Host Marriott Corp., a hotel real estate
company, since May 1996; and as a Director of Covance Inc., a
contract research organization, since January 1997.
Mr. Damon has served as a Class III Director of the Company
since September 1993. Mr. Damon has been engaged in the practice
of law in the insurance regulatory field for more than twenty
years. From March 1991 to January 1994 he served as of counsel
to the law firm of Sullivan, Roche & Johnson. Since 1986,
Mr. Damon has served as Chairman of the Lawyers Professional
Liability Insurance Committee of the Los Angeles County Bar
Association, and he is presently Special Counsel to the Los
Angeles County Bar Association.
Mr. Douglass has served as a Class III Director of the
Company since September 1993. Since December 1993, Mr. Douglass
has served as of counsel to the law firm of Milbank, Tweed,
Hadley & McCloy. From 1985 until 1993, Mr. Douglass
served as Vice Chairman and as a Director of The Chase Manhattan
Corporation and its principal subsidiary, The Chase Manhattan
Bank, N.A. (collectively "Chase Manhattan"), which he joined in
1976. Mr. Douglass served as Senior Customer Planning and
Development Officer of Chase Manhattan from 1990 until 1993. Mr.
Douglass served as a Director of Home Holdings Inc. from 1993 to
1995. Mr. Douglass has served as a Director of HRE Properties, a
real estate investment trust, since January 1992 and as Chairman
of the Board of Cedel since May 1994.
Mr. Elliott has served as a Class II Director of the Company
since April 1994. Mr. Elliott has served as Chairman of MBIA
Inc. and its operating company, MBIA Insurance Corporation,
(collectively, "MBIA") since January 1994, as Chief Executive
Officer of MBIA since January 1992 and as a Director of MBIA
since March 1988. Mr. Elliott served as President of MBIA from
January 1987 through December 1994 and as Chief Operating Officer
of MBIA from January 1987 to December 1991. Mr. Elliott has
served as a Director of the National Legal Center for the Public
Interest since 1991.
Mr. Ford has served as the Chairman of the Board and as a
Class I Director of the Company since September 1993. Mr. Ford
is an independent management consultant who has also served as a
Senior Advisor to the insurance industry practice of Andersen
Consulting since October 1992. From 1965 to 1992, Mr. Ford was
employed by BoozAllen & Hamilton, most recently as a Director and
Senior Vice President in charge of the firm's insurance industry
practice. Mr. Ford has served as a Director of U.S. Homecare
Inc. since 1994.
Mr. Hanselman has served as a Class II Director of the
Company since September 1993. Mr. Hanselman has served as a
Director of Arvin Industries, Inc., an automotive supplier, since
1983; a Director of Becton Dickenson & Co., a medical and
diagnostic equipment manufacturer, since 1981; a Director of BEC
Group Inc., an eyeware company, since 1994; a Director of
Bradford Funds Inc., a money market fund, since 1987; a Director
of the Foundation Health Corporation, a health maintenance
organization, since 1990; and as a Director of Imco Recycling
Inc., an aluminum recycler, since 1992. Mr. Hanselman served as
a Director of Lifetime Corp., a home healthcare provider, from
December 1992 to July 1993.
Mr. Rodgers has served as a Class III Director of the
Company since September 1993. Mr. Rodgers has served as a
Director of AMR Corporation/American Airlines, Inc. since January
1989; a Director of Gaylord Entertainment Company since October
1991; a Director of Lafarge Corporation, a cement and
construction materials company, since May 1989; a Director of
Suntrust Bank, Nashville, N.A. since October 1989; a Director of
Thomas Nelson, Inc., a publishing company, since August 1992; a
Director of Tractor Supply Company since April 1995; and as a
Director of Willis Corroon Group plc, a worldwide insurance
intermediary, since October 1990. Mr. Rodgers served as a
Director of BellSouth Telecommunications, Inc. from April 1990
until July 1996; as a Director of Berlitz International, Inc.
("Berlitz") from June 1990 until December 1991, and as Chairman
and Chief Executive of Berlitz from December 1991 until February
1993.
Mr. Yeager has served as a Class II Director of the Company
since October 1993. Mr. Yeager was Senior Vice President and
Chief Underwriting Officer for the Crum and Forster Insurance
Companies, currently known as Talegen Holdings Inc. ("Talegen"),
from 1986 to 1992. Mr. Yeager was a Director of United States
Fire Insurance Company, North River Insurance Company,
Westchester Fire Insurance Company, International Insurance
Company and Constitution Reinsurance Company, all of which were
subsidiaries of Talegen. Mr. Yeager has served since 1994 as a
Director of American E&S, a subsidiary of Acordia, Inc.
Mr. Yeager also served on the Board of Governors for the National
Council of Compensation Insurance from 1988 to 1992; as a
Director of Insurance Services Office from 1990 to 1992; as a
Director of American Nuclear Institute from 1990 to 1992; and as
a Director of Industrial Risk Insurance from 1991 to 1992.
Except for certain severance agreements and indemnification
agreements, none of the executive officers has an agreement
relating to the terms of his employment with the Company. See
"Certain Relationships and Related Transactions."
Mr. Damon represents the Company from time to time in
connection with certain insurance regulatory matters, primarily
in the State of California. For such services, Mr. Damon
received $51,875 and $111,538 for 1996 and 1995, respectively.
Mr. Ford received a fee of $20,000 in 1995 for strategic planning
consulting services provided to management.
All of the executive officers and Directors of the Company
are citizens of the United States of America. There are no
material proceedings to which any Director or executive officer
or any associate of any such Director or executive officer is a
party adverse to the Company or any of its subsidiaries or has a
material interest adverse to the Company or any of its
subsidiaries.
Board of Directors
The Board of Directors has the responsibility for establishing
broad corporate policies and for the overall affairs of the
Company. Members of the Board are kept informed of the Company's
business by various reports provided to them by management, as
well as by operating and financial reports made at Board and
Committee meetings by the President and other executive officers
of the Company.
Committees of the Board
The Board has established an Audit Committee, a Compensation
Committee, an Executive Committee, a Governance Committee and an
Investment Committee. The Audit Committee reviews the services
provided by the Company's independent public accountants,
consults with such accountants on audits and proposed audits and
reviews the need for internal auditing procedures and the
adequacy of internal controls. The Compensation Committee
establishes and reviews the overall compensation policy of the
Company, determines the specific terms and conditions of
employment of senior executives of the Company and oversees the
employee benefit programs of the Company. See "Report of the
Compensation Committee." The Executive Committee, during the
interim between meetings of the Board, has been delegated certain
authority of the Board. The Governance Committee reviews and
makes recommendations to the Board regarding: (i) the role and
effectiveness of the Board and its Committees, (ii) criteria for
membership on the Board and (iii) individual candidates for
membership on the Board. The Governance Committee also seeks
potential nominees for Board membership in various ways and will
consider suggestions submitted by Shareholders. Such
suggestions, together with appropriate biographical information,
should be submitted to the Secretary of the Company. The
Investment Committee determines the Company's investment policy
and reviews the performance of the Company's investment managers.
The Audit Committee consists of Messrs. Damon, Douglass,
Rodgers (Chairman) and Yeager. The Compensation Committee
consists of Messrs. Douglass (Chairman), Ford, Hanselman and
Rodgers. The Executive Committee consists of Messrs. Crane
(Chairman), Ford and Iannucci. The Governance Committee consists
of Messrs. Crane, Douglass, Ford (Chairman) and Hanselman. The
Investment Committee consists of Messrs. Baylis, Crane, Elliott
and Hanselman (Chairman).
Attendance of Directors
During 1996, the Board of Directors held four meetings; the
Audit Committee held four meetings; the Compensation Committee
held five meetings; the Executive Committee held no meetings; and
the Investment Committee held four meetings. The Governance
Committee, which was established in March of 1996, held one
meeting. All directors attended 75% or more of the meetings of
the Board and the committees on which they served.
COMPENSATION OF DIRECTORS
Directors of the Company who are employees of the Company
and its affiliates receive no directors' fees. Non-employee
Directors are paid an annual retainer of $20,000, plus $1,000 per
day for attendance at each Board of Directors meeting and for
attendance at meetings of committees of the Board of Directors
occurring on days other than days of Board meetings. The
Chairmen of the Audit Committee, the Compensation Committee and
the Investment Committee receive an annual fee of $3,000 for
serving in such capacity. The Chairman of the Board receives,
effective as of January 1, 1996, an additional annual retainer of
$20,000 for services rendered in such capacity. Non-employee
Directors receive $500 for each meeting of the Board of Directors
or any of its committees in which they participate by telephone.
In addition, all Directors are reimbursed for their reasonable
travel expenses incurred in attending these meetings.
Under the terms of the 1995 Non-Employee Director Stock
Option Plan (the "Directors' Plan"), each Director of the Company
who is not an employee of the Company is entitled to the grant,
on the later of (i) May 12, 1995 or (ii) the date on which such
Director is first elected to the Board, of an initial option to
purchase 10,000 shares of Common Stock. Options under the
Directors' Plan are granted at the fair market value of such
shares on the date of grant and become exercisable in four equal
annual installments commencing on the day immediately preceding
the second anniversary of the date of grant. Options remain
outstanding for ten years from the date of grant, unless
terminated earlier in the event of death, disability, retirement
or other circumstances detailed in the Directors' Plan. On the
fifth anniversary of the date of the initial grant and continuing
on each subsequent anniversary of such date during a Director's
tenure on the Board, such Director will be granted an option to
purchase an additional 2,000 shares of Common Stock or such
lesser proportionate amount as then remains available for grant.
An aggregate of 100,000 shares of Common Stock have been
authorized for issuance upon the exercise of options under the
terms of the Directors' Plan.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee, which is composed of four
independent outside Directors, is responsible for the
establishment and review of the overall compensation policy of
the Company, the general oversight of the employee benefits plans
maintained by the Company and the specific terms and conditions
of employment of senior executives of the Company.
It is the overall policy of the Compensation Committee to
align the interests of management with those of the Shareholders
by making a significant portion of executive compensation depend
upon the Company's performance. The Company's compensation
programs emphasize the following basic principles:
Compensation should be linked to the creation of value for
Shareholders, and executives should be encouraged to acquire
ownership in the Company;
Compensation programs should be designed to attract,
motivate and retain executives with the requisite skills to
effectively pursue the Company's strategic objectives; and
Compensation programs should reward individual performance
through an appropriate balance of base salary, annual bonus
awards and long-term equity incentives.
Compensation Program
The Company's executive compensation program consists of
three major components: base salary, annual bonus awards and long-
term equity incentives. Each of these components supports the
Company's overall compensation policy, which relates pay to
performance.
Base Salary
Amounts paid in base salary, including periodic increases,
are determined primarily by the scope of the executive's
responsibilities, his performance and the salaries offered within
the industry for comparable positions. In connection with its
overall evaluation of the foregoing factors, the Compensation
Committee draws upon its members' general knowledge of
compensation practices within the insurance and financial
services industries and periodically reviews compensation data
regarding other insurance companies, including a peer group of
comparably sized property and casualty insurance companies
established by the Compensation Committee specifically for this
purpose.
Annual Bonus Awards
Annual bonus awards earned by executives are based upon
their achievement of performance objectives established by the
Compensation Committee at the beginning of each fiscal year that
link potential bonus awards to the enhancement of Company
earnings and overall profitability. The Compensation Committee
believes that the use of predetermined performance objectives
provides an excellent link between the value created for
Shareholders and the incentives paid to executives.
Long-Term Equity Incentives
Certain executives of the Company may earn equity-based
incentive awards, the ultimate value of which is related to the
long-term performance of the Company's Common Stock. Long-term
equity incentives may take the form of stock options or
restricted stock.
Stock options have been the principal vehicle of the Company
for the payment of long-term incentive compensation. Stock
options granted to executives under the Company's 1993 Stock
Option Plan provide incentives to executives by giving them a
strong economic interest in building value for Shareholders.
Stock options become exercisable in annual installments
commencing two years after the date of grant, and the exercise
price of each option is the fair market value of the Company's
Common Stock on the date of grant. As a result, executives
benefit from options only through a rise over time in the market
value of the underlying shares.
Restricted stock also motivates executives by providing
incentives tied to Shareholder value. Restricted stock granted
to executives under the Company's Restricted Stock Plan is
subject to restrictions on its transfer that lapse in annual
installments commencing two years following the date of grant.
Accordingly, the ultimate value of restricted stock awards is
linked to the performance of the Company's Common Stock over an
extended period.
Long-term equity incentives are granted by the Compensation
Committee based upon an executive's position and his or her
ability to contribute to the future performance of the Company.
The Compensation Committee is responsible for determining the
form and terms of all such awards.
Compensation of the Chief Executive Officer
The overall compensation of the Chief Executive Officer (the
"CEO") reflects the Compensation Committee's evaluation of (i)
the Company's performance as measured by operating, financial and
strategic objectives, viewed from both a short-term and a long-
term perspective, (ii) the CEO's individual performance in
pursuing the foregoing objectives and (iii) the compensation paid
to chief executive officers of other companies of similar size
and complexity in the insurance and financial services
industries.
In January of 1996, the Compensation Committee approved an
increase in the CEO's base salary for 1996 from $300,000 to
$330,000 in light of its evaluation of the foregoing factors. In
May of 1996, the Compensation Committee approved the award of
stock options to 30 key employees, including an option granted to
the CEO to purchase 25,000 shares of the Company's Common Stock
at the then-current market value of $17.44 per share. No other
long-term equity incentive awards were granted to the CEO during
1996. In February of 1997, the Compensation Committee determined
that the Company had not met certain predetermined objectives
established by the Compensation Committee for 1996. Accordingly,
annual bonuses for 1996 were not paid to certain senior
executives of the Company, including the CEO.
Internal Revenue Code Section 162(m)
Section 162 (m) of the Internal Revenue Code of 1986, as
amended (the "Code"), generally disallows a tax deduction to
public companies for compensation over $1 million paid to the CEO
or to any of the other highly compensated executive officers
named in the Company's annual proxy statement. Qualifying
"performance-based compensation" and compensation paid pursuant
to plans or agreements adopted or entered into prior to a
company's initial public offering of securities or subsequently
approved by its shareholders will not be subject to the foregoing
deduction limitation, if certain requirements are met. The
Compensation Committee believes that the compensation to be paid
in 1997 to any of the Company's executive officers will not
exceed the foregoing deduction limitation.
The Company has established and maintains compensation
programs that align the interests of management with those of the
Shareholders and that comply with the principles set forth in
this report. The Compensation Committee intends to take
appropriate actions consistent with such principles to avoid the
unnecessary loss of future deductions under Section 162(m) of the
Code.
COMPENSATION COMMITTEE
Robert R. Douglass, Chairman
Hadley C. Ford
Richard W. Hanselman
Joe M. Rodgers
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee is a former or
current executive officer or employee of the Company or any of
its subsidiaries, nor does any executive officer of the Company
serve as an officer, director or member of a compensation
committee of any entity, one of whose executive officers or
directors is a director of the Company.
EXECUTIVE COMPENSATION
The following information relates to the annual and long-
term compensation paid by the Company and its subsidiaries in
connection with the three fiscal years ending December 31, 1996,
1995 and 1994 to the Chief Executive Officer of the Company and
the four other executive officers of the Company whose earnings
exceeded $100,000 for the fiscal year ended December 31, 1996.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
Securities
Underlying All Other
Name and Principal Position Year Salary Bonus Options Compensation (5)
<S> <C> <C> <C> <C> <C>
Stephen A. Crane 1996 $ 330,000 $0 25,000 $18,796
President & Chief Executive Officer 1995 300,000 300,000 0 18,874
1994 300,000 0 0 13,530
John F. Iannucci 1996 245,000 0 20,000 19,812
Executive Vice President 1995 235,000 263,313(4) 0 19,434
1994 225,000 120,000 0 19,440
John H. Walton (1) 1996 200,000 0 15,000 21,605
Executive Vice President 1995 190,000 115,000 0 20,598
1994 180,000 113,500 0 20,604
Robert M. Coffee (2) 1996 140,000 0 5,000 15,199
Senior Vice President & 1995 132,500 32,500 0 10,263
General Counsel 1994 20,034 0 15,000 842
Robert P. Cuthbert (3) 1996 188,000 0 5,000 14,862
Senior Vice President & Chief 1995 180,000 108,000 0 11,686
Financial Officer 1994 129,938 75,000 30,000 10,091
_____________________
(1) Mr. Walton resigned in December 1996 as an officer and
Director of the Company and its subsidiaries.
(2) Mr. Coffee joined the Company in November of 1994.
(3) Mr. Cuthbert joined the Company in March of 1994.
(4) In accordance with the terms of the Annual Incentive Plan
for Key Employees of Gryphon Holdings Inc. and its
Subsidiaries, the portion of the bonus payable to Mr.
Iannucci for 1995 that exceeded his base salary for 1995 was
paid to him in shares of Common Stock. Accordingly, Mr.
Iannucci received 1,500 shares of Common Stock based upon
the fair market value of the shares on March 4, 1996, the
date of the award. These shares, which are not subject to
forfeiture, may not be sold or otherwise transferred by Mr.
Iannucci pending the lapse of a restriction on their
transfer. This restriction will lapse with respect to 25%
of the shares on the second anniversary of the date of the
award and with respect to an additional 25% of the shares on
each of the next three anniversaries of such date. Pending
the lapse of this restriction, Mr. Iannucci enjoys all other
rights of a Shareholder of the Company with respect to such
shares.
(5) These amounts for 1996, 1995 and 1994, respectively,
represent (i) premiums paid by the Company for term life
insurance policies as follows: Mr. Crane $1,440, $1,440 and
$870; Mr. Coffee $1,207, $881 and $42; Mr. Cuthbert $870,
$766 and $515; Mr. Iannucci $1,320, $864 and $864; and Mr.
Walton $2,213, $1,128 and $1,128; (ii) contributions by the
Company under the Gryphon Holdings 401(k) & Profit Sharing
Plan as follows: Mr. Crane $13,992, $14,070 and $9,576;
Mr. Coffee $13,992, $9,382 and $800; Mr. Cuthbert $13,992,
$10,920 and $9,576; Mr. Iannucci $13,992, $14,070 and
$14,076; and Mr. Walton $13,992, $14,070 and $14,076; and
(iii) the value attributed to the use of a Company
automobile as follows: Mr. Crane $3,364, $3,364 and $3,084;
Mr. Iannucci $4,500, $4,500 and $4,500; and Mr. Walton
$5,400, $5,400 and $5,400.
</TABLE>
The following table sets forth for each person named in the
Summary Compensation Table the specified information with respect
to option grants during 1996.
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
Individual Grants Potential Realizable
Number of % of Total Value at Assumed Annual
Securities Options Rates of Stock Price
Underlying Granted to Exercise Appreciation for Ten-Year
Options Employees in Price Expiration Option Term (2)
Name Granted(#)(1) Fiscal Year ($/sh) Date 5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C>
Stephen A. Crane 25,000 16.4% $17.44 5/10/06 $274,198 $694,871
John F. Iannucci 20,000 13.1 17.44 5/10/06 219,385 555,897
John H. Walton 15,000 9.8 17.44 5/10/06 164,518 416,923
Robert M. Coffee 5,000 3.3 17.44 5/10/06 54,839 138,974
Robert P. Cuthbert 5,000 3.3 17.44 5/10/06 54,839 138,974
_____________________
(1) All of the options shown in this column are non-qualified
options which will become exercisable in four equal annual
installments commencing on May 10, 1998.
(2) The amounts shown in these columns are the result of
calculations at the 5% and 10% rates required by the
Securities and Exchange Commission and are not intended to
forecast future appreciation of the price of the Common
Stock.
</TABLE>
<TABLE>
The following table sets forth for each person named in the
Summary Compensation Table the specified information with respect
to all options outstanding during 1996.
AGGREGATE OPTIONS EXERCISED IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options at Fiscal In-the-Money Options at Fiscal
Acquired on Value Year-End Year-End(1)
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Stephen A. Crane 0 $0 37,500 62,500 $42,188 $42,188
John F. Iannucci 0 0 25,000 45,000 28,125 28,125
John H. Walton 0 0 20,000 35,000 22,500 22,500
Robert M. Coffee 0 0 3,750 16,250 2,578 7,734
Robert P. Cuthbert 0 0 7,500 27,500 0 0
_____________________
(1) Based on $14.125 per share, which was the closing price of
the Common Stock on NASDAQ on December 31, 1996.
</TABLE>
COMPARISON OF CUMULATIVE TOTAL SHAREHOLDER RETURN
The following performance graph compares the percentage change
in the Company's cumulative total Shareholder return on shares of
Common Stock with the cumulative total return for (i) the S&P's
500 Composite Stock Index and (ii) two peer groups, each composed
of eight other property and casualty insurers, over the period
from December 21, 1993 (the date on which the Common Stock began
to trade on the NASDAQ National Market System, pursuant to an
initial public offering) through December 31, 1996. The
companies included in the peer group for 1996 are Frontier
Insurance Group, Inc., Gainsco, Inc., Markel Corporation, RLI
Corp. and The Navigators Group Inc., as well as three newly added
companies, Capitol Transamerica Corporation, Philadelphia
Consolidated Holdings and Titan Holdings, Inc., which replace
W.R. Berkley Corporation, Exstar Financial Corporation and
Capsure Holdings Corp. from the 1995 peer group used for this
purpose last year. In management's judgment, the insurance
operations of the new companies offer a closer parallel to those
of the Company than those of the companies they replaced. As
indicated below, the foregoing modifications to the peer group
for 1996 have resulted in changes of varying significance in the
peer group's performance during the period reflected in the
performance graph. The returns of the companies in the peer
groups have been weighted according to their respective stock
market capitalizations for purposes of arriving at a peer group
average.
PERFORMANCE GRAPH
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Ownership of Common Stock by Management
The following table sets forth as of March 25, 1997
information concerning the ownership of Common Stock by each
Director, by each executive officer named in the Summary
Compensation Table and by all executive officers and Directors of
the Company as a group, together with their respective percentage
ownership of the outstanding Common Stock.
<TABLE>
MANAGEMENT OWNERSHIP OF COMMON STOCK
<CAPTION>
Shares of Shares upon exercise Percent of
Name of Beneficial Owner Common Stock of Stock Options (1) Total (2) Class
<S> <C> <C> <C> <C>
Stephen A. Crane 81,577 37,500 119,077 1.8%
John F. Iannucci 45,608 (3) 25,000 70,608(3) 1.1
John H. Walton 94 20,000 20,094 *
Robert M. Coffee 5,415 3,750 9,165 *
Robert P. Cuthbert 20,797 15,000 35,797 *
Robert M. Baylis 10,000 0 10,000 *
Franklin L. Damon 3,500 2,500 6,000 *
Robert R. Douglass 5,000 2,500 7,500 *
David H. Elliott 2,000 2,500 4,500 *
Hadley C. Ford 12,000 2,500 14,500 *
Richard W. Hanselman 3,000 2,500 5,500 *
Joe M. Rodgers 1,000 (4) 2,500 3,500 *
George L. Yeager 1,000 2,500 3,500 *
All Directors and Executive Officers
as a Group (13 persons) 190,991 118,750 309,741 4.6%
* less than 1%.
______________________
(1) Represents beneficial ownership of shares that may be
acquired by the exercise of stock options which are
currently exercisable or exercisable within sixty days.
(2) The amounts of Common Stock and stock options beneficially
owned are reported on the basis of regulations of the
Securities and Exchange Commission governing the
determination of beneficial ownership of securities.
(3) Includes 500 shares held by Mr. Iannucci's wife and
100 shares held by Mr. Iannucci as trustee for his grandson.
(4) These shares are held by JMR Investments, a Tennessee
general partnership of which Mr. Rodgers' wife is a general
partner and the majority owner.
</TABLE>
Except as otherwise noted above, the Company believes the
beneficial holders listed above have sole voting and investment
power regarding the shares of Common Stock shown as being
beneficially owned by them.
Principal Holders of Common Stock
The following table indicates the only persons known by the
Company to be beneficial owners of more than five percent of the
outstanding Common Stock as of March 25, 1997. The Company has
no other class of equity securities outstanding.
BENEFICIAL OWNERS OF GREATER THAN
FIVE PERCENT OF COMMON STOCK
Amount and Nature of Percent
Name of Beneficial Owner Beneficial Ownership of Class
Pioneering Management Corporation 660,000 (1) 9.87%
60 State Street
Boston, MA 02109
Quest Advisory Corp. 520,400 (2) 7.78
1414 Avenue of the Americas
New York, NY 10019
Ingalls & Snyder LLC 464,025 (3) 6.94
61 Broadway
New York, NY 10006
Spears, Benzak, Salomon & Farrell, Inc.360,500 (4) 5.39
45 Rockefeller Plaza
New York, NY 10111
___________________________
(1) Based upon information obtained from a Schedule 13G, dated
January 23, 1997, which was filed with the Securities and
Exchange Commission by Pioneering Management Corporation
("Pioneering"). The Schedule 13G reported that Pioneering owned
660,000 shares of Common Stock. Pioneering has sole voting power
and shared dispositive power with respect to these shares.
(2) Based upon information obtained from a Schedule 13G, dated
February 3, 1997, which was filed with the Securities and
Exchange Commission by Quest Advisory Corp. ("Quest") and Quest
Management Company ("QMC"), each of which is an investment
advisor registered under the Investment Advisor Act of 1940, and
by Charles M. Royce, the controlling person of Quest and QMC.
The Schedule 13G reported that Quest beneficially owned 520,400
shares of Common Stock, that QMC owned 37,600 shares of Common
Stock independent of Quest and that Charles M. Royce owned no
shares of Common Stock independent of Quest and QMC. Quest and
QMC hold sole voting and dispositive power with respect to such
shares.
(3) Based upon information obtained from a Schedule 13G, dated
January 24, 1997, which was filed with the Securities and
Exchange Commission by Ingalls & Snyder LLC. The Schedule 13G
reported that Ingalls & Snyder LLC owned 464,025 shares of Common
Stock as a broker/dealer under Section 15 of the Securities
Exchange Act of 1934. Ingalls & Snyder LLC has sole dispositive
power with respect to all such shares and sole voting power with
respect to 9,000 of such shares.
(4) Based upon information obtained from a Schedule 13G, dated
February 14, 1997, which was filed with the Securities and
Exchange Commission by Key Trust Company of Ohio, the parent
holding company of Spears, Benzak, Salomon & Farrell, Inc. The
Schedule 13G reported that Spears, Benzak, Salomon & Farrell,
Inc. beneficially owned as of December 31, 1996, 360,500 shares
of Common Stock in connection with its role as a broker/advisor
registered under Section 203 of the Investment Advisor Act of
1940 on behalf of numerous clients, none of which holds 5% or
more of the outstanding Common Stock. Spears, Benzak, Salomon &
Farrell, Inc. has sole dispositive power with respect to 3,500 of
such shares, as well as shared dispositive and voting power with
respect to 357,000 of such shares.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Severance Agreements
The Company has entered into severance agreements with each
of Messrs. Crane, Iannucci, Walton and Cuthbert, under which each
is entitled to between 6 months and 12 months of salary
continuation payments, as determined by the Board, in the event
that he is terminated without "cause" or for disability, or
resigns as a result of constructive termination. Under the terms
of these agreements, as well as a similar severance agreement
between the Company and Mr. Coffee, in the event that a person
acquires more than 20% of the Company's outstanding voting
securities, and within 24 months thereafter the executive is
terminated without "cause" or for disability or there is a
constructive termination, the executive is entitled to a lump sum
payment equal to 36 months of salary. In connection with Mr.
Walton's resignation from the Company in December, 1996, the
Company agreed to pay to him for 12 months his then current
salary and to continue to provide him for such period with
certain medical and insurance benefits previously available to
him as an employee in accordance with the terms of his severance
agreement with the Company.
Indemnification Agreements
The Company's Certificate of Incorporation provides for the
indemnification of the Company's officers and Directors to the
fullest extent permitted by the Delaware General Corporation Law
(the "DGCL") in connection with services provided by such
individuals to or on behalf of the Company. As permitted by the
Certificate of Incorporation and the DGCL, the Company has
entered into indemnification agreements with each of its
executive officers and directors that detail the procedures by
which such individuals will be entitled to indemnification in the
event they become involved in any proceeding in connection with
such services.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934
requires the Company's executive officers, Directors and persons
who own more than ten percent of a registered class of the
Company's equity securities (collectively, the "Reporting
Persons") to file reports of ownership and changes in ownership
on Forms 3, 4 and 5 (collectively, the "Forms") with the
Securities and Exchange Commission (the "SEC"). These Reporting
Persons are required pursuant to SEC regulations to furnish the
Company with copies of all Forms they file with the SEC. Based
solely on the Company's review of the copies of the Forms it has
received and written representations from certain Reporting
Persons, the Company believes that all transactions by Reporting
Persons relating to ownership and changes in ownership of equity
securities of the Company during the fiscal year 1996 have been
duly reported to the SEC pursuant to the aforementioned Forms.
RELATIONSHIP WITH INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent
auditors to audit the consolidated financial statements of the
Company for 1997. Representatives of KPMG Peat Marwick LLP will
be present at the Annual Meeting of Shareholders, will be given
an opportunity to make a statement if they so desire, and will be
available to respond to appropriate questions relating to the
audit of the Company's 1996 consolidated financial statements.
Ernst & Young LLP served as the independent auditors of the
consolidated financial statements of the Company from 1992
through 1994. On September 18, 1995, that firm's appointment as
principal auditors was terminated, and KPMG Peat Marwick LLP were
engaged as principal auditors. The decision to change auditors
was approved by the Board of Directors upon the recommendation of
the Company's Audit Committee.
In connection with the audits of the two fiscal years ended
December 31, 1994, and the subsequent interim period preceding
such termination, there were no disagreements with Ernst & Young
LLP on any matter of accounting principles or practices,
financial statements disclosure, or auditing scope or procedures,
which disagreements, if not resolved to their satisfaction, would
have caused Ernst & Young LLP to make reference to the subject
matter of such disagreements in connection with their report.
The audit reports of Ernst & Young LLP on the consolidated
financial statements of the Company as of and for the years ended
December 31, 1994 and 1993, did not contain any adverse opinion
or disclaimer of opinion, nor were they qualified or modified as
to uncertainty, audit scope or accounting principles.
SUBMISSION OF SHAREHOLDER PROPOSALS
Shareholders of the Company wishing to include proposals in
the proxy material for the next Annual Meeting of Shareholders of
the Company must submit the same in writing so as to be received
at the executive offices of the Company on or before December 9,
1997. Such proposals must also meet the other requirements of
the rules of the SEC relating to shareholder proposals and the
requirements set forth in the Certificate of Incorporation.
A copy of the Company's Annual Report on Form 10-K is
available without charge to any Shareholder who requests a copy
in writing. Requests for copies of this report should be
directed to the Secretary, Gryphon Holdings Inc., 30 Wall Street,
New York, NY 10005-2201.
On behalf of the Board of Directors
ROBERT M. COFFEE
Secretary
April 8, 1997
x PLEASE MARK VOTES
AS IN THIS EXAMPLE
GRYPHON HOLDINGS INC.
1. Election of Class 1 Directors. For Withhold For all except
Robert M. Baylis,
Hadley C. Ford and
John F. Iannucci
Note: If you do not wish your shares voted "for" one or more
of the nominees, mark the "for all except" box and strike a
line through the name(s) of the nominee(s). Your shares will
be voted for the remaining nominee(s).
RECORD DATE SHARES:
2. In their discretion, the proxies are authorized to vote upon
any other business that may properly come before the meeting.
Please be sure to sign and
date this Proxy. Date:
Mark box at right if an address
change or comment has been noted on
the reverse side of this card.
_______________________________________________________________
Shareholder sign here Co-owner sign here
- - -------------------------------------------------------------------
- - -------------------------------------------------------------------
DETACH CARD DETACH CARD
GRYPHON HOLDINGS INC.
Dear Shareholder,
Please take note of the important information enclosed with this
Proxy Ballot. You are being asked to elect the three Class I
Directors of the Company. Before exercising your right to vote,
please review the enclosed proxy materials.
Your vote counts, and you are strongly encouraged to exercise your
right to vote your shares.
Please mark the boxes on this proxy card to indicate how your
shares will be voted. Then sign the card, detach it and return
your proxy vote in the enclosed postage paid envelope.
Your vote must be received prior to the Annual Meeting of
Shareholders to be held on May 8, 1997.
Thank you in advance for your prompt consideration of these
matters.
Sincerely,
Gryphon Holdings Inc.
[reverse]
GRYPHON HOLDINGS INC.
30 Wall Street
New York, New York 10005
This Proxy is solicited on Behalf of the Board of Directors
The undersigned hereby appoints Stephen A. Crane and Robert P.
Cuthbert as Proxies, each with the power to appoint his
substitute, and hereby authorizes them to represent and to vote
as designated herein, all the shares of common stock of Gryphon
Holdings Inc. held of record by the undersigned on March 25,
1997 at the Annual Meeting of Shareholders to be held on May 8,
1997, or any adjournments thereof.
This proxy, when properly executed, will be voted in the manner
directed herein by the undersigned shareholder. IF NO DIRECTION
IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSAL 1.
________________________________________________________________
PLEASE VOTE, DATE AND SIGN ON REVERSE SIDE AND RETURN PROMPTLY
IN THE ENCLOSED ENVELOPE.
Please sign exactly as your name appears on the reverse side.
When shares are held by joint tenants, both should sign. When
signing as attorney, executor, administrator, trustee, or
guardian, please give full title as such. If a corporation,
please sign full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by
authorized person.
________________________________________________________________
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
_________________________ ______________________________
_________________________ ______________________________
_________________________ ______________________________
