GUARANTY NATIONAL CORP, DEF 14A, 1997-04-03

GUARANTY NATIONAL CORP
DEF 14A, 1997-04-03
FIRE, MARINE & CASUALTY INSURANCE

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SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [_]

Check the appropriate box:

[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement

[_] Definitive Additional Materials

[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12

GUARANTY NATIONAL CORPORATION
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No Fee Required.

[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.

[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).

[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:

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(2) Aggregate number of securities to which transaction applies:

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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):

-------------------------------------------------------------------------

(4) Proposed maximum aggregate value of transaction:

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(5) Total fee paid:

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[_] Fee paid previously with preliminary materials.

[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

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(2) Form, Schedule or Registration Statement No.:

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(3) Filing Party:

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(4) Date Filed:

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Notes:

<PAGE>

[LOGO OF GUARANTY NATIONAL CORPORATION APPEARS HERE]

GUARANTY NATIONAL CORPORATION
9800 SOUTH MERIDIAN BOULEVARD
ENGLEWOOD, COLORADO 80112

March 27, 1997

Dear Shareholder:

On behalf of the Board of Directors and management, I cordially invite you
to the Annual Meeting of Shareholders to be held on Tuesday, May 13, 1997, at
9800 South Meridian Boulevard, Englewood, Colorado, commencing at 1:30 P.M.
Mountain Daylight Saving Time. Your Board of Directors and management look
forward to greeting in person those shareholders able to attend.

Your vote is important, regardless of the number of shares you may own. To
be sure your shares are voted at the meeting, if you are unable to attend in
person, please take a moment now to sign, date and mail your proxy in the
enclosed postage paid envelope. This will not prevent you from voting your
shares in person if you attend the meeting. Your cooperation in mailing your
proxy promptly will be greatly appreciated.

[SIGNATURE OF JAMES R. POULIOT
APPEARS HERE]

James R. Pouliot
President and Chief Executive
Officer
<PAGE>

[LOGO OF GUARANTY NATIONAL CORPORATION APPEARS HERE]

GUARANTY NATIONAL CORPORATION
9800 SOUTH MERIDIAN BOULEVARD
ENGLEWOOD, COLORADO 80112

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

Notice is hereby given that the Annual Meeting of Shareholders of Guaranty
National Corporation (the "Company") will be held at 9800 South Meridian
Boulevard, Englewood, Colorado, on Tuesday, May 13, 1997 at 1:30 P.M. Mountain
Daylight Saving Time for the following purposes:

1. To elect a board of directors to serve until the 1998 Annual Meeting
of Shareholders and until their successors are elected and qualify.

2. To consider and vote upon a proposal to approve the Guaranty National
Corporation Equity Incentive Plan.

3. To ratify the selection of Deloitte & Touche LLP, independent
certified public accountants, as auditors for the Company for the year
1997.

4. To transact such other business as may properly come before the
meeting, or any adjournment or adjournments thereof.

Holders of the Company's Common Stock, $1.00 par value, are entitled to vote
for the election of directors and on each of the other matters set forth
above.

The stock transfer books of the Company will not be closed. The Board of
Directors has fixed the close of business on March 20, 1997, as the record
date for the determination of shareholders entitled to notice of, and to vote
at, the Annual Meeting. A complete list of all shareholders entitled to vote
at the Annual Meeting will be available for examination by any shareholder,
for any purpose germane to the meeting, at the Company's offices, 9800 South
Meridian Boulevard, Englewood, Colorado, beginning two business days following
the mailing of this Notice and continuing through the meeting and any
adjournment thereof.

You are cordially invited to be present. Shareholders who do not expect to
attend in person are requested to sign and return the enclosed form of proxy
in the envelope provided. At any time prior to their being voted, proxies are
revocable by written notice to the Secretary of the Company or by appearance
at the meeting to vote in person.

By order of the Board of Directors

[SIGNATURE OF BEVERLY A. SILK
APPEARS HERE]

Beverly A. Silk
Secretary

March 27, 1997
<PAGE>

GUARANTY NATIONAL CORPORATION
9800 SOUTH MERIDIAN BOULEVARD
ENGLEWOOD, COLORADO 80112

PROXY STATEMENT

ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 13, 1997

This statement is furnished in connection with the solicitation of proxies
by your Board of Directors (the "Board") from holders of the outstanding
shares of Common Stock, $1.00 par value (the "Common Stock") of Guaranty
National Corporation (the "Company" or "Guaranty") entitled to vote at the
Annual Meeting of Shareholders of the Company (and at any and all adjournments
thereof) for the purposes referred to below, and set forth in the accompanying
Notice of Annual Meeting of Shareholders. This proxy statement and enclosed
proxy are first being mailed to shareholders on or about March 27, 1997. A
copy of the Company's Annual Report for 1996 is being mailed to all
shareholders with this proxy statement. The Annual Report is not to be
regarded as proxy soliciting material or as a communication by means of which
any solicitation is to be made.

The Company's Board has fixed the close of business on March 20, 1997, as
the record date for the determination of shareholders entitled to notice of,
and to vote at, the meeting. On that date, there were outstanding and entitled
to vote 14,975,497 shares of Common Stock. Holders of Common Stock are
entitled to one vote for each share held of record on the record date with
respect to matters on which the holder is entitled to vote.

The presence, in person or by proxy, of a majority in number of the
outstanding shares of Common Stock as of the record date constitutes a quorum
and is required in order for the Company to conduct business at the Annual
Meeting. The majority being present, the election of each nominee for Director
requires a plurality of the votes cast and the affirmative vote of the holders
of a majority of the shares of Common Stock represented in person or by proxy
at the Annual Meeting is required to approve the Guaranty National Corporation
Equity Incentive Plan (the "Equity Incentive Plan") and ratify the appointment
of the Company's independent accountants. Abstentions and broker non-votes are
counted towards a quorum. Abstentions are counted in the tabulations of the
votes cast, but broker non-votes are not counted in such tabulations for
purposes of determining whether a proposal has been approved.
<PAGE>

1. ELECTION OF DIRECTORS

Pursuant to the Company's By-Laws, the Board has fixed the number of
directors at eleven. The Directors are to be elected by the holders of the
Company's Common Stock, to serve until the 1998 Annual Meeting of Shareholders
and until their successors are elected and qualify. Unless instructions to the
contrary are received, proxies received in response to this solicitation will
be voted in favor of the nominees listed below. If any nominee should become
unavailable for election, the shares represented by the enclosed proxy will be
voted for such substitute nominee as may be proposed by the Board.

<TABLE>
<CAPTION>
NAME, AGE AND POSITION DIRECTOR PRINCIPAL OCCUPATION, FIVE-YEAR BUSINESS
WITH THE COMPANY SINCE EXPERIENCE AND OTHER CORPORATE DIRECTORSHIPS
- - ---------------------- -------- --------------------------------------------
<S> <C> <C>
Tucker Hart Adams, 59 1994 President, The Adams Group, Inc. (an economic
Director consulting firm), since 1989; Director of Tax
Free Fund of Colorado, Montana Power Company
and Rocky Mountain Equity Fund.
W. Marston Becker, 44 1996 Chairman and Chief Executive Officer since 1996
Director and Senior Vice President, 1994-1996, of Orion
Capital Corporation ("Orion"); President and
Chief Executive Officer of Design Professionals
Insurance Company, a subsidiary of Orion, 1994-
1996; President and Chief Executive Officer of
McDonough Caperton Insurance Group, 1987-1994.
Alan R. Gruber, 69 1984 Director and Chairman of the Executive and
Chairman of the Board Investment Committees of Orion since 1996;
Chairman of the Board and Chief Executive
Officer of Orion, 1976-1996; Trustee of six
trusts which manage the Neuberger & Berman
family of equity mutual funds; Director of
Trenwick Group, Inc.
Dennis J. Lacey, 43 1994 Director, President and Chief Executive Officer
Director of Capital Associates, Inc. (an equipment
leasing company) since 1991.
M. Ann Padilla, 54 1994 President, Sunny Side, Inc./Temp Side (a private
Director employment service), since 1975; Director of
Bank One Denver N.A.
Vincent T. Papa, 50 1996 Senior Vice President since 1996 and Vice
Director President and Treasurer, 1987-1996, of Orion;
Chairman and Chief Executive Officer of Wm. H.
McGee & Co., Inc., a subsidiary of Orion, since
1995.
James R. Pouliot, 43 1995 President and Chief Executive Officer of
Director; President and Guaranty since December 1996 and of Viking
Chief Executive Officer Insurance Holdings, Inc. ("Viking") since 1992;
Executive Vice President of Guaranty during
1996. Vice President, Marketing, Great American
Insurance Co., 1990-1992.
Robert B. Sanborn, 68 1988 Senior Executive Consultant of Orion since 1995;
Director Director since 1987, Vice Chairman 1994-1995,
and President and Chief Operating Officer,
1987-1994, of Orion; Director of HCG/Lloyd's
Investment Trust plc., Intercargo Corporation
and Nobel Insurance Limited.
</TABLE>

2
<PAGE>

The Board of Directors met nine times during 1996. Each director attended at
least 75% of the meetings of the Board of Directors, as well as of the
meetings of the Committees on which he or she served.

Orion and Guaranty have entered into a Shareholder Agreement with respect to
the composition of the Board of Directors and committees thereof and the
future designation by Orion of four nominees (one of whom will be the Chairman
of the Board) to Guaranty's Board of Directors so long as Orion or its
subsidiaries beneficially own in the aggregate 30% or more of the voting
securities of Guaranty (or securities convertible or exchangeable therefor)
and of two nominees so long as Orion or its subsidiaries beneficially own 20%
or more of such securities. Messrs. Becker, Gruber, Papa and Shepherd have
been designated by Orion pursuant to this Agreement. In addition, Messrs.
Sanborn (an Orion designee prior to his retirement in 1994) and Ware are
directors of Orion. Messrs. Ware and Pouliot were nominated to the Board as
officers of Guaranty. The Company expects that Mr. Gruber will retire as
Chairman of the Board after the 1997 annual meeting and that Mr. Becker will
be designated to succeed him.

The Shareholder Agreement also provides, among other matters, that the
members of the Board, other than the Orion designees and two officers of
Guaranty, be unaffiliated with but mutually agreeable to both Orion and
Guaranty and Orion may require that Guaranty's Compensation Committee include
the Orion designees to the Guaranty Board. On the record date for this meeting
Orion or its subsidiaries owned approximately 81% of the shares entitled to
vote. They intend to vote their shares in favor of all of the nominees, as
well as the proposals to approve the Equity Incentive Plan and ratify the
selection of Deloitte & Touche LLP.

COMMITTEES

The Board of Directors has Executive, Audit and Compensation Committees. The
Executive Committee, during intervals between meetings of the Board, may
exercise all of the powers of the Board in the management and control of the
business of Guaranty, except as limited by law and except with respect to
matters within the powers of the Audit or Compensation Committees. The
Executive Committee is composed of Mr. Gruber, as Chairman, and Mr. Pouliot.
The Committee did not meet during 1996.

The Compensation Committee consists of Mr. Shepherd as Chairman, Ms. Padilla
and Messrs. Gruber and Sanborn. The Compensation Committee recommends to the
Board of Directors the compensation to be paid to employees of the Company and
administers the Company's various employee benefit and key officer and
employee plans. The Committee met five times during 1996.

The Audit Committee confers periodically with management, the Company's
internal auditors and the Company's independent accountants in connection with
the preparation of financial statements and audits thereof and the maintenance
of proper financial records and controls. The Audit Committee also reviews the
nature and extent of any non-audit services provided by the Company's
independent accountants. The Audit Committee makes recommendations to the
Board of Directors with respect to the foregoing and brings to the attention
of the Board any criticism and recommendations that the independent
accountants or the Audit Committee itself may suggest. The Audit Committee
consists of Mr. Lacey, as Chairman, Ms. Adams and Mr. Thomas. The Committee
met three times during 1996.

3
<PAGE>

SECURITY OWNERSHIP OF DIRECTORS, OFFICERS,
AND PRINCIPAL BENEFICIAL OWNERS

The following table sets forth information concerning the shares of the
Company's Common Stock beneficially owned by each of the directors and
nominees for the Board, each of the named executive officers, all directors
and executive officers of the Company as a group, and each person or group who
is known by the Company to be the beneficial owner of more than five percent
of the total number of shares of the Company's Common Stock outstanding and
entitled to vote. All such information is given as of January 31, 1997, unless
otherwise indicated. Shares outstanding were deemed to be shares actually
outstanding on January 31, 1997, and shares subject to options which were
exercisable on or within 60 days after that date.

<TABLE>
<CAPTION>
AMOUNT AND
NATURE
OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OF
BENEFICIAL OWNER OWNERSHIP CLASS
------------------- ---------- -------
<S> <C> <C>
Orion Capital Corporation..................... 12,129,942(a) 81.0%
600 Fifth Avenue
New York, NY 10020
Tucker Hart Adams............................. -0- -0-
W. Marston Becker............................. 2,450(b) * (b)
Alan R. Gruber................................ -0-(b) -0- (b)
Dennis J. Lacey............................... 400 *
Arthur J. Mastera............................. 37,173(c) .2%
M. Ann Padilla................................ 506 *
Vincent T. Papa............................... -0-(b) -0- (b)
Michael L. Pautler............................ 39,966(d) .3%
James R. Pouliot.............................. 39,173(e) .3%
Fred T. Roberts............................... 19,000(f) .1%
Robert B. Sanborn............................. 321(b) *
William J. Shepherd........................... 1,605(b) * (b)
Richard R. Thomas............................. 1,500 * (b)
Roger B. Ware................................. 92,071(b,g) .6%(b)
All Directors and Executive Officers as a
Group........................................ 12,384,092 82.7%
</TABLE>
- - --------
* Less than .1%
(a) Represents beneficial ownership with sole voting and dispositive power of
Orion and certain of its subsidiaries as reported on an amendment to its
Schedule 13G filed with the Securities and Exchange Commission on March
19, 1997.
(b) Excludes the shares owned by Orion. Messrs. Becker and Papa are executive
officers of Orion and Messrs. Becker, Gruber, Sanborn, Shepherd and Ware
are directors of Orion. Each of such persons disclaims any beneficial
interest in Orion's shares.
(c) Includes 6,173 shares as to which Mr. Mastera has sole voting and
investment power, and vested options to acquire 31,000 shares granted
pursuant to the terms of the Company's 1991 Long-Term Performance
Incentive Plan (the "1991 Incentive Plan").
(d) Includes 5,966 shares as to which Mr. Pautler has sole voting and
investment power, and vested options to acquire 34,000 shares granted
pursuant to the terms of the Company's 1991 Incentive Plan.
(e) Includes 4,173 shares as to which Mr. Pouliot has sole voting and
investment power and vested options to acquire 35,000 shares granted
pursuant to the terms of the Company's 1991 Incentive Plan.
(f) Includes vested options to acquire 19,000 shares granted pursuant to the
terms of the Company's 1991 Incentive Plan.
(g) Includes 31,071 shares as to which Mr. Ware has sole voting and investment
power, and vested options to acquire 61,000 shares granted pursuant to the
terms of the Company's 1991 Incentive Plan.

4
<PAGE>

EXECUTIVE COMPENSATION

CASH COMPENSATION

The following table sets forth the compensation of the Chief Executive
Officer and the four most highly compensated executive officers of the Company
during the three consecutive years ended December 31, 1996.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------- ---------------------
OTHER RESTRICTED SHARES
ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARD(S) OPTIONS COMPENSATION
POSITION YEAR ($)(A) ($)(B) ($) ($)(C) (#) ($)(D)
------------------ ---- ------- ------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
James R. Pouliot........ 1996 273,065 140,000 -- -- 32,320 53,503
President of Viking; 1995 114,915(e) 50,000 -- $207,000 35,000 1,731
President and
Chief Executive Officer
of Guaranty
(eff. 12/17/97)
Roger B. Ware........... 1996 319,226 150,000 -- -0- -0- 72,473
Former President & 1995 291,917 50,000 -- -0- -0- 65,651
C.E.O. of
Guaranty (ret. eff. 1994 244,427 150,000 -- 87,500 16,000 58,483
12/17/96)
Fred T. Roberts......... 1996 189,423 48,500 -- 16,156 37,327
Senior Vice President-- 1995 162,384 25,000 -- -- -- 31,373
President
of Commercial Lines of 1994 148,115 75,000 -- 52,500 12,000 29,263
Guaranty
Michael L. Pautler...... 1996 177,115 62,000 -- -- 13,084 30,440
Senior Vice President-- 1995 152,558 35,000 -- -- -- 25,534
Finance &
Treasurer of Guaranty 1994 136,769 63,000 -- 52,500 12,000 20,924
Arthur J. Mastera....... 1996 175,192 51,000 -- -- 12,671 34,624
Senior Vice President-- 1995 158,538 10,000 -- -- -- 33,058
Chief
Administrative Officer 1994 147,038 60,000 -- 52,000 12,000 29,301
of Guaranty
</TABLE>
- - --------
(a) Includes compensation deferred under Company's 401(k) Retirement Plan.
(b) Annual bonus amounts are earned and accrued during the year indicated.
(c) During 1995, 12,000 shares of restricted stock were granted to Mr.
Pouliot. Restricted stock was granted during 1994 as follows: Mr. Ware
5,000 shares, and Messrs. Roberts, Mastera and Pautler 3,000 shares each.
Dividends are paid on non-vested shares of restricted stock.
(d) "All Other Compensation" represented (i) moving expenses of $12,664 paid
in connection with Mr. Pouliot's relocation to Colorado and (ii) Company
contributions to the 401(k) Retirement Plan ("401K"), Supplementary
Executive Retirement Plan ("SERP"), and split dollar insurance premiums
("LIFE"), as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------- ------------------- -------------------
401K SERP LIFE 401K SERP LIFE 401K SERP LIFE
($) ($) ($) ($) ($) ($) ($) ($) ($)
----- ------ ------ ----- ------ ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
James R. Pouliot........ 9,500 31,339 -- 1,731 -- -- -- -- --
Roger B. Ware........... 9,500 42,153 20,820 9,240 37,224 19,187 9,000 28,201 21,282
Fred T. Roberts......... 9,500 17,490 10,337 9,240 12,613 9,520 8,887 10,015 10,361
Michael L. Pautler...... 9,500 15,152 5,788 9,240 10,746 4,548 8,206 8,540 4,178
Arthur J. Mastera....... 9,500 14,787 10,337 9,240 11,882 11,936 8,822 9,875 10,604
</TABLE>
During 1995, Mr. Pouliot did not participate in the Company's 401K plan, as
Viking had a separate plan.
(e) Represents Mr. Pouliot's 1995 salary, including deferred amounts, after
the acquisition of Viking on July 18, 1995.

5
<PAGE>

OPTIONS GRANTED AND EXERCISED

The following table sets forth the options granted (none were exercised) in
1996 under the Company's 1991 Incentive Plan to the Chief Executive Officer
and four most highly compensated executive officers of the Company, and
certain other information with respect to the options.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------
% OF TOTAL EXERCISE
OPTIONS PRICE OR
OPTIONS GRANTED TO BASE GRANT
GRANTED EMPLOYEES PRICE EXPIRATION DATE
NAME (#)(A) IN 1996 ($/SH) DATE VALUES(B)
---- ------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
James R. Pouliot............... 32,320 10.5 16.875 12/17/06 $136,350
Roger B. Ware.................. -0- -0- -0- -0- -0-
Fred T. Roberts................ 16,156 5.2 16.875 12/17/06 68,158
Michael L. Pautler............. 13,084 4.2 16.875 12/17/06 55,198
Arthur J. Mastera.............. 12,671 4.1 16.875 12/17/06 53,456
</TABLE>
- - --------
(a) Options may be either non-qualified options or qualified incentive stock
options. The options granted in 1996 become exercisable in installments at
the rate of 25% per year after the first, second, third and fourth
anniversaries of the date of grant. Vested options are exercisable for ten
years from the date of grant. For each named individual, a total of 5,925
option shares are qualified options and the remainder were issued as
nonqualified options.
(b) These values were determined utilizing a modified Black-Scholes option
pricing model with the following weighted average assumptions and
adjustments: For 1996 options, 3.0% dividend yield, expected volatility of
24%, risk free interest rate of 6.1% and expected term of 5.6 years.

The following table sets forth as of the year-end the number and values of
the shares of common stock underlying the outstanding "in-the-money" options
held by the named executive officers. The values represent the positive spread
between the exercise price of the options and the year-end price of the common
stock.

<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE MONEY OPTIONS
ACQUIRED OPTIONS AT YEAR-END AT YEAR-END
ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James R. Pouliot........ None N/A 35,000 32,320 -- --
Roger B. Ware........... None N/A 61,000 -- $67,500 --
Fred T. Roberts......... 14,000 $35,000 19,000 16,156 -- --
Michael L. Pautler...... None N/A 34,000 13,084 $33,000 --
Arthur J. Mastera....... None N/A 31,000 12,671 $ 9,000 --
</TABLE>

PERFORMANCE UNIT PLAN VALUES

Guaranty's Performance Unit Plan, adopted in 1987 (the "1987 Plan"),
presently covers only three key officers. Beginning in 1996, performance units
may also be awarded under the 1991 Incentive Plan and the proposed Equity
Incentive Plan, on terms which are substantially different from those of the
1987 Plan, as described below. Awards under the Plan are payable in cash over
a period of five to eight years. Each vested unit is approximately equal in
value to the book value of one share of the Company's common stock. The
purpose of the awards is to motivate the participants to remain with the
Company for an extended period of time and to use their best efforts to
maximize shareholder value so long as the units are outstanding.

6
<PAGE>

In order to encourage the recipients of 1987 awards to defer payment of them
until 1998, the Committee placed a floor on their value equal to their value
as of September 30, 1994. To receive the cash value of a unit, the employee
must remain an employee of the Company until the dates shown in the following
table, which also sets forth the value of the awards as of December 31, 1996:

<TABLE>
<CAPTION>
NUMBER VALUE AT
YEAR OF DECEMBER 31,
NAME AWARDED UNITS 1996 DATE VESTED
---- ------- ------ ------------ ---------------
<S> <C> <C> <C> <C>
James R. Pouliot.............. 1995 15,972 $ 234,866 Dec. 31, 1998
Roger B. Ware................. 1987 89,248 1,312,410 January 1, 1995
1993 26,774 393,717 Sept. 30, 1998
Fred T. Roberts............... 1987 41,650 612,472 January 1, 1995
1993 10,413 153,125 Sept. 30, 1998
</TABLE>

1991 INCENTIVE PLAN

This Plan was amended in 1996 to add certain features contained in the
Equity Incentive Plan, described below, including the transferability of stock
options to immediate family members and the authorization of performance units
which provide for payments if the Company achieves Performance Targets (e.g.,
increases in book value, earnings per share, return on equity, etc.) which are
fixed at the time of granting the units. Payments may be made either in cash
or in stock. During 1996 grants of performance units were made providing for
payments over four years if certain targeted growth in book value occurs over
the same period of time. Maximum payments to the named executive officers will
be: Mr. Pouliot, $68,400, Mr. Roberts, $37,000, Mr. Mastera, $27,200, and Mr.
Pautler, $31,050.

EMPLOYMENT AND SEVERANCE AGREEMENTS

On September 1, 1986, Guaranty entered into an employment agreement with Mr.
Ware. It provides for a base annual salary to be fixed by the Board of
Directors ($310,000 as of March 25, 1996), and for such bonus and other
incentive and deferred compensation as the Board determines to be appropriate.
On February 29, 1996, the agreement was amended to provide that Mr. Ware will
remain as President and Chief Executive Officer until December 17, 1996, and
thereafter will be employed until December 31, 1998 as a Senior Consultant to
the Company at the same base salary. Mr. Ware remains eligible for his normal
1996 performance bonus, but is not eligible for such bonuses for 1997 or 1998.
He has agreed that he will not compete with Guaranty for a one-year period
after the termination of the agreement. The agreement may be terminated by
Guaranty upon Mr. Ware's disability, in which event he would be paid 50% of
his base salary through 1998.

With the acquisition of Viking on July 18, 1995, an employment agreement
with Mr. Pouliot became effective for a term which is automatically extended
so that it will be in effect at all times for a period of two years. The
agreement, which also applies to his services as President and Chief Executive
Officer of Guaranty since December 17, 1996, provides for the grants of
Restricted Stock, Stock Options and Performance Units described above, an
annual salary of at least $250,000 ($300,000 as of December 16, 1996), and a
guaranteed bonus with respect to 1995 and 1996 of at least 40% of his earned
salary for those years. Mr. Pouliot has also agreed that he will not be
employed by any business in the non-standard private passenger automobile
insurance industry for a period of one year following termination of his
employment agreement.

The Board of Directors has adopted a severance policy applicable to the
officers of the Company's insurance company subsidiaries. Pursuant to this
policy, officers are entitled to receive six months to one year's notice of
termination, depending on the position held, except in the event of
termination for cause. The policy currently applies to all of the senior
officers other than Messrs. Ware and Pouliot, including the other executive
officers named in the Compensation Table above, each of whom is entitled to
one year's notice of termination.

7
<PAGE>

In September, 1991, the shareholders of Guaranty authorized the execution by
Guaranty of indemnification agreements with directors, officers and certain
employees of Guaranty and its subsidiaries, which, among other matters,
supplement the indemnity provided under Guaranty's articles of incorporation
and by-laws and the Colorado Corporation Code.

COMPENSATION OF DIRECTORS

In 1996, Guaranty paid its six non-management directors a retainer fee at
the rate of $17,000 a year and an attendance fee of $800 for each Board of
Directors or committee meeting attended, except that $400 was paid for a
committee meeting held on the same date as a board meeting. The Committee
chairmen received an additional annual retainer of $5,000. Officers of
Guaranty and Orion who serve as directors of Guaranty do not receive either a
retainer fee or attendance fees for their service. All directors and officers
are reimbursed for expenses incurred in attending Board of Directors and
committee meetings.

COMPENSATION COMMITTEE REPORT

The Company's Compensation Committee consists of four members of the
Company's Board of Directors. Three members are nominated by Orion, pursuant
to the November 7, 1991, Shareholder Agreement, as amended, between Orion and
the Company and the fourth is an outside director of the Company. Roger B.
Ware, Guaranty's president during 1996, serves as a member of the board of
directors of Orion, and as such receives the regular fees paid to all non-
employee directors of Orion, but he is not a member of the Compensation
Committee of either corporation.

Objectives. Guaranty's Compensation Committee is responsible for
establishing and administering the Company's compensation policies for its
chief executive officer and its other senior officers, for determining
annually the base salary and bonus for each of the senior officers, and for
awarding grants under the Company's 1991 Incentive Plan, its Incentive Bonus
Plan and the Equity Incentive Plan, if it is approved by the shareholders. The
Committee's goal is to motivate management to enhance the profitability of the
Company and thus its value to shareholders. The Committee recognizes that to
achieve this goal the Company must attract and retain qualified executives who
will contribute significantly to the Company's progress. Therefore, the
Committee has sought to establish compensation policies which will balance
corporate, business unit and individual performance factors so as to
effectively motivate management to lead the Company toward long term growth in
premium volume and profitability at a pace consistent with maintaining
conservative levels of capitalization and loss reserves.

To this end, the Committee has determined that, in general, the base
salaries of management should be at or slightly above the median salary levels
of comparable companies recognizing, however, that limited information is
available concerning competitive specialty insurance companies of comparable
size. The Committee emphasizes variable compensation programs, based upon
achievement of individual and Company goals, which would make possible total
compensation levels which the Committee believes to be at the high end of the
range for such companies if the Company's or business unit's performance is
above average. The Committee believes that the Company's Bonus, Long-Term
Incentive Compensation and Equity Incentive Plans are key factors both for
achieving this objective and for attracting, retaining and motivating its
executives.

General. The Committee considers a variety of factors in connection with
compensation decisions, although none of them is assigned a specific weight.
During the first quarter of each year, the Committee reviews material provided
by the chief executive officer in connection with his recommendations for
adjustments in the base salaries of each officer and the award of bonuses with
respect to services performed during the preceding year. This information
includes the annual performance goals established for the individual officers
and for the Company and its various business units, and the Company's
operating results for the preceding year, as compared to its business plan and
the results of other companies. Specially commissioned surveys of competitive
companies are also obtained at three to five year intervals. The individual
experiences of its members in

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<PAGE>

connection with the operation of other businesses with which they are or were
associated are also taken into account by the Committee.

Chief Executive Officer. In determining the 1996 base salary for Mr. Ware,
the Committee considered, in addition to the foregoing, the Company's
financial performance as measured by its three key financial targets: a 15%
increase in gross written premiums, a GAAP operating ratio of not more than
98%; and a return on equity of at least 15%. For 1995, against these key
ratios, the Company achieved a 5% return on equity, a 24% increase in gross
written premium volume and an operating ratio of 105%. In addition, the
statutory combined loss and expense ratio was over 100% in 1995 for the first
time in nine years, at 106%. The property and casualty industry ratio during
1995 averaged 106% and has not been under 100% since 1978. Based on the
foregoing, the Committee awarded Mr. Ware a nominal salary increase of
approximately 3%, commencing in April, 1996.

Mr. Ware's 1996 bonus award of $150,000, granted in February, 1997,
represented an amount equal to 300% of his bonus for the preceding year and
60% of the maximum 1996 bonus for which he was eligible. In determining the
amount, the Committee took into account the Company's overall financial
performance as measured by its three key financial targets for 1996. Gross
written premiums increased 19% compared to the target of 15%, the GAAP
operating ratio decreased from 106% to 100% compared to a target of 98%, and a
return on equity of 12%, compared to the target of at least 15%. The Committee
also considered a number of other positive achievements recorded during 1996,
including a 10% increase in the book value per share of the Company's common
stock, primarily due to its improved net earnings, the successful
implementation of the transition process resulting from Mr. Ware's retirement,
and the development of a plan for the integration of Viking's business with
the Personal Lines Unit of the Company.

Other Executive Officers. A similar process was followed in determining the
level of salary increases and bonuses for the other officers of Guaranty.
Performance goals are established at the beginning of the year for each
officer and the Committee is able to consider the extent to which they have
been met. In addition, the Committee reviewed the earnings, the expense ratio,
the operating ratio, premium growth and operating cash flow of the individual
business units within the Company with which the officers were associated, and
it met with the chief executive officer to review management's compensation
recommendations, based on the individual performance of each officer and
management's evaluation of the factors considered by the Committee as they
applied to each of the officers. While individual compensation increases
varied substantially, Guaranty limited its annual executive compensation
increases in 1996 to an aggregate of five percent of the executive payroll.

Awards under Guaranty's Incentive Cash Bonus Plan are based in part on the
Company's performance for the year and in part on the achievement of the
individual goals and objectives which are set at the beginning of the year by
agreement between each officer and the senior executive to whom he or she
reports. Target awards for 1996, as a percentage of 1996 base salaries, ranged
from 20% for certain vice presidents to 40% for the chief executive officer.
Depending on performance, bonus payments may range between zero and two times
the target amount. In February, 1997, the Committee approved aggregate bonus
payments of $620,000 under the Plan for 1996 performance by all officers of
the Company's insurance subsidiaries, reflecting both the achievement by the
officers of their personal goals for the year and the Company's 1996 financial
performance. Amounts awarded to the Company's executive officers in 1997 with
respect to 1996 performance are reported in the Proxy Statement's Summary
Compensation Table.

Long-Term Incentives. Long-term incentives for the company's chief executive
officer and other officers are provided through the Company's 1991 Long-Term
Performance Incentive Plan, as amended in 1996, and, subject to shareholders
approval, its Equity Incentive Plan, adopted by the Board in 1996. The
Committee grants awards under the Incentive Plan primarily on the basis of the
executive's ability to influence the Company's long term growth and
profitability. The awards can be in the form of stock options, restricted
stock or, since 1996, performance units. The Committee has the authority to
determine to whom awards will be made, in what amounts and on what conditions.
It is through awards under these Plans that the Committee attempts to align
management's long range interests with those of the shareholders and to
provide an opportunity for its officers to build a meaningful stake in the
Company. The amounts of the stock options and performance unit awards

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<PAGE>

described in the Executive Compensation Section of this Proxy Statement, were
based on the Committee's subjective determination as to an award which would
motivate the executive to remain with the Company until the award vested and
to use his best efforts to enhance the value of the Company during that
period.

Other Benefits. The officers of the Company may also participate in the
Company's 401(k) Plan to which both the Company and employees may make
contributions, and in health and other benefit plans which are available to
employees generally. In addition, the Company adopted in 1987 a Performance
Unit Plan pursuant to which the pre-1996 awards described under "Performance
Unit Plan Values" in this Proxy Statement were made. The authority to make
awards under the Plan is reserved to the Committee, which determined that the
1987 and 1993 awards under the Plan had demonstrated their usefulness in
retaining and motivating the key executives who were responsible for the
Company's operating results during the ensuing years, and that the 1995 award
to Mr. Pouliot would motivate him to remain as key executive of the Company
until 1998 and compensate him fairly for his contribution to increases in
shareholder values during that period. At the present time, the Committee has
no plans to make further awards under the Performance Unit Plan, although it
may, and in 1996 did, award performance units under the Equity Incentive Plan
and the amended 1991 Long-Term Performance Incentive Plan.

Deductibility of Compensation. Section 162(m) of the Internal Revenue Code,
enacted in 1993, generally disallows a tax deduction to public companies for
compensation over $1 million paid to the Company's Chief Executive Officer or
any of the four other most highly compensated executive officers. Qualifying
performance-based compensation will not be subject to the deduction limit if
certain requirements are met. No executive officer would have been subject to
the limitations of Section 162(m) had it applied in 1996. The Committee
intends to structure any compensation for executive officers so that it
qualifies for deductibility under the new statute to the extent feasible.
However, the Committee reserves the authority to authorize payments, including
salary and bonuses, that may not be deductible if it determines that they are
needed to maintain the Company's competitive position.

COMPENSATION COMMITTEE

William J. Shepherd, Chairman
Alan R. Gruber
M. Ann Padilla
Robert B. Sanborn

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SHAREHOLDER RETURN COMPARISON

The following line graph presents the compounded return to the Company's
shareholders since December 31, 1991, compared on an indexed basis with the
S&P 500 Stock Index and the Dow Jones Property/Casualty Insurance Index, a
nationally recognized index of companies in Guaranty's industry.

[GRAPH APPEARS HERE]

COMPARISON OF FIVE YEAR CUMULATIVE RETURN
AMONG GUARANTY NATIONAL CORP., S&P 500 STOCK INDEX AND
THE DOW JONES PROPERTY/CASUALTY INSURANCE INDEX

Dow Jones
Guaranty S&P 500 Property Casualty
Measurement period National Stock Insurance
(Fiscal Year Covered) Corp. Index Index
- - --------------------- -------- -------- -----------------
<S> <C> <C> <C>
Measurement PT -
12/31/91 100.00 100.00 100.00

FYE 12/31/92 140.40 107.60 121.70
FYE 12/31/93 127.40 118.40 122.80
FYE 12/31/94 138.00 120.00 129.10
FYE 12/31/95 119.00 165.10 182.40
FYE 12/31/96 133.60 203.00 219.30

</TABLE>

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Guaranty and Orion have entered into a shareholder agreement pursuant to
which Orion has the right to require Guaranty to register any or all of
Orion's shares of Common Stock under the Securities Act of 1933, as amended
(the "Securities Act"), on up to three occasions through November 1997. In
addition, Guaranty has agreed to use its best efforts to include such shares
in any underwritten public offering of its Common Stock under the Securities
Act and to pay all expenses in connection with the first two registrations.
See also the description of certain other provisions of the Shareholder
Agreement which are set forth above under the caption "Election of Directors."

In the ordinary course of business, the Company's wholly-owned insurance
company subsidiaries reinsure certain risks with other companies. Such
arrangements serve to limit their maximum loss on large risks. To the extent
that any reinsuring company is unable to meet its obligations, the Company
would be liable for such amounts. For 1996, Guaranty National Insurance
Company ("GNIC") and Landmark American Insurance Company entered into a 100%
reinsurance agreement with an Orion insurance subsidiary. Premiums written and
ceded under this agreement are included in premiums written as reported in
Guaranty's financial statements and were $49,000 for 1996. Also, for 1996 GNIC
entered into reinsurance agreements with other Orion insurance subsidiaries
pursuant to which GNIC assumed business written through affiliates totalling
$15,673,000 in premium. Guaranty paid to Orion $298,000 in fees and reimbursed
$309,000 of actual expenses incurred by Orion in conjunction with this
reinsurance agreement.

A subsidiary of Orion is an agent for the Company, pursuant to the Company's
standard agency contract. During 1996, this agency produced $436,000 in
premiums and was paid $85,000 in commissions. The Company expects to pay it a
similar amount in 1997.

The Company and Orion have entered into an investment management agreement
pursuant to which the investment portfolio of the Company (other than short-
term investments and a portion of the equity securities) will continue to be
managed by investment managers of Orion, under the direction and supervision
of Guaranty and subject to Guaranty's Investment Policies. For its investment
management services, Orion was paid $650,000 in 1996. The contract will
continue in effect for one year unless terminated by either party upon 90 days
prior written notice.

Orion has committed to invest up to $5,000,000 in Insurance Partners L.P., a
partnership formed to make equity investments of up to approximately $550
million in the insurance industry. Guaranty has committed to participate in
Orion's commitment in an aggregate amount not to exceed $1,500,000. Insurance
Partners L.P. is managed by Insurance Partners Advisors L.P., of which Steven
B. Gruber, the son of Alan Gruber, Chairman of Guaranty, is a managing
director.

Mr. Richard R. Thomas, who is a director of Guaranty, is Chairman of the
Board and sole owner of ADCO General Corporation, a general agent of the
Company. ADCO has received from the Company gross commissions (including
contingency commissions), pursuant to a standard agency contract, of
approximately $731,000 in 1996 and is expected to receive gross commissions of
approximately the same amount during the current fiscal year.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange
Commission. Such persons are also required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file.

To the best of the Company's knowledge, based solely on review of the copies
of such reports furnished to the Company and written representations that no
other reports were required, all Section 16(a) filing requirements

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<PAGE>

applicable to transactions during 1996 by its officers, directors and greater
than 10% beneficial owners were complied with except for a report on Form 4 by
Mr. Roberts which was due on June 10, 1996, and filed on July 10, 1996.

2. APPROVAL OF THE GUARANTY NATIONAL CORPORATION EQUITY INCENTIVE PLAN

GENERAL

The Board of Directors adopted on October 29, 1996, a new stock plan
entitled the Guaranty National Corporation Equity Incentive Plan (the "Equity
Incentive Plan") for key employees of the Company. On the same date, the 1991
Incentive Plan was amended to conform to the provisions of the Equity
Incentive Plan. While no new stock options were provided for, 350,000
Performance Units were added to the benefits available under the older Plan.
The Equity Incentive Plan is effective as of October 29, 1996. However, no
stock-based award can be granted to any officer of Guaranty unless and until
the Equity Incentive Plan is approved by an affirmative vote of the holders of
a majority of the voting power of the Common Stock, present in person or
represented by proxy at the 1997 Annual Meeting of Stockholders and entitled
to vote thereon; provided, however, that a quorum is present at the meeting.

The Board of Directors believes that the Equity Incentive Plan will assist
the Company in attracting, retaining and rewarding key employees, will enable
such employees to acquire or increase a proprietary interest in the Company in
order to promote a closer identity of interests between such employees and the
Company's stockholders and will provide to such employees an increased
incentive to expend their maximum efforts for the success of the Company's
business. In addition, the Plan is intended to permit maximum flexibility in
granting or changing incentives in response to changes in both the Company and
its business, as well to permit the adoption of innovative compensation
arrangements.

The Equity Incentive Plan is intended to supplement and eventually replace
the Company's 1991 Incentive Plan. If the Equity Incentive Plan is approved by
the Company's stockholders any stock options and performance units previously
granted under the 1991 Incentive Plan will remain outstanding pursuant to the
terms of such Plan but no further awards will be made under that Plan.

A summary of the principal provisions of the Equity Incentive Plan is set
forth below. This summary is qualified in its entirety by reference to the
full text of the Equity Incentive Plan, which is attached as Exhibit A to this
Proxy Statement. Capitalized terms used herein will, unless otherwise defined,
have the meanings assigned to them in the text of the Equity Incentive Plan.

ADMINISTRATION

The Equity Incentive Plan will be administered by the Compensation Committee
(the "Committee") of the Board. The Company's By-Laws require that the
Committee shall consist only of directors who are not executive officers or
employees of the Company. The Committee is authorized, among other things, to
construe, interpret and implement the provisions of the Equity Incentive Plan,
to select the employees to whom awards will be granted, to determine the terms
and conditions of such awards and to make all other determinations deemed
necessary or advisable for the administration of the Equity Incentive Plan.

SHARES AVAILABLE

Under the Equity Incentive Plan, the aggregate number of shares of Common
Stock available for issuance will be 700,000 and the aggregate number of
Performance Units which can be awarded cannot exceed 350,000, subject in each
case to adjustment as described below. Such shares may be authorized and
unissued shares or treasury shares. On March 21, 1997, the closing price of
the Common Stock on the New York Stock Exchange was $18.00 per share.

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<PAGE>

If any shares of Common Stock subject to an award are forfeited or the award
is settled in cash or otherwise terminates for any reason whatsoever without
an actual distribution of shares, the shares subject to such award will again
be available for awards under the Equity Incentive Plan. If any Performance
Units awarded under the Equity Incentive Plan are forfeited or canceled, the
Performance Units will again be available for awards under the Equity
Incentive Plan. In the event that the Committee determines that any stock
dividend, recapitalization, forward split or reverse split, reorganization,
merger, consolidation, spin-off, combination, repurchase, or share exchange,
or other similar corporate transaction or event, affects the Common Stock or
the book value of the Company such that an adjustment is appropriate in order
to prevent dilution or enlargement of the rights of participants under the
Equity Incentive Plan, the Committee may adjust any or all of (i) the number
and kind of shares of Common Stock which may be issued in connection with
awards, (ii) the number and kind of shares of Common Stock issuable in respect
of outstanding awards, (iii) the aggregate number and kind of shares of Common
Stock available under the Equity Incentive Plan, (iv) the exercise price,
grant price, or purchase price relating to any award, or, if deemed
appropriate, the Committee may also provide for cash payments relating to
outstanding awards. The Committee may also adjust performance conditions and
other terms of awards in response to unusual or nonrecurring events (including
the kinds of events described in the preceding sentence) or to changes in
applicable laws, regulations, or accounting principles, except to the extent
that such adjustment would adversely affect the status of any outstanding
Performance Awards as "performance-based compensation" under Section 162(m) of
the Internal Revenue Code ("Code"), and (v) the number of Performance Units
which may thereafter be granted and the book value of the Company with respect
to outstanding Performance Units.

ELIGIBILITY

Persons eligible to participate in the Equity Incentive Plan include all key
employees of the Company and its subsidiaries, as determined by the Committee.
On December 17, 1996, the Committee made awards to 38 non-officers of Guaranty
National Corporation who are key employees of the Company or one of its
subsidiaries. See "Executive Compensation" for information on awards to the
named executive officers. While the specific individuals to whom awards will
be made in the future cannot be determined at this time, it is anticipated
that currently approximately 47 key employees are eligible for participation
in the Equity Incentive Plan.

AWARDS

The Equity Incentive Plan is designed to give the Committee the maximum
flexibility in providing incentive compensation to key employees. The Equity
Incentive Plan provides for the grant of incentive stock options, nonqualified
stock options, bonus stock, awards in lieu of cash obligations, and other
stock-based awards and Performance Units. The Equity Incentive Plan also
permits cash payments either as a separate award or as a supplement to a
stock-based award, and for the income and employment taxes imposed on a
participant in respect of any award. Since the Committee may, in its
discretion, grant a combination of an option, other stock-based awards and a
cash award, it is possible that one or more restrictions or requirements in
the Equity Incentive Plan applicable to any individual type of award,
including the requirements that options be granted at fair market value, can,
in effect, be avoided.

STOCK OPTIONS. The Committee is authorized to grant stock options, including
incentive stock options ("ISOs"), which can result in potentially favorable
tax treatment to the participant, and non-qualified stock options. The
exercise price per share of Common Stock subject to an option is determined by
the Committee, provided that the exercise price may not be less than the Fair
Market Value of the Common Stock on the date of grant. However, the Equity
Incentive Plan also allows the Committee to grant an option or other award
allowing the purchase of Common Stock at an exercise price or grant price less
than Fair Market Value when it is granted in substitution for some other award
or retroactively in tandem to an outstanding award. In those cases, the
exercise or grant price may be the Fair Market Value at that date, at the date
of the earlier award or at that date reduced by the Fair Market Value of the
award required to be surrendered as a condition to the receipt of the
substitute award. The terms of each option, the times at which each option
shall be exercisable, and provisions

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<PAGE>

requiring forfeiture or unexercised options at or following termination of
employment will be fixed by the Committee, except that no ISO will have a term
exceeding ten years. Options may be exercised by payment of the exercise price
in cash or in Common Stock, outstanding awards or other property (possibly
including notes or obligations to make payment on a deferred basis, or through
"cashless exercises") having a fair market value equal to the exercise price,
as the Committee may determine from time to time.

OTHER STOCK-BASED AWARDS. Bonus Stock and Awards in Lieu of Cash
Obligations. In order to enable the Company to respond to business and
economic developments and trends in executive compensation practices, the
Equity Incentive Plan authorizes the Committee to grant awards that are
denominated or payable in, or valued in whole or in part by reference to the
value of, Common Stock. The Committee determines the terms and conditions of
such awards, including consideration to be paid to exercise awards in the
nature of purchase rights, the period during which awards will be outstanding
and forfeiture conditions and restrictions on awards. In addition, the
Committee is authorized to grant shares as a bonus free of restrictions, or to
grant shares or other awards in lieu of Company obligations to pay cash or
deliver other property under other plans or compensatory arrangements, subject
to such terms as the Committee may specify.

CASH PAYMENTS. The Committee may grant the right to receive cash payments
whether as a separate award or as a supplement to any stock-based awards.
Also, to encourage participants to retain awards payable in stock by providing
a source of cash sufficient to pay the income and employment taxes imposed as
a result of a payment pursuant to, or the exercise or vesting of, any award,
the Equity Incentive Plan authorizes the Committee to grant a tax bonus in
respect of any award.

PERFORMANCE UNITS. The Committee is also authorized to grant Performance
Units. A Performance Unit is a right to receive a payment in cash equal to the
increase in the book value of the Company if specified performance goals
during a specified time period are met. The Committee has the discretion to
establish the performance goals and the performance periods relating to each
Performance Unit. A performance goal is a goal expressed in terms of growth in
book value, earnings per share, return on equity or any other financial or
other measurement selected by the Committee, in its discretion, and may relate
to the operations of the Company as a whole or any subsidiary, division or
department, and the performance periods may be of such lengths as the
Committee may select. Neither the performance goals nor the performance
periods need be identical for all Performance Units awarded at any time or
from time to time.

PERFORMANCE-BASED AWARDS. The Committee may (but is not required to) grant
awards pursuant to the Equity Incentive Plan to participant who, in the year
of grant, may be among the Company's Chief Executive Officer and the four
other most highly compensated executive officers, which are intended to
qualify as "performance-based compensation" under Section 162(m) of the Code
(a "Performance-Based Award"). If the Committee grants an award as a
Performance Based Award, the right to receive payment of such award, other
than stock options granted at not less than fair market value on the date of
grant, will be conditioned upon the achievement of performance goals
established by the Committee in writing at the time the Performance-Based
Award is granted. Such performance goals, which may vary from participant to
participant and Performance-Based Award to Performance-Based Award, will be
based upon (i) the attainment of specific amounts of, or increases in, one or
more of the following, any of which may be measured either in absolute terms
or as compared to another company or companies: revenues, earnings, cash flow,
net worth, book value, stockholder's equity, financial return ratios, market
performance or total stockholder return, and/or (ii) the completion of certain
business or capital transactions. Before any Performance-Based Award is paid,
the Committee will certify in writing that the performance goals applicable to
the Performance-Based Award were in fact satisfied. The maximum amount which
may be granted as Performance-Based Awards to any participant in any calendar
year shall not exceed (i) stock-based awards for 100,000 shares of Common
Stock (whether payable in cash or stock), subject to adjustment as provided in
the Equity Incentive Plan, (ii) 100,000 Performance Units, (iii) a tax bonus
payable with respect to the stock-based awards described in clause (i) and
Performance Units described in clause (ii), and (iv) cash payments (other than
tax bonuses) of $1,000,000. The Committee has the discretion to grant an award
to a participant who may be a Covered Employee which is not a Performance-
Based Award.

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<PAGE>

OTHER TERMS OF AWARDS

In the discretion of the Committee, awards may be settled in cash, Common
Stock, other awards or other property. The Committee may require or permit
participants to defer the distribution of all or part of an award in
accordance with such terms and conditions as the Committee may establish,
including payment of reasonable interest on any deferred amounts under the
Equity Incentive Plan. Awards granted under the Equity Incentive Plan may not
be pledged or otherwise encumbered and generally, unless the committee
determines otherwise, are not transferable except by will or by the laws of
descent and distribution, or otherwise if permitted under rule 16b-3 of the
Securities and Exchange Act of 1934 ("Exchange Act") and by the Committee.

The Equity Incentive Plan grants the Committee broad discretion in the
operation and administration of the Equity Incentive Plan. This discretion
includes the authority to make adjustments in the terms and conditions of, and
the criteria included in performance conditions related to, any awards in
recognition of unusual or recurring events affecting the Company or in
response to changes in applicable laws, regulations or accounting principles,
except to the extent that any such adjustment would adversely affect the
status of any outstanding award as a Performance-Based Award. Furthermore, the
Committee can waive any condition applicable to any award, and may adjust any
performance condition specified in connection with any award if such
adjustment, in the Committee's view, is necessary to take account of a change
in the Company's strategy, performance of comparable companies or other
circumstances except to the extent that such adjustment would adversely affect
the status of any outstanding award as Performance-Based Award.

Awards under the Equity Incentive Plan generally will be granted for no
consideration other than services. The Committee may, however, grant awards
alone, in addition to, in tandem with, or in substitution for, any other award
under the Equity Incentive Plan, other awards under other Company plans,
including the 1991 Incentive Plan, or other rights to payment from the
Company. Awards granted in addition to or in tandem with other awards may be
granted either at the same time or at different times. If an award is granted
in substitution for another award, the participant must surrender such other
award in consideration for the grant of the new award.

CHANGE OF CONTROL

In the event of a change of control of the Company, all awards granted under
the Equity Incentive Plan (including Performance Awards) that are still
outstanding and not yet vested or exercisable or which are subject to
restrictions, will become immediately 100% vested in each participant or will
be free of any restrictions, and will be exercisable for the remaining
duration of the award. All awards that are exercisable as of the effective
date of the change of control will remain exercisable for the remaining
duration of the award.

Under the Equity Incentive Plan, a change of control occurs upon any of the
following events: (i) the acquisition of beneficial ownership by any person,
other than (x) Orion or a direct or indirect subsidiary thereof of (y) a
trustee of other fiduciary holding securities under an employee benefit plan
of the Company or a subsidiary, of any securities of the Company such that, as
a result of such acquisition, such person, either (A) beneficially owns more
than 20% of the Company's outstanding voting securities entitled to vote on a
regular basis for a majority of the members of the Board of Directors or (B)
otherwise has the ability to elect a majority of the members of the Board of
Directors; (ii) a change in the composition of the Board of Directors such
that a majority of the members of the Board of Directors are not Continuing
Directors; or (iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 80% of the total voting power represented by the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of all or substantially all of the
Company's assets. The foregoing events will not be deemed to be a change of
control if the transaction or transactions causing such change were approved
in advance by the affirmative vote of at least a majority of the Continuing
Directors.

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AMENDMENT AND TERMINATION

The Board of Directors may amend, alter, suspend, discontinue, or terminate
the Equity Incentive Plan or the Committee's authority to grant awards
thereunder without further stockholder approval or the consent of the
participants, except stockholder approval must be obtained within one year
after the effectiveness of such action if required by law or regulation or
under the rules of the securities exchange on which the Common Stock is then
quoted or listed or as otherwise required by Rule 16b-3 under the Exchange
Act. Notwithstanding the foregoing, unless approved by the stockholders, no
amendment will: (i) change the class of persons eligible to receive awards;
(ii) materially increase the benefits accruing to participants under the
Equity Incentive Plan; or (iii) increase the number of shares of common Stock
subject to the Equity Incentive Plan.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES
TO THE COMPANY AND THE PARTICIPANT

The following discussion is a brief summary of the principal United States
Federal income tax consequences under current Federal income tax laws relating
to awards under the Equity Incentive Plan. This summary is not intended to be
exhaustive and, among other things, does not describe state, local or foreign
income and other tax consequences.

A participant will not realize any income upon the award of an option
(including any other stock-based award in the nature of a purchase right) or a
Performance Unit, nor will the Company be entitled to any tax deduction.

When a participant who has been granted an option which is not an ISO
exercises that option and receives Common Stock which is either "transferable"
or not subject to a "substantial risk of forfeiture" under Section 83(c) of
the Code, the participant will realize compensation income subject to
withholding taxes. The amount of that compensation income will equal the
excess of the fair market value of the Common Stock (without regard to any
restrictions) on the date of exercise of the option over its exercise price,
and the Company will generally be entitled to a tax deduction in the same
amount and at the same time as the compensation income is realized by the
participant. The participant's tax basis for the common Stock so acquired will
equal the sum of the compensation income realized and the exercise price. Upon
any subsequent sale or exchange of the Common Stock, the gain or loss will
generally be taxed as a capital gain or loss and will be a long-term capital
gain or loss if the Common Stock has been held for more than one year after
the date of exercise.

If a participant exercises an option which is an ISO and the participant has
been an employee of the Company or its subsidiaries throughout the period from
the date of grant of the ISO until three months prior to its exercise, the
participant will not realize any income upon the exercise of the ISO (although
alternative minimum tax liability may result), and the Company will not be
entitled to any tax deduction. If the participant sells or exchanges any of
the shares acquired upon the exercise of the ISO more than one year after the
transfer of the shares to the participant and more than two years after the
date of grant of the ISO, any gain or loss (based upon the difference between
the amount realized and the exercise price of the ISO) will be treated as
long-term capital gain or loss to the participant. If such sale, exchange or
other disposition takes place within two years of the grant of the ISO or
within one year of the transfer of shares to the participant, the sale,
exchange or other disposition will generally constitute a "disqualifying
disposition" of such shares. As a result, to the extent that the gain realized
on the disqualifying disposition does not exceed the difference between the
fair market value of the shares at the time of the exercise of the ISO over
the exercise price, such amount will be treated as compensation income in the
year of the disqualifying disposition, and the company will be entitled to a
deduction in the same amount and at the same time as the compensation income
is realized by the participant. The balance of the gain, if any, will be
treated as capital gain and will not result in any deduction by the Company.

With respect to other awards (including a Performance Unit) granted under
the Equity Incentive Plan that may be settled either in cash or in Common
Stock or other property that is either transferable or not subject to a
substantial risk of forfeiture under section 83(c) of the Code, the
participant will realize compensation income

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(subject to withholding taxes) equal to the amount of cash or the fair market
value of the Common Stock or other property received. The Company will be
entitled to a deduction in the same amount and at the same time as the
compensation income is realized by the participant.

With respect to awards involving Common Stock or other property that is both
nontransferable and subject to a substantial risk of forfeiture, unless an
election is made under Section 83(b) of the Code, as described below, the
participant will realize compensation income equal to the fair market value of
the Common Stock or other property received at the first time the Common Stock
or other property is either transferable or not subject to a substantial risk
of forfeiture. The Company will be entitled to a deduction in the same amount
and at the same time as the compensation income is realized by the
participant.

Even though Common Stock or other property may be non-transferable and
subject to a substantial risk of forfeiture, a participant may elect (within
30 days of receipt of the Common Stock or other property) to include in gross
income the fair market value (determined without regard to such restrictions)
of such Common Stock or other property at the time it is received. In that
event, the participant will not realize any income at the time the Common
Stock or other property either becomes transferable or is not subject to a
substantial risk of forfeiture, but if the participant subsequently forfeits
such Common Stock or other property, the participant's loss would be limited
to only the amount actually paid for the Common Stock or other property. While
such Common Stock or other property remains nontransferable and subject to a
substantial risk of forfeiture, any dividends or other income will be taxable
as additional compensation income. Finally, special rules may apply with
respect to participants subject to Section 16(b) of the Exchange Act.

The Committee may condition the payment, exercise or vesting of any award on
the payment of the withholding taxes and may provide that a portion of the
Common Stock or other property to be distributed will be withheld (or
previously acquired stock or other property will be surrendered by the
participant) to satisfy such withholding and other tax obligations.

Finally, amounts paid pursuant to an award which vests or becomes
exercisable, or with respect to which restrictions lapse, upon a change in
control may constitute a "parachute payment" under Section 280G of the Code.
To the extent any such payment constitutes an "excess parachute payment," the
Company would not be entitled to deduct such payment and the participant would
be subject to a 20 percent excise tax (in addition to regular income tax).

SECTION 162(M) PROVISIONS

The Equity Incentive Plan was designed to permit the deduction by the
Company of the compensation realized by certain officers in respect of long-
term incentive compensation granted under the Equity Incentive Plan which is
intended by the Committee to qualify as "performance-based compensation" under
Section 162(m) of the Code. This section generally disallows a deduction to
the Company for compensation paid in any year in excess of $1 million to the
Covered Employees. Certain compensation, including compensation that meets the
specified requirements for "performance-based compensation," is not subject to
this deduction limit. Among the requirements for compensation to qualify as
"performance-based compensation" is that the material terms pursuant to which
the compensation is to be paid be disclosed to, and approved by, the
stockholders of the Company in a separate vote prior to the payment.
Accordingly, if the Equity Incentive Plan is approved by the stockholders,
then the compensation payable pursuant to awards granted to officers who in
the year of grant may be Covered Employees and which are intended by the
Committee to qualify as "performance-based compensation" should, provided the
other requirements of Section 162(m) of the Code are satisfied, not be subject
to the deduction limit of Section 162(m).

AWARDS OUTSTANDING

On December 17, 1996, the Compensation Committee awarded, under the Equity
Incentive Plan, options for 162,747 shares of Common Stock and 30,545
Performance Units, to 38 current employees of the company.

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No awards were made to the officers of the Company under the Equity Incentive
Plan but 100,002 options and 18,614 Performance Units were awarded to such
officers on the same date pursuant to the 1991 Incentive Plan.

The options awarded all have an exercise price of $16.875 per share and have
an expiration date of December 17, 2006. The Restricted Stock and Performance
Units all vest over four years, ending on December 17, 2000. The closing sale
price of the Company's Common Stock on the New York Stock Exchange on March
21, 1997 was $18.00.

The Committee has determined that Performance Units awarded on that date
will have Performance Targets based in part on a 15% compounded average annual
increase in the Company's book value per share during a four-year Performance
Period, and in part on an 11% compounded increase in the book value of Orion's
shares. For purposes of these calculations, dividend payments by Guaranty, but
not Orion, will be added to book value. As Performance Units vest, the
percentage of book value earned will be based on a performance scale so that
targeted increases must be achieved to obtain 100% of the award. Lesser
percentages will be payable at lower levels of increases in book value. The
Committee has fixed levels of increase below which the individual employees
will receive no award.

SHAREHOLDER APPROVAL

Unless the Equity Incentive Plan is approved by the stockholders, no awards
under the Equity Plan can be made to officers of the Company, but awards will
continue to be made to key employees of the Company and its subsidiaries who
are not officers of the Company.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.

PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO VOTED, UNLESS
STOCKHOLDERS SPECIFY A CONTRARY VOTE.

3. RATIFICATION OF SELECTION OF AUDITORS

The Board has selected Deloitte & Touche LLP, independent certified public
accountants, as independent auditors for the Company for the year 1997. A
resolution will be submitted to stockholders at the meeting for ratification
of such selection and the accompanying proxy will be voted for such
ratification, unless instructions to the contrary are indicated therein.
Although ratification by stockholders is not a legal prerequisite to the
Board's selection of Deloitte & Touche LLP as the Company's independent
certified public accountants, the Company believes such ratification to be
appropriate. If the stockholders do not ratify the selection of Deloitte &
Touche LLP, the selection of independent certified public accountants will be
reconsidered by the Board; however, the Board may select Deloitte & Touche
LLP, notwithstanding the failure of the stockholders to ratify its selection.

The Board expects that representatives of Deloitte & Touche LLP will be
present at the meeting, will have an opportunity to make a statement if they
so desire, and will be available to respond to appropriate questions.

Deloitte & Touche LLP (or its predecessor, Touche Ross & Co.) have been the
Company's independent certified public accountants since 1985. During that
period, the firm has also served as Orion's independent certified public
accountants. During the fiscal year ended December 31, 1996, Deloitte & Touche
LLP performed audit and other services for the Company including attendance at
meetings with the Audit Committee and the Board on matters related to the
audit, consultations during the year on matters related to accounting,
financial reporting, loss reserve analysis, and the review of financial and
related information that was included in filings with the Securities and
Exchange Commission and other regulatory agencies.

The appointment of auditors is approved annually by the Board. The decision
of the Board is based upon the recommendation of the Audit Committee of the
Board. In making its recommendation as to the appointment

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of auditors, the Audit Committee reviews both the proposed audit scope and the
estimated audit fees for the coming year.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.

4. MISCELLANEOUS MATTERS

As of the date of this statement, the Board knows of no business that will
be presented for consideration at the meeting other than that which has been
referred to above. As to other business, if any, that may come before the
meeting, proxies in the enclosed form will be voted in accordance with the
judgment of the person or persons voting the proxies.

SHAREHOLDER NOMINATIONS AND PROPOSALS

The Company's By-Laws require that there be furnished to the Company written
notice with respect to the nomination of a person for election as a director
(other than a person nominated at the direction of the Board), as well as the
submission of a proposal (other than a proposal submitted at the direction of
the Board), at a meeting of stockholders. In order for any such nomination or
submission to be proper with respect to the 1998 Annual Meeting, which will be
held on May 12, 1998, the notice must contain certain information concerning
the nominating or proposing shareholder, and the nominee or the proposal, as
the case may be, and must be furnished to the Company between February 10 and
March 7, 1998. A copy of the applicable provisions of the By-Laws may be
obtained by a shareholder, without charge, upon written request to the
Secretary of the Company at its principal executive offices.

In addition to the foregoing, in accordance with the rules of the Securities
and Exchange Commission ("SEC"), any proposal of a shareholder intended to be
presented at the Company's 1998 Annual Meeting of Shareholders must be
received by the Secretary of the Company by January 23, 1998 in the form and
subject to the other requirements of the applicable rules of the SEC, in order
for the proposal to be considered for inclusion in the Company's notice of
meeting, proxy statement and proxy relating to the 1998 Annual Meeting.

COST OF PROXY SOLICITATION

The Company will bear the cost of the solicitation of proxies, including the
charges and expenses of brokerage firms and others for forwarding solicitation
material to beneficial owners of shares of Common Stock. In addition to
solicitation by mail, officers and regular employees of the Company may
solicit proxies personally or by telephone. No compensation other than their
regular compensation will be paid to officers or employees for any
solicitation which they may make.

At any time prior to being voted, the enclosed proxy is revocable by written
notice to the Secretary of the Company or by appearance at the meeting to vote
in person.

By order of the Board of Directors.

/s/ Beverly A. Silk
-------------------
Beverly A. Silk
Secretary

March 27, 1997

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EXHIBIT A

GUARANTY NATIONAL CORPORATION

EQUITY INCENTIVE PLAN

Section 1. Purpose of the Plan

The purpose of the Guaranty National Corporation Equity Incentive Plan (the
"Plan") is to further the interests of Guaranty National Corporation (the
"Company") and its shareholders by providing long-term performance incentives
to those key employees of the Company and its Subsidiaries who are largely
responsible for the management, growth and protection of the business of the
Company and its Subsidiaries.

Section 2. Definitions

For purposes of the Plan, the following terms shall be defined as set forth
below:

(a) "Award" means any Option, Performance Unit, Restricted Stock, Stock
granted as a bonus or in lieu of other awards, other Stock-Based Award, Tax
Bonus or other cash payments granted to a Participant under the Plan.

(b) "Award Agreement" shall mean the written agreement, instrument or
document evidencing an Award.

(c) "Change of Control" means and includes each of the following: (i) the
acquisition, in one or more transactions, of beneficial ownership (within the
meaning of Rule 13d-3 under the Exchange Act) by any person or entity or any
group of persons or entities who constitute a group (within the meaning of
Section 13(d)(3) of the Exchange Act), other than (x) Orion Capital
Corporation or a direct or indirect subsidiary thereof or (y) a trustee or
other fiduciary holding securities under an employee benefit plan of the
Company or a Subsidiary, of any securities of the Company such that, as a
result of such acquisition, such person, entity or group either (A)
beneficially owns (within the meaning of Rule l3d-3 under the Exchange Act),
directly or indirectly, more than 20% of the Company's outstanding voting
securities entitled to vote on a regular basis for a majority of the members
of the Board of Directors of the Company or (B) otherwise has the ability to
elect, directly or indirectly, a majority of the members of the Board; (ii) a
change in the composition of the Board of Directors of the Company such that a
majority of the members of the Board of Directors of the Company are not
Continuing Directors; or (iii) the stockholders of the Company approve a
merger or consolidation of the Company with any other corporation, other than
a merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities of the
surviving entity) at least 80% of the total voting power represented by the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one or more transactions)
all or substantially all of the Company's assets.

Notwithstanding the foregoing, the preceding events shall not be deemed to
be a Change of Control if, prior to any transaction or transactions causing
such change, a majority of the Continuing Directors shall have voted not to
treat such transaction or transactions as resulting in a Change of Control.

(d) "Code" means the Internal Revenue Code of 1986, as amended from time to
time.

(e) A "Continuing Director" means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of such
Board on the effective date of the Plan or (ii) was nominated for election or
elected to such Board with the affirmative vote of a majority of either the
Continuing Directors who were members of such Board at the time of such
nomination or election, or the shares beneficially owned by Orion Capital
Corporation and its subsidiaries.

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(f) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.

(g) "Fair Market Value" means, with respect to Stock, Awards, or other
property, the fair market value of such Stock, Awards, or other property
determined by such methods or procedures as shall be established from time to
time by the Committee in good faith and in accordance with applicable law.
Unless otherwise determined by the Committee, the Fair Market Value of Stock
shall mean the mean of the high and low sales prices of Stock on the relevant
date as reported on the stock exchange or market on which the Stock is
primarily traded, or if no sale is made on such date, then the Fair Market
Value is the weighted average of the mean of the high and low sales prices of
the Stock on the next preceding day and the next succeeding day on which such
sales were made, as reported on the stock exchange or market on which the
Stock is primarily traded.

(h) "ISO" means any Option designated as an incentive stock option within
the meaning of Section 422 of the Code.

(i) "Option" means a right granted to a Participant pursuant to Section 6(b)
to purchase Stock at a specified price during specified time periods. An
Option may be either an ISO or a nonstatutory Option (an Option not designated
as an ISO).

(j) "Performance Unit" means a right granted to a Participant pursuant to
Section 6(c) to receive a payment in cash and or stock equal to the increase
in the book value of the Company during specified time periods if specified
performance goals are met.

(k) "Stock-Based Award" means a right that may be denominated or payable in,
or valued in whole or in part by reference to the market value of, Stock,
including, but not limited to, any Option, Stock granted as a bonus or Awards
in lieu of cash obligations.

(l) "Subsidiary" shall mean any corporation, partnership, joint venture or
other business entity of which 50% or more of the outstanding voting power is
beneficially owned, directly or indirectly, by the Company.

(m) "Tax Bonus" means a payment in cash in the year in which an amount is
included in the gross income of a Participant in respect of an Award of an
amount equal to the federal, foreign, if any, and applicable state and local
income and employment tax liabilities payable by the Participant as a result
of (i) the amount included in gross income in respect of the Award and (ii)
the payment of the amount in clause (i) and the amount in this clause (ii).
For purposes of determining the amount to be paid to the Participant pursuant
to the preceding sentence, the Participant shall be deemed to pay federal,
foreign, if any, and state and local income taxes at the highest marginal rate
of tax imposed upon ordinary income for the year in which an amount in respect
of the Award is included in gross income, after giving effect to any
deductions therefrom or credits available with respect to the payment of any
such taxes.

Section 3. Administration of the Plan

The Plan shall be administered by the Compensation Committee of the Board of
Directors of the Company (the "Committee"). No member of the Committee while
serving as such shall be eligible for participation in the Plan. Any action of
the Committee in administering the Plan shall be final, conclusive and binding
on all persons, including the Company, its Subsidiaries, employees,
Participants, persons claiming rights from or through Participants and
stockholders of the Company.

Subject to the provisions of the Plan, the Committee shall have full and
final authority in its discretion (a) to select the key employees who will
receive Awards pursuant to the Plan ("Participants"), (b) to determine the
type or types of Awards to be granted to each Participant, (c) to determine
the number of shares of Stock to which an Award will relate, the terms and
conditions of any Award granted under the Plan (including, but not limited to,
restrictions as to transferability or forfeiture, exercisability or settlement
of an Award and waivers or accelerations thereof, and waivers of or
modifications to performance conditions relating to an Award, based in each
case on such considerations as the Committee shall determine) and all other
matters to be determined in

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connection with an Award; (d) to determine whether, to what extent, and under
what circumstances an Award may be settled, or the exercise price of an Award
may be paid, in cash, Stock, other Awards or other property, or an Award may
be cancelled, forfeited, or surrendered; (e) to determine whether, and to
certify that, performance goals to which the settlement of an Award is subject
are satisfied; (f) to correct any defect or supply any omission or reconcile
any inconsistency in the Plan, and to adopt, amend and rescind such rules and
regulations as, in its opinion, may be advisable in the administration of the
Plan; and (g) to make all other determinations as it may deem necessary or
advisable for the administration of the Plan. The Committee may delegate to
officers or managers of the Company or any Subsidiary or to unaffiliated
service providers the authority, subject to such terms as the Committee shall
determine, to perform administrative functions and to perform such other
functions as the Committee may determine, to the extent permitted under Rule
16b-3, Section 162(m) of the Code and applicable law.

Section 4. Participation in the Plan

Participants in the Plan shall be selected by the Committee from among the
key employees of the Company and its Subsidiaries.

Section 5. Plan Limitations; Shares Subject to the Plan

(a) Subject to the provisions of Section 8(a) hereof, the aggregate number
of shares of common stock, $1.00 par value, of the Company (the "Stock")
available for issuance as Awards under the Plan shall not exceed 700,000
shares.

No Award may be granted if the number of shares to which such Award relates,
when added to the number of shares previously issued under the Plan and the
number of shares which may then be acquired pursuant to other outstanding,
unexercised Awards, exceeds the number of shares available for issuance
pursuant to the Plan. If any shares subject to an Award are forfeited or such
Award is settled in cash or otherwise terminates for any reason whatsoever
without an actual distribution of shares to the Participant, any shares
counted against the number of shares available for issuance pursuant to the
Plan with respect to such Award shall, to the extent of any such forfeiture,
settlement, or termination, again be available for Awards under the Plan;
provided, however, that the Committee may adopt procedures for the counting of
shares relating to any Award to ensure appropriate counting, avoid double
counting, and provide for adjustments in any case in which the number of
shares actually distributed differs from the number of shares previously
counted in connection with such Award.

(b) Subject to the provisions of Section 8(a) hereof, the aggregate number
of Performance Units which may be awarded under the Plan shall not exceed
350,000. If any Performance Units awarded under the Plan shall be forfeited or
cancelled, such Performance Units shall thereafter be available for award
under the Plan.

Section 6. Awards

(a) General. Awards may be granted on the terms and conditions set forth in
this Section 6. In addition, the Committee may impose on any Award or the
exercise thereof, at the date of grant or thereafter (subject to Section
8(a)), such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall determine, including terms
requiring forfeiture of Awards in the event of termination of employment by
the Participant; provided, however, that the Committee shall retain full power
to accelerate or waive any such additional term or condition as it may have
previously imposed. All Awards shall be evidenced by an Award Agreement.

(b) Options. The Committee may grant Options to Participants on the
following terms and conditions:

(i) Exercise Price. The exercise price of each Option shall be determined
by the Committee at the time the Option is granted, but (except as provided
in Section 7(a)) the exercise price of any Option shall not be less than
the Fair Market Value of the shares covered thereby at the time the Option
is granted.

(ii) Time and Method of Exercise. The Committee shall determine the time
or times at which an Option may be exercised in whole or in part, whether
the exercise price shall be paid in cash or by the surrender at

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Fair Market Value of Stock, or by any combination of cash and shares of
Stock, including, without limitation, cash, Stock, other Awards, or other
property (including notes or other contractual obligations of Participants
to make payment on a deferred basis, such as through "cashless exercise"
arrangements, to the extent permitted by applicable law), and the methods
by which Stock will be delivered or deemed to be delivered to Participants.

(iii) Incentive Stock Options. The terms of any Option granted under the
Plan as an ISO shall comply in all respects with the provisions of Section
422 of the Code, including, but not limited to, the requirement that no ISO
shall be granted more than ten years after the effective date of the Plan.

(c) Performance Units. The Committee is authorized to grant Performance
Units to Participants on the following terms and conditions:

(i) Performance Criteria and Period. At the time it makes an award of
Performance Units, the Committee shall establish both the performance goal
or goals and the performance period or periods applicable to the
Performance Units so awarded. A performance goal shall be a goal, expressed
in terms of growth in book value, earnings per share, return on equity or
any other financial or other measurement deemed appropriate by the
Committee, or may relate to the results of operations or other measurable
progress of either the Company as a whole or the Participant's Subsidiary,
division or department. The performance period will be the period of time
over which one or more of the performance goals must be achieved, which may
be of such length as the Committee, in its discretion, shall select.
Neither the performance goals nor the performance periods need be identical
for all Performance Units awarded at any time or from time to time. The
Committee shall have the authority, in its discretion, to accelerate the
time at which any performance period will expire or waive or modify the
performance goals of any Participant or Participants. The Committee may
also make such adjustments, to the extent it deems appropriate, to the
performance goals for any Performance Units awarded to compensate for, or
to reflect, any material changes which may have occurred in accounting
practices, tax laws, other laws or regulations, the financial structure of
the Company, acquisitions or dispositions of business or Subsidiaries or
any unusual circumstances outside of management's control which, in the
sole judgment of the Committee, alters or affects the computation of such
performance goals or the performance of the Company or any relevant
Subsidiary, division or department.

(ii) Value of Performance Units. The value of each Performance Unit at
any time shall equal the book value per share of the Company's Stock, as
such value appears on the consolidated balance sheet of the Company as of
the end of the fiscal quarter immediately preceding the date of valuation.

(d) Bonus Stock and Awards in Lieu of Cash Obligations. The Committee is
authorized to grant Stock as a bonus, or to grant Stock or other Awards in
lieu of Company or Subsidiary obligations to pay cash or deliver other
property under other plans or compensatory arrangements; provided that, in the
case of Participants subject to Section 16 of the Exchange Act, such cash
amounts are determined under such other plans in a manner that complies with
applicable requirements of Rule 16b-3 so that the acquisition of Stock or
Awards hereunder shall be exempt from Section 16(b) liability. Stock or Awards
granted hereunder shall be subject to such other terms as shall be determined
by the Committee.

(e) Other Stock-Based Awards. The Committee is authorized, subject to
limitations under applicable law, to grant to Participants such other Stock-
Based Awards in addition to those provided in Section 6(b) hereof, as deemed
by the Committee to be consistent with the purposes of the Plan. The Committee
shall determine the terms and conditions of such Awards. Stock delivered
pursuant to an Award in the nature of a purchase right granted under this
Section 6(f) shall be purchased for such consideration and paid for at such
times, by such methods, and in such forms, including, without limitation,
cash, Stock, other Awards, or other property, as the Committee shall
determine.

(f) Cash Payments. The Committee is authorized, subject to limitations under
applicable law, to grant to Participants Tax Bonuses and other cash payments,
whether awarded separately or as a supplement to any Stock-Based Award. The
Committee shall determine the terms and conditions of such Awards.

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Section 7. Additional Provisions Applicable to Awards

(a) Stand-Alone, Additional, Tandem, and Substitute Awards. Awards granted
under the Plan may, in the discretion of the Committee, be granted either
alone or in addition to, in tandem with, or in substitution for, any other
Award granted under the Plan or any award granted under any other plan of the
Company or any Subsidiary, or any business entity acquired by the Company or
any Subsidiary, or any other right of a Participant to receive payment from
the Company or any Subsidiary. If an Award is granted in substitution for
another Award or award, the Committee shall require the surrender of such
other Award or award in consideration for the grant of the new Award. Awards
granted in addition to, or in tandem with other Awards or awards may be
granted either as of the same time as, or a different time from, the grant of
such other Awards or awards. The per share exercise price of any Option, or
purchase price of any other Award conferring a right to purchase Stock:

(i) granted in substitution for an outstanding Award or award, shall be
not less than the lesser of (A) the Fair Market Value of a share of Stock
at the date such substitute Award is granted or (B) such Fair Market Value
at that date, reduced to reflect the Fair Market Value at that date of the
Award or award required to be surrendered by the Participant as a condition
to receipt of the substitute Award; or

(ii) retroactively granted in tandem with an outstanding Award or award,
shall not be less than the lesser of the Fair Market Value of a share of
Stock at the date of grant of the later Award or at the date of grant of
the earlier Award or award.

(b) Exchange and Buy Out Provisions. The Committee may at any time offer to
exchange or buy out any previously granted Award for a payment in cash, Stock,
other Awards (subject to Section 7(a)), or other property based on such terms
and conditions as the Committee shall determine and communicate to a
Participant at the time that such offer is made.

(c) Performance Conditions. The right of a Participant to exercise or
receive a grant or settlement of any Award, and the timing thereof, may be
subject to such performance conditions as may be specified by the Committee.

(d) Term of Awards. The term of each Award shall, except as provided herein,
be for such period as may be determined by the Committee; provided, however,
that in no event shall the term of any ISO exceed a period of ten years from
the date of its grant (or such shorter period as may be applicable under
Section 422 of the Code).

(e) Form of Payment. Subject to the terms of the Plan and any applicable
Award Agreement, payments or transfers to be made by the Company or a
Subsidiary upon the grant or exercise of an Award may be made in such forms as
the Committee shall determine, including, without limitation, cash, Stock,
other Awards, or other property (and may be made in a single payment or
transfer, in installments, or on a deferred basis), in each case determined in
accordance with rules adopted by, and at the discretion of, the Committee.
(Such payments may include, without limitation, provisions for the payment or
crediting of reasonable interest on installments or deferred payments.) The
Committee, in its discretion, may accelerate any payment or transfer upon a
change in control as defined by the Committee. The Committee may also
authorize payment upon the exercise of an Option by net issuance or other
cashless exercise methods.

(f) Loan Provisions. With the consent of the Committee, and subject at all
times to laws and regulations and other binding obligations or provisions
applicable to the Company, the Company may make, guarantee, or arrange for a
loan or loans to a Participant with respect to the exercise of any Option or
other payment in connection with any Award, including the payment by a
Participant of any or all federal, state, or local income or other taxes due
in connection with any Award. Subject to such limitations, the Committee shall
have full authority to decide whether to make a loan or loans hereunder and to
determine the amount, terms, and provisions of any such loan or loans,
including the interest rate to be charged in respect of any such loan or
loans, whether the loan or loans are to be with or without recourse against
the borrower, the terms on which the loan is to be repaid and the conditions,
if any, under which the loan or loans may be forgiven.

A-5
<PAGE>

(g) Awards to Comply with Section 162(m). The Committee may (but is not
required to) grant an Award pursuant to the Plan to a Participant who, in the
year of grant, may be a "Covered Employee," within the meaning of Section
162(m) of the Code, which is intended to qualify as "performance-based
compensation" under Section 162(m) of the Code (a "Performance-Based Award").
The right to receive a Performance-Based Award, other than Options granted at
not less than Fair Market Value, shall be conditional upon the achievement of
performance goals established by the Committee in writing at the time such
Performance-Based Award is granted. Such performance goals, which may vary
from Participant to Participant and Performance-Based Award to Performance-
Based Award, shall be based upon the attainment by the Company or any
Subsidiary, division or department of specific amounts of, or increases in,
one or more of the following, any of which may be measured either in absolute
terms or as compared to another company or companies: revenues, earnings, cash
flow, net worth, book value, stockholders' equity, financial return ratios,
market performance or total stockholder return, and/or the completion of
certain business or capital transactions. Before any compensation pursuant to
a Performance-Based Award is paid, the Committee shall certify in writing that
the performance goals applicable to the Performance-Based Award were in fact
satisfied.

The maximum amount which may be granted as Performance-Based Awards to any
Participant in any calendar year shall not exceed (i) Stock-Based Awards for
100,000 shares of Stock (whether payable in cash or stock), subject to
adjustment as provided in Section 8(a) hereof, (ii) 100,000 Performance Units,
(iii) a Tax bonus payable with respect to the Stock-Based Awards described in
clause (i) and Performance Units described in clause (ii), and (iv) cash
payments (other than Tax Bonuses) of $1,000,000.

(h) Change of Control. In the event of a Change of Control of the Company,
all Awards granted under the Plan (including Performance-Based Awards) that
are still outstanding and not yet vested or exercisable or which are subject
to restrictions shall become immediately 100% vested in each Participant or
shall be free of any restrictions, as of the first date that the definition of
Change of Control has been fulfilled, and shall be exercisable for the
remaining duration of the Award. All Awards that are exercisable as of the
effective date of the Change of Control will remain exercisable for the
remaining duration of the Award.

Section 8. Adjustments upon Changes in Capitalization; Acceleration in Certain
Events

(a) In the event that the Committee shall determine that any stock dividend,
recapitalization, forward split or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase or share exchange, or other
similar corporate transaction or event, affects the Stock or the book value of
the Company such that an adjustment is appropriate in order to prevent
dilution or enlargement of the rights of Participants under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any or all of
(i) the number and kind of shares of Stock which may thereafter be issued in
connection with Awards, (ii) the number and kind of shares of Stock issuable
in respect of outstanding Awards, (iii) the aggregate number and kind of
shares of Stock available under the Plan, (iv) the number of Performance Units
which may thereafter be granted and the book value of the Company with respect
to outstanding Performance Units, and (v) the exercise price, grant price, or
purchase price relating to any Award or, if deemed appropriate, make provision
for a cash payment with respect to any outstanding Award; provided, however,
in each case, that no adjustment shall be made which would cause the Plan to
violate Section 422(b)(1) of the Code with respect to ISOs or would adversely
affect the status of a Performance-Based Award as "performance-based
compensation" under Section 162(m) of the Code.

(b) In addition, the Committee is authorized to make adjustments in the
terms and conditions of, and the criteria included in, Awards in recognition
of unusual or nonrecurring events (including, without limitation, events
described in the preceding paragraph) affecting the Company or any Subsidiary,
or in response to changes in applicable laws, regulations, or accounting
principles. Notwithstanding the foregoing, no adjustment shall be made in any
outstanding Performance-Based Awards to the extent that such adjustment would
adversely affect the status of that Performance-Based Award as "performance-
based compensation" under Section 162(m) of the Code.

A-6
<PAGE>

Section 9. General Provisions

(a) Changes to the Plan and Awards. The Board of Directors of the Company
may amend, alter, suspend, discontinue, or terminate the Plan or the
Committee's authority to grant Awards under the Plan without the consent of
the Company's stockholders or Participants, except that any such amendment,
alteration, suspension, discontinuation, or termination shall be subject to
the approval of the Company's stockholders within one year after such Board
action if such stockholder approval is required by any federal or state law or
regulation or the rules of any stock exchange or automated quotation system on
which the Stock may then be listed or quoted, and the Board may otherwise, in
its discretion, determine to submit other such changes to the Plan to the
stockholders for approval; provided, however, that without the consent of an
affected Participant, no amendment, alteration, suspension, discontinuation,
or termination of the Plan may materially and adversely affect the rights of
such Participant under any Award theretofore granted and any Award Agreement
relating thereto. The Committee may waive any conditions or rights under, or
amend, alter, suspend, discontinue, or terminate, any Award theretofore
granted and any Award Agreement relating thereto; provided, however, that
without the consent of an affected Participant, no such amendment, alteration,
suspension, discontinuation, or termination of any Award may materially and
adversely affect the rights of such Participant under such Award.

The foregoing notwithstanding, any performance condition specified in
connection with an Award shall not be deemed a fixed contractual term, but
shall remain subject to adjustment by the Committee, in its discretion at any
time in view of the Committee's assessment of the Company's strategy,
performance of comparable companies, and other circumstances, except to the
extent that any such adjustment to a performance condition would adversely
affect the status of a Performance-Based Award as "performance-based
compensation" under Section 162(m) of the Code.

Notwithstanding the foregoing, if the Plan is ratified by the stockholders
of the Company at the Company's 1997 Annual Meeting of Stockholders, then
unless approved by the stockholders of the Company, no amendment will: (i)
change the class of persons eligible to receive Awards; (ii) materially
increase the benefits accruing to Participants under the Plan, or (iii)
increase the number of shares of Stock or the number of Performance Units
subject to the Plan.

(b) No Right to Award or Employment. No employee or other person shall have
any claim or right to receive an Award under the Plan. Neither the Plan nor
any action taken hereunder shall be construed as giving any employee any right
to be retained in the employ of the Company or any Subsidiary.

(c) Taxes. The Company or any Subsidiary is authorized to withhold from any
Award granted, any payment relating to an Award under the Plan, including from
a distribution of Stock or any payroll or other payment to a Participant
amounts of withholding and other taxes due in connection with any transaction
involving an Award, and to take such other action as the Committee may deem
advisable to enable the Company and Participants to satisfy obligations for
the payment of withholding taxes and other tax obligations relating to any
Award. This authority shall include authority to withhold or receive Stock or
other property and to make cash payments in respect thereof in satisfaction of
a Participant's tax obligations.

(d) Limits on Transferability; Beneficiaries. No Award or other right or
interest of a Participant under the Plan shall be pledged, encumbered, or
hypothecated to, or in favor of, or subject to any lien, obligation, or
liability of such Participants to, any party, other than the Company or any
Subsidiary, or assigned or transferred by such Participant otherwise than by
will or the laws of descent and distribution, and such Awards and rights shall
be exercisable during the lifetime of the Participant only by the Participant
or his or her guardian or legal representative. Notwithstanding the foregoing,
the Committee may, in its discretion, provide that Awards or other rights or
interests of a Participant granted pursuant to the Plan (other than an ISO) be
transferable, without consideration, to immediate family members (i.e.,
children, grandchildren or spouse), to trusts for the benefit of such
immediate family members and to partnerships in which such family members are
the only partners. The Committee may attach to such transferability feature
such terms and conditions as it deems advisable. In addition, a Participant
may, in the manner established by the Committee, designate a beneficiary
(which may be a person

A-7
<PAGE>

or a trust) to exercise the rights of the Participant, and to receive any
distribution, with respect to any Award upon the death of the Participant. A
beneficiary, guardian, legal representative or other person claiming any
rights under the Plan from or through any Participant shall be subject to all
terms and conditions of the Plan and any Award Agreement applicable to such
Participant, except as otherwise determined by the Committee, and to any
additional restrictions deemed necessary or appropriate by the Committee.

(e) No Rights to Awards; No Stockholder Rights. No Participant shall have
any claim to be granted any Award under the Plan, and there is no obligation
for uniformity of treatment of Participants. No Award shall confer on any
Participant any of the rights of a stockholder of the Company unless and until
Stock is duly issued or transferred to the Participant in accordance with the
terms of the Award.

(f) Discretion. In exercising, or declining to exercise, any grant of
authority or discretion hereunder, the Committee may consider or ignore such
factors or circumstances and may accord such weight to such factors and
circumstances as the Committee alone and in its sole judgment deems
appropriate and without regard to the affect such exercise, or declining to
exercise such grant of authority or discretion, would have upon the affected
Participant, any other Participant, any employee, the Company, any Subsidiary,
any stockholder or any other person.

(g) Effective Date. The effective date of the Plan is October 29, 1996.

(h) Shareholder Approval. Unless and until the Plan is approved by the
stockholders of the Company at the Company's 1997 Annual Meeting of
Stockholders, no Stock-Based Award may be granted to any officer of the
Company.

A-8
<PAGE>

- - --------------------------------------------------------------------------------
PROXY

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS PROXY FOR HOLDERS
OF COMMON STOCK--ANNUAL MEETING
MAY 13, 1997

GUARANTY NATIONAL CORPORATION

The undersigned holder of Common Stock of Guaranty National Corporation
hereby appoints Michael L. Pautler and James R. Pouliot, and either of them,
with full power of substitution to either of them, and with authority in each
to act in the absence of the other, as attorneys and proxies for the
undersigned to vote, as designated below, all the shares of common stock which
the undersigned could vote if personally present at the Annual Meeting of
Stockholders of Guaranty National Corporation to be held at 1:30 p.m.,
Mountain Daylight Savings Time, Tuesday, May 13, 1997 at 9800 South Meridian
Boulevard, Englewood, Colorado, and any adjournments thereof.

Proxies will be voted as specified. Where no specification is given, proxies
will be voted FOR the Election of Directors, FOR Proposal 2 and FOR Proposal
3. If any nominee for director should become unavailable for election, this
proxy will be voted FOR such substitute nominee as may be proposed by the
Board of Directors.

(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
- - --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>

- - ------------------------------------------------------------------------------------------------------------------------------------
[X] Please mark
your votes
as indicated
<S> <C> <C>
A Vote FOR Items 1, 2 and 3 is Recommended:
Item 1 - ELECTION OF DIRECTORS WITHHOLD Item 3 - To ratify the appointment of
FOR All nominees listed FOR AUTHORITY Deloitte & Touche LLP as independent FOR AGAINST ABSTAIN
(except as marked): [ ] [ ] certified public accountants for [ ] [ ] [ ]
T.Adams, J.Pouliot, the Company for the year 1997.
W.Becker, R.Sanborn,
A.Gruber, W.Shepherd,
D.Lacey, R.Thomas,
M.Padilla, R.Ware
V.Papa,
Item 4 - With discretionary authority FOR AGAINST ABSTAIN
upon such other matters as may properly [ ] [ ] [ ]
Item 2 - To approve the FOR AGAINST ABSTAIN come before the meeting.
Guaranty National Corporation [ ] [ ] [ ]
Equity Incentive Plan.

The undersigned hereby acknowledges receipt
of the Notice of Annual Meeting of
Stockholders, the Proxy Statement of such
meeting, and the Annual Report of the
Company for 1996.

Signature __________________________ Signature, if held jointly ______________________ Dated ____________________________, 1997
Please sign exactly as your name appears on this proxy card. When signing as attorney, executor, trustee or guardian. For a
corporation or a partnership, or in any other fiduciary capacity, please give your full title.
- - ------------------------------------------------------------------------------------------------------------------------------------
FOLD AND DETACH HERE
</TABLE>