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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14D-9
Solicitation/Recommendation Statement Pursuant to
Section 14(d)(4) of the Securities Exchange Act of 1934
GUARANTY NATIONAL CORPORATION
(Name of Subject Company)
GUARANTY NATIONAL CORPORATION
(Name of Person(s) Filing Statement)
Common Stock, par value $1.00 per share
(Title of Class of Securities)
401192109
(CUSIP Number of Class of Securities)
Michael L. Pautler
Senior Vice President - Finance
Guaranty National Corporation
9800 South Meridian Boulevard
Englewood, Colorado 80112
(303) 754-8400
(Name, address and telephone number of person authorized
to receive notice and communications on behalf of the
person(s) filing statement)
Copy to:
Hardin Holmes, Esq.
Ireland, Stapleton, Pryor & Pascoe, P.C.
1675 Broadway, 26th Floor
Denver, Colorado 80202
(303) 623-2700
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Item 1. SECURITY AND SUBJECT COMPANY
The subject company is Guaranty National Corporation, a Colorado
corporation ("Guaranty"). The address of the principal executive offices of
Guaranty is 9800 South Meridian Boulevard, Englewood, Colorado 80112. The title
of the class of equity securities to which this statement relates is the Common
Stock, par value $1.00 per share, of Guaranty (the "Shares"), including the
associated stock purchase rights under the Rights Agreement dated November 20,
1991.
Item 2. TENDER OFFER OF THE BIDDER
This Solicitation/Recommendation Statement on Schedule 14D-9
("Schedule 14D-9") relates to the tender offer disclosed in a Schedule 14D-1
dated November 5, 1997 (the "Schedule 14D-1") of Orion Capital Corporation
("Orion"), to purchase all of the outstanding Shares at $36.00 per Share net to
the seller in cash, upon the terms and subject to the conditions set forth in
the Offer to Purchase dated November 5, 1997 (the "Offer to Purchase"), and the
related Letter of Transmittal (which together constitute the "Offer"). The
Offer is conditioned upon, among other things, there being validly tendered and
not withdrawn prior to the expiration date of the Offer, a number of Shares
which, excluding the Shares owned by Orion and its wholly-owned subsidiaries,
will constitute at least 50.01 percent of the outstanding Shares (the "Minimum
Share Condition"). The Schedule 14D-1 states that the principal executive
offices of Orion are located at 9 Farm Springs Road, Farmington, Connecticut
06032.
The Offer is being made pursuant to an Agreement and Plan of Merger,
dated as of October 31, 1997 (the "Merger Agreement"), by and between Orion and
Guaranty. A copy of the Merger Agreement is filed as Exhibit 1 to this Schedule
14D-9 and is incorporated herein by reference. The Merger Agreement provides,
among other things, that as promptly as practicable following the completion of
the Offer and the satisfaction or waiver of certain conditions, including the
purchase of Shares pursuant to the Offer and satisfaction of the Minimum Share
Condition, and the approval and adoption of the Merger Agreement by the
shareholders of Guaranty if required by applicable law, a newly formed wholly-
owned subsidiary of Orion, GNC Transition Corp., will be merged with and into
Guaranty (the "Merger"), with Guaranty as the surviving corporation, with the
result that all the outstanding Shares will be owned by Orion and its wholly-
owned subsidiaries. In the Merger, each issued and outstanding Share (other than
dissenting shares) not owned directly or indirectly by Guaranty will be
converted into and represent the right to receive $36.00 in cash, without
interest (the "Merger Price"); provided, however, that the Merger Price will not
be paid with respect to any Shares owned by Orion and its wholly-owned
subsidiaries. The Merger Agreement is described under the heading "The Merger
Agreement" in the portions of the Offer to Purchase contained in Exhibit 4 to
this Schedule 14D-9 and incorporated herein by reference.
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Item 3. IDENTITY AND BACKGROUND
(a) The name and business address of Guaranty, which is the person
filing this statement, are set forth in Item 1, above.
(b) Certain contracts, agreements, arrangements, and understandings,
and any actual or potential conflicts of interest, between Guaranty or its
affiliates and (i) Guaranty's executive officers, directors or affiliates, or
(ii) Orion or its executive officers, directors or affiliates, are described in
the sections entitled "Election of Directors," "Security Ownership of Directors,
Officers, and Principal Beneficial Owners," "Executive Compensation," and
"Certain Relationships and Related Transactions" in Guaranty's Proxy Statement
dated March 27, 1997, for its Annual Meeting of Shareholders held on May 13,
1997 (the "1997 Proxy Statement"), "Directors and Executive Officers of the
Registrant" in Guaranty's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (the "1996 Form 10-K"), and in the Offer to Purchase under the
headings "SPECIAL FACTORS --Background of the Transactions," " -Fairness of the
Offer and the Merger," " - Reasons for the Offer and the Merger; Purpose and
Structure of the Transactions; Plans After the Offer; Effects of the Offer and
Merger," and " - Interests of Certain Persons in the Transaction; Securities
Ownership; Related Transactions." Copies of the portions of the 1997 Proxy
Statement, the 1996 Form 10-K and the Offer to Purchase referred to above are
filed herewith as Exhibits 2, 3 and 4, respectively, and are incorporated herein
by reference.
Except as described or incorporated by reference herein, as of the date
hereof, there exists no material contract, agreement, arrangement or
understanding and no material actual or potential conflict of interest between
Guaranty or its affiliates and (i) Guaranty's executive officers, directors or
affiliates, or (ii) Orion or its executive officers, directors or affiliates.
Background of the Offer; Appointment of the Special Committee
On September 16, 1997, Mr. Becker was asked, as Chairman of the Board of
Guaranty, to convene a meeting of its Executive Committee at which the
independent directors could be designated as a special committee to review any
acquisition proposal which might be received from Orion. That meeting was held
on September 16, 1997, and a Special Committee was appointed with Dennis J.
Lacey as its Chairman; the other director-members are Tucker H. Adams, M. Ann
Padilla, and Richard R. Thomas. None of the members of the Special Commit tee is
affiliated with Guaranty or any of its affiliates, including Orion, other than
in his or her capacity as a director or shareholder of Guaranty, except that Mr.
Thomas is Chairman of the Board and sole owner of ADCO General Corporation, a
general agent of Guaranty. ADCO received from Guaranty 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.
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The Executive Committee authorized and directed the Special Committee "to
review any such Acquisition Proposal . . . and to make a recommendation to the
Board of Directors as to how Guaranty should fulfill its obligations with
respect thereto, including without limitation its obligation to prepare and file
any necessary documents with the Securities and Exchange Commission". In
addition, the Special Committee was authorized to take all actions necessary or
appropriate in connection with the obligations of the Board of Directors arising
out of any Acquisition Proposal and to retain such legal and financial advisors
as it deemed appropriate to assist it in carrying out its activities.
Thereafter, the Special Committee met and formally retained Ireland, Stapleton,
Pryor & Pascoe, P.C. ("Ireland Stapleton") and Salomon Brothers Inc ("Salomon
Brothers") to act as its legal and financial advisors, respectively. Both firms
had been requested by Guaranty in July to be prepared to advise the Special
Committee if it was appointed, and had engaged in appropriate due diligence
efforts since that time.
Mr. Becker was then asked, as the Chairman of Orion, to meet with Mr. Lacey
and the legal and financial advisors of both Orion and the Special Committee, to
discuss the potential transaction and to attempt to reach agreement on the value
of the Shares. That meeting took place on September 17, 1997, in Denver,
Colorado.
At the September 17 meeting, a representative of Salomon Brothers presented
an analysis of its valuation approach but noted that his firm was not yet in a
position to render an opinion as to the fairness of any particular price. Mr.
Lacey stated that he was prepared to recommend to the Special Committee a price
of $36.00 per Share with adjustments for increases in the market price of Orion
Common Stock but no adjustments for decreases. At the conclusion of discussions,
Mr. Becker proposed an offer of $34 per Share, payable 80% in cash and 20% in
Orion Common Stock, with a formula designed to adjust for changes in excess of
approximately 7 1/2% in the market price of Orion Common Stock subsequent to
September 17 and prior to the exchange date, and with provision for termination
rights if the market price of Orion Common Stock should rise or fall by
approximately 15% or more. Orion's advisors further recommended that this
transaction be accomplished by a exchange offer for all Shares not owned by
Orion, followed by a merger in which any Shares not properly tendered could be
acquired.
Thereafter, Mr. Lacey convened a meeting of the Special Committee and
reported on the meeting which had been held earlier that day with the Special
Committee's advisors and the representatives of Orion. He stated that the Orion
representatives, and particularly its investment advisor, had presented an
analysis of the Share values which justified the initial offer price of $30.25
per share and described his response and that of Orion, as noted above. The
Special Committee then discussed possible steps which might be taken at the
present time, and agreed with the recommendation of its financial advisor that
it would be inadvisable to make a recommendation with respect to the Offer
pending further investigation by the Special Committee and an opportunity for
Orion to re-think its proposed terms. It was agreed that Salomon Brothers
should convey to Orion's financial advisor that the Special Committee was not
prepared at this time to recommend acceptance of the Offer by the Guaranty
shareholders.
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Later that evening Mr. Lacey telephoned Mr. Becker and informed him that
the Special Committee had met and considered a report on the substance of the
meeting with the Orion representatives. He stated that the Special Committee
was not willing to accept the offer which had been extended.
On September 18, 1997, Orion issued a press release announcing that it
would make an offer directly to the shareholders of Guaranty so that each
Guaranty shareholder could make his or her own judgment as to whether to accept
Orion's offer. Later that day, the Special Committee again met and received a
report from Mr. Lacey with respect to his conversation with Mr. Becker on the
previous evening. The Special Committee's financial advisor then described the
events which had taken place earlier that day, including the announcement by
Orion that it intended to initiate the offer, which had not yet been filed with
the Securities and Exchange Commission, and the resulting trading activity in
the Company's stock, which had closed at 34 9/16ths, or slightly more than $2
over the preceding day's closing price. After discussion of possible options
available to the Special Committee, it was determined that it would take no
action until the actual offer documents were filed with the Securities and
Exchange Commission ("Commission") and the Special Committee had an opportunity
to review them and consult with its financial and legal advisors.
The Special Committee also discussed the filing on September 18, 1997 of an
action in Denver District Court captioned Vogel v. Guaranty National
Corporation, et al., naming as additional defendants Orion Capital Corporation
and the directors of Guaranty National Corporation. The action challenged the
fairness of Orion's announced offer and sought an unspecified amount of damages,
attorney's fees and injunctive relief.
On September 22, 1997, Orion filed with the Commission a Registration
Statement on Form S-4 with respect to an offer to exchange for each share not
owned by it or its wholly-owned subsidiaries, $27.20 in cash and $6.80 in shares
of Orion Common Stock, subject to certain adjustments as described above (the
"Exchange Offer"). Following the filing, Orion's representatives inquired as to
when the Special Committee would make a recommendation pursuant to Rule 14d-9
with respect to the Exchange Offer and were informed that no filing would be
made pursuant to that rule until after the Registration Statement on Form S-4
was declared effective by the Commission and reviewed by the Special Committee
and its advisors.
The Special Committee met on September 24, 1997 to discuss the Registration
Statement. The Special Committee's financial advisor reported on its ongoing
review of Guaranty's business and prospects, and its discussions with Orion's
financial advisor with respect to the basis for the Special Committee's view as
to the value of the Shares. Salomon Brothers emphasized to Orion's
representative that no formal stock price had been adopted by the Special
Committee as being either adequate or fair, and that its tentative views had not
been influenced by the recent increase in the market price of the stock, but
rather were based on the intrinsic value of the
Shares. It was
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the consensus of the Special Committee that no further action be taken by it
until the members had an opportunity to review the final Registration Statement.
The Special Committee met again on October 6, 1997 and reviewed in detail
the Registration Statement and certain data relied upon by its financial
advisor in arriving at a range of possible values for the Shares, based upon
different analyses. The Special Committee also reviewed changes in the market
price for the stocks of Orion and Guaranty as well as of various comparable
companies reviewed by the financial advisor and determined that in the absence
of any legal or other obligation to file a response to the Exchange Offer at the
present time it would be desirable to continue to await further information from
Orion. The Chairman was also authorized, in his discretion and after receiving
additional advice from the Special Committee's advisors, to inquire of Orion as
to whether it might increase its offer price to $36.00 if the consideration were
entirely in cash.
On October 21, 1997, after further conversations with the Special
Committee's advisors, Mr. Lacey called Mr. Becker to inquire as to the progress
being made by the SEC in reviewing Orion's Form S-4 filing. He also asked
whether Orion might increase its offer price to $36.00 per share if the
consideration were all cash and if the Special Committee found that price
acceptable. Mr. Becker asked whether the Special Committee and Salomon Brothers
had concluded that $36.00 represented fair value to the holders of Shares. Mr.
Lacey responded that no action had been taken but that he would request formal
consideration of that price if Mr. Becker thought that would be a productive
step. Mr. Becker agreed that it would be and said that he would immediately
convey any finding of the Special Committee to the Executive Committee of
Orion's Board of Directors. Messrs. Becker and Lacey also discussed whether, if
a mutually-agreeable price could be reached, the Exchange Offer should proceed
or a merger be proposed instead.
The Special Committee met again on the morning of October 27, 1997, at
which time Mr. Lacey reviewed with members of the Special Committee the
substance of his conversations with Mr. Becker and also with the Special
Committee's financial advisor, which had indicated that while it had not made a
final determination, it was likely it would be able to render a fairness opinion
with respect to a cash price of $36.00 per share. The Special Committee
determined that it would not be appropriate to take final action until it had
had a report from its financial advisor which was directly responsive to the
proposed price, and a meeting was called for 4:00 p.m. on Thursday, October 30,
1997, for that purpose. For the interim, Mr. Lacey was authorized to report to
Mr. Becker that the Special Committee proposed a price of $36.00 plus a
contingent payment to the Guaranty shareholders other than Orion and its wholly-
owned subsidiaries (the "Non-Orion Stockholders"), in the event Orion should
sell Guaranty within twelve months, equal to 50% of the difference between
$36.00 and the per-share sales price received by Orion in the event of any such
sale. Mr. Lacey discussed this proposal with Mr. Becker later that day.
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That proposal was reported to the Executive Committee of the Orion Board of
Directors by Mr. Becker on October 28, 1997. The Executive Committee concluded,
and Mr. Becker then reported to Mr. Lacey, that although Orion has no present
intention to sell Guaranty, it would accept a contingent sharing proposal and
would, in fact, raise the percent contingently shared to 75%, but because of the
administrative expense involved in establishing and maintaining records of
persons entitled at any point in time to a contingent shared right, the
possibility that the offering of such rights might require registration under
applicable state or federal securities laws and the uncertainty that might be
created as to whether a future ordinary-course restructuring or repositioning by
Guaranty of its assets or operations constituted a "triggering" event, Orion
would be prepared to offer $35.00 (plus 75% of any future contingent profit) if
the Special Committee insisted on the contingent profit-sharing feature. Mr.
Lacey reported to Mr. Becker that if Orion would raise its offer price to $36.00
net to shareholders in cash, Mr. Lacey would recommend to the Special Committee
that the offer be accepted. He further stated that Salomon Brothers had
indicated that it would report favorably on the fairness of that price, from a a
financial point of view, to the holders of the Shares subject to Orion's offer.
Mr. Becker said that he had authority to make such a proposal and he and Mr.
Lacey agreed that an appropriate agreement should be drawn up for presentation
to the Boards of Directors of Guaranty and Orion.
On October 30, 1997, copies of an Agreement and Plan of Merger proposed by
Orion and a written presentation to the Special Committee on the same date from
Salomon Brothers were delivered to the members of the Special Committee for
their review. A meeting of the Special Committee was held later that day,
attended by all of its members and representatives of its legal and financial
advisors. The purpose of the meeting was to consider the proposal of Orion to
acquire the balance of the Shares which it and its wholly-owned subsidiaries did
not own, at a cash price of $36.00 per share net to the shareholders. The terms
of the proposal were set forth in the proposed Agreement and Plan of Merger.
The Special Committee first heard a detailed review by Salomon Brothers of its
presentation, covering the principal factors which had been considered by
Salomon Brothers in reaching its views as to the value of the Shares and the
various analyses upon which its views were based. At the conclusion of its
report, Salomon Brothers stated that in its opinion the consideration to be
received by the Non-Orion Stockholders in the proposed transaction was fair,
from a financial point of view, to such holders. They stated that a written
opinion confirming the oral opinion would be furnished promptly to the Special
Committee. After reviewing the terms of the proposed Agreement and Plan of
Merger, the Special Committee voted unanimously to recommend to the Board of
Directors of Guaranty that it recommend acceptance of Orion's offer and
authorize the execution and delivery of the proposed Merger Agreement.
On October 30, 1997, following the Special Committee meeting, the Board of
Directors of Guaranty unanimously approved the Agreement and Plan of Merger and
on October 31, 1997, it was approved unanimously by the Board of Directors of
Orion. Following those meetings, the SEC was formally notified by Orion of the
withdrawal of its Registration Statement on Form S-4 with respect to the
proposed Exchange Offer. On October 31, 1997, a press release was issued
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announcing that Orion and Guaranty had entered into the Merger Agreement, which
provides for the making of the Offer.
Item 4. THE SOLICITATION OR RECOMMENDATION
(a) Pursuant to the unanimous recommendation of its Special
Committee, Guaranty's Board of Directors unanimously approved the Merger
Agreement, the Offer and the Merger, determined that the Offer and the Merger
are fair to, and in the best interests of, the shareholders of Guaranty, and
recommended an acceptance of the Offer and approval and adoption of the Merger
Agreement and the Merger by the shareholders of Guaranty.
(b) In reaching its conclusions and recommendation to the Board of
Directors, the Special Committee considered a number of factors, including
without limitation, the following:
(i) the fact that the $36.00 per Share price represents (A) a premium
of $17.50 or 94.6% over the $18.50 paid by Orion in its tender offer completed
in July 1996, (B) a premium of $20.62 or 134.1% over the 52-week low of $15.38,
(C) a premium of 48.5% over the closing sale price of $24.25 on July 7, 1997,
the day prior to the commencement of discussions between Orion and Guaranty, (D)
a multiple of 1.94x Guaranty's net book value per share as of September 30,
1997, and (E) a multiple of 2.21x Guaranty's net tangible book value per share
as of September 30, 1997;
(ii) the fact that the Offer is conditioned upon there being validly
tendered and not withdrawn prior to the expiration date of the Offer, a number
of Shares which, excluding the Shares owned by Orion and its wholly-owned
subsidiaries, will constitute at least 50.01 percent of the outstanding Shares;
(iii) the various analyses of the Special Committee's financial advisor
described below under the heading "Opinion of Financial Advisor";
(iv) the opinion of the Special Committee's financial advisor that the
Offer is fair, from a financial point of view, to the Non-Orion Stockholders,
and the analyses of various factors considered by the financial advisor in
reaching its opinion, including those described below;
(v) the Special Committee's familiarity with Guaranty's business,
financial condition, results of operations, current business strategy and
prospects, and the beneficial relationship between Guaranty and Orion over the
past thirteen years; and
(vi) the fact that Orion currently beneficially owns approximately 81%
of the outstanding shares and has stated that it has no present intention to
sell its Shares.
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In view of the wide variety of factors considered in connection with
their review of the Offer, the Special Committee found it impractical to, and
therefore did not, quantify or otherwise assign relative weights to the specific
factors it considered in reaching its conclusion and recommendation.
OPINION OF FINANCIAL ADVISOR
Salomon Brothers was retained by Guaranty pursuant to a letter
agreement dated September 16, 1997 (the "Engagement Letter") to act as financial
advisor to the Special Committee in connection with its review of the proposed
acquisition by Orion of the Shares it did not already own and to render an
opinion relating to the fairness, from a financial point of view, to the Non-
Orion Stockholders of the consideration to be received by such holders in such
proposed acquisition. Pursuant to the Engagement Letter, Salomon Brothers
rendered an opinion to the Special Committee on October 30, 1997 to the effect
that, based upon and subject to the considerations set forth in such opinion, as
of such date, the consideration to be received by the Non-Orion Stockholders in
the Offer and the Merger (the "Transaction") was fair to such holders from a
financial point of view.
The full text of Salomon Brothers' fairness opinion, which sets forth
the assumptions made, general procedures followed, matters considered and limits
on the review undertaken, is included as Exhibit 5 to this Schedule 14D-9. The
summary of Salomon Brothers' opinion set forth below is qualified in its
entirety by reference to the full text of such opinion included as Exhibit 5.
STOCKHOLDERS ARE URGED TO READ THE OPINION IN ITS ENTIRETY.
In connection with rendering its opinion, Salomon Brothers reviewed
and analyzed material bearing upon the financial and operating conditions and
prospects of Guaranty including, among other things, the following: (i) a draft
dated October 29, 1997 of the Merger Agreement; (ii) certain publicly available
information concerning Guaranty, including the Annual Reports on Form 10-K of
Guaranty for the years ended December 31, 1995 and December 31, 1996 and the
Quarterly Reports on Form 10-Q of Guaranty for the quarters ended March 31, 1997
and June 30, 1997, respectively, and the press release of Guaranty dated October
23, 1997, announcing the financial results of Guaranty for the quarter ended
September 30, 1997; (iii) certain internal information, primarily financial in
nature, including projections, concerning the business and operations of
Guaranty furnished to Salomon Brothers by Guaranty for purposes of its analysis;
(iv) statutory financial information of Guaranty's insurance subsidiaries for
the years ended December 31, 1995 and December 31, 1996 and for the three-month
periods ended March 31, 1997 and June 30, 1997; (v) certain publicly available
information concerning the trading of, and the trading market for, the Shares;
(vi) certain publicly available information with respect to certain other
companies that Salomon Brothers believed to be comparable to Guaranty and the
trading markets for certain of such other companies' securities; and (vii)
certain publicly available information concerning the nature and terms of
certain other transactions and certain transactions involving the acquisition of
minority interests by controlling stockholders that Salomon Brothers
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considered relevant to its inquiry. Salomon Brothers also considered such other
information, financial studies, analyses, investigations and financial, economic
and market criteria that it deemed relevant. Salomon Brothers also met with
certain officers and employees of Guaranty to discuss the foregoing as well as
other matters Salomon Brothers believed relevant to its inquiry.
In its review and analysis and in arriving at its opinion, Salomon
Brothers assumed and relied upon the accuracy and completeness of all of the
financial and other information provided to it or publicly available and neither
attempted independently to verify nor assumed any responsibility for verifying
any of such information and further relied on assurances of management of
Guaranty that they are not aware of facts that would make any of such
information inaccurate or misleading. With respect to projections, Salomon
Brothers assumed that they had been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the management of Guaranty
as to the future financial performance of Guaranty. Salomon Brothers expressed
no view with respect to such projections or the assumptions on which they were
based. Salomon Brothers did not make or obtain or assume any responsibility for
making or obtaining any independent evaluations or appraisals of any of
Guaranty's assets, properties or facilities, nor was Salomon Brothers furnished
with any such evaluations or appraisals. Salomon Brothers further assumed that
the Merger Agreement, when executed and delivered, would not contain any terms
or conditions that differed materially from the draft Salomon Brothers reviewed,
the conditions precedent to each of the Offer and the Merger contained in the
Merger Agreement will be satisfied and the Merger will be consummated in
accordance with the terms of the Merger Agreement.
In conducting its analysis and arriving at its opinion, Salomon
Brothers considered such financial and other factors as it deemed appropriate
under the circumstances including, among others, the following: (i) the
historical and current financial position and results of operations of Guaranty;
(ii) the business prospects of Guaranty; (iii) the historical and current market
for the Shares and for the equity securities of certain other companies that
Salomon Brothers believes to be comparable to Guaranty; and (iv) the nature and
terms of certain other acquisition transactions and acquisitions of minority
interests by controlling stockholders that Salomon Brothers believes to be
relevant. Salomon Brothers also took into account its assessment of general
economic, market and financial conditions as well as its experience in
connection with similar transactions and securities valuation generally.
Salomon Brothers took into consideration the current ownership by Orion of
approximately 80.7% of the outstanding the Shares and the fact that Orion had
stated that it did not intend to sell such stock. In light of that, Salomon
Brothers was not authorized to, and accordingly did not, solicit third party
indications of interest in acquiring all or any part of Guaranty. Salomon
Brothers' opinion necessarily was based on conditions as they existed and could
be evaluated on the date thereof and Salomon Brothers assumed no responsibility
to update or revise its opinion based upon circumstances or events occurring
after such date. Salomon Brothers' opinion was for the sole benefit of the
Special Committee in its consideration of the Transaction and was, in any event,
limited to the fairness, from a financial point of view, of the consideration to
be received by the Non-Orion Stockholders
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in the Transaction and did not address Guaranty's underlying business decision
to effect the Transaction or constitute a recommendation to any holder of the
Shares as to whether such holder should tender shares in the Offer or as to how
such holder should vote with respect to the Merger, if such a vote is taken.
Salomon Brothers has advised the Special Committee that, based on an
express disclaimer in the Engagement Letter, Salomon Brothers does not believe
that any person (including a stockholder of Guaranty), other than Guaranty or
the Guaranty Board (including the Special Committee), has a legal right to rely
upon its fairness opinion to support any claims against Salomon Brothers arising
under applicable state law and that, should any such claims be brought against
Salomon Brothers by any such person, this assertion will be raised as a defense.
In the absence of applicable state law authority, the availability of such a
defense will be resolved by a court of competent jurisdiction. Resolution of
the question of the availability of such a defense, however, will have no effect
on the rights and responsibilities of the Guaranty Board, or the Special
Committee, under applicable state law. Nor would the availability of such a
state law defense to Salomon Brothers have any effect on the rights and
responsibilities of either Salomon Brothers or the Guaranty Board (including the
Special Committee) under the federal securities laws.
In connection with its opinion, Salomon Brothers made a presentation
to the Special Committee on October 30, 1997, with respect to certain analyses
performed by Salomon Brothers in evaluating the consideration to be received in
the Transaction by the Non-Orion Stockholders and other considerations. The
following is a summary of such Salomon Brothers presentation. The following
quantitative information, to the extent it is based on market data, is based on
market data as it existed at October 28, 1997 and is not necessarily indicative
of current market conditions.
Overview of Guaranty and Historical Trading Analysis. Salomon
Brothers reviewed certain aspects of the historical financial performance of
Guaranty, including, among other things, gross and net premiums written,
revenues, net operating earnings, operating and net earnings per share ("EPS"),
loss ratios, expense ratios and combined ratios for fiscal years 1992 through
1996 and for the nine months ended September 30, 1996 and 1997. In addition,
Salomon Brothers reviewed with the Special Committee certain information
concerning Wall Street earnings estimates, the trading prices and volume of the
Shares and Orion Common Stock from January 1, 1997 through October 28, 1997.
Salomon Brothers noted that the Shares had generally outperformed an index of
selected peer companies, Orion Common Stock, the S&P Property and Casualty
Insurance Index and the S&P 500 Composite Average over such period.
Discounted Cash Flow Analysis. Salomon Brothers performed a
discounted cash flow analysis pursuant to which the value of Guaranty was
estimated by adding (i) the estimated net present value of the future
distributable free cash flows of Guaranty for the fiscal years 1998 through 2000
and 1998 through 2002, plus (ii) the estimated net present value of the terminal
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value of Guaranty at the end of the years 2000 and 2002, based on certain
operating and financial assumptions, forecasts and other information provided by
management of Guaranty. For purposes of such analysis, Salomon Brothers
utilized discount rates of 9%, 11% and 13% (with particular focus on discount
rates of 11% and 13%), and terminal values based on multiples of 12x, 13x, 14x,
15x and 16x projected GAAP earnings for the years 2000 and 2002 and multiples of
1.50x, 1.75x, 2.00x, 2.25x and 2.50x projected GAAP book value at the end of the
years 2000 and 2002 (with particular focus on multiples of 13x to 15x GAAP
earnings). From these analyses, Salomon Brothers used the ranges calculated for
discount rates of 11% and 13% and for terminal value multiples 13x to 15x year
2000 and year 2002 GAAP earnings to derive reference ranges for the implied
value of the Shares of $33.79 to $40.68 and $33.48 to $41.79, respectively.
Dividend Discount Analysis. Salomon Brothers also performed a
dividend discount analysis pursuant to which the value of Guaranty was estimated
by adding (i) the estimated net present value of Guaranty's future stream of
dividend payments to Guaranty's stockholders for the years 1998 through 2000 and
1998 through 2002, plus (ii) the estimated net present value of the terminal
value of Guaranty at the end of the years 2000 and 2002, based upon certain
operating and financial assumptions, forecasts and other information provided to
Salomon Brothers by the management of Guaranty. For purposes of such analysis,
Salomon Brothers utilized discount rates of 9%, 11% and 13% (with particular
focus on discount rates of 11% and 13%), and terminal values based on multiples
of 12x, 13x, 14x, 15x and 16x projected GAAP earnings for the years 2000 and
2002 and multiples of 1.50x, 1.75x, 2.00x, 2.25x and 2.50x projected GAAP book
value at the end of the years 2000 and 2002 (with particular focus on multiples
of 13x to 15x GAAP earnings). From these analyses, Salomon Brothers used the
ranges calculated for discount rates of 11% and 13% and for terminal value
multiples 13x to 15x year 2000 and year 2002 GAAP earnings to derive reference
ranges for the implied value of the Shares of $33.71 to $40.83 and $36.08 to
$45.15, respectively.
Comparable Company Analysis. Salomon Brothers reviewed certain
publicly available financial, operating and stock market information for
Guaranty, Orion and twenty-one other publicly-traded personal lines, non-
standard automobile and specialty commercial property and casualty insurance
companies (personal lines -- The Allstate Corporation, SAFECO Corporation,
Mercury General Corporation, 20th Century Industries, Horace Mann Educators
Corporation, Commerce Group Corp., Citizens Corporation and Allied Group Inc.;
non-standard automobile -- The Progressive Corporation, American Financial
Group, Symons International Group Inc., Penn America Group, Omni Insurance Group
Inc. and Mobile America Corp.; and specialty commercial -- W.R. Berkley Corp.,
Frontier Insurance Group Inc., Markel Corp., Executive Risk Inc., Acceptance
Insurance Companies Inc., RLI Corporation and Baldwin & Lyons Inc., each of
which is a "Comparable Company" and collectively referred to as "Comparable
Companies"). Salomon Brothers considered the Comparable Companies to be
reasonably similar to Guaranty insofar as they participate in business segments
similar to Guaranty's business segments, but none of these companies has the
same management, makeup, size and combination of businesses as Guaranty.
Accordingly, the analysis described below is not
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purely mathematical. Rather it involves complex considerations and judgments
concerning differences in historical and projected financial and operating
characteristics of Guaranty and the Comparable Companies and other factors that
could affect public trading value.
For Guaranty, Orion and each of the Comparable Companies, Salomon
Brothers reviewed, among other things, its market capitalization and enterprise
value (equity market capitalization plus total debt, preferred stock and
minority interests), (in each case, based on the closing price for its stock on
October 28, 1997), 52-week trading range, dividend yield, 5-year projected
earnings per share growth (based upon Institutional Brokers Estimate Systems
("IBES") reports), multiples of price to book value, estimated 1997 EPS and
estimated 1998 EPS and multiples of enterprise value to latest twelve months
("LTM") net premiums written and statutory surplus. (Estimated 1997 EPS and
1998 EPS were based upon mean First Call estimates as of October 22, 1997.)
Salomon Brothers derived high, low, mean and median multiples from the foregoing
analysis of the Comparable Companies. Using primarily the multiples of price to
book value, estimated 1997 EPS and estimated 1998 EPS of the personal lines and
non-standard automobile Comparable Companies, Salomon Brothers derived a
reference range (based on the median values resulting from application of those
multiples) for the implied value of the Shares of $32.88 to $47.24.
Analysis of Selected Insurance Company Acquisitions. Salomon Brothers
also analyzed certain publicly available financial, operating and stock market
information for thirteen selected merger or acquisition transactions in the non-
standard automobile insurance industry since 1988. The transactions reviewed
included the following: Omni Insurance Group Inc./Hartford Financial Services
Group Inc., Titan Holdings Inc./USF&G Corp., Integon Corp./GMAC, Midland
Financial Group, Inc./The Progressive Corporation, Midland Financial Group,
Inc./Danielson Holding Corporation, Viking Insurance Holdings Inc./Guaranty,
Victoria Financial Corp./USF&G Corp., Bankers and Shippers Insurance Co./Integon
Corp., American Ambassador Casualty Co./Guardian Royal Exchange plc, Leader
National Insurance Co./Penn Central Corp., Atlanta Casualty Company/Penn Central
Corp., Integon Corp./Jupiter Industries, Inc. and the 1988 Guaranty/Orion
transaction. In addition, Salomon Brothers reviewed approximately forty
additional property and casualty insurance company acquisitions since 1993.
Salomon Brothers considered the precedent mergers and acquisition transactions
to be reasonably similar to the Merger, but none of these precedents is
identical to the Merger. In the presentation, Salomon Brothers focused on the
three most recent transactions (Hartford Financial Services Group's pending
acquisition of Omni Insurance Group, USF&G Corp.'s pending acquisition of Titan
Holdings and GMAC's acquisition of Integon Corp.) For each transaction reviewed,
Salomon Brothers calculated the premium represented by the highest price offered
over the market price one day prior to the announcement of the offer, and the
multiples of, among other things, offer price to LTM GAAP net operating income,
offer price to GAAP book value, offer price to estimated forward EPS for the
fiscal year following the announcement date (based on median IBES estimates as
of the announcement date), enterprise value to LTM statutory net operating
income and enterprise value to statutory capital and surplus. Based on the
foregoing analyses,
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Salomon Brothers derived high, low, median and mean multiples. Using primarily
the multiples of price to book value, price to LTM GAAP net operating income and
estimated forward EPS, Salomon Brothers derived a reference range (based on the
median values resulting from application of those multiples) for the implied
value of the Shares of $25.66 to $39.22.
Comparable Transaction Analysis Involving Acquisition of Minority
Interests by Controlling Stockholders. Salomon Brothers reviewed the
consideration paid in certain transactions in which a controlling stockholder,
generally one owning more than 40% of a public company, was seeking to acquire
substantial additional ownership of that company. Salomon Brothers considered
seventy transactions generally since 1992. Using publicly available
information, Salomon Brothers calculated the premium represented by the highest
price offered by the controlling stockholder over the market price one week
prior to, and four weeks prior to, the announcement of the offer. Salomon
Brothers determined that the median premiums to market one week and four weeks
prior to announcement for all transactions were 20.4% and 21.5%, respectively.
Of the seventy transactions, eight had been withdrawn. The median premiums to
market one week and four weeks prior to the announcement for the sixty-two
transactions that were consummated or pending were 18.7% and 22.5%,
respectively. Salomon Brothers also reviewed separately the nine transactions
since 1995 included in the group of seventy that involved insurance companies.
In those nine transactions, Salomon Brothers determined that the median premiums
to market one week and four weeks prior to announcement were 18.5% and 22.3%,
respectively. Salomon Brothers used the median premiums in all seventy
transactions to the market price one week prior to the announcement of the offer
and four weeks prior to the announcement of the offer to derive a reference
range for the implied value of the Shares of $40.12 to $40.47. Salomon Brothers
also used the median premiums in the nine insurance company transactions to the
market price one week prior to the announcement of the offer and four weeks
prior to the announcement of the offer to derive a reference range for the
implied value of the Shares of $39.48 to $40.74. Salomon Brothers noted that
these calculations used the market price of $33.31 of the Shares as of October
28, 1997, which had been affected by the previous announcement by Orion of its
offer valued at approximately $34.00 per share. Salomon Brothers noted that the
$36.00 offer price would be higher than the range (approximately $34.00 - $35.00
per share) that would be established using these median premiums against the
price one week prior, and four weeks prior, to September 18, 1997, the date on
which Orion announced its proposed offer.
Merger Consequences Analysis. Salomon Brothers also performed an
analysis of the effect on Orion's estimated 1998 EPS of the Transaction. Salomon
Brothers noted that, at a deal price of $36.00 per share and taking into
consideration the mean First Call estimates as of October 22, 1997 of Guaranty's
estimated 1998 EPS, as well as the slightly higher estimates for 1998 EPS of
management of Guaranty, both with and without the effect of the anticipated
acquisition of Unisun, which is anticipated to be accretive to Guaranty's 1998
EPS by $0.08, the Transaction is essentially break-even to slightly accretive
for Orion's EPS.
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The foregoing summary does not purport to be a complete description of
the analyses performed by Salomon Brothers or of its presentations to the
Special Committee. The preparation of financial analyses and fairness opinions
is a complex process involving subjective judgments and is not necessarily
susceptible to partial analysis or summary description. Salomon Brothers made
no attempt to assign specific weights to particular analyses or factors
considered, but rather made qualitative judgments as to the significance and
relevance of the analyses and factors considered. Accordingly, Salomon Brothers
believes that its analyses (and the summary set forth above) must be considered
as a whole, and that selecting portions of such analyses and of the factors
considered by Salomon Brothers, without considering all of such analyses and
factors, could create a misleading or incomplete view of the processes
underlying the analyses conducted by Salomon Brothers and its opinion. With
regard to the comparable public company analysis and the comparable transaction
analysis summarized above, Salomon Brothers selected comparable public companies
on the basis of various factors, including the size of the public company and
similarity of the line of business; however, no public company or transaction
utilized as a comparison is identical to Guaranty, any business segment of
Guaranty or the Transaction. Accordingly, an analysis of the foregoing is not
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
Comparable Companies and other factors that could affect the transaction or
public trading value of the Comparable Companies and transactions to which
Guaranty, the business segments of Guaranty and the Transaction are being
compared. In its analyses, Salomon Brothers made numerous assumptions with
respect to Guaranty, industry performance, general business, economic, market
and financial conditions and other matters, many of which are beyond the control
of Guaranty. Any estimates contained in Salomon Brothers' analyses are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than those suggested
by such analyses. Estimates of values of companies do not purport to be
appraisals or necessarily to reflect the prices at which companies may actually
be sold. Because such estimates are inherently subject to uncertainty, none of
Guaranty, the Special Committee, Salomon Brothers or any other person assumes
responsibility if future results or actual values differ materially from the
estimates. Salomon Brothers' analyses were prepared solely as part of Salomon
Brothers' analysis of the fairness of the consideration to be received by the
Non-Orion Stockholders in the Transaction and were provided to the Special
Committee in that connection. The opinion of Salomon Brothers was one of the
factors taken into consideration by the Special Committee in making its
determination to recommend that the Board of Directors of Guaranty approve the
Merger Agreement, the Offer and the Merger.
Salomon Brothers is an internationally recognized investment banking
firm engaged, among other things, in the valuation of businesses and their
securities in connection with mergers and acquisitions, restructurings,
leveraged buyouts, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. The Special Committee
selected Salomon Brothers to act as its financial advisor on the basis of
Salomon Brothers' international reputation and Salomon Brothers' familiarity
with Guaranty following its service to the Special Committee
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as constituted in 1996 to consider Orion's partial tender offer. Salomon
Brothers had previously rendered investment banking and financial advisory
services to the Special Committee in that connection, for which Salomon Brothers
received customary compensation. In addition, in the ordinary course of its
business, Salomon Brothers may trade the debt and equity securities of both
Guaranty and Orion for its own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
As noted under the caption "SPECIAL FACTORS - Determination of the
Special Committee; Approval of the Guaranty Board of Directors," the fairness
opinion of Salomon Brothers was only one of several factors considered by the
Special Committee in determining to approve the Merger Agreement, the Offer and
the Merger. The amount of consideration payable in the Transaction was
determined by arms'-length negotiations between Orion and the Special Committee,
in consultation with their respective financial advisors and other
representatives, and was not established by such financial advisors.
Item 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
Pursuant to the Engagement Letter, Guaranty will pay Salomon Brothers
the following fees: (a) $50,000, payable upon Guaranty's execution of the
Engagement Letter (which has been paid); plus (b) an additional fee of $600,000,
which became payable upon Salomon Brothers' delivery of its fairness opinion
(which has not yet been paid); plus (c) an additional fee of $300,000, which is
payable upon the consummation or termination of the Offer. Guaranty has also
agreed to reimburse Salomon Brothers for its reasonable travel and other out-of-
pocket expenses incurred in connection with its engagement (including the
reasonable fees and disbursements of its counsel) and to indemnify Salomon
Brothers against certain liabilities and expenses relating to or arising out of
its engagement, including certain liabilities under the federal securities laws.
Except as described above, neither Guaranty nor any person acting on
its behalf currently intends to employ, retain or compensate any other person to
make solicitations or recommendations to security holders on its behalf
concerning the Offer.
Item 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) No transactions in Shares have been effected during the past 60
days by Guaranty, or, to the best of Guaranty's knowledge, by any executive
officer, director, affiliate, or subsidiary of Guaranty.
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(b) Guaranty believes that Guaranty's executive officers and
directors, who own Shares, presently intend to tender such Shares pursuant to
the Offer.
Guaranty's officers and directors may change their determination as to
whether or not they intend to tender Shares in the Offer, at any time prior to
the termination date of the Offer.
Item 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) Except as described in Items 3 and 4 of this Schedule 14D-9,
Guaranty is not now engaged in any discussions or negotiations in response to
the Offer which relate to, or would result in, (i) an extraordinary transaction
such as a merger or reorganization involving Guaranty or any subsidiary of
Guaranty, (ii) a purchase, sale or transfer of a material amount of assets by
Guaranty or any subsidiary of Guaranty, (iii) a tender offer for or other
acquisition or securities by, or of, Guaranty, or (iv) any material change in
the present capitalization or dividend policy of Guaranty.
(b) Except as described in Items 3 and 4 of this Schedule 14D-9,
there are no transactions, board resolutions, agreements in principle or signed
contracts in response to the Offer which relate to or would otherwise result in
one or more of the matters referred to in paragraph (a) of this Item 7.
Item 8. ADDITIONAL INFORMATION TO BE FURNISHED
On September 18, 1997, an action was filed in the Denver District
Court, City and County of Denver, Colorado, entitled Eugenia Gladstone Vogel v.
Guaranty National Corporation, Orion Capital Corporation, Tucker Hart Adams, W.
Marston Becker, Vincent T. Papa, Dennis J. Lacey, M. Ann Padilla, James R.
Pouliot, Robert B. Sanborn, William J. Shepherd, Richard R. Thomas and Roger B.
Ware. The action challenges the fairness of the offer announced by Orion on
September 18, 1997, and seeks an unspecified amount of damages, attorneys fees
and injunctive relief. Guaranty believes the complaint to be without merit and
intends to contest it.
Item 9. MATERIAL TO BE FILED AS EXHIBITS
Exhibit 1 - Agreement and Plan of Merger dated October 31, 1997, between
Guaranty National Corporation and Orion Capital Corporation/*/
_________________
/*/Not included in copies mailed to shareholders.
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Exhibit 2 - Portions of Proxy Statement, dated March 27, 1997/*/
Exhibit 3 - Portions of Form 10-K Annual Report for fiscal year ended
December 31, 1996/*/
Exhibit 4 - Portions of Offer to Purchase, dated November 5, 1997/*/
Exhibit 5 - Opinion of Salomon Brothers Inc dated October 30, 1997
Exhibit 6 - Letter to Shareholders, dated November 5, 1997
Exhibit 7 - Joint Press release issued on October 31, 1997/*/
Exhibit 8 - Joint Press release issued on November 5, 1997/*/
Exhibit 9 - Shareholder Agreement, dated November 7, 1991, and amendments
thereto dated February 2, 1994, March 2, 1995 and June 18, by
and among Guaranty National Corporation, Orion Capital
Corporation, The Connecticut Indemnity Company, Connecticut
Specialty Insurance Company, Design Professionals Insurance
Company, Employee Benefits Insurance Company, The Fire and
Casualty Insurance Company of Connecticut, Security Insurance
Company of Hartford and Security Reinsurance Company (now
called Orion Insurance Company) (previously filed as Exhibit
10.30 to Guaranty's Amendment No. 2 to Registration Statement
on Form S-1, Exhibit 10.49 to Guaranty's Annual Report on Form
10-K for the fiscal year ended December 31, 1994, Exhibit
10.50 to Guaranty's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995, and Exhibit 18 to Guaranty's
Schedule 14D-9 dated June 19, 1996, respectively, and
incorporated herein by reference)/*/
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: November 5, 1997
GUARANTY NATIONAL CORPORATION
By:/s/ Michael L. Pautler
-------------------------------------------
Michael L. Pautler, Senior Vice President -
Finance and Treasurer
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EXHIBIT INDEX
Description
- - -----------
Exhibit 1 - Agreement and Plan of Merger dated October 31, 1997, between
Guaranty National Corporation and Orion Capital Corporation
Exhibit 2 - Portions of Proxy Statement, dated March 27, 1997
Exhibit 3 - Portions of Form 10-K Annual Report for fiscal year ended
December 31, 1996
Exhibit 4 - Portions of Offer to Purchase, dated November 5, 1997
Exhibit 5 - Opinion of Salomon Brothers Inc dated October 30, 1997
Exhibit 6 - Letter to Shareholders, dated November 5, 1997
Exhibit 7 - Joint Press release issued on October 31, 1997
Exhibit 8 - Joint Press release issued on November 5, 1997
Exhibit 9 - Shareholder Agreement, dated November 7, 1991, and amendments
thereto dated February 2, 1994 and March 2, 1995, and June 18
by and among Guaranty National Corporation, Orion Capital
Corporation, The Connecticut Indemnity Company, Connecticut
Specialty Insurance Company, Design Professionals Insurance
Company, Employee Benefits Insurance Company, The Fire and
Casualty Insurance Company of Connecticut, Security Insurance
Company of Hartford and Security Reinsurance Company (now
called Orion Insurance Company) (previously filed as Exhibit
10.30 to Guaranty's Amendment No. 2 to Registration Statement
on Form S-1, Exhibit 10.49 to Guaranty's Annual Report on Form
10-K for the fiscal year ended December 31, 1994, Exhibit
10.50 to Guaranty's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995, and Exhibit 18 to Guaranty's
Schedule 14D-9 dated June 19, 1996, respectively, and
incorporated herein by reference)
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EXHIBIT 1
---------
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of October 31,
1997 between Guaranty National Corporation, a Colorado corporation (the
"Company"), and Orion Capital Corporation, a Delaware corporation ("Orion").
WHEREAS, the Board of Directors of the Company has resolved to adopt this
Agreement and the transactions contemplated hereby and, if required, to submit
this Agreement to the shareholders of the Company as provided herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby, the
Company and Orion hereby agree as follows:
ARTICLE I.
THE OFFER
SECTION 1.01 The Offer. Provided that none of the conditions set forth in
the offer to purchase referred to below shall have occurred or be existing,
Orion (or one or more direct or indirect wholly owned subsidiaries of Orion)
shall promptly, and in no event later than two business day(s) after the date of
this Agreement, publicly announce, and within five business days thereafter
commence (within the meaning of Rule14d-2 under the Securities Exchange Act of
1934, as amended (the "Exchange Act")), an offer to purchase all outstanding
shares of common stock, par value $1.00 per share of the Company (each a
"Share"), at a price of $36.00 per Share, net to the seller in cash (the
"Offer", which term shall include any amendments to such Offer not prohibited by
this Agreement), and, subject to a minimum of not less than 50.01% of the
outstanding Shares (other than shares owned by Orion and its wholly-owned
subsidiaries) being validly tendered and not withdrawn (the "Minimum Condition")
and the further conditions set forth in the offer to purchase relating to the
Offer. The date on which the Offer is commenced is referred to herein as the
"Commencement Date." Orion shall deposit with the depositary for the Offer, or
cause to be deposited, on or before the expiration date of the Offer, funds
sufficient for payment of the purchase price for all Shares accepted for payment
pursuant to the Offer not later than December 31, 1997. Orion shall have the
right to transfer or assign to one or more of its subsidiaries the right to
purchase or pay for Shares pursuant to the Offer.
SECTION 1.02 Company Action. The Company consents to the Offer and
represents that its Board of Directors has unanimously approved the Offer and
the Merger (as defined in Section 2.01) and has unanimously resolved to
recommend acceptance of the Offer to the Company's shareholders. Promptly upon
the commencement of the Offer, the Company shall file with the Securities and
Exchange Commission (the "Commission") and mail to the holders of Shares a
<PAGE>
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9"),
which shall reflect the Company's recommendation. The Company shall promptly
furnish Orion with mailing labels containing the names and addresses of the
record holders and, if available, of non-objecting beneficial owners of Shares
and lists of securities positions of Shares held in stock depositories, each as
of the most recent practicable date, and shall from time to time furnish Orion
with such additional information, including updated or additional lists of
shareholders, mailing labels and lists of securities positions, and other
assistance as Orion may reasonably request.
SECTION 1.03 Shareholders' Action. Promptly following the expiration date
of the Offer as set forth to in Article I hereof, the Company shall, if then
required in accordance with applicable law, unless the Merger may be effected
pursuant to the provisions of Section 7-111-104 of the Colorado Law (as such
term defined in Section 2.02), in which case it shall be so effected (including,
if necessary, the adoption of a Plan of Merger between the Company and
Transition (as defined in Section 2.01) consistent with the terms of this
Agreement), duly call, give notice of, convene and hold a special meeting of its
shareholders (the "Shareholders' Meeting") as soon as practicable for the
purpose of considering and taking action upon this Agreement and Plan of Merger
and in connection therewith use its best efforts (i) to obtain and furnish the
information required to be included by it in the Proxy Statement (as such term
is defined in Section 3.07 hereof) and, after consultation with Orion, respond
promptly to any comments made by the Commission with respect to the Proxy
Statement and any preliminary version thereof and cause the Proxy Statement to
be mailed to its shareholders at the earliest practicable time and (ii) to
solicit proxies and to obtain the necessary approvals by its shareholders of
this Agreement and the transactions contemplated hereby. References to "Shares"
in this Agreement include the associated stock purchase rights (the "Rights")
pursuant to the Rights Agreement dated November 20, 1991 between the Company and
its rights agent. No separate or additional consideration other than the Offer
price and Merger consideration of $36.00 per Share in cash will be payable for
the Rights.
ARTICLE II.
THE MERGER
SECTION 2.01 The Merger. At the Effective Time (as defined in Section
2.02 hereof) and subject to and upon the terms and conditions of this Agreement,
a wholly owned subsidiary of Orion, to be incorporated in the State of Colorado
("Transition"), shall be merged (the "Merger") with and into the Company.
Following the Merger, the Company shall continue as the surviving corporation
(the "Surviving Corporation") and the separate corporate existence of Transition
shall cease.
SECTION 2.02 Effective Time. As soon as practicable after the expiration
date of the Offer and the satisfaction or waiver of the conditions set forth in
Article VII, the parties hereto will cause the Merger to be consummated by
executing articles of merger ("Articles") in
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accordance with Section 7-111-105 of the Colorado Business Corporation Act (the
"Colorado Law") and delivering the Articles to the Secretary of State of
Colorado (the "Secretary") and upon the filing by the Secretary of the Articles,
the Merger shall be effective in accordance with the provisions of the Colorado
Law (the "Effective Time"). The parties shall take all such other and further
actions as may be required by applicable law to make the Merger effective.
SECTION 2.03 Effects of the Merger. The Merger shall have the effects set
forth in the Colorado Law. Without limiting the generality of the foregoing,
and subject thereto, at the Effective Time, all the property, rights,
privileges, powers and franchises of the Company and Transition shall vest in
the Surviving Corporation, and all debts, liabilities and duties of the Company
and Transition shall become the debts, liabilities and duties of the Surviving
Corporation.
SECTION 2.04 Articles of Incorporation and By-Laws. (a) At the Effective
Time, the Restated Articles of Incorporation of the Company, as in effect
immediately prior to the Effective Time, shall be the Articles of Incorporation
of the Surviving Corporation, until duly amended in accordance with applicable
law.
(b) The By-Laws of the Company, as in effect at the Effective Time,
shall be the By-Laws of the Surviving Corporation, until duly amended in
accordance with applicable law, the Articles of Incorporation of the Surviving
Corporation and such By-Laws.
SECTION 2.05 Conversion of Shares. (a) Each Share issued and outstanding
immediately prior to the Effective Time (other than Shares held in the Company's
treasury or by Orion or any wholly owned (except for director's qualifying
shares) subsidiary of Orion and other than Dissenting Shares (as defined in
Section 3.01)) shall, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into the right to receive, pursuant to
Section 3.02, $36.00 in cash (the "Merger Price"), payable to the holder
thereof, without interest thereon, upon the surrender of the certificate
formerly representing such Share.
(b) Each Share held in the treasury of the Company immediately prior to
the Effective Time shall, by virtue of the Merger and without any action on the
part of the holder thereof, be cancelled, retired and cease to exist and no
payment shall be made with respect thereto.
(c) Each Share held by Orion or any wholly owned subsidiary of Orion
immediately prior to the Effective Time shall remain outstanding and unchanged
after the Merger as shares of the Surviving Corporation.
SECTION 2.06 Conversion of Transition's Capital Stock. The shares of
common stock of Transition issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into and exchangeable for such number of
shares of common stock, par value $1.00 per share, of the
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Surviving Corporation as shall equal the number of Shares converted into the
right to receive the Merger Price pursuant to Section 2.05(a) hereof.
SECTION 2.07 Options. At the Effective Time, each outstanding option to
purchase Shares from the Company (an "Option"), whether or not then exercisable,
shall be converted into or replaced by an option to purchase a number of shares
of Orion common stock (which shall be rounded up if .5 or more and rounded down
if less than .5 so that no option on Orion common stock shall relate to a
fractional share) equal to the number of Shares subject to the Option multiplied
by a fraction the numerator of which shall be 36 and the denominator of which
shall be the average of the closing price of Orion common stock on the ten
trading days ending on the fifth trading day prior to the Effective Time, at a
price per share (rounded to the nearest whole cent) equal to (i) the aggregate
exercise price for the Shares otherwise purchasable pursuant to such stock
option, divided by (ii) the number of full shares of Orion common stock deemed
purchasable pursuant to such option in accordance with the foregoing. If such
conversion shall not be permitted by the terms of the related agreement pursuant
to which an Option is issued or the Company equity incentive plans pursuant to
which such Option was granted, the Option shall be canceled and the holder of
such Option will be entitled to receive from the Company, for each Share subject
to such Option, an amount in cash equal to the excess, if any, of the Merger
Price over the per share exercise price of such Option.
ARTICLE III.
DISSENTING SHARES; EXCHANGE OF SHARES
SECTION 3.01 Dissenting Shares. (a) Notwithstanding anything in this
Agreement to the contrary, each Share which is issued and outstanding
immediately prior to the Effective Time and which is held by a shareholder who
has properly exercised rights with respect to such Shares, if available, under
Sections 7-113-101 to 7-113-302 of the Colorado Law (collectively, the
"Dissenting Shares") shall not be converted into or be exchangeable for the
right to receive the consideration provided in Section 2.05, unless and until
such shareholder shall have failed to perfect or shall have effectively
withdrawn or lost such right under the Colorado Law. If any shareholder shall
have so failed to perfect or shall have effectively withdrawn or lost such
right, his Shares shall thereupon be deemed to have been converted into and to
have become exchangeable for, at the Effective Time, the right to receive the
consideration provided for in Section 2.05, without any interest thereon.
(b) The Company shall give Orion (i) prompt notice of any written
demands under Sections 7-113-101 to 7-113-302 of the Colorado Law with respect
to any shares of capital stock of the Company, any withdrawal of any such
demand, and any other instruments served pursuant to the Colorado Law and
received by the Company and (ii) the opportunity to direct all negotiations and
proceedings with respect to any demands under Sections 7-113-101 to 7-113-302 of
the Colorado Law with respect to any shares of capital stock of the Company. The
Company
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shall cooperate with Orion concerning, and shall not, except with the prior
written consent of Orion, voluntarily make any payment with respect to, or offer
to settle or settle, any such demands.
SECTION 3.02 Exchange of Shares. (a) Prior to the Effective Time, Orion
shall designate a bank or trust company reasonably acceptable to the Company to
act as Exchange Agent in connection with the Merger (the "Exchange Agent")
pursuant to an exchange agency agreement providing for the matters set forth in
this Section 3.02 and otherwise reasonably satisfactory to the Company. At the
Effective Time, Orion will provide the Exchange Agent with the funds necessary
to make the payments contemplated by Section 2.05 (the "Exchange Fund").
(b) Promptly after the Effective Time, the Exchange Agent shall mail to
each record holder, as of the Effective Time, of an outstanding certificate or
certificates which immediately prior to the Effective Time represented Shares
(the "Certificates") a form letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon proper delivery of the Certificates to the Exchange Agent) and
instructions for use in effecting the surrender of the Certificates for payment
therefor. Upon surrender to the Exchange Agent of a Certificate, together with
a duly executed letter of transmittal and any other required documents, the
holder of such Certificate shall receive in exchange therefor (as promptly as
practicable) the consideration set forth in Section 2.05, without any interest
thereon, and such Certificate shall forthwith be canceled. If payment is to be
made to a person other than the person in whose name a Certificate so
surrendered is registered, it shall be a condition of payment that the
Certificate so surrendered shall be properly endorsed or otherwise in proper
form for transfer and that the person requesting such payment shall pay any
transfer or other taxes required by reason of the payment to a person other than
the registered holder of the Certificate so surrendered or establish to the
satisfaction of the Surviving Corporation that such tax has been paid or is not
applicable. Until surrendered in accordance with the provisions of this Section
3.02, each Certificate (other than Certificates representing Shares held in the
Company's treasury or by Orion or any wholly owned subsidiary of Orion and other
than Certificates representing Dissenting Shares) shall represent for all
purposes only the right to receive for each Share represented thereby the
consideration set forth in Section 2.05, without any interest thereon.
(c) After the Effective Time, there shall be no transfers on the stock
transfer books of the Surviving Corporation of the Shares which were outstanding
immediately prior to the Effective Time (other than Certificates representing
Shares owned by Orion or any of its wholly owned subsidiaries). If, after the
Effective Time, Certificates (other than Certificates representing Shares owned
by Orion or any of its wholly owned subsidiaries) are presented to the Surviving
Corporation, they shall be cancelled and exchanged for the consideration
provided for, and in accordance with the procedures set forth, in this Article
III.
(d) From and after the Effective Time, the holders of Certificates
evidencing ownership of Shares (other than Shares owned by Orion or any of its
wholly owned subsidiaries) outstanding
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immediately prior to the Effective Time shall cease to have any rights with
respect to such Shares except as otherwise provided herein or by applicable law.
(e) Any portion of the Exchange Fund (including the proceeds of any
investments thereof) that remains unclaimed by the shareholders of the Company
for six months after the Effective Time shall be repaid to Orion. Any
shareholders of the Company who have not theretofore complied with this Article
III shall thereafter look only to Orion for payment of their claim for the
consideration set forth in Section 2.05 for each Share such shareholder holds,
without any interest thereon.
(f) Notwithstanding anything to the contrary in this Section 3.02, none
of the Exchange Agent, Orion or the Surviving Corporation shall be liable to a
holder of a Certificate formerly representing Shares for any amount properly
paid to a public official pursuant to any applicable property, escheat or
similar law.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Orion as follows:
SECTION 4.01 Organization and Qualification; Subsidiaries. (a) Each of
the Company and its subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as now being conducted,
except where the failure to be so organized, existing and in good standing or to
have such power and authority would not in the aggregate have a Material Adverse
Effect (as defined below). The Company has heretofore made available to Orion
accurate and complete copies of the Restated Articles of Incorporation and By-
Laws, as currently in effect, of the Company and the certificate or articles of
incorporation and bylaws, as currently in effect, of each of its subsidiaries.
When used in connection with the Company or any of its subsidiaries, the term
"Material Adverse Effect" means any change in or effect on the business of the
Company or any of its subsidiaries that is materially adverse to the business,
operations or financial condition of the Company and its subsidiaries taken as a
whole.
(b) Each of the Company and its subsidiaries is duly qualified or
licensed and in good standing to do business in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification or licensing necessary, except in such
jurisdictions where the failure to be so duly qualified or licensed and in good
standing would not in the aggregate have a Material Adverse Effect.
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SECTION 4.02 Capitalization of the Company and its Subsidiaries. (a) The
authorized capital stock of the Company consists of 30,000,000 Shares, of which,
as of the date hereof 15,062,933 Shares are issued and outstanding, and
6,000,000 shares of preferred stock, par value $0.10 per share, of which, as of
the date hereof, no shares are issued and outstanding. All the issued and
outstanding Shares are validly issued, fully paid and nonassessable and free of
preemptive rights. As of the date hereof, the Company has two equity incentive
plans under which on the date hereof, options for a total of 517,738 Shares are
outstanding, of which 271,500 are exercisable. Except as set forth above or
pursuant to the exercise of outstanding Options, there are not as of the date
hereof, and at the Effective Time there will not be, any shares of capital stock
of the Company issued or outstanding or any subscriptions, options, warrants,
calls, rights, convertible securities or other agreements or commitments of any
character relating to issued or unissued capital stock or other securities of
the Company, or otherwise obligating the Company or any of its subsidiaries to
issue, transfer or sell any of such securities. Following the Merger, the
Company will have no obligation to issue, transfer or sell any shares of its
capital stock or other securities of the Company pursuant to any employee
benefit plan or otherwise.
(b) All of the outstanding shares of capital stock of each of the
Company's subsidiaries have been validly issued, fully paid and nonassessable
and are owned by either the Company or its subsidiaries free and clear of all
material liens, charges, claims or encumbran ces.
(c) The Shares constitute the only class of equity securities of the
Company or any of its subsidiaries registered or required to be registered under
the Exchange Act.
SECTION 4.03 Authority Relative to this Agreement. The Company has all
necessary corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly and validly authorized by the board of directors of the
Company and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or to consummate the transactions so
contemplated other than, with respect to the Merger, the approval of this
Agreement by the holders, including Orion and its subsidiaries, of the majority
of the then outstanding Shares, unless the Merger may be effected without the
vote of shareholders of the Company. This Agreement has been duly and validly
executed and delivered by the Company and constitutes a valid, legal and binding
agreement of the Company enforceable against the Company in
accordance with its terms, except as enforcement may be limited by general
principles of equity whether applied in a court of law or a court of equity.
SECTION 4.04 SEC Reports. (a) The Company has filed all required forms,
reports and documents with the Commission since January 1, 1994 (collectively,
the "SEC Reports"), all of which have complied in all material respects with all
applicable requirements of the Securities Act of 1933, as amended, and the
Exchange Act. The Company has heretofore delivered to Orion, in the form filed
with the Commission, its (i) Annual Reports on Form 10-K for each of the three
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fiscal years ended December 31, 1996, (ii) all definitive proxy statements
relating to the Company's meetings of shareholders (whether annual or special)
held since January 1, 1994 and (iii) all other reports or registration
statements filed by the Company with the Commission since January 1, 1994. None
of such forms, reports or documents, including, without limitation, any
financial statements or schedules included or incorporated by reference therein,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated or incorporated by reference therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. None of the subsidiaries of the Company is
required to file any reports, statements, forms or other documents with the
Commission.
(b) The Company has heretofore made available to Orion a complete and
correct copy of any amendments or modifications, which have not yet been filed
with the Commission, to agreements, documents or other instruments which
previously had been filed by the Company with the Commission pursuant to the
Exchange Act.
SECTION 4.05 Absence of Certain Changes. Except as set forth or otherwise
reflected in the SEC Reports, since December 31, 1996, neither the Company nor
any of its significant subsidiaries has suffered any Material Adverse Effect.
SECTION 4.06 No Undisclosed Liabilities. Except as and to the extent set
forth in the Annual Report on Form 10-K for the fiscal year ended December 31,
1996 (the "1996 10-K"), as of December 31, 1996, neither the Company nor any of
its subsidiaries had any material liabilities or obligations, whether accrued,
contingent or otherwise, required by generally accepted accounting principles to
be reflected on a consolidated balance sheet of the Company and its
subsidiaries. Since December 31, 1996, neither the Company nor any of its
subsidiaries has incurred any liabilities or obligations which in the aggregate
are material to the Company and its subsidiaries, taken as a whole, other than
liabilities and obligations incurred in the ordinary course of business or
pursuant to or as contemplated by this Agreement.
SECTION 4.07 Proxy Statement; Schedule 13E-3. Any proxy or similar
materials distributed to the Company's shareholders in connection with the
Merger, including any amendments or supplements thereto (a "Proxy Statement"),
will comply in all material respects with applicable laws, including the federal
securities laws, except that no representation is made by the Company with
respect to information supplied by Orion for inclusion in any Proxy Statement.
None of the information supplied by the Company for inclusion in any Proxy
Statement or in Orion's Tender Offer Statement on Schedule 14D-1 (the "Schedule
14D-1"), the Rule 13E-3 Transaction Statement (the "Schedule 13E-3") and any
amendments thereto to be filed with the Commission by Orion and the Company in
connection with the transactions contemplated by this Agreement will, at the
time that the Schedule 14D-1, the Schedule 13E-3 or any amendments or
supplements thereto are filed with the Commission and, in the case of any Proxy
Statement at the time that any amendment thereto is mailed to the Company's
shareholders, at the
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time of the Shareholders' Meeting and at the Effective Time, as the case may be,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. If no vote of shareholders shall be required to effect the Merger,
the Company will furnish to its shareholders any documents and information
required by the Colorado Law complying with the provisions thereof in a prompt
and timely fashion.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF ORION
Orion represents and warrants to the Company as follows:
SECTION 5.01 Organization. Orion is a corporation existing and in good
standing under the laws of the State of Delaware and has all requisite corporate
power and authority to own, lease and operate its properties and to carry on its
business as now being conducted, except where the failure to be so organized,
existing and in good standing or to have such power and authority would not in
the aggregate have a Material Adverse Effect (as defined below). Orion has
heretofore delivered to the Company an accurate and complete copy of its
certificate of incorporation and bylaws, as currently in effect. When used in
connection with Orion, the term "Material Adverse Effect" means any change in or
effect on the business of Orion that is materially adverse to the business,
operations or financial condition of Orion and all of its subsidiaries taken as
a whole.
SECTION 5.02 Authority Relative to this Agreement. Orion has all
necessary corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly and validly authorized by the board of directors of Orion
and no other corporate proceedings on the part of Orion are necessary to
authorize this Agreement or to consummate the transactions so contemplated.
This Agreement has been duly and validly executed and delivered by Orion and
constitutes a valid, legal and binding agreement of Orion, enforceable against
Orion in accordance with its terms, except as enforcement may be limited by
general principles of equity whether applied in a court of law or a court of
equity.
SECTION 5.03 Proxy Statement; Schedule 13E-3. None of the information
supplied by Orion for inclusion in any Proxy Statement or the Schedule 13E-3
will, at the respective times that such Proxy Statement and the Schedule 13E-3
or any amendments or supplements thereto are filed with the Commission or, in
the case of a Proxy Statement, at the time that it or any amendment or
supplement thereto is mailed to the Company's shareholders, at the time of the
Shareholders' Meeting or at the Effective Time, as the case may be, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading.
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ARTICLE VI.
COVENANTS
SECTION 6.01 Conduct of Business of the Company. Except as contemplated
by this Agreement or otherwise approved by Orion, during the period from the
date hereof to the Effective Time, the Company and its subsidiaries will each
conduct its operations according to its ordinary and usual course of business
and consistent with past practice, and the Company and its subsidiaries will
each use its best efforts to preserve intact its business organization, to keep
available the services of its officers and employees and to maintain existing
relationships with licensors, licensees, suppliers, contractors, distributors,
customers and others having business relationships with it. Without limiting
the generality of the foregoing, and except as otherwise expressly provided in
this Agreement, prior to the Effective Time, neither the Company nor any of its
subsidiaries will, without the prior consent of Orion or the approval of a
majority of the members of the Board of Directors of the Company:
(a) amend its certificate or articles of incorporation or by-laws;
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any stock
of any class or any other securities, except as required by the Option
agreements as in effect as of the date hereof, or amend any of the terms of any
such securities or agreements outstanding as of the date hereof;
(c) split, combine or reclassify any shares of its capital stock, or pay
any dividend or other distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock, or redeem or otherwise
acquire any of its securities or any securities of its subsidiaries except for
dividends declared and paid in accordance with Section 6.09 hereof;
(d)(i) except in the ordinary course of business under existing lines of
credit, incur or assume any funded indebtedness; (ii) assume, guarantee, endorse
or otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person except in the ordinary course
of business and except for obligations of wholly owned subsidiaries of the
Company; (iii) make any loans, advances or capital contributions to, or
investments in, any other person except in the ordinary course of business
(other than to wholly owned subsidiaries of the Company or customary loans or
advances to employees);
(e) enter into, adopt or (except as may be required by law) amend or
terminate any bonus, profit sharing, compensation, severance, termination, stock
option, stock appreciation right, restricted stock, performance unit, pension,
retirement, deferred compensation, employment, severance or other employee
benefit agreement, trust, plan, fund or other arrangement for the benefit or
welfare of any director, officer or group of employees, or (except
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for normal increases in the ordinary course of business that are consistent with
past practices and that, in the aggregate, do not result in a material increase
in benefits or compensation expense to the Company) increase in any manner the
compensation or fringe benefits of any director, officer or group of employees
or pay any benefit not required by any plan and arrangement as in effect as of
the date hereof (including, without limitation, the granting of stock
appreciation rights or performance units) or enter into any contract, agreement,
commitment or arrangement to do any of the foregoing;
(f) acquire, sell, lease or dispose of any assets outside the ordinary
course of business or any assets which in the aggregate are material to the
Company and its subsidiaries taken as a whole or enter into any commitment or
transaction outside the ordinary course of business;
(g) change any of the accounting principles or practices used by it;
(h) revalue in any material respect any of its assets, including,
without limitation, writing down the value of inventory or writing off notes or
accounts receivable other than in the ordinary course of business;
(i)(i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or division
thereof; (ii) enter into any contract or agreement other than in the ordinary
course of business; ( iii ) authorize any new capital expenditure or
expenditures which, individually, is in excess of $1,000,000 or, in the
aggregate, are in excess of $5,000,000; provided, that none of the foregoing
shall limit any capital expenditure already included in the Company's 1997
capital expenditure budget; or (iv) enter into or amend any contract, agreement,
commitment or arrangement with respect to any of the matters set forth in this
Section 6.01(i);
(j) make any tax election or settle or compromise any material income
tax liability;
(k) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unassorted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice of liabilities reflected or reserved against in,
or contemplated by, the consolidated financial statements (or the notes thereto)
of the Company and its consolidated subsidiaries or incurred in the ordinary
course of business and consistent with past practice; or
(l) take, or agree in writing or otherwise to take, any of the actions
described in Sections 6.01(a) through 6.01(k) or any action which would make any
of the representations or warranties of the Company contained in this Agreement
untrue or incorrect as of the date when made or as of a future date or would
result in any of the conditions set forth in Section 7.03 not being satisfied.
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SECTION 6.02 No Solicitation. Neither the Company nor any of its
subsidiaries, affiliates, officers, directors, employees, representatives or
agents, shall, directly or indirectly, encourage, solicit, participate in or
initiate discussions or negotiations with, or except as may be required by law,
upon the written advice of counsel, provide any information to, any corporation,
partnership, person or other entity or group (other than Orion or an affiliate
or an associate of Orion) concerning any merger, sale of assets or sale of
shares of capital stock of the Company or of any subsidiary or division of the
Company or similar transaction.
SECTION 6.03 Access to Information. Between the date hereof and the
Effective Time, the Company will give Orion and its authorized representatives
reasonable access to all employees, plants, offices, warehouses and other
facilities and to all books and records of the Company and its subsidiaries,
will permit Orion to make such inspections as Orion may reasonably require and
will cause the Company's officers and those of its subsidiaries to furnish Orion
with such financial and operating data and other information with respect to the
business and properties of the Company and any of its subsidiaries as Orion may
from time to time request.
SECTION 6.04 Best Efforts. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its best efforts to take, or
cause to be taken, all action, and to do, or cause to be done, all things
reasonably necessary, proper or advisable under applicable laws and regulations
to consummate and make effective the transactions contemplated by this
Agreement, including, without limitation, cooperation in the preparation and
filing of the Schedule 14D-1, Schedule 14D-9 and Schedule 13E-3 and any
amendments thereto and the execution of any additional instruments necessary to
consummate the transactions contemplated hereby. In case at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement, the proper officers and directors of each party
hereto shall take all such necessary action.
SECTION 6.05 Consents and Approvals. Each of Orion and the Company will
use its best efforts to obtain consents or approvals of all third parties and
governmental authorities necessary to the consummation of the transactions
contemplated by this Agreement.
SECTION 6.06 Public Announcements. Orion and the Company will consult
with each other before issuing any press release or otherwise making any public
statements with respect to the transactions contemplated by this Agreement and
shall not issue any such press release or make any such public statement prior
to such consultation, except as may be required by applicable law or by
obligations pursuant to any listing agreement with any national securities
exchange.
SECTION 6.07 Indemnification and Insurance. Orion agrees that all rights
to indemnification existing in favor of the present or former directors and
officers of the Company or any of its subsidiaries (collectively, the
"Indemnified Parties") as provided in the Company's Restated Articles of
Incorporation or By-Laws or the articles of incorporation, by-laws or similar
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documents of any of the Company's subsidiaries as in effect as of the date
hereof with respect to matters occurring prior to the Effective Time shall
survive the Merger and shall continue in full force and effect for a period of
not less than the statutes of limitations applicable to such matters. From and
after the Merger and to the extent Orion is permitted to do so under its loan or
financing agreements, Orion shall guarantee the Company's indemnification
obligations to the Company's current directors as they relate to this Agreement
and the transactions contemplated hereby. Orion shall use its best efforts to
obtain any consents required under such loan and financing agreements. To the
extent available, Orion shall cause to be maintained in effect for not less than
three years from the Effective Time policies of the directors' and officers'
liability insurance, with terms and conditions which are not materially less
advantageous than those presently maintained by the Company, with respect to
matters occurring prior to the Effective Time, provided, however, that in no
event shall Orion or the Surviving Corporation be required to expend per year
more than 125% of the current annual premium payable by the Company with respect
to its current directors and officers liability insurance policy to maintain or
procure insurance coverage pursuant to this Section 6.07(a).
(b) In the event that any action, suit, proceeding or investigation
relating hereto or to the transactions contemplated hereby is commenced, whether
before or after the Effective Time, the parties hereto agree to cooperate and
use their best efforts to defend against and respond thereto.
(c) This Section 6.07, which shall survive the consummation of the
Merger at the Effective Time and shall continue without limit, is intended to
benefit the Company, the Surviving Corporation, the Indemnified Parties (whether
or not parties to this Agreement) and shall be binding on all successors and
assigns of the Company and the Surviving Corporation.
SECTION 6.08 Notification of Certain Matters. The Company shall give
prompt notice to Orion, and Orion shall give prompt notice to the Company, of
(i) the occurrence, or nonoccurrence, of any event the occurrence, or
nonoccurrence, of which would be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate in any material respect
at or prior to the Effective Time and (ii) any material failure of the Company,
or Orion, as the case may be, to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it hereunder, provided,
however, that the delivery of any notice pursuant to this Section 6.08 shall not
limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
SECTION 6.09 Dividends. Until the Effective Time, the Company may
continue to set record dates, declare and pay quarterly dividends consistent
with the amounts and schedule followed by the Company since January 1, 1995,
provided that it is permitted to do so under applicable Colorado law.
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SECTION 6.10 Shareholder Agreement. Upon the purchase of Shares pursuant
to the Offer, the Shareholder Agreement dated November 7, 1991 between Orion and
the Company, as amended through June 18, 1996, shall immediately terminate.
ARTICLE VII.
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 7.01 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligation of each party hereto to effect the Merger is subject
to the satisfaction or mutual waiver at or prior to the Effective Time of the
following conditions:
(a) this Agreement, following its adoption by the Board of Directors of
Transition, shall have been approved by the requisite vote of the shareholders
of the Company in accordance with applicable law;
(b) no statute, rule, regulation, executive order, decree, or injunction
shall have been enacted, entered, promulgated or enforced by any court or
governmental authority which prohibits or restricts the consummation of the
Merger;
(c) Orion and the Company shall have received or obtained all regulatory
approvals (including state insurance regulatory approvals) necessary to
consummate the Offer and the Merger on terms and conditions satisfactory to
Orion.
(d) there shall not be pending any action or proceeding by or before any
court or governmental regulatory or administrative agency, authority or
tribunal, against Orion or the Company or any of their respective directors or
officers which (i) seeks to restrain, prohibit or delay the consummation of the
Offer and the Merger, (ii) may result in a material diminution in the benefits
expected to be derived by Orion as a result of the Offer or the Merger or (iii)
challenges the adoption, entering into or approval of this Agreement or
challenges or seeks damages in connection with this Agreement, the transactions
contemplated hereby or any other proposal by Orion to acquire the Company.
SECTION 7.02 Conditions to Obligations of the Company to Effect the
Merger. The obligation of the Company to effect the Merger is further subject
to Orion's having performed in all material respects its obligations under this
Agreement required to be performed by it, or the Company having waived such
performance, at or prior to the Effective Time pursuant to the terms hereof.
SECTION 7.03 Conditions to Obligation of Orion to Effect the Merger. The
obligation of Orion to effect the Merger is further subject to the satisfaction
or waiver by it at or prior to the Effective Time of the following conditions:
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(a) the representations and warranties of the Company set forth in this
Agreement shall be true and correct in all material respects on the date hereof
and as of the Effective Time;
(b) the Company shall not have breached in any material respect any
covenant contained in this Agreement;
(c) the number of Dissenting Shares hereof shall not exceed 5% of the
Shares (other than the Shares owned by Orion and its wholly owned subsidiaries);
and
(d) no change shall have occurred or be threatened in the business,
operations or financial condition of the Company and its subsidiaries taken as a
whole which has, or might have, a Material Adverse Effect.
ARTICLE VIII.
TERMINATION; AMENDMENT; WAIVER
SECTION 8.01 Termination. This Agreement may be terminated and the Merger
may be abandoned at any time, notwithstanding approval thereof by the
shareholders of the Company, but prior to the Effective Time:
(a) by mutual written consent of the Company (with the approval of a
majority vote of the Independent Directors, as herein defined) and Orion; or
(b) by the Company (with the approval of a majority vote of the
Independent Directors) or Orion if (i) the Effective Time shall not have
occurred on or before March 31, 1998 (provided that the right to terminate this
Agreement under this Section 7.01(b) shall not be available to any party whose
willful failure to fulfill any obligation under this Agreement has been the
cause of or resulted in the failure of the Effective Time to occur on or before
such date) or (ii) any court of competent jurisdiction in the United States or
other United States governmental body shall have issued an order, decree or
ruling or taken any other action restraining, enjoining or otherwise prohibiting
the Merger and such order, decree, ruling or other action shall have become
final and nonappealable.
SECTION 8.02 Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 8.01, this Agreement shall
forthwith become void and have no effect, without any liability on the part of
any party hereto or its directors, officers or shareholders, other than the
provisions of this Section 8.02 and Article IX. Nothing contained in this
Section 8.02 shall relieve any party from liability for any breach of this
Agreement prior to the termination hereof.
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SECTION 8.03 Amendment. This Agreement may be amended by action taken by
the Company (approved by a majority vote of Messrs. Tucker Hart Adams, Dennis J.
Lacey and Richard R. Thomas and Ms. M. Ann Padilla as directors of the Company
(collectively, the "Independent Directors") ) and Orion at any time before or
after approval of this Agreement by the shareholders of the Company, but, after
any such approval, no amendment shall be made which decreases the Merger Price
or the Offer price or which adversely affects the rights of the Company's
shareholders hereunder without the approval of such shareholders. This
Agreement may not be amended except by an instrument in writing signed on behalf
of the parties (which instrument, in the case of the Company, shall be approved
by a majority of the Independent Directors).
SECTION 8.04 Extension; Waiver. At any time prior to the Effective Time,
the parties hereto (in the case of the Company, with the approval of a majority
vote of the Independent Directors) may (i) extend the time for the performance
of any of the obligations or other acts of the other parties, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document, certificate or writing delivered pursuant hereto, (iii) waive
compliance with any of the agreements or conditions contained herein or (iv)
waive the conditions set forth in Article VII hereto. Any agreement on the part
of any party to any such extension or waiver shall be valid only if set forth in
an instrument in writing signed on behalf of such party.
ARTICLE IX.
MISCELLANEOUS
SECTION 9.01 Nonsurvival of Representations and Warranties. The
representations and warranties made herein shall not survive beyond the
Effective Time or a termination of this Agreement.
SECTION 9.02 Entire Agreement; Assignment. This Agreement (a) constitutes
the entire agreement among the parties hereto with respect to the subject matter
hereof and supersedes all other prior agreements and understandings, both
written and oral, between the parties or any of them with respect to the subject
matter hereof and (b) shall not be assigned by operation of law or otherwise,
provided that Orion may assign its rights and obligations to any subsidiary of
Orion but no such assignment shall relieve Orion of its obligations hereunder if
such assignee does not perform such obligations.
SECTION 9.03 Validity. If any provision of this Agreement, or the
application thereof to any person or circumstance, is held invalid or
unenforceable, the remainder of this Agreement, and the application of such
provision to other persons or circumstances, shall not be affected thereby, and
to such end, the provisions of this Agreement are agreed to be severable.
-16-
<PAGE>
SECTION 9.04 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by cable,
telegram or telex, or by registered or certified mail (postage prepaid, return
receipt requested), to the respective parties as follows:
if to Orion or Transition:
Orion Capital Corporation
9 Farm Springs Road
Farmington, Connecticut 06032
Attention: Michael P. Maloney, Esq.
with a copy to:
Donovan, Leisure, Newton & Irvine
30 Rockefeller Plaza
New York, New York 10112
Attention: John J. McCann, Esq.
if to the Company:
Guaranty National Corporation
9800 South Meridian Boulevard
Englewood, Colorado 80112
Attention: Mr. James R. Pouliot, President & CEO
with a copy to:
Ireland, Stapleton, Pryor & Pascoe, P.C.
Suite 2600
1675 Broadway
Denver, Colorado 80202
Attention: Hardin Holmes, Esq.
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
SECTION 9.05 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Colorado, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
-17-
<PAGE>
SECTION 9.06 Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
SECTION 9.07 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto and its successors and
permitted assigns, and, except as provided in Sections 2.05, 2.07, 6.07 and
9.02(b), nothing in this Agreement, express or implied, is intended to or shall
confer upon any other person any rights, benefits or remedies of any nature
whatsoever under or by reason of this Agreement.
SECTION 9.08 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
SECTION 9.09 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any of the provisions of this
Agreement were not performed in accordance with the terms hereof and that the
parties shall be entitled to specific performance of the terms hereof, in
addition to any other remedy at law or equity.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers hereunto duly authorized, all as of the
day and year first above written.
ORION CAPITAL CORPORATION
By:/s/ Michael P. Maloney
Name: Michael P. Maloney
Title: Senior Vice President,
General Counsel & Secretary
GUARANTY NATIONAL CORPORATION
By:/s/ James R. Pouliot
Name: James R. Pouliot
Title: President and Chief
Executive Officer
-18-
<PAGE>
EXHIBIT 2
---------
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
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
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.
William J. Shepherd, 70 1991 Private investor; Director of Orion, Chemical
Director Bank New Jersey and Princeton Bank and Trust
Company.
Richard R. Thomas, 51 1991 Chief Executive Officer and Chairman of the
Director Board of ADCO General Corporation (a property
and casualty general agency) since 1990.
Roger B. Ware, 62 1983 Senior Consultant of Guaranty since December
Director 1996 and President and Chief Executive Officer
of Guaranty, 1983-1996. Director of Orion.
</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
-3-
<PAGE>
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.
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 600 Fifth Avenue New York, NY 10020.................... 12,129,942(a) 81.0%
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)
</TABLE>
-4-
<PAGE>
<TABLE>
<S> <C> <C>
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.
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
-5-
<PAGE>
<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>
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.
-6-
<PAGE>
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.
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
INDIVIDUAL GRANTS
---------------------------
% OF TOTAL EXERCISE
OPTIONS PRICE OR
OPTIONS GRANTED TO BASE GRANT
GRANTED EMPLOYEES PRICE EXPIRATION DATE
-7-
<PAGE>
<TABLE>
<CAPTION>
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>
SHARES VALUE OF UNEXERCISED
ACQUIRED NUMBER OF UNEXERCISED IN-THE MONEY OPTIONS
ON VALUE OPTIONS AT YEAR-END AT YEAR-END
----------------- ------------------------- -----------------------------
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 --
</TABLE>
-8-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
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.
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
-9-
<PAGE>
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.
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
-10-
<PAGE>
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.
-11-
<PAGE>
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 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
-12-
<PAGE>
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 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,
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<PAGE>
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
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
14
<PAGE>
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
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
-14-
<PAGE>
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.
-15-
<PAGE>
EXHIBIT 3
INFORMATION CONCERNING EXECUTIVE OFFICERS OF THE COMPANY
The following is a summary of certain information regarding the executive
officers of the Company. All officers of Guaranty and its subsidiaries serve at
the pleasure of their respective Boards of Directors.
James R. Pouliot has been President and Chief Executive Officer (CEO) of
the Company since December 1996 and CEO of Viking from 1992. Mr. Pouliot has
been a Company Director since 1995. Prior to taking over as President and CEO of
the Company, Mr. Pouliot served as Executive Vice President and CEO-Elect from
July 1996. From 1990 to 1992, Mr. Pouliot served as Vice President of Marketing
for Great American Insurance Company; age 43.
Richard M. Beverage has been Senior Vice President (SVP)-Chief Actuary for
the Company since February 1996. From 1992 through 1996, Mr. Beverage was a
Senior Manager - Reserving Studies with Deloitte & Touche LLP. He served as
Chief Pricing Actuary for Zurich-American Insurance Company of Illinois from
1991 through 1992; age 45.
Shelly J. Hengsteler has been Controller and Assistant Treasurer and
Principal Accounting Officer of the Company since January 1996. Ms. Hengsteler
joined Guaranty National in 1989. From 1991 until 1994, she was a Financial
Reporting Manager and from 1994 through 1995 she served as Director of Corporate
Finance; age 34.
Arthur J. Mastera has been SVP-Chief Administrative Officer of the Company
since October 1996. Prior to becoming Chief Administrative Officer, Mr. Mastera
was President of the Guaranty National Personal Lines Division since November
1995. Mr. Mastera rejoined GNIC as SVP-Administration and Corporate Information
Systems in February 1992. From 1989 until 1992, he was Senior Vice President of
Planning and Administration at Orion Capital Companies. Mr. Mastera originally
joined GNIC in 1983; age 56.
Jacqueline L. Melton has been SVP of the Company since December 1996. She
has also been SVP-GNIC and SVP-Human Resources since 1991. Ms. Melton joined
GNIC in 1980 and from 1986 to 1991 she served as Vice President of Human
Resources; age 46.
Michael L. Pautler joined GNIC in 1981 and since 1988 has been SVP-Finance
and Treasurer of the Company; age 42.
Fred T. Roberts has been SVP of the Company and President of the Commercial
Lines Unit since November 1995. He served as SVP of GNIC Claims from 1984 to
1995; age 55.
<PAGE>
Charles B. Ruzicka has been SVP-Information Systems since December 1996.
From August 1996, until assuming his current position, Mr. Ruzicka was Vice
President-Personal Lines Information Systems. From 1993 through 1996, Mr.
Ruzicka was Vice President of Viking. From 1987 to 1993, Mr. Ruzicka was
employed with Progressive Insurance Company and was a Vice President from 1992
through 1993; age 43.
Philip H. Urban has been SVP of the Company and President of the Personal
Lines Business Unit since November 1996. From 1990 to 1996, Mr. Urban was SVP-
Personal Lines for Great American Insurance Company; age 44.
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<PAGE>
EXHIBIT 4
SPECIAL FACTORS
Background of the Transactions
Since August, 1984, Orion has had, directly or through wholly-owned
subsidiaries, a substantial ownership interest in Guaranty. In November 1998,
Orion, through wholly-owned subsidiaries, increased its ownership of Guaranty
from 49.7% to 100%. On November 20, 1991, Orion sold 6,250,000 Shares in an
initial public offering at a net price per share of $13.60 reducing its
ownership interest to 49.3% of the then outstanding Shares. Since then,
Guaranty has operated as an independent publicly-traded company. In connection
with the public offering in 1991, Orion, certain of its subsidiaries and
Guaranty entered into the Shareholder Agreement (as subsequently amended, the
"Shareholder Agreement").
On July 18, 1995, Guaranty acquired all of the capital stock of Viking
Insurance Holdings, Inc. ("Viking") for a total consideration of $102,700,000
(subject to certain adjustments). Guaranty financed the acquisition of Viking
by selling 1,550,000 Shares in a European offering pursuant to Regulation S
under the Securities Act, and utilizing a portion of a new $110,000,000 credit
facility from a group of lending banks. At that time, certain of Orion's
wholly-owned subsidiaries held $20,896,000 of Guaranty's subordinated promissory
notes due 2003 (the "2003 Notes") which had been issued in November 1991. To
facilitate Guaranty's acquisition of Viking, the entire principal amount of the
2003 Notes was converted in July and October 1995 into 1,326,128 Shares at
$15.76 per share, the same net price per Share received by Guaranty in its
Regulation S offering. The conversion of the 2003 Notes restored Orion to its
previous ownership level in Guaranty of slightly less than 50% of the
outstanding Shares following the increase in the number of Shares resulting from
Guaranty's Regulation S offering. From November 1995 through March 1996, Design
Professionals Insurance Company, a wholly-owned subsidiary of Orion, acquired an
additional 80,000 Shares in open market purchases.
In December 1995 and February 1996, representatives of companies in the
insurance industry expressed an interest to the late Mr. Alan R. Gruber, then
the Chairman and Chief Executive Officer of Orion, in acquiring from Orion its
Shares in connection with a possible acquisition of Guaranty. In each of these
cases, such companies subsequently indicated that their managements had decided
to pursue other opportunities. No price was discussed in any case for the
Shares, and no offer was made. In March 1996, a financial intermediary told
Orion that he had proposed to a third-party entity the possible purchase from
Orion of its Shares in connection with a possible purchase of Guaranty. The
financial intermediary was not retained by Orion to effect such a transaction
and Orion has no information to the effect that he was retained to do so by the
third party. Orion had no further contact, and received no offer, concerning
the proposal.
On May 8, 1996, Orion and certain of its wholly-owned subsidiaries (the
"Subsidiaries") commenced a tender offer for up to 4,600,000 Shares (the "1996
Tender
<PAGE>
Offer"), a number which would bring Orion's ownership to more than 80% of the
outstanding Shares and allow Orion to file a consolidated federal income tax
return which includes Guaranty. Prior to consummation of the 1996 Tender Offer
and in connection with it, the Shareholder Agreement was amended. Orion and the
Subsidiaries agreed not to purchase, prior to July 1, 1996, additional Shares
(if after giving effect to such purchase they would own more than 81% of the
outstanding Shares) other than pursuant to an offer involving consideration
equal to at least $18.50 per Share and made for all Shares not held by them,
such offer to be conditioned upon the acceptance thereof by at least a majority
of the Shares then outstanding and not held by Orion and its Subsidiaries. On
July 2, 1996, Orion and the Subsidiaries completed the 1996 Tender Offer for
4,600,000 Shares.
On July 2, 1996, Orion also signed a Memorandum of Understanding with
respect to the settlement and dismissal of three lawsuits which had been brought
as a result of the 1996 Tender Offer. Pursuant to the terms of the Memorandum
of Understanding, all pending litigation was terminated and Orion confirmed the
undertaking with respect to the purchase of additional Shares described above,
which it had made while the 1996 Tender Offer was pending.
On July 17, 1996, Orion purchased, for $14.50 per Share, an additional
120,000 Shares, which together with Shares purchased in the 1996 Tender Offer,
increased Orion's aggregate ownership of Shares to approximately 81.0%. Since
July 17, 1996, Orion and its subsidiaries have not purchased any Shares.
Orion and the Subsidiaries, beneficially own, in the aggregate, 12,129,942
Shares. Set forth below is the number of Shares held by Orion and the
Subsidiaries, respectively, as of the date of this Offer to Purchase:
<TABLE>
<CAPTION>
No. of
Shares %/*/
<S> <C> <C>
Orion Capital Corporation 1,145,000 7.60
The Connecticut Indemnity Company 1,381,168 9.17
Connecticut Specialty Insurance Company 215,154 1.43
Design professionals Insurance Company 317,115 2.10
EBI Indemnity Company 630,379 4.18
Employee Benefits Insurance Company 618,612 4.11
The Fire and Casualty Insurance Company of Connecticut 637,998 4.24
Security Insurance Company of Hartford 7,116,802 47.25
SecurityRe, Inc. 67,714 0.45
---------- ------
12,129,942 80.53%
========== ======
</TABLE>
- - ------------------------
/*/ Based on the number of shares reported by Guaranty in its September 10-Q to
be outstanding as of November 3, 1997.
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<PAGE>
The principal business address for Orion and the Subsidiaries is 9 Farm
Springs Road, Farmington, Connecticut 06032.
Although each of Orion's Subsidiaries has sole power to vote and dispose of
its Shares and makes its own investment decisions, Orion is deemed by its direct
or indirect voting control of the Subsidiaries to be able ultimately to direct
the acquisition, voting and disposition of the Shares held by the Subsidiaries.
By mid-1997, senior management of Orion determined that if Guaranty is to
be a significant factor in the nonstandard personal auto insurance market, it
would be desirable for it to expand its base of business. That conclusion was
in part based on the consolidation of the nonstandard auto insurance business
that was taking place during the first and second quarters of 1997. To some
extent, Guaranty itself has the capital capacity to expand its business base by
internal and external growth, but certain strategic alternatives being
considered by it will likely require additional capital if they are to be
accomplished. Orion has concluded that such additional capital support can be
more efficiently furnished if Guaranty becomes a wholly-owned subsidiary of
Orion.
In June, 1997, during a discussion of Guaranty's strategic alternatives
among W. Marston Becker, Chairman and Chief Executive Officer of Orion, James R.
Pouliot, president and Chief Executive officer of guaranty, and Michael L.
Pautler, Senior Vice President of Finance and Treasurer of guaranty, the
possible advantage of a full consolidation was raised but not discussed in any
detail.
On July 8, 1997, an Executive Committee meeting of the Orion Board of
Directors was held to explore the various aspects of the potential acquisition
by Orion of the Shares it does not own. The Executive Committee authorized Mr.
Becker to open a dialogue with Guaranty to discuss the potential of such a
transaction. On that same day, Mr. Becker telephoned Mr. Pouliot to continue
the discussion of the strategic alternatives of Guaranty. During that
discussion, Mr. Becker expressed the view that consideration might be given to
having Orion acquire the remaining interest in Guaranty, not already owned by
Orion, through a merger or similar transaction. Based on the closing sales
price of $23.9375 of Shares on July 8, 1997, Mr. Becker suggested a possible
price of $26.00. He further suggested that a merger in which stock of Orion
would be exchanged for the Shares not already owned by Orion on an agreed ratio
seemed to Orion to produce the most favorable after-tax result to individual
shareholders of Guaranty (noting that certain institutional shareholders might
be less concerned with the form of consideration). He further stated that among
the holders of Shares, there were a significant number of holders who were also
shareholders of Orion, concluding that since those persons had already chosen to
invest in Orion, they presumably would be well disposed to continuing their
investment in Guaranty on an indirect basis by increasing their holdings of
Orion Common Stock. He suggested that
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<PAGE>
before any discussions took place concerning the desirability of a merger of
Guaranty, the financial adviser of Orion meet with a designated financial
adviser to Guaranty to discuss the relative valuation of the two entities. He
further suggested that any financial adviser retained by Guaranty report to the
directors of guaranty who are not employees or directors of Orion.
Subsequently, Orion was informed that Guaranty had retained the firm of Solomon
to represent the Independent directors in such discussions.
During the months of July and August 1997, Salomon and Orion's financial
adviser, Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), conducted
due diligence reviews at Guaranty and Orion and had several conversations
concerning valuation principles which might be relevant to a merger of Guaranty
and a newly formed subsidiary of Orion. No agreement was reached by them as to
the valuation of the Shares not already owned by Orion and the Subsidiaries or
even as to a mutually-agreed range of values. Orion was advised that further
due diligence and analysis would be required by Salomon.
On September 2, 1997, an Executive Committee meeting of the Orion Board of
Directors was held to discuss the status of the discussions between Orion and
Guaranty. The Executive Committee authorized Mr. Becker to send a letter to the
Guaranty Board of Directors to propose a meeting to discuss the potential for a
transaction.
On September 4, 1997, Mr. Becker sent a letter to the Guaranty Board of
Directors and requested that a special meeting of the Guaranty Board of
Directors be held following a regular meeting of the Orion Board of directors
which was to be held in Colorado on September 12. The purpose of the meeting
was to discuss with the entire Guaranty Board why Mr. Becker felt the
combination of the two companies was strategically important for Guaranty and
the results, from his perspective, of the discussions which had taken place
since July between Salomon and DLJ. In the letter, Mr. Becker stated he would
be prepared to suggest to the Orion Board of Directors that Orion acquire, most
likely through a merger, the remaining Shares it did not own for a value of
$30.25 per share (partially cash and partially stock).
On September 12, 1997, separate meetings of the Boards of Directors of
Orion and guaranty were held at the headquarters of Guaranty in Englewood,
Colorado. At the Orion meeting, the Board of Directors authorized Mr. Becker to
discuss with the Guaranty Board of Directors the work which had been done by
DLJ. Anticipating that Salomon had informed the Independent Directors of
Guaranty of its conclusions concerning its valuation of the Shares not already
owned by Orion and the Subsidiaries, Orion's Board of Directors authorized the
Executive Committee of the Orion Board to formulate an offer to Guaranty if it
appeared that there was substantial agreement with the recommendations to
Guaranty's Independent Directors by Salomon.
At the meeting on September 12 of the guaranty Board of Directors, Orion
was informed that the independent directors of Guaranty had not formally met
with Salomon and
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<PAGE>
had not reached any conclusions as to the value of the Shares not already owned
by Orion and the Subsidiaries. Nonetheless, Mr. Becker presented to the
guaranty Board of Directors data which had been developed by Orion and DLJ as to
the value of Guaranty and as to the form of transaction and form of
consideration which Orion believed would be most advantageous to the
shareholders of Guaranty. He indicated to the Board of guaranty that he would
be prepared to recommend a price of $30.25 per Share (partially cash and
partially stock) to Orion's Board of Directors and was informed that the
Independent Directors of Guaranty were not at that time in a position to
consider an offer without further advice from Salomon. Orion was informed that
the Independent Directors of Guaranty would organize themselves to evaluate the
proposal.
On September 15, 1997, one of the Independent Directors of Guaranty
telephoned Mr. Becker and informed him that the Independent Directors had met
with Salomon and discussed with Salomon its evaluation study. He further stated
that the financial adviser wished to review the results of Guaranty's operations
since the adviser's last meeting with senior management. Finally, he suggested
the desirability of additional meetings involving Mr. Becker and one or more of
guaranty's Independent directors.
On September 16, 1997, Mr. Becker was asked, as Chairman of Guaranty, to
convene a meeting of its Executive Committee at which the Independent Directors
could be formally designated a special committee. that meeting was called and a
Special Committee of Independent Directors was appointed with Dennis J. Lacey as
its Chairman; the other director-members are Tucker H. Adams, M. Ann Padilla and
Richard R. Thomas (such directors of Guaranty being referred to as the
"Independent Directors"). Mr. Becker was then asked, as the Chairman of Orion,
to meet with Mr. Lacey, and the legal and financial advisers of both Orion and
the Independent Directors, to discuss further a potential transaction and to
attempt to reach agreement on value. That meeting took place on September 17,
1997, in Denver, Colorado.
At the September 17 meeting, a representative of Salomon presented an
analysis of its valuation approach but noted that his firm was not yet in a
position to render an opinion as to the fairness of any particular price. The
representatives of Orion concluded, based on exhibits prepared by and remarks
made by Guaranty's advisers, that a price of approximately $34.00 was a fair
price upon which to base an offer for the shares. Mr. Lacey suggested a price
of $36.00, but at the conclusion of the discussions, Mr. Becker proposed an
offer of $34.00 per Share, payable 80% in cash and 20% in Orion Common Stock
with a formula designed to adjust for changes in excess of approximately 7 1/2%
in the closing market price on September 17 of Orion Common Stock, subsequent to
September 17 and prior to the exchange date, and with provision for termination
rights if the market price of Orion Common Stock should rise or fall by
approximately 15% or more. Orion's advisers further recommended that this
transaction be accomplished by a tender offer for all Shares not owned by Orion,
followed by a merger in which any shares not properly tendered could be
acquired.
-5-
<PAGE>
During the evening of September 17, Mr. Lacey telephoned Mr. Becker and
informed him that the Independent Directors were not in a position to make a
recommendation concerning the offer which had been extended. Mr. Becker
indicated to him that Orion's opinion was that the discussion process would best
be served by making a specific proposal containing those elements which seemed
to Orion to be fair to the shareholders of Guaranty and to recognize fully the
value of the outstanding Shares not owned by Orion and the Subsidiaries. On
September 18, Orion issued a press release announcing that it would make an
offer directly to the shareholders of Guaranty so that each Guaranty shareholder
could make his or her own judgment as to whether to accept Orion's offer.
On September 22, 1997, Orion filed with the SEC a Registration Statement on
Form S-4 with respect to an offer to exchange for each Share not owned by it or
its wholly-owned subsidiaries, $27.20 in cash and $6.80 in shares of Orion
Common Stock, subject to certain adjustments as described above (the "Exchange
Offer"). Following the filing, Orion's representatives inquired as to when the
Independent Directors of Guaranty would make a recommendation pursuant to Rule
14d-9 with respect to the Exchange Offer and were informed that no filing would
be made pursuant to that Rule until after the Registration Statement on Form S-4
was declared effective by the SEC.
On October 21, 1997, Mr. Becker received a telephone call from Mr. Lacey in
which Mr. Lacey inquired as to the progress being made by the SEC in reviewing
Orion's Form S-4 filing. He also asked whether he was correct in believing that
Orion would increase its offer price to $36.00 per share if the consideration
were all cash and if the Independent Directors found that price acceptable. Mr.
Becker asked whether the Independent Directors and Salomon had concluded that
$36.00 represented fair value to the holders of Shares and Mr. lacey responded
that no action had been taken but that he would request formal consideration of
that price if Mr. Becker thought that would be a productive step. Mr. Becker
agreed that it would be and said that he would immediately convey any finding of
the Independent directors to the Executive Committee of Orion's Board of
Directors. Messrs. Becker and Lacey also discussed whether, if a mutually-
agreeable price could be reached, the Exchange Offer should proceed or a merger
be proposed instead.
During the afternoon of October 27, Mr. Lacey reported to Mr. Becker that
he was prepared to recommend to the Independent Directors a cash price of $36.00
net to the shareholder plus a contingent payment, in the event Orion should sell
Guaranty within twelve months, equal to 50% of the difference between $36.00 and
the per-share price received by Orion in any such sale. He further stated that
he believed that Salomon would report favorably on the fairness of that price,
as a financial matter, to the holders of the Shares subject to Orion's offer.
That proposal was reported to the Executive Committee of the Orion Board of
Directors by Mr. Becker on October 28. The Executive Committee concluded, and
Mr. Becker then reported to Mr. Lacey, that although Orion has no present
intention to sell
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Guaranty, it would accept a contingent sharing proposal and would, in fact,
raise th percentage contingently shared to 75%, but because of the
administrative expense involved in establishing and maintaining records of
persons entitled at any point in time to a contingent shared right, the
possibility that the offering of such rights might require registration under
applicable state or federal securities laws and the uncertainty that might be
created as to whether a future ordinary-course restructuring or repositioning by
Guaranty of its assets or operations constituted a "triggering" event, Orion
would be prepared to offer $35.0 (plus 75% of any future contingent profit) if
the Independent Directors insisted on the contingent profit-sharing feature.
mr. Becker did, however, indicate that the $36.00 price level, entirely in cash,
and without the contingent-sharing feature, was also acceptable.
Mr. Lacey responded that he believed that the $36.00 price without the
contingency would be preferred by the Independent Directors, and he would
recommend it to them. Mr. Becker said that he had authority to make such a
proposal and he and Mr. Lacey agreed that an appropriate agreement should be
drawn up for presentation to the Boards of Directors of guaranty and Orion.
On October 30, 1997, the Board of Directors of guaranty unanimously
approved the Agreement and Plan of Merger and on October 31, 1997, it was
approved unanimously by the Board of Directors of Orion. Following those
meetings, the SEC was notified by Orion that it would withdraw its Registration
Statement on Form S-4 with respect to the proposed Exchange Offer. On October
31, 1997, a press release was issued announcing that Orion and Guaranty had
entered into the Merger Agreement, which provides for the making of the Offer.
For a description of the Merger Agreement, see THE OFFER - Section 11.
Guaranty Board Composition. Orion Nominees. Messrs. W. Marston Becker,
Chairman and Chief Executive Officer of Orion, Vincent T. Papa, Senior Vice
President of Orion and Chairman and Chief Executive Officer of Wm. H. McGee &
Co., Inc., a wholly-owned subsidiary of Orion, and William J. Shepherd, a
director of Orion, currently serve as Orion's designated directors on Guaranty's
Board. Mr. Robert B. Sanborn, formerly the President of Orion and formerly an
Orion designee on the Guaranty Board, and now a senior consultant of Orion, was
asked by Guaranty to continue as a director of Guaranty following his retirement
as President of Orion. Mr. Sanborn is currently a director of Orion but is not
an Orion-designated director of Guaranty. Mr. Sanborn receives the regular fees
and other benefits provided to all non-employee directors of Guaranty. Mr.
Roger B. Ware resigned as a member of Orion's Board of Directors as of September
11, 1997. He subsequently advised Orion that his reason was to avoid any
appearance of a conflict of interest during the Board discussions scheduled for
September 12. Mr. Ware continues as a director of Guaranty and is the
beneficial owner of 92,071 Shares. See Annex II to this Offer to Purchase. Mr.
Ware was formerly the President and Chief Executive Officer of Guaranty.
Messrs. Sanborn and Shepherd are two of the four members of Guaranty's
Compensation Committee. Mr. Shepherd is the Chairman of both Orion's
Compensation Committee and Guaranty's Compensation Committee.
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The Shareholders Agreement provides that so long as Orion or its
subsidiaries beneficially own in the aggregate 30% or more of the voting
securities of Guaranty, Orion will continue to have the right to designate three
nominees to Guaranty's board (one of whom will be the Chairman of the Board),
and so long as Orion or its subsidiaries beneficially own 20% or more of
Guaranty's voting securities, Orion will have the right to designate two
nominees. Upon consummation of the Offer, the Shareholder Agreement will
terminate. See THE OFFER - Section 11. Orion may also require that Guaranty's
Compensation Committee include Orion's nominees to Guaranty's Board. None of
Orion's nominees, other than Mr. Shepherd, receives any compensation from
Guaranty, including any retainer fee or attendance fee for his services, except
for travel expenses in connection with attendance at director's meetings.
Orion's nominees intend, in all deliberations of the Guaranty Board with
respect to the Offer, to be guided by the advice of legal counsel to Guaranty as
to when and to what extent they should be present at and participate in Board
discussions. They intend, however, that all decisions and recommendations of
the Guaranty Board with respect to the Offer be made or taken by action of
directors of Guaranty who are not officers or directors of Orion.
The Guaranty Board has 6 members who are not designees of or officers or
directors of Orion; Tucker Hart Adams, Dennis J. Lacey, M. Ann Padilla, James R.
Pouliot, Richard R. Thomas and Roger B. Ware.
Fairness of the Offer and Merger
Orion believes that the Offer and the Merger are fair to the unaffiliated
holders of Shares to whom it is directed. In concluding that the Offer and the
Merger are fair to such shareholders of Guaranty, Orion has considered, among
other matters, (i) that the $36.00 in cash per Share price represents a premium
of 10.8% over the closing sale price of $32.50 per Share, as reported by the
NYSE on September 17, 1997, the date prior to the issuance of the press release
announcing Orion's intent to make the proposed Exchange Offer (the "September
Press Release Date"), a 24.7% premium over the closing sale price of $28.875 on
September 10, one week prior to the September Press Release Date, and a 26.6%
premium over the closing sale price of $28.4375 on August 18, one month prior to
the September Press Release Date (ii) that the $36.00 per Share price represents
a premium of 48.5% over the closing sale price of $24.25 on July 7, 1997, the
day prior to the commencement of discussions with Guaranty; (iii) that the
$36.00 per Share price represents a multiple of 1.94x Guaranty's net book value
per share of $18.51 as of September 30, 1997 and a multiple of 2.21x Guaranty's
net tangible book value per share of $16.26 as of September 30, 1997 (Orion has
made no analysis of the liquidation value of Guaranty and therefore has no basis
for expressing an opinion as to the comparison of the Offer Consideration to
liquidation value); (iv) historical market prices of the Shares since Guaranty
became a public company, including the average daily closing stock price for the
12 months ended June 30, 1997 of $17.34; (v) Orion's evaluation of competitive
trends and other
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conditions in the market in which Guaranty operates; (vi) Orion's knowledge of
the business, historical results of operations and the properties, assets and
earnings of Guaranty and its recent financial and operating performance; (vii)
the $18.50 per Share purchase price that Orion and its wholly-owned subsidiaries
paid in July 1996 to purchase up to 4,600,000 shares of Guaranty pursuant to the
1996 Tender Offer and the $14.50 price per Share paid by Orion for an additional
120,000 Shares on July 17, 1996 in open-market purchases; (viii) the plans of
Guaranty to expand its business through internal growth and acquisition and the
ability of Guaranty to carry out its plans with assets on hand and cash expected
to be generated from operations, (ix) the fact that Orion already beneficially
owns approximately 81% of the outstanding Shares, making any "control" premium
for the non-Orion Shares inapplicable, and (x) the $36.00 per share purchase
price fairly reflects the valuation suggested by the Special Committee of
Independent directors of Guaranty. For additional information on Share prices,
see THE OFFER--Section 6.
The foregoing discussion of the information and factors considered by Orion
and is not intended to be exhaustive. In view of the wide variety of factors
considered in connection with the determination of the Offer consideration and
the Merger Price and the evaluation of the fairness of the Offer and the Merger,
Orion did not find it practicable to, and did not, quantity or otherwise attempt
to assign relative weights to the foregoing factors or determine that any factor
was of particular importance. Rather, Orion viewed its position as being based
on the totality of the information presented to and considered by it. On
balance, however, Orion viewed the factors set forth in items (i) through (iii),
(v), (vi) and (viii) through (x) as very influential to its decision and the
remainder of lesser significance.
Orion has not obtained, or sought to obtain, any report, opinion or
appraisal from an outside party, including, without limitation, an investment
banker's opinion, as to the fairness of the Offer and the Merger to unaffiliated
holders of Shares. Orion's Board of Directors has received a report from DLJ on
various techniques that might be utilized to assist in determining the price
and structure of a possible transaction.
Reasons for the Offer and the Merger; Purpose and Structure of the
Transactions; Plans After the Offer; Effects of the Offer and Merger
The purpose of the Offer and the Merger is for Orion to acquire the entire
equity of Guaranty. Orion believes it can provide to Guaranty, as a wholly-
owned subsidiary, access to capital in amounts and on terms that may not be
available to Guaranty as an Independent entity. In order to place Guaranty in a
position to carry out a variety of potential strategic alternatives on a timely
and adequately-financed basis, and to protect the significant investment which
Orion present has in Guaranty, Orion determined to seek to acquire the Shares
which it does not presently own. to the extent that any Shares remain
outstanding following completion of the present Offer, Orion will acquire such
Shares in the Merger. Orion believes that the synergistic effects of the Merger
and the full consolidation of
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guaranty will result in a positive impact on the long-term growth potential of
the combined companies.
Upon consummation of the Offer, the Shareholder Agreement will immediately
terminate. Orion presently intends, as soon as practicable after consummation
of the Offer, to seek to have Transition effect a merger with and into Guaranty.
If the Minimum Share Condition is satisfied, Orion and its Subsidiaries,
following consummation of the Offer, will own 90.3% of the Shares outstanding
(based on the number of shares outstanding as of November 3, 1997), and Orion
will be able to effect the Merger without the consent of the Board of Directors
or shareholders of Guaranty pursuant to Section 7-111-104 of the Colorado
Business Corporation Act. For additional information about the Merger, see THE
OFFER - Section 11.
The Subsidiaries will not tender Shares in the Offer. Orion understands
that directors and executive officers of Orion who beneficially own Shares will
tender them for purchase pursuant to the Offer. See Annex II to this Offer to
Purchase. Orion has been advised by Guaranty that it expects that officers and
directors of Guaranty owning Shares will tender them pursuant to the Offer. For
information about the executive officers and directors of guaranty and their
ownership of shares and options thereon, see Annex II to this Offer to Purchase.
See also SPECIAL FACTORS--Interests of Certain Persons in the Transactions;
Securities Ownership; Related Transactions.
For additional information about certain effects of the Offer and the
Merger, see THE OFFER -- Section 11. For a discussion of certain federal income
tax consequences of the Offer and the Merger as contemplated in this Offer to
Purchase, see SPECIAL FACTORS --Certain Federal Income Tax Consequences.
As an independent holding company, Guaranty continually evaluates potential
acquisitions and potential dispositions of asset. As described in the September
10-Q, on October 20, 1997, guaranty announced plans to purchase Unisun Insurance
(which is primarily a personal lines company), is currently having discussions
with several companies concerning the purchase of their nonstandard automobile
insurance operations and evaluates from time to time inquiries made with respect
both to the possible sale by and purchase by Guaranty of assets. Guaranty is, as
noted above, considering several acquisition opportunities and recently provided
publicly available data to an entity which expressed an interest in a particular
segment of Guaranty's business; however, no non-public data has been provided,
no decision has been made to sell and no offer to purchase has been received.
Subsequent to the Merger, Orion's and Guaranty's management will continue to
evaluate these and other potential opportunities as a part of the ordinary
course of their business. Orion, otherwise, has no present or future plans for
disposition of assets or businesses of Guaranty, but may engage in such
transactions in the future.
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From time to time in the past, Orion and Guaranty have discussed areas in
which the operations of the companies can be coordinated to the benefit of each.
Those discussions predated both the making of the Offer and of the Exchange
Offer, are ongoing and are expected to continue whether or not the Offer and the
Merger are consummated. If, however, the Merger is consummated, Orion expects
that opportunities for joint operating efficiencies will increase. Except for
such discussions, as otherwise set forth in this offer to Purchase, and as
contemplated in the existing strategic plans of Guaranty, Orion has no present
plan or proposal which relates to or would result in (i) an extraordinary
corporate transaction, such a s a merger, reorganization or liquidation of
Guaranty or any of its significant subsidiaries, (ii) a sale o transfer of a
material amount of assets of Guaranty or any of its subsidiaries, (iii) any
material change in Guaranty's present capitalization, dividend rate or policy or
indebtedness of Guaranty, (v) any change in the present board of directors of
Guaranty, including, but not limited to, any plan or proposal to change the
number of term of existing directors, to fill any existing vacancy on the board
or change any term of the employment contract of any executive officer, (vi) a
class of equity securities of Guaranty being delisted from a national securities
exchange or ceasing to be authorized to be quoted on an inter-dealer quotation
system of a registered national securities association or becoming eligible for
termination of registration pursuant to Section 12(g)(4) of the Exchange Act or
the suspension of Guaranty's obligation to file reports pursuant to Section
15(d) of the Exchange Act.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS; SECURITIES OWNERSHIP; RELATED
TRANSACTIONS
Directors and Officers. As indicated elsewhere in this Offer to Purchase,
Orion and its Subsidiaries have entered into several agreements with Guaranty
and its subsidiaries. See SPECIAL FACTORS--Background of the Offer and SPECIAL
FACTORS--Reasons for the Offer and the merger; Purpose and Structure of the
Transactions; Plans After the offer; Effects of the Offer and the Merger.
Pursuant to the Shareholder Agreement between Orion and Guaranty, Messrs.
Becker, papa and Shepherd, have been nominated as directors of Guaranty, and the
Shareholder Agreement also provides that Orion has the right on up to three
occasions to require Guaranty to register under the Securities Act Shares owned
by Orion and its wholly-owned subsidiaries, which right expires in November
1997. SPECIAL FACTORS--Background of the Offer. In addition, Guaranty has
agreed to use its best efforts to include such Shares in any underwritten public
offering of its shares under the Securities Act and to pay all expenses in
connection with the first two registrations. in 1994, the Shareholder Agreement
was amended to provide for an increase in the maximum number of directors,
including directors independent of management. In March 1995, it was amended to
increase the number of directors to eleven and in connection with the 1996
Tender Offer. Pursuant to the Merger Agreement, the Shareholder Agreement will
terminate upon consummation of the Offer. For information about the ownership of
Shares by directors and officers of Orion, see Annex II to this Offer to
Purchase.
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<PAGE>
Securities Ownership. Based on information provided by Guaranty, the only
holder of 5% or more of the Shares is Orion and its Subsidiaries. Based on
information provided by Guaranty, as of October 31, 1997, the directors and
executive officers of Guaranty beneficially own (including Shares outstanding,
Shares subject to options exercisable within 60 days of October 31, 1997 and
restricted Shares) an aggregate of 239,543 Shares. See Annex II to this Offer to
Purchase. Except as described above, in SPECIAL FACTORS--Background of the
Offer, as set forth elsewhere in this Offer to Purchase and in Annex II hereto,
neither Orion, nor to the best knowledge of Orion, any of the persons listed in
Annex I hereto or any associate of majority-owned subsidiary of Orion or any of
the persons so listed, beneficially owns or has a right to acquire any of the
Shares or interests therein, and neither Orion nor to the best knowledge of the
Orion, any executive officer, director of majority-owned subsidiary of any of
the foregoing, has effected any transaction in the Shares during the past 60
days. For information about the directors and officers of Guaranty and their
ownership of Shares and interest therein, see Annex II to this Offer to
Purchase. See also "Related Transactions" below.
Related Transactions. Most state insurance codes require transactions
between a licensed insurance company and its affiliates to be fair and
reasonable. In the case of certain material transactions, an insurance company
must obtain prior approval of the transaction from the appropriate state
insurance department. Reinsurance agreements, tax sharing agreements, loans,
guarantees, sales and other transactions of a material site, as well as
management service and cost sharing agreements must similarly be approved. In
the ordinary course of business, Guaranty's insurance subsidiaries reinsure
certain risk 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, Guaranty's Insurance subsidiaries would not be
relieved of their liabilities. For 1994, Guaranty national Insurance Company
("GNIC") and Landmark American Insurance Company ("LAIC"), wholly-owned
subsidiaries of Guaranty, were parties to an 100% reinsurance agreement with an
Orion subsidiary. Premiums written and coded under this agreement are included
in premiums written as reported in Guaranty's financial statements and were
$643,000 for 1994. Guaranty's insurance subsidiaries were paid $14,000 in fees
and reimbursed $1,000 for expenses in conjunction with this reinsurance
agreement. Also during 1994, GNIC was a party to reinsurance agreements with
Orion Insurance subsidiaries pursuant to which GNIC assumed business written
through affiliates totalling $30,921,000 in premium. GNIC paid to Orion's
insurance subsidiaries $666,000 in fees and reimbursed $774,000 of actual
expenses incurred by Orion's insurance subsidiaries in conjunction with this
reinsurance agreement. For 1995, GNIC and LAIC were parties to 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 $152,000 for 1995. Insurance
subsidiaries of Guaranty were paid $5,000 in fees in conjunction with this
reinsurance agreement. Also during 1995, GNIC was a party to reinsurance
agreements with Orion insurance subsidiaries pursuant to which GNIC assumed
business written through affiliates totaling $9,495,000 in premiums. GNIC paid
to the Orion insurance subsidiaries
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<PAGE>
$160,000 in fees and reimbursed $178,000 of actual expenses incurred by Orion's
insurance subsidiaries in conjunction with this reinsurance agreement. For
1996, GNIC and LAIC were parties to a 100% reinsurance agreement with an Orion
insurance subsidiary. Premiums written and coded under this agreement are
included in premiums written as reported in Guaranty's financial statements and
were $15,000 for 1996. Insurance subsidiaries of Guaranty were paid $1,000 in
fees in conjunction with this reinsurance agreement. Also during 1996, GNIC was
a parity to reinsurance agreements with Orion insurance subsidiaries pursuant to
which GNIC assumed business written through affiliates totaling $15,673,000 in
premiums. GNIC paid to the Orion insurance subsidiaries $298,000 in fees and
reimbursed $309,000 of actual expenses incurred by Orion's insurance
subsidiaries in conjunction with this reinsurance agreement. In 1997, Orion's
insurance subsidiaries entered into similar reinsurance arrangements with GNIC
and LAIC as had been in place during 1996.
A subsidiary of Orion is an agent for Guaranty pursuant to Guaranty's
standard agency contract. During 1995, this agency produced $411,000 in
premiums and was paid $72,000 in commissions and during 1996, produced $436,000
in premiums and was paid $85,000 in commissions. Guaranty and Orion expect
similar premium production and commissions in 1997. During 1994, this agency
produced $516,000 in premiums and was paid $90,000 in commissions.
During 1995, Guaranty's 2003 Notes in the principal amount of $20,896,000
were converted by Orion's subsidiaries into 1,326,128 Shares. Total interest
paid by Guaranty on the 2003 Notes in 1995 to Orion's subsidiaries was
$1,122,000. See SPECIAL FACTORS--Background of the Offer. Also in 1995, in
connection with the Viking Holdings acquisition financing, Orion made a
commitment for a $21,000,000 bridge loan to Guaranty. The loan was not drawn
down, but Guaranty paid a $210,000 commitment fee to Orion at the time the
commitment was executed.
Guaranty and Orion have entered into an Investment management agreement
pursuant to which the investment portfolio of Guaranty (other than short-term
investments and a portion of equity securities) is 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, fees
were paid to Orion at a rate of $550,000 per year from 1993 through July 1995,
at which time there were increased to a rate of $650,000 per year in recognition
of the additional investment balance resulting from the Viking Holdings
acquisition. Orion received $650,000 in fees from Guaranty under this agreement
in 1996. The agreement continues in effect for annual periods unless terminated
by either party upon 90 days prior written notice.
During 1990, GNIC entered into a loan participation agreement pursuant to
which Design Professionals Insurance Company ("DPIC"), a wholly-owned subsidiary
of Orion borrowed approximately $9 million from affiliates. The loan, which was
secured by a
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leasehold deed of trust on an office building in Monterey, California owned and
primarily occupied by DPIC, matured in November 1995. GNIC's proportionate
share of this loan was $3,700,000 or 41.4%. GNIC received quarterly interest
payments at a rate of 11% per year. Interest earned for 1994 was $407,000 and
for 1995 was $355,000 and in November 1995, the loan was repaid.
Effective July 2, 1996, Guaranty was included in Orion's consolidated
federal income tax return and is covered by income tax sharing agreements under
which Guaranty computes its current federal income tax liability on a separate
return basis and pays Orion any taxes due on this basis.
Except as described above, and elsewhere in this Offer to purchase, neither
Orion, nor any direct or indirect subsidiary of Orion nor, to the best knowledge
of Orion, any of the persons listed in Annex 1 hereto, has any contract
arrangement, understanding or relationship with any other person with respect to
any securities of Guaranty, including, but not limited to, contracts,
arrangements, understandings or relationships concerning the transfer or voting
of such securities, joint ventures, loan or option arrangements, puts or calls,
guaranties of loans, guaranties against loss or the giving o withholding of
proxies, consents or authorizations.
Except as described above or in SPECIAL FACTORS--Background of the Offer
and or as set forth elsewhere in this Offer to Purchase, since January 1, 1994,
there have been no other contacts, negotiations or transactions between Orion or
any of its subsidiaries or, to the best knowledge of Orion, any of the persons
listed in Annex 1 hereto, and Guaranty or its directors, executive officers or
affiliates, or between any affiliates of Guaranty, or between Guaranty or any of
its affiliates and any person not affiliated with Guaranty and who would have a
direct interest therein, concerning a merger, consolidation or acquisition, a
tender offer or other acquisition of securities of Guaranty, an election of
directors of Guaranty, or a sale or other transfer of a material amount of
assets.
In accordance with the provisions of the Merger Agreement, each option
outstanding pursuant to Guaranty's equity incentive plans for key employees,
whether or not then exercisable, will be converted into or replaced by an
option, granted under one of Orion's equity incentive plans for key employees,
to purchase a number of shares of Orion common stock at an exercise price
(adjusted as to both number of shares and exercise price) to reflect differences
between the Merger Price and the market price of Orion's common stock prior to
the Merger. In accordance with the formula set forth in the Merger Agreement,
and assuming that the market price of Orion common stock is $45.875 (the closing
price on November 4, 1997), each share underlying a Guaranty option would be
converted into approximately .78 Orion shares and each dollar of exercise price
would become approximately $1.27. Annex II to this Offer to Purchase lists the
options held by each Guaranty director and executive officer. See THE OFFER--
Section II.
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Except as set forth in this Offer to purchase, Orion knows of no holder of
Shares, including the Subsidiaries, the members of Guaranty's management and its
Board of Directors, who has interests in the Offer or the Merger which are not
identical to those of other holders of the Shares.
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EXHIBIT 5
SALOMON BROTHERS INC
Seven World Trade Center
New York, New York 10048
212-783-7000
------------------
SALOMON BROTHERS
------------------
October 30, 1997
Special Committee of the Board of Directors
Guaranty National Corporation
9800 S. Meridian Boulevard
Englewood, CO 80155
Ladies and Gentlemen:
You have requested our opinion as investment bankers as to the
fairness, from a financial point of view, to the holders (the "Non-Orion
Stockholders") of shares of common stock, par value $1.00 per share (the
"Company Common Stock"), of Guaranty National Corporation (the "Company"), other
than Orion Capital Corporation and its affiliates (collectively, "Orion"), of
the consideration to be received by the Non-Orion Stockholders in the proposed
acquisition of the Company by Orion pursuant to an Agreement and Plan of Merger
(the "Agreement") to be entered into between the Company and Orion.
As more specifically set forth in the Agreement, Orion, or one or more
wholly-owned subsidiaries of Orion, will commence a tender offer (the "Proposed
Tender Offer") to purchase all outstanding shares of Company Common Stock, at a
price of $36.00 per share (the "Per Share Amount"). Following consummation of
the Proposed Tender Offer, a newly formed wholly-owned subsidiary of Orion will
be merged with and into the Company (the "Proposed Merger" and, collectively
with the Proposed Tender Offer, the "Proposed Transaction"), and each then
outstanding share of Company Common Stock will be converted into the right to
receive, in cash, the Per Share Amount (the "Merger Consideration").
As you are aware, Salomon Brothers Inc has acted as financial advisor
to the Special Committee of the Board of Directors of the Company (the "Special
Committee") in connection with the Proposed Merger and will receive a fee for
our services, a portion of which is contingent upon consummation of the Proposed
Merger. Additionally, Salomon Brothers Inc has previously rendered certain
investment banking and financial services to the Special Committee and the
Company, for which we received customary compensation. In addition, in the
ordinary course of our business, we may trade the debt and equity securities of
both the Company and Orion for our own account and for the accounts of customers
and, accordingly, may at any time hold a long or short position in such
securities.
In connection with rendering our opinion, we have reviewed and
analyzed material bearing upon the financial and operating condition and
prospects of the Company including, among other things, the following: (i) a
draft dated October 29, 1997 of the Agreement; (ii) certain publicly available
information concerning the Company, including the Annual Reports on Form
<PAGE>
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SALOMON BROTHERS
------------------
10-K of the Company for the years ended December 31, 1995 and December 31, 1996
and the Quarterly Reports on Form 10-Q of the Company for the quarters ended
March 31, 1997 and June 30, 1997, respectively, and the press release of the
Company dated October 23, 1997, announcing the financial results of the Company
for the quarter ended September 30, 1997; (iii) certain internal information,
primarily financial in nature, including projections, concerning the business
and operations of the Company furnished to us by the Company for purposes of our
analysis; (iv) statutory financial information of the Company's insurance
subsidiaries for the years ended December 31, 1995 and December 31, 1996 and for
the three-month periods ended March 31, 1997 and June 30, 1997; (v) certain
publicly available information concerning the trading of, and the trading market
for, the Company Common Stock; (vi) certain publicly available information with
respect to certain other companies that we believe to be comparable to the
Company and the trading markets for certain of such other companies' securities;
and (vii) certain publicly available information concerning the nature and terms
of certain other transactions that we consider relevant to our inquiry. We have
also considered such other information, financial studies, analyses,
investigations and financial, economic and market criteria that we deemed
relevant. We have also met with certain officers and employees of the Company to
discuss the foregoing as well as other matters we believe relevant to our
inquiry.
In our review and analysis and in arriving at our opinion, we have
assumed and relied upon the accuracy and completeness of all of the financial
and other information provided us or publicly available and have neither
attempted independently to verify nor assumed responsibility for verifying any
of such information and have further relied upon the assurances of management of
the Company that they are not aware of any facts that would make any of such
information inaccurate or misleading. With respect to projections, we have
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of the Company as
to the future financial performance of the Company and we express no view with
respect to such projections or the assumptions on which they were based. We have
not made or obtained or assumed any responsibility for making or obtaining any
independent evaluations or appraisals of any of the Company's assets, properties
or facilities, nor have we been furnished with any such evaluations or
appraisals. We further have assumed that the Agreement, when executed and
delivered, will not contain any terms or conditions that differ materially from
the draft which we have reviewed, the conditions precedent to each of the
Proposed Tender Offer and the Proposed Merger contained in the Agreement will be
satisfied and the Proposed Merger will be consummated in accordance with the
terms of the Agreement.
In conducting our analysis and arriving at our opinion as expressed
herein, we have considered such financial and other factors as we have deemed
appropriate under the circumstances including, among others, the following: (i)
the historical and current financial position and results of operations of the
Company; (ii) the business prospects of the Company; (iii) the historical and
<PAGE>
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SALOMON BROTHERS
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current market for the Company Common Stock and the equity securities of certain
other companies that we believe to be comparable to the Company; and (iv) the
nature and terms of certain other acquisition transactions and acquisitions of
minority interests by controlling stockholders that we believe to be relevant.
We have also taken into account our assessment of general economic, market and
financial conditions as well as our experience in connection with similar
transactions and securities valuation generally. We have taken into
consideration the ownership by Orion of 80.7% of the outstanding Company Common
Stock and the fact that Orion has stated that it does not intend to sell such
Company Common Stock. In light of this, we have not been authorized to solicit,
and accordingly have not solicited, third party indications of interest in
acquiring all or any part of the Company. Our opinion necessarily is based upon
conditions as they exist and can be evaluated on the date hereof and we assume
no responsibility to update or revise our opinion based upon circumstances or
events occurring after the date hereof. Our opinion is, in any event, limited to
the fairness, from a financial point of view, of the consideration to be
received by the Non-Orion Stockholders in the Proposed Transaction and does not
address the Company's underlying business decision to effect the Proposed
Transaction or constitute a recommendation to any holder of Company Common Stock
as to whether such holder should tender shares in the Proposed Tender Offer or
as to how such holder should vote with respect to the Proposed Merger, if such a
vote is taken.
This opinion is intended solely for the benefit of the Special
Committee in considering the transaction to which it relates and may not be used
for any other purpose or reproduced, disseminated, quoted or referred to at any
time, in any manner or for any purpose, without the prior written consent of
Salomon Brothers Inc, except that this opinion may be reproduced in full in, and
references to the opinion and to Salomon Brothers Inc and its relationship with
the Company (in each case in such form as Salomon Brothers Inc shall approve)
may be included in, the Recommendation Statement on Schedule 14D-9 the Company
distributes to holders of Company Common Stock in connection with the Proposed
Tender Offer and the proxy or information statement the Company distributes to
holders of Company Common Stock in connection with the Proposed Merger.
Based upon and subject to the foregoing, we are of the opinion as
investment bankers that, as of the date hereof, the consideration to be received
by the Non-Orion Stockholders in the Proposed Transaction is fair, from a
financial point of view, to such holders.
Very truly yours,
/s/ SOLOMON BROTHERS INC.
----------------------------
SALOMON BROTHERS INC
<PAGE>
EXHIBIT 6
GUARANTY NATIONAL CORPORATION
9800 SOUTH MERIDIAN BOULEVARD
ENGLEWOOD, COLORADO 80112
November 5, 1997
Dear Shareholder:
I am pleased to inform you that on October 31, 1997, Guaranty National
Corporation and Orion Capital Corporation entered into a Merger Agreement
pursuant to which Orion is today commencing a tender offer to purchase all
outstanding shares of common stock of Guaranty National for $36.00 per share,
net to the seller in cash. Shares of common stock of Guaranty National not
acquired in the tender offer are to be acquired in a second step merger at the
same per share price.
Pursuant to the recommendation of a special committee of outside directors,
your Board of Directors has determined that the tender offer and the merger are
fair to and in the best interests of the Company and its shareholders and has
approved the Merger Agreement, the tender offer and the merger. Your Board of
Directors recommends that Guaranty National shareholders accept the tender offer
and tender their shares of common stock pursuant to the tender offer.
In arriving at its recommendation, the special committee gave careful
consideration to a number of factors referred to in the attached Schedule 14D-9.
Among other things, the special committee considered the opinion of its
financial advisor that the consideration to be received by the non-Orion
shareholders pursuant to the tender offer and the merger is fair, from a
financial point of view, to such shareholders.
Accompanying this letter, in addition to the attached Schedule 14D-9 relating
to the tender offer, is the Offer to Purchase, together with related materials,
including a Letter of Transmittal to be used for tendering your shares.
These documents set forth the terms and conditions of the tender offer and
provide instructions as to how to tender your shares. We urge you to read the
enclosed materials carefully.
On behalf of the management and the Board of Directors of Guaranty National
Corporation, we thank you for your support.
Sincerely,
James R. Pouliot
President and Chief Executive Officer
<PAGE>
EXHIBIT 7
Contact: Jeanne Hotchkiss Dawn Dover/Mark Semer Mike Pautler
Orion Capital Kekst and Company Guaranty National
860-674-6754 212-521-4800 303-754-8701
For Immediate Release
ORION CAPITAL CORPORATION AND GUARANTY NATIONAL CORPORATION
-----------------------------------------------------------
ANNOUNCE MERGER AGREEMENT
-------------------------
- Orion to Commence Tender Offer for Approximately 19% of
Guaranty National it Does Not Already Own -
Farmington, CT, OCTOBER 31, 1997 - Orion Capital Corporation (NYSE: OC) and
Guaranty National Corporation (NYSE: GNC) today announced that their respective
Boards of Directors have approved an agreement providing for the merger of
Guaranty National into a wholly-owned subsidiary of Orion. Under the agreement
reached today, the merger will take place following the completion of an Orion
tender offer for the approximately 2.9 million shares of Guaranty National
common stock that it doesn't already own for $36 per share in cash. The
Guaranty National Board approved this transaction following a recommendation by
a committee consisting of its independent directors. Orion currently owns
approximately 81% of the outstanding stock of Guaranty National.
It is currently expected that the tender offer will expire during the first week
of December 1997, unless extended. The registration statement Orion filed with
the Securities and Exchange Commission on September 22, 1997 with respect to an
exchange offer to acquire the outstanding Guaranty National shares for $34 per
share in cash and Orion common stock will be withdrawn as a result of this
agreement.
The terms and conditions of the offer will be set forth in tender offer
materials to be filed shortly with the Securities and Exchange Commission, and
to be mailed promptly to Guaranty National shareholders. The Dealer Manager for
the offer is Donaldson Lufkin & Jenrette Securities Corporation.
Guaranty National is a Colorado-based property and casualty insurance holding
company with operating subsidiaries which write private passenger automobile
insurance, as well as specialty commercial automobile, collateral protection and
other commercial coverages. The Company is a leading provider of nonstandard
personal automobile insurance written through independent agents.
Orion Capital is engaged in the specialty property and casualty insurance
business through wholly-owned subsidiaries which include EBI Companies, DPIC
Companies, Connecticut Specialty, and Wm. H. McGee, as well as through its 81%
ownership interest in Guaranty National Corporation.
<PAGE>
EXHIBIT 8
Contact: Jeanne Hotchkiss Dawn Dover/Mark Semer Mike Pautler
Orion Capital Kekst and Company Guaranty National
860-674-6754 212-521-4800 303-754-8701
FOR IMMEDIATE RELEASE
ORION CAPITAL CORPORATION COMMENCES CASH
TENDER OFFER FOR SHARES OF GUARANTY NATIONAL
New York, New York, November 5, 1997 -- Orion Capital Corporation (NYSE:OC)
today announced commencement of a cash tender offer at a price of $36.00 per
share net to the seller for all outstanding shares of the common stock of
Guaranty National Corporation that Orion does not already own. The tender offer
expires at midnight on December 4, 1997, unless extended. Orion Capital
currently owns through its subsidiaries approximately 80.5% of the outstanding
common stock of Guaranty National. The tender offer is being made pursuant to
an agreement entered into by Orion and Guaranty and will be followed by the
merger of a wholly-owned subsidiary of Orion with and into Guaranty.
Shareholders will receive $36.00 in cash per share in the merger.
The tender offer is conditioned on, among other things, at least 50.01% of the
outstanding shares of Guaranty National common stock not held by Orion or its
subsidiaries being validly tendered and not withdrawn prior to the expiration
date. The terms and conditions of the offer are set forth in tender offer
materials that will be filed today with the Securities and Exchange Commission,
and mailed to Guaranty National Corporation shareholders.
The Dealer Manager for the offer is Donaldson, Lufkin & Jenrette Securities
Corporation.
Guaranty National is a Colorado-based property and casualty insurance holding
company with operating subsidiaries which write specialty commercial and private
passenger automobile insurance, as well as collateral protection and other
commercial coverages. Guaranty National is a leading provider of nonstandard
personal automobile insurance written through independent agents.
Orion Capital Corporation is engaged in the specialty property and casualty
insurance business through wholly-owned subsidiaries, which include EBI
Companies, DPIC Companies, Connecticut Specialty Insurance Group, SecurityRe
Companies and Wm. H. McGee & Co. Inc., as well as through its ownership interest
in Guaranty National Corporation.
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