-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VJuONRgsHOeBiVKSdENSBOr6EaWk/05LeQIN4YTHzlA1SsXU1eSk2SoESCJxnmsP 3ms6fmDDBqnVFXzJNj1lEA== 0000950123-97-009897.txt : 19971126 0000950123-97-009897.hdr.sgml : 19971126 ACCESSION NUMBER: 0000950123-97-009897 CONFORMED SUBMISSION TYPE: SC 13E3/A PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 19971125 SROS: NYSE GROUP MEMBERS: GUARANTY NATIONAL CORP GROUP MEMBERS: ORION CAPITAL CORP SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: GUARANTY NATIONAL CORP CENTRAL INDEX KEY: 0000044358 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 840445021 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E3/A SEC ACT: SEC FILE NUMBER: 005-43461 FILM NUMBER: 97728395 BUSINESS ADDRESS: STREET 1: 9800 SOUTH MERIDIAN BOULEVARD CITY: ENGLEWOOD STATE: CO ZIP: 80112-5901 BUSINESS PHONE: 3037548400 MAIL ADDRESS: STREET 1: 9800 SOUTH MERIDIAN BLVD CITY: ENGLEWOOD STATE: CO ZIP: 80112-5901 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: ORION CAPITAL CORP CENTRAL INDEX KEY: 0000074931 STANDARD INDUSTRIAL CLASSIFICATION: SURETY INSURANCE [6351] IRS NUMBER: 956069054 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E3/A BUSINESS ADDRESS: STREET 1: 9 FARM SPRINGS RD STREET 2: 24TH FLOOR CITY: FARMINGTON STATE: CT ZIP: 06032 BUSINESS PHONE: 8606746600 MAIL ADDRESS: STREET 1: 600 FIFTH AVENUE STREET 2: 24TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10020-2302 FORMER COMPANY: FORMER CONFORMED NAME: EQUITY FUNDING CORP OF AMERICA DATE OF NAME CHANGE: 19760518 FORMER COMPANY: FORMER CONFORMED NAME: TONGOR CORP OF AMERICA DATE OF NAME CHANGE: 19670330 FORMER COMPANY: FORMER CONFORMED NAME: TONGOR CORP DATE OF NAME CHANGE: 19661024 SC 13E3/A 1 AMENDMENT NO. 1 TO SCHEDULE 13E3 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Amendment No. 1 Schedule 13E-3 Rule 13e-3 Transaction Statement (Pursuant to Section 13(e) of the Securities Exchange Act of 1934 and Rule 13e-3 (Section 240.13e-3) thereunder) Guaranty National Corporation (Name of the Issuer) Orion Capital Corporation and Guaranty National Corporation (Name of Persons Filing Statement) Common Stock, par value $1.00 Per Share (Title of Class of Securities) 401192109 (CUSIP Number of Class of Securities) Michael P. Maloney, Esq. Michael L. Pautler Orion Capital Corporation Guaranty National Corporation 9 Farm Springs Road 9800 South Meridian Boulevard Farmington, Connecticut 06032 Englewood, Colorado 80112 (860) 674-6600 (303) 754-8400 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications on Behalf of Person(s) Filing Statement) Copy to: John J. McCann, Esq. Hardin Holmes, Esq. Donovan Leisure Newton & Irvine Ireland, Stapleton, Pryor & Pascoe, P.C. 30 Rockefeller Plaza 1675 Broadway, 26th Floor New York, New York 10112 Denver, Colorado 80202 (212) 632-3000 (303) 623-2700 2 INTRODUCTION This Amendment No. 1 to the Rule 13E-3 Transaction Statement (the "Schedule 13E-3") of Orion Capital Corporation, a Delaware corporation ("Orion"), filed on November 5, 1997, amends and supplements the Schedule 13E-3 for the purposes of adding certain information and filing with the Securities and Exchange Commission certain exhibits thereto and to join Guaranty National Corporation ("Guaranty") as a signatory thereto. The Schedule 13E-3 relates to the tender offer by Orion to purchase all outstanding shares of common stock, par value $1.00 per share (including any associated stock purchase rights) ("Shares"), of Guaranty for $36.00 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in Orion's Offer to Purchase dated November 5, 1997 and the related Letter of Transmittal, which, together with any amendments or supplements thereto, constitute the offer (the "Offer"). The Offer is being made pursuant to the Agreement and Plan of Merger dated October 31, 1997 between Orion and Guaranty, and which provides for the merger (the "Merger") of a wholly owned subsidiary of Orion with and into Guaranty. If the Merger is consummated, each Share outstanding immediately prior to the time when the Merger becomes effective, other than Shares as to which dissenters' rights of appraisal have been duly asserted and perfected under the Colorado Business Corporation Act and Shares held by Orion, its wholly owned subsidiaries or Guaranty will be converted into the right to receive $36.00 in cash per Share, without interest, all as more fully described in the Offer to Purchase referred to herein. This Amendment No. 1 to the Statement is being filed jointly by Orion and Guaranty. By filing this Schedule 13E-3, neither of the joint signatories concedes that Rule 13E-3 under the Securities Exchange Act of 1934, as amended, is applicable to the Offer or the Merger or the other transactions contemplated by the Agreement and Plan of Merger. -2- 3 This Statement amends Items 1-6, 8-12, 14, 15 and 17 of the Schedule 13E-3 of Orion dated November 5, 1997 (the "Schedule 13E-3"). This Statement is further amended to reflect the fact that it is being filed jointly by Orion and Guaranty. Except as otherwise indicated herein, the Schedule 13E-3 remains unchanged in all respects. The information in the Solicitation/Recommendation Statement on Schedule 14D-9 dated November 5, 1997 of Guaranty (the "Schedule 14D-9") is hereby expressly incorporated herein by Guaranty by reference, and the responses to each item in this Statement are qualified in their entirety by the information contained in the Schedule 14D-9. Capitalized terms not otherwise defined herein are defined as set forth in the Schedule 13E-3, Orion's Offer to Purchase, dated November 5, 1997, filed as Exhibit (d)(1) to the Schedule 13E-3 (the "Offer to Purchase"), or the Schedule 14D-9, filed as Exhibit (d)(10) hereto, as the case may be. ITEM 1. Issuer and Class of Security Subject to Transaction. The following information is hereby added to Item 1(f) of the Schedule 13E-3: The range of prices paid by Design Professionals Insurance Company for Shares between November, 1995 and March, 1996 was between $13.38 and $14.00. The information with respect to purchases of Shares by Guaranty in the last two fiscal years set forth in "THE OFFER -- Section 5. Price Range of Shares; Dividends" of the Offer to Purchase is hereby incorporated by reference . ITEM 2. Identity and Background. The following information is hereby added to Item 2 of the Schedule 13E-3: (a)-(d) and (g). Guaranty is the issuer of the class of equity securities which is the subject of the Rule 13e-3 transaction. The information set forth in "THE OFFER -- Section 7. Certain Information Concerning Guaranty" of the Offer to Purchase is incorporated herein by reference. The information with respect to the directors and executive officers of Guaranty set forth in Annex A hereto is incorporated herein by reference. (e) and (f). During the last five years, neither Guaranty nor to its best knowledge any of its executive officers and directors (i) has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors), or (ii) was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining further violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws. -3- 4 ITEM 3. Past Contacts, Transactions or Negotiations. The following information is hereby added to Item 3 of the Schedule 13E-3: (a)-(b). The information set forth under Items 3 and 4 of the Schedule 14D-9 is incorporated herein by reference. ITEM 4. Terms of the Transaction. The following information is hereby added to Item 4 of the Schedule 13E-3: (a). All conditions to the Offer, other than receipt of necessary governmental approvals, must be satisfied or waived prior to the acceptance of Shares for payment pursuant to the terms of the Offer. When a condition has not been satisfied the existence of which is to be determined in the sole discretion of Orion, Orion will exercise its reasonable good-faith judgment in determining whether the occurrence or non-occurrence of the event giving rise to such condition makes it inadvisable to proceed with the Offer or with acceptance for payment for the Shares. References in "THE OFFER -- Section 10. Certain Conditions of the Offer" of the Offer to Purchase to Orion's right to terminate, amend or extend the Offer or to delay acceptance for payment or payment if all conditions are not satisfied or waived should not be interpreted as reserving to Orion the right to accept Shares and subsequently to invoke the existence of a condition as a basis on which to withhold payment for and return of the Shares tendered and accepted. The reservation by Orion of the right to delay payment for Shares is subject to the provisions of applicable law under Rule 14e-1 promulgated under the Exchange Act, which require that Orion pay the consideration offered or return the Shares deposited by or on behalf of shareholders promptly after termination or withdrawal of the Offer. The information set forth under Item 2 of the Schedule 14D-9 is incorporated herein by reference. (b). Except as disclosed in the Offer to Purchase or the Schedule 14D-9, there are no terms or arrangements concerning the transactions with respect to which the Schedule 13E-3 is filed relating to any securityholder of Guaranty which is not identical to that relating to other holders of Tendered Shares. ITEM 5. Plans or Proposals of the Issuer or Affiliate. The following information is hereby added to Item 5 of the Schedule 13E-3: (a)-(g). The information set forth under Item 7 of the Schedule 14D-9 is incorporated herein by reference. Item 4 is hereby supplemented as follows: -4- 5 Of the factors considered by the Special Committee, Guaranty believes that those set forth in Item 4(b)(i) and (iv) on page 7 of the Schedule 14D-9 were the most important. ITEM 6. Sources and Amounts of Funds or Other Consideration. (b). The information set forth in Item 5 of the Schedule 14D-9 is hereby incorporated by reference. In addition to the expenses set forth therein, Guaranty has incurred other expenses relating to the transactions subject to the Schedule 13E-3 of approximately $100,000, including directors' fees for meetings of the Special Committee, legal fees and miscellaneous expenses. ITEM 8. Fairness of the Transaction. (a)-(b). The information set forth in Item 3 of the Schedule 14D-9 under "Background of the Offer; Appointment of the Special Committee" and Item 4 of the Schedule 14D-9 is incorporated by reference. ITEM 9. Reports, Opinions, Appraisals and Certain Negotiations. (a)-(b). The following information is hereby added to Item 9 of the Schedule 13E-3: The information set forth in Item 3 of the Schedule 14D-9 under "Background of the Offer; Appointment of the Special Committee" and Item 4 of the Schedule 14D-9 is incorporated herein by reference. The information incorporated by reference from "SPECIAL FACTORS -- Background of the Transactions" and "-- Fairness of the Offer and the Merger" in the Offer to Purchase is hereby supplemented as follows: The "report" referred to in the last sentence of "SPECIAL FACTORS -- Fairness of the Offer and the Merger" of the Offer to Purchase consisted of presentation materials which DLJ provided on September 12, 1997 to the Guaranty Board of Directors in connection with its September 12 meeting, copies of which were also supplied to the Orion Directors for their information, positing a transaction whereby Orion would purchase the remaining 19% of Guaranty's outstanding shares for a value of $30.25 per share comprised of $20.17 in cash and $10.08 in Orion common stock (the "September Case"). These materials discussed the benefits of consideration consisting of a combination of both stock and cash, alternative options with respect to the equity component of the Offer and stock performance data for Orion and Guaranty. DLJ compared the September Case to selected publicly-announced merger and acquisition transactions (the "Selected Acquisitions"). -5- 6 The September Case ratio of equity purchase price to operating net income of 16.9x compared to a low of 10.9x, a median of 12.2x and a high of 28.6x for the Selected Acquisitions. The September Case offer ratio of equity purchase price to general accepted accounting principles ("GAAP") shareholders' equity of 1.91x compared to a low of 0.97x, a median of 1.60x and a high of 2.88x for the Selected Acquisitions. The September Case ratio of total purchase price to statutory accounting principles ("SAP") net operating income ("NOI") of 18.7x compared to a low of 10.2x, a median of 16.9x and a high of 24.2x for the Selected Acquisitions. The September Case ratio of total purchase price to SAP capital and surplus ("C&S") of 2.19x compared to a low of 1.16x, a median of 2.59x and a high of 3.27x for the Selected Acquisitions. These multiples included an average implied equity valuation range with a low of $229.7 million, a median of $415.8 million, and a high of $700.2 million and an average implied price per share range from $15.29 to $46.60. The median of the average implied price per share of $27.67 was lower than the hypothetical $30.25 per share offer. DLJ also compared public valuations of selected non-standard personal auto insurers ("the Selected Insurers"). These valuations indicated a multiple range of 7.5x to 22.1x for 1997 estimated operating earnings and a multiple of 6.6x to 19.3x for 1998 estimated operating earnings and a multiple range of 1.43x to 3.99x for June 30, 1997 shareholders' equity. These multiples indicated an implied equity valuation for Guaranty from $256.7 million to $751.0 million based on 1997 projected earnings and $258.2 million to $759.5 million based on 1998 projected earnings and $338.9 million to $949.9 million based on June 30, 1997 shareholders' equity. These multiples indicated an implied estimated price per share range for Guaranty of $17.12 to $50.07 with a median of $30.02 based on 1997 projected earnings and $17.10 to $50.30 with a median of $28.86 based on 1998 projected earnings and $22.54 to $63.16 with a median of $29.54 based on June 30, 1997 shareholders' equity. In addition, DLJ compared selected ratios of Guaranty to ratios for the Selected Insurers. The Guaranty ratio of price to latest twelve months ("LTM") price per share, price to 1997 estimated price per share, price to 1998 estimated price per share, and price to book value per share of 16.1x, 12.7x, 11.1x and 1.83x, respectively, compared to a median of 15.2x, 13.2x, 11.1x and 1.84x, respectively, for the Selected Insurers. The Guaranty ratio of total enterprise value to SAP NOI of 18.0x and SAP C&S of 2.11x compared to a median of 27.5x and 3.20x, respectively, for the Selected Insurers. The Guaranty projected return on equity of 14.4% compared to a low of 10.7%, a median of 16.1% and a high of 24.5% for the Selected Insurers. The Guaranty projected earnings per share growth of 15.0% compared to a low of 12.6%, a median of 14.8% and a high of 27.7% for the Selected Insurers. -6- 7 In its discussion materials and presentation, DLJ set forth no conclusions as to the fairness of any particular form of transaction or the consideration to be paid to Guaranty shareholders. The discussion materials did not address, and were not presented to the Guaranty Board as an opinion regarding the fairness of the consideration to be paid and received by the shareholders of Guaranty in the proposed transactions and contained no recommendation with respect thereto. No restrictions or limitations were imposed by the Board on DLJ with respect to the preparation of the discussion materials. DLJ had earlier provided to the management of Orion, including Mr. W. Marston Becker, Chairman of the Board and CEO, certain discussion materials dated as of June 5, 1997, outlining alternatives for effecting the purchase of the remaining outstanding shares of Guaranty not owned directly or indirectly by Orion, including possible types of transactions, the form of consideration to be paid and comparative time schedules. In those materials, DLJ reviewed certain publicly available financial, operating and stock market information for selected transactions in the non-standard automobile insurance industry since 1990 and included an analysis of comparative prices paid in other transactions. DLJ also performed a public market valuation analysis and an analysis of the pro forma effect of the transaction on the stockholders' equity of Orion. In July, 1997 DLJ provided Orion's management, including Mr. W. Marston Becker, with discussion materials on trends in the insurance industry, summarizing certain information about insurance industry merger and acquisition activity and valuation data, numbers of transactions, average transaction size, purchase price/earnings data, and prices paid in selected major property/casualty transactions. Neither the June nor July materials were prepared for or presented to the Board of Directors of Orion. These discussion materials were intended to focus management's deliberations with respect to various techniques that could be utilized to assist in determining the price and structure of a possible transaction with Guaranty. The information incorporated by reference from "THE OFFER -- Section 12. Fees and Expenses" of the Offer to Purchase is hereby supplemented as follows: Orion has retained DLJ pursuant to a letter agreement to act as its financial advisor with respect to the contemplated acquisition of the remaining outstanding shares of Guaranty not owned directly or indirectly by Orion. DLJ is an internationally recognized investment bank which is engaged in a wide range of investment banking activities including, among other things, structuring of mergers and acquisitions, public offerings, restructuring, leveraged buy-outs, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. Orion engaged DLJ's services because of its reputation as well as its familiarity with both Orion and Guaranty as a result of its involvement in the 1996 Tender Offer -7- 8 by Orion for up to 4,600,000 Shares and its provision of other investment banking services to Orion in the ordinary course of business for which it received customary compensation. (c) The reports referred to in Item 9(a)-(b), above shall be made available for inspection and copying at the principal executive offices of Orion and Guaranty, respectively, during their regular business hours by any holder of Shares. ITEM 10. Interests in Securities of the Issuer. The following information is hereby added to Item 10 of the Schedule 13E-3: (a)-(b). The information set forth under Item 6 of the Schedule 14D-9 is incorporated herein by reference. The information incorporated by reference from Annex II of the Offer to Purchase with respect to the securities ownership of the directors and executive officers of Guaranty is supplemented, as follows: (i) Roger B. Ware no longer owns unexercised options for Shares and holds a total of 51,759 Shares which is approximately .3% of the Shares outstanding. (ii) Richard M. Beverage and Charles B. Ruzicka beneficially own 7,784 Shares and 10,000 Shares, respectively (including Shares outstanding, Shares subject to options exercisable within 60 days of October 31, 1997 and restricted Shares), which for each individual equals less than .1% of Shares outstanding. (iii) Richard M. Beverage and Charles B. Ruzicka hold unexercised options exercisable within 60 days of October 31, 1997 for 6,000 and 10,000 Shares, respectively. (iv) Richard M. Beverage, Andrea L. Peck, Charles B. Ruzicka and John W. Mahoney hold unexercised options not exercisable within 60 days of October 31, 1997 for 7,218, 3,867, 13,902 and 10,000 Shares, respectively. ITEM 11. Contracts, Arrangements or Understandings with Respect to the Securities. The following information is hereby added to Item 12 of the Schedule 13E-3: The information set forth under Items 2 and 3(b) of the Schedule 14D-9 is incorporated herein by reference. ITEM 12. Present Intention and Recommendation of Certain Persons with Regard to the Transaction. The following information is hereby added to Item 11 of the Schedule 13E-3: -8- 9 (a)-(b). The information set forth under Items 4 and 6 of the Schedule 14D-9 is incorporated herein by reference. ITEM 14 Financial Information. The following information is hereby added to Item 14 of the Schedule 13E-3: The information set forth in the Offer to Purchase under "THE OFFER -- Section 7. Certain Information Concerning Guaranty" is incorporated herein by reference. ITEM 15. Persons with Assets Employed, Retained or Utilized. The following information is hereby added to Item 15 of the Schedule 13E-3: (a)-(b). The information set forth under Item 5 of the Schedule 14D-9 is incorporated herein by reference. ITEM 17. Material to be Filed as Exhibits. (b)(1) Discussion Materials of Donaldson Lufkin & Jenrette Securities Corporation dated June 5, 1997. (b)(2) Discussion Materials of Donaldson Lufkin & Jenrette Securities Corporation dated July 1997. (b)(3) Presentation of Donaldson Lufkin & Jenrette Securities Corporation dated September 12, 1997. (b)(4) Presentation of Salomon Brothers Inc dated October 30, 1997. (b)(5) Opinion of Salomon Brothers Inc dated October 30, 1997. (d)(10) Solicitation/Recommendation Statement on Schedule 14D-9 of Guaranty National Corporation, dated November 5, 1997. (d)(11) Letter to Shareholders of Guaranty National Corporation dated November 5, 1997. (g)(4) Portions of Proxy Statement on Schedule 14A of Guaranty National Corporation dated March 27, 1997. (g)(5) Portions of Annual Report on Form 10-K of Guaranty National Corporation for the fiscal year ended December 31, 1996. -9- 10 SIGNATURE After due 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 24, 1997 ORION CAPITAL CORPORATION By: /s/ Michael P. Maloney Name: Michael P. Maloney Title: Senior Vice President, General Counsel and Secretary -10- 11 SIGNATURE After due 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 24, 1997 GUARANTY NATIONAL CORPORATION By: /s/ Michael L. Pautler Name: Michael L. Pautler Title: Senior Vice President - Finance -11- 12 ANNEX A DIRECTORS AND EXECUTIVE OFFICERS OF GUARANTY Set forth below are the name, business address, position with Guaranty, and present principal occupation or employment and five-year employment history of each director and executive officer of Guaranty. Each person listed below is a citizen of the United States. Except as indicated in Annex II to the Offer to Purchase, none of the persons listed below beneficially owns Shares or interests therein, including options thereon. Unless otherwise indicated, each occupation set forth opposite an individual's name refers to employment with Guaranty. All officers serve at the pleasure of the Board of Directors of the entity named. Unless otherwise indicated above, the address for each director and executive officer of Guaranty is Guaranty National Corporation, 9800 South Meridian Boulevard, Englewood, Colorado 80112.
Principal Occupation, Five-Year Name, Age and Position with Director Business Experience and Other Guaranty Since Corporate Directorships - ---------------------------------------------- --------------- ---------------------------------------------- Tucker Hart Adams, 59 1994 President, The Adams Group, Inc. (an Director economic consulting firm), since 1989; Director of Tax Free Fund of Colorado, Address: Montana Power Company and Rocky Mountain The Adams Group Equity Fund. 4822 Alteza Drive, Suite 300 Colorado Springs, CO 80917 W. Marston Becker, 44 1996 Chairman and Chief Executive Officer since Director; Chairman of the Board 1996 and Senior Vice President, 1994-1996, of Orion Capital Corporation Address: ("Orion"); President and Chief Executive Orion Capital Corporation Officer of Design Professionals Insurance 9 Farm Springs Drive Company, a subsidiary of Orion, Farmington, CT 06032 1994-1996; President and Chief Executive Officer of McDonough Caperton Insurance Group, 1987-1994. Dennis J. Lacey, 43 1994 Director, President and Chief Executive Director Officer of Capital Associates, Inc. (an equipment leasing company) since 1991. Address: Capital Associates International, Inc. Capital Associates Tower Suite 3000 7175 W. Jefferson Avenue Lakewood, CO 80235
-i- 13 ANNEX A
Principal Occupation, Five-Year Name, Age and Position with Director Business Experience and Other Guaranty Since Corporate Directorships - ---------------------------------------------- --------------- ---------------------------------------------- M. Ann Padilla, 54 1994 President, Sunny Side, Inc./Temp Side (a Director private employment service), since 1975; Director of Bank One Denver N.A. Address: Sunny Side Inc./Temp Side 210 University Boulevard #550 Denver, CO 80206-4622 Vincent T. Papa, 50 1996 Senior Vice President since 1996 and Vice Director President and Treasurer, 1987-1996, of Orion; Chairman and Chief Executive Address: Officer of Wm. H. McGee & Co., Inc., a Wm. H. McGee & Co. subsidiary of Orion, since 1995. 4 World Trade Center Suite 6274 New York, NY 10048-0835 James R. Pouliot, 43 1995 President and Chief Executive Officer of Director; President and Chief Executive Guaranty since December 1996 and of Officer Viking Insurance Holdings, Inc. ("Viking") since 1992; Executive Vice President of Guaranty during 1996; Vice Address: President, Marketing, Great American Guaranty National Corporation Insurance Co., 1990-1992. 9800 S. Meridian Boulevard Box 3329 Englewood, CO 80112 Robert B. Sanborn, 68 1988 Senior Executive Consultant of Orion since Director 1995; Director since 1987, Vice Chairman 1994-1995, and President and Chief Address: Operating Officer, 1987-1994, of Orion; 87 Farm Lane Director of HCG/Lloyd's Investment Trust South Dennis, MA 02660 plc., Intercargo Corporation and Nobel Insurance Limited.
-ii- 14 ANNEX A
Principal Occupation, Five-Year Name, Age and Position with Director Business Experience and Other Guaranty Since Corporate Directorships - ---------------------------------------------- --------------- ---------------------------------------------- William J. Shepherd, 70 1991 Private investor, Director of Orion, Director Chemical Bank New Jersey and Princeton Bank and Trust Company. Address: McConnell, Budd & Downes, Inc. 365 South Street Morristown, NJ 07960 Richard R. Thomas, 51 1991 Chief Executive Officer and Chairman of the Director Board of ADCO General Corporation (a property and casualty general agency) Address: since 1990. Adco General Corporation 1080 Kalamath Street Post Office Box 4005 Denver, CO 80204 Roger B. Ware, 62 1983 Senior Consultant of Guaranty since December Director 1996 and President and Chief Executive Officer of Guaranty, 1983-1996; Director Address: of Orion until September 11, 1997. 5733 Honeylocust Circle Greenwood Village, CO 80121
Richard M. Beverage has been Senior Vice President (SVP)-Chief Actuary for Guaranty National 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. Shelly J. Hengsteler has been Controller and Assistant Treasurer and Principal Accounting Officer of Guaranty National 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. Arthur J. Mastera has been SVP-Chief Administrative Officer of Guaranty National since October 1996. Mr. Mastera was President of the Guaranty National Personal Lines Division from November 1995 until October, 1996. Mr. Mastera rejoined GNIC as SVP-Administrative and Corporate Information Systems in February 1992. From 1989 until 1992, he was Senior Vice President of Planning and Administration at Orion Capital Corporation. John W. Mahoney has been Senior Vice President - Elect of the Non-Standard Commercial Lines Division of Guaranty National since October of 1997. From October, 1990 -iii- 15 ANNEX A until March of 1993, Mr. Mahoney served in various managerial positions within the Commercial Division of Great American Insurance Co., and from April, 1993 to May, 1994, he was employed as a Product Manager by Viking Insurance Company of Wisconsin. From June, 1994 until September, 1997, Mr. Mahoney was employed as a Program Director at Coregis Insurance Group. Andrea Peck has been SVP-Human Resources of Guaranty National since July, 1997. From March, 1992 to November, 1993, Ms. Peck was employed by West Marine Products as Vice President of Human Resources, and from November, 1993 until May, 1997, she was Vice President of Human Resources of Design Professionals Insurance Co. Michael L. Pautler has been SVP-Finance and Treasurer of Guaranty National since 1988. Fred T. Roberts has been SVP of Guaranty National and President of the Commercial Lines Unit since November 1995. He served as SVP of GNIC Claims from 1984 to 1995. Charles B. Ruzicka has been SVP-Information Systems of Guaranty National 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 a Vice President of Viking Insurance Company Wisconsin. From 1987 to 1993, Mr. Ruzicka was employed by Progressive Insurance Company and was a Vice President from 1992 through 1993. Philip H. Urban has been SVP of Guaranty National 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. -iv- 16 EXHIBIT INDEX Exhibit Description (b)(1) Discussion Materials of Donaldson Lufkin & Jenrette Securities Corporation dated June 5, 1997. (b)(2) Discussion Materials of Donaldson Lufkin & Jenrette Securities Corporation dated July 1997. (b)(3) Presentation of Donaldson Lufkin & Jenrette Securities Corporation dated September 12, 1997. (b)(4) Presentation of Salomon Brothers Inc dated October 30, 1997. (b)(5) Opinion of Salomon Brothers Inc dated October 30, 1997. (d)(10) Solicitation/Recommendation Statement on Schedule 14D-9 of Guaranty National Corporation, dated November 5, 1997. (d)(11) Letter to Shareholders dated November 5, 1997. (g)(4) Portions of Proxy Statement on Schedule 14A of Guaranty National Corporation dated March 27, 1997. (g)(5) Portions of Annual Report on Form 10-K of Guaranty National Corporation for the fiscal year ended December 31, 1996. EX-99.B.1 2 DISCUSSION MATERIALS OF DONALDSON LUFKIN 1 Exhibit (b)(1) - -------------------------------------------------------------------------------- Discussion Materials Regarding PROJECT HUNTER June 5, 1997 - -----------------------------------------------------------------------------DLJ DONALDSON, LUFKIN & JENRETTE 2 PROJECT HUNTER - -------------------------------------------------------------------------------- TABLE OF CONTENTS Exhibit ------- ALTERNATIVES FOR PURCHASING THE REMAINING 19% OF GATHERER............. 1 EXAMPLES OF SQUEEZE-OUT TRANSACTIONS.................................. 2 GATHERER VALUATION ANALYSIS........................................... 3 FINANCIAL EFFECTS OF AN ACQUISITION OF GATHERER....................... 4 - -----------------------------------------------------------------------------DLJ DONALDSON, LUFKIN & JENRETTE 3 PROJECT HUNTER - -------------------------------------------------------------------------------- ALTERNATIVES FOR PURCHASING THE REMAINING 19% OF GATHERER - -----------------------------------------------------------------------------DLJ DONALDSON, LUFKIN & JENRETTE 4 PROJECT HUNTER - -------------------------------------------------------------------------------- ALTERNATIVES FOR PURCHASING THE REMAINING 19% OF GATHERER o There are five possible alternatives for Hunter to effect the purchase of the remaining 19% of Gatherer it does not currently own: I. Cash tender for remaining shares taking Hunter ownership over 90%; short form merger to acquire the remaining shares for cash; II. Acquire the remaining 19% of Gatherer for stock in the long form merger; III. Acquire the remaining 19% of Gatherer for cash in the long form merger; and, IV. Acquire the remaining 19% of Gatherer for cash or stock, at the option of the Gatherer shareholder. -1- - -----------------------------------------------------------------------------DLJ DONALDSON, LUFKIN & JENRETTE 5 PROJECT HUNTER - -------------------------------------------------------------------------------- ALTERNATIVES FOR PURCHASING THE REMAINING 19% OF GATHERER (CONT'D) I. Cash tender for remaining shares taking Hunter ownership over 90%; short form merger for the remaining shares. o Required filings: - 13E-3 filing required for all transactions where a controlling shareholder buys out minority shareholders and registered public securities will become delisted. Wraps around an offer to purchase; - 14D-1 filing required for all tender offers for shares registered under the 1934 Securities Act. Wraps around an offer to purchase; - An offer to purchase is required for transactions that do not require a shareholder vote. Must disclose terms and intentions of merger/acquisition. Reviewed by the SEC's tender office, which is typically less onerous than the SEC's corporate finance division, which reviews proxies; - Target files 14D-9 which contains a description of the transaction, as well as Target's fairness opinion /valuation studies; and, - Shareholders have appraisal rights, but this cannot hold up closing of the transaction. -2- - -----------------------------------------------------------------------------DLJ DONALDSON, LUFKIN & JENRETTE 6 PROJECT HUNTER - -------------------------------------------------------------------------------- ALTERNATIVES FOR PURCHASING THE REMAINING 19% OF GATHERER (CONT'D) o Timing: - Negotiate terms; - File offer to purchase wrapped by 13E-3 and 14D-1; - Tender must remain open for 20 business days; - If successful in obtaining at least 90%, commence short form merger which is a one page notice informing shareholders of squeeze out and their appraisal rights; and, - Ability to close immediately after tender offer. o Benefits: - Ability to utilize cash on Hunter's balance sheet; - Filings reviewed by SEC tender office, which is typically most concerned with the structure and purpose of the merger, but not reviewed by SEC corporate finance/accounting division, which is typically more onerous and reviews in detail the financial situation of the acquiror. This speeds up the approval process by 2-4 weeks versus a stock transaction; - Most control over time schedule; and, - Valuation and appraisal rights process is more straightforward than in a stock acquisition. -3- - -----------------------------------------------------------------------------DLJ DONALDSON, LUFKIN & JENRETTE 7 PROJECT HUNTER - -------------------------------------------------------------------------------- ALTERNATIVES FOR PURCHASING THE REMAINING 19% OF GATHERER (CONT'D) o Negatives: - May not get to 90% in the tender offer; and, - Gatherer's shareholders forego future upside in ongoing company. II. Acquire remaining 19% of Gatherer for stock: o Requires a proxy statement to be filed with the SEC and a shareholder vote. In addition to stating terms and intentions of the merger/acquisition, the proxy must disclose detailed financial information regarding the acquiror. This should not require significant additional work on Hunter's part as Hunter recently filed a 10-K and 10-Q, but it may be reviewed by the SEC's corporate finance (accounting) division, which can add two to four weeks to the approval process. -4- - -----------------------------------------------------------------------------DLJ DONALDSON, LUFKIN & JENRETTE 8 PROJECT HUNTER - -------------------------------------------------------------------------------- ALTERNATIVES FOR PURCHASING THE REMAINING 19% OF GATHERER (CONT'D) o Timing: - Negotiate terms; - File 13E-3 and joint proxy statement (SEC requires 30 days to review proxy); - Receive and resolve SEC comments; - Mail proxies at least 20 days prior to shareholder meeting; and, - Shareholder vote and closing. o Benefits: - Ability to offer minority shareholders future upside in the ongoing company. o Negatives: - Timing may be longer; - Potential that shareholders will not approve. III. Acquire remaining 19% of Gatherer for cash: o Similar to stock acquisition except that SEC requires only 10 days, as opposed to 30 days, to review a proxy statement involving cash consideration. -5- - -----------------------------------------------------------------------------DLJ DONALDSON, LUFKIN & JENRETTE 9 PROJECT HUNTER - -------------------------------------------------------------------------------- ALTERNATIVES FOR PURCHASING THE REMAINING 19% OF GATHERER (CONT'D) IV. Hunter may want to consider giving Gatherer's minority shareholders the option to receive either cash or stock consideration or some combination in exchange for their Gatherer shares: o Enables Hunter to utilize cash on Hunter's balance sheet; o Enables Gatherer minority shareholders to choose upside in ongoing company or cash today; o Requires a proxy statement and shareholder vote. o Shareholder option to receive common stock may simplify valuation issues V. Steps for Gatherer to consider after receiving an offer from Hunter: o Convene board meeting; o Form Independent Committee; o Retain financial and legal advisors; o Perform valuation; o Establish recommendation; o Negotiate terms of merger with Hunter; and, o File appropriate documentation. -6- - -----------------------------------------------------------------------------DLJ DONALDSON, LUFKIN & JENRETTE 10 PROJECT HUNTER - -------------------------------------------------------------------------------- COMPARATIVE TIME SCHEDULES [GRAPHIC OMITTED] -7- - -----------------------------------------------------------------------------DLJ DONALDSON, LUFKIN & JENRETTE 11 PROJECT HUNTER - -------------------------------------------------------------------------------- ILLUSTRATIVE TIME SCHEDULE ASSUMING ALL STOCK TRANSACTION Week No. Activity - --------------- --------------------------------------------------------------- 1 Hunter Board meting to review transaction structure Draft proposal letter reviewed - --------------- 1 Gatherer Board meeting Proposal/letter delivered by Hunter to Gatherer Board Gatherer etablishes Independent Committee - --------------- 2 Independent Committee retains independent counsel and financial advisor Independent Committee's advisors commence due diligence - --------------- 3 Independent Committee's advisors complete valuation/fairness opinion work - --------------- 4 Financial advisors meet to negotiate proposal Draft press release prepared - --------------- 5-7 Negotiations concluded Board Meetings to approve Transaction Execute merger agreement Announce merger Commence preparation of Merger Proxy - --------------- 8 File Merger Proxy with SEC - --------------- 12 Receive and respond to SEC comments Mail Proxy to shareholders - --------------- 13 Shareholder meeting to approve Transaction Closing -8- - -----------------------------------------------------------------------------DLJ DONALDSON, LUFKIN & JENRETTE 12 PROJECT HUNTER - -------------------------------------------------------------------------------- OTHER ISSUES o Role and Objectives of Independent Committee include: - Select independent financial advisor and legal counsel. - Negotiate a price for Gatherer's shares that the Independent Committee believes, based on its knowledge and the advice and valuation work of financial and legal advisors, is fair to public shareholders. - Recommend the Transaction to the Board of Directors for recommendation to Gatherer's shareholders. o Squeeze-out transaction is subject to special requirements by the SEC for going private transaction including: - Disclosure under 13E-3 filing requirements, which may include projections. - SEC filings will include a detailed record of negotiation between the parties and their financial and legal advisors. - Usually extensive review by SEC. o To comply with legal requirements, such transactions share a number of characteristics including: - The independent work performed by the two advisors is used as the starting point for the negotiations. - Negotiations are conducted until acceptable terms are reached on an arms-length basis. -9- - -----------------------------------------------------------------------------DLJ DONALDSON, LUFKIN & JENRETTE 13 PROJECT HUNTER - -------------------------------------------------------------------------------- EXAMPLES OF SQUEEZE-OUT TRANSACTIONS - -----------------------------------------------------------------------------DLJ DONALDSON, LUFKIN & JENRETTE 14 PROJECT HUNTER - -------------------------------------------------------------------------------- 17% OF GRACE ENERGY CORPORATION BY W.R. GRACE & CO PRICE/VOLUME ANALYSIS JANUARY 2, 1992 THROUGH JUNE 29, 1992 [GRAPHIC OMITTED] -1- - -----------------------------------------------------------------------------DLJ DONALDSON, LUFKIN & JENRETTE 15 PROJECT HUNTER - -------------------------------------------------------------------------------- 47% OF REN CORP BY GAMBRO PRICE/VOLUME ANALYSIS APRIL 25, 1995 THROUGH SEPTEMBER 25, 1995 [GRAPHIC OMITTED] -2- - -----------------------------------------------------------------------------DLJ DONALDSON, LUFKIN & JENRETTE 16 PROJECT HUNTER - -------------------------------------------------------------------------------- 23% OF BIC CORP BY SOCIETE BIC PRICE/VOLUME ANALYSIS MARCH 31, 1995 THROUGH SEPTEMBER 25, 1995 [GRAPHIC OMITTED] -3- - -----------------------------------------------------------------------------DLJ DONALDSON, LUFKIN & JENRETTE 17 PROJECT HUNTER - -------------------------------------------------------------------------------- 29% OF CLUB MED INC BY CLUB MEDITERRANEE SA PRICE/VOLUME ANALYSIS JANUARY 3, 1995 THROUGH NOVEMBER 2, 1995 [GRAPHIC OMITTED] -4- - -----------------------------------------------------------------------------DLJ DONALDSON, LUFKIN & JENRETTE 18 PROJECT HUNTER - -------------------------------------------------------------------------------- 19% OF FLEET MORTGAGE GROUP BY FLEET FINANCIAL GROUP PRICE/VOLUME ANALYSIS JUNE 30, 1994 THROUGH APRIL 13, 1995 [GRAPHIC OMITTED] -5- - -----------------------------------------------------------------------------DLJ DONALDSON, LUFKIN & JENRETTE 19 PROJECT HUNTER - -------------------------------------------------------------------------------- 17% OF CASTLE & COOKE HOMES INC BY DOLE FOOD CO PRICE/VOLUME ANALYSIS APRIL 29, 1994 THROUGH NOVEMBER 29, 1994 [GRAPHIC OMITTED] -6- - -----------------------------------------------------------------------------DLJ DONALDSON, LUFKIN & JENRETTE 20 PROJECT HUNTER - -------------------------------------------------------------------------------- 10% OF CONTEL CELLULAR BY GTE CORP PRICE/VOLUME ANALYSIS MARCH 1, 1994 THROUGH APRIL 17, 1995 [GRAPHIC OMITTED] -7- - -----------------------------------------------------------------------------DLJ DONALDSON, LUFKIN & JENRETTE 21 PROJECT HUNTER - -------------------------------------------------------------------------------- GATHERER VALUATION ANALYSIS - -----------------------------------------------------------------------------DLJ DONALDSON, LUFKIN & JENRETTE 22 PROJECT HUNTER - -------------------------------------------------------------------------------- PUBLICLY TRADED NON-STANDARD AUTO INSURERS
TOTAL ENTERPRISE PRICE/ VALUE/ PROJECTED PRICE TOTAL ------------------- ------------ ------------- AS OF MARKET ENTERPRISE SAP SAP EPS TICKER 6/3/97 SHARES VALUE VALUE 1997E 1998E BVPS NOI C&S ROE GROWTH ------ ------ ------ ----- ----- ----- ----- ---- --- --- --- ------ - ----------------------------------------------------------------------------------------------------------------- Gatherer $22.13 15.0 $331.5 $433.0 11.6x 10.3x 1.46x 14.5x 1.71x 12.6% 12.6% - ----------------------------------------------------------------------------------------------------------------- Integon IN $12.50 $15.7 $196.7 $82.2 NM 11.2x 1.09x 16.0x 2.75x NM NM Mobile America MAME 11.25 6.2 70.2 61.6 9.0 NA 2.01 NM 3.52 22.4% NA Omni OMGR 10.50 5.7 59.9 59.9 10.2 9.1 1.12 21.0 1.63 11.0 12.6% Progressive Corp. PGR 78.75 71.5 5,630.6 6,406.4 17.3 15.3 3.36 23.1 4.96 19.4 13.7 Titan Holdings TH 19.00 9.6 181.6 205.6 11.4 9.5 1.57 14.9 2.56 13.8 20.4 - ----------------------------------------------------------------------------------------------------------------- High 17.3x 15.3x 3.36x 23.1 4.96x 22.4% 20.4% Average 12.0 11.2 1.83 18.7 3.08 16.6 15.5 Low 9.0 9.1 1.09 14.9 1.63 11.0 12.6 - -----------------------------------------------------------------------------------------------------------------
-1- - -----------------------------------------------------------------------------DLJ DONALDSON, LUFKIN & JENRETTE 23 PROJECT HUNTER - -------------------------------------------------------------------------------- ACQUISITIONS OF NON-STANDARD AUTO INSURERS (Dollars in thousands)
EQUITY PURCHASE PRICE SELLER FINANCIAL DATA: AS A MULTIPLE TO: TOTAL -------------------------------- ----------------- ACQUISITION ACQUISITION PREMIUM OPER. NET GAAP OPER. NET GAAP TARGET SELLER DATE PRICE EARNED INCOME(1) EQUITY(2) INCOME EQUITY - ----------------- ---------------------- ----------- ----------- --------- --------- --------- --------- ------ Orion Capital Guaranty National 2-Jul-96 $85,100 $426,019 $5,900 $203,982 NM 1.3x Corporation Guaranty National Viking Insurance 18-Jul-95 102,700 152,293 9,263 93,277 11.1x 1.1 Corporation Holdings (Unit of Talegen Holdings of Xerox Financial) USF&G Corporation Victoria 22-May-95 55,300(3) 51,313 1,933 28,610 28.6 1.9 Financial Corporation Integon Bankers and 22-Oct-94 142,000 161,900 12,400 99,400 11.5 1.4 Corporation Shippers Insurance Co. American Premier Leader National 20-May-93 38,000 -- 3,500 39,000 10.9 1.0 Underwriters Corp. (formerly Penn (Dyson-Kissner-Moran) Central) American Premier American 31-Dec-90 335,000 318,000 26,100 210,000 12.8 1.6 Underwriters Financial Corp. (formerly Penn Central) Jupiter Integon 1-Aug-90 269,000 400,400 400 143,500 NM 1.9 Industries / Corporation Head Insurance Investors ------------------------------------------- High 28.6x 1.90x Average 14.9 1.45 Low 10.9 1.00 -------------------------------------------
TOTAL PURCHASE PRICE AS A MULTIPLE TO: ----------------- SAP NET SAP TARGET SELLER INCOME C&S - ----------------- ---------------------- ------- ----- Orion Capital Guaranty National NM 2.75x Corporation Guaranty National Viking Insurance 10.2x 1.25 Corporation Holdings (Unit of Talegen Holdings of Xerox Financial) USF&G Corporation Victoria 24.2 2.86 Financial Corporation Integon Bankers and 22.5 2.22 Corporation Shippers Insurance Co. American Premier Leader National 14.2 1.16 Underwriters Corp. (formerly Penn (Dyson-Kissner-Moran) Central) American Premier American 14.6 2.59 Underwriters Financial Corp. (formerly Penn Central) Jupiter Integon NM 2.19 Industries / Corporation Head Insurance Investors -------------------- 24.2x 2.86x 17.1 2.15 10.2 1.16 --------------------
- ---------- (1) Excludes realized gains and losses. (2) Excludes mark-to-market effects of FAS 115. (3) Represents value of consideration of announcement date. Actual consideration was $59 million due to appreciation of USF&G stock between announcement and closing. -2- - -----------------------------------------------------------------------------DLJ DONALDSON, LUFKIN & JENRETTE 24 PROJECT HUNTER - -------------------------------------------------------------------------------- PRELIMINARY PUBLIC MARKET VALUATION (Dollars in millions, except per share data)
MULTIPLE OF SELECTED NON-STANDARD AUTO IMPLIED EQUITY COMPANIES(1) VALUATION IMPLIED SHARE PRICE GATHERER -------------------- ----------------------- ---------------------- GATHERER PER SHARE LOW AVG HIGH LOW AVG HIGH LOW AVG HIGH -------- --------- ----- ----- ------ ------ ------ ------- ------ ------ ------ GAAP - ---- 1997E Operating EPS $28.6 $1.91 9.0x 12.0x 17.3x $257.6 $342.9 $496.5 $17.19 $22.88 $33.13 1998E Operating EPS 32.2 2.15 9.1 11.2 15.3 291.7 361.9 491.8 19.46 24.15 32.81 3/31/1997 Shareholders' Equity 227.5 15.18 1.09 1.83 3.36 248.7 416.5 763.6 16.60 27.79 50.96 - ------------------------------------------------------------------------------------------------------------------- GAAP Average $266.0 $373.8 $584.0 $17.75 $24.94 $38.97 - ------------------------------------------------------------------------------------------------------------------- SAP(2) 1996 SAP NOI $29.8 14.9x 18.7x 23.1x $343.1 $457.1 $585.8 $22.90 $30.51 $39.10 12/31/96 SAP C&S 253.8 1.63 3.08 4.96 311.2 680.5 1,156.7 20.77 45.41 77.19 - ------------------------------------------------------------------------------------------------------------------- SAP Average $327.1 $568.8 $871.3 $21.83 $37.96 $58.14 - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- Total Average $290.5 $451.8 $698.9 $19.38 $30.15 $46.64 - -------------------------------------------------------------------------------------------------------------------
- ---------- (1) Based on IBES estimstes of publicly traded non-standard auto insurers. (2) Implied equity valuations are based on applied SAP multiples less Gatherer debt outstanding as of 3/31/97 of $101.5 million. -3- - -----------------------------------------------------------------------------DLJ DONALDSON, LUFKIN & JENRETTE 25 PROJECT HUNTER - -------------------------------------------------------------------------------- PRELIMINARY MERGER MARKET VALUATION ANALYSIS (Dollars in millions, except per share data)
MULTIPLE OF SELECTED ACQUISITIONS IMPLIED EQUITY VALUATION IMPLIED SHARE PRICE GATHERER ----------------------- ------------------------ ---------------------- GATHERER PER SHARE LOW AVG HIGH LOW AVG HIGH LOW AVG HIGH -------- --------- ----- ----- ----- ------ ------ ------ ------ ------ ------ GAAP - ---- LTM Operating EPS .. $ 26.8 $ 1.79 10.9x 14.9x 28.6x $292.4 $399.7 $767.3 $19.51 $26.67 $51.19 3/31/1997 Shareholders' Equity ............ 227.5 15.18 1.00 1.45 1.90 227.5 329.8 432.2 15.18 22.01 28.84 - ----------------------------------------------------------------------------------------------------------------------- GAAP Average ....... $259.9 $364.8 $599.7 $17.35 $24.34 $40.02 - ----------------------------------------------------------------------------------------------------------------------- SAP (1) - ------- 1996 SAP NOI ....... $ 29.8 10.2x 17.1x 24.2x $202.6 $408.4 $620.0 $13.52 $27.25 $41.38 12/31/96 SAP C&S ... 253.8 1.16 2.15 2.86 192.9 444.2 624.4 12.87 29.64 41.67 - ----------------------------------------------------------------------------------------------------------------------- SAP Average $197.8 $426.3 $622.2 $13.20 $28.45 $41.52 - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- Total Average $228.9 $395.5 $611.0 $15.27 $26.39 $40.77 - -----------------------------------------------------------------------------------------------------------------------
- ---------- (1) Implied equity valuations are based on applied SAP multiples less Gatherer debt outstanding as of 3/31/97 of $101.5 million. -4- - -----------------------------------------------------------------------------DLJ DONALDSON, LUFKIN & JENRETTE 26 PROJECT HUNTER - -------------------------------------------------------------------------------- PRELIMINARY VALUATION MATRIX (Dollars in millions, except per share data)
PURCHASE EQUITY TOTAL GAAP SAP ------------------------------------ -------------- PRICE PURCHASE PURCHASE ENTERPRISE OPERATING EPS 1996 1996 --------------------------- PER SHARE PREMIUM PRICE(1) VALUE LTM 1997E 1998E BVPS(1) NOI C&S - --------- -------- -------- ---------- -------- -------- ------- ------- ------ ------ $1.79 $1.91 $2.15 $15.18 $29.8 $253.8 ----- ----- ----- ------ ----- ------ $23.00 4.0% $344.7 $446.2 12.8x 12.0x 10.7x 1.52x 15.0x 1.76x 24.00 8.5 359.6 461.1 13.4 12.6 11.2 1.58 15.5 1.82 25.00 13.0 374.6 476.1 14.0 13.1 11.6 1.65 16.0 1.88 26.00 17.5 389.6 491.1 14.5 13.6 12.1 1.71 16.5 1.93 27.00 22.0 404.6 506.1 15.1 14.1 12.6 1.78 17.0 1.99 28.00 26.6 419.6 521.1 15.6 14.7 13.0 1.84 17.5 2.05 29.00 31.1 434.6 536.1 16.2 15.2 13.5 1.91 18.0 2.11 30.00 35.6 449.6 551.1 16.8 15.7 14.0 1.98 18.5 2.17 Comparable Companies High 17.3x 15.3x 3.36x 23.1x 4.96x - -------------------- Average 12.0 11.2 1.83 18.7 3.08 Low 9.0 9.1 1.09 14.9 1.63 M&A Transactions High 28.6x NA NA 1.90x 24.2x 2.86x - ---------------- Average 14.9 NA NA 1.45 17.1 2.15 Low 10.9 NA NA 1.00 10.2 1.16
- ---------- (1) Based on 15.0 million shares outstanding. -4- - -----------------------------------------------------------------------------DLJ DONALDSON, LUFKIN & JENRETTE 27 PROJECT HUNTER - -------------------------------------------------------------------------------- FINANCIAL EFFECTS OF AN ACQUISITION OF GATHERER - -----------------------------------------------------------------------------DLJ DONALDSON, LUFKIN & JENRETTE 28 PROJECT HUNTER - PRO FORMA ACQUISITION ANALYSIS OF REMAINING 19% OF GATHERER SHARES (In millions, except per share data) 100% Stock Purchase
Per Share Equity Purchase Price - No Share Repurchase ----------------------------------------------------- $ 24.00 $ 25.00 $ 26.00 $ 27.00 $ 28.00 ------- ------- ------- ------- ------- Purchase Premium 8.5% 13.0% 17.5% 22.0% 26.6% Exchange Ratio (1) 0.3504x 0.3650x 0.3796x 0.3942x 0.4088x Sources And Uses Sources: New Common Stock $ 68.3 $ 71.1 $ 74.0 $ 76.8 $ 79.6 New Debt 0.0 0.0 0.0 0.0 0.0 New Trust Preferred 0.0 0.0 0.0 0.0 0.0 Existing Cash 0.5 0.5 0.5 0.5 0.5 ------- ------- ------- ------- ------- Total Sources $ 68.8 $ 71.6 $ 74.5 $ 77.3 $ 80.1 Uses: Purchase of Equity $ 68.3 $ 71.1 $ 74.0 $ 76.8 $ 79.6 Transaction Expenses 0.5 0.5 0.5 0.5 0.5 Share Repurchase 0.0 0.0 0.0 0.0 0.0 ------- ------- ------- ------- ------- Total Uses $ 68.8 $ 71.6 $ 74.5 $ 77.3 $ 80.1 Hunter Pickup (Dilution) 1997E EPS: (1.6%) (2.0%) (2.4%) (2.8%) (3.2%) 1998E EPS: (1.6%) (2.0%) (2.3%) (2.7%) (3.1%) 3/31/97 BVPS 5.2% 5.4% 5.6% 5.8% 6.0% ------ Hunter 3/31/97 Pro Forma Leverage Actual ------ Debt / Capitalization 30.7% 30.0% 29.9% 29.8% 29.8% 29.7% Preferred / Capitalization 12.3% 12.1% 12.0% 12.0% 12.0% 11.9% Debt and Preferred / Capitalization (2) 30.7% 30.0% 29.9% 29.8% 29.8% 29.7% 1996E Pro Forma Coverage Max Dividends and Tax Shield / Interest 4.0x 4.1 x 4.1 x 4.1 x 4.1 x 4.1 x Max Dividends and Tax Shield / Int. & Div. 2.7x 2.7 x 2.7 x 2.7 x 2.7 x 2.7 x ------ Per Share Equity Purchase Price - Share Repurchase -------------------------------------------------- $ 24.00 $ 25.00 $ 26.00 $ 27.00 $ 28.00 ------- ------- ------- ------- ------- Purchase Premium 8.5% 13.0% 17.5% 22.0% 26.6% Exchange Ratio (1) 0.3504x 0.3650x 0.3796x 0.3942x 0.4088x Sources And Uses Sources: New Common Stock $ 68.3 $ 71.1 $ 74.0 $ 76.8 $ 79.6 New Debt 0.0 0.0 0.0 0.0 0.0 New Trust Preferred 0.0 0.0 0.0 0.0 0.0 Existing Cash 40.5 40.5 40.5 40.5 40.5 ------- ------- ------- ------- ------- Total Sources $ 108.8 $ 111.6 $ 114.5 $ 117.3 $ 120.1 Uses: Purchase of Equity $ 68.3 $ 71.1 $ 74.0 $ 76.8 $ 79.6 Transaction Expenses 0.5 0.5 0.5 0.5 0.5 Share Repurchase 40.0 40.0 40.0 40.0 40.0 ------- ------- ------- ------- ------- Total Uses $ 108.8 $ 111.6 $ 114.5 $ 117.3 $ 120.1 Hunter Pickup (Dilution) 1997E EPS: 0.2% (0.3%) (0.7%) (1.1%) (1.5%) 1998E EPS: 0.4% 0.0% (0.4%) (0.8%) (1.2%) 3/31/97 BVPS 2.1% 2.3% 2.6% 2.8% 3.0% 3/31/97 Pro Forma Leverage Debt / Capitalization 31.2% 31.1% 31.0% 30.9% 30.9% Preferred / Capitalization 12.6% 12.5% 12.5% 12.4% 12.4% Debt and Preferred / Capitalization (2) 31.2% 31.1% 31.0% 30.9% 30.9% 1996E Pro Forma Coverage Max Dividends and Tax Shield / Interest 4.1 x 4.1 x 4.1 x 4.1 x 4.1 x Max Dividends and Tax Shield / Int. & Div. 2.7 x 2.7 x 2.7 x 2.7 x 2.7 x
- ---------- (1) The same exchange rate is used in the share repurchase case (based on the current Hunter share price) even though a repurchase is assumed to occur at a 3% premium to Hunter's current stock price. (2) Assumes 100% equity credit for Trust Preferred Stock. -1- DONALDSON, LUFKIN & JENRETTE 29 PROJECT HUNTER - PRO FORMA ACQUISITION ANALYSIS OF REMAINING 19% OF GATHERER SHARES (In millions, except per share data) 100% Stock Purchase - ------------------------------------------------------- Assumptions Acquirer Hunter Target Gatherer Coupon on New Hunter Debt 7.7% Tax-Deductible Div. on New Hunter Trust Pfd. 8.7% Pretax Investment Yield 7.0% Marginal Tax Rate 35.0% Transaction Expenses $ 0.5 % of Gatherer Purchased 19.0% New Goodwill Amortization Period 25 - ------------------------------------------------------- - ------------------------------------------------------- Share Repurchase Assumptions Amount (Financed by Cash) $40.0 Premium to Market 3.0% Repurchase Price $70.56 Shares Repurchased 0.567 - ------------------------------------------------------- - -------------------------------------------------------- Summary Financial Data Hunter Gatherer ------ -------- Stock Price 3-Jun-97 $ 68.50 $ 22.13 Primary Shares 13.762 14.975 Fully Diluted Average Shares (1) 13.894 14.971 Equity Market Value $ 951.7 $ 331.2 Total Debt 310.7 101.5 Total Trust Preferred 125.0 0.0 --------- -------- Enterprise Value $ 1,387.5 $ 432.7 Dividend $ 1.12 $ 0.50 Dividend Yield 1.6% 2.3% 1997E Earnings: (2) Net Income $ 81.6 $ 28.6 EPS $ 5.87 $ 1.91 Fully Diluted Average Shares 13.894 14.971 1998E Earnings: (2) Net Income $ 94.1 $ 32.2 EPS $ 6.77 $ 2.15 Fully Diluted Average Shares 13.894 14.971 3/31/97 Goodwill 80.4 34.6 3/31/97 Book Value: Common Stockholders' Equity $ 577.4 $ 239.1 Common Stockholders' Equity (3) $ 531.8 $ 227.5 BVPS (3) $ 38.64 $ 15.19 1996 SAP Net Income $ 83.3 $ 29.8 SAP Capital & Surplus 521.5 253.8 Price /: 1997E EPS 11.7 x 11.6 x 1998E EPS 10.1 x 10.3 x 3/31/97 BVPS 1.77 x 1.46 x Enterprise Value /: 1995 SAP Net Income 16.7 x 14.5 x SAP Capital & Surplus 2.7 x 1.7 x Debt/Capitalization 30.7% 29.8% - -------------------------------------------------------- - ---------- (1) Fully diluted weighted average shares outstanding for 12 months ended December 31, 1996. (2) IBES mean estimates. (3) Excludes mark-to-market effects of FAS 115. -2- DONALDSON, LUFKIN & JENRETTE 30 PROJECT HUNTER - PRO FORMA ACQUISITION ANALYSIS OF REMAINING 19% OF GATHERER SHARES (In millions, except per share data) 100% Stock Purchase
Per Share Equity Purchase Price --------------------------------------------------- $ 24.00 $ 25.00 $ 26.00 $ 27.00 $ 28.00 ------- ------- ------- ------- ------- Purchase Price Gatherer Fully Diluted Average Shares 14.971 14.971 14.971 14.971 14.971 Equity Purchase Price (19% of Gatherer Shares) $ 68.3 $ 71.1 $ 74.0 $ 76.8 $ 79.6 ------- ------- ------- ------- ------- Total Purchase Price $ 68.3 $ 71.1 $ 74.0 $ 76.8 $ 79.6 Purchase Multiples Purchase Price Per Share /: 1997E EPS 12.6 x 13.1 x 13.6 x 14.1 x 14.7 x 1998E EPS 11.2 x 11.6 x 12.1 x 12.6 x 13.0 x 12/31/96 BVPS 1.6 x 1.6 x 1.7 x 1.8 x 1.8 x Return on Equity 1997E: Projected Hunter 14.3% 14.3% 14.3% 14.3% 14.3% Pro Forma 13.4% 13.4% 13.3% 13.3% 13.2% 1998E: Projected Hunter 14.6% 14.6% 14.6% 14.6% 14.6% Pro Forma 15.1% 15.0% 15.0% 14.9% 14.9%
-3- DONALDSON, LUFKIN & JENRETTE 31 PROJECT HUNTER - PRO FORMA ACQUISITION ANALYSIS OF REMAINING 19% OF GATHERER SHARES (In millions, except per share data) 100% Stock Purchase
Per Share Equity Purchase Price ----------------------------------------------- $ 24.00 $ 25.00 $ 26.00 $ 27.00 $ 28.00 ------- ------- ------- ------- ------- Hunter Pro Forma Per Share Data 1997E EPS $ 5.78 $ 5.75 $ 5.73 $ 5.71 $ 5.68 1998E EPS: $ 6.66 $ 6.64 $ 6.61 $ 6.59 $ 6.56 3/31/97 BVPS (Excl. FAS 115) $ 40.66 $ 40.74 $ 40.81 $ 40.89 $ 40.97 Hunter Pro Forma Outstanding and Average Shares 3/31/97 Outstanding: Actual 13.762 13.762 13.762 13.762 13.762 New Shares Issued 0.997 1.038 1.080 1.121 1.163 Less: Shares Repurchased 0.000 0.000 0.000 0.000 0.000 ------- ------- ------- ------- ------- Pro Forma 14.759 14.801 14.842 14.884 14.925 1997E and 1998E Average Shares: Actual 13.894 13.894 13.894 13.894 13.894 New Shares Issued 0.997 1.038 1.080 1.121 1.163 Less: Shares Repurchased 0.000 0.000 0.000 0.000 0.000 ------- ------- ------- ------- ------- Pro Forma 14.891 14.932 14.974 15.015 15.057
-4- DONALDSON, LUFKIN & JENRETTE 32 PROJECT HUNTER - PRO FORMA ACQUISITION ANALYSIS OF REMAINING 19% OF GATHERER SHARES (In millions, except per share data) 100% Stock Purchase
Per Share Equity Purchase Price $ 24.00 $ 25.00 $ 26.00 $ 27.00 $ 28.00 -------- -------- -------- -------- -------- Pro Forma 1997E Earnings Combined Net Income Before Adjustments: Hunter $ 81.6 $ 81.6 $ 81.6 $ 81.6 $ 81.6 19% of Gatherer Earnings 5.4 5.4 5.4 5.4 5.4 -------- -------- -------- -------- -------- Combined 87.0 87.0 87.0 87.0 87.0 After-Tax Interest Expense On New Debt 0.0 0.0 0.0 0.0 0.0 After-Tax Dividends on New Trust Preferred 0.0 0.0 0.0 0.0 0.0 Foregone After-Tax Income On Existing Cash (0.0) (0.0) (0.0) (0.0) (0.0) Gatherer Existing Goodwill Amortization 0.0 0.0 0.0 0.0 0.0 New Goodwill Amortization (0.9) (1.0) (1.2) (1.3) (1.4) -------- -------- -------- -------- -------- Total Adjustments (1.0) (1.1) (1.2) (1.3) (1.4) -------- -------- -------- -------- -------- Pro Forma Net Income 86.0 85.9 85.8 85.7 85.6 Pro Forma Shares Outstanding 14.891 14.932 14.974 15.015 15.057 Pro Forma EPS $ 5.78 $ 5.75 $ 5.73 $ 5.71 $ 5.68 EPS Pickup (Dilution) (1.6%) (2.0%) (2.4%) (2.8%) (3.2%) Pro Forma 1998E Earnings Combined Net Income Before Adjustments: Hunter $ 94.1 $ 94.1 $ 94.1 $ 94.1 $ 94.1 19% of Gatherer Earnings 6.1 6.1 6.1 6.1 6.1 -------- -------- -------- -------- -------- Combined 100.2 100.2 100.2 100.2 100.2 After-Tax Interest Expense On New Debt 0.0 0.0 0.0 0.0 0.0 After-Tax Dividends on New Trust Preferred 0.0 0.0 0.0 0.0 0.0 Foregone After-Tax Income On Existing Cash (0.0) (0.0) (0.0) (0.0) (0.0) Gatherer Existing Goodwill Amortization 0.0 0.0 0.0 0.0 0.0 New Goodwill Amortization (0.9) (1.0) (1.2) (1.3) (1.4) -------- -------- -------- -------- -------- Total Adjustments (1.0) (1.1) (1.2) (1.3) (1.4) -------- -------- -------- -------- -------- Pro Forma Net Income 99.2 99.1 99.0 98.9 98.8 Pro Forma Shares Outstanding 14.891 14.932 14.974 15.015 15.057 Pro Forma EPS $ 6.66 $ 6.64 $ 6.61 $ 6.59 $ 6.56 EPS Pickup (Dilution) (1.6%) (2.0%) (2.3%) (2.7%) (3.1%)
-5- DONALDSON, LUFKIN & JENRETTE 33 PROJECT HUNTER - PRO FORMA ACQUISITION ANALYSIS OF REMAINING 19% OF GATHERER SHARES (In millions, except per share data) 100% Stock Purchase
Per Share Equity Purchase Price ------------------------------------------------------- SAP Expenses (1) $ 24.00 $ 25.00 $ 26.00 $ 27.00 $ 28.00 ------- ------- ------- ------- ------- Gatherer: 1995 Underwriting Expenses $ 103.1 $ 103.1 $ 103.1 $ 103.1 $ 103.1 SAP 1995 Underwriting Expense Ratio 30.6% 30.6% 30.6% 30.6% 30.6% SAP Net Premiums Written $ 336.4 $ 336.4 $ 336.4 $ 336.4 $ 336.4 Gatherer: 1995 Underwriting Expenses $ 41.6 $ 41.6 $ 41.6 $ 41.6 $ 41.6 SAP 1995 Underwriting Expense Ratio 32.7% 32.7% 32.7% 32.7% 32.7% SAP Net Premiums Written $ 127.3 $ 127.3 $ 127.3 $ 127.3 $ 127.3 Combined Underwriting Expenses $ 144.7 $ 144.7 $ 144.7 $ 144.7 $ 144.7 New Interest Expense and Tax-Deductible Dividends New Debt $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 Coupon on New Debt 7.7% 7.7% 7.7% 7.7% 7.7% New Interest Expense: Pretax $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 After-Tax 0.0 0.0 0.0 0.0 0.0 New Tax-Deductible Trust Preferred $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 Dividend Rate on New Trust Preferred 8.7% 8.7% 8.7% 8.7% 8.7% New Dividends: Pretax $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 After-Tax 0.0 0.0 0.0 0.0 0.0 Foregone Investment Income Cash Used in Transaction $ 0.5 $ 0.5 $ 0.5 $ 0.5 $ 0.5 After-tax New Interest Expense 0.0 0.0 0.0 0.0 0.0 After-tax New Trust Preferred Dividends 0.0 0.0 0.0 0.0 0.0 Total $ 0.5 $ 0.5 $ 0.5 $ 0.5 $ 0.5 Pretax Investment Yield 7.0% 7.0% 7.0% 7.0% 7.0% Foregone Investment Income: Pretax $ (0.0) $ (0.0) $ (0.0) $ (0.0) $ (0.0) After-Tax (0.0) (0.0) (0.0) (0.0) (0.0) Existing Goodwill 19% of 12/31/96 Existing Goodwill $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 Amortization Period (1) 25 25 25 25 25 Amortization $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 New Goodwill Equity Purchase Price $ 68.3 $ 71.1 $ 74.0 $ 76.8 $ 79.6 Transaction Expenses 0.5 0.5 0.5 0.5 0.5 19% of Gatherer 12/31/95 Common Stockholders' Equity (45.4) (45.4) (45.4) (45.4) (45.4) Gatherer Existing Goodwill 0.0 0.0 0.0 0.0 0.0 ------- ------- ------- ------- ------- New Acquisition Goodwill 23.3 26.2 29.0 31.9 34.7 Amortization Period 25 25 25 25 25 Amortization (0.9) (1.0) (1.2) (1.3) (1.4)
(1) Source: A.M. Best. (2) Average of 10 years and 40 years. -6- DONALDSON, LUFKIN & JENRETTE 34 PROJECT HUNTER - PRO FORMA ACQUISITION ANALYSIS OF REMAINING 19% OF GATHERER SHARES (In millions, except per share data) 100% Stock Purchase Per Share Equity Purchase Price ------------------------------------------- Projected BVPS (Excl. FAS 115) $24.00 $25.00 $26.00 $27.00 $28.00 ------ ------ ------ ------ ------ Hunter: 12/31/96 BVPS $38.64 $38.64 $38.64 $38.64 $38.64 1997E EPS 5.87 5.87 5.87 5.87 5.87 1997E Dividends (1.12) (1.12) (1.12) (1.12) (1.12) ------ ------ ------ ------ ------ 12/31/97 BVPS $43.39 $43.39 $43.39 $43.39 $43.39 ====== ====== ====== ====== ====== 1998E EPS 6.77 6.77 6.77 6.77 6.77 1998E Dividends (1.12) (1.12) (1.12) (1.12) (1.12) ------ ------ ------ ------ ------ 12/31/98 BVPS $49.04 $49.04 $49.04 $49.04 $49.04 ====== ====== ====== ====== ====== 1997E Average BVPS $41.02 $41.02 $41.02 $41.02 $41.02 1998E Average BVPS 46.22 46.22 46.22 46.22 46.22 Pro Forma BVPS (Excl. FAS 115) Pro Forma - No Expense Savings 12/31/96 BVPS $40.66 $40.66 $40.66 $40.66 $40.66 1997E EPS $ 5.78 $ 5.75 $ 5.73 $ 5.71 $ 5.68 1997E Dividends $(1.12) $(1.12) $(1.12) $(1.12) $(1.12) ------ ------ ------ ------ ------ 12/31/97 BVPS $45.31 $45.29 $45.27 $45.24 $45.22 ====== ====== ====== ====== ====== 1998E EPS 6.66 6.64 6.61 6.59 6.56 1998E Dividends (1.12) (1.12) (1.12) (1.12) (1.12) ------ ------ ------ ------ ------ 12/31/98 BVPS $50.86 $50.81 $50.76 $50.71 $50.66 ====== ====== ====== ====== ====== 1997E Average BVPS $42.99 $42.97 $42.96 $42.95 $42.94 1998E Average BVPS 44.15 44.13 44.11 44.10 44.08 -7- DONALDSON, LUFKIN & JENRETTE 35 PROJECT HUNTER - PRO FORMA ACQUISITION ANALYSIS OF REMAINING 19% OF GATHERER SHARES (In millions, except per share data) 100% Stock Purchase
Per Share Equity Purchase Price ------------------------------------------- $ 24.00 $ 25.00 $ 26.00 $ 27.00 $ 28.00 ------- ------- ------- ------- ------- Pro Forma Coverage Hunter Reported Max Dividends $ 83.2 $ 83.2 $ 83.2 $ 83.2 $ 83.2 Hunter Tax Shield (1) 12.6 12.6 12.6 12.6 12.6 ------- ------- ------- ------- ------- Hunter Maximum Dividends and Tax Shield $ 95.8 $ 95.8 $ 95.8 $ 95.8 $ 95.8 19% of Gatherer Reported Max Dividends $ 5.7 $ 5.7 $ 5.7 $ 5.7 $ 5.7 19% of GathererTax Shield (1) 0.4 0.4 0.4 0.4 0.4 ------- ------- ------- ------- ------- Gatherer Maximum Dividends and Tax Shield 6.1 6.1 6.1 6.1 6.1 Combined Max Dividends 88.8 88.8 88.8 88.8 88.8 Combined Tax Shield 13.0 13.0 13.0 13.0 13.0 Tax Shield from New Capital (1) 0.0 0.0 0.0 0.0 0.0 ------- ------- ------- ------- ------- Pro Forma Max Dividends and Tax Shield $ 101.9 $ 101.9 $ 101.9 $ 101.9 $ 101.9 Hunter 1996E Debt and Preferred Service: Interest on Notes Payable $110 Million 9.13% Notes $ 10.0 $ 10.0 $ 10.0 $ 10.0 $ 10.0 $100 Million 7.25% Notes 7.3 7.3 7.3 7.3 7.3 Guarantee National Credit Revolver Interest Expense 6.5 6.5 6.5 6.5 6.5 ------- ------- ------- ------- ------- Total Interest Expense $ 23.8 $ 23.8 $ 23.8 $ 23.8 $ 23.8 Tax-Deductible Preferred Dividends $ 12.2 $ 12.2 $ 12.2 $ 12.2 $ 12.2 Interest and Tax-Deductible Preferred Dividends $ 36.0 $ 36.0 $ 36.0 $ 36.0 $ 36.0 19% of Gatherer 1996E Debt and Preferred Service: Interest on Notes Payable (2) $ 1.3 $ 1.3 $ 1.3 $ 1.3 $ 1.3 Interest on Note Payable 0.0 0.0 0.0 0.0 0.0 Preferred Dividends 0.0 0.0 0.0 0.0 0.0 ------- ------- ------- ------- ------- Gatherer Interest and Preferred Dividends 1.3 1.3 1.3 1.3 1.3 Interest Expense On New Hunter Debt 0.0 0.0 0.0 0.0 0.0 Total Pro Forma Interest 25.0 25.0 25.0 25.0 25.0 Tax-Deductible Dividends On New Hunter Trust Pfd 0.0 0.0 0.0 0.0 0.0 ------- ------- ------- ------- ------- Total Pro Forma Dividends 12.2 12.2 12.2 12.2 12.2 ------- ------- ------- ------- ------- Total Pro Forma Int. and Tax-Deductible Div $ 37.2 $ 37.2 $ 37.2 $ 37.2 $ 37.2 Max Dividends and Tax Shield / Interest: Hunter 4.0 x 4.0 x 4.0 x 4.0 x 4.0 x Gatherer 4.9 x 4.9 x 4.9 x 4.9 x 4.9 x Pro Forma 4.1 x 4.1 x 4.1 x 4.1 x 4.1 x Max Dividends and Tax Shield / Interest and Preferred Dividends Hunter 2.7 x 2.7 x 2.7 x 2.7 x 2.7 x Gatherer 4.5 x 4.5 x 4.5 x 4.5 x 4.5 x Pro Forma 2.7 x 2.7 x 2.7 x 2.7 x 2.7 x
- ---------- (1) 35% of interest and tax deductible dividends. (2) Assumes an average interest rate of 6.5%. -8- DONALDSON, LUFKIN & JENRETTE 36 PROJECT HUNTER - PRO FORMA ACQUISITION ANALYSIS OF REMAINING 19% OF GATHERER SHARES (In millions, except per share data) 100% Stock Purchase Pro Forma Balance Sheet
$24.00 $25.00 ------ ------ Hunter Adjust- Pro Adjust- Pro Adjust- 3/31/97 ments Forma ments Forma ments ------- ----- ----- ----- ----- ----- Assets: Cash and Investments $ 2,456.4 $ (0.5) $ 2,455.9 $ (0.5) $ 2,455.9 $ (0.5) Existing Goodwill 80.4 0.0 80.4 0.0 80.4 0.0 New Goodwill 0.0 23.3 23.3 26.2 26.2 29.0 Other Assets 1,071.6 1,071.6 1,071.6 --------- --------- --------- Total Assets $ 3,608.5 $ 22.8 $ 3,631.3 $ 25.7 $ 3,634.1 $ 28.5 Liabilities and Equity: Insurance Liabilities $ 2,312.7 $ 2,312.7 $ 2,312.7 Existing Debt 310.7 310.7 310.7 New Debt 0.0 0.0 0.0 0.0 0.0 0.0 Other Liabilities 237.2 237.2 237.2 --------- --------- --------- Total Liabilities 2,860.6 0.0 2,860.6 0.0 2,860.6 0.0 Minority Interest 45.4 (45.4) 0.0 (45.4) 0.0 (45.4) Preferred Stock 0.0 0.0 0.0 New Trust Preferred Stock 125.0 0.0 125.0 0.0 125.0 0.0 Stockholders' Equity: Existing Common Stock 173.9 0.0 173.9 0.0 173.9 0.0 New Common Stock 0.0 68.3 68.3 71.1 71.1 74.0 Retained Earnings 396.4 0.0 396.4 0.0 396.4 0.0 Treasury Stock (38.5) 0.0 (38.5) 0.0 (38.5) 0.0 Unrealized Gains (Losses) 45.6 0.0 45.6 0.0 45.6 0.0 --------- --------- --------- Total Stockholders' Equity 577.4 68.3 645.7 71.1 648.5 74.0 --------- ---------- --------- --------- --------- --------- Total Liabilities and Equity $ 3,608.5 $ 22.8 $ 3,631.3 $ 25.7 $ 3,634.1 $ 28.5 Balance Check 0.0 0.0 0.0 - ----------------------------------------------------------------------------------------------------------------------------- BVPS Stockholders' Equity (1) $ 531.8 $ 600.1 $ 602.9 Primary Shares 13.762 14.759 14.801 BVPS (1) $ 38.64 $ 40.66 $ 40.74 Pickup (Dilution) 5.2% 5.4% BVPS $ 41.96 $ 43.75 $ 43.82 - ----------------------------------------------------------------------------------------------------------------------------- Leverage Debt / Capitalization (1) (2) 30.7% 30.0% 29.9% Preferred / Capitalization (1) (2) 12.3% 12.1% 12.0% Debt and Preferred / Capitalization (1) (2) (3) 30.7% 30.0% 29.9% $26.00 $27.00 $28.00 ------ ------ ------ Pro Adjust- Pro Adjust- Pro Forma ments Forma ments Forma ----- ----- ----- ----- ----- Assets: Cash and Investments $ 2,455.9 $ (0.5) $ 2,455.9 $ (0.5) $ 2,455.9 Existing Goodwill 80.4 0.0 80.4 0.0 80.4 New Goodwill 29.0 31.9 31.9 34.7 34.7 Other Assets 1,071.6 1,071.6 1,071.6 ---------- ---------- ---------- Total Assets $ 3,637.0 $ 31.4 $ 3,639.8 $ 34.2 $ 3,642.7 Liabilities and Equity: Insurance Liabilities $ 2,312.7 $ 2,312.7 $ 2,312.7 Existing Debt 310.7 310.7 310.7 New Debt 0.0 0.0 0.0 0.0 0.0 Other Liabilities 237.2 237.2 237.2 ---------- ---------- ---------- Total Liabilities 2,860.6 0.0 2,860.6 0.0 2,860.6 Minority Interest 0.0 (45.4) 0.0 (45.4) 0.0 Preferred Stock 0.0 0.0 0.0 New Trust Preferred Stock 125.0 0.0 125.0 0.0 125.0 Stockholders' Equity: Existing Common Stock 173.9 0.0 173.9 0.0 173.9 New Common Stock 74.0 76.8 76.8 79.6 79.6 Retained Earnings 396.4 0.0 396.4 0.0 396.4 Treasury Stock (38.5) 0.0 (38.5) 0.0 (38.5) Unrealized Gains (Losses) 45.6 0.0 45.6 0.0 45.6 ---------- ---------- ---------- Total Stockholders' Equity 651.4 76.8 654.2 79.6 657.1 --------- ---------- --------- --------- --------- --------- Total Liabilities and Equity $ 3,637.0 $ 31.4 $ 3,639.8 $ 34.2 $ 3,642.7 Balance Check 0.0 0.0 0.0 - --------------------------------------------------------------------------------------------------------------- BVPS Stockholders' Equity (1) $ 605.7 $ 608.6 $ 611.4 Primary Shares 14.842 14.884 14.925 BVPS (1) $ 40.81 $ 40.89 $ 40.97 Pickup (Dilution) 5.6% 5.8% 6.0% BVPS $ 43.89 $ 43.96 $ 44.02 - --------------------------------------------------------------------------------------------------------------- Leverage Debt / Capitalization (1) (2) 29.8% 29.8% 29.7% Preferred / Capitalization (1) (2) 12.0% 12.0% 11.9% Debt and Preferred / Capitalization (1) (2) (3) 29.8% 29.8% 29.7%
- ---------- (1) Excludes FASB 115. (2) Includes minority interest in capitalization. (3) Assumes 100% equity credit for Trust Preferred Stock. -9- DONALDSON, LUFKIN & JENRETTE EX-99.B.2 3 DISCUSSION MATERIALS OF DLJ 1 Exhibit (b)(2) ORION CAPITAL CORPORATION - -------------------------------------------------------------------------------- Discussion Materials Prepared For ORION CAPITAL CORPORATION July 1997 - -----------------------------------------------------------------------------DLJ DONALDSON, LUFKIN & JENRETTE 2 INSURANCE INDUSTRY MERGER & ACQUISITION ACTIVITY(1) 1997 1994 1995 1996 YTD(2) TOTAL ---- ---- ---- ------ ----- Total Value of Transactions ($B): Property & Casualty ................ $ 5.6 $ 6.7 $ 7.7 $ 7.1 $ 27.7 Life & Health ...................... 5.1 7.5 11.1 4.0 27.7 ------ ------ ------ ------ ------ Total ............................. $ 10.7 $ 14.2 $ 18.8 $ 11.1 $ 55.4 ====== ====== ====== ====== ====== Number of Transactions: Property & Casualty ................ 18 26 30 11 85 Life & Health ...................... 19 27 20 6 72 ------ ------ ------ ------ ------ Total ............................. 37 53 50 17 157 ====== ====== ====== ====== ====== Average Transaction Size ($M): AVERAGE ------- Property & Casualty................. $312.7 $256.9 $258.3 $649.7 $320.0 Life & Health....................... 267.8 279.4 555.0 767.0 385.7 - ---------- (1) Represents announced mergers and acquisitions with purchase prices exceeding $25 million. Source: DLJ and Conning & Company. (2) Through June 30, 1997. Does not reflect certain transactions for which information is only available as of year end. These transactions tend to be smaller than average. - -----------------------------------------------------------------------------DLJ DONALDSON, LUFKIN & JENRETTE -1- 3 INSURANCE INDUSTRY TRANSACTION VALUATION DATA(1) 1997 AVERAGE 1994 1995 1996 YTD 1994-1996 ---- ---- ---- --- --------- Purchase Price/Earnings Multiples: Property & Casualty ................ 15.4x 13.8x 13.4x 15.4x 14.7x Life & Health ...................... 14.8 12.7 19.4 16.7 16.3 Purchase Price/Book Value Multiples: Property & Casualty ................ 1.55x 1.42x 2.11x 2.28x 1.78x Life & Health ...................... 1.83 1.46 1.61 1.33 1.63 Premium Paid(2): Property & Casualty ................ 33.3% 45.7% 32.3% 48.9% 39.1% Life & Health ...................... 21.3 24.7 41.8 30.4 25.7 - ---------- (1) Consists of selected mergers and acquisitions from DLJ's proprietary M&A database. (2) Represents premium paid to the target's public stock price four weeks prior to announcement. - -----------------------------------------------------------------------------DLJ DONALDSON, LUFKIN & JENRETTE -2- 4 [THE FOLLOWING TABLE WAS DEPICTED AS A BAR CHART IN THE PRINTED MATERIAL] TOTAL VALUE OF TRANSACTIONS Property & Casualty Life & Health ------------------- ------------- (Dollars in Billions) 1994 $5.6 $5.1 1995 $6.7 $7.5 1996 $7.7 $11.1 1997 YTD $7.1 $4.0 - -----------------------------------------------------------------------------DLJ DONALDSON, LUFKIN & JENRETTE -3- 5 [THE FOLLOWING TABLE WAS DEPICTED AS A BAR CHART IN THE PRINTED MATERIAL] NUMBER OF TRANSACTIONS Property & Casualty Life & Health ------------------- ------------- 1994 18 19 1995 26 27 1996 30 20 1997 YTD 11 6 - -----------------------------------------------------------------------------DLJ DONALDSON, LUFKIN & JENRETTE -4- 6 [THE FOLLOWING TABLE WAS DEPICTED AS A BAR CHART IN THE PRINTED MATERIAL] AVERAGE TRANSACTION SIZE Property & Casualty Life & Health ------------------- ------------- (Dollars in Millions) 1994 $313 $268 1995 $257 $279 1996 $258 $555 1997 YTD $650 $767 - -----------------------------------------------------------------------------DLJ DONALDSON, LUFKIN & JENRETTE -5- 7 PURCHASE PRICE/EARNINGS [GRAPHIC OMITTED] [PLOT POINTS TO COME] - -----------------------------------------------------------------------------DLJ DONALDSON, LUFKIN & JENRETTE -6- 8 PURCHASE PRICE/BOOK VALUE [GRAPHIC OMITTED] [PLOT POINTS TO COME] - -----------------------------------------------------------------------------DLJ DONALDSON, LUFKIN & JENRETTE -7- 9 [THE FOLLOWING TABLE WAS DEPICTED AS A BAR CHART IN THE PRINTED MATERIAL] PREMIUM PAID(1) Property & Casualty Life & Health ------------------- ------------- 1994 33% 21% 1995 46% 25% 1996 32% 42% 1997 YTD 49% 30% - ---------- (1) Represents premium paid to the target's public stock price four weeks prior to announcement. - -----------------------------------------------------------------------------DLJ DONALDSON, LUFKIN & JENRETTE -8- 10 SELECTED MAJOR PROPERTY & CASUALTY TRANSACTIONS (Dollars in millions)
EQUITY PURCHASE PRICE/ EQUITY ---------------------- PURCHASE NET OP. BOOK ANNOUNCED ACQUIROR TARGET PRICE INCOME VALUE(1) - --------- ---------------- ------------------- -------- ------ --------- 6/97 GE Capital Corp. Colonial Penn Group $950 NA NA 6/97 GM Corp. Integon Corp. 518 NM 2.88x 6/97 Zenith National Riscorp, Inc. 35(1) NA NA 6/97 MMI Cos. Unionamerica 197 9.1x 1.66 Holdings Plc 6/97 SAFECO American States 2,800 18.4 2.31 5/97 Fremont General Industrial Indemnity 365 NA NA 5/97 Exel Ltd. GCR Holdings 645 7.7 1.51 3/97 PartnerRe Ltd. SAFR 950 12.0 1.27 3/97 Fireman's Fund Crop Growers Corp. 82 NA 2.42 1/97 GE Capital Corp. Coregis 375 NA NA 1/97 HCC Ins. Holdings AVEMCO Corp. 230 29.7 3.92 - -------------------------------------------------------------------------------------------- Average $650 15.4x 2.28x - --------------------------------------------------------------------------------------------
- ---------- (1) Excludes impact of SFAS No. 115. (1) DLJ estimate. - -----------------------------------------------------------------------------DLJ DONALDSON, LUFKIN & JENRETTE -9- EX-99.B.3 4 PRESENTATION OF DLJ 1 Exhibit (b)(3) Confidential Presentation to GATHERER BOARD OF DIRECTORS SEPTEMBER 12, 1997 Donaldson, Lufkin & Jenrette 2 GATHERER BOARD OF DIRECTORS TABLE OF CONTENTS 1 EXECUTIVE SUMMARY 2 DISCUSSION OF THE OFFER 3 HUNTER COMMON STOCK STORY 4 APPENDIX Donaldson, Lufkin & Jenrette 3 GATHERER BOARD OF DIRECTORS EXECUTIVE SUMMARY Donaldson, Lufkin & Jenrette 1 4 GATHERER BOARD OF DIRECTORS EXECUTIVE SUMMARY In response to the strategic need for Gatherer to grow and be acquisitive, Hunter is proposing to purchase the remaining 19% of Gatherer shares that it does not already own. o Hunter is proposing to acquire the remaining minority interest of Gatherer (approximately 19%) for a value of $30.25 per share. o The consideration will be comprised of $20.17 in cash and $10.08 in Hunter common stock. o This amount represents a 26.4% premium to Gatherer's common stock price of $23 15/16 per share on July 8, 1997, the date on which Hunter suggested a dialogue on valuation, and a 4.8% premium to Gatherer's closing stock price as of September 10, 1997. o Hunter believes that the acquisition is an appropriate strategic move, providing Gatherer, which currently has limited acquisition capability, with a strong acquisition currency, financial flexibility and leverage capacity through which Gatherer can become a leader in its industry. o This transaction provides Gatherer shareholders with a substantial return, improved liquidity and the ability to participate in the upside of the combined entity. o Gatherer shareholders should be receptive to receiving Hunter shares since almost all of Gatherer's significant shareholders are already Hunter shareholders (See Appendix). Donaldson, Lufkin & Jenrette 2 5 GATHERER BOARD OF DIRECTORS TERMS OF THE OFFER HUNTER'S OFFER TO ACQUIRE MINORITY INTEREST - -------------------------------------------------------------------------------- Offer Price Per Share $30.25 Shares To Be Acquired All outstanding shares of Gatherer common stock not currently owned by Hunter. Form of Consideration $20.17 in cash and $10.08 in Hunter common stock. Options All shares subject to Gatherer's incentive compensation plans will be considered to be outstanding. All outstanding options will vest. Management will have the option to rollover options to Hunter shares or receive transaction consideration. Board of Directors Current Gatherer Directors will continue to serve on Gatherer's Board of Directors through 1998. Management Existing Gatherer management will remain in present roles and Hunter expects that Jim Pouliot, Mike Pautler and Phil Urban will be elected as senior officers of Hunter. Structure of Merger Either one-step merger or a tender offer followed by a short-form merger. Anticipated Closing Fourth quarter of 1997. - -------------------------------------------------------------------------------- Donaldson, Lufkin & Jenrette 3 6 GATHERER BOARD OF DIRECTORS OVERVIEW OF THE MARKETPLACE How does Gatherer fit into the intensely competitive landscape of non-standard personal auto and commercial insurance? o Competition within the non-standard personal auto industry has reached unprecedented heights: - Large, national standard writers have ventured into the non-standard arena in search of higher returning business; - Competitors are focused on growth in premium volume over which to spread underwriting and claims-handling costs. This growth can be most quickly achieved through rate cutting and new distribution platforms; and, - Smaller, local producers are being forced to lower rates and margins in order to fend off and remain competitive with intruding regional and national players. o Competitors have made and are seeking acquisitions in order to provide quick and profitable growth in the non-standard auto market: - In June 1997, General Motors Acceptance Corporation announced its $520 million acquisition of Integon Corporation, and in August 1997, USF&G announced its $240 million acquisition of Titan Holdings; - Acquisition activity has driven up non-standard personal auto insurers' valuations as those companies who are not strong sector players are looking to enter or improve their position in the industry; and, - Recent acquisitions have added well-capitalized competitors to the non-standard personal auto sector. o Extremely soft pricing is plaguing the commercial lines marketplace: - Excess and surplus lines are realizing price pressure in part due to increased capacity from new market entrants; - In the first half of 1997, excess and surplus lines rates declined between 10% and 15%(1) , even for the toughest classes of business; - Standard commercial property and casualty insurance rates also continue to decline, while buyers demand improved service, terms and conditions; and, - Competitive advantages, other than price, will be difficult to maintain under current market conditions. (1) Source: Business Insurance, July 7, 1997. Donaldson, Lufkin & Jenrette 4 7 GATHERER BOARD OF DIRECTORS PROFILE OF GATHERER Recently, Gatherer has produced outstanding results and has a strong operational infrastructure and personnel. However, its current ownership structure may hinder its ability to achieve scale and grow into a national leader in its industry. -------------------------------------------------------------------------- Highlights -------------------------------------------------------------------------- o Strong, profitable financial results. o Superior management team. o Ability to reduce expense ratios and perform as a low-cost insurance provider. o New product offerings and opportunistic growth strategies. o Attractive new legislation in California. -------------------------------------------------------------------------- Concerns -------------------------------------------------------------------------- o Lack of currency to offer as consideration in an acquisition. o Restricted leverage capacity and financial flexibility. o Non-standard auto insurance is becoming a business composed of national franchises. o Unfavorable soft markets in non-standard personal auto and commercial insurance. o In their current state, Gatherer's information systems will not support its business strategy. Donaldson, Lufkin & Jenrette 5 8 GATHERER BOARD OF DIRECTORS RATIONALE FOR HUNTER'S PURCHASE OF SHARES Hunter's purchase of the remaining 19% of Gatherer's outstanding shares will assist Gatherer in becoming a national leader in its marketplace, while providing financial benefits to Gatherer's current shareholders. o Generates financial flexibility for Gatherer through Hunter's balance sheet. o Enables Gatherer to make strategic and necessary acquisitions and Hunter's stock provides currency options. o Offers Gatherer a larger capital base with which to support new business and purchase/build necessary technology. o Provides Gatherer shareholders the ability to participate in the upside of the combined entity. o Rewards Gatherer shareholders with substantial return in the form of cash and shares of Hunter. o Provides an opportunity to eliminate redundancies, allowing increased competitiveness of the consolidated companies. Donaldson, Lufkin & Jenrette 6 9 GATHERER BOARD OF DIRECTORS DISCUSSION OF THE OFFER Donaldson, Lufkin & Jenrette 7 10 GATHERER BOARD OF DIRECTORS FIXED VALUE VS. FIXED PRICE Given the characteristics of the proposed transaction, a fixed value structure may be preferable to Gatherer shareholders. o Hunter's offer for Gatherer's shares includes a cash component and a stock component. o The stock component can be structured to deliver a fixed value to Gatherer shareholders regardless of Hunter's stock price movement prior to closing. o Alternatively, the stock component can be structured to deliver a fixed number of Hunter shares to Gatherer shareholders. o The fixed value structure provides Gatherer shareholders with certainty while the fixed share structure enables Gatherer shareholders to participate in the upward and downward movements in Hunter's stock price prior to closing. o Given that the proposed offer is likely to be publicly calculated by the investment community as dilutive to Hunter's earnings per share, Hunter has proposed to consider a fixed value structure which would protect Gatherer shareholders from a decline in Hunter's stock price between announcement and closing. Donaldson, Lufkin & Jenrette 8 11 GATHERER BOARD OF DIRECTORS FORM OF CONSIDERATION Hunter has proposed an offer in which the consideration consists of both cash and stock. o The use of cash versus stock as form of consideration can alter the results of a transaction.
ALL CASH OFFER ALL STOCK OFFER ======================================================================================================= Dilution Less dilutive than a stock offer More dilutive than a cash offer - ------------------------------------------------------------------------------------------------------- Taxation Fully taxable Tax-free - ------------------------------------------------------------------------------------------------------- Liquidity Immediate liquidity Less liquidity - ------------------------------------------------------------------------------------------------------- Reinvestment Decision Required Not necessary - ------------------------------------------------------------------------------------------------------- Post-Transaction No participation in upside or Value based upon success of combined entity downside of combined entity - -------------------------------------------------------------------------------------------------------
o An offer consisting of both cash and stock provides a blend of the above results. Donaldson, Lufkin & Jenrette 9 12 GATHERER BOARD OF DIRECTORS GATHERER BUSINESS OVERVIEW The largest portion of Gatherer's premiums and underwriting income is derived from non-standard personal auto insurance. [THE FOLLOWING TABLE WAS DEPICTED AS A PIE CHART IN THE PRINTED MATERIAL] GATHERER 1996 GROSS PREMIUMS WRITTEN Personal Lines 44.6% Standard Commercial 6.9% Specialty Commercial 34.9% Collateral Protection 13.7% [THE FOLLOWING TABLE WAS DEPICTED AS A BAR CHART IN THE PRINTED MATERIAL] 1997E PRE-TAX UNDERWRITING GAIN (LOSS) ($ in millions) Personal Lines $15.7 Standard Commercial $ 2.2 Specialty Commercial $(8.5) Collateral Protection $ 2.1 ----- Total $11.5 Donaldson, Lufkin & Jenrette 10 13 GATHERER BOARD OF DIRECTORS GATHERER STOCK PRICE PERFORMANCE [GRAPHIC OMITTED] [PLOT POINTS TO COME] Low Price on 1/27/97 - $16.50 High Price on 9/02/97 - $29.00 (1) 4/28/97 - Public announcement: Integon hires Goldman Sachs. (2) 6/3/97 - Public announcement: Titan Holdings hires Furman Selz. (3) 6/23/97 - Public announcement: GMAC acquires Integon. (4) 7/8/97 - Valuation discussions begin between financial advisors of Hunter and Gatherer. (5) 8/8/97 - Public announcement: USF&G acquires Titan Holdings. Donaldson, Lufkin & Jenrette 11 14 GATHERER BOARD OF DIRECTORS COMPARATIVE GATHERER STOCK PRICE PERFORMANCE [GRAPHIC OMITTED] [PLOT POINTS TO COME] (1) 4/28/97 - Public announcement: Integon hires Goldman Sachs. (2) 6/3/97 - Public announcement: Titan Holdings hires Furman Selz. (3) 6/23/97 - Public announcement: GMAC acquires Integon. (4) 7/8/97 - Valuation discussions begin between financial advisors of Hunter and Gatherer. (5) 8/8/97 - Public announcement: USF&G acquires Titan Holdings. Donaldson, Lufkin & Jenrette 12 15 GATHERER BOARD OF DIRECTORS GATHERER STOCK PRICE PERFORMANCE Gatherer's stock price has outperformed comparable companies' stock prices since the commencement of the valuation dialogue between the financial advisors of Hunter and Gatherer. [GRAPHIC OMITTED] [PLOT POINTS TO COME] (1) 7/8/97 - Valuation discussions begin. Donaldson, Lufkin & Jenrette 13 16 GATHERER BOARD OF DIRECTORS PREMIUM OFFERED TO MARKET PRICE Hunter believes that the offer price provides a substantial premium over Gatherer's true value unaffected by recent transitory external factors. o Gatherer's stock price has appreciated 54.0% since Integon announced that it had retained Goldman Sachs, compared to appreciation of 20.0% for the prior six months. o The expectation by Gatherer shareholders that Hunter will inevitably purchase the remaining 19% of Gatherer's shares or will ultimately sell Gatherer for a premium has intensified as a result of research analyst speculation(1) and recent merger activity. o Three of the four publicly traded non-standard personal auto writers enjoyed appreciation far in excess of the S&P Property & Casualty Index following the Integon announcement. o Gatherer's stock price may have been significantly affected by the market's expectations of a potential merger transaction. o The premium paid by Hunter should be based on Gatherer's unaffected stock price, which is the price at which Gatherer's stock would trade absent transitory external factors. o Assuming that Gatherer had enjoyed the same appreciation since the Integon announcement as the S&P Property & Casualty Index of 20.2%, its unaffected stock price today would be $22.38 per share. (1) Source: Orion Capital, Expanding a Successful Model, Peter Wade (Lehman Brothers), June 24, 1997 Donaldson, Lufkin & Jenrette 14 17 GATHERER BOARD OF DIRECTORS GATHERER VALUATION BASED ON PREMIUMS PAID IN SELECTED GOING-PRIVATE TRANSACTIONS Stock Price Premium Prior to Announcement Date ----------------------------------------------- 1 Day 1 Week 1 Month 3 Months 6 Months ------ ------ ------- -------- ----------- 9/9/97 9/9/97 9/9/97 6/9/97 3/10/97 ================================================================================ Gatherer Unaffected Stock Price $22.38 $22.38 $22.38 $22.38 $17.88 (1) - -------------------------------------------------------------------------------- Average Premium (2) 22.2% 27.9% 29.8% 29.9% 29.6% Implied Valuation $27.30 $28.62 $29.05 $29.07 $23.17 ================================================================================ (1) Gatherer's unaffected stock price for the six months prior to announcement date is not $22.38 because six months ago was before the announcement that Integon had hired Goldman Sachs. (2) Source: Securities Data Corporation. Includes all going-private transactions, excluding those involving real estate companies, since 1990 with transaction values greater than $25 million. Donaldson, Lufkin & Jenrette 15 18 GATHERER BOARD OF DIRECTORS M&A VALUATION Comparable M&A transactions indicate a valuation lower than Hunter's offer of $30.25 per share. ($ in millions, except per share data)
Multiple of Selected Non- Standard Auto Company Acquisitions Implied Equity Valuation Implied Price Per Share Gatherer ------------------------- -------------------------- ------------------------ Gatherer Per Share Low Median High Low Median High Low Median High ==================================================================================================================================== GAAP LTM Operating Earnings $26.8 $1.79 10.9x 12.2x 28.6x $292.4 $326.0 $767.3 $19.51 $21.75 $51.19 6/30/97 Shareholders' Equity 237.8 15.81 0.97 1.60 2.88 230.7 380.5 684.8 15.34 25.30 45.54 - ------------------------------------------------------------------------------------------------------------------------------------ GAAP Average $261.5 $353.2 $726.0 $17.42 $23.52 $48.37 - ------------------------------------------------------------------------------------------------------------------------------------ SAP 1996 SAP NOI $29.8 10.2x 16.9x 24.2x $202.6 $400.9 $620.0 $13.47 $26.66 $41.23 12/31/96 SAP C&S 253.8 1.16 2.59 3.27 192.9 555.9 728.5 12.83 36.97 48.44 - ------------------------------------------------------------------------------------------------------------------------------------ SAP Average $197.8 $478.4 $674.3 $13.15 $31.81 $44.84 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Total Average $229.7 $415.8 $700.2 $15.29 $27.67 $46.60 ====================================================================================================================================
Donaldson, Lufkin & Jenrette 16 19 GATHERER BOARD OF DIRECTORS PUBLIC VALUATION--NON-STANDARD PERSONAL AUTO INSURERS ($ in millions, except per share data)
Multiple of Selected Non- Standard Auto Company Acquisitions Implied Equity Valuation Implied Price Per Share Gatherer ------------------------- -------------------------- ------------------------ Gatherer Per Share Low Median High Low Median High Low Median High ==================================================================================================================================== GAAP 1997E Operating Earnings $34.1 $2.27 7.5x 13.2x 22.1x $256.7 $450.3 $751.0 $17.12 $30.02 $50.07 1998E Operating Earnings 39.4 2.61 6.6 11.1 19.3 258.2 435.7 759.5 17.10 28.86 50.30 6/30/1997 Shareholders' Equity 237.8 15.81 1.43 1.84 3.99 338.9 438.4 949.9 22.54 29.15 63.16 - ------------------------------------------------------------------------------------------------------------------------------------ GAAP Average $284.6 $441.5 $820.1 $18.92 $29.34 $54.51 - ------------------------------------------------------------------------------------------------------------------------------------
o Valuation of Gatherer based on public comparables is difficult due to the small number of publicly traded non-standard personal auto companies (Mobile America, Omni Insurance Group, Progressive Corp. and Titan Holdings), the wide divergence in the market value of these companies and their different business characteristics. - Progressive is a stand-out, well-followed company with an exceptional and consistent growth story; - Mobile America is a small and under-followed company; and, - Titan Holdings has entered into a definitive agreement to be acquired by USF&G. Donaldson, Lufkin & Jenrette 17 20 GATHERER BOARD OF DIRECTORS SELECTED COMPARABLE M&A TRANSACTIONS The following non-standard acquisitions reflect the most comparable transactions.
(Dollars in thousands) Total Change Consid- Acq. of eration Acquiror Seller Date Price Control Offered ============================================================================================== USF&G Corp. Titan Holdings 8-Aug-97 $266,000 Yes Cash GMAC Integon Corporation 24-June- 518,000 Yes Cash 97 Orion Capital Guaranty National 2-Jul-96 85,100 No Cash Guaranty National Viking Insurance 18-Jul-95 102,700 Yes Cash Hldgs. USF&G Corporation Victoria Financial Corp. 22-May- 55,300(3) Yes Stock Corp. 95 Integon Corporation Bankers and Shippers 22-Oct-94 142,000 Yes Cash Insurance Co. American Premier Leader National Corp. 20-May- 38,000 Yes Cash Underwriters 93 American Premier American Financial 31-Dec- 335,000 Yes Stock Underwriters Corp. 90 Jupiter Industries/ Integon Corporation 1-Aug-90 269,000 Yes Cash Head Insurance Investors (Dollars in thousands) Equity Purchase Total Purchase Price as a Price as a Seller Financial Data: Multiple to: Multiple to: ---------------------- ----------------- --------------- Oper. GAAP GAAP Net GAAP SAP SAP Acquiror NOI (1) Equity (2) Income Equity NOI C&S ==================================================================================== USF&G Corp. $14,318 $118,584 15.7x 1.97x 19.1x 3.27x GMAC NM 179,899 NM 2.88 NM 3.25 Orion Capital 5,900 203,982 NM 1.33 NM 2.75 Guaranty National 9,263 93,277 11.1x 1.10 10.2 1.25 USF&G Corporation 1,933 28,610 28.6 1.93 24.2 2.86 Integon Corporation 12,400 99,400 11.5 1.43 22.5 2.22 American Premier 3,500 39,000 10.9 0.97 14.2 1.16 Underwriters American Premier 26,100 210,000 12.8 1.60 14.6 2.59 Underwriters Jupiter Industries/ 400 143,500 NM 1.87 NM 2.19 Head Insurance Investors --------------------------------------------------------------- High 28.6x 2.88x 24.2x 3.27x Median 12.2 1.60 16.9 2.59 Low 10.9 0.97 10.2 1.16 --------------------------------------------------------------- --------------------------------------------------------------- Hunter's Offer 16.9x 1.91x 18.7x 2.19x ---------------------------------------------------------------
(1) Excludes realized gains and losses. (2) Excludes mark-to-market effects of FAS 115, except for Titan Holdings transaction (unrealized gains unreported). (3) Represents value of consideration of announcement date. Actual consideration was $59 million due to appreciation of USF&G stock between announcement and closing. Donaldson, Lufkin & Jenrette 18 21 GATHERER BOARD OF DIRECTORS NON-STANDARD AUTO INSURERS ($ in millions, except per share data)
Total Price Total Price/ Enterprise Value/ As of Market Enterprise ----------------------------------------------------------------- Ticker 9/10/97 Shares Value Value 1996A LTM 1997E 1998E BVPS SAP NOI SAP C&S ==================================================================================================================================== Gatherer $28.88 15.0 $434.2 $535.7 18.2x. 16.1x 12.7x 11.1x 1.83x 18.0x 2.11x - ------------------------------------------------------------------------------------------------------------------------------------ Mobile America MAME 9.50 7.1 67.9 79.9 8.2 8.0 7.5 6.6 1.85 NM 3.42 Omni OMGR 13.75 5.7 78.4 78.4 16.3 15.5 13.3 11.9 1.43 27.5 2.13 Progressive PGR 99.25 72.1 7,154.9 7,930.8 24.3 22.8 22.1 19.3 3.99 28.5 6.14 Corp. Titan Holdings TH 21.75 10.1 219.1 238.8 15.3 14.9 13.1 10.3 1.84 17.3 2.97 - ------------------------------------------------------------------------------------------------------------------------------------ High 22.8x 22.1x 19.3x 3.99x 28.5x 6.14x Median 15.2 13.2 11.1 1.84 27.5 3.20 Low 8.0 7.5 6.6 1.43 17.3 2.13 ====================================================================================================================================
Projected Projected ROE EPS Growth ====================================== Gatherer 14.4% 15.0% - -------------------------------------- Mobile America 24.5 15.1 Omni 10.7 12.6 Progressive 18.1 14.4 Corp. Titan Holdings 14.0 27.7 - -------------------------------------- High 24.5% 27.7% Median 16.1 14.8 Low 10.7 12.6 ====================================== Donaldson, Lufkin & Jenrette 19 22 GATHERER BOARD OF DIRECTORS HUNTER COMMON STOCK STORY Donaldson, Lufkin & Jenrette 20 23 GATHERER BOARD OF DIRECTORS HUNTER FINANCIAL AND OPERATIONAL HIGHLIGHTS Hunter's past year has been highlighted by strong financial results and positive business developments. o In September 1996, the market applauded Hunter's decision to divest of Security Re in order to focus on its specialty niche segmentation strategy. o Hunter's operating earnings increased 22% to $73 million in 1996 from $60 million in 1995 and increased 21% in the first six months of 1997 versus the same period in 1996. o Hunter boosted its dividend 14% in June 1997 to 16 cents per share and announced a 2-for-1 stock split, creating increased liquidity for Hunter shareholders. o Hunter's EBI and DPIC units have been continually improving their reputation and are currently acknowledged as the top performers in their respective business sectors. o Hunter completed a seamless management transition. o Additional research analysts picked up coverage on Hunter over the past year, helping to disseminate Hunter's story to the investment community. Donaldson, Lufkin & Jenrette 21 24 GATHERER BOARD OF DIRECTORS HUNTER STOCK PRICE PERFORMANCE As a result of these positive developments, Hunter's stock has appreciated dramatically, providing investors with a 70.1% appreciation over the past year. [GRAPHIC OMITTED] [PLOT POINTS TO COME] Low Price on 9/06/96 - $25.25 High Price on 9/03/97 - $44.63 Donaldson, Lufkin & Jenrette 22 25 GATHERER BOARD OF DIRECTORS HUNTER STOCK PRICE PERFORMANCE Over the past year, Hunter's stock price has outperformed both comparable specialty insurers' stock prices and the S&P Property & Casualty Index. [GRAPHIC OMITTED] [PLOT POINTS TO COME] * Peer Group includes: BKLY, CB, ER, FOM, FTR, HCC, HSB, MIG, MKL, OCAS, SPC, ZNT. Indexed prices are market cap. weighted. Donaldson, Lufkin & Jenrette 23 26 GATHERER BOARD OF DIRECTORS PUBLIC VALUATION -- SPECIALTY INSURERS Despite its strong performance, at $43.38 per share, Hunter's stock continues to be undervalued relative to comparable specialty insurers. ($ in millions, except per share data)
Multiple of Selected Specialty Insurance Companies Hunter Implied Valuation Hunter ----------------------------- ---------------------------------- Hunter Per Share Low Median High Low Median High ======================================================================================================================== GAAP 1997E Operating Earnings (1) $81.8 $2.97 13.6x 17.2x 21.2x $1,108.5 $1,409.1 $1,730.6 1998E Operating Earnings (1) 93.9 3.41 11.8 15.1 18.3 1,109.1 1,414.9 1,715.3 6/30/1997 Shareholders' 550.6 20.00 1.33 2.40 3.69 733.2 1,323.6 2,029.3 Equity - ------------------------------------------------------------------------------------------------------------------------ GAAP Average $983.6 $1,382.6 $1,825.1 ========================================================================================================================
Implied Price Per Share ---------------------------- Low Median High =============================================================== GAAP 1997E Operating Earnings (1) $40.25 $51.17 $62.85 1998E Operating Earnings (1) 40.28 51.38 62.29 6/30/1997 Shareholders' 26.63 48.07 73.69 Equity - --------------------------------------------------------------- GAAP Average $35.72 $50.21 $66.28 =============================================================== (1) Hunter projected operating earnings estimated by multiplying IBES estimates by the shares outstanding at July 29, 1997. Donaldson, Lufkin & Jenrette 24 27 GATHERER BOARD OF DIRECTORS SPECIALTY INSURERS ($ in millions, except per share data)
Price Price/ As of Market Enterprise --------------------------- Ticker 9/10/97 Shares Value Value 1997E 1998E BVPS ================================================================================================================== Hunter $43.38 27.5 $1,194.4 $1,630.0 14.6x 12.7x 2.17x - ------------------------------------------------------------------------------------------------------------------ W.R. Berkley BKLY 57.88 19.7 1,138.6 1,736.8 13.6 11.8 1.33 Chubb Corp. CB 68.13 172.5 11,749.3 12,810.1 16.5 14.7 2.22 Executive Risk ER 62.31 10.6 659.1 784.1 19.4 16.6 3.25 Foremost FOM 58.38 9.2 539.0 638.3 16.4 13.7 2.59 Frontier Insurance Group FTR 35.56 29.5 1,048.2 1,215.2 20.1 16.2 2.86 Hartford Steam Boiler HSB 54.69 19.8 1,080.7 1,100.7 18.2 15.4 2.78 HCC Insurance Holdings HCC 26.63 45.9 1,223.0 1,302.5 19.3 15.4 3.69 Markel Corp. MKL 144.31 5.5 792.3 1,035.4 21.2 18.3 3.26 Meadowbrook Insurance Group MIG 24.13 8.7 208.9 212.8 15.3 13.0 1.96 Ohio Casualty OCAS 45.63 34.1 1,555.0 1,600.0 14.5 13.0 1.85 St. Paul Cos. SPC 76.75 83.9 6,436.6 7,367.3 13.7 12.6 1.75 Zenith National Corp. ZNT 28.50 17.7 504.4 591.9 17.9 16.4 1.46 - ------------------------------------------------------------------------------------------------------------------ High 21.2x 18.3x 3.69x Median 17.2 15.1 2.40 Low 13.6 11.8 1.33 ==================================================================================================================
Enterprise Value/ ------------------ Projected Projected SAP NOI SAP C&S ROE EPS Growth ======================================================================= Hunter 15.1x 2.43x 14.9% 14.8% - ----------------------------------------------------------------------- W.R. Berkley 20.6 1.97 9.8 14.8 Chubb Corp. 21.6 4.51 13.4 12.1 Executive Risk 51.6 5.67 16.8 16.8 Foremost 20.7 3.17 15.7 19.7 Frontier Insurance Group 42.1 4.53 14.2 24.3 Hartford Steam Boiler 34.3 3.76 15.3 17.6 HCC Insurance Holdings 37.6 6.14 19.1 25.4 Markel Corp. 37.8 3.66 15.4 15.8 Meadowbrook Insurance Group 18.6 2.49 12.8 17.7 Ohio Casualty 14.7 1.53 12.8 11.4 St. Paul Cos. 12.6 2.46 12.8 8.9 Zenith National Corp. 17.7 2.23 8.2 9.4 - ----------------------------------------------------------------------- High 51.6x 6.14x 19.1% 25.4% Median 21.1 3.42 13.8 16.3 Low 12.6 1.53 8.2 8.9 ======================================================================= Donaldson, Lufkin & Jenrette 25 28 GATHERER BOARD OF DIRECTORS APPENDIX Donaldson, Lufkin & Jenrette 26 EX-99.B.4 5 PRESENTATION OF SALOMON BROTHERS INC. 1 Exhibit (b)(4) Guaranty National Corporation Presentation to the Special Committee of the Board of Directors October 30, 1997 Confidential - --------------------- Salomon Brothers --------------------- 2 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 Disclaimer These materials are based solely on information received from publicly available documents and certain other information provided by the management of Guaranty National Corporation ("Guaranty National" or the "Company"). Salomon Brothers Inc ("Salomon") has had discussions with certain senior officers of Guaranty, but has not attempted independently to investigate or verify such information, and Salomon does not assume responsibility for the accuracy or the completeness of such information. With respect to the projections included in these materials, Salomon has relied solely on estimates from the management of Guaranty. Projections involve elements of subjective judgment and analysis, and there can be no assurance that such projections will be attained. Salomon expresses no opinion as to and assumes no responsibility for the accuracy of such projections or the assumptions underlying them. These materials are being furnished and should be considered only in connection with the opinion being provided by Salomon, and are not to be circulated to, or used or relied upon by, any other persons, without Salomon's prior consent. - --------------------- Salomon Brothers --------------------- 3 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 Contents 1. Background Information 1 2. Summary Valuation Analysis 13 3. Discounted Cash Flow Analysis 16 4. Comparable Company Analysis 21 5. M&A Transaction Analysis: Non-Standard Auto Transactions 24 6. Squeeze Out Transaction Analysis: Insurance Industry 29 7. Merger Consequences Analysis 34 Appendices Acquisition of Unisun Insurance 43 Selected P&C Industry Merger and Acquisition Transactions 45 Selected Squeeze Out Transaction Analysis 49 GNC: Ownership Profile 53 - --------------------- Salomon Brothers --------------------- 4 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 Background Information 1 - --------------------- Salomon Brothers --------------------- 5 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 GNC: Price / Volume Performance Daily Data -- 1/2/97 through 10/28/97 [GRAPHIC OMITTED] [PLOT POINTS TO COME] Market Statistics: Price: $33.31 Market Cap.: 501.5 Street Estimates (a) P / 1997E: 15.3x P / 1998E: 13.8 Management Estimates P / 1997E: 14.7x P / 1998E: 12.6 P / Book Value: 1.80 E.V. / Stat. Surplus: 2.08 Shares Outstanding: 15.1 Street Estimates (a) 1997E EPS: $2.18 1998E EPS: 2.41 Management Estimates 1997E EPS: 2.26 1998E EPS: 2.65 Book Value / Share: 18.51 Statutory Surplus: 289.3 N.B. Data at or for the twelve months ended September 30, 1997. Market price as of October 28, 1997. (a) Based on mean First Call estimates as of October 22, 1997. 2 - --------------------- Salomon Brothers --------------------- 6 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 OC: Price / Volume Performance Daily Data -- 1/2/97 through 10/28/97 [GRAPHIC OMITTED] [PLOT POINTS TO COME] Market Statistics: Price: $44.75 Market Cap.: 1,233.8 Street Estimates (a) P / 1997E: 15.1x P / 1998E: 13.2 Management Estimates P / 1997E: 14.9x P / 1998E: 12.7 P / Book Value: 1.80 E.V. / Stat. Surplus: 2.10 Shares Outstanding: 27.6 Street Estimates (a) 1997E EPS: $2.97 1998E EPS: 3.40 Management Estimates 1997E EPS: 3.00 1998E EPS: 3.51 Book Value / Share: 24.83 Statutory Surplus: 795.1 N.B. Data at or for the twelve months ended September 30, 1997. Market price as of October 28, 1997. (a) Based on mean First Call estimates as of October 22, 1997. 3 - --------------------- Salomon Brothers --------------------- 7 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 GNC: Stock Price Performance (6/30/97 - 9/16/97)
Guaranty National Corporation ====================================================================================================================== Closing Closing Date High Low Price Volume Date High Low Price Volume - --------- -------- -------- -------- -------- ---------- -------- -------- ------- -------- 06/30/97 $24.63 $24.00 $24.00 35,800 08/08/97 $27.69 $27.31 $27.31 8,600 07/01/97 24.56 24.13 24.56 5,800 08/11/97 27.63 27.38 27.63 1,800 07/02/97 24.69 24.31 24.31 4,500 08/12/97 28.00 27.63 27.75 3,100 07/03/97 24.38 24.19 24.31 3,200 08/13/97 27.63 27.50 27.56 2,000 07/07/97 24.63 24.19 24.25 3,500 08/14/97 28.13 27.63 27.88 7,700 07/08/97 24.50 23.94 23.94 3,900 (a) 08/15/97 28.44 27.94 28.44 6,900 07/09/97 23.94 23.56 23.75 4,900 08/18/97 28.50 28.31 28.44 2,500 07/10/97 24.19 23.75 24.19 15,600 08/19/97 28.38 27.88 28.13 19,800 07/11/97 24.13 24.06 24.13 1,000 08/20/97 28.13 27.81 28.13 5,700 07/14/97 23.94 23.38 23.50 7,800 08/21/97 28.25 28.00 28.19 2,500 07/15/97 23.50 23.13 23.38 6,000 08/22/97 28.31 28.25 28.31 1,500 07/16/97 23.31 23.00 23.25 6,800 08/25/97 28.38 28.13 28.13 36,800 07/17/97 23.56 23.25 23.56 1,600 08/26/97 28.56 28.25 28.56 9,400 07/18/97 23.69 23.56 23.56 6,300 08/27/97 28.50 27.63 28.00 4,100 07/21/97 23.75 25.56 23.69 7,000 08/28/97 28.13 27.88 28.13 13,700 07/22/97 23.88 23.75 23.75 6,500 08/29/97 28.38 28.19 28.19 5,900 07/23/97 24.00 23.88 24.00 1,400 09/02/97 29.00 27.94 29.00 15,000 07/24/97 24.63 24.25 24.63 4,500 09/03/97 28.69 28.25 28.50 14,300 07/25/97 25.25 24.75 25.13 20,400 (b) 09/04/97 28.63 26.88 26.88 17,800 07/28/97 25.56 25.38 25.50 4,000 09/05/97 27.50 26.88 27.50 3,400 07/29/97 25.88 25.38 25.38 5,900 09/08/97 28.44 27.50 28.44 7,300 07/30/97 26.06 25.50 26.06 5,800 09/09/97 28.63 28.25 28.63 2,300 07/31/97 26.75 26.31 26.63 5,300 09/10/97 28.88 28.50 28.88 20,900 08/01/97 26.94 26.50 26.75 7,200 09/11/97 29.06 29.00 29.06 1,700 08/06/97 26.75 26.56 26.63 3,800 09/12/97 30.13 29.00 30.00 17,300 08/05/97 26.88 26.69 26.75 9,200 09/15/97 31.00 30.19 31.00 14,000 08/06/97 27.50 26.63 27.38 11,300 (c) 09/16/97 32.50 31.50 32.06 20,300 08/07/97 27.50 27.38 27.44 12,900 - --------------------------------------------------------- ------------------------------------------------------
(a) OC initiates dialogue regarding the potential purchase of non-OC held GNC shares. (b) GNC reports second quarter earnings. (c) S&P assigns 'A' claims paying rating to GNC. ===================================== Summary Statistics: 6/30/97 - 9/16/97 ===================================== Average Daily Volume 8,695 Mean Price $26.60 Median Price 27.31 ===================================== ===================================== Summary Statistics: 7/25/97 - 9/16/97 ===================================== Average Daily Volume 9,516 Mean Price $27.90 Median Price 28.13 ===================================== 4 - --------------------- Salomon Brothers --------------------- 8 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 GNC: Stock Price Performance (9/17/97 - 10/28/97) Guaranty National Corporation ================================================================================ Closing Date High Low Price Volume - -------- ------- ------- ------- -------- 09/17/97 32.63 32.00 32.50 9,700 09/18/97 35.25 33.25 34.56 81,300(a) 09/19/97 34.88 34.25 34.56 36,200 09/22/97 34.44 34.13 34.25 55,800 09/23/97 34.38 34.25 34.31 57,600 09/24/97 34.31 34.13 34.19 7,800 09/25/97 34.13 33.81 33.81 13,800 09/26/97 33.94 33.81 33.88 18,100 09/29/97 33.94 33.81 33.81 49,600 09/30/97 33.94 33.75 33.94 43,900 10/01/97 33.94 33.88 33.94 12,000 10/02/97 33.88 33.88 33.88 2,800 10/03/97 33.94 33.88 33.88 5,400 10/06/97 34.00 33.81 33.88 24,200 10/07/97 34.13 33.88 33.88 19,600 10/08/97 34.06 33.75 34.00 20,300 10/09/97 33.88 33.38 33.88 13,600 10/10/97 34.00 33.69 34.00 2,500 10/13/97 34.19 33.75 34.19 22,100 10/14/97 34.13 34.00 34.06 3,100 10/15/97 34.06 34.88 33.94 6,400 10/16/97 34.06 34.88 34.06 4,800 10/17/97 34.31 34.06 34.31 11,000 10/20/97 34.31 34.13 34.25 7,500 10/21/97 34.88 34.13 34.69 21,100 10/22/97 34.75 34.19 34.19 5,400 10/23/97 34.69 34.31 34.44 7,100 10/24/97 34.31 34.00 34.00 3,400 10/27/97 34.00 33.50 33.50 25,600 10/28/97 33.50 33.13 33.31 18,800 - -------------------------------------------------------------------------------- High $35.25 $34.88 $34.69 81,300 Median 34.09 33.88 34.00 13,700 Low 32.63 32.00 32.50 2,500 - -------------------------------------------------------------------------------- (a) OC announces intention to commence tender offer at $34.00 per GNC share ======================================= Summary Statistics (9/17/97 - 10/28/97) ======================================= Average Daily Volume 21,394 High $34.69 Mean 33.98 Median 34.00 Low 32.50 ======================================= 5 - --------------------- Salomon Brothers --------------------- 9 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 GNC/OC: Relative Price Performance Daily Data -- 1/1/97 through 10/28/97 Price as a Percent of Base Period (%) [PLOT POINTS TO COME] Source: Salomon Brothers Inc sb69751.wmf (a) Includes American Financial Group, Mobile America Corp., Penn-America Group, Progressive Corp and Symons International Corp. 6 - --------------------- Salomon Brothers --------------------- 10 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 Valuation Comparison: Personal Lines
May 18, 1996 October 28, 1997 -------------------------------------- ----------------------------------- Change in Company Ticker Stock Price P/Book(a) P/1997E(b) Stock Price P/Book(c) P/1998E(d) Stock Price ================================================================================================================================ Guaranty National Corporation GNC $17.13 1.19x 9.8x $33.31 1.80x 13.8x 94.5% Orion Capital Corporation OC 23.50 1.34 9.0 44.75 1.80 13.2 90.4 Personal Lines Allstate Corp. (e) ALL $40.00 1.46x 8.9x $84.25 2.55x 15.0x 110.6% SAFECO Corp. (e) SAFC 34.00 1.10 10.1 47.25 1.37 13.3 39.0 Mercury General Corp. (e) MCY 23.00 2.23 11.2 41.63 3.28 15.0 81.0 20th Century Industries TW 17.00 1.43 11.4 23.63 2.68 15.6 39.0 Horace Mann Educators Corp. HMN 32.00 1.74 9.0 55.50 2.52 13.5 73.4 Commerce Group CGI 21.13 1.40 8.0 33.19 1.97 13.8 57.1 Citzens Corp. (e) CZC 18.13 0.94 7.6 29.00 1.28 12.1 60.0 Allied Group (e) GRP 26.08 1.73 8.9 46.25 2.82 13.6 77.4 Non-Standard Auto Progressive Corp. PGR 47.13 2.38 12.5 109.44 3.83 21.0 132.2 American Financial Group (e) AFG 29.75 1.29 7.9 36.06 1.31 10.4 21.2 Integon Corp. IN 18.50 1.84 8.6 25.50 2.35 21.6 37.8 Penn-America Group PAGI 8.75 1.60 5.3 19.13 1.92 15.1 118.6 Omni (e) OMGR 8.75 1.04 8.8 30.69 3.18 26.5 250.7 Mobile America (e) MAME 8.89 2.04 8.2 13.25 2.56 8.9 49.1 S&P 500 SPX 652.09 -- 16.2 883.37 -- 19.4 35.5 Median (f) -- 1.53x 8.9x -- 2.54x 13.7x 66.7% Mean (f) -- 1.59x 9.0x -- 2.34x 13.9x 71.5% GNC/Median -- 77.7% 110.7% -- 71.0% 100.6% -- GNC/Mean -- 75.0% 108.6% -- 76.9% 99.1% -- - --------------------------------------------------------------------------------------------------------------------------------
N.B. Historical prices adjusted for stock splits and stock dividends. (a) Book value as of March 31, 1996. (b) Based on median IBES estimates as of May 16, 1996. (c) Book value as of September 30, 1997, except as noted. (d) Based on mean First Call estimates as of October 22,1997. (e) Book value as of June 30, 1997. (f) October 28, 1997 figures exclude Integon and Omni. 7 - --------------------- Salomon Brothers --------------------- 11 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 Market Price Comparison: Specialty Commercial
May 18, 1996 October 28, 1997 -------------------------------------- ----------------------------------- Change in Company Ticker Stock Price P/Book(a) P/1997E(b) Stock Price P/Book(c) P/1998E(d) Stock Price ================================================================================================================================ Guaranty National Corporation GNC $17.13 1.19x 9.8x $33.31 1.80x 13.8x 94.5% Orion Capital Corporation OC 23.50 1.34 9.0 44.75 1.80 13.2 90.4 Specialty Commercial Berkley, W.R. BKLY $28.67 1.22x 10.0x $39.25 1.42x 12.0x 36.9% Frontier Insurance Group (e) FTR 15.39 0.95 7.5 33.94 3.38 15.0 120.5 Markel Corp. MKL 84.00 1.96 12.8 148.50 2.39 18.9 76.8 Executive Risk (e) ER 30.75 2.63 11.3 68.44 3.83 18.2 122.6 Acceptance Insurance AIF 16.88 1.40 8.0 24.50 1.52 9.6 45.2 RLI Corporation RLI 23.50 1.06 7.3 41.31 1.37 12.2 75.8 Baldwin & Lyons Inc. BWINB 16.25 0.93 13.5 20.38 0.98 18.9 25.4 S&P 500 SPX 652.09 16.2 883.37 19.4 35.5 Median -- 1.22x 10.0x -- 1.52x 15.0x 75.8% Mean -- 1.45x 10.lx -- 2.13x 15.0x 71.9% GNC/Median -- 97.9% 98.0% -- 118.6% 92.5% -- GNC/Mean -- 82.0% 97.4% -- 84.6% 92.4% -- - --------------------------------------------------------------------------------------------------------------------------------
N.B. Historical prices adjusted for stock splits and stock dividends. (a) Book value as of March 31, 1996. (b) Based on median IBES estimates as of May 16, 1996. (c) Book value as of June 30, 1997, unless otherwise noted. (d) Based on mean First Call estimates as of September 30, 1997. (e) Book value as of June 30, 1997. 8 - --------------------- Salomon Brothers --------------------- 12 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 GNC: Summary of Earnings Estimates
First Call (a) I/B/E/S (b) ------------------------------------------------------------ ---------------------------------- Current Previous ---------------------------------- ---------------------- Last Last Source 1997 1998 Confirmed 1997 1998 1997 1998 Confirmed ============================== ========== ========== ========== ========== ========== ========== ========== ========== ABN Amro Chicago Corp. $2.20 $2.50 09/19/97 $1.90 $2.20 $2.20 $2.50 09/19/97 Branch Research -- -- -- -- -- 2.00 2.30 09/03/97 Conning & Co. 2.25 2.55 07/29/97 1.95 2.20 2.25 2.55 07/29/97 Dowling & Partners 2.15 2.40 09/17/97 1.90 2.10 2.15 2.40 09/17/97 Fox-Pitt 2.13 2.20 08/15/97 1.90 2.10 2.13 2.20 08/15/97 ============================== ========== ========== ========== ========== ========== ========== ========== ========== Median $2.18 $2.45 -- $1.90 $2.15 $2.15 $2.40 -- Mean 2.18 2.41 -- 1.91 2.15 2.15 2.39 -- Original Management Estimates 2.27 2.61 -- -- -- 2.27 2.61 -- Revised Management Estimates 2.26 2.65 -- -- -- 2.26 2.65 -- - ----------------------------------------------------------------------------------------------------------------------------------
(a) First Call estimates as of October 23, 1997. (b) I/B/E/S estimates as of October 16, 1997. 9 - --------------------- Salomon Brothers --------------------- 13 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 OC: Summary of Earnings Estimates First Call (a) I/B/E/S (b) ------------------------ ------------------------ Source 1997 1998 1997 1998 ========================= ========== ========== ========== ========== ABN Amro Chicago Corp. $2.90 $3.30 $3.00 $3.35 Branch Research -- -- 3.10 3.50 Conning & Co. 3.00 -- 3.00 3.50 Dowling & Partners 3.00 3.40 3.00 3.40 Fox-Pitt 2.96 3.32 2.96 3.32 Hoefer & Arnett 3.03 3.54 3.03 3.54 Legg Mason 2.95 3.35 2.95 3.35 Lehman Brothers 3.00 3.50 3.00 3.50 Merrill Lynch 2.95 3.35 2.95 3.35 Offutt Securities 2.95 3.40 2.95 3.40 Philo Smith 2.95 3.40 2.95 3.40 Stephens Inc. 3.00 3.40 3.00 3.40 ========================= ========== ========== ========== ========== Median $2.96 $3.40 $3.00 $3.40 Mean 2.97 3.40 2.99 3.42 Management Estimates 3.00 3.51 3.00 3.51 - ------------------------------------------------------------------------------- (a) First Call estimates as of October 23, 1997. (b) I/B/E/S estimates as of October 16, 1997 10 - --------------------- Salomon Brothers --------------------- 14 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 GNC: Summary Historical Financial Performance
- ----------------------------------------------------------------------------------------------------------------------------------- Selected Historical Financial Data =================================================================================================================================== At or for the nine months At or for the year ended December 31, ended September 30, -------------------------------------------------------- ------------------------- 1992-1996 1992 1993 1994 1995 1996 1996 1997 CAGR ================================ ======== ======== ======== ======== ======== ========== ========== ========== Personal Lines Gross Premiums Written $105.0 $105.9 $131.1 $197.1 $257.4 $192.6 $250.4 25.1% % Change -- 0.8% 23.8% 50.4% 30.6% -- 30.0% -- Combined Ratio 96.4% 93.6% 96.5% 104.9% 97.6% 98.5% 95.1% -- Commercial Lines Gross Premiums Written $137.2 $187.0 $195.0 $200.2 $201.5 $156.3 $134.9 10.1% % Change --- 36.3% 4.3% 2.7% 0.7% -- (13.7)% -- Combined Ratio 99.5% 104.6 98.6 108.5 105.5 104.2% 105.0 -- Consolidated Net Premiums Written $239.8 $284.0 $322.9 $397.9 $491.2 $368.7 $423.7 19.6% % Change -- 18.5% 13.7% 23.2% 23.5% -- 14.9% -- Revenues $245.5 $286.2 $348.2 $424.3 $529.5 $390.7 $443.4 21.2 % Change -- 16.6% 21.7% 21.8% 24.8% -- 13.5% -- Net Operating Earnings (a) $18.5 $15.7 $20.3 $6.4 (b) $21.2 $16.7 $24.6 3.4 Operating EPS $1.49 $1.25 $1.67 $0.48 $1.59 $1.12 $1.62 1.7 % Change -- (15.7)% 33.4% (71.1)% 230.0% -- 45.3% -- Net EPS $1.62 $1.63 $1.86 $0.67 $1.84 $1.24 $1.98 3.2 % Change -- 0.6% 14.1% (64.0)% 174.6% -- 59.7% -- Loss Ratio 65.7% 67.4% 66.3% 75.3% 70.1% 69.4% 69.9% -- Expense Ratio 32.0 32.2 31.2 30.0 30.0 30.0 28.0 -- Combined Ratio 97.7 99.6 97.5 105.3 100.1 99.4 97.9 -- - -----------------------------------------------------------------------------------------------------------------------------------
N.B. Combined ratios are based on GAAP data. (a) Represents net earnings excluding after-tax realized gains. (b) Realized capital gains tax effected by the 1994 effective tax rate as a result of income tax benefit in 1995. 11 - --------------------- Salomon Brothers --------------------- 15 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 GNC/OC: Shareholder Agreement Summary The following amendments were made to the shareholder agreement between GNC and OC on June 18, 1996, after OC increased its ownership in GNC from 49.5% to 80.3%: o OC will not purchase additional shares of GNC prior to July 1, 1999, if after such purchase OC would own more than 81% of GNC unless: an offer is made for all the shares of GNC not held by OC; and, this offer is accepted by the majority of the non-OC shareholders. o If an offer is made prior to July 1, 1999, OC must offer a purchase price of at least $18.50 per share. o OC will support a policy of the GNC Board of Directors that any repurchase of shares of GNC, prior to July 1, 1999, should be approved by the majority of the non-OC Directors of GNC. o If at any time during the five year period after July 1, 1996 OC wishes to sell as a block 90% or more of their shareholdings, or propose a merger or consolidation involving GNC, they will not do so unless: in the case of a sale 90% or more of their shareholdings, the purchaser offers to purchase the non-OC held shares of GNC for equivalent value; and, in the case of merger or consolidation all shares are exchanged for equivalent value. 12 - --------------------- Salomon Brothers --------------------- 16 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 Summary Valuation Analysis 13 - --------------------- Salomon Brothers --------------------- 17 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 Summary Valuation Analysis
------------------ GNC Current Market Price: $33.31 ------------------ Valuation Methodology 24.00 26.00 28.00 30.00 32.00 34.00 36.00 38.00 40.00 42.00 $44.00 - --------------------- ---------------------------------------------------------------------------------------- Discounted Cash Flow Analysis ----------------------------- Terminal Value in 2000(a) $33.79-$40.68 ----------------------------- ------------------------------------ Terminal Value in 2002(a) $33.48-$41.79 ------------------------------------ -------------------------------- Dividend Discount Model: TV in 2000(b) $33.71-$40.83 -------------------------------- ---------------------------------- Dividend Discount Model: TV in 2002(c) $36.08-45.15 ---------------------------------- Comparable Company Analysis - Personal ------------------------------------------------ Lines (c) $32.88-47.24 ------------------------------------------------ Selected M&A Transactions: Property ------------------------------------------------------ and Casualty (d) $25.66-$39-22 ------------------------------------------------------ ------------- Insurance Squeeze-Out Transactions(e) $39.48-$40.74 ------------- ------------- Squeeze-Out Transactions(f) $40.12-$40.47 ------------- Implied Valuation Multiples 24.00 26.00 28.00 30.00 32.00 34.00 36.00 38.00 40.00 42.00 $44.00 - ------------------------------------------------------------------------------------------------------------------------------------ Price / 1998E EPS(g) 10.0 x 10.8 x 11.6 x 12.4 x 13.3 x 14.1 x 14.9 x 15.8 x 16.6 x 17.4 x 18.3 x Price / 1998E EPS (Management)(h) 9.1 9.8 10.6 11.3 12.1 12.8 13.6 14.3 15.1 15.8 16.6 Price / Book Value(i) 1.30 1.40 1.51 1.62 1.73 1.84 1.94 2.05 2.16 2.27 2.38 Enterprise Value / Statutory Surplus(j) 1.60 1.70 1.81 1.91 2.02 2.12 2.22 2.33 2.43 2.54 2.64 - ------------------------------------------------------------------------------------------------------------------------------------
(a) Based on a discount rate range of 11.0% - 13.0% and terminal value multiple of 13.0x - 15.0x final year earnings. (b) Assumes constant dividend payout. Based on a discount rate range of 11.0% - 13.0% and a terminal value multiple of 13.0x - 15.0x final year earnings. (c) Based on median price/book value, price/1997E and price/1998E multiples for comparable personal lines companies. (d) Based on median price/net operating income, price/forward earnings and price/book value multiples. (e) Based on median premium offered for selected insurance squeeze-out transactions. Assumes a market price per GNC share of $33.31 as of October 28, 1997. (f) Based on median premium offered for selected squeeze-out transactions. Assumes a market price per GNC share of $33.31 as of October 28, 1997. (g) Based on mean First Call estimate of $2.41 as of September 30, 1997. (h) Based on management estimate of $2.65 provided on July 29, 1997. (i) Based on Book value per share of $18.51 at September 30, 1997. (j) Based on Statutory surplus of $289.3 million at September 30, 1997. 14 - --------------------- Salomon Brothers --------------------- 18 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 Transaction Multiples Analysis Dollars in millions, except per share data
Purchase Price per GNC Share: Market Price ----------------------------------------------------- Transaction Valuation Multiples: Benchmark (a) $33.31 $35.00 $36.00 $37.00 $38.00 $39.00 - ------------------------------------------------ ------------ ------------ --------- --------- --------- --------- --------- Market Capitalization (b) -- $ 501.5 $ 526.9 $ 542.0 $ 557.0 $ 572.1 $ 587.1 Debt Assumed -- 101.1 101.1 101.1 101.1 101.1 101.1 - ------------------------------------------------ ------------ ------------ --------- --------- --------- --------- --------- Enterprise Value -- 602.6 628.0 643.1 658.1 673.2 688.2 Premium Over: Closing Stock Price (c) $ 33.31 -- 5.1% 8.1% 11.1% 14.1% 17.1% 52-Week High 35.25 (5.5)% (0.7) 2.1 5.0 7.8 10.6 52-Week Low 15.38 116.7 127.6 134.1 140.7 147.2 153.7 Price / 1996A Operating Earnings 1.59 21.0 x 22.0 x 22.6 x 23.3 x 23.9 x 24.5 x Price / LTM Operating Earnings 2.09 15.9 16.7 17.2 17.7 18.2 18.7 Price / 1997E Revised Earnings (d) 2.18 15.3 16.1 16.5 17.0 17.4 17.9 Price / 1998E Revised Earnings (d) 2.41 13.8 14.5 14.9 15.4 15.8 16.2 Price / 1997E Earnings (Management Estimates) (e) 2.27 14.7 15.4 15.9 16.3 16.7 17.2 Price / 1998E Earnings (Management Estimates) (e) 2.61 12.8 13.4 13.8 14.2 14.6 14.9 Price / 1998E Earnings (Revised Management Estimates) (f) 2.65 12.6 13.2 13.6 14.0 14.3 14.7 Price / 1998E Earnings (Pro Forma for Acquisition of Unisun) (f) 2.73 12.2 12.8 13.2 13.6 13.9 14.3 Price / Book Value per Share (Reflects FAS 115) 18.51 1.80 1.89 1.94 2.00 2.05 2.11 Price / Book Value per Share (Excl. FAS 115) 16.39 2.03 2.14 2.20 2.26 2.32 2.38 Enterprise Value / Statutory Surplus 289.3 2.08 2.17 2.22 2.27 2.33 2.38 - ------------------------------------------------------------------------------------------------------------------------------------ Non-Standard Auto Comparables (g) Price / 1997E Earnings -- -- -- 14.9 x -- -- -- Price / 1998E Earnings -- -- -- 12.6 -- -- -- Price / Book Value per Share -- -- -- 2.50 -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------
(a) Financial data at or for the twelve months ended September 30, 1997. (b) Assumes 15.1 million shares outstanding. (c) Based on share price as of October 28, 1997. (d) Based on mean First Call estimates as of October 23, 1997. (e) As provided by management on July 29, 1997. Excludes realized gain. (f) As provided by management on September 24, 1997. Excludes realized gain. (g) Represents mean of Progressive Group, American Financial Group, Symons International Group, Penn-America Group and Mobile America. 15 - --------------------- Salomon Brothers --------------------- 19 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 Discounted Cash Flow Analysis 16 - --------------------- Salomon Brothers --------------------- 20 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 Discounted Cash Flow Analysis: TV of 2000 Earnings Dollars m millions, except per share amounts
For the year ended December 31, ------------------------------- 1997 1998 1999 2000 ======================================================================================= GAAP Operating Earnings $ 33.9 $ 39.6 $ 42.3 $ 53.4 Shares Outstanding (millions) 15.0 15.0 15.2 15.3 GAAP Primary Earnings per Share 2.26 2.65 2.78 3.49 GAAP Book Value per Share 19.07 20.05 21.31 24.91 ROE 11.8% 13.2% 13.1% 14.0% Distributable Free Cash Flow to Common Stockholders -- $ 26.1 $ 18.6 $ (3.5) Distributable Free Cash Flow per Common Share -- 1.73 1.24 (0.23) - ---------------------------------------------------------------------------------------
Valuation Summary Terminal Value Multiple of 2000 GAAP Earnings Discount --------------------------------------------------- Rate 12.0 x 13.0 x 14.0 x 15.0 x 16.0 x =============================================================== 9.0% $ 34.80 $ 37.49 $ 40.19 $ 42.89 $ 45.58 523.3 563.9 604.4 644.9 685.5 11.0 $ 33.03 $ 35.58 $ 38.13 $ 40.68 $ 43.24 496.6 535.0 573.4 611.8 650.2 13.0 $ 31.37 $ 33.79 $ 36.21 $ 38.63 $ 41.05 471.8 508.2 544.6 581.0 617.3 Valuation Summary Terminal Value Multiple of 2000 GAAP Book Value Discount --------------------------------------------------- Rate 1.50 x 1.75 x 2.00 x 2.25 x 2.50 x =============================================================== 9.0% $ 31.31 $ 36.12 $ 40.93 $ 45.74 $ 50.55 470.8 543.2 615.5 687.8 760.2 11.0 $ 29.72 $ 34.27 $ 38.83 $ 43.38 $ 47.94 447.0 515.4 583.9 652.4 720.9 13.0 $ 28.24 $ 32.56 $ 36.87 $ 41.19 $ 45.51 424.7 489.6 554.5 619.5 684.4 N.B. Assumes transaction date of January 1, 1998. Value below share price represents aggregate consideration. 17 - --------------------- Salomon Brothers --------------------- 21 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 Discounted Cash Flow Analysis: TV of 2002 Earnings Dollars in millions, except per share amounts
For the year ended December 31, ------------------------------------------------------ 1997 1998 1999 2000 2001 2002 =========================================================================================================== GAAP Operating Earnings $ 33.9 $ 39.6 $ 42.3 $ 53.4 $ 60.0 $ 68.9 Shares Outstanding (millions) 15.0 15.0 15.2 15.3 15.3 15.3 GAAP Operating Earnings per Share 2.26 2.65 2.78 3.49 3.92 4.50 GAAP Book Value per Share 19.07 20.05 21.31 24.91 29.31 34.45 ROE 11.8% 13.2% 13.1% 14.0% 13.4% 13.1% Distributable Free Cash Flow to Common Stockholders -- $ 26.1 $ 18.6 $ (3.5) $ (6.8) $ (9.4) Distributable Free Cash Flow per Common Share -- 1.73 1.24 (0.23) (0.45) (0.63)
Valuation Summary Terminal Value Multiple of 2002 GAAP Earnings Discount --------------------------------------------------- Rate 12.0 x 13.0 x 14.0 x 15.0 x 16.0 x =============================================================== 9.0% $ 36.83 $ 39.75 $ 42.68 $ 45.60 $ 48.53 553.8 597.8 641.8 685.8 729.8 11.0 $ 33.78 $ 36.45 $ 39.12 $ 41.79 $ 44.46 508.0 548.1 588.3 628.5 668.6 13.0 $ 31.04 $ 33.48 $ 35.92 $ 38.37 $ 40.81 466.8 503.5 540.2 577.0 613.7 Valuation Summary Terminal Value Multiple of 2002 GAAP Book Value Discount --------------------------------------------------- Rate 1.50 x 1.75 x 2.00 x 2.25 x 2.50 x =============================================================== 9.0% $ 35.31 $ 40.90 $ 46.50 $ 52.10 $ 57.70 531.0 615.1 699.3 783.5 867.7 11.0 $ 32.39 $ 37.50 $ 42.61 $ 47.72 $ 52.83 487.1 564.0 640.8 717.7 794.5 13.0 $ 29.77 $ 34.44 $ 39.12 $ 43.79 $ 48.47 447.7 518.0 588.3 658.6 728.9 N.B. Assumes transaction date of January 1, 1998. Value below share price represents aggregate consideration. 18 - --------------------- Salomon Brothers --------------------- 22 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 Dividend Discount Model: TV of 2000 Earnings
For the year ended December 31, ------------------------------- 1997 1998 1999 2000 ======================================================================================= GAAP Operating Earnings $ 33.9 $ 39.6 $ 43.4 $ 55.2 Shares Outstanding (millions) (a) 15.0 15.0 15.2 15.3 GAAP Operating Earnings per Share $ 2.26 $ 2.65 $ 2.85 $ 3.61 GAAP Net Earnings per Share 2.46 2.91 3.11 3.87 GAAP Book Value (b) 285.4 321.4 361.1 412.6 ROE 11.9% 12.3% 12.0% 13.4% GAAP Book Value per Share 19.03 21.49 23.76 26.97 Dividends 7.5 7.5 7.6 7.7 Dividends Per Share 0.50 0.50 0.50 0.50 - ---------------------------------------------------------------------------------------
N.B. Based on management estimates provided on September 24, 1997. (a) Assumes shares outstanding remains constant after 1998. (b) Based on a beginning book value of $278.7 million at September 30, 1997. Valuation Summary Terminal Value Multiple of 2000 GAAP Earnings Discount --------------------------------------------------- Rate 12.0 x 13.0 x 14.0 x 15.0 x 16.0 x =============================================================== 9.0% $ 34.73 $ 37.51 $ 40.30 $ 43.09 $ 45.88 520.9 562.7 604.5 646.4 688.2 11.0 $ 32.91 $ 35.55 $ 38.19 $ 40.83 $ 43.47 493.6 533.2 572.8 612.4 652.0 13.0 $ 31.21 $ 33.71 $ 36.22 $ 38.72 $ 41.22 468.2 505.7 543.3 580.8 618.3 Valuation Summary Terminal Value Multiple of 2000 GAAP Book Value Discount --------------------------------------------------- Rate 1.50 x 1.75 x 2.00 x 2.25 x 2.50 x =============================================================== 9.0% $ 32.50 $ 37.71 $ 42.91 $ 48.12 $ 53.33 487.5 565.6 643.7 721.8 799.9 11.0 $ 30.80 $ 35.73 $ 40.66 $ 45.59 $ 50.52 462.0 535.9 609.9 683.8 757.8 13.0 $ 29.22 $ 33.89 $ 38.56 $ 43.23 $ 47.91 438.2 508.3 578.4 648.5 718.6 N.B. Value below share amounts represents aggregate consideration. 19 - --------------------- Salomon Brothers --------------------- 23 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 Dividend Discount Model: TV of 2002 Earnings
For the year ended December 31, ------------------------------------------------------ 1997 1998 1999 2000 2001 2002 =========================================================================================================== GAAP Operating Earnings $ 33.9 $ 39.6 $ 43.4 $ 55.2 $ 64.1 $ 74.4 Shares Outstanding (millions) (a) 15.0 15.0 15.2 15.3 15.3 15.3 GAAP Operating Earnings per Share $ 2.26 $ 2.65 $ 2.85 $ 3.61 $ 4.19 $ 4.86 GAAP Net Earnings per Share 2.46 2.91 3.11 3.87 4.49 5.21 GAAP Book Value (b) 285.4 321.4 361.1 412.6 473.6 545.7 ROE 11.9% 12.3% 12.0% 13.4% 13.5% 13.6% GAAP Book Value per Share 19.03 21.49 23.76 26.97 30.96 35.66 Dividends 7.5 7.5 7.6 7.7 7.7 7.7 Dividends Per Share 0.50 0.50 0.50 0.50 0.50 0.50 - -----------------------------------------------------------------------------------------------------------
N.B. Based on management estimates provided on September 24, 1997. Assumes a constant dividend and earnings growth of 16.1% in 2001 and 2002 based on 1997-2000 CAGR. (a) Assumes shares outstanding remains constant after 1998. (b) Based on a beginning book value of $278.7 million at September 30, 1997. Valuation Summary Terminal Value Multiple of 2002 GAAP Earnings Discount --------------------------------------------------- Rate 12.0 x 13.0 x 14.0 x 15.0 x 16.0 x =============================================================== 9.0% $ 39.89 $ 43.05 $ 46.21 $ 49.37 $ 52.53 598.3 645.7 693.2 740.6 788.0 11.0 $ 36.49 $ 39.38 $ 42.27 $ 45.15 $ 48.04 547.4 590.7 634.0 677.3 720.6 13.0 $ 33.44 $ 36.08 $ 38.72 $ 41.37 $ 44.01 501.7 541.3 580.9 620.5 660.1 Valuation Summary Terminal Value Multiple of 2002 GAAP Book Value Discount --------------------------------------------------- Rate 1.50 x 1.75 x 2.00 x 2.25 x 2.50 x =============================================================== 9.0% $ 36.71 $ 42.51 $ 48.30 $ 54.10 $ 59.89 550.7 637.6 724.5 811.5 898.4 11.0 $ 33.59 $ 38.89 $ 44.18 $ 49.47 $ 54.76 503.9 583.3 662.7 742.0 821.4 13.0 $ 30.79 $ 35.63 $ 40.47 $ 45.31 $ 50.15 461.9 534.5 607.1 679.7 752.3 N.B.: Value below share amounts represents aggregate consideration. 20 - --------------------- Salomon Brothers --------------------- 24 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 Comparable Company Analysis 21 - --------------------- Salomon Brothers --------------------- 25 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 Comparable Company Analysis: Personal Lines
Closing 52 Week Current Price Market Enterprise ------------------- as % of Dividend Company 10/28/97 Cap. Value High Low High Yield - ------------------------------------------------------------------------------------------------------------------ Guaranty National Corporation $ 33.31 $ 501.5 $ 602.6 $ 35.25 $ 15.38 94.5% 1.50% Guaranty National Corporation (e) Orion Capital Corporation 44.75 1,233.8 1,669.2 51.00 26.75 87.7 1.43 Orion Capital Corporation (e) Personal Lines Allstate Corp. (n) $ 84.25 $36,541.5 $37,952.5 $ 86.00 $ 54.00 98.0% 1.50% SAFECO Corp. (n) 47.25 5,969.7 7,310.9 55.38 36.50 85.3 2.71 Mercury General Corp. (h)(n) 41.63 2,293.2 2,368.2 48.13 24.31 86.5 1.39 20th Century Industries (h)(i) 23.63 1,936.3 2,111.3 26.25 14.63 90.0 0.85 Horace Mann Educators Corp. 55.50 1,251.6 1,351.2 59.44 33.63 93.4 0.97 Commerce Group (h) 33.19 1,196.3 1,196.3 36.00 21.38 92.2 3.13 Citizens Corp. (h)(n) 29.00 1,022.8 1,022.8 31.56 20.13 91.9 0.69 Allied Group (h)(n) 46.25 937.7 985.0 53.63 27.00 86.2 1.47 Mean -- $ 6,393.6 $ 6,787.3 -- -- 90.4% 1.59% Median -- 1,594.0 1,731.3 -- -- 90.9 1.43 Non-Standard Auto Progressive Corp. (h) 109.44 7,901.4 8,515.0 116.75 61.50 93.7 0.22 American Financial Group (n) 36.06 2,125.3 2,595.3 49.25 32.38 73.2 2.77 Symons International Group (n) 20.00 209.0 218.0 24.00 12.38 83.3 0.00 Penn-America Group 19.13 189.0 233.9 21.75 10.31 87.9 0.84 Omni (h)(j)(n) 30.69 175.1 180.8 31.00 8.88 99.0 0.00 Mobile America (h)(n) 13.25 94.7 106.7 14.75 7.63 89.8 2.64 Mean (k) -- $ 2,103.9 $ 2,333.8 -- -- 85.6% 1.62% Median (k) -- 209.0 233.9 -- -- 87.9 1.74 - ------------------------------------------- ----------------------------------- GNC Financial Data (d) For all companies: - ------------------------------------------- High (c) 98.0% 3.13% NPW $ 546.2 Mean (c) 88.6 1.60 Statutory Surplus 289.3 Median (c) 89.8 1.43 1997E EPS (a) 2.18 Low (c) 73.2 0.22 1998E EPS (a) 2.41 ----------------------------------- 1997E EPS (e) 2.26 ----------------------------------- 1998E EPS (e) 2.65 Implied Equity Value per GNC Share: Book Value per GNC Share 18.51 High Number of Shares 15.1 Mean Total Debt 101.1 Median - ------------------------------------------- Low ----------------------------------- ----------------------------------- Implied Equity Value per GNC Share (Management Estimates): High Mean Median Low ----------------------------------- Price as a Multiple of: E.V. as a multiple of: ----------------------------- ---------------------- EPS IBES Book 1997E 1998E Net Prem. Statutory Growth 5-year Company Value EPS (a) EPS (a) Written Surplus (b) 97-98 Growth - ---------------------------------------------------------------------------------------------------------------- Guaranty National Corporation 1.80 x 15.3 x 13.8 x 1.10 x 2.08 x 10.6% 14.0% Guaranty National Corporation (e) 14.7 12.6 17.3 17.8 (f) Orion Capital Corporation 1.80 15.1 13.2 1.22 2.10 (g) 14.5 14.0 Orion Capital Corporation (e) 14.9 12.7 17.0 12.5 (f) Personal Lines Allstate Corp. (n) 2.55 x 16.2 x 15.0 x 1.93 x 3.08 x 8.5% 12.0% SAFECO Corp. (n) 1.37 15.3 13.3 3.07 3.38 15.6 10.0 Mercury General Corp. (h)(n) 3.28 16.8 15.0 2.98 3.98 11.9 15.0 20th Century Industries (h)(i) 2.68 16.5 15.6 2.68 4.84 5.6 NA Horace Mann Educators Corp. 2.52 15.5 13.5 1.81 3.34 14.5 14.0 Commerce Group (h) 1.97 15.4 13.8 1.63 2.57 11.1 13.0 Citizens Corp. (h)(n) 1.28 13.7 12.1 1.22 1.64 13.3 10.0 Allied Group (h)(n) 2.82 15.6 13.6 2.02 3.45 14.1 12.0 Mean 2.31 x 15.6 x 14.0 x 2.17 x 3.28 x 11.8% 12.3% Median 2.54 15.5 13.7 1.97 3.36 12.6 12.0 Non-Standard Auto Progressive Corp. (h) 3.83 24.1 21.0 1.97 6.59 14.8 15.0 American Financial Group (n) 1.31 11.2 10.4 0.92 1.56 7.4 12.0 Symons International Group (n) 2.91 11.2 7.8 0.84 2.08 44.1 20.0 Penn-America Group 1.92 17.9 15.1 2.51 2.89 18.7 20.0 Omni (h)(j)(n) 3.18 29.5 26.5 1.77 4.91 11.5 14.0 Mobile America (h)(n) 2.56 10.4 8.9 3.21 4.57 16.4 NA Mean (k) 2.50 x 14.9 x 12.6 x 1.89 x 3.54 x 20.3% 16.8% Median (k) 2.56 11.2 10.4 1.97 2.89 16.4 17.5 - ------------------------------------------------------------------------------------------------------------- For all companies: High (c) 3.83 x 24.1 x 21.0 x 3.21 x 6.59 x 44.1% 20.0% Mean (c) 2.38 15.4 13.5 2.06 3.38 15.1 13.9 Median (c) 2.55 15.5 13.6 1.97 3.34 14.1 13.0 Low (c) 1.28 10.4 7.8 0.84 1.56 5.6 10.0 - ------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------- Implied Equity Value per GNC Share: High $70.86 $52.55 $50.62 $109.93 $119.89 Mean 44.11 33.49 32.47 68.01 58.27 Median 47.24 33.80 32.88 64.68 57.46 Low 23.63 22.57 18.68 23.70 23.35 - ------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------- Implied Equity Value per GNC Share (Management Estimates): High -- $54.48 $55.66 -- -- Mean -- 34.72 35.70 -- -- Median -- 35.04 36.15 -- -- Low -- 23.39 20.54 -- -- - -------------------------------------------------------------------------------------
- ---------- N.B. Financial data at or for the twelve months ended September 30, 1997, except as noted. (a) Based on mean First Call estimate as of October 22, 1997. (b) Statutory Surplus as of December 31, 1996, except as noted. (c) Excludes GNC, OC and Omni. (d) Financial data at or for the twelve months ended September 30, 1997. (e) Based on revised management estimates provided on September 24, 1997 for GNC and August 5, 1997 for OC. (f) Based on company net income projections from 1997-2000 for GNC and 1997-2001 for OC. (g) Based on statutory surplus of $795.1 million as of September 30, 1997. (h) Net premiums written for the year ended December 31, 1996. (i) Market Cap. and Book Value on a fully diluted basis based on average fully diluted shares outstanding for the three months ended September 30, 1997 of 82.0 million shares. (j) Hartford Financial Services Group agreed to acquire Omni Insurance Group on October 16, 1997. (k) Excludes Omni. (l) Represents percentage of non-standard auto net premiums written for the year ended December 31, 1996, (m) Represents personal lines gross written premiums as a percentage of total gross written premiums. (n) Financial data at or for the twelve months ended June 30, 1997. 22 - --------------------- Salomon Brothers --------------------- 26 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 Comparable Company Analysis: Specialty Commercial
Closing 52 Week Current Price Market Enterprise ------------------- as % of Dividend Company 10/28/97 Cap. Value High Low High Yield - ------------------------------------------------------------------------------------------------------------------ Guaranty National Corporation $ 33.31 $ 501.5 $ 602.6 $ 35.25 $ 15.38 94.5% 1.50% Guaranty National Corporation (d) Orion Capital Corporation 44.75 1,233.8 1,669.2 51.00 26.75 87.7 1.43 Orion Capital Corporation (d) Berkley, W.R $ 39.25 $ 1,159.2 $ 1,794.7 $ 46.38 $ 28.75 84.6% 1.12% Frontier Insurance Group (f) 33.94 1,000.3 1,167.3 39.25 18.13 86.5 0.83 Markel Corp. 148.50 816.2 1,065.9 161.13 83.00 92.2 NA Executive Risk (f) 68.44 654.9 779.9 72.75 33.88 94.1 0.12 Acceptance Insurance 24.50 375.2 444.2 28.63 17.75 85.6 NA RLI Corporation 41.31 369.5 415.5 46.25 27.25 89.3 1.45 Baldwin & Lyons Inc. 20.38 283.7 283.7 22.63 17.38 90.1 1.96 High (b) 94.1% 1.96% Median (b) 89.3 1.12 Mean (b) 88.9 1.10 Low (b) 84.6 0.12 - ------------------------------------------ GNC Financial Data (c) - ------------------------------------------ NPW $ 546.2 Statutory Surplus 289.3 1997E EPS (a) 2.18 1998E EPS (a) 2.41 1997E EPS (d) 2.26 1998E EPS (d) 2.65 Book Value per GNC Share 18.51 Number of Shares 15.1 - ------------------------------------------ Price as a Multiple of: ----------------------------- EPS IBES Book 1997E 1998E Growth 5-year Company Value EPS (a) EPS (a) 97-98 Growth - ---------------------------------------------------------------------------------------- Guaranty National Corporation 1.80 x 15.3 x 13.8 x 10.6% 14.0% Guaranty National Corporation (d) 14.7 12.6 17.3 17.8 (e) Orion Capital Corporation 1.80 15.1 x 13.2 x 14.5% 14.0% Orion Capital Corporation (d) 14.5 12.7 17.0 12.5 (e) Berkley, W.R 1.42 x 13.9 x 12.0 x 15.2% 14.0% Frontier Insurance Group (f) 3.38 18.8 15.0 25.4 20.0 Markel Corp. 2.39 21.9 18.9 15.6 19.0 Executive Risk (f) 3.83 21.1 18.2 16.0 15.0 Acceptance Insurance 1.52 10.5 9.6 9.4 19.0 RLI Corporation 1.37 13.3 12.2 9.3 13.0 Baldwin & Lyons Inc. 0.98 20.4 18.9 8.0 NA High (b) 3.83 x 21.9 x 18.9 x 25.4% 20.0% Median (b) 1.52 18.8 15.0 15.2 17.0 Mean (b) 2.13 17.1 15.0 14.1 16.7 Low (b) 0.98 10.5 9.6 8.0 13.0 ----------------------------------------------------- Implied GNC Value Per Share: High $70.82 $47.75 $45.65 Median 28.10 40.88 36.03 Mean 39.37 37.30 36.05 Low 18.21 22.82 23.06 ----------------------------------------------------- ----------------------------------------------------- Implied GNC Value Per Share (Management Estimates): High -- $49.50 $50.19 Median -- 42.38 39.62 Mean -- 38.67 39.64 Low -- 23.66 25.36 -----------------------------------------------------
- ---------- N.B. Financial data at or for the twelve months ended September 30, 1997, except as noted. (a) Based on median First Call estimate as of October 22, 1997. (b) Excludes GNC and OC. (c) Financial data at or for the twelve months ended September 30, 1997. (d) Based on management estimates provided on September 24, 1997 for GNC and August 5, 1997 for OC. (e) Based on company net income projections from 1997-2000 for GNC and 1997-2001 for OC. (f) Earnings estimates based on Nelson's mean estimates as of August 21, 1997. 23 - --------------------- Salomon Brothers --------------------- 27 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 M&A Transaction Analysis: Non- Standard Auto Transactions 24 - --------------------- Salomon Brothers --------------------- 28 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 M&A Transaction Analysis: Non-Standard Auto
Price as a Multiple of: --------------------- GAAP (a) --------------------- Equity Price Premium Net Announced Target Acquiror Value Per to Operating Book (Closed) (parent) (parent) (in millions) Share Mkt. (d) Income Value - ------------------------------------------------------------------------------------------------------------------------------------ 10/16/97 Omni Insurance Grp. Inc. Hartford Fin. Svcs. Grp. Inc. $187.4 $31.75 78.9% 34.8 x 3.36 x (Pending) 8/8/97 Titan Holdings USF&G 233.0 23.20 1.4 15.1 1.97 (Pending) 6/30/97 Integon Corp. GMAC 524.7 26.00 67.7 NM 3.04 (Pending) 11/6/96 Midland Financial Group, Inc. Progressive Corporation 49.5 9.00 7.5 NM 0.97 (3/7/97) 2/27/96 Midland Financial Group, Inc. Danielson Holding Corporation 108.1 14.50 20.8 NM 1.60 (Terminated) 4/27/95 Viking Insurance Holdings Inc. Guaranty National Corp. 102.0 -- -- 11.0 1.14 (7/18/95) (Xerox Corp.) 12/19/94 Victoria Financial Corp. USF&G 67.3 13.00 89.1 41.4 2.47 (5/22/95) 7/28/94 Bankers and Shippers Insurance Co. Integon Corp. 142.0 -- -- 11.5 1.40 (10/18/94) (Travelers Indemnity Co.) 11/15/93 American Ambassador Casualty Co. Guardian Royal Exchange Plc. 100.0 -- -- NA NA (12/30/93 (Allianz AG Holding) 3/18/93 Leader National Insurance Co. Penn Central Corp. 38.0 -- -- NA NA (05/21/93) 10/15/90 Atlanta Casualty Co., Windsor Ins. Penn Central Corp. 335.0 -- -- NA 1.60 (1/2/91) and Stonewall Ins. Co. 5/23/89 Integon Corp. Jupiter Industries, Inc. 225.8 7.00 (d) 5.7 NM 1.23 (8/1/90) 5/18/38 Guaranty National Corp. Orion Capital Corporation 130.7 8.75 34.6 7.0 1.45 -------------------------------------------------------- ------------------------------------------------------ GNC Financial Data (e) High 89.1% 41.4 x 3.36 x -------------------------------------------------------- Median 27.7 13.3 1.60 Market Cap $501.5 Mean 38.2 20.1 1.84 Statutory Surplus 289.3 Low 1.4 7.0 0.97 Statutory Oper. Earnings (f) 41.3 ------------------------------------------------------ GAAP Book Value 278.7 ------------------------------------------------------ GAAP Oper. Earnings 31.7 Implied GNC Valuation based on: Number of Shares 15.1 -------------------------------------------------------- Median $42.59 (g) $28.02 $29.62 Mean 46.09 (g) 42.43 34.04 ------------------------------------------------------
E.V. as a Multiple of: ----------------------- SAP (a) ----------------------- Net Capital Announced Target Operating and (Closed) (parent) Income (b) Surplus - --------------------------------------------------------------------------- 10/6/97 Omni Insurance Grp. Inc. 67.5 x 5.19 x (Pending) 8/8/97 Titan Holdings 19.7 3.52 (Pending) 6/30/97 Integon Corp. NM 3.21 (Pending) 11/6/96 Midland Financial Group, Inc. NM 0.86 (c) (3/7/97) 2/27/96 Midland Financial Group, Inc. NM 1.71 (c) (Terminated) 4/27/95 Viking Insurance Holdings Inc. 10.1 1.24 (7/18/95) (Xerox Corp.) 12/19/94 Victoria Financial Corp. 22.7 3.26 (5/22/95) 7/28/94 Bankers and Shippers Insurance Co. 22.4 2.21 (10/18/94) (Travelers Indemnity Co.) 11/15/93 American Ambassador Casualty Co. 10.3 1.63 (12/30/93 (Allianz AG Holding) 3/18/93 Leader National Insurance Co. 14.6 1.16 (05/21/93) 10/15/90 Atlanta Casualty Co., Windsor Ins. 13.9 2.59 (1/2/91) and Stonewall Ins. Co. 5/23/89 Integon Corp. 6.3 4.21 (8/1/90) 5/18/38 Guaranty National Corp. 9.1 2.15 ---------------------------------------------- High 67.5 x 5.19 x Median 14.3 2.21 Mean 19.7 2.53 Low 6.3 0.86 ---------------------------------------------- ---------------------------------------------- Implied GNC Valuation based on: Median $39.09 $42.51 Mean 53.94 48.74 ----------------------------------------------
(a) Latest available data prior to announcement. (b) After-tax income from continuing operations before net realized gains and extraordinary and non-recurring items. (c) Based on estimated capital and surplus at December 31, 1995. (d) Premium to market price one day prior to announcement. (e) At or for the twelve months ended September 30, 1997. (f) Represents statutory earnings for the six months ended June 30, 1997, annualized. (g) Based on GNC price per share of $33.31 as of October 28, 1997. N.B. NA = Not Available N.B. NM = Not Meaningful 25 - --------------------- Salomon Brothers --------------------- 29 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 Case Study: Hartford Acquisition of Omni Insurance Group Consideration Paid o Hartford Financial Services Group agreed to buy Omni Insurance Group on October 16, 1997 for $31.75 per Omni share. o The purchase price represents a 78.9% premium to Omni's market price one day prior to the announcement of the transaction. o 100% of the total consideration of $184.7 million will be paid in cash. Additional Information o The Hartford, which had no nonstandard auto line of its own, had been looking to develop the business or to acquire one for about a year. o Omni, the nation's 22nd largest provider of nonstandard auto insurance, benefited from being the only remaining publicly traded "pure play" in nonstandard auto, according to analysts. o Omni wrote approximately $10 billion in premiums in 1996 through 3,500 agents in 11 states. Price / Volume Performance Daily Data -- 3/31/97 through 10/28/97 [GRAPHIC OMITTED] [PLOT POINTS TO COME] (a) 8/8/97: Omni announces record second quarter earnings (b) 10/16/97: Hartford agrees to acquire Omni Insurance Group Transaction Multiples Price / LTM EPS ($0.91) 34.8x Price / 1997E EPS (a) ($1.04) 30.5 Price / 1998E EPS (a) ($1.16) 27.4 Price / GAAP Book Value 3.36 Enterprise Value / LTM Stat. Earnings 67.5 Enterprise Value / Stat. Surplus 5.19 (a) Based on median IBES earnings estimates as of September 18, 1997 26 - --------------------- Salomon Brothers --------------------- 30 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 Case Study: USF&G Acquisition of Titan Holdings Consideration Paid o USF&G Corp. Agreed to acquire Titan Holdings Inc. for $23.20 per share on August 8, 1997. o The total consideration of $233.0 million will consist of 50% cash and 50% common stock. o Any increase in USF&G's stock price is to be divided evenly between the stock and cash consideration resulting in a floating value for the cash and stock portion. o The transaction is structured with a 15% collar around USF&G's stock price. Additional Information o Titan had been considering strategic alternatives since it hired a financial advisor in June. o Titan, which generates 65% of its business from non-standard auto (LTM total premiums earned of $171.5 million), is expected to fit well with Victoria Financial, USF&G's non-standard subsidiary, and add geographic diversification. o The transaction is expected to be earnings neutral in 1998 and accretive to EPS thereafter. Price / Volume Performance Daily Data -- 3/31/97 through 10/28/97 [GRAPHIC OMITTED] [PLOT POINTS TO COME] (a) 6/3/97: Titan announces intentions to explore strategic alternatives (b) 8/8/97: USF&G agrees to acquire Titan Holdings Transaction Multiples Price / LTM EPS ($1.54) 15.1x Price / 1997E EPS (a) ($1.68) 13.9 Price / 1998E EPS (a) ($1.97) 11.8 Price / GAAP Book Value 1.97 Enterprise Value / LTM Stat. Earnings 19.7 Enterprise Value / Stat. Surplus 3.52 (a) Based on median IBES earnings estimates as of July 17, 1997 27 - --------------------- Salomon Brothers --------------------- 31 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 Case Study: GMAC Acquisition of Integon Corp. Consideration Paid o GMAC agreed to acquire Integon Corp. for $26.00 per share on June 23, 1997, representing a 67.7% premium to market the day prior to announcement. o The total consideration of $524.7 million will be in the form of cash. Additional Information o Integon reported consistent profits through the third quarter of 1996 but posted losses of $16 and $35 million in the 2 subsequent quarters. o Following the first quarter earnings release, Integon announced that they had retained a financial advisor to consider strategic alternatives. o The purchase price paid by GMAC is considered to be relatively rich given Integon's financial position, financial leverage (debt/equity ratio of 93.0%) and operating leverage (premiums written/statutory surplus of 3.0x). o GMAC currently has a presence in the insurance industry through Motors Insurance Corp. Price / Volume Performance Daily Data -- 3/31/97 through 10/17/97 [GRAPHIC OMITTED] [PLOT POINTS TO COME] (a) 4/27/97: Integon announces intentions to explore strategic alternatives (b) 6/23/97: GMAC agrees to acquire Integon Transaction Multiples Price / LTM EPS (($2.68)) NM Price / 1997E EPS (a) (($2.05)) NM Price / 1998E EPS (a) ($1.13) 23.0x Price / GAAP Book Value 3.04 Enterprise Value / LTM Stat. Earnings NM Enterprise Value / Stat. Surplus 3.21 (a) Based on median IBES earnings estimates as of June 19, 1997 28 - --------------------- Salomon Brothers --------------------- 32 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 Squeeze Out Transaction Analysis: Insurance Industry 29 - --------------------- Salomon Brothers --------------------- 33 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 Summary: Premiums Paid in Squeeze Out Transactions
All Squeeze Out Transactions Insurance Squeeze Out Transaction Premium to Market Premium to Market ---------------------------- ---------------------------------- Percentile 1 Week Prior 4 Weeks Prior 1 Week Prior 4 Weeks Prior =================================================================================================== 75th Percentile 29.9% 33.3% 23.1% 25.3% 50th Percentile 20.4 21.5 18.5 22.3 25th Percentile 13.5 8.4 15.6 12.1 - ---------------------------------------------------------------------------------------------------
30 - --------------------- Salomon Brothers --------------------- 34 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 Squeeze Out Transaction Analysis - Insurance Only
Per Share Date --------------- % Change - -------------------- Initial Final Offer From Announced Completed Price Price Amended? Offer Acquiror Name Target Name - ------------------------------------------------------------------------------------------------------------------------------------ 6/2/97 7/15/97 $40.00 $40.00 no -- Anthem Inc. Acordia Inc (Anthem Inc) 1/13/97 9/4/97 36.00 39.50 yes 9.7% Zurich Group Zurich Reinsurance Centre Holding Inc. 12/17/96 7/16/97 29.00 33.00 yes 13.8 Allmerica Financial Corporation Allmerica Property & Casualty 5/10/96 12/11/96 23.52 24.32 yes 3.4 PXRE Corp. Transnational Re Corp. 5/7/96 7/3/96 17.50 18.50 yes 5.7 Orion Capital Corp Guaranty National Corp 9/26/95 12/21/95 14.00 15.25 yes 8.9 SCOR SA SCOR SA Corp 8/25/95 1/2/96 70.00 70.00 no -- Berkshire Hathaway Inc GEICO Corp 2/27/95 Withdrawn 22.00 -- -- -- Conseco Bankers Life Holding Corp. 2/27/95 8/31/95 22.50 23.25 yes 3.3 Conseco CCP Insurance Inc Offer Premium Percent Percent Date Deal ----------------- Held at Owned - -------------------- Value % % 1 Week 4 Weeks Ann Percent After Announced Completed ($ mil) Stock Cash Prior Prior Date Sought Transaction - ------------------------------------------------------------------------------------------------------- 6/2/97 7/15/97 $172.7 0.0% 100.0% 11.5% 26.0% (b) 66.8% 33.2% 100.0% 1/13/97 9/4/97 322.5 0.0 100.0 18.5 12.1 (c) 65.7 34.3 100.0 12/17/96 7/16/97 796.9 47.0 53.0 12.8 15.3 59.5 40.5 100.0 5/10/96 12/11/96 130.5 100.0 0.0 16.5 9.9 22.3 77.7 100.0 5/7/96 7/3/96 85.1 0.0 100.0 15.6 22.3 49.5 30.7 80.2 9/26/95 12/21/95 55.4 0.0 100.0 35.6 38.6 80.0 20.0 100.0 8/25/95 1/2/96 2,347.0 0.0 100.0 23.1 25.3 52.4 47.6 100.0 2/27/95 Withdrawn 458.5 0.0 100.0 21.4 6.0 63.2 39.6 60.4 2/27/95 8/31/95 273.7 0.0 100.0 30.1 23.2 48.1 51.9 100.0 --------------------------------------------------------------------------------- Median 0.0% 100.0% 18.5% 22.3% 59.5% 39.6% 100.0% Mean 16.3 83.7 20.6 19.9 56.4 41.7 93.4 --------------------------------------------------------------------------------- --------------------------------------------- Implied Equity Value Per GNC Share (a) Median -- -- $39.48 $40.74 Mean -- -- 40.16 39.93 ---------------------------------------------
- ---------- (a) Based on GNC share price of $33.31 on October 28, 1997. (b) Implied premium to market one day prior to issuance of press release by Acordia regarding a review of its relationship with Anthem is 41.7% based on a closing price for Acordia of $27.88 on February 5, 1997. (c) Implied premium to market one day prior to issuance of initial announcement by Zurich Group with respect to its intentions regarding ZRC is 30.1% based on a closing price for ZRC of $30.75 on January 10, 1997. 31 - --------------------- Salomon Brothers --------------------- 35 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 Anthem Insurance Companies, Inc. / Acordia, Inc. Transaction Summary o On June 2, 1997 Anthem announced a cash tender offer for all the outstanding shares of common stock of Acordia, Inc. that it did not already own 33.2% for $40.00 per share representing a 12.7% premium to market. o Anthem is an Indianapolis based mutual insurance company. Acordia is an insurance brokerage and consulting firm. History o Anthem completed its IPO in October 1992, diluting Anthem's ownership interest to 63.3%. o In September 1996, Anthem retained a financial advisor to assist management in a review of its holdings in Acordia. o In December 1996, Anthem's financial advisor explored a possible sale of Acordia. o In February 1997, Acordia publicly announced that it is reviewing its relationship with its parent and has formed a special committee to review and evaluate any proposals involving Anthem. o Between February and May 1997, Anthem and Acordia had frequent discussions regarding their business relationship and Anthem's investment in Acordia. o Throughout May, Anthem considered both the sale and purchase of the public shares of Acordia it did not own. o Ultimately, Anthem decided to purchase the public shares of Acordia. o Anthem initially offered $34.00 per share, but after negotiations with Acordia and their financial advisor, agreed to pay $40.00 per share. Price / Volume Performance Daily Data -- 1/2/97 through 7/9/97 [GRAPHIC OMITTED] [PLOT POINTS TO COME] (a) 2/6/97:Public announcement that Acordia is conducting a strategic review of its business (b) 5/15/97: Anthem discusses an offer of $34.00 per share with Acordia (c) 5/20/97:Press release issued by both companies regarding potential transaction (d) 6/2/97: Anthem agrees to acquire remaining interest in Acordia Transaction Multiples Price / LTM EPS ($1.46) 19.2x Price / 1997E EPS (a) ($2.15) 18.6 Price / 1998E EPS (a) ($2.35) 17.0 Price / GAAP Book Value 2.57 Enterprise Value / LTM Stat. Earnings NA Enterprise Value / Stat. Surplus NA (a) Based on median IBES earnings estimates as of May 15, 1997 32 - --------------------- Salomon Brothers --------------------- 36 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 Zurich Group / Zurich Reinsurance Centre Holdings, Inc. Transaction Summary o On April 17, 1997 Zurich Group reached an agreement to purchase for $39.50 per share in cash the 34% of interest in ZRC that it did not already own. History o ZRC completed its IPO in May 1993, reducing Zurich Group's holdings to 65.7%. o In August 1996, Zurich Group believed that changes in the reinsurance market place made a consolidation of ZRC more desirable. o On January 13, 1997, Zurich Group made public its intentions to acquire the public shares of ZRC for $36.00 per share, $1.00 above ZRC's IPO price. o In February 1997, after several class action lawsuits had been filed and concern from public shareholders that the offer price was unacceptable, ZRC informed the parent that its offer of $36.00 per share was inadequate. o On April 10, 1997, Zurich Group proposed a revised price of $38.25 per share which was rejected by ZRC. o On April 17, 1997, Zurich Group offered $39.50 per share for ZRC. This offer was ultimately accepted by ZRC. Price / Volume Performance Daily Data -- 9/30/96 through 8/29/97 [GRAPHIC OMITTED] [PLOT POINTS TO COME] (a) 1/13/97: Zurich Group makes its intentions with respect to ZRC public (b) 4/17/97: Both parties agree to $39.50 per share Transaction Multiples Price / LTM EPS (a) ($1.46) 27.1x Price / 1997E EPS (b) ($1.55) 25.5 Price / 1998E EPS (b) ($1.81) 21.8 Price / GAAP Book Value 1.32 Enterprise Value / LTM Stat. Earnings 52.6 Enterprise Value / Stat. Surplus 0.49 (a) For the twelve months ended March 31, 1997. (b) Based on median IBES earnings estimates as of April 17, 1997 33 - --------------------- Salomon Brothers --------------------- 37 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 Merger Consequences Analysis 34 - --------------------- Salomon Brothers --------------------- 38 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 Summary: Merger Consequences Analysis
---------------- Purchase Price per GNC Share: - ----------------------------------------- Market Price ---------- ------------ ------------ ----------- ----------- Acquisition Analysis: $33.31 $35.00 $36.00 $37.00 $38.00 $39.00 - ----------------------------------------- ---------------- ---------- ------------ ------------ ----------- ----------- Transaction Value (a) $96.9 $101.8 $104.7 $107.6 $110.5 $113.4 Goodwill Created 49.5 54.4 57.4 60.3 63.2 66.1 Orion Capital: 1998E EPS Dilution Consensus Estimates (b): 100% Cash 0.9% 0.5% 0.2% (0.0)% (0.3)% (0.6)% 80% Cash 0.3 (0.2) (0.5) (0.7) (1.0) (1.3) 67% Cash (0.1) (0.6) (0.9) (1.2) (1.5) (1.8) 50% Cash (0.6) (1.1) (1.4) (1.7) (2.0) (2.3) Revised Management Estimates (c): 100% Cash 1.6% 1.2% 0.9% 0.7% 0.4% 0.2% 80% Cash 0.9 0.5 0.2 (0.1) (0.3) (0.6) 67% Cash 0.5 0.0 (0.3) (0.5) (0.8) (1.1) 50% Cash (0.1) (0.5) (0.8) (1.1) (1.4) (1.7) Revised Management Estimates Pro Forma (d): 100% Cash 1.9% 1.4% 1.2% 0.9% 0.7% 0.4% 80% Cash 1.2 0.7 0.5 0.2 (0.1) (0.3) 67% Cash 0.7 0.3 (0.0) (0.3) (0.6) (0.8) 50% Cash 0.2 (0.3) (0.6) (0.9) (1.2) (1.5) Pro Forma Debt / Capitalization 100% Cash 32.0% 32.3% 32.5% 32.6% 32.8% 32.9% 80% Cash 30.5 30.7 30.8 30.9 31.0 31.2 67% Cash 29.5 29.6 29.7 29.8 29.9 30.0 50% Cash 28.2 28.3 28.4 28.4 28.5 28.5 GNC Ownership of Orion Capital 100% Cash -- -- -- -- -- -- 80% Cash 1.5% 1.6% 1.7% 1.7% 1.7% 1.8% 67% Cash 2.5 2.7 2.7 2.8 2.9 2.9 50% Cash 3.7 3.9 4.0 4.1 4.3 4.4 - -----------------------------------------------------------------------------------------------------------------------------
(a) Represents the purchase of 2.9 million shares not owned by Orion. (b) Based on First Call mean estimate as of October 22, 1997. (c) Based on revised management estimates provided by management on September 24, 1997. (d) Based on revised management estimates and pro forma for the acquisition of Unisun Insurance Company. 35 - --------------------- Salomon Brothers --------------------- 39 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 Merger Consequences Analysis: 100% Cash - Consensus Estimates Dollars in millions, except per share data
------------ Purchase Price per GNC Share: - -------------------------------------------------- ------------ Market Price -------- --------- --------- --------- --------- Acquisition Analysis: Stand-Alone $33.31 $35.00 $36.00 $37.00 $38.00 $39.00 - -------------------------------------------------- ------------ ------------ -------- --------- --------- --------- --------- Transaction Value(c): $96.9 $101.8 $104.7 $107.0 $110.5 $113.4 Goodwill Created -- 49.5 54.4 57.4 60.3 63.2 66.1 Orion Capital: Stand-Alone 1998E EPS(d) $3.40 $3.40 $3.40 $3.40 $3.40 $3.40 $3.40 1998E Income(e) 94.5 94.5 94.5 94.5 94.5 94.5 94.5 Add: Minority Interest Expense(f) -- 7.0 7.0 7.0 7.0 7.0 7.0 After-Tax Interest Expense(a) -- (4.3) (4.6) (4.7) (4.8) (5.0) (5.1) Goodwill Amortization(g) -- (2.0) (2.2) (2.3) (2.4) (2.5) (2.6) Bond Premium Amortization(h) -- (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) After-Tax Merger Related Savings(i) -- 0.3 0.3 0.3 0.3 0.3 0.3 ------------ ------------ -------- --------- --------- --------- --------- Pro Forma Net Income $94.5 $95.4 $95.0 $94.7 $94.5 $94.2 $94.0 ------------ ------------ -------- --------- --------- --------- --------- Stand Alone Average Fully Diluted Shares 27.8 27.8 27.8 27.8 27.8 27.8 27.8 Shares Issued in Transaction -- -- -- -- -- -- -- Pro Forma Shares 27.8 27.8 27.8 27.8 27.8 27.8 27.8 - ------------------------------------------------------------------------------------------------------------------------------------ Pro Forma EPS 3.40 3.43 3.42 3.41 3.40 3.39 3.38 Percent Change from Stand-Alone EPS -- 0.9% 0.5% 0.2% (0.0%) (0.3%) (0.6%) Required Overhead Reduction for 0% Dilution -- -- -- -- $0.0 $0.4 $0.7 As a Percent of GNC Overhead(j) -- -- -- -- 0.4% 2.8% 5.3% - ------------------------------------------------------------------------------------------------------------------------------------ Pro Forma Debt / Capitalization 26.4% (l) 32.0% 32.3% 32.5% 32.6% 32.8% 32.9% EBIT / Interest Expense(k) 6.6x (l) 8.6x 8.7x 8.8x 8.9x 9.0x 9.0x EBIT / Interest Expense + Preferred Dividends(k) 4.6 (l) 5.6 5.7 5.7 5.7 5.8 5.8 GNC Ownership of Orion Capital -- 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% ------------ ------------ -------- --------- --------- --------- --------- (a) Interest expense assumes an interest rate of 6.90% (10-Year Treasury rate ------------------------------------------ of 5.945 plus 95 bps). Assumes a tax rate of 35.0%. Assumptions ------------------------------------------ (b) As of October 28, 1997. Financing Mix: (c) Represents the purchase of 2.9 million shares not owned by Orion. Debt (a) 100.0% (d) Based on First Call mean estimate as of October 22, 1997. Common Stock -- (e) Based on 27.8 million average fully diluted shares outstanding for the Current OC Share Price (b) $44.75 quarter ended September 30, 1997. Current OC Ownership of GNC 80.7% (f) Based on 19.3% public ownership and estimated GNC 1998E income of $36.2 million ($2.41 per share) based on mean First Call estimate as of October Tax Rate 35.0 22, 1997. ------------------------------------------ (g) Goodwill amortized over a 25 year period. (h) Amortization of $5.6 million after-tax unrealized bond portfolio capital gains over an 8 year period. (i) Represents $500,000 pre-tax savings realized as a result of GNC becoming a wholly owned subsidiary of Orion Capital. Assumes a tax rate of 35.0%. (j) Based on GNC overhead expenses for the twelve months ended September 30, 1997 of $13.6 million. (k) Stand-Alone EBIT includes minority interest expense related to GNC. (l) At of for the three months ended September 30, 1997, annualized.
36 - --------------------- Salomon Brothers --------------------- 40 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 Merger Consequences Analysis: 100% Cash - Mgmt. Estimates Dollars in millions, except per share data
------------ Purchase Price per GNC Share: - --------------------- ----------- Market Price ------------------------------------------------------ Acquisition Analysis: Stand-Alone $33.31 $35.00 $36.00 $37.00 $38.00 $39.00 - --------------------- ----------- ------------ ------ ------ ------ ------ ------ Transaction Value (c): $ 96.9 $101.8 $104.7 $107.6 $110.5 $113.4 Goodwill Created -- 49.5 54.4 57.4 60.3 63.2 66.1 Orion Capital: Stand-Alone 1998E EPS (d) $ 3.51 $ 3.51 $ 3.51 $ 3.51 $ 3.51 $ 3.51 $ 3.51 1998E Income (e) 97.6 97.6 97.6 97.6 97.6 97.6 97.6 Add: Minority Interest Expense (f) -- 7.7 7.7 7.7 7.7 7.7 7.7 After-Tax Interest Expense (a) -- (4.3) (4.6) (4.7) (4.8) (5.0) (5.1) Goodwill Amortization (g) -- (2.0) (2.2) (2.3) (2.4) (2.5) (2.6) Bond Premium Amortization (h) -- (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) After-Tax Merger Related Savings (i) -- 0.3 0.3 0.3 0.3 0.3 0.3 ------ ------ ------ ------ ------ ------ ------ Pro Forma Net Income $ 97.6 $ 99.2 $ 98.7 $ 98.5 $ 98.3 $ 98.0 $ 97.8 ------ ------ ------ ------ ------ ------ ------ Stand Alone Average Fully Diluted Shares 27.8 27.8 27.8 27.8 27.8 27.8 27.8 Shares Issued in Transaction -- -- -- -- -- -- -- Pro Forma Shares 27.8 27.8 27.8 27.8 27.8 27.8 27.8 - ------------------------------------------------------------------------------------------------------------------------------------ Pro Forma EPS 3.51 3.57 3.55 3.54 3.53 3.52 3.5 Percent Change from Stand-Alone EPS -- 1.6% 1.2% 0.9% 0.7% 0.4% 0.2% Required Overhead Reduction for 0% Dilution -- -- -- -- -- -- -- As a Percent of GNC Overhead (j) -- -- -- -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Pro Forma Debt/Capitalization 26.4%(l) 32.0% 32.3% 32.5% 32.6% 32.8% 32.9% EBIT/Interest Expense (k) 6.6x(l) 8.9x 9.Ox 9.1x 9.2x 9.3x 9.3x EBIT/Interest Expense + Preferred Dividends (k) 4.6 (l) 5.8 5.9 5.9 5.9 5.9 6.0 GNC Ownership of Orion Capital -- 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% ------ ------ ------ ------ ------ ------ ------ (a) Interest expense assumes an interest rate of 6.90% (10-year Treasury rate ------------------------------------------ of 5.945 plus 95 bps). Assumes a tax rate of 35.0%. Assumptions ------------------------------------------ (b) As of October 28, 1997. Financing Mix: Debt (a) 100.0% (c) Represents the purchase of 2.9 million shares not owned by Orion. Common Stock -- Current OC Share Price (b) $44.75 (d) Based on management estimates. Current OC Ownership of GNC 80.7% Tax Rate 35.0 (e) Based on 27.8 million average fully diluted shares outstanding for the ------------------------------------------ quarter ended September 30, 1997. (f) Based on 19.3% public ownership and estimated GNC 1998E income of $36.6 million, or $2.65 per share, as per company estimates. (g) Goodwill amortized over a 25 year period. (h) Amortization of $5.6 million after-tax unrealized bond portfolio capital gains over an 8 year period. (i) Represents $500,000 pre-tax savings realized as a result of GNC becoming a wholly owned subsidiary of Orion Capital. Assumes a tax rate of 35.0%. (j) Based on GNC overhead expenses for the twelve months ended September 30, 1997 of $13.6 million. (k) Stand-Alone EBIT includes minority interest expense related to GNC. (l) At of for the three months ended September 30, 1997, annualized.
37 - --------------------- Salomon Brothers --------------------- 41 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 Merger Consequences Analysis: 100% Cash - Mgmt. Est. Pro Forma Dollars in millions, except per share data
------------ Purchase Price per GNC Share: - --------------------- ----------- Market Price ------------------------------------------------------ Acquisition Analysis: Stand-Alone $33.31 $35.00 $36.00 $37.00 $38.00 $39.00 - --------------------- ----------- ------------ ------ ------ ------ ------ ------ Transaction Value (c): $ 96.9 $101.8 $104.7 $107.6 $110.5 $113.4 Goodwill Created -- 49.5 54.4 57.4 60.3 63.2 66.1 Orion Capital: Stand-Alone 1998E EPS (d) $ 3.51 $ 3.51 $ 3.51 $ 3.51 $ 3.51 $ 3.51 $ 3.51 1998E Income (e) 97.6 97.6 97.6 97.6 97.6 97.6 97.6 Add: Minority Interest Expense (f) -- 8.0 8.0 8.0 8.0 8.0 8.0 After-Tax Interest Expense (a) -- (4.3) (4.6) (4.7) (4.8) (5.0) (5.1) Goodwill Amortization (g) -- (2.0) (2.2) (2.3) (2.4) (2.5) (2.6) Bond Premium Amortization (h) -- (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) After-Tax Merger Related Savings (i) -- 0.3 0.3 0.3 0.3 0.3 0.3 ------ ------ ------ ------ ------ ------ ------ Pro Forma Net Income $ 97.6 $ 99.4 $ 99.0 $ 98.8 $ 98.5 $ 98.3 $ 98.0 ------ ------ ------ ------ ------ ------ ------ Stand Alone Average Fully Diluted Shares 27.8 27.8 27.8 27.8 27.8 27.8 27.8 Shares Issued in Transaction -- -- -- -- -- -- -- Pro Forma Shares 27.8 27.8 27.8 27.8 27.8 27.8 27.8 - ------------------------------------------------------------------------------------------------------------------------------------ Pro Forma EPS 3.51 3.58 3.56 3.55 3.54 3.53 3.53 Percent Change from Stand-Alone EPS -- 1.9% 1.4% 1.2% 0.9% 0.7% 0.4% Required Overhead Reduction for 0% Dilution -- -- -- -- -- -- -- As a Percent of GNC Overhead (j) -- -- -- -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Pro Forma Debt/Capitalization 26.4%(l) 32.0% 32.3% 32.5% 32.6% 32.8% 32.9% EBIT/Interest Expense (k) 6.6x(l) 8.9x 9.Ox 9.1x 9.2x 9.3x 9.4x EBIT/Interest Expense + Preferred Dividends (k) 4.6 (l) 5.8 5.9 5.9 5.9 6.0 6.0 GNC Ownership of Orion Capital -- 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% ------ ------ ------ ------ ------ ------ ------ (a) Interest expense assumes an interest rate of 6.90% (10-year Treasury rate ------------------------------------------ of 5.945 plus 95 bps). Assumes a tax rate of 35.0%. Assumptions ------------------------------------------ (b) As of October 28, 1997. Financing Mix: Debt (a) 100.0% (c) Represents the purchase of 2.9 million shares not owned by Orion. Common Stock -- Current OC Share Price (b) $44.75 (d) Based on management estimates. Current OC Ownership of GNC 80.7% Tax Rate 35.0 (e) Based on 27.8 million average fully diluted shares outstanding for the ------------------------------------------ quarter ended September 30, 1997. (f) Based on 19.3% public ownership and estimated GNC 1998E income of $40.8 million, or $2.73 per share, as per company estimates. (g) Goodwill amortized over a 25 year period. (h) Amortization of $5.6 million after-tax unrealized bond portfolio capital gains over an 8 year period. (i) Represents $500,000 pre-tax savings realized as a result of GNC becoming a wholly owned subsidiary of Orion Capital. Assumes a tax rate of 35.0%. (j) Based on GNC overhead expenses for the twelve months ended September 30, 1997 of $13.6 million. (k) Stand-Alone EBIT includes minority interest expense related to GNC. (l) At of for the three months ended September 30, 1997, annualized.
38 - --------------------- Salomon Brothers --------------------- 42 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 Merger Consequences Analysis: 80% Cash - Consensus Estimates Dollars in millions, except per share data
------------ Purchase Price per GNC Share: - --------------------- ----------- Market Price ----------------------------------------------------- Acquisition Analysis: Stand-Alone $33.31 $35.00 $36.00 $37.00 $38.00 $39.00 - --------------------- ----------- ------------ ------ ------ ------ ------ ------ Transaction Value (c): $ 96.9 $101.8 $104.7 $107.6 $110.5 $113.4 Goodwill Created -- 49.5 54.4 57.4 60.3 63.2 66.1 Orion Capital: Stand-Alone 1098E EPS (d) $ 3.40 $ 3.40 $ 3.40 $ 3.40 $ 3.40 $ 3.40 $ 3.40 1998E Income (e) 94.5 94.5 94.5 94.5 94.5 94.5 94.5 Add: Minority Interest Expense (f) -- 7.0 7.0 7.0 7.0 7.0 7.0 After-Tax Interest Expense (a) -- (3.5) (3.6) (3.8) (3.9) (4.0) (4.1) Goodwill Amortization (g) -- (2.0) (2.2) (2.3) (2.4) (2.5) (2.6) Bond Premium Amortization (h) -- (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) After-Tax Merger Related Savings (i) -- 0.3 0.3 0.3 0.3 0.3 0.3 ------ ------ ------ ------ ------ ------ ------ Pro Forma Net Income $ 94.5 $ 96.3 $ 95.9 $ 95.7 $ 95.5 $ 95.2 $ 95.0 ------ ------ ------ ------ ------ ------ ------ Stand Alone Average Fully Diluted Shares 27.8 27.8 27.8 27.8 27.8 27.8 27 8 Shares Issued in Transaction -- 0.4 0.5 0.5 0.5 0.5 0.5 Pro Forma Shares 27.8 28.2 28.3 28.3 28.3 28.3 28.3 - ------------------------------------------------------------------------------------------------------------------------------------ Pro Forma EPS 3.40 3.41 3.39 3.38 3.38 3.37 3.36 Percent Change from Stand-Alone EPS -- 0.3% (0.2%) (0.5%) (0.7%) (1.0%) (1.3%) Required Overhead Reduction for 0% Dilution -- -- $ 0.2 $ 0.6 $ 0.9 $ 1.5 $ 1.6 As a Percent of GNC Overhead (j) -- -- 1.7% 4.3% 6.9% 9.5% 12.1% - ------------------------------------------------------------------------------------------------------------------------------------ Pro Forma Debt/Capitalization 26.4%(l) 30.5% 30.7% 30.8% 30.9% 31.0% 31.2% EBIT/Interest Expense (k) 6.6x(l) 8.2x 8.2x 8.3x 8.3x 8.4x 8.4x EBIT/Interest Expense + Preferred Dividends (k) 4.6 (l) 5.5 5.5 5.5 5.5 5.5 5.5 GNC Ownership of Orion Capital -- 1.5% 1.6% 1.7% 1.7% 1.7% 1.8% ------ ------ ------ ------ ------ ------ ------ (a) Interest expense assumes an interest rate of 6.90% (10-year Treasury rate ------------------------------------------ of 5.945 plus 95 bps). Assumes a tax rate of 35.0%. Assumptions ------------------------------------------ (b) As of October 28, 1997. Financing Mix: Debt (a) 80.0% (c) Represents the purchase of 2.9 million shares not owned by Orion. Common Stock 20.0% Current OC Share Price (b) $44.75 (d) Based on First Call mean estimate as of October 22, 1997. Current OC Ownership of GNC 80.7% Tax Rate 35.0 (e) Based on 27.8 million average fully diluted shares outstanding for the ------------------------------------------ quarter ended September 30, 1997. (f) Based on 19.3% public ownership and estimated GNC 1998E income of $36.2 million (or $2.41 per share) as per company estimates. (g) Goodwill amortized over a 25 year period. (h) Amortization of $5.6 million after-tax unrealized bond portfolio capital gains over an 8 year period. (i) Represents $500,000 pre-tax savings realized as a result of GNC becoming a wholly owned subsidiary of Orion Capital. Assumes a tax rate of 35.0%. (j) Based on GNC overhead expenses for the twelve months ended September 30, 1997 of $13.6 million. (k) Stand-Alone EBIT includes minority interest expense related to GNC. (l) At of for the three months ended September 30, 1997, annualized.
39 - --------------------- Salomon Brothers --------------------- 43 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 Merger Consequences Analysis: 80% Cash - Mgmt. Estimates Dollars in millions, except per share data
------------ Purchase Price per GNC Share: - --------------------- ----------- Market Price ----------------------------------------------------- Acquisition Analysis: Stand-Alone $33.31 $35.00 $36.00 $37.00 $38.00 $39.00 - --------------------- ----------- ------------ ------ ------ ------ ------ ------ Transaction Value (c): $ 96.9 $101.8 $104.7 $107.6 $110.5 $113.4 Goodwill Created -- 49.5 54.4 57.4 60.3 63.2 66.1 Orion Capital: Stand-Alone 1998E EPS (d) $ 3.51 $ 3.51 $ 3.51 $ 3.51 $ 3.51 $ 3.51 $ 3.51 1998E Income (e) 97.6 97.6 97.6 97.6 97.6 97.6 97.6 Add: Minority Interest Expense (f) -- 7.7 7.7 7.7 7.7 7.7 7.7 After-Tax Interest Expense (a) -- (3.5) (3.6) (3.8) (3.9) (4.0) (5.1) Goodwill Amortization (g) -- (2.0) (2.2) (2.3) (2.4) (2.5) (2.6) Bond Premium Amortization (h) -- (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) After-Tax Merger Related Savings (i) -- 0.3 0.3 0.3 0.3 0.3 0.3 ------ ------ ------ ------ ------ ------ ------ Pro Forma Net Income $ 97.6 $100.0 $ 99.7 $ 99.4 $ 99.2 $ 99.0 $ 98.8 ------ ------ ------ ------ ------ ------ ------ Stand Alone Average Fully Diluted Shares 27.8 27.8 27.8 27.8 27.8 27.8 27.8 Shares Issued in Transaction -- 0.4 0.5 0.5 0.5 0.5 0.5 Pro Forma Shares 27.8 28.2 28.3 28.3 28.3 28.3 28.3 - ------------------------------------------------------------------------------------------------------------------------------------ Pro Forma EPS 3.51 3.54 3.53 3.52 3.51 3.50 3.49 Percent Change from Stand-Alone EPS -- 0.9% 0.5% 0.2% (0.1%) (0.3%) (0.6%) Required Overhead Reduction for 0% Dilution -- -- -- -- $ 0.1 $ 0.4 $ 0.8 As a Percent of GNC Overhead (j) -- -- -- -- 0.6% 3.2% 5.8% - ------------------------------------------------------------------------------------------------------------------------------------ Pro Forma Debt/Capitalization 26.4%(l) 30.5% 30.7% 30.8% 30.9% 31.0% 31.2% EBIT/Interest Expense (k) 6.6x(l) 8.4x 8.5x 8.6x 8.6x 8.7x 8.7x EBIT/Interest Expense + Preferred Dividends (k) 4.6 (l) 5.7 5.7 5.7 5.7 5.7 5.7 GNC Ownership of Orion Capital -- 1.5% 1.6% 1.7% 1.7% 1.7% 1.8% ------ ------ ------ ------ ------ ------ ------ (a) Interest expense assumes an interest rate of 6.90% (10-year Treasury rate ------------------------------------------ of 5.945 plus 95 bps). Assumes a tax rate of 35.0%. Assumptions ------------------------------------------ (b) As of October 28, 1997. Financing Mix: Debt (a) 80.0% (c) Represents the purchase of 2.9 million shares not owned by Orion. Common Stock 20.0% Current OC Share Price (b) $44.75 (d) Based on management estimates. Current OC Ownership of GNC 80.7% Tax Rate 35.0 (e) Based on 27.8 million average fully diluted shares outstanding for the ------------------------------------------ quarter ended September 30, 1997. (f) Based on 19.3% public ownership and estimated GNC 1998E income of $36.6 million, or $2.65 per share, as per company estimates. (g) Goodwill amortized over a 25 year period. (h) Amortization of $5.6 million after-tax unrealized bond portfolio capital gains over an 8 year period. (i) Represents $500,000 pre-tax savings realized as a result of GNC becoming a wholly owned subsidiary of Orion Capital. Assumes a tax rate of 35.0%. (j) Based on GNC overhead expenses for the twelve months ended September 30, 1997 of $13.6 million. (k) Stand-Alone EBIT includes minority interest expense related to GNC. (l) At of for the three months ended September 30, 1997, annualized.
40 - --------------------- Salomon Brothers --------------------- 44 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 Merger Consequences Analysis: 80% Cash - Mgmt. Est. Pro Forma Dollars in millions, except per share data
------------ Purchase Price per GNC Share: - --------------------- ----------- Market Price ----------------------------------------------------- Acquisition Analysis: Stand-Alone $33.31 $35.00 $36.00 $37.00 $38.00 $39.00 - --------------------- ----------- ------------ ------ ------ ------ ------ ------ Transaction Value (c): $ 96.9 $101.8 $104.7 $107.6 $110.5 $113.4 Goodwill Created -- 49.5 54.4 57.4 60.3 63.2 66.1 Orion Capital: Stand-Alone 1998E EPS (d) $ 3.51 $ 3.51 $ 3.51 $ 3.51 $ 3.51 $ 3.51 $ 3.51 1998E Income (e) 97.6 97.6 97.6 97.6 97.6 97.6 97.6 Add: Minority Interest Expense (f) -- 8.0 8.0 8.0 8.0 8.0 8.0 After-Tax Interest Expense (a) -- (3.5) (3.6) (3.8) (3.9) (4.0) (4.1) Goodwill Amortization (g) -- (2.0) (2.2) (2.3) (2.4) (2.5) (2.6) Bond Premium Amortization (h) -- (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) After-Tax Merger Related Savings (i) -- 0.3 0.3 0.3 0.3 0.3 0.3 ------ ------ ------ ------ ------ ------ ------ Pro Forma Net Income $ 97.6 $100.3 $ 99.9 $ 99.7 $ 99.5 $ 99.3 $ 99.0 ------ ------ ------ ------ ------ ------ ------ Stand Alone Average Fully Diluted Shares 27.8 27.8 27.8 27.8 27.8 27.8 27.8 Shares Issued in Transaction -- 0.4 0.5 0.5 0.5 0.5 0.5 Pro Forma Shares 27.8 28.2 28.3 28.3 28.3 28.3 28.3 - ------------------------------------------------------------------------------------------------------------------------------------ Pro Forma EPS 3.51 3.55 3.54 3.53 3.52 3.51 3.50 Percent Change from Stand-Alone EPS -- 1.2% 0.7% 0.5% 0.2% (0.1%) (0.3%) Required Overhead Reduction for 0% Dilution -- -- -- -- -- $ 0.1 $ 0.4 As a Percent of GNC Overhead (j) -- -- -- -- -- 0.7% 3.3% - ------------------------------------------------------------------------------------------------------------------------------------ Pro Forma Debt/Capitalization 26.4%(l) 30.5% 30.7% 30.8% 30.9% 31.0% 31.2% EBIT/Interest Expense (k) 6.6x(l) 8.4x 8.5x 8.6x 8.6x 8.7x 8.7x EBIT/Interest Expense + Preferred Dividends (k) 4.6 (l) 5.7 5.7 5.7 5.7 5.7 5.8 GNC Ownership of Orion Capital -- 1.5% 1.6% 1.7% 1.7% 1.7% 1.8% ------ ------ ------ ------ ------ ------ ------ (a) Interest expense assumes an interest rate of 6.90% (10-year Treasury rate ------------------------------------------ of 5.945 plus 95 bps). Assumes a tax rate of 35.0%. Assumptions ------------------------------------------ (b) As of October 28, 1997. Financing Mix: Debt (a) 80.0% (c) Represents the purchase of 2.9 million shares not owned by Orion. Common Stock 20.0% Current OC Share Price (b) $44.75 (d) Based on management estimates. Current OC Ownership of GNC 80.7% Tax Rate 35.0 (e) Based on 27.8 million average fully diluted shares outstanding for the ------------------------------------------ quarter ended September 30, 1997. (f) Based on 19.3% public ownership and estimated GNC 1998E income of $40.8 million, or $2.73 per share, as per company estimates. (g) Goodwill amortized over a 25 year period. (h) Amortization of $5.6 million after-tax unrealized bond portfolio capital gains over an 8 year period. (i) Represents $500,000 pre-tax savings realized as a result of GNC becoming a wholly owned subsidiary of Orion Capital. Assumes a tax rate of 35.0%. (j) Based on GNC overhead expenses for the twelve months ended September 30, 1997 of $13.6 million. (k) Stand-Alone EBIT includes minority interest expense related to GNC. (l) At of for the three months ended September 30, 1997, annualized.
41 - --------------------- Salomon Brothers --------------------- 45 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 Appendices 42 - --------------------- Salomon Brothers --------------------- 46 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 Acquisition of Unisun Insurance 43 - --------------------- Salomon Brothers --------------------- 47 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 GNC: Acquisition of Unisun Insurance Company Transaction Summary o On October 20, 1997, GNC agreed to acquire Unisun Insurance Company ("Unisun") for $26 million in cash. o The transaction is expected to be immediately accretive to earnings, and is expected to add $0.08, $0.13 and $0.19 per share in 1998, 1999 and 2000, respectively. Company Overview o Unisun is a leading writer of private passenger automobile liability insurance in South Carolina and ranks as a leading service carrier for both the North Carolina and South Carolina reinsurance facility. o A large portion of the company's business is ceded to the facility, enabling the company to act primarily as a servicer for these policies. Transaction Benefits o Recent legislation in South Carolina will result in the creation of a significant voluntary nonstandard automobile market in March 1999. o There is significant opportunity to realize cost savings. o This acquisition provides GNC with a Southeast market presence and provides a platform for further market expansion in that region. 44 - --------------------- Salomon Brothers --------------------- 48 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 Selected P&C Industry Merger and Acquisition Transactions 45 - --------------------- Salomon Brothers --------------------- 49 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 M&A Transaction Analysis: Property & Casualty
Description Total Announced Target Acquiror of Consideration (Closed) (parent) (parent) Target in millions) - ----------------------------------------------------------------------------------------------------------------------------- 10/16/97 Omni Insurance Grp. Inc. Hartford Fin. Svcs. Grp. Inc. Nonstandard auto insurance $ 187.4 (Pending) 9/18/97 Westchester Specialty Group Ace Ltd. Commercial Property and 333.0 (Pending) (Talegen Holdings Inc.) Umbrella Liability 8/21/97 Cmwlth Land Title/Transnation Title Lawyers Title Corp. Title Insurance 458.2 (Pending) (Reliance Group Holdings) 8/15/97 Physicians Protective Trust Professionals Ins. Co. Mgt. Grp. Malpractice Insurance 126.8 (Pending) 8/8/97 Titan Holdings USF&G Nonstandard 233.0 (Pending) Automobile 7/3/97 Colonial Penn GECC Personal Lines 950.0 (Pending) 6/25/97 Unionamerica Holdings PLC MMI Cos. Medical malpractice 179.5 (Pending) reinsurance 6/23/97 Sphere Drake Holdings Ltd. Fairfax Financial Holdings Ltd. Reinsurance 137.9 (Pending) 6/23/97 Integon Corp. GMAC Nonstandard 550.0 (Pending) Automobile 6/9/97 American States Financial Corp. Safeco Corp. Small commercial; 2,822.4 (Pending) personal lines 6/2/97 Anthem Inc. Acordia Inc Insurance Broking 172.7 7/15/97 5/8/97 OCR Holdings. Ltd. EXEL, Ltd. Reinsurance 668.7 (Pending) 4/30/97 Anthem Casualty Ins. Group, Inc. (c) Vesta Insurance Group, Inc. Auto and Homeowners' 238.8 6/30/97 Insurance 5/19/97 Industrial Indemnity Fremont General Corp. Workers' Compensation 365.0 (Pending) (Talegen Holdings Inc.) 3/31/97 Lyndon Property Insurance Co. (c) Frontier Insurance Group, Inc. Credit Insurance 92.0 6/4/97 (Mercury Finance) 3/6/97 Crop Growers Corp. Fireman's Fund Insurance Co. Crop-insurance 81.7 (Pending) 2/21/97 Allmerica Property & Casualty Cos. Allmerica Financial Corporation Commercial and 797.0 (7/16/97) personal lines 1/23/97 Coregis Group Inc. (c) General Electric Specialty P&C 375.0 (6/2/97) 1/17/97 AVEMCO Corporation HCC Insurance Holdings, Inc. Aviation 227.3 (Pending) Price as a Multiple of E.V. as a Multiple of ---------------------------------- --------------------- GAAP SAP ---------------------------------- --------------------- Price Premium LTM Net LTM Net Capital Announced Per to Operating Forward Book Operating and (Closed) Share Mkt. (a) Income Earnings (b) Value Income Surplus - ---------------------------------------------------------------------------------------------- 10/16/97 $31.75 130.9% 34.8 x 27.4 x 3.36 x 67.5 x 5.19 x (Pending) 9/18/97 NM NM NA NA NA 7.6 0.97 (Pending) 8/21/97 NM NM NA NA NA NA NA (Pending) 8/15/97 NM NM NA NA NA NA NA (Pending) 8/8/97 23.20 1.4 15.1 11.8 1.97 19.7 3.52 (Pending) 7/3/97 NA NA 19.1 NA 2.90 17.9 2.79 (Pending) 6/25/97 21.27 28.9 9.9 9.0 1.72 8.7 1.08 (Pending) 6/23/97 7.50 (d) (13.0) 7.1 6.0 0.55 NM NM (Pending) 6/23/97 26.00 67.7 NM 23.0 3.04 NM 3.21 (Pending) 6/9/97 47.00 30.6 16.0 14.8 2.13 16.3 2.76 (Pending) 6/2/97 39.50 12.7 19.2 17.0 2.57 NA NA 7/15/97 5/8/97 27.00 20.7 8.2 8.2 1.57 NA NA (Pending) 4/30/97 NA NA NM NA 2.20 17.9 1.53 6/30/97 5/19/97 NA NA NA NA NA NM 1.60 (Pending) 3/31/97 NA NA 4.5 NA 0.78 3.4 1.29 6/4/97 3/6/97 10.25 41.4 NM 10.0 2.42 NA NA (Pending) 2/21/97 33.00 5.2 16.8 NA 1.22 14.2 NA (7/16/97) 1/23/97 NA NA NA NA NA 14.1 1.50 (6/2/97) 1/17/97 27.50 83.3 29.9 18.0 3.75 19.2 3.12 (Pending)
(a) Premium to market one month prior to public announcement. (b) Based on the following year's median IBES estimate as of announcement date. (c) Represents a private transaction. (d) Excludes contingent payment of $9.86 per share, or an aggregate of $181.2 million, payable in 2007. 46 - --------------------- Salomon Brothers --------------------- 50
M&A Transaction Analysis: Property & Casualty Description Total Announced Target Acquiror of Consideration (Closed) (parent) (parent) Target (in millions) - ----------------------------------------------------------------------------------------------------------------------------- 1/13/97 Zurich Reinsurance Centre Hold. Zurich Group Reinsurance $ 322.5 (Pending) 11/21/96 American Fidelity Ins. Co. (c) Mercury General Corp. Automobile/casualty 34.8 (Pending) 9/17/96 Pac Rim Holding Corporation Superior National Insurance Worker's compensation 53.9 (4/11/97) 9/16/96 Allstate Reinsurance Scor U.S. Corp. Reinsurance 500.0 (10/8/96) 8/14/96 American Re Corporation Munich Re Reinsurance 3,300.0 (11/25/96) 8/14/96 Guardian Royal Exchange (c) Transatlantic Reinsurance Co. Reinsurance 105.0 (8/14/96) 7/1/96 National Reinsurance General Reinsurance Property/Casualty Rein. 940.0 (10/3/96) 6/21/96 Vik Brothers (c) Highlands Insurance Grp, Inc. Com. P&C for small 110.0 (4/30/97) to medium sized co's. 6/20/96 Northbrook Group (c) St. Paul Fire and Marine Ins. Comm. auto, workers' 180.0 (8/1/96) (Allstate) comp. and inland marine 5/10/96 Transnational Reins. Corp PXRE Corp. Retr. reins. in brokered 124.9 (12/11/96) prop., marine, & aviation 3/4/96 Citation Insurance Group Physicians Ins. Co. of Ohio Workers' comps and 30.7 (11/21/96) commercial P&C 2/21/96 Skandia America Rein. Corp. (c) Fairfax Financial Holdings Limit P&C Reinsurance 230.0 (5/31/96) (Skandia Insurance Co., Ltd. Sweeden) 2/19/96 Financial Institions Ins. Grp. Castle Harlan Prtnr's II LP Reinsurance and 48.6 (9/9/96) Specialty Line P&C 2/9/96 Tempest Re (c) Ace Limited Property Catastrophe 743.9 (5/22/96) Reinsurance 11/29/93 Aetna Property & Casualty (c) Travelers Group National P&C Co. 4,000.0 (4/2/1996) (Aetna Life & Casualty) 9/26/95 Scor U.S. Scor S.A. Reinsurance 50.9 (12/21/95) 9/14/95 Midwest Employer Casualty Co. (c) W.R. Berkley Workers' Comp. Co. 138.0 (11/8/95) (MECC Inc.) 8/25/95 GEICO Berkshire Hathaway Multi-line P&C 2,322.8 (1/2/96) 6/19/95 Milwaukee Insurance Grp. Inc. Unitrin Inc. P&C Insurance 94.0 (10/3/95) 4/27/95 Viking Insurance Holdings Inc. (c) Guaranty National Corp. Regional P&C Company 102.0 (7/18/95) (Xerox Corp.) Price as a Multiple of E.V. as a Multiple of: ---------------------------------- ---------------------- GAAP SAP ---------------------------------- ---------------------- Price Premium Net Net Capital Announced Per to Operating Forward Book Operating and (Closed) Share Mkt. (a) Income Earnings (b) Value Income Surplus - ---------------------------------------------------------------------------------------------- 1/13/97 $36.00 12.1% 27.1 x 21.8 x 1.32 x 52.6 x 0.49 x (Pending) 11/21/96 NA NA NA NA NA NM 0.94 (Pending) 9/17/96 3.00 26.3 NM NA 0.91 NM 1.15 (4/11/97) 9/16/96 NA NA NA NA NA NA NA (10/8/96) 8/14/96 65.00 53.4 NM 14.4 3.58 NM 2.87 (11/25/96) 8/14/96 NA NA NA NA NA NA NA (8/14/96) 7/1/96 53.00 60.6 18.5 15.1 2.30 18.6 2.07 (10/3/96) 6/21/96 NA NA NA NA 0.93 NM 0.70 (4/30/97) 6/20/96 NA NA NA NA 1.38 11.1 0.73 (8/1/96) 5/10/96 23.28 4.0 5.8 6.1 0.96 5.9 1.05 (12/11/96) 3/4/96 5.03 15.0 9.1 20.1 0.68 20.6 1.03 (11/21/96) 2/21/96 NA NA NA NA NA NM 0.81 (5/31/96) 2/19/96 16.00 15.3 13.7 NA 1.06 84.0 1.15 (9/9/96) 2/9/96 NA NA 7.0 NA 1.01 NA NA (5/22/96) 11/29/95 NA NA NM NA 1.03 NM 1.71 (4/2/1996) 9/26/95 14.00 21.7 NM 14.7 0.93 NM 1.01 (12/21/95) 9/14/95 NA NA 5.0 NA 1.09 7.8 1.96 (11/8/95) 8/25/95 70.00 25.8 24.0 18.8 2.86 23.6 4.56 (1/2/96) 6/19/95 22.00 91.3 27.1 17.6 1.22 NM 1.85 (10/3/95) 4/27/95 NA NA NA NA NA 10.1 1.24 (7/18/95)
(a) Premium to market one month prior to public announcement. (b) Based on the following year's median IBES estimate as of announcement date. (c) Represents a private transaction. 47 - --------------------- Salomon Brothers --------------------- 51 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997
M&A Transaction Analysis: Property & Casualty Description Total Announced Target Acquiror of Consideration (Closed) (parent) (parent) Target (in millions) - ------------------------------------------------------------------------------------------------------------------------- 1/12/95 Re Capital Corp. Zurich Reinsurance Co. Reinsurance $ 203.5 (4/26/95) 12/19/94 Victoria Financial Corp. USF&G Regional P&C 55.3 (5/22/95) 12/19/94 Constitution Re Corporation (c) EXOR America, Inc. Specialty Reinsurance 421.0 (4/26/95) (Talegen Holdings / Xerox) 12/6/94 Continental Corp. CNA Financial Corp. Regional P&C 1,107.3 (5/10/95) 7/28/94 Bankers and Shippers Ins. Co. (c) Integon Corp. Regional P&C Company 142.0 (10/18/94) (Travelers Indemnity Co.) 11/23/93 Federal Kemper Insurance Co. (c) Anthem P&C Holdings Regional P&C Company 105.0 (1/03/94) (Kemper Corp) (Associated Insurance Co.) 10/29/93 Ranger Insurance Co. (c) Fairfax Financial Hold. Ltd. Regional P&C Company 135.0 (1/06/94) ------------------------------------------------------- GNC Financial Data (d) ------------------------------------------------------- Enterprise Value $602.6 Market Cap 501.5 Statutory Surplus 289.3 Statutory Oper. Earnings (e) 41.3 GAAP Book Value 278.7 GAAP Oper. Earnings 31.7 Number of Shares 15.1 1997E EPS (f) $ 2.26 1998E EPS (f) 2.65 ------------------------------------------------------- Price as a Multiple of E.V. as a Multiple of: ---------------------------------- ---------------------- GAAP SAP ---------------------------------- ---------------------- Price Premium Net Net Capital Announced Per to Operating Forward Book Operating and (Closed) Share Mkt. (a) Income Earnings (b) Value Income Surplus - -------------------------------------------------------------------------------------------------------- 1/12/95 $18.50 49.5% 15.0 x 13.2 x 1.O8 x NA 1.23 x (4/26/95) 12/19/94 13.00 89.1 34.1 13.0 2.03 18.6 x 2.68 (5/22/95) 12/19/94 NA NA 10.8 19.0 1.19 12.3 1.41 (4/26/95) 12/6/94 20.00 35.6 NM NA 0.80 9.9 0.61 (5/10/95) 7/28/94 NA NA NA NA NA 22.4 2.21 (10/18/94) 11/23/93 NA NA NA NA 1.20 11.5 1.62 (1/03/94) 10/29/93 NA NA NA NA NA 16.5 1.41 (1/06/94) ------------------------------------------------------------------------------------------------- Median 27.6% 15.1 x 14.8 x 1.38 x 17.9 x 1.50 x Mean 37.9 16.4 15.2 1.75 21.3 1.87 75th Percentile 55.2 21.6 18.8 2.28 19.6 2.18 25th Percentile 14.4 8.6 11.8 1.01 10.3 1.04 ------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------ Implied Equity Value per GNC Share Median -- $31.82 $39.22 $25.66 -- -- Mean -- 34.61 40.25 32.44 -- -- 75th Percentile -- 45.54 49.82 42.16 -- -- 25th Percentile -- 18.21 31.27 18.78 -- -- ------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------ Implied Enterprise Value per GNC Share Median -- -- -- -- $49.06 $28.77 Mean -- -- -- -- 58.45 35.97 75th Percentile -- -- -- -- 53.65 41.83 25th Percentile -- -- -- -- 28.36 19.98 ------------------------------------------------------------------------------------------------
(a) Premium to market one month prior to public announcement. (b) Based on the following year's median IBES estimate as of announcement date. (c) Represents a private transaction. (d) Financial data at or for the twelve months ended September 30, 1997. (e) For the six months ended June 30, 1997, annualized. N.B. NA = Not Available NM = Not Meaningful 48 - --------------------- Salomon Brothers --------------------- 52 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 Selected Squeeze Out Transaction Analysis 49 - --------------------- Salomon Brothers --------------------- 53 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 Squeeze Out Transaction Analysis
Per Share % Change Date --------------- From Deal - -------------------- Initial Final Offer Initial Value Announced Completed Price Price Amended? Offer Acquiror Name Target Name ($ mil) - ------------------------------------------------------------------------------------------------------------------------------------ 10/20/97 (pending) $25.00 -- -- -- HSN Inc. Ticketmaster Group Inc $340.8 9/11/97 (pending) 48.00 -- -- -- Investor Group BET Holdings Inc. 288.0 8/29/97 (pending) 19.50 -- -- -- Rexel SA (Pinault-Printemps) Rexel Inc. 250.8 7/9/97 (pending) 24.00 -- -- -- Investor Group Seaman Furniture Co 31.6 6/26/97 (pending) 97.00 -- -- -- Rhone-Poulenc SA (France) Rhone-Poulenc Rorer Inc 4,000.6 6/20/97 (pending) 15.00 -- -- -- Waste Management Inc. Wheelabrator Technologies Inc 774.7 6/13/97 (pending) 52.75 -- -- -- Hilton Hotels Corp Bally's Grand Inc 42.6 6/2/97 7/15/97 40.00 $40.00 no -- Anthem Inc. Acordia Inc (Anthem Inc) 172.7 5/22/97 (pending) 15.50 -- -- -- Texas Industries Inc. Chaparral Steel Co 65.9 5/14/97 (pending) 35.10 -- -- -- Enron Corp. Enron Global Power & Pipelines 403.9 5/5/97 (pending) 10.00 -- -- -- St Joe Paper Co Florida East Coast Inds Inc 428.4 3/3/97 (pending) 37.00 -- -- -- American Financial Group Inc American Finl Entps Inc 83.6 2/25/97 (pending) 60.00 -- -- -- Petrofina SA Fina Inc 257.0 1/28/97 5/21/97 7.25 8.00 yes 10.3% Monsanto Co Calgene Inc (Monsanto Co) 242.6 1/21/97 7/9/97 38.50 33.50 yes (13.0) Mafco Holdings Mafco Consolidated Grp (Mafco) 116.8 1/13/97 9/4/97 36.00 39.50 yes 9.7 Zurich Group Zurich Reinsurance Centre Holding 322.5 Inc. 12/17/96 7/16/97 29.00 33.00 yes 13.8 Allmerica Financial Allmerica Property & Casualty 796.9 Corporation 11/27/96 3/27/97 14.25 14.25 no -- JW Childs Equity Partners LP Central Tractor Farm & Country 53.6 11/20/96 Withdrawn 19.00 22.50 yes 18.4 Andrews Group Inc. Toy Biz Inc. 206.0 10/10/96 11/27/96 10.00 10.00 no -- Renco Group Inc WCI Steel Inc 56.5 9/9/96 9/23/96 -- -- no -- Highwoods Property Crocker Realty Trust Inc. 73.7 8/8/96 9/17/96 41.00 41.00 no -- Chemed Corp Roto-Rooter Inc 88.3 7/31/96 11/13/96 8.00 8.00 no -- Monsanto Co. Calgene 50.0 5/27/96 2/16/97 17.00 19.50 no --- Sandoz Ltd SyStemix Inc 76.2 5/10/96 12/11/96 23.52 24.32 yes 3.4 PXRE Corp. Transnational Re Corp. 130.5 5/7/96 7/3/96 17.50 18.50 yes 5.7 Orion Capital Corp Guaranty National Corp 85.1 4/8/96 8/16/96 55.00 55.00 no -- AirTouch Communications Cellular Communications Inc 1,606.5 - ------------------------------------------------------------------------------------------------------------------------------------ Offer Premium Percent Percent Date ---------------- Held at Owned - -------------------- % % 1 Week 4 Weeks Ann Percent After Announced Completed Stock Cash Prior Prior Date Sought Transaction - -------------------------------------------------------------------------------------------- 10/20/97 (pending) 50.0%(a) 50.0%(a) 8.1% 31.6% 44.6% 55.4% -- 9/11/97 (pending) 0.0 100.0 20.8 20.6 61.2 38.8 -- 8/29/97 (pending) 0.0 100.0 3.3 5.4 50.6 49.4 -- 7/9/97 (pending) 0.0 100.0 21.5 21.5 66.9 33.1 -- 6/26/97 (pending) 0.0 100.0 16.5 22.7 31.4 34.3 65.7% 6/20/97 (pending) 0.0 100.0 16.5 18.8 34.0 33.0 -- 6/13/97 (pending) 0.0 100.0 29.8 31.1 86.2 6.9 -- 6/2/97 7/15/97 0.0 100.0 11.5 26.0 66.8 33.2 100.0 5/22/97 (pending) 0.0 100.0 15.2 18.8 60.0 18.7 -- 5/14/97 (pending) 100.0 0.0 7.6 13.3 41.6 49.4 -- 5/5/97 (pending) 0.0 100.0 16.6 9.7 81.0 46.0 -- 3/3/97 (pending) 0.0 100.0 0.0 0.0 66.0 17.0 -- 2/25/97 (pending) 0.0 100.0 18.5 21.5 70.6 14.7 -- 1/28/97 5/21/97 0.0 100.0 60.0 60.0 44.6 43.7 100.0 1/21/97 7/9/97 0.0 100.0 23.5 27.6 85.0 15.0 100.0 1/13/97 9/4/97 0.0 100.0 18.5 12.1 65.7 34.3 100.0 12/17/96 7/16/97 47.0 53.0 12.8 15.3 59.5 40.5 100.0 11/27/96 3/27/97 0.0 100.0 21.3 26.7 64.5 35.5 100.0 11/20/96 Withdrawn 0.0 100.0 25.9 20.0 67.0 33.0 -- 10/10/96 11/27/96 0.0 100.0 29.0 77.8 84.5 15.5 100.0 9/9/96 9/23/96 0.0 100.0 NA NA 77.0 23.0 100.0 8/8/96 9/17/96 0.0 100.0 20.6 19.7 54.9 45.1 94.5 7/31/96 11/13/96 0.0 100.0 80.3 39.1 49.9 4.7 54.6 5/27/96 2/16/97 0.0 100.0 69.5 59.2 73.0 27.0 100.0 5/10/96 12/11/96 100.0 0.0 16.5 9.9 22.3 77.7 100.0 5/7/96 7/3/96 0.0 100.0 15.6 22.3 49.5 30.7 80.2 4/8/96 8/16/96 0.0 100.0 7.8 6.3 40.0 60.0 100.0 - --------------------------------------------------------------------------------------------
(a) Ticketmaster Group Inc. shareholders have the right to choose between 1 HSBI share or $25 in cash. 50 - --------------------- Salomon Brothers --------------------- 54 GUARANTY NATIONAL CORPORATION / OCTOBER 30, 1997 Squeeze Out Transaction Analysis
Per Share % Change Date --------------- From Deal - -------------------- Initial Final Offer Initial Value Announced Completed Price Price Amended? Offer Acquiror Name Target Name ($ mil) - ------------------------------------------------------------------------------------------------------------------------------------ 3/29/96 4/26/96 $50.00 $50.00 no -- Equity Holdings Ltd. Great American Mgmt & Invt. Inc $55.6 1/26/96 5/31/96 25.80 25.80 no -- NationsBank Corp. Charter Bancshares Inc 94.7 11/6/95 Withdrawn 9.00 -- -- -- Investor Group NPC International Inc 82.1 10/18/95 11/28/95 11.75 11.75 no -- Rhone-Poulenc Rover Inc Applied Immune Sciences Inc 84.6 9/27/95 Withdrawn 25.00 -- -- -- Varity Corp. Hayes Wheels International Inc 235.9 9/26/95 12/21/95 14.00 15.25 yes 8.9 SCOR SA SCOR SA Corp 55.4 8/25/95 1/2/96 70.00 70.00 no -- Berkshire Hathaway Inc GEICO Corp 2,347.0 7/14/95 12/11/95 18.00 20.00 yes 11.1 COBE Laboratories (Gambro AB) REN Corp-USA 177.7 5/19/95 12/6/95 36.50 40.50 yes 11.0 BICSA Bic Corp 212.6 4/7/95 10/3/95 127.50 129.90 yes 1.9 McCaw Cellular Commun (AT&T) LIN Bdcstg 3,323.4 4/5/95 8/2/95 26.25 32.00 yes 21.9 Club Mediterranee SA Club Med Inc 153.4 3/27/95 Withdrawn 30.00 -- -- -- Terra Industries Inc Terra Nitrogen Co LP 229.1 2/27/95 Withdrawn 22.00 -- -- -- Conseco Bankers Life Holding Corp. 458.5 2/27/95 8/31/95 22.50 23.25 yes 3.3 Conseco CCP Insurance Inc 273.7 2/7/95 7/12/95 14.00 16.35 yes 16.8 WMX Technologies Inc Rust International Inc 50.5 1/31/95 2/1/95 -- 69.54 yes NA Sandoz AG SyStemix Inc 80.0 1/18/95 8/9/95 26.00 29.00 yes 11.5 Arcadian Corp Arcadian Partners LP 428.4 12/28/94 4/28/95 20.00 20.00 no -- Fleet Financial Group Inc Fleet Mortgage Group Inc 188.1 11/2/94 9/27/95 28.00 30.00 yes 7.1 PacifiCorp Pacific Telecom 159.0 9/8/94 5/12/95 22.50 25.50 yes 13.3 GTE Corp Contel Cellular Inc (Contel) 254.3 8/24/94 3/24/95 14.00 15.75 yes 12.5 Dole Food Co Inc Castle & Cooke Homes Inc 81.5 8/9/94 Withdrawn 7.50 -- -- -- Minorco SA (Anglo American) Terra Industries Inc 99.8 7/29/94 11/1/94 65.00 65.00 no -- Foundation Health Corp Intergroup Healthcare Corp 255.7 7/28/94 1/24/95 7.80 8.85 yes 13.5 WMX Technologies Inc Chemical Waste Management Inc 397.4 6/6/94 12/29/94 18.38 18.38 no -- OgdenCorp Ogden Projects Inc 110.3 4/28/94 Withdrawn 17.50 -- -- -- Investor Group Enquirer/Star Group Inc 315.0 4/26/94 7/26/94 4.48 4.48 no -- Burlington Resources Inc Diamond ShamrocO Offshore 42.6 3/14/94 8/9/94 2.68 2.68 no -- Sea Containers Ltd Orient-Express Hotels Inc 75.2 2/17/94 9/15/94 84.75 84.75 no -- EW Scripps (Edward Scripps Tr) Scripps Howard Broadcasting Co 115.9 - ------------------------------------------------------------------------------------------------------------------------------------ Offer Premium Percent Percent Date ---------------- Held at Owned - -------------------- % % 1 Week 4 Weeks Ann Percent After Announced Completed Stock Cash Prior Prior Date Sought Transaction - -------------------------------------------------------------------------------------------- 3/29/96 4/26/96 0.0% 100.0% 4.2% 3.6% 87.9% 12.1% 100.0% 1/26/96 5/31/96 100.0 0.0 15.9 22.8 42.0 58.0 42.0 11/6/95 Withdrawn 0.0 100.0 44.0 33.3 62.0 38.0 62.0 10/18/95 11/28/95 0.0 100.0 51.6 38.2 46.0 54.0 99.0 9/27/95 Withdrawn 0.0 100.0 19.0 19.8 46.3 53.7 46.3 9/26/95 12/21/95 0.0 100.0 35.6 38.6 80.0 20.0 100.0 8/25/95 1/2/96 0.0 100.0 23.1 25.3 52.4 47.6 100.0 7/14/95 12/11/95 0.0 100.0 20.3 26.0 53.0 47.0 100.0 5/19/95 12/6/95 0.0 100.0 12.5 28.6 78.0 22.0 100.0 4/7/95 10/3/95 0.0 100.0 6.7 1.3 52.0 48.0 100.0 4/5/95 8/2/95 0.0 100.0 39.9 44.6 67.0 33.0 100.0 3/27/95 Withdrawn 0.0 100.0 11.1 8.6 59.4 40.6 59.4 2/27/95 Withdrawn 0.0 100.0 21.4 6.0 63.2 39.6 100.0 2/27/95 8/31/95 0.0 100.0 30.1 23.2 48.1 51.9 100.0 2/7/95 7/12/95 0.0 100.0 39.1 39.1 96.3 3.7 100.0 1/31/95 2/1/95 0.0 100.0 315.2 303.1 60.0 11.6 71.6 1/18/95 8/9/95 0.0 50.0 21.5 26.1 45.0 55.0 100.0 12/28/94 4/28/95 0.0 100.0 18.5 18.5 81.0 19.0 100.0 11/2/94 9/27/95 0.0 100.0 23.7 23.7 86.6 13.4 100.0 9/8/94 5/12/95 0.0 100.0 37.8 36.0 90.0 10.0 100.0 8/24/94 3/24/95 0.0 100.0 41.6 55.6 81.7 18.3 100.0 8/9/94 Withdrawn 0.0 100.0 25.0 (4.8) 44.6 15.9 44.6 7/29/94 11/1/94 91.5 0.0 71.1 71.1 62.6 37.4 100.0 7/28/94 1/24/95 NA NA 8.9 1.1 78.5 21.5 100.0 6/6/94 12/29/94 100.0 0.0 17.6 20.5 84.2 15.8 100.0 4/28/94 Withdrawn 0.0 100.0 20.7 7.7 56.8 43.2 56.8 4/26/94 7/26/94 0.0 100.0 (0.4) 5.4 87.1 12.9 100.0 3/14/94 8/9/94 20.2 0.0 64.8 53.0 41.9 58.1 100.0 2/17/94 9/15/94 100.0 0.0 13.0 13.0 86.0 14.0 100.0 - --------------------------------------------------------------------------------------------
N.B. Includes transactions over $40 million in which acquirer owns 40% or more of target before announcement date. Includes acquisitions of public U.S.targets only. "Offer" represents public announcement of offer to purchase. Source: Securities Data Corporation. 51 - --------------------- Salomon Brothers --------------------- 55 GUARANTY NATIONAL CORPORATION / NOVEMBER 24, 1997 Squeeze Out Transaction Analysis
Per Share % Change Date --------------- From Deal - -------------------- Initial Final Offer Initial Value Announced Completed Price Price Amended? Offer Acquiror Name Target Name ($ mil) - ----------------------------------------------------------------------------------------------------------------------------------- 1/7/94 2/23/94 $7.65 $7.65 no --- Holderbank Financiere Glarus Holnam Inc (Holdernam Inc) $51.7 10/22/93 10/22/93 14.70 14.70 no --- Manville Corp Riverwood International Corp 50.0 10/14/93 5/31/94 11.00 12.10 yes 10.0% Valero Energy Corp Valero Natural Gas Partners LP 117.4 10/13/93 4/6/94 27.25 27.75 yes 1.8 Medco Containment Services Inc Medical Marketing Group Inc 122.5 9/20/93 12/10/93 48.00 46.00 yes (4.2) Valley Fashions Corp West Point-Pepperell Inc 66.3 9/13/93 10/5/93 13.00 7.56 yes (41.8) Blockbuster Entertainment Corp Spelling Entertainment Inc 101.3 3/22/93 5/7/93 25.00 30.00 yes 20.0 New Marvel Holdings Inc Marvel Entertainment Group Inc 300.0 11/13/92 5/7/93 17.88 18.75 yes 4.9 Rust International Inc Brand Cas Inc 185.0 9/9/92 2/26/93 21.04 25.50 yes 21.2 American Maize-Products Co American Fructose Corp 130.3 8/19/92 11/19/92 13.50 13.50 no --- Investor Group FoxMeyer Corp (Natl Intergroup) 44.6 8/17/92 12/31/92 14.72 25.78 yes 75.1 Leucadia National Corp PHLCORP Inc 139.9 6/25/92 Withdrawn 22.00 --- -- 17.0 Oaty Holdings Oaty Holdings Inc 111.8 3/2/92 7/14/92 16.50 19.00 yes 15.2 WR Grace & Co Grace Energy Corp 77.3 2/6/92 7/30/92 6.00 7.25 yes 20.8 Charter Co (American Financial) Spelling Entertainment Inc 43.0 - ----------------------------------------------------------------------------------------------------------------------------------- Offer Premium Percent Percent ---------------- Held at Owned % % 1 Week 4 Weeks Ann Percent After Acquiror Name Stock Cash Prior Prior Date Sought Transaction - ----------------------------------------------------------------------------------------------- Holderbank Financiere Glarus 0.0% 100.0% 15.5% 7.4% 95.0% 5.0% 100.0% Manville Corp 0.0 100.0 12.0 8.9 80.5 1.0 81.5 Valero Energy Corp 0.0 100.0 29.1 36.3 49.0 51.0 100.0 Medco Containment Services Inc 0.0 100.0 NA (5.9) 51.5 48.5 100.0 Valley Fashions Corp 0.0 100.0 (19.8) (19.8) 95.1 4.9 100.0 Blockbuster Entertainment Corp 100.0 0.0 (5.5) 0.8 50.3 20.9 71.2 New Marvel Holdings Inc 0.0 100.0 42.9 58.9 59.6 20.7 80.3 Rust International Inc 30.0 70.0 13.6 4.9 55.8 44.2 100.0 American Maize-Products Co 100.0 0.0 23.6 29.1 42.7 57.3 100.0 Investor Group 0.0 100.0 18.7 1.9 66.5 10.4 76.9 Leucadia National Corp 100.0 0.0 15.2 28.9 63.1 36.9 100.0 Oaty Holdings 0.0 100.0 51.5 46.1 51.9 48.1 51.9 WR Grace & Co 0.0 100.0 21.6 7.8 83.4 16.6 100.0 Charter Co (American Financial) 0.0 0.0 45.0 45.0 82.3 17.7 100.0 - -----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------- For all Transactions (b): Median 0.0% 100.0% 20.4% 21.5% 62.3% 13.1% 100.0% Mean 15.1 81.5 28.0 27.2 63.5 31.6 90.3 High 100.0 100.0 315.2 303.1 96.3 77.7 100.0 Low 0.0 0.0 (19.8) (19.8) 22.3 1.0 42.0 25th Percentile 0.0 100.0 13.5 8.6 50.0 16.1 84.8 75th Percentile 0.0 100.0 29.9 33.3 80.4 46.8 100.0 ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- Excluding Withdrawn Offers (b): Median 0.0% 100.0% 18.7% 22.5% 64.5% 33.0% 100.0% Mean 16.8 79.4 28.1 28.4 64.5 30.7 94.5 High 100.0 100.0 315.2 303.1 96.3 77.7 100.0 Low 0.0 0.0 (19.8) (19.8) 22.3 1.0 42.0 -----------------------------------------------------------------------------
-------------------------------------------------- Implied Equity Value Per GNC Share (a) --------------------------------------- Median -- -- $40.12 $40.47 Mean -- -- 42.64 42.37 -------------------------------------------------- N.B Includes transactions over $40 million in which acquiror owns 40% or more of target before announcement date. Includes acquisitions of public U.S. targets only. "Offer" represents public announcement of offer to purchase. Source: Securities Data Corporation (a) Bared on GNC share price of $33.31 on October 28, 1997. 52 - --------------------- Salomon Brothers --------------------- 56 GUARANTY NATIONAL CORPORATION / NOVEMBER 24, 1997 GNC: Ownership Profile 53 - --------------------- Salomon Brothers --------------------- 57 GUARANTY NATIONAL CORPORATION / NOVEMBER 24, 1997 Guaranty National Corporation Ownership Profile % of Non-Orion Institutional Holders (a) Shares % of Total (b) Shares (c) - ------------------------- ------ -------------- ---------- Orion Capital Corporation 12,129.9 80.7% -- Dimensional Fund Advs 219.3 1.5 7.5 % Wachovia Corporation 186.8 1.2 6.4 Grace & White Inc. 183.5 1.2 6.3 Barclay's Bank PLC 152.1 1.0 5.2 Wilshire Assoc. Inc. 146.7 1.0 5.0 Franklin Resources Inc. 141.9 0.9 4.9 Mellon Bank Corp. 116.5 0.8 4.0 Citicorp 103.0 0.7 3.5 First Manhattan Co. 89.8 0.6 3.1 Other Institutional Holders 825.9 5.5 28.4 - --------------------------- -------- -------- -------- Total Institutional 14,295.5 95.1 74.5 Officers and Directors (d) 254.2 1.7 8.7 - --------------------------- -------- -------- -------- Total Visible Ownership 14,549.6 96.7 83.2 "Retail Holdings" 488.8 3.3 16.8 - --------------------------- -------- -------- -------- Total Ownership 15,038.4 100.0 % 100.0 % Non-Orion Owned Shares 2,908.5 19.3 % 100.0 % - -------------------------------------------------------------------------------- (a) Source: CDA Spectrum. Holdings as of June 30, 1997. September 30, 1997 data not yet available. (b) Based on 15,038,433 common shares outstanding as of June 30,1997. There are 15,054,433 shares outstanding as of September 30,1997. (c) Based on Orion Capital's ownership position of 12,129,942 common shares. (d) Source: Guaranty National Corporation proxy dated April 3, 1997. 53 - --------------------- Salomon Brothers --------------------- EX-99.B.5 6 OPINION OF SALOMON BROTHERS INC. 1 Exhibit (b)(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 2 -2- ------------------ 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 3 -3- ----------------- SALOMON BROTHERS ------------------ 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 EX-99.D.10 7 SOLICITATION/RECOMMENDATION STATEMENT 1 Exhibit (d)(10) SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ___________ 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 2 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. 3 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. -2- 4 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. -3- 5 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 -4- 6 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. -5- 7 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 -6- 8 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. -7- 9 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 -8- 10 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 -9- 11 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 -10- 12 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 -11- 13 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, -12- 14 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. -13- 15 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 -14- 16 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. -15- 17 (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. -16- 18 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)/*/ -17- 19 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 -18- EX-99.D.11 8 LETTER TO SHAREHOLDERS 1 Exhibit (d)(11) 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 EX-99.G.4 9 PORTIONS OF PROXY STATEMENT ON SCHEDULE 14A 1 Exhibit (g)(4) 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.
NAME, AGE AND POSITION DIRECTOR PRINCIPAL OCCUPATION, FIVE-YEAR BUSINESS WITH THE COMPANY SINCE EXPERIENCE AND OTHER CORPORATE DIRECTORSHIPS - - - ---------------------- -------- -------------------------------------------- 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
2 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.
-2- 3 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- 4 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.
AMOUNT AND NATURE OF PERCENT NAME AND ADDRESS OF BENEFICIAL OF BENEFICIAL OWNER OWNERSHIP CLASS ------------------- ---------- ----- 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)
-4- 5 Roger B. Ware.................................................... 92,071(b,g) .6% (b) All Directors and Executive Officers as a Group.................. 12,384,092 82.7%
____________ * 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- 6
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) - ------------------- ------------ ---------- ------------ ----------- --------------------- 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
____________ (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- 7 Dividends are paid on non-vested shares of restricted stock. (d) "All Other Compensation" represented (i) moving expenses of $12,664 paid in connection with Mr. Pouliot's relocation to Colorado and (ii) Company contributions to the 401(k) Retirement Plan ("401K"), Supplementary Executive Retirement Plan ("SERP"), and split dollar insurance premiums ("LIFE"), as follows:
1996 1995 1994 ---------------- ------------------ ------------------- 401K SERP LIFE 401K SERP LIFE 401K SERP LIFE ($) ($) ($) ($) ($) ($) ($) ($) ($) ---- ---- ---- ----- ---- ---- ---- ---- ----- 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
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- 8
NAME (#)(A) IN 1996 ($/SH) DATE VALUES(B) - - - ---- --------- ---------- --------- -------- --------- 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
____________ (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.
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 - - - ---- ----------------- -------------------------- ----------------------------- 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 --
-8- 9 Arthur J. Mastera....... None N/A 31,000 12,671 $ 9,000 --
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:
NUMBER VALUE AT YEAR OF DECEMBER 31, NAME AWARDED UNITS 1996 DATE VESTED ---- ------- ------ ------------ ----------- 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
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- 10 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- 11 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- 12 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- 13 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, -13- 14 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 15 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- EX-99.G.5 10 PORTIONS OF ANNUAL REPORT ON FORM 10-K 1 Exhibit (g)(5) 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. 2 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. -2- -----END PRIVACY-ENHANCED MESSAGE-----