-----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, WuWSb15OJyPrY7xGPwvF0PHehMBr8PIC28sx2OyGjYAkaK+B5vKQQJTPTPAs+947 1j2F53cAL52RtLSoJ0X7eg== 0000950123-96-002087.txt : 19960509 0000950123-96-002087.hdr.sgml : 19960509 ACCESSION NUMBER: 0000950123-96-002087 CONFORMED SUBMISSION TYPE: SC 14D1 PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 19960508 SROS: NYSE GROUP MEMBERS: DESIGN PROFESSIONALS INSURANCE COMPANY GROUP MEMBERS: EBI INDEMNITY COMPANY GROUP MEMBERS: EMPLOYEE BENEFITS INSURANCE COMPANY GROUP MEMBERS: ORION CAPITAL CORP GROUP MEMBERS: SECURITY INSURANCE COMPANY OF HARTFORD GROUP MEMBERS: THE CONNECTICUT INDEMNITY COMPANY GROUP MEMBERS: THE CONNECTICUT SPECIALTY INSURANCE COMPANY GROUP MEMBERS: THE FIRE AND CASUALTY INSURANCE CO. OF CT 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 14D1 SEC ACT: 1934 Act SEC FILE NUMBER: 005-43461 FILM NUMBER: 96557677 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: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 956069054 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D1 BUSINESS ADDRESS: STREET 1: 600 FIFTH AVENUE STREET 2: 24TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10020-2302 BUSINESS PHONE: 212-332-8080 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 14D1 1 SCHEDULE 14D-1 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 14D-1 Tender Offer Statement Pursuant to Section 14(d)(1) of the Securities Exchange Act of 1934 Guaranty National Corporation (Name of Subject Company) Orion Capital Corporation The Connecticut Indemnity Company Connecticut Specialty Insurance Company Design Professionals Insurance Company EBI Indemnity Company Employee Benefits Insurance Company The Fire and Casualty Insurance Company of Connecticut Security Insurance Company of Hartford (Bidder) Common Stock, par value $1.00 Per Share (Title of Class of Securities) 401192109 (CUSIP Number of Class of Securities) Michael P. Maloney, Esq. Orion Capital Corporation 600 Fifth Avenue New York, New York 10020-2302 (212) 332-8080 (Name, address and telephone number of person authorized to receive notices and communications on behalf of bidder) Copy to: John J. McCann, Esq. Donovan Leisure Newton & Irvine 30 Rockefeller Plaza New York, New York 10112 (212) 632-3000 2 Calculation of Filing Fee
Transaction valuation Amount of filing fee ------------ --------------------- $80,500,000 $16,100
* For purposes of calculating the filing fee only. This calculation assumes the purchase of 4,600,000 shares of common stock, par value $1.00 per share, of Guaranty National Corporation at $17.50 net per share in cash. ** The amount of the filing fee, calculated in accordance with Rule 0-11(d) of the Securities Exchange Act of 1934, as amended, equals 1/50th of one percent of the aggregate cash value offered for such number of shares. [ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: _______________________________________________________ Form or Registration No.: _____________________________________________________ Filing Party: _________________________________________________________________ Date Filed: ___________________________________________________________________ -2- 3 Item 1. Security and Subject Company (a) The name of the subject company is Guaranty National Corporation, a Colorado corporation (the "Company"), which has its principal executive offices at 9800 South Meridian Boulevard, Englewood, Colorado 80112. (b) This Tender Offer Statement on Schedule 14D-1 (the "Statement") relates to the offer by Orion Capital Corporation ("Orion") and the following of its wholly-owned subsidiaries: The Connecticut Indemnity Company, Connecticut Specialty Insurance Company, Design Professionals Insurance Company, EBI Indemnity Company, Employee Benefits Insurance Company, The Fire and Casualty Insurance Company of Connecticut and Security Insurance Company of Hartford (collectively with Orion, the "Purchasers") to purchase up to 4,600,000 shares of Common Stock, par value $1.00 per share (the "Shares"), of the Company for $17.50 per Share net to the seller in cash upon the terms and subject to the conditions set forth in the Offer to Purchase dated May 8, 1996 (the "Offer to Purchase"), and the related Letter of Transmittal (which together constitute the "Offer"), copies of which are attached hereto as Exhibits (a)(1) and (a)(2), respectively. According to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 1996 (the "March 10-Q"), the number of Shares outstanding as of May 6, 1996 was 14,961,354. The Purchasers beneficially own 7,409,942 outstanding Shares as of the date hereof. The information set forth under "INTRODUCTION" and "THE OFFER -- Section 1. Terms of the Offer; Expiration Date" in the Offer to Purchase is incorporated herein by reference. (c) The information set forth under "THE OFFER -Section 5. Price Range of Shares; Dividends" of the Offer to Purchase is incorporated herein by reference. Item 2. Identity and Background (a)-(d) and (g) This Statement is being filed by the Purchasers. The information set forth under "THE OFFER -- Section 8. Certain Information Concerning the Purchasers" and Schedule I in the Offer to Purchase is incorporated herein by reference. (e) and (f) During the last five years, neither the Purchasers nor, to the best of their knowledge, any of the persons listed in Schedule I of the Offer to Purchase, (i) has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors), or (ii) was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of which was -3- 4 or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws. Item 3. Past Contacts, Transactions or Negotiations with the Subject Company. (a)-(b) The information set forth under "SPECIAL FACTORS -- Background of the Transaction," "SPECIAL FACTORS -- Purpose and Structure of the Transactions; Plans for the Company After the Offer" and "SPECIAL FACTORS -- Interests of Certain Persons in the Transaction; Securities Ownership; Related Transactions," "SPECIAL FACTORS -- Certain Effects of the Transaction" and "THE OFFER -- Section 8. Certain Information Concerning the Purchasers" in the Offer to Purchase is incorporated herein by reference. Item 4. Source and Amount of Funds or Other Consideration. (a) The information set forth in the Offer to Purchase under "SPECIAL FACTORS -- Source and Amount of Funds -- Financing of the Offer" is incorporated herein by reference. (b) Not applicable. (c) Not applicable. Item 5. Purpose of the Tender Offer and Plans or Proposals of the Bidder. (a)-(g) The information set forth under "INTRODUCTION," "SPECIAL FACTORS -- Background of the Transaction," "SPECIAL FACTORS -- Purpose and Structure of the Transaction; Plans for the Company After the Offer," "SPECIAL FACTORS -- Certain Effects of the Transaction," "SPECIAL FACTORS -- Fairness of the Offer," "THE OFFER -- Section 6. Effect of the Offer on the Market for the Shares; Quotation on NYSE; Registration under the Exchange Act" and "THE OFFER -- Section 11. Certain Legal Matters" in the Offer to Purchase is incorporated herein by reference. Item 6. Interest in Securities of the Subject Company. (a)-(b) The information set forth under "INTRODUCTION," "SPECIAL FACTORS -- Background of the Transaction," "SPECIAL FACTORS -- Purpose and Structure of the Transaction; Plans for the Company After the Offer," "SPECIAL FACTORS -- Interests of Certain Persons in the Transaction; Securities Ownership; Related Transactions," -4- 5 "THE OFFER -- Section 8. Certain Information Concerning the Purchasers" and Schedule I in the Offer to Purchase is incorporated herein by reference. Item 7. Contracts, Arrangements, Understandings or Relationships with Respect to the Subject Company's Securities. The information set forth under "INTRODUCTION," "SPECIAL FACTORS -- Background of the Transaction," "SPECIAL FACTORS -- Interests of Certain Persons in the Transaction; Securities Ownership; Related Transactions," "THE OFFER -- Section 8. Certain Information Concerning the Purchasers" and "THE OFFER -- Section 11. Certain Legal Matters" in the Offer to Purchase is incorporated herein by reference. Item 8. Persons Retained, Employed or to be Compensated. The information set forth in the Offer to Purchase under "INTRODUCTION," and "THE OFFER -- Section 12. Fees and Expenses" is incorporated herein by reference. Item 9. Financial Statements of Certain Bidders. Not Applicable. Certain information relating to the Purchasers set forth in the Offer to Purchase under "THE OFFER -- Section 8. Certain Information Concerning the Purchasers" is incorporated herein by reference. Item 10. Additional Information. (a) The information set forth in the Offer to Purchase under "INTRODUCTION," "SPECIAL FACTORS -- Purpose and Structure of the Transaction; Plans for the Company After the Offer" and "SPECIAL FACTORS -- Certain Effects of the Transaction" is incorporated herein by reference. (b)-(e) The information set forth in the Offer to Purchase under "INTRODUCTION," "SPECIAL FACTORS -- Purpose and Structure of the Transaction; Plans for the Company After the Offer," "THE OFFER -- Section 6. Effect of the Offer on the Market for the Shares; Quotation on the NYSE; Registration Under the Exchange Act," "THE OFFER -- Section 11. Certain Legal Matters" is incorporated herein by reference. Inclusion of such information herein shall not be deemed to be an admission of the materiality thereof by the Purchasers. (f) Whether or not otherwise specifically referenced in response to the Items of this Statement, the information -5- 6 contained in the Offer to Purchase and the Letter of Transmittal, which are attached hereto as Exhibits (a)(1) and (a)(2) respectively, as well as all terms and conditions of the Offer, are incorporated herein by reference. Item 11. Material Filed Exhibits. (a)(1) Offer to Purchase dated May 8, 1996. (a)(2) Letter of Transmittal. (a)(3) Notice of Guaranteed Delivery. (a)(4) Letter to Securities Dealers, Commercial Banks and Trust Companies. (a)(5) Letter from Brokers, Dealers, Commercial Banks, Trust Companies and Nominees to their Clients. (a)(6) Press Release issued on May 7, 1996. (a)(7) Summary Advertisement dated May 8, 1996. (a)(8) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (b) Not applicable. (c)(1) Shareholder Agreement, dated November 7, 1991, 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. (c)(2) Amendment to Shareholder Agreement, dated February 2, 1994, 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. (c)(3) Amendment to Shareholder Agreement, dated March 2, 1995, 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 -6- 7 Connecticut, Security Insurance Company of Hartford and Security Reinsurance Company. (c)(4) Note Issuance Agreement, as Amended and Restated as of June 14, 1995, 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, EBI Indemnity Company, The Fire and Casualty Insurance Company of Connecticut, Security Insurance Company of Hartford, Security Reinsurance Company and SecurityRe, Inc. (d) Not applicable. (e) Not applicable. (f) Not applicable. (g) Rule 13e-3 Transaction Statement on Schedule 13E-3 dated May 8, 1996 of Orion Capital Corporation, The Connecticut Indemnity Company, Connecticut Specialty Insurance Company, Design Professionals Insurance Company, EBI Indemnity Company, Employee Benefits Insurance Company, The Fire and Casualty Insurance Company of Connecticut and Security Insurance Company of Hartford. -7- 8 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: May 8, 1996 ORION CAPITAL CORPORATION By /s/ Alan R. Gruber ---------------------------------- Name: Alan R. Gruber Title: Chairman & Chief Executive Officer THE CONNECTICUT INDEMNITY COMPANY CONNECTICUT SPECIALTY INSURANCE COMPANY DESIGN PROFESSIONALS INSURANCE COMPANY EBI INDEMNITY COMPANY EMPLOYEE BENEFITS INSURANCE COMPANY THE FIRE AND CASUALTY INSURANCE COMPANY OF CONNECTICUT SECURITY INSURANCE COMPANY OF HARTFORD By /s/ Alan R. Gruber ---------------------------------- Name: Alan R. Gruber Title: Chairman -8- 9 EXHIBIT INDEX Exhibit Description (a)(1) Offer to Purchase dated May 8, 1996. (a)(2) Letter of Transmittal. (a)(3) Notice of Guaranteed Delivery. (a)(4) Letter to Securities Dealers, Commercial Banks and Trust Companies. (a)(5) Letter from Brokers, Dealers, Commercial Banks, Trust Companies and Nominees to their Clients. (a)(6) Press Release issued on May 7, 1996. (a)(7) Summary Advertisement dated May 8, 1996. (a)(8) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (c)(1) Shareholder Agreement, dated November 7, 1991, 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. (c)(2) Amendment to Shareholder Agreement, dated February 2, 1994, 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. (c)(3) Amendment to Shareholder Agreement, dated March 2, 1995, 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, -9- 10 Security Insurance Company of Hartford and Security Reinsurance Company. (c)(4) Note Issuance Agreement, as Amended and Restated as of June 14, 1995, 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, EBI Indemnity Company, The Fire and Casualty Insurance Company of Connecticut, Security Insurance Company of Hartford, Security Reinsurance Company and SecurityRe, Inc. (g) Rule 13e-3 Transaction Statement on Schedule 13E-3 dated May 8, 1996 of Orion Capital Corporation. The Connecticut Indemnity Company, Connecticut Specialty Insurance Company, Design Professionals Insurance Company, EBI Indemnity Company, Employee Benefits Insurance Company, The Fire and Casualty Insurance Company of Connecticut and Security Insurance Company of Hartford. -10- EX-99.A1 2 OFFER TO PURCHASE 1 OFFER TO PURCHASE FOR CASH UP TO 4,600,000 SHARES OF COMMON STOCK (INCLUDING ANY ASSOCIATED STOCK PURCHASE RIGHTS) OF GUARANTY NATIONAL CORPORATION AT $17.50 NET PER SHARE BY ORION CAPITAL CORPORATION AND CERTAIN OF ITS WHOLLY-OWNED SUBSIDIARIES NAMED HEREIN THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, JUNE 5, 1996, UNLESS THE OFFER IS EXTENDED. THE OFFER IS NOT CONDITIONED ON ANY MINIMUM NUMBER OF SHARES BEING TENDERED. HOWEVER, THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) EXPIRATION OR EARLIER TERMINATION OF ALL APPLICABLE WAITING PERIODS UNDER THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED, AND (II) THE RECEIPT OF ALL REQUIRED STATE INSURANCE DEPARTMENT REGULATORY APPROVALS ON TERMS AND CONDITIONS SATISFACTORY TO THE PURCHASERS. THE OFFER IS ALSO SUBJECT TO OTHER TERMS AND CONDITIONS. SEE "THE OFFER" -- SECTION 10. IF MORE THAN 4,600,000 SHARES ARE PROPERLY TENDERED AND NOT WITHDRAWN, THEN, SUBJECT TO THE TERMS AND CONDITIONS OF THE OFFER, SUCH SHARES WILL BE ACCEPTED ON A PRO RATA BASIS. SEE "THE OFFER" -- SECTION 2. ------------------------------ IMPORTANT Any stockholder desiring to tender all or any portion of his Shares should either (1) request his broker, dealer, commercial bank, trust company or other nominee to effect the transaction for him or (2) complete and sign the enclosed Letter of Transmittal (or facsimile thereof) in accordance with the instructions in the Letter of Transmittal and mail or deliver the Letter of Transmittal and other required documents and guaranteed signatures to the Depositary and either deliver the certificates for such Shares to the Depositary along with the Letter of Transmittal or deliver such Shares pursuant to the procedure for book-entry transfer set forth in THE OFFER -- Section 3. A stockholder whose Shares are registered in the name of a broker, dealer, commercial bank, trust company or other nominee must contact such broker, dealer, commercial bank, trust company or other nominee if he desires to tender such Shares. Any stockholder who desires to tender Shares and whose certificates for such Shares are not immediately available, or who is unable to deliver all documents required by the Letter of Transmittal to the Depositary prior to the expiration of the Offer, or who cannot complete the procedure for book-entry transfer on a timely basis, may tender such Shares by following the procedures for guaranteed delivery set forth in THE OFFER -- Section 3. Questions and requests for assistance may be directed to the Information Agent or the Dealer Manager at their respective addresses and telephone numbers set forth on the back cover of this Offer to Purchase. Additional copies of this Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may be obtained from the Information Agent or from brokers, dealers, commercial banks or trust companies. THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. ------------------------------ The Dealer Manager for the Offer is: DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION May 8, 1996 2 TABLE OF CONTENTS
PAGE ---- INTRODUCTION.......................................................................... 1 SPECIAL FACTORS....................................................................... 3 Background of the Transaction....................................................... 3 Fairness of the Offer............................................................... 4 Purpose and Structure of the Transaction; Plans for the Company After the Offer..... 6 Certain Effects of the Transaction.................................................. 7 Interests of Certain Persons in the Transaction; Securities Ownership; Related Transactions........................................................................ 8 Dissenters' Rights.................................................................. 12 Certain Federal Income Tax Consequences............................................. 12 Source and Amount of Funds -- Financing of the Offer................................ 13 THE OFFER............................................................................. 13 1. Terms of the Offer; Expiration Date........................................... 13 2. Acceptance for Payment and Payment for Shares; Proration...................... 14 3. Procedures for Accepting the Offer and Tendering Shares....................... 16 4. Withdrawal Rights............................................................. 18 5. Price Range of Shares; Dividends.............................................. 19 6. Effect of the Offer on the Market for the Shares; Listing on the NYSE; Registration Under the Exchange Act......................................... 19 7. Certain Information Concerning the Company.................................... 21 8. Certain Information Concerning the Purchasers................................. 24 9. Dividends and Distributions................................................... 26 10. Certain Conditions of the Offer............................................... 27 11. Certain Legal Matters......................................................... 29 12. Fees and Expenses............................................................. 32 13. Miscellaneous................................................................. 33 Schedule I -- Directors and Executive Officers of the Purchasers...................... I-1
3 To the Holders of Common Stock of GUARANTY NATIONAL CORPORATION: INTRODUCTION Orion Capital Corporation, a Delaware corporation ("Orion"), and certain of its wholly-owned subsidiaries named below (collectively referred to herein with Orion as the "Purchasers"), hereby offer to purchase up to 4,600,000 outstanding shares of Common Stock, par value $1.00 per share, of Guaranty National Corporation, a Colorado corporation (the "Company"), at $17.50 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in this Offer to Purchase and in the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer"). Each outstanding share of Common Stock of the Company is referred herein to as a "Share." The name of each Purchaser and the percentage of Shares to be purchased by it pursuant to the Offer are as follows: Orion (17.4%), The Connecticut Indemnity Company (15.0%), Connecticut Specialty Insurance Company (2.5%), Design Professionals Insurance Company (3.5%), EBI Indemnity Company (2.9%), Employee Benefits Insurance Company (2.9%), The Fire and Casualty Insurance Company of Connecticut (5.2%) and Security Insurance Company of Hartford (50.6%). Each Purchaser reserves the right to purchase any Shares not purchased by the other Purchasers. The Purchasers also reserve the right to amend the Offer to reduce the number of Shares which will be purchased pursuant to the Offer, including as a result of the Insurance Regulatory Condition (as defined below). Unless the context otherwise requires, all references to Shares shall include any associated stock purchase rights (the "Rights") pursuant to the Rights Agreement dated November 20, 1991 between the Company and its rights agent and all benefits that may inure to holders thereof. Based upon publicly available information, Orion believes that, as of the date of this Offer to Purchase, the Rights are attached to the Shares and are not separately transferable or exercisable and will not become so by reason of the Offer by the Purchasers. See THE OFFER -- Section 11. Tendering stockholders will not be obligated to pay brokerage commissions or, except as set forth in Instruction 6 of the Letter of Transmittal, transfer taxes on the purchase of Shares pursuant to the Offer. Orion will pay all charges and expenses of State Street Bank and Trust Company (the "Depositary"), D.F. King & Co., Inc. (the "Information Agent") and Donaldson, Lufkin & Jenrette Securities Corporation, which is acting as Dealer Manager (the "Dealer Manager") in connection with the Offer. See THE OFFER -- Section 12. THE OFFER IS NOT CONDITIONED ON ANY MINIMUM NUMBER OF SHARES BEING TENDERED. HOWEVER, THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) EXPIRATION OR EARLIER TERMINATION OF ALL APPLICABLE WAITING PERIODS UNDER THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED, AND (II) THE RECEIPT OF ALL REQUIRED STATE INSURANCE DEPARTMENT REGULATORY APPROVALS ON TERMS AND CONDITIONS SATISFACTORY TO THE PURCHASERS (THE "INSURANCE REGULATORY CONDITION"). SUCH FOREGOING CONDITIONS AND THE OTHER CONDITIONS TO THE OFFER ARE SET FORTH IN THE OFFER -- SECTION 10. IF MORE THAN 4,600,000 SHARES ARE PROPERLY TENDERED BY THE EXPIRATION DATE (AS DEFINED HEREIN) AND NOT WITHDRAWN, THEN, SUBJECT TO THE TERMS AND CONDITIONS OF THE OFFER, TENDERED SHARES WILL BE ACCEPTED ON A PRO RATA BASIS (WITH APPROPRIATE ADJUSTMENTS TO AVOID PURCHASES OF FRACTIONAL SHARES) ACCORDING TO THE NUMBER OF SHARES PROPERLY TENDERED BY EACH STOCKHOLDER AT OR PRIOR TO THE EXPIRATION DATE AND NOT WITHDRAWN. According to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996 (the "March 10-Q"), filed with the Securities and Exchange Commission (the "Commission"), there were 14,961,354 Shares outstanding as of May 6, 1996. Orion and its subsidiaries own in the aggregate 7,409,942 Shares, representing approximately 49.5% of the Shares outstanding at such date. The 4,600,000 Shares subject to the Offer represent approximately 30.7% of the outstanding Shares and approximately 60.9% of the outstanding Shares not already owned by Orion and its subsidiaries. The approximate number of holders of Shares as of February 29, 1996 was 2,000, including both record and beneficial shareholders. 4 Each of the Purchasers believes that increasing its beneficial ownership of Shares represents a favorable investment opportunity, especially since a higher percentage of ownership will allow Orion to become more involved in setting the strategic direction of the Company and will, among other things, enable the Purchasers to participate to a greater extent in any future growth of the Company and any appreciation in value of the Shares. In addition, if all 4,600,000 Shares are properly tendered and purchased in accordance with the terms of the Offer, Orion will be able to include the Company in the consolidated federal income tax return of Orion as a member of Orion's affiliated group. Section 1504(a)(2) of the Internal Revenue Code of 1986, as amended (the "Code"), requires generally that 80% or more of both the total voting power and the total value of the stock of a corporation (other than certain preferred stock) be owned by one or more of the members of an affiliated group in order for such corporation to be included in the consolidated federal income tax return of such group. See SPECIAL FACTORS -- "Background of the Transaction"; "Purpose and Structure of the Transaction; Plans for the Company After the Offer" and "Certain Effects of the Transaction." If, upon consummation of the Offer, Orion and its subsidiaries together own less than 80% of the outstanding Shares, Orion and/or one or more of its subsidiaries may purchase additional Shares in order to acquire an 80% ownership interest in the Company, subject to the availability of funds and other investment opportunities. Such purchases may be made through open market or privately negotiated purchases or another tender offer (which may be for less than all the Shares), subject to market conditions, at prices which may be greater or less than the Offer price for the Shares. There can be no assurance that Orion and its subsidiaries will acquire such additional Shares or over what period of time such additional Shares, if any, might be acquired. Once Orion and its subsidiaries have acquired 80% of the outstanding Shares, Orion intends to purchase additional Shares, directly or indirectly through its wholly-owned subsidiaries, from time to time in order to offset any dilution caused by future issuances of securities by the Company whether as a result of grants under employee benefit plans or otherwise. Following completion of the Offer, the Purchasers intend that the Company will operate with its own management and that the Shares will continue to be publicly traded. The Purchasers have no current intention to propose a merger or other business combination with the Company. After completion of the Offer, Orion and its subsidiaries will have effective control of the Company. See SPECIAL FACTORS -- "Purpose and Structure of the Transaction; Plans for the Company After the Offer" and THE OFFER -- Section 11. Information included in this Offer to Purchase about the Company, its advisors and contacts of the Company with parties other than the Purchasers has been taken from, or is based upon, publicly available documents on file with the Commission and is qualified in its entirety by reference to such documents. Certain of the executive officers and directors of Orion are also directors of the Company, and certain non-public information concerning the Company has been made available to those directors in their capacity as directors of the Company. See SPECIAL FACTORS -- "Background of the Transaction" -- "Fairness of the Offer" and -- "Interests of Certain Persons in the Transaction; Securities Ownership; Related Transactions." Although the Purchasers do not have any knowledge that would indicate that any statements contained herein which are based on such public documents or on information concerning the Company otherwise provided to Orion are untrue, the Purchasers cannot take responsibility for the accuracy or completeness of such public documents or for any failure by the Company to disclose events which may have occurred and which have affected or may affect the significance or accuracy of any such information. THIS OFFER TO PURCHASE AND THE ACCOMPANYING LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. 2 5 SPECIAL FACTORS BACKGROUND OF THE TRANSACTION Since August 1984, Orion has had, directly or through wholly-owned subsidiaries, a substantial ownership interest in the Company. In November 1988, Orion, through wholly-owned subsidiaries, increased its ownership of the Company from 49.7% to 100%. On November 20, 1991, Orion sold 6,250,000 Shares of the Company's common stock in an initial public offering at a net price per Share of $13.60, reducing its ownership interest to 49.3% of the then outstanding Shares. Since then, the Company has operated as an independent publicly-traded company. In connection with the 1991 public offering, Orion, certain of its subsidiaries and the Company entered into a Shareholders Agreement. Such Agreement was amended in 1994 to provide for an increase in the number of directors, including directors independent of management and Orion, and was most recently amended in March 1995 to provide for increasing the number of directors to eleven. Pursuant to the Shareholders Agreement, as amended (the "Shareholders Agreement"), Messrs. Alan R. Gruber, Chairman and Chief Executive Officer of Orion, Larry D. Hollen, President and Chief Operating Officer of Orion, and William J. Shepherd, a director of Orion, currently serve as Orion's designated directors on the Company's Board. Mr. Gruber is Chairman of the Board of the Company. Messrs. Gruber and Shepherd represent two of the four members of the Company's Compensation Committee. Mr. Shepherd is the Chairman of both Orion's Compensation Committee and the Company's Compensation Committee. For additional information about the Shareholders Agreement, see SPECIAL FACTORS -- "Interests of Certain Persons in the Transaction; Securities Ownership; Related Transactions" and THE OFFER -- Section 11. Mr. Robert B. Sanborn, Mr. Hollen's predecessor as President and Chief Operating Officer of Orion, who is a director of and a senior executive consultant to Orion, is also a member of the Company's Board and of its Compensation Committee. Mr. Sanborn receives the regular fees and other benefits provided to all non-employee directors of the Company. Mr. Roger B. Ware, the Company's President and Chief Executive Officer, serves as a member of Orion's Board of Directors but is not a member of any of its committees. Mr. Ware receives the regular fees and other benefits provided to all non-employee directors of Orion. Orion and the Company are also parties to an investment management agreement pursuant to which the investment portfolio of the Company (other than short-term investments and a portion of the equity portfolio) is managed by Orion under the direction and supervision of the Company and subject to the Company's investment policies. In addition, Orion's insurance subsidiaries have entered into certain reinsurance agreements in the ordinary course of business with the Company's insurance subsidiaries. For additional information about transactions between Orion and the Company, see SPECIAL FACTORS -- "Interests of Certain Persons in the Transaction; Securities Ownership; Related Transactions." On July 18, 1995, the Company acquired all the capital stock of Viking Insurance Holdings, Inc. ("Viking Holdings") for a total consideration of $102,700,000 (subject to certain adjustments). The Company financed the acquisition of Viking Holdings by selling 1,550,000 Shares in a European offering pursuant to Regulation S under the Securities Act of 1933, as amended (the "Securities Act"), and utilizing a portion of a new $110,000,000 credit facility from a group of lending banks. Certain of Orion's wholly-owned subsidiaries held $20,896,000 of the Company's subordinated promissory notes due 2003 (the "2003 Notes") which had been issued in November 1991. To facilitate the Company's acquisition of Viking Holdings, the entire principal amount of the 2003 Notes was converted in July and October 1995 into 1,326,128 Shares at $15.76 per Share, the same net price received by the Company in its Regulation S offering. The conversion of the 2003 Notes restored Orion to its previous ownership level in the Company of slightly less than 50% of the outstanding Shares following the increase in the number of Shares resulting from the Company's Regulation S offering. See SPECIAL FACTORS -- "Interests of Certain Persons in the Transaction; Securities Ownership; 3 6 Related Transactions." Orion's subsidiaries received the following number of Shares upon conversion of the 2003 Notes:
NUMBER OF SHARES RECEIVED --------------- The Connecticut Indemnity Company...................................... 74,462 Connecticut Specialty Insurance Company................................ 10,154 Design Professionals Insurance Company................................. 47,448 EBI Indemnity Company.................................................. 47,046 Employee Benefits Insurance Company.................................... 67,212 The Fire and Casualty Insurance Company of Connecticut................. 27,416 Security Insurance Company of Hartford................................. 855,721 Security Reinsurance Company........................................... 128,955 SecurityRe, Inc........................................................ 67,714 --------- Total........................................................ 1,326,128 =========
From November 1995 through March 1996, Design Professionals Insurance Company ("DPIC") acquired an additional 80,000 Shares in open market purchases. Except as set forth below or elsewhere herein, there have been no transactions or negotiations between or among Orion, the Company and their affiliates and third parties in the last three fiscal years regarding a merger, consolidation, asset acquisition, tender offer, sale of assets, election of directors, or acquisition of securities. In December 1995, a representative of a company in the insurance industry expressed an interest to Mr. Gruber in acquiring from Orion its Shares in connection with a possible acquisition of the Company. In a subsequent conversation in February 1996, the representative of such company indicated that its management had decided to pursue another possible acquisition. No further contact has been made by the interested party and no price for securities of the Company was discussed. Also in February 1996, Mr. Gruber discussed with a representative of another insurance company a possible acquisition from Orion of its Shares. Such company decided to pursue other opportunities. No price was discussed for the Shares, and no offer was made. In March 1996, a representative of a financial intermediary told Mr. Gruber that he had proposed to a named third-party entity the possible purchase from Orion of its Shares in connection with a possible purchase of the Company. The financial intermediary was not retained by Orion to effect such a transaction and Orion has no information to the effect that he has been retained to do so by the third party. Orion has had no further contact concerning the proposal, has received no offer and is not engaged in negotiations concerning the proposal. Messrs. Ware and Gruber have discussed from time to time increasing Orion's ownership interest in the Company. At the April 2, 1996 Board of Directors meeting of the Company, Mr. Ware asked Mr. Gruber to indicate Orion's present plans, if any, with respect to increasing its ownership interest in the Company. Mr. Gruber indicated that no plans, proposals or any intention had been arrived at by Orion or its subsidiaries which hold Shares, but that each reserved the right to develop plans to acquire additional Shares, including through open-market purchases or a tender offer which could be for all or a part of the Shares. Mr. Ware expressed his preference for Orion's acquiring all of the equity of the Company. On May 7, 1996, at special meetings, the Board of Directors of each Purchaser authorized the making of the Offer. At the meeting of the Board of Directors of Orion, Mr. Ware participated but abstained from voting. The Company was advised that the Offer would be commenced on May 8, 1996. A press release was issued by Orion on May 7, 1996. FAIRNESS OF THE OFFER The Offer price of $17.50 per Share was determined by Orion, with the other Purchasers, after considering the factors set forth below and without negotiations with the Company. 4 7 The Purchasers believe that the Offer is fair to the unaffiliated holders of Shares to whom it is directed. In concluding that the Offer is fair to such stockholders, the Purchasers have considered, among other matters, (i) that the $17.50 per Share price represents a premium of $1.375 over the closing sale price of $16.125 per Share as reported by the New York Stock Exchange (the "NYSE") on May 7, 1996, the date prior to the commencement of the Offer; (ii) that the $17.50 per Share price represents an increase of $3.12 over the net book value per Share of $14.38 as of March 31, 1996 and an increase of $5.33 over the tangible book value per Share of $12.17 as of the same date (the Purchasers have made no analysis of the liquidation value of the Company and therefore have no basis for expressing an opinion as to the comparison of the Offer price to liquidation value); (iii) recent, and historical, market prices of the Shares since the Company became a public company in November 1991, including the average daily closing stock price for the six-month period ended April 30, 1996 of $14.695; (iv) Orion's evaluation of competitive trends and other conditions in the markets in which the Company operates; (v) Orion's knowledge of the business, historical results of operations and the properties, assets and earnings of the Company and its recent financial and operating performance (see THE OFFER -- Section 7); (vi) the per Share price of $16.50 ($15.76 net of expenses) received by the Company from the sale of 1,550,000 Shares in June 1995 in the Regulation S offering; (vii) the conversion price of $15.76 per Share for an aggregate of 1,326,128 Shares issued in June and October of 1995 for the conversion of $20,896,000 of the 2003 Notes of the Company which were held by subsidiaries of Orion; (viii) the average per Share price of approximately $14.45 paid by the Company both to subsidiaries of Orion and to unaffiliated holders in 1994 for the repurchase of 459,200 Shares pursuant to the repurchase program authorized by the Company's Board of Directors in 1994 (see THE OFFER -- Section 9); (ix) the per Share prices paid by DPIC ranging from $13.375 to $14.00 to acquire 80,000 Shares in the open market between November 1995 and March 1996; and (x) the fact that the Purchasers already beneficially own 49.5% of the outstanding Shares. The foregoing discussion of the information and factors considered by the Purchasers is not intended to be exhaustive. In view of the wide variety of factors considered in connection with their determination of the Offer price and their evaluation of the fairness of the Offer, the Purchasers did not find it practicable to, and did not, quantify or otherwise attempt to assign relative weights to the foregoing factors or determine that any factor was of particular importance. Rather, the Purchasers viewed their position as being based on the totality of the information presented to and considered by them. On balance, however, the Purchasers viewed the factors set forth in items (i) through (v) and (x) as very favorable to their decision, the matters set forth in items (vi) and (ix) as being influential, and the remainder of lesser significance. In particular, the Purchasers consider that the Offer price of $17.50 per Share represents a premium over the price at which the Shares were trading immediately prior to the date of commencement of the Offer. The Purchasers also have taken into account that the liquidity and market value of the remaining Shares held by the public could be adversely affected by the reduction in the number of stockholders, reduction in the number of Shares held by unaffiliated stockholders, the possible delisting of the Shares by the NYSE and the possible deregistration of the Shares under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Purchasers have further taken into account their intent and present expectation that the Shares will remain publicly traded. See SPECIAL FACTORS -- "Certain Effects of the Transaction" and THE OFFER -- Section 6. In advance of a meeting of the Board of Directors of the Company in December 1995, the Company provided its 1996 operating plan to the members of its Board of Directors, including Messrs. Gruber, Hollen, Sanborn and Shepherd (all of whom are members of the Board of Directors of Orion of which Mr. Gruber is Chairman of the Board, Messrs. Gruber and Hollen are executive officers and Mr. Sanborn is a senior executive consultant) (see INTRODUCTION and SPECIAL FACTORS -- "Interests of Certain Persons in the Transaction; Securities Ownership; Related Transactions"). Such operating plan was prepared by the Company's management based on numerous assumptions concerning mix of business, changes in insurance premium rates, growth, renewal rates, claim frequencies and severity, commission ratios, premium taxes, expenses, realized gains, shareholder dividends and other factors. The 1996 operating plan includes premiums earned of $486,481,000; operating earnings (earnings after taxes, excluding realized investment gains and losses) of $22,401,000 or $1.50 per Share; and net income (including assumed realized investment gains) of 5 8 $24,351,000 or $1.63 per Share. In 1995 the Company had premiums earned of $390,017,000, operating earnings of $6,790,000 or $.51 per Share, and net income of $8,929,000 or $.67 per Share. For the first quarter of 1996 and 1995, respectively, the Company's earned premiums were $115,470,000 and $79,468,000; operating earnings were $4,499,000, or $.30 per Share, and $5,398,000, or $.45 per Share; and net income was $5,787,000, or $.39 per Share, and $5,768,000, or $.48 per Share. Orion believes that the 1996 operating plan is based on a variety of assumptions which, though considered reasonable by the Company's management for purposes of establishing an operating business plan, are subject to substantial uncertainties and contingencies, many of which are beyond the Company's control. The 1996 operating plan was not prepared with a view to public dissemination or compliance with published guidelines of the Commission or of the American Institute of Certified Public Accountants. The information cited therefrom is included herein solely because it was known to the executive officers and directors of Orion during the period when it was considering whether to proceed with the Offer. None of the Purchasers assumes any responsibility for the accuracy of the 1996 operating plan. For historical financial information concerning the Company, see THE OFFER -- Section 7. The Purchasers have not obtained, or sought to obtain, any report, opinion or appraisal from an outside party, including, without limitation, an investment banker's opinion as to the fairness of the Offer to unaffiliated holders of Shares. The Purchasers have not negotiated the Offer price with the Company and do not intend to do so. PURPOSE AND STRUCTURE OF THE TRANSACTION; PLANS FOR THE COMPANY AFTER THE OFFER Orion, through its subsidiaries, beneficially owns approximately 49.5% of the Shares outstanding as of May 6, 1996. A principal purpose of the Offer, in addition to its being a favorable investment opportunity, is to achieve a sufficient ownership interest in the Company to permit Orion to file consolidated federal income tax returns that include the Company. Section 1504(a)(2) of the Code requires generally that 80% or more of both the total voting power and the total value of the stock of a corporation (other than certain preferred stock) be owned by one or more of the members of an "affiliated group" in order for such corporation to be included within such group and thereby join in the filing of consolidated federal income tax returns of such group. See INTRODUCTION and SPECIAL FACTORS -- "Certain Effects of the Transaction" with respect to the federal income tax sharing agreement that Orion intends to seek to enter into with the Company in such event. As described under THE OFFER -- Section 2, if fewer than 4,600,000 Shares are properly tendered and purchased pursuant to the Offer, and Orion together with the other entities in its consolidated tax group then owns less than 80% of the outstanding Shares, Orion intends, subject to market conditions, that it and/or its wholly-owned subsidiaries will purchase additional Shares in order to acquire an 80% ownership interest in the Company. Such purchases may be made through open market or privately negotiated purchases or another tender offer (which may be for less than all the Shares), at prices acceptable to Orion and its subsidiaries, which may be greater or lesser than the Offer price for the Shares. There can be no assurance that such purchases of Shares will be made or over what period of time such Shares, if any, might be purchased. After completion or termination of the Offer, regardless of the number of Shares purchased in the Offer, Orion also reserves the right to purchase directly or through its subsidiaries additional Shares in the open market, in privately negotiated transactions, in another tender or exchange offer or otherwise. Any acquisition of Shares by Orion, or its subsidiaries, would have to be made in accordance with applicable legal requirements, including those under the Exchange Act. After completion or termination of the Offer, Orion also reserves the right, but has no present intention, (i) to sell Shares in open market or negotiated transactions, (ii) to propose a merger or other similar business combination of the Company involving consideration consisting of cash or securities or a combination of cash and securities or (iii) to propose such a transaction involving consideration having a value more or less than the amount to be paid per Share pursuant to the Offer. See THE OFFER -- Section 11. It is the present intention of the Purchasers, following the consummation of the Offer, that the Company operate with its own management and that its Shares will continue to be publicly traded. However, upon the completion of the Offer, Orion reserves the right to conduct a further review of the Company and its assets, 6 9 corporate structure, dividend policy, capitalization, operations, properties, policies, management and personnel and to consider what, if any, changes would be desirable in light of the circumstances which then exist, subject to applicable legal requirements. Such changes could include, in addition to those described under SPECIAL FACTORS -- "Purpose and Structure of the Transaction; Plans for the Company After the Offer" and -- "Certain Effects of the Transaction", changes in the Company's or any subsidiary's business, corporate structure, articles of incorporation, by-laws, capitalization, board of directors, management or dividend policy. The Purchasers expect that the Company will continue to have a number of directors who are independent of management of the Company, consistent with applicable law and the requirements of the NYSE and other regulatory bodies. For additional information concerning legal or contractual requirements applicable to the Purchasers' plans, see THE OFFER -- Section 11. In addition, while Orion does not intend or presently anticipate that the acquisition of up to 4,600,000 Shares in the Offer, if the Offer is consummated, would result in the delisting of the Shares which currently trade on the NYSE or in deregistration of the Shares under Section 12 of the Exchange Act, there can be no assurance that this will not occur. See SPECIAL FACTORS -- "Certain Effects of the Transaction" and THE OFFER -- Section 6. Except as set forth above in this Offer to Purchase, none of the Purchasers has any present plans or proposals which relate to or would result in (i) an extraordinary corporate transaction, such as a merger, reorganization or liquidation of the Company or any of its subsidiaries, (ii) a sale or transfer of a material amount of assets of the Company or any of its subsidiaries; (iii) any material changes in the Company's corporate structure, business or composition of its management or personnel; (iv) any material change in the present capitalization, dividend rate or policy or indebtedness of the Company; (v) any change in the present board of directors of the Company, including, but not limited to, any plan or proposal to change the number or term of existing directors, to fill any existing vacancy on the board or to change any term of the employment contract of any executive officer; (vi) a class of equity securities of the Company being delisted from a national securities exchange or ceasing to be authorized to be quoted on an inter-dealer quotation system of a registered national securities association or becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Exchange Act or the suspension of the Company's obligation to file reports pursuant to Section 15(d) of the Exchange Act. CERTAIN EFFECTS OF THE TRANSACTION Certain of the effects of the transactions contemplated by the Offer are described in this Offer to Purchase under SPECIAL FACTORS -- "Purpose and Structure of the Transaction; Plans for the Company After the Offer" and THE OFFER -- Section 6. The Purchasers believe that the Offer presents a favorable opportunity to stockholders of the Company not affiliated with Orion to sell at least a portion of their Shares (subject to proration) and to continue to hold Shares and participate in the on-going business of the Company. See SPECIAL FACTORS -- "Purpose and Structure of the Transaction; Plans for the Company After the Offer." The Purchasers have also considered that if the Offer is consummated, stockholders who tender Shares will forego the opportunity to participate in any future growth prospects of the Company in respect of the Shares sold by them. In the event that the Offer is consummated, the interest of Orion and its wholly-owned subsidiaries in the net book value and net earnings of the Company, in terms of both percentages and dollar amounts, will increase in direct proportion to the increase in the percentage of outstanding Shares owned by them resulting from the Share acquisitions pursuant to the Offer. If all of the 4,600,000 Shares are purchased pursuant to the Offer, Orion's beneficial interest in the net book value at March 31, 1996 and net earnings of the Company for the three months ended March 31, 1996 as reflected in the March 10-Q would increase to 80.3%, or $172,773,000, and $4,647,000, respectively, assuming no exercise of outstanding stock options. The liquidity of the Shares is expected to be reduced after consummation of the Offer. The Purchasers do not believe that liquidity will be materially adversely affected other than possibly for holders of large blocks of Shares. Although the Purchasers do not intend and presently do not expect that this will occur, the Purchasers cannot assure that the Shares may not be delisted from the NYSE and the registration of the Shares under the 7 10 Exchange Act terminated if the Purchasers purchase 4,600,000 Shares pursuant to the Offer. Deregistration under the Exchange Act, should it occur, would make certain provisions of the Exchange Act, such as the short-swing profit recovery provisions of Section 16(b), and the requirement of furnishing a proxy statement in connection with stockholders meetings, no longer applicable. In such event, the Company would also no longer be required to file periodic reports with the Commission. In such circumstances, the Shares may no longer be "margin securities." See THE OFFER -- Section 6. Except as otherwise described in this Offer to Purchase, upon consummation of the Offer, the Purchasers currently expect the business and operations of the Company to be continued substantially as they are currently being conducted. In the event the Offer is consummated and Orion, together with its subsidiaries, owns 80% or more of the outstanding Shares, Orion intends to seek to enter into a federal income tax sharing agreement with the Company and the Company's subsidiaries. Such agreements typically provide for the filing of consolidated federal income tax returns and would require the Company and its subsidiaries to make payments to Orion in amounts equal to their tax liabilities computed on a separate basis. If the Company and its subsidiaries generate losses or credits which actually reduce Orion's consolidated tax liability or which would have resulted in a refund on a separate company basis during the period the Company and its subsidiaries are members of the affiliated group, such an agreement would generally require Orion to pay to the Company and its subsidiaries the amount of such reduction or refund. Such agreements would typically address the timing of such payments, the resolution of tax disputes and other similar matters. For a discussion of certain federal income tax consequences of the Offer and the transactions contemplated as set forth in this Offer to Purchase, see also SPECIAL FACTORS -- "Certain Federal Income Tax Consequences." INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION; SECURITIES OWNERSHIP; RELATED TRANSACTIONS Directors and Officers. As described in this Offer to Purchase under SPECIAL FACTORS -- "Background of the Transaction" and -- "Purpose and Structure of the Transaction; Plans for the Company After the Offer", three of the Company's directors are designated by Orion pursuant to the Shareholders Agreement, including Mr. Gruber, who is Chairman of the Board of the Company and also of Orion. The Shareholders Agreement also provides that so long as Orion or its subsidiaries beneficially own in the aggregate 30% or more of the voting securities of the Company, Orion will continue to have the right to designate three nominees to the Company's Board (one of whom will be the Chairman of the Board), and so long as Orion or its subsidiaries beneficially own 20% or more of the Company's securities, Orion will have the right to designate two nominees. Orion may also require that the Company's Compensation Committee include Orion's nominees to the Company's Board. None of Orion's nominees, other than Mr. Shepherd, receives any compensation from the Company, including any retainer fee or attendance fee, for his services, except for travel expenses in connection with attendance at directors' meetings. For information concerning the directors and executive officers of the Purchasers, see Schedule I to this Offer to Purchase. 8 11 Securities Ownership. Orion, through its subsidiaries, owns, in the aggregate, 7,409,942 Shares. Set forth below is the number of Shares held by the Purchasers respectively as of the date of this Offer to Purchase:
NO. OF PURCHASER SHARES %* ------------------------------------------------------------------ --------- ---- The Connecticut Indemnity Company................................. 407,795 2.7 Connecticut Specialty Insurance Company........................... 110,154 0.7 Design Professionals Insurance Company............................ 167,115 1.1 EBI Indemnity Company............................................. 505,379 3.4 Employee Benefits Insurance Company............................... 493,612 3.3 The Fire and Casualty Insurance Company of Connecticut............ 197,416 1.3 Security Insurance Company of Hartford............................ 4,921,802 32.9
- --------------- * Based on the number of Shares reported by the Company in the March 10-Q to be outstanding as of May 6, 1996. In addition, two other wholly-owned subsidiaries of Orion own Shares as follows: SecurityRe, Inc. owns 67,714 Shares or 0.5% of the Shares outstanding and Security Reinsurance Company owns 538,955 Shares or 3.6% of the Shares outstanding as of such date. Although each of Orion's subsidiaries has sole power to vote and dispose of its Shares and makes its own investment decisions, Orion is deemed by its direct or indirect voting control of the subsidiaries to be able ultimately to direct the acquisition, voting and disposition of the Shares held by its subsidiaries. As indicated elsewhere herein, DPIC purchased a total of 80,000 Shares in the open market from November 1995 through March 1996 at prices ranging from $13.375 to $14.00 for an average price per Share of $13.70. Of the 80,000 Shares, 13,500 Shares were purchased during the 60 days prior to the date of this Offer to Purchase on the dates and at the prices set forth below:
PRICE PER SHARE NO. OF (NET OF NAME SHARES COMMISSIONS) DATE Design Professionals Insurance Company........... 1,900 $ 13.50 3/11/96 10,000 13.625 3/12/96 1,600 13.50 3/12/96
The conversion in 1995 of the 2003 Notes of the Company is discussed under SPECIAL FACTORS -- "Background of the Transaction" above. In other transactions, pursuant to the Company's 1994 repurchase program (referred to under SPECIAL FACTORS -- "Fairness of the Offer" above and THE OFFER -- Section 9), in 1994 the Purchasers sold an aggregate of 139,600 Shares to the Company at an average price per Share of $14.62. Such aggregate number of Shares sold by Orion's subsidiaries represented approximately 1.1% of the Shares outstanding immediately prior to the adoption by the Company of its share repurchase program. No executive officer or director of Orion or of any of the other Purchasers, or to the knowledge of Orion, any associate of the persons named on Schedule I hereto beneficially owns, or has the right to acquire, directly or indirectly, any Shares except as follows: 9 12
NAME NO. OF SHARES W. Marston Becker....................................................... 1,400 Bertram J. Cohn......................................................... 103,600* Robert B. Sanborn....................................................... 1,000 Raymond J. Schuyler..................................................... 500 William J. Shepherd..................................................... 5,000 John R. Thorne.......................................................... 1,500 Roger B. Ware........................................................... 74,321**
- --------------- * Mr. Cohn, as a managing director of First Manhattan Company, acts as co-manager in conjunction with another co-manager of each of two discretionary accounts which hold an aggregate of 103,600 Shares. ** As reported in the Company's Proxy Statement dated March 28, 1996 for its Annual Meeting of Stockholders. The number includes Shares beneficially owned as well as non-vested restricted stock and exercisable options. No executive officer or director has effected any transaction in the Shares during the past 60 days except that Mr. Robert H. Jeffrey sold 1,300 Shares on March 11, 1996 at a price of $13.50 per Share. For information concerning the business address of the foregoing persons, see THE OFFER -- Section 8 and Schedule I. None of Orion's wholly-owned subsidiaries will tender Shares in the Offer. Orion has been advised that each of Messrs. Becker, Cohn, Schuyler, Shepherd and Thorne intends to tender his Shares but that Mr. Sanborn does not intend to tender his Shares. At present Orion has no information as to whether Mr. Ware intends to tender any Shares. None of the Purchasers nor any of their directors or executive officers, in his capacity as such, makes any recommendation to the stockholders of the Company regarding the Offer. According to the Company's Proxy Statement dated March 28, 1996 for its Annual Meeting of Stockholders to be held May 15, 1996 (the "Annual Meeting Proxy Statement"), the only holder of 5% or more of the Shares, other than Orion through its subsidiaries, is Sanford C. Bernstein & Co., Inc., One State Street Plaza, New York, New York 10004, which owned, as reported in its Schedule 13G filed with the Commission on February 7, 1996, 779,200 Shares or 5.21% of the Shares issued and outstanding as of that date. Based on information set forth in the Annual Meeting Proxy Statement, the directors and executive officers of the Company as of January 31, 1996 beneficially owned (including Shares outstanding, Shares subject to options exercisable within 60 days of January 31, 1996 and restricted Shares) an aggregate 219,122 Shares, of which 1,000 Shares were owned by Robert B. Sanborn, 5,000 Shares were owned by William J. Shepherd, 74,321 Shares were owned by Roger B. Ware, 400 Shares by Dennis J. Lacey, 39,482 Shares by Arthur J. Mastera, 506 Shares by M. Ann Padilla, 41,236 Shares by Michael L. Pautler, 12,000 Shares by James R. Pouliot, 500 Shares by Carroll D. Speckman, 25,216 Shares by Fred T. Roberts and 1,500 Shares by Richard R. Thomas. According to the Annual Meeting Proxy Statement, the Company adopted a Long Term Incentive Plan in 1991 for all of its employees under which, as of December 31, 1995, the number of Shares underlying outstanding unexercised options held by the named executive officers of the Company was as follows:
NUMBER OF UNEXERCISED OPTIONS AT YEAR-END ----------------------------- NAME EXERCISABLE UNEXERCISABLE Roger B. Ware....................................... 45,250 15,750 Fred T. Roberts..................................... 22,250 10,750 Arthur J. Mastera................................... 20,250 10,750 Michael L. Pautler.................................. 23,250 10,750 James R. Pouliot.................................... -- 35,000
10 13 Except as set forth herein, to the Purchasers' knowledge, no member the Company's management or Board of Directors has interests in the Offer which are not identical to those of other holders of the Shares. Related Transactions. As indicated elsewhere herein, Orion and its subsidiaries have entered into several agreements with the Company and its subsidiaries. Pursuant to the Shareholders Agreement, Messrs. Gruber, Hollen and Shepherd serve on the Company's Board of Directors. Under the Shareholders Agreement, Orion also has the right on up to three occasions to require the Company to register under the Securities Act Shares owned by Orion and its wholly-owned subsidiaries, which right expires in November 1997. In addition, the Company has agreed to use its best efforts to include such Shares in any underwritten public offering of its Shares under the Securities Act and to pay all expenses in connection with the first two registrations. Most state insurance codes require transactions between a licensed insurance company and its affiliates to be fair and reasonable. In the case of certain material transactions, an insurance company must obtain prior approval of the transaction from the appropriate state insurance department. Reinsurance agreements, tax sharing agreements, loans, guarantees, sales and other transactions of a material size, as well as management, service and cost sharing agreements must similarly be approved. In the ordinary course of business, the Company's insurance 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's insurance subsidiaries would not be relieved of their liabilities. For 1995, Guaranty National Insurance Company ("GNIC") and Landmark American Insurance Company ("LAIC"), wholly-owned subsidiaries of the Company, were parties to a 100% reinsurance agreement with an Orion insurance subsidiary. Premiums written and ceded under this agreement are included in premiums written as reported in the Company's financial statements and were $152,000 for 1995. Insurance subsidiaries of the Company were paid $5,000 in fees in conjunction with this reinsurance agreement. Also, during 1995 GNIC was a party to reinsurance agreements with Orion insurance subsidiaries pursuant to which GNIC assumed business written through affiliates totalling $9,495,000 in premiums. GNIC paid to the Orion insurance subsidiaries $160,000 in fees and reimbursed $178,000 of actual expenses incurred by Orion's insurance subsidiaries in conjunction with this reinsurance agreement. For 1994, GNIC and LAIC were parties to a 100% reinsurance agreement with an Orion insurance subsidiary. Premiums written and ceded under this agreement are included in premiums written as reported in the Company's financial statements and were $643,000 for 1994. The Company's insurance subsidiaries were paid $14,000 in fees and reimbursed $1,000 for expenses in conjunction with this reinsurance agreement. Also, during 1994 GNIC was a party to reinsurance agreements with Orion insurance subsidiaries pursuant to which GNIC assumed business written through affiliates totalling $30,921,000 in premium. GNIC paid to Orion's insurance subsidiaries $666,000 in fees and reimbursed $774,000 of actual expenses incurred by Orion's insurance subsidiaries in conjunction with this reinsurance agreement. For 1993 GNIC and LAIC were parties to a 100% reinsurance agreement with an Orion insurance subsidiary. Premiums written and ceded under this agreement are included in premiums written as reported in the Company's financial statements and were $847,000 for 1993. The Company's insurance subsidiaries were paid $15,000 in fees and reimbursed $1,000 for expenses in conjunction with this reinsurance agreement. Also, during 1993 GNIC and LAIC were parties to reinsurance agreements with Orion insurance subsidiaries pursuant to which GNIC assumed business written through affiliates totalling $30,856,000 in premiums. The Company's insurance subsidiaries paid to Orion's insurance subsidiaries $582,000 in fees and reimbursed $673,000 for actual expenses in conjunction with this reinsurance agreement. Effective January 1, 1993, the Company's insurance subsidiaries entered into a reinsurance agreement ("1993 Agreement") with National Reinsurance Corporation ("NRC"), a wholly-owned subsidiary of National Re Holdings Corporation ("National Re"). The 1993 Agreement, as amended, primarily provides reinsurance limits up to $6,000,000 in excess of the Company's retention of $150,000 to $300,000. The Company ceded $38,215,000 in premiums to NRC during 1995 and received $12,358,000 in ceding commissions. Subject to certain renewal and cancellation provisions, the agreement expires at the end of 1998. With the exception of 1992, NRC has been a principal reinsurer of the Company since 1985. Mr. Steven B. Gruber, a son of Mr. Alan R. Gruber, Chairman of the Company and of Orion, has been a director of National 11 14 Re since 1990. Neither of the Messrs. Gruber participated in the negotiation of the 1993 Agreement and its subsequent amendments. The 1993 Agreement, as amended in 1994, provided reinsurance limits up to $9,700,000 in excess of the Company's retention of $300,000. The Company ceded $31,929,000 in premiums to NRC during 1994 and received $10,377,000 in ceding commissions. The Company ceded $27,722,000 in premiums during 1993 to NRC and received $9,010,000 in ceding commissions. A subsidiary of Orion is an agent for the Company, pursuant to the Company's standard agency contract. During 1995, this agency produced $411,000 in premiums and was paid $72,000 in commissions. The Company expects similar premium production and commissions in 1996. During 1994, this agency produced $516,000 in premiums and was paid $90,000 in commissions. During 1993, this agency produced $537,000 in premiums and was paid $94,000 in commissions. During 1995, the Company's 2003 Notes in the principal amount of $20,896,000, were converted by Orion's subsidiaries into 1,326,128 Shares. Total interest paid by the Company on the 2003 Notes in 1995 to Orion's subsidiaries was $1,122,000. Total interest paid to Orion's subsidiaries for 1993 was $1,928,000 and for 1994 was $1,640,000. See SPECIAL FACTORS -- Background of the Transaction. In 1995, in connection with the Viking Holdings acquisition financing, Orion made a commitment for a $21,000,000 bridge loan to the Company. The loan was not drawn down, but the Company paid a $210,000 commitment fee to Orion at the time the commitment was executed. 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) is managed by investment managers of Orion under the direction and supervision of the Company and subject to the Company's investment policies. For its investment management services, fees were paid to Orion at a rate of $550,000 per year from 1993 through July 1995, at which time they were increased to a rate of $650,000 per year in recognition of the additional investment balances resulting from the Viking Holdings acquisition. The contract continues in effect for annual periods unless terminated by either party upon 90 days prior written notice. During 1990, GNIC entered into a loan participation agreement pursuant to which DPIC borrowed approximately $9 million from affiliates. The loan, which was secured by a leasehold deed of trust on an office building in Monterey, California owned and primarily occupied by DPIC, matured in November 1995. GNIC's proportionate share of this loan was $3,700,000 or 41.1%. GNIC received quarterly interest payments at a rate of 11% per year. Interest earned for each of 1993 and 1994 was $407,000 and for 1995 was $355,000. 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. The Company has committed to participate in Orion's commitment in an aggregate amount not to exceed $1,500,000. As of December 31, 1995, Orion had invested $510,000 and the Company $219,000 in such partnership investments. Insurance Partners L.P. is managed by Insurance Partners Advisors L.P., of which Mr. Steven B. Gruber is a managing director. As described under SPECIAL FACTORS -- "Certain Effects of the Transaction," Orion may enter into a tax sharing agreement with the Company and its subsidiaries. See also, SPECIAL FACTORS -- "Background of the Transaction." DISSENTERS' RIGHTS No dissenters' rights under the Colorado Corporation Code are available to stockholders of the Company with respect to the Offer. See THE OFFER -- Section 11. CERTAIN FEDERAL INCOME TAX CONSEQUENCES The receipt of cash for Shares pursuant to the Offer will be a taxable transaction for federal income tax purposes and may also be a taxable transaction under applicable state, local or foreign tax laws. The tax consequences of such receipt pursuant to the Offer may vary depending upon, among other things, the 12 15 particular circumstances of the stockholder. In general, a stockholder who receives cash for Shares pursuant to the Offer will recognize gain or loss for federal income tax purposes equal to the difference between the amount of cash received for the Shares sold and his adjusted tax basis in such Shares. Such gain or loss will be capital gain or loss if the stockholder held Shares as a capital asset, and will be long-term capital gain or loss if the stockholder held the Shares for more than one year at the time of sale. Gain or loss will be calculated separately for each block of Shares tendered pursuant to the Offer. The foregoing discussion may not be applicable to stockholders who are not citizens or residents of the United States or to certain foreign corporations, to stockholders who acquired their Shares pursuant to the exercise of employee stock options or otherwise as compensation, or to other categories of stockholders subject to special treatment under federal income tax laws. THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY AND IS BASED ON PRESENT LAW. BECAUSE OF THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, EACH STOCKHOLDER IS URGED TO CONSULT HIS TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO HIM OF THE OFFER, INCLUDING THE APPLICATION AND EFFECT OF THE ALTERNATIVE MINIMUM TAX, AND STATE, LOCAL AND FOREIGN TAX LAWS. SOURCE AND AMOUNT OF FUNDS -- FINANCING OF THE OFFER The total amount of funds required to purchase all 4,600,000 Shares pursuant to the Offer and to pay related fees and expenses is expected to be approximately $81,250,000. The Purchasers have available cash and short-term investments of approximately $186,516,000 as of March 31, 1996. For information as to the respective purchase obligations of the Purchasers, see the Introduction in this Offer to Purchase and THE OFFER -- Sections 1, 3 and 11. The Purchasers reserve the right to amend the Offer to reduce the number of Shares which will be purchased pursuant to the Offer, including as a result of the Insurance Regulatory Condition. See THE OFFER -- Section 10. THE OFFER 1. TERMS OF THE OFFER; EXPIRATION DATE. Upon the terms and subject to the conditions of the Offer, the Purchasers will accept for payment (and thereby purchase) and pay for, at the time and in the manner set forth in The Offer -- Section 2, up to 4,600,000 Shares validly tendered prior to the Expiration Date (as hereinafter defined) and not withdrawn in accordance with The Offer -- Section 4 at an Offer price of $17.50 per Share net to the seller in cash without interest thereon. The obligation of any Purchaser to purchase Shares in the Offer is several and not joint. Each Purchaser reserves the right to purchase any Shares not purchased by the other Purchasers. The term "Expiration Date" means 12:00 Midnight, New York City time, on June 5, 1996, unless and until Orion shall have extended the period of time for which the Offer is open, in which event the term "Expiration Date" shall mean the latest time and date on which the Offer, as so extended by Orion, shall expire. Orion on behalf of the Purchasers expressly reserves the right, in its sole discretion, for any reason, at any time or from time to time, and regardless of whether or not any of the events set forth in THE OFFER -- Section 10 shall have occurred or shall have been determined by Orion to have occurred, to extend the period of time during which the Offer is open by giving oral or written notice of such extension to the Depositary and by making a public announcement thereof. During any such extension, all Shares previously tendered may be withdrawn as set forth in The Offer -- Section 4. There can be no assurance that Orion will exercise its right to extend the Offer. Subject to applicable rules of the Commission, the Purchasers expressly reserve the right, in their sole discretion, at any time or from time to time, and regardless of whether or not any of the events in THE OFFER -- Section 10 shall have occurred or shall have been determined by Orion to have occurred, to increase or decrease the price per Share payable in the Offer or to make any other changes in the terms and conditions of the Offer by giving written or oral notice of such amendment to the Depositary (which shall be given by Orion on behalf of the Purchasers). The rights reserved to the Purchasers in this paragraph are in addition to the Purchasers' right to terminate the Offer pursuant to THE OFFER -- Section 10. If the Purchasers shall decide, in their sole discretion, to increase or decrease the consideration offered in the Offer to holders of Shares or to increase or decrease the number of Shares being sought, and, at the time that notice 13 16 of such change is first published, sent or given to holders of Shares in the manner specified below, the Offer is scheduled to expire at any time earlier than the expiration of a period ending on the tenth business day from, and including, the date that such notice is first so published, sent or given, then the Offer will be extended at least until the expiration of such period of ten business days. If, prior to the Expiration Date, the Purchasers shall increase the consideration offered to holders of Shares pursuant to the Offer, such increased consideration shall be paid to all holders whose Shares are accepted for payment pursuant to the Offer. For purposes of the Offer, a "business day" means any day other than a Saturday, Sunday or federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, New York City time. The Commission has announced that under its interpretation of Rules 14d-4(c) and 14d-6(d) under the Exchange Act material changes in the terms of a tender offer or information concerning the tender offer may require that the tender offer be extended for a sufficient period of time to allow stockholders to consider such material changes or information in deciding whether or not to tender, withdraw or hold their shares. If the Purchasers make a material change in the terms of the Offer or the information concerning the Offer, or Orion on behalf of the Purchasers waives a material condition to the Offer, Orion will disseminate additional tender offer materials to the extent required by Rules 14d-4(c) and 14d-6(d) promulgated under the Exchange Act. The minimum period during which an offer must remain open following material changes in the terms of the offer or information concerning the offer, other than a change in price or a change in percentage of securities sought, will depend upon the facts and circumstances, including the relative materiality of the terms or information changed. With respect to a change in price or change in percentage of securities sought, a minimum ten business day period is generally required to allow for adequate dissemination to stockholders and investor response. The Commission has stated that in its view an offer should remain open for a minimum of five business days from the date a material change is first published, sent or given to securityholders, and that if material changes are made with respect to information that approaches the significance of price and share levels, a minimum of ten business days may be required to allow for adequate dissemination and investor response. The Purchasers do not expect this to be the case, but should for any reason the Rights be deemed to be exercisable, stockholders will be required to tender one Right for each Share tendered to effect a valid tender of such Shares. See THE OFFER -- Sections 3 and 11. Orion on behalf of the Purchasers also expressly reserves the right (i) to delay acceptance for payment or payment for any Shares, regardless of whether such Shares were theretofore accepted for payment, or to terminate the Offer and not accept for payment or pay for any Shares not theretofore accepted for payment or paid for, upon the occurrence of any of the events specified in THE OFFER -- Section 10 by giving oral or written notice of such delay in acceptance or payment or termination to the Depositary and (ii) at any time, or from time to time, to amend the Offer in any respect. Any extension of the Offer, delay in acceptance or payment, termination or amendment of the Offer will be followed as promptly as practicable by public announcement thereof, such announcement in the case of an extension to be issued no later than 9:00 A.M., New York City time, on the next business day after the previously scheduled Expiration Date, in accordance with the public announcement requirements of Rule 14d-4(c) promulgated under the Exchange Act. Without limiting the manner in which Orion may choose to make any public announcement, Orion shall have no obligation, and currently does not intend, except as required by law, to publish, advertise or otherwise communicate any such public announcement other than by issuing a release to the Dow Jones News Service and making any appropriate filing with the Commission. A request is being made of the Company pursuant to Rule 14d-5 under the Exchange Act for the use of its stockholder lists and security position listings for the purpose of disseminating the Offer to holders of Shares. This Offer to Purchase and the related Letter of Transmittal will be mailed to record holders of Shares and will be furnished to brokers, banks and similar persons whose names, or the names of whose nominees, appear on the stockholder lists or, if applicable, who are listed as participants in a clearing agency's security position listing for subsequent transmittal to beneficial owners of Shares. 2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES; PRORATION. Upon the terms and subject to the conditions of the Offer, including the provisions thereof relating to proration, the Purchasers shall accept for 14 17 payment (and thereby purchase), and the Purchasers will pay for, up to 4,600,000 Shares validly tendered and not properly withdrawn in accordance with THE OFFER -- Section 4 (including Shares validly tendered and not withdrawn during any extension of the Offer, if the Offer is extended, upon the terms and subject to the conditions of such extension), as promptly as practicable after the later to occur of (i) the Expiration Date and (ii) the satisfaction or waiver of the conditions of the Offer set forth in THE OFFER -- Section 10. THE OFFER IS NOT CONDITIONED ON ANY MINIMUM NUMBER OF SHARES BEING TENDERED. The Purchasers expressly reserve the right to delay acceptance for payment of or payment for Shares in order to comply in whole or in part with any applicable law or regulation (including the Insurance Regulatory Condition). See THE OFFER -- Sections 10 and 11. The reservation by the Purchasers of the right to delay acceptance for payment or payment for Shares is subject to the provisions of applicable law under Rule 14e-1 promulgated under the Exchange Act, which require that the purchaser pay the consideration offered or return the Shares deposited by or on behalf of stockholders promptly after termination or withdrawal of the Offer. Upon the terms and subject to the conditions of the Offer, if more than 4,600,000 Shares are validly tendered and not withdrawn in accordance with Section 4 of this Offer to Purchase prior to the Expiration Date, the Purchasers will accept for payment and pay for 4,600,000 Shares, on a pro rata basis (with appropriate adjustments to avoid purchases of fractional Shares) according to the number of Shares properly tendered and not withdrawn by each stockholder at or prior to the Expiration Date. In the event that proration of tendered Shares is required, because of the difficulty of determining the precise number of Shares properly tendered and not withdrawn (due in part to the guaranteed delivery procedure described in Section 3), Orion on behalf of the Purchasers, does not expect that it will be able to announce the final results of such proration or pay for any Shares until at least five NYSE trading days after the Expiration Date. Preliminary results of proration will be announced by press release as promptly as practicable after the Expiration Date. Stockholders may obtain such preliminary information from the Information Agent, the Dealer Manager or their brokers. The Purchasers reserve the right (but shall not be obligated) to accept for payment more than 4,600,000 Shares pursuant to the Offer, but have no present intention of exercising such right. If a number of additional Shares in excess of two percent of the outstanding Shares is to be accepted for payment, and, at the time notice of the Purchasers' decision to accept for payment such additional Shares is first published, sent or given to holders of Shares, the Offer is scheduled to expire at any time earlier than the tenth business day from the date that such notice is so published, sent or given, the Offer will be extended until the expiration of such period of ten business days. In all cases, payment for Shares purchased pursuant to the Offer will be made only after timely receipt by the Depositary of certificates for such Shares, or timely confirmation (a "Book-Entry Confirmation") of book-entry transfer of such Shares into the Depositary's account at The Depository Trust Company ("DTC") or The Philadelphia Depository Trust Company ("PDTC") (sometimes hereinafter referred to individually as a "Book-Entry Transfer Facility" and collectively as the "Book-Entry Transfer Facilities") pursuant to the procedure set forth in THE OFFER -- Section 3, and, in either such case, timely receipt by the Depositary of a properly completed and duly executed Letter of Transmittal (or facsimile thereof) with any required signature guarantees or Agent's Message (as defined in Section 3 ) and any other documents required by the Letter of Transmittal. For purposes of the Offer, the Purchasers shall be deemed to have accepted for payment (and thereby purchased) tendered Shares when, as and if Orion on behalf of the Purchasers gives oral or written notice to the Depositary of the Purchasers' acceptance for payment of such Shares pursuant to the Offer. Upon the terms and subject to the conditions of the Offer, payment for Shares purchased pursuant to the Offer will in all cases be made by deposit of the purchase price with the Depositary, which will act as an agent for the tendering stockholders for the purpose of receiving payment from the Purchasers and transmitting payments to tendering stockholders. Under no circumstances will interest be paid on the purchase price by the Purchasers by reason of any delay in making such payment. If any tendered Shares are not purchased pursuant to the Offer for any reason, or if certificates submitted represent more Shares than are tendered, certificates for such Shares not purchased or tendered will be 15 18 returned without expense to the tendering stockholder (or, in the case of Shares delivered by book-entry transfer into the Depositary's account at a Book-Entry Transfer Facility pursuant to the procedures set forth in THE OFFER -- Section 3, such Shares will be credited to an account maintained at such Book-Entry Transfer Facility) as promptly as practicable following the expiration or termination of the Offer. If for any reason whatsoever (whether before or after the acceptance for payment of Shares), acceptance for payment of or payment for any Shares tendered pursuant to the Offer is delayed, or the Purchasers are unable to accept for payment or pay for Shares tendered pursuant to the Offer, then, without prejudice to the Purchasers' rights under THE OFFER -- Section 10, the Depositary may, nevertheless, to the extent permitted by law, retain tendered Shares on behalf of the Purchasers, and such Shares may not be withdrawn except to the extent that the tendering stockholders are entitled to withdrawal rights as described in THE OFFER -- Section 4. The ability of the Purchasers to delay the payment for the Shares which the Purchasers have accepted for payment is limited by Rule 14e-1 under the Exchange Act referred to above. Each of the Purchasers reserves the right to transfer or assign, in whole or from time to time in part, to Orion or to one or more of the other wholly-owned subsidiaries of Orion the right to purchase Shares tendered pursuant to the Offer, but no such transfer or assignment will relieve the Purchasers of their obligations under the Offer or prejudice the rights of tendering stockholders, upon the terms and subject to the conditions of the Offer, to receive payment for Shares validly tendered and accepted for payment pursuant to the Offer. 3. PROCEDURES FOR ACCEPTING THE OFFER AND TENDERING SHARES. For Shares to be validly tendered pursuant to the Offer, a properly completed and duly executed Letter of Transmittal (or facsimile thereof) with any required signature guarantees or Agent's Message (as defined below) and any other documents required by the Letter of Transmittal must be received by the Depositary at any one of its addresses set forth on the back cover of this Offer to Purchase, and either (i) the certificates for such Shares must be delivered to the Depositary along with the Letter of Transmittal or such Shares must be delivered pursuant to the procedure for book-entry transfer set forth below and a Book-Entry Confirmation must be received by the Depositary, in each case prior to the Expiration Date, or (ii) the tendering stockholder must comply with the guaranteed delivery procedure set forth below. The term "Agent's Message" means a message transmitted by a Book-Entry Transfer Facility to and received by the Depositary and forming a part of a Book-Entry Confirmation, which states that such Book-Entry Transfer Facility has received an express acknowledgment from the participant in such Book-Entry Transfer Facility tendering the Shares which are the subject of such Book-Entry Confirmation, that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that Purchasers may enforce such agreement against such participant. The Depositary will make a request to establish an account with respect to the Shares at each of the Book-Entry Transfer Facilities for purposes of the Offer within two business days after the date of this Offer to Purchase, and any financial institution that is a participant in the Book-Entry Transfer Facilities' systems may make book-entry delivery of the Shares by causing DTC or PDTC, as the case may be, to transfer such Shares into the Depositary's account at such Book-Entry Transfer Facility in accordance with such Book-Entry Transfer Facility's procedure for such transfer. However, although delivery of Shares may be effected through a Book-Entry Transfer Facility, the Letter of Transmittal (or facsimile thereof) with any required signature guarantees, or an Agent's Message in connection with a book-entry transfer, and any other required documents must, in any case, be transmitted to, and received by, the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase or the guaranteed delivery procedure set forth below must be complied with, prior to the Expiration Date. DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH THE BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. Except as otherwise provided below, signatures on all Letters of Transmittal must be guaranteed by a financial institution (including most banks, savings and loan associations and brokerage houses) which is a participant in the Securities Transfer Association's approved medallion program (such as the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Program or the Stock Exchange Medallion Program (each, an "Eligible Institution"). Signatures on Letters of Transmittal need not be guaranteed if the Shares tendered thereby are tendered (i) by a registered holder of Shares who has not completed either the box entitled "Special Payment Instructions" or the box entitled "Special 16 19 Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution. See Instructions 1 and 5 of the Letter of Transmittal. If the certificates for Shares are registered in the name of a person or persons other than the signer of the Letter of Transmittal, or if payment is to be made or unpurchased Shares are to be issued to a person other than the registered holder or holders, then the certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered holder or holders appear on the certificates, with the signatures on the certificates or stock powers guaranteed as provided in the instructions to the Letter of Transmittal. See Instructions 1 and 5 of the Letter of Transmittal. THE METHOD OF DELIVERY OF SHARES, THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER AND, EXCEPT AS OTHERWISE PROVIDED IN THE LETTER OF TRANSMITTAL, THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. If a stockholder desires to tender Shares pursuant to the Offer and such stockholder's certificates are not immediately available or such stockholder is unable to deliver all documents required by the Letter of Transmittal to the Depositary prior to the Expiration Date, or such stockholder cannot complete the procedure for book-entry transfer on a timely basis, such Shares, nevertheless, may be tendered if all of the following conditions are met: (i) such tender is made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by the Purchasers herewith, is received by the Depositary as provided below prior to the Expiration Date; and (iii) the certificates for all tendered Shares in proper form for transfer (or a Book-Entry Confirmation), together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof), with any required signature guarantees (or in the case of a book-entry transfer, an Agent's Message) are received by the Depositary within three NYSE trading days after the date of execution of such Notice of Guaranteed Delivery. The Notice of Guaranteed Delivery may be delivered by hand or transmitted by telegram, facsimile transmission or mail to the Depositary and must include a guarantee by an Eligible Institution in the form set forth in such Notice of Guaranteed Delivery and a representation that the stockholder on whose behalf the tender is being made is deemed to own the Shares being tendered within the meaning of Rule 10b-4 under the Exchange Act. Notwithstanding any other provision hereof, in all cases payment for Shares tendered and accepted for payment (and thus purchased) pursuant to the Offer will be made only after timely receipt by the Depositary of certificates for such Shares (or a Book-Entry Confirmation), a properly completed and duly executed Letter of Transmittal (or facsimile thereof) and any other documents required by the Letter of Transmittal. Accordingly, payment may be made to tendering stockholders at different times if Shares and these documents are delivered at different times. TO PREVENT BACK-UP FEDERAL INCOME TAX WITHHOLDING WITH RESPECT TO PAYMENT OF THE PURCHASE PRICE FOR SHARES PURCHASED PURSUANT TO THE OFFER, A STOCKHOLDER MUST PROVIDE THE DEPOSITARY WITH HIS CORRECT TAXPAYER IDENTIFICATION NUMBER AND CERTIFY THAT HE IS NOT SUBJECT TO BACK-UP FEDERAL INCOME TAX WITHHOLDING BY COMPLETING THE SUBSTITUTE FORM W-9 INCLUDED IN THE LETTER OF TRANSMITTAL. SEE INSTRUCTION 8 OF THE LETTER OF TRANSMITTAL. By executing a Letter of Transmittal as set forth above, a tendering stockholder irrevocably appoints designees of the Purchasers as his attorneys-in-fact and proxies, each with full power of substitution, in the manner set forth in the Letter of Transmittal, to the full extent of such stockholder's rights with respect to the Shares tendered by such stockholder and accepted for payment by the Purchasers (and any and all other Shares and other securities issued or issuable in respect thereof on or after the date of this Offer to Purchase). All such proxies shall be considered coupled with an interest in the tendered Shares. Such appointment will be 17 20 effective when, and only to the extent that, the Purchasers accept such Shares for payment, which will be no earlier than June 5, 1996. Upon such acceptance for payment, all prior proxies given with respect to such Shares and other securities will, without further action, be revoked and no subsequent proxies may be given (and if given will not be deemed effective). The designees of the Purchasers will be empowered, among other things, to exercise all voting and other rights of such stockholder with respect to Shares and other securities accepted for payment as they, in their sole discretion, may deem proper at any annual, special or adjourned meeting of the Company's stockholders, by written consent or otherwise. Each of the Purchasers reserves the right to require that, in order for Shares to be deemed validly tendered, immediately upon the Purchaser's acceptance for payment of such Shares, the Purchaser must be able to exercise full voting and other rights with respect to such Shares and other securities issued in respect thereof. All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of Shares pursuant to any of the procedures described above will be determined by Orion on behalf of the Purchasers, in its sole discretion, which determination shall be final and binding. Orion on behalf of the Purchasers reserves the absolute right to reject any or all tenders of any Shares determined by it not to be in proper form or if the acceptance for payment of or payment for such Shares may, in the opinion of Orion's counsel, be unlawful. Orion also reserves the right to waive any defect or irregularity in any tender with respect to any particular Shares of any particular stockholder, and Orion's interpretation of the terms and conditions of the Offer (including the Letter of Transmittal and the Instructions thereto) will be final and binding. None of the Purchasers, the Dealer Manager, the Depositary, the Information Agent, or any other person will be under any duty to give notification of any defects or irregularities in the tender of any Shares or will incur any liability for failure to give any such notification. It is a violation of Rule 14e-4 promulgated under the Exchange Act, for a person, directly or indirectly, to tender Shares for his own account unless the person so tendering (i) has a net long position equal to or greater than the number of Shares tendered or other securities immediately convertible into, or exercisable or exchangeable for such number of Shares and (ii) will cause such Shares to be delivered in accordance with the terms of the Offer. Rule 14e-4 provides a similar restriction applicable to the tender or guarantee of a tender on behalf of another person. A tender of Shares pursuant to any of the procedures described above will constitute a binding agreement between the tendering stockholder and the Purchasers upon the terms and subject to the conditions of the Offer, including the tendering stockholder's acceptance of the terms and conditions of the Offer, as well as the tendering stockholder's representation and warranty that (i) such stockholder has a net long position in the Shares being tendered within the meaning of Rule 14e-4 under the Exchange Act and (ii) the tender of such Shares complies with Rule 14e-4. 4. WITHDRAWAL RIGHTS. Except as otherwise provided in this Section 4, tenders made pursuant to the Offer are irrevocable. Upon the terms and subject to the conditions of the Offer, Shares tendered pursuant to the Offer may be withdrawn at any time prior to the Expiration Date and, unless theretofore accepted for payment pursuant to the Offer, may also be withdrawn at any time after July 6, 1996. For withdrawal to be effective, a written, telegraphic or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase. Any such notice of withdrawal must specify the name of the person who tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder, if different from that of the person having tendered such Shares. If certificates for Shares have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such certificates, the withdrawing stockholder also must submit to the Depositary the serial numbers shown on the particular certificates evidencing the Shares to be withdrawn, and the signature on the notice of withdrawal must be guaranteed by an Eligible Institution, except in the case of Shares tendered for the account of an Eligible Institution. If Shares have been delivered pursuant to the procedure for book-entry transfer set forth in THE OFFER -- Section 3, any notice of withdrawal must specify the name and account number of the account at a Book Entry Facility to be credited with the withdrawn Shares. 18 21 All questions as to the form and validity (including time of receipt) of notices of withdrawal will be determined by Orion on behalf of the Purchasers, in its sole discretion, which determination shall be final and binding. None of the Purchasers, the Dealer Manager, the Depositary, the Information Agent, or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or will incur any liability for failure to give any such notification. Any Shares properly withdrawn will be deemed not to be validly tendered for purposes of the Offer. Withdrawn Shares may be re-tendered, however, by following any of the procedures described in THE OFFER -- Section 3 at any subsequent time prior to the Expiration Date. 5. PRICE RANGE OF SHARES; DIVIDENDS. The Shares are traded on the NYSE under the symbol "GNC." The following table sets forth, for the calendar quarters indicated, the reported high and low closing prices per Share and the cash dividends per Share. The information for 1994 and 1995 was reported in the 1995 Annual Report. The information for 1996 was derived from reports in published financial sources: CLOSING SALES PRICES
CASH DIVIDENDS HIGH LOW PAID 1996: Second Quarter (through May 7, 1996)........................ $16.25 $15.00 $ -- First Quarter............................................... 17.00 13.50 .125 1995: Fourth Quarter.............................................. 16.875 13.75 .125 Third Quarter............................................... 19.00 15.75 .125 Second Quarter.............................................. 18.50 15.25 .125 First Quarter............................................... 18.25 15.50 .125 1994: Fourth Quarter.............................................. 18.375 15.125 .125 Third Quarter............................................... 18.50 14.625 .125 Second Quarter.............................................. 16.50 14.375 .125 First Quarter............................................... 18.75 13.75 .125
On May 7, 1996, the last full trading day prior to the commencement of the Offer, the closing sales price reported by the NYSE was $16.125 per Share. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES. In 1994 the Board of Directors of the Company announced the repurchase by the Company of up to $10,000,000 of outstanding Shares. In conjunction with the repurchase of Shares, purchases were also made from Orion's subsidiaries by the Company, thereby maintaining Orion's percentage beneficial ownership of Shares. During 1994 the Company repurchased 459,200 Shares, of which 139,600 Shares were purchased from subsidiaries of Orion. To the Purchasers' knowledge, no additional repurchases of Shares have been made by the Company since December 31, 1994. The average repurchase price of Shares repurchased was $14.45. In view of applicable regulations under the Exchange Act, the Purchasers expect that any repurchase program would be suspended during the Offer. 6. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; QUOTATION ON THE NYSE; REGISTRATION UNDER THE EXCHANGE ACT. The purchase of Shares by the Purchasers pursuant to the Offer will reduce the number of Shares that might otherwise trade publicly and, depending on the number of Shares purchased, may reduce the number of holders of Shares and could affect the liquidity and market value of the remaining Shares held by the public. According to the NYSE's published guidelines, the NYSE would consider delisting the Shares if, among other things, the number of record holders of at least 100 Shares should fall below 1,200, the number of 19 22 publicly held Shares (exclusive of holdings of officers, directors, their immediate families and other concentrated holdings of 10% or more ("NYSE Excluded Holdings")) should fall below 600,000 or the aggregate market value of publicly held Shares (exclusive of NYSE Excluded Holdings) should fall below $5,000,000. The Purchasers do not presently believe that under the published guidelines described above, the purchase of up to 4,600,000 Shares pursuant to the Offer will result in a delisting of the Shares by the NYSE. According to the 1995 Annual Report, there were approximately 2,000 holders of Shares as of February 29, 1996 and December 31, 1995. If, however, as a result of the purchase of Shares pursuant to the Offer or otherwise, the Shares no longer meet the requirements of the NYSE for continued listing and/or trading and such trading of the Shares were discontinued, the market for the Shares could be adversely affected. In the event that the Shares should no longer be listed or traded on the NYSE, Orion believes that the Company will be able to arrange for the Shares to trade on another national securities exchange or in the over-the-counter market and that price quotations would be reported by such exchange, through the NASDAQ or other sources. Such trading and the availability of such quotations would, however, depend upon the number of stockholders and/or the aggregate market value of the Shares remaining at such time, the interest in maintaining a market in the Shares on the part of securities firms, the possible termination of registration of the Shares under the Exchange Act as described below and other factors. Exchange Act Registration The Shares are currently registered under the Exchange Act. While the Purchasers do not expect deregistration to occur as a result of the consummation of the Offer for up to 4,600,000 Shares, there can be no assurance that the purchase of the Shares pursuant to the Offer will not result in the Shares becoming eligible for deregistration under the Exchange Act. Registration of the Shares may be terminated if the Shares are not listed on a "national securities exchange" and there are fewer than 300 record holders of Shares. Termination of registration of the Shares under the Exchange Act would substantially reduce the information required to be furnished by the Company to its stockholders and the Commission and would make certain provisions of the Exchange Act, such as the short-swing profit recovery provisions of Section 16(b) and the requirements of furnishing a proxy statement in connection with stockholders' meetings pursuant to Section 14(a), no longer applicable to the Company. If the Shares should no longer be registered under the Exchange Act, the requirements of Rule 13e-3 under the Exchange Act with respect to "going private" transactions would no longer be applicable to the Company. Furthermore, the ability of "affiliates" of the Company and persons holding "restricted securities" of the Company to dispose of such securities pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended, may be impaired or eliminated. Margin Regulations The Shares are currently "margin securities" under the regulations of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), which have the effect, among other things, of allowing brokers to extend credit on the collateral of such Shares for the purpose of buying, carrying or trading in securities ("Purpose Loans"). While Orion does not presently expect that this will occur, depending upon factors such as the number of record holders of the Shares and the number and market value of publicly held Shares, following the purchase of up to 4,600,000 Shares pursuant to the Offer, the Shares might no longer constitute "margin securities" for purposes of the Federal Reserve Board's margin regulations and, therefore, no longer be able to be used as collateral for Purpose Loans made by brokers. In addition, if registration of the Shares under the Exchange Act should be terminated, the Shares would no longer constitute "margin securities." The continuation of such trading and the continued availability of such quotations would depend, however, upon the number of holders of Shares remaining at such time, the interest in maintaining a market in the Shares on the part of securities firms, the possible termination of registration under the Exchange Act, as described below, and other factors. 20 23 7. CERTAIN INFORMATION CONCERNING THE COMPANY. The Company is incorporated under the laws of the State of Colorado. Its principal executive offices are located at 9800 South Meridian Boulevard, Englewood, Colorado 80112, and its telephone number is (303) 754-8400. The Company is a holding company whose principal business is conducted through wholly-owned subsidiaries. The following information about the Company is derived from its 1995 Annual Report on Form 10-K. The Company and its subsidiaries principally underwrite and sell specialty property and casualty insurance coverages which are not readily available in traditional insurance markets. Personal and commercial automobile insurance accounted for approximately 84% of the Company's net premiums written during 1995. The Company's personal lines unit principally writes nonstandard automobile insurance for individuals who do not qualify for preferred or standard insurance because of their payment history, driving records, ages, vehicle types, or other factors, including market conditions for standard risks. The Company's commercial lines unit principally writes nonstandard commercial automobile coverage. Typical risks include local and intermediate trucking, garages, used car dealers, public and private livery, and artisan contractors. Other commercial lines coverages include property, general liability, umbrella and excess insurance, standard multi-peril packages and other coverages. Nonstandard risks generally involve a potential for poor claims experience because of increased risk exposure. Premium levels for nonstandard risks are substantially higher than for preferred or standard risks. In personal lines, the Company's loss exposure is limited by the fact that nonstandard drivers typically purchase low liability limits, often at a state's statutory minimum. The nonstandard insurance industry is also characterized by the insurer's ability to minimize its exposure to unprofitable business by effecting timely changes in premium rates and policy terms in response to changing loss and other experiences. In those states where prior approval for rate changes is required, the Company has generally gained approval in a timely manner. The Company also writes business in states where prior approval to effectuate rate changes is not required. Many nonstandard risks written by the Company require specialized underwriting, claims management, and other skills and experience. The Company historically has focused its operations in those nonstandard markets where it expects that its expertise and market position will allow it to generate an underwriting profit. An indicator of underwriting profit is a generally accepted accounting principles ("GAAP") combined ratio of less than 100%. Although the Company's GAAP combined ratio for the year ended December 31, 1995, was 105.3%, the Company has achieved a GAAP combined ratio of less than 100% in four of the last five years. The Company's average GAAP combined ratio for all its lines for the five-year period ending 1995 was 99.9%. Commercial lines business is written through three divisions. The general and specialty divisions write business through 68 general agents and various brokers throughout the United States except for New Jersey, Massachusetts and five other Northeastern states. These agents specialize in particular types of risks and/or geographic locations. The general division primarily offers commercial coverages for transportation risks and small to medium businesses. The specialty division primarily offers regional programs, specialized coverages for medium-sized businesses, and umbrella coverages for a variety of organizations. Also, during 1995, the specialty division implemented a new personal automobile physical damage program in California. The Company's objective for its general and specialty business is to maintain long-term mutually profitable relationships with a small number of selected general agents who follow strict underwriting guidelines. The Company's third commercial lines division is the standard division, with business written by Colorado Casualty Insurance Company ("CCIC"). CCIC writes small standard commercial package policies primarily in the Rocky Mountain region, but has recently expanded into states outside of the Rocky Mountain region. This expansion has primarily occurred in the Southeast Region of the United States. CCIC has been successful in serving a niche market of approximately 510 small to medium retail agents. In addition, CCIC utilizes five general agents as branch offices. The standard business produced by CCIC complements the nonstandard focus of the commercial lines unit. In August 1994, the Company acquired General Electric Mortgage Insurance Corporation of California ("GEMIC"), an inactive insurance company licensed in California. As part of the acquisition, the Company renamed GEMIC as Guaranty National Insurance Company of California ("GNICOC"). The GNICOC 21 24 acquisition allowed for the expansion of the Company's commercial business and has reduced fees previously paid to Orion insurance subsidiaries in connection with business produced in California. In July 1995, the Company acquired Viking Holdings and its wholly-owned subsidiaries, Viking Insurance Company of Wisconsin ("VICW") and Viking General Agency, which is headquartered in Madison, Wisconsin. Viking is a property and casualty insurance company writing nonstandard personal automobile insurance. The acquisition of Viking has enabled the Company to change its business mix, expand its personal lines business into new territories, strengthen personal lines market share in existing states, and provide flexibility in marketing the Company's personal lines products. Following the acquisition, the Company entered into 100% reinsurance agreements with Viking County Mutual Insurance Company ("VCM"), whereby the Company assumes business written by this affiliate. Included in 1995 premiums assumed was $5,525,000 of premiums written under these agreements. The policy issue fee charged by VCM is offset by the management fee charged by the Company to VCM. Personal lines business is written through two divisions: the Guaranty National division and the Viking division. The Guaranty National division provides personal lines automobile coverage through approximately 2,500 independent agents located in 22 states, primarily in the Rocky Mountain and Pacific Northwest regions. In addition, this division markets business through four general agents. In recent years, this division has begun marketing its personal lines products in Louisiana, Indiana, Ohio and Virginia. Additionally, during the third quarter of 1995, this division discontinued writing new policies in the state of Texas. However, renewals of existing policies will continue to be made so as to remain in compliance with the regulations of the Texas Insurance Department. The Viking division writes nonstandard personal automobile coverage through approximately 5,400 independent insurance agents in 18 states. The states in which the Viking division writes the largest amount of net premiums are California, Washington, Texas and Wisconsin. Viking primarily sells minimum-limits policies on a monthly basis, with a one-month downpayment and a monthly payment option. Overall, the Company seeks to distinguish itself from its personal lines competitors by providing a superior, highly automated and responsive level of service to its agents and insureds. In addition to high quality service, the Company's personal lines unit provides ease of payment for insureds. The Company also writes collateral protection insurance, primarily insuring automobiles pledged as security for loans for which the borrower has not maintained physical damage coverage as required by the lender. The business is written through a wholly-owned general agency which, in turn, obtains business from 32 general agents across the country. During 1995, this division expanded geographically into the Commonwealth of Puerto Rico. Commercial lines, personal lines and collateral protection represented 44%, 44% and 12%, respectively, of the Company's gross premiums written during 1995. A.M. Best Company currently rates the GNIC and its subsidiaries "A (Excellent)" and VICW and its affiliate "A- (Excellent)." A.M. Best ratings are based upon factors of concern to policyholders, agents and reinsurers and are not primarily directed toward the protection of investors. The Company is required to file periodic reports, proxy statements and other information with the Commission under the Exchange Act relating to its business, financial statements and other matters. The Company is required to disclose in such proxy statements certain information, as of particular dates, concerning its directors and officers, their remuneration, stock, options granted to them, the principal holders of the Company's securities, and any material interests of such persons in transactions with the Company. Such reports, proxy statements and other information may be inspected at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and should also be available for inspection and copying at the regional offices of the Commission located in Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of such material can also be obtained from the Public Reference Room of the Commission in Washington, D.C. at prescribed rates. Similar information can be inspected and copied at the NYSE, 20 Broad Street, New York, New York. 22 25 Set forth below is certain summary consolidated financial information derived from the 1995 Annual Report and from the March 10-Q. More comprehensive financial information and other information is included in the Company's 1995 Annual Report, the March 10-Q and the other documents filed by the Company with the Commission, and such summary financial information is qualified in its entirety by reference to such reports and should be considered in connection with the more comprehensive financial information in such reports and other publicly available reports and documents filed with the Commission, including the financial statements and related notes contained therein. Such material may be examined at the offices of and copies may be obtained from the Commission. GUARANTY NATIONAL CORPORATION SELECTED FINANCIAL INFORMATION (IN THOUSANDS EXCEPT PER SHARE DATA AND RATIOS)
THREE MONTHS YEAR ENDED ENDED MARCH 31, DECEMBER 31, --------------------- --------------------- 1996 1995 1995 1994 Income Statement Data(a): Premiums earned............................... $115,470 $ 79,468 $390,017 $321,638 Total revenues................................ 126,704 86,502 424,284 348,223 Operating earnings(b)(c)...................... $ 4,499 $ 5,398 $ 6,790 $ 20,596 After-tax realized investment gains........... 1,288 370 2,139 1,955 -------- -------- -------- -------- Net earnings(c)............................ $ 5,787 $ 5,768 $ 8,929 $ 22,551 ======== ======== ======== ======== Earnings per common share: Operating earnings(b)...................... $ .30 $ .45 $ .51 $ 1.70 After-tax realized investment gains........ .09 .03 .16 .16 -------- -------- -------- -------- Net earnings.......................... $ .39 $ .48 $ .67 $ 1.86 ======== ======== ======== ======== GAAP combined ratio........................... 101.6% 97.7% 105.3% 97.5% Balance Sheet Data(d): Total assets.................................. $879,308 $617,235 $875,173 $605,088 Total assets less goodwill.................... 846,237 594,027 842,040 581,684 Stockholders' equity.......................... 215,159 156,289 215,551 144,759 Book value per common share................... 14.38 12.98 14.41 12.02
The following summary pro forma information (unaudited) assumes the Viking acquisition had occurred on January 1, 1995 and 1994. These amounts reflect adjustments used in recording the purchase, such as adjustments for interest on notes payable issued as part of the purchase price, amortization of goodwill, and fees eliminated as a result of the acquisition.
YEAR ENDED DECEMBER 31, --------------------- 1995 1994 Total revenue.................................................. $512,718 $509,657 Net income..................................................... 7,765 30,014 Earnings per common share...................................... .53 2.05
- --------------- (a) The computation of the ratio of earnings to fixed charges has not been made as the Company has neither publicly held debt securities nor preferred stock outstanding. (b) Earnings after taxes, excluding realized investment gains and losses. (c) Full year 1994 results include a nonrecurring relocation charges of $838,000. (d) The computation of working capital has not been made as it is not applicable to insurance enterprises. 23 26 Certain additional information concerning the Company and its subsidiaries and the transactions between the Company and its subsidiaries and Orion and its subsidiaries is set forth in this Offer to Purchase under INTRODUCTION, SPECIAL FACTORS -- "Background of the Transaction;" -- "Certain Effects of the Transaction" and -- "Interests of Certain Persons in the Transaction; Securities Ownership: Related Transactions." Highlights from the Company's 1996 operating plan prepared by the Company's management are included in SPECIAL FACTORS -- "Fairness of the Offer." 8. CERTAIN INFORMATION CONCERNING THE PURCHASERS. Orion is a property and casualty insurance holding company. Its insurance subsidiaries and affiliates are authorized to underwrite and sell most types of property and casualty insurance. Such insurance businesses are concentrated in niche insurance markets, particularly workers compensation, professional liability, nonstandard automobile insurance (through its slightly less than 50% interest in the Company) and underwriting ocean marine, inland marine and property insurance through underwriting pools. EBI Companies provide workers compensation insurance products and DPIC Companies sell professional liability insurance. Other specialty property and casualty insurance is written principally through Connecticut Specialty Insurance Group. Orion and its subsidiaries also offer assumed reinsurance through SecurityRe Companies and underwriting management and related services through Wm. H. McGee & Co., Inc. ("McGee"). Orion also owns approximately 22% of the outstanding common stock of Intercargo Corporation ("Intercargo"), an insurance holding company whose subsidiaries specialize in international trade and transportation coverages. In February 1995, the Company and Intercargo reached an agreement which permits the Company to purchase additional shares from time to time, to bring its ownership up to 24.9% of Intercargo's outstanding common stock. Intercargo operates as an independent company. On June 30, 1995, Orion purchased all the capital stock of McGee for $22,000,000 in cash. McGee has been underwriting ocean marine, inland marine and property insurance on behalf of the insurance companies it represents for over 108 years. Security Insurance Company of Hartford has been represented by McGee for over a century. McGee provides all related services in connection with this business, including policy issuance, claim settlement, accounting and placement of reinsurance. Operations are conducted in the United States through its head office in New York and twenty branch offices throughout the country. Activities in Canada, Bermuda and Puerto Rico are managed by McGee's subsidiaries located in those jurisdictions. Orion was incorporated under the laws of the State of Delaware in 1960. Orion's principal executive offices are located at 600 Fifth Avenue, New York, New York 10020, and its telephone number is (212) 332-8080. The home office of Orion's wholly-owned insurance subsidiaries, including the Purchasers, is located at 9 Farm Springs Drive, Farmington, Connecticut 06032. Their telephone number is (860) 674-6600. Orion's insurance, brokerage and management subsidiaries are licensed to transact business throughout the United States and in all Canadian provinces. They obtain substantially all of their business from approximately 3,000 independent insurance agents and brokers. Orion has approximately 2,200 employees, substantially all of whom are employed in Orion's insurance-related operations. Certain information, including the name, business address, citizenship, present principal occupation or employment and five-year employment history of each of the executive officers and directors of the Purchasers is set forth in Schedule I hereto. Set forth below is certain summary consolidated financial information derived from Orion's Annual Report on Form 10-K for the year ended December 31, 1995 and its Quarterly Report on Form 10-Q for the quarter ended March 31, 1996. Such summary financial information is qualified in its entirety by reference to such reports and should be considered in connection with the more comprehensive financial information in such reports and other publicly available reports and documents filed with the Commission. 24 27 ORION CAPITAL CORPORATION SUMMARY CONSOLIDATED FINANCIAL INFORMATION (IN THOUSANDS EXCEPT PER SHARE DATA AND RATIOS)
THREE MONTHS YEAR ENDED ENDED MARCH 31, DECEMBER 31, ----------------------- ----------------------- 1996 1995 1995 1994 Income Statement Data Premiums earned............................... $ 186,932 $ 175,058 $ 749,003 $ 691,223 Total revenues................................ 221,087 201,797 874,280 780,947 Operating earnings (a)........................ $ 15,683 $ 15,398 $ 59,914 $ 52,818 After-tax realized investment gains........... 2,204 1,664 7,708 2,427 --------- --------- --------- --------- Net earnings............................... $ 17,887 $ 17,062 $ 67,622 $ 55,245 ========= ========= ========= ========= Earnings per common share: Operating earnings (a)..................... $ 1.12 $ 1.08 $ 4.22 $ 3.68 After-tax realized investment gains........ .16 .12 .55 .17 --------- --------- --------- --------- Net earnings............................... $ 1.28 $ 1.20 $ 4.77 $ 3.85 ========= ========= ========= ========= GAAP combined ratio........................... 99.4% 101.2% 100.3% 101.2% Balance Sheet Data Total assets.................................. $2,537,445 $2,162,921 $2,473,588 $2,112,761 Stockholder's equity.......................... 487,792 402,512 490,903 365,088 Book value per share.......................... 35.15 28.60 35.18 26.00
- --------------- (a) Earnings after taxes, excluding realized investment gains and losses As described in this Offer to Purchase under INTRODUCTION and SPECIAL FACTORS "Background of the Transaction" and -- "Interests of Certain Persons in the Transaction; Securities Ownership; Related Transactions," as of the date hereof, Orion is the beneficial owner through its subsidiaries of 7,409,942 Shares. Except as described in INTRODUCTION and SPECIAL FACTORS -- "Background of the Transaction:" and -- "Interests of Certain Persons in the Transaction; Securities Ownership; Related Transactions" or elsewhere in this Offer to Purchase, none of the directors or executive officers or subsidiaries of the Purchasers has any interest, direct or indirect, in any material transaction or material proposed transaction to which the Company or its subsidiaries is or was a party. Except as described in SPECIAL FACTORS -- "Background of the Transaction," "Certain Effects of the Transaction" and -- "Interests of Certain Persons in the Transaction; Securities Ownership; Related Transactions," or as set forth elsewhere in this Offer to Purchase or in Schedule I, no Purchaser, nor to the best knowledge of the Purchasers, any of the persons listed in Schedule I hereto or any associate or majority-owned subsidiary of Orion or any of the persons so listed, beneficially owns or has a right to acquire any of the Shares, and neither Orion nor to the best knowledge of the Orion, any executive officer, director or majority-owned subsidiary of any of the foregoing, has effected any transaction in the Shares during the past 60 days. Except as described in SPECIAL FACTORS -- "Certain Transactions" and -- "Interests of Certain Persons in the Transaction; Securities Ownership; Related Transactions" and as described elsewhere in this Offer to Purchase, neither Orion, nor any direct or indirect subsidiary of Orion nor, to the best knowledge of Orion, any of the persons listed in Schedule I hereto, has any contract, arrangement, understanding or relationship with any other person with respect to any securities of the Company, including, but not limited to, contracts, arrangements, understandings or relationships concerning the transfer or voting of such securities, joint ventures, loan or option arrangements, puts or calls, guaranties of loans, guaranties against loss or the giving or withholding of proxies, consents or authorizations. Except as set forth in this Offer to Purchase, since January 1, 1993, there have been no transactions that would be required to be reported under the rules of the 25 28 Commission between Orion or, to the best knowledge of Orion, any of the persons listed in Schedule I hereto, and the Company or any of its executive officers, directors or affiliates. Except as described in SPECIAL FACTORS -- "Background of the Transaction"; "Certain Effects of the Transaction" and -- "Interests of Certain Persons in the Transaction; Related Transactions; Securities Ownership," and as set forth elsewhere in this Offer to Purchase, since January 1, 1993, there have been no other contacts, negotiations or transactions between Orion or any of its subsidiaries or, to the best knowledge of Orion, any of the persons listed in Schedule I hereto, and the Company or its directors, executive officers or affiliates, or between any affiliates of the Company, or between the Company or any of its affiliates and any person not affiliated with the Company and who would have a direct interest therein, concerning a merger, consolidation or acquisition, a tender offer or other acquisition of securities of the Company, an election of directors of the Company, or a sale or other transfer of a material amount of assets. Orion is subject to the information filing requirements of the Exchange Act and in accordance therewith files reports, proxy statements and other information with the Commission relating to its business, financial condition and other matters. Information, as of particular dates, concerning Orion's directors and officers, their remuneration, options granted to them, the principal holders of Orion's securities and any material interest of such persons in transactions with Orion is disclosed in proxy statements distributed to Orion's stockholders and filed with the Commission. Such reports, proxy statements and other information may be examined, and copies may be obtained from the Commission, in the manner set forth in THE OFFER -- Section 7 with respect to information concerning the Company. Such information should also be available for inspection at the NYSE, 20 Broad Street, New York, New York 10005. 9. DIVIDENDS AND DISTRIBUTIONS. Except for any action taken by the Company which shall have been expressly approved in writing by Orion on behalf of the Purchasers: If, on or after May 8, 1996, the Company should declare or pay any dividend on the Shares or other distribution except for the Regular Dividend (as defined below) (including, without limitation, the issuance of additional Shares pursuant to a stock dividend or stock split, the issuance of other securities, or the issuance of rights for the purchase of any securities) with respect to the Shares that is payable or distributable to stockholders of record on a date prior to the transfer to the name of a Purchaser or its nominee or transferee on the Company's stock transfer records of the Shares purchased pursuant to the Offer, then, without prejudice to the Purchasers' rights under THE OFFER -- Section 1 and -- Section 10, (i) the purchase price per Share payable by the Purchasers, pursuant to the Offer shall be reduced to the extent any such dividend or distribution is payable in cash and (ii) any non-cash dividend, distribution or right shall be remitted by the tendering stockholder to the Depositary for the account of the Purchasers, accompanied by appropriate documentation of transfer. Pending such remittance, and subject to applicable law, the Purchasers shall be entitled to all rights and privileges as owner of any such non-cash dividend, distribution or right and may withhold the entire purchase price or deduct from the purchase price the amount or value thereof, as determined by the Purchasers in their sole discretion. The Company has, since January 1, 1994, declared regular quarterly dividends at the rate of $0.125 per share. If, during the second quarter of 1996 the Company declares a dividend of not more than $0.125 per share (the "Regular Dividend"), the Purchasers do not intend to adjust the Offer Price should the record date for payment of such Regular Dividend be a date prior to the Purchasers' acceptance for payment and payment for Shares tendered pursuant to the Offer. See THE OFFER -- Section 10. If, on or after May 8, 1996, the Company should (i) split, combine or otherwise change the Shares or its capitalization, (ii) issue or sell any additional securities of the Company or otherwise cause an increase in the number of outstanding securities of the Company or (iii) acquire currently outstanding Shares or otherwise cause a reduction in the number of outstanding Shares, or shall disclose that it has taken such action, then, without prejudice to the Purchasers' rights under THE OFFER -- Section 10, the Purchasers, in their sole discretion, may make such adjustments in the Offer price and other terms of the Offer (including, without limitation, the number and type of securities to be purchased) as it deems appropriate, including, without limitation, the amount and type of securities to be offered to be purchased. 26 29 10. CERTAIN CONDITIONS OF THE OFFER. Notwithstanding any other provision of the Offer, and in addition to (and not in limitation of) the Purchasers' rights to amend the Offer at any time in their sole discretion, the Purchasers will not be required to accept for payment, or pay for, any Shares tendered, and may terminate, extend or amend the Offer, or, subject to the provisions of applicable law which require that the Purchasers pay the consideration offered or return the Shares deposited by or on behalf of stockholders promptly after termination or withdrawal of the Offer, may delay the acceptance for payment or the payment for Shares tendered, if, at any time on or after May 8, 1996, and at or prior to the time of payment for any such Shares (whether or not any Shares have theretofore been accepted for payment or paid for pursuant to the Offer), any of the following events shall occur, which in the sole judgment of Orion, on behalf of the Purchasers, in any case and regardless of the circumstances giving rise to any such condition (including any action or inaction by Orion or any of its subsidiaries or affiliates other than the Company) makes it inadvisable to proceed with the Offer or with acceptance for payment or payment for Shares: (a) any change shall have occurred or be threatened in the business, operations or financial condition of the Company or any of its subsidiaries or affiliates which is or which the Purchasers in their sole discretion believe is threatened to be materially adverse to the Company and its subsidiaries taken as a whole; (b) the Purchasers shall not have received or obtained all required state insurance department regulatory approvals necessary for the Purchasers to consummate the Offer on terms and conditions satisfactory to the Purchasers in their sole discretion (see INTRODUCTION and THE OFFER -- Section 11(a)); (c) the waiting periods applicable to the Offer under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, shall not have expired or been earlier terminated by the Department of Justice or the Federal Trade Commission; (d) there shall have been threatened, instituted or pending any action or proceeding by or before any court or governmental regulatory or administrative agency, authority or tribunal, domestic or foreign, which (i) seeks to challenge the acquisition by the Purchasers of the Shares, or to restrain, prohibit or delay the making or consummation of the Offer, (ii) seeks to make the purchase of, or payment for, some or all of the Shares pursuant to the Offer illegal, (iii) seeks to impose material limitations on the ability of the Purchasers (or any of their affiliates) effectively to acquire or hold, or requires any of the Purchasers, or the Company, or any of their respective affiliates or subsidiaries to dispose of or hold separate, any material portion of the assets or the business of Orion and its affiliates taken as a whole or the Company and its subsidiaries taken as a whole, (iv) seeks to impose material limitations on the ability of the Purchasers (or their affiliates) to exercise full rights of ownership of the Shares purchased, including, but not limited to, the right to vote the Shares purchased on all matters properly presented to the stockholders of the Company or (v) may result in a material diminution in the benefits expected to be derived by the Purchasers as a result of the transactions contemplated by the Offer; (e) there shall have been proposed, sought, promulgated, enacted, entered, enforced or deemed applicable to the Offer, by any state, federal or foreign government or governmental authority or by any domestic or foreign court, any statute, rule, regulation, judgment, order or injunction, that, in the sole judgment of Orion, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of (d) above; (f) the Purchasers shall have failed to receive all other governmental or third party consents and approvals, in addition to those referred to in (b) and (c) above, to consummation of the Offer which, if not received, would in the aggregate have or be reasonably anticipated to have a materially adverse effect on Orion or the Company or any of their respective subsidiaries, or Orion shall have determined in good faith that consummation of the Offer would cause a breach of or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration) under agreements or other obligations of the Company which would individually or in the aggregate have or be reasonably anticipated to have a materially adverse effect on Orion or the Company or any of their respective subsidiaries; 27 30 (g) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or in the over-the-counter market in the United States, (ii) the declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (iii) a material adverse change in United States or any other currency exchange rates or a suspension of, or a limitation on, the markets therefor, (iv) the commencement of a war, armed hostilities or other international or national calamity directly or indirectly involving the United States, (v) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of Orion, might affect the extension of credit by banks or other lending institutions, or (vi) in the case of any of the foregoing existing at the time of the commencement of the Offer, in the sole judgment of Orion, a material acceleration or worsening thereof; (h) unless Orion shall have consented in writing on behalf of the Purchasers, the Company or any of its subsidiaries shall have, on or after May 8, 1996, (i) issued, distributed, pledged or sold, or authorized, proposed or announced the issuance, distribution, pledge or sale of (A) any shares of capital stock (including, without limitation, the Shares), or securities convertible into any such shares, or any rights, warrants, or options to acquire any such shares or convertible securities, other than Shares issued or sold upon the exercise (in accordance with the present terms thereof) of employee stock options outstanding on March 31, 1996 or (B) any other securities in respect of, in lieu of, or in substitution for Shares (ii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding Shares or other securities, (iii) declared or paid any dividend or distribution (other than the Regular Dividend) on any shares of capital stock or issued, or authorized, recommended or proposed the issuance of, any other distribution in respect of the Shares, whether payable in cash, securities or other property, or altered or proposed to alter any material term of any outstanding security, (iv) issued, or announced its intention to issue, any debt securities or any securities convertible into or exchangeable for debt securities or any rights, warrants or options entitling the holder thereof to purchase or otherwise acquire any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (v) authorized, recommended, proposed or publicly announced its intention to enter into (A) any merger, consolidation, liquidation, dissolution, business combination, acquisition of assets or securities or disposition of assets or securities other than in the ordinary course of business, (B) any material change in its capitalization, (C) any release or relinquishment of any material contract rights, or (D) any comparable event not in the ordinary course of business, (vi) authorized, recommended or proposed or announced its intention to authorize, recommend or propose any transaction which could adversely affect the value of the Shares, (vii) proposed, adopted or authorized any amendment to its articles of incorporation or by-laws or similar organizational documents or the Purchasers shall have learned about any such proposal or amendment which shall not have been previously disclosed or (viii) agreed in writing or otherwise to take any of the foregoing actions; (i) the Company or any of its subsidiaries shall have entered into any employment, severance or similar agreement, arrangement or plan with any of its employees other than in the ordinary course of business or entered into or amended any agreements, arrangements or plans so as to provide for increased benefits to the employee as a result of or in connection with the transactions contemplated by the Offer; (j) a tender or exchange offer for some portion or all of the Shares shall have been publicly proposed to be made or shall have been made by another person (including the Company or any of its subsidiaries or affiliates), or it shall have been publicly disclosed or Orion shall have learned that (i) any person or "group" (as defined in Section 13(d) (3) of the Exchange Act) shall have acquired or proposed to acquire more than 5% of any class or series of capital stock of the Company (including the Shares) or shall have been granted any option or right to acquire more than 5% of any class or series of capital stock of the Company (including the Shares), other than acquisitions for bona fide arbitrage positions and other than acquisitions by persons or groups who have publicly disclosed such ownership on or prior to May 8, 1996, or (ii) any such person or group who has publicly disclosed any such ownership of more than 5% of any class or series of capital stock of the Company (including the Shares) prior to such date shall have acquired or proposed to acquire additional Shares constituting more than 2% of any class or series of capital stock of the Company (including the Shares) or shall have been granted any 28 31 option or right to acquire more than 2% of any class or series of capital stock of the Company (including the Shares); or (k) the Rights shall have become exercisable or for any reason Orion and its subsidiaries shall not be deemed to be "Exempt Persons" (see THE OFFER -- Section 11), The foregoing conditions are for the sole benefit of the Purchasers and may be asserted by the Purchasers regardless of the circumstances giving rise to any such condition and may be waived by the Purchasers, in whole or in part, at any time and from time to time in the sole discretion of the Purchasers. The failure by the Purchasers at any time to exercise their rights under any of the foregoing conditions shall not be deemed a waiver of any such rights and each such right shall be deemed an ongoing right which may be asserted at any time or from time to time. Any determination by Orion on behalf of the Purchasers concerning the events described in this Section 10 will be final and binding on all parties, including tendering stockholders. 11. CERTAIN LEGAL MATTERS. Based upon Orion's examination of publicly available information filed by the Company with the Commission and other publicly available information with respect to the Company, except as otherwise set forth in this Section 11, Orion is not aware of any license or regulatory permit which appears to be material to the business of the Company and its subsidiaries that might be adversely affected by the acquisition of Shares pursuant to the Offer, or, except as disclosed below, of any approval or other action by any state, federal or foreign governmental or administrative or regulatory agency that would be required for the acquisition of the Shares as contemplated herein. Should any such license, permit, approval or other action be required, it is presently contemplated that the same would be sought, except as described below under "State Takeover Statutes." While Orion does not currently intend to delay the acceptance for payment of, or payment for, Shares pending the outcome of any such matters, other than with respect to the Insurance Regulatory Condition and compliance with the requirements of the Hart-Scott-Rodino Antitrust Improvements Act (see subparagraphs (a) and (c) below), there can be no assurance that any license, permit, consent, approval or other action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to the Company's business or that certain parts of the Company's business might not have to be disposed of or held separate or other substantial conditions complied with in the event that such license, permit or approval is not obtained or any such other action is not taken. The Purchasers' obligation under the Offer to accept for payment and pay for Shares is subject to certain conditions, including conditions relating to the legal matters discussed in this Section 11 and, if certain types of adverse action are taken with respect to the matters discussed below, the Purchasers could decline to accept for payment any Shares tendered. See THE OFFER -- Section 10. (a) State Insurance Approvals. The Company is an insurance holding company whose insurance company subsidiaries and affiliates are domiciled in Colorado, Wisconsin, California, Oklahoma and Texas. Orion is deemed to be the ultimate parent of those insurance company subsidiaries and affiliates. The Insurance Holding Company System Act of some of those states requires Orion to file information with the insurance commissioner in order to obtain approval of the acquisition of additional voting securities of a domestic insurer (including an insurance holding company). In some states the Insurance Codes (the "Insurance Codes") require a Form A filing. The Insurance Codes of those states include a presumption of control arising from the ownership, directly or indirectly of 10% or more of the insurer's voting securities. In certain states, the Form A filing triggers public hearing requirements and/or statutory periods within which the Commissioner shall approve or disapprove the acquisition of control. In other states, public hearings are discretionary and/or there are no periods within which such decisions must be rendered. The periods within which hearings must be commenced or decisions rendered do not begin until the relevant Insurance Department has deemed the filing of the Form A complete. The Purchasers have advised the insurance departments of California, Colorado, Connecticut, Oklahoma, Texas and Wisconsin of their intention to commence the Offer. Form A filings will be made in California and Wisconsin, and a Form E filing will be made in Texas, seeking approval of the acquisition of the Shares. If the purchase of Shares is effected pursuant to the Offer, the Company's Oklahoma insurance subsidiary will amend its Oklahoma Form B filing to reflect the acquisition of Shares by the Purchasers. The Purchasers, other than Orion, are Connecticut-domiciled insurance companies. The Connecticut Insurance Code requires 29 32 a domestic insurer to give prior notice to the insurance department of its intention to invest in an affiliate in an amount which equals the lesser of three percent of the insurance company's admitted assets or twenty-five percent of its policyholder surplus and obtain the insurance department's prior approval of the investment. On May 1, 1996 the Purchasers advised the Connecticut Insurance Department of their intent to make the Offer and the number of Shares to be purchased by each Purchaser. If the Purchasers are unable to receive or are delayed in receiving the approval of any Insurance Department or are required to receive approvals from any other state authorities, the Purchasers might be unable to accept for payment or pay for Shares tendered pursuant to the Offer, or be delayed in continuing or purchasing Shares pursuant to the Offer. In such case, Purchasers may not be obligated to accept for payment or pay for Shares. In addition, the Purchasers may terminate the Offer if a Purchaser becomes subject to an order preventing it from purchasing Shares or limiting its ability to exercise control of the Company or any of its subsidiaries or affiliates or if in its judgment necessary approvals have not been obtained. See THE OFFER -- Section 10. (b) State Takeover Statutes. A number of states have adopted laws and regulations that purport to be applicable to offers to acquire shares of corporations that are incorporated or have substantial assets, stockholders and/or a principal place of business in such states. In Edgar v. MITE Corp., the U.S. Supreme Court held that the Illinois Business Takeover Statute, which involved state securities laws which made the takeover of certain corporations more difficult, imposed a substantial burden on interstate commerce and was therefore unconstitutional. However, in 1987 the U.S. Supreme Court held in CTS Corp. v. Dynamics Corp. of America, that, at least under certain circumstances, the U.S. Constitution permits a state, as a matter of corporate law and, in particular, those laws concerning corporate governance, to disqualify a potential acquiror from voting on the affairs of a target corporation without prior approval of the remaining stockholders. Subsequently, a number of Federal courts ruled that various state takeover statutes were unconstitutional insofar as they apply to corporations incorporated outside the state of enactment. Orion believes that no such statute purporting to be applicable to offers to acquire shares of a corporation has been enacted or is in effect in Colorado, the state of incorporation of the Company. The Company and certain of its subsidiaries directly or indirectly conduct business in a number of other states throughout the United States, some of which have enacted takeover laws and regulations. Orion does not know whether any of these laws will, by its terms, apply to the Offer. The Offer is being made without compliance by the Purchasers with any such state takeover statutes that may purport to apply to the Offer. Should any governmental official or other person seek to apply any such statute or regulation to the Offer, the Purchasers will take such action as then appears desirable, and presently anticipate that they would contest the applicability or validity of any such statute or regulation in appropriate court proceedings. If it is asserted that one or more state takeover statutes are applicable to the Offer, and an appropriate court does not determine that such statutes are inapplicable or invalid as applied to the Offer, the Purchasers might be unable to accept for payment or pay for Shares tendered pursuant to the Offer, or be delayed in accepting or purchasing Shares pursuant to the Offer. In such case, the Purchasers will not be obligated to accept for payment or pay for Shares. In addition, the Purchasers may terminate the Offer if any of them becomes subject to an order preventing it from purchasing Shares or limiting its ability to exercise control of the Company. See THE OFFER -- Section 10. (c) Antitrust Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the rules promulgated thereunder, certain acquisition transactions may not be consummated unless information has been furnished to the Federal Trade Commission (the "FTC") and the Antitrust Division of the Department of Justice (the "Antitrust Division") and applicable waiting period requirements have been satisfied. Pursuant to the requirements of the HSR Act, on May 8, 1996, Orion filed a Notification and Report Form with respect to the acquisition of more than 50% of the equity of the Company with the FTC and the Antitrust Division. Under the provisions of the HSR Act applicable to the Offer, the purchase of Shares under the Offer may not be consummated until the expiration of a 15 calendar-day waiting period following the filing 30 33 by Orion. Accordingly, the waiting period with respect to the Offer will expire at 11:59 p.m., New York City time, on May 23, 1996, unless Orion receives a request for additional information or documentary material, or the Antitrust Division and the FTC terminate the waiting period prior thereto. If, within such 15-day period, either the Antitrust Division or the FTC requests additional information or material from Orion concerning the Offer, the waiting period will be extended and would expire at 11:59 p.m., New York City time, on the tenth calendar day after the date of substantial compliance by Orion with such request. Only one extension of the waiting period pursuant to a request for additional information is authorized by the HSR Act. Thereafter, such waiting period may be extended only by court order or with the consent of Orion; Orion reserves the right to consent or not in its sole discretion. The Purchasers will not accept for payment Shares tendered pursuant to the Offer unless and until the waiting period requirements imposed by the HSR Act with respect to the Offer have been satisfied. The FTC and the Antitrust Division frequently scrutinize the legality under the antitrust laws of transactions such as the Purchasers' proposed acquisition of Shares pursuant to the Offer. At any time before or after the Purchasers' purchase of Shares, the FTC or the Antitrust Division could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the purchase of Shares pursuant to the Offer or seeking the divestiture of Shares purchased by the Purchasers or the divestiture of substantial assets of any Purchaser or any of its subsidiaries or affiliates or of the Company or its subsidiaries. While there can be no assurance that a challenge to the Offer on antitrust grounds will not be made or, if such challenge is made, of the result, Orion does not believe that consummation of the Offer will result in violation of any applicable antitrust laws. In the event any legal action or administrative proceeding by the United States or an agency thereof challenging the Offer under the federal antitrust laws are threatened or instituted, the Purchasers will not be obligated to accept for payment or pay for any tendered Shares and may terminate the Offer. In addition, the Purchasers may terminate the Offer if the Purchasers become subject to an order preventing the purchase of Shares or limiting the Purchasers' ability to exercise control of the Company. See THE OFFER -- Section 10. (d) Mergers and Business Combinations. As described under INTRODUCTION and SPECIAL FACTORS -- "Purpose of the Transaction; Plans for the Company After the Offer," the Purchasers reserve the right, to the extent permitted by applicable law, to acquire additional Shares following the expiration or termination of the Offer. Such acquisitions may be made through open market purchases, privately negotiated transactions, a tender offer or exchange offer, or otherwise, on such terms and at such prices as the Purchaser shall determine. Each Purchaser also reserves the right to dispose of any or all Shares which it owns. The acquisition of Shares by the Purchasers may be subject to compliance with the requirements of Rule 13e-3 promulgated under the Exchange Act, which applies to certain "going-private" transactions. Notwithstanding the foregoing, the Purchasers have no present intention of proposing a merger or other business combination transaction with the Company. If Orion were to consummate a merger or similar business combination, or seek to undertake certain other actions, the stockholders of the Company might have the right to dissent from, and obtain payment for the fair value of their Shares in accordance with Colorado law. Statutory appraisal rights are not available under Colorado law with respect to the Offer. Several decisions by Delaware courts have held that, in certain instances, a controlling stockholder of a corporation involved in a merger has a fiduciary duty to the other stockholders that requires that the merger be fair to such other stockholders. In determining whether a merger is fair to minority stockholders, the Delaware courts have considered, among other things, the type and amount of consideration to be received by the stockholders and whether there were fair dealings among the parties. The Delaware Supreme Court indicated in Weinberger v. UOP, Inc. that, in most cases, the remedy available in a merger that is found not to be "fair" to minority stockholders is the right to appraisal or a damages remedy. (e) Credit Agreement. The Company has entered into a Credit Agreement dated June 2, 1995 with bank lenders, providing for an unsecured $110,000,000 reducing revolving credit facility. As of March 31, 1996, there were borrowings outstanding under the Credit Agreement in the aggregate amount of $100,000,000. The Credit Agreement provides that it shall be an Event of Default if the Shares are deregistered under the Exchange Act, entitling the lenders to accelerate the full amount of the borrowings. See THE OFFER -- Section 6. Orion does not expect deregistration to occur as a result of the Offer. Should 31 34 deregistration occur, Orion expects to be able to obtain a waiver with respect to such default under the Credit Agreement from the lenders. (f) The Company's Charter Documents; The Shareholder Agreement; the Rights Plan and Other Matters. The Company's Articles of Incorporation, as amended and restated, authorize the Company's Board of Directors to set the terms of, and provide for the issuance of, one or more series of preferred stock without the vote of the Company's existing stockholders. In the event that the Board of Directors of the Company authorizes the issuance by the Company of preferred stock upon terms that would render consummation of the Offer impracticable or undesirable to the Purchasers, the Purchasers will have no obligation to accept for payment or pay for any Shares pursuant to the Offer. Pursuant to the Shareholder Agreement, three members of the present Board of Directors of the Company have been designated by Orion. The Company's Board of Directors consists of eleven members. In November 1991, the Board of Directors of the Company approved the adoption of a Shareholder Rights Agreement and in connection therewith declared a dividend distribution of one Right for each outstanding share of Common Stock until such time as separate Right certificates are distributed or the Rights are redeemed or expire. When exercisable, each Right will entitle a holder to purchase from the Company a unit consisting of one one-hundredth of a share of a new series of the Company's Preferred Stock at a purchase price of $60 per share. The Rights become exercisable ten days following a public announcement that a person or group of acquirers (other than "Exempt Persons") has acquired or obtained the rights to acquire beneficial ownership of 20% or more of the Company's common stock or ten business days following announcement of a tender offer or exchange offer that could result in beneficial ownership of 20% or more of the Company's common stock. Prior to consummation of such a transaction, each holder of a Right is entitled to purchase shares of the Company's common stock having a value equal to two times the exercise price of the Right. The Company has the right to redeem the Rights at $.01 per Right prior to the time they become exercisable. The Rights will expire on December 30, 2001. In accordance with the form of Rights Agreement included in the Company's Current Report on Form 8-K filed with the Commission on December 19, 1991, Orion and its subsidiaries are "Exempt Persons" as defined in the Agreement. Orion does not believe that at the present time the Rights are exercisable or that the Offer will result in the Rights becoming exercisable. 12. FEES AND EXPENSES. Orion on behalf of the Purchasers has retained State Street Bank and Trust Company to act as Depositary in connection with the Offer. The Depositary will receive reasonable and customary compensation for its services. D.F. King & Co., Inc. has been retained by Orion on behalf of the Purchasers as Information Agent in connection with the Offer. The Information Agent may contact holders of Shares by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominee stockholders to forward material relating to the Offer to beneficial owners. Reasonable and customary compensation will be paid for such services. Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") is acting as Dealer Manager in connection with the Offer. Orion on behalf of the Purchasers has agreed to pay DLJ a fee of $200,000 for such services. In July 1995, DLJ acted as co-manager for Orion's $100,000,000 Senior Note offering. Orion on behalf of the Purchasers has also agreed to reimburse the Depositary, the Dealer Manager and the Information Agent for reasonable out-of-pocket expenses and to indemnify each of them against certain liabilities and expenses, including, in the case of the Dealer Manager and Information Agent, certain liabilities under the federal securities laws. 32 35 It is estimated that the expenses incurred by Orion in connection with the Offer will be approximately as set forth below (if all of the Shares other than those held by Orion's wholly-owned subsidiaries are purchased): Filing fees............................................................... $ 61,100 Printing and mailing fees................................................. 100,000 Accounting and legal fees................................................. 300,000 Dealer Manager fee........................................................ 200,000 Depositary fees........................................................... 25,000 Miscellaneous............................................................. 63,900 ---------- $ 750,000 ==========
None of the foregoing fees will be paid by the Company. Except as set forth herein, the Purchasers will not pay any fees or commissions to any broker or dealer or to any other person in connection with the solicitation of tenders of Shares pursuant to the Offer. Brokers, dealers, commercial banks and trust companies will be reimbursed for customary mailing and handling expenses incurred by them in forwarding material to their customers. Except as set forth in this Offer to Purchase, no persons or classes of persons have been employed or retained or are to be compensated by the Orion or by any person on behalf of the Purchasers, to make solicitations or recommendations in connection with the Offer, and no officer, employee or class of employees or corporate asset of the Company has been or is proposed to be employed, availed or utilized by Orion in connection with the Offer. 13. MISCELLANEOUS. The Offer is not being made to, nor will tenders be accepted from, or on behalf of, holders of Shares in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the securities, blue sky or other laws of such jurisdiction. However, the Purchasers may, at their discretion, take such action as they may deem necessary to make the Offer in any such jurisdiction and extend the Offer to holders of Shares in such jurisdiction. In those jurisdictions whose securities laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of the Purchasers, if at all, only by the Dealer Manager or by one or more registered brokers or dealers licensed under the laws of such jurisdictions. The Purchasers have filed with the Commission a Tender Offer Statement on Schedule 14D-1 and a Transaction Statement on Schedule 13E-3, together with exhibits, pursuant to Rules 13e-3 and 14d-3 respectively of the General Rules and Regulations under the Exchange Act, furnishing certain additional information with respect to the Offer, and may file amendments thereto. Such Schedules 13E-3 and 14D-1 and any amendments thereto, including exhibits, may be examined at, and copies may be obtained from, the Commission (but not the regional offices of the Commission) in the manner set forth in THE OFFER -- Section 7. 33 36 No person has been authorized to give any information or make any representation on behalf of the Purchasers not contained in this Offer to Purchase or the Letter of Transmittal, and, if given or made, such information or representation must not be relied upon as having been authorized. ORION CAPITAL CORPORATION and THE CONNECTICUT INDEMNITY COMPANY CONNECTICUT SPECIALTY INSURANCE COMPANY DESIGN PROFESSIONALS INSURANCE COMPANY EBI INDEMNITY COMPANY EMPLOYEE BENEFITS INSURANCE COMPANY THE FIRE AND CASUALTY INSURANCE COMPANY OF CONNECTICUT SECURITY INSURANCE COMPANY OF HARTFORD May 8, 1996 34 37 SCHEDULE I DIRECTORS AND EXECUTIVE OFFICERS OF THE PURCHASERS Set forth below are the name, business address, position with Orion Capital Corporation, a Delaware corporation ("Orion"), and/or one of the wholly-owned subsidiaries of Orion which are purchasing Shares in the Offer ("Subsidiaries"), present principal occupation or employment and five-year employment history of each director and executive officer of Orion and/or the Subsidiaries. Each of the Subsidiaries listed in footnotes 2-8 below is a Connecticut corporation. Each person listed below is a citizen of the United States except Mr. Graham A. Addington who is a citizen of the United Kingdom. Except as indicated in this Schedule, none of the persons listed below beneficially owns Shares or is a director of Guaranty National Corporation. Unless otherwise indicated, each occupation set forth opposite an individual's name refers to employment with Orion or the designated Subsidiaries. All officers serve at the pleasure of the Board of Directors of the entity named.
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT/MATERIAL POSITIONS NAME AND ADDRESS HELD DURING THE PAST FIVE YEARS W. Marston Becker (1-8) Vice Chairman of the Board of Orion, CI, CSIC, EBIC, Design Professionals EIC, F&C and SICH since March 8, 1996; President and Insurance Company Chief Executive Officer of DPIC Companies, Inc. ("DPIC 2959 Monterey-Salinas Highway Companies"), a subsidiary of Orion, since July 1994; Monterey, CA 93940 Senior Vice President of Orion from July 1994 to March 1996; President and Chief Executive Officer of McDonough Caperton Insurance Group, an insurance brokerage firm, from March 1987 to July 1994. Bertram J. Cohn(1) Managing Director, First Manhattan Company (investment 437 Madison Avenue, 30th Floor bankers), 1982-present. New York, NY 10022 John C. Colman(1) Private investor and consultant. 4 Briar Lane Glencoe, IL 60022 Alan R. Gruber (1-8) Chairman of the Board and Chief Executive Officer of Orion Capital Corporation Orion, 1976-present. Chairman of the Board of CI, 600 Fifth Avenue CSIC, DPIC, EBIC, EIC, F&C and SICH. Director: New York, NY 10020 Guaranty National Corporation. Larry D. Hollen (1-8) President and Chief Operating Officer of Orion, Orion Capital Corporation President of CI, EIC, F&C and SICH and Vice Chairman 9 Farm Springs Drive of DPIC and EBIC since March 1, 1994; Vice Chairman of Farmington, CT 06032 CSIC since June 9, 1994, Executive Vice President and Assistant Chief Operating Officer of Orion from December 1, 1992 to February 28, 1994 and Senior Vice President from 1990 to 1992. President of EBI Companies, Inc. ("EBI Companies"), a wholly-owned - --------------- (1) Director of Orion (2) Director of the Connecticut Indemnity Company ("CI") (3) Director of Design Professionals Insurance Company ("DPIC") (4) Director of Connecticut Specialty Insurance Company ("CSIC") (5) Director of Employee Benefits Insurance Company ("EBIC") (6) Director of EBI Indemnity Company ("EIC") (7) Director of The Fire and Casualty Insurance Company of Connecticut ("F&C") (8) Director of Security Insurance Company of Hartford ("SICH")
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PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT/MATERIAL POSITIONS NAME AND ADDRESS HELD DURING THE PAST FIVE YEARS subsidiary of Orion, from January 1990 to May 31, 1993. Director: Guaranty National Corporation. Robert H. Jeffrey(1) Chairman of the Board, Jeflion Investment Company, The Jeffrey Company 1994-present, President from 1974 to 1994; Chairman of 8 E. Broad Street, Suite 1560 the Board, The Jeffrey Company (a privately held Columbus, OH 43215 investment company which is the parent of Jeflion Investment Company), 1994-present, President from 1973 to 1994. Warren R. Lyons(1) Chairman, Avco Financial Services (a financial Avco Financial Services services company and a subsidiary of Textron Inc.), 600 Anton Boulevard August 1995-present, President from 1989 to July 1995. Costa Mesa, CA 92628C James K. McWilliams(1) Proprietor of McWilliams & Company and general partner McWilliams & Company of McWilliams Associates (investment counselors), 2288 Broadway, #8 1967-present; General Partner, Mt. Eden Vineyards, San Francisco, CA 94115 Inc., 1986-present. Ronald W. Moore(1) Adjunct Professor of Business Administration, Graduate Morgan Hall School of Business Administration, Harvard University, Soldiers Field 1990-present. Boston, MA 02163 Robert B. Sanborn(1) Senior Executive Consultant to Orion since March 1, Orion Capital Corporation 1995; Vice Chairman of the Board of Orion from March 9 Farm Springs Drive 1, 1994 to February 28, 1995; President and Chief Farmington, CT 06032 Operating Officer of Orion from 1987 to 1994; Chairman of the American Insurance Association (a property and casualty insurance company trade group) from January 1993 to January 1994. Director: Guaranty National Corporation. William J. Shepherd(1) Private investor; Chairman, Chemical New Jersey 109 Golf Edge Holdings (a bank holding company), 1990-1991, Westfield, NJ 07090 Chairman, Chemical Bank New Jersey (a commercial bank), 1989-1991; Chairman, Princeton Bank and Trust Company (a commercial bank), 1989-1991. Director: Guaranty National Corporation. John R. Thorne(1) Morgenthaler Professor of Entrepreneurship, Graduate Furnace Run School of Industrial Administration of Carnegie Mellon Laughlintown, PA 15655 University, 1986-present; Chairman, The Enterprise Corporation of Pittsburgh (a private, non-profit corporation encouraging and supporting entrepreneurial businesses), 1983-present; a general partner of Pittsburgh Venture Partners, the general partner of the Pittsburgh Seed Fund (a private venture capital fund), 1985-present. Roger B. Ware(1) President and Chief Executive Officer of Guaranty Guaranty National Corporation National Corporation (a property and casualty 9800 South Meridian Boulevard insurance company), 1983-present; Senior Vice Englewood, CO 80112 President of Orion from 1988 to November 1991. Director: Guaranty National Corporation.
- --------------- (1) Director of Orion
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PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT/MATERIAL POSITIONS NAME AND ADDRESS HELD DURING THE PAST FIVE YEARS Raymond W. Jacobsen(3,5,6) Senior Vice President of Orion since July 1994; Orion Capital Corporation Chairman of the EBI Companies since March 29, 1996, 9 Farm Springs Drive President and Chief Executive Officer from June 1, Farmington, CT 06032 1993 to March 1996; President and Chief Executive Officer of CSIC since October 17, 1995; and Senior Vice President of CI, DPIC, EIC, F&C and SICH since March, 1990; Vice President of Orion from March 1990 to July 1994; Executive Vice President of the EBI Companies from December 1989 to May 31, 1993. Daniel L. Barry(2-8) Chief Financial Officer of Orion since March 29, 1996, Orion Capital Corporation Vice President and Controller since October 1987; Vice 9 Farm Springs Drive Chairman of Security Reinsurance Company and Farmington, CT 06032 SecurityRe, Inc., subsidiaries of Orion, since 1989, Chief Financial Officer since March 29, 1996; Senior Vice President and Controller of CI, CSIC, DPIC, EBIC, EIC, F&C, and SICH since 1989, Chief Financial Officer since March 29, 1996. Michael P. Maloney(2-4 & 6-8) Vice President, General Counsel and Secretary of Orion Orion Capital Corporation since August 1979; Senior Vice President and Assistant 600 Fifth Avenue Secretary of each of the Subsidiaries since March New York, NY 10020 1987. William G. McGovern Vice President and Chief Actuary of Orion since March Orion Capital Corporation 1990; Senior Vice President and Chief Actuary of each 9 Farm Springs Drive of the Subsidiaries since October 1989. Farmington, CT 06032 Vincent T. Papa(2-4 & 6-8) Vice President and Treasurer of Orion since June 1985; Orion Capital Corporation Chairman of Wm. H. McGee & Co., Inc., a wholly-owned 600 Fifth Avenue subsidiary of Orion, since September 30, 1995; Senior New York, NY 10020 Vice President of each of the Subsidiaries since March 1987, Treasurer from December 1990 to March 1996. Raymond J. Schuyler(8) Vice President-Investments of Orion since June 1984; Orion Capital Corporation Senior Vice President-Investments of each of the 600 Fifth Avenue Subsidiaries since March 1986. New York, NY 10020 Jonathan H. Gice(5) President of EBIC and EBI Companies, Inc. since March EBI Companies, Inc. 29, 1996; Vice President of EIC, SICH, CI and F&C 325 N. Corporate Drive since 1991; Executive Vice President of EBIC and EBI Suite 100 Companies, Inc. from November 1994 to March 29, 1996, Milwaukee, WI 53045 Senior Vice President from April 1993 to November 1994, Vice President from 1991 to April 1993.
- --------------- (2) Director of CI (3) Director of CSIC (4) Director of DPIC (5) Director of EBIC (6) Director of EIC (7) Director of F&C (8) Director of SICH
I-3 40
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT/MATERIAL POSITIONS NAME AND ADDRESS HELD DURING THE PAST FIVE YEARS Eva Schlehofer(2 & 5-7) Senior Vice President of each of the Subsidiaries Orion Capital Companies, Inc. since March 1994; Vice President of EIC, EBIC, CI, and 9 Farm Springs Drive F&C from 1991 to March 1994. Farmington, CT 06032 Stanley G. Fullwood(2-8) Vice President, General Counsel and Secretary of Orion Orion Capital Companies, Inc. Capital Companies, Inc., a subsidiary of Orion, and 9 Farm Springs Drive each of the Subsidiaries since 1988. Farmington, CT 06032 Craig A. Nyman Vice President of Orion Capital Companies, Inc. and Orion Capital Companies, Inc. each of the Subsidiaries since 1991, Treasurer since 9 Farm Springs Drive March 29, 1996 and Assistant Treasurer from 1991 to Farmington, CT 06032 March 1996. Graham A. Addington Senior Vice President of DPIC since March 1995; Chief Security Insurance Company of Agent in Canada of SICH since December 1994; Vice Hartford President of SICH since 1991. 155 University Avenue Suite 702 Toronto, Ontario M5H 3B7 Canada A. Russell Chaney Senior Vice President of DPIC and DPIC Companies since Design Professionals 1991. Insurance Company 2959 Monterey-Salinas Highway Monterey, CA 93940 Richard D. Crowell Senior Vice President of DPIC since March 7, 1996. Design Professionals Senior Vice President of DPIC Companies from August Insurance Company 1995 to March 1996; self employed consultant from 1991 2959 Monterey-Salinas Highway to 1993. Monterey, CA 93940 William M. Demmon Senior Vice President of DPIC since October 1993; Vice Design Professionals President of SICH since March 1994. Assistant Vice Insurance Company President of DPIC Companies from 1991 to 1993. 2959 Monterey-Salinas Highway Monterey, CA 93940 Ralph M. Hermann Senior Vice President of EIC, EBIC, CI and F&C since EBI Companies, Inc. March 29, 1996, Vice President from 1991 to March 325 N. Corporate Drive 1996. Milwaukee, WI 53045
- --------------- (2) Director of CI (3) Director of CSIC (4) Director of DPIC (5) Director of EBIC (6) Director of EIC (7) Director of F&C (8) Director of SICH
I-4 41
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT/MATERIAL POSITIONS NAME AND ADDRESS HELD DURING THE PAST FIVE YEARS Paul E. McCarthy Senior Vice President of DPIC and President of Peninsula Excess Insurance Peninsula Excess Insurance Brokers, Inc. ("PenEx"), a Brokers, Inc. subsidiary of Orion, since December 1995, Executive 1640 Powers Ferry Road Vice President of PenEx from January 1995 to December Building 5, Suite 250 1995. Affiliated with McCarthy & Associates, Marietta, GA 30067 underwriting consultants, 1993-1994, and Capital Special Risks, Inc., a wholesale insurance brokerage firm, 1991-1992. Thomas M. Okarma Senior Vice President -- Chief Claims Officer of DPIC Design Professionals since December 1995. Associated with AVA Insurance Insurance Company Agency, Inc. an Illinois insurance agency specializing 2959 Monterey-Salinas Highway in professional liability, 1984-November 1995. Monterey, CA 93940 David J. Vermeulen Senior Vice President of DPIC since 1991; Vice Design Professionals President of SICH since March 1994. Insurance Company 2959 Monterey-Salinas Highway Monterey, CA 93940 Florence E. Whitmire Senior Vice President of DPIC since October 1993, Vice Design Professionals President from 1991 to September 1993; Vice President Insurance Companies of SICH since March 1994. 2959 Monterey-Salinas Highway Monterey, CA 93940
I-5 42 Facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal, certificates for Shares, and any other required documents should be sent or delivered by each stockholder or his broker, dealer, commercial bank, trust company or other nominee to the Depositary, at one of the addresses set forth below. The Depositary is: STATE STREET BANK AND TRUST COMPANY By Mail: By Courier: By Hand: State Street Bank State Street Bank Bank of Boston and Trust Company and Trust Company c/o Boston Equiserve Corporate Reorganization Corporate Reorganization Corporate Reorganization P.O. Box 9061 2 Heritage Drive 55 Broadway Boston, MA 02205-8686 North Quincy, MA 02171 3rd Floor New York, New York 10006
By Facsimile: (617) 774-4519 Confirm by telephone: (617) 774-4511 Questions and requests for assistance may be directed to the Information Agent or the Dealer Manager at their respective addresses and telephone numbers specified below. Additional copies of the Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may be obtained from the Information Agent. A stockholder may also contact his broker, dealer, commercial bank or trust company for assistance concerning the Offer. The Information Agent is: D.F. KING & CO., INC. 77 Water Street New York, NY 10005 (212) 269-5550 (Call Collect)
or Call Toll Free (800) 829-6551. The Dealer Manager for the Offer is: DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION 277 Park Avenue New York, New York 10172 (212) 892-7700 (Call Collect) I-6 EX-99.A2 3 LETTER OF TRANSMITTAL 1 LETTER OF TRANSMITTAL TO TENDER SHARES OF COMMON STOCK (INCLUDING ANY ASSOCIATED STOCK PURCHASE RIGHTS) OF GUARANTY NATIONAL CORPORATION PURSUANT TO THE OFFER TO PURCHASE DATED MAY 8, 1996 BY ORION CAPITAL CORPORATION AND CERTAIN OF ITS WHOLLY-OWNED SUBSIDIARIES THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, JUNE 5, 1996, UNLESS THE OFFER IS EXTENDED. To: State Street Bank and Trust Company Depositary: By Mail: By Overnight Courier: By Hand: State Street Bank and Trust State Street Bank and Trust Bank of Boston Company Company c/o Boston Equiserve Corporate Reorganization Corporate Reorganization 55 Broadway, 3rd Floor P. O. Box 9061 2 Heritage Drive New York, NY 10006 Boston, MA 02205-8686 North Quincy, MA 02171
Facsimile Transmission Copy Number: (617) 774-4519 Confirm by telephone to: (617) 774-4511 DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. This Letter of Transmittal is to be completed by stockholders either if certificates for Shares (as defined in the Offer to Purchase dated May 8, 1996 (the "Offer to Purchase")) are to be forwarded herewith or, unless an Agent's Message (as defined in the Offer to Purchase) is utilized, if tenders are to be made by book-entry transfer to the account maintained by the Depositary at The Depository Trust Company or The Philadelphia Depository Trust Company (each, a "Book-Entry Transfer Facility") pursuant to the procedures set forth in Section 3 of the Offer to Purchase. Stockholders who tender Shares by book-entry transfer are referred to herein as "Book Entry Stockholders" and other stockholders are referred to herein as "Certificate Stockholders." Stockholders whose certificates are not immediately available or who cannot deliver their certificates (or who cannot comply with the book-entry transfer procedures on a timely basis) and all other documents required hereby to the Depositary at or prior to the Expiration Date (as defined in the Offer to Purchase) may tender their Shares according to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. See Instruction 2. DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE A DELIVERY TO THE DEPOSITARY. 2 / / CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE DEPOSITARY WITH A BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution ------------------------------------------------------------------------- Check Box of Applicable Book-Entry Transfer Facility: / / The Depository Trust Company / / The Philadelphia Depository Trust Company Account Number ------------------------------------------------------------------------- Transaction Code Number ------------------------------------------------------------------------- / / CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING: Name(s) of Registered Holder(s) ------------------------------------------------------------------------- Date of Execution of Notice of Guaranteed Delivery -------------------------------------------------------------------- Name of Institution which Guarantees Delivery ------------------------------------------------------------------------- SPECIAL TENDER INSTRUCTIONS Shareholders may wish, for tax planning purposes, to designate the specific order in which they desire their shares to be accepted for payment in the event of proration. Each shareholder is urged to consult his tax advisor with respect to such considerations. - -------------------------------------------------------------------------------- DESCRIPTION OF SHARES TENDERED - ------------------------------------------------------------------------------------------------------------------------------ NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) CERTIFICATE(S) TENDERED (PLEASE FILL IN, IF BLANK) (ATTACH ADDITIONAL SIGNED SCHEDULE IF NECESSARY) - ------------------------------------------------------------------------------------------------------------------------------ TOTAL NUMBER OF SHARES NUMBER OF CERTIFICATE REPRESENTED BY SHARES NUMBER(S) CERTIFICATE(S)* TENDERED** ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ Total Shares - ------------------------------------------------------------------------------------------------------------------------------ * Need not be completed by Book-Entry Stockholders. ** Unless otherwise indicated, it will be assumed that all Shares evidenced by any certificate delivered to the Depositary are being tendered. See Instruction 4.
- -------------------------------------------------------------------------------- 3 NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY LADIES AND GENTLEMEN: The undersigned hereby tenders to Orion Capital Corporation, a Delaware corporation ("Orion"), on its behalf and on behalf of The Connecticut Indemnity Company, Connecticut Specialty Insurance Company, Design Professionals Insurance Company, EBI Indemnity Company, Employee Benefits Insurance Company, The Fire and Casualty Insurance Company of Connecticut and Security Insurance Company of Hartford, certain of its wholly-owned subsidiaries (Orion Capital Corporation and such subsidiaries being collectively referred to herein as the "Purchasers"), and to each of them the above-described shares of Common Stock, par value $1.00 per share (the "Shares"), of Guaranty National Corporation, a Colorado corporation (the "Company"), associated Rights in accordance with the Purchasers' offer to purchase up to 4,600,000 of the outstanding Shares at a price of $17.50 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase, as it may be amended or supplemented from time to time, and this Letter of Transmittal (which together constitute the "Offer"), receipt of which is hereby acknowledged. Unless the context otherwise requires, all references to Shares shall include the associated Rights and all references to the Rights shall include all benefits that may inure to the holders of the Rights pursuant to the Rights Agreement, including the right to receive any payment due upon redemption of the Rights. The undersigned understands that each Purchaser reserves the right to transfer or assign, in whole or from time to time in part, to one or more of its affiliates, the right to purchase Shares tendered pursuant to the Offer. Capitalized terms not defined herein shall have the meanings attributed to them in the Offer to Purchase. The undersigned hereby irrevocably appoints W. Marston Becker and Michael P. Maloney and each of them, the attorneys-in-fact and proxies of the undersigned, each with full power of substitution, to vote in such manner as each such attorney and proxy or his or her substitute shall, in his or her sole discretion, deem proper, and otherwise act (including pursuant to written consent) with respect to all of the Shares tendered hereby (and Distributions as defined below) which have been accepted for payment by the Purchasers prior to the time of such vote or action and which the undersigned is entitled to vote at any meeting of stockholders of the Company (whether annual or special and whether or not an adjourned meeting), or by written consent in lieu of such meeting, or otherwise. This power of attorney and proxy is coupled with an interest in the Company and in the Shares and is irrevocable and is granted in consideration of, and is effective upon, the acceptance for payment of such Shares by the Purchasers in accordance with the terms of the Offer. Such acceptance for payment shall revoke, without further action, any other power of attorney or proxy granted by the undersigned at any time with respect to such Shares (and Distributions) and no subsequent powers of attorney or proxies will be given (and if given will be deemed not to be effective) with respect thereto by the undersigned. The undersigned understands that the Purchasers reserve the right to require that, in order for Shares to be deemed validly tendered, immediately upon the Purchasers' acceptance for payment of such Shares, the Purchasers are able to exercise full voting rights with respect to such Shares and other securities, including voting at any meeting of stockholders. Subject to, and effective upon, acceptance for payment of, and payment for the Shares tendered herewith in accordance with the terms of the Offer, as the same may be extended or amended, the undersigned hereby sells, assigns and transfers to or upon the order of the Purchasers, and each of them, all right, title and interest in and to all of the Shares that are being tendered hereby or orders the registration of such Shares delivered by book-entry transfer, and any and all other Shares or other securities or rights issued or issuable in respect of such Shares on or after May 8, 1996 and any or all dividends thereon or distributions with respect thereto (collectively, "Distributions"), and hereby irrevocably constitutes and appoints the Depositary the true and lawful agent and attorney-in-fact of the undersigned with respect to such Shares (and all Distributions), and any such other Shares, securities or rights (and all Distributions), with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (a) deliver certificates for such Shares, or any such other Shares (and all Distributions), securities or rights, or transfer ownership of such Shares (and all Distributions) on the account books maintained by a Book-Entry Transfer Facility, together, in any such case, with all accompanying evidences of transfer and authenticity to or upon the order of the Purchasers, (b) present such Shares, or any such other Shares, securities or rights, for transfer on the Company's books, and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares, or any such other Shares, securities or rights, all in accordance with the terms of the Offer. Notwithstanding anything to the contrary herein, no deduction from the purchase price of $17.50 per Share pursuant to the Offer will be made with respect to any dividend not in excess of $0.125 per Share which may be declared by the Board of Directors of the Company to stockholders of record on any date prior to June 5, 1996. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the tendered Shares and any and all other Shares or other securities (and Distributions) or rights at any time issued or issuable in respect of such Shares and that when the same are accepted by the Purchasers, the Purchasers will acquire good, marketable and unencumbered title thereto, free and clear of all liens, restrictions, claims 4 and encumbrances and the same will not be subject to any adverse claim. The undersigned will, upon request, execute and deliver any additional documents deemed by the Depositary or the Purchasers to be necessary or desirable to complete the sale, assignment and transfer of the tendered Shares and any and all other Shares or other securities or rights at any time issued or issuable in respect thereof. In addition, the undersigned shall promptly remit and transfer to the Depositary for the account of the Purchasers any and all other Shares or other securities or rights issued to the undersigned on or after May 8, 1996 in respect of the Shares tendered hereby, accompanied by appropriate documentation of transfer, and, pending such remittance or appropriate assurances thereof, the Purchasers shall be entitled to all rights and privileges as owner of any such Shares or other securities or rights and may withhold the entire purchase price or deduct from the purchase price the amount or value thereof, as determined by Orion on behalf of the Purchasers, in its sole discretion. No authority herein conferred or agreed to be conferred shall be affected by, and all such authority shall survive, the death or incapacity of the undersigned. All obligations of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. Except as otherwise stated in the Offer to Purchase, this tender is irrevocable. The undersigned understands that tenders of Shares pursuant to any one of the procedures described in Section 3 of the Offer to Purchase and in the instructions hereto will constitute the undersigned's acceptance of the terms and conditions of the Offer. Purchasers' acceptance of such Shares for payment will constitute a binding agreement between the undersigned and Purchasers upon the terms and subject to the conditions of the Offer, including, without limitation, the undersigned's representation and warranty that the undersigned owns the Shares being tendered. Specifically, the undersigned understands that if more than 4,600,000 shares are validly tendered and not withdrawn in accordance with Section 4 of the Offer to Purchase, shares so tendered and not withdrawn will be accepted on a pro rata basis as described in the Offer to Purchase. Unless otherwise indicated herein in the box entitled "Special Payment Instructions," please issue the check for the purchase price of all Shares purchased, and return all Share Certificates evidencing Shares not purchased or not tendered, in the name(s) of the registered holder(s) appearing above under "Description of Shares Tendered." Similarly, unless otherwise indicated in the box entitled "Special Delivery Instructions," please mail the check for the purchase price of all Shares purchased and all Share Certificates evidencing Shares not tendered or not purchased (and accompanying documents, as appropriate) to the address(es) of the registered holder(s) appearing above under "Description of Shares Tendered." In the event that the boxes entitled "Special Payment Instructions" and "Special Delivery Instructions" are both completed, please issue the check for the purchase price of all purchased and return all Share Certificates evidencing Shares not purchased or not tendered in the name(s) of, and mail such check and Certificates to, the person(s) so indicated. Stockholders tendering Shares by book-entry transfer may request that any Shares not accepted for payment be returned by crediting such account maintained at such Book-Entry Transfer Facility as such stockholder may designate by making an appropriate entry under "Special Payment Instructions." The undersigned recognizes that Purchasers have no obligation, pursuant to the Special Payment Instructions, to transfer any Shares from the name of the registered holder(s) hereof if the Purchasers do not purchase any of the Shares tendered hereby. 5 ------------------------------------------------------------ SPECIAL PAYMENT INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if the check for the purchase price of Shares purchased or Share Certificates evidencing Shares not tendered or not purchased are to be issued in the name of someone other than the undersigned or if Shares tendered by book-entry transfer which are not purchased are to be returned by credit to an account maintained at a Book-Entry Transfer Facility other than that designated on the front cover. Issue: / / Check / / Share Certificate (s) to: Name: ---------------------------------------------------------------------- (PRINT) Address: ---------------------------------------------------------------------- ---------------------------------------------------------------------- (ZIP CODE) ---------------------------------------------------------------------- TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER / / Credit unpurchased Shares tendered by book-entry transfer to the Book-Entry Transfer Facility account set forth below: / / DTC / / PDTC ------------------------------------------------------------ (Account Number) (See Substitute Form W-9 on reverse side) ------------------------------------------------------------ ------------------------------------------------------------ SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if the check for the purchase price of Shares purchased or Share Certificates evidencing Shares not tendered or not purchased are to be mailed to someone other than the undersigned, or to the undersigned at an address other than that shown under "Description of Shares Tendered." Deliver: / / Check / / Share Certificate (s) to: Name: --------------------------------------------------------------------- (PRINT) Address: ---------------------------------------------------------------------- ---------------------------------------------------------------------- (ZIP CODE) ---------------------------------------------------------------------- 6 - -------------------------------------------------------------------------------- IMPORTANT SHAREHOLDERS: SIGN HERE (ALSO COMPLETE SUBSTITUTE FORM W-9 INCLUDED HEREIN) -------------------------------------------------------- -------------------------------------------------------- SIGNATURE(S) OF HOLDER(S) Dated: ------------------------------------------------ , 1996 (Must be signed by registered holder(s) exactly as name(s) appear(s) on Share Certificates or on a security position listing or by a person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, please provide the following information. See Instruction 5.) Name(s):------------------------------------------------ -------------------------------------------------------- (PLEASE PRINT) Capacity (Full Title) ---------------------------------------- Address -------------------------------------------------- -------------------------------------------------------- (INCLUDE ZIP CODE) Area Code and Telephone No.: ---------------------------------- Taxpayer Identification or Social Security No.: ------------------------- (SEE SUBSTITUTE FORM W-9 INCLUDED HEREIN) GUARANTEE OF SIGNATURE(S) (IF REQUIRED -- SEE INSTRUCTIONS 1 AND 5) Authorized Signature: ---------------------------------------- Name (Please print): ---------------------------------------- Name of Firm: --------------------------------------------- Address: -------------------------------------------------- -------------------------------------------------------- (INCLUDE ZIP CODE) Area Code and Telephone Number: ------------------------------- Dated: __________________________________, 1996 FOR USE BY FINANCIAL INSTITUTIONS ONLY. PLACE MEDALLION GUARANTEE IN SPACE BELOW. - -------------------------------------------------------------------------------- 7 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. Guarantee of Signatures. Certificates need not be endorsed and stock powers and signature guarantees are unnecessary unless (a) a certificate is registered in a name other than that of the person surrendering the certificate, or (b) such registered holder (which term for purposes of this document, shall include any participant in a Book-Entry Facility whose name appears on a security position listing as the owner of the Shares) completes the Special Payment Instructions or Special Delivery Instructions. In the case of (a) above, such certificates must be duly endorsed or accompanied by a properly executed stock power, with the endorsement or signature on the stock power and on the Letter of Transmittal guaranteed by a firm which is a member of a registered national securities exchange or of the National Association of Securities Dealers, Inc. or a financial institution (including most banks, savings and loan associations and brokerage houses) that is a member of the Securities Transfer Association's approved medallion program (such as STAMP, SEMP, or MSP) (an "Eligible Institution"), unless surrendered for the account of such Eligible Institution. In the case of (b) above, the signature on the Letter of Transmittal must be similarly guaranteed. See Instruction 5. 2. Delivery of Letter of Transmittal and Certificates or Book-Entry Confirmations. This Letter of Transmittal is to be completed by stockholders either if certificates are to be forwarded herewith or if tenders are to be made pursuant to the procedures for delivery by book-entry transfer set forth in Section 3 of the Offer to Purchase. Certificates for all physically delivered Shares, or confirmation of any book-entry transfer into the Depositary's account at a Book-Entry Transfer Facility of Shares delivered by book-entry transfer, as well as a properly completed and duly executed Letter of Transmittal (or facsimile thereof or, in the case of a book-entry delivery, an Agent's Message), with any required signature guarantees and any other documents required by this Letter of Transmittal, must be received by the Depositary at one of its addresses set forth on the front side hereof prior to the Expiration Date (as defined in the Offer to Purchase) or the tendering stockholder must comply with the procedures referred to in the next sentence. Stockholders whose certificates are not immediately available or who cannot deliver their certificates and all other required documents to the Depositary prior to the Expiration Date may tender their Shares by properly completing and duly executing the Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. Pursuant to such procedure (i) such tender must be made by or through an Eligible Institution, (ii) a properly completed and duly executed Notice of Guaranteed Delivery substantially in the form provided by the Purchasers must be received by the Depositary prior to the Expiration Date and (iii) the share certificates for all tendered Shares, in proper form for transfer (or confirmation of any book-entry transfer into the Depositary's account at a Book-Entry Transfer Facility of Shares delivered by book-entry transfer), together with this Letter of Transmittal (or facsimile thereof or, in the case of a book-entry delivery, an Agent's Message), properly completed and duly executed, and any other documents required by this Letter of Transmittal, must be received by the Depositary within three New York Stock Exchange trading days after the date of execution of such Notice of Guaranteed Delivery, all as provided in Section 3 of the Offer to Purchase. The Notice of Guaranteed Delivery must be delivered by hand to the Depositary or transmitted by telegram, facsimile transmission or mail and must include a guarantee of an Eligible Institution in the form set forth on the Notice of Guaranteed Delivery. THE METHOD OF DELIVERY OF SHARES AND ANY OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE TENDERING STOCKHOLDER. IF CERTIFICATES FOR SHARES ARE SENT BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. No alternative, conditional or contingent tenders will be accepted and no fractional Shares will be purchased. All tendering stockholders, by execution of this Letter of Transmittal (or facsimile hereof), waive any right to receive any notice of the acceptance of their Shares for payment. 3. Inadequate Space. If the space provided herein is inadequate, the certificate numbers and/or the number of Shares should be listed on a separate schedule attached hereto and separately signed on each page thereof in the same manner as this Letter of Transmittal is signed. 8 4. Partial Tenders. (Applicable to Certificate Stockholders only). If fewer than all the Shares evidenced by any certificate submitted are to be tendered, fill in the number of Shares which are to be tendered in the box entitled "Number of Shares Tendered." In such case, new certificate(s) for the remainder of the Shares that were evidenced by the old certificate(s) will be issued and sent to the registered holder, unless otherwise provided in the appropriate box on this Letter of Transmittal, as soon as practicable after the expiration of the Offer. All Shares represented by certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 5. Signatures on Letter of Transmittal, Stock Powers and Endorsements. If this Letter of Transmittal is signed by the registered holder of the Shares tendered hereby, the signature must correspond with the name as written on the face of the certificate(s) without alteration, enlargement or any change whatsoever. If any of the Shares tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any of the Shares tendered hereby are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of certificates. If this Letter of Transmittal or any certificates or stock powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and proper evidence satisfactory to the Purchasers of their authority to so act must be submitted. When this Letter of Transmittal is signed by the registered owner(s) of the Shares listed and transmitted hereby, no endorsements of certificates or separate stock powers are required unless payment is to be made, or certificates for Shares not tendered or purchased are to be issued, to a person other than the registered owner(s). Signatures on such certificates or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered owner(s) of the certificates listed, the certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered owner or owners appear on the certificates. Signatures on such certificates or stock powers must be guaranteed by an Eligible Institution. 6. Stock Transfer Taxes. Except as set forth in this Instruction 6, no stock transfer tax stamps or funds to cover such stamps need accompany this instrument. Any such transfer taxes applicable to the transfer and sale to the Purchasers pursuant to the Offer will be paid by or on behalf of the Purchasers. If, however, payment of the purchase price is to be made to, or certificates for Shares not tendered or purchased are to be registered in the name of, any person other than the person(s) signing this Letter of Transmittal, the amount of any stock transfer taxes (whether imposed on the registered holder or such person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of payment of such taxes or exemption therefrom is submitted. 7. Special Payment and Delivery Instructions. If a check is to be issued in the name of, and/or certificates for unpurchased Shares are to be issued to, a person other than the signer of this Letter of Transmittal or if a check is to be sent and/or such certificates are to be returned to someone other than the signer of this Letter of Transmittal, or to an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. Stockholders tendering Shares by book-entry transfer (i.e., Book-Entry Stockholders) may request that Shares not purchased be credited to such account maintained at such Book-Entry Transfer Facility as such Book-Entry Stockholder may designate hereon. If no such instructions are given, such Shares not purchased will be returned by crediting the account at the Book-Entry Transfer Facility designated above. See Instruction 1. 8. Substitute Form W-9. Each tendering stockholder is required to provide the Depositary with a correct Taxpayer Identification Number ("TIN") on Substitute Form W-9, which is provided under "Important Tax Information" below and to indicate that the stockholder is not subject to backup withholding by checking the box in Part 2 of the form. Failure to provide the information on the form may subject the tendering stockholder to 31% federal income tax withholding on the payment of the purchase price. The box in Part 3 of the form may be checked if the tendering stockholder has not been issued a TIN and has applied for a number or intends to apply for a number in the near future. If the box in Part 3 is checked and the Depositary is not provided with a TIN within 60 days, the Depositary will withhold 31% on all payments of the purchase price thereafter until a TIN is provided to the Depositary. 9 9. Requests for Assistance or Additional Copies. Requests for assistance or additional copies of the Offer to Purchase, this Letter of Transmittal, the Notice of Guaranteed Delivery and the Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 may be directed to the Information Agent or the Dealer Manager at their addresses set forth below. 10. Waiver of Conditions. The conditions of the Offer may be waived by the Purchasers, in whole or in part, at any time in their sole discretion in the case of any Shares tendered. 11. Order in Which Shares Will Be Accepted (Not applicable to shareholders who tender by book-entry transfer). In the event of proration, the Shares listed in the box captioned "Description of Shares Tendered" will be accepted for payment in the order in which certificate numbers of such shares are listed. Tendering stockholders who wish to have Shares accepted for payment in a specific order in the event of proration should list the Shares in that order in the box captioned "Description of Shares Tendered." 12. Lost, Destroyed or Stolen Certificates. If any certificate(s) representing Shares has been lost, destroyed or stolen, the stockholder should promptly notify the Depositary. The stockholder will then be instructed as to the steps that must be taken in order to replace the certificates(s). This Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost or destroyed certificates have been followed. IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE COPY HEREOF (TOGETHER WITH CERTIFICATES FOR SHARES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE DEPOSITARY, OR THE NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY, PRIOR TO THE EXPIRATION DATE (AS DEFINED IN THE OFFER TO PURCHASE). IMPORTANT TAX INFORMATION Under U.S. Federal income tax law, a stockholder whose tendered Shares are accepted for payment is required to provide the Depositary with such stockholder's correct TIN on Substitute Form W-9 below. If such stockholder is an individual, the TIN is his social security number. If the Depositary is not provided with the correct TIN, the stockholder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, payments that are made to such stockholder with respect to Shares purchased pursuant to the Offer may be subject to backup withholding. Certain stockholders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order for a foreign individual to qualify as an exempt recipient, that stockholder must submit a statement, signed under penalties of perjury, attesting to that individual's exempt status. Such statements can be obtained from the Depositary. See the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional instructions. If backup withholding applies, the Depositary is required to withhold 31% of all payments made to the stockholder. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained. PURPOSE OF SUBSTITUTE FORM W-9 To prevent backup withholding on payments that are made to a stockholder with respect to Shares purchased pursuant to the Offer, the stockholder is required to notify the Depositary of his correct TIN by completing the form below certifying that the TIN provided on Substitute Form W-9 is correct (or that such stockholder is awaiting a TIN) and that (1) the stockholder has not been notified by the Internal Revenue Service that he is subject to backup withholding as a result of a failure to report all interest or dividends or (2) the Internal Revenue Service has notified the stockholder that he is no longer subject to backup withholding. The box in Part 3 of the Substitute Form W-9 may be checked if the tendering stockholder has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future. If the box in Part 3 is checked, the stockholder or other payee must also complete the Certificate of Awaiting Taxpayer Identification Number below in order to avoid backup withholding. Notwithstanding that the box in Part 3 is checked and the Certificate of Awaiting Taxpayer Identification Number is completed, the Depositary will withhold 31% of all payments made prior to the time a properly certified TIN is provided to the Depositary. WHAT NUMBER TO GIVE THE DEPOSITARY The stockholder is required to give the Depositary the social security number or employer identification number of the record owner of the Shares. If the Shares are registered in more than one name or are not registered in the name of the actual owner, consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional guidance on which number to report. 10 TO BE COMPLETED BY ALL TENDERING STOCKHOLDERS (SEE INSTRUCTION 8) - -------------------------------------------------------------------------------- PAYER'S NAME: STATE STREET BANK AND TRUST COMPANY - --------------------------------------------------------------------------------------------------------- PART 1--PLEASE PROVIDE YOUR TIN IN THE Social Security Number or BOX AT RIGHT AND CERTIFY BY SIGNING Employer ID Number SUBSTITUTE AND DATING BELOW. ------------------------------ Form W-9 ------------------------------------------------------------------------ PART 2--CERTIFICATIONS--Under penalties of perjury, I certify that: (1) The number shown on this form is my correct Taxpayer Identification Department of the Treasury Number (or I am waiting for a number to be issued to me and have Internal Revenue Service checked the box in Part 3) and (2) I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (the "IRS") that I am subject to backup Payer's Request for Taxpayer withholding as a result of a failure to report all interest or Identification Number ("TIN") dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. CERTIFICATION INSTRUCTIONS--You must cross out item (2) above if you have been notified by the IRS that you are currently subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out such item (2). ------------------------------------------------------------------------ PART 3 SIGNATURE __________________________ DATE ______________ Awaiting TIN / / - ---------------------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9 CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (1) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (2) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number by the time of payment, 31% of all reportable payments made to me will be withheld, but that such amounts will be refunded to me if I then provide a Taxpayer Identification Number within sixty (60) days. Signature: Date: - ----------------------------------- -------------------------------------- THE INFORMATION AGENT FOR THE OFFER IS: D.F. KING & CO., INC. 77 Water Street New York, New York 10005 Call Collect: (212) 269-5550 CALL TOLL FREE (800) 829-6551 THE DEALER MANAGER FOR THE OFFER IS: DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION 277 Park Avenue New York, New York 10172 (212) 892-7700 (Call Collect) EX-99.A3 4 NOTICE OF GUARANTEED DELIVERY 1 NOTICE OF GUARANTEED DELIVERY (NOT TO BE USED FOR SIGNATURE GUARANTEES) TO TENDER SHARES OF COMMON STOCK (INCLUDING ANY ASSOCIATED STOCK PURCHASE RIGHTS) OF GUARANTY NATIONAL CORPORATION As set forth in Section 3 of the Offer to Purchase described below, this form or one substantially equivalent hereto must be used to accept the Offer (as defined below) if certificates for Shares are not immediately available or if the procedure for book-entry transfer cannot be completed on a timely basis or time will not permit all required documents to reach the Depositary prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase) of the Offer. Such form may be delivered by hand or sent by telegram, facsimile transmission or mail to the Depositary. THE DEPOSITARY FOR THE OFFER IS STATE STREET BANK AND TRUST COMPANY By Mail: By Overnight Courier: By Hand: State Street Bank and Trust State Street Bank and Trust Bank of Boston Company Company c/o Boston Equiserve Corporate Reorganization Corporate Reorganization 55 Broadway, 3rd Floor P. O. Box 9061 2 Heritage Drive New York, NY 10006 Boston, MA 02205-8686 North Quincy, MA 02171
Facsimile Transmission Copy Number: (617) 774-4519 Confirm by telephone to: (617) 774-4511 DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF THIS INSTRUMENT VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. This Notice of Guaranteed Delivery is not to be used to guarantee signatures. If a signature of a Letter of Transmittal is required to be guaranteed by an "Eligible Institution" under the instructions thereto, such signature guarantee must appear in the applicable space provided in the signature box on the Letter of Transmittal. 2 Ladies and Gentlemen: The undersigned hereby tenders to Orion Capital Corporation, a Delaware corporation, on behalf of all Purchasers named in and upon the terms and subject to the conditions set forth in the Offer to Purchase dated May 8, 1996 and the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer"), receipt of which is hereby acknowledged, the number of shares set forth below of Common Stock, $1.00 par value per share (the "Shares"), of Guaranty National Corporation (the "Company"), a Colorado corporation, pursuant to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. All references to Shares include the Rights and all benefits which may inure to stockholders of the Company pursuant to the Rights Agreement referred to in the Offer to Purchase dated May 8, 1996. Number of Shares: Signature(s) Name(s) Certificate Nos. (If Available) Address Area Code and Tel. No. [ ] (Check one if Shares will be tendered by book-entry transfer) [ ] The Depository Trust Company [ ] The Philadelphia Depository Trust Company Account Number Dated , 1996 NOTE: REVERSE SIDE MUST BE COMPLETED 3 GUARANTEE The undersigned, a member of a registered national securities exchange or of the National Association of Securities Dealers, Inc. or a commercial bank or trust company having an office or correspondent in the United States, (a) represents that the above-named person(s) "own(s)" the Shares tendered hereby within the meaning of Rule 14e-4 under the Securities Exchange Act of 1934, as amended, and (b) guarantees delivery to the Depositary of certificates for Shares tendered hereby, in proper form for transfer, or delivery of Shares pursuant to the procedure for book-entry transfer at The Depository Trust Company or The Philadelphia Depository Trust Company, in either case with delivery of a properly completed and duly executed Letter of Transmittal (or facsimile thereof), with any required signature guarantees or an Agent's Message (as defined in the Offer to Purchase) and any other required documents, all within three New York Stock Exchange, Inc. trading days after the date hereof. - ----------------------------------- ----------------------------------- Name of Firm/Participant Number Authorized Signature - ----------------------------------- ----------------------------------- Address Title Name - ----------------------------------- ------------------------------ Zip Code (Please Type or Print) Area Code and Tel. No. Dated , 1996 ------------ ------------------------ The Eligible Institution which completes this form must communicate the guarantee to the Depositary and must deliver the Letter of Transmittal and certificates for Shares to the Depositary within the time period shown herein. Failure to do so could result in a financial loss to such Eligible Institution. NOTE: DO NOT SEND STOCK CERTIFICATES WITH THIS FORM EX-99.A4 5 LETTER TO SECURITIES DEALERS... 1 OFFER TO PURCHASE FOR CASH UP TO 4,600,000 SHARES OF COMMON STOCK (INCLUDING ANY ASSOCIATED STOCK PURCHASE RIGHTS) OF GUARANTY NATIONAL CORPORATION AT $17.50 NET PER SHARE BY ORION CAPITAL CORPORATION AND CERTAIN OF ITS WHOLLY-OWNED SUBSIDIARIES THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT NEW YORK CITY TIME, ON WEDNESDAY, JUNE 5, 1996, UNLESS THE OFFER IS EXTENDED. May 8, 1996 To Brokers, Dealers, Commercial Banks, Trust Companies and Nominees: We have been appointed by Orion Capital Corporation, a Delaware corporation, and certain of its subsidiaries (Orion and such subsidiaries being hereinafter collectively referred to as the "Purchasers") to act as Dealer Manager in connection with the Purchasers' offer to purchase up to 4,600,000 shares of common stock, $1.00 par value per share (the "Shares"), of Guaranty National Corporation, a Colorado corporation (the "Company"), at $17.50 per Share, net to the seller in cash upon the terms and subject to the conditions set forth in the Offer to Purchase dated May 8, 1996 and in the related Letter of Transmittal (which together constitute the "Offer"). We are enclosing herewith the material listed below relating to the Offer. THE OFFER IS NOT CONDITIONED ON ANY MINIMUM NUMBER OF SHARES BEING TENDERED. HOWEVER, THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) EXPIRATION OR EARLIER TERMINATION OF ALL APPLICABLE WAITING PERIODS UNDER THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED, AND (II) THE RECEIPT OF ALL REQUIRED STATE INSURANCE DEPARTMENT REGULATORY APPROVALS ON TERMS AND CONDITIONS SATISFACTORY TO THE PURCHASERS. THE OFFER IS ALSO SUBJECT TO OTHER TERMS AND CONDITIONS. IF MORE THAN 4,600,000 SHARES ARE PROPERLY TENDERED AND NOT WITHDRAWN, THEN, SUBJECT TO THE TERMS AND CONDITIONS OF THE OFFER, SUCH SHARES WILL BE ACCEPTED ON A PRO RATA BASIS. We are asking you to contact your clients for whom you hold Shares registered in your name (or in the name of your nominee) or who hold Shares registered in their own names. No fees or commissions will be payable to brokers, dealers or other persons for soliciting tenders of Shares pursuant to the Offer. The Purchasers will, however, upon request reimburse you for customary mailing and handling expenses incurred by you in forwarding any of the enclosed materials to your clients. The Purchasers will pay all transfer taxes on its purchase of Shares, subject to Instruction 6 of the Letter of Transmittal. For your information and for forwarding to your clients we are enclosing the following documents: (1) Offer to Purchase, dated May 8, 1996. (2) Letter of Transmittal to be used by holders of Shares to tender Shares and for the information of your clients. Facsimile copies of the Letter of Transmittal may be used to tender Shares. (3) Notice of Guaranteed Delivery; (4) Letter which may be sent to your clients for whose accounts you hold Shares registered in your name (or in the name of your nominee), with space provided for obtaining such clients' Instructions with regard to the Offer; (5) Guidelines of the Internal Revenue Service for Certification of Taxpayer Identification Number; (6) Return envelopes addressed to the Depositary. 2 YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS PROMPTLY. PLEASE NOTE THAT THE OFFER, WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE ON WEDNESDAY, JUNE 5, 1996, AT 12:00 MIDNIGHT, NEW YORK CITY TIME, UNLESS THE OFFER IS EXTENDED. In order to accept the Offer, a duly executed and properly completed Letter of Transmittal and any required signature guarantees, or an Agent's Message (as defined in the Offer to Purchase), in connection with a book-entry delivery of Shares, and any other required documents should be sent to the Depositary and either Share certificates representing the tendered Shares should be delivered to the Depositary, or Shares should be tendered by book-entry transfer into the Depositary's account maintained at one of the Book Entry Transfer Facilities (as described in the Offer to Purchase), all in accordance with the instructions set forth in the Letter of Transmittal and the Offer to Purchase. If holders of Shares wish to tender their Shares but it is impracticable for them to forward their certificates on or prior to the expiration date, such Shares may be tendered pursuant to the guaranteed delivery procedures set forth in Section 3 of the Offer to Purchase. Your solicitation of tenders of Shares will constitute your representation to the Purchasers that (i) in connection with such solicitation, you have complied with the applicable requirements of the Securities Exchange Act of 1934 and the applicable rules and regulations thereunder; (ii) if a foreign broker or dealer, you have conformed to the Rules of Fair Practice of the National Association of Securities Dealers, Inc. in making solicitations; and (iii) in soliciting tenders of Shares, you have not used any soliciting materials other than those furnished by the Purchasers. The Offer is not being made to (nor will tenders be accepted from or on behalf of) holders of Shares residing in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. Additional copies of the enclosed material may be obtained from D.F. King & Co., Inc., the Information Agent, or from Donaldson, Lufkin & Jenrette Securities Corporation, the Dealer Manager, at the addresses set forth below. Any questions or requests you may have with respect to the Offer should be directed to the undersigned at the addresses and telephone numbers listed below. Very truly yours, DONALDSON, LUFKIN & JENRETTE Securities Corporation NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER PERSON THE AGENT OF ANY OF THE PURCHASERS, THE INFORMATION AGENT, THE DEALER MANAGER OR THE DEPOSITARY OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENTS OR USE ANY MATERIAL ON THEIR BEHALF WITH RESPECT TO THE OFFER, OTHER THAN THE MATERIAL ENCLOSED HEREWITH AND THE STATEMENTS SPECIFICALLY SET FORTH IN SUCH MATERIAL. D.F. KING & CO., INC. INFORMATION AGENT 77 Water Street New York, NY 10005 (212) 269-5550 (Call Collect) Call Toll Free (800) 829-6551 The Dealer Manager for the Offer is: DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION 277 Park Avenue New York, New York 10172 (212) 892-7700 (Call Collect) EX-99.A5 6 LETTER FROM BROKERS, DEALERS... TO THEIR CLIENTS 1 OFFER TO PURCHASE FOR CASH UP TO 4,600,000 SHARES OF COMMON STOCK (INCLUDING ANY ASSOCIATED STOCK PURCHASE RIGHTS) OF GUARANTY NATIONAL CORPORATION AT $17.50 NET PER SHARE BY ORION CAPITAL CORPORATION AND CERTAIN OF ITS WHOLLY-OWNED SUBSIDIARIES THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE ON WEDNESDAY, JUNE 5, 1996, AT 12:00 MIDNIGHT, NEW YORK CITY TIME, UNLESS THE OFFER IS EXTENDED. May 8, 1996 To Our Clients: Enclosed for your consideration are the Offer to Purchase dated May 8, 1996 (the "Offer to Purchase") and the related Letter of Transmittal (which, together with any amendments or supplements thereto, constitute the "Offer") in connection with the offer by Orion Capital Corporation, a Delaware corporation, and certain of its wholly-owned subsidiaries (Orion and such subsidiaries being hereinafter collectively referred to as the "Purchasers"), to purchase up to 4,600,000 outstanding shares of Common Stock, $1.00 par value per share (the "Shares"), of Guaranty National Corporation, a Colorado corporation (the "Company"), and any Rights, for $17.50 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer. Unless the context otherwise requires, all references to Shares shall include the associated Rights and all references to the Rights shall include all benefits that may inure to holders of the Rights pursuant to the Rights Agreement (as defined in the Offer to Purchase), including the right to receive any payment due upon redemption of the Rights. Holders of Shares whose certificates for such Shares (the "Share Certificates") are not immediately available, or who cannot deliver their Share Certificates and all other required documents to the Depositary on or prior to the Expiration Date (as defined in the Offer to Purchase), or who cannot complete the procedures for book-entry transfer on a timely basis, must tender their Shares according to the guaranteed delivery procedures set forth in Section 3 of the Offer to Purchase. We are the holder of record of Shares held by us for your account. A tender of such Shares can be made only by us as the holder of record and pursuant to your instructions. THE SPECIMEN LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES. We request instructions as to whether you wish to have us tender on your behalf any or all of such Shares held by us for your account, pursuant to the terms and conditions set forth in the Offer. Your attention is invited to the following: 1. The tender price is $17.50 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in the Offer. 2. The Offer is being made for up to 4,600,000 Shares and if a greater number of Shares is validly tendered and not withdrawn, the Purchasers will accept Shares for purchase pro rata from each tendering stockholder. 2 3. The Offer, proration period and withdrawal rights will expire on Wednesday, June 5, 1996, at 12:00 midnight, New York City time, unless the Offer is extended. 4. The Offer is conditioned as set forth in the Offer to Purchase but is not conditioned on any minimum number of Shares being validly tendered and not withdrawn prior to the expiration of the Offer. 5. Stockholders who tender Shares will not be obligated to pay brokerage fees or commissions or, except as set forth in Instruction 6 of the Letter of Transmittal, transfer taxes on the purchase of Shares by the Purchasers pursuant to the Offer. 6. Payment for Shares purchased pursuant to the Offer will in all cases be made only after timely receipt by State Street Bank and Trust Company (the "Depositary") of (a) Share Certificates or timely confirmation of the book-entry transfer of such Shares into the account maintained by the Depositary at The Depository Trust Company or The Philadelphia Depository Trust Company (collectively, the "Book-Entry Transfer Facilities"), pursuant to the procedures set forth in Section 3 of the Offer to Purchase, (b) the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees, in connection with a book-entry delivery, and (c) any other documents required by the Letter of Transmittal. Accordingly, payment may not be made to all tendering stockholders at the same time depending upon when Share Certificates or confirmations of book-entry transfer of Shares into the Depositary's account at a Book-Entry Transfer Facility are actually received by the Depositary. If you wish to have us tender any or all of the Shares held by us for your account, please so instruct us by completing, executing, detaching and returning to us the instruction form set forth on the back page of this letter. If you authorize the tender of your Shares, all such Shares will be tendered unless otherwise specified on the back page of this letter. An envelope to return your instructions to us is enclosed. Your instructions should be forwarded to us in ample time to permit us to submit a tender on your behalf prior to the expiration of the Offer. The Offer is not being made to (nor will tenders be accepted from or on behalf of) holders of Shares residing in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer is being made on behalf of the Purchasers, if at all, only by Donaldson, Lufkin & Jenrette Securities Corporation, the Dealer Manager for the Offer, or one or more registered brokers or dealers that are licensed under the laws of such jurisdiction. 3 INSTRUCTIONS WITH RESPECT TO OFFER TO PURCHASE FOR CASH UP TO 4,600,000 SHARES OF COMMON STOCK OF GUARANTY NATIONAL CORPORATION The undersigned acknowledge(s) receipt of your letter and the enclosed Offer to Purchase dated May 8, 1996 and the related Letter of Transmittal (which, as supplemented or amended, collectively constitute the "Offer") in connection with the offer by Orion Capital Corporation, a Delaware corporation, and certain of its wholly-owned subsidiaries to purchase up to 4,600,000 of the outstanding shares of common stock, par value $1.00 per share (the "Shares"). This will instruct you to tender the number of Shares indicated below held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in the Offer to Purchase and the related Letter of Transmittal. Number(1) of Shares to be Tendered: __________ Shares of Common Stock Account Number: ________________________________________ Dated: ___________ , 1996 - -------------------------------------------------------------------------------- SIGN HERE Signature ------------------------------------------------------------------------ - -------------------------------------------------------------------------------- Print Name(s): ------------------------------------------------------------------- - -------------------------------------------------------------------------------- Print Address(es): ---------------------------------------------------------------- - -------------------------------------------------------------------------------- Area Code and Telephone No.: ----------------------------------------------------- Taxpayer ID No. or Social Security No.: ---------------------------------------------- (1)Unless otherwise indicated, it will be assumed that all Shares held by us for your account are to be tendered. EX-99.A6 7 PRESS RELEASE 1 ORION CAPITAL CORPORATION LETTERHEAD - -------------------------------------------------------------------------------- NEWS RELEASE From: Vincent T. Papa Dawn W. Dover NYSE Symbol: OC (212) 332-8088 (212) 593-2655 Jeanne Hotchkiss Kekst & Company (860) 674-6754 437 Madison Avenue New York, NY 10022
FOR IMMEDIATE RELEASE ORION CAPITAL CORPORATION WILL COMMENCE CASH TENDER OFFER TO INCREASE ITS OWNERSHIP OF GUARANTY NATIONAL CORPORATION TO 80% - -------------------------------------------------------------------------------- New York, New York, May 7, 1996 -- Orion Capital Corporation and several of its subsidiaries will tomorrow commence a cash tender offer at a price of $17.50 per share net to the seller for up to 4,600,000 shares of the common stock of Guaranty National Corporation (NYSE: GNC). The tender offer expires at midnight on June 5, 1996, unless extended. Orion Capital currently owns through its subsidiaries approximately 49.5% of the outstanding common stock of Guaranty National. The purchase of 4,600,000 shares would increase Orion's ownership to slightly more than 80%. The tender offer is not subject to a minimum number of shares being tendered. If more than 4,600,000 shares are properly tendered and not withdrawn prior to the expiration of the offer, then shares will be accepted on a pro rata basis. The tender offer is conditioned on, among other things, the receipt of all required approvals of state insurance regulators and Hart-Scott-Rodino clearance. The terms and conditions of the offer are set forth in tender offer materials that will be filed on May 8, 1996 with the Securities and Exchange Commission, and subsequently mailed to Guaranty National Corporation shareholders. The Dealer Manager for the offer is Donaldson, Lufkin & Jenrette Securities Corporation. "We have had a very rewarding relationship with Guaranty National since we acquired a significant ownership interest in 1984," said Alan R. Gruber, Chairman and Chief Executive Officer of Orion Capital Corporation. "An increase in our percentage of ownership will allow us to become more involved in setting the strategic direction of Guaranty National, and to participate to a greater extent in its future growth." An 80% ownership will also allow Orion the benefit of including Guaranty National in its consolidated federal income tax return. Guaranty National is a Colorado-based property and casualty insurance holding company with operating subsidiaries which write specialty commercial and private passenger automobile insurance, as well as collateral protection and other commercial coverages. Guaranty National is a leading provider of nonstandard personal automobile insurance written through independent agents. Orion Capital Corporation is engaged in the specialty property and casualty insurance business through wholly-owned subsidiaries, which include EBI Companies, DPIC Companies, Connecticut Specialty Insurance Group, SecurityRe Companies and Wm. H. McGee & Co. Inc., as well as through its 49.5% ownership interest in Guaranty National Corporation. EX-99.A7 8 SUMMARY ADVERTISEMENT DATED MAY 8, 1996 1 This announcement is neither an offer to purchase nor a solicitation of an offer to sell Shares. The Offer is made solely by the Offer to Purchase dated May 8, 1996 and the related Letter of Transmittal and is being made to all holders of Shares. The Offer is not being made to (nor will tenders be accepted from or on behalf of) the holders of Shares in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. In those jurisdictions whose laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of the Purchasers, if at all, only by Donaldson, Lufkin & Jenrette Securities Corporation ("Dealer Manager") or one or more registered brokers or dealers licensed under the laws of such jurisdiction. NOTICE OF OFFER TO PURCHASE FOR CASH UP TO 4,600,000 SHARES OF COMMON STOCK (INCLUDING ANY ASSOCIATED STOCK PURCHASE RIGHTS) OF GUARANTY NATIONAL CORPORATION AT $17.50 NET PER SHARE BY ORION CAPITAL CORPORATION AND CERTAIN OF ITS WHOLLY-OWNED SUBSIDIARIES Orion Capital Corporation, a Delaware corporation ("Orion"), and certain of its wholly-owned subsidiaries named in the Offer to Purchase (collectively the "Purchasers") are offering to purchase up to 4,600,000 shares of Common Stock, par value $1.00 per share (the "Shares"), including any associated stock purchase rights, of Guaranty National Corporation, a Colorado corporation (the "Company"), at $17.50 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in the Offer to Purchase dated May 8, 1996 and the related Letter of Transmittal (which together constitute the "Offer"). - -------------------------------------------------------------------------------- THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, JUNE 5, 1996, UNLESS THE OFFER IS EXTENDED. - -------------------------------------------------------------------------------- The Offer is not conditioned on any minimum number of Shares being tendered. However, the Offer is conditioned upon, among other things, (I) expiration or earlier termination of all applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and (II) the receipt of all required state insurance department regulatory approvals on terms and conditions satisfactory to the Purchasers. The Offer is also subject to other terms and conditions. If more than 4,600,000 Shares are properly tendered and not withdrawn, then, subject to the terms and conditions of the Offer, such Shares will be accepted on a pro rata basis. The Purchasers beneficially own 49.5% of the outstanding Shares. As described in the Offer to Purchase, the Purchasers' purpose in acquiring the Shares is to increase their ownership interest to approximately 80% of the outstanding Shares, thereby increasing their ability to control the Company and causing the Company to be a member of Orion's consolidated group for federal income tax purposes. For the purposes of the Offer, the Purchasers will be deemed to have accepted for payment (and thereby purchased) validly tendered and not properly withdrawn Shares when, as and if Orion on behalf of the Purchasers gives oral or written notice to the Depositary, State Street Bank and Trust Company, of the Purchasers' acceptance for payment of such Shares pursuant to the Offer. Payment for Shares accepted for payment pursuant to the Offer may be delayed in the event of proration due to the difficulty of determining the number of Shares validly tendered and not withdrawn. Payment for Shares purchased pursuant to the Offer will in all cases be made by deposit of the purchase price with the Depositary, which will act as agent for the tendering stockholders for the purpose of receiving payment from the Purchasers and transmitting such payment to tendering stockholders. Under no circumstances will interest on the Offer price be paid by the Purchasers by reason of any delay in making such payment. In all cases, payment for Shares purchased pursuant to the Offer will be made only after timely receipt by the Depositary of certificates for such Shares or timely confirmation of book-entry transfer of such Shares into the Depositary's account at one of the Book-Entry Transfer Facilities as described in the Offer to Purchase, a properly completed and duly executed Letter of 2 Transmittal (or facsimile thereof) and any other documents required by the Letter of Transmittal. The Purchasers expressly reserve the right, in their sole discretion, for any reason, at any time or from time to time, to extend the period of time during which the Offer is open by giving oral or written notice of such extension to the Depositary, followed by public announcement prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date to the Offer (which may be released to the Dow Jones News Service). During any such extension, all Shares previously tendered and not purchased or withdrawn will remain subject to the Offer. Tenders of Shares made pursuant to the Offer are irrevocable, except that tendered Shares may be withdrawn at any time prior to 12:00 Midnight, New York City time, on Wednesday, June 5, 1996, or the latest time and date at which the Offer, if extended by the Purchasers, shall expire and, unless theretofore accepted for payment as provided in the Offer, may also be withdrawn after July 6, 1996. For a withdrawal to be effective, a written telegraphic or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of the Offer to Purchase. Any such notice of withdrawal must specify the name of the person who tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder, if different from that of the person having tendered such Shares. If certificates for Shares have been delivered to the Depositary, then, prior to the physical release of such certificates, the tendering stockholder must also submit the serial numbers shown on the particular certificates evidencing the Shares to be withdrawn and the signature on the notice of withdrawal must be guaranteed by an Eligible Institution unless such Shares have been tendered for the account of an Eligible Institution. If Shares have been tendered pursuant to the procedure for book-entry transfer as set forth in the Offer to Purchase, any notice of withdrawal must specify the name and number of the account at the applicable Book-Entry Transfer Facility to be credited with the withdrawn Shares. All questions as to the form and validity including time of receipt of notices of withdrawal will be determined by the Purchasers, in their sole discretion, which determination will be final and binding. If tendering stockholders tender more than the number of Shares that the Purchasers seek to purchase pursuant to the Offer, the Purchasers will take into account the number of Shares so tendered and take up and pay for Shares as nearly as may be pro rata, disregarding fractions, according to the number of Shares tendered by each tendering stockholder during the period during which such Offer remains open. The information required to be disclosed by paragraph (e)(1)(vii) of Rule 14d-6 and by paragraph (e)(1) of Rule 13e-3 (which Rule governs so-called "going private" transactions) of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, is contained in the Offer to Purchase and is incorporated herein by reference. THE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. A request is being made to the Company for the use of its stockholder lists and security position listings for the purpose of disseminating the Purchasers' Offer to holders of Shares. The Offer to Purchase and Letter of Transmittal will be mailed to holders of record of Shares and will be furnished to brokers, banks and similar persons whose name appears or whose nominee appears on the shareholder list or, if applicable, who are listed as participants in a clearing agency's security position listing for subsequent transmittal to beneficial owners of Shares. Questions and requests for assistance or for copies of the Offer to Purchase and the related Letter of Transmittal and other tender offer materials may be directed to the Dealer Manager or the Information Agent at their addresses and telephone numbers set forth below, and copies will be furnished promptly at the Purchasers' expense. The Purchasers will not pay any fees or commissions to any broker or dealer or any other persons (other than the Dealer Manager and the Information Agent) for soliciting tenders of Shares pursuant to the Offer. The Information Agent for the Offer is: D.F. KING & CO., INC. 77 Water Street New York, New York 10005 (212) 269-5550 (Call Collect) (800) 829-6551 (TOLL FREE) The Dealer Manager for the Offer is: DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION 277 Park Avenue New York, New York 10172 Telephone (212) 892-7700 (Call Collect) May 8, 1996 EX-99.A8 9 GUIDLINES FOR CERTIFICATION OF TAXPAYER ID NUMBER 1 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER. -- Social Security numbers have nine digits separated by two hyphens: i.e. 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e. 00-0000000. The table below will help determine the number to give the payer. - ------------------------------------------------------------------ FOR THIS TYPE OF ACCOUNT: GIVE THE SOCIAL SECURITY NUMBER OF -- 1. An individual's account The individual 2. Two or more individuals (joint The actual owner of the account) account or, if combined funds, any one of the individuals (1) 3. Custodian and wife (joint account) The actual owner of the account or, if joint funds, either person (1) 4. Custodian account of a minor The minor (2) (Uniform Gift to Minors Act) 5. Adult and minor (joint account) The adult or, if the minor is the only contributor, the minor (1) 6. Account in the name of guardian or The ward, minor, or committee for a designated ward, incompetent person (3) minor, or incompetent person 7. a The usual revocable savings trust The grantor-trustee (1) account (grantor is also trustee) b So-called trust account that is The actual owner (1) not a legal or valid trust under State law FOR THIS TYPE OF ACCOUNT: GIVE THE EMPLOYER IDENTIFICATION NUMBER OF -- 8. Sole proprietorship account The Owner (4) 9. A valid trust, estate, or pension Legal entity (Do not trust furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.) (5) 10. Corporate account The Corporation 11. Religious, charitable, or The organization educational organization account 12. Partnership account held in the The partnership name of the business 13. Association, club, or other tax- The organization exempt organization 14. A broker or registered nominee The broker or nominee 15. Account with the Department of The public entity Agriculture in the name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments
- ------------------------------------------------------------------ (1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) Circle the ward's, minor's or incompetent person's name and furnish such person's social security number. (4) Show the name of the owner. (5) List first and circle the name of the legal trust, estate, or pension trust. NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. OBTAINING A NUMBER If you don't have a taxpayer identification number or you don't know your number, obtain Form SS-5, Application for a Social Security Number Card, or Form SS-4, Application for Employer Identification Number, at the local office of the Social Security Administration or the Internal Revenue Service and apply for a number. PAYEES EXEMPT FROM BACKUP WITHHOLDING Payees specifically exempted from backup withholding on ALL payments include the following: - - A corporation. - - A financial institution. - - An organization exempt from tax under section 501(a), or an individual retirement plan. - - The United States or any agency or instrumentality thereof. - - A State, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. - - A foreign government, a political subdivision of a foreign government, or agency or instrumentality thereof. - - An international organization or any agency, or instrumentality thereof. - - A registered dealer in securities or commodities registered in the U.S. or a possession of the U.S. - - A real estate investment trust. - - A common trust fund operated by a bank under section 584(a). - - An exempt charitable remainder trust, or a non-exempt trust described in section 4947(a)(1). - - An entity registered at all times under the Investment Company Act of 1940. - - A foreign central bank of issue. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: - - Payments to nonresident aliens subject to withholding under section 1441. - - Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident partner. - - Payments of patronage dividends where the amount received is not paid in money. - - Payments made by certain foreign organizations. - - Payments made to a nominee. Payments of interest not generally subject to backup withholding include the following: - - Payments of interest on obligations issued by individuals. NOTE: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. - - Payments of tax-exempt interest (including exempt interest dividends under section 852). - - Payments described in section 6049(b)(5) to nonresident aliens. - - Payments on tax-free covenant bonds under section 1451. - - Payments made by certain foreign organizations. - - Payments made to a nominee. Exempt payees described above should file Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO THE PAYER, IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM. Certain payments other than interest, dividends, and patronage dividends that are not subject to information reporting are also not subject to backup withholding. For details, see the regulations under sections 6041, 6041A (a), 6045, and 6050A. PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend, interest, or other payments to give taxpayer identification numbers to payers who must report the payments to IRS. IRS uses the numbers for identification purposes. Payers must be given the numbers whether or not recipients are required to file tax returns. Payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. -- If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. (4) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS. -- If you fail to include any portion of an includible payment for interest, dividends or patronage dividends in gross income and such failure is due to negligence, a penalty of 20% is imposed on any portion of any underpayment attributable to the failure. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE EX-99.C1 10 SHAREHOLDER AGREEMENT 1 EXHIBIT C(1) Shareholder Agreement This Shareholder Agreement is made as of November 7, 1991 (the "Agreement") by and among Guaranty National Corporation, a Colorado corporation ("Guaranty"), Orion Capital Corporation, a Delaware corporation ("Orion"), and certain of Orion's wholly-owned subsidiaries listed on Schedule I hereto that currently hold all the outstanding Common Stock of Guaranty (collectively referred to hereinafter as the "Selling Shareholders"). WHEREAS, On September 13, 1991 Guaranty filed Registration Statement No. 33-42781 on Form S-1 ("1991 Registration Statement") with the Securities and Exchange Commission with respect to the public sale (the "Offering") of approximately 7,187,500 shares (including up to 937,500 shares to be sold to cover underwriters' over-allotment options) of Common Stock, par value $1.00 per share ("Common Stock"), on behalf of the Selling Shareholders; and WHEREAS, upon the date of the initial closing ("Initial Closing") of the Offering in accordance with its terms (such date referred to hereinafter as the "Offering Closing Date"), Guaranty will become a public corporation with the Selling Shareholders retaining no more than 49.6% shares of the outstanding Guaranty Common Stock (excluding the underwriters' over-allotment options) (such shares of Guaranty Common Stock owned by Selling Shareholders or transferred to any other wholly-owned subsidiary of Orion or to any other purchaser from a Selling Shareholder not pursuant to a registered public offering after the Offering Closing Date are referred to hereinafter as the "Sellers Stock"); and WHEREAS, prior to the Offering Closing Date, pursuant to a Note Issuance Agreement of even date herewith, Guaranty will issue in the aggregate approximately $20,896,000 principal amount of its 9 1/2% subordinated notes due 1998 (hereinafter referred to as the "Guaranty Notes"), including $19,829,000 of such Guaranty Notes as a special dividend to the Selling Shareholders and $1,067,000 of such Guaranty Notes to repurchase certain fixed assets from another wholly-owned subsidiary of Orion; NOW, THEREFORE, in consideration of the promises and the mutual covenants and agreements, and subject to the terms and considerations set forth herein, the parties hereto agree as follows: 1. Board of Directors of Guaranty. 1.1 Membership on the Board of Directors Selection of Chairman and Committees (a) Immediately prior to the effectiveness of the Initial Closing of the Offering on the Offering Closing Date, Messrs. Vincent T. Papa and Raymond J. Schuyler, each a senior officer of Orion, shall tender his resignation from the Guaranty Board of Directors and Mr. Roger B. Ware will tender his resignation as a Senior Vice President of Orion, all effective as of the completion of the Initial Closing on the Offering Closing Date. Upon completion of the Initial Closing on the Offering Closing Date, the remaining Guaranty Board members shall take action to increase the number of the members 2 of the Guaranty Board of Directors from six to seven and shall elect Messrs. Carroll D. Speckman, Richard R. Thomas and William J. Shepherd (as described in the 1991 Registration Statement), to fill the vacancies on the Board created by the resignations and the increase in the size of its membership. Messrs. Speckman, Thomas and Shepherd shall serve as members of Guaranty's Board until (i) the next annual or special meeting of shareholders of Guaranty following the Offering Closing Date at which shareholders are entitled to vote on the election of the members to the Guaranty Board and (ii) until their successors are elected and shall qualify. (b) Upon completion of the Initial Closing and after the Offering Closing Date, and for as long as Orion and/or any of Orion's wholly-owned subsidiaries shall beneficially own, in the aggregate, at least 20 percent of the outstanding Common Stock (including securities convertible or exchangeable into Common Stock or other securities having voting rights on a par with the Common Stock referred to hereinafter as Convertible Securities), Orion, Guaranty and the Selling Shareholders agree that the Board of Directors of Guaranty shall consist of seven members. Nominees for such seven directorships shall be designated as follows: (i) three nominees shall be designated by Orion and its wholly-owned subsidiaries owning Sellers Stock ("Orion Nominees"), (ii) two nominees shall be officers of Guaranty, and (iii) two nominees shall be nominees mutually agreeable to Orion and Guaranty who are persons who are not (x) officers, directors or employees of Orion or its wholly-owned subsidiaries, or (y) officers or employees of Guaranty or its wholly-owned subsidiaries ("Independent Nominees"). Notwithstanding the foregoing, if the aggregate beneficial ownership of the Common Stock (including any Convertible Securities) held by Orion and/or any of its wholly-owned subsidiaries is less than 30 percent of the outstanding Common Stock (including any Convertible Securities) then, with respect to the next annual or special meeting of Guaranty shareholders to be held for the election of directors, following the date on which such ownership fell below 30 percent but remains in excess of 20 percent, the number of nominees to the Guaranty Board of Directors that Orion and the Selling Shareholders have a right to designate pursuant to this Section 1.1 shall be reduced to two. (c) After the Offering Closing Data and for so long as Orion and/or any of its wholly-owned subsidiaries beneficially own, in the aggregate, at least 30 percent of the outstanding Common Stock (including any Convertible Securities) the Chairman of the Board of Guaranty shall be selected by the Orion Nominees on the Guaranty Board. As of the Offering Closing Date, the Chairman of Guaranty shall be Alan R. Gruber. (d) After the Offering Closing Date and for so long as Orion and/or any of its wholly-owned subsidiaries beneficially own, in the aggregate, at least 20 percent of the outstanding Common Stock (including any Convertible Securities) (i) the Executive Committee of Guaranty shall be composed of the Chairman of the board of Guaranty, the President of Guaranty and one of the Independent Nominees (ii) the Compensation Committee of Guaranty shall include the Orion Nominees and (iii) the Audit Committee of Guaranty shall include the two Independent Nominees. (e) For so long as Orion and/or any of Orion's wholly-owned subsidiaries shall beneficially own, in the aggregate, at least 20 percent of the outstanding Common Stock (including any Convertible Securities) , Guaranty shall use its best efforts to (i) have the Orion Nominees elected to the Board of Directors at each annual or special meeting of shareholders of Guaranty, commencing with the annual meeting of shareholders of Guaranty next following the Offering Closing Date, and (ii) cause to be voted all the outstanding shares of Common Stock entitled to be voted at such meetings in favor of the election of such Orion Nominees. In the event that any Orion Nominee on the Board of Directors shall cease to serve as a director for any reason during the period that this Section 1.1(e) is in effect, - 2 - 3 Guaranty shall use its best efforts to cause the vacancy resulting thereby to be filled by another Orion Nominee. (f) Notwithstanding any of the foregoing, nothing shall prevent Guaranty's directors or officers, acting individually or collectively, from taking any action in contravention of the terms of this Section 1.1 if Guaranty has received a written opinion from outside legal counsel reasonably satisfactory to Orion stating that unless such action is taken such director or officer would be materially violating such director's or officer's fiduciary duties to Guaranty and its shareholders. 1.2 Information to Directors. Guaranty shall furnish to the Orion Nominees serving on Guaranty's Board of Directors all information that is provided to the other directors of Guaranty in their capacities as such. 2. Registration Rights. 2.1 Required Registration - Sellers Stock. (a) For a period of six years after the Offering Closing Date, if and whenever Guaranty receives a written request from the registered owners of more than 20% of Sellers Stock, Guaranty shall prepare and file with the Securities and Exchange Commission (the "Commission") a registration statement under the Securities Act of 1933, as amended ("Securities Act"), on the appropriate form or forms, covering the offering of the number of shares of Sellers Stock which are the subject of such request. Guaranty shall use its best efforts to cause such registration statement to become effective. Notwithstanding the foregoing, however, Guaranty shall not be required to effect more than one registration under this Section 2.1 during any twelve-month period. Guaranty shall be obligated, however, in any event, to prepare, file and cause to become effective up to three registration statements pursuant to this Section 2. Guaranty shall not be required to effect a registration under this Section 2.1 which involves the sale of Sellers Stock (a) with an aggregate sale price (before deductions of underwriting discounts and expenses of sale) of less than $10,000,000 or (b) that, in the written opinion, which is reasonably acceptable to the beneficial owners of the Sellers Stock, of securities counsel to Guaranty, that the Sellers Stock which is requested to be registered may be, as of the date of such opinion, publicly offered, sold and distributed without registration under the Securities Act (without any restrictions as to volume or the potential purchaser's financial sophistication or net worth), provided further that Orion and the beneficial owners of such Sellers Stock are permitted to rely on such opinion. Without the written consent of 50 percent of the beneficial owners of the Sellers Stock that have requested such demand registration, neither Guaranty nor any other holder of securities of Guaranty may include securities in such demand registration; provided, however, that if a registration pursuant to this Section 2.1 is to involve a fully underwritten public offering of Sellers Stock, Guaranty may include securities in such registration if, but only if, the managing underwriter of such public offering concludes, in the exercise of its good faith judgment, that such inclusion will not adversely affect the successful marketing or reduce the expected selling price of the Sellers Stock in such public offering. The managing underwriter or underwriters of any underwritten public offering requested pursuant to this Section 2.1 shall be a firm of national reputation selected by the beneficial owners of the Sellers Stock with the consent of Guaranty, which consent shall not be unreasonably withheld. (b) Orion or any of the Selling Shareholders may assign any or all of its rights to cause Guaranty to effect a registration pursuant to this Section 2.1 and Section 2.2 below to any wholly-owned subsidiary of Orion or, on prior notice to Guaranty, to any other transferee from a Selling Shareholder, provided that such purchaser agrees in writing to be bound by the terms hereof as though it were Orion or a Selling Shareholder. - 3 - 4 (c) Guaranty may grant subsequent investors rights of registration upon request and rights of incidental registration (such as those provided in Section 2 hereof); provided, however, that in the case of such rights granted to subsequent investors (i) such rights are not inconsistent with the provisions of this Agreement and (ii) the instrument granting such rights specifically confirms the prior rights of the holders of the Sellers Stock or Guaranty Notes under this Agreement. 2.2 Required Registration - Guaranty Notes. For a period of six years after the Offering Closing Date, if and whenever Guaranty receives a written request from the holders of $10,000,000 or more, in aggregate principal amount, of the Guaranty Notes ("Guaranty Note Holders"), Guaranty shall prepare and file with the Commission a registration statement under the Securities Act on the appropriate form or forms, covering the offering of the principal amount of the Guaranty Notes which is the subject of such request. Guaranty shall use its best efforts to cause such registration statement to become effective; provided, however, that Guaranty shall not be required to effect such registration if in the written opinion, which is reasonably acceptable to the Guaranty Note Holders, of securities counsel to Guaranty, the Guaranty Notes requested to be registered may be, as of the date of such opinion, publicly offered, sold and distributed without registration under the applicable federal securities laws, provided further, that the beneficial owners of such Guaranty Notes are permitted to rely on such opinion. Guaranty shall be obligated to prepare, file and cause to become effective only one Registration Statement pursuant to this Section 2.2. Without the written consent of the holders of 50% in the aggregate principal amount of the Guaranty Notes to be so offered to the public, neither Guaranty nor any holder of securities of Guaranty may include securities in such registration; provided, however, that if a registration pursuant to this Section 2.2 is to involve a fully underwritten public offering of such Guaranty Notes, Guaranty may include securities in such registration if, but only if, the managing underwriter of such public offering concludes, in the exercise of its good faith judgment, that such inclusion will not adversely affect the successful marketing or reduce the expected selling price of the Guaranty Notes in such public offering. The managing underwriter or underwriters of any underwritten public offering requested pursuant to this Section 2.2 shall be a firm of national reputation selected by the holders of 50% in the aggregate principal amount of the Guaranty Notes to be so offered to the public, with the consent of Guaranty, which consent shall not be unreasonably withheld. 2.3 Incidental Registration. For a period of six years after the Offering Closing Date, each time Guaranty shall determine or be required to file a registration statement under the Securities Act (other than on Form S-8 or a successor form thereto) in connection with the proposed offer and sale for cash of any of its securities by it or any of its security holders (other than the beneficial owners of the Sellers Stock), Guaranty will promptly give written notice of such determination or requirement to the beneficial owners of the Sellers Stock. Upon the written registration request of the beneficial owners of Sellers Stock with a potential aggregate sale price of at least $1,000,000 given within 30 days after the date of any such notice by Guaranty, Guaranty will cause all shares of Sellers Stock for which the beneficial owners of Sellers Stock have requested registration to be included in such registration statement. If any registration pursuant to this Section 2.3 is to be underwritten in whole or in part, Guaranty shall use its best efforts to cause the Sellers Stock requested for inclusion pursuant to this Section 2.3 to be included in the underwriting on the same terms and conditions as the securities otherwise being sold through the underwriters. If, in the good faith judgment of the managing underwriter of such public offering (which underwriters shall be a firm of national reputation), the inclusion of all of the Sellers Stock requested to be registered pursuant to this Section 2.3 and of all of the Common Stock or other securities of Guaranty requested to be registered by other securityholders of Guaranty with respect to such registration statement would adversely affect the successful marketing of the securities to be offered by Guaranty or its securityholders (other than the beneficial owners of the - 4 - 5 Sellers Stock), as the case may be, then the maximum number of shares of Common Stock which the managing underwriter will permit the beneficial owners of the Sellers Stock and such other securityholders to include in the offering (in addition to the shares to be offered by Guaranty) shall be pro rated among the beneficial owners of the Sellers Stock and such other securityholders. 2.4 Registration Procedures. If and whenever Guaranty is required by the provisions of Section 2.1, 2.2 or 2.3 to effect the registration of shares of Sellers Stock or Guaranty Notes, Guaranty will: (a) Prepare and file with the Commission a registration statement on the appropriate form or forms with respect to such securities and use its best efforts to cause such registration statement to become and remain effective for at least 90 days thereafter, and prepare and file with the Commission such amendments or supplements as may be necessary to keep such registration statement effective for at least 90 days after the effective date of the registration statement. (b) Enter into a written underwriting agreement or agreements in form and substance reasonably satisfactory to the managing underwriter or underwriters of the public offering of such securities, if the offering is to be underwritten in whole or in part. (c) Furnish to the beneficial owners of the Sellers Stock or the Guaranty Note Holders, as the case may be, such reasonable number of copies of the registration statement, preliminary prospectus, final prospectus and such other documents as may reasonably be requested in order to facilitate the public offering of such securities. (d) Use its best efforts to register or qualify the securities covered by such registration statement under such state securities or blue sky laws of such jurisdictions as the beneficial owners of the Sellers Stock or the Guaranty Note Holders, as the case may be, may reasonably request, except that Guaranty shall not for any purpose be required to execute a general consent to service of process or to qualify to do business as a foreign corporation in any jurisdiction where it is not so qualified. (e) Notify the beneficial owners of the Sellers Stock or the Guaranty Note Holders, as the case may be, promptly after it shall receive notice thereof, of the time when such registration statement has become effective or an amendment or a supplement to any registration or prospectus forming a part of such registration statement has been filed. (f) Notify the beneficial owners of the Sellers Stock or the Guaranty Note Holders, as the case may be, promptly of any request by the Commission for the amending or supplementing of such registration statement or prospectus or for additional information. (g) Prepare and file with the Commission promptly, upon the request of the beneficial owners of the Sellers Stock or the Guaranty Note Holders, as the case may be, any amendments or supplements to such registration statement or prospectus which, in the opinion of counsel for the beneficial owners of the Sellers Stock or the Guaranty Note Holders, as the case may be, are required under the applicable federal securities laws or the rules and regulations thereunder in connection with the distribution of the Sellers Stock or Guaranty Notes. - 5 - 6 (h) Prepare and promptly file with the Commission, and promptly notify the beneficial owners of the Sellers Stock or the Guaranty Note Holders, as the case may be, of the filing of, such amendment or supplement to such registration statement or prospectus as may be necessary to correct any statements in, or omissions from, such registration statement, if, at the time when a prospectus relating to such securities is required to be delivered under any applicable federal securities laws, any event has occurred as the result of which any such prospectus or any other prospectus as then in effect would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading in the light of the circumstances in which they were made. (i) In the event the beneficial owners of the Sellers Stock or Guaranty Note Holders, as the case may be, or any underwriter for the beneficial owners of the Sellers Stock, or the Guaranty Note Holders, as the case may be, is required to deliver a prospectus at a time when the prospectus then in effect may no longer be used under applicable federal securities laws, prepare promptly upon request of the beneficial owners of the Sellers Stock or Guaranty Note Holders, as the case may be, such amendments or supplements to such registration statement and such prospectus as may be necessary to permit compliance with the requirements of applicable federal securities laws. (j) Advise the beneficial owners of the Sellers Stock or the Guaranty Note Holders, as the case may be, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the Commission suspending the effectiveness of such registration statement or the initiation or threatening of any proceeding for that purpose and promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued. (k) Not file any amendment or supplement to such registration statement or prospectus to which any of the beneficial owners of the Sellers Stock or the Guaranty Note Holders, as the case may be, reasonably objects on the ground that such amendment or supplement does not comply in all material respects with the requirements of any applicable federal securities law or the rules and regulations thereunder, after having been furnished with a copy thereof at least five business days prior to the filing thereof. (l) At the request of the beneficial owners of the Sellers Stock or the Guaranty Note Holders, as the case may be, furnish on the effective date of the registration statement and, if such registration involves an underwritten public offering, at the closing provided for in the underwriting agreement, (i) an opinion of the counsel representing Guaranty (such counsel being reasonably satisfactory to the beneficial owners of the Sellers Stock or Guaranty Note Holders, as the case may be), for the purposes of such registration, addressed to the underwriters, if any, and to the beneficial owners of the Sellers Stock or the Guaranty Note Holders, as the case may be, covering such matters with respect to the registration statement, the prospectus and each amendment or supplement thereto, proceedings under state and federal securities laws, other matters relating to Guaranty, the securities being registered and the offer and sale of such securities as are customarily the subject of opinions of issuer's counsel provided to underwriters in underwritten public offerings, and (ii) a letter dated each such date, from the independent certified public accountants of Guaranty addressed to the underwriters, if any, and to the beneficial owners of the Sellers Stock or the Guaranty Note Holders, as the case may be, stating that they are independent certified public accountants within the meaning of the applicable federal - 6 - 7 securities laws and that, in the opinion of such accountants, the financial statements and other financial data of Guaranty included in the registration statement or the prospectus or any amendment or supplement thereto comply in all material respects with the applicable accounting requirements of the applicable federal securities laws, and additionally covering such other financial matters, including information as to the period ending not more than five business days prior to the date of such letter and with respect to the registration statement and the prospectus, as the underwriters or the beneficial owners of the Sellers Stock or the Guaranty Note Holders, as the case may be, may reasonably request. (m) Refrain from making any sale or distribution of its voting securities, except pursuant to any employee stock plan and any pre-existing agreement for the sale of such securities, during the period commencing seven days prior to, and expiring 120 days after, the registration statement has become effective. 2.5 Expenses. (a) With respect to the first two registrations to be effected pursuant to Section 2.1 and the registration to be effected pursuant to Section 2.2 hereof, all out-of pocket fees, costs and expenses of and incidental to such registration and public offering in connection therewith shall be borne by Guaranty. (b) With respect to any third registration to be effected pursuant to Section 2.1 hereof or with respect to the inclusion of shares of Sellers Stock in a registration statement pursuant to Section 2.3 hereof, all the fees, costs and expenses of such registration under Section 2.1 and the additional fees costs and expenses as may be incurred as a result of the exercise of rights under Section 2.3 hereof shall be born by the beneficial owners of Sellers Stock being so registered. (c) The fees, costs and expenses of registration to be borne as provided in Section 2.5 (a) above shall include, without limitation, all registration, filing and National Association of Security Dealers' fees, printing expenses, fees and disbursements of counsel and accountants for Guaranty, fees and disbursements of underwriters of such securities, all legal fees and disbursements and other expenses of complying with state securities or blue sky laws of any jurisdictions in which the securities to be offered are to be registered or qualified, and premiums and other costs of policies of insurance against liability arising out of such public offering, but not the fees and disbursements of counsel and accountants for the beneficial owners of the Sellers Stock or Guaranty Note Holders, as the case may be. 2.6 Indemnification. (a) Guaranty will indemnify and hold harmless each of the beneficial owners of the Sellers Stock or Guaranty Note Holders and any underwriter (as defined in the Securities Act) for the beneficial owners of the Sellers Stock or Guaranty Note Holders, and each person who is an officer or director of or who controls the beneficial owners of the Sellers Stock, the holders of Guaranty Notes or such underwriter within the meaning of the Securities Act, from and against, and will reimburse the beneficial owners of the Sellers Stock, Guaranty Note Holders and each such underwriter and person with respect to, any and all claims, actions, demands, losses, damages, liabilities, attorneys' fees, costs and other expenses to which the beneficial owners of the Sellers Stock, Guaranty Note Holders or any such underwriter or controlling - 7 - 8 person may become subject under the Securities Act or otherwise, insofar as such claims, actions, demands, losses, damages, liabilities, costs, attorneys' fees or other expenses arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in such registration statement, any prospectus contained therein or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading; provided, however, that Guaranty will not be liable in any such case to the extent that any such claim, action, demand, loss, damage, liability, cost, attorneys' fees or other expense is caused by an untrue statement or alleged untrue statement or omission or alleged omission so made in strict conformity with information furnished by the beneficial owners of the Sellers Stock or any Guaranty Note Holders, such underwriter or such controlling person in writing specifically for use in the preparation thereof. (b) Each of the beneficial owners of the Sellers Stock or Guaranty Note Holder that are to be included in any registrations under this Agreement will indemnify and hold harmless Guaranty, and any underwriter (as defined in the Securities Act) for Guaranty, and each person who is an officer or director of or who controls Guaranty or such underwriter within the meaning of the Securities Act, from and against, and will reimburse Guaranty with respect to, any and all claims, actions, demands, losses, damages, liabilities, costs or expenses to which Guaranty may become subject under the Securities Act or otherwise, insofar as such claims, actions, demands, losses, damages, liabilities, costs, attorneys' fees or other expenses are caused by any untrue or alleged untrue statement of any material fact contained in such registration statement, any prospectus contained therein or any amendment or supplement thereto, or are caused by the omission or the allege omission to state therein a material fact required to be stated therein or necessary to make the statements therein. in light of circumstances in which they are made, not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission vas so made in reliance upon and in strict conformity with written information furnished by a beneficial owner of the Sellers Stock or Guaranty Note Holders specifically for use in the preparation thereof. (c) Promptly after receipt by an indemnified party pursuant to the provisions of paragraphs (a) or (b) of this Section 2.6 of notice of commencement of any action involving he subject matter of the foregoing indemnity provisions, such indemnified party will, if a claim thereof is to be made against the indemnifying party pursuant to the provisions of paragraphs (a) and (b), notify the indemnifying party of the commencement hereof, but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to an indemnified party otherwise than under this Section 2.6. In case such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party shall have the right to participate in and, to the extent that it may wish, assume the defense thereof, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party pursuant to the provisions of paragraphs (a) and (b) for any legal or other expense subsequently incurred by such indemnified party in connection with the defense thereof, other than reasonable costs of investigation. No indemnifying party shall be liable to an indemnified party for any settlement of any action or claim without the consent of the indemnifying party. - 8 - 9 2.7 Reporting Requirements Under the Securities Exchange Act of 1934. Guaranty shall take such reasonable measures, and shall file such other information, documents and reports as shall be required by the Commission as a condition to the availability of Rule 144 under the Securities Act (or any similar exemptive provision hereafter in effect) and the use of Form S-3. Guaranty also covenants to use its best efforts, to the extent that it is reasonably within its power to do so, to qualify for the use of Form S-3. 2.8 Standoff. Orion and the Selling Shareholders agree in connection with any underwritten public offering of Guaranty's securities that, upon the request of the managing underwriter of such public offering, it shall commit itself not to offer or sell publicly any Sellers Stock, or Guaranty Notes, other than such stock or Guaranty Notes included in a public offering, for a period not to exceed 120 days from the closing of such public offering. 3. Miscellaneous. 3.1 Governing Law. This Agreement shall be governed in all respects by the Laws of the State of Colorado as applied to contracts entered into solely between residents of, and to be performed entirely within, such state. 3.2 Successors and Assigns. Except as otherwise expressly provided herein, the rights and duties of this Agreement may not be assigned. The Selling Shareholders, however, without prior notice to Guaranty, may assign their rights and duties hereunder to other wholly-owned subsidiaries of Orion. 3.3 Entire Agreement: Amendment. This Agreement constitutes the full and entire understanding and agreement among the parties with regard to the subjects hereof and thereof and supersedes all prior agreements and understandings between the parties relating the subject matter hereof. Any term of this Agreement may be amended, discharged or terminated and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only by a written instrument signed by the party against whom enforcement of any such amendment, discharge, termination or waiver is sought. 3.4 Notices. All notices and other communications required or permitted hereunder shall be in writing and shall be delivered either by (i) personal delivery, (ii) postage prepaid, return receipt requested certified mail (air-mail, if available), or the equivalent of certified mail under the laws of the country where mailed; (iii) facsimile transmission, or (iv) telex with confirmed answerback received, addressed as follows: Guaranty: Guaranty National Corporation 100 Inverness Terrace East Englewood, CO 80112 Attention: Mr. Roger B. Ware President Facsimile: (303) 790-7136 Copy to: Holmes & Starr 1600 Broadway, 26th Floor Denver, CO 80202-4926 - 9 - 10 Attention: Hardin Holmes, Esq. Facsimile: (303) 839-4380 Orion and Orion Capital Corporation Selling 30 Rockefeller Plaza, Rm. 2820 Shareholders: New York, NY 10112 Attention: Alan R. Gruber Chairman Facsimile: (212) 581-7261 Copy to: Donovan Leisure Newton & Irvine 30 Rockefeller Plaza New York, NY 10112 Attention: Robert Hart, Esq. Facsimile: (212) Any party may change its address for such communications by giving notice thereof to the other party in conformity with this section. 3.5 Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any party hereto upon any breach or default of any other party under this Agreement shall impair any such right, power or remedy of such party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver or any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. 3.6 Remedies: Specific Performance. All remedies either under this Agreement, or by law or otherwise afforded to the parties hereunder, shall be cumulative and not alternative. In addition to any remedies available at law for any breach or failure to perform any obligation under this Agreement, the parties intend and agree that the provisions of this Agreement shall be specifically enforceable in any court having appropriate jurisdiction therefor and that the parties hereto shall be entitled to injunctive and other equitable relief for any such breach or failure to perform. 3.7 Severability of Provisions. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be effected, impaired or invalidated to the extent permitted by applicable law. 3.8 Titles and Subtitles. The titles of the paragraphs and subparagraphs of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 3.9 Counterparts.. This Agreement may be executed in counterparts, each of which shall be an original, but all of which together shall constitute one instrument. - 10 - 11 IN WITNESS WHEREOF, each of the parties hereto duly authorized thereunto, has executed this Agreement as of the day and year set forth in the heading hereof. GUARANTY NATIONAL CORPORATION By: -------------------------------------- ORION CAPITAL CORPORATION By: -------------------------------------- Alan R. Gruber Chairman and Chief Executive Officer THE CONNECTICUT INDEMNITY COMPANY CONNECTICUT SPECIALTY INSURANCE COMPANY DESIGN PROFESSIONALS INSURANCE COMPANY EMPLOYEE BENEFITS INSURANCE COMPANY THE FIRE & CASUALTY INSURANCE COMPANY OF CONNECTICUT SECURITY INSURANCE COMPANY OF HARTFORD SECURITY REINSURANCE COMPANY By: -------------------------------------- Raymond J. Schuyler Senior Vice President-Investments - 11 - EX-99.C2 11 AMENDMENT TO SHAREHOLDER AGREEMENT 1 EXHIBIT C(2) AMENDMENT TO SHAREHOLDER AGREEMENT This Amendment Agreement (the "Amendment") is made as of February 2, 1994, by and among Guaranty National Corporation, a Colorado corporation ("Guaranty"), Orion Capital Corporation, a Delaware corporation ("Orion"), and the wholly owned subsidiaries of Orion (the "Selling Shareholders") listed on Schedule I to the Shareholder Agreement dated as of November 7, 1991 (the "Shareholder Agreement"), among Guaranty, Orion and the Selling Shareholders. WHEREAS, the parties have determined that it would be in their mutual best interests to provide for a further increase in the number of independent directors of Guaranty, NOW THEREFORE, in consideration of the premises and the mutual covenants and agreements, and subject to the terms and considerations set forth herein, the parties hereto agree as follows: 1. Section 1.1(b) of the Shareholder Agreement is hereby amended so as to provide in the end of the first sentence thereof that "the Board of Directors of Guaranty shall consist of ten members." Clause (iii) of the second sentence thereof is hereby amended to provide that the Board of Directors of Guaranty shall include "up to five nominees . . . mutually agreeable to Orion and Guaranty . . . " 2. Except as expressly provided herein, the Shareholder Agreement shall continue in full force and effect. IN WITNESS WHEREOF, each of the parties hereto duly authorized thereUnto has executed this Agreement as of the day and year set forth in the heading hereof. GUARANTY NATIONAL CORPORATION By: /s/ Michael L. Pautler Michael L. Pautler Senior Vice President ORION CAPITAL CORPORATION By: /s/ Michael P. Mahoney Michael P. Mahoney Vice President 2 THE CONNECTICUT INDEMNITY COMPANY CONNECTICUT SPECIALTY INSURANCE COMPANY DESIGN PROFESSIONALS INSURANCE COMPANY EMPLOYEE BENEFITS INSURANCE COMPANY THE FIRE & CASUALTY INSURANCE COMPANY OF CONNECTICUT SECURITY INSURANCE COMPANY OF HARTFORD SECURITY REINSURANCE COMPANY By: /s/ Michael P. Mahoney ---------------------- Michael P. Mahoney Vice President 2 EX-99.C3 12 AMENDMENT TO SHAREHOLDER AGREEMENT 1 EXHIBIT C(3) AMENDMENT TO SHAREHOLDER AGREEMENT This Amendment Agreement (the "Amendment") is made as of March 2, 1995, by and among Guaranty National Corporation, a Colorado corporation ("Guaranty"), Orion Capital Corporation, a Delaware corporation ("Orion"), and the wholly owned subsidiaries of Orion (the "Selling Shareholders") listed on Schedule I to the Shareholder Agreement dated as of November 7, 1991 (the "Shareholder Agreement"), among Guaranty, Orion and the Selling Shareholders. WHEREAS, the parties have determined that it would be in their mutual best interests to provide for a further increase in the number of independent directors of Guaranty, NOW THEREFORE, in consideration of the premises and the mutual covenants and agreements, and subject to the terms and considerations set forth herein, the parties hereto agree as follows: 1. Section 1.1(b) of the Shareholder Agreement is hereby further amended so as to provide at the end of the first sentence thereof that ". . . the Board of Directors of Guaranty shall consist of eleven members." (Emphasis added.) The second sentence thereof is hereby amended to provide that "Nominees for such eleven directorships shall be designated as follows: . . . . (iii) up to six nominees shall be nominees mutually agreeable to Orion and Guaranty who are not (x) officers, directors or employees of Orion or its wholly-owned subsidiaries, other than one such nominee who is a retired officer and director of Orion but who is still an employee of Orion, or (y) . . . 11 (Emphasis added.) 2. Except as expressly provided herein, the Shareholder Agreement shall continue in full force and effect. IN WITNESS WHEREOF, each of the parties hereto duly authorized thereinto, has executed this Agreement as of the day and year set forth in the heading hereof. GUARANTY NATIONAL CORPORATION By: /s/ Roger Ware -------------- Roger Ware ORION CAPITAL CORPORATION By: /s/ Alan R. Gruber ------------------ Alan R. Gruber THE CONNECTICUT INDEMNITY COMPANY CONNECTICUT SPECIALTY INSURANCE COMPANY 2 DESIGN PROFESSIONALS INSURANCE COMPANY EMPLOYEE BENEFITS INSURANCE COMPANY THE FIRE &: CASUALTY INSURANCE COMPANY OF CONNECTICUT SECURITY INSURANCE COMPANY OF HARTFORD SECURITY REINSURANCE COMPANY By: /s/ Vincent T. Papa ------------------- Vincent T. Papa Senior Vice President 2 EX-99.C4 13 NOTE ISSUANCE AGREEMENT 1 EXHIBIT C(4) NOTE ISSUANCE AGREEMENT AS AMENDED AND RESTATED AS OF JUNE 14, 1995 NOTE ISSUANCE AGREEMENT, dated as of November 7, 1991, as amended as of August 1, 1993 and as further amended as of June 14, 1995 (as so amended, the "Agreement"), by and among Guaranty National Corporation, a Colorado corporation (the "Company"), Orion Capital Corporation, a Delaware corporation ("Orion"), and certain wholly owned subsidiaries of Orion named on the signature page of this Agreement (collectively, the "Orion Subsidiaries"). WHEREAS, the Company, Orion and the Orion Subsidiaries originally entered into this Agreement so as to confirm their mutual understanding with respect to the issuance of the promissory notes in 1991; and WHEREAS, in 1993 the Company, Orion and the Orion Subsidiaries revised in 1993 certain terms of the Notes, including the maturity date and the interest rate, and the Agreement pursuant to which the Notes were issued; and WHEREAS, the Company, Orion and the Orion Subsidiaries desire to add certain terms to the Notes, including a conversion feature; NOW, THEREFORE, in consideration of the premises and the mutual covenants, agreements and provisions contained herein, the Company, Orion and the Orion Subsidiaries hereby agree as follows: ARTICLE I AUTHORIZATION AND ISSUANCE OF NOTES 0.1 AUTHORIZATION OF ISSUE. The Company has duly authorized the issuance of its 7.85% Subordinated Notes due July 1, 2003 (the "Notes") in the aggregate principal amount of $20,896,462 in substantially the form of Exhibit A hereto. Such Notes were issued to the Orion Subsidiaries against surrender to the Company of the 9 1/2% Notes issued in 1991. As used in this Agreement, the term "Notes" shall include all securities issued in exchange or replacement for any such Note. 0.2 ISSUANCE OF NOTES. Issuance of the Notes hereunder shall take place on or about August 1, 1993 at which time each Orion Subsidiary will surrender to the Company the 9 1/2% Note previously issued to such Orion Subsidiary, the Company will pay to each Orion Subsidiary the amount of interest due on such Note to the date of surrender, and the Company will deliver to each Orion 2 Subsidiary a new Note in the principal amount set forth opposite the name of such Orion Subsidiary on Schedule I hereto. ARTICLE II TRANSFERS; EXCHANGES; PERSONS DEEMED OWNERS 2.1 AUTHORIZED DENOMINATIONS. Until all or a portion of the Notes have been registered in accordance with Article V hereof, the Notes are issuable in denominations of at least $100,000 (or, if the unpaid principal amount of the Notes owned or to be owned by any holder of a Note is less than $100,000, in the denomination of such unpaid principal amount). Initially, such Notes shall be issuable in the form of order notes payable to a person or order (an "Order Note"). On and after the date upon which all or a portion of the Notes have been registered in accordance with Article V hereof, any portion of the Notes that shall be so registered shall be issuable only as fully registered notes (a "Registered Note") in denominations of $1,000 and integral multiples thereof. 2.2 THE NOTE REGISTER; PERSONS DEEMED OWNERS. The Company shall maintain at its principal office, currently in Englewood, Colorado, a register for the Registered Notes, in which the Company shall record the name and address of the person in whose name each Registered Note has been issued and the name and address of each transferee and prior owner of each Registered Note. The Company may deem and treat the person in whose name a Note is so registered as the holder and owner thereof for all purposes and shall not be affected by any notice to the contrary, until due presentment of such Note for registration of transfer as provided in this Article II. The Company may treat the person to whom any Order Note is payable as the owner and holder of such Note for the purpose of receiving payment of principal of, and premium, if any, and interest on, such Note and for all other purposes whatsoever, whether or not such Note shall be overdue, until (a) the Company shall have received written notice from the previous person treated as owner and holder of such Note of the transfer of such Order Note, and of the name and address of the transferee, (b) such Order Note shall have been presented to the Company for transfer or exchange into the name of the new holder, and the Company shall have received notice either from the previous person treated as the owner and holder of such Note or from such new holder of the address of such new holder, or (c) a subsequent holder of such Order Note shall have presented such Order Note to the Company for inspection at the office or agency of the Company maintained as provided in this Section 2.2 and shall have delivered to the Company written notice of the acquisition -2- 3 by such holder of such Order Note and the address of such holder. 2.3 ISSUANCE OF NEW NOTES UPON EXCHANGE OR TRANSFER. Upon surrender for exchange or registration of transfer of any Note at the office of the Company designated for notices in accordance with Section 10.6, the Company shall execute and deliver, at its expense, one or more new Notes of any authorized denominations requested by the holder of the surrendered Note, each dated the date to which interest has been paid on the Notes so surrendered (or, if no interest has been paid, the date of such surrendered Note), but in the same aggregate unpaid principal amount as such surrendered Note, and payable to such person or persons as shall be designated in writing by such holder. Each Order Note surrendered for transfer shall be duly endorsed in favor of the transferee and shall be accompanied by a notice stating the name and address of the transferee. Each Registered Note surrendered for registration of transfer shall be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company duly executed by the holder of such Note or by his attorney duly authorized in writing. The Company may condition its issuance of any new Registered Note or Notes (i) in connection with a transfer by any person other than a wholly-owned subsidiary of Orion on the payment to it of a sum sufficient to cover any stamp tax or other governmental charge imposed in respect to such transfer and (ii) in connection with a transfer by any person to the receipt by it of an opinion of independent counsel of recognized standing to the effect that the proposed transfer would not be in violation of the Securities Act of 1933, as amended (the "Securities Act"). 2.4 LOST, STOLEN, DAMAGED AND DESTROYED NOTES. At the request of the holder of any Note, the Company will issue at its expense, in replacement of any Note or Notes lost, stolen, damaged or destroyed, upon surrender of the mutilated portions thereof, if any, a new Note or Notes of the same denominations, of the same unpaid principal amounts and otherwise of the same tenor as, the Note or Notes so lost, stolen, damaged or destroyed. The Company may condition the replacement of a Note reported by the holder of a Note as lost, stolen, damaged or destroyed, upon the receipt from such holder of an indemnity or security reasonably satisfactory to the Company, provided that if the holder of such Note shall be a wholly-owned subsidiary of Orion or a nominee of such subsidiary, or an institutional investor having capital and surplus in excess of $50,000,000 or its nominee then the indemnity of such subsidiary, nominee or such institutional investor shall be sufficient for purposes of this Section 2.4. -3- 4 ARTICLE III PAYMENT OF THE NOTES 3.1 REGULAR METHOD OF PAYMENT. Except as provided in Section 3.2, the principal of, and interest on, each Note shall be payable at the principal office of the Company, currently located at 9800 South Meridian Boulevard, Englewood, Colorado 80112, in lawful money of the United States of America, against presentment of such Note for notation of payment or, in the case of a payment in full of such Note, against surrender thereof. 3.2 HOME OFFICE PAYMENT. So long as any of the Orion Subsidiaries shall own any of the Notes, the Company will pay all sums becoming due on each Note to the order of any such Orion Subsidiary or its nominee at the address specified for such purpose in Schedule I hereto by wire transfer of immediately available funds, or at such other address in the continental United States as Orion or any such Orion Subsidiary shall have designated by notice to the Company at least five business days prior to the payment, in each case without presentment and without notations being made thereon, except that any such Note so paid or prepaid in full shall be surrendered to the Company for cancellation within three business days following such payment. With respect to any such payment by wire transfer, the Company will instruct its bank or other agent transmitting the funds to transmit the funds by 11:00 a.m., New York time, on the date the payment is due. Before transferring any such Note, Orion or one of the Orion Subsidiaries will make a notation thereon of the aggregate amount of all payments of principal theretofore made, and of the date to which interest has been paid. If the transferee of any Note is a wholly owned subsidiary of Orion or an institutional investor having assets in excess of $100,000,000 or its nominee, and such transferee shall request the Company to make all payments on account of such Note either by check or by wire transfer of immediately available funds at an address in the continental United States, the Company will make such payments in compliance with such request, provided that such transferee undertakes in said request the same obligations in respect of such Note as those undertaken by the Orion Subsidiary in the immediately preceding sentence. 3.3 INTEREST PAYMENT DATES AND RATE. The Company shall pay interest on the unpaid principal amount of the Notes quarterly on January 1, April 1, July 1 and October 1 of each year commencing October 1, 1993 and thereafter until the Notes have been paid in full. The rate of interest per annum to be paid on the Notes shall be 7.85%. Whenever any payment of principal or interest to be made on a Note shall be stated to be due on a day which is not a business day such payment shall be made on the next succeeding business day and such extension shall be -4- 5 included in computing interest in connection with such payment. The computation of the amount of accrued interest payable on each interest payment date and the amount of interest due on overdue principal and any overdue installment of interest (to the extent permitted by law) shall be determined in the manner set forth in the form of Note attached as Exhibit A hereto. 3.4 LIMITATION ON INTEREST. No provision of this Agreement or of any Note shall require the payment or permit the collection of interest in excess of the maximum rate permitted by law. If any such excess interest is provided for herein or in any Note, or shall be adjudicated to be so provided for, then the Company shall not be obligated to pay such interest in excess of the maximum permitted by law, and the right to demand payment of any such excess interest is hereby waived, any other provisions in this Agreement or in any Note to the contrary notwithstanding. 3.5 PREPAYMENTS WITHOUT PREMIUM. (A) Mandatory prepayments. The Company covenants and agrees that on January 1, 1998 and on the first day of each Julyand January thereafter to and including July 1, 2003, the Company will prepay $1,741,372 or 8.33% of the original aggregate principal amount of Notes (or if a lesser principal amount remains unpaid, the entire principal amount thereof). (B) Additional prepayments. On January 1, 1998 and on the first day of each Julyand January thereafter, the Company may also prepay a principal amount of the Notes equal to the principal amount then required to be prepaid pursuant to subsection (A) of this Section 3.5 or a lesser principal amount not less than an aggregate principal amount of $500,000. The right of prepayment contained in this subsection (B) shall be noncumulative. The exercise of the right to prepay pursuant to this subsection (B) shall not relieve the Company to any extent from its obligation thereafter to make the prepayments required by subsection (A) of this Section 3.5. (C) Accrued interest. All Notes or portions thereof prepaid pursuant to subsection (A) or (B) above shall be prepaid at their principal amount, plus accrued interest thereon to the date fixed for prepayment, but without premium. 3.6 OPTIONAL PREPAYMENTS AT PREMIUM. In addition to the prepayments provided for in Section 3.5 above, the Company may, at its option, prepay the Notes at any time or from time to time on or after January 1, 1998, either in whole or in part in a principal amount of not less than $500,000, at the principal amount so to be prepaid, plus accrued interest thereon to the date fixed for such -5- 6 prepayment, and plus a premium equal to the applicable percentage of the principal amount so being prepaid, determined as follows:
If prepaid during the 12-month period beginning Applicable percentage ------------------------------ --------------------- January 1, 1998 103.925% January 1, 1999 102.617% January 1, 2000 101.308%
and, if prepaid on or after January 1, 2001, without premium; provided, however, that the Company shall not be entitled to make any such prepayment if such prepayment is made, directly or indirectly, as a part of, or in anticipation of, any refunding operation involving the incurring of indebtedness by the Company or any subsidiary of the Company having an interest rate or effective interest cost to the Company or such subsidiary (computed in accordance with generally accepted financial practice) of less than 7.85% per annum and to the further condition that notice of any such prepayment shall be accompanied by a certificate, executed as of a recent date by the President and Chief Executive Officer of the Company, to the effect that such prepayment is being made in compliance with the foregoing restriction with respect to refunding. The exercise of the right to prepay in part pursuant to this Section 3.6 shall not relieve the Company to any extent from its obligation thereafter to make the prepayments required by subsection (A) of Section 3.5 above. 3.7 PARTIAL PREPAYMENTS TO BE PRO RATA. In the event of any prepayment of less than all of the outstanding Notes, at a time when more than one Note is outstanding, the principal amount of the Notes so to be prepaid shall be allocated among the respective Notes and holders thereof so that the principal amount to be prepaid to each holder pursuant to any Section of this Agreement shall bear the same ratio to the aggregate principal amount then to be prepaid pursuant to such Section as the principal amount of Notes then held by such holder bears to the aggregate principal amount of Notes then outstanding. 3.8 NOTICE OF PREPAYMENT. If, in addition to the mandatory prepayments required to be made pursuant to subsection (A) of Section 3.5, the Company should elect to prepay the Notes or any portion thereof pursuant to Section 3.5 (B) or Section 3.6, the Company shall give notice of such prepayment in writing not less than 30 nor more than 60 days prior to the date fixed for such prepayment, specifying (i) the prepayment date, (ii) the amount to be prepaid on each Note, (iii) the accrued and unpaid interest (as of the date upon which the prepayment is to be made) applicable to -6- 7 the principal of each Note to be prepaid, and (iv) the particular provision under which such additional or optional prepayment is being made. Notice of prepayment having been so given, the aggregate principal amount of the Notes so specified in such notice, together with all accrued and unpaid interest thereon, shall become due and payable on the specified prepayment date. ARTICLE IV AFFIRMATIVE COVENANTS The Company covenants and agrees that from the date hereof until the Notes have been paid in full in accordance with the terms thereof: 4.1 PRESERVATION OF FRANCHISES AND EXISTENCE. Except as otherwise permitted by this Agreement, the Company will (i) maintain its corporate existence, rights and franchises in full force and effect, and (ii) cause its insurance subsidiaries to maintain their respective corporate existences, rights and franchises in full force and effect, provided that nothing in this Section 4.1 shall prevent the Company from discontinuing (or causing its subsidiaries to discontinue) its respective operations in any particular location or locations within any state if such discontinuance or termination is in the best interest of the Company or its subsidiaries, as the case may be, and is not disadvantageous in any material respect to the holders of the Notes or in violation of any provision of this Agreement. 4.2 FINANCIAL STATEMENTS. The Company will deliver to Orion and the Orion Subsidiaries, so long as Orion or any such Orion Subsidiary shall hold any Note, and, upon request, to each other holder of any Note: (A) Annual Statements. As soon as reasonably possible, and in any event within 120 days after the close of each fiscal year of the Company, copies of (i) the consolidated balance sheet of the Company and its subsidiaries as of the end of such fiscal year, (ii) consolidated statement of earnings of the Company and its subsidiaries for such fiscal year, (iii) consolidated statement of changes in stockholders' equity of the Company and its subsidiaries for such fiscal year, (iv) consolidated statement of cash flows of the Company and its subsidiaries for such fiscal year, setting forth in each case in comparative form the corresponding figures of the previous year's financial statements, and (v) with respect to Guaranty National Insurance Company ("GNIC") and its subsidiary, Landmark American Insurance Company ("Landmark"), the Annual Statements filed with their respective State Insurance Departments, together with -7- 8 consolidated reconciliations of statutory surplus and statutory net income, all in reasonable detail, prepared in accordance with generally accepted accounting principles, and, with the exception of the statements required in clause (v) above, certified to by independent public accountants of recognized national standing. (B) Quarterly Statements. As soon as reasonably possible, and in any event within 60 days after the close of each of the first three quarters of each fiscal year of the Company, copies of (i) the consolidated balance sheet of the Company and its subsidiaries as of the end of such quarter, (ii) consolidated statement of earnings of the Company and its subsidiaries for such quarter, (iii) consolidated statement of changes in stockholders' equity of the Company and its subsidiaries for such quarter, (iv) consolidated statement of cash flows of the Company and its subsidiaries for such quarter, as set forth in the Company's Quarterly Report on Form 10-Q, setting forth in each case in comparative form the corresponding periods of the preceding fiscal year, all in reasonable detail, prepared in accordance with generally accepted accounting principles. (C) Other Information. Such other information relating to the business, operations or condition, financial or otherwise, of the Company as may be reasonably requested. 4.3 INSPECTION OF PROPERTIES AND RECORDS. The Company agrees that, so long as Orion or any of its wholly owned subsidiaries or any institutional holder shall hold any Note, Orion or such institutional investor may visit at its own expense the offices and properties of the Company and may examine and make copies of the relevant books and records and discuss the affairs, finances and accounts of the Company with its officers and public accountants (and by this provision the Company hereby authorizes said accountants to discuss with Orion or such institutional holder its affairs, finances and accounts) at such reasonable times and as often as it or they may reasonably desire. 4.4 COMPLIANCE WITH EXCHANGE ACT. The Company will file in a timely manner all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and such reports will comply in all material respects with the requirements of the Exchange Act. 4.5 SEC AND STOCK EXCHANGE FILINGS. Promptly upon their becoming available, the Company will deliver to Orion, so long as it or any of its wholly owned subsidiaries shall hold any Note, and, upon request, to each other holder of any Note a copy of (i) all regular or periodic reports which the Company shall file with the -8- 9 Securities and Exchange Commission (the "Commission") or any national securities exchange, and (ii) all reports, proxy statements and financial statements delivered or sent by the Company to its respective stockholders. ARTICLE V REGISTRATION RIGHTS 5.1 REGISTRATION RIGHTS. The Company hereby covenants and agrees that at any time upon the written request of the holders of $10,000,000 in aggregate principal amount of the Notes, it shall prepare and file with the Commission a registration statement under the Securities Act on the applicable form, covering the Notes held by such requesting holders (a "Registration Statement"). The Company shall use its best efforts to cause such Registration Statement to become effective; provided, however, that the Company shall not be required to effect such registration if in the written opinion of securities counsel to the Company (which opinion is reasonably acceptable to the holders of the Notes), the Notes requested to be registered may, as of the date of such opinion, be publicly offered, sold and distributed without registration under the applicable federal securities laws; and provided further that Orion and the holders of the Notes are permitted to rely on such opinion. The Company shall be obligated to prepare, file and cause to become effective only one Registration Statement pursuant hereto. Without the written consent of the holders of at least 50% in aggregate principal amount of Notes then outstanding, neither the Company nor any holder of securities of the Company may include securities in such registration; provided, however, that if a registration pursuant hereto is to involve a fully underwritten public offering of such Notes, the Company may include securities in such registration if, but only if, the managing underwriter of such public offering concludes, in the exercise of its good faith judgment, that such inclusion will not adversely affect the successful marketing or reduce the expected selling price of the Notes in such public offering. The Company agrees that the managing underwriter of the Notes shall be a firm of national reputation selected by Orion with the consent of the Company, which consent shall not be unreasonably withheld. 5.2 AMENDMENTS TO AGREEMENT. The Company further covenants and agrees that, among other things, it will agree to such changes in the terms of this Agreement as may be appropriate to a public offering of the Notes and, if necessary, to allow the preparation, filing and qualification under the Trust Indenture Act of 1939 of an indenture relating to the Notes. 5.3 REGISTRATION PROCEDURES AND RELATED MATTERS. If and whenever the Company is required to effect the -9- 10 registration of Notes described above, the registration procedures and related matters set forth in that certain Shareholder Agreement dated November 7, 1991 (the "Shareholder Agreement") by and among Orion, certain wholly-owned subsidiaries of Orion and the Company shall apply to the registration of the Notes. The provisions of the Shareholder Agreement relating to such registration procedures and related matters are reproduced in Exhibit B to this Agreement and are incorporated herein by reference. ARTICLE VI NEGATIVE COVENANT The Company covenants and agrees that, so long as any of the Notes shall be outstanding: 6.1 SALE, LEASE, MERGER OR CONSOLIDATION BY COMPANY. The Company will not sell, lease, transfer or otherwise dispose of all or substantially all of its properties and assets, or consolidate with or merge into any person or permit any person to merge into it, except that the Company may sell, lease, transfer or otherwise dispose of all or substantially all of its properties and assets to, or consolidate with or merge into, any other corporation, or permit another corporation to merge into it; provided that: (A) the obligations of the Company under this Agreement and the Notes shall be expressly assumed by such successor corporation (if such successor corporation shall not be the Company), transferee or lessee; (B) such successor corporation, transferee or lessee shall be a corporation incorporated within the United States of America; (C) immediately prior thereto, the Company shall not be, and immediately thereafter and after having given effect thereto, such successor corporation (whether or not the Company is the successor) would not then be in default in the performance or observance of any covenant, agreement or condition of this Agreement, the Notes or any other loan agreement, indenture or other document evidencing or securing indebtedness. ARTICLE VII EVENTS OF DEFAULT AND REMEDIES 7.1 EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default under this Agreement: (A) Nonpayment of the Notes. If the Company fails to pay (i) the principal of any Note, when and as the -10- 11 same becomes due and payable, whether at the maturity thereof, on a date fixed for prepayment, or otherwise, or (ii) the interest on any Note when and as the same becomes due and payable; or (B) Negative Covenant. If the Company fails to perform or observe any covenant applicable to it contained in Article VI; or (C) Other Covenants. If the Company fails to perform or observe any other material covenant, condition or agreement set forth in this Agreement or in any Note and such failure continues unremedied for a period of fifteen (15) days after written notice of such default to the Company by a holder of any Note; or (D) Bankruptcy; Insolvency. (i) If the Company, GNIC or Landmark shall (1) admit in writing its inability to pay its debts generally as they become due; (2) file a petition in bankruptcy or a petition to take advantage of any insolvency act; (3) make an assignment for the benefit of its creditors; (4) consent to the appointment of, or the taking of possession by, a receiver, liquidator, trustee, custodian or similar official of itself or of the whole or any substantial part of its property; or (5) file a petition or answer seeking reorganization, arrangement or winding-up under the Federal bankruptcy laws or any other applicable law or statute of the United States of America or any State thereof or any other country or jurisdiction, or consent to the entry against itself of, or obtain for itself, an order for relief under any bankruptcy, insolvency or similar law. (ii) If a court of competent jurisdiction shall enter an order, judgment or decree appointing, without the consent of the Company, a receiver, liquidator, trustee, custodian or similar official for the Company, or of the whole or any substantial part of its properties, or shall enter an order for relief against the Company in an involuntary proceeding under any bankruptcy, insolvency or similar law, or shall enter an order, judgment or decree approving a petition filed against the Company seeking reorganization, arrangement or winding-up of the Company or adjudicating the Company a bankrupt under the Federal bankruptcy laws or any other -11- 12 similar law or statute of the United States of America or any State thereof or any other country or jurisdiction, and such order, judgment or decree shall not be vacated or set aside or stayed within 60 days from the date of the entry thereof. (iii) If, under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction shall assume custody or control of the Company or of the whole or any substantial part of its properties and such custody or control shall not be terminated or stayed within 60 days from the date of assumption of such custody or control; or (E) Default on Other Indebtedness. If the Company fails to pay any part of the principal of, the premium, if any, or interest on, or any other payment of money due under, any of its indebtedness for borrowed money (the amount of which indebtedness equals or exceeds $1,500,000), whether such indebtedness now exists or shall hereafter be created (other than the Notes), or fails to perform or observe any other agreement, term or condition contained in any document evidencing or securing such indebtedness, or in any agreement under which any such indebtedness was issued or created, in each case, if such failure shall result in any payment on such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable, and such acceleration shall not be rescinded or annulled, or such indebtedness shall not have been discharged within forty-five (45) days of the date of such acceleration; then, at any time thereafter during the continuance of such Event of Default, the holder of a Note may declare the Note to be immediately due and payable, both as to principal and interest. 7.2 ACCELERATION OF MATURITY. If any Event of Default shall be continuing, the holder(s) of not less than 251 in aggregate principal amount of the Note then outstanding may, by notice to the Company, declare the entire outstanding principal of all the Notes, and all accrued unpaid interest thereon, to be due and payable immediately, and upon any such declaration the entire outstanding principal of the Notes and said accrued unpaid interest shall become and be immediately due and payable, without presentment, demand, protest or other notice whatsoever, all of which are hereby expressly waived, anything in the Notes or in this Agreement to the contrary notwithstanding. 7.3 OTHER REMEDIES. If any Event of Default shall be continuing, the holder of any Note may enforce its rights by suit in equity, by action at law, or by any other appropriate proceedings, whether for the specific performance (to the extent permitted by law) of any covenant or agreement contained in this Agreement or in the Notes or in aid of the exercise of any power granted in this Agreement, and may -12- 13 enforce the payment of any Note held by such holder and any of its other legal or equitable rights. 7.4 CONDUCT NO WAIVER; COLLECTION EXPENSES. No course of dealing on the part of the holder of any Note, nor any delay or failure on the part of any holder to exercise any of its rights, shall operate as a waiver of such right or otherwise prejudice such holder's rights, powers and remedies. If the Company fails to pay, when due, the principal of, or the interest on, any Note, or fails to comply with any other provision of this Agreement, the Company will pay to the holders of the Notes, to the extent permitted by law, on demand, such further amounts as shall be sufficient to cover the costs and expenses, including but not limited to reasonable attorneys' fees, incurred by such holders of the Notes, in collecting any sums due on the Notes or in otherwise enforcing any of their rights. 7.5 ANNULMENT OF ACCELERATION. If a declaration is made in accordance with Section 7.2 of this Agreement, then the holders of not less than 66 2/3% in aggregate principal amount of the Notes then outstanding may, by an instrument delivered to the Company, annul such declaration and the consequences thereof, provided that at the time such declaration is annulled: (A) no judgment or decree has been entered for the payment of any monies due on the Notes or pursuant to this Agreement; (B) all arrears of interest on the Notes and all other sums payable on the Notes and pursuant to this Agreement (except any principal of or interest on the Notes which has become due and payable by reason of such declaration) shall have been duly paid; and (C) every other Event of Default shall have been duly waived or otherwise made good or cured; and provided further that no such annulment shall extend to or affect any subsequent Event of Default or impair any right consequent thereon. 7.6 REMEDIES CUMULATIVE. No right or remedy conferred upon or reserved to Orion, any of the Orion Subsidiaries or the holder of any Note under this Agreement is intended to be exclusive of any other right or remedy, and every right and remedy shall be cumulative and in addition to every other right or remedy given hereunder or now or hereafter existing under any applicable law. Every right and remedy given by this Agreement or by applicable law to Orion, any of the Orion Subsidiaries or the holder of any Note may be exercised from time to time and as often as may be deemed expedient by Orion, any of the Orion Subsidiaries or such holder, as the case may be. -13- 14 ARTICLE VIII SUBORDINATION The Company covenants and agrees and the holder of any Note, by acceptance thereof, covenants and agrees, expressly for the benefit of the present and future holders of Senior Debt (as defined below), that payment of the principal and interest on the Notes is expressly subordinated in right of payment to the payment in full of the principal of and interest on Senior Debt of the Company in each circumstance described below in accordance with the provisions of this Agreement and the Notes. Upon any liquidation of assets of the Company or upon the occurrence of any dissolution, winding up or liquidation, whether or not in bankruptcy, insolvency or receivership proceedings, the Company shall not pay thereafter, and the holder of any Note shall not be entitled to receive thereafter, any amount in respect of the principal of and interest on the Note unless and until all Senior Debt shall have been paid or otherwise discharged. Upon dissolution, winding up or liquidation, any payment or distribution of assets of the Company, whether in cash, property or securities to which the holder of any Note would be entitled except for the provisions hereof, shall be paid by the liquidating trustee or agent or other person making such payment or distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee or otherwise, directly to the holders of Senior Debt, or their representative or representatives ratably according to the aggregate amounts remaining unpaid on Senior Debt held or represented by each, to the extent necessary to pay said Senior Debt in full after giving effect to any concurrent payment or distribution to the holders of such Senior Debt. As used in this Agreement and the Notes, the term "Senior Debt" shall mean indebtedness of the Company, designated by the Company as Senior Debt within the meaning hereof, not to exceed $140 million in aggregate principal amount at any one time outstanding, regardless of whether incurred on, before or after the date of this Agreement (i) for money borrowed from any bank or other institutional lender and evidenced by notes, bonds, debentures or other written obligations, provided that such notes, bonds, debentures or other written obligations are interest bearing securities only and are not convertible into capital stock or issued in connection with the issuance of warrants or options, whether separate or attached, or some other rights to receive stock or participate in the earnings of the Company in any form, including dividend distributions, or (ii) which constitutes a renewal or extension of any indebtedness described in (i) above; provided, however, that the term "Senior Debt" shall not include indebtedness which by the terms of the instrument creating or evidencing the same is subordinated to or on a parity with this Note. -14- 15 It is understood that the provisions hereof entitled "Subordination" are, and are intended to be, solely for the purpose of defining the relative rights of the holders of the Notes on the one hand and the holders of Senior Debt of the Company on the other hand. Nothing contained in this Section or elsewhere in this Agreement or the Notes shall impair, as between the Company, its creditors other than the holder of Senior Debt, and the holders of the Notes, the unconditional and absolute obligation of the Company to pay the holders of the Notes the principal of and interest on the Notes as and when the same shall become due and payable in accordance with its terms or affect the relative rights of the holders of the Notes and the creditors of the Company, other than the holders of such Senior Debt; nor shall anything herein prevent the holders of the Notes from exercising all remedies otherwise permitted by applicable law upon default under the Notes, subject to the rights, if any, of the holders of Senior Debt with respect to cash, property or securities of the Company received upon the exercise of any such remedy. The subordination herein provided applies to payments or distributions by the Company only and shall not affect the right of the holder to collect and retain payment from any co-obligor, guarantor or surety. Upon any payment or distribution of assets of the Company referred to in this Section entitled "Subordination," the holders of the Notes shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which such dissolution, winding up, liquidation or reorganization proceedings are pending, or upon a certificate of the liquidating trustee or agent or other person making any distribution to the holders of the Notes, for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of Senior Debt and other indebtedness of the Company, the amounts thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Section. ARTICLE IX CONVERSION OF NOTES 9.1 BY THE COMPANY. The Company may, at any time prior to the maturity of the Notes and upon ten days' written notice to the holders of the Notes, convert all or any part of the outstanding Notes into Common Stock, par value $1.00 of the Company ("Common Stock") at a conversion price per share equal to the net price per share received by the Company (the "Offering Price") from the offering of up to 1,450,000 shares of its Common Stock being sold by the Company to Fox-Pitt, Kelton, N.V. pursuant to Regulation S under the Securities Act of 1933, as amended (the "Offering"). Not later than ten days following completion of the Offering and receipt by the Company of the net proceeds of the Offering, the Company shall send a notice of conversion to each holder of Notes, offering to sell to the holders, pro rata in accordance with the principal amount of -15- 16 Notes held by each holder, at the Offering Price, not more than 550,000 shares of Common Stock. Any holder which does not, by the tenth day after the date of such notice of conversion, decline the Company's offer in writing shall be deemed to have accepted it on such tenth day. Each holder of Notes shall be entitled, pro rata, to purchase any offered shares of Common Stock not purchased by any other holder; the Company shall send an additional notice of conversion to each holder which accepts, or is deemed to have accepted, the Company's offer whenever shares of Common Stock become available for purchase by reason of any other holder declining to purchase its pro rata entitlement pursuant hereto and such holder shall accept, or be deemed to have accepted such offer in the manner set forth above. The purchase price for any Common Stock issued to any holder pursuant hereto shall be paid by surrender to the Company, for cancellation, of Notes in an amount equal to the aggregate purchase price of the Common Stock to be purchased by such holder. 9.2 BY THE COMPANY OR BY THE HOLDERS. Upon the occurrence of the Stockholder Approval referred to in Section 9.3, the Company shall promptly notify each holder of such Stockholder Approval. At any time thereafter and prior to the maturity of the Notes: (i) The Company may, offer to sell to the holders, pro rata at the Offering Price, a number of shares of Common Stock having an aggregate purchase price equal to the aggregate principal amount of Notes then outstanding. Any holder which does not, within ten days of the date of such notice of conversion, decline the Company's offer in writing shall be deemed to have accepted it. Each holder of Notes shall be entitled, pro rata, to purchase any offered shares of Common Stock not purchased by any other holder; the Company shall send an additional notice to each holder which accepts, or is deemed to have accepted, the Company's offer each time shares of Common Stock become available for purchase by reason of any other holder declining to purchase its pro rata entitlement pursuant hereto and such holder shall accept, or be deemed to have accepted such offer in the manner set forth above. (ii) Any holder may, upon ten days' written notice to the Company, demand conversion of all (but not less than all) Notes owned by such holder and, on the conversion date set forth in such notice, such holder's Notes shall be deemed automatically to have been converted into Common Stock at a conversion price per share equal to the Offering Price. -16- 17 9.3 STOCKHOLDER APPROVAL. The Company shall submit to its stockholders, for approval by them (the "Stockholder Approval"), the issuance of shares of Common Stock pursuant hereto, at the regular or special meeting of stockholders of the Company next held after the date of this Agreement. In the proxy statement mailed to stockholders in connection with such meeting the Company shall state that the Board of Directors of the Company has determined that the issuance of Common Stock upon conversion of Notes pursuant to this Amended and Restated Note Issuance Agreement, is in the judgment of the Board of Directors in the best interests of the Company. 9.4 PREPAYMENTS PURSUANT TO ARTICLE III. In the event that the Company is required or elects to make any prepayment pursuant to Section 3.5 or Section 3.6, it may send to each holder of Notes, not less than ten days prior to the making of such prepayment, an election to deliver to such holder, a number of shares of Common Stock whose price, calculated at the Offering Price is equal to the principal amount of the Notes of such holder to be prepaid. Delivery of the shares so offered shall discharge the Company's payment obligations in respect of the principal amount so to be prepaid. 9.5 ACCRUED INTEREST ON CONVERTED NOTES. Upon the surrender of any Notes for conversion, the Company shall pay all accrued interest on such Notes from the date to which interest was last paid to and including the effective date of conversion. 9.6 LISTING OF COMMON STOCK; MAXIMUM NUMBER OF SHARES TO BE ISSUED. In the event of any conversion of Notes pursuant to this Article IX, the Company shall cause all shares issued upon conversion to be duly listed for trading on the New York Stock Exchange. Shares of Common Stock delivered to a holder upon conversion shall be accompanied by an opinion of legal counsel for the Company to the effect that such shares have been duly authorized and issued, are fully paid and non-assessable and have been effectively listed for trading on the New York Stock Exchange. Notwithstanding the provisions of this Article IX, the Company may not offer to convert Notes and a holder may not tender Notes for conversion to the extent that, after giving effect to such conversion, the aggregate number of shares of Common Stock owned by Orion and its subsidiaries would exceed 49.9% of the total number of shares of Common Stock outstanding. 9.7 ANTI-DILUTION. In the event of any recapitalization, reclassification or recombination of the shares of Common Stock of the Company into a greater or lesser number of shares or into shares of an issuer other than the Company, then the securities issuable upon conversion of Notes, and the amount of securities to be issued, shall be adjusted in such fashion as the Board of -17- 18 Directors of the Company determines to be appropriate equitably to recognize the rights granted to holders of Notes pursuant to this Article IX. In the event that the Company at any time issues or sells Common Stock (other than pursuant to an employee benefit plan of the Company) at a price less than the fair market value at the time of such issuance or sale, then the conversion price shall be adjusted in such fashion as the Board of Directors of the Company determines to be appropriate equitably to recognize the rights granted to holders of Notes pursuant to this Article IX. ARTICLE X MISCELLANEOUS 10.1 AMENDMENTS. This Agreement may be amended, and any of its restrictions or provisions may be waived with the consent of the holders of 66 2/3% of the principal amount of the Notes then outstanding, except that without the consent of the holders of all the Notes then outstanding, no amendment to or waiver under this Agreement shall extend the maturity of any Note, or reduce the rate of interest payable with respect to any Note, or amend Section 7.1 or 7.2 or 7.5, or reduce the proportion of the principal amount of the Notes required with respect to any waiver, consent or amendment. 10.2 BUSINESS DAY. A "business day" shall mean any day other than a Saturday, Sunday or legal holiday in the State of New York. 10.3 INTEGRATION AND SEVERABILITY. This Agreement and the Notes embody the entire agreement and understanding by and among the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings with respect thereto. In case any one or more of the provisions contained in this Agreement or in any Note, or any application thereof, shall be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein, and any other application thereof, shall not in any way be affected or impaired thereby. 10.4 SUCCESSORS AND ASSIGNS. All covenants and agreements in this Agreement and the Notes or any certificate delivered pursuant hereto by or on behalf of the Company or by or on behalf of Orion or the Orion Subsidiaries shall bind and inure to the benefit of the respective successors and assigns of such party hereto or thereto, except where the context otherwise requires. The Company may not assign its rights under this Agreement without the written consent of the holders of the Notes. -18- 19 10.5 RELIANCE ON AND SURVIVAL OF VARIOUS PROVISIONS. All covenants and agreements made herein or in the Notes or in any certificate delivered pursuant hereto shall survive the execution and delivery of the Notes and shall continue in full force and effect so long as any Note is outstanding and unpaid. 10.6 NOTICES AND OTHER COMMUNICATIONS. All notices, requests, consents and other communications provided for under this Agreement or the Notes shall be in writing and shall be delivered, or shall be sent by certified or registered mail, postage prepaid and addressed, (i) if to Orion, to Orion Capital Corporation, 600 Fifth Avenue, 24th Floor, New York, New York 10020-2302 Attention: Treasurer, or to such other address as may have been furnished to the Company by notice from Orion, or (ii) if to any Orion Subsidiary, to its address set forth in Schedule I, or to such other address as may have been furnished to the Company by notice from such Noteholder, (iii) if to the Company, to Guaranty National Corporation, 9800 South Meridian Boulevard, P.O. Box 3329 (80155), Englewood, Colorado 80112, Attention: Treasurer, or to such other address as may have been furnished to Orion and any other holder of a Note, by notice from the Company. All notices shall be deemed to have been given either at the time of the delivery thereof to any officer or employee of the person entitled to receive such notice at the address of such person for purposes of this Section 10.6, or, if mailed, at the completion of the fifth full day following the time of such mailing thereof to such address, as the case may be. 10.7 GOVERNING LAW. This Agreement and the Notes shall be construed in accordance with and governed by the laws of the State of New York. 10.8 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and all of which, taken together shall constitute one and the same instrument. If the foregoing is acceptable to you, please sign this Agreement on the space indicated whereupon this Agreement shall become binding by and among Orion, the Orion Subsidiaries and the Company. Very truly yours, GUARANTY NATIONAL CORPORATION By: _____________________________ Name: Roger B. Ware Title: President and Chief Executive Officer -19- 20 ORION CAPITAL CORPORATION By: __________________________ Name: Alan R. Gruber Title: Chairman & Chief Executive Officer THE CONNECTICUT INDEMNITY COMPANY CONNECTICUT SPECIALTY INSURANCE COMPANY DESIGN PROFESSIONALS INSURANCE COMPANY EMPLOYEE BENEFITS INSURANCE COMPANY EBI INDEMNITY COMPANY THE FIRE AND CASUALTY INSURANCE COMPANY OF CONNECTICUT SECURITY INSURANCE COMPANY OF HARTFORD SECURITY REINSURANCE COMPANY By: __________________________ Name: Alan R. Gruber Title: Chairman SECURITY RE, INC. By: __________________________ Name: Vincent T. Papa Title: Senior Vice President & Treasurer -20- 21 SCHEDULE I to NOTE ISSUANCE AGREEMENT dated as of November 7, 1991
Principal Orion Subsidiaries Amount of Note ------------------ -------------- The Connecticut Indemnity Company $ 1,173,333 Connecticut Specialty Insurance Company 160,000 Design Professionals Insurance Company 2,266,667 Employee Benefits Insurance Company 6,419,200 EBI Indemnity Company 741,333 The Fire & Casualty Insurance Company of Connecticut 432,000 Security Insurance Company of Hartford 6,604,929 Security Re, Inc. 1,067,000 Security Reinsurance Company 2,032,000 ------------ AGGREGATE PRINCIPAL AMOUNT $ 20,896,462 OF NOTES TO BE ISSUED ============
Address for Payments and Notices: For each of the Orion Subsidiaries, the address to which payments are to be made and notices are to be sent is as follows: Orion Capital Companies, Inc. 9 Farm Springs Drive Farmington, CT 06032 Attention: Mr. Craig Nyman, Vice President & Assistant Treasurer Wire Transfer Instructions are set forth on page S-2. All wires for each of the six companies listed below are: Manufacturers Hanover Trust NY, NY S-1-1 22 ABA #021000306 Ref: GNC Note The Connecticut Indemnity Co. A/C # AR76573-71 Connecticut Specialty Ins. Co. A/C # AR76580-75 EBI Indemnity Co. A/C # AR76576-70 The Fire & Casualty Ins. Co. of CT A/C # AR76582-78 Security Ins. Co. of Hart A/C # AR76570-72 Security Rein. Co. A/C # AR76575-74 All wires for each of the two companies listed below are: Security Pacific National Bank LA, CA ABA #122000043 Ref: GNC Note Design Professionals Ins. Co. A/C # QE7503100 Employee Benefits Ins. Co. A/C # QE7503050 All wires for the company listed below are: Fleet Bank N.A. Hartford, CT ABA #011900571 Ref: GNC Note Security Reinsurance Under. Inc. A/C 1120433 S-2-2 23 THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR OFFERED FOR SALE UNLESS REGISTERED PURSUANT TO SUCH ACT OR UNLESS AN EXCEPTION FROM SUCH REGISTRATION IS AVAILABLE. THIS NOTE MAY BE SUBJECT TO A HOME OFFICE PAYMENT AGREEMENT AND ACCORDINGLY ANY PROSPECTIVE PURCHASER HEREOF SHOULD FIRST VERIFY THE UNPAID PRINCIPAL AMOUNT HEREOF WITH THE COMPANY GUARANTY NATIONAL CORPORATION 7.85% Subordinated Promissory Note Due July 1, 2003 Registration No.1 ____________ __, 199_ $___________ FOR VALUE RECEIVED, the undersigned, GUARANTY NATIONAL CORPORATION (the "Company"), a corporation organized and existing under the laws of Colorado, hereby promises to pay to ______________ or _________2 the principal sum of ($_________), on July 1, 2003 together with interest (computed on the basis of a 360-day year of twelve 30-day months) on the unpaid principal sum hereof from the date of this Note until said principal sum shall be fully paid and satisfied at the rate of 7.85% per annum, quarterly in arrears on January 1, April 1, July 1 and October 1 in each year, commencing with the interest payment date next succeeding the date hereof. The Company hereby promises to pay interest (computed on the basis of a 360-day year of twelve 30-day months) on any overdue principal and, so far as may be lawful, on any overdue installment of interest, at a rate per annum equal to 8.85%. ________ 1 If the Note to be issued is to be an Order Note, delete registration number. 2 If the Note to be issued is to be an Order Note, insert the word "Order"; if the Note to be issued is to be a Registered Note, insert the words "Registered Assigns." A-1-1 24 Payments of the principal of, and interest on, this Note shall be made in lawful money of the United States of America in the manner and at the place provided in Article III of the Agreement hereinafter mentioned. Whenever any payment of principal or interest to be made on a Note shall be stated to be due on a day which is not a business day, such payment shall be made on the next succeeding business day and such extension shall be included in computing interest in connection with such payment. This Note is one of the Company's 7.85% Subordinated Promissory Notes due July 1, 2003 limited in aggregate principal amount to $20,896,462 (the "Notes"), issued pursuant to the Agreement hereinafter mentioned. This Note is entitled to the benefits of and is subject to the terms contained in the Note Issuance Agreement, dated as of November 7, 1991, as amended as of August 1, 1993 and June __, 1995 by and among the Company, Orion Capital Corporation and certain subsidiaries of Orion Capital Corporation referred to therein. (Such Note Issuance Agreement, as amended, as the same may be further amended and modified from time to time, is referred to herein as the "Agreement.") The provisions of the Agreement are hereby incorporated into this Note to the same extent as if set forth herein. Capitalized terms used in this Note, unless otherwise defined herein, have the meanings attributed to them in the Agreement. If an Order Note, the Company may treat the person to whom this Order Note is payable as the owner and holder hereof for the purpose of receiving payments of principal and interest until any of the events specified in Article II of the Agreement shall occur. If a Registered Note, the Company may deem and treat the person in whose name this Note is registered pursuant to Article II of the Agreement as the holder and owner hereof for the purpose of receiving payments and for all other purposes whatsoever, notwithstanding any notations of ownership or transfer hereon and notwithstanding that this Note is overdue, and the Company shall not be affected by any notice to the contrary until presentation of this Note for registration of transfer as provided in Article II of the Agreement. Mandatory prepayments of principal will commence on January 1, 1998, and on the first day of each Julyand January there-after to and including July 1, 2003 in the amount of 8.33% of the original aggregate principal amount of the Notes (or the then unpaid principal amount of the Notes, if less than such amount). A-2-2 25 This Note is subject to optional prepayment, in whole or in part, on or after January 1, 1998 and may be subject to conversion into Common Stock of the Company at the option of the Company or the holder hereof but subject, in certain circumstances, to approval by the stockholders of the Company, all as more fully provided in the Agreement. As described in the Agreement, the holders of the Notes are entitled to certain rights to registration under the Securities Act of 1933 exercisable by the holders of $10,000,000 in aggregate principal amount of the Notes. In case an Event of Default (as defined in the Agreement) shall happen and be continuing, the principal of this Note may be declared due and payable in the manner and with the effect provided in the Agreement. The indebtedness evidenced by this Note is subordinated to up to $140,000,000 of Senior Debt to the extent and in the manner set forth in the Agreement. The Company hereby irrevocably waives all rights of set-off against the holder hereof with respect to its obligation to make all payments of principal and interest required under this Note. Should the indebtedness represented by this Note or any part thereof be collected in any proceeding provided for in the Agreement or be placed in the hands of attorneys for collection, the Company agrees to pay, in addition to the principal and interest due and payable herein, all costs of collecting this Note, including reasonable attorneys fees and expenses. IN WITNESS WHEREOF, GUARANTY NATIONAL CORPORATION has caused this Note to be executed on its behalf by its duly authorized officers. GUARANTY NATIONAL CORPORATION By __________________________ Roger B. Ware, President By __________________________ Beverly Silk, Secretary A-3-3 26 EXHIBIT B to NOTE ISSUANCE AGREEMENT Excerpt from Shareholder Agreement dated November 7, 1991 (the "Shareholder Agreement") by and among Guaranty National Corporation ("Guaranty"), Orion Capital Corporation ("Orion") and certain of Orion's wholly-owned subsidiaries (listed therein and referred to as the "Selling Shareholders"). Terms used in the Shareholder Agreement and not otherwise defined in the Note Issuance Agreement shall have the meanings ascribed to such terms in the Shareholder Agreement. Such excerpt consists of Section 2.4 (Registration Procedures) through Section 2.8 (Standoff), as follows: 2.4 Registration Procedures. If and whenever Guaranty is required by the provisions of Section 2.1, 2.2 or 2.3 to effect the registration of shares of Sellers Stock or Guaranty Notes, Guaranty will: (a) Prepare and file with the Commission a registration statement on the appropriate form or forms with respect to such securities and use its best efforts to cause such registration statement to become and remain effective for at least 90 days thereafter, and prepare and file with the Commission such amendments or supplements as may be necessary to keep such registration statement effective for at least 90 days after the effective date of the registration statement. (b) Enter into a written underwriting agreement or agreements in form and substance reasonably satisfactory to the managing underwriter or underwriters of the public offering of such securities, if the offering is to be underwritten in whole or in part. (c) Furnish to the beneficial owners of the Sellers Stock or the Guaranty Note Holders, as the case may be, such reasonable number of copies of the registration statement, preliminary prospectus, final prospectus and such other documents as may reasonably be requested in order to facilitate the public offering of such securities. (d) Use its best efforts to register or qualify the securities covered by such registration statement under such state securities or blue sky laws of such jurisdictions as the beneficial owners of the Sellers Stock or the Guaranty Note Holders, as the case may be, may reasonably request, except that Guaranty shall not for B-1-1 27 any purpose be required to execute a general consent to service of process or to qualify to do business as a foreign corporation in any jurisdiction where it is not so qualified. (e) Notify the beneficial owners of the Sellers Stock or the Guaranty Note Holders, as the case may be, promptly after it shall receive notice thereof, of the time when such registration statement has become effective or an amendment or a supplement to any registration or prospectus forming a part of such registration statement has been filed. (f) Notify the beneficial owners of the Sellers Stock or the Guaranty Note Holders, as the case may be, promptly of any request by the Commission for the amending or supplementing of such registration statement or prospectus or for additional information. (g) Prepare and file with the Commission promptly, upon the request of the beneficial owners of the Sellers Stock or the Guaranty Note Holders, as the case may be, any amendments or supplements to such registration statement or prospectus which, in the opinion of counsel for the beneficial owners of the Sellers Stock or the Guaranty Note Holders, as the case may be, are required under the applicable federal securities laws or the rules and regulations thereunder in connection with the distribution of the Sellers Stock or Guaranty Notes. (h) Prepare and promptly file with the Commission, and promptly notify the beneficial owners of the Sellers Stock or the Guaranty Note Holders, as the case may be, of the filing of, such amendment or supplement to such registration statement or prospectus as may be necessary to correct any statements in, or omissions from, such registration statement, if, at the time when a prospectus relating to such securities is required to be delivered under any applicable federal securities laws, any event has occurred as the result of which any such prospectus or any other prospectus as then in effect would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading in the light of the circumstances in which they were made. (i) In the event the beneficial owners of the Sellers Stock or Guaranty Note Holders, as the case may be, or any underwriter for the beneficial owners of the Sellers Stock, or the Guaranty Note Holders, as the case may be, is required to deliver a prospectus at a time when the prospectus then in effect may no longer be used under applicable federal securities laws, prepare promptly upon B-2-2 28 request of the beneficial owners of the Sellers Stock or Guaranty Note Holders, as the case may be, such amendments or supplements to such registration statement and such prospectus as may be necessary to permit compliance with the requirements of applicable federal securities laws. (j) Advise the beneficial owners of the Sellers Stock or the Guaranty Note Holders, as the case may be, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the Commission suspending the effectiveness of such registration statement or the initiation or threatening of any proceeding for that purpose and promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued. (k) Not file any amendment or supplement to such registration statement or prospectus to which any of the beneficial owners of the Sellers Stock or the Guaranty Note Holders, as the case may be, reasonably objects on the ground that such amendment or supplement does not comply in all material respects with the requirements of any applicable federal securities law or the rules and regulations thereunder, after having been furnished with a copy thereof at least five business days prior to the filing thereof. (1) At the request of the beneficial owners of the Sellers Stock or the Guaranty Note Holders, as the case may be, furnish on the effective date of the registration statement and, if such registration involves an underwritten public offering, at the closing provided for in the underwriting agreement, (i) an opinion of the counsel representing Guaranty (such counsel being reasonably satisfactory to the beneficial owners of the Sellers Stock or Guaranty Note Holders, as the case may be), for the purposes of such registration, addressed to the underwriters, if any, and to the beneficial owners of the Sellers Stock or the Guaranty Note Holders, as the case may be, covering such matters with respect to the registration statement, the prospectus and each amendment or supplement thereto, proceedings under state and federal securities laws, other matters relating to Guaranty, the securities being registered and the offer and sale of such securities as are customarily the subject of opinions of issuer's counsel provided to underwriters in underwritten public offerings, and (ii) a letter dated each such date, from the independent certified public accountants of Guaranty addressed to the underwriters, if any, and to-the beneficial owners of the Sellers Stock or the Guaranty Note Holders, as the case may be, stating that they are independent certified public accountants within the meaning of the applicable federal securities laws and B-3-3 29 that, in the opinion of such accountants, the financial statements and other financial data of Guaranty included in the registration statement or the prospectus or any amendment or supplement thereto comply in all material respects with the applicable accounting requirements of the applicable federal securities laws, and additionally covering such other financial matters, including information as to the period ending not more than five business days prior to the date of such letter and with respect to the registration statement and the prospectus, as the underwriters or the beneficial owners of the Sellers Stock or the Guaranty Note Holders, as the case may be, may reasonably request. (m) Refrain from making any sale or distribution of its voting securities, except pursuant to any employee stock plan and any pre-existing agreement for the sale of such securities, during the period commencing seven days prior to, and expiring 120 days after, the registration statement has become effective. 2.5 Expenses. (a) With respect to the first two registrations to be effected pursuant to Section 2.1 and the registration to be effected pursuant to Section 2.2 hereof, all out-of pocket fees, costs and expenses of and Incidental to such registration and public offering in connection therewith shall be borne by Guaranty. (b) With respect to any third registration to be effected pursuant to Section 2.1 hereof or with respect to the inclusion of shares of Sellers Stock in a registration statement pursuant to Section 2.3 hereof, all the fees, costs and expenses of such registration under Section 2.1 and the additional fees costs and expenses as may be incurred as a result of the exercise of rights under Section 2.3 hereof shall be born by the beneficial owners of Sellers Stock being so registered. (c) The fees, costs and expenses of registration to be borne as provided in Section 2.5 (a) above shall include, without limitation, all registration, filing and National Association of Security Dealers' fees, printing expenses, fees and disbursements of counsel and accountants for Guaranty, fees and disbursements of underwriters of such securities, all legal fees and disbursements and other expenses of complying with state securities or blue sky laws of any jurisdictions in which the securities to be offered are to be registered or qualified, and premiums and other costs of policies of insurance against liability arising out of such public offering, but not the fees and disbursements B-4-4 30 of counsel and accountants for the beneficial owners of the Sellers Stock or Guaranty Note Holders, as the case may be. 2.6 Indemnification. (a) Guaranty will indemnify and hold harmless each of the beneficial owners of the Sellers Stock or Guaranty Note Holders and any underwriter (as defined in the Securities Act) for the beneficial owners of the Sellers Stock or Guaranty Note Holders, and each person who is an officer or director of or who controls the beneficial owners of the Sellers Stock, the holders of Guaranty Notes or such underwriter within the meaning of the Securities Act, from beneficial owners of the Sellers Stock, Guaranty Note Holders and each such underwriter and person with respect to, any and all claims, actions, demands, losses, damages, liabilities, attorneys' fees, costs and other expenses to which the beneficial owners of the Sellers Stock, Guaranty Note Holders or any such underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such claims, actions, demands, losses, damages, liabilities, costs, attorneys' fees or other expenses arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in such registration statement, any prospectus contained therein or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein or necessary to make the statements therein, in light of the circumstances in which they were made not misleading; provided, however, that Guaranty will not be liable in any such case to the extent that any such claim, action, demand, loss, damage, liability, cost, attorneys' fees or other expense is caused by an untrue statement or alleged untrue statement or omission or alleged omission so made in strict conformity with information furnished by the beneficial owners of the Sellers Stock or any Guaranty Note Holders, such underwriter or such controlling person in writing specifically for use in the preparation thereof. (b) Each of the beneficial owners of the Sellers Stock or Guaranty Note Holder that are to be included in any registrations under this Agreement will indemnify and hold harmless Guaranty, and any underwriter (as defined in the Securities Act) for Guaranty, and each person who is an officer or director of or who controls Guaranty or such underwriter within the meaning of the Securities Act, from and against, and will reimburse Guaranty with respect to, any and all claims, actions, demands, losses, damages, liabilities, costs or expenses to which Guaranty may become subject under the Securities Act or otherwise, insofar as such claims, actions, demands, losses, damages, liabilities, costs or expenses to which Guaranty may become subject under the Securities Act or otherwise, insofar as such claims, B-5-5 31 actions, demands, losses, damages, liabilities, costs, attorneys' fees or other expenses are caused by any untrue or alleged untrue statement of any material fact contained in such registration statement, any prospectus contained therein or any amendment or supplement thereto, or are caused by the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of circumstances in which they are made, not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was so made in reliance upon and in strict conformity with written information furnished by a beneficial owner of the Sellers Stock or Guaranty Note Holders specifically for use in the preparation thereof. (c) Promptly after receipt by an indemnified party pursuant to the provisions of paragraphs (a) or (b) of this Section 2.6 of notice of commencement of any action involving he subject matter of the foregoing indemnity provisions, such indemnified party will, if a claim thereof is to be made against the indemnifying party pursuant to the provisions of paragraphs (a) and (b), notify the indemnifying party of the commencement hereof, but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to an indemnified party otherwise than under this Section 2.6. In case such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party shall have the right to participate in and, to the extent that it may wish, assume the defense thereof, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party pursuant to the provisions of paragraphs (a) and (b) for any legal or other expense subsequently incurred by such indemnified party in connection with the defense thereof, other than reasonable costs of investigation. No indemnifying party shall be liable to an indemnified party for any settlement of any action or claim without the consent of the indemnifying party. 2.7 Reporting Requirements Under the Securities Exchange Act of 1934. Guaranty shall take such reasonable measures, and shall file such other information, documents and reports as shall be required by the Commission as a condition to the availability of Rule 144 under the Securities Act (or any similar exemptive provision hereafter in effect) and the use of Form S-3. Guaranty also covenants to use its best efforts, to the B-6-6 32 extent that it is reasonably within its power to do so, to qualify for the use of Form S-3. 2.8 Standoff. Orion and the Selling Shareholders agree in connection with any underwritten public offering of Guaranty's securities that, upon the request of the managing underwriter of such public offering, it shall commit itself not to offer or sell publicly any Sellers Stock, or Guaranty Notes, other than such stock or Guaranty Notes included in a public offering, for a period not to exceed 120 days from the closing of such public offering. B-7-7 EX-99.G 14 SCHEDULE 13E-3 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 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 The Connecticut Indemnity Company Connecticut Specialty Insurance Company Design Professionals Insurance Company EBI Indemnity Company Employee Benefits Insurance Company The Fire and Casualty Insurance Company of Connecticut Security Insurance Company of Hartford (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 P. Maloney, Esq. Orion Capital Corporation 600 Fifth Avenue New York, New York 10020-2302 (212) 332-8080 (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. Donovan Leisure Newton & Irvine 30 Rockefeller Plaza New York, New York 10112 (212) 632-3000 2 This statement is filed in connection with (check the appropriate box): a. / / The filing of solicitation materials or an information statement subject to Regulation 14A [17 CFR 240.14a-1 to 240.14b-1]. Regulation 14C [17 CFR 240.14c-1 to 240.14c-101] or Rule 13e-3(c) [Section 240.13e-3(c)] under the Securities Exchange Act of 1934. [Amended in Release No. 34-23789 ( 84,044), effective January 20, 1987, 51 F.R. 42048.] b. / / The filing of a registration statement under the Securities Act of 1933. c. /X/ A tender offer. d. / / None of the above. Check the following box if the soliciting materials or information statement referred to in checking box (a) are preliminary copies: / / Calculation of Filing Fee
- -------------------------------------------------------------------------------- Transaction valuation Amount of filing fee ----------- -------------------- $80,500,000 $16,100 - --------------------------------------------------------------------------------
* For purposes of calculating the filing fee only. This calculation assumes the purchase of 4,600,000 shares of common stock, par value $1.00 per share, of Guaranty National Corporation at $17.50 net per share in cash. ** The amount of the filing fee, calculated in accordance with Rule 0-11(b) of the Securities Exchange Act of 1934, as amended, equals 1/50th of one percent of the aggregate cash value offered for such number of shares. /X/ Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: $16,100 Form or Registration No.: Schedule 14D-1 -2- 3 Filing Parties: Orion Capital Corporation The Connecticut Indemnity Company Connecticut Specialty Insurance Company Design Professionals Insurance Company EBI Indemnity Company Employee Benefits Insurance Company The Fire and Casualty Insurance Company of Connecticut Security Insurance Company of Hartford Date Filed: May 8, 1996 -3- 4 This Rule 13e-3 Transaction Statement (this "Statement") relates to a tender offer by Orion Capital Corporation, a Delaware corporation ("Orion"), and the following of its wholly-owned insurance subsidiaries: The Connecticut Indemnity Company, Connecticut Specialty Insurance Company, Design Professionals Insurance Company, EBI Indemnity Company, Employee Benefits Insurance Company, The Fire and Casualty Insurance Company of Connecticut, Security Insurance Company of Hartford (collectively with Orion, the "Purchasers"), to purchase up to 4,600,000 shares of common stock, par value $1.00 per share (the "Shares"), of Guaranty National Corporation, a Colorado corporation (the "Company"), at a price of $17.50 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase dated May 8, 1996 (the "Offer to Purchase") and in the related Letter of Transmittal (which together constitute the "Offer"), copies of which are filed as Exhibits (d)(1) and (d)(2) hereto, respectively, and are incorporated by reference herein in their entirety. This Statement is being filed jointly by the Purchasers. By filing this Schedule 13E-3, none 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 other transactions contemplated by the Offer to Purchase. The following cross reference sheet is being supplied pursuant to General Instruction F to Schedule 13E-3 and shows the location, in the Schedule 14D-1 (the "Schedule 14D-1") filed by the Purchasers with the Securities and Exchange Commission on the date hereof, of the information required to be included in response to the items of this Statement. The information in the Schedule 14D-1 which is attached hereto as Exhibit (g)(3), including all exhibits thereto, is hereby expressly incorporated herein by reference and the responses to each item are qualified in their entirety by the provisions of the Schedule 14D-1. -4- 5 CROSS REFERENCE SHEET Item in Where located in Schedule 13E-3 Schedule 14D-1 - -------------- ---------------- Item 1(a) Item 1(a) Item 1(b) Item 1(b) Item 1(c) . . . . . . . . . . . . . . . . . . . . . . . . . Item 1(c) Item 1(d) . . . . . . . . . . . . . . . . . . . . . . . . . * Item 1(e) . . . . . . . . . . . . . . . . . . . . . . . . . * Item 1(f) . . . . . . . . . . . . . . . . . . . . . . . . . * Item 2(a) . . . . . . . . . . . . . . . . . . . . . . . . . Item 2(a) Item 2(b) . . . . . . . . . . . . . . . . . . . . . . . . . Item 2(b) Item 2(c) . . . . . . . . . . . . . . . . . . . . . . . . . Item 2(c) Item 2(d) . . . . . . . . . . . . . . . . . . . . . . . . . Item 2(d) Item 2(e) . . . . . . . . . . . . . . . . . . . . . . . . . Item 2(e) Item 2(f) . . . . . . . . . . . . . . . . . . . . . . . . . Item 2(f) Item 2(g) . . . . . . . . . . . . . . . . . . . . . . . . . Item 2(g) Item 3(a)(1) . . . . . . . . . . . . . . . . . . . . . . . Item 3(a) Item 3(a)(2) . . . . . . . . . . . . . . . . . . . . . . . Item 3(b) Item 3(b) . . . . . . . . . . . . . . . . . . . . . . . . . * Item 4 . . . . . . . . . . . . . . . . . . . . . . . . . . * Item 5 . . . . . . . . . . . . . . . . . . . . . . . . . . Item 5 Item 6(a) . . . . . . . . . . . . . . . . . . . . . . . . . Item 4(a) Item 6(b) . . . . . . . . . . . . . . . . . . . . . . . . . * Item 6(c) . . . . . . . . . . . . . . . . . . . . . . . . . Item 4(b) Item 6(d) . . . . . . . . . . . . . . . . . . . . . . . . . Item 4(c) Item 7(a) . . . . . . . . . . . . . . . . . . . . . . . . . Item 5 Item 7(b) . . . . . . . . . . . . . . . . . . . . . . . . . * Item 7(c) . . . . . . . . . . . . . . . . . . . . . . . . . * Item 7(d) . . . . . . . . . . . . . . . . . . . . . . . . . * Item 8 . . . . . . . . . . . . . . . . . . . . . . . . . . * Item 9 . . . . . . . . . . . . . . . . . . . . . . . . . . * Item 10(a) . . . . . . . . . . . . . . . . . . . . . . . . Item 6(a) Item 10(b) . . . . . . . . . . . . . . . . . . . . . . . . Item 6(b) Item 11 . . . . . . . . . . . . . . . . . . . . . . . . . . Item 7 Item 12 . . . . . . . . . . . . . . . . . . . . . . . . . . * Item 13 . . . . . . . . . . . . . . . . . . . . . . . . . . * Item 14(a) . . . . . . . . . . . . . . . . . . . . . . . . Item 9 Item 14(b) . . . . . . . . . . . . . . . . . . . . . . . . * Item 15(a) . . . . . . . . . . . . . . . . . . . . . . . . * Item 15(b) . . . . . . . . . . . . . . . . . . . . . . . . Item 8 Item 16 . . . . . . . . . . . . . . . . . . . . . . . . . . Item 10(f) Item 17 . . . . . . . . . . . . . . . . . . . . . . . . . . separately included herewith ___________________ * The Item is not required by Schedule 14D-1, is inapplicable or the answer thereto is in the negative. -5- 6 ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO TRANSACTION. (a) The information set forth in "INTRODUCTION" and "THE OFFER -- Section 7. Certain Information Concerning the Company" of the Offer to Purchase is incorporated herein by reference. (b) The information set forth in "INTRODUCTION" and "THE OFFER -- Section 6. Effect of the Offer on the Market for the Shares; Quotation on the NYSE; Registration Under the Exchange Act" of the Offer to Purchase is incorporated herein by reference. (c) The information set forth in "THE OFFER -- Section 5. Price Range of Shares; Dividends" of the Offer to Purchase is incorporated herein by reference. (d) The information set forth in "THE OFFER -- Section 5. Price Range of Shares; Dividends" and "THE OFFER -- Section 9. Dividends and Distributions" of the Offer to Purchase is incorporated herein by reference. (e) The information set forth in "SPECIAL FACTORS -- Background of the Transaction" of the Offer to Purchase is incorporated herein by reference. (f) The information set forth in "SPECIAL FACTORS -- Background of the Transaction;" SPECIAL FACTORS -- Interests of Certain Persons in the Transaction; Securities Ownership; Related Transactions" and "THE OFFER - -- Section 8. Certain Information Concerning the Purchasers" of the Offer to Purchase is incorporated herein by reference. ITEM 2. IDENTITY AND BACKGROUND. (a)-(d) and (g) This Statement is being filed by the Purchasers. The information set forth in "INTRODUCTION," "THE OFFER -- Section 8. Certain Information Concerning the Purchasers" and Schedule I of the Offer to Purchase is incorporated herein by reference. (e) and (f) During the last five years, neither the Purchasers nor to the best of their knowledge any of the persons listed in Schedule I of the Offer to Purchase, (i) has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors), or (ii) was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction 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. -6- 7 ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS. (a)-(b) The information set forth in "INTRODUCTION," "SPECIAL FACTORS -- Background of the Transaction," "SPECIAL FACTORS -- Fairness of the Offer," "SPECIAL FACTORS --"Interests of Certain Persons in the Transaction; Securities Ownership; Related Transactions," and "THE OFFER -- Section 8. Certain Information Concerning the Purchasers" of the Offer to Purchase is incorporated herein by reference. ITEM 4. TERMS OF THE TRANSACTION. (a) The information set forth in "INTRODUCTION," "SPECIAL FACTORS -- Purpose and Structure of the Transaction; Plans for the Company After the Offer," "THE OFFER -- Section 1. Terms of the Offer; Expiration Date," "THE OFFER -- Section 2. Acceptance for Payment and Payment for Shares," "THE OFFER -- Section 3. Procedures for Accepting the Offer and Tendering Shares," "THE OFFER --Section 4. Withdrawal Rights," "THE OFFER -- Section 9. Dividends and Distributions" and "THE OFFER -- Section 10. Certain Conditions of the Offer" of the Offer to Purchase is incorporated herein by reference. (b) The information set forth in "INTRODUCTION," "SPECIAL FACTORS -- Background of the Transaction," "SPECIAL FACTORS -- Certain Effects of the Transaction" and "SPECIAL FACTORS -- Interests of Certain Persons in the Transaction; Securities Ownership; Related Transactions" of the Offer to Purchase is incorporated herein by reference. ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE. (a)-(g) The information set forth in "INTRODUCTION," "SPECIAL FACTORS -- Background of the Transaction," "SPECIAL FACTORS -- Fairness of the Offer," "SPECIAL FACTORS --Purpose and Structure of the Transaction; Plans for the Company After the Offer," "SPECIAL FACTORS -- Certain Effects of the Transaction" and "THE OFFER -- Section 6. Effect of the Offer on the Market for the Shares; Quotation on NYSE; Registration Under the Exchange Act" of the Offer to Purchase is incorporated herein by reference. ITEM 6. SOURCE AND AMOUNTS OF FUNDS OR OTHER CONSIDERATION. (a),(c) The information set forth in" "SPECIAL FACTORS -- Source and Amount of Funds -- Financing of the Offer" of the Offer to Purchase is incorporated herein by reference. (b) The information set forth in "THE OFFER -- Section -7- 8 12. Fees and Expenses" of the Offer to Purchase is incorporated herein by reference. (d) Not applicable. ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS. (a)-(d) The information set forth in "INTRODUCTION," "SPECIAL FACTORS -- Background of the Transaction," "SPECIAL FACTORS -- Fairness of the Offer," "SPECIAL FACTORS --Purpose and Structure of the Transaction; Plans for the Company After the Offer," "SPECIAL FACTORS -- Interests of Certain Persons in the Transaction; Securities Ownership; Related Transactions," "SPECIAL FACTORS -- Certain Effects of the Transaction," "SPECIAL FACTORS -- Certain Federal Income Tax Consequences," "THE OFFER -- Section 6. Effect of the Offer on the Market for the Shares; Quotation on NYSE; Registration Under the Exchange Act," "THE OFFER --Section 7. Certain Information Concerning the Company," "THE OFFER -- Section 8. Certain Information Concerning the Purchasers" and "THE OFFER -- Section 11. Certain Legal Matters" of the Offer to Purchase is incorporated herein by reference. ITEM 8. FAIRNESS OF THE TRANSACTION. (a),(b),(f) The information set forth in "INTRODUCTION," "SPECIAL FACTORS -- Background of the Transaction" and "SPECIAL FACTORS -- Fairness of the Offer" of the Offer to Purchase is incorporated herein by reference. (c)-(e) Not applicable. ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS. (a) The information set forth in "SPECIAL FACTORS --Fairness of the Offer" of the Offer to Purchase is incorporated herein by reference. (b)-(c) Not applicable. ITEM 10. INTEREST IN SECURITIES OF THE ISSUER. (a)-(b) The information set forth in "INTRODUCTION," "SPECIAL FACTORS -- Background of the Transaction," "SPECIAL FACTORS -- Purpose and Structure of the Transaction; Plans for the Company After the Offer," "SPECIAL FACTORS --Interests of Certain Persons in the Transaction; Securities Ownership; Related Transactions," "THE OFFER -- Section 8. Certain Information Concerning the Purchasers" and Schedule I of the Offer to Purchase is incorporated herein by reference. -8- 9 ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S SECURITIES. The information set forth in "INTRODUCTION," "SPECIAL FACTORS - -- Background of the Transaction," "SPECIAL FACTORS - - Certain Effects of the Transaction," "SPECIAL FACTORS -- Interests of Certain Persons in the Transaction; Securities Ownership; Related Transactions," "THE OFFER --Section 8. Certain Information Concerning the Purchasers" and "THE OFFER -- Section 11. Certain Legal Matters" of the Offer to Purchase is incorporated herein by reference. ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO THE TRANSACTION. (a) The information set forth in "SPECIAL FACTORS -- Interests of Certain Persons in the Transaction; Securities Ownership; Related Transactions" of the Offer to Purchase is incorporated herein by reference. (b) The information set forth in "SPECIAL FACTORS --Interests of Certain Persons in the Transaction; Securities Ownership, Related Transactions" of the Offer to Purchase is incorporated herein by reference. ITEM 13. OTHER PROVISIONS OF THE TRANSACTION. (a) The information set forth in "SPECIAL FACTORS - --Dissenters' Rights" of the Offer to Purchase is incorporated herein by reference. (b) Not Applicable. (c) Not Applicable. ITEM 14. FINANCIAL INFORMATION. (a) The information set forth in "THE OFFER -- Section 7. Certain Information Concerning the Company" and the information set forth on pages 33 through 56 of Guaranty National Corporation's Annual Report on Form 10-K for the year ended December 31, 1995, filed as Exhibit (g)(1) hereto, and pages 3 through 9 of Guaranty National Corporation's quarterly report on Form 10-Q for the quarter ended March 31, 1996, filed as Exhibit (g)(2) hereto is incorporated herein by reference. (b) Not applicable. ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED. (a) The information set forth in "INTRODUCTION," "SPECIAL FACTORS -- Purpose and Structure of the Transaction; Plans for the Company After the Offer," -9- 10 "SPECIAL FACTORS -- Interests of Certain Persons in the Transaction; Securities Ownership; Related Transactions" "SPECIAL FACTORS -- Source and Amount of Funds -- Financing of the Offer" and "THE OFFER -- Section 12. Fees and Expenses" of the Offer to Purchase is incorporated herein by reference. (b) The information set forth in "INTRODUCTION," and "THE OFFER -- Section 12. Fees and Expenses" of the Offer to Purchase is incorporated herein by reference. ITEM 16. ADDITIONAL INFORMATION. Additional information concerning the Offer is set forth in the Offer to Purchase and the Letter of Transmittal relating to the Shares, which are attached hereto as Exhibits (d)(1) and (d)(2), respectively. ITEM 17. MATERIAL TO BE FILED AS EXHIBITS. (a) Not applicable. (b) Not applicable. (c)(1) Shareholder Agreement, dated November 7, 1991, 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. (c)(2) Amendment to Shareholder Agreement, dated February 2, 1994, 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. (c)(3) Amendment to Shareholder Agreement, dated March 2, 1995, 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. (c)(4) Note Issuance Agreement, as Amended and Restated as of June 14, 1995, by and among Guaranty National Corporation, Orion Capital Corporation, The Connecticut -10- 11 Indemnity Company, Connecticut Specialty Insurance Company, Design Professionals Insurance Company, Employee Benefits Insurance Company, EBI Indemnity Company, The Fire and Casualty Insurance Company of Connecticut, Security Insurance Company of Hartford, Security Reinsurance and SecurityRe, Inc. (d)(1) Offer to Purchase dated May 8, 1996. (d)(2) Letter of Transmittal. (d)(3) Notice of Guaranteed Delivery. (d)(4) Letter to Securities Dealers, Commercial Banks and Trust Companies. (d)(5) Letter from Brokers, Dealers, Commercial Banks, Trust Companies, and Nominees to their clients. (d)(6) Press Release dated May 7, 1996. (d)(7) Summary Advertisement dated May 8, 1996. (d)(8) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (e) Not Applicable. (f) Not Applicable. (g)(1) Pages 33 through 56 of the Guaranty National Corporation's Annual Report on Form 10-K for the year ended December 31, 1995. (g)(2) Pages 3 through 9 of the Guaranty National Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996. (g)(3) Tender Offer Statement on Schedule 14D-1 of Orion Capital Corporation, The Connecticut Indemnity Company, Connecticut Specialty Insurance Company, Design Professionals Insurance Company, EBI Indemnity Company, Employee Benefits Insurance Company, The Fire and Casualty Insurance Company of Connecticut, Security Insurance Company of Hartford dated May 8, 1996. -11- 12 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: May 8, 1996 ORION CAPITAL CORPORATION By /s/ Alan R. Gruber --------------------------------------- Name: Alan R. Gruber Title: Chairman & Chief Executive Officer THE CONNECTICUT INDEMNITY COMPANY CONNECTICUT SPECIALTY INSURANCE COMPANY DESIGN PROFESSIONALS INSURANCE COMPANY EBI INDEMNITY COMPANY EMPLOYEE BENEFITS INSURANCE COMPANY THE FIRE AND CASUALTY INSURANCE COMPANY OF CONNECTICUT SECURITY INSURANCE COMPANY OF HARTFORD By /s/ Alan R. Gruber --------------------------------------- Name: Alan R. Gruber Title: Chairman -12- -----END PRIVACY-ENHANCED MESSAGE-----