-----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, LRXmfm3ugaic2bOYMbY8BEtldYHTDfUgY7OJls6VHq0CPqzbsx1RTKIKgCSf2q2r duoeRojMzU2WUfFcJmKKqQ== 0000950123-97-009132.txt : 19971106 0000950123-97-009132.hdr.sgml : 19971106 ACCESSION NUMBER: 0000950123-97-009132 CONFORMED SUBMISSION TYPE: SC 14D1 PUBLIC DOCUMENT COUNT: 17 FILED AS OF DATE: 19971105 SROS: NYSE 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: SEC FILE NUMBER: 005-43461 FILM NUMBER: 97707846 BUSINESS ADDRESS: STREET 1: 9800 SOUTH MERIDIAN BOULEVARD CITY: ENGLEWOOD STATE: CO ZIP: 80112-5901 BUSINESS PHONE: 3037548400 MAIL ADDRESS: STREET 1: 9800 SOUTH MERIDIAN BLVD CITY: ENGLEWOOD STATE: CO ZIP: 80112-5901 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: ORION CAPITAL CORP CENTRAL INDEX KEY: 0000074931 STANDARD INDUSTRIAL CLASSIFICATION: SURETY INSURANCE [6351] IRS NUMBER: 956069054 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D1 BUSINESS ADDRESS: STREET 1: 9 FARM SPRINGS RD STREET 2: 24TH FLOOR CITY: FARMINGTON STATE: CT ZIP: 06032 BUSINESS PHONE: 8606746600 MAIL ADDRESS: STREET 1: 600 FIFTH AVENUE STREET 2: 24TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10020-2302 FORMER COMPANY: FORMER CONFORMED NAME: EQUITY FUNDING CORP OF AMERICA DATE OF NAME CHANGE: 19760518 FORMER COMPANY: FORMER CONFORMED NAME: TONGOR CORP OF AMERICA DATE OF NAME CHANGE: 19670330 FORMER COMPANY: FORMER CONFORMED NAME: TONGOR CORP DATE OF NAME CHANGE: 19661024 SC 14D1 1 GUARANTY NATIONAL CORPORATION 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 (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. 9 Farm Springs Road Farmington, Connecticut 06032 (860) 674-6600 (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** ---------------------- ---------------------- $105,587,676 $21,117.54
* For purposes of calculating the filing fee only. This calculation assumes the purchase of 2,932,991 shares of common stock, par value $1.00 per share, of Guaranty National Corporation at $36.00 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. [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: $6,333.84 Form or Registration No.: S-4, File No. 333-36073 Filing Party: Orion Capital Corporation Date Filed: September 22, 1997 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") to purchase all outstanding shares of common stock, par value $1.00 per share of the Company (the "Shares"), but not less than 50.01% of such Shares, for a price per Share, of $36.00 net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase dated November 5, 1997 (the "Offer to Purchase"), and the related Letter of Transmittal (which, as amended or supplemented from time to time, together constitute the "Offer"), copies of which are attached hereto as Exhibits (a)(l) and (a)(2), respectively. According to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1997 (the "September 10-Q"), the number of Shares outstanding as of November 3, 1997, was 15,062,933. Orion beneficially owns 80.5% of the outstanding Shares as of the date hereof. The information set forth in "INTRODUCTION," "THE OFFER - -- Section 1; Terms of the Offer; Expiration Date" and "THE OFFER -- Section 6. Effect of the Offer on the Market for the Shares; Listing on the NYSE; Registration Under the Exchange Act; Margin Regulations" 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. Item 2. Identity and Background. (a)-(d) and (g) This Statement is being filed by Orion. The information set forth in "INTRODUCTION," "THE OFFER -- Section 8. Certain Information Concerning Orion" and Annex I of the Offer to Purchase is incorporated herein by reference. (e) and (f) During the last five years, neither Orion nor to the best of their knowledge any of the persons listed in Annex 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. Item 3. Past Contacts, Transactions or Negotiations. (a)-(b) The information set forth in "INTRODUCTION," "SPECIAL FACTORS - -- Background of the Transactions" and "SPECIAL FACTORS -- Interests of Certain Persons in the Transactions; Securities Ownership; Related Transactions" of the Offer to Purchase is incorporated herein by reference. 3 4 Item 4. Source and Amount of Funds or Other Consideration. (a) 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) 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 in "INTRODUCTION," "SPECIAL FACTORS - -- Background of the Transactions," "SPECIAL FACTORS -- Reasons for the Offer and the Merger; Purpose and Structure of the Transactions; Plans After the Offer; Effects of the Offer and the Merger," "THE OFFER -- Section 6. Effect of the Offer on the Market for the Shares; Listing on the NYSE; Registration under the Exchange Act; Margin Regulations" and "THE OFFER -- Section 11. Certain Legal Matters" of the Offer to Purchase is incorporated herein by reference. Item 6. Interest in Securities of the Subject Company. (a)-(b) The information set forth in "INTRODUCTION," "SPECIAL FACTORS - -- Background of the Transactions," "SPECIAL FACTORS -- Reasons for the Offer and the Merger; Purpose and Structure of the Transactions; Plans After the Offer; Effects of the Offer and the Merger," "SPECIAL FACTORS -- Interests of Certain Persons in the Transactions; Securities Ownership; Related Transactions," "THE OFFER -- Section 5. Price Range of Shares; Dividends," "THE OFFER -- Section 8. Certain Information Concerning Orion" and Annex II of 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 in "INTRODUCTION," "SPECIAL FACTORS -- Background of the Transactions," "SPECIAL FACTORS -- Interests of Certain Persons in the Transactions; Securities Ownership; Related Transactions," "THE OFFER -- Section 8. Certain Information Concerning Orion" and "THE OFFER -- Section 11. Certain Legal Matters" of the Offer to Purchase is incorporated herein by reference. Item 8. Persons Retained, Employed or to be Compensated. The information in "INTRODUCTION," and "THE OFFER -- Section 12. Fees and Expenses" of the Offer to Purchase is incorporated herein by reference. Item 9. Financial Statements of Certain Bidders. Not Applicable. 4 5 Item 10. Additional Information. (a) The information in "INTRODUCTION" and "SPECIAL FACTORS -- Reasons for the Offer and the Merger; Purpose and Structure of the Transactions; Plans After the Offer; Effects of the Offer and the Merger" of the Offer to Purchase is incorporated herein by reference. (b)-(e) The information in "INTRODUCTION," "SPECIAL FACTORS -- Reasons for the Offer and the Merger; Purpose and Structure of the Transactions; Plans After the Offer; Effects of the Offer and the Merger," "THE OFFER -- Section 6. Effect of the Offer on the Market for the Shares; Listing on the NYSE; Registration Under the Exchange Act; Margin Regulations," "THE OFFER -- Section 10. Certain Conditions of the Offer" and "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 Orion. (f) Whether or not otherwise specifically referenced in response to the Items of this Statement, the information contained in the Offer to Purchase and the Letter of Transmittal, which are attached hereto as Exhibits (a)(l) and (a)(2) respectively, as well as all terms and conditions of the Offer, are incorporated herein by reference. Item 11. Material to be Filed as Exhibits. (a)(1) Offer to Purchase dated November 5, 1997. (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 October 31, 1997. (a)(7) Press Release issued on November 5, 1997. (a)(8) Summary Advertisement dated November 5, 1997. (a)(9) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (b) Not applicable. (c)(1) Agreement and Plan of Merger, dated as of October 31, 1997 by and between Guaranty National Corporation and Orion Capital Corporation. 5 6 (c)(2) 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)(3) 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)(4) 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)(5) 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. (c)(6) Amendment to Shareholder Agreement dated June 18, 1996 by and among Guaranty National Corporation and Orion Capital Corporation, The Connecticut Indemnity Company, Connecticut Specialty Insurance Company, Design Professionals Insurance Company, EBI Indemnity Company, Employer Benefits Insurance Company, The Fire and Casualty Insurance Company of Connecticut, Securities Insurance Company of Hartford and Security Reinsurance Company. (d) Not applicable. (e) Not applicable. (f) Not applicable. (g) Rule 13e-3 Transaction Statement on Schedule 13E-3 dated November 5, 1997 of Orion Capital Corporation. 6 7 SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: November 5, 1997 ORION CAPITAL CORPORATION By: /s/ Michael P. Maloney ------------------------------------ Name: Michael P. Maloney Title: Senior Vice President, Secretary and General Counsel 7 8 EXHIBIT INDEX
Exhibit Description ------- ----------- (a)(l) Offer to Purchase dated November 5, 1997. (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 October 31, 1997. (a)(7) Press Release issued on November 5, 1997 (a)(8) Summary Advertisement dated November 5, 1997. (a)(9) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (c)(1) Agreement and Plan of Merger, dated as of October 31, 1997 between Guaranty National Corporation and Orion Capital Corporation. (c)(2) 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)(3) 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)(4) 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,
8 9 (c)(5) 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. (c)(6) Amendment to Shareholder Agreement dated June 18, 1996 by and among Guaranty National Corporation and Orion Capital Corporation, The Connecticut Indemnity Company, Connecticut Specialty Insurance Company, Design Professionals Insurance Company, EBI Indemnity Company, Employer Benefits Insurance Company, The Fire and Casualty Insurance Company of Connecticut, Securities Insurance Company of Hartford and Security Reinsurance Company. (d) Not applicable. (e) Not applicable. (f) Not applicable. (g) Rule 13e-3 Transaction Statement on Schedule 13E-3 dated November 5, 1997 of Orion Capital Corporation 9 EX-99.A.1 2 OFFER TO PURCHASE 1 OFFER TO PURCHASE FOR CASH ALL SHARES OF COMMON STOCK (INCLUDING ANY ASSOCIATED STOCK PURCHASE RIGHTS) OF GUARANTY NATIONAL CORPORATION AT $36.00 NET PER SHARE BY ORION CAPITAL CORPORATION THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, DECEMBER 4, 1997, UNLESS THE OFFER IS EXTENDED. THE OFFER IS BEING MADE PURSUANT TO THE AGREEMENT AND PLAN OF MERGER DATED AS OF OCTOBER 31, 1997 (THE "MERGER AGREEMENT") BY AND BETWEEN ORION CAPITAL CORPORATION ("ORION") AND GUARANTY NATIONAL CORPORATION ("GUARANTY"). THE BOARD OF DIRECTORS OF GUARANTY HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, THE OFFER AND THE MERGER, HAS DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE SHAREHOLDERS OF GUARANTY, AND RECOMMENDS ACCEPTANCE OF THE OFFER BY THE SHAREHOLDERS OF GUARANTY. ORION'S OBLIGATION TO PURCHASE SHARES PURSUANT TO THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THE SATISFACTION OR, WHERE APPLICABLE, WAIVER OF THE FOLLOWING CONDITIONS: (i) THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE A NUMBER OF SHARES WHICH, EXCLUDING SHARES OWNED BY ORION AND ITS WHOLLY-OWNED SUBSIDIARIES (THE "TENDER SHARES"), WILL CONSTITUTE AT LEAST 50.01% OF THE TOTAL NUMBER OF OUTSTANDING TENDER SHARES AS OF THE DATE THE SHARES ARE ACCEPTED FOR PURCHASE BY ORION PURSUANT TO THE OFFER (THE "MINIMUM SHARE CONDITION"), AND (ii) ALL REGULATORY APPROVALS, IF ANY, REQUIRED TO CONSUMMATE THE OFFER HAVING BEEN OBTAINED ON TERMS AND CONDITIONS SATISFACTORY TO THE ORION BOARD OF DIRECTORS (THE "REGULATORY APPROVAL CONDITION"). THE OFFER IS ALSO SUBJECT TO OTHER TERMS AND CONDITIONS. SEE THE OFFER--SECTION 10. Orion reserves the right to extend the Offer from time to time in its sole discretion beyond the Expiration Date in order, among other reasons, to permit the conditions to the Offer to be satisfied. Capitalized terms used but not defined above are defined hereinafter. ------------------------ 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 November 5, 1997 2 IMPORTANT Any Guaranty shareholder desiring to tender all or any portion of his or her Shares should either (a) complete and sign the Letter of Transmittal or a facsimile copy thereof in accordance with the instructions in the Letter of Transmittal, and mail or deliver the Letter of Transmittal or such facsimile and any other required documents to State Street Bank and Trust Company (the "Depositary") and either deliver the certificates for such Shares to the Depositary along with the Letter of Transmittal, deliver such Shares pursuant to the procedures for book-entry transfer set forth herein or comply with the guaranteed delivery procedures set forth in THE OFFER--Section 3, or (b) request his or her broker, dealer, commercial bank, trust company or other nominee to effect the transaction for him or her. Any Guaranty shareholder having Shares registered in the name of a broker, dealer, commercial bank, trust company or other nominee is urged to contact such broker, dealer, commercial bank, trust company or other nominee if he or she desires to tender such Shares. Any Guaranty shareholder who desires to tender Shares and whose certificates for such Shares are not immediately available or who cannot comply with the procedures for book-entry transfer on a timely basis or who cannot deliver all required documents to the Depositary prior to the Expiration Date, may tender such Shares by following the procedure for guaranteed delivery set forth in THE OFFER--Section 3. Questions and requests for assistance may be directed to the Information Agent or to the Dealer Manager at their respective addresses and telephone numbers set forth on the back cover of this Offer to Purchase. Requests for additional copies of this Offer to Purchase and the Letter of Transmittal may be directed to the Information Agent or to the Dealer Manager or to brokers, dealers, commercial banks or trust companies. ii 3 TABLE OF CONTENTS
PAGE ---- INTRODUCTION.......................................................................... 1 SPECIAL FACTORS....................................................................... 2 Background of the Transactions...................................................... 2 Fairness of the Offer and the Merger................................................ 7 Reasons for the Offer and the Merger; Purpose and Structure of the Transactions; Plans After the Offer; Effects of the Offer and the Merger.......................... 8 Interests of Certain Persons in the Transactions; Securities Ownership; Related Transactions........................................................................ 9 No Dissenters' Rights in the Offer.................................................. 11 Certain Federal Income Tax Consequences............................................. 12 Source and Amount of Funds -- Financing of the Offer and the Merger................. 12 THE OFFER............................................................................. 12 1. Terms of the Offer; Expiration Date........................................... 12 2. Acceptance for Payment and Payment for Shares................................. 14 3. Procedures for Accepting the Offer and Tendering Shares....................... 15 4. Withdrawal Rights............................................................. 17 5. Price Range of Shares; Dividends.............................................. 18 6. Effect of the Offer on the Market for the Shares; Listing on the NYSE; Registration Under the Exchange Act; Margin Regulations..................... 18 7. Certain Information Concerning Guaranty....................................... 19 8. Certain Information Concerning Orion.......................................... 22 9. Dividends and Other Distributions............................................. 23 10. Certain Conditions of the Offer............................................... 24 11. Certain Legal Matters......................................................... 26 12. Fees and Expenses............................................................. 31 13. Miscellaneous................................................................. 32 Annex I -- Directors and Executive Officers of Orion.................................. I-1 Annex II -- Guaranty Share Ownership and Other Information............................ II-1
iii 4 To the Holders of Common Stock of GUARANTY NATIONAL CORPORATION: INTRODUCTION Orion Capital Corporation, a Delaware corporation ("Orion"), hereby offers to purchase all outstanding shares of common stock, par value $1.00 per share (the "Shares"), of Guaranty National Corporation, a Colorado corporation ("Guaranty"), at $36.00 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"). 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 Guaranty and its rights agent and all benefits that may inure to holders thereof. Orion has been advised by Guaranty 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 or the Merger referred to below. See THE OFFER--Section 11. Tendering shareholders 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 CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE (AS DEFINED HEREIN), A NUMBER OF SHARES WHICH, EXCLUDING THE SHARES OWNED BY ORION AND ITS WHOLLY-OWNED SUBSIDIARIES (THE "TENDER SHARES"), WILL CONSTITUTE AT LEAST 50.01% OF THE TOTAL NUMBER OF OUTSTANDING TENDER SHARES AS OF THE DATE THE SHARES ARE ACCEPTED FOR PURCHASE BY ORION PURSUANT TO THE OFFER (THE "MINIMUM SHARE CONDITION"); AND (II) ALL REGULATORY APPROVALS, IF ANY, REQUIRED TO CONSUMMATE THE OFFER HAVING BEEN OBTAINED ON TERMS AND CONDITIONS SATISFACTORY TO THE ORION BOARD OF DIRECTORS (THE "REGULATORY CONDITION"). THE OFFER IS ALSO SUBJECT TO OTHER TERMS AND CONDITIONS. SEE THE OFFER--SECTION 10. The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of October 31, 1997 (the "Merger Agreement"), by and between Orion and Guaranty. The Merger Agreement provides, among other things, that as promptly as practicable following the completion of the Offer and the satisfaction or waiver of certain conditions, including the purchase of Shares pursuant to the Offer and satisfaction of the Minimum Share Condition (sometimes referred to herein as the "consummation" of the Offer), a newly formed wholly-owned subsidiary of Orion, GNC Transition Corp. ("Transition"), will be merged with and into Guaranty (the "Merger"), with Guaranty as the surviving corporation (the "Surviving Corporation"), with the result that all the outstanding Shares will be owned directly or indirectly by Orion. In the Merger, each issued and outstanding Share (other than Shares of holders exercising dissenters' rights in the Merger) not owned directly or indirectly by Guaranty will be converted into and represent the right to receive $36.00 in cash, without interest (the "Merger Price"); provided, however, that any Shares owned by Orion will be cancelled and the Merger Price will not be paid in respect of any such Shares. See THE OFFER--Section 11. THE BOARD OF DIRECTORS OF GUARANTY (THE "GNC BOARD" OR "GNC BOARD OF DIRECTORS") HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, THE OFFER AND THE MERGER, DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE SHAREHOLDERS OF GUARANTY, AND RECOMMENDS ACCEPTANCE OF THE OFFER BY THE SHAREHOLDERS OF GUARANTY. 5 Salomon Brothers Inc, ("Salomon") financial advisor to the Special Committee of Independent Directors (as defined under SPECIAL FACTORS -- Background of the Transactions) of Guaranty, has delivered to the Committee its opinion to the effect that the consideration to be received by the holders of Shares in the Offer and the Merger is fair to such holders from a financial point of view. A copy of such opinion in writing is to be included with Guaranty's Solicitation/Recommendation Statement on Schedule 14D-9 with respect to the Offer (the "Schedule 14D-9") which will be filed with the Securities and Exchange Commission (the "SEC") in accordance with the Rules and Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and mailed to holders of the Shares and which should be read carefully in its entirety for a description of the assumptions made, matters considered and limitations on the review undertaken by Salomon. According to Guaranty's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997 (the "September 10-Q"), filed with the SEC, there were 15,062,933 Shares outstanding as of November 3, 1997. On the date hereof, Orion and its Subsidiaries own in the aggregate 12,129,942 Shares, representing approximately 80.5% of the Shares outstanding at such date. The Tender Shares subject to the Offer represent approximately 19.5% of the outstanding Shares. According to Guaranty's 1996 Annual Report on Form 10-K, the approximate number of holders of Shares as of February 28, 1997 was 2,400, including both record and beneficial shareholders. Certain information included in this Offer to Purchase about Guaranty, about its advisors and about contacts of Guaranty with parties other than Orion has been taken from, or is based upon, publicly available documents on file with the SEC and is qualified in its entirety by reference to such documents. Such documents may be obtained as described under THE OFFER--Section 7. The Shares are listed and traded on the New York Stock Exchange (the "NYSE"). Certain of the executive officers and directors of Orion are also directors of Guaranty, and certain non-public information concerning Guaranty has been made available to those directors in their capacity as directors of Guaranty. See, SPECIAL FACTORS--Background of the Offer and SPECIAL FACTORS -- Certain Relationships; Related Transactions; Interests of Certain Persons. Although Orion does not have any knowledge that would indicate that any statements contained herein which are based on such public documents or on information concerning Guaranty otherwise provided to Orion are untrue, Orion cannot take responsibility for the accuracy or completeness of such public documents or for any failure by Guaranty 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. SPECIAL FACTORS BACKGROUND OF THE TRANSACTIONS Since August, 1984, Orion has had, directly or through wholly-owned subsidiaries, a substantial ownership interest in Guaranty. In November 1988, Orion, through wholly-owned subsidiaries, increased its ownership of Guaranty from 49.7% to 100%. On November 20, 1991, Orion sold 6,250,000 Shares in an initial public offering at a net price per share of $13.60, reducing its ownership interest to 49.3% of the then outstanding Shares. Since then, Guaranty has operated as an independent publicly-traded company. In connection with the public offering in 1991, Orion, certain of its subsidiaries and Guaranty entered into the Shareholder Agreement (as subsequently amended, the "Shareholder Agreement"). On July 18, 1995, Guaranty acquired all the capital stock of Viking Insurance Holdings, Inc. ("Viking") for a total consideration of $102,700,000 (subject to certain adjustments). Guaranty financed the acquisition of Viking by selling 1,550,000 Shares in a European offering pursuant to Regulation S under the Securities Act, and utilizing a portion of a new $110,000,000 credit facility from a group of lending banks. At that time, certain of Orion's wholly-owned subsidiaries held $20,896,000 of Guaranty's subordinated promissory notes due 2003 (the "2003 Notes") which had been issued in November 1991. To facilitate Guaranty's acquisition of Viking, the entire principal amount of the 2003 Notes was converted in July and October 1995 into 1,326,128 Shares at $15.76 per share, the same net price per Share received by Guaranty in its Regulation S offering. The conversion of the 2003 Notes restored Orion to its previous ownership level in Guaranty of slightly less than 50% of the outstanding Shares following the increase in the number of Shares resulting from Guaranty's Regulation S offering. From November 1995 through March 1996, Design Professionals Insurance Company, a wholly-owned subsidiary of Orion, acquired an additional 80,000 Shares in open market purchases. 2 6 In December 1995 and February 1996, representatives of companies in the insurance industry expressed an interest to the late Mr. Alan R. Gruber, then the Chairman and Chief Executive Officer of Orion, in acquiring from Orion its Shares in connection with a possible acquisition of Guaranty. In each of these cases, such companies subsequently indicated that their managements had decided to pursue other opportunities. No price was discussed in any case for the Shares, and no offer was made. In March 1996, a financial intermediary told Orion that he had proposed to a third-party entity the possible purchase from Orion of its Shares in connection with a possible purchase of Guaranty. The financial intermediary was not retained by Orion to effect such a transaction and Orion has no information to the effect that he was retained to do so by the third party. Orion had no further contact, and received no offer, concerning the proposal. On May 8, 1996, Orion and certain of its wholly-owned subsidiaries (the "Subsidiaries") commenced a tender offer for up to 4,600,000 Shares (the "1996 Tender Offer"), a number which would bring Orion's ownership to more than 80% of the outstanding Shares and allow Orion to file a consolidated federal income tax return which includes Guaranty. Prior to consummation of the 1996 Tender Offer and in connection with it, the Shareholder Agreement was amended. Orion and the Subsidiaries agreed not to purchase, prior to July 1, 1999, additional Shares (if after giving effect to such purchase they would own more than 81% of the outstanding Shares) other than pursuant to an offer involving consideration equal to at least $18.50 per Share and made for all Shares not held by them, such offer to be conditioned upon the acceptance thereof by at least a majority of the Shares then outstanding and not held by Orion and its Subsidiaries. On July 2, 1996, Orion and the Subsidiaries completed the 1996 Tender Offer for 4,600,000 Shares. On July 2, 1996, Orion also signed a Memorandum of Understanding with respect to the settlement and dismissal of three lawsuits which had been brought as a result of the 1996 Tender Offer. Pursuant to the terms of the Memorandum of Understanding, all pending litigation was terminated and Orion confirmed the undertaking with respect to the purchase of additional Shares described above, which it had made while the 1996 Tender Offer was pending. On July 17, 1996, Orion purchased, for $14.50 per Share, an additional 120,000 Shares, which together with Shares purchased in the 1996 Tender Offer, increased Orion's aggregate ownership of Shares to approximately 81.0%. Since July 17, 1996, Orion and its subsidiaries have not purchased any Shares. Orion and the Subsidiaries, beneficially own, in the aggregate, 12,129,942 Shares. Set forth below is the number of Shares held by Orion and the Subsidiaries, respectively, as of the date of this Offer to Purchase:
NO. OF SHARES %* Orion Capital Corporation......................................... 1,145,000 7.60 The Connecticut Indemnity Company................................. 1,381,168 9.17 Connecticut Specialty Insurance Company........................... 215,154 1.43 Design Professionals Insurance Company............................ 317,115 2.10 EBI Indemnity Company............................................. 630,379 4.18 Employee Benefits Insurance Company............................... 618,612 4.11 The Fire and Casualty Insurance Company of Connecticut............ 637,998 4.24 Security Insurance Company of Hartford............................ 7,116,802 47.25 SecurityRe, Inc................................................... 67,714 0.45 ---------- ----- 12,129,942 80.53% ========== =====
The principal business address for Orion and the Subsidiaries is 9 Farm Springs Road, Farmington, Connecticut 06032. - ------------------------------ * Based on the number of shares reported by Guaranty in its September 10-Q to be outstanding as of November 3, 1997. 3 7 Although each of Orion's Subsidiaries has sole power to vote and dispose of its Shares and makes its own investment decisions, Orion is deemed by its direct or indirect voting control of the Subsidiaries to be able ultimately to direct the acquisition, voting and disposition of the Shares held by the Subsidiaries. By mid-1997, senior management of Orion determined that if Guaranty is to be a significant factor in the nonstandard personal auto insurance market, it would be desirable for it to expand its base of business. That conclusion was in part based on the consolidation of the nonstandard auto insurance business that was taking place during the first and second quarters of 1997. To some extent, Guaranty itself has the capital capacity to expand its business base by internal and external growth, but certain strategic alternatives being considered by it will likely require additional capital if they are to be accomplished. Orion has concluded that such additional capital support can be more efficiently furnished if Guaranty becomes a wholly-owned subsidiary of Orion. In June, 1997, during a discussion of Guaranty's strategic alternatives among W. Marston Becker, Chairman and Chief Executive Officer of Orion, James R. Pouliot, President and Chief Executive Officer of Guaranty, and Michael L. Pautler, Senior Vice President of Finance and Treasurer of Guaranty, the possible advantage of a full consolidation was raised but not discussed in any detail. On July 8, 1997, an Executive Committee meeting of the Orion Board of Directors was held to explore the various aspects of the potential acquisition by Orion of the Shares it does not own. The Executive Committee authorized Mr. Becker to open a dialogue with Guaranty to discuss the potential of such a transaction. On that same day, Mr. Becker telephoned Mr. Pouliot to continue the discussion of the strategic alternatives of Guaranty. During that discussion, Mr. Becker expressed the view that consideration might be given to having Orion acquire the remaining interest in Guaranty, not already owned by Orion, through a merger or similar transaction. Based on the closing sales price of $23.9375 of Shares on July 8, 1997, Mr. Becker suggested a possible price of $26.00. He further suggested that a merger in which stock of Orion would be exchanged for the Shares not already owned by Orion on an agreed ratio seemed to Orion to produce the most favorable after-tax result to individual shareholders of Guaranty (noting that certain institutional shareholders might be less concerned with the form of consideration). He further stated that among the holders of Shares, there were a significant number of holders who were also shareholders of Orion, concluding that since those persons had already chosen to invest in Orion, they presumably would be well disposed to continuing their investment in Guaranty on an indirect basis by increasing their holdings of Orion Common Stock. He suggested that before any discussions took place concerning the desirability of a merger of Guaranty, the financial adviser of Orion meet with a designated financial adviser to Guaranty to discuss the relative valuation of the two entities. He further suggested that any financial adviser retained by Guaranty report to the directors of Guaranty who are not employees or directors of Orion. Subsequently, Orion was informed that Guaranty had retained the firm of Salomon to represent the Independent Directors in such discussions. During the months of July and August 1997, Salomon and Orion's financial adviser, Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), conducted due diligence reviews at Guaranty and Orion and had several conversations concerning valuation principles which might be relevant to a merger of Guaranty and a newly formed subsidiary of Orion. No agreement was reached by them as to the valuation of the Shares not already owned by Orion and the Subsidiaries or even as to a mutually-agreed range of values. Orion was advised that further due diligence and analysis would be required by Salomon. On September 2, 1997, an Executive Committee meeting of the Orion Board of Directors was held to discuss the status of the discussions between Orion and Guaranty. The Executive Committee authorized Mr. Becker to send a letter to the Guaranty Board of Directors to propose a meeting to discuss the potential for a transaction. On September 4, 1997, Mr. Becker sent a letter to the Guaranty Board of Directors and requested that a special meeting of the Guaranty Board of Directors be held following a regular meeting of the Orion Board of Directors which was to be held in Colorado on September 12. The purpose of the meeting was to discuss with the entire Guaranty Board why Mr. Becker felt the combination of the two companies was strategically important for Guaranty and the results, from his perspective, of the discussions which had taken place since July between Salomon and DLJ. In the letter, Mr. Becker stated he would be prepared to suggest to the Orion 4 8 Board of Directors that Orion acquire, most likely through a merger, the remaining Shares it did not own for a value of $30.25 per share (partially cash and partially stock). On September 12, 1997, separate meetings of the Boards of Directors of Orion and of Guaranty were held at the headquarters of Guaranty in Englewood, Colorado. At the Orion meeting, the Board of Directors authorized Mr. Becker to discuss with the Guaranty Board of Directors the work which had been done by DLJ. Anticipating that Salomon had informed the Independent Directors of Guaranty of its conclusions concerning its valuation of the Shares not already owned by Orion and the Subsidiaries, Orion's Board of Directors authorized the Executive Committee of the Orion Board to formulate an offer to Guaranty if it appeared that there was substantial agreement with the recommendations to Guaranty's Independent Directors by Salomon. At the meeting on September 12 of the Guaranty Board of Directors, Orion was informed that the independent directors of Guaranty had not formally met with Salomon and had not reached any conclusion as to the value of the Shares not already owned by Orion and the Subsidiaries. Nonetheless, Mr. Becker presented to the Guaranty Board of Directors data which had been developed by Orion and DLJ as to the value of Guaranty and as to the form of transaction and form of consideration which Orion believed would be most advantageous to the shareholders of Guaranty. He indicated to the Board of Guaranty that he would be prepared to recommend a price of $30.25 per Share (partially cash and partially stock) to Orion's Board of Directors and was informed that the Independent Directors of Guaranty were not at that time in a position to consider an offer without further advice from Salomon. Orion was informed that the Independent Directors of Guaranty would organize themselves to evaluate the proposal. On September 15, 1997, one of the Independent Directors of Guaranty telephoned Mr. Becker and informed him that the Independent Directors had met with Salomon and discussed with Salomon its evaluation study. He further stated that the financial adviser wished to review the results of Guaranty's operations since the adviser's last meeting with senior management. Finally, he suggested the desirability of additional meetings involving Mr. Becker and one or more of Guaranty's Independent Directors. On September 16, 1997, Mr. Becker was asked, as Chairman of Guaranty, to convene a meeting of its Executive Committee at which the Independent Directors could be formally designated as a special committee. That meeting was called and a Special Committee of Independent Directors was appointed with Dennis J. Lacey as its Chairman; the other director-members are Tucker H. Adams, M. Ann Padilla, and Richard R. Thomas (such directors of Guaranty being referred to as the "Independent Directors"). Mr. Becker was then asked, as the Chairman of Orion, to meet with Mr. Lacey, and the legal and financial advisers of both Orion and the Independent Directors, to discuss further a potential transaction and to attempt to reach agreement on value. That meeting took place on September 17, 1997, in Denver, Colorado. At the September 17 meeting, a representative of Salomon presented an analysis of its valuation approach but noted that his firm was not yet in a position to render an opinion as to the fairness of any particular price. The representatives of Orion concluded, based on exhibits prepared by and remarks made by Guaranty's advisers, that a price of approximately $34.00 was a fair price upon which to base an offer for the Shares. Mr. Lacey suggested a price of $36.00, but at the conclusion of discussions, Mr. Becker proposed an offer of $34.00 per Share, payable 80% in cash and 20% in Orion Common Stock with a formula designed to adjust for changes in excess of approximately 7 1/2% in the closing market price on September 17 of Orion Common Stock, subsequent to September 17 and prior to the exchange date, and with provision for termination rights if the market price of Orion Common Stock should rise or fall by approximately 15% or more. Orion's advisers further recommended that this transaction be accomplished by a tender offer for all Shares not owned by Orion, followed by a merger in which any Shares not properly tendered could be acquired. During the evening of September 17, Mr. Lacey telephoned Mr. Becker and informed him that the Independent Directors were not in a position to make a recommendation concerning the offer which had been extended. Mr. Becker indicated to him that Orion's opinion was that the discussion process would best be served by making a specific proposal containing those elements which seemed to Orion to be fair to the shareholders of Guaranty and to recognize fully the value of the outstanding Shares not owned by Orion and the Subsidiaries. On September 18, Orion issued a press release announcing that it would make an offer 5 9 directly to the shareholders of Guaranty so that each Guaranty shareholder could make his or her own judgment as to whether to accept Orion's offer. On September 22, 1997, Orion filed with the SEC a Registration Statement on Form S-4 with respect to an offer to exchange for each Share not owned by it or its wholly-owned subsidiaries, $27.20 in cash and $6.80 in shares of Orion Common Stock, subject to certain adjustments as described above (the "Exchange Offer"). Following the filing, Orion's representatives inquired as to when the Independent Directors of Guaranty would make a recommendation pursuant to Rule 14d-9 with respect to the Exchange Offer and were informed that no filing would be made pursuant to that Rule until after the Registration Statement on Form S-4 was declared effective by the SEC. On October 21, 1997, Mr. Becker received a telephone call from Mr. Lacey in which Mr. Lacey inquired as to the progress being made by the SEC in reviewing Orion's Form S-4 filing. He also asked whether he was correct in believing that Orion would increase its offer price to $36.00 per share if the consideration were all cash and if the Independent Directors found that price acceptable. Mr. Becker asked whether the Independent Directors and Salomon had concluded that $36.00 represented fair value to the holders of Shares and Mr. Lacey responded that no action had been taken but that he would request formal consideration of that price if Mr. Becker thought that would be a productive step. Mr. Becker agreed that it would be and said that he would immediately convey any finding of the Independent Directors to the Executive Committee of Orion's Board of Directors. Messrs. Becker and Lacey also discussed whether, if a mutually-agreeable price could be reached, the Exchange Offer should proceed or a merger be proposed instead. During the afternoon of October 27, Mr. Lacey reported to Mr. Becker that he was prepared to recommend to the Independent Directors a cash price of $36.00 net to the shareholder plus a contingent payment, in the event Orion should sell Guaranty within twelve months, equal to 50% of the difference between $36.00 and the per-share sales price received by Orion in any such sale. He further stated that he believed that Salomon would report favorably on the fairness of that price, as a financial matter, to the holders of the Shares subject to Orion's offer. That proposal was reported to the Executive Committee of the Orion Board of Directors by Mr. Becker on October 28. The Executive Committee concluded, and Mr. Becker then reported to Mr. Lacey, that although Orion has no present intention to sell Guaranty, it would accept a contingent sharing proposal and would, in fact, raise the percentage contingently shared to 75%, but because of the administrative expense involved in establishing and maintaining records of persons entitled at any point in time to a contingent shared right, the possibility that the offering of such rights might require registration under applicable state or federal securities laws and the uncertainty that might be created as to whether a future ordinary-course restructuring or repositioning by Guaranty of its assets or operations constituted a "triggering" event, Orion would be prepared to offer $35.00 (plus 75% of any future contingent profit) if the Independent Directors insisted on the contingent profit-sharing feature. Mr. Becker did, however, indicate that the $36.00 price level, entirely in cash, and without the contingent-sharing feature, was also acceptable. Mr. Lacey responded that he believed that the $36.00 price without the contingency would be preferred by the Independent Directors, and he would recommend it to them. Mr. Becker said that he had authority to make such a proposal and he and Mr. Lacey agreed that an appropriate agreement should be drawn up for presentation to the Boards of Directors of Guaranty and Orion. On October 30, 1997, the Board of Directors of Guaranty unanimously approved the Agreement and Plan of Merger and on October 31, 1997, it was approved unanimously by the Board of Directors of Orion. Following those meetings, the SEC was notified by Orion that it would withdraw its Registration Statement on Form S-4 with respect to the proposed Exchange Offer. On October 31, 1997, a press release was issued announcing that Orion and Guaranty had entered into the Merger Agreement, which provides for the making of the Offer. For a description of the Merger Agreement, see THE OFFER--Section 11. Guaranty Board Composition; Orion Nominees. Messrs. W. Marston Becker, Chairman and Chief Executive Officer of Orion, Vincent T. Papa, Senior Vice President of Orion and Chairman and Chief Executive Officer of Wm. H. McGee & Co., Inc., a wholly-owned subsidiary of Orion, and William J. 6 10 Shepherd, a director of Orion, currently serve as Orion's designated directors on Guaranty's Board. Mr. Robert B. Sanborn, formerly the President of Orion and formerly an Orion designee on the Guaranty Board, and now a senior consultant of Orion, was asked by Guaranty to continue as a director of Guaranty following his retirement as President of Orion. Mr. Sanborn is currently a director of Orion but is not an Orion-designated director of Guaranty. Mr. Sanborn receives the regular fees and other benefits provided to all non-employee directors of Guaranty. Mr. Roger B. Ware resigned as a member of Orion's Board of Directors as of September 11, 1997. He subsequently advised Orion that his reason was to avoid any appearance of a conflict of interest during the Board discussions scheduled for September 12. Mr. Ware continues as a director of Guaranty and is the beneficial owner of 92,071 Shares. See Annex II to this Offer to Purchase. Mr. Ware was formerly the President and Chief Executive Officer of Guaranty. Messrs. Sanborn and Shepherd are two of the four members of Guaranty's Compensation Committee. Mr. Shepherd is the Chairman of both Orion's Compensation Committee and Guaranty's Compensation Committee. The Shareholders Agreement provides that so long as Orion or its subsidiaries beneficially own in the aggregate 30% or more of the voting securities of Guaranty, Orion will continue to have the right to designate three nominees to Guaranty's Board (one of whom will be the Chairman of the Board), and so long as Orion or its subsidiaries beneficially own 20% or more of Guaranty's voting securities, Orion will have the right to designate two nominees. Upon consummation of the Offer, the Shareholder Agreement will terminate. See THE OFFER--Section 11. Orion may also require that Guaranty's Compensation Committee include Orion's nominees to Guaranty's Board. None of Orion's nominees, other than Mr. Shepherd, receives any compensation from Guaranty, including any retainer fee or attendance fee for his services, except for travel expenses in connection with attendance at directors' meetings. Orion's nominees intend, in all deliberations of the Guaranty Board with respect to the Offer, to be guided by the advice of legal counsel to Guaranty as to when and to what extent they should be present at and participate in Board discussions. They intend, however, that all decisions and recommendations of the Guaranty Board with respect to the Offer be made or taken by action of directors of Guaranty who are not officers or directors of Orion. The Guaranty Board has 6 members who are not designees of or officers or directors of Orion: Tucker Hart Adams, Dennis J. Lacey, M. Ann Padilla, James R. Pouliot, Richard R. Thomas and Roger B.Ware. FAIRNESS OF THE OFFER AND THE MERGER Orion believes that the Offer and the Merger are fair to the unaffiliated holders of Shares to whom it is directed. In concluding that the Offer and the Merger are fair to such shareholders of Guaranty, Orion has considered, among other matters, (i) that the $36.00 in cash per Share price represents a premium of 10.8% over the closing sale price of $32.50 per Share as reported by the NYSE on September 17, 1997, the date prior to the issuance of the press release announcing Orion's intent to make the proposed Exchange Offer (the "September Press Release Date"), a 24.7% premium over the closing sale price of $28.875 on September 10, one week prior to the September Press Release Date, and a 26.6% premium over the closing sale price of $28.4375 on August 18, one month prior to the September Press Release Date (ii) that the $36.00 per Share price represents a premium of 48.5% over the closing sale price of $24.25 on July 7, 1997, the day prior to the commencement of discussions with Guaranty; (iii) that the $36.00 per Share price represents a multiple of 1.94x Guaranty's net book value per share of $18.51 as of September 30, 1997 and a multiple of 2.21x Guaranty's net tangible book value per share of $16.26 as of September 30, 1997 (Orion has made no analysis of the liquidation value of Guaranty and therefore has no basis for expressing an opinion as to the comparison of the Offer Consideration to liquidation value); (iv) historical market prices of the Shares since Guaranty became a public company, including the average daily closing stock price for the 12 months ended June 30, 1997 of $17.34; (v) Orion's evaluation of competitive trends and other conditions in the markets in which Guaranty operates; (vi) Orion's knowledge of the business, historical results of operations and the properties, assets and earnings of Guaranty and its recent financial and operating performance; (vii) the $18.50 per Share purchase price that Orion and its wholly-owned subsidiaries paid in July 1996 to purchase up to 4,600,000 shares of Guaranty pursuant to the 1996 Tender Offer and the $14.50 price per Share paid by Orion for an additional 120,000 Shares on July 17, 1996 in open-market purchases; (viii) the plans of Guaranty to expand 7 11 its business through internal growth and acquisition and the ability of Guaranty to carry out its plans with assets on hand and cash expected to be generated from operations, (ix) the fact that Orion already beneficially owns approximately 81% of the outstanding Shares, making any "control" premium for the non-Orion Shares inapplicable, and (x) the $36.00 per Share purchase price fairly reflects the valuation suggested by the Special Committee of Independent Directors of Guaranty. For additional information on Share prices, see THE OFFER--Section 6. The foregoing discussion of the information and factors considered by Orion is not intended to be exhaustive. In view of the wide variety of factors considered in connection with the determination of the Offer consideration and the Merger Price and the evaluation of the fairness of the Offer and the Merger, Orion did not find it practicable to, and did not, quantify or otherwise attempt to assign relative weights to the foregoing factors or determine that any factor was of particular importance. Rather, Orion viewed its position as being based on the totality of the information presented to and considered by it. On balance, however, Orion viewed the factors set forth in items (i) through (iii), (v), (vi) and (viii) through (x) as very influential to its decision and the remainder of lesser significance. Orion has not obtained, or sought to obtain, any report, opinion or appraisal from an outside party, including, without limitation, an investment banker's opinion, as to the fairness of the Offer and the Merger to unaffiliated holders of Shares. Orion's Board of Directors has received a report from DLJ on various techniques that might be utilized to assist in determining the price and structure of a possible transaction. REASONS FOR THE OFFER AND THE MERGER; PURPOSE AND STRUCTURE OF THE TRANSACTIONS; PLANS AFTER THE OFFER; EFFECTS OF THE OFFER AND MERGER The purpose of the Offer and the Merger is for Orion to acquire the entire equity of Guaranty. Orion believes it can provide to Guaranty, as a wholly-owned subsidiary, access to capital in amounts and on terms that may not be available to Guaranty as an independent entity. In order to place Guaranty in a position to carry out a variety of potential strategic alternatives on a timely and adequately-financed basis, and to protect the significant investment which Orion presently has in Guaranty, Orion determined to seek to acquire the Shares which it does not presently own. To the extent that any Shares remain outstanding following completion of the present Offer, Orion will acquire such Shares in the Merger. Orion believes that the synergistic effects of the Merger and the full consolidation of Guaranty will result in a positive impact on the long-term growth potential of the combined companies. Upon consummation of the Offer, the Shareholder Agreement will immediately terminate. Orion presently intends, as soon as practicable after consummation of the Offer, to seek to have Transition effect a merger with and into Guaranty. If the Minimum Share Condition is satisfied, Orion and its Subsidiaries, following consummation of the Offer, will own 90.3% of the Shares outstanding (based on the number of Shares outstanding as of November 3, 1997), and Orion will be able to effect the Merger without the consent of the Board of Directors or shareholders of Guaranty pursuant to Section 7-111-104 of the Colorado Business Corporation Act. For additional information about the Merger, see THE OFFER--Section 11. The Subsidiaries will not tender Shares in the Offer. Orion understands that directors and executive officers of Orion who beneficially own Shares will tender them for purchase pursuant to the Offer. See Annex II to this Offer to Purchase. Orion has been advised by Guaranty that it expects that officers and directors of Guaranty owning Shares will tender them pursuant to the Offer. For information about the executive officers and directors of Guaranty and their ownership of Shares and options thereon, see Annex II to this Offer to Purchase. See also SPECIAL FACTORS--Interests of Certain Persons in the Transactions; Securities Ownership; Related Transactions. For additional information about certain effects of the Offer and the Merger, see THE OFFER-- Section 11. For a discussion of certain federal income tax consequences of the Offer and the Merger as contemplated in this Offer to Purchase, see SPECIAL FACTORS--Certain Federal Income Tax Consequences. As an independent holding company, Guaranty continually evaluates potential acquisitions and potential dispositions of assets. As described in the September 10-Q, on October 20, 1997, Guaranty announced plans to purchase Unisun Insurance, (which is primarily a personal lines company), is currently having discussions 8 12 with several companies concerning the purchase of their nonstandard automobile insurance operations and evaluates from time to time inquiries made with respect both to the possible sale by and purchase by Guaranty of assets. Guaranty is, as noted above, considering several acquisition opportunities and recently provided publicly available data to an entity which expressed an interest in a particular segment of Guaranty's business; however, no non-public data has been provided, no decision has been made to sell and no offer to purchase has been received. Subsequent to the Merger, Orion's and Guaranty's management will continue to evaluate these and other potential opportunities as a part of the ordinary course of their business. Orion, otherwise, has no present plans for disposition of assets or businesses of Guaranty, but may engage in such transactions in the future. From time to time in the past, Orion and Guaranty have discussed areas in which the operations of both companies can be coordinated to the benefit of each. Those discussions predated both the making of the Offer and of the Exchange Offer, are ongoing and are expected to continue whether or not the Offer and the Merger are consummated. If, however, the Merger is consummated, Orion expects that opportunities for joint operating efficiencies will increase. Except for such discussions, as otherwise set forth in this Offer to Purchase, and as contemplated in the existing strategic plans of Guaranty, Orion has no present plan or proposal which relates to or would result in (i) an extraordinary corporate transaction, such as a merger, reorganization or liquidation of Guaranty or any of its significant subsidiaries, (ii) a sale or transfer of a material amount of assets of Guaranty or any of it subsidiaries, (iii) any material changes in Guaranty'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 Guaranty, (v) any change in the present board of directors of Guaranty, including, but not limited to, any plan or proposal to change the number 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 Guaranty being delisted from a national securities exchange or ceasing to be authorized to be quoted on an inter-dealer quotation system of a registered national securities association or becoming eligible for termination or registration pursuant to Section 12(g)(4) of the Exchange Act or the suspension of Guaranty's obligation to file reports pursuant to Section 15(d) of the Exchange Act. INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS; SECURITIES OWNERSHIP; RELATED TRANSACTIONS Directors and Officers. As indicated elsewhere in this Offer to Purchase, Orion and its Subsidiaries have entered into several agreements with Guaranty and its subsidiaries. See SPECIAL FACTORS--Background of the Offer and SPECIAL FACTORS--Reasons for the Offer and the Merger; Purpose and Structure of the Transactions; Plans After the Offer; Effects of the Offer and the Merger. Pursuant to the Shareholder Agreement between Orion and Guaranty, Messrs. Becker, Papa and Shepherd, have been nominated as directors of Guaranty, and the Shareholder Agreement also provides that Orion has the right on up to three occasions to require Guaranty to register under the Securities Act Shares owned by Orion and its wholly-owned subsidiaries, which right expires in November 1997. SPECIAL FACTORS--Background of the Offer. In addition, Guaranty has agreed to use its best efforts to include such Shares in any underwritten public offering of its Shares under the Securities Act and to pay all expenses in connection with the first two registrations. In 1994, the Shareholder Agreement was amended to provide for an increase in the maximum number of directors, including directors independent of management. In March 1995, it was amended to increase the number of directors to eleven and in connection with the 1996 Tender Offer. Pursuant to the Merger Agreement, the Shareholder Agreement will terminate upon consummation of the Offer. For information about the ownership of Shares by directors and officers of Orion, see Annex II to this Offer to Purchase. Securities Ownership. Based on information provided by Guaranty, the only holder of 5% or more of the Shares is Orion and its Subsidiaries. Based on information provided by Guaranty, as of October 31, 1997, the directors and executive officers of Guaranty beneficially own (including Shares outstanding, Shares subject to options exercisable within 60 days of October 31, 1997 and restricted Shares) an aggregate of 239,543 Shares. See Annex II to this Offer to Purchase. Except as described above, in SPECIAL FACTORS--Background of the Offer, as set forth elsewhere in this Offer to Purchase and in Annex II hereto, neither Orion, nor to the best knowledge of Orion, any of the persons listed in Annex I hereto or any associate 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 9 13 or interests therein, 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. For information about the directors and officers of Guaranty and their ownership of Shares and interests therein, see Annex II to this Offer to Purchase. See also "Related Transactions" below. Related Transactions. Most state insurance codes require transactions between a licensed insurance company and its affiliates to be fair and reasonable. In the case of certain material transactions, an insurance company must obtain prior approval of the transaction from the appropriate state insurance department. Reinsurance agreements, tax sharing agreements, loans, guarantees, sales and other transactions of a material size, as well as management service and cost sharing agreements must similarly be approved. In the ordinary course of business, Guaranty's insurance subsidiaries reinsure certain risk with other companies. Such arrangements serve to limit their maximum loss on large risks. To the extent that any reinsuring company is unable to meet its obligations, Guaranty's insurance subsidiaries would not be relieved of their liabilities. For 1994, Guaranty National Insurance Company ("GNIC") and Landmark American Insurance Company ("LAIC"), wholly-owned subsidiaries of Guaranty, were parties to an 100% reinsurance agreement with an Orion subsidiary. Premiums written and ceded under this agreement are included in premiums written as reported in Guaranty's financial statements and were $643,000 for 1994. Guaranty's insurance subsidiaries were paid $14,000 in fees and reimbursed $1,000 for expenses in conjunction with this reinsurance agreement. Also during 1994, GNIC was a party to reinsurance agreements with Orion insurance subsidiaries pursuant to which GNIC assumed business written through affiliates totaling $30,921,000 in premium. GNIC paid to Orion's insurance subsidiaries $666,000 in fees and reimbursed $774,000 of actual expenses incurred by Orion's insurance subsidiaries in conjunction with this reinsurance agreement. For 1995, GNIC and LAIC were parties to a 100% reinsurance agreement with an Orion insurance subsidiary. Premiums written and ceded under this agreement are included in premiums written as reported in Guaranty's financial statements and were $152,000 for 1995. Insurance subsidiaries of Guaranty were paid $5,000 in fees in conjunction with this reinsurance agreement. Also during 1995, GNIC was a party to reinsurance agreements with Orion insurance subsidiaries pursuant to which GNIC assumed business written through affiliates totaling $9,495,000 in premiums. GNIC paid to the Orion insurance subsidiaries $160,000 in fees and reimbursed $178,000 of actual expenses incurred by Orion's insurance subsidiaries in conjunction with this reinsurance agreement. For 1996, GNIC and LAIC were parties to a 100% reinsurance agreement with an Orion insurance subsidiary. Premiums written and ceded under this agreement are included in premiums written as reported in Guaranty's financial statements and were $15,000 for 1996. Insurance subsidiaries of Guaranty were paid $1,000 in fees in conjunction with this reinsurance agreement. Also during 1996, GNIC was a party to reinsurance agreements with Orion insurance subsidiaries pursuant to which GNIC assumed business written through affiliates totaling $15,673,000 in premiums. GNIC paid to the Orion insurance subsidiaries $298,000 in fees and reimbursed $309,000 of actual expenses incurred by Orion's insurance subsidiaries in conjunction with this reinsurance agreement. In 1997, Orion's insurance subsidiaries entered into similar reinsurance arrangements with GNIC and LAIC as had been in place during 1996. A subsidiary of Orion is an agent for Guaranty pursuant to Guaranty's standard agency contract. During 1995, this agency produced $411,000 in premiums and was paid $72,000 in commissions and during 1996, produced $436,000 in premiums and was paid $85,000 in commissions. Guaranty and Orion expect similar premium production and commissions in 1997. During 1994, this agency produced $516,000 in premiums and was paid $90,000 in commissions. During 1995, Guaranty's 2003 Notes in the principal amount of $20,896,000, were converted by Orion's subsidiaries into 1,326,128 Shares. Total interest paid by Guaranty on the 2003 Notes in 1995 to Orion's subsidiaries was $1,122,000. See SPECIAL FACTORS--Background of the Offer. Also in 1995, in connection with the Viking Holdings acquisition financing, Orion made a commitment for a $21,000,000 bridge loan to Guaranty. The loan was not drawn down, but Guaranty paid a $210,000 commitment fee to Orion at the time the commitment was executed. Guaranty and Orion have entered into an investment management agreement pursuant to which the investment portfolio of Guaranty (other than short-term investments and a portion of equity securities) is managed by investment managers of Orion under the direction and supervision of Guaranty and subject to 10 14 Guaranty's investment policies. For its investment management services, fees were paid to Orion at a rate of $550,000 per year from 1993 through July 1995, at which time they were increased to a rate of $650,000 per year in recognition of the additional investment balances resulting from the Viking Holdings acquisition. Orion received $650,000 in fees from Guaranty under this agreement in 1996. The agreement continues in effect for annual periods unless terminated by either party upon 90 days prior written notice. During 1990, GNIC entered into a loan participation agreement pursuant to which Design Professionals Insurance Company ("DPIC"), a wholly-owned subsidiary of Orion borrowed approximately $9 million from affiliates. The loan, which was secured by a leasehold deed of trust on an office building in Monterey, California owned and primarily occupied by DPIC, matured in November 1995. GNIC's proportionate share of this loan was $3,700,000 or 41.4%. GNIC received quarterly interest payments at a rate of 11% per year. Interest earned for 1994 was $407,000 and for 1995 was $355,000, and in November 1995, the loan was repaid. Effective July 2, 1996, Guaranty was included in Orion's consolidated federal income tax return and is covered by income tax sharing agreements under which Guaranty computes its current federal income tax liability on a separate return basis and pays Orion any taxes due on this basis. Except as described above and elsewhere in this Offer to Purchase, neither Orion, nor any direct or indirect subsidiary of Orion nor, to the best knowledge of Orion, any of the persons listed in Annex I hereto, has any contract, arrangement, understanding or relationship with any other person with respect to any securities of Guaranty, including, but not limited to, contracts, arrangements, understandings or relationships concerning the transfer or voting of such securities, joint ventures, loan or option arrangements, puts or calls, guaranties of loans, guaranties against loss or the giving or withholding of proxies, consents or authorizations. Except as set forth in this Offer to Purchase, since January 1, 1994, there have been no transactions that would be required to be reported under the rules of the SEC between Orion or, to the best knowledge of Orion, any of the persons listed in Annex I hereto, and Guaranty or any of its executive officers, directors or affiliates. Except as described above or in SPECIAL FACTORS--Background of the Offer and or as set forth elsewhere in this Offer to Purchase, since January 1, 1994, there have been no other contacts, negotiations or transactions between Orion or any of its subsidiaries or, to the best knowledge of Orion, any of the persons listed in Annex I hereto, and Guaranty or its directors, executive officers or affiliates, or between any affiliates of Guaranty, or between Guaranty or any of its affiliates and any person not affiliated with Guaranty and who would have a direct interest therein, concerning a merger, consolidation or acquisition, a tender offer or other acquisition of securities of Guaranty, an election of directors of Guaranty, or a sale or other transfer of a material amount of assets. In accordance with the provisions of the Merger Agreement, each option outstanding pursuant to Guaranty's equity incentive plans for key employees, whether or not then exercisable, will be converted into or replaced by an option, granted under one of Orion's equity incentive plans for key employees, to purchase a number of shares of Orion common stock at an exercise price (adjusted as to both number of shares and exercise price) to reflect differences between the Merger Price and the market price of Orion's common stock prior to the Merger. In accordance with the formula set forth in the Merger Agreement, and assuming that the market price of Orion common stock is $45.875 (the closing price on November 4, 1997), each share underlying a Guaranty option would be converted into approximately .78 Orion shares and each dollar of exercise price would become approximately $1.27. Annex II to this Offer to Purchase lists the options held by each Guaranty director and executive officer. See THE OFFER--Section 11. Except as set forth in this Offer to Purchase, Orion knows of no holder of Shares, including the Subsidiaries, the members of Guaranty's management and its Board of Directors, who has interests in the Offer or the Merger which are not identical to those of other holders of the Shares. NO DISSENTERS' RIGHTS IN THE OFFER No dissenters' rights under the Colorado Business Corporation Act are available to shareholders of Guaranty with respect to the Offer. See "THE OFFER--Section 11." 11 15 CERTAIN FEDERAL INCOME TAX CONSEQUENCES Orion has been advised by its counsel that tendering shareholders whose Shares are purchased for cash pursuant to the Offer or exchanged in the Merger generally will recognize gain or loss on the sale or exchange measured by the difference between the cash received and the holder's basis in the Shares. For tendering shareholders whose Shares constitute a capital asset for federal income tax purposes, any gain or loss will be a long-term capital gain or loss if the holder has held the Shares for more than one year, a "mid-term gain" if the holder has held the Shares for more than one year but not more than 18 months and a "short-term gain" if the Shares have been held one year or less. The shareholders of Guaranty should be aware that this discussion does not deal with all federal income tax considerations that may be relevant to particular shareholders of Guaranty in light of their particular circumstances, such as shareholders who are dealers in securities, shareholders who are subject to the alternative minimum tax provisions of the Code, foreign persons, tax-exempt entities, insurance companies, financial institutions and shareholders who acquired their shares in compensatory transactions. In addition, the discussion does not address the tax consequences of the Offer and the Merger under foreign, state, or local tax laws or the tax consequences of transactions effectuated prior to or after the Offer and the Merger, and the discussion assumes that the Shares are capital assets in the hands of the holders. Accordingly, SHAREHOLDERS OF GUARANTY ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC CONSEQUENCES OF THE OFFER, THE MERGER AND ANY RELATED TRANSACTIONS, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES TO THEM OF THE OFFER AND ANY RELATED TRANSACTIONS IN THEIR PARTICULAR CIRCUMSTANCES. SOURCE AND AMOUNT OF FUNDS--FINANCING OF THE OFFER AND THE MERGER The Offer price and the Merger Price are both $36.00 net in cash per Share. Based on 2,932,991 Shares outstanding as of November 3, 1997 and not owned by Orion and the Subsidiaries, the aggregate Offer and Merger consideration will be $105,587,676. Such aggregate amount in cash will be paid from Orion's available cash and short-term investments. THE OFFER 1. TERMS OF THE OFFER; EXPIRATION DATE. Upon the terms and subject to the conditions set forth herein and in the related Letter of Transmittal, Orion will accept for payment (and thereby purchase, and pay for) each outstanding Share, validly tendered prior to the Expiration Date (as hereinafter defined) and not properly withdrawn in accordance with "THE OFFER"--Section 2, at the Offer price of $36.00 per Share net to the seller in cash without interest thereon. The term "Expiration Date" means 12:00 Midnight, New York City time, on December 4, 1997, 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. Tendering shareholders will not be obligated to pay any charges or expenses of the Depositary. Except as set forth in the Instructions to the Letter of Transmittal, any transfer taxes on the exchange of Shares pursuant to the Offer will be paid by or on behalf of Orion. Orion's obligation to pay the Offer price for Shares pursuant to the Offer is subject to the Minimum Share Condition, the Regulatory Approval Condition and the other conditions set forth under "THE OFFER"--Section 10. According to Guaranty's September 10-Q, as of November 3, 1997, there were 15,062,933 Shares outstanding. Orion, directly or through wholly-owned subsidiaries, beneficially owns 12,129,942 Shares or approximately 80.5% of the outstanding Shares as of the date of this Offer to Purchase. Orion 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 12 16 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 below under THE OFFER--Section 4 below. There can be no assurance that Orion will exercise its right to extend the Offer. Subject to applicable rules of the SEC, Orion expressly reserves the right, in its sole discretion, 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 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. The rights reserved to Orion in this paragraph are in addition to Orion's right to terminate the Offer pursuant to THE OFFER--Section 10. If Orion shall decide, in its sole discretion, to increase or decrease the consideration offered in the Offer to holders of Shares and, at the time that notice 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, Orion 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 exchange 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 SEC 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 shareholders to consider such material changes or information in deciding whether or not to tender, withdraw or hold their shares. Orion confirms that if Orion makes a material change in the terms of the Offer or the information concerning the Offer, or if it waives a material condition to the Offer, Orion will extend the Offer and 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 period of ten business days is generally required to allow for adequate dissemination to shareholders and investor response. The SEC 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 shareholders to whom the offer is made, 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. Subject to the applicable rules and regulations of the SEC, Orion expressly reserves the right, in its sole discretion, at any time, or from time to time, (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 waive any condition (except the Minimum Share Condition) or otherwise 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, 13 17 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 SEC. Orion reserves the right to transfer or assign, in whole or from time to time in part, to one or more of its Subsidiaries the right to purchase Shares tendered pursuant to the Offer, but no such transfer or assignment will relieve Orion of its obligations under the Offer or prejudice the rights of tendering shareholders, upon the terms and subject to the conditions of the Offer, to purchase Shares validly tendered and accepted for payment pursuant to the Offer. Guaranty has agreed to provide to Orion its shareholder list and security position listings for the purpose of communications with Guaranty shareholders and disseminating the Offer to holders of Shares. This Offer to Purchase and the related Letter of Transmittal and other relevant materials will be mailed to record holders of Shares on the date of this Offer to Purchase and will be furnished to brokers, banks and similar persons whose names, or the names of whose nominees, appear on the shareholder 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. Upon the terms and subject to the conditions of the Offer, including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment, Orion will accept for payment (and thereby purchase) Shares validly tendered and not properly withdrawn in accordance with the provisions set forth below under THE OFFER--Section 4 below (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 Expiration Date. THE OFFER IS CONDITIONED ON THE MINIMUM NUMBER OF SHARES BEING TENDERED--THE MINIMUM SHARE CONDITION. See THE OFFER--Section 10. Orion expressly reserves 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 as set forth in THE OFFER--Section 10 and referred to as the Regulatory Approval Condition, but intends either to extend the Expiration Date or to terminate the Offer if it should appear that the Regulatory Approval Condition will delay for more than five (5) days the payment for Shares accepted for payment. See THE OFFER--Section 10. The reservation by Orion 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 shareholders promptly after termination or withdrawal of the Offer. In all cases, payment for Shares tendered and accepted for payment 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 THE OFFER--Section 3) and any other required documents. For purposes of the Offer, Orion shall be deemed to have accepted for payment Shares validly tendered and not withdrawn when, as and if Orion gives oral or written notice to the Depositary of its acceptance for payment of such Shares pursuant to the Offer. Upon the terms and subject to the conditions of the Offer, delivery of the Offer price will in all cases be made by the Depositary, which will act as an agent for the tendering shareholders for the purpose of receiving from Orion and transmitting payments to tendering shareholders. Under no circumstances will interest be paid on the purchase price by Orion 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 returned without expense to the tendering shareholder (or, in the case of Shares delivered by book-entry 14 18 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 Orion is unable to accept for payment or make payment for any Shares tendered pursuant to the Offer, then, without prejudice to Orion's rights under THE OFFER--Section 10, the Depositary may nevertheless, to the extent permitted by law, retain tendered Shares on behalf of Orion and such Shares may not be withdrawn except to the extent that the tendering shareholders are entitled to withdrawal rights as described below under THE OFFER--Section 4. The ability of Orion to delay the payment for the Shares which Orion has accepted for payment is limited by Rule 14e-1 under the Exchange Act referred to above. 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 shareholder 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 Orion 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 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 15 19 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 SHAREHOLDER 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. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. If a shareholder desires to tender Shares pursuant to the Offer and such shareholder's certificates are not immediately available or such shareholder is unable to deliver all documents required by the Letter of Transmittal to the Depositary prior to the Expiration Date, or such shareholder 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) properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by Orion 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, telex, 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. 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 shareholders 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 CASH PAYMENT RECEIVED FOR SHARES PURCHASED PURSUANT TO THE OFFER, A SHAREHOLDER 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. CERTAIN SHAREHOLDERS (INCLUDING, AMONG OTHERS, ALL CORPORATION AND CERTAIN FOREIGN INDIVIDUALS) ARE NOT SUBJECT TO THESE BACKUP WITHHOLDING OR REPORTING REQUIREMENTS. IN ORDER FOR A FOREIGN INDIVIDUAL TO QUALIFY AS AN EXEMPT RECIPIENT, THE SHAREHOLDER MUST SUBMIT A FORM W-8, SIGNED UNDER PENALTIES OF PERJURY, ATTESTING TO THAT INDIVIDUAL'S EXEMPT STATUS. SEE INSTRUCTION 8 OF THE LETTER OF TRANSMITTAL. By executing a Letter of Transmittal as set forth above, a tendering shareholder irrevocably appoints designees of Orion as his or her 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 shareholder's rights with respect to the Shares tendered by such shareholder and accepted for payment by Orion (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 effective when, and only to the extent that, Orion accepts such Shares for payment, which will be no earlier than the Expiration Date, December 4, 1997. Upon such acceptance for payment, all prior proxies given with respect to such Shares and 16 20 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 Orion will be empowered, among other things, to exercise all voting and other rights of such shareholder 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 Guaranty's shareholders, by written consent or otherwise. Orion reserves the right to require that, in order for Shares to be deemed validly tendered, immediately upon Orion's acceptance for payment of such Shares, Orion 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, in its sole discretion, which determination shall be final and binding. Orion 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 shareholder, 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 Orion, 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. A tender of Shares pursuant to any of the procedures described above will constitute a binding agreement between the tendering shareholder and Orion upon the terms and subject to the conditions of the Offer, including the tendering shareholder's acceptance of the terms and conditions of the Offer. 4. WITHDRAWAL RIGHTS Except as otherwise provided below, tenders of Shares 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 purchase and purchased by Orion for the Offer price pursuant to the Offer, may also be withdrawn at any time after January 3, 1998. 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 shareholder 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 under 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. Any Shares properly withdrawn will be deemed not to be validly tendered for purposes of the Offer. However, withdrawn Shares may be re-tendered, by following any of the procedures described under THE OFFER--Section 3 at any subsequent time prior to the Expiration Date. 17 21 5. PRICE RANGE OF SHARES; DIVIDENDS The Shares trade on the NYSE under the symbol "GNC." The following table sets forth, for the calendar quarters indicated, the reported high and low closing sales prices per Share and the declared cash dividends per Share. The information for 1995 and 1996 was reported in Guaranty's 1996 Annual Report to Shareholders. The information for 1997 was derived from reports in published financial sources: CLOSING SALES PRICES
CASH DIVIDENDS HIGH LOW DECLARED 1997: Fourth Quarter (through November 4, 1997)......... $35.69 $33.00 $ -- Third Quarter..................................... 35.25 23.00 .125 Second Quarter.................................... 25.75 17.63 .125 First Quarter..................................... 18.38 16.50 .125 1996: Fourth Quarter.................................... 17.13 15.38 .125 Third Quarter..................................... 17.88 13.50 .125 Second Quarter.................................... 18.00 15.00 .125 First Quarter..................................... 17.00 13.38 .125 1995: Fourth Quarter.................................... 16.88 13.75 .125 Third Quarter..................................... 19.00 15.75 .125 Second Quarter.................................... 18.50 15.25 .125 First Quarter..................................... 18.25 15.50 .125
On November 4, 1997, the last full trading day prior to the commencement of the Offer, the closing sales price reported by the NYSE was $35.69 per Share. On October 30, 1997, the last full trading day prior to the announcement of the Merger Agreement, the closing sales price reported on the NYSE was $33.00 per Share. GUARANTY SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES. During 1994, Guaranty repurchased 459,200 Shares, of which 139,600 Shares were purchased from subsidiaries of Orion. The average repurchase price of Shares repurchased was $14.45. To Orion's knowledge, no additional repurchases of Shares have been made by Guaranty since December 31, 1994. In view of applicable regulations under the Exchange Act, Orion expects that any repurchase program would be suspended during the Offer. 6. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; LISTING ON THE NYSE; REGISTRATION UNDER THE EXCHANGE ACT; MARGIN REGULATIONS The purchase of Shares by Orion pursuant to the Offer will reduce the number of Shares that might otherwise trade publicly and, if the Minimum Share Condition is satisfied, would substantially reduce the number of holders of Shares and will adversely affect the liquidity, and possibly the market value, of the remaining Shares held by the public. The Shares are listed and principally traded on the NYSE. If the Minimum Share Condition is satisfied, following consummation of the Offer, the Shares would likely no longer meet the requirements of the NYSE for continued listing. 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 or more Shares should fall below 1,200, the number of 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. 18 22 According to Guaranty's 1996 Annual Report on Form 10-K, there were approximately 2,400 holders of Shares as of February 28, 1997. If 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. The Shares are currently registered under the Exchange Act. Such registration 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 Guaranty to its shareholders and the SEC 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 shareholders' meetings pursuant to Section 14(a), no longer applicable to Guaranty. 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 Guaranty. Furthermore, the ability of "affiliates" of Guaranty and persons holding "restricted securities" of Guaranty to dispose of such securities pursuant to Rule 144 promulgated under the Securities Act may be impaired or eliminated. Upon consummation of the Offer, Orion intends to seek to have Guaranty's shares deregistered under the Exchange Act. If fewer than all Tender Shares are tendered and accepted for payment pursuant to the Offer, Orion and Guaranty intend at the earliest practicable date to effect the Merger of Transition into Guaranty. Upon consummation of the Offer, Orion intends to seek delisting of the shares for trading on the NYSE. In the event that the Shares should no longer be listed or traded on the NYSE, upon consummation of the Offer, and prior to the effectiveness of the Merger, it is possible that the Shares may 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. Orion does not presently intend to request or support such initiatives if delisting occurs. In the event that the Merger is effected between Guaranty and Transition following the consummation of the Offer in accordance with the terms of the Merger Agreement, the Shares would be delisted by the NYSE and deregistered under the Exchange Act. 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"). Following consummation of 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." 7. CERTAIN INFORMATION CONCERNING GUARANTY. Guaranty 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. Guaranty is a holding company whose business is conducted principally through wholly- owned subsidiaries. References to "Guaranty" include its consolidated subsidiaries unless the context indicates otherwise. The following information about Guaranty is derived from its 1996 Annual Report on Form 10-K. Guaranty, directly and through its subsidiaries, principally underwrites and sells 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 net premiums written during 1996. Guaranty's personal lines business unit principally writes nonstandard automobile insurance for individuals who do not qualify for preferred or standard insurance because of their payment history, driving record, age, vehicle type, or other factors, including market conditions for standard risks. Guaranty's commercial lines unit principally writes nonstandard commercial automobile coverage. However, approximately 29% of the total commercial lines unit's net premiums written consists of standard commercial coverage. Typical risks include local and intermediate trucking, garages, used car dealers, public and private livery, and artisan contractors. 19 23 Other commercial lines coverages include property, general liability, umbrella and excess insurance, standard multi-peril packages and other coverages. Guaranty 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. 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, Guaranty'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, Guaranty has generally gained approval in a timely manner. Guaranty also writes business in states where prior approval to effectuate rate changes is not required. Generally, nonstandard risks written by Guaranty require specialized underwriting, claims management, and other skills and experience. Guaranty historically has focused its operations in the 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%. During 1996, Guaranty's GAAP combined ratio was 100.1%, and in four of the last six years Guaranty has achieved a GAAP combined ratio of less than 100%. In July 1995, Guaranty acquired Viking Insurance Company of Wisconsin ("Viking"), which is a property and casualty insurance company writing nonstandard personal automobile insurance. The Viking acquisition has enabled Guaranty 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 Guaranty's personal lines products. Additionally, Viking controls Viking County Mutual Insurance Company ("VCM"), a Texas mutual organization. As a result, Guaranty and its affiliates receive 100% reinsurance services in the state of Texas from VCM. In 1995, the personal lines business was written through two divisions: the Guaranty division and Viking. However, in 1996, Guaranty management integrated the Guaranty and Viking personal lines divisions into one personal lines business unit. The personal lines business unit provides nonstandard personal automobile coverage, primarily in the state of California and the Rocky Mountain and Pacific Northwest regions. This coverage is sold through approximately 8,900 independent agents located in 28 states. In addition, this unit markets business through three general agents. Overall, Guaranty 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, Guaranty's personal lines business unit provides ease of payment for insureds through low monthly installments. Prior to 1996, the commercial lines business was written through the commercial standard, commercial general and commercial specialty divisions. However, during 1996, Guaranty's management evaluated the commercial specialty and general divisions and decided that reorganizing these two divisions into a contracts and brokerage division and a separate programs department, would enable Guaranty to operate more efficiently and better serve its several markets. The commercial standard division will, however, remain separate. The nonstandard commercial lines business primarily offers commercial coverages for transportation risks, regional programs, specialized coverages for small to medium-sized businesses and umbrella coverages for a broad range of organizations. This nonstandard commercial business is written through 69 general agents and various brokers throughout the United States except for some Northeastern states. These general agents specialize in particular types of risks and/or geographic locations. Guaranty's objective for its nonstandard 20 24 commercial business is to maintain long-term, mutually profitable relationships with a small number of select general agents who follow strict underwriting guidelines. Colorado Casualty Insurance Company ("CCIC"), an insurance subsidiary of Guaranty, writes primarily standard commercial lines business. CCIC writes small, standard commercial package policies. The standard commercial business is primarily written in the Rocky Mountain region. Personal lines, commercial lines and collateral protection represented 48%, 37%, and 15%, respectively, of Guaranty's gross premiums written during 1996. Guaranty and Orion concluded by early 1997 that the nonstandard auto insurance business would soon undergo a consolidation and that future success in that business would benefit from a broader base and range of operations than Guaranty currently possesses. Accordingly, Guaranty's and Orion's senior management began to plan for the strategic growth of Guaranty, both internally and by acquisition. At various times, Guaranty has made, and currently has under consideration, proposals to acquire additional business or lines of business. In the discussions of Guaranty's strategic alternatives, it has recognized that the cost of acquisitions, together with the cost of infrastructure and systems improvements needed to support Guaranty's strategic alternatives, might be beyond the capital-raising capability of Guaranty unaided by support from Orion. See SPECIAL FACTORS -- Background of the Transactions. A.M. Best Company currently rates Guaranty and its subsidiaries "A (Excellent)" and Viking 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. Guaranty is required to file periodic reports, proxy statements and other information with the SEC under the Exchange Act relating to its business, financial statements and other matters. Guaranty 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 Guaranty's securities, and any material interests of such persons in transactions with Guaranty. Such reports, proxy statements and other information may be inspected at the public reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at a World Wide Web site (http://www.sec.gov) maintained by the SEC that contains reports, proxy statements, and other information regarding companies (including Orion and Guaranty) that file electronically with the SEC and should also be available for inspection and copying at the regional offices of the SEC 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 SEC in Washington, D.C. at prescribed rates. Similar information can be inspected and copied at the NYSE, 20 Broad Street, New York, New York. 21 25 Set forth below is certain summary consolidated financial information derived from Guaranty's 1996 Annual Report on Form 10-K and from the September 10-Q. More comprehensive financial and other information is included in Guaranty's 1996 Annual Report on Form 10-K, the September 10-Q and the other documents filed by Guaranty with the SEC, 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 SEC 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 SEC. GUARANTY NATIONAL CORPORATION SELECTED FINANCIAL INFORMATION (IN THOUSANDS EXCEPT PER SHARE DATA AND RATIOS)
NINE MONTHS YEAR ENDED ENDED SEPTEMBER 30, DECEMBER 31, ----------------------- --------------------- 1997 1996 1996 1995 (UNAUDITED) INCOME STATEMENT DATA: Premiums earned............................. $ 403,354 $356,740 $481,648 $390,017 Total revenues.............................. 443,428 390,652 529,542 424,284 Operating earnings(a)(b).................... $ 24,576 $ 14,962 $ 22,010 $ 6,790 After-tax realized investment gains......... 5,444 3,571 5,496 2,139 ---------- -------- -------- -------- Net earnings(b).......................... $ 30,020 $ 18,533 $ 27,506 $ 8,929 ========== ======== ======== ======== Earnings per common share: Operating earnings(a)(b)................. $ 1.62 $ 1.00 $ 1.47 $ .51 After-tax realized investment gains...... .36 .24 .37 .16 ---------- -------- -------- -------- Net earnings........................... $ 1.98 $ 1.24 $ 1.84 $ .67 ========== ======== ======== ======== GAAP combined ratio......................... 98.2% 100.2% 100.1% 105.3% BALANCE SHEET DATA: Total assets................................ $1,019,415 $904,594 $929,092 $875,173 Total assets less goodwill.................. 985,615 869,675 894,453 842,040 Stockholders' equity........................ 278,650 226,603 238,039 215,551 Book value per common share................. $ 18.51 $ 15.13 $ 15.90 $ 14.41
- ------------------------------ (a) Earnings after taxes, excluding realized investment gains and losses. (b) 1996 results include a nonrecurring charge, net of tax, of $1,778,000 or $0.12 per common share. 8. CERTAIN INFORMATION CONCERNING ORION Orion is an insurance holding company. It has the ability, through its subsidiaries and investments in other insurance companies, to write almost all types of property and casualty insurance nation-wide and throughout Canada. However, it does not sell all types of insurance. Its operations are highly specialized. Orion underwrites and sells the following specialized insurance products and services: - workers compensation products and related services through EBI Companies; - professional liability coverage for architects, engineers, environmental consultants, lawyers and accountants through DPIC Companies; - special property and casualty insurance programs tailored to the risks associated with selected types of businesses through Connecticut Specialty; - nonstandard automobile insurance for individuals and businesses, as well as other property insurance through its approximately 81% ownership of Guaranty and its subsidiaries; and 22 26 - underwriting management of insurance pools focusing on ocean cargo, inland marine and commercial property coverage through Wm. H. McGee & Co., Inc. ("McGee"). At the present time Orion owns approximately 80.5% of Guaranty. Guaranty and its subsidiaries sell specialty property and casualty insurance coverages which are not readily available in traditional insurance markets. Orion includes Guaranty in its consolidated federal income tax return. However, Guaranty remains an independent public company with its common stock listed on the NYSE. Three of Guaranty's ten member Board of Directors also serve on Orion's Board. Orion owns insurance companies, brokerage companies and insurance management and service companies, which have licenses to transact business nationwide and in all Canadian provinces. In general, Orion does not sell its insurance products directly to its policyholders. Orion obtains substantially all its business through independent insurance agents and brokers. Orion was incorporated in the State of Delaware in 1960, and all of its wholly-owned insurance subsidiaries are incorporated in the State of Connecticut. Guaranty has insurance subsidiaries which are incorporated in the states of California, Colorado, Oklahoma, Texas and Wisconsin. Orion's principal executive offices are located at 9 Farm Springs Road, Farmington, Connecticut 06032 and the telephone number is (860) 674-6600. 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 SEC 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 SEC. Such reports, proxy statements and other information may be examined, and copies may be obtained from the SEC, in the manner set forth in THE OFFER--Section 7 with respect to information concerning Guaranty. Such information should also be available for inspection at the NYSE, 20 Broad Street, New York, New York 10005. 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 Orion is set forth in Annex I hereto. 9. DIVIDENDS AND OTHER DISTRIBUTIONS Except for any action taken by Guaranty which shall have been expressly approved in writing by Orion: If, on or after October 31, 1997, Guaranty 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 the Rights, 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 shareholders of record on a date prior to the transfer to the name of Orion or its nominee or transferee on Guaranty's stock transfer records of the Shares purchased pursuant to the Offer, then, without prejudice to Orion's rights as set forth under THE OFFER--Section 10, (i) the Offer price per Share payable by Orion, 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 including the Rights shall be remitted by the tendering shareholder to the Depository for the account of Orion, accompanied by appropriate documentation of transfer. Pending such remittance, and subject to applicable law, Orion 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 Orion in its sole discretion. Guaranty has, since January 1, 1995, declared regular quarterly dividends at the rate of $0.125 per share. If, during the fourth quarter of 1997 and the first quarter of 1998 Guaranty declares a dividend of not more than $0.125 per share (the "Regular Dividend"), Orion does not intend to adjust the Offer price should the record date for payment of such Regular Dividend be a date prior to Orion's acceptance for payment and payment for Shares tendered pursuant to the Offer. 23 27 If, on or after October 31, 1997, Guaranty should (i) split, combine or otherwise change the Shares or its capitalization, (ii) issue or sell any additional securities of Guaranty or cause pursuant to the Rights or otherwise an increase in the number of outstanding securities of Guaranty 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 Orion's rights under THE OFFER--Section 10, Orion, in its 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. 10. CERTAIN CONDITIONS OF THE OFFER Notwithstanding any other provision of the Offer, and in addition to (and not in limitation of) Orion's rights to amend the Offer at any time in its sole discretion, Orion 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 Orion pay the consideration offered or return the Shares deposited by or on behalf of shareholders promptly after termination or withdrawal of the Offer, may delay the acceptance for payment or the payment of Shares tendered, if, at any time on or after October 31, 1997 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, 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) makes it inadvisable to proceed with the Offer or with acceptance for payment or payment for Shares. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE A NUMBER OF SHARES WHICH, EXCLUDING SHARES OWNED BY ORION AND ITS WHOLLY-OWNED SUBSIDIARIES, WILL CONSTITUTE AT LEAST 50.01% OF THE TOTAL NUMBER OF OUTSTANDING SHARES AS OF THE DATE THE SHARES ARE ACCEPTED FOR PAYMENT BY ORION PURSUANT TO THE OFFER. Based on the foregoing, Orion expects that this Minimum Share Condition would be satisfied if at least an aggregate of 1,466,789 Shares expected to be outstanding immediately prior to the consummation of the Offer are validly tendered pursuant to the Offer and not withdrawn. Orion does not intend, without the approval of a majority of the independent directors of Guaranty, to waive the Minimum Share Condition. Also, as described below, the Offer is conditioned on all regulatory approvals required to consummate the Offer having been obtained and remaining in full force and effect, all statutory waiting periods in respect thereof having expired (the "Regulatory Approval Condition"). "Satisfactory" to the Orion Board shall mean that an approval is on terms and conditions satisfactory to the Orion Board of Directors, and contains no conditions or restrictions which the Orion Board of Directors determines will or could be expected materially to impair the strategic and financial benefits expected to result from the Offer. In addition, the Offer is conditioned upon none of the following events having occurred. (a) any change shall have occurred or be threatened in the business, operations or financial condition of Guaranty or any of its subsidiaries or affiliates which is, or which Orion in its sole discretion believes to be, materially adverse to Guaranty and its subsidiaries taken as a whole; (b) 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 Orion 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 Orion (or any of its affiliates) effectively to acquire or hold, or requires any of Orion, or Guaranty, 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 Guaranty and its subsidiaries taken as a whole, (iv) seeks to impose material limitations on the ability of Orion (or its 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 shareholders of Guaranty or (v) may result in a material 24 28 diminution in the benefits expected to be derived by Orion as a result of the transactions contemplated by the Offer (see THE OFFER--Section 11); (c) 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 (b) above; (d) Orion or Guaranty shall otherwise have failed to receive any governmental or third party consents and approvals, which, if not received, would in the aggregate have or be reasonably anticipated to have a materially adverse effect on Orion or Guaranty 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 Orion or Guaranty which would individually or in the aggregate have or be reasonably anticipated to have a materially adverse effect on Orion or Guaranty or any of their respective subsidiaries; (e) 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; (f) unless Orion shall have consented in writing, Guaranty or any of its subsidiaries shall have, on or after October 31, 1997, (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, and without amendment or waiver of, the present terms thereof) of employee stock options outstanding on October 31, 1997 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 Orion 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; 25 29 (g) Guaranty 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; (h) 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 Guaranty 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 Guaranty (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 Guaranty (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 October 31, 1997, 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 Guaranty (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 Guaranty (including the Shares) or shall have been granted any option or right to acquire more than 2% of any class or series of capital stock of Guaranty (including the Shares); or (i) the Merger Agreement shall have been terminated. The foregoing conditions are for the sole benefit of Orion and may be asserted by Orion regardless of the circumstances giving rise to any such condition and may (with the exception of the Minimum Share Condition) be waived by Orion, in whole or in part, at any time and from time to time in its sole discretion. The failure by Orion at any time to exercise its 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 concerning the events described in the foregoing conditions will be final and binding on all parties, including tendering shareholders. 11. CERTAIN LEGAL MATTERS Based upon Orion's examination of publicly available information filed by Guaranty with the SEC and other publicly available information with respect to Guaranty, except as otherwise set forth in this Offer to Purchase, Orion is not aware of any license or regulatory permit which appears to be material to the business of Guaranty and its subsidiaries that might be adversely affected by the acquisition of Shares pursuant to the Offer, or, except as disclosed herein, of any approval or other action (other than an informational filing) 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, 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 Guaranty's business or that certain parts of Guaranty'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. Orion's obligation under the Offer to accept for purchase and purchase Shares is subject to certain conditions, including conditions relating to the legal matters discussed herein and, if certain types of adverse action are taken with respect to the matters discussed below, Orion could decline to accept for purchase or purchase any Shares tendered. See THE OFFER--Section 10. Orion understands that on September 18, 1997, an action was filed in the Denver District Court, City and County of Denver, Colorado, entitled Eugenia Gladstone Vogel v. Guaranty National Corporation; Orion Capital Corporation; Tucker Hart Adams; W. Marston Becker; Vincent T. Papa; Dennis J. Lacey; M. Ann Padilla; James R. Pouliot; Robert B. Sanborn; William J. Sheperd; Richard R. Thomas; and Roger B. Ware. 26 30 The action challenges the fairness of the Exchange Offer and seeks an unspecified amount of damages, attorneys fees and injunctive relief. Orion believes the complaint to be without merit and intends to contest it. (a) State Insurance Approvals. Guaranty 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 the filing of 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 connection with the 1996 Tender Offer, Orion obtained all approvals necessary to consummate the Offer and to accept any Shares properly tendered for payment. (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, shareholders 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 shareholders. 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 Guaranty. Guaranty 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 Orion 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, Orion will take such action as then appears desirable, and presently anticipates that it will 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, Orion might be unable to accept for payment or pay for Shares tendered pursuant to the Offer or be delayed in accepting for payment or paying for Shares pursuant to the Offer. In such case, Orion will not be obligated to accept for payment or pay for Shares. In addition, Orion may terminate the Offer if it becomes subject to an order preventing it from purchasing Shares or limiting its ability to exercise control of Guaranty. 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 in connection with the 1996 Tender Offer, on May 8, 1996, Orion filed a Notification and Report Form with the FTC and the Antitrust Division with respect to the acquisition of more than 50% of the equity of Guaranty. All waiting periods under the HSR Act were satisfied and no further action is required by Orion with respect to the Offer. See, however, THE OFFER--Section 10. (d) Mergers and Business Combinations. As described under SPECIAL FACTORS -- Reasons for the Offer and the Merger; Purpose and Structure of the Transactions; Plans After the Offer; Effects of the Offer and the Merger, Orion reserves the right, to the extent permitted by applicable law and by the Shareholder Agreement if it has not been terminated, to acquire additional Shares following the expiration or termination of the Offer and intends to own 100% of the Shares upon the effectiveness of the Merger. Such acquisitions may be made through a tender offer or exchange offer, or otherwise, on such terms and at such 27 31 prices as Orion shall determine. Orion also reserves the right to dispose of any or all Shares which it owns although it has no present intention to do so. The acquisition of Shares by Orion may be subject to compliance with the requirements of Rule 13e-3 promulgated under the Exchange Act, which applies to certain "going private" transactions. Guaranty is a Colorado corporation and is governed by the laws of Colorado. Several decisions by courts of states other than Colorado have held that, in certain instances, a controlling shareholder of a corporation involved in a merger has a fiduciary duty to the other shareholders that requires that the merger be fair to such other shareholders. In determining whether a merger is fair to minority shareholders, such courts have considered, among other things, the type and amount of consideration to be received by the shareholders and whether there were fair dealings among the parties. In the leading case in this area, 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 shareholders is the right to appraisal or a damages remedy. Pursuant to Section 7-111-104 of the Colorado Business Corporation Act (the "CBCA"), after Orion has obtained 90% ownership of Guaranty, Orion will be able to effect a short-form merger without the approval of the board of directors or minority shareholders of Guaranty. If the Minimum Share Condition is satisfied, and the Offer is consummated, Orion and the Subsidiaries will own at least 90.3% of the outstanding Shares, based on the number of Shares outstanding on November 3, 1997. If Orion consummates the Merger, the shareholders of Guaranty will have the right to dissent therefrom and to obtain payment for the fair value of their Shares provided they comply with the provisions of and procedures set forth in the Article 113 of the CBCA. Statutory appraisal rights are not available under Colorado law with respect to the Offer. See "Dissenters' Rights--the Merger" below. (e) Guaranty's Charter Documents; The Shareholder Agreement; The Rights Plan and Other Matters. Guaranty's Articles of Incorporation, as amended and restated, authorize Guaranty'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 Guaranty's existing shareholders. In the event that the Board of Directors of Guaranty authorizes the issuance by Guaranty of preferred stock upon terms that would render consummation of the Offer impracticable or undesirable to Orion, Orion 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 Guaranty have been nominated by Orion. Guaranty's Board of Directors consists of ten members. As indicated under SPECIAL FACTORS--Background of the Offer, Orion undertook during the 1996 Tender Offer that no repurchase of its own shares would be made by Guaranty without the approval of a majority of directors of Guaranty who are not employees or directors of Orion. As described elsewhere in this Offer to Purchase, the Merger Agreement provides that if Orion purchases Shares pursuant to the Offer, the Shareholder Agreement terminates. In November 1991, the Board of Directors of Guaranty approved the adoption of a Rights Agreement and in connection therewith declared a dividend distribution of one Right for each outstanding Share until such time as separate Rights certificates are distributed (the "Distribution Date") or the Rights are redeemed or expire. When exercisable, each Right will entitle a holder to purchase from Guaranty a unit consisting of one one-hundredth of a share of a new series of Guaranty'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 persons (other than "Exempt Persons") has acquired or obtained the rights to acquire beneficial ownership of 20% or more of Guaranty'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 Guaranty's common stock. Prior to consummation of such a transaction, each holder of a Right is entitled to purchase shares of Guaranty's common stock having a value equal to two times the exercise price of the Right. Guaranty 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 Guaranty's Current Report on Form 8-K filed with the SEC on December 19, 1991, Orion believes, and has been advised that Guaranty agrees, that it and its subsidiaries are "Exempt Persons" as defined in the Rights Agreement, that at the 28 32 present time the Rights are not exercisable, that the Rights Plan is not applicable to the Offer or the Merger and that the Offer will not result in the Rights becoming exercisable. (f) The Merger Agreement Guaranty and Orion have entered into the Merger Agreement, which provides that, subject to the satisfaction or waiver of the conditions to the Merger, Transition will be merged with and into Guaranty, and Guaranty will be the surviving company. References to the terms and conditions of the Merger Agreement in this Offer to Purchase are qualified in their entirety by reference to the detailed provisions of the Merger Agreement, a copy of which has been filed with the SEC as part of Orion's Tender Offer Statement on Schedule 14D-1. Upon the effectiveness of the Merger (the "Effective Time"): (i) each issued and outstanding Share (other than Shares held in Guaranty's treasury or by Orion or any Subsidiary of Orion and other than shares held by shareholders who have properly exercised dissenters' rights with respect to such Shares ("Dissenting Shares"), under Sections 7-113-101 to 7-113-307 of the CBCA) shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into the right to receive the Merger price of $36.00 net in cash, without interest; (ii) each share of common stock, par value $1.00 per share, of Transition issued and outstanding immediately prior to the Effective Time shall be converted into and exchangeable for one share of common stock par value $1.00 per share, of the surviving company; (iii) each Share held by Orion or any wholly-owned subsidiary of Orion immediately prior to the Effective Time shall remain outstanding and unchanged after the Merger as shares of the surviving company. Any Shares which are held in the treasury of Guaranty or by any subsidiary of Guaranty shall be cancelled, retired and cease to exist and no payment shall be made with respect thereto. Each remaining Share, other than Shares held by persons who have taken all steps necessary to perfect their rights as dissenting shareholders to receive the fair value of such stock under Sections 7-4-123 and 7-4-124 of the CBCA shall forthwith be cancelled and cease to exist by virtue of the Merger and without any action on the part of any holder thereof. After the Merger, holders of the Tender Shares that were outstanding prior to the Effective Time of the Merger will possess no interest in, or rights as the shareholders of, Guaranty or the surviving company; and (iv) each option outstanding, pursuant to Guaranty's equity incentive plans for key employees, whether or not then exercisable, shall be converted into or replaced by an option, granted under one of Orion's equity incentive plans for key employees, to purchase a number of shares of Orion common stock at an exercise price adjusted (as to both number of shares and exercise price) to reflect differences between the Merger Price and the market price of Orion's common stock prior to the Merger. As soon as practicable after the satisfaction or waiver of the conditions to the Merger (and unless the Merger Agreement is terminated as provided in the Merger Agreement), articles of merger will be delivered to the Secretary of State of Colorado, and the Merger will become effective following the filing of the Articles of Merger by the Secretary in accordance with the provisions of the CBCA (referred to as the "Effective Time" above). As indicated elsewhere in this Offer to Purchase, if Orion consummates this Offer without the Minimum Share Condition having been waived it will own at least 90.3% of the Shares (based on the number of Shares outstanding on November 3, 1997) and will be able to effect the Merger pursuant to Section 7-111-104 of the CBCA without approval by the Board of Directors or the other shareholders of Guaranty. Guaranty and Orion make various covenants in the Merger Agreement. From the date of the Merger Agreement to the Effective Time of the Merger, each of Guaranty and its subsidiaries has agreed, among other things: (i) to conduct its operations according to its ordinary and usual course of business and consistent with past practice and to use its best efforts to preserve intact its business organization, to keep available the services of its officers and employees and to maintain existing relationships with licensors, licensees, suppliers, contractors, distributors, customers and others having business relationships with it (which includes, among other things, the obligation not to sell or lease certain assets out of the ordinary course of business, without the consent of Orion, not to enter into any employment agreements with any director, officer or employee or make certain changes in their compensation (except for normal increases in the ordinary course of business), not to 29 33 make certain changes in employee benefit plans or incur any funded indebtedness for borrowed money out of the ordinary course of business, without the consent of Orion); (ii) to use its best efforts to consummate the transactions contemplated by the Merger Agreement; (iii) not to solicit or initiate discussions or negotiations for certain corporate transactions with other parties or furnish any such party with any information, except as may be required by law, for the purpose of making or pursuing such a corporate transaction; and (vi) until the Effective Time, not to set record dates or declare dividends other than a dividend in respect of the fourth quarter of 1997 not in excess of $0.125 per Share. In the Merger Agreement, Orion makes a number of covenants, under which Orion has agreed, among other things: (i) to provide the exchange agent for the Merger with the funds necessary to pay the Merger Price. The respective obligations of Orion and Guaranty to consummate the Merger are subject to, among other things, the following conditions: (i) approval of the Merger by the shareholders of Guaranty in accordance with applicable law (which will not be required if the Merger is effected by Orion pursuant to Section 7-111-104 of the CBCA); (ii) no statute, rule, regulation, executive order, decree or injunction being enacted, promulgated or enforced by any court or governmental authority that prohibits or restricts the consummation of the Merger; (iii) the receipt of all regulatory approvals (including state insurance regulatory approvals) by Orion, if any, and Guaranty which are necessary to consummate the Merger on terms and conditions satisfactory to Orion. The obligation of Guaranty to effect the Merger is further subject to Orion having performed in all material respects its obligations under the Merger Agreement required to be performed by it, or Guaranty having waived such performance, at or prior to the Effective Time pursuant to the terms thereof. The obligation of Orion to effect the Merger is further subject to the satisfaction or waiver by it at or prior to the Effective Time of the following conditions: (i)(A) the representations and warranties of Guaranty set forth in the Merger Agreement shall be true and correct in all material respects on the date thereof and (B) Guaranty shall not have breached in any material respect any covenant contained in the Merger Agreement; (ii) the number of Dissenting Shares shall not exceed 5% of the Shares outstanding (other than those owned by Orion and its Subsidiaries); and (iii) no event shall have occurred or be threatened which has, or might have, an effect on the business of Guaranty that is materially adverse to the business, operations or financial condition of Guaranty and its subsidiaries taken as a whole. The Merger Agreement permits Orion and Guaranty to waive (in the case of Guaranty, with the approval of a majority vote of the Independent Directors) satisfaction of any condition in the Merger Agreement. Guaranty's Articles of Incorporation and By-Laws contain provisions for indemnification of directors and officers in certain circumstances, and the Merger Agreement provides for the continuation of all rights to indemnification as in effect as of the date of the execution of the Merger Agreement for a period of not less than the statutes of limitation applicable to such matters. Additionally, from and after the merger, Orion shall guarantee Guaranty's indemnification obligations to Guaranty's current directors and shall cause to be maintained certain directors' and officers' liability insurance. See "SPECIAL FACTORS--Interests of Certain Persons in the Transactions; Securities Ownership; Related Transactions." The Merger Agreement may be terminated and the Merger may be abandoned prior to its effectiveness notwithstanding the approval of the Merger Agreement by Guaranty's shareholders, (a) by mutual written consent, or (b) by Guaranty (with the approval of a majority vote of the Independent Directors) or Orion if (i) the Merger shall not have occurred on or before March 31, 1998 (provided that this right to terminate shall not be available to any party whose willful failure to fulfill any obligation under the Merger Agreement has been the cause of or has resulted in the failure of the Merger to occur), or (ii) any court of competent jurisdiction in the United States or any other United States governmental body shall have issued an order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the Merger and such order, decree, ruling or other action shall have become final and non-appealable. The Boards of Directors of Guaranty and Orion may, with the approval of a majority vote of the Independent Directors, amend the Merger Agreement at any time before or after its approval by the shareholders of Guaranty. However, after shareholder approval, no amendment may be made that decreases 30 34 the Merger price or that adversely affects the rights of any shareholders, without the further approval of such shareholders. (g) Dissenters' Rights -- the Merger. Under Article 113 of the CBCA ("Article 113"), holders of Shares who exercise their dissenters' rights in accordance with Article 113 in connection with the Merger will be entitled to have the "fair value" of their Shares paid to them in cash by complying with the provisions of Article 113. The term "fair value" is defined in Article 113 to mean the value of the Shares immediately before the Effective Time, excluding any appreciation or depreciation in anticipation of the Merger except to the extent that such exclusion would be inequitable. FAILURE TO COMPLY STRICTLY WITH THE PROCEDURE SET FORTH IN ARTICLE 113 OF THE CBCA WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. If the Merger is effected, holders of Shares will receive detailed information regarding their dissenters' rights under Article 113 of the CBCA. 12. FEES AND EXPENSES Orion 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 has been retained by Orion 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 shareholders to forward material relating to the Offer to beneficial owners. Reasonable and customary compensation will be paid for such services. DLJ is acting as Dealer Manager and financial adviser in connection with the Offer. Orion has agreed to pay DLJ a fee of $200,000 for such services. In 1996 DLJ acted in a similar capacity in connection with the 1996 Tender Offer and in July 1995, DLJ acted as co-manager for Orion's $100 million Senior Note offering. In 1996-1997, DLJ has advised Orion in various transactions, including acting as lead manager in connection with issuance by Orion of $125 million of trust preferred securities. Orion has 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. It is estimated that the expenses incurred by Orion in connection with the Offer and the Merger will be approximately as set forth below (if all of the Shares other than those held by Orion's and the Subsidiaries are purchased): Filing Fees............................................................... $ 21,200 Printing and mailing fees................................................. $100,000 Accounting and legal fees................................................. $400,000 Dealer Manager fee........................................................ $200,000 Depositary fees........................................................... $ 27,500 Miscellaneous............................................................. $ 51,300 -------- $800,000 ========
Except as set forth herein, Orion 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 Orion or by any person, to make solicitations or recommendations in connection with the Offer, and no officer, employee or class of employees or corporate asset of Guaranty has been or is proposed to be employed, availed or utilized by Orion in connection with the Offer. 31 35 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, Orion may, at its discretion, take such action as it 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 Orion, if at all, only by the Dealer Manager or by one or more registered brokers or dealers licensed under the laws of such jurisdictions. Orion will file with the SEC a transaction statement on Schedule 13E-3 and a Tender Offer Statement on Schedule 14D-1, together with exhibits, pursuant to Rule 13e-3 and Rule 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 Schedule 14D-1 and Schedule 13G-3 and any amendments thereto, including exhibits, may be examined at, and copies may be obtained from, the SEC (but not the regional offices of the SEC) in the manner set forth in THE OFFER--Section 7. No person has been authorized to give any information or make any representation on behalf of Orion 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 November 5, 1997 32 36 ANNEX I DIRECTORS AND EXECUTIVE OFFICERS OF ORION Set forth below are the name, business address, position with Orion, and present principal occupation or employment and five-year employment history of each director and executive officer of Orion. Each person listed below is a citizen of the United States except Gordon F. Cheesbrough who is a citizen of Canada. Except as indicated in this Annex I, none of the persons listed below is a director of Guaranty or, except as indicated in Annex II to this Offer to Purchase, beneficially owns Shares. Unless otherwise indicated, each occupation set forth opposite an individual's name refers to employment with Orion. 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)......... Chairman of the Board and Chief Executive Officer of Orion Orion Capital Corporation and each of the Subsidiaries since January 1, 1997, Vice 9 Farm Springs Road Chairman of the Board of Orion from March 8, 1996 to December Farmington, CT 06032 31, 1996; President and Chief Executive Officer of DPIC Companies, Inc. ("DPIC Companies"), a subsidiary of Orion, from July 1994 to June 1996; Senior Vice President of Orion and Orion Capital Companies ("OC Companies") 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. Gordon F. Cheesbrough(1)...... Chairman, Chief Executive Officer and member of the Executive Scotia Capital Markets Council of Scotia McLeod, Inc. (an international integrated 40 King Street West investment dealer) since 1993; President and Chief Operating Scotia Plaza, 66th Floor Officer of Scotia McLeod, Inc. from 1990 to 1993. Toronto, Ontario M5W 2X6 Canada Bertram J. Cohn(1)............ Managing Director, First Manhattan Company (investment 437 Madison Avenue, bankers) since 1982. 30th Floor New York, NY 10022 John C. Coleman(1)............ Private investor and consultant; Director of Premier Farnell 4 Briar Lane PLC. Glencoe, IL 60022 Victoria R. Fash(1)........... Executive Vice President and Chief Financial Officer of Cognizant Corporation Cognizant Corporation since November 1996; Senior Vice 200 Nyala Farms Road President -- Business Strategy of The Dun & Bradstreet Westport, Connecticut 06880 Corporation from 1995 to November 1996; Vice President -- business operations planning of The Dun & Bradstreet Corporation from 1994-1995; Assistant to the President of The Dun & Bradstreet Corporation from 1991 to 1994. Robert H. Jeffrey(1).......... Chairman of the Board, Jeflion Investment Company since 1994; The Jeffrey Company President of the Jeflion Investment Company from 1974 to 88 E. Broad Street, 1994; Chairman of the Board, The Jeffrey Company (a privately Suite 1560 held investment company which is the parent of Jeflion Columbus, OH 43215 Investment Company) since 1994; President of the Jeffrey Company from 1973 to 1994.
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PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT/MATERIAL POSITIONS NAME AND ADDRESS HELD DURING THE PAST FIVE YEARS Warren R. Lyons(1)............ Chairman, Avco Financial Services (a financial services Avco Financial Services company and a subsidiary of Textron Inc.) since August 1995; 600 Anton Boulevard President of Avco Financial Services from 1989 to July 1995. Costa Mesa, CA 92628C James K. McWilliams(1)........ Proprietor of McWilliams & Company and general partner of McWilliams & Company McWilliams Associates (investment counselors) since 1967; 2288 Broadway, #8 General Partner, Mt. Eden Vineyards, Inc. since 1986. San Francisco, CA 94115 Ronald W. Moore(1)............ Adjunct Professor of Business Administration, Graduate School Morgan Hall of Business Administration, Harvard University since 1990; Soldiers Field Director of CMAC Investment Corporation. Boston, MA 02163 Robert B. Sanborn(1).......... Senior Executive Consultant to Orion since March 1, 1995; 87 Farm Lane Vice Chairman of the Board of Orion from March 1, 1994 to South Dennis, MA 02660 February 28, 1995; President and Chief 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 of Guaranty National Corporation, Intercargo Corporation and Nobel Insurance Limited. William J. Shepherd(1)........ Private investor; Chairman, Chemical New Jersey Holdings (a 109 Golf Edge bank holding company) from 1990 to 1991, Chairman, Chemical Westfield, NJ 07090 Bank New Jersey (a commercial bank) from 1989 to 1991; Director of Guaranty National Corporation. John R. Thorne(1)............. Morgenthaler Professor of Entrepreneurship, Graduate School Furnace Run of Industrial Administration of Carnegie Mellon University Laughlintown, PA 15655 since 1986; Chairman, The Enterprise Corporation of Pittsburgh (a private, non-profit corporation encouraging and supporting entrepreneurial businesses) since 1983; a general partner of Pittsburgh Venture Partners, the general partner of the Pittsburgh Seed Fund (a private venture capital fund) since 1985. William B. Weaver(1).......... President of Weaver Capital Management (a money management 237 Park Avenue firm based in New York City) from 1996 to the present; Suite 900 Managing Director of Lehman Brothers, Head of the Financial New York, New York 10017 Services Group and a member of the Investment Banking Management Committee from 1993 to 1996; Chief Operating Officer of the Investment Banking Department of the First Boston Corporation from 1991 to 1993; and Managing Director in The First Boston Corporation's M&A Group from 1985 to 1993. Raymond W. Jacobsen........... President of EBI Companies, Inc. ("EBI"), a subsidiary of EBI Companies, Inc. Orion, since June 30, 1997; Senior Vice President of Orion 500 Park Blvd. since July 1994; Vice President of Orion from March 1990 to Suite 900 July 1994; Chairman of EBI from July, 1996 to June 30, 1997. Itasca, IL 60143 President and Chief Executive Officer of EBI from June 1, 1993 to March 1996; Acting President and Chief Executive Officer of Connecticut Specialty, a subsidiary of Orion, from October 17, 1995 to November 1996, and Senior Vice President of OC Companies since March, 1990; Executive Vice President of the EBI from December 1989 to May 31, 1993.
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PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT/MATERIAL POSITIONS NAME AND ADDRESS HELD DURING THE PAST FIVE YEARS Daniel L. Barry............... Senior Vice President and Chief Financial Officer of Orion Orion Capital Corporation since January 1, 1997; Vice President and Chief Financial 9 Farm Springs Road Officer from March 1996 to December 1996; Vice President and Farmington, CT 06032 Controller from October 1987 to March 31, 1996; Vice Chairman of SecurityRe, Inc., subsidiary of Orion, from 1989 to March 1997; Senior Vice President of OC Companies since January 1989; Controller of the Subsidiaries from October 1986 to December 31, 1996. Michael P. Maloney............ Senior Vice President, General Counsel and Secretary of Orion Orion Capital Corporation since January 1, 1997; Vice President, General Counsel and 9 Farm Springs Road Secretary of Orion since August 1975 to December 31, 1996; Farmington, CT 06032 Senior Vice President and Assistant Secretary of each of the Subsidiaries since March 1987. William G. McGovern........... Vice President and Chief Actuary of Orion from March, 1990; Orion Capital Corporation Senior Vice President and Chief Actuary of each of the 9 Farm Springs Road Subsidiaries since October 1989. Farmington, CT 06032 Vincent T. Papa............... Senior Vice President of Orion since January 1, 1997; Vice Wm. H. McGee & Co., Inc. President and Treasurer of Orion from June 1985 to December Two World Trade Center 31, 1996; Chairman of Wm. H. McGee & Co., Inc., ("McGee") a New York, NY 10048 wholly- owned subsidiary of Orion, since September 30, 1995; Senior Vice President of each of the Subsidiaries since March 1987; Treasurer from December 1990 to March 1996. Raymond J. Schuyler........... Senior Vice President and Chief Investment Officer of Orion Orion Capital Corporation since January 1, 1997; Vice President -- Investments of Orion 600 Fifth Avenue from June 1984 to December 1996; Senior Vice New York, NY 10020 President -- Investments of each of the Subsidiaries since March 1986. Robert T. Claiborne........... Vice President, Portfolio Manager and Director of Research of Orion Capital Corporation Orion since January 1, 1997; Assistant Vice President and 600 Fifth Avenue Portfolio Manager, Director of Research from March 1994 to New York, NY 10020 December 31, 1996; Investment Analyst from September 1990 to March 1994. Claudia F. Lindsay............ Vice President of Orion since January 1, 1997; Vice Orion Capital Corporation President -- Business Development of the Subsidiaries since 9 Farm Springs Road September 1996; President of Strategic Marketing & Research, Farmington, CT 06032 Inc. from 1995 to 1996; Vice President of Anthem Financial from 1994 to 1995; Managing Partner & Chief Financial Officer of McDonough Caperton Insurance Group from 1985 to 1994. Craig A. Nyman................ Vice President and Treasurer of Orion since January 1, 1997; Orion Capital Corporation Assistant Vice President and Assistant Treasurer from June 9 Farm Springs Road 1988 to December 31, 1996; Vice President and Treasurer of OC Farmington, CT 06032 Companies and each of the Subsidiaries since March 1996; Vice President and Assistant Treasurer from 1991 to March 1996.
I-3 39
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT/MATERIAL POSITIONS NAME AND ADDRESS HELD DURING THE PAST FIVE YEARS Stephen M. Mulready........... Vice President of Orion since January 1, 1997; President of Connecticut Specialty Connecticut Specialty since November 1996; Senior Vice 9 Farm Springs Road President -- Strategic Underwriting and Product Development Farmington, CT 06032 of Travelers/Aetna Property Casualty Corporation from January 1996 to November 1996; Senior Vice President -- National Commercial Accounts of Aetna Life & Casualty from 1994 to 1996; Vice President, Field Operations -- National Commercial Accounts of Aetna Life & Casualty from 1991 to 1994. Thomas M. Okarma.............. Vice President of Orion since January 1, 1997; President and DPIC Chief Executive Officer of DPIC since July 1996; Senior Vice 2959 Monterey-Salinas President -- Chief Claims Officer of DPIC since December 1995 Highway to June 1996; President of Professional Concepts Insurance Monterey, CA 93940 Agency and Executive Vice President of AVA Insurance Agency, Inc., from February 1984 to November 1995. Victor L. Matthews............ Chief Financial Officer of McGee since July 1997; Vice Wm. H. McGee & Co., Inc. President and Controller of Orion from January 1, 1997 to Two World Trade Center July 1997, Assistant Vice President and Assistant Controller New York, NY 10048 of Orion from July 1990 to December 31, 1996. David B. Semeraro............. Vice President of Orion since January 1, 1997; Vice President Orion Capital Corporation and Chief Information Officer of each of the Subsidiaries 9 Farm Springs Road since April 1996; Vice President -- Business & Technology Farmington, CT 06032 Solutions of Connecticut Mutual Life Insurance Company from November 1990 to April 1996. Kevin W. Sullivan............. Vice President and Assistant Chief Investment Officer of Orion Capital Corporation Orion since January 1, 1997; Assistant Vice President and 600 Fifth Avenue Assistant Chief Investment Officer from 1989 to December 31, New York, NY 10020 1996.
- --------------- (1) Director of Orion I-4 40 ANNEX II GUARANTY SHARE OWNERSHIP AND OTHER INFORMATION GUARANTY NATIONAL CORPORATION Based on information provided by Guaranty, the directors and executive officers of Guaranty as of October 31, 1997 beneficially owned Shares (including Shares outstanding, Shares subject to options exercisable within 60 days of October 31, 1997 and restricted Shares) as set forth in the following table:
AMOUNT AND NATURE PERCENT OF BENEFICIAL OF NAME OWNERSHIP CLASS Tucker Hart Adams............................................... -0- -0- W. Marston Becker............................................... 2,450 * Shelly J. Hengsteler............................................ 1,069 * Dennis J. Lacey................................................. 400 * Arthur J. Mastera............................................... 40,341 .3% M. Ann Padilla.................................................. 506 * Vincent T. Papa................................................. -0- -0- Michael L. Pautler.............................................. 43,237 .3% James R. Pouliot................................................ 47,253 .3% Fred T. Roberts................................................. 2,556 * Robert B. Sanborn............................................... 321 * William J. Shepherd............................................. 1,605 * Richard R. Thomas............................................... 1,500 * Philip H. Urban................................................. 6,234 * Roger B. Ware................................................... 92,071 .6%
- ------------------------------ * Less than .1%. For purposes of this Annex II, the address of each officer and director of Guaranty is that of its principal executive offices set forth in this Offer to Purchase. According to information provided by Guaranty, as of October 31, 1997, the number of Shares underlying outstanding unexercised options held by the directors and executive officers of Guaranty was as follows:
NUMBER OF UNEXERCISED OPTIONS ------------------------------- NAME EXERCISABLE UNEXERCISABLE WITHIN 60 DAYS Roger B. Ware............................................. 61,000 -- Fred T. Roberts........................................... -- -- Arthur J. Mastera......................................... 34,168 9,503 Michael L. Pautler........................................ 37,271 9,813 James R. Pouliot.......................................... 43,080 24,240 Shelly J. Hengsteler...................................... 574 1,722 Philip H. Urban........................................... 6,234 18,699
None of the foregoing persons has effected any transactions in the Shares in the last 60 days. II-1 41 ORION Except to the extent that the officers and directors of Orion and the Subsidiaries may be deemed to "beneficially own" Shares by reason of their voting power or investment power with respect to the Shares owned by Orion and the Subsidiaries, and except for the 2,450 Shares beneficially owned by W. Marston Becker, Chairman and Chief Executive Officer of Orion and of Guaranty, 321 Shares beneficially owned by Robert B. Sanborn, a Director of Orion and of Guaranty, 1,605 Shares beneficially owned by William J. Shepherd, a Director of Orion and of Guaranty, 481 Shares beneficially owned by John R. Thorne, a Director of Orion, 321 Shares beneficially owned by Kevin W. Sullivan, Vice President and Assistant Chief Investment Officer of Orion and the Subsidiaries, and 350 Shares beneficially owned by Peter M. Vinci, Vice President and Controller of Subsidiaries, no officer or director of Orion nor any of its wholly-owned subsidiaries beneficially owns, or has the right to acquire, directly or indirectly, any Shares or has effected any transaction in Shares since July 1, 1997. II-2 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 shareholder 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 Overnight Courier: By Hand: State Street Bank and Trust State Street Bank and Trust Securities Transfer and Company Company Reporting Services, Inc. Corporate Reorganization Corporate Reorganization Corporate Reorganization P.O. Box 9061 70 Campanelli Drive 1 Exchange Plaza Boston, MA 02205-8686 Braintree, MA 02184 55 Broadway, 3rd Floor New York, NY 10006
Facsimile Transmission Copy Number: (617) 794-6333 Confirm by Facsimile to: (617) 794-6388 Shareholder Inquiries: 1-800-426-5523 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 shareholder may also contact his broker, dealer, commercial bank or trust company for assistance concerning the Offer. The Information Agent is: D.F. KING & CO. 77 Water Street New York, NY 10005 (212) 269-5550 (Call Collect) CALL TOLL FREE (800) 290-6429 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.A.2 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 NOVEMBER 5, 1997 BY ORION CAPITAL CORPORATION THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, DECEMBER 4, 1997, 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 Securities Transfer and Reporting Company Company Services, Inc. Corporate Reorganization Corporate Reorganization Corporate Reorganization P. O. Box 9061 70 Campanelli Drive 1 Exchange Plaza Boston, MA 02205-8686 Braintree, MA 02184 55 Broadway, 3rd Floor New York, NY 10006
Facsimile Transmission Copy Number: (617) 794-6333 Confirm by Facsimile to: (617) 794-6388 Shareholder Inquiries: 1-800-426-5523 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 November 5, 1997 (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 - -------------------------------------------------------------------------------- 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"), the above-described shares of Common Stock, par value $1.00 per share (the "Shares"), of Guaranty National Corporation, a Colorado corporation (the "Company"), together with the associated Rights, in accordance with the offer to purchase any and all of the outstanding Shares at a price of $36.00 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, 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. The undersigned understands that Orion 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 Orion prior to the time of such vote or action and which the undersigned is entitled to vote at any meeting of stockholders of Guaranty (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 Guaranty 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 Orion 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 Orion reserves the right to require that, in order for Shares to be deemed validly tendered, immediately upon Orion's acceptance for payment of such Shares, Orion is 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 Orion, 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 October 31, 1997 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 Orion, (b) present such Shares, or any such other Shares, securities or rights, for transfer on Guaranty'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 $36.00 per Share pursuant to the Offer will be made with respect to any regular dividend not in excess of $.125 per Share which may be declared by the Board of Directors of Guaranty to stockholders of record on any date prior to March 31, 1998. 4 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 Orion, Orion will acquire good, marketable and unencumbered title thereto, free and clear of all liens, restrictions, claims 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 Orion 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 Orion any and all other Shares or other securities or rights issued to the undersigned on or after October 31, 1997 in respect of the Shares tendered hereby, accompanied by appropriate documentation of transfer, and, pending such remittance or appropriate assurances thereof, Orion 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, 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. Orion's acceptance of such Shares for payment will constitute a binding agreement between the undersigned and Orion 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. 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 Shares 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 Orion has no obligation, pursuant to the Special Payment Instructions, to transfer any Shares from the name of the registered holder(s) hereof if Orion does 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: --------------------------------------------------- , 1997 (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: __________________________________, 1997 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 Orion 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. 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. 8 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 Orion of their authority so to 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 Orion pursuant to the Offer will be paid by or on behalf of Orion. 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. 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 Orion, in whole or in part, at any time in its sole discretion in the case of any Shares tendered. 11. 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). 9 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 AND DATING BELOW. ------------------------------ ------------------------------------------------------------------------ PART 2--CERTIFICATIONS--Under penalties of perjury, I certify that: (1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be issued to me and have 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 withholding as a result of a failure to report all interest or 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: - ------------------- SUBSTITUTE FORM W-9 DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE PAYER'S REQUEST FOR TAXPAYER IDENTIFICATION NUMBER ("TIN") 11 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) 290-6429 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.A.3 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 Securities Transfer and Company Company Reporting Services, Inc. Corporate Reorganization Corporate Reorganization Corporate Reorganization P. O. Box 9061 70 Campanelli Drive 1 Exchange Plaza Boston, MA 02205-8686 Braintree, MA 02184 55 Broadway, 3rd Floor New York, NY 10006
Facsimile Transmission Copy Number: (617) 794-6333 Confirm by facsimile to: (617) 794-6388 Shareholder Inquiries: 1-800-426-5523 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, contingent upon the terms and subject to the conditions set forth in the Offer to Purchase dated November 5, 1997 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 Guaranty pursuant to the Rights Agreement referred to in the Offer to Purchase dated November 5, 1997. 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 , 1997 ----------------------------- 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 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 --------------------------------------- Address --------------------------------------- Zip Code Area Code and Tel. No. ----------------- --------------------------------------- Authorized Signature --------------------------------------- Title Name ----------------------------------- (Please Type or Print) Dated , 1997 ---------------------------- 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.A.4 5 LETTER TO SECURITIES DEALERS 1 OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING ANY ASSOCIATED STOCK PURCHASE RIGHTS) OF GUARANTY NATIONAL CORPORATION AT $36.00 NET PER SHARE BY ORION CAPITAL CORPORATION THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT NEW YORK CITY TIME, ON THURSDAY, DECEMBER 4, 1997, UNLESS THE OFFER IS EXTENDED. November 5, 1997 To Brokers, Dealers, Commercial Banks, Trust Companies and Nominees: We have been appointed by Orion Capital Corporation, a Delaware corporation ("Orion") to act as Dealer Manager in connection with Orion's offer to purchase any and all shares of common stock, $1.00 par value per share (the "Shares"), of Guaranty National Corporation, a Colorado corporation (the "Guaranty"), at $36.00 per Share, net to the seller in cash upon the terms and subject to the conditions set forth in the Offer to Purchase dated November 5, 1997 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 CONDITIONED ON THERE BEING TENDERED A MINIMUM OF 50.01% OF THE SHARES NOT OWNED BY ORION OR ITS WHOLLY-OWNED SUBSIDIARIES, AND THE RECEIPT OF ALL REQUIRED REGULATORY APPROVALS, IF ANY, ON TERMS AND CONDITIONS SATISFACTORY TO ORION. THE OFFER IS ALSO SUBJECT TO OTHER TERMS AND CONDITIONS. THE OFFER IS BEING MADE PURSUANT TO THE AGREEMENT AND PLAN OF MERGER, DATED OCTOBER 31, 1997, BY AND BETWEEN ORION AND GUARANTY. THE BOARD OF DIRECTORS OF GUARANTY HAS UNANIMOUSLY APPROVED THE OFFER, THE MERGER AND THE MERGER AGREEMENT AND DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF GUARANTY'S STOCKHOLDERS AND RECOMMENDS THAT GUARANTY'S STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES. 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. Orion 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. Orion 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 November 5, 1997. (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) A letter to shareholders of Guaranty from James R. Pouliot, President and Chief Executive Officer of Guaranty, together with a Solicitation/Recommendation Statement on Schedule 14D-9 filed with the Securities and Exchange Commission by Guaranty and recommending that shareholders accept the Offer and tender their Shares. (4) Notice of Guaranteed Delivery; (5) 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; (6) Guidelines of the Internal Revenue Service for Certification of Taxpayer Identification Number; (7) Return envelopes addressed to the Depositary. YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS PROMPTLY. PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE ON DECEMBER 4, 1997, AT 12:00 MIDNIGHT, NEW YORK CITY TIME, UNLESS THE OFFER IS EXTENDED. 2 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 Orion 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 Orion. 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 ORION, 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) 290-6429 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.A.5 6 LETTER FROM BROKERS, DEALERS, COMMERCIAL BANKS 1 OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING ANY ASSOCIATED STOCK PURCHASE RIGHTS) OF GUARANTY NATIONAL CORPORATION AT $36.00 NET PER SHARE BY ORION CAPITAL CORPORATION THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE ON THURSDAY, DECEMBER 4, 1997, AT 12:00 MIDNIGHT, NEW YORK CITY TIME, UNLESS THE OFFER IS EXTENDED. November 5, 1997 To Our Clients: Enclosed for your consideration are the Offer to Purchase dated November 5, 1997 (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 ("Orion"), to purchase all of the outstanding shares of Common Stock, $1.00 par value per share (the "Shares"), of Guaranty National Corporation, a Colorado corporation ("Orion"), and any Rights, for $36.00 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). 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 $36.00 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in the Offer. 2 2. The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of October 31, 1997, (the "Merger Agreement"), by and between Orion and Guaranty. The Merger Agreement provides that, among other things, following the consummation of the Offer and the satisfaction or waiver of the other conditions set forth in the merger agreement, a wholly-owned subsidiary of Orion will be merged with and into Guaranty (the "Merger"). At the effective time of the Merger, each outstanding Share (other than Shares held in the treasury of Guaranty, owned directly or indirectly by Guaranty, held by Orion or any of its subsidiaries or any held by shareholders who shall have perfected their dissenters' rights under Colorado law) will be converted into the right to receive the $36.00 price per Share paid in the Offer, without interest. The Board of Directors of Guaranty has unanimously approved the Merger Agreement, the Offer and the Merger, has determined that the Offer and the Merger are fair to, and in the best interests of, the shareholders of Guaranty and recommends acceptance of the Offer. 3. The Offer and withdrawal rights will expire on Thursday, December 4, 1997, 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, including the condition that a minimum number of Shares equal to at least 50.01% of the Shares not owned by Orion or its wholly-owned subsidiaries are 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 Orion, 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 ALL SHARES OF COMMON STOCK OF GUARANTY NATIONAL CORPORATION The undersigned acknowledge(s) receipt of your letter and the enclosed Offer to Purchase dated November 5, 1997 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, to purchase all of the outstanding shares of common stock, par value $1.00 per share of Guaranty National Corporation not owned by Orion or one of its wholly-owned subsidiaries (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: ___________ , - -------------------------------------------------------------------------------- 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.A.6 7 PRESS RELEASE 1 Contact: Jeanne Hotchkiss Dawn Dover/Mark Semer Mike Paulter Orion Capital Kekst and Company Guaranty National 860-674-6754 212-521-4800 303-754-8701 ORION CAPITAL CORPORATION AND GUARANTY NATIONAL CORPORATION ANNOUNCE MERGER AGREEMENT - Orion to Commence Tender Offer for Approximately 19% of Guaranty National It Does Not Already Own - NEW YORK, OCTOBER 31, 1997 - Orion Capital Corporation (NYSE: OC) and Guaranty National Corporation (NYSE: GNC) today announced that their respective Boards of Directors have approved an agreement providing for the merger of Guaranty National into a wholly-owned Subsidiary of Orion. Under the agreement reached today, the merger will take place following the completion of an Orion tender offer for the approximately 2.9 million shares of Guaranty National common stock that it doesn't already own for $36 per share in cash. The Guaranty National Board approved this transaction following a recommendation by a committee consisting of its independent directors. Orion currently owns approximately 81% of the outstanding stock of Guaranty National. It is currently expected that the tender offer will expire during the first week of December 1997, unless extended. The registration statement Orion filed with the Securities and Exchange Commission on September 22, 1997 with respect to an exchange offer to acquire the outstanding Guaranty National shares for $34 per share in cash and Orion common stock will be withdrawn as a result of this agreement. The terms and conditions of the offer will be set forth in tender offer materials to be filed shortly with the Securities and Exchange Commission, and to be mailed promptly to Guaranty National shareholders. The Dealer Manager for the offer is Donaldson Lufkin & Jenrette Securities Corporation. Guaranty National is a Colorado-based property and casualty insurance holding company with operating subsidiaries which write private passenger automobile insurance, as well as specialty commercial automobile, collateral protection and other commercial coverages. The Company is a leading provider of nonstandard personal automobile insurance written through independent agents. Orion Capital is engaged in the specialty property and casualty insurance business through wholly-owned subsidiaries which include EBI Companies, DPIC Companies, Connecticut Specialty, and Wm. H. McGee, as well as through its 81% ownership interest in Guaranty National Corporation. # # # EX-99.A.7 8 PRESS RELEASE 1 Exhibit a (7) Contact: Jeanne Hotchkiss Dawn W. Dover/ Michael Pautler Orion Capital Corporation Mark Semer Guaranty National Corporation (860) 674-6754 Kekst & Company (305) 754-8701 437 Madison Avenue (212) 593-2655
FOR IMMEDIATE RELEASE ORION CAPITAL CORPORATION COMMENCES CASH TENDER OFFER FOR SHARES OF GUARANTY NATIONAL New York, New York, November 5, 1997 -- Orion Capital Corporation (NYSE: OC) today announced commencement of a cash tender offer at a price of $36.00 per share net to the seller for all outstanding shares of the common stock of Guaranty National Corporation that Orion does not already own. The tender offer expires at midnight on December 4, 1997, unless extended. Orion Capital currently owns through its subsidiaries approximately 80.5% of the outstanding common stock of Guaranty National. The tender offer is being made pursuant to a agreement entered into by Orion and Guaranty and will be followed by the merger of Guaranty with a wholly-owned subsidiary of Orion. Shareholders will receive $36.00 in cash per share in the merger. The tender offer is conditioned on, among other things, at least 50.01% of the outstanding shares of Guaranty National common stock not held by Orion or its subsidiaries being validly tendered and not withdrawn prior to the expiration date. The terms and conditions of the offer are set forth in tender offer materials that will be filed today with the Securities and Exchange Commission, and mailed to Guaranty National Corporation shareholders. The Dealer Manager for the offer is Donaldson, Lufkin & Jenrette Securities Corporation. Guaranty National is a Colorado-based property and casualty insurance holding company with operating subsidiaries which write specialty commercial and private passenger automobile insurance, as well as collateral protection and other commercial coverages. Guaranty National is a leading provider of nonstandard personal automobile insurance written through independent agents. Orion Capital Corporation is engaged in the specialty property and casualty insurance business through wholly-owned subsidiaries, which include EBI Companies, DPIC Companies, Connecticut Specialty Insurance Group, SecurityRe Companies and Wm. H. McGee & Co. Inc., as well as through its ownership interest in Guaranty National Corporation. EX-99.A.8 9 SUMMARY ADVERTISEMENT 1 This announcement is neither an offer to purchase nor a solicitation of an offer to sell securities. The Offer is made solely by the Offer to Purchase dated November 5, 1997 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 Orion Capital Corporation, 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 ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING ANY ASSOCIATED STOCK PURCHASE RIGHTS) OF GUARANTY NATIONAL CORPORATION AT $36.00 NET PER SHARE BY ORION CAPITAL CORPORATION Orion Capital Corporation, a Delaware corporation ("Orion"), is offering to purchase all outstanding shares of the common stock, par value $1.00 per share (the "Shares"), including any stock purchase rights associated therewith pursuant to the Rights Agreement dated November 20, 1991, of Guaranty National Corporation, a Colorado corporation (the "Company"), at a price per Share, of $36.00 net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated November 5, 1997 (the "Offer to Purchase") and the related Letter of Transmittal (which, as amended or supplemented from time to time, together constitute the "Offer"). THE OFFER, AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT NEW YORK CITY TIME, ON DECEMBER 4, 1997, UNLESS THE OFFER IS EXTENDED. SHARES WHICH ARE TENDERED PURSUANT TO THE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE. THE OFFER IS CONDITIONED ON A MINIMUM OF AT LEAST 50.01% OF THOSE SHARES NOT OWNED BY ORION OR ONE OF ITS SUBSIDIARIES BEING TENDERED (THE "MINIMUM SHARE CONDITION"). THE OFFER IS ALSO SUBJECT TO OTHER TERMS AND CONDITIONS. The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of October 31, 1997 (the "Merger Agreement"), by and between Orion and the Company. The Merger Agreement provides that, among other things, Orion will make the Offer and that following the purchase of Shares pursuant to the Offer and the satisfaction of the other conditions set forth in the Merger Agreement and in accordance with relevant provisions of the Colorado Business Corporation Act ("CBCA"), a wholly owned subsidiary of Orion will be merged with and into the Company (the "Merger"). Following consummation of the Merger, the Company will continue as the surviving corporation and will be a wholly owned subsidiary of Orion. At the effective time of the Merger (the "Effective Time"), each Share issued and outstanding immediately prior to the Effective Time (other than Shares owned by (i) Orion or by any wholly owned subsidiary of Orion or in the treasury of the Company or by any wholly-owned subsidiary of the Company or (ii) stockholders, if any, who are entitled to and who properly exercise dissenters' rights, if available, in accordance with Sections 7-113-101 to 7-113-307 of the CBCA) will be converted into the right to receive cash without interest in an amount equal to the price per Share of $36.00 net in cash paid in the Offer. THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, THE OFFER AND THE MERGER, DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF THE COMPANY AND RECOMMENDS ACCEPTANCE OF THE OFFER BY THE STOCKHOLDERS OF THE COMPANY. The Offer is subject to certain conditions set forth in the Offer to Purchase, including satisfaction of the Minimum Share Condition. Subject to the terms of the Merger Agreement, if any such condition is not satisfied Orion may terminate the Offer and return all tendered Shares to tendering stockholders; extend the Offer and subject to withdrawal rights as set forth in the Offer to Purchase, retain all such Shares until the expiration of the Offer as so extended; or delay acceptance for payment of or payment for the Shares, subject to applicable law, until satisfaction or waiver of the conditions of the Offer and subject to the right of Orion to extend the Offer as set forth in the Offer to Purchase. Orion may unilaterally waive any of the conditions (except the Minimum Share Condition) to the Offer in whole or in part at any time in its sole discretion. Orion, together with its subsidiaries, beneficially owns approximately 80.5% of the outstanding Shares. As described in the Offer to Purchase, Orion's purpose in acquiring the Shares is to make the Company a wholly-owned subsidiary of Orion. For the purposes of the Offer, Orion will be deemed to have accepted for payment (and thereby purchased) validly tendered and not properly withdrawn Shares when, as and if Orion gives oral or written notice to the Depositary, State Street Bank and Trust Company, of Orion's acceptance for payment of such Shares pursuant to the Offer. Payment for Shares purchased pursuant to the Offer will in all cases be made by deposit of the Offer price with the Depositary, which will act as agent for the tendering stockholders for the purpose of receiving payment from Orion and transmitting such payment to tendering stockholders. Under no circumstances will interest on the Offer price be paid by Orion 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 Transmittal (or facsimile thereof) and any other documents required by the Letter of Transmittal. Orion expressly reserves the right, in its 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 of the Offer (which may be released to the Dow Jones News Service). During any such extension, all Shares previously tendered and not exchanged 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 Thursday, December 4, 1997, or the latest time and date at which the Offer, if extended by Orion, shall expire and, unless theretofore accepted for payment as provided in the Offer, may also be withdrawn after January 3, 1998. 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 (as defined in the Offer to Purchase) 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 and withdrawal will be determined by Orion, in its sole discretion, which determination will be final and binding. 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. The Company has provided Orion with the Company's stockholder list and security position listings for the purpose of disseminating Orion's 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 the addresses and telephone numbers set forth below, and copies will be furnished promptly at Orion's expense. Orion will not pay any fees or commissions to any broker or dealer or any other person (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) 628-8536 (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) EX-99.A.9 10 GUIDELINES FOR CERTIFICATION OF TAYPAYER ID 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 to 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 individual (joint The actual owner of the account) account, or, if combined funds, the first individual on the account(1) 3. Custodian account of a minor The minor(2) (Uniform Gift to Minors Act) 4. a. The usual revocable savings The guarantor-trustee(1) trust account (grantor is also trustee) b. So-called trust account that The owner (3) is not a legal or valid trust under State law 5. Sole proprietorship account The owner - ------------------------------------------------------------------ FOR THIS TYPE OF ACCOUNT: GIVE THE EMPLOYER IDENTIFICATION NUMBER OF: - ------------------------------------------------------------------ 6. A valid trust, estate, or The legal entity (Do not pension trust furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title)(4) 7. Corporate account The corporation 8. Partnership account held in the The partnership name of the business 9. Association, club, religious, The organization charitable, or other tax-exempt organization 10. A broker or registered nominee The broker or nominee 11. 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 an agricultural program payment ------------------------------------------------------------------
(1) List 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) Show the name of the owner. The name of the business or the "doing business as" name may also be entered. Either the social security number or the employer identification number may be used. (4) List 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. 2 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 AND PAYMENTS EXEMPT FROM BACKUP WITHHOLDING Payees specifically exempt from backup withholding on ALL dividend and interest payments and on broker transactions include the following: - - A corporation. - - A financial institution. - - An organization exempt from tax under section 501(a), or an individual retirement plan, or a custodial account under section 403(b)(7). - - 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 any agency or instrumentality thereof. - - An international organization or any agency, 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 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 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) of the Code 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 the Substitute Form W-9 to avoid possible erroneous backup withholding. Complete the Substitute Form -9 as follows: ENTER YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, SIGN, DATE, AND RETURN THE FORM TO THE PAYER. 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), 6042, 6044, 6045, 6049, 6050A and 6050N and the regulations thereunder. 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. Beginning January 1, 1984, 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 A 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. -- Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. (4) MISUSE OF TAXPAYER IDENTIFICATION NUMBERS. -- If the payer discloses or uses taxpayer identification numbers in violation of Federal law, the payer may be subject to civil and criminal penalties. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. EX-99.C.1 11 AGREEMENT AND PLAN OF MERGER 1 Exhibit (c)(1) AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of October 31, 1997 between Guaranty National Corporation, a Colorado corporation (the "Company"), and Orion Capital Corporation, a Delaware corporation ("Orion"). WHEREAS, the Board of Directors of the Company has resolved to adopt this Agreement and the transactions contemplated hereby and, if required, to submit this Agreement to the shareholders of the Company as provided herein; NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, the Company and Orion hereby agree as follows: ARTICLE I. THE OFFER SECTION 1.01 The Offer. Provided that none of the conditions set forth in the offer to purchase referred to below shall have occurred or be existing, Orion (or one or more direct or indirect wholly owned subsidiaries of Orion) shall promptly, and in no event later than two business day(s) after the date of this Agreement, publicly announce, and within five business days thereafter commence (within the meaning of Rule 14d-2 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), an offer to purchase all outstanding shares of common stock, par value $1.00 per share of the Company (each a "Share"), at a price of $36.00 per Share, net to the seller in cash (the "Offer", which term shall include any amendments to such Offer not prohibited by this Agreement), and, subject to a minimum of not less than 50.01% of the outstanding Shares (other than shares owned by Orion and its wholly-owned subsidiaries) being validly tendered and not withdrawn (the "Minimum Condition") and the further conditions set forth in the offer to purchase relating to the Offer. The date on which the Offer is commenced is referred to herein as the "Commencement Date." Orion shall deposit with the depositary for the Offer, or cause to be deposited, on or before the expiration date of the Offer, funds sufficient for payment of the purchase price for all Shares accepted for payment pursuant to the Offer not later than December 31, 1997. Orion shall have the right to transfer or assign to one or more of its subsidiaries the right to purchase or pay for Shares pursuant to the Offer. SECTION 1.02 Company Action. The Company consents to the Offer and represents that its Board of Directors has unanimously approved the Offer and the Merger (as defined in Section 2.01) and has unanimously resolved to recommend acceptance of the Offer to the Company's shareholders. Promptly upon the commencement of the Offer, the Company shall file with the Securities and Exchange Commission (the "Commission") and mail to the holders of Shares a Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9"), which shall reflect the Company's recommendation. The Company shall promptly furnish Orion with mailing labels containing the names and addresses of the record holders and, if available, of non-objecting beneficial owners of Shares and lists of securities positions of 2 Shares held in stock depositories, each as of the most recent practicable date, and shall from time to time furnish Orion with such additional information, including updated or additional lists of shareholders, mailing labels and lists of securities positions, and other assistance as Orion may reasonably request. SECTION 1.03 Shareholders' Action. Promptly following the expiration date of the Offer as set forth to in Article I hereof, the Company shall, if then required in accordance with applicable law, unless the Merger may be effected pursuant to the provisions of Section 7-111-104 of the Colorado Law (as such term defined in Section 2.02), in which case it shall be so effected (including, if necessary, the adoption of a Plan of Merger between the Company and Transition (as defined in Section 2.01) consistent with the terms of this Agreement), duly call, give notice of, convene and hold a special meeting of its shareholders (the "Shareholders' Meeting") as soon as practicable for the purpose of considering and taking action upon this Agreement and Plan of Merger and in connection therewith use its best efforts (i) to obtain and furnish the information required to be included by it in the Proxy Statement (as such term is defined in Section 3.07 hereof) and, after consultation with Orion, respond promptly to any comments made by the Commission with respect to the Proxy Statement and any preliminary version thereof and cause the Proxy Statement to be mailed to its shareholders at the earliest practicable time and (ii) to solicit proxies and to obtain the necessary approvals by its shareholders of this Agreement and the transactions contemplated hereby. References to "Shares" in this Agreement include the associated stock purchase rights (the "Rights") pursuant to the Rights Agreement dated November 20, 1991 between the Company and its rights agent. No separate or additional consideration other than the Offer price and Merger consideration of $36.00 per Share in cash will be payable for the Rights. ARTICLE II. THE MERGER SECTION 2.01 The Merger. At the Effective Time (as defined in Section 2.02 hereof) and subject to and upon the terms and conditions of this Agreement, a wholly owned subsidiary of Orion, to be incorporated in the State of Colorado ("Transition"), shall be merged (the "Merger") with and into the Company. Following the Merger, the Company shall continue as the surviving corporation (the "Surviving Corporation") and the separate corporate existence of Transition shall cease. SECTION 2.02 Effective Time. As soon as practicable after the expiration date of the Offer and the satisfaction or waiver of the conditions set forth in Article VII, the parties hereto will cause the Merger to be consummated by executing articles of merger ("Articles") in accordance with Section 7-111-105 of the Colorado Business Corporation Act (the "Colorado Law") and delivering the Articles to the Secretary of State of Colorado (the "Secretary") and upon the filing by the Secretary of the Articles, the Merger shall be effective in accordance with the provisions of the Colorado Law (the "Effective Time"). The parties shall take all such other and further actions as may be required by applicable law to make the Merger effective. -2- 3 SECTION 2.03 Effects of the Merger. The Merger shall have the effects set forth in the Colorado Law. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the property, rights, privileges, powers and franchises of the Company and Transition shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Transition shall become the debts, liabilities and duties of the Surviving Corporation. SECTION 2.04 Articles of Incorporation and By-Laws. (a) At the Effective Time, the Restated Articles of Incorporation of the Company, as in effect immediately prior to the Effective Time, shall be the Articles of Incorporation of the Surviving Corporation, until duly amended in accordance with applicable law. (b) The By-Laws of the Company, as in effect at the Effective Time, shall be the By-Laws of the Surviving Corporation, until duly amended in accordance with applicable law, the Articles of Incorporation of the Surviving Corporation and such By-Laws. SECTION 2.05 Conversion of Shares. (a) Each Share issued and outstanding immediately prior to the Effective Time (other than Shares held in the Company's treasury or by Orion or any wholly owned (except for director's qualifying shares) subsidiary of Orion and other than Dissenting Shares (as defined in Section 3.01)) shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into the right to receive, pursuant to Section 3.02, $36.00 in cash (the "Merger Price"), payable to the holder thereof, without interest thereon, upon the surrender of the certificate formerly representing such Share. (b) Each Share held in the treasury of the Company immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of the holder thereof, be cancelled, retired and cease to exist and no payment shall be made with respect thereto. (c) Each Share held by Orion or any wholly owned subsidiary of Orion immediately prior to the Effective Time shall remain outstanding and unchanged after the Merger as shares of the Surviving Corporation. SECTION 2.06 Conversion of Transition's Capital Stock. The shares of common stock of Transition issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into and exchangeable for such number of shares of common stock, par value S1.00 per share, of the Surviving Corporation as shall equal the number of Shares converted into the right to receive the Merger Price pursuant to Section 2.05(a) hereof. SECTION 2.07 Options. At the Effective Time, each outstanding option to purchase Shares from the Company (an "Option"), whether or not then exercisable, shall be converted into or replaced by an option to purchase a number of shares of Orion common stock (which shall be rounded up if .5 or more and rounded down if less than .5 so that no option on Orion common stock shall relate to a fractional share) equal to the number of Shares subject to the Option multiplied by a fraction the numerator of which shall be 36 and the denominator of -3- 4 which shall be the average of the closing price of Orion common stock on the ten trading days ending on the fifth trading day prior to the Effective Time, at a price per share (rounded to the nearest whole cent) equal to (i) the aggregate exercise price for the Shares otherwise purchasable pursuant to such stock option, divided by (ii) the number of full shares of Orion common stock deemed purchasable pursuant to such option in accordance with the foregoing. If such conversion shall not be permitted by the terms of the related agreement pursuant to which an Option is issued or the Company equity incentive plans pursuant to which such Option was granted, the Option shall be canceled and the holder of such Option will be entitled to receive from the Company, for each Share subject to such Option, an amount in cash equal to the excess, if any, of the Merger Price over the per share exercise price of such Option. ARTICLE III. DISSENTING SHARES; EXCHANGE OF SHARES SECTION 3.01 Dissenting Shares. (a) Notwithstanding anything in this Agreement to the contrary, each Share which is issued and outstanding immediately prior to the Effective Time and which is held by a shareholder who has properly exercised rights with respect to such Shares, if available, under Sections 7-113-101 to 7-113-302 of the Colorado Law (collectively, the "Dissenting Shares") shall not be converted into or be exchangeable for the right to receive the consideration provided in Section 2.05, unless and until such shareholder shall have failed to perfect or shall have effectively withdrawn or lost such right under the Colorado Law. If any shareholder shall have so failed to perfect or shall have effectively withdrawn or lost such right, his Shares shall thereupon be deemed to have been converted into and to have become exchangeable for, at the Effective Time, the right to receive the consideration provided for in Section 2.05, without any interest thereon. (b) The Company shall give Orion (i) prompt notice of any written demands under Sections 7-113-101 to 7-113-302 of the Colorado Law with respect to any shares of capital stock of the Company, any withdrawal of any such demand, and any other instruments served pursuant to the Colorado Law and received by the Company and (ii) the opportunity to direct all negotiations and proceedings with respect to any demands under Sections 7-113-101 to 7-113-302 of the Colorado Law with respect to any shares of capital stock of the Company. The Company shall cooperate with Orion concerning, and shall not, except with the prior written consent of Orion, voluntarily make any payment with respect to, or offer to settle or settle, any such demands. SECTION 3.02 Exchange of Shares. (a) Prior to the Effective Time, Orion shall designate a bank or trust company reasonably acceptable to the Company to act as Exchange Agent in connection with the Merger (the "Exchange Agent") pursuant to an exchange agency agreement providing for the matters set forth in this Section 3.02 and otherwise reasonably satisfactory to the Company. At the Effective Time, Orion will provide the Exchange Agent with the funds necessary to make the payments contemplated by Section 2.05 (the "Exchange Fund"). -4- 5 (b) Promptly after the Effective Time, the Exchange Agent shall mail to each record holder, as of the Effective Time, of an outstanding certificate or certificates which immediately prior to the Effective Time represented Shares (the "Certificates") a form letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of the Certificates to the Exchange Agent) and instructions for use in effecting the surrender of the Certificates for payment therefor. Upon surrender to the Exchange Agent of a Certificate, together with a duly executed letter of transmittal and any other required documents, the holder of such Certificate shall receive in exchange therefor (as promptly as practicable) the consideration set forth in Section 2.05, without any interest thereon, and such Certificate shall forthwith be canceled. If payment is to be made to a person other than the person in whose name a Certificate so surrendered is registered, it shall be a condition of payment that the Certificate so surrendered shall be properly endorsed or otherwise in proper form for transfer and that the person requesting such payment shall pay any transfer or other taxes required by reason of the payment to a person other than the registered holder of the Certificate so surrendered or establish to the satisfaction of the Surviving Corporation that such tax has been paid or is not applicable. Until surrendered in accordance with the provisions of this Section 3.02, each Certificate (other than Certificates representing Shares held in the Company's treasury or by Orion or any wholly owned subsidiary of Orion and other than Certificates representing Dissenting Shares) shall represent for all purposes only the right to receive for each Share represented thereby the consideration set forth in Section 2.05, without any interest thereon. (c) After the Effective Time, there shall be no transfers on the stock transfer books of the Surviving Corporation of the Shares which were outstanding immediately prior to the Effective Time (other than Certificates representing Shares owned by Orion or any of its wholly owned subsidiaries). If, after the Effective Time, Certificates (other than Certificates representing Shares owned by Orion or any of its wholly owned subsidiaries) are presented to the Surviving Corporation, they shall be cancelled and exchanged for the consideration provided for, and in accordance with the procedures set forth, in this Article III. (d) From and after the Effective Time, the holders of Certificates evidencing ownership of Shares (other than Shares owned by Orion or any of its wholly owned subsidiaries) outstanding immediately prior to the Effective Time shall cease to have any rights with respect to such Shares except as otherwise provided herein or by applicable law. (e) Any portion of the Exchange Fund (including the proceeds of any investments thereof) that remains unclaimed by the shareholders of the Company for six months after the Effective Time shall be repaid to Orion. Any shareholders of the Company who have not theretofore complied with this Article III shall thereafter look only to Orion for payment of their claim for the consideration set forth in Section 2.05 for each Share such shareholder holds, without any interest thereon. (f) Notwithstanding anything to the contrary in this Section 3.02, none of the Exchange Agent, Orion or the Surviving Corporation shall be liable to a holder of a Certificate -5- 6 formerly representing Shares for any amount properly paid to a public official pursuant to any applicable property, escheat or similar law. ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to Orion as follows: SECTION 4.01 Organization and Qualification; Subsidiaries. (a) Each of the Company and its subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted, except where the failure to be so organized, existing and in good standing or to have such power and authority would not in the aggregate have a Material Adverse Effect (as defined below). The Company has heretofore made available to Orion accurate and complete copies of the Restated Articles of Incorporation and By-Laws, as currently in effect, of the Company and the certificate or articles of incorporation and bylaws, as currently in effect, of each of its subsidiaries. When used in connection with the Company or any of its subsidiaries, the term "Material Adverse Effect" means any change in or effect on the business of the Company or any of its subsidiaries that is materially adverse to the business, operations or financial condition of the Company and its subsidiaries taken as a whole. (b) Each of the Company and its subsidiaries is duly qualified or licensed and in good standing to do business in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except in such jurisdictions where the failure to be so duly qualified or licensed and in good standing would not in the aggregate have a Material Adverse Effect. SECTION 4.02 Capitalization of the Company and its Subsidiaries. (a) The authorized capital stock of the Company consists of 30,000,000 Shares, of which, as of the date hereof 15,062,933 Shares are issued and outstanding, and 6,000,000 shares of preferred stock, par value $0.10 per share, of which, as of the date hereof, no shares are issued and outstanding. All the issued and outstanding Shares are validly issued, fully paid and nonassessable and free of preemptive rights. As of the date hereof, the Company has two equity incentive plans under which on the date hereof, options for a total of 517,738 Shares are outstanding, of which 271,500 are exercisable. Except as set forth above or pursuant to the exercise of outstanding Options, there are not as of the date hereof, and at the Effective Time there will not be, any shares of capital stock of the Company issued or outstanding or any subscriptions, options, warrants, calls, rights, convertible securities or other agreements or commitments of any character relating to issued or unissued capital stock or other securities of the Company, or otherwise obligating the Company or any of its subsidiaries to issue, transfer or sell any of such securities. Following the Merger, the Company will have no obligation to issue, transfer or sell any shares of its capital stock or other securities of the Company pursuant to any employee benefit plan or otherwise. -6- 7 (b) All of the outstanding shares of capital stock of each of the Company's subsidiaries have been validly issued, fully paid and nonassessable and are owned by either the Company or its subsidiaries free and clear of all material liens, charges, claims or encumbrances. (c) The Shares constitute the only class of equity securities of the Company or any of its subsidiaries registered or required to be registered under the Exchange Act. SECTION 4.03 Authority Relative to this Agreement. The Company has all necessary corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by the board of directors of the Company and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or to consummate the transactions so contemplated other than, with respect to the Merger, the approval of this Agreement by the holders, including Orion and its subsidiaries, of the majority of the then outstanding Shares, unless the Merger may be effected without the vote of shareholders of the Company. This Agreement has been duly and validly executed and delivered by the Company and constitutes a valid, legal and binding agreement of the Company enforceable against the Company in accordance with its terms, except as enforcement may be limited by general principles of equity whether applied in a court of law or a court of equity. SECTION 4.04 SEC Reports. (a) The Company has filed all required forms, reports and documents with the Commission since January 1, 1994 (collectively, the "SEC Reports"), all of which have complied in all material respects with all applicable requirements of the Securities Act of 1933, as amended, and the Exchange Act. The Company has heretofore delivered to Orion, in the form filed with the Commission, its (i) Annual Reports on Form 10-K for each of the three fiscal years ended December 31, 1996, (ii) all definitive proxy statements relating to the Company's meetings of shareholders (whether annual or special) held since January 1, 1994 and (iii) all other reports or registration statements filed by the Company with the Commission since January 1, 1994. None of such forms, reports or documents, including, without limitation, any financial statements or schedules included or incorporated by reference therein, contained any untrue statement of a material fact or omitted to state a material fact required to be stated or incorporated by reference therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. None of the subsidiaries of the Company is required to file any reports, statements, forms or other documents with the Commission. (b) The Company has heretofore made available to Orion a complete and correct copy of any amendments or modifications, which have not yet been filed with the Commission, to agreements, documents or other instruments which previously had been filed by the Company with the Commission pursuant to the Exchange Act. SECTION 4.05 Absence of Certain Changes. Except as set forth or otherwise reflected in the SEC Reports, since December 31, 1996, neither the Company nor any of its significant subsidiaries has suffered any Material Adverse Effect. -7- 8 SECTION 4.06 No Undisclosed Liabilities. Except as and to the extent set forth in the Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (the "1996 10-K"), as of December 31, 1996, neither the Company nor any of its subsidiaries had any material liabilities or obligations, whether accrued, contingent or otherwise, required by generally accepted accounting principles to be reflected on a consolidated balance sheet of the Company and its subsidiaries. Since December 31, 1996, neither the Company nor any of its subsidiaries has incurred any liabilities or obligations which in the aggregate are material to the Company and its subsidiaries, taken as a whole, other than liabilities and obligations incurred in the ordinary course of business or pursuant to or as contemplated by this Agreement. SECTION 4.07 Proxy Statement; Schedule 13E-3. Any proxy or similar materials distributed to the Company's shareholders in connection with the Merger, including any amendments or supplements thereto (a "Proxy Statement"), will comply in all material respects with applicable laws, including the federal securities laws, except that no representation is made by the Company with respect to information supplied by Orion for inclusion in any Proxy Statement. None of the information supplied by the Company for inclusion in any Proxy Statement or in Orion's Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1"), the Rule 13E-3 Transaction Statement (the "Schedule 13E-3") and any amendments thereto to be filed with the Commission by Orion and the Company in connection with the transactions contemplated by this Agreement will, at the time that the Schedule 14D-1, the Schedule 13E-3 or any amendments or supplements thereto are filed with the Commission and, in the case of any Proxy Statement at the time that any amendment thereto is mailed to the Company's shareholders, at the time of the Shareholders' Meeting and at the Effective Time, as the case may be, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. If no vote of shareholders shall be required to effect the Merger, the Company will furnish to its shareholders any documents and information required by the Colorado Law complying with the provisions thereof in a prompt and timely fashion. ARTICLE V. REPRESENTATIONS AND WARRANTIES OF ORION Orion represents and warrants to the Company as follows: SECTION 5.01 Organization. Orion is a corporation existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted, except where the failure to be so organized, existing and in good standing or to have such power and authority would not in the aggregate have a Material Adverse Effect (as defined below). Orion has heretofore delivered to the Company an accurate and complete copy of its certificate of incorporation and bylaws, as currently in effect. When used in connection with Orion, the term "Material Adverse Effect" means any change in or effect on the business of -8- 9 Orion that is materially adverse to the business, operations or financial condition of Orion and all of its subsidiaries taken as a whole. SECTION 5.02 Authority Relative to this Agreement. Orion has all necessary corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by the board of directors of Orion and no other corporate proceedings on the part of Orion are necessary to authorize this Agreement or to consummate the transactions so contemplated. This Agreement has been duly and validly executed and delivered by Orion and constitutes a valid, legal and binding agreement of Orion, enforceable against Orion in accordance with its terms, except as enforcement may be limited by general principles of equity whether applied in a court of law or a court of equity. SECTION 5.03 Proxy Statement; Schedule 13E-3. None of the information supplied by Orion for inclusion in any Proxy Statement or the Schedule 13E-3 will, at the respective times that such Proxy Statement and the Schedule 13E-3 or any amendments or supplements thereto are filed with the Commission or, in the case of a Proxy Statement, at the time that it or any amendment or supplement thereto is mailed to the Company's shareholders, at the time of the Shareholders' Meeting or at the Effective Time, as the case may be, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. ARTICLE VI. COVENANTS SECTION 6.01 Conduct of Business of the Company. Except as contemplated by this Agreement or otherwise approved by Orion, during the period from the date hereof to the Effective Time, the Company and its subsidiaries will each conduct its operations according to its ordinary and usual course of business and consistent with past practice, and the Company and its subsidiaries will each use its best efforts to preserve intact its business organization, to keep available the services of its officers and employees and to maintain existing relationships with licensors, licensees, suppliers, contractors, distributors, customers and others having business relationships with it. Without limiting the generality of the foregoing, and except as otherwise expressly provided in this Agreement, prior to the Effective Time, neither the Company nor any of its subsidiaries will, without the prior consent of Orion or the approval of a majority of the members of the Board of Directors of the Company: (a) amend its certificate or articles of incorporation or by-laws; (b) authorize for issuance, issue, sell, deliver or agree or commit to issue, sell or deliver (whether through the issuance or granting of options, warrants, commitments, subscriptions, rights to purchase or otherwise) any stock of any class or any other securities, -9- 10 except as required by the Option agreements as in effect as of the date hereof, or amend any of the terms of any such securities or agreements outstanding as of the date hereof; (c) split, combine or reclassify any shares of its capital stock, or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of its capital stock, or redeem or otherwise acquire any of its securities or any securities of its subsidiaries except for dividends declared and paid in accordance with Section 6.09 hereof; (d)(i) except in the ordinary course of business under existing lines of credit, incur or assume any funded indebtedness; (ii) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other person except in the ordinary course of business and except for obligations of wholly owned subsidiaries of the Company; (iii) make any loans, advances or capital contributions to, or investments in, any other person except in the ordinary course of business (other than to wholly owned subsidiaries of the Company or customary loans or advances to employees); (e) enter into, adopt or (except as may be required by law) amend or terminate any bonus, profit sharing, compensation, severance, termination, stock option, stock appreciation right, restricted stock, performance unit, pension, retirement, deferred compensation, employment, severance or other employee benefit agreement, trust, plan, fund or other arrangement for the benefit or welfare of any director, officer or group of employees, or (except for normal increases in the ordinary course of business that are consistent with past practices and that, in the aggregate, do not result in a material increase in benefits or compensation expense to the Company) increase in any manner the compensation or fringe benefits of any director, officer or group of employees or pay any benefit not required by any plan and arrangement as in effect as of the date hereof (including, without limitation, the granting of stock appreciation rights or performance units) or enter into any contract, agreement, commitment or arrangement to do any of the foregoing; (f) acquire, sell, lease or dispose of any assets outside the ordinary course of business or any assets which in the aggregate are material to the Company and its subsidiaries taken as a whole or enter into any commitment or transaction outside the ordinary course of business; (g) change any of the accounting principles or practices used by it; (h) revalue in any material respect any of its assets, including, without limitation, writing down the value of inventory or writing off notes or accounts receivable other than in the ordinary course of business; (i)(i) acquire (by merger, consolidation, or acquisition of stock or assets) any corporation, partnership or other business organization or division thereof; (ii) enter into any contract or agreement other than in the ordinary course of business; ( iii ) authorize any new capital expenditure or expenditures which, individually, is in excess of $1,000,000 or, in the aggregate, are in excess of $5,000,000; provided, that none of the foregoing shall limit any capital expenditure already included in the Company's 1997 capital expenditure budget; or (iv) -10- 11 enter into or amend any contract, agreement, commitment or arrangement with respect to any of the matters set forth in this Section 6.01(i); (j) make any tax election or settle or compromise any material income tax liability; (k) pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unassorted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business and consistent with past practice of liabilities reflected or reserved against in, or contemplated by, the consolidated financial statements (or the notes thereto) of the Company and its consolidated subsidiaries or incurred in the ordinary course of business and consistent with past practice; or (l) take, or agree in writing or otherwise to take, any of the actions described in Sections 6.01(a) through 6.01(k) or any action which would make any of the representations or warranties of the Company contained in this Agreement untrue or incorrect as of the date when made or as of a future date or would result in any of the conditions set forth in Section 7.03 not being satisfied. SECTION 6.02 No Solicitation. Neither the Company nor any of its subsidiaries, affiliates, officers, directors, employees, representatives or agents, shall, directly or indirectly, encourage, solicit, participate in or initiate discussions or negotiations with, or except as may be required by law, upon the written advice of counsel, provide any information to, any corporation, partnership, person or other entity or group (other than Orion or an affiliate or an associate of Orion) concerning any merger, sale of assets or sale of shares of capital stock of the Company or of any subsidiary or division of the Company or similar transaction. SECTION 6.03 Access to Information. Between the date hereof and the Effective Time, the Company will give Orion and its authorized representatives reasonable access to all employees, plants, offices, warehouses and other facilities and to all books and records of the Company and its subsidiaries, will permit Orion to make such inspections as Orion may reasonably require and will cause the Company's officers and those of its subsidiaries to furnish Orion with such financial and operating data and other information with respect to the business and properties of the Company and any of its subsidiaries as Orion may from time to time request. SECTION 6.04 Best Efforts. Subject to the terms and conditions herein provided, each of the parties hereto agrees to use its best efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things reasonably necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement, including, without limitation, cooperation in the preparation and filing of the Schedule 14D-1, Schedule 14D-9 and Schedule 13E-3 and any amendments thereto and the execution of any additional instruments necessary to consummate the transactions contemplated hereby. In case at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement, the proper officers and directors of each party hereto shall take all such necessary action. -11- 12 SECTION 6.05 Consents and Approvals. Each of Orion and the Company will use its best efforts to obtain consents or approvals of all third parties and governmental authorities necessary to the consummation of the transactions contemplated by this Agreement. SECTION 6.06 Public Announcements. Orion and the Company will consult with each other before issuing any press release or otherwise making any public statements with respect to the transactions contemplated by this Agreement and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by applicable law or by obligations pursuant to any listing agreement with any national securities exchange. SECTION 6.07 Indemnification and Insurance. Orion agrees that all rights to indemnification existing in favor of the present or former directors and officers of the Company or any of its subsidiaries (collectively, the "Indemnified Parties") as provided in the Company's Restated Articles of Incorporation or By-Laws or the articles of incorporation, by-laws or similar documents of any of the Company's subsidiaries as in effect as of the date hereof with respect to matters occurring prior to the Effective Time shall survive the Merger and shall continue in full force and effect for a period of not less than the statutes of limitations applicable to such matters. From and after the Merger and to the extent Orion is permitted to do so under its loan or financing agreements, Orion shall guarantee the Company's indemnification obligations to the Company's current directors as they relate to this Agreement and the transactions contemplated hereby. Orion shall use its best efforts to obtain any consents required under such loan and financing agreements. To the extent available, Orion shall cause to be maintained in effect for not less than three years from the Effective Time policies of the directors' and officers' liability insurance, with terms and conditions which are not materially less advantageous than those presently maintained by the Company, with respect to matters occurring prior to the Effective Time, provided, however, that in no event shall Orion or the Surviving Corporation be required to expend per year more than 125% of the current annual premium payable by the Company with respect to its current directors and officers liability insurance policy to maintain or procure insurance coverage pursuant to this Section 6.07(a). (b) In the event that any action, suit, proceeding or investigation relating hereto or to the transactions contemplated hereby is commenced, whether before or after the Effective Time, the parties hereto agree to cooperate and use their best efforts to defend against and respond thereto. (c) This Section 6.07, which shall survive the consummation of the Merger at the Effective Time and shall continue without limit, is intended to benefit the Company, the Surviving Corporation, the Indemnified Parties (whether or not parties to this Agreement) and shall be binding on all successors and assigns of the Company and the Surviving Corporation. SECTION 6.08 Notification of Certain Matters. The Company shall give prompt notice to Orion, and Orion shall give prompt notice to the Company, of (i) the occurrence, or nonoccurrence, of any event the occurrence, or nonoccurrence, of which would be likely to cause any representation or warranty contained in this Agreement to be untrue or inaccurate in any -12- 13 material respect at or prior to the Effective Time and (ii) any material failure of the Company, or Orion, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder, provided, however, that the delivery of any notice pursuant to this Section 6.08 shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice. SECTION 6.09 Dividends. Until the Effective Time, the Company may continue to set record dates, declare and pay quarterly dividends consistent with the amounts and schedule followed by the Company since January 1, 1995, provided that it is permitted to do so under applicable Colorado law. SECTION 6.10 Shareholder Agreement. Upon the purchase of Shares pursuant to the Offer, the Shareholder Agreement dated November 7, 1991 between Orion and the Company, as amended through June 18, 1996, shall immediately terminate. ARTICLE VII. CONDITIONS TO CONSUMMATION OF THE MERGER SECTION 7.01 Conditions to Each Party's Obligation to Effect the Merger. The respective obligation of each party hereto to effect the Merger is subject to the satisfaction or mutual waiver at or prior to the Effective Time of the following conditions: (a) this Agreement, following its adoption by the Board of Directors of Transition, shall have been approved by the requisite vote of the shareholders of the Company in accordance with applicable law; (b) no statute, rule, regulation, executive order, decree, or injunction shall have been enacted, entered, promulgated or enforced by any court or governmental authority which prohibits or restricts the consummation of the Merger; (c) Orion and the Company shall have received or obtained all regulatory approvals (including state insurance regulatory approvals) necessary to consummate the Offer and the Merger on terms and conditions satisfactory to Orion. (d) there shall not be pending any action or proceeding by or before any court or governmental regulatory or administrative agency, authority or tribunal, against Orion or the Company or any of their respective directors or officers which (i) seeks to restrain, prohibit or delay the consummation of the Offer and the Merger, (ii) may result in a material diminution in the benefits expected to be derived by Orion as a result of the Offer or the Merger or (iii) challenges the adoption, entering into or approval of this Agreement or challenges or seeks damages in connection with this Agreement, the transactions contemplated hereby or any other proposal by Orion to acquire the Company. SECTION 7.02 Conditions to Obligations of the Company to Effect the Merger. The obligation of the Company to effect the Merger is further subject to Orion's having -13- 14 performed in all material respects its obligations under this Agreement required to be performed by it, or the Company having waived such performance, at or prior to the Effective Time pursuant to the terms hereof. SECTION 7.03 Conditions to Obligation of Orion to Effect the Merger. The obligation of Orion to effect the Merger is further subject to the satisfaction or waiver by it at or prior to the Effective Time of the following conditions: (a) the representations and warranties of the Company set forth in this Agreement shall be true and correct in all material respects on the date hereof and as of the Effective Time; (b) the Company shall not have breached in any material respect any covenant contained in this Agreement; (c) the number of Dissenting Shares hereof shall not exceed 5% of the Shares (other than the Shares owned by Orion and its wholly owned subsidiaries); and (d) no change shall have occurred or be threatened in the business, operations or financial condition of the Company and its subsidiaries taken as a whole which has, or might have, a Material Adverse Effect. ARTICLE VIII. TERMINATION; AMENDMENT; WAIVER SECTION 8.01 Termination. This Agreement may be terminated and the Merger may be abandoned at any time, notwithstanding approval thereof by the shareholders of the Company, but prior to the Effective Time: (a) by mutual written consent of the Company (with the approval of a majority vote of the Independent Directors, as herein defined) and Orion; or (b) by the Company (with the approval of a majority vote of the Independent Directors) or Orion if (i) the Effective Time shall not have occurred on or before March 31, 1998 (provided that the right to terminate this Agreement under this Section 7.01(b) shall not be available to any party whose willful failure to fulfill any obligation under this Agreement has been the cause of or resulted in the failure of the Effective Time to occur on or before such date) or (ii) any court of competent jurisdiction in the United States or other United States governmental body shall have issued an order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the Merger and such order, decree, ruling or other action shall have become final and nonappealable. SECTION 8.02 Effect of Termination. In the event of the termination and abandonment of this Agreement pursuant to Section 8.01, this Agreement shall forthwith become void and have no effect, without any liability on the part of any party hereto or its directors, -14- 15 officers or shareholders, other than the provisions of this Section 8.02 and Article IX. Nothing contained in this Section 8.02 shall relieve any party from liability for any breach of this Agreement prior to the termination hereof SECTION 8.03 Amendment. This Agreement may be amended by action taken by the Company (approved by a majority vote of Messrs. Tucker Hart Adams, Dennis J. Lacey and Richard R. Thomas and Ms. M. Ann Padilla as directors of the Company (collectively, the "Independent Directors") ) and Orion at any time before or after approval of this Agreement by the shareholders of the Company, but, after any such approval, no amendment shall be made which decreases the Merger Price or the Offer price or which adversely affects the rights of the Company's shareholders hereunder without the approval of such shareholders. This Agreement may not be amended except by an instrument in writing signed on behalf of the parties (which instrument, in the case of the Company, shall be approved by a majority of the Independent Directors). SECTION 8.04 Extension; Waiver. At any time prior to the Effective Time, the parties hereto (in the case of the Company, with the approval of a majority vote of the Independent Directors) may (i) extend the time for the performance of any of the obligations or other acts of the other parties, (ii) waive any inaccuracies in the representations and warranties contained herein or in any document, certificate or writing delivered pursuant hereto, (iii) waive compliance with any of the agreements or conditions contained herein or (iv) waive the conditions set forth in Article VII hereto. Any agreement on the part of any party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. ARTICLE IX. MISCELLANEOUS SECTION 9.01 Nonsurvival of Representations and Warranties. The representations and warranties made herein shall not survive beyond the Effective Time or a termination of this Agreement. SECTION 9.02 Entire Agreement; Assignment. This Agreement (a) constitutes the entire agreement among the parties hereto with respect to the subject matter hereof and supersedes all other prior agreements and understandings, both written and oral, between the parties or any of them with respect to the subject matter hereof and (b) shall not be assigned by operation of law or otherwise, provided that Orion may assign its rights and obligations to any subsidiary of Orion but no such assignment shall relieve Orion of its obligations hereunder if such assignee does not perform such obligations. SECTION 9.03 Validity. If any provision of this Agreement, or the application thereof to any person or circumstance, is held invalid or unenforceable, the remainder of this Agreement, and the application of such provision to other persons or circumstances, shall not be affected thereby, and to such end, the provisions of this Agreement are agreed to be severable. -15- 16 SECTION 9.04 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by cable, telegram or telex, or by registered or certified mail (postage prepaid, return receipt requested), to the respective parties as follows: if to Orion or Transition: Orion Capital Corporation 9 Farm Springs Road Farmington, Connecticut 06032 Attention: Michael P. Maloney, Esq. with a copy to: Donovan, Leisure, Newton & Irvine 30 Rockefeller Plaza New York, New York 10112 Attention: John J. McCann, Esq. if to the Company: Guaranty National Corporation 9800 South Meridian Boulevard Englewood, Colorado 80112 Attention: Mr. James R. Pouliot, President & CEO with a copy to: Ireland, Stapleton, Pryor & Pascoe, P.C. Suite 2600 1675 Broadway Denver, Colorado 80202 Attention: Hardin Holmes, Esq. or to such other address as the person to whom notice is given may have previously furnished to the others in writing in the manner set forth above. SECTION 9.05 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. SECTION 9.06 Descriptive Headings. The descriptive headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. SECTION 9.07 Parties in Interest. This Agreement shall be binding upon and inure solely to the benefit of each party hereto and its successors and permitted assigns, and, -16- 17 except as provided in Sections 2.05, 2.07, 6.07 and 9.02(b), nothing in this Agreement, express or implied, is intended to or shall confer upon any other person any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement. SECTION 9.08 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. SECTION 9.09 Specific Performance. The parties hereto agree that irreparable damage would occur in the event any of the provisions of this Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or equity. IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed on its behalf by its officers hereunto duly authorized, all as of the day and year first above written. ORION CAPITAL CORPORATION By:/s/ Michael P. Maloney ----------------------------------------- Name: Michael P. Maloney Title: Senior Vice President, General Counsel & Secretary GUARANTY NATIONAL CORPORATION By:/s/ James R. Pouliot ----------------------------------------- Name: James R. Pouliot Title: President and Chief Executive Officer -17- EX-99.C.2 12 SHAREHOLDER AGREEMENT 1 EXHIBIT C(2) 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.C.3 13 AMENDMENT TO SHAREHOLDER AGREEMENT 1 EXHIBIT C(3) 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.C.4 14 AMENDMENT TO SHAREHOLDER AGREEMENT 1 EXHIBIT C(4) 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.C.5 15 NOTE ISSUANCE AGREEMENT 1 EXHIBIT C(5) 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.C.6 16 AMENDMENT TO SHAREHOLDER AGREEMENT 1 EXHIBIT (C)(6) AMENDMENT TO SHAREHOLDER AGREEMENT This Amendment is made as of June 18, 1996 (the "Amendment") 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, as listed on the signature page hereof (the "Subsidiaries"); this Amendment further revises that certain Shareholder Agreement dated as of November 7, 1991 by and among Guaranty, Orion and certain subsidiaries of Orion named therein. (The November 7, 1991 Shareholder Agreement, as previously amended on February 2, 1994 and March 2, 1995, is herein referred to as the "Shareholder Agreement.") Terms defined in the Shareholder Agreement and not otherwise defined herein shall have the meanings ascribed to such terms in the Shareholder Agreement. WHEREAS, Orion and the Subsidiaries currently own approximately 49.5% of the outstanding Guaranty Common Stock, including certain shares received in 1995 on conversion of Guaranty's 7.85% Subordinated Notes due July 1, 2003 (the "7.85% Notes"); and WHEREAS, Orion and certain of the Subsidiaries have made a tender offer to purchase up to 4,600,000 additional shares of Guaranty Common Stock; and WHEREAS, Guaranty, Orion and the Subsidiaries have determined that it would be in their mutual best interests further to amend the Shareholder Agreement; NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and subject to the terms and conditions hereinafter set forth, Guaranty, Orion and the Subsidiaries agree to further amend the Shareholder Agreement, as follows: Two additional subsidiaries of Orion, EBI Indemnity Company and SecurityRe, Inc., are hereby added as signatories to this Shareholder Agreement inasmuch as such companies currently hold shares of outstanding Guaranty Common Stock, which shares were received on conversion of the 7.85% Notes. Subject to at least 4,600,000 shares of outstanding Guaranty Common Stock having been validly tendered, accepted for payment and paid for pursuant to the tender offer, then, effective upon the closing of the purchase of such shares, the Section entitled "Miscellaneous" shall be amended by adding a new Subsection 3.10 to the Shareholder Agreement, as follows: 3.10 Further Agreements (a) Orion and the Subsidiaries will not purchase, prior to July 1, 1999, additional shares of Guaranty Common Stock (if after giving effect to such purchase they would own more than 81% of the outstanding Guaranty Common Stock) other than pursuant to an offer made for all shares of outstanding Guaranty Common Stock not held by them, which offer is conditioned upon the acceptance thereof by at least a majority of the shares of Guaranty Common Stock then outstanding and not held by Orion and the Subsidiaries. (b) If an offer is made to holders of shares of outstanding Guaranty Common Stock, as described in subparagraph (a) above, prior to July 1, 1999, Orion and the Subsidiaries will offer a purchase price involving consideration equal to at least $18.50 per share. (c) Orion and the Subsidiaries will support the adoption of a policy by the Board of Directors of Guaranty that any repurchase of shares of outstanding Guaranty Common Stock by Guaranty prior to July 1, 1999 should be approved by a majority of those members of the Board of Directors who are independent of and not employed by any of Orion or the Subsidiaries. (d) If, at any time during the five-year period following July 1, 1996, Orion and the Subsidiaries should wish to sell as a block 90% or more of the aggregate number of shares then owned by them, or propose a merger or consolidation involving Guaranty, they will not do so unless (i) in the case of a sale of 90% or more of the aggregate number of shares owned by Orion and the Subsidiaries, the purchaser of such shares 2 undertakes to offer to purchase all other shares of Guaranty Common Stock outstanding for consideration of substantially equivalent value to that offered to Orion and the Subsidiaries or (ii) in the case of a merger or consolidation, all shares are exchanged for substantially equivalent value. All other terms of the Shareholder Agreement shall continue in full force and effect. IN WITNESS WHEREOF, each of the parties hereto has duly executed this Agreement as of the day and year set forth in the heading hereof. GUARANTY NATIONAL CORPORATION By: /s/ ARTHUR J. MASTERA ------------------------------------------- Arthur J. Mastera Senior Vice President ORION CAPITAL CORPORATION By: /s/ ALAN R. GRUBER ------------------------------------------- Alan R. Gruber Chairman of the Board and Chief Executive Officer THE CONNECTICUT INDEMNITY COMPANY CONNECTICUT SPECIALTY INSURANCE COMPANY DESIGN PROFESSIONALS INSURANCE COMPANY EBI INDEMNITY COMPANY EMPLOYEE BENEFITS INSURANCE COMPANY THE FIRE & CASUALTY INSURANCE COMPANY OF CONNECTICUT SECURITY INSURANCE COMPANY OF HARTFORD SECURITY REINSURANCE COMPANY By: /s/ ALAN R. GRUBER ------------------------------------------- Alan R. Gruber Chairman SECURITYRE, INC. By: /s/ RAYMOND J. SCHUYLER ------------------------------------------- Raymond J. Schuyler Senior Vice President-Investments 2 EX-99.G 17 RULE 13E-3 TRANSACTION STATEMENT 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 (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 9 Farm Springs Road Farmington, Connecticut 06032 (860) 674-6600 (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** ---------- ---------------------- $105,587,676 $21,117.54 * For purposes of calculating the filing fee only. This calculation assumes the purchase of 2,932,991 shares of common stock, par value $1.00 per share, of Guaranty National Corporation at $36.00 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: $6,333.84 and $14,783.70 Form or Registration No.: S-4, File No. 333-36073 and 14D-1 Filing Parties: Orion Capital Corporation Date Filed: September 22, 1997 and November 5, 1997, respectively. -2- 3 This Rule 13e-3 Transaction Statement (this "Statement") relates to a tender offer by Orion Capital Corporation, a Delaware corporation ("Orion"), to purchase all outstanding shares of common stock, par value $1.00 per share of Guaranty National Corporation, a Colorado corporation ("Guaranty") (the "Shares"), but not less than 50.01% of such Shares at a price of $36.00 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 November 5, 1997 (the "Offer to Purchase") and in the related Letter of Transmittal (which, as amended or supplemented from time to time, 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. 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 Orion 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. -3- 4 CROSS REFERENCE SHEET Item in Where located Schedule 13E-3 in Schedule 14D-1 - -------------- ----------------- Item l(a)...................................... Item l(a) Item l(b)...................................... Item l(b) Item l(c)...................................... Item l(c) Item l(d)...................................... * Item l(e)...................................... * Item l(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-l, is inapplicable or the answer thereto is in the negative. -4- 5 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 Guaranty" of the Offer to Purchase is incorporated herein by reference. (b) The information set forth in "INTRODUCTION," "THE OFFER -- Section 1. Terms of the Offer; Expiration Date" and "THE OFFER -- Section 6. Effect of the Offer on the Market for the Shares; Listing on the NYSE; Registration Under the Exchange Act; Margin Regulations" 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 Transactions" of the Offer to Purchase is incorporated herein by reference. (f) The information set forth in "SPECIAL FACTORS -- Background of the Transactions" and "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 Orion. The information set forth in "INTRODUCTION," "THE OFFER -- Section 8. Certain Information Concerning Orion" and Annex I of the Offer to Purchase is incorporated herein by reference. (e) and (f) During the last five years, neither Orion nor to the best of their knowledge any of the persons listed in Annex 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. ITEM 3. Past Contacts, Transactions or Negotiations. (a)-(b) The information set forth in "INTRODUCTION," "SPECIAL FACTORS -- Background of the Transactions" and "SPECIAL FACTORS -- Interests of Certain Persons in the Transactions; Securities Ownership; Related Transactions" of the Offer to Purchase is incorporated herein by reference. -5- 6 ITEM 4. Terms of the Transaction. (a) The information set forth in "INTRODUCTION," "SPECIAL FACTORS -- Reasons for the Offer and the Merger; Purpose and Structure of the Transactions; Plans After the Offer; Effects of the Offer and the Merger," "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 "SPECIAL FACTORS -- Reasons for the Offer and the Merger; Purpose and Structure of the Transactions; Plans After the Offer; Effects of the Offer and the Merger" and "SPECIAL FACTORS -- Interests of Certain Persons in the Transactions; 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 Transactions," "SPECIAL FACTORS -- Reasons for the Offer and the Merger; Purpose and Structure of the Transactions; Plans After the Offer; Effects of the Offer and the Merger," "THE OFFER -- Section 6. Effect of the Offer on the Market for the Shares; Listing on the NYSE; Registration Under the Exchange Act; Margin Regulations" and "THE OFFER--Section 11. Certain Legal Matters" of the Offer to Purchase is incorporated herein by reference. ITEM 6. Source and Amounts of Funds or Other Consideration. (a) 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 12. Fees and Expenses" of the Offer to Purchase is incorporated herein by reference. (c) Not applicable. (d) Not applicable. ITEM 7. Purposes(s), Alternatives, Reasons and Effects. (a)-(d) The information set forth in "INTRODUCTION," "SPECIAL FACTORS -- Background of the Transactions," "SPECIAL FACTORS -- Fairness of the Offer and the Merger," "SPECIAL FACTORS -- Reasons for the Offer and the Merger; Purpose and Structure of the Transactions; Plans After the Offer; Effects of the Offer and the Merger," "SPECIAL FACTORS -- Interests of Certain Persons in the Transactions; Securities Ownership; Related -6- 7 Transactions," "SPECIAL FACTORS -- Certain Federal Income Tax Consequences," "THE OFFER -- Section 6. Effect of the Offer on the Market for the Shares; Listing on the NYSE; Registration Under the Exchange Act; Margin Regulations," "THE OFFER -- Section 7. Certain Information Concerning Guaranty," "THE OFFER -- Section 8. Certain Information Concerning Orion" 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)-(e) The information set forth in "INTRODUCTION," "SPECIAL FACTORS -- Background of the Transactions," and "SPECIAL FACTORS -- Fairness of the Offer and the Merger" and "SPECIAL FACTORS -- Reasons for the Offer and the Merger; Purpose and Structure of the Transactions; Plans After the Offer; Effects of the Offer and the Merger" of the Offer to Purchase is incorporated herein by reference. (f) Not applicable. ITEM 9. Reports, Opinions, Appraisals and Certain Negotiations. (a) With respect to Orion, the information set forth in "SPECIAL FACTORS -- Fairness of the Offer and the Merger" of the Offer to Purchase is incorporated herein by reference. The information with respect to opinions received by Guaranty set forth in "INTRODUCTION" 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 Transactions," "SPECIAL FACTORS -- Reasons for the Offer and the Merger; Purpose and Structure of the Transactions; Plans After the Offer; Effects of the Offer and the Merger," "SPECIAL FACTORS -- Interests of Certain Persons in the Transactions; Securities Ownership; Related Transactions," "THE OFFER -- Section 5. Price Range of Shares; Dividends," "THE OFFER -- Section 8. Certain Information Concerning Orion" and Annex II of the Offer to Purchase is incorporated herein by reference. ITEM 11. Contracts, Arrangements or Understandings with Respect to the Issuer's Securities. The information set forth in "INTRODUCTION," "SPECIAL FACTORS - -- Background of the Transactions," "SPECIAL FACTORS -- Interests of Certain Persons in the Transactions; Securities Ownership; Related Transactions," "THE OFFER -- Section 8. Certain Information Concerning Orion" and "THE OFFER -- Section 11. Certain Legal Matters" of the Offer to Purchase is incorporated herein by reference. -7- 8 ITEM 12. Present Intention and Recommendation of Certain Persons With Regard to the Transaction. (a) The information set forth in "SPECIAL FACTORS -- Reasons for the Offer and the Merger; Purpose and Structure of the Transactions; Plans After the Offer; Effects of the Offer and the Merger" of the Offer to Purchase is incorporated herein by reference. (b) The information set forth in "INTRODUCTION" 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 -- No Dissenters' Rights in the Offer" and "THE OFFER -- Section 11. Certain Legal Matters" 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 Guaranty" and the information set forth on pages 34 through 58 of Guaranty National Corporation's Annual Report on Form 10-K for the year ended December 31, 1996, 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 September 30, 1997, 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 -- Reasons for the Offer and the Merger; Purpose and Structure of the Transactions; Plans After the Offer; Effects of the Offer and the Merger," "SPECIAL FACTORS -- Interests of Certain Persons in the Transactions; 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. Whether or not specifically referenced in response to the Items of this Statement, the information contained in the Offer to Purchase and the Letter of Transmittal, which are -8- 9 attached hereto as Exhibits (d)(1) and (d)(2), respectively, as well as all terms and conditions of the Offer, as incorporated herein by reference. Item 17. Material to be Filed as Exhibits. (a) Not applicable. (b) Not applicable. (c)(1) Agreement and Plan of Merger, dated as of October 31, 1997 between Guaranty National Corporation and Orion Capital Corporation. (c)(2) 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)(3) 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)(4) 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)(5) 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 and SecurityRe, Inc. (c)(6) Amendment to Shareholder Agreement dated June 18, 1996 by and among Guaranty National Corporation and 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 Company of Connecticut, Security Insurance Company of Hartford and Security Reinsurance Company. (d)(1) Offer to Purchase dated November 5, 1997. -9- 10 (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 October 31, 1997. (d)(7) Press Release dated November 5, 1997. (d)(8) Summary Advertisement dated November 5, 1997. (d)(9) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (e) Description of Dissenters' Rights. (f) Not Applicable. (g)(1) Pages 34 through 58 of the Guaranty National Corporation's Annual Report on Form 10-K for the year ended December 31, 1996. (g)(2) Pages 3 through 10 of the Guaranty National Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997. (g)(3) Tender Offer Statement on Schedule 14D-1 of Orion Capital Corporation, dated November 5, 1997. -10- 11 SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: November 5, 1997 ORION CAPITAL CORPORATION By: /s/ Michael P. Maloney --------------------------------------- Name: Michael P. Maloney Title: Senior Vice President, General Counsel and Secretary -11- 12 EXHIBIT INDEX Exhibit Description ------- ----------- (c)(1) Agreement and Plan of Merger, dated as of October 31, 1997 between Guaranty National Corporation and Orion Capital Corporation. (c)(2) 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)(3) 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)(4) 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)(5) 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 and SecurityRe, Inc. (c)(6) Amendment to Shareholder Agreement dated June 18, 1996 by and among Guaranty National Corporation and 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 Company of Connecticut, Security Insurance Company of Hartford and Security Reinsurance Company. (d)(1) Offer to Purchase dated November 5, 1997. -12- 13 (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 October 31, 1997. (d)(7) Press Release dated November 5, 1997 (d)(8) Summary Advertisement dated November 5, 1997. (d)(9) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (e) Description of Dissenters' Rights. (f) Not Applicable. (g)(1) Pages 34 through 58 of the Guaranty National Corporation's Annual Report on Form 10-K for the year ended December 31, 1996. (g)(2) Pages 3 through 10 of the Guaranty National Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997. (g)(3) Tender Offer Statement on Schedule 14D-1 of Orion Capital Corporation dated November 5, 1997. -13- -----END PRIVACY-ENHANCED MESSAGE-----