SC 13E3

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                       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


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                  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.


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                  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.



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                              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
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*        The Item is not required by Schedule 14D-l, is inapplicable or the
         answer thereto is in the negative.

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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.

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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 

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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.

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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 

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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.

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                  (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.



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                                    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





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                                  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.

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  (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.





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EX-99.C.1

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                                                                  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
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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

   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

   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

   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

   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

   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.D.1

   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.

 
                                       I-1
   37
 


                                               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.

 
                                       I-2
   38
 


                                               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.D.2

   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.D.3

   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.D.4

   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.D.5

   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.D.6

   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.D.7

   1
                                                                




                                             

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 not beneficially owned by Orion. 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
merger agreement entered into by Orion and Guaranty and will be followed by the
merger of Guaranty with and into 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 80.5% ownership
interest in Guaranty National Corporation.

EX-99.D.8

   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.D.9

   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.E

   1
                                                       

                               DISSENTERS' RIGHTS

                  The following is a summary of Article 113 of the Colorado
Business Corporation Act (the "CBCA") and the procedures for Guaranty National
Corporation ("Guaranty") shareholders dissenting from and exercising dissenters'
rights with respect to the merger of Guaranty into a subsidiary of Orion Capital
Corporation (the "Merger") as contemplated in the Merger Agreement between
Guaranty and Orion Capital Corporation (the "Merger Agreement"). This summary is
qualified in its entirety by reference to Article 113 of the CBCA. FAILURE
STRICTLY TO COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 113 OF THE CBCA WILL
RESULT IN THE LOSS OF DISSENTERS' RIGHTS.

                               DISSENTERS' RIGHTS

                  Under Article 113 of the CBCA ("Article 113"), if the Merger
is consummated, holders of shares of Guaranty common stock, par value $1.00 per
share (the "Shares"), who exercise their dissenters' rights in accordance with
Article 113 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 Date (as defined below), excluding any appreciation or
depreciation in anticipation of the Merger except to the extent that exclusion
would be inequitable. Reference herein to "dissenters' rights" is a general
reference to a shareholder's right to dissent to the Merger and obtain payment
for the shareholder's Shares in accordance with Article 113.

                                 WHO MAY DISSENT

                  Each shareholder of Guaranty Common Stock may dissent to the
Merger and obtain payment of the fair value of the shareholder's Shares by
following the procedures provided in Article 113 and summarized herein. The
rights of the shareholder may differ depending on whether the shareholder is a
shareholder of record holding Shares for two or more beneficial shareholders or
the shareholder is a beneficial shareholder whose Shares are held of record by
one or more record shareholders, as follows:

                  (a) A record shareholder may assert dissenters rights as to
fewer than all the Shares registered in the record shareholder's name only if
the record shareholder dissents with respect to all Shares beneficially owned by
any one person and causes Guaranty to receive written notice which states (1)
such dissent and (2) the name, address, and federal taxpayer identification
number, if any, of each person on whose behalf the record shareholder asserts
dissenters' rights.

                  (b) A beneficial shareholder may assert dissenters' rights as
to the Shares held on the beneficial shareholder's behalf only if (1) the
beneficial shareholder causes Guaranty to receive the record shareholder's
written consent to the dissent not later than the time the beneficial
shareholder asserts dissenters' rights, and (2) the beneficial shareholder
dissents with respect to all Shares beneficially owned by the beneficial
shareholder.
   2
                  Guaranty may require that, when a record shareholder dissents
with respect to the Shares held by any one or more beneficial shareholders, each
such beneficial shareholder must certify to Guaranty that the beneficial
shareholder and the record shareholder or record shareholders of all Shares
owned beneficially by the beneficial shareholder have asserted, or will timely
assert, dissenters' rights as to all such Shares as to which there is no
limitation on the ability to exercise dissenters' rights. Any such requirement
will be stated in the "Dissenters' Notice" that is referred to below.

             NOTICE REQUIRED TO BE GIVEN BY GUARANTY TO SHAREHOLDERS

                  Guaranty will give a written dissenters' notice (the
"Dissenters' Notice") to each shareholder who is entitled to demand payment for
Shares under Article 113. The Dissenters' Notice may be given before the
effective date of the Merger (the "Effective Date") and will in any event be
given no later than ten days after the Effective Date. The Dissenters' Notice
will (a) state that the Merger Agreement was approved and state the Effective
Date or the proposed Effective Date of the Merger; (b) state an address at which
Guaranty will receive a Payment Demand (as defined below) and the address of a
place where certificates for certificated Shares must be deposited; (c) inform
holders of uncertificated Shares to what extent transfer of the Shares will be
restricted after the payment demand is received; (d) supply a Payment Demand
form for demanding payment for shares, which form will request the shareholder
to state an address to which payment is to be made; (e) set the date (the
"Payment Demand Date") by which Guaranty must receive the Payment Demand and
certificates for Shares, which Payment Demand Date will not be less than thirty
days after the date the Dissenters' Notice is given; (f) if Guaranty has chosen
to impose such a requirement, state that, when a record shareholder dissents
with respect to the Shares held by any one or more beneficial shareholders, each
shareholder, and the record shareholder or record shareholders of all Shares
owned beneficially by the beneficial shareholder, have asserted, or will timely
assert, dissenters' rights as to all such Shares as to which there is no
limitation on the ability to exercise dissenters' rights; and (g) be accompanied
by a copy of Article 113.

                    DISSENTER'S PROCEDURES TO DEMAND PAYMENT

                  If the shareholder wishes to assert the shareholder's
dissenters, rights (such a person being referred to in this summary as a
"Dissenter"), the Dissenter must (a) cause Guaranty to receive a payment demand
(the "Payment Demand") which may, but need not, be on the Payment Demand form
provided by Guaranty with the Dissenter's Notice), duly completed, and (b)
deposit the Dissenter's certificates for Shares. A Dissenter will have all
rights of a shareholder, except the right to transfer the Shares, until the
Effective Date but will have, after the Effective Date, only the right to
receive payment of the Shares as to which payment has been demanded.

                  The Payment Demand and deposit of certificates by a Dissenter
will be irrevocable unless (1) the Effective Date has not occurred within sixty
days after the Payment Demand Date, or (2) Guaranty fails to make payment to the
Dissenter, within sixty days after the Payment Demand Date, of the amount
Guaranty estimates to be the fair value of the Dissenter's


                                      -2-
   3
shares, plus accrued interest. If the Effective Date of the Merger is more than
sixty days after the Payment Demand Date, then Guaranty will be required to send
a new Dissenters' Notice and the provisions summarized above will again be
applicable.

                  If a Dissenter fails to demand payment and deposit
certificates representing the Shares as to which dissent is made, as required by
the Dissenters' Notice, by the Payment Demand Date, the Dissenter will not be
entitled to payment for the Shares under Article 113 and will receive the Merger
consideration as if the Dissenter has not exercised any dissenters' rights.

                               PAYMENT FOR SHARES

                  Upon the Effective Date, or upon receipt of a Payment Demand
given in accordance with the provisions of Article 113, whichever is later,
Guaranty will pay each Dissenter who has complied with the requirements for
demanding payment stated in Article 113, at the address stated the a Payment
Demand, or, if no such address is stated in the Payment Demand, at the address
shown on Guaranty's current record of shareholders for the record shareholder
holding the Dissenter's Shares, the amount Guaranty estimates to be the fair
value of the Dissenter's Shares, plus accrued interest. The payment will be
accompanied by: (a) Guaranty's balance sheet, statement of changes in
shareholders' equity, statement of cash flow and other financial statements
complying with the requirements of Section 7-113-206(2)(a); (b) a statement of
Guaranty's estimate of the fair value of the shares; (c) an explanation of how
the interest was calculated; (d) a statement of the Dissenter's right to demand
payment in accordance with the provisions of Article 113 regarding the
Dissenter's Responsive Notice summarized below; and (e) a copy of Article 113.

                            FAILURE TO EFFECT MERGER

                  If the Effective Date does not occur within sixty days after
the Payment Demand Date, Guaranty will return the deposited certificates. If the
Effective Date occurs more than sixty days after Payment Demand Date, then
Guaranty shall send a new Dissenters' Notice, as provided in Section 7-113-203,
and the appropriate provisions of Article 113 shall again be applicable.

             SHARES ACQUIRED AFTER ANNOUNCEMENT OF MERGER AGREEMENT

                  Guaranty may, in or with the Dissenters' Notice, state the
date of the first announcement to news media or to shareholders of the terms of
the Merger Agreement (the "Announcement Date") and state that the Dissenter must
certify in writing, in or with the Payment Demand, whether or not the Dissenter
(or the person on whose behalf the Dissenter asserts dissenters' rights)
acquired beneficial ownership of the Shares before the Announcement Date. With
respect to any Dissenter who does not so certify in writing, in or with the
Payment Demand, that the Dissenter or the person on whose behalf the Dissenter
asserts dissenters' rights acquired beneficial ownership of the Shares before
the Announcement Date, Guaranty may, in lieu of making payment for the Shares,
offer to make such payment if the Dissenter agrees to accept the payment in full
satisfaction of the demand. Any such offer will include: (a) Guaranty's balance
sheet, statement of changes in shareholders' equity, statement of cash flow


                                      -3-
   4
and other financial statements complying with the requirements of Section
7-133-206(2)(a); (b) a statement of Guaranty's estimate of the fair value of the
Shares; (c) an explanation of how the interest was calculated; (d) a statement
of the Dissenter's right to demand payment in accordance with the provisions of
Article 113 regarding the Dissenter's Responsive Notice summarized below; and
(e) a copy of Article 113.

                PROCEDURE FOR DISSENTER TO FOLLOW IF DISSENTER IS
              DISSATISFIED WITH PAYMENT MADE OR OFFERED BY GUARANTY

                  A Dissenter may give notice (the "Dissenter's Responsive
Notice") to Guaranty in writing of the Dissenter's estimate of the fair value of
the Dissenter's Shares and of the amount of interest due and may demand payment
of such estimate (less any payment made by Guaranty as contemplated above) or
may reject Guaranty's offer made as contemplated above with respect to Shares
acquired after the Announcement Date and may demand payment of the fair value of
the Shares and interest due, if: (a) the Dissenter believes that the amount paid
or offered by Guaranty, as the case may be, is less than the fair value of the
Shares or that the interest due was incorrectly calculated; (b) Guaranty fails
to make payment within sixty days after the Payment Demand Date, or (c) Guaranty
does not return the deposited certificates or release the transfer restrictions
imposed on uncertificated Shares as required if the Effective Date has not
occurred within sixty days after the Payment Demand Date. A Dissenter waives the
right to demand payment as outlined above unless the Dissenter causes Guaranty
to receive the Dissenter's Responsive Notice within thirty days after Guaranty
made or offered payment for the Dissenter's Shares.

                           COURT ACTION FOR APPRAISAL

                  If the Dissenter's demand for payment pursuant to the
Dissenter's Responsive Notice remains unresolved, Guaranty may, within sixty
days after receiving the Dissenter's Responsive Notice, commence a proceeding
and petition the district court of Arapahoe County, Colorado to determine the
fair value of the Dissenter's Shares and accrued interest. If the Dissenter's
demand for payment remains unresolved within that sixty day period and Guaranty
does not commence the proceeding within that period, Guaranty must pay to the
Dissenter the amount demanded in the Dissenter's Responsive Notice.

                  Guaranty shall make all Dissenters whose demands remain thus
unresolved parties to the proceeding as in an action against their Shares, and
all parties shall be served with a copy of the petition in the manner provided
in Article 113. The court may appoint one or more persons as appraisers to
receive evidence and recommend a decision on the question of fair value. The
appraisers have the powers described in the order appointing them, or in any
amendment to such order. The parties to the proceeding are entitled to the same
discovery rights as parties in other civil proceedings. Each Dissenter made a
party to the proceeding will be entitled to judgment for the amount if any, by
which the court finds the fair value of the Dissenter's Shares, plus interest,
exceeds the amount paid by Guaranty, or for the fair value, plus interest, of
the Dissenter's Shares for which Guaranty elected to withhold payment under the
provisions outlined above.



                                      -4-
   5
                  The court will determine all costs of the proceeding,
including the reasonable compensation and expenses of appraisers appointed by
the court, and will assess the costs against Guaranty; except that the court may
assess costs against all or some of the Dissenters, in amounts the court finds
equitable, to the extent the court finds the Dissenters acted arbitrarily,
vexatiously, or not in good faith in demanding payment. The court may also
assess the fees and expenses of counsel and experts for the respective parties,
in amounts the court finds equitable, (a) against Guaranty and in favor of any
Dissenters if the court finds Guaranty did not substantially comply with the
requirements of part 2 of Article 113; or (b) against either Guaranty or one or
more Dissenters, in favor of any other party, if the court finds that the party
against whom the fees and expenses are assessed acted arbitrarily, vexatiously,
or not in good faith with respect to the rights provided in Article 113. If the
court finds that the services of counsel for any Dissenter were of substantial
benefit to other Dissenters similarly situated, and that the fees for those
services should not be assessed against Guaranty, the court may award to said
counsel reasonable fees to be paid out of the amounts awarded to the Dissenters
who were benefited.

                  THE ABOVE IS MERELY A SUMMARY OF ARTICLE 113 OF THE CBCA. THIS
SUMMARY IS QUALIFIED BY REFERENCE TO SUCH ARTICLE. GUARANTY SHAREHOLDERS
DESIRING TO EXERCISE DISSENTERS' RIGHTS SHOULD CONSULT COUNSEL SINCE FAILURE TO
COMPLY STRICTLY WITH THE PROVISIONS OF THE STATUTE WILL RESULT IN THE LOSS OF
DISSENTERS' RIGHTS.

                                      -5-

EX-99.G.1

   1
                                                                  EXHIBIT (g)(1)

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF MANAGEMENT

The management of Guaranty National Corporation is responsible for the
consolidated financial statements and the information included therein. The
consolidated financial statements are fairly presented and have been prepared
in accordance with generally accepted accounting principles and are appropriate
in the circumstances, and, where necessary, include amounts based on
management's informed estimates and judgments.

The Company has an internal control structure which it believes provides
reasonable assurance that assets are safeguarded from loss or unauthorized use,
transactions are recorded in accordance with management's policies and that the
financial records are reliable for preparing consolidated financial statements.
The internal control structure includes written policies and procedures which
are communicated to all appropriate personnel and updated as necessary.

Compliance with the internal control structure is continuously maintained and
monitored by management. The internal audit staff of the Company evaluates and
reports on the adequacy of and adherence to these controls, policies and
procedures. In addition, as part of its audit of the consolidated financial
statements, Deloitte & Touche LLP, the independent auditors for the Company,
evaluate the Company's internal control structure to the extent they consider
necessary to express an opinion on the consolidated financial statements.

Recommendations concerning the internal control structure are provided by both
the internal auditors and Deloitte & Touche LLP, and management takes actions
which are believed to be appropriate responses to these recommendations.

The Audit Committee of the Board of Directors is comprised of independent
directors, and has general responsibility for oversight of financial controls
and audit activities of the Company and its subsidiaries. The Audit Committee,
which reports to the Board, annually reviews the qualifications of the
independent auditors and meets periodically with them, the internal auditors
and management to review the plans for and results of the audits. Both internal
and independent auditors have free access to the Audit Committee, without
members of management present, to discuss the adequacy of the internal control
structure and any other matters which they believe should be brought to the
attention of the Audit Committee.

s/ James R. Pouliot                          s/ Michael L. Pautler

James R. Pouliot                             Michael L. Pautler
President and Chief Executive Officer        Senior Vice President
Finance and Treasurer




                                       34




   2
 
                          INDEPENDENT AUDITORS' REPORT
 
Board of Directors and Shareholders
Guaranty National Corporation
 
     We have audited the accompanying consolidated balance sheets of Guaranty
National Corporation and subsidiaries (the "Company") as of December 31, 1996
and 1995, and the related consolidated statements of earnings, changes in
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Guaranty National Corporation
and subsidiaries at December 31, 1996 and 1995 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
 
                                          /s/ Deloitte & Touche LLP
                                          DELOITTE & TOUCHE LLP
 
Denver, Colorado
February 14, 1997
 
                                       35
   3
 
                 GUARANTY NATIONAL CORPORATION AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
 


                                                                             DECEMBER 31,
                                                                         ---------------------
                                                                           1996         1995
                                                                         --------     --------
                                                                                
                                            ASSETS
Investments:
  Fixed maturities held to maturity, at cost...........................  $ 80,271     $ 75,017
  Fixed maturities available for sale, at market.......................   390,290      395,198
                                                                         --------     --------
                                                                          470,561      470,215
  Equity securities, at market.........................................    88,102       85,085
  Other long-term investments..........................................    13,585       11,521
  Short-term investments available for sale, at market.................    94,993       52,257
                                                                         --------     --------
          Total investments............................................   667,241      619,078
Cash...................................................................     3,988        6,794
Accrued investment income..............................................     7,971        7,603
Accounts receivable (less allowance of $171 -- 1996; $374 -- 1995).....    45,557       51,638
Reinsurance recoverables and prepaids (less allowance of $200 -- 1996;
  $200 -- 1995)........................................................    90,781       81,825
Property and equipment (less accumulated depreciation of
  $13,508 -- 1996; $9,326 -- 1995).....................................    29,833       31,573
Deferred policy acquisition costs......................................    44,456       37,637
Goodwill (less accumulated amortization of $6,423 -- 1996;
  $5,263 -- 1995)......................................................    34,639       33,133
Other assets...........................................................     4,626        5,892
                                                                         --------     --------
          Total assets.................................................  $929,092     $875,173
                                                                         ========     ========
                             LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
  Unpaid losses........................................................  $303,266     $290,156
  Unpaid loss adjustment expenses......................................    65,142       64,478
  Unearned premiums....................................................   154,242      146,205
  Notes payable........................................................   101,688      103,000
  Reinsurance payables and deposits....................................     7,268        8,290
  Other liabilities....................................................    59,447       47,493
                                                                         --------     --------
     Total liabilities.................................................   691,053      659,622
                                                                         --------     --------
Commitments and contingencies
Shareholders' equity:
  Preferred stock, $.10 par value; authorized, 6,000,000 shares; none
     issued and outstanding............................................
  Common stock, $1 par value; authorized, 30,000,000 shares; issued
     14,975,497 shares -- 1996; 14,961,354 shares -- 1995..............    14,975       14,961
  Capital in excess of par.............................................   121,272      121,050
  Retained earnings....................................................    84,685       64,664
  Deferred compensation on restricted stock............................                   (644)
  Net unrealized investment gains......................................    17,107       15,520
                                                                         --------     --------
     Total shareholders' equity........................................   238,039      215,551
                                                                         --------     --------
          Total liabilities and shareholders' equity...................  $929,092     $875,173
                                                                         ========     ========

 
                See notes to consolidated financial statements.
 
                                        36
   4
 
                 GUARANTY NATIONAL CORPORATION AND SUBSIDIARIES
 
                      CONSOLIDATED STATEMENTS OF EARNINGS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 


                                                                  YEAR ENDED DECEMBER 31,
                                                             ----------------------------------
                                                               1996         1995         1994
                                                             --------     --------     --------
                                                                              
Revenue:
  Premiums earned..........................................  $481,648     $390,017     $321,638
  Net investment income....................................    39,439       30,976       23,576
  Realized investment gains................................     8,455        3,291        3,007
  Other income.............................................                                   2
                                                             --------     --------     --------
                                                              529,542      424,284      348,223
Expenses:
  Losses incurred..........................................   279,108      248,771      180,865
  Loss adjustment expenses.................................    58,676       44,742       32,640
  Policy acquisition costs.................................   133,931      110,341       93,103
  General and administrative...............................    10,422        6,458        7,206
  Interest.................................................     6,851        5,708        3,218
  Nonrecurring charges.....................................     2,163                       838
  Other....................................................     1,510          932          766
                                                             --------     --------     --------
                                                              492,661      416,952      318,636
                                                             --------     --------     --------
Earnings before income taxes (benefit).....................    36,881        7,332       29,587
Income taxes (benefit).....................................     9,375       (1,597)       7,036
                                                             --------     --------     --------
Net earnings...............................................  $ 27,506     $  8,929     $ 22,551
                                                             ========     ========     ========
Earnings per common share..................................  $   1.84     $   0.67     $   1.86
                                                             ========     ========     ========

 
                See notes to consolidated financial statements.
 
                                        37
   5
 
                 GUARANTY NATIONAL CORPORATION AND SUBSIDIARIES
 
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
 


                                                                         DEFERRED      UNREALIZED
                                                 CAPITAL               COMPENSATION    INVESTMENT
                                      COMMON    IN EXCESS   RETAINED   ON RESTRICTED     GAINS      TREASURY
                                       STOCK     OF PAR     EARNINGS       STOCK        (LOSSES)     STOCK
                                      -------   ---------   --------   -------------   ----------   --------
                                                                                  
Balance, January 1, 1994............  $12,480   $  83,991   $ 45,888       $(663)       $  10,793   $
Net earnings........................                          22,551
Change in unrealized investment
  (losses), less applicable deferred
  taxes.............................                                                      (17,854)
Purchase of treasury stock..........                                                                  (6,636)
Exercise of stock options and
  issuance of restricted stock, net
  of cancellation...................                   74                   (368)                        294
Amortization of deferred
  compensation on restricted
  stock.............................                    8                    250
Cash dividends declared and paid....                          (6,049)
                                      -------     -------    -------        ----         --------    -------
Balance December 31, 1994...........   12,480      84,073     62,390        (781)          (7,061)    (6,342)
Net earnings........................                           8,929
Change in unrealized investment
  gains, less applicable deferred
  taxes.............................                                                       22,581
Exercise of stock options and
  issuance of restricted stock, net
  of cancellations..................       20         329                   (126)                        327
Amortization of deferred
  compensation on restricted
  stock.............................                    8                    263
Sale of common stock................    1,550      22,670
Conversion of affiliate debt........      911      13,970                                              6,015
Cash dividends declared and paid....                          (6,655)
                                      -------     -------    -------        ----         --------    -------
Balance, December 31, 1995..........   14,961     121,050     64,664        (644)          15,520
Net earnings........................                          27,506
Change in unrealized investment
  gains, less applicable deferred
  taxes.............................                                                        1,587
Exercise of stock options, net of
  cancellation......................       14         222
Amortization of deferred
  compensation on restricted
  stock.............................                                         644
Cash dividends declared and paid....                          (7,485)
                                      -------     -------    -------        ----         --------    -------
Balance, December 31, 1996..........  $14,975   $ 121,272   $ 84,685       $            $  17,107   $
                                      =======     =======    =======        ====         ========    =======

 
                See notes to consolidated financial statements.
 
                                        38
   6
 
                 GUARANTY NATIONAL CORPORATION AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
 


                                                                 YEAR ENDED DECEMBER 31,
                                                          -------------------------------------
                                                            1996          1995          1994
                                                          ---------     ---------     ---------
                                                                             
Operating Activities:
  Premiums collected....................................  $ 496,686     $ 396,621     $ 321,000
  Net investment income collected.......................     35,102        29,938        22,969
  Losses and loss adjustment expenses paid..............   (339,442)     (267,641)     (199,530)
  Policy acquisition costs and general and
     administrative expenses paid.......................   (145,711)     (119,821)      (93,495)
  Interest paid.........................................     (6,817)       (6,005)       (3,043)
  Nonrecurring charges paid.............................     (1,302)                       (978)
  Federal income taxes paid.............................     (2,470)       (5,359)       (6,108)
  Other receipts (payments).............................      8,390         1,368        (1,337)
                                                          ---------     ---------     ---------
          Net cash provided by operating activities.....     44,436        29,101        39,478
                                                          ---------     ---------     ---------
Investing Activities:
  Maturities of fixed maturities held to maturity.......      9,795        12,096        10,231
  Maturities of fixed maturities available for sale.....     56,553        20,219         8,281
  Sales of fixed maturities available for sale..........     49,931        40,158        37,147
  Sales of equity securities............................     40,373        28,367        19,185
  Net change in short-term investments..................    (42,584)      (20,039)        7,535
  Sales of property and equipment.......................        303           590           274
  Purchases of fixed maturities held to maturity........    (20,780)      (10,138)      (16,570)
  Purchases of fixed maturities available for sale......   (100,536)      (74,652)      (57,989)
  Purchases of equity securities........................    (29,512)      (21,480)      (21,883)
  Net change in other long-term investments.............      1,433         1,825        (1,376)
  Purchases of property and equipment...................     (3,482)       (2,950)      (13,643)
  Acquisition of subsidiaries, net of cash acquired.....                  (94,681)       (6,363)
                                                          ---------     ---------     ---------
          Net cash used in investing activities.........    (38,506)     (120,685)      (35,171)
                                                          ---------     ---------     ---------
Financing Activities:
  Proceeds from issuance of notes payable...............                  130,654        14,000
  Repayment of notes payable............................     (1,313)      (60,000)
  Dividends paid to shareholders........................     (7,485)       (6,655)       (6,049)
  Purchase of treasury stock............................                                 (6,636)
  Proceeds from issuance of common stock................                   24,220
  Proceeds from exercise of stock options...............         62           550
                                                          ---------     ---------     ---------
          Net cash (used in) provided by financing
            activities..................................     (8,736)       88,769         1,315
                                                          ---------     ---------     ---------
Net (Decrease) Increase in Cash.........................     (2,806)       (2,815)        5,622
Cash, Beginning of Year.................................      6,794         9,609         3,987
                                                          ---------     ---------     ---------
Cash, End of Year.......................................  $   3,988     $   6,794     $   9,609
                                                          =========     =========     =========
Non-Cash Financing Transactions:
  Conversion of affiliate debt..........................  $             $ (20,896)    $
  Issuance of common stock in conversion of affiliate
     debt...............................................                   14,881
  Conversion of affiliate debt from treasury stock......                    6,015
  Restricted stock forfeitures..........................                     (126)

 
                                       39
   7
 
                 GUARANTY NATIONAL CORPORATION AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
 


                                                                    YEAR ENDED DECEMBER 31,
                                                                -------------------------------
                                                                 1996        1995        1994
                                                                -------     -------     -------
                                                                               
Reconciliation of Net Earnings to Net Cash Provided by
  Operating Activities:
  Net earnings................................................  $27,506     $ 8,929     $22,551
  Adjustments:
     Depreciation.............................................    4,392       3,490       2,692
     Non-cash investment income...............................   (3,969)       (275)       (401)
     Realized investment gains................................   (8,455)     (3,291)     (3,007)
     Amortization of goodwill.................................    1,160         883         766
     Deferred tax provision (benefit).........................    4,164      (3,543)         24
     Other....................................................    1,061         979         774
  Changes in assets and liabilities:
     Accrued investment income................................     (368)       (763)       (206)
     Accounts receivable......................................    6,081      (2,782)     (2,248)
     Reinsurance recoverables and prepaids....................   (8,956)     (6,679)     (8,070)
     Deferred policy acquisition costs........................   (6,819)     (3,775)        187
     Other assets.............................................      (44)        250         (25)
     Unpaid losses............................................   13,110      26,620      15,778
     Unpaid loss adjustment expenses..........................      664       5,829       4,478
     Unearned premiums........................................    8,037      12,375       3,506
     Reinsurance payables and deposits........................   (1,022)       (821)     (4,261)
     Other liabilities........................................    7,894      (8,325)      6,940
                                                                -------     -------     -------
          Total adjustments and changes.......................   16,930      20,172      16,927
                                                                -------     -------     -------
Net Cash Provided by Operating Activities.....................  $44,436     $29,101     $39,478
                                                                =======     =======     =======

 
                See notes to consolidated financial statements.
 
                                       40
   8
 
                 GUARANTY NATIONAL CORPORATION AND SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
     Nature of Operations -- Guaranty National Corporation and its subsidiaries
(the "Company") is a corporation based in Englewood, Colorado which principally
underwrites and sells specialty property and casualty insurance coverages that
are generally not available in traditional insurance markets. The Company
manages its business under three operational areas based on function: commercial
lines, personal lines and collateral protection.
 
     The Company's insurance subsidiaries are authorized as multiple-line
insurance carriers and may insure all types of property and liability risks. The
insurance coverages provided by these insurance carriers are generally known as
nonstandard risks due to the potential for poor claims experience because of
increased risk exposure. The insurance subsidiaries market insurance coverage
throughout the United States, and one or more of these subsidiaries are admitted
in all states.
 
     Basis of presentation -- The consolidated financial statements and notes
thereto are presented in accordance with generally accepted accounting
principles ("GAAP") for property and casualty insurance companies. The
preparation of the Company's consolidated financial statements in conformity
with generally accepted accounting principles requires Company management to
make estimates and assumptions that affect the amounts reported in these
consolidated financial statements and accompanying notes. Actual results could
differ from those estimates.
 
     From November 1, 1988, through November 19, 1991, Orion Capital Corporation
and its affiliates ("Orion") owned 100% of Guaranty National Corporation and
subsidiaries outstanding common stock. The assets and liabilities of the Company
were revalued at the time of the 1988 Orion purchase. The accompanying
consolidated financial statements reflect the recording of these acquisition
adjustments by Orion. Orion's current ownership is approximately 81%.
 
     In 1995, the Company acquired control of, but not ownership of, Viking
County Mutual Company ("VCM"). VCM is a Texas mutual organization which performs
100% reinsurance services in the state of Texas for its affiliated companies.
VCM is not included in the consolidated financial statements.
 
     As discussed in Notes 9 and 14, there are various transactions with Orion
and VCM which include certain expenses paid to Orion and VCM and other
transactions with Orion affiliates and VCM. In the opinion of management, the
transaction amounts with Orion are reasonable and representative of expenses
that would have been incurred in transactions with unrelated parties.
 
     Certain reclassifications have been made to the 1995 and 1994 consolidated
financial statements to conform with the presentation used in 1996.
 
     Principles of consolidation -- The consolidated financial statements
include the accounts of Guaranty National Corporation ("Guaranty") and its
wholly owned subsidiaries, Intercon General Agency, Inc. ("Intercon"), Auto
Insurance Centers, Inc. ("AIC"), Guaranty National Warranty Services ("GNWS"),
Guaranty National Insurance Company ("GNIC") and Viking. GNIC includes its
wholly owned subsidiaries, Landmark American Insurance Company ("LAIC"),
Colorado Casualty Insurance Company ("CCIC"), Peak Property and Casualty
Insurance Corporation ("PEAK"), and Guaranty National Insurance Company of
California ("GNICOC"). All significant intercompany accounts and transactions
have been eliminated in consolidation.
 
     Significant accounting policies -- This summary of significant accounting
policies is presented to assist in understanding the Company's consolidated
financial statements:
 
     a. Investments -- Investments in bonds and redeemable preferred stocks are
carried in the accompanying consolidated balance sheets as fixed maturities.
Fixed maturities for which the Company has the positive intent and ability to
hold until maturity are carried at amortized cost. Fixed maturities classified
as available for sale are carried at estimated fair value with any unrealized
gains or losses reflected in shareholders' equity, net of applicable deferred
taxes. Losses considered other than temporary are recorded in earnings as a
realized loss. The Company's criteria used to identify fixed maturities held to
maturity as of December 31, 1996 and 1995, generally includes investment grade
bonds

                                       41
   9
 
                 GUARANTY NATIONAL CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
with stated maturities less than 10 years. All other fixed securities are
classified as available for sale and may be sold in response to changes in
interest rates, anticipated prepayments, liquidity needs or other economic
factors. Select issues with maturities beyond 10 years may be classified as held
to maturity due to certain factors, including expected early call provisions.
 
     Investments in common stocks and nonredeemable preferred stocks are
classified as available for sale and are carried at estimated fair value, with
any unrealized gains or losses of securities reflected in shareholders' equity,
net of applicable deferred taxes. Losses considered other than temporary are
recorded in earnings as a realized loss.
 
     Estimated fair value for securities is generally based on last sales
prices, listed bid prices, bid quotations received from security dealers or,
when estimated fair values are not readily available through market sources,
fair value estimates are based on quoted market prices of similar instruments.
Mortgage loans are carried at their unpaid balance and are classified as other
long-term investments. Estimated fair value for mortgage loans is calculated by
discounting scheduled cash flows through maturity using estimated market
discount rates. Other long-term investments, which are principally comprised of
interests in several investment limited partnerships, are generally carried at
equity value which approximates estimated fair value. Short-term investments,
which include certificates of deposit, money market accounts, and commercial
paper maturing within one year of the balance sheet date, are carried at cost
which approximates estimated fair value.
 
     Realized investment gains and losses are recognized on the specific
identification method, and amortization of premiums and discounts is determined
using the interest method.
 
     b. Losses and loss adjustment expenses -- Losses and loss adjustment
expenses ("LAE") are charged to operations as incurred. Losses and LAE
liabilities are determined on the basis of claims adjusters' evaluations and
estimates based on historical experience including estimates of incurred but not
reported losses and salvage and subrogation recoveries. Such liabilities are
recorded gross of applicable reinsurance. The Company does not discount the
liability for unpaid losses and LAE. Management believes that the recorded
liabilities are a reasonable provision for all losses and loss adjustment
expenses incurred. Notwithstanding the foregoing, no assurances can be given
that further reserve development may not occur in the future as the process of
establishing loss and LAE reserves is, by nature, imprecise. The estimates are
continually reviewed and as adjustments to these estimates become necessary,
such adjustments are reflected in current operations.
 
     c. Revenue recognition -- Unearned premiums are generally computed on a
daily pro-rata method over the term of the policies in-force and are carried
gross of related reinsurance. Historically, the Company has not experienced
significant losses related to receivables because of short payment terms and the
lack of concentrations of credit risk. Thus, the carrying amount approximates
estimated fair value.
 
     d. Deferred policy acquisition costs -- Policy acquisition costs are
deferred and charged to operations over the periods in which the related
premiums are earned. The determination of recoverability of such deferred costs
includes anticipated investment income.
 
     e. Property, equipment and depreciation -- Property and equipment are
recorded at cost. Depreciation is computed using the straight-line method over
the estimated useful lives.
 
     f. Income taxes -- Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
 
     g. Goodwill -- The excess of Viking's cost over fair value of net assets
acquired is being amortized by the straight-line method over 40 years. The
excess of Orion's cost over fair value of net assets acquired and other goodwill
recorded in the consolidated balance sheet is being amortized by the
straight-line method over 31 to 36 years. Reflected in other expenses is
amortization of goodwill of $1,160,000, $883,000, and $766,000 for the years
ended December 31, 1996, 1995 and 1994, respectively.
 
     h. Statement of cash flows -- For purposes of the consolidated statements
of cash flows, the Company considers only demand deposit accounts to be cash.
                                        
                                       42
   10
 
                 GUARANTY NATIONAL CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     i. Earnings per share -- Earnings per share for 1996, 1995 and 1994 has
been computed by dividing net earnings by the number of weighted average shares
and equivalent shares outstanding of 14,973,332, 13,324,200 and 12,135,505,
respectively. The common stock equivalents are stock options which result in a
dilutive effect from assumed exercise of the options.
 
     j. Employee stock compensation plans -- The Company follows Accounting
Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to
Employees." The exercise price of stock options issued to employees equals the
market price of the stock on the measurement date, and therefore, the Company
does not record compensation expense on stock options granted to employees.
Restricted stock issued to employees is considered issued and outstanding when
awarded, and is recorded as deferred compensation.
 
2.  STATUTORY ACCOUNTING PRACTICES
 
     The accompanying consolidated financial statements are prepared under GAAP
which differs materially from practices prescribed by statutory accounting rules
and regulations. Under such practices, GNIC consolidated policyholders' surplus
reported to the state regulatory authorities as of December 31, 1996 and 1995
was $164,473,000 and $133,749,000, respectively, and Viking Insurance Company of
Wisconsin ("VICW") consolidated policyholders' surplus as of December 31, 1996
and 1995 was $89,342,000 and $86,872,000, respectively. Statutory net income, as
reported to state insurance departments, is as follows (in thousands):
 


                                                                      GNIC      VICW
                                                                     -------   -------
                                                                         
        Year ended December 31, 1996...............................  $20,450   $ 9,366
        Year ended December 31, 1995...............................    7,875    15,866
        Year ended December 31, 1994...............................   26,324

 
3.  ACQUISITIONS
 
     On July 18, 1995, the Company acquired Viking in a business combination
accounted for as a purchase. Viking is a property and casualty insurance company
writing nonstandard personal automobile insurance, primarily in the state of
California. The results of operations of Viking are included in the accompanying
consolidated financial statements since the date of acquisition.
 
     The total cost of the acquisition was $97,225,000, with total cash paid of
approximately $94,681,000, including acquisition expenses and net of $878,000
cash acquired. The total consideration exceeded the fair value of the net assets
of Viking by approximately $10,612,000. The total acquisition cost differs from
the announced total consideration paid of $103,000,000 due to transaction
expenses, the contingent purchase price adjustments, discussed below, and a
$12,000,000 extraordinary dividend taken by Talegen Holdings, Inc. ("Seller")
from Viking just prior to the sale.
 
     Included in the cost of the acquisition was $3,250,000 paid to the Seller
as additional purchase price, in anticipation of favorable development of
Viking's recorded 1994 and prior accident year loss and LAE reserves. The
Company has agreed to pay the Seller, as additional purchase price, two-thirds
of any favorable loss development up to $15,000,000, and one-third of any
favorable development between $15,000,000 and $20,000,000. The amounts payable
will be reduced by 35% to compensate for the applicable tax rate. The Company
and the Seller will initially settle any additional purchase price as of
December 31, 1998, and will finalize the settlement as of December 31, 2001. If
adverse development results, the Seller will repay to the Company an offsetting
amount, after allowance for the tax adjustment, not to exceed the initial
$3,250,000 paid to the Seller at the time of acquisition.
 
     Any payments to or receivables from the Seller, as a result of the positive
or negative loss development, will include accrued interest from the acquisition
closing date at an annual rate equal to 6.28%, for the initial loss development
settlement payment as of December 31, 1998. For the final loss development
settlement payment, as of December 31, 2001, the interest rate will equal the
mid-term Applicable Federal Rate (as defined in the Internal Revenue Service
Code) in effect as of January 1, 1999.
 
     Management estimates that a payment in excess of the $3,250,000 already
paid will ultimately be made to the Seller, and has included this estimated
amount of approximately $4,333,000, as well as the corresponding
 
                                       43
   11
 
                 GUARANTY NATIONAL CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
interest payable, in the accompanying consolidated financial statements. Loss
and LAE reserves of Viking were recorded at the date of acquisition at amounts
consistent with the Company's estimates of additional purchase price that will
be paid.
 
     The following summarized pro forma information (unaudited) assumes the
Viking acquisition had occurred on January 1, 1995 and 1994 (in thousands,
except per share amounts):
 


                                                                  TWELVE MONTHS ENDED
                                                                     DECEMBER 31,
                                                                 ---------------------
                                                                   1995         1994
                                                                 --------     --------
                                                                        
        Total Revenue..........................................  $512,718     $509,657
                                                                 ========     ========
        Net Income.............................................     7,765       30,014
                                                                 ========     ========
        Earnings Per Share.....................................  $   0.53     $   2.05
                                                                 ========     ========

 
     The above amounts reflect adjustments used in recording the purchase, such
as adjustments for interest on notes payable issued as part of the purchase
price, amortization of goodwill, and fees eliminated as a result of the
acquisition.
 
4.  INVESTMENTS
 
     The amortized cost and estimated fair values of investments in fixed
maturity and equity securities are as follows (in thousands):



                                                                  DECEMBER 31,
                                              -----------------------------------------------------
                                                              GROSS          GROSS        ESTIMATED
                                              AMORTIZED     UNREALIZED     UNREALIZED       FAIR
                                                COST          GAINS          LOSSES         VALUE
                                              ---------     ----------     ----------     ---------
                                                                              
    1996
    Fixed maturity securities held to
      maturity:
      U.S. Treasury and U.S. Government
         agencies...........................  $  30,674      $    170        $  106       $  30,738
      State and municipal...................     47,605         1,202           146          48,661
      Corporate.............................      1,992            39                         2,031
                                               --------       -------        ------        --------
                                                 80,271         1,411           252          81,430
    Fixed maturity securities available for
      sale:
      U.S. Treasury and U.S. Government
         agencies...........................    112,115         1,222           548         112,789
      State and municipal...................    156,439         6,150           165         162,424
      Corporate.............................    113,861         3,290         2,074         115,077
                                               --------       -------        ------        --------
                                                382,415        10,662         2,787         390,290
                                               --------       -------        ------        --------
    Total fixed maturity securities.........  $ 462,686      $ 12,073        $3,039       $ 471,720
                                               ========       =======        ======        ========
    Equity securities:
      Common stocks.........................  $  42,689      $ 17,966        $1,240       $  59,415
      Nonredeemable preferred stocks........     26,969         3,096         1,378          28,687
                                               --------       -------        ------        --------
    Total equity securities.................  $  69,658      $ 21,062        $2,618       $  88,102
                                               ========       =======        ======        ========


                                       44
   12
 
                 GUARANTY NATIONAL CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 


                                                                  DECEMBER 31,
                                              -----------------------------------------------------
                                                              GROSS          GROSS        ESTIMATED
                                              AMORTIZED     UNREALIZED     UNREALIZED       FAIR
                                                COST          GAINS          LOSSES         VALUE
                                              ---------     ----------     ----------     ---------
                                                                              
    1995
    Fixed maturity securities held to
      maturity:
      U.S. Treasury and U.S. Government
         agencies...........................  $  17,943      $    896        $            $  18,839
      State and municipal...................     53,907         1,564           400          55,071
      Corporate.............................      3,167            66                         3,233
                                               --------       -------        ------        --------
                                                 75,017         2,526           400          77,143
    Fixed maturity securities available for
      sale:
      U.S. Treasury and U.S. Government
         agencies...........................    123,209         3,000                       126,209
      State and municipal...................    176,461         8,298           161         184,598
      Corporate.............................     83,465         2,884         1,958          84,391
                                               --------       -------        ------        --------
                                                383,135        14,182         2,119         395,198
                                               ========       =======        ======        ========
    Total fixed maturity securities.........  $ 458,152      $ 16,708        $2,519       $ 472,341
                                               ========       =======        ======        ========
    Equity securities:
      Common stocks.........................  $  41,994      $ 12,767        $2,622       $  52,139
      Nonredeemable preferred stocks........     31,277         3,654         1,985          32,946
                                               --------       -------        ------        --------
    Total equity securities.................  $  73,271      $ 16,421        $4,607       $  85,085
                                               ========       =======        ======        ========

 
     For a summary of the amortized costs and estimated fair value of fixed
investment maturities at December 31, 1996 and 1995, by contractual maturity,
see Note 7.
 
     Net investment income is summarized as follows (in thousands):
 


                                                                YEAR ENDED DECEMBER 31,
                                                            -------------------------------
                                                             1996        1995        1994
                                                            -------     -------     -------
                                                                           
    Type of investment:
      Fixed maturities held to maturity...................  $ 4,090     $ 7,531     $ 7,653
      Fixed maturities available for sale.................   24,369      15,886      10,999
      Common stocks.......................................    1,686       1,420       1,147
      Nonredeemable preferred stocks......................    2,393       2,432       2,557
      Short-term investments..............................    4,570       2,439       1,145
      Other...............................................    3,702       2,397       1,166
                                                            -------     -------     -------
      Total investment income.............................   40,810      32,105      24,667
      Less investment expenses............................    1,371       1,129       1,091
                                                            -------     -------     -------
         Net investment income............................  $39,439     $30,976     $23,576
                                                            =======     =======     =======


                                       45
   13
 
                 GUARANTY NATIONAL CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Realized investment gains and losses, which include a writedowns for
other-than-temporary investment impairments of $2,135,000 as of December 31,
1995, are as follows (in thousands):
 


                                                                YEAR ENDED DECEMBER 31,
                                                            -------------------------------
                                                             1996        1995        1994
                                                            -------     -------     -------
                                                                           
    Fixed maturities held to maturity:
      Gains...............................................  $           $   360     $   174
      Losses..............................................                 (269)        (21)
                                                            -------     -------     -------
                                                                             91         153
    Fixed maturities available for sale:
      Gains...............................................    1,815       1,566       2,374
      Losses..............................................   (1,322)     (2,869)     (2,657)
                                                            -------     -------     -------
                                                                493      (1,303)       (283)
    Equity securities:
      Gains...............................................    9,950       6,227       3,192
      Losses..............................................   (1,988)     (1,724)        (55)
                                                            -------     -------     -------
                                                              7,962       4,503       3,137
                                                            -------     -------     -------
      Total...............................................  $ 8,455     $ 3,291     $ 3,007
                                                            =======     =======     =======

 
     Net change in unrealized gains (losses) in the estimated fair value of
investments is as follows (in thousands):
 


                                                               YEAR ENDED DECEMBER 31,
                                                           --------------------------------
                                                            1996        1995         1994
                                                           -------     -------     --------
                                                                          
    Fixed maturities held to maturity....................  $  (967)    $ 4,999     $ (7,819)
    Fixed maturities available for sale..................   (4,188)     24,044      (20,675)
    Equity securities....................................    6,630      10,697       (6,672)
                                                           -------     --------    --------
    Total................................................  $ 1,475     $39,740     $(35,166)
                                                           =======     ========    ========

 
     To augment the average yield on its investment portfolio, the Company
invests a portion of its fixed maturity assets in "high yield" bonds and
preferred stocks, which are investments of a quality considered to be
noninvestment grade (rated "BB" or below). Such securities are generally
considered to have a higher potential of loss due to default because they are
unsecured, subordinated to other debt and/or issued by highly leveraged
companies. At December 31, 1996 and 1995, the Company had investments in "high
yield" securities of $55,205,000 and $36,641,000 with estimated fair values of
$56,477,000 and $36,356,000, respectively.
 
     The Company closely monitors the financial condition of issuers of
securities that it owns, and if conditions are deemed appropriate, the Company
ceases to accrete, discount, accrue interest or record "pay in-kind" interest or
dividends. The Company had $315,000 and $230,000 of fixed maturities at
estimated fair value at December 31, 1996 and 1995, respectively, which had been
non-income producing for a portion of the previous twelve months. All fixed
maturities at December 31, 1994 had been income producing during the year. At
December 31, 1996 and 1995, total other-than-temporary investment impairments
amounted to $1,700,000 and $2,135,000, respectively. There were no
other-than-temporary investment impairments at December 31, 1994. In 1995, and
as a result of the Statement of Financial Accounting Standards (SFAS) No. 115
"Implementation Guide" the Company transferred certain fixed maturities from the
held to maturity portfolio to the available for sale portfolio. The amortized
cost of this transfer was $41,643,000 and the unrealized gain was $916,000.
During 1994, the Company transferred fixed maturity securities from the held to
maturity portfolio to the available for sale portfolio due to the decrease in
credit ratings of three issuers. The amortized cost of this transfer was
$4,219,000 and the unrealized loss was $450,000.
 
     Concentrations of credit risk exist for groups of issuers when they have
similar economic characteristics that would cause their ability to meet their
obligations to be similarly affected by changes in economic or other conditions.
At December 31, 1996, the Company holds $35,543,000 of fixed maturity and equity
securities of public utilities and $210,029,000 of fixed maturities of state and
local governments; these holdings are not collateralized. The Company does not
have a concentration of credit risk with any one issuer of fixed income or
equity securities.

                                       46
   14
 
                 GUARANTY NATIONAL CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
5.  PROPERTY AND EQUIPMENT
 
     In May 1996, Viking moved its Freeport, Illinois operations from a leased
facility to an office building which was acquired by Viking. Viking purchased
the building in February 1996, for approximately $1,300,000.
 
     In conjunction with the Viking acquisition, in July 1995, the Company
acquired two Viking owned properties, as well as various Viking owned equipment.
The Viking owned properties consist of Viking's corporate office building
located in Madison, Wisconsin, and a regional claims office located in Salem,
Oregon. The estimated fair value of these two facilities, as well as the
equipment, totaled approximately $7,028,000 at July 18, 1995, the acquisition
closing date.
 
     During 1994, the Company relocated its Colorado operations to a new home
office facility. See Note 17 for further discussion of this relocation.
 
6.  NOTES PAYABLE
 
     On June 2, 1995, the Company entered into a $110,000,000 credit agreement
("Credit Agreement") with several participating banks. The Agreement provides
for an unsecured reducing revolving credit facility, used in part to fund the
Viking acquisition (See Note 3), to retire the outstanding balance of
$29,000,000 under the Company's previous revolving line of credit, and for
working capital and general corporate purposes.
 
     The Credit Agreement was amended and restated as of December 16, 1996, in
order to obtain a more favorable commitment fee and London Interbank Offered
Rate (LIBOR) margin, to adjust the repayment schedule and terms, and to modify
certain of the debt covenants. Under the amended and restated Credit Agreement,
principal payments are required beginning April 15, 1998, until the loan is
retired in 2002. The Company made an early principal payment during 1995 in the
amount of $2,000,000, and therefore, the next principal payment is due on April
15, 1999. Interest is payable quarterly, and interest rates are based on the
floating LIBOR rate. As of December 31, 1996, the outstanding loan amount under
this Agreement was $100,000,000, with an interest rate of 6.24% (see Note 11).
Loan fees are being amortized over the seven year life of the loan.
 
     The Credit Agreement contains covenants with respect to minimum net worth
and statutory surplus, the maximum ratio of net written premiums to surplus, the
minimum fixed charge coverage ratio, the minimum level of total adjusted capital
(within the meaning of the Risk-Based Capital for Insurers Model Act as
promulgated by the National Association of Insurance Commissioners), and
limitations on other items, such as permitted investments and disposition of
material assets. The Company is currently in compliance with the affirmative,
negative and financial covenants of the Agreement.
 
     On June 14, 1995, the Company amended the $20,896,000 subordinated notes
("Orion Notes") held by Orion, to include a common stock conversion feature. On
June 22, 1995, the Company converted $8,667,000 of the Orion Notes into 550,000
shares of common stock. On October 30, 1995, the Shareholders of the Company
approved the conversion of the remaining balance of the Orion Notes into 776,128
shares of common stock.
 
     As of December 31, 1996, the Company had a remaining principal balance of
$1,688,000 under its 6.5% term loan, which was entered into during 1994 in order
to purchase furniture and fixtures for the new home office facility. This term
loan is secured by the furniture and fixtures purchased. Quarterly principal and
interest payments are due on this loan until April 1, 1999.
 
     Maturities of notes payable are as follows: 1997-$562,500; 1998-$750,000;
1999-$22,375,000; 2000-$24,000,000; 2001-$26,000,000; 2002 and
thereafter-$28,000,000.

                                       47
   15
 
                 GUARANTY NATIONAL CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
7.  FAIR VALUE OF FINANCIAL INSTRUMENTS
 
     The amortized cost and estimated fair value of fixed investment maturities
at December 31, 1996 and 1995, by contractual maturity, are shown below (in
thousands). Expected maturities will differ from contractual maturities because
issuers may have the right to call or prepay obligations with or without call or
prepayment penalties.
 


                                                                  DECEMBER 31,
                                              -----------------------------------------------------
                                                 AVAILABLE FOR SALE            HELD TO MATURITY
                                              ------------------------     ------------------------
                                                            ESTIMATED                    ESTIMATED
                                              AMORTIZED        FAIR        AMORTIZED        FAIR
                                                COST          VALUE          COST          VALUE
                                              ---------     ----------     ---------     ----------
                                                                             
    1996
    -----
    Due in one year or less.................  $  46,601      $  46,700      $ 2,000       $  2,000
    Due after one year through five years...     95,761         96,236       39,321         40,333
    Due after five years through ten
      years.................................     63,395         66,057       33,330         33,615
    After ten years.........................    128,284        132,981        5,620          5,482
    Federal agency and other mortgage
      pools.................................     48,374         48,316
                                               --------       --------     --------       --------
                                              $ 382,415      $ 390,290      $80,271       $ 81,430
                                               ========       ========     ========       ========
    1995
    -----
    Due in one year or less.................  $  33,100      $  33,342      $ 9,816       $  9,861
    Due after one year through five years...     98,425         99,124       26,346         27,411
    Due after five years through ten
      years.................................     66,832         68,829       28,489         29,905
    After ten years.........................    132,220        139,818       10,366          9,966
    Federal agency and other mortgage
      pools.................................     52,558         54,085
                                               --------       --------     --------       --------
                                              $ 383,135      $ 395,198      $75,017       $ 77,143
                                               ========       ========     ========       ========

 
     The carrying value and estimated fair value of other financial instruments
at December 31, 1996 and 1995 are as follows (in thousands):
 


                                                DECEMBER 31, 1996          DECEMBER 31, 1995
                                              ----------------------     ----------------------
                                                           ESTIMATED                  ESTIMATED
                                              CARRYING       FAIR        CARRYING       FAIR
                                               VALUE         VALUE        VALUE         VALUE
                                              --------     ---------     --------     ---------
                                                                          
    Assets:
      Equities..............................  $ 88,102     $  88,102     $ 85,085     $  85,085
      Other long-term investments...........    13,585        13,600       11,521        11,572
      Short-term investments................    94,993        94,993       52,257        52,257
    Liabilities:
      Notes payable.........................   101,688       101,696      103,000       103,009

 
     Estimated fair value of the term loan, included in notes payable above, was
calculated by discounting contractual cash flows through maturity using quoted
market rates for similar issues with similar maturities. Estimated fair value of
the Credit Agreement, also included in notes payable above, approximates face
value due to the credit terms during the revolving period. See Note 6 for
further discussion of both the term loan and Credit Agreement.
 
     The estimated fair value of financial hedge instruments, both of which are
held for other than trading purposes, is the estimated amount the Company would
pay to terminate the interest rate swap agreements, taking into consideration
current interest rates and other relevant factors. The estimated amount at
December 31, 1996 and 1995 was $214,000 and $678,000, respectively.
 
8.  INCOME TAXES
 
     Effective July 2, 1996, the Company will be included in Orion's
consolidated federal income tax return and is covered by income tax sharing
agreements under which the Company computes its current federal income tax
liability on a separate return basis and pays Orion any taxes due on this basis.
 
     Deferred income taxes result from temporary differences in the basis of
various assets and liabilities for financial statement purposes and for tax
purposes, and alternative minimum tax ("AMT") credit carryforwards. The tax
effects of

                                       48
   16
 
                 GUARANTY NATIONAL CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
the temporary differences and AMT carryforwards comprising the net deferred
tax liability at December 31, 1996 and the net deferred tax asset at December 31
1995, which are included in other liabilities and other assets in the
consolidated balance sheet, are as follows (in thousands):
 


                                                                       YEAR ENDED DECEMBER
                                                                               31,
                                                                       -------------------
                                                                        1996        1995
                                                                       -------     -------
                                                                             
    Discounted loss reserves.........................................  $10,406     $11,325
    Unearned premiums................................................    9,642       8,971
    Deferred compensation arrangements...............................    1,658       1,030
    Realized investment losses.......................................      595         747
    AMT credit carryforward..........................................    1,141       1,819
    Accrued post retirement benefits other than pensions.............      643         504
    Accrued exit activity costs......................................      574       1,464
    Other............................................................      891       1,039
                                                                       -------     -------
      Gross deferred tax assets......................................   25,550      26,899
                                                                       -------     -------
    Deferred policy acquisition costs................................   15,560      13,173
    Net unrealized investment gain...................................    9,212       8,357
    Amortization of fixed maturities.................................      461         489
    Other............................................................    1,120         664
                                                                       -------     -------
      Gross deferred tax liabilities.................................   26,353      22,683
                                                                       -------     -------
    Net deferred tax (liability) asset...............................  $  (803)    $ 4,216
                                                                       =======     =======

 
     Included in gross deferred tax assets at December 31, 1996 and 1995, is
$1,141,000 and $1,819,000 of AMT credit carryforward, respectively. The credit
is allowed for the amount of adjusted net minimum tax for all years reduced by
the minimum tax credit for all prior tax years. This credit has no expiration
date as a credit against the Company's future regular tax liability. Included in
other deferred tax assets at December 31, 1996 and 1995, is the tax effect of a
$573,000 and $639,000, respectively, net operating loss carryforward arising
from the acquisition of CCIC, available to offset future taxable income of CCIC.
This carryforward substantially expires in 1997, with final expiration in 2003.
Also included in other deferred tax assets at December 31, 1995, is the tax
effect of a $609,000 net operating loss carryforward, which was utilized to
reduce the Company's 1996 regular tax liability. This carryforward expires in
2010. As of December 31, 1996, no valuation allowance on deferred tax assets was
necessary.
 
     Total income taxes (benefits) are allocated as follows (in thousands):
 


                                                                YEAR ENDED DECEMBER 31,
                                                            -------------------------------
                                                             1996        1995        1994
                                                            -------     -------     -------
                                                                           
    Income from continuing operations.....................  $ 9,375     $(1,597)    $ 7,036
    Shareholders' equity, for unrealized investment gains
      (losses)............................................      855      12,160      (9,493)
    Shareholders' equity, other...........................       --           8           8
                                                            -------     -------     -------
                                                            $10,230     $10,571     $(2,449)
                                                            =======     =======     =======

 
     The components of the provision (benefit) for income taxes on continuing
operations are as follows (in thousands):
 


                                                                 YEAR ENDED DECEMBER 31,
                                                              -----------------------------
                                                               1996       1995        1994
                                                              ------     -------     ------
                                                                            
    Current.................................................  $5,211     $ 1,946     $7,012
    Deferred................................................   4,164      (3,543)        24
                                                              ------     -------     ------
                                                              $9,375     $(1,597)    $7,036
                                                              ======     =======     ======


                                       49
   17
 
                 GUARANTY NATIONAL CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The following table reconciles the effective tax rate to the federal
statutory rate of 35 percent for pretax earnings from continuing operations (in
thousands):
 


                                                                YEAR ENDED DECEMBER 31,
                                                            -------------------------------
                                                             1996        1995        1994
                                                            -------     -------     -------
                                                                           
    Earnings before taxes.................................  $36,881     $ 7,332     $29,587
                                                            =======     =======     =======
 
    Expected income tax expense...........................  $12,908     $ 2,566     $10,355
    Adjustments resulting from:
      Dividends received deduction........................   (1,234)     (1,875)     (1,528)
      Nontaxable interest income..........................   (3,848)     (3,451)     (2,754)
      Proration...........................................      762         799         642
      Nonrecurring tender offer charge (Note 17)..........      409
      Other, net..........................................      378         364         321
                                                            -------     -------     -------
                                                            $ 9,375     $(1,597)    $ 7,036
                                                            =======     =======     =======

 
9.  REINSURANCE
 
     In the ordinary course of business, the Company reinsures certain risks,
generally on an excess of loss basis with other insurance companies. Effective
July 1, 1996, such reinsurance arrangements limit the Company's maximum loss per
occurrence on casualty losses to $400,000, on property losses to $300,000 and
for catastrophe losses to $600,000. For the first half of 1996, such reinsurance
arrangements limited the Company's maximum loss per occurrence on individual
risks to $400,000 and for catastrophes to $500,000. Amounts recoverable from
reinsurers are recognized and estimated in a manner consistent with the claim
liabilities arising from the reinsured policies and incurred but not reported
losses.
 
     Reinsurance contracts do not relieve the Company from its obligations to
policyholders. To the extent that any reinsuring company is unable to meet its
obligations, the Company would be liable for such defaulted amounts;
consequently, allowances are established for amounts deemed uncollectible. The
allowances established for uncollectible amounts were $200,000 at both December
31, 1996 and 1995. The Company generally does not require collateral to support
reinsurance recoverables, but continually evaluates the financial condition of
its reinsurers and monitors concentrations of credit risk to minimize exposure
to significant losses from reinsurer insolvencies. At December 31, 1996 and
1995, reinsurance recoverables of $80,249,000 and $68,938,000, respectively,
were associated with two reinsurers (both companies are rated A+ or above by
A.M. Best) under the Company's excess of loss property and casualty treaties and
certain facultative reinsurance contracts. The Company's reinsurance treaties
generally provide that premiums are ceded on a written basis but are paid to the
reinsurers on an earned basis; consequently, prepaid reinsurance premiums are
primarily deposits required by contract terms and amounts paid related to
facultative reinsurance contracts. Prepaid reinsurance premiums are amortized
over the contract period in proportion to the amount of reinsurance protection
provided.
 
     The approximate prepaid and recoverable amounts of reinsurance ceded to
other companies, including subsidiaries of Orion under 100% reinsurance
arrangements, are as follows (in thousands):
 


                                                  DECEMBER 31, 1996                 DECEMBER 31, 1995
                                            -----------------------------     -----------------------------
                                            NON-AFFILIATES     AFFILIATES     NON-AFFILIATES     AFFILIATES
                                            --------------     ----------     --------------     ----------
                                                                                     
    Premiums prepaid......................     $  2,244          $   30          $  4,435          $   79
    Paid losses recoverable...............        4,780                             9,016
    Unpaid losses recoverable.............       66,633           2,197            51,491           3,438
    Unpaid LAE recoverable................       12,238           2,659            10,048           3,318
                                                -------          ------           -------          ------
                                               $ 85,895          $4,886          $ 74,990          $6,835
                                                =======          ======           =======          ======


                                       50
   18
 
                 GUARANTY NATIONAL CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Premiums, losses and LAE, including the effect of reinsurance, are
comprised of (in thousands):
 


                                                    YEAR ENDED DECEMBER 31,
                           -------------------------------------------------------------------------
                                   1996                      1995                      1994
                           ---------------------     ---------------------     ---------------------
                           WRITTEN       EARNED      WRITTEN       EARNED      WRITTEN       EARNED
                           --------     --------     --------     --------     --------     --------
                                                                          
Premiums:
  Direct.................  $493,660     $492,077     $414,694     $393,886     $295,714     $284,918
  Assumed................    44,376       37,921       36,819       47,916       69,277       76,720
  Ceded..................   (46,804)     (48,350)     (53,614)     (51,785)     (42,066)     (40,000)
                           --------     --------     --------     --------     --------     --------
  Net....................  $491,232     $481,648     $397,899     $390,017     $322,925     $321,638
                           ========     ========     ========     ========     ========     ========
 
% Assumed to Net.........      9.03%                     9.25%                    21.45%
                               ====                      ====                     =====

 


                                                             INCURRED     INCURRED     INCURRED
                                                             --------     --------     --------
                                                                              
Losses and LAE:
  Direct...................................................  $361,837     $309,298     $192,183
  Assumed..................................................    20,268       32,281       54,892
  Ceded....................................................   (44,321)     (48,066)     (33,570)
                                                             --------     --------     --------
  Net......................................................  $337,784     $293,513     $213,505
                                                             ========     ========     ========

 
     Included in direct premiums earned above, for the years ended December 31,
1996, 1995 and 1994, were $97,000, $309,000 and $1,152,000, respectively, of
premiums earned under 100% reinsurance agreements with subsidiaries of Orion.
Also, included in direct losses incurred above, for the years ended December 31,
1996, 1995 and 1994, were $67,000, $218,000 and $854,000, respectively, of
losses incurred under these same 100% reinsurance agreements with subsidiaries
of Orion.
 
     The Company has entered into reinsurance agreements with subsidiaries of
Orion, whereby it assumes business written by the affiliates. Included in
premiums assumed above, for the years ended December 31, 1996, 1995 and 1994,
were $15,673,000, $9,495,000 and $30,921,000 of premiums written, respectively,
which were assumed under these agreements. Assumed premiums and incurred losses
have changed, compared to the prior years, as a result of the changes in the
Company's business written in different states. The Company paid fees and
expenses to affiliates for assumed business written as follows: 1996-$607,000;
1995-$338,000; 1994-$1,440,000.
 
     Since the acquisition of Viking, the Company is party to 100% reinsurance
agreements with VCM, whereby the Company assumes business written, in the state
of Texas, by this affiliate. Included in 1996 and 1995 premiums assumed above
were $29,623,000 and $5,525,000, respectively, of premiums written under these
agreements. The policy issue fee charged by VCM is offset by the management fee
charged by the Company to VCM. Therefore, the net amount of policy issue fees
and management fees is immaterial.
 
                                       51
   19
 
                 GUARANTY NATIONAL CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
10.  RESERVES FOR LOSS AND LOSS ADJUSTMENT EXPENSES
 
     The Company's loss and LAE reserves are summarized below (in thousands):
 


                                                              YEAR ENDED DECEMBER 31,
                                                         ----------------------------------
                                                           1996         1995         1994
                                                         --------     --------     --------
                                                                          
    Balance at beginning of year.......................  $354,634     $241,221     $220,965
    Reserves acquired as a result of a business
      combination......................................                 80,692
    Less reinsurance recoverables......................    68,295       61,446       55,165
                                                         --------     --------     --------
    Net adjusted beginning balance.....................   286,339      260,467      165,800
    Provision for incurred losses and LAE:
      Current year.....................................   338,779      280,726      212,458
      Prior years......................................      (995)      12,787        1,047
                                                         --------     --------     --------
                                                          337,784      293,513      213,505
                                                         --------     --------     --------
    Payments for incurred losses and LAE:
      Current year.....................................   194,667      159,208      111,418
      Prior years......................................   144,775      108,433       88,112
                                                         --------     --------     --------
                                                          339,442      267,641      199,530
                                                         --------     --------     --------
    Net balance at end of year.........................   284,681      286,339      179,775
      Plus reinsurance recoverables....................    83,727       68,295       61,446
                                                         --------     --------     --------
      Balance at end of year...........................  $368,408     $354,634     $241,221
                                                         ========     ========     ========

 
     As a result of changes in estimates of insured events in prior years, the
provision for prior year losses and LAE decreased by $995,000 in 1996, a
significant improvement compared to 1995. The favorable development in 1996 was
the result of $4,038,000 redundant development in the personal lines business
unit. The redundancy in this unit was due to estimated incurred but not reported
losses at the beginning of the year developing lower than expected, as well as
the successful implementation of claims operational changes, which resulted in
better than expected development on 1995 personal lines acquired reserves. The
favorable development within the personal lines business unit during 1996 was
partially offset by adverse development within the commercial and collateral
protection units. The total commercial lines adverse development in 1996 was
$1,675,000, which represented a significant improvement over 1995, and resulted
primarily from general liability losses and loss adjustment expenses on reported
claims costing more to settle than expected. During 1996, the collateral
protection unit experienced $1,368,000 adverse development primarily due to an
under-estimation of unreported claims, as of December 31, 1995, for the Blanket
Vendor Single Interest and Puerto Rico business.
 
     The 1995 adverse development in personal lines of $2,504,000 was a result
of adverse trends in claim frequency which caused higher than expected
development of outstanding claims and incurred but not reported losses.
Development on personal lines during 1994 was favorable. Total adverse
development in commercial lines during 1995 was $10,056,000, of which $7,266,000
was caused by commercial automobile liability higher claim severity primarily in
1994 through 1992. The remaining commercial lines 1995 adverse development was
from general liability and other lines. The adverse development in commercial
lines in 1994 was primarily due to loss development on professional, general and
commercial automobile liability claims occurring prior to 1985. These accident
years accounted for $920,000 of commercial lines' adverse development in 1995
and $1,300,000 in 1994. The remaining adverse development in 1995 of $227,000
was attributable to the collateral protection business unit.
 
     The Company primarily writes automobile coverage, and therefore has limited
exposure for environmental claims. In establishing the liability for unpaid
losses and LAE related to environmental claims, the Company considers facts
currently known, current state of the law, and coverage litigation. Liabilities
are recognized for known claims when sufficient information has been developed
to indicate the involvement of a specific insurance policy, and its liability
can be reasonably estimated. In addition, liabilities have been established to
cover additional exposures on both known and unasserted claims. Estimates of the
liabilities are reviewed and updated continually. Developed case law and
adequate claim history do not exist for such claims,

                                       52
   20
 
                 GUARANTY NATIONAL CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
especially because significant uncertainty exists about the outcome of
coverage litigation and whether past claim experience will be representative of
future claim experience.
 
     Environmental claims reported to the Company to date, such as asbestos and
pollution contamination, have primarily related to policies written during the
period 1984 to 1978. In 1985, the Company added an absolute pollution exclusion
clause to general liability policies to significantly reduce exposure to such
claims. The Company's known exposure to environmental losses is not considered
to be material as they have amounted to approximately three percent of
cumulative payments on general liability claims for the accident years 1984 to
1978, and there are less than $600,000 in net outstanding claim reserves, and
approximately $2,000,000 in total loss and loss adjustment expense reserves, at
December 31, 1996. Based on the claim activity to date and the nature of the
business written during this period and subsequent periods, the Company does not
believe that a material exposure to such risks exists in the future.
 
11.  INTEREST RATE SWAP AGREEMENTS
 
     At December 31, 1996, the Company had two interest rate swap agreements
outstanding, with participating commercial banks, having a total notional
principal amount of $80,000,000, or $40,000,000 for each bank. These agreements
effectively change the Company's interest rate exposure on $80,000,000 of the
$100,000,000 million principal balance outstanding under the Credit Agreement,
which is discussed in Note 6, to a fixed rate. The fixed rate interest
percentage paid by the Company on the total notional amounts is approximately
6.3%. Net cash payments made or received under the swap agreements have been
included within interest expense.
 
     The interest rate swap agreements terminate on March 16, 1998. The interest
rate swap floating rate, which is paid by the banks to the Company, resets every
three months, beginning December 20, 1995, which coincides with the LIBOR
determination dates available on the outstanding principal balance under the
Company's Credit Agreement. The floating interest rate under the swap agreements
is based upon the LIBOR rate at each determination date.
 
     The Company is exposed to credit loss in the event of nonperformance by the
other parties to the interest rate swap agreements. However, the Company does
not anticipate nonperformance by the counterparties.
 
12.  COMMITMENTS AND CONTINGENCIES
 
     The Company rents various buildings for its branch office locations. Rent
expense for operating leases was as follows: 1996-$1,697,000; 1995-$1,262,000;
1994-$1,450,000. Future minimum lease payments on building and equipment
operating lease commitments are as follows: 1997-$1,520,000; 1998-$1,221,000;
1999-$451,000; 2000-$102,000; 2001-$16,000; 2002 and thereafter-$0.
 
     In conjunction with the Viking acquisition there is additional purchase
price which may ultimately be paid to the seller depending on Viking's future
loss development. See Note 3 for further discussion of this contingency payment.
 
     As discussed in the Company's report on Schedule 14D-9, filed with the
Securities and Exchange Commission on May 22, 1996, as amended on June 1, 1996,
June 7, 1996 and June 19, 1996, three separate complaints naming the Company and
one or more of its directors, and Orion, as defendants were filed on behalf of
the Company's shareholders, alleging that the Orion tender offer was unfair and
inadequate. On July 2, 1996, counsel for Orion and the Company signed a
Memorandum of Understanding providing for the settlement and dismissal of the
three cases, based on the revisions which the Purchasers had made in the terms
of the Offer to Purchase. In the judgment of the Company's management, the costs
incurred to defend and settle these complaints will not have a materially
adverse effect on the results of the Company's operations. The estimated
settlement costs have been accrued in the Company's consolidated financial
statements as of December 31, 1996, as part of the nonrecurring charge discussed
in Note 17.
 
     In addition to the three complaints described above, the Company is subject
to litigation in the normal course of operating its insurance business. The
Company is not engaged in any such litigation which it believes would have a
material adverse impact on its financial condition or results of operations,
taking into account the reserves established therefore and giving effect to
insurance.

                                       53

 
   21
 
                 GUARANTY NATIONAL CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
13.  RESTRICTIONS ON SHAREHOLDERS' EQUITY
 
     The amended and restated Credit Agreement, which is discussed in Note 6,
imposes no dividend restrictions on the Company, but requires the Company to
maintain consolidated net worth of $190,000,000, plus 30% of the aggregate
positive consolidated net income for each fiscal quarter ending after December
31, 1996, plus 100% of the aggregate amount of increases in the stated capital
and additional paid-in capital accounts resulting from the issuance of equity
securities or other capital investments after December 31, 1996. According to
the definition outlined in the Credit Agreement, consolidated net worth means
the net worth of Guaranty and its subsidiaries determined in accordance with
GAAP, and without regard to the requirements of Statement of Financial
Accounting Standards No. 115. As of December 31, 1996, the required net worth
under the bank loan agreement was $190,000,000 while the Company's actual net
worth, as defined in the Credit Agreement, was $232,920,000.
 
     Shareholders' equity of the Company is primarily represented by the
surplus, including undistributed earnings, of GNIC and VICW. The Colorado
dividend restriction law limits the annual dividend a Colorado domiciled
insurance company may pay to its parent holding company during a twelve-month
period to the greater of 10% of GNIC's statutory surplus as reported at the end
of the preceding calendar year ($164,474,000 and $133,749,000 at December 31,
1996 and 1995, respectively), or GNIC's statutory net income, excluding realized
capital gains ($9,332,000 and ($442,490) for 1996 and 1995, respectively) as
reported at the end of the preceding calendar year. When a dividend is declared
by GNIC to Guaranty, the Colorado Insurance Department must be notified of such
declaration within five days thereafter, and at least ten business days before
the payment of the dividend. The Wisconsin dividend restriction law limits the
annual dividend that VICW may pay to Guaranty to the lesser of 10% of VICW's
statutory surplus as of the end of the preceding calendar year ($88,597,000 and
$86,872,000 at December 31, 1996 and 1995, respectively) or the greater of
either the statutory net income of VICW for the preceding calendar year, less
realized capital gains, ($7,524,000 and $14,591,000 at December 31, 1996 and
1995, respectively) or the aggregate of the net income of VICW for the three
calendar years preceding the date of the dividend, less realized capital gains
for those calendar years minus dividends paid or credited and distributions made
within the first two of the preceding three calendar years ($10,642,000 and
$17,521,000 at December 31, 1996 and 1995, respectively). When a dividend is
paid by VICW to Guaranty, the Wisconsin Insurance Department must have been
notified in writing at least 30 days prior to the payment of the dividend.
During 1996, GNIC paid no dividends to Guaranty, while VICW paid dividends in
the amount of $8,687,000 to Guaranty. In 1995, GNIC paid dividends of
$16,500,000 to Guaranty, while VICW paid no dividends to Guaranty. The Company
believes that GNIC and VICW will be in a position to pay dividends to Guaranty
in the future.
 
14.  RELATED PARTY TRANSACTIONS
 
     During 1996, Orion increased its ownership in the Company by approximately
31.5%, to 81%. See Notes 12 and 17 for further discussion of this transaction.

     Orion manages a majority of the Company's investment portfolio. The Company
paid investment management fees to Orion as follows: 1996 -- $650,000;
1995 -- $595,000; 1994 -- $550,000.
 
     The Company paid commissions to an Orion agency affiliate of $85,000,
$72,000 and $90,000 in 1996, 1995 and 1994, respectively, for premiums written
by the affiliate for the Company of $436,000, $411,000 and $516,000 in 1996,
1995 and 1994, respectively.
 
     In 1990, GNIC entered into a loan participation agreement with a subsidiary
of Orion, whereby they loaned money to another affiliate. The loan was secured
by a leasehold deed of trust and matured in November 1995. GNIC's proportionate
share of this loan was $3,700,000, or 41.1%. GNIC received quarterly interest
payments at a rate of 11% of its proportionate share. Interest earned was
$355,000 in 1995 and $407,000 in 1994. In 1995, during the assembly of the
Viking acquisition financing, the Company received a commitment for a
$21,000,000 Bridge Loan from Orion, for which the Company paid a $210,000
commitment fee. During 1995, the Company converted the $20,896,000 Orion Notes
into 1,326,128 shares of common stock. See Note 6 for further discussion related
to this conversion. In 1995 and 1994, the interest expense paid to Orion was
$1,122,000 and $1,640,000, respectively.
 
     Also, the Company has entered into certain reinsurance agreements with
subsidiaries of Orion (see Note 9).
 
     In the opinion of management, the terms of the Company's transactions with
Orion are reasonable and representative of the terms that would have been
applicable in transactions with unrelated parties.
 
                                       54

   22
 
                 GUARANTY NATIONAL CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The son of the Company's Chairman of the Board is a managing director of
Insurance Partners Advisors L.P., which manages Insurance Partners L.P., a
partnership formed to make equity investments in the insurance industry. The
Company has committed initial capital in an aggregate amount not to exceed
$1,500,000 of the total $550,000,000 committed by all partners.
 
     A member of the Board of Directors of the Company is the owner of a general
agency. Gross commissions paid by the Company to the agency, under a standard
agency contract, for business produced were $731,000, $813,000 and $789,000 in
1996, 1995 and 1994, respectively.
 
     As a result of the Viking acquisition and the subsequent change in control
of VCM, VCM was required to increase its surplus to a minimum of $2,000,000 as
required by the Texas Insurance Code. The increase was accomplished by the
issuance of a surplus debenture to Viking in the amount of $1,300,000 in
exchange for cash. The debenture pays interest annually at a rate of 8.5%.
Interest earned in 1996 and 1995 was $129,000 and $33,000, respectively. Also,
the Company provides management services to VCM. The fees paid by VCM are offset
by policy issue fees paid to VCM by the Company under 100% reinsurance
agreements (see Note 9).
 
15.  EMPLOYEE BENEFIT PLANS
 
     The Company provides incentive plans for key employees. These plans include
the Company's 1987 Performance Unit Plan (the "Unit Plan") and the Equity
Incentive Plan, which replaced the 1991 Long-Term Performance Incentive Plan
(the "Incentive Plan").
 
     Under the Unit Plan, units granted increase in value in relationship to the
book value per share of the Company's common stock with certain adjustments. As
of December 31, 1996, 225,707 units are outstanding. No units were issued during
1996.
 
     Under the Incentive Plan, shares of restricted stock as well as stock
options may be granted by the Company. The Incentive Plan, as adopted September
12, 1991, reserved 800,000 common shares for grant to key employees. During
1996, no restricted stock was issued. In 1995, 12,000 shares of restricted stock
was issued, a portion of which was from treasury stock. Restricted stock is
considered issued and outstanding when awarded, and is recorded as deferred
compensation. As a result of the Orion tender offer, which was completed in July
1996 and is discussed in Note 17, all restrictions on the restricted stock
lapsed in 1996. Therefore, the Company included $587,000 of compensation
expense, which related to the restricted stock that became fully vested as a
result of the Orion tender offer, in the nonrecurring tender offer charge, which
is also discussed in Note 17. Prior to the Orion tender offer, the Company had
recorded $57,000 as compensation expense on restricted stock during 1996. The
compensation expense recognized on restricted stock during 1995 and 1994 was
$263,000 and $250,000, respectively.
 
     All stock options under the Incentive Plan are granted at fair market value
at date of grant, become exercisable proportionately from the first through the
fourth anniversaries of the grant dates, and expire ten years after the date of
grant. In October 1996, the Company's Board of Directors amended the Incentive
Plan to be consistent with the terms of the Equity Incentive Plan.
 
     As a result of the Orion tender offer, all stock options granted prior to
the completion of the tender offer became fully vested and became exercisable.
At December 31, 1996, there were 400,500 options exercisable under the Incentive
Plan and 39,986 common shares available for grant under the Incentive Plan.
 
     The Equity Incentive Plan was approved by the Board of Directors on October
29, 1996, and reserved 700,000 shares to grant to key employees. All stock
options under this plan must be granted at no less than fair market value at the
date of grant. The options granted under the Equity Incentive Plan are
exercisable proportionately from the first through fourth anniversaries of the
grant dates and expire ten years after the date of the grant. At December 31,
1996, there were no options exercisable under the Equity Incentive Plan. The
162,747 stock options granted under this plan in 1996 are pending shareholder
approval at the May 13, 1997 Annual Meeting of Shareholders. If approved, there
would be 537,253 common shares available for grant under the Equity Incentive
Plan at December 31, 1996. Additionally, the Equity Incentive Plan provides for
performance unit awards, which allow for cash and common stock payments to be
made, contingent on the future cumulative increases in book value of the
Company's common stock. The awards allow for annual payments to be earned up to
four years from the date of grant.

                                       55

 
 
   23
 
                 GUARANTY NATIONAL CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     As discussed in Note 1, the Company follows APB. No. 25 for stock options
issued to employees, rather than following Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." SFAS No.
123, among other things, requires estimating the fair value of stock options
using an option pricing model that considers factors specified by this SFAS, and
recording compensation cost based on the estimated fair value of the stock
options. Had compensation cost for the stock options granted under the Company's
Equity Incentive Plan and Incentive Plan been determined consistent with SFAS
No. 123, the Company's net earnings and earnings per common share would have
been reduced to the pro forma amounts indicated below:
 


                                                                   1996          1995
                                                                  -------       ------
                                                                          
        Net Income (In thousands)
          As Reported...........................................  $27,506       $8,929
          Pro Forma.............................................   27,093(a)     8,727
        Earnings Per Common Share:
          As Reported...........................................  $  1.84       $ 0.67
          Pro Forma.............................................     1.81(a)      0.65

 
- ---------------
(a) As a result of the Orion tender offer, approximately $361,000 of the
    compensation cost estimated under SFAS No. 123 would have been included in
    the 1996 nonrecurring charge.
 
     The following is a summary of stock option transactions:
 


                                                  1996                              1995
                                     -------------------------------   -------------------------------
                                                        WEIGHTED                          WEIGHTED
                                                    AVERAGE EXERCISE                  AVERAGE EXERCISE
                                        SHARES           PRICE            SHARES           PRICE
                                     ------------   ----------------   ------------   ----------------
                                                                          
    Balance -- January 1...........       471,500        $16.70             458,000        $16.44
    Granted........................       302,749         16.50              90,000         17.25
    Exercised......................       (98,500)        14.28             (36,750)        14.98
    Terminated.....................        (2,500)        17.50             (39,750)        16.64
                                         --------   -----------            --------   -----------
    Balance -- December 31.........       673,249        $16.96             471,500        $16.70
                                         ========   ===========            ========   ===========
    Options exercisable at year end
      with the corresponding
      weighted-average exercise
      price........................       400,500        $17.05             237,625        $15.97
                                         ========   ===========            ========   ===========
    Weighted-average fair value of
      options granted during the
      year.........................         $4.16                             $5.18
                                            =====                             =====
    Range of Exercise Prices for
      Options Outstanding at
      December 31..................  $13.50-23.25                      $14.50-23.25
                                     ============                      ============

 
     The Company utilized the Black-Scholes option pricing model to estimate the
fair value, on the date of grant, of stock options granted. The following
weighted-average assumptions were used for 1996 stock options issued: 3.0%
dividend yield, expected volatility of 24%, risk free interest rate of 6.1% and
expected term of 6.0 years. The following weighted-average assumptions were used
for 1995 stock options issued: 2.9% dividend yield, expected volatility of 24%,
risk free interest rate of 6.4% and expected term of 8.7 years.
 
     The Company had 272,749 and 233,875 nonexercisable options, including those
granted under the Equity Incentive Plan and the Incentive Plan, at December 31,
1996 and 1995, respectively. All of the December 31, 1996 and 1995
nonexercisable options were time-based-exercisable options, based on the four
year vesting period discussed above.
 
                                       56
   24
 
                 GUARANTY NATIONAL CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The weighted-average remaining contractual lives for options outstanding at
December 31, 1996 and 1995 were 7.5 and 7.4 years, respectively.
 
     The Company has a defined contribution profit sharing plan, which qualifies
under Section 401(k) of the Internal Revenue Code, for which substantially all
employees are eligible after a specific waiting period. The plan is contributory
and the Company matches employee contributions unless changed by the Board of
Directors. Prior to 1996, Viking had its own separate Individual Retirement Plan
which was pending qualification under Section 401(k) of the Internal Revenue
Code. On April 1, 1996, the Company received a favorable determination letter
from the Internal Revenue Service and rolled the Viking plan into its plan.
 
     The Company has a non-qualified Supplemental Executive Retirement Plan
("SERP") for employees whose compensation meets a minimum requirement. This plan
provides deferred benefits for those employees who received less than the full
employer contribution of the Company's defined contribution profit sharing plan
as a result of federal tax limitations on participation in the plan. Eligible
employees are entitled to receive payment of funds upon retirement or
termination unless terminated for good cause as defined in the SERP. Prior to
1996, Viking employees were not eligible to participate in this plan.
 
     The Company, excluding Viking, has a defined benefit health care plan ("the
Plan") that provides postretirement medical benefits to full-time employees who
have worked for ten years and attained age 55 while in service with the Company.
Benefits generally are provided under the Plan for retirees and their dependents
until the retirees attain age 65. The Plan is contributory and contains other
cost sharing features which may be adjusted annually for the expected general
inflation rate. The Company's policy is to fund the cost of the Plan benefits in
amounts determined at the discretion of management. To date, no funding of the
Plan has been made.
 
     As of December 31, 1995, Viking terminated its defined benefit health care
plan that provided for post-retirement medical benefits to individuals who
retired or became permanently disabled while in service with Viking. Employees
who were retired or disabled as of December 31, 1995 continue to be eligible for
post-retirement medical benefits. Benefits generally are provided under this
plan for retirees and their dependents until the death of the retiree. This plan
is contributory and contains other cost sharing features which may be adjusted
annually. Viking's policy is to fund the cost of plan benefits in amounts
determined at the discretion of management.
 
     Total expense for the Company's employee benefit plans, discussed above, is
as follows: 1996 -- $2,692,000; 1995 -- $2,132,000; 1994 -- $1,602,000.
 
16.  SHAREHOLDER RIGHTS AGREEMENT
 
     On November 20, 1991, the Board of Directors approved the adoption of a
Shareholder Rights Agreement and in connection therewith declared a dividend
distribution of one Right for each outstanding share of Common Stock until such
time that separate Right certificates are distributed, or the Rights are
redeemed or expire. When exercisable, each Right will entitle a holder to
purchase from the Company a unit consisting of one one-hundredth of a share of a
new series of the Company's Preferred Stock at a purchase price of $60 per
share.
 
     The Rights become exercisable ten days following a public announcement that
a person or group of acquires has acquired or obtained the rights to acquire
beneficial ownership of 20% or more of the Company's Common Stock or ten
business days following announcement of a tender offer or exchange offer that
could result in beneficial ownership of 20% or more of the Company's Common
Stock. Prior to consummation of such a transaction, each holder of a Right is
entitled to purchase shares of the Company's Common Stock having a value equal
to two times the exercise price of the Right. The Company has the right to
redeem the Rights at $.01 per Right prior to the time they become exercisable.
The Rights will expire on December 30, 2001.
 
17.  NONRECURRING CHARGES
 
     On May 8, 1996, Orion commenced a cash tender offer (the "Offer") to
purchase up to 4,600,000 shares of common stock of the Company at price of
$17.50 per share. At the time the tender offer was made, Orion owned
approximately 49.5 percent of the Company's outstanding common stock.
 
                                       57

 
   25
 
                 GUARANTY NATIONAL CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     As a result of the Offer the Company incurred costs of approximately
$2,163,000, in the second quarter of 1996, for legal fees, investment advisor
fees, printing fees, director's fees, and compensation expense resulting from
the acceleration of unvested restricted stock grants.
 
     On July 2, 1996, Orion successfully completed the Offer and purchased the
4,600,000 shares of the Company's common stock at an amended price of $18.50 per
share. According to the Depository for the Offer, 6,774,515 shares of the
Company's shares were tendered and not withdrawn pursuant to the Offer. The
proration factor used by Orion to purchase the tendered shares was .67901168.
For further information related to the Orion Offer refer to the Company's report
on Schedule 14D-9, filed with the Securities and Exchange Commission on May 22,
1996, and amendments thereto, filed on June 1, 1996, June 7, 1996 and June 19,
1996.
 
     On July 17, 1996, Orion purchased an additional 120,000 shares of the
Company's common stock in the open market. The purchase of these additional
shares brought Orion's ownership level in the Company to 12,129,942 shares, or
81.0%.
 
     The Company relocated its Colorado operations to a new home office facility
during the second quarter of 1994. New facility expenditures totaled
$16,208,000, which were primarily funded from operating cash flow. Total
nonrecurring relocation charges of $838,000 were incurred in 1994.
 
18.  QUARTERLY FINANCIAL DATA (UNAUDITED)
 


                                                                   THREE MONTHS ENDED
                                                        -----------------------------------------
                                                        MARCH 31   JUNE 30    SEPT. 30   DEC. 31
                                                        --------   --------   --------   --------
                                                          (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                                             
1996:
  Total revenue.......................................  $126,704   $129,823   $134,125   $138,890
  Earnings before income taxes........................     7,241      6,945     10,402     12,293
  Net earnings........................................     5,787      5,225      7,521      8,973
  Earnings per share..................................  $   0.39   $   0.35   $   0.50   $   0.60
1995:
  Total revenue.......................................  $ 86,502   $ 88,306   $121,479   $127,997
  Earnings (loss) before income taxes.................     7,535      6,575     (8,349)     1,571
  Net earnings (loss).................................     5,768      4,851     (4,113)     2,423
  Earnings (loss) per share...........................  $   0.48   $   0.40   $  (0.29)  $   0.16

 
     During the third quarter of 1995, the Company completed the Viking
acquisition (see Note 3), which significantly increased revenues in the third
and fourth quarters of 1995. Also in the third quarter of 1995, the Company
strengthened its loss reserves (losses and loss adjustment expenses) by
$13,971,000, as a result of adverse development within the personal and
commercial lines units (see Note 10).
 
                                       58

EX-99.G.2

   1
 
                                                                    EXHIBIT G(2)
 
                        PART I -- FINANCIAL INFORMATION
 
                 GUARANTY NATIONAL CORPORATION AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
 


                                                                       JUNE 30,       DECEMBER 31,
                                                                         1997             1996
                                                                      -----------     ------------
                                                                      (UNAUDITED)
                                                                                
ASSETS
Investments:
  Fixed maturities held to maturity, at cost........................   $  74,378        $ 80,271
  Fixed maturities available for sale, at market....................     402,481         390,290
                                                                        --------        --------
                                                                         476,859         470,561
Common stocks, at market............................................      70,169          59,415
Non-redeemable preferred stocks, at market..........................      33,692          28,687
Other long-term investments.........................................      16,379          13,585
Short-term investments..............................................      98,430          94,993
                                                                        --------        --------
          Total investments.........................................     695,529         667,241
Cash................................................................       8,104           3,988
Accrued investment income...........................................       7,824           7,971
Accounts receivable, (less allowance of $171 -- 1997 and 1996)......      60,174          45,557
Reinsurance recoverables and prepaids, (less allowance of
  $200 -- 1997 and 1996)............................................      87,850          90,781
Property and equipment, (less accumulated depreciation of
  $15,188 -- 1997; $13,508 -- 1996).................................      28,988          29,833
Deferred policy acquisition costs...................................      46,751          44,456
Goodwill, (less accumulated amortization of $6,982 -- 1997;
  $6,423 -- 1996)...................................................      34,080          34,639
Other assets........................................................       1,774           4,626
                                                                        --------        --------
          Total assets..............................................   $ 971,074        $929,092
                                                                        ========        ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
  Unpaid losses.....................................................   $ 299,219        $303,266
  Unpaid loss adjustment expenses...................................      72,143          65,142
  Unearned premiums.................................................     167,152         154,242
  Notes payable.....................................................     101,313         101,688
  Reinsurance payables and deposits.................................      10,673           7,268
  Deferred income taxes.............................................       4,660             803
  Other liabilities.................................................      56,152          58,644
                                                                        --------        --------
          Total liabilities.........................................     711,312         691,053
                                                                        --------        --------
Commitments and contingencies
Shareholders' equity:
  Preferred stock, $.10 par value; authorized, 6,000,000 shares;
     none issued and outstanding
  Common stock, $1 par value; authorized, 30,000,000 shares; issued
     15,038,433 shares -- 1997 and 14,975,497 shares -- 1996........      15,038          14,975
Capital in excess of par............................................     122,354         121,272
Retained earnings...................................................     100,395          84,685
Net unrealized investment gains.....................................      21,975          17,107
                                                                        --------        --------
     Total shareholders' equity.....................................     259,762         238,039
                                                                        --------        --------
          Total liabilities and shareholders' equity................   $ 971,074        $929,092
                                                                        ========        ========

 
                 See notes to consolidated financial statements
   2
 
                 GUARANTY NATIONAL CORPORATION AND SUBSIDIARIES
 
                      CONSOLIDATED STATEMENTS OF EARNINGS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 


                                                   SIX MONTHS ENDED            THREE MONTHS ENDED
                                                       JUNE 30,                     JUNE 30,
                                               ------------------------     ------------------------
                                                  1997           1996          1997           1996
                                               -----------     --------     -----------     --------
                                               (UNAUDITED)                  (UNAUDITED)
                                                                                
Revenue:
  Premiums earned............................   $ 263,272      $234,419      $ 134,597      $118,949
  Net investment income......................      21,608        18,519         10,863         9,266
  Realized investment gains..................       4,955         3,589          3,543         1,608
                                                 --------      --------       --------      --------
                                                  289,835       256,527        149,003       129,823
Expenses:
  Losses and loss adjustment expenses
     incurred................................     183,126       168,507         94,264        83,662
  Policy acquisition costs...................      69,336        60,560         33,366        31,478
  General and administrative.................       6,527         6,925          3,947         3,397
  Interest...................................       3,307         3,403          1,654         1,683
  Other......................................         689           783            342           495
  Nonrecurring tender offer charge...........                     2,163                        2,163
                                                 --------      --------       --------      --------
                                                  262,985       242,341        133,573       122,878
                                                 --------      --------       --------      --------
Earnings before income taxes.................      26,850        14,186         15,430         6,945
Income taxes.................................       7,390         3,174          4,388         1,720
                                                 --------      --------       --------      --------
                                                $  19,460      $ 11,012      $  11,042      $  5,225
                                                 ========      ========       ========      ========
Earnings per common share....................   $    1.29      $   0.74      $    0.73      $   0.35
                                                 ========      ========       ========      ========
Dividends per common share...................   $    0.25      $   0.25      $   0.125      $  0.125
                                                 ========      ========       ========      ========

 
                See notes to consolidated financial statements.
 
                                        2
   3
 
                 GUARANTY NATIONAL CORPORATION AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
 


                                                                          SIX MONTHS ENDED
                                                                              JUNE 30,
                                                                       -----------------------
                                                                         1997          1996
                                                                       ---------     ---------
                                                                             (UNAUDITED)
                                                                               
Operating Activities:
  Premiums collected.................................................  $ 263,750     $ 243,895
  Net investment income collected....................................     19,060        17,381
  Losses and loss adjustment expenses paid...........................   (178,933)     (166,909)
  Policy acquisition costs and general and administrative expenses
     paid............................................................    (77,663)      (72,644)
  Interest paid......................................................     (3,281)       (3,372)
  Federal income taxes paid..........................................     (5,047)           (6)
  Nonrecurring tender offer charge...................................       (102)
  Other receipts (payments)..........................................        948           (57)
                                                                       ---------     ---------
          Net cash provided by operating activities..................     18,834        18,186
                                                                       ---------     ---------
Investing Activities:
  Maturities of fixed maturities held to maturity....................      4,131         2,000
  Maturities of fixed maturities available for sale..................     30,672        32,309
  Sales of fixed maturities available for sale.......................     35,955        31,389
  Sales of equity securities.........................................     21,308        17,811
  Sales of property and equipment....................................        241           264
  Redemption of mortgage loans.......................................                      681
  Net change in short-term investments...............................     (3,407)      (11,925)
  Purchases of fixed maturities held to maturity.....................                  (12,858)
  Purchases of fixed maturities available for sale...................    (74,094)      (43,944)
  Purchases of equity securities.....................................    (24,109)      (17,397)
  Net change in other long-term investments..........................       (924)         (356)
  Purchases of property and equipment................................     (1,361)       (2,238)
                                                                       ---------     ---------
          Net cash used in investing activities......................    (11,588)       (4,264)
                                                                       ---------     ---------
Financing Activities:
  Repayment of notes payable.........................................       (375)         (938)
  Dividends paid.....................................................     (3,750)       (3,741)
  Proceeds from exercise of stock options............................        995            54
                                                                       ---------     ---------
          Net cash used in financing activities......................     (3,130)       (4,625)
                                                                       ---------     ---------
Net Increase in Cash.................................................      4,116         9,297
Cash, Beginning of Period............................................      3,988         6,794
                                                                       ---------     ---------
Cash, End of Period..................................................  $   8,104     $  16,091
                                                                       =========     =========

 
                See notes to consolidated financial statements.
 
                                        3
   4
 
                 GUARANTY NATIONAL CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 1997
 
NOTE 1 -- GENERAL
 
     The accompanying unaudited consolidated financial statements of Guaranty
National Corporation and subsidiaries (the "Company") have been prepared in
accordance with generally accepted accounting principles applicable to interim
reporting and do not include all the information and footnotes required for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the six months ended June
30, 1997 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1997.
 
     These financial statements should be read in conjunction with the financial
statements and related notes included in the Company's Annual Report to
Shareholders and Form 10-K for the year ended December 31, 1996, for the more
complete explanations therein.
 
     Certain reclassifications have been made to the 1996 financial statements
to conform with presentations used in 1997.
 
NOTE 2 -- EARNINGS PER SHARE
 
     Earnings per common share has been computed using the weighted average
number of shares and equivalent shares outstanding of 15,053,857 and 14,967,244
for the six months ended June 30, 1997 and 1996, and 15,115,009 and 14,972,525
for the three months ended June 30, 1997 and 1996, respectively. The common
stock equivalents are stock options which result in a dilutive effect from
assumed exercise of the options.
 
     During the first quarter of 1997, Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share" was issued. This SFAS is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods; earlier application is not permitted. The SFAS
replaces primary earnings per share with basic earnings per share (computed by
dividing income available to common stockholders (the numerator) by the weighted
average number of common shares outstanding (the denominator during the period).
Adoption of SFAS No. 128 would have had no effect on earnings per share for June
30, 1997 and 1996.
 
NOTE 3 -- INVESTMENTS
 
     At June 30, 1997 and December 31, 1996, the estimated aggregate fair value
of fixed maturities held to maturity was $75,240,000 and $81,430,000,
respectively, the cost of fixed maturities available for sale was $393,793,000
and $382,415,000, respectively, and the cost of equity securities was
$78,741,000 and $69,658,000, respectively. At June 30, 1997 and December 31,
1996, the Company had investments in non-investment grade securities with a cost
of $57,393,000 and $55,205,000 which are carried at fair values of $58,665,000
and $56,477,000, respectively.
 
     Realized investment gains (losses), which include gains (losses) on calls
and maturities of fixed maturities, for the six and three months ended June 30,
1997 and 1996, and write downs for other-than-temporary investment impairments
of approximately $160,000 for the six months ended June 30, 1997, and
 
                                        4
   5
 
                 GUARANTY NATIONAL CORPORATION AND SUBSIDIARIES
 
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
 
approximately $434,000 and $300,000 for the six and three months ended June 30,
1996 are as follows (in thousands):
 


                                                    SIX MONTHS ENDED     THREE MONTHS ENDED
                                                        JUNE 30,              JUNE 30,
                                                          1997                  1997
                                                    ----------------     ------------------
                                                                   
        Fixed maturities available for sale:
        Gains.....................................      $  1,054               $  578
        Losses....................................          (612)                (233)
                                                          ------               ------
                                                             442                  345
                                                          ------               ------
        Equity securities:
        Gains.....................................         5,694                3,369
        Losses....................................        (1,181)                (171)
                                                          ------               ------
                                                           4,513                3,198
                                                          ------               ------
                  Total...........................      $  4,955               $3,543
                                                          ======               ======

 


                                                    SIX MONTHS ENDED     THREE MONTHS ENDED
                                                        JUNE 30,              JUNE 30,
                                                          1996                  1996
                                                    ----------------     ------------------
                                                                   
        Fixed maturities available for sale:
        Gains.....................................      $    948               $  288
        Losses....................................          (203)                (183)
                                                         -------              -------
                                                             745                  105
                                                         -------              -------
        Equity securities:
        Gains.....................................         4,048                2,242
        Losses....................................        (1,204)                (739)
                                                         -------              -------
                                                           2,844                1,503
                                                         -------              -------
                  Total...........................      $  3,589               $1,608
                                                         =======              =======

 
NOTE 4 -- REINSURANCE
 
     In the ordinary course of business, the Company reinsures certain risks,
generally on an excess of loss basis with other insurance companies. Such
reinsurance arrangements serve to limit the Company's maximum loss per
occurrence on individual risks to $400,000, $300,000 on property losses and
$600,000 for catastrophe losses. Reinsurance does not discharge the primary
liability of the original insurer. Amounts recoverable from reinsurers are
recognized and estimated in a manner consistent with the claim liabilities
arising from the reinsured policies and incurred but not reported losses.
 
                                        5
   6
 
                 GUARANTY NATIONAL CORPORATION AND SUBSIDIARIES
 
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
 
     Premiums, losses, and loss adjustment expenses, including the effect of
reinsurance, are comprised of (in thousands):
 


                                     SIX MONTHS ENDED JUNE 30,                          THREE MONTHS ENDED JUNE 30,
                          -----------------------------------------------     -----------------------------------------------
                                  1997                      1996                      1997                      1996
                          ---------------------     ---------------------     ---------------------     ---------------------
                          WRITTEN       EARNED      WRITTEN       EARNED      WRITTEN       EARNED      WRITTEN       EARNED
                          --------     --------     --------     --------     --------     --------     --------     --------
                                                                                             
Premiums:
Direct..................  $276,113     $265,445     $247,392     $240,242     $140,625     $135,675     $122,190     $121,686
Assumed.................    21,817       19,327       22,990       19,276        9,630        9,465       11,153        9,717
Ceded...................   (19,728)     (21,500)     (26,027)     (25,099)     (10,350)     (10,543)     (12,601)     (12,454)
                          --------     --------     --------     --------     --------     --------     --------     --------
Net.....................  $278,202     $263,272     $244,355     $234,419     $139,905     $134,597     $120,742     $118,949
                          ========     ========     ========     ========     ========     ========     ========     ========
% Assumed to Net........     7.84%                     9.41%                     6.88%                     9.24%
                          ========                  ========                  ========                  ========

 


                          INCURRED                  INCURRED                  INCURRED                  INCURRED
                          --------                  --------                  --------                  --------
                                                                                             
Losses and loss
  adjustment expenses:
Direct..................  $178,214                  $163,275                  $ 93,163                  $ 76,918
Assumed.................    19,368                    20,096                    10,282                    15,934
Ceded...................   (14,456)                  (14,864)                   (9,181)                   (9,190)
                           -------                   -------                   -------                   -------
Net.....................  $183,126                  $168,507                  $ 94,264                  $ 83,662
                           =======                   =======                   =======                   =======

 
NOTE 5 -- COMMITMENTS AND CONTINGENCIES
 
     During 1995, the Company acquired Viking Insurance Company of Wisconsin
("Viking") in a business combination accounted for as a purchase. As part of the
1995 Viking acquisition, and based upon Viking's favorable loss development
since the acquisition date, the Company estimates that is will pay Talegen
Holdings, Inc. ("Seller") an additional purchase price in the maximum amount
agreed to in the purchase agreement. This amount, which is approximately
$4,333,000 plus interest at 6.28%, will be payable to the Seller as of December
31, 1998. The Company has accrued this amount and the related interest payable
in the accompanying consolidated balance sheet.
 
     As discussed in the Company's report on Schedule 14D-9, filed with the
Securities and Exchange Commission on May 22, 1996, as amended on June 1, 1996,
June 7, 1996 and June 19, 1996, three separate complaints naming the Company and
one or more of its directors, and Orion Capital Corporation ("Orion"), as
defendants were filed on behalf of the Company's shareholders, alleging that the
Orion tender offer was unfair and inadequate. On July 2, 1996, counsel for Orion
and the Company signed a Memorandum of Understanding resulting in the settlement
and dismissal of the three cases in June 1997, based on the revisions which the
Purchasers had made in the terms of the Offer to Purchase. In the judgment of
the Company's management, the costs incurred to defend and settle these
complaints did not have a materially adverse effect on the results of the
Company's operations. The settlement costs have been accrued in the Company's
consolidated financial statements as of June 30, 1997.
 
     In addition to the three complaints described above, the Company is subject
to litigation in the normal course of operating its insurance business. The
Company is not engaged in any such litigation which it believes would have a
material adverse impact on its financial condition or results of operations,
taking into account the reserves established therefore and giving effect to
insurance.
 
NOTE 6 -- ACCOUNTING STANDARDS NOT YET ADOPTED
 
     In June 1997 the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income", which requires that changes in
comprehensive income be shown in a financial statement that is displayed with
the same prominence as other financial statements. This statement is effective
 
                                        6
   7
 
                 GUARANTY NATIONAL CORPORATION AND SUBSIDIARIES
 
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
 
for periods beginning after December 15, 1997. Management is currently
evaluating the effects of this change on the Company's financial statements.
 
     Additionally, in June 1997 the FASB issued SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information", which changes the way public
companies report information about segments. This statement is effective for
periods beginning after December 15, 1997. Management is currently evaluating
the effects of this change on the Company's financial statements.
 
                                        7

EX-99.G.3

   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

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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.

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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.

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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.

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         (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.

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                                    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

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                                  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,


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   (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


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