MEMORANDUM OF UNDERSTANDING
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WHEREAS, there are now pending certain shareholder
actions in (a) the Supreme Court of the State of New York,
County of New York (the "Court") entitled EUGENIA GLADSTONE
VOGEL V. GUARANTY NATIONAL CORPORATION, ET AL., Index No.
96-602632 (the "New York Action"); and (b) the District
Court, County of Denver, State of Colorado, entitled EUGENIA
GLADSTONE VOGEL V. GUARANTY NATIONAL CORPORATION, ET AL.,
Case No. 96CV2277; and (c) the District Court, County of
Arapahoe, State of Colorado, entitled CHARLES MILLER V. ROGER
B. WARE, ET AL., Case No. 96CV1020 ((b) and (c) referred to
herein as the "Colorado Actions") (collectively, the
"Actions"));
WHEREAS, the Actions challenge certain actions
allegedly taken or not taken by Orion Capital Corporation
("Orion"), Guaranty National Corporation ("Guaranty National"
or the "Company") and the Board of Directors of Guaranty
National, in connection with Orion's tender offer for up to
30% of the outstanding shares of Guaranty National (the
"Tender Offer");
WHEREAS, the Tender Offer was originally for the
purchase of up to 4,600,000 outstanding shares of Guaranty
National stock at $17.50 per share;
WHEREAS, pursuant to the agreed modifications to
the Tender Offer set forth in paragraph 1 below (the "Revised
Tender Offer"), including an increase to $18.50 per share in
the consideration to be received for each share tendered as
referred to in paragraph 1(a) below, Guaranty National's
common shareholders (other than Orion and its subsidiaries
(the "Orion Group")) will receive consideration in the
Revised Tender Offer which will produce greater value for
such shareholders than the consideration they would have
received absent the modification;
WHEREAS, counsel for the parties have reached a
Memorandum of Understanding, subject to the completion of
plaintiff's remaining discovery in the Actions, providing for
the settlement of the Actions (the "Settlement") by the
plaintiffs and by the putative class of persons on behalf of
whom plaintiffs have brought the Actions, and by Orion,
Guaranty National and the individual defendants to the
Actions, on the terms and subject to the conditions set forth
below; NOW THEREFORE,
IT IS HEREBY AGREED, between and among the parties
hereto that the following sets forth the terms of their
agreement to settle this matter:
1. The Tender Offer has been modified as follows:
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(a) Guaranty National shareholders will receive
cash in the amount of $18.50 per share rather than $17.50 per
share;
(b) a minimum of 3,776,000 shares of Guaranty
National common stock (i.e, a majority of the Company's
outstanding shares not held by the Orion Group) must be
validly tendered for the Revised Tender Offer to be
effective; and
(c) if the Revised Tender Offer is consummated,
Orion has made additional undertakings which require, inter
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alia that any purchase of the remaining outstanding shares
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of Guaranty National within the next three years (i.e.
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through July 1, 1999) shall be for consideration not less
than that paid in the Revised Tender Offer.
2. Guaranty National has obtained a written
opinion from its investment banker, Salomon Brothers Inc,
stating that the Revised Tender Offer is fair, from a
financial point of view, to the non-Orion stockholders of
Guaranty National and the Guaranty National Board of
Directors has recommended acceptance of the Revised Tender
Offer to the non-Orion holders of Guaranty National common
shares.
3. The parties acknowledge that plaintiffs'
litigation efforts and their communications with defendants
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were significant and influential causal factors considered by
Orion, Guaranty National and the Guaranty National Board of
Directors in connection with the modifications to the Tender
Offer described in paragraph 1 above, and the steps taken by
or on behalf of the Guaranty National Board described in
paragraph 2 above.
4. Plaintiffs may conduct such reasonable
additional discovery as the parties agree is appropriate and
necessary to confirm the fairness and reasonableness of the
terms of the Settlement.
5. The parties to the New York Action will agree
upon, execute and present to the Court as soon as is
practicable an appropriate Stipulation of Settlement
("Stipulation") and such other documentation as may be
required in order to obtain prompt approval by the Court of
the Settlement upon the terms set forth in this Memorandum of
Understanding. The Stipulation will expressly provide, inter
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alia: (a) for entry of a judgment in appropriate form barring
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claims (including any claims for violation of federal, state
or common law) that have been or might have been brought in
any court by any member of the putative class relating to any
matters that were or could have been asserted in the
complaints, in the Actions or in the Amended Complaint in the
New York Action; (b) for a release in an appropriate form
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releasing all such claims that were or could have been
asserted against the individual defendants, Orion or Guaranty
National; and (c) for appropriate certification of the class
as described in paragraph 6.
6. For the purposes of Settlement of the Actions
consistent with the terms of this Memorandum of
Understanding, the parties will jointly submit to the Court
in connection with the Stipulation a proposed order
providing, inter alia, for conditional certification of an
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opt-out class (the "Class"), pursuant to the New York Civil
Practice Law and Rules, solely for the purpose of
consummating and effectuating the proposed Settlement,
consisting of Guaranty National shareholders (exclusive of
the Orion Group and the individual defendants named in any of
the Actions) who owned shares of the Company at any time
between May 7, 1995 and the consummation of the Revised
Tender Offer, and their successors in interest or
transferees, immediate and remote.
7. The parties to the New York Action will present
the Settlement to the Court for hearing and approval as soon
as practicable following appropriate notice to the members of
the Class and will use their best efforts to obtain final
Court approval of the Settlement, and release and dismissal
of the New York Action with prejudice as against plaintiff
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Eugenia Gladstone Vogel and the Class and without awarding
costs to any party (except as provided for in paragraph 10
below). As used herein, "final Court approval" of the
Settlement means that the Court has entered an Order
approving the Settlement and that Order is finally affirmed
on appeal or is no longer subject to appeal.
8. Promptly after final Court approval of the
Settlement, the parties to the Colorado Actions shall apply
for the entry of a judgment in appropriate form dismissing
and releasing the Colorado Actions with prejudice and without
costs or fees (except as provided in Paragraph 10 below)
based on the release and dismissal of the New York Action and
the res judicata effect of the Order entered therein
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approving the Settlement and dismissing that action.
Notwithstanding the foregoing, plaintiffs reserve the right
at any time prior to the issuance of an order by the Court
preliminarily approving the Settlement and directing the
dissemination of notice, to cause the Settlement to be
submitted for approval by one of the two Colorado courts
presiding over the Colorado actions.
9. Plaintiff reserves the right to withdraw from
the terms of this Memorandum of Understanding and the
proposed Settlement in the event that remaining discovery
reveals facts which are inconsistent with the fairness of the
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proposed Settlement to the Class. Defendants reserve the
right to withdraw from the terms of this Memorandum of
Understanding and the proposed Settlement in the event that
there shall opt out of the Class shareholders whose aggregate
Guaranty National holdings equal or exceed 500,000 common
shares outstanding. The parties will cooperate with
plaintiffs to schedule the discovery referred to herein in as
efficient a manner as possible.
10. Provided that a Stipulation of Settlement has
been executed and final Court approval of the Settlement
(including class release) and dismissal of the Action by the
Court with prejudice has been obtained, plaintiffs' counsel
of record in the Actions will jointly apply to the Court for
an award of attorneys' fees and expenses not to exceed in the
aggregate $600,000. The attorneys for plaintiffs in the
Actions shall make no other fee application in any of the
Actions. Defendants will not oppose such application for
attorneys' fees and expenses. Subject to the conditions set
forth in this paragraph, any attorneys' fees and expenses
awarded by the Court to plaintiffs' counsel shall be paid by
Orion, on behalf of defendants, to the order of Milberg Weiss
Bershad Hynes & Lerach LLP, as receiving agent for
plaintiffs' counsel, or as the Court may otherwise direct,
within ten days after final Court approval of the Settlement
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and dismissal with prejudice and without costs or fees
(except as otherwise set forth in this paragraph), of the
Colorado Actions. Defendants shall also pay the costs and
expenses incurred in the New York Action and, if necessary,
in the Colorado or in any other litigated matter which
requires such notice, in providing notice of the Settlement
to the Class up to a maximum of $10,000.00.
11. Guaranty National and certain individual
defendants, having filed a motion to dismiss the Amended
Complaint in the New York Action, agree to toll the time
within which the New York plaintiff must respond to that
motion until the Settlement receives final Court approval,
at which time the motion will be withdrawn.
12. This Memorandum of Understanding and the
proposed Settlement described herein shall not be legally
binding on any party unless and until the Stipulation is
executed. Should a Stipulation not be executed or not be
judicially approved by the Court, or should the Revised
Tender Offer not be consummated in accordance with the
modified terms described therein, the proposed Settlement
shall be null and void and of no force and effect, and shall
not be deemed to prejudice in any way the position of any
party with respect to the Actions. In such event, neither
the existence of this Memorandum of Understanding nor its
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contents shall be admissible in evidence or shall be referred
to for any purpose in this litigation or in any other
litigation or proceeding.
13. This Memorandum of Understanding may be
executed in counterpart by any of the signatories hereto, and
as so executed shall constitute one agreement.
14. This Memorandum of Understanding and the
Settlement contemplated by it shall be governed by, and
construed in accordance with the laws of the State of New
York.
15. This Memorandum of Understanding may be
modified or amended only by a writing signed by the
signatories hereto.
16. This Memorandum of Understanding shall be
binding and inure to the benefit of the parties and their
respective agents, executors, heirs, successors and assigns.
Dated: July 2, 1996 MILBERG WEISS BERSHAD HYNES &
LERACH LLP
By: /s/ Steven G. Schulman
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Steven G. Schulman
One Penn Plaza, 49th Floor
New York, New York 10119
(212) 594-5300
Attorneys for Plaintiff
Eugenia Gladstone Vogel
(N.Y. and Colo. 96CV2277)
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WECHSLER HARWOOD HALEBIAN &
FEFFER LLP
By: /s/ Robert I. Harwood
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Robert I. Harwood
805 Third Avenue
New York, New York 10022
Attorneys for Plaintiff
Charles Miller (Colo.
96CV1020)
DONOVAN LEISURE NEWTON &
IRVINE
By: /s/ David R. Jewell
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David R. Jewell
30 Rockefeller Plaza
New York, New York 10112
(212) 632-3000
Attorneys for defendants for
Orion Capital Corporation,
Alan R. Gruber, Larry D.
Hollen, Robert B. Sanborn
and William J. Shepherd
IRELAND STAPLETON & PRYOR
By: /s/ Hardin Holmes
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Hardin Holmes
1675 Broadway
Denver, Colorado 80202
(303) 623-2700
Attorneys for defendants
Guaranty National Corporation,
Tucker Hart Adams, Dennis J.
Lacey, M. Ann Padilla, Carroll
D. Speckman, Richard R. Thomas
and Roger B. Ware
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