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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FOLLOWING CONDITIONS: (i) THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR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.
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The Dealer Manager for the Offer is:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
November 5, 1997
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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.
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TABLE OF CONTENTS
PAGE
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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
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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.
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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.
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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
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12,129,942 80.53%
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The principal business address for Orion and the Subsidiaries is 9 Farm
Springs Road, Farmington, Connecticut 06032.
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* Based on the number of shares reported by Guaranty in its September 10-Q to be
outstanding as of November 3, 1997.
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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
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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
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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.
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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
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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
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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
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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
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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."
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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
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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,
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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
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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
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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
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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.
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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.
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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.
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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
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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.
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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
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- 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.
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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
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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;
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(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.
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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
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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
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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
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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
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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.
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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
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ANNEX I
DIRECTORS AND EXECUTIVE OFFICERS OF ORION
Set forth below are the name, business address, position with Orion, and
present principal occupation or employment and five-year employment history of
each director and executive officer of Orion. Each person listed below is a
citizen of the United States except Gordon F. Cheesbrough who is a citizen of
Canada. Except as indicated in this Annex I, none of the persons listed below is
a director of Guaranty or, except as indicated in Annex II to this Offer to
Purchase, beneficially owns Shares. Unless otherwise indicated, each occupation
set forth opposite an individual's name refers to employment with Orion. All
officers serve at the pleasure of the Board of Directors of the entity named.
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT/MATERIAL POSITIONS
NAME AND ADDRESS HELD DURING THE PAST FIVE YEARS
W. Marston Becker (1)......... Chairman of the Board and Chief Executive Officer of Orion
Orion Capital Corporation and each of the Subsidiaries since January 1, 1997, Vice
9 Farm Springs Road Chairman of the Board of Orion from March 8, 1996 to December
Farmington, CT 06032 31, 1996; President and Chief Executive Officer of DPIC
Companies, Inc. ("DPIC Companies"), a subsidiary of Orion,
from July 1994 to June 1996; Senior Vice President of Orion
and Orion Capital Companies ("OC Companies") from July 1994
to March 1996; President and Chief Executive Officer of
McDonough Caperton Insurance Group, an insurance brokerage
firm, from March 1987 to July 1994.
Gordon F. Cheesbrough(1)...... Chairman, Chief Executive Officer and member of the Executive
Scotia Capital Markets Council of Scotia McLeod, Inc. (an international integrated
40 King Street West investment dealer) since 1993; President and Chief Operating
Scotia Plaza, 66th Floor Officer of Scotia McLeod, Inc. from 1990 to 1993.
Toronto, Ontario M5W 2X6
Canada
Bertram J. Cohn(1)............ Managing Director, First Manhattan Company (investment
437 Madison Avenue, bankers) since 1982.
30th Floor
New York, NY 10022
John C. Coleman(1)............ Private investor and consultant; Director of Premier Farnell
4 Briar Lane PLC.
Glencoe, IL 60022
Victoria R. Fash(1)........... Executive Vice President and Chief Financial Officer of
Cognizant Corporation Cognizant Corporation since November 1996; Senior Vice
200 Nyala Farms Road President -- Business Strategy of The Dun & Bradstreet
Westport, Connecticut 06880 Corporation from 1995 to November 1996; Vice
President -- business operations planning of The Dun &
Bradstreet Corporation from 1994-1995; Assistant to the
President of The Dun & Bradstreet Corporation from 1991 to
1994.
Robert H. Jeffrey(1).......... Chairman of the Board, Jeflion Investment Company since 1994;
The Jeffrey Company President of the Jeflion Investment Company from 1974 to
88 E. Broad Street, 1994; Chairman of the Board, The Jeffrey Company (a privately
Suite 1560 held investment company which is the parent of Jeflion
Columbus, OH 43215 Investment Company) since 1994; President of the Jeffrey
Company from 1973 to 1994.
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PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT/MATERIAL POSITIONS
NAME AND ADDRESS HELD DURING THE PAST FIVE YEARS
Warren R. Lyons(1)............ Chairman, Avco Financial Services (a financial services
Avco Financial Services company and a subsidiary of Textron Inc.) since August 1995;
600 Anton Boulevard President of Avco Financial Services from 1989 to July 1995.
Costa Mesa, CA 92628C
James K. McWilliams(1)........ Proprietor of McWilliams & Company and general partner of
McWilliams & Company McWilliams Associates (investment counselors) since 1967;
2288 Broadway, #8 General Partner, Mt. Eden Vineyards, Inc. since 1986.
San Francisco, CA 94115
Ronald W. Moore(1)............ Adjunct Professor of Business Administration, Graduate School
Morgan Hall of Business Administration, Harvard University since 1990;
Soldiers Field Director of CMAC Investment Corporation.
Boston, MA 02163
Robert B. Sanborn(1).......... Senior Executive Consultant to Orion since March 1, 1995;
87 Farm Lane Vice Chairman of the Board of Orion from March 1, 1994 to
South Dennis, MA 02660 February 28, 1995; President and Chief Operating Officer of
Orion from 1987 to 1994; Chairman of the American Insurance
Association (a property and casualty insurance company trade
group) from January 1993 to January 1994; Director of
Guaranty National Corporation, Intercargo Corporation and
Nobel Insurance Limited.
William J. Shepherd(1)........ Private investor; Chairman, Chemical New Jersey Holdings (a
109 Golf Edge bank holding company) from 1990 to 1991, Chairman, Chemical
Westfield, NJ 07090 Bank New Jersey (a commercial bank) from 1989 to 1991;
Director of Guaranty National Corporation.
John R. Thorne(1)............. Morgenthaler Professor of Entrepreneurship, Graduate School
Furnace Run of Industrial Administration of Carnegie Mellon University
Laughlintown, PA 15655 since 1986; Chairman, The Enterprise Corporation of
Pittsburgh (a private, non-profit corporation encouraging and
supporting entrepreneurial businesses) since 1983; a general
partner of Pittsburgh Venture Partners, the general partner
of the Pittsburgh Seed Fund (a private venture capital fund)
since 1985.
William B. Weaver(1).......... President of Weaver Capital Management (a money management
237 Park Avenue firm based in New York City) from 1996 to the present;
Suite 900 Managing Director of Lehman Brothers, Head of the Financial
New York, New York 10017 Services Group and a member of the Investment Banking
Management Committee from 1993 to 1996; Chief Operating
Officer of the Investment Banking Department of the First
Boston Corporation from 1991 to 1993; and Managing Director
in The First Boston Corporation's M&A Group from 1985 to
1993.
Raymond W. Jacobsen........... President of EBI Companies, Inc. ("EBI"), a subsidiary of
EBI Companies, Inc. Orion, since June 30, 1997; Senior Vice President of Orion
500 Park Blvd. since July 1994; Vice President of Orion from March 1990 to
Suite 900 July 1994; Chairman of EBI from July, 1996 to June 30, 1997.
Itasca, IL 60143 President and Chief Executive Officer of EBI from June 1,
1993 to March 1996; Acting President and Chief Executive
Officer of Connecticut Specialty, a subsidiary of Orion, from
October 17, 1995 to November 1996, and Senior Vice President
of OC Companies since March, 1990; Executive Vice President
of the EBI from December 1989 to May 31, 1993.
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PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT/MATERIAL POSITIONS
NAME AND ADDRESS HELD DURING THE PAST FIVE YEARS
Daniel L. Barry............... Senior Vice President and Chief Financial Officer of Orion
Orion Capital Corporation since January 1, 1997; Vice President and Chief Financial
9 Farm Springs Road Officer from March 1996 to December 1996; Vice President and
Farmington, CT 06032 Controller from October 1987 to March 31, 1996; Vice Chairman
of SecurityRe, Inc., subsidiary of Orion, from 1989 to March
1997; Senior Vice President of OC Companies since January
1989; Controller of the Subsidiaries from October 1986 to
December 31, 1996.
Michael P. Maloney............ Senior Vice President, General Counsel and Secretary of Orion
Orion Capital Corporation since January 1, 1997; Vice President, General Counsel and
9 Farm Springs Road Secretary of Orion since August 1975 to December 31, 1996;
Farmington, CT 06032 Senior Vice President and Assistant Secretary of each of the
Subsidiaries since March 1987.
William G. McGovern........... Vice President and Chief Actuary of Orion from March, 1990;
Orion Capital Corporation Senior Vice President and Chief Actuary of each of the
9 Farm Springs Road Subsidiaries since October 1989.
Farmington, CT 06032
Vincent T. Papa............... Senior Vice President of Orion since January 1, 1997; Vice
Wm. H. McGee & Co., Inc. President and Treasurer of Orion from June 1985 to December
Two World Trade Center 31, 1996; Chairman of Wm. H. McGee & Co., Inc., ("McGee") a
New York, NY 10048 wholly- owned subsidiary of Orion, since September 30, 1995;
Senior Vice President of each of the Subsidiaries since March
1987; Treasurer from December 1990 to March 1996.
Raymond J. Schuyler........... Senior Vice President and Chief Investment Officer of Orion
Orion Capital Corporation since January 1, 1997; Vice President -- Investments of Orion
600 Fifth Avenue from June 1984 to December 1996; Senior Vice
New York, NY 10020 President -- Investments of each of the Subsidiaries since
March 1986.
Robert T. Claiborne........... Vice President, Portfolio Manager and Director of Research of
Orion Capital Corporation Orion since January 1, 1997; Assistant Vice President and
600 Fifth Avenue Portfolio Manager, Director of Research from March 1994 to
New York, NY 10020 December 31, 1996; Investment Analyst from September 1990 to
March 1994.
Claudia F. Lindsay............ Vice President of Orion since January 1, 1997; Vice
Orion Capital Corporation President -- Business Development of the Subsidiaries since
9 Farm Springs Road September 1996; President of Strategic Marketing & Research,
Farmington, CT 06032 Inc. from 1995 to 1996; Vice President of Anthem Financial
from 1994 to 1995; Managing Partner & Chief Financial Officer
of McDonough Caperton Insurance Group from 1985 to 1994.
Craig A. Nyman................ Vice President and Treasurer of Orion since January 1, 1997;
Orion Capital Corporation Assistant Vice President and Assistant Treasurer from June
9 Farm Springs Road 1988 to December 31, 1996; Vice President and Treasurer of OC
Farmington, CT 06032 Companies and each of the Subsidiaries since March 1996; Vice
President and Assistant Treasurer from 1991 to March 1996.
I-3
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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
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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
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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
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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)