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Exhibit (b)(5)
SALOMON BROTHERS INC
Seven World Trade Center
New York, New York 10048
212-783-7000
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SALOMON BROTHERS
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October 30, 1997
Special Committee of the Board of Directors
Guaranty National Corporation
9800 S. Meridian Boulevard
Englewood, CO 80155
Ladies and Gentlemen:
You have requested our opinion as investment bankers as to the
fairness, from a financial point of view, to the holders (the "Non-Orion
Stockholders") of shares of common stock, par value $1.00 per share (the
"Company Common Stock"), of Guaranty National Corporation (the "Company"), other
than Orion Capital Corporation and its affiliates (collectively, "Orion"), of
the consideration to be received by the Non-Orion Stockholders in the proposed
acquisition of the Company by Orion pursuant to an Agreement and Plan of Merger
(the "Agreement") to be entered into between the Company and Orion.
As more specifically set forth in the Agreement, Orion, or one or more
wholly-owned subsidiaries of Orion, will commence a tender offer (the "Proposed
Tender Offer") to purchase all outstanding shares of Company Common Stock, at a
price of $36.00 per share (the "Per Share Amount"). Following consummation of
the Proposed Tender Offer, a newly formed wholly-owned subsidiary of Orion will
be merged with and into the Company (the "Proposed Merger" and, collectively
with the Proposed Tender Offer, the "Proposed Transaction"), and each then
outstanding share of Company Common Stock will be converted into the right to
receive, in cash, the Per Share Amount (the "Merger Consideration").
As you are aware, Salomon Brothers Inc has acted as financial advisor
to the Special Committee of the Board of Directors of the Company (the "Special
Committee") in connection with the Proposed Merger and will receive a fee for
our services, a portion of which is contingent upon consummation of the Proposed
Merger. Additionally, Salomon Brothers Inc has previously rendered certain
investment banking and financial services to the Special Committee and the
Company, for which we received customary compensation. In addition, in the
ordinary course of our business, we may trade the debt and equity securities of
both the Company and Orion for our own account and for the accounts of customers
and, accordingly, may at any time hold a long or short position in such
securities.
In connection with rendering our opinion, we have reviewed and
analyzed material bearing upon the financial and operating condition and
prospects of the Company including, among other things, the following: (i) a
draft dated October 29, 1997 of the Agreement; (ii) certain publicly available
information concerning the Company, including the Annual Reports on Form
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10-K of the Company for the years ended December 31, 1995 and December 31, 1996
and the Quarterly Reports on Form 10-Q of the Company for the quarters ended
March 31, 1997 and June 30, 1997, respectively, and the press release of the
Company dated October 23, 1997, announcing the financial results of the Company
for the quarter ended September 30, 1997; (iii) certain internal information,
primarily financial in nature, including projections, concerning the business
and operations of the Company furnished to us by the Company for purposes of our
analysis; (iv) statutory financial information of the Company's insurance
subsidiaries for the years ended December 31, 1995 and December 31, 1996 and for
the three-month periods ended March 31, 1997 and June 30, 1997; (v) certain
publicly available information concerning the trading of, and the trading market
for, the Company Common Stock; (vi) certain publicly available information with
respect to certain other companies that we believe to be comparable to the
Company and the trading markets for certain of such other companies' securities;
and (vii) certain publicly available information concerning the nature and terms
of certain other transactions that we consider relevant to our inquiry. We have
also considered such other information, financial studies, analyses,
investigations and financial, economic and market criteria that we deemed
relevant. We have also met with certain officers and employees of the Company to
discuss the foregoing as well as other matters we believe relevant to our
inquiry.
In our review and analysis and in arriving at our opinion, we have
assumed and relied upon the accuracy and completeness of all of the financial
and other information provided us or publicly available and have neither
attempted independently to verify nor assumed responsibility for verifying any
of such information and have further relied upon the assurances of management of
the Company that they are not aware of any facts that would make any of such
information inaccurate or misleading. With respect to projections, we have
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of the Company as
to the future financial performance of the Company and we express no view with
respect to such projections or the assumptions on which they were based. We have
not made or obtained or assumed any responsibility for making or obtaining any
independent evaluations or appraisals of any of the Company's assets, properties
or facilities, nor have we been furnished with any such evaluations or
appraisals. We further have assumed that the Agreement, when executed and
delivered, will not contain any terms or conditions that differ materially from
the draft which we have reviewed, the conditions precedent to each of the
Proposed Tender Offer and the Proposed Merger contained in the Agreement will be
satisfied and the Proposed Merger will be consummated in accordance with the
terms of the Agreement.
In conducting our analysis and arriving at our opinion as expressed
herein, we have considered such financial and other factors as we have deemed
appropriate under the circumstances including, among others, the following: (i)
the historical and current financial position and results of operations of the
Company; (ii) the business prospects of the Company; (iii) the historical and
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SALOMON BROTHERS
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current market for the Company Common Stock and the equity securities of certain
other companies that we believe to be comparable to the Company; and (iv) the
nature and terms of certain other acquisition transactions and acquisitions of
minority interests by controlling stockholders that we believe to be relevant.
We have also taken into account our assessment of general economic, market and
financial conditions as well as our experience in connection with similar
transactions and securities valuation generally. We have taken into
consideration the ownership by Orion of 80.7% of the outstanding Company Common
Stock and the fact that Orion has stated that it does not intend to sell such
Company Common Stock. In light of this, we have not been authorized to solicit,
and accordingly have not solicited, third party indications of interest in
acquiring all or any part of the Company. Our opinion necessarily is based upon
conditions as they exist and can be evaluated on the date hereof and we assume
no responsibility to update or revise our opinion based upon circumstances or
events occurring after the date hereof. Our opinion is, in any event, limited to
the fairness, from a financial point of view, of the consideration to be
received by the Non-Orion Stockholders in the Proposed Transaction and does not
address the Company's underlying business decision to effect the Proposed
Transaction or constitute a recommendation to any holder of Company Common Stock
as to whether such holder should tender shares in the Proposed Tender Offer or
as to how such holder should vote with respect to the Proposed Merger, if such a
vote is taken.
This opinion is intended solely for the benefit of the Special
Committee in considering the transaction to which it relates and may not be used
for any other purpose or reproduced, disseminated, quoted or referred to at any
time, in any manner or for any purpose, without the prior written consent of
Salomon Brothers Inc, except that this opinion may be reproduced in full in, and
references to the opinion and to Salomon Brothers Inc and its relationship with
the Company (in each case in such form as Salomon Brothers Inc shall approve)
may be included in, the Recommendation Statement on Schedule 14D-9 the Company
distributes to holders of Company Common Stock in connection with the Proposed
Tender Offer and the proxy or information statement the Company distributes to
holders of Company Common Stock in connection with the Proposed Merger.
Based upon and subject to the foregoing, we are of the opinion as
investment bankers that, as of the date hereof, the consideration to be received
by the Non-Orion Stockholders in the Proposed Transaction is fair, from a
financial point of view, to such holders.
Very truly yours,
/s/ SOLOMON BROTHERS INC.
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SALOMON BROTHERS INC