August 4, 2004

An Important Message for Employees, Producers, Customers and Friends of Kanawha Insurance Company

Kanawha Insurance Company was founded 46 years ago by Colonel Elliott Springs to provide affordable insurance coverage for the employees of Springs Mills (now Springs Industries). Over the years, his descendants were able to expand the company by hiring the best people, and doing the right things at the right times. Their values of fairness, honesty and integrity continue to sustain the company to this day.

Joining Kanawha in 1985, I was excited about the company's potential. Building upon the solid business foundation laid by the Colonel, we had consistent growth over the years. We grew our career agency operations in the Carolinas, entered the long-term care marketplace, acquired Kanawha HealthCare Solutions, becoming a leading administrator of self-funded health plans and started the voluntary Employee Benefit Division.

After nearly 19 years of leading the company, my enthusiasm continues to build. I'm convinced that by unleashing Kanawha's true potential, we will become a national company. I have experienced first hand Kanawha's enduring strengths: quality products that provide customers with fair value, loyalty of a world-class agent/brokerage network, a leadership position within the insurance industry, and a productive, dedicated work force. These strengths, built over decades, will continue to provide competitive advantage in the future.

These same strengths have attracted the attention of industry leaders who have expressed interest in purchasing Kanawha. Over the past months, we have been in discussion with one such leader - Kenneth Kuk. He is a past senior executive with ReliaStar Financial Corporation, now a part of ING. During his tenure at ReliaStar, Ken had responsibility for several of the company's operating businesses.

Armed with a well-crafted business plan, Ken leads a company that has offered to purchase Kanawha. Given the strength of the plan and the quality and commitment of the individuals behind it, the Close Family has agreed to sell the company.

Kanawha Insurance Company will become a subsidiary of KMG America Corporation (KMG America). KMG America has been created for the express purpose of acquiring Kanawha and its subsidiaries. The sale is scheduled to close before the end of 2004 following South Carolina Insurance Department approval and the completion by KMG America of a financing transaction that is currently in process.

I will remain as President and CEO of Kanawha Insurance Company. Dale Vaughan remains as President and CEO of Kanawha HealthCare Solutions. John Chitwood, AI Ferguson, Ron Groover, Bob Matthews and Marc Mears will retain their current executive roles within Kanawha. Carmine DeGennaro and Norm Hill, who previously announced their retirement plans, will have ongoing roles as employees or consultants.

Short-term changes are expected to be minimal. Kanawha Insurance Company, Kanawha HealthCare Solutions and Kanawha Marketing Group will continue to operate under the same names, offering the same products and services. KMG America will be Kanawha's parent holding company, with its corporate offices in Minneapolis, Minnesota, and Kanawha's management operations and staff will remain in Lancaster, South Carolina.

What can you expect as a result of the sale? A greatly expanded commitment to the fast growing self-funded and employee benefit markets, resulting in significant expansion of sales in these key segments. The long-term care and the administrative services outsource lines of business will remain an important part of the business.

KMG America will infuse substantial capital in Kanawha in order to implement a rapid expansion of marketing and sales activities. The end result will be a Kanawha that is nationally recognized and respected as a leading provider of employee benefits products and services. The opportunity to develop a portfolio of new products and services, as well as additional marketing resources, will permit us to better meet the changing needs of the marketplace. KMG America contributes additional areas of expertise to our present staff and lets Kanawha maintain its competitive edge.

Join me in thanking our current shareholders - the Close Family - for their support and stewardship these many years. The family legacy lives on in a Kanawha poised for substantial growth in the core business segments. Also, help me to welcome the KMG America team, experienced industry leaders, who have shown a real interest in working with you.

Expect further communication in the weeks and months ahead outlining our progress and plans. KMG America, Kanawha Insurance Company, Kanawha HealthCare Solutions and Kanawha Marketing Group commit to making the new ownership a positive experience for employees, producers and clients.

I am very excited about Kanawha's future and the growth that we expect to enjoy in the years ahead. I thank you for your support and know you will continue to give that support as we write the next chapter in Kanawha's history.

Respectfully,
Stanley D. Johnson
President & CEO