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Exhibit (a)(1)(K)
SUPPLEMENT TO THE OFFER TO PURCHASE FOR CASH DATED JANUARY 14, 2002
BY
PRESERVER GROUP, INC.
FOR ITS COMMON STOCK
AT
$7.75 NET PER SHARE
THE OFFER AND WITHDRAWAL RIGHTS HAVE BEEN EXTENDED AND WILL NOW EXPIRE AT 5:00
P.M., NEW YORK CITY TIME, ON FEBRUARY 28, 2002, UNLESS THE OFFER IS FURTHER
EXTENDED. IF YOU HAVE ALREADY TENDERED YOUR SHARES OF COMMON STOCK OF PRESERVER
GROUP, INC. PURSUANT TO OUR EARLIER MAILING OF TENDER OFFER DOCUMENTS, NO
FURTHER ACTION IS REQUIRED ON YOUR PART UNLESS YOU WISH TO WITHDRAW YOUR SHARES.
IF YOU DO WISH TO WITHDRAW YOUR SHARES, PLEASE SEE THE TENDER OFFER - SECTION 4.
WITHDRAWAL RIGHTS IN THE OFFER TO PURCHASE.
Preserver Group, Inc., a New Jersey corporation (the "Company"), invites its
shareholders to tender shares of common stock, par value $0.50 per share (the
"Shares"), for $7.75 per Share net to the seller in cash (the "Offer Price"),
without interest thereon, upon the terms and subject to the conditions set forth
in the Offer to Purchase and in the related Letter of Transmittal (which
together, as they may be amended or supplemented from time to time, constitute
the "Offer") as amended by this Supplement. The Company will pay all charges and
expenses of First Union National Bank, as Tendering Agent in connection with the
Offer. Tendering shareholders will not be obligated to pay brokerage fees or
commissions to the Tendering Agent or, except as set forth in the Letter of
Transmittal, transfer taxes. Although the Offer is being made to all holders of
Shares, Archer McWhorter, Chairman of the Board of the Company, William E.
Lobeck, Jr., a director of the Company and Alvin E. Swanner, a director of the
Company, all of whom together constitute the Executive Committee of the Board of
Directors (collectively, the "Executive Committee") have entered into an
agreement with the Company pursuant to which, among other things, they have
agreed not to tender the 1,022,870 Shares held by them and their affiliates, in
the aggregate, pursuant to the Offer.
This Offer is being made pursuant to a certain Agreement for Self-Tender Offer,
Financing and Second-Step Merger dated January 14, 2002 (the "Agreement"), by
and among the Company, Archer McWhorter, Sleepy Lagoon Ltd., Alvin E. Swanner,
Brion Properties, a Louisiana Partnership, William E. Lobeck, Jr., William E.
Lobeck Revocable Trust and Kathryn L. Taylor Revocable Trust. Pursuant to the
Agreement, as soon as practicable after the commencement of the Offer, the
Executive Committee will form a corporation in New Jersey or such other
jurisdiction as the parties may agree to serve as the Merger Company. Upon or
prior to the consummation of the Offer, each member of the Executive Committee
and their affiliates shall contribute to the Merger Company all of the shares of
Company common stock and Financing Preferred Stock (see THE TENDER OFFER -
Section 7. Source and Amount of Funds in the Offer to Purchase) owned
beneficially and of record by such member and affiliates and shall cause to be
issued the same number of shares of common stock and preferred stock of the
Merger Company. Pursuant to an agreement (the "Merger Agreement") to be entered
into between the Company and the Merger Company, as soon as is practicable after
consummation of the Offer and in accordance with the provisions of the
Agreement, the Merger Agreement, the New Jersey Business Corporation Act (the
"NJBCA") and applicable federal and state securities laws, the Merger Company
shall be merged with and into the Company, the Company shall continue its
corporate existence and the separate corporate existence of the Merger Company
shall cease (the "Merger"). As a result of the closing of the Offer and the
Merger, the Company will deregister its common stock under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and delist the Shares from
the NASDAQ Stock Market and become a private company wholly owned by the members
of the Executive Committee and their affiliates.
If the Executive Committee and its affiliates own 90% or more of the outstanding
Shares as a result of the Offer, then under the Agreement, the Executive
Committee will cause the Merger Company to effect the Merger as a "short-form"
Merger under the NJBCA, without a vote of the shareholders of the Company (a
"Short-Form Merger"). If a vote of the shareholders of the Company is necessary
to effect the Merger, the Executive Committee has agreed to cause all of the
Shares owned by the Merger Company to be voted in favor of the adoption of the
Merger Agreement. See SPECIAL FACTORS - Section 5. Plans for the Company After
the Offer; the Merger in the Offer to Purchase as amended by this Supplement.
Under the Agreement, two members of the Executive Committee, Archer McWhorter
and Alvin E. Swanner, will finance the purchase of the Shares in the Offer and
the Merger through an interest-free loan to the Company in the amount of
$8,536,703. See THE TENDER OFFER - Section 7. Source and Amounts of Funds in the
Offer to Purchase.
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To the best of the Company's knowledge, after reasonable inquiry, the officers
and independent directors of the Company (other than the Executive Committee)
intend to tender their Shares to the Offer. See SPECIAL FACTORS - Section 6.
Interests of Certain Persons in the Offer; the Merger in the Offer to Purchase.
This Offer is conditioned upon at least 676,140 Shares being tendered and is
subject to certain other conditions. See THE TENDER OFFER - Section 10. Certain
Conditions to the Offer in the Offer to Purchase and as amended in this
Supplement.
Each of the Company, the Executive Committee and the financing members of the
Executive Committee has the right to terminate the Offer if certain conditions
are not met, or to waive certain conditions to the Offer. All Shares properly
tendered and not withdrawn will be purchased at the Offer Price, on the terms
and subject to the conditions of the Offer. See THE TENDER OFFER - Section 10.
Certain Conditions to the Offer in the Offer to Purchase and as amended in this
Supplement.
The Shares are listed on the NASDAQ National Market System (NASDAQ) under the
symbol PRES. On December 17, 2001, the last full trading day before the
announcement of the terms of the Offer, the reported closing sales price of
the Shares was $5.20 per Share, and on January 14, 2002, the last full
trading day before the commencement of the Offer, the reported closing sales
price was $7.71 per Share. See THE TENDER OFFER - Section 6. Price Range of
Shares; Dividends in the Offer to Purchase. On February 11, 2002, the last
full trading day before the mailing of the Supplement, the reported closing
sales price of the Shares was $7.70 per Share.
SHAREHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SHARES.
THE BOARD OF DIRECTORS OF THE COMPANY, BASED UPON THE UNANIMOUS RECOMMENDATION
OF A SPECIAL COMMITTEE OF INDEPENDENT DIRECTORS OF THE BOARD (THE "INDEPENDENT
COMMITTEE"), (A) UNANIMOUSLY DETERMINED THAT THE TERMS OF EACH OF THE OFFER, THE
MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED BY THE AGREEMENT ARE FAIR TO AND
IN THE BEST INTERESTS OF THE COMPANY'S SHAREHOLDERS (OTHER THAN THE EXECUTIVE
COMMITTEE) AND (B) UNANIMOUSLY APPROVED THE OFFER, THE MERGER AND THE
TRANSACTONS CONTEMPLATED BY THE AGREEMENT. NEITHER THE COMPANY NOR THE BOARD
MAKES ANY RECOMMENDATION AS TO WHETHER ANY SHAREHOLDER SHOULD TENDER ANY OF OR
ALL SUCH SHAREHOLDER'S SHARES PURSUANT TO THE OFFER. EACH SHAREHOLDER MUST MAKE
SUCH SHAREHOLDER'S OWN DECISION WHETHER TO TENDER SHARES AND, IF SO, HOW MANY
SHARES TO TENDER.
ON DECEMBER 18, 2001, COCHRAN, CARONIA & CO., FINANCIAL ADVISOR TO THE
INDEPENDENT COMMITTEE, DELIVERED AN OPINION TO THE INDEPENDENT COMMITTEE TO THE
EFFECT THAT, AS OF SUCH DATE AND SUBJECT TO THE ASSUMPTIONS AND LIMITATIONS
CONTAINED THEREIN, THE CONSIDERATION TO BE RECEIVED IN THE OFFER BY THE
COMPANY'S SHAREHOLDERS WAS FAIR TO SUCH SHAREHOLDERS FROM A FINANCIAL POINT OF
VIEW. SEE SPECIAL FACTORS - SECTION 3. OPINION OF THE FINANCIAL ADVISOR IN THE
OFFER TO PURCHASE AND AS AMENDED BY THIS SUPPLEMENT AS WELL AS ANNEX A - SECTION
1 TO THE OFFER TO PURCHASE - OPINION OF COCHRAN, CARONIA & CO. AND ANNEX A TO
THIS SUPPLEMENT - LETTER OF COCHRAN, CARONIA & CO.
THIS OFFER IS SUBJECT TO CERTAIN CONDITIONS. SEE THE TENDER OFFER - SECTION 10.
CERTAIN CONDITIONS TO THE OFFER IN THE OFFER TO PURCHASE AND AS AMENDED BY THIS
SUPPLEMENT.
IMPORTANT
THE INFORMATION AGENT FOR THE OFFER IS:
MORROW & CO., INC.
455 Park Avenue, 5th Floor
New York, New York 10022
For Information:
Call Collect: (212) 754-8000
Banks and Brokers Call: (800) 654-2468
Stockholders Please Call: (800) 607-0088
E-mail Address: PRES.INFO@morrowco.com
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THE TENDERING AGENT FOR THE OFFER IS:
FIRST UNION NATIONAL BANK
599 Lexington Avenue, 22nd Floor
New York, New York 10022
Any shareholder desiring to tender all or any portion of such shareholder's
Shares should either (1) complete and sign the Letter of Transmittal (or a
facsimile thereof) previously furnished to such shareholder in accordance with
the instructions in the Letter of Transmittal, have such shareholder's signature
thereon guaranteed (if required by Instruction 1 to the Letter of Transmittal),
mail or deliver the Letter of Transmittal (or a facsimile thereof) and any other
required documents to the Tendering Agent and either deliver the certificates
for such Shares (the Certificates) along with the Letter of Transmittal to the
Tendering Agent or tender such Shares pursuant to the procedures for book-entry
transfer set forth in THE TENDER OFFER - Section 3. Procedures for Tendering
Shares of the Offer to Purchase or (2) request such shareholder's broker,
dealer, commercial bank, trust company or other nominee to effect the
transaction for such shareholder. Any shareholder whose Shares are registered in
the name of a broker, dealer, commercial bank, trust company or other nominee
must contact such broker, dealer, commercial bank, trust company or other
nominee to tender such Shares.
Any shareholder who desires to tender Shares and whose certificates evidencing
such Shares are not immediately available, or who cannot comply with the
procedures for book-entry transfer described in the Offer to Purchase on a
timely basis, or who cannot deliver all required documents to the Tendering
Agent prior to the expiration of the Offer, may tender such Shares by following
the procedures for guaranteed delivery set forth in THE TENDER OFFER - Section
3. Procedures for Tendering Shares of the Offer to Purchase.
Questions and requests for assistance or for additional copies of this
Supplement, the Offer to Purchase, the Letter of Transmittal or other tender
offer materials may be directed to Morrow & Co., Inc. (the Information Agent) or
to First Union National Bank (the Tendering Agent) at the address and telephone
number set forth on the back cover of the Offer to Purchase. Shareholders may
also contact their brokers, dealers, commercial banks or trust companies for
assistance concerning the Offer.
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION ON BEHALF OF THE
COMPANY AS TO WHETHER SHAREHOLDERS SHOULD TENDER OR REFRAIN FROM TENDERING
SHARES PURSUANT TO THE OFFER. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER
THAN THOSE CONTAINED IN THIS SUPPLEMENT, THE OFFER TO PURCHASE OR IN THE LETTER
OF TRANSMITTAL. IF MADE OR GIVEN, SUCH RECOMMENDATION AND SUCH INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED OF THIS
TRANSACTION OR PASSED UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION OR UPON
THE ACCURACY OR ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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<Table>
<Caption>
TABLE OF CONTENTS
INTRODUCTION.................................................................. 1
SUMMARY TERM SHEET............................................................ 1
SPECIAL FACTORS............................................................... 2
1. Background of the Offer................................................. 2
September 7, 2001 Board Meeting......................................... 2
Independent Committee Consideration of Alternatives..................... 2
Counsel to the Independent Committee.................................... 3
Cochran, Caronia & Co. Presentations to the Independent Committee....... 3
2. Recommendation of the Independent Committee and the Company Board;
Fairness of the Offer and the Merger.................................... 3
Relief from NJPPA "Take-All-Comers" Obligations........................ 3
Summary of Independent Committee Analysis of Factors
Affecting Fairness of the Offer and the Merger......................... 4
Company Board Adopts Independent Committee Analysis and Conclusions..... 5
Clarification of Minimum Tender Condition............................... 5
3. Opinion of Financial Advisor............................................ 5
Premiums Paid Analysis.................................................. 5
Assumptions to Company Projection....................................... 5
Clarification of Opinion Dissemination.................................. 6
4. Position of Executive Committee Regarding Fairness of the Offer
and the Merger......................................................... 6
Executive Committee and its Afffiliates................................. 6
Summary of Executive Committee Analysis of Factors Affecting
Fairness of the Offer and the Merger................................... 6
5. Plans for the Company After the Offer; the Merger....................... 6
Executive Committee and Affiliate Ownership Interest in
the Company After the Offer and the Merger............................. 6
THE TENDER OFFER.............................................................. 7
1. Terms of the Offer; Expiration Date..................................... 7
10. Certain Conditions to the Offer......................................... 7
Lead-In Sentence........................................................ 8
Amendment of Agreement for Self-Tender Offer, Financing and
Second Step Merger..................................................... 8
Bring Down of Fairness Opinion.......................................... 8
11. Certain Legal Matters................................................... 8
State Insurance Regulatory Exemption of the Offer and the Merger........ 8
INFORMATION ABOUT THE COMPANY................................................. 8
2 Identity and Background of Certain Persons.............................. 8
Identity and Background of Executive Committee and Affiliates........... 8
7. Incorporation of Certain Documents by Reference......................... 12
Deletion of Forward Incorporation by Reference Language................. 12
ANNEX A
Amendment No. 1 to Agreement for Self-Tender Offer, Financing and
Second-Step Merger
ANNEX B
Letter of Cochran, Caronia & Co. regarding opinion reference
</Table>
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To the Holders of Common Stock
of Preserver Group, Inc.:
INTRODUCTION
The following information amends and supplements the Offer to Purchase dated
January 14, 2002 (the "Offer to Purchase) of Preserver Group, Inc. (the
"Company") pursuant to which the Company is offering to purchase all of its
outstanding shares of common stock, par value $0.50 per share (the "Shares") at
$7.75 per Share, net to the seller in cash, upon the terms and subject to the
conditions set forth in the Offer to Purchase, this Supplement and in the
related Letter of Transmittal. Under the Agreement, the members of the Executive
Committee and their affiliates will not tender in the Offer the 1,022,870 Shares
owned by them in the aggregate. As a result, there are a total of 1,101,510
issued and outstanding Shares as to which the Offer pertains.
This Supplement should be read in conjunction with the Offer to Purchase. The
terms and conditions previously set forth in the Offer to Purchase and the
Letter of Transmittal previously mailed to shareholders remain applicable in all
respects to the Offer. Terms used but not defined herein have the meaning set
forth in the Offer to Purchase. Cross referenced text refers to Sections within
the Offer to Purchase, unless otherwise noted.
SHAREHOLDERS ARE URGED TO READ THE OFFER TO PURCHASE, THIS SUPPLEMENT AND THE
RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR
SHARES.
SUMMARY TERM SHEET
Reference is made to the Summary Term Sheet of the Offer to Purchase.
"WHAT IS THE PURPOSE OF THE TENDER OFFER?" The last four sentences are hereby
clarified and supplemented as follows:
If the shareholders of our company tender their Shares pursuant to the Offer,
the Offer would have the effect of taking us private in one of two ways. First,
after the conclusion of the tender offer, we would undertake a second-step
merger in which all of our public shareholders remaining after the tender offer
would receive cash of $7.75 per share for their Shares and, as a company with
only a few shareholders, we would deregister our common stock under the Exchange
Act and delist our Shares from NASDAQ. Alternatively, if, as a result of the
tender offer, we have fewer than 300 shareholders of record, we could deregister
our common stock under the Exchange Act and delist our Shares from NASDAQ and
then engage in the second-step merger described in the preceding sentence. In
either event, as a result of becoming a private company and delisting our Shares
from NASDAQ, we would no longer be required to file reports with the Securities
and Exchange Commission and the trading market for our Shares would be further
diminished, making it more difficult for shareholders to dispose of their
Shares. See SPECIAL FACTORS - Section 5. Plans for the Company After the Offer;
The Merger.
In addition, if you are the record owner of your shares and you choose to tender
your shares, you will avoid the usual brokerage fees and transaction costs or
similar expenses associated with any market sale. If you own your shares through
a broker, dealer, commercial bank, trust company or other nominee and they
tender your shares on your behalf, it is possible that they may charge you a fee
for doing so. You should consult with your broker or nominee to determine
whether any charges will apply. If you choose not to tender your Shares, but at
least 676,140 shares are tendered so as to meet the minimum conditions
(described more fully in The Tender Offer - Section 10. Certain Conditions to
the Offer), then your shares will be cashed out at the same $7.75 per share
price in a second step merger, subject to any appraisal rights you may have
under New Jersey law. See SPECIAL FACTORS - Section 7. Dissenter's Rights and
SPECIAL FACTORS - Section 8. Purpose of the Offer.
"HOW WILL I BE NOTIFIED IF THE OFFER IS EXTENDED?" is hereby supplemented by
adding the following sentence:
The form of public announcement shall be made by means of a press release.
"UNTIL WHAT TIME CAN I WITHDRAW PREVIOUSLY TENDERED SHARES?" is hereby
supplemented as follows:
You may withdraw previously tendered Shares at any time until the Offer has
expired. Tenders of the Shares made pursuant to the Offer are irrevocable except
that such Shares may be withdrawn at any time prior to the Expiration Date and,
unless theretofore accepted for payment by the Company pursuant to the Offer,
may also be withdrawn at any time after February 14, 2002. See THE TENDER
OFFER--Section 4. Withdrawal Rights.
<Page>
The following section hereby supplements the Summary Term Sheet of the
Offer to Purchase:
WHAT POTENTIAL CONFLICTS OF INTEREST ARE THERE IN THE OFFER AND MERGER?
SHARES. Our Executive Committee and their affiliates own 1,022,870 issued and
outstanding Shares representing about 48% of our issued Shares which will not be
tendered. They also own $9,253,785 of our 8.44% convertible subordinated
debentures due September 23, 2009 which are convertible into Shares at $15.49
per Share which could be converted into 597,404 more Shares which together would
give them 59.5% of our issued Shares. Our Executive Committee have loaned us
$11,500,000 on an unsecured basis that pays interest quarterly at an annual rate
of 10.605%. This unsecured loan is due on February 28, 2002 although we can
extend the loan for up to five years utilizing successive one year renewals, in
exchange for an increased interest rate.
EXECUTIVE COMMITTEE COUNSEL. The Executive Committee and its affiliates has
retained their own counsel to advise it in the Offer and the Merger.
OTHER MATTERS. Two members of the Board of Directors, Stephen A. Gilbert and
Patrick J. Haveron, are our Senior Management employees and they own 28,000 and
9,350 issued and outstanding Shares of the Company and have advised us that they
intend to tender their Shares into the Offer. These two directors also hold
options to purchase up to 28,750 Shares and 24,375 Shares, respectively, at
exercise prices ranging from $7.21 to $12.75 per Share. These options will
continue in effect after the Offer and the Merger.
SPECIAL FACTORS
1. BACKGROUND OF THE OFFER. is supplemented by the following:
SEPTEMBER 7, 2001 BOARD MEETING. At the September 7, 2001 meeting of the Board
of directors it was a consensus of the Board that the Company had insufficient
working capital to seek to buy back its shares in a manner designed to provide
enhanced liquidity and shareholder value. This determination was consistent with
the oral advice of Cochran, Caronia & Co. and was supported (i) by the fact that
of the Company's regulated subsidiaries, only Mountain Valley could pay
dividends to the parent although the surplus of Mountain Valley was being
retained to maintain it's A.M. Best rating and regulatory ratios; and (ii) the
assumption that the Company would continue to be limited to no more than
$250,000 per quarter, if any at all, in obtaining excess working capital at the
unregulated parent company level. It was also the view of the Board that was
shared by Cochran, Caronia & Co. that the Company was foreclosed from borrowing
from commercial lending sources for the purpose of a share buyback or dividend
program of any nature whether partial or otherwise. The members of the Executive
Committee had not considered providing working capital to the Company at that
time and this possibility was not considered by the Board at this meeting.
INDEPENDENT COMMITTEE CONSIDERATION OF ALTERNATIVES. The Independent Committee's
recommendation to the Board on December 18, 2001 that the Offer, the Merger and
the other transactions contemplated by the Agreement was fair to and in the best
interests of the Company's shareholders (other than the Executive Committee and
its affiliates) was based in part by the Independent Committee's consideration
and rejection of other alternatives. As previously discussed, the sale of Motor
Club's regulated NJPPA business had been explored with a prospective purchaser
in the second quarter of 2000 and while a significant loss of the NJPPA book
value would have occurred and was considered, regulatory impediments to
completing such a transaction caused it to be rejected as a viable alternative.
No proposals had been received in the subsequent year despite the Company's
continuing decrease in share price ultimately to approximately 37% of book value
(I.E., $5.20 share price compared to estimated $14.15 book value). As discussed
in connection with the Independent Committee's November and December 2001
meetings, the Independent Committee explored the alternative of obtaining access
to Motor Club's NJPPA book value by withdrawing from the NJPPA market. That
process was rejected as a viable alternative due to: (i) the period of time for
the process to be accomplished, particularly with regard to when access to the
book value associated with the NJPPA business could occur (in the form of
dividends to the parent company); (ii) the regulatory impediments to executing
such a strategy, including the possible adverse impact to the Company's
profitable other New Jersey property and casualty business; and (iii) the costs
of administration of the withdrawal process.
As discussed in connection with the Independent Committee's meeting of November
19, 2001, the Independent Committee reviewed the possibility of partial share
buyback programs and rejected this alternative as the Independent Committee
believed such a program would only temporarily boost the stock price and it
would have stranded continuing public shareholders in the Company with an even
more illiquid shareholder structure. The Independent Committee assessed the
possible alternative of the sale of the entire Company which it did not believe
to be viable based upon the ownership structure of the Company's shares,
convertible debentures and debt. The Independent Committee recognized this
alternative would be preserved in the sense that the Company's potential future
financial
2
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performance has been publicly disclosed and the Independent Committee retains
the ability to terminate the Offer in the event a superior third party proposal
is received. Finally, the Independent Committee assessed the possible
alternative of not proceedings with the Offer at all. This alternative has not
been foreclosed by the structure of the Offer which is conditioned upon the
tender of at least 676,140 Shares by Company shareholders (other than the
Executive Committee and its affiliates).
COUNSEL TO THE INDEPENDENT COMMITTEE. The basis of the Independent Committee's
decision to retain Company counsel was that Company counsel had represented the
Company and the independent directors prior to the Executive Committee members
purchase of 801,303 shares in March 1994; did not represent any member or
affiliate of the Executive Committee other than through representation of the
Company and that the Executive Committee would be advised by its own separate
counsel.
COCHRAN, CARONIA & CO. PRESENTATIONS TO THE INDEPENDENT COMMITTEE. At its
November 14, 2001 meeting with the Independent Committee, Cochran Caronia & Co.
presented a tentative valuation of the Company based upon a premiums paid
analysis; a trading multiple analysis; a transaction multiple valuation analysis
and a discount cash-flow analysis. This tentative valuation presented at this
and subsequent presentations to the Independent Committee utilized the
procedures followed, bases and methods utilized in Cochran, Caronia & Co.'s
opinion dated December 18, 2001 and took into account the Company's estimated
losses arising from the September 11, 2001 terrorist assault on the World Trade
Center. The total valuation range that Cochran, Caronia & Co calculated for the
Company was $14.1 million - $33.7 million, or approximately $6.62 - $15.85 per
share. After considering this indicated valuation range, Cochran, Caronia & Co.
then selected a fair market valuation range for the Company of approximately
$17.5 .-$22.5 million See the Offer to Purchase dated January 14, 2002 - SPECIAL
FACTORS - Section 3. Opinion of the Financial Advisor. The Independent Committee
instructed Cochran Caronia & Co. to consider a range of minority discounts.
At its November 30, 2001 meeting with the Independent Committee, Cochran,
Caronia & Co. presented a revised tentative valuation of the Company utilizing
the same procedures, bases and methods as before but with a range of minority
discounts.. Taking into account the minority discount of 10% - 20%, the total
valuation range that Cochran, Caronia & Co calculated for the Company was $11.4
million - $30.7 million, or approximately $5.39 - $14.44 per share. The
Independent Committee instructed Cochran, Caronia & Co. to consider the
Company's valuation based upon Motor Club's withdrawal from the NJPPA market and
to assume a 7% rate increase was approved for the NJPPA business.
At its December 7, 2001 meeting with the Independent Committee, Cochran, Caronia
& Co. presented a revised tentative valuation of the Company based upon the
withdrawal projections provided by Company management. Prior to taking into
account the minority discount, the total valuation range that Cochran, Caronia &
Co calculated for the Company was $11.5 million - $30.7 million, or
approximately $5.40 - $14.44 per share. Taking into account the minority
discount of 10% - 20%, the total valuation range that Cochran, Caronia & Co
calculated for the Company was $9.2 million - $27.6 million, or approximately
$4.32 - $13.00 per share. After considering this indicated valuation range,
Cochran, Caronia & Co. then selected a fair market valuation range for the
Company of approximately $15 to $20 million (approximately $7.06 to $9.41 per
share) The Independent Committee instructed Cochran, Caronia & Co. to revise its
tentative valuation to take into account the supplemental NJPPA relief received
that day from the New Jersey Department of Banking and Insurance ("NJDOBI") and
to shift the five year projection period from 2001 through 2005 to 2002 through
2006.
On December 12, 2001 Cochran, Caronia & Co. presented to the Independent
Committee a revised tentative valuation of the Company based upon the
supplemental NJDOBI relief received on December 7, 2001 and the shifted
projection period. Prior to taking into account the minority discount, the total
valuation range that Cochran, Caronia & Co calculated for the Company was $11.5
million - $29.3 million, or approximately $5.40 - $13.77 per share. Taking into
account the minority discount range of 10% - 20%, the total valuation range that
Cochran, Caronia & Co calculated for the Company was $9.2 million - $26.3
million, or approximately $4.32 - $12.39 per share. After considering this
indicated valuation range, Cochran , Caronia & Co. then selected a fair market
valuation range for the Company of approximately $15 to $20 million
(approximately $7.06 to $9.41 per share) See RECOMMENDATION OF THE INDEPENDENT
COMMITTEE AND THE COMPANY BOARD; FAIRNESS OF THE OFFER AND THE MERGER - Relief
from NJPPA "Take-All-Comers" Obligations.
2. RECOMMENDATION OF THE INDEPENDENT COMMITTEE AND THE COMPANY BOARD; FAIRNESS
OF THE OFFER AND THE MERGER is supplemented as follows:
RELIEF FROM NJPPA "TAKE-ALL-COMERS" OBLIGATIONS. Most insurance regulations are
designed to protect the interests of policyholders rather than shareholders and
other investors. This system of regulation, generally is administered by a
department of insurance in each state in which the Company's subsidiaries do
business. In particular, the New Jersey private passenger automobile ("NJPPA")
market has historically been subject to regulatory and legislative volatility
which has, at times, adversely affected the profitability of this line of
business, despite New Jersey having among the highest average premium rates in
the United States. New Jersey insurance law presently requires insurers to write
all eligible PPA coverage presented to them from drivers with eight points or
less on their driving
3
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record. This is commonly referred to as "take-all-comers". The NJDOBI may grant
an insurer relief, by written notification, from writing new NJPPA business
pursuant to the take-all-comers provisions of New Jersey law if a showing finds,
among other criteria, that the insurer's premium to surplus ("leverage") ratio
exceeds 3 to 1. Motor Club's applicable leverage ratio for the twelve months
ended September 30, 2001 was 4.23 to 1.
On July 18, 2001, Motor Club was placed under administrative supervision and
granted certain relief by the NJDOBI with regard to its NJPPA operations, which
was designed to improve Motor Club's deteriorating financial condition. Motor
Club's premium to surplus ratio no longer met industry standards, its share of
urban enterprise zone ("UEZ") business (where it wrote double its required
amount) was disproportionately high, and A.M. Best had recently downgraded Motor
Club's rating. The relief included the immediate cessation of accepting new
business in UEZ's, the non-renewal of a number of UEZ risks and relief from
assigned risk business. On December 7, 2001, Motor Club received supplemental
relief to that previously received on July 18, 2001 from the NJDOBI. NJDOBI
ordered that effective immediately, Motor Club was relieved of its obligations
under the NJPPA "take-all-comers" laws. The relief will continue indefinitely
until modified or vacated by the NJDOBI based on Motor Club's financial
condition.
The Independent Committee noted that the relief from "take-all-comers" was
projected to improve Motor Club's discounted cash flow in the next several years
but this would not translate into dividendable capital to the Company. The
Independent Committee believed it that the NJDOBI would not permit any
distributions from Motor Club while Motor Club was under administrative
supervision and that even when that status was lifted, currently estimated to be
in 2004, that the NJDOBI would proceed very cautiously in permitting
distributions from Motor Club to the Company. The Independent Committee believed
that Motor Club's administrative supervision would end when its premium to
surplus ratio dropped sufficiently below 3 to 1 to safely resume writing new
business. The Independent Committee noted however, that once this condition was
removed, it was likely that Motor Club would be required to comply with the
NJPPA "take-all-comers" regulations, which could limit Motor Club's ability to
make cash distributions to the Company.
SUMMARY OF INDEPENDENT COMMITTEE ANALYSIS OF FACTORS AFFECTING FAIRNESS OF THE
OFFER AND THE MERGER. In summary, the Independent Committee's analysis of the
various factors it considered focused on the disparity between the fair market
valuation range for the Company of approximately $7.06 to $9.41 per share and
the Company's Share price decline since 1999 from a high of $14.875 per Share to
$5.20 per Share one month prior to the initial public announcement with respect
to the proposed Offer. The Independent Committee believed this disparity was
based upon the market's perceived identification of the Company with NJPPA
business despite the acquisition of NEIC in September 1999 and Mountain Valley
in March 2000 and the reluctance of investors to become exposed to that business
by investing in the Company. The Independent Committee believed that there was a
real basis for investors to avoid exposure to the NJPPA business and for the
Shares to trade at below book value. This reluctance in investing in the Company
led to limited liquidity of the market for the Shares as evidenced by the Shares
actually trading on only 90 out of a possible 239 trading days from January 1,
2001 to December 17, 2001. Further, the Independent Committee considered that
the Company had no distinctive features that could permit it to enhance market
value and several features that detracted from a greater market value. Despite
40% of its business being in NJPPA, Motor Club was rated only as approximately
the 20th largest NJPPA insurer measured in number of drivers insured. Features
that detracted from a greater market value included (i) the Company's financial
statements had been significantly restated in April 2001 as a result of the
accounting treatment of the 1992 insolvency of its Oklahoma property and
casualty subsidiary and the final elimination of net operating losses and excess
loss accounts would not take place until 2006; (ii) Motor Club had been put
under NJDOBI administrative supervision which the Independent Committee believed
was being generally viewed by investors as a basis for further discounting the
Company market value; (iii) the Company's market share in property and casualty
insurance business in the other states it did business in was not significant.
and (iv) the Executive Committee 48% ownership of the Company's Shares and
source of $20.75 million of the Company's $21.5 million debt further limited the
willingness of investors to invest in the Company's Shares.
As a result of the foregoing, investors seeking to sell their Shares in the
Company found only a limited market and such sales in even limited quantities
led to significant reductions in Share price.
The Independent Committee believed that the Executive Committee's initial
willingness to fund a partial buyback of Company Shares in an issuer self tender
offer offered an opportunity to permit but not require Company shareholders to
sell their shares at a better price than that being provided by the market.
Further, by using the issuer self tender offer as a means of widely distributing
the Company's projections; setting forth the Company's reduced participation in
the NJPPA market and the terms of Motor Club's supplemental relief, the
Independent Committee believed that Company shareholders could better assess the
Company's fair market value range today, the Company's projected financial
performance through 2006, and be able to compare these values with the value of
$7.75 per share in cash obtainable by accepting the Offer.
It was the view of the Independent Committee that the structure and terms of the
Offer were such as to permit it to proceed only if holders of a substantial
number of Shares of 676,140 or more (excluding the Executive Committee and its
affiliates) thought it was in
4
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their best interest to do so, and if so, then the remaining non-tendering
shareholders would have appraisal rights to determine and be paid fair value
under applicable state law.
Finally, if there were third parties which propose a subsequent alternative
transactions prior to the consummation of the Offer in a manner the Independent
Committee determined would likely provide a superior value to the shareholders
(other than the Executive Committee and its affiliates), the Independent
Committee could delay or terminate the Offer.
COMPANY BOARD ADOPTS INDEPENDENT COMMITTEE ANALYSIS AND CONCLUSIONS. In reaching
its determination that the terms of the Offer, the Merger and the financing, as
set forth in the Agreement, are fair to and in the best interests of the
shareholders (other than the Executive Committee and its affiliates), the Board
of Directors adopted (i) the conclusions and recommendations of the Independent
Committee, (ii) and the factors referred to in Item 2 under the heading
"Fairness of the Offer and the Merger" of the Offer to Purchase as having been
taken into account by the Independent Committee. Although the Board has found
the Offer price to be fair to the Company's shareholders (other than the
Executive Committee and its affiliates) the Board is remaining neutral toward
the Offer and is not recommending acceptance of the Offer because the
determination of whether it is in the best interests of the Company's
shareholders (other than the Executive Committee and its affiliates) is
dependent in part upon the individual shareholder's liquidity needs and other
considerations. Accordingly, each shareholder must make such shareholder's own
decision whether to tender shares and if so, how many shares to tender.
CLARIFICATION OF MINIMUM TENDER CONDITION. If, however, the Independent
Committee was to waive the minimum tender requirement of 676,140 Shares (as it
is permitted to do), and permit fewer than 590,075 Shares to be tendered in the
Offer, then the Executive Committee would own less than two-thirds of the
outstanding Shares after the consummation of the Offer, as a result of which it
would not be able to effectuate the second-step Merger without other
shareholders voting in favor of the Merger, the outcome of which could not be
assured. Accordingly, under the Agreement, the Executive Committee has the right
to terminate the Offer in the event that the Independent Committee waives the
676,140 Share minimum tender requirement below 590,076 Shares. See SPECIAL
FACTORS - Section 5. Plans for the Company After the Offer; the Merger and THE
TENDER OFFER - Section 10. Certain Conditions to the Offer.
The Board of Directors' determination is hereby supplemented to add the
parenthetical language in subsection (A) as follows:
THE BOARD OF DIRECTORS, BASED UPON THE UNANIMOUS RECOMMENDATION OF THE
INDEPENDENT COMMITTEE, (A) UNANIMOUSLY DETERMINED THAT THE TERMS OF EACH OF THE
OFFER, THE MERGER AND THE TRANSACTIONS CONTEMPLATED BY THE AGREEMENT ARE FAIR TO
AND IN THE BEST INTERESTS OF THE COMPANY'S SHAREHOLDERS (OTHER THAN THE
EXECUTIVE COMMITTEE AND ITS AFFILIATES) AND (B) UNANIMOUSLY APPROVED THE OFFER,
THE MERGER, THE AGREEMENT AND THE TRANSACTONS CONTEMPLATED BY THE AGREEMENT.
3. OPINION OF FINANCIAL ADVISOR.
Reference is made to the paragraph entitled PREMIUMS PAID ANALYSIS in Item 3.
OPINION OF FINANCIAL ADVISOR. This paragraph is amended and supplemented as
follows:
PREMIUMS PAID ANALYSIS. Cochran, Caronia & Co. performed a premiums paid
analysis based on comparable public property and casualty transactions announced
since 1998. Cochran, Caronia & Co. chose to analyze the period after 1998 for
its premiums paid analysis because it believes the premiums paid in the most
recent comparable public property and casualty transactions provide the most
relevant data. Cochran, Caronia & Co. analyzed the premiums paid by buyers for
the target's stock one day prior to the announcement of the transaction and one
month prior to the announcement of the second-step Merger transaction. The
median premium paid by a buyer for a target's stock for the selected
transactions one day prior to announcement of a transaction was 24.8% and one
month prior to the announcement of a transaction was 25.7%. Cochran, Caronia &
Co. compared these premiums paid with the proposed premium of 49.0% to the
Company's stock price of $5.20 one day prior to the announcement of the
transaction (December 17, 2001) and with the proposed premium of 49.0% to the
Company's stock price of $5.20 one month prior to the announcement of the
transaction (November 17, 2001).
ASSUMPTIONS TO COMPANY PROJECTION. The Company's projections summarized in the
Offer to Purchase Item 3 - Opinion of the Financial Advisor anticipate that the
Company's operations will remain consistent with the Company's stated business
strategy and those operations currently in place. This includes but is not
limited to, the estimated continuation of Motor Club's regulatory relief from
the NJDOBI through 2004, the continued growth of the Company's commercial lines
programs with stable loss ratios, no new acquisition of other insurance
companies, and no unusual fluctuations in the Company's expenses (including the
cost of reinsurance), investment portfolios or operating environment.
5
<Page>
CLARIFICATION OF OPINION DISSEMINATION. The Independent Committee has received a
letter from Cochran, Caronia & Co. confirming that the Company was authorized to
disseminate to the Company's shareholders as part of the Offer to Purchase the
Opinion of Cochran, Caronia & Co. dated December 18, 2001. A copy of this letter
is set forth at ANNEX B.
4. POSITION OF THE EXECUTIVE COMMITTEE REGARDING FAIRNESS OF THE OFFER AND THE
MERGER is supplemented as follows:
EXECUTIVE COMMITTEE AND ITS AFFILIATES. The members of the Executive
Committee are Archer McWhorter, William E. Lobeck, Jr. and Alvin E. Swanner
and their affiliates are Gail McWhorter, the William E. Lobeck Revocable
Trust, the Kathryn L. Taylor Revocable Trust, Sleepy Lagoon, Ltd. and Brion
Properties. The Executive Committee and its affiliates have filed a combined
schedule TO-T/13e-3 with the Securities and Exchange Commission disclosing
their participation in this transaction.
SUMMARY OF EXECUTIVE COMMITTEE ANALYSIS OF FACTORS AFFECTING FAIRNESS OF THE
OFFER AND THE MERGER. In summary, the analysis of the Executive Committee and
its affiliates of the various factors it considered focused on the disparity
on the Executive Committee's view that the public trading price of the
Company Shares undervalued the inherent worth of the Company. The Chairman's
letter in the Company's 2000 Annual Report and the Executive Committee
Schedule 13D filings of April 7, 2000, August 30, 2000 and June 5, 2001
stated that the Company's Shares were considered to be undervalued.
Nonetheless, the Company's Share price declined since 1999 from a high of
$14.875 per Share to $5.20 per Share one month prior to the initial public
announcement with respect to the proposed Offer. The Executive Committee
believed that this decline in price was based upon the market's perceived
identification of the Company with the NJPPA business despite the Chairman's
letter in the Company's 2000 Annual Report that only 42% of the Company's
business was conducted in the NJPPA market. The Executive Committee
appreciated as did the Independent Committee that the sale of the Company's
NJPPA business to a third party could only be accomplished with a significant
loss of the NJPPA book value and meeting significant regulatory impediments
and that the liquidation value of the Company whether in whole or in part by
sale of the NJPPA business or by withdrawal were not viable alternatives. All
the members of the Executive Committee recognized its initial funding offer
of $7.50 per Share to be less than half of the $15.22 book value per Share of
the Company as of September 30, 2001 and the final negotiated Offer price of
$7.75 per Share (as to which only Archer McWhorter and Alvin E. Swanner would
finance) is approximately 56% of the Company's estimated $14.15 book value
per Share as of December 31, 2001. William E. Lobeck, Jr., the third member
of the Executive Committee, declined to participate in funding at the final
negotiated Offer price of $7.75 per Share because he did not feel the funding
proposal and subsequent purchase was a good investment for himself.
After considering the foregoing, each of the members of the Executive
Committee and their affiliates has indicated that he, she or it believes the
terms of the Offer, the Merger and the transactions contemplated by the
Agreement to be fair to the Company's shareholders (other than the Executive
Committee and its affiliates) from a financial point of view on both a
substantive and procedural basis. The substantive basis on which fairness is
premised includes that (i) the $7.75 per Share price represents a premium of
more than 29% over the $6.00 closing sale price on the NASDAQ National Market
System on October 30, 2001, the last full trading day prior to the
appointment of the Independent Committee and a premium of 49% over the $5.20
closing sale price on December 17, 2001, the last full trading day prior to
the announcement of the offer and (ii) that the Independent Committee
received the opinion of Cochran, Caronia & Co. dated December 18, 2001, as to
the fairness, from a financial point of view, of the $7.75 price per Share to
be paid to the Company's shareholders (other than the Executive Committee and
its affiliates). In addition, despite the fact that the transaction as
structured does not require the approval of shareholders, the Executive
Committee and its affiliates determined the transaction to be procedurally
fair based upon the following: (i) that an Independent Committee was formed,
comprised entirely of directors who were not current officers or employees of
the Company and would not have an economic interest in the Company following
the Offer and the Merger, (ii) that the Independent Committee retained its
own independent financial and legal advisors and (iii) that the terms of the
Offer were determined through negotiations between the Executive Committee
and the Independent Committee and its financial and legal advisors which led
to a 3.3% increase in the original price offered by the Executive Committee,
a requirement for implementing the second-step Merger and that a minimum of
676,140 shares be tendered. The Executive Committee and its affiliates
recognized that 676,140 shares, the minimum tender offer requirement,
represented approximately 61% of the 1,101,510 issued and outstanding shares
not held by the Executive Committee and its affiliates.
THE FOREGOING BELIEFS, HOWEVER, SHOULD NOT BE CONSTRUED AS A RECOMMENDATION
TO ANY SHAREHOLDER AS TO WHETHER ANY SHAREHOLDER SHOULD TENDER ANY OF OR ALL
SUCH SHAREHOLDER'S SHARES PURSUANT TO THE OFFER. EACH SHAREHOLDER MUST MAKE
SUCH SHAREHOLDER'S OWN DECISION WHETHER TO TENDER SHARES AND, IF SO, HOW MANY
SHARES TO TENDER.
In reaching its determination as to fairness, none of the members of the
Executive Committee and their affiliates assigned specific weights to
particular factors, but rather considered all factors as a whole.
Reference is made to paragraph (iv) on page 19 of the Offer to Purchase.
Paragraph (iv) is hereby amended and supplemented as follows:
(iv) the terms and conditions of the Offer, the Merger and the Agreement,
including the amount and form of the consideration, as well as the parties'
mutual representations, warranties and covenants, and the conditions to their
respective obligations, which allow the Independent Committee to negotiate with
any person or entity that makes a proposal to acquire the Company and to
terminate the Agreement if deemed in the exercise of its fiduciary duties to be
in the best interests of the Company's shareholders (other than the Executive
Committee and its affiliates);
5. PLANS FOR THE COMPANY AFTER THE OFFER; THE MERGER is supplemented as follows:
EXECUTIVE COMMITTEE AND AFFILIATE OWNERSHIP INTEREST IN THE COMPANY AFTER THE
OFFER AND THE MERGER. Upon the consummation of the Offer and the closing of
the Merger, the Executive Committee and its affiliates will own all of the
issued and outstanding shares of capital stock in the Company and $9,253,785
of 8.44% subordinated Convertible Debentures ("Convertible Debentures") due
September 2009 convertible into Company common shares at $15.49 per share,
but there will continue to be outstanding options for 194,000 shares of
Company common stock exercisable at prices ranging from $7.21 to $12.75 per
share and $746,215 of Convertible Debentures held by third parties unrelated
to the Executive Committee. Assuming the consummation of the Offer and the
closing of the Merger, and based on the unaudited pro forma condensed
consolidated balance sheet of the Company as of September 30, 2001 and the
unaudited pro forma condensed statement of income for the year ended December
31, 2000 allocated over the issued and outstanding shares, the Executive
Committee and its affiliates would have an interest in the Company's net book
value and net earnings set forth below:
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<Table>
<Caption>
OFFER/MERGER
FINANCING POST NET NET
SHARES CONVERTED TO MERGER NET BOOK NET BOOK EARNINGS EARNINGS
NAME PRIOR TO OFFER SHARES SHARES VALUE ($000) VALUE (%) ($000) (%)
- ---------------------- -------------- ------------- -------- ------- --------- --------- ------
Archer McWhorter 301,635 -0- 301,635 $4,520.5 14.2% $278.3 14.2%
Gail McWhorter 2,000 -0- 2,000 30.0 0.1% 1.8 0.1%
Sleepy Lagoon, Ltd 43,336 550,755 594,091 8,903.4 28.0% 548.1 28.0%
Alvin E. Swanner 301,635 -0- 301,635 4,520.5 14.2% 278.3 14.2%
Brion Properties 43,331 550,755 594,086 8,903.3 28.0% 548.1 28.0%
William E. Lobeck, Jr. 11,150 -0- 11,150 167.1 0.5% 10.3 0.5%
William E. Lobeck 298,118 -0- 298,118 4,467.8 14.0% 275.0 14.0%
Revocable Trust
Kathryn L. Taylor 21,665 -0- 21,665 324.7 1.0% 20.0 1.0%
Revocable Trust --------- --------- --------- -------- ----- -------- -------
1,022,870 1,101,510 2,124,380 31,837.3 100.0% $1,959.9 100%
</Table>
THE TENDER OFFER
1. TERMS OF THE OFFER; EXPIRATION DATE.
Reference is hereby made to the second and fifth paragraphs under THE TENDER
OFFER - Section 1. Terms of the Offer; Expiration Date at page 26 to the Offer
to Purchase. Such second and fifth paragraphs are hereby amended and
supplemented as follows:
(SECOND PARAGRAPH)
Subject to all applicable laws and the terms and conditions of the Offer, the
Company reserves the right, as described in Section 10. Certain Conditions to
the Offer, to waive conditions thereto, in its sole discretion, and/or extend,
withdraw, terminate in certain limited instances, delay, or amend the Offer in
any case by issuing a press release thereof. There can be no assurance, however,
that the Company will exercise its right to extend the Offer.
(FIFTH PARAGRAPH)
Subject to the terms and conditions of the Offer, the Company expressly reserves
the right, in its sole discretion, at any time and regardless of whether or not
any of the events set forth in THE TENDER OFFER - Section 10. Certain Conditions
to the Offer shall have occurred or shall be deemed by the Company to have
occurred, to extend the period of time during which the Offer is open and
thereby delay acceptance for payment of any Shares by giving oral or written
notice of such extension to the Information Agent and the Tendering Agent and
issuing a press release thereof. During any such extension, all Shares
previously tendered and not purchased or withdrawn will remain subject to the
Offer, except to the extent that such Shares may be withdrawn as set forth in
Section 4. Withdrawal Rights. The Company also expressly reserves the right, in
its sole discretion, in certain limited instances to withdraw or terminate the
Offer and not accept for payment or pay for any Shares not theretofore accepted
for payment or paid for. Additionally, the Company expressly reserves the right,
subject to applicable law, to postpone payment for Shares under circumstances
including but not limited to the occurrence of any of the conditions specified
in THE TENDER OFFER - Section 10. Certain Conditions to the Offer by notifying
the Information Agent and Tendering Agent and making a public announcement
thereof.
10. CERTAIN CONDITIONS TO THE OFFER is hereby amended and supplemented as
follows:
LEAD-IN SENTENCE. The lead in sentence to the enumerated conditions is hereby
clarified such that the Company shall not be required to accept or pay for
tendered shares or may postpone acceptance or payment, subject to applicable
rules, if prior to the expiration date of the Offer (as the same may be extended
as provided in the Offer to Purchase and the Supplement) any of the enumerated
conditions shall have occurred.
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AMENDMENT OF AGREEMENT FOR SELF-TENDER OFFER, FINANCING AND SECOND STEP MERGER.
The Company and the members of the Executive Committee and their affiliates
entered into Amendment No. 1 to the Agreement to clarify the termination
conditions as follows: (i) the ability of the respective parties to terminate or
modify the Agreement has been further limited by requiring that any material
change in circumstance must be both actual and adverse to the Company; (ii) the
parties may mutually agree to terminate the Offer only prior to the commencement
of the Offer or, once commenced, if the Offer has failed to be consummated by
March 31, 2002; (iii) prior to the consummation of the Offer, there would be
required delivery of a "bring-down" fairness opinion to the Independent
Committee by its financial advisor dated as of the consummation of the Offer;
and (iv) in exercising its fiduciary duties, in addition to being able to
terminate the Offer upon receipt of an acquisition or other proposal that is
more favorable than the Offer, the Independent Committee may terminate the Offer
if there occurs a material favorable change in insurance regulations affecting
Motor Club of America Insurance Company as a result of which the Independent
Committee determines that the terms of the Offer are no longer in the best
interests of the Company's public shareholders. A copy of Amendment No. 1 to the
Agreement is set forth in its entirety in ANNEX A to this Supplement.
BRING DOWN OF FAIRNESS OPINION. Upon the successful completion of the Offer,
the Company will disclose by amendment to the Schedule TO, of which the Offer
to Purchase and Supplement are a part, the results of the Offer and receipt
by the Independent Committee from Cochran, Caronia & Co. of the bring down
dated as of the consummation of the Offer of their fairness opinion dated
December 18, 2001. The purpose of this bring down of the fairness opinion is
to assist the Independent Committee in determining as to whether there has
been any material change in circumstance that would affect their
determination of the continued fairness of the Offer price prior to the
consummation of the Offer.
11. CERTAIN LEGAL MATTERS is supplemented as follows:
STATE INSURANCE REGULATORY EXEMPTION OF THE OFFER AND THE MERGER. Under the
Insurance Holding Company Act of each of the States in which the Company's
insurance subsidiaries are domiciled, the applicable state regulatory agency
generally requires an informational filing and subsequent agency approval
PRIOR to a new or existing shareholder exceeding more than 10% ownership of a
domestic insurance company. The Executive Committee members were reviewed and
approved by the applicable state regulatory authorities prior to their March
1994 acquisition of 801,303 Shares representing approximately 39% of the
Company and prior to the Company's purchases of NEIC in September 1999 and
Mountain Valley in March 2000. Prior to commencing the Offer, the Company
expected but had not been able to confirm that because of the prior
approvals, the applicable state regulatory authorities would waive any
further formal information filing and permit the Offer and Merger to be
consummated. Since commencing the Offer, the Company has provided certain of
the information contained in the Company's Offer to Purchase with each
applicable state regulatory agency and expects all regulatory action will be
obtained under applicable state insurance regulations prior to consummate the
Offer. If not, the Company would extend the Offer prior to its expiration
date and prior to acceptance of any Shares.
INFORMATION ABOUT THE COMPANY
2. IDENTITY AND BACKGROUND OF CERTAIN PERSONS is hereby supplemented as follows:
IDENTITY AND BACKGROUND OF EXECUTIVE COMMITTEE AND AFFILIATES. The following
information is provided for the members of the Executive Committee and their
affiliates:
(a) NAME AND ADDRESS. The names, addresses, business telephone number and
nature of affiliation are as follows:
(i) Archer McWhorter
1600 Smith Street
Houston, Texas 77002
(713) 650-3838
Archer McWhorter is the Chairman of the Board of Directors and
a member of the Executive Committee of the Company and,
together with his associates, is a beneficial owner of the
Company's common stock as set forth in the Offer to Purchase
under INFORMATION ABOUT THE COMPANY.
(ii) Gail McWhorter
1600 Smith Street
Houston, Texas 77002
(713) 650-3838
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Gail McWhorter is the wife of Archer McWhorter (identified
above) and is a beneficial owner of the Company's common stock
as set forth below.
(iii) Sleepy Lagoon, Ltd.
1600 Smith Street
Houston, Texas 77002
(713) 650-3838
The sole general partner of Sleepy Lagoon, Ltd. is Archer
McWhorter (identified above). Sleepy Lagoon, Ltd. is
controlled by Archer McWhorter and is a beneficial owner of
the Company's common stock as set forth below.
(iv) Alvin E. Swanner
28 Chateau Haut Brion Street
Kenner, Louisiana 70065
(504) 464-5654
Alvin E. Swanner is a director and member of the Executive
Committee of the Company and, together with his associates, is
a beneficial owner of the Company's common stock as set forth
in the Offer to Purchase under INFORMATION ABOUT THE COMPANY.
(v) Brion Properties, a Louisiana partnership in commendam ("Brion
Properties") 28 Chateau Haut Brion Street Kenner, Louisiana
70065
(504) 464-5654
The sole general partner of Brion Properties is Alvin E.
Swanner (identified above). Brion Properties is controlled
by Alvin E. Swanner and is a beneficial owner of the Company's
common stock as set forth below.
(vi) William E. Lobeck, Jr.
1132 South Lewis Avenue
Tulsa, Oklahoma 74104
(918) 585-5129
William E. Lobeck, Jr. is a director and member of the
Executive Committee of the Company and, together with his
associates, is a beneficial owner of the Company's common
stock as set forth in the Offer to Purchase under INFORMATION
ABOUT THE COMPANY.
(vii) William E. Lobeck Revocable Trust
1132 South Lewis Avenue
Tulsa, Oklahoma 74104
(918) 585-5129
The William E. Lobeck Revocable Trust is controlled by its
trustee William E. Lobeck, Jr. (identified above), and is a
beneficial owner of the Company's common stock as set forth
below.
(viii) Kathryn L. Taylor Revocable Trust
1132 South Lewis Avenue
Tulsa, Oklahoma 74104
(918) 585-5129
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The Kathryn L. Taylor Revocable Trust is controlled by its
trustee, Kathryn L. Taylor, who is the wife of William E.
Lobeck, Jr. (identified above). Ms. Taylor and the Kathryn L.
Taylor Revocable Trust are beneficial owners of the Company's
common stock as set forth below.
(b) BUSINESS AND BACKGROUND OF ENTITIES. The principal business, and state
or other place of organization, of each entity specified in (a) above is as
follows:
(i) SLEEPY LAGOON, LTD.
A limited partnership organized under the laws of the State of
Texas whose principal business is family investments and
holdings by or for one or more members of the McWhorter
family.
(ii) BRION PROPERTIES
A partnership in commendam organized under the laws of the
State of Louisiana whose principal business is family
investments and holdings by or for one or more members of the
Swanner family.
(iii) WILLIAM E. LOBECK REVOCABLE TRUST
A trust organized under the laws of the State of Oklahoma
whose principal business is family investments and holdings by
or for one or more members of the Lobeck family.
(iv) KATHRYN L. TAYLOR REVOCABLE TRUST
A trust organized under the laws of the State of Oklahoma
whose principal business is family investments and holdings by
or for one or more members of the Lobeck family.
None of the above listed entities has been convicted of any criminal act during
the past five years (excluding traffic violations or similar misdemeanors).
Further, none of such entities has been party to any judicial or administrative
proceeding during the last five years that has resulted in a judgment, decree or
final order enjoining them from any future violations of, or prohibiting
activities subject to, any federal or state securities laws, or a finding of
any violation of federal or state securities laws.
(c) BUSINESS AND BACKGROUND OF NATURAL PERSONS. The current principal occupation
or employment (including the name, principal business and address of any
corporation or other organization in which conducted) and the material
occupations, positions, offices or employment during the past five years
(including the starting and ending dates, name and principal business and
address of any corporation or other organization in which carried on) for each
natural person named in (a) above is as follows:
(i) ARCHER MCWHORTER: The principal occupations for Mr. McWhorter
are set forth in the Offer to Purchase under "INFORMATION
ABOUT THE COMPANY - Section 2. Identity and Background of
Certain Persons." In addition, the principal business and
addresses of the following corporations or other organizations
listed therein are:
1. NATIONAL CAR RENTAL SYSTEMS ("NCR")
200 South Andrews Avenue
Ft. Lauderdale, Florida 33301
(car rental company)
2. Santa Ana Holdings, Inc. ("Santa Ana")
1132 South Lewis Avenue
Tulsa, Oklahoma 74104
(a holding company for stock of NCR and
was dissolved in 1997)
3. REPUBLIC INDUSTRIES, INC. (NOW KNOWN AS AUTONATION,
INC.)
110 S.E. 6th Street
Ft. Lauderdale, Florida 33301
(automotive retailer and former owner of car rental
operations)
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(ii) GAIL MCWHORTER: Mrs. McWhorter is currently and has been a
housewife since April 2000. Prior to that she was employed as
a registered nurse at Methodist Hospital, 6565 Fannin Street,
Houston, Texas 77030.
(iii) ALVIN E. SWANNER: The principal occupations for Mr. Swanner
are set forth in the Offer to Purchase under "INFORMATION
ABOUT THE COMPANY - Section 2. Identity and Background of
Certain Persons" and the information with respect to the
principal business and addresses of certain organizations
listed therein are set forth above in (c)(i). In addition, the
principal business and addresses of the following corporations
or other organizations listed therein are:
1. CHATEAU, INC.
3600 Chateau Boulevard
Kenner, Louisiana 70113
(a golf and country club)
2. CHATEAU DEVELOPMENT COMPANY, INC.
3600 Chateau Boulevard
Kenner, Louisiana 70113
(a development company)
3. 135 ST. CHARLES, INC.
3600 Chateau Boulevard
Kenner, Louisiana 70113
(a hotel development company)
(iv) WILLIAM E. LOBECK, JR.: The principal occupations for Mr.
Lobeck are set forth in the "Offer to Purchase under
INFORMATION ABOUT THE COMPANY - Section 2. Identity and
Background of Certain Persons" and the information with
respect to the principal business and addresses of certain
organizations listed therein are set forth above in (c)(i).
(v) KATHRYN L. TAYLOR: Since 1997, Ms. Taylor has been a community
volunteer and currently serves on the Board of Trustees of
Trustees of the University of Oklahoma Foundation as well as
numerous community volunteer positions. From 1992 to September
1997, Ms. Taylor was an attorney and a director of the law
firm Crowe and Dunlevy, 321 S. Boston, 500 Kennedy Building,
Tulsa, Oklahoma 74103.
Each of above listed individuals is a U.S. citizen. None of the above listed
individuals has been convicted of any criminal act during the past five years
(excluding traffic violations or similar misdemeanors). Further, none of such
individuals has been party to any judicial or administrative proceeding during
the last five years that has resulted in a judgement, decree or final order
enjoining them from any future violations of, or prohibiting activities subject
to, any federal or state securities laws, or finding of any violation of federal
or state securities laws.
(d) SECURITIES OWNERSHIP. With respect to Archer McWhorter, Alvin E. Swanner and
William E. Lobeck, Jr., see the information contained in the Offer to Purchase
under "INFORMATION ABOUT THE COMPANY - Section 2. Identity and Background of
Certain Persons" (and, as noted in the Supplement, the number of currently
outstanding shares owned directly by Mr. Lobeck is in fact 11,150 (rather than
289,185 as indicated in the original Offer to Purchase, dated January 14, 2001),
while the number of currently outstanding shares owned directly by the William
E. Lobeck Revocable Trust (of which Mr. Lobeck is the trustee) is in fact
298,118 (rather than 20,083 as indicated in the original Offer to Purchase,
dated January 14, 2001), but which does not represent a change in Mr. Lobeck's
overall beneficial ownership.
11
<Page>
The aggregate number and percentage of subject securities that are beneficially
owned (as determined in accordance with rule 13d-3), as of December 18, 2001, by
each other person named in (a) above and by each associate and majority-owned
subsidiary of such persons is as follows:
<Table>
<Caption>
NAME NUMBER OF SHARES PERCENT OF CLASS
---- ---------------- ----------------
Gail McWhorter 548,790 (A) 23.59 (A)
Sleepy Lagoon, Ltd. 245,155 (B) 10.54 (B)
Brion Properties, a Louisiana 245,149 (C) 10.54 (C)
partnership in commendam
William E. Lobeck 298,118 14.03
Revocable Trust
Kathryn L. Taylor 21,665 1.02
Revocable Trust
Kathryn L. Taylor 524,700 (D) 22.63 (D)
</Table>
(A) Includes for Mrs. McWhorter (1) debentures for common stock
which are currently convertible into 201,819 shares which are
owed by Sleepy Lagoon, Ltd. and deemed beneficially owned by
her husband Archer McWhorter; and (2) 301,635 shares which are
owned by a family trust of which her husband Archer McWhorter
is the trustee and 43,336 shares owned by Sleepy Lagoon, Ltd.
of which her husband Archer McWhorter is the general partner,
all of which are deemed beneficially owned by Archer
McWhorter. Mrs. McWhorter disclaims beneficial ownership of
any shares beneficially owned by her husband.
(B) Includes for Sleepy Lagoon, Ltd. debentures for common stock,
which are currently exercisable for 201,819 shares.
(C) Includes for Brion Properties debentures for common stock,
which are currently exercisable for 201,818 shares.
(D) Includes for Ms. Taylor (1) debentures for common stock which
are currently convertible into 193,767 shares which are owned
by her husband, William E. Lobeck, Jr.; (2) 11,150 shares
which are owned by her husband, William E. Lobeck, Jr.; (3)
298,118 shares which are owned by the William E. Lobeck
Revocable Trust of which her husband, William E. Lobeck, Jr.,
is the trustee and (4) 21,665 shares which are owned by the
Kathryn L. Taylor Revocable Trust of which she is the trustee.
Ms. Taylor disclaims beneficial ownership of any shares
beneficially owned by her husband.
(e) SECURITIES TRANSACTIONS. During the past sixty days, there were no
transactions in the Company's shares by any of the persons identified in (a)
above, nor any associate thereof or any pension, profit-sharing or similar plan
of such person.
7. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
DELETION OF FORWARD INCORPORATION BY REFERENCE LANGUAGE. Section 7.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE is hereby amended by deleting
the second paragraph thereof relating to the incorporation by reference into the
Offer to Purchase of filings by the Company between the date of the Offer to
Purchase and the expiration of the Offer.
12
<Page>
ANNEX A TO SUPPLEMENT
AMENDMENT NO. 1 TO
AGREEMENT FOR SELF-TENDER OFFER, FINANCING
AND SECOND-STEP MERGER
AMENDMENT NO. 1 dated as of February 4, 2002 (the "Amendment") to Agreement (the
"Agreement"), dated January 14, 2002, among Preserver Group, Inc., a New Jersey
corporation (the "Company") and those persons designated on the signature page
hereof as members of the 13D Group (collectively, the "13D Group").
BACKGROUND
A. The parties desire to clarify by amendment the terms of Section 9.1 of
the Agreement and to correct a typographical error on Schedule A to the
Agreement.
B. All capitalized terms used herein but not otherwise defined shall have
the meanings ascribed to them in the Agreement.
TERMS
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and in the Agreement, the Company and the 13D Group hereby agrees
as follows:
1. Section 9.1 of Article 9 is hereby amended and restated as follows:
9.1 TERMINATION. This Agreement may be terminated and the Offer
and Second-Step Merger contemplated herein may be abandoned, by written notice
promptly given to the other parties hereto, at any time prior to the Effective
Time or such earlier time as provided hereinbelow:
(a) prior to the commencement of the Offer, by mutual written
agreement of the Independent Committee on the one hand, and the 13D Group, on
the other hand; or
(b) by either party if, having commenced, the consummation of
the Offer shall have failed to be consummated on or before March 31, 2002,
unless the absence of such occurrence shall be due to the failure of the party
seeking to terminate this Agreement to perform in all material respects each of
its obligations under this Agreement required to be performed by it at or prior
to the consummation of the Offer; or
(c) by the Company prior to consummation of the Offer, if the
Company receives a proposal for acquisition or other proposal which the
Independent Committee determines, in the exercise of its fiduciary obligations
as advised by counsel, is more favorable than the Offer and Merger, or there
occurs a material favorable change in the insurance regulatory administrative
scheme regarding the Company's principal subsidiary, Motor Club of America
Insurance Company as a result of which the Independent Committee determines, in
the exercise of its fiduciary duties as advised by counsel, that the terms of
the Offer are no longer in the best interest of the Company's public
shareholders; or
(d) by the Company if (i) fewer than 676,140 shares of Common
Stock are properly tendered and not properly withdrawn in the Offer; or (ii) the
Independent Committee fails to obtain a "draw down" of the fairness opinion of
its financial adviser to the date of the expiration of the Offer; or by the 13D
Group or the Financing Related Parties if the Company waives the 676,140 minimum
tender requirement but fewer than 590,076 shares of Common Stock are properly
tendered and not properly withdrawn in the Offer; or
(e) by either party if the Offer shall have been terminated in
accordance with its terms without any shares of Company Common Stock having been
purchased thereunder; or
<Page>
(f) by the Company, if, prior to acceptance of the shares of
Company Common Stock pursuant to the Offer, the 13D Group is in material breach
of any of its representations, warranties, or obligations hereunder, including
but not limited to, Article II hereof (financing); or
(g) by the Company or the 13D Group or the Financing Related
Parties, if prior to acceptance of the shares of Company Common Stock pursuant
to the Offer, there shall have been threatened, instituted or pending any action
or proceeding by any government or governmental, regulatory or administrative
agency or authority or tribunal or any other person, domestic or foreign, before
any court or governmental, regulatory or administrative authority, agency or
tribunal, domestic or foreign, that (i) challenges the making of the Offer or
the acquisition of Shares pursuant to the Offer, or otherwise, directly or
indirectly, relates in any manner to the Offer; or (ii) in the reasonable good
faith judgment of the Company, could materially adversely affect the business,
condition (financial or otherwise), income, assets, operations or prospects of
the Company and its subsidiaries, or otherwise materially impair in any way the
contemplated future conduct of the business of the Company or any of its
subsidiaries or materially impair the Offer's contemplated benefits to the
Company; or
(h) by the Company or the 13D Group or the Financing Related
Parties, if prior to acceptance of the shares of Company Common Stock pursuant
to the Offer, there shall have been any action threatened, pending or taken, or
approval withheld, or any statute, rule, regulation, judgment, order or
injunction threatened, proposed, sought, promulgated, enacted, entered, amended,
enforced or deemed to be applicable to the Offer or the Company or any of its
subsidiaries, by any court or any government or governmental, regulatory or
administrative authority, agency or tribunal, domestic or foreign, that, in the
Company's reasonable good faith judgment, would or might directly or indirectly
(i) make the acceptance for payment of, or payment for, some or all the Shares
illegal or otherwise restrict or prohibit consummation of the Offer; (ii) delay
or restrict the ability of the Company, or render the Company unable, to accept
for payment, or pay for, some or all the Shares; (iii) materially impair the
contemplated benefits of the Offer to the Company; or (iv) materially affect the
business, condition (financial or otherwise), income, assets, operations or
prospects of the Company and its subsidiaries or otherwise materially impair in
any way the contemplated future conduct of the business of the Company or any of
its subsidiaries; or
(i) by either party or the Financing Related Parties, if prior
to acceptance of the shares of Company Common Stock pursuant to the Offer, there
shall have occurred (i) any general suspension of trading in, or limitation on
prices for, securities on any United States national securities exchange or in
the over-the-counter market (excluding any coordinated trading halt triggered
solely as a result of a specified decrease in a market index), including but not
limited to any changes in trading conditions resulting from actual or threatened
terrorist attacks, responses by the United States or its allies, or the effects
thereof; (ii) the declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States or New Jersey to such acts;
(iii) the commencement of a war, armed hostilities or other international or
national crisis directly or indirectly involving the United States or any of its
territories, including without limiting any acts of terrorism, domestic or
foreign or responses of the United States or its allies; (iv) any limitation
(whether or not mandatory) by any governmental, regulatory or administrative
agency or authority on, or any event that, in the reasonable good faith judgment
of the Company, might affect, the extension of credit by banks or other lending
institutions in the United States or New Jersey; (v) any decrease in the market
price of the Shares below $5.00 for five consecutive trading days (whether or
not the Shares trade on that trading day); (vi) any change in the general
political, market, economic or financial conditions in the United States or
abroad that could, in the reasonable good faith judgment of the Company, have a
material adverse effect on the business, condition (financial or otherwise),
income, assets, operations or prospects of the Company and its subsidiaries,
taken as a whole, or the trading in the Shares; (vii) in the case of any of the
foregoing existing at the time of the commencement of the Offer, in the
reasonable good faith judgment of the Company, a material escalation,
acceleration or worsening thereof; or (viii) any decline in either the Dow Jones
Industrial Average or the Standard and Poor's Index of 500 Industrial Companies
by an amount in excess of 20% measured from the close of business on December
18, 2001; or
(j) by the Company, if after December 18, 2001, but before
acceptance of the shares of Company Common Stock pursuant to the Offer, any
tender or exchange offer with respect to the Shares (other than the Offer), or
any merger, acquisition, business combination or other similar transaction with
or involving the Company or any subsidiary, shall have been proposed, announced
or made by any person or entity; or
(k) by the Company or the 13D Group or the Financing Related
Parties, if after December 18, 2001, but before acceptance of the shares of
Company Common Stock pursuant to the Offer, any actual material adverse change
or development shall occur or be threatened with respect to the business,
condition (financial or otherwise), income, assets, operations or prospects of
the Company and its subsidiaries that, materially adversely affects the
anticipated benefits to the Company of acquiring Shares pursuant to the Offer;
or
<Page>
(l) by the Company, if prior to acceptance of the shares
of Company Common Stock pursuant to the Offer, other than any filings that may
be required by members of the Executive Committee or its affiliates as a result
of the transactions contemplated by the Agreement, any person, entity or "group"
(as that term is used in Section 13(d)(3) of the Exchange Act) shall have (i)
acquired, or proposed to acquire, beneficial ownership of more than 5% of the
outstanding Shares (other than a person, entity or group which has filed a
Schedule 13D or 13G with the Commission on or prior to the date of this Offer to
Purchase) or made a public announcement reflecting an intent to acquire the
Company or any of its subsidiaries or any of their respective assets or
securities; or (ii) made a public announcement reflecting an intent to acquire
the Company or any of its subsidiaries or any of their respective assets or
securities; or
(m) (omitted).
2. Schedule A "13D Group Ownership" is hereby corrected as follows:
(i) the 201,818 shares underlying convertible debentures shown in the "Number of
Options, Warrants or other Rights" column next to the name of Alvin E. Swanner
should be shown in such column next to the name of Brion Properties and (ii) of
the 309,268 shares held in aggregate by William E. Lobeck, Jr. and the William
E. Lobeck Revocable Trust, 11,150 are held by Mr. Lobeck and the balance are
held by his trust.
3. Except as provided herein, the terms of the Agreement shall remain
unchanged and in full force and effect.
4. This Amendment may be executed in two or more counterparts, each of
which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
<Page>
IN WITNESS WHEREOF, each of the Company and the members of the 13D
Group have caused this Amendment to be duly executed as of the date first
written above.
PRESERVER GROUP, INC.
By: /s/ Stephen A. Gilbert
------------------------------------
Name: Stephen A. Gilbert
Title: President
13D GROUP:
/s/ Archer McWhorter
---------------------------------------
Archer McWhorter
Address: 1600 Smith Street
Houston, Texas 77002
/s/ Gail McWhorter
---------------------------------------
Gail McWhorter
Address: 1600 Smith Street
Houston, Texas 77002
SLEEPY LAGOON LTD.
By: /s/ Archer McWhorter
------------------------------------
Archer McWhorter
General Partner
Address: 1600 Smith Street
Houston, Texas 77002
/s/ Alvin E. Swanner
---------------------------------------
Alvin E. Swanner
Address: 28 Chateau Haut Brion Street
Kenner, Louisiana 70065
BRION PROPERTIES, a Louisiana
partnership in commendam
By: /s/ Alvin E. Swanner
------------------------------------
Alvin E. Swanner
General Partner
Address: 28 Chateau Haut Brion Street
Kenner, Louisiana 70065
/s/ William E. Lobeck, Jr.
---------------------------------------
William E. Lobeck, Jr.
Address: 1132 South Lewis Avenue
Tulsa, Oklahoma 74104
William E. Lobeck Revocable Trust
By: /s/ William E. Lobeck, Jr.
-----------------------------------
William E. Lobeck, Jr.
Trustee
Address: 1132 South Lewis Avenue
Tulsa, Oklahoma 74104
Kathryn L. Taylor Revocable Trust
By: /s/ Kathryn L. Taylor
-----------------------------------
Kathryn L. Taylor, Trustee
Address: 1132 South Lewis Avenue
Tulsa, Oklahoma 74104
<Page>
ANNEX B TO SUPPLEMENT
LETTER OF COCHRAN, CARONIA & CO.
REGARDING OPINION REFERENCE
February 4, 2002
Independent Committee of the Board of Directors of Preserver Group, Inc.
95 Route 17 South
Paramus, NJ 07653
Gentlemen:
In our opinion to you dated December 18, 2001, regarding the fairness
of the consideration to be paid to the shareholders of Preserver Group, Inc.
(the "Company") in the Company's self-tender offer, we stated that such letter
may not be disclosed or otherwise referred to without our prior written consent,
except that the opinion may be included in its entirety in submissions to state
insurance regulatory authorities or in a PROXY STATEMENT mailed to the
Stockholders by the Company with respect to the Self-Tender. By this letter, we
hereby delete the inadvertent reference in our opinion to a "proxy statement"
and substitute in its place the intended reference to the Company's tender offer
statement.
We confirm that our fairness opinion letter may be referred to by the
Independent Committee in the Company's Offer to Purchase dated January 14, 2002
and circulated to the Company's shareholders.
Further, this clarification letter itself may be referred to and
attached to any subsequent Supplement to the Offer to Purchase and circulated to
the Company's shareholders as well.
Very truly yours,
/s/ COCHRAN, CARONIA & CO., LLC
------------------------------------
COCHRAN, CARONIA & CO., LLC
<Page>
PRESERVER GROUP, INC.
95 ROUTE 17 SOUTH
PARAMUS, NEW JERSEY 07653
February 11, 2002
The Letter of Transmittal and certificates for the Shares and any other
required documents should be sent or delivered by each shareholder or such
shareholder's broker, dealer, commercial bank, trust company or nominee to the
Tendering Agent at the address set forth below.
THE TENDERING AGENT FOR THE OFFER IS:
FIRST UNION NATIONAL BANK
599 Lexington Avenue, 22nd Floor
New York, New York 10022
FACSIMILE TRANSMISSION:
(FOR ELIGIBLE INSTITUTIONS ONLY)
RECEIPT OF FACSIMILE BY TELEPHONE ONLY: 1-800-829-8432
Any questions or requests for assistance or for additional copies of this Offer
to Purchase, the Letter of Transmittal or the Notice of Guaranteed Delivery may
be directed to the Information Agent at its telephone number and address set
forth below. Shareholders may also contact their broker, dealer, commercial
bank, trust company or other nominee for assistance concerning the Offer.
THE INFORMATION AGENT FOR THE OFFER IS:
MORROW & CO., INC.
445 PARK AVENUE, 5TH FLOOR
NEW YORK, NEW YORK 10022
FOR INFORMATION:
CALL COLLECT: (212) 754-8000
BANKS AND BROKERS CALL: (800) 654-2468
SHAREHOLDERS PLEASE CALL: (800) 607-0088
E-MAIL ADDRESS: PRES.INFO@MORROWCO.COM