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Mr. HARKINS. The information that has been provided to the committee from your company indicates that in the period 1961 through 1968, National General bought 12 companies and sold nine. This is the list that was provided, which I will offer it for the record at this time. The CHAIRMAN. It will be accepted for the record. We will receive that letter in the record, also.

(The documents referred to appear at pp. 93, 94.)

Mr. HARKINS. National General bought Designed Facilities which prefabricates mobile building facilities, in 1963, and you sold it in July 1968, is that right?

Mr. KLEIN. That is correct, sir.

Mr. HARKINS. This business did not fit in with your diversification goals, as I understand it.

Mr. KLEIN. It does not.

Mr. HARKINS. In your 1968 annual report it states:

During fiscal 1968, we continued our program to divest National General of those activities not complimenting our long-range goals. Accordingly, on July 1, we announced the sale of Designed Facilities Corporation. This transaction involved $23 million with National General receiving approximately $12 million cash. * * * The sale of Designed Facilities not only generated funds for more appropriate areas but freed key executive time as well.

So in that transaction you were following a program of diversification along a course of long-range goals.

Mr. KLEIN. That is correct, sir.

Mr. HARKINS. And this was a profitable business you disposed of? Mr. KLEIN. Yes, sir.

Mr. HARKINS. Mission Pak, the packager of glazed and fresh fruits for the holiday gift trade, was bought in 1963 and sold in July 1969. Mr. KLEIN. Correct.

Mr. HARKINS. This was a profitable business?

Mr. KLEIN. No, sir.

Mr. HARKINS. You sold it at a profit?

Mr. KLEIN. It was sold at a profit because we had materially written Mission Pak off our books and taken a nonrecurring loss some years before, so we booked a profit, actually. But the sale price of Mission Pak, vis-a-vis the original purchase price of Mission Pak, without taking into account the writedown that we took, was less than the original purchase price by a very slight amount.

I think the transaction, as I recall, the purchase price was a little under $2 million and the sale price was about $1.5 million.

Mr. HARKINS. In other words, Mission Pak was neither a profitable

Mr. KLEIN. It was as close to a wash as you can get.

Mr. HARKINS. Since January 1, 1969, which is the close of the committee's period selected for study, you have had four additional acquisitions, Republic Indemnity Co. of America; a California insurance company with workmen's compensation and auto insurance; Harbor Savings & Loan Association; Wygod, Weis, Florin, Inc., a New York brokerage and investment banker, Insurance Marketing Associates, and Performance Systems, Inc.

The CHAIRMAN. Performance Systems, Inc., what is that?
Mr. HARKINS. That is another business.

What is Insurance Marketing Associates?

33-762 0-70-pt. 4 -2

Mr. KLEIN. It is a small insurance agency in northern California.
Mr. HARKINS. But that is another acquisition?

Mr. KLEIN. A $200,000 acquisition, sir, yes.

Mr. HARKINS. And then Performance Systems, Inc.?
Mr. KLEIN. No, sir.

Mr. HARKINS. You have an interest in that company?
Mr. KLEIN. Yes, sir.

Mr. HARKINS. That is in Nashville, Tenn. What is the scope of your interest in Performance Systems, Inc.?

Mr. KLEIN. National General owns approximately 38 percent of the outstanding shares of Performance Systems, Inc., so that we are the largest shareholder in Performance Systems.

The CHAIRMAN. What does Performance Systems consist of? What do they do?

Mr. KLEIN. Performance Systems is primarily a convenience food service operation on a much smaller scale than Kentucky Fried, if you will, Kentucky Fried being the leader in the field.

The CHAIRMAN. Would you call it a small National General?

Mr. KLEIN. No, sir. It is a relatively small, growing company in what we consider to be a growing end of convenience service, convenience foods.

The CHAIRMAN. In other words, Performance Systems is the owner and franchiser of Minnie Pearl Chicken, Royal Castle Hamburger and Child Care Centers. Explain what they are, will you?

Mr. KLEIN. Yes, sir. Performance Systems is based in Nashville, Tenn., and has been a franchiser of convenience foods in two areas, chicken take-out stands and chicken take-out stores, the most wellknown being Colonel Sanders' Fried Chicken. Their operations are not quite of a coast-to-coast nature. They have 100 company-owned stores, and I believe 260 to 270 franchised stores operating at the present time.

They have sold approximately 1,800 franchises throughout the country. Their program is to build these franchises out and hopefully be competitive to Colonel Sanders.

They also own a 66-percent interest in Royal Castle Systems, Inc. Royal Castle has approximately 107 fast-food operations, primarily in the hamburger business, in the low-priced volume hamburger field. To draw an analogy, though they are much smaller, they analogize to McDonald's hamburger stands, which are the largest and are coastto-coast.

Royal Castle operates only in the southern parts of the country, primarily based in Florida where, I believe, they have about 50 percent of their operations.

Child Care Centers is a concept that is very, very exciting to the management of Performance and to the management of National General. It was one of the major reasons that we took a large stock position in Performance Systems.

It is a concept of building child day care centers with a complete training program and schooling program for the preschool ages, for children under 6 years of age. They now have two pilot installations completed, one in Nashville, Tenn., and the other is in Georgia. That has not opened yet. It is being built now.

In Nashville, Tenn., they have approximately 170 children in what think is a fantastic concept of guiding children and helping the

working mother so that they do not leave their child in somebody's basement where somebody takes care of them, but in organized play activities, games, organized educational programs, thoroughly supervised and utilizing a program thought out by the eminent educators and psychiatrists; a program that we really believe could have major impact on the economy of the country and one that has a very useful purpose.

The CHAIRMAN. You said before that the primary interest of National General was in expansion in the financial field and in the leisuretime field.

Mr. KLEIN. Yes, sir.

The CHAIRMAN. Do you want to correct that statement? You now apparently have an interest in the operation of hamburger stands, franchised chicken stands, and child care.

Mr. KLEIN. Mr. Chairman, in our concept, be it right or be it wrong again, we could get into semantics-in our opinion

The CHAIRMAN. It is not semantics. It is just whether you are or

are not.

Mr. KLEIN. We believe that constitutes an area of leisure time. We are not operating restaurants.

The CHAIRMAN. Do you mean eating a hamburger involves leisure time?

Mr. KLEIN. May I put it this way, Mr. Chairman: We do not operate restaurants, per se, as sitdown restaurants. These are fast-food takeout restaurants.

In our opinion, people in this country will have more and more time to spend and leisure time to spend. Many, many people will drive up with their children in the car and buy a bucket of chicken, if you will, and picnic with it, go back home and eat it, stay at a poolside with it, go to a public park.

In that context, and we believe we are right in that context, it applies to leisure time. So as far as we are concerned, we think that it is truly a leisure time activity.

The CHAIRMAN. Do you mean eating a hamburger or partaking of a chicken would be very much like going to an opera or going to a moving picture theater?

Mr. KLEIN. No, sir, in that context it certainly would not be.

Mr. FOGT. Mr. Klein, with your 38-percent interest in Performance Systems and as the largest stockholder, do you organize the board of directors or do you hire the management?

Mr. KLEIN. No, we do not hire management, we do not organize the board of directors. We have representation on the board which is less than a majority.

I might also add that we do not know what the future of Performance Systems may or may not be. We do not know what National General's position in regard to Performance Systems may or may not be.

But it may be for us a wait of 2 or 3 years, and a sale of our position, hopefully at a profit. We do have an investment portfolio of size. It may be a portfolio operation. It may on the other hand be that National General would, indeed, acquire the balance of Performance Systems at some future date. We don't know. It is as yet undetermined.

We think it is a growth area. We think it has hooks to fit into our operation. We are now looking and seeing and studying the growth. Time will tell whether we have been correct in our assessment or incorrect. So it is really something we have just purchased the interest in within the last 7 or 8 months. We are studying it and looking at it. We will see what goes on from there.

Mr. HARKINS. Mr. Klein, since 1961, National General has gone into the savings and loan field, book publishing, real estate development, insurance, brokerage, investment banking, food franchises.

Is that right?

Mr. KLEIN. Yes, sir.

As I explained, we just have the stock interest. In that context, yes. Mr. HARKINS. And you have gone into and out of modular facilities, construction, gift fruit packing and CATV; is that right?

Mr. KLEIN. Yes, sir.

Mr. HARKINS. Does all this merger transaction activity indicate that National General has had a planned program?

Mr. KLEIN. Let me explain to you if I might, sir, the acquisition and disposition of Mission Pak and Designed Facilities.

If we turn the clock back to 1961 when present management came into the company, we looked at a company that was operating at a very substantial loss, and had we repeated those losses 1 year or perhaps 2 years, it is my belief that the company would have been in bankruptcy.

At that point, our philosophy was totally different than what it was in subsequent years. At that point we would have liked to acquire anything that showed cash flow and showed profit, be it in any kind of business, because we were sort of drowning and we were looking for companies to help us get well financially.

So we acquired, for stock, Designed Facilities, which was a profitable acquisition. I believe we acquired it for approximately $4 million to $5 million worth of stock.

We also acquired Mission Pak for stock. Both of these acquisitions serve their corporate purpose. They did generate funds. We were able to sell Design Facilities at a substantial profit.

We built it from a small company to a much larger company, and then sold it because it did not fit in with the concept that we talked about later. When we got a little healthier and the wrinkles were out of our belly and we saw that we had a vibrant, thriving company and we could go, we then organized our leisure time and financial services concept.

We totally agree that Mission Pak and Designed Facilities have no place in a leisure time-financial services operation, since these are obviously manufacturing units, one manufacturing glazed fruit and the other manufacturing buildings.

So those we sold for the most advantageous price, and we kept refining and will keep refining and will stay, we believe, with our present policy in the concepts we have explained today, leisure time and financial services.

Mr. HARKINS. But certainly in some part of your history in this period your mergers and acquisitions have been the result of opportunities that developed and were not planned just in that regard. Mr. KLEIN. Yes, sir.

Mr. HARKINS. Incidentally, in one of your acquisitions, Lergood Theatre Corp., you acquired 100 percent of the stock for warrants. Were warrants the only consideration given in that acquisition? Mr. KLEIN. Yes, sir.

Mr. HARKINS. This is the only instance that has come up in our study where there has been an acquisition solely for warrants.

Are you familiar with the concept of a financial services holding company that was developed by Edward Netter?

Mr. KLEIN. No, sir.

Mr. HARKINS. Would you consider your company now a financial services holding company?

Mr. KLEIN. I would consider us partially a financial services holding company, yes, not entirely a financial services holding company. I would describe us as a financial services holding company and a leisure time company.

I think that would be correct, sir.

Mr. HARKINS. Page 4 of Mr. Netter's report states:

Such an advanced marketing concept will encompass the servicing of large groups (employees, charge account holders, credit card holders, bank depositors, associations, union members, etc.). With the aid of computers, these financial service organizations will be furnishing the agency force with all data necessary to establish and maintain a well-rounded financial program for the client. Extensive computer systems will maintain up-to-date information relating to individual's family, his income, his place of residence, and other pertinent personal details.

They will also supply information about social security, medical and hospital costs, inflationary trends, and other significant data. As a result, the agent will be more productive to himself, to the client, and to the company, in handling these insurance and financial needs. By necessity, the scope of the program will be national and the corporate complex will undoubtedly service the consumers' needs in:

Mutual funds

Insurance (of all types)

Investments

Premium, auto, and mortgage financing

Consumer and sales finance

Variable annuities

Business services (travel, collections, etc.)

Banking and/or savings and loan

Under this system, the consumer will have one single installment payment covering the various services and, more important, will be certain that he has definite adequate coverage and financial security.

Are these the goals of your financial services holding company operation?

Mr. KLEIN. No, sir. I would say that is quite an ambitious program for somebody to put into effect. Our goals are not to carry it to anywhere near those extremes or those limits.

I think that that is a projection of someone who is an analyst, an insurance analyst, a good analyst. Putting that kind of projection and that kind of philosophy to work practically, I think, is a monumental task, and I don't believe those are our objectives at all.

Mr. HARKINS. Information contained in a letter dated January 14, 1970, has been supplied to the committee. This letter sets forth information about the principal stockholders of your company, who are listed as Eugene V. Klein, Irving H. Levin, and Sam Schulman. Combined they have 14 percent of the outstanding stock, is that correct?

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