declaration of dividends, the entry into these two fields with a total of $24 million certainly is strong evidence of the company's intent in that regard, sir. Do you recall that testimony?

Mr. FINELL. Yes, sir.

Mr. HARKINS. Is that a correct reading of your testimony as you recall it?

Mr. FINELL. Yes, sir.

Mr. HARKINS. So there is no dispute with the fact that the money used to acquire Republic was obtained from dividends paid from the surplus of Great American Insurance Co. ?

Mr. FINELL. Sir, I have not said that. I did not know necessarily where the money came from because I didn't know what the financial situation of National General was. The question was addressed to me as to whether or not National General's entry into the insurance field would result in a restriction of the availability of insurance to the public by cutting down the insurance operation.

What I tried to explain to the Senator at that time was that National General was in fact totally committed to going forward with insurance activities and would not in any way narrow the market but, hopefully, would have the effect of broadening the market.

I mentioned the dollars, but didn't intend to say, sir, where those specific dollars came from.

Mr. KLEIN. Counsel, I think we can safely say that in all probability the money came directly from the dividend, although it is very difficult to specifically earmark money.

I think we can say that safely.

Mr. HARKINS. There is a reasonable assumption.

Mr. KLEIN. Yes, sir.

I would like to add one more point to the cash purchase of Republic Indemnity and I would like it to be on the record. That is the fact that there was a competing offer for Republic Indemnity for $14 a share cash, and National General decided to top it by $1, which we did, to $15 a share, cash.

Mr. HARKINS. On January 14, 1969, the Great American dividend was declared pursuant to a resolution of the board of directors of Great American Insurance Co.

The parties who voted on that resolution included Eugene Klein, Irving Levin, Harold A. Lipton, Marvin Finell, and Nathan Kates, is that right?

Mr. KLEIN. Yes, sir.

The CHAIRMAN. What was the amount of that dividend?

Mr. KLEIN. Approximately $171 million or $172 million.

Mr. McCLORY. May I ask a question at this point for my own clarification?

What has been the result of the insurance business since this acquisition of Great American? Has it expanded and served a greater public purpose or has it been reduced as a result of utilizing the surplus or the surplus surplus?

Mr. KLEIN. As of the last audited figures, September 30, 1969, in our first year of operation we have expanded our policy writings between 8 and 10 percent, sir. So we have gone forward and expanded. Mr. McCLORY. How does that compare with the prior expansion that the company was experiencing?

Mr. KLEIN. I think it was exactly in line with prior expansion, sir. The CHAIRMAN. Are you canceling insurance policies involving theft of personal property in homes?

Mr. KLEIN. No, sir.

The CHAIRMAN. I find that true with large insurance companies, in similar situations as this insurance company mentioned now. It was so with Leasco, and the so-called "surplus surplus" of Reliance Insurance Co. which was shaved off, siphoned off, and made available to Leasco, which moneys I am informed were used by the acquirer. This has apparently resulted in the wholesale cancellation of certain risk insurance policies. This may or may not be true.

I wondered whether or not those cancellations would have occurred if that surplus surplus had remained in the coffers of the insurance company, and if no dividend had been declared to siphon it off.

Do you say now you are not canceling those policies?

Mr. KLEIN. Sir, I can make an unequivocal statement. I don't know what happened at Reliance or Leasco, I can't speak for them, but I can speak for National General and Great American Insurance Co., that the declaration of the dividend in no way, shape or fashion or form exerted any influence on the policy of writing insurance.

The CHAIRMAN. Will you make sure of that and at the next meeting will you indicate, after you have made an examination, whether or not you are or are not canceling certain types of insurance which cancellation may have a direct relation to the fact that the surplus of the company has been substantially reduced?

Mr. KLEIN. I can make that statement without checking, sir, that that is absolutely not the case with Great American Insurance and National General.

The CHAIRMAN. I have a policy, that was canceled, apparently because, I was told, the insurance was a risk insurance, and Reliance felt it was necessary to cancel that insurance. It was an insurance policy on my daughter's personal effects.

Are you willing to take that policy in your company?

Mr. KLEIN. Yes, sir.

The CHAIRMAN. You might get some business.

Mr. KLEIN. We are always looking for business, sir.

The CHAIRMAN. Be careful now of what you are saying.

Mr. KLEIN. I am trying to be, sir.

Mr. FOGT. Regardless of whether or not you are canceling policies, have you, since you have taken over Great American, lowered premiums that your insured were paying?

Mr. KLEIN. No, sir; I don't believe we have.

Mr. FOGT. Would you have been able to do that if you hadn't declared a dividend?

Mr. KLEIN. No, sir.

Mr. FoGT. You wouldn't?

Mr. KLEIN. No, sir. It had no effect on premium rates at all.

Mr. FOGT. Isn't the amount of a dividend which can be paid a function of net premiums written?

Mr. KLEIN. No.

Mr. HARKINS. Mr. Klein, I hand you a document which has been delivered to the committee. It purports to be the minutes of the board

of directors of the Great American Insurance Co., but I can't identify the board that is meeting there.

Is this the board of the Great American Holding Co. or the board of the Great American Insurance Co. ?

Mr. KLEIN. May I clarify? There is no longer a Great American Holding Co. Great American Holding Co. was dissolved.

Mr. HARKINS. I know, but on January 14, 1969, what is the board whose members were present? Who are the members present and which board was it?

Mr. KLEIN. That is the insurance company, sir, the Great American Insurance Co.

Mr. HARKINS. Then this document contains the minutes of the Great American Insurance Co. ?

Mr. KLEIN. I assume so; yes, sir.

Mr. HARKINS. On January 14, 1969, when the dividend was declared by Great American Insurance Co. to the Great American Holding Co., what was the status of negotiations for the acquisition of Republic? Mr. KLEIN. There were none.

Mr. HARKINS. Had you had any discussions before January 14? Mr. KLEIN. No, sir.

Mr. HARKINS. However, you entered into an agreement on January 16, 2 days later?

Mr. KLEIN. Yes, sir.

Mr. HARKINS. And you reached this agreement, an understanding in principle, in 2 days?

Mr. KLEIN. In 2 hours, sir.

Mr. HARKINS. And you had had no discussions with Mr. Finell before?

Mr. KLEIN. That is correct, sir.

Mr. HARKINS. At the time the vote was taken on January 14, 1969, when they voted the dividend distribution to the Great American Holding Co., Mr. Finell, did you have any intention or idea that Republic would be acquired?

Mr. FINELL. No, sir.

Mr. HARKINS. Had there been any discussions?

Mr. FINELL. There had not.

Mr. HARKINS. Mr. Lipton, at the time you voted on January 14, 1969, to distribute those dividends, had you had any discussions with anybody concerning the acquisition of Republic?

Mr. LIPTON. I did not.

Mr. HARKINS. On February 11, 1969, National General wrote a letter to the SEC in response to a request for information concerning the intended use by National General of securities which were to be paid in the dividend.

Do you recall this letter of February 11, 1969 ?

Mr. LIPTON. Sir, are you addressing yourself to the letter written to the Securities and Exchange Commission?

Mr. HARKINS. Yes, sir.

Mr. LIPTON. That was written by Jerald Schutzbank.

Mr. HARKINS. That is correct; written on behalf of National General by the counsel.

Mr. LIPTON. That is correct, sir.

Mr. HARKINS. In this letter, Jerald Schutzbank advised the SEC as follows, on page 9 of the letter.

In response to your request for information concerning the intended use by National and Holding Corporation of the securities which Holding Corporation will receive as a dividend from Great American, we are unable to reply definitively at the present time. No determination has yet been made, other than the probability that such securities will be transferred from Holding Corporation to National in the course of the merger or dissolution referred to above. Such securities may be held in the form received, they may be traded for other securities which management determines more appropriate in the current market, or some or all of the securities may be liquidated for any of a number of possible uses, including acquisitions not yet even conceived, reduction of presently outstanding debt, or as a part of the general working capital of the companies.

In summary, the only decision which has been made at the present time is that certain legal steps should be taken, including the payment of the dividend and a subsequent merger or dissolution, which will enable National to move quickly and flexibly in the future, without incurring adverse tax consequences, as National's management determines to be in the best interests of its business and its shareholders, from time to time.

This letter was written on February 11.

On January 16, 2 days after the dividend was declared, you entered into an agreement to acquire Republic.

Mr. KLEIN. On a 3-for-1 stock basis.

Mr. HARKINS. However, that agreement to acquire Republic, as you have testified this morning, involved the declaration of the dividend from Great American to the holding company.

Mr. KLEIN. I am sorry, sir. I wish to strike that. Excuse me.

Mr. HARKINS. The purpose of this question and the reference of the SEC letter is to determine if the acquisition of Republic was underway on February 11, 1969.

Mr. KLEIN. On February 11 it was, sir. But if I may refresh both of our memories as to the series of events that took place prior to that, the declaration of the dividend had absolutely nothing to do with the acquisition of Republic Indemnity.

The acquisition of Republic Indemnity was to be done for stock of National General versus stock of Republic Indemnity. It was the original intent of the acquisition, and certainly the intent of the acquisition, that that was to be the transaction.

There is absolutely no correlation whatever of the dividend vis-a-vis the acquistion of Republic Indemnity. It was planned, it was my offer and accepted by Mr. Finell, on behalf of Republic, to tender three shares of Republic Indemnity for one share of National General common stock.

It had nothing to do with any declaration of the dividend. It was changed because of a competing offer that came in, an offer of $14 a share cash. There were shareholders who felt they would rather have the cash than the securities.

National General went into executive session to see what they would do about it, would they withdraw from the proposed acquisition or would they proceed and try to better the deal.

We then decided to offer $15 cash at that time and only at that time. There was never a discussion before of cash value. It was all done for National General common stock.

I would like to make it very clear, sir, that it was contemplated

that the declaration of the dividend from Great American Insurance had no relation whatever to the Republic Indemnity proposed transaction or subsequent transaction at the time the dividend was declared, because it was the intent to do it for stock.

The CHAIRMAN. Was it the possibility of a dividend to be declared in certain quarters that induced you, perchance, to go into this transaction?

Mr. KLEIN. No, sir.

The CHAIRMAN. It was never mentioned at all?

Mr. KLEIN. No, sir.

The original letter that Mr. Schutzbank sent to the SEC was dated February 11. The cash offer was February 19. On February 21 we notified the SEC by letter of the transaction.

Mr. HARKINS. On February 11, had there been discussions of a cash offer for Republic?

Mr. KLEIN. No, sir.

Mr. HARKINS. When did you first learn that somebody else was making a cash offer?

Mr. KLEIN. Mr. Finell?

Mr. FINELL. To the best of my recollection, that occurred within 3 days of the time that National General extended the $15 offer. It was a period of no more than 2 or 3 days.

The first time it was discussed between Mr. Klein and myself or anyone else was within 2 days of the date of the offer which was February 19.

So it was no earlier than February 15 at the outside that cash was ever mentioned as a basis for the transaction.

Mr. HARKINS. Nonetheless, the cash that was paid for Republic was derived from the dividend declared?

Mr. KLEIN. Yes, sir.

Mr. HARKINS. And, Mr. Finell, at the time they voted to declare the dividend, you were chairman of the board of Republic? Mr. FINELL. Yes, sir.

Mr. HARKINS. We have a document which was written on December 30, 1968 by the law firm for National General.

I will show it to you. It says at paragraph No. 1 on the first page, "(c) services performed by Marvin Finell in connection with Great American Holding Corp."

I hand you this document so you can identify it.

Mr. LIPTON. This is the agreement between the firm and National General Corp.

Mr. HARKINS. What is the meaning of item (c) there on the first page, the services of Marvin Finell, in connection with Great American Holding Corp.?

Mr. LIPTON. In setting forth the basis for the agreement, one of the items considered was for the services which had been rendered by Mr. Finell up to that time in connection with the Great American Holding Corp. in connection with the discussions that we had with Mr. Finell and the use of his expertise in coming to a decision as to whether to go forward on Great American Holding Corp. and other items involving that corporation.