insurance parent and the likelihood that such recommendation for legislation may be implemented prior to the time when NG might reasonably anticipate gaining control of the Board of Directors of Great American Insurance Company. 37. The audited financial statements of NG and the notes relating thereto are false and misleading in a number of respects. Among these are the understatement for the fiscal year ended September 26, 1967 (Summary of Earnings, page 16) of income from discontinued operations as $603,552.00 rather than $812,000.00. This understatement has the effect of inflating the income from continuing operations so as to suggest that such continuing operations are more profitable than in fact they are. 38. The footnotes to the Summary of Earnings (pages 16 and 17 of the Prospectus) fail to disclose the termination of the 'Tarzan' contract described earlier in this complaint, even though termination of much less material contracts are disclosed on page 219 in respect to a relatively insignificant affiliate of Warner-Seven Arts. The defendants have attempted to hide the omission of material facts behind the smokescreen of trivia. 39. Many of the misstatements included in the NG Prospectus are also found in NG's proxy statement pursuant to which it sought approval by its stockholders at a meeting held September 10, 1968 for the authorization of the common stock to be issued on conversion of the debentures and exercise of the warrants NG now offers to plaintiff's stockholders. The NG Prospectus is misleading in that it fails to disclose that by reason of such misleading proxy statements there is a serious question as to whether such NG common stock was validly authorized by NG's stockholders and as to whether NG has satisfied the requirements [sic] FOR A SECOND CAUSE OF ACTION 40. Plaintiff realleges paragraphs 1 through 39. 41. The NG Prospectus of September 19, 1968, and the activities of the defendants and co-conspirators in connection therewith are part of a common scheme, plan and design commenced at the beginning of June 1968 and continuing thereafter to the present to acquire for defendant NG control of plaintiff and the stock which plaintiff holds in Great American Insurance and to prevent plaintiff and its stockholders from exercising their right to sell plaintiff's assets to AMK or anyone else free of fraud, deception and misrepresentation. The defendants and co-conspirators whose identities are presently unknown to plaintiff, including but not limited to dealers soliciting exchanges pursuant to NG's tender offer, on the New York Stock Exchange, in pursuit of such common plan, scheme and design, conspired and continued to conspire to violate § 17a of the Securities Act of 1933, §§ 9, 10b, 14a, and 14e of the Securities Exchange Act of 1934 and the Rules and Regulations promulgated thereunder, including but not limited to Rules 10b-5 and 10b-6 of the Securities and Exchange Commission. 42. The defendants and co-conspirators manipulated the prices of the securities of NG, AMK and plaintiff on the New York Stock Exchange and issued and caused to be issued false and misleading statements to deceive and defraud plaintiff, its stockholders and the investing public in general. 43. On or about June 10, 1968 and thereafter defendant NG engaged in the acquisition of substantial blocks of plaintiff's stock through defendant Carter, Berlind, a broker, dealer and member of the New York Stock Exchange, by acquiring approximately 400,000 shares, or 7% of plaintiff's stock. As part of the deceptive device, scheme and artifice to manipulate and defraud here alleged Carter, Berlind violated and defendants conspired that Carter, Berlind should violate, § 7 of the Securities Exchange Act of 1934 and Regulation T promulgated thereunder by the Board of Governors of the Federal Reserve System in that Carter, Berlind extended 100% credit to defendant NG on a cash sale for 21 days whereas Carter, Berlind was required to receive payment within five days of the purchase. 44. Moreover, it was part of such scheme that defendant Carter, Berlind should, and did, misrepresent for the purpose of concealment that these purchases were made at 'seller 30,' purporting to be a late delivery for convenience of the seller rather than as the case was, in fact, for the convenience of defendants in the illegal extension of credit by Carter, Berlind to NG. 45. Defendants NG and its President Eugene V. Klein, in order to induce the New York Stock Exchange to lift a suspension of trading in NG stock imposed throughout the day of June 11, 1968, issued a false and misleading public statement on Wednesday, June 12, 1968 (while the New York Stock Exchange was closed) that NG's acquisition of plaintiff's stock was made 'as an investment and that NG had no plans regarding possible additional stock purchases or to seek representation in the management of the plaintiff. 46. Within a day of issuing the aforementioned false and misleading statement, defendant NG's President Klein contacted plaintiff's management for an appointment the following week, June 18, 1968, at which time the defendant Klein stated that he had, in fact, purchased plaintiff's stock for the purpose of a take-over and not for investment as he had fraudulently misrepresented to the public on June 12. He stated his decision had, in fact, been made a week prior to the June 12 false, fraudulent and misleading NG statement, and that his investiment statement was given as a 'token compliance' with the request of the New York Stock Exchange. 47. At the above mentioned meeting defendant Klein offered inducements to senior management of plaintiff to forestall opposition to NG's take-over bid, including representations as to liberal stock options and remuneration which others received by joining NG through acquisitions. He also stated that NG's corporate jet aircraft was readily available for personal use. 48. In the last week of June, NG finally issued a press release setting forth an offer which it would make for the plaintiff's remaining outstanding shares and stating that a registration statement covering the offer, proposing to exchange NG's securities for tendered Common Stock of plaintiff, would be filed as soon as possible with the Securities and Exchange Commission. 49. As part of the deceptive, fraudulent, misleading and manipulative scheme herein alleged, the defendants from on or about June 10, 1968 engaged in purchases and sales of the securities of plaintiff, of defendant NG and of AMK which were intended to, and which had the effect of, artificially rigging the market price of these securities. 50. Among other things, down-side stabilization of the market price of plaintiff's stock was effected through sales by NG, and certain of its associates, including Kleiner, Bell, to depress the price of plaintiff's stock while greater amounts of such stock were being acquired by other NG associates and co-conspirators whose identities are presently unknown to plaintiff. As part of the fraudulent and deceptive scheme to manipulate the stock price of plaintiff for the benefit of defendants, Kleiner, Bell, a Dealer Manager of NG's tender offer purportedly interested in the retention rather than disposition of plaintiff's Common Stock, in fact made artfully timed sales of more than 100,000 shares of plaintiff's Common Stock from June 26 through September 12, 1968. 51. It was part of the conspiracy that defendant NG should sell between June 5 and June 13, 1968 440,000 warrants to acquire NG stock during the next six years at $15 a share to certain funds, corporations, partnerships, joint ventures and individuals, including the sale of 100,000 of such warrants on June 5, 1968 in the week in which defendant Klein admitted having determined upon a take-over of plaintiff and its assets. The June 5th 100,000 warrants were sold to a fund for $19 each, although the price of NG stock on the New York Stock Exchange on June 5 was already $39 per share. On sales of 340,000 warrants between June 11 and June 13, the price was $22.37 a warrant, although the market price of the NG stock closed at $40.50 on June 10 and at $44% on June 13 (trading was suspended on June 11 on NG stock and the Stock Exchange was closed on Wednesday, June 12). 52. On information and belief, such NG warrants were sold far below the market price of NG's stock to induce the recipients of the warrants to participate in the conspiracy with NG to manipulate the market prices of the stock of AMK, plaintiff and NG and to induce said recipients to conspire with NG by acquiring Common Stock of plaintiff to prevent plaintiff's sale of its assets, including its stock in Great American Insurance, to AMK Among other things, the recipients were to acquire plaintiff's stock while defendant Kleiner, Bell effected the downside stabilization in such stock in June and July, 1968 as above alleged. The warrants were sold to induce the recipients to conspire with NG and the other defendants in violation of §§ 9, 10, 14a and 144 of the Securities Exchange Act of 1934 and of Rules 10b-5 and 10b-6 of the Securities and Exchange Commission. Recipients did so conspire by thereafter acquiring large amounts of the Common Stock of plaintiff for the purposes of furthering the ends of the fraudulent scheme. 53. In the same period, defendants and their co-conspirators for their own account and on behalf of others purchased and caused the purchase of NG stock to create and creating actual and apparent trading activity in such stock and to induce and inducing the purchase of NG stock by others. The purpose of this activity and apparent activity was to create the false and misleading impression among the stockholders of plaintiff's Common Stock that the market value of the securities offered by NG exceeded the market value of the securities offered by AMK 54. Defendants' manipulations included but were not limited to sharply driving the price of the NG stock up just before NG's announcement on or about June 26, 1968 that it intended to make an offer for plaintiff's Common Stock, defendants having caused the price to rise from approximately $40 per share on June 10 to $60 per share on June 25, 1968. The price of NG stock returned to a low and middle $40 range in July, August and early September, 1968, but again was manipulated by defendants to open at $51 on September 19, 1968, the day on which NG's Registration Statement for its tender offer became effective. 55. For the same purpose and concurrently, defendants and their co-conspirators, sold or caused the sale of AMK stock to create actual and apparent trading activity in such stock, to lower the price of such stock and to induce the sale of AMK stock by others. 56. As part of the manipulative scheme, defendants caused to be issued false and misleading statements relating to NG designed to artificially enhance the apparent value of NG's securities. Furer, the defendants, including Allen & Co., Kleiner, Bell and Carter,.Berlind, caused to be made false and fraudulent statements to brokers, dealers, investment trusts, mutual funds and other institutional investors relating to AMK, its officers and directors to induce them to dispose of large blocks of AMK stock to depress the market therein and to convince them to tender plaintiff's stock and proxies to NG. 57. As part of the false and fraudulent scheme the defendants caused to be circulated among brokers, dealers, investment trusts, mutual funds and other institutional investors in, among other places, New York City, Boston, Minneapolis and Chicago, false statements that NG controls 45%, and, later, 55%, of the outstanding stock of plaintiff and that accordingly stockholders of plaintiff will not approve the proposed agreement between plaintiff and AMK, but will instead accept NG's tender offer. Defendants at all times well knew that NG does not and never has controlled any amount approaching 45%, much less 55%, of the outstanding stock of plaintiff. The purpose of defendants' misrepresentations was to conceive large investors by fraud and deceit to tender plaintiff's stock to NG and also to induce them to sell large blocks of AMK immediately prior to and on the effective date of NG's exchange offer. 58. Among the false and fraudulent misrepresentations made by the defendants were statements to mutual funds and other institutional investors that Eli M. Black, President and Chairman of the Board of AMK, was 'a very sick man and in the hospital with a bleeding ulcer' and that it would be appropriate therefore for such funds to 'lighten their holdings' in AMK, all with the purpose of fraudulently depressing the market price of AMK's securities in order to give the NG tender offer a false appearance of having a higher relative value than it, in fact, had. Defendant Kleiner, Bell was active in making such false representations. Frequently the approaches by defendants were to people they did not know but whom they called, as defendants and their soliciting dealers admitted, because they knew the receipient of the call was a sizable holder of AMK stock. In at least one instance, when the caller was advised by an institutional investor that the statement was completely untrue and that Black was not at all ill and not at all in the hospital and did not have a bleeding ulcer, the caller said he had been mistaken, that it was the chief operating officer of AMK's principal subsidiary who was so indisposed. The fund officer thereupon discovered this statement also to be an outright fabrication. Again, the wilfully false and malicious representations by the defendants were made with purpose of causing substantial investors to unload AMK stock and artificially depress its market price. 59. It was also in furtherance of the conspiracy here alleged that defendant NG made an offer to purchase Common Stock of plaintiff from Insurance Securities Trust Fund, a holder of more than 5% of plaintiff's Common Stock, in violation of § 17a of the Investment Company Act of 1940. Plaintiff is an affiliated person of Insurance Securities Trust Fund within the meaning of § 2a(3) of said Act. Defendant NG, having admitted to owning 7% of the Common Stock of plaintiff, is an affiliated person of plaintiff within the same Act. It was part of the conspiracy that NG should not and did not apply for and receive prior to such offer an appropriate order from the Securities and Exchange Commission under § 17b of the Investment Company Act of 1940 as required by law. Defendants' purpose in so failing to comply with the law was and is to avoid disclosures detrimental to defendants although required for the protection of plaintiff as a seller of its stock in Great American Insurance to AMK, plaintiff's public stockholders and the investing public. 60. It was also in furtherance of the conspiracy here alleged that the defendants and their co-conspirators should and did violate § 13d (1) of the Securities Exchange Act of 1934 by failing to file with the Securities and Exchange Commission information required by § 13d of said Act and the rules and regulations of the Securities and Exchange Commission thereunder, said defendants constituting a syndicate or other group acting for the purpose of acquiring the securities of plaintiff prior to the effectiveness of NG's registered exchange offer within the meaning of § 13d (a) of the Securities Exchange Act of 1934. Defendants' purpose in so failing to comply with the law was and is to avoid disclosures detrimental to defendants although required for the protection of plaintiff as a seller of its stock in Great American Insurance of AMK, plaintiff's public stockholders and the investing public. FOR A THIRD CAUSE OF ACTION 61. Plaintiff repeats and realleges paragraphs 1 through 60. 62. The defendants and co-conspirators whose identities are presently unknown to plaintiff, by the acts and conduct alleged, have conspired and are conspiring to violate § 14e of the Securities Exchange Act of 1934 by making untrue statements of material facts and omitting to state material facts necessary in order to make the statements made no misleading, and by engaging in fraudulent, deceptive and manipulative acts and practices in connection with the tender offer by defendant NG for the stock and assets of plaintiff. FOR A FOURTH CAUSE OF ACTION 63. Plaintiff repeats and realleges paragraphs 1 through 60. 64. The defendants and co-conspirators whose identities are presently unknown to plaintiff, by the acts and conduct alleged, have conspired and are conspiring to violate § 17a of the Investment Company Act of 1940 by failing to apply for and receive an order from the Securities and Exchange Commission under § 17b of the Investment Company Act of 1940 before making an offer by NG to purchase Common Stock of plaintiff from Insurance Securities Trust Fund, a holder of more than 5% of plaintiff's Common Stock, of which defendant NG is a holder of 7%. Defendants' purpose in so failing to comply with the law was and is to avoid disclosures detrimental to defendants although required for the protection of plaintiff as a seller of its stock in Great American Insurance to AMK, plaintiff's public stockholders and the investing public. FOR A FIFTH CAUSE OF ACTION 65. Plaintiff repeats and realleges paragraphs 1 through 60. 66. The defendants and co-conspirators whose identities are presently unknown to plaintiff, by the acts and conduct alleged, have conspired and are conspiring to vio.ate § 13d(1) of the Securities and Exchange Act of 1934 by failing to file with the Securities and Exchange Commission information required by § 13d of said Act and the Rules and Regulations of the Securities and Exchange Commission thereunder for the protection of plaintiff, its public stockholders and the investing public, said defendants constituting a syndicate or other group acting for the purpose of acquiring the securities of plaintiff within the meaning of § 13d (2) of the Securities Exchange Act of 1934. FOR A SIXTH CAUSE OF ACTION 67. Plaintiff repeats and realleges paragraphs 1 through 60. 68. The defendants and co-conspirators whose identities are presently unknown to plaintiff, by the acts and conduct alleged, in violation of § 7 of the Securities Exchange Act of 1934 and Regulation T of the Board of Governors of the Federal Reserve System thereunder, conspired to have defendant Carter, Berlind, a broker, dealer and member of the New York Stock Exchange, unlawfully extend to the defendant NG 100% credit for 21 days upon purchases of approximately 400,000 shares of plaintiff's stock by NG through defendant, Carter, Berlind. 69. It was further part of such conspiracy, continuing to the present; that the defendants should and did wilfully conceal that unlawful credit was extended to NG for these purchases by causing defendant Carter, Berlind to falsely and deceptively announce publicly that such purchases were made on the basis of 'seller 30'. The purpose and effect of such deceit, in violation of §§ 9, 10b, 14a and 14e of the Securities Exchange Act of 1934 and of Rule 10b-5 of the Securities and Exchange Commission, was to fraudulently interfere with the sale by plaintiff and its stockholders of plaintiff's assets, including its stock in Great American Insurance, to AMK 70. From the acts and conduct of defendants alleged in each of the above Causes of Action, plaintiff will suffer irreparable damage and is without adequate remedy at law. WHEREFORE, plaintiff demands 1. That defendants, their officers, directors, partners, employees, agents, servants and attorneys, and all persons in active concert or participation with them who receive actual notice of said injunction by personal service or otherwise, be temporarily and permanently enjoined and restrained from (a) accepting any tender of shares or proxies of plaintiff's Common Stock made, directly or indirectly, through or pursuant to the Registration Statement of defendant National General Corporation and Prospectus which became effective on September 19, 1968; (b) voting any of plaintiff's stock or proxies acquired or solicited by or on behalf of defendants, or any of them, since June 1, 1968 at plaintiff's Special Meeting of Stockholders on October 8, 1968 or at any meeting of plaintiff's stockholders to and including June 30, 1969; (c) advising or recommending to any entity or person concerning the purchase or sale of plaintiff's stock or the stock of AMK or circulating or disseminating to any entity or person any further information concerning plaintiff's or AMK stock; (d) advising or recommending to any person or entity that votes should be case against the sale of plaintiff's assets to AMK. 2. A judgment declaring invalid and void all proxies solicited directly or indirectly by or on behalf of defendants in opposition to the proposal by plaintiff's management to be voted on by plaintiff's stockholders on October 8, 1968. 3. A judgment awarding to plaintiff damages and the costs and expenses of this action. 4. Such other and further relief at law or in equity as the Court may deem just and proper." (The information referred to at pp. 68, 79, 87 follows:) Mr. E. WEINBERG, Wyman, Bautzer, Finell, Rothman & Kuchel, NATIONAL GENERAL CORP., DEAR MR. WEINBERG: Reference is made to your telephone conversation advising that the House Antitrust Subcommittee requested additional information. The following is submitted in response to such request. (1) Concerning availability of funds for payment of Great American Holding Corporation stock purchased and to be delivered to National General Corporation ("National"): At the outset, it should be pointed out that National sought to avoid the 1968 "back office" problems plaguing the securities industry by requesting that the purchased Great American Holding Corporation stock certificates be delivered against payment therefor. National had sufficient monies in several bank accounts to make such payments when same became due. However, in order to have all payments made from a single account when stock certificates were delivered, National established a special depository account at Security Pacific National Bank in which deposits were made under instructions to pay funds therefrom against delivery of Great American Holding Corporation stock certificates. A preliminary review indicates that the following funds were delivered to Security Pacific National Bank for deposit in such account between June 3 and July 7, 1968: (2) There were 448 record holders of Great American Insurance Company shares as of February 7, 1969. (3) As a result of its two tender offers to Great American Holding Corporation shareholders, National issued $270,823,800.00 aggregate principal amount of its 4% subordinated convertible debentures due 1993, and 8,124,714 of its $40 common stock purchase warrants in exchange for Great American Holding Corporation shares. Additionally, as of March 31, 1970. National issued 1,018,849 of its $40 common stock purchase warrants to former Great American Holding Corporation shareholders pursuant to the provision of the February 25, 1969 merger of Great American Holding Corporation into National. Very truly yours, BERNARD R. KAUFMAN, Assistant General Counsel for Corporate Matters. |