Grosset & Dunlap, Inc.-Acquired 100% of stock for cash-principally in March 1968. Educational Film Productions, Inc.-Acquired 100% of stock for cash-August 1968. Great American Holding Corporation-Acquired 7% of stock for cash in June 1968, and 68% of stock in exchange for N G C debentures and warrants in September and October 1968. Lergood Theatre Corporation-Acquired 100% of stock for warrants-December, 1968. DISPOSITIONS FROM JANUARY 1, 1964 TO JANUARY 1, 1969 Bluefield Cable Corporation-Exchanged 100% of stock for 50% of Williamsport-Lycoming Corporation stock-December 1964. Greenborough Corporation-100% of stock sold-February 1966. Alpena, Biloxi, Hattisburg & Logan CATV Systems sold on September 1, 1966. Williamsport Cable Company-100% stock sold (after merger with Williamsport-Lycoming Corporation on 9/30/66)-May 1967. Fox Overseas Theatres Corporation-50% of stock (entire N G C interest) sold-June 1967. Designed Facilities Corporation-100% of stock sold July 1968. LAW OFFICES, WYMAN, BAUTZER,, FINELL, ROTHMAN & KUCHEL, Hon. EMANUEL CELLER, Chairman, Committee on the Judiciary, Washington, D.C., March 26, 1969. DEAR MR. CHAIRMAN: Please be advised that my law firm is the attorney for National General Corporation, one of the companies selected by the House Antitrust Subcommittee for study as outlined in your letter of February 18, 1969 to the company. Yesterday, pursuant to the request set forth in that letter, we delivered to Mr. Kenneth R. Harkins, Chief Counsel of the Subcommittee, the information requested therein. We also gave to Mr. Harkins a copy of a letter from Mr. Harold Lipton, vice president and general counsel of the company, addressed to me dated March 24, 1969. The letter briefly summarizes the history and activities of National General Corporation. I enclose a copy of it herein which, I hope may be helpful. Very sincerely yours, Enclosure. (The document referred to at p. 9 follows:) Hon. THOMAS H. KUCHEL, THOMAS H. KUCHEL NATIONAL GENERAL CORP., Messrs. Wyman, Bautzer, Finell, Rothman & Kuchel, DEAR SENATOR KUCHEL: Reference is made to a letter dated February 18, 1969 from the United States House of Representatives, signed by the Honorable Emanuel Celler as Chairman of the Committee on The Judiciary, addressed to Mr. Eugene V. Klein as President of National General Corporation, and Attachment A attached thereto. Further reference is made to our several discussions concerning the referenced letter and relating to the presentation of the requested information. I do not think it would be inappropriate to give you an historical outline of National General Corporation (the "Company") so as to facilitate an understanding of the material which is being furnished for submission to the Committee. The Company had its genesis by reason of a spin off to stockholders of Twentieth Century-Fox Film Corporation of the stock of a corporation known as National Theatres, Inc. (which name was changed to National Theatres & Television, Inc. and then to National General Corporation), created to own tury-Fox Corporation and directed to be divested under a consent judgment dated June 7, 1951.* I am informed that there were approximately 630 and operate the motion picture theatres previously owned by Twentieth Centheatres involved, but that as a result of the judgment provisions this was reduced to approximately 450 in number. Through the years, by reason of attrition resulting from changing areas (downtown areas giving way to suburbs and shopping centers), lease terminations and commercialization for other uses because of economic reasons, the number of theatres reached a low of 215. The Company now has 270 theatres in operation. Parenthetically, I would like to invite your attention to the fact that permission to acquire, erect or lease a theatre must be obtained from Judge Edmund Palmieri, United States District Court, Southern District of New York. The procedure followed is for a preliminary submission of material to, and consultation with, the Antitrust Division of the office of the United States Attorney General, followed by the filing of a petition in the Court seeking approval for the theatre. As a result of the restraints imposed upon the Company under the divestiture order it was faced with the prospect of continuing as a theatre owning chain with its growth potential severely restricted. In 1961 a change in management of the Company was effected after the Company suffered a serious business loss, and Mr. E. V. Klein was elected President on March 9, 1961. New management recognized that the interests of its stockholders and employees could best be served by embarking upon a diversification program whereby the Company could contribute to and profit from the dynamic and progressive forces which have materially assisted the country's economic growth over the past ten years, but of course there was no magic or novelty in the concept of diversification, for industry leaders for many years had been cognizant of the wisdom of not placing all of one's eggs in one basket. As I indicated to you I firmly believe that one of the prime factors contributing to the success of so many of our major companies has been the ability to move with the times by entry into new businesses and to buttress against the perils of a single business operation (so vulnerable to depressed and seasonable phases) by a judicious diversification program. Through business acumen, accompanied by blood, sweat and tears, the Company has undergone the transition from a precarious financial position in 1961 to a soundly based and progressive company, which it is today. This transition has occurred by virtue of a mixture of internal expansion and outside acquisitions. Management soon recognized that although the general economic condition of industry in the United States was improving, the motion picture industry was suffering from certain ills, not the least of which was the introduction of television, resulting in a severe curtailment of the production of motion pictures. This situation was causing undue and severe hardship to the owners of motion picture theatres. The lifeblood for the theatre owner is the availability of product, and the major studios had retreated from a high of 510 pictures they were producing to an inadequate supply of approximately 142 pictures. In an endeavor to help alleviate this shortage of product and to create another competitor to the relatively few major studios, in 1963 the Company after consulting with the Antitrust Division of the United States Attorney General's office and with their consent, made application to the Court for permission to engage in the production and distribution of motion pictures for theatrical exhibition. After a hearing on the Company's application, the Court determined such action by the Company under certain conditions would not restrain competition and in June, 1963 granted such permission. The order also gave the Company the right to apply to the Court for an extension of such order, which application has been made by the Company and is presently under consideration by the Court. The Antitrust Division has not objected to the extension of the order, although different proposed orders have been submitted to the Court by the Company and the Division. •Twentieth Century-Fox Film Corporation was one of the eight major motion picture distributors who were defendants in the antitrust suit. Present management was not involved in such litigation. With this historical prelude, following is a general discussion. I am taking the liberty of using for the most part the time period commencing with March 9, 1961, rather than January 1, 1960, because present management involvement commenced with the later date. Prior to 1960 the Company had acquired a majority interest in National Telefilm Associates, Inc. ("Telefilm"), a company which produced original television program material and distributed motion pictures for television exhibition. In 1960 the Company declared a dividend to its stockholders consisting of shares of Telefilm, which reduced the Company's ownership to less than 50% of the outstanding shares of Telefilm. Shortly thereafter, the Company terminated its participation in the management of Telefilm and subsequently disposed of its remaining interests in Telefilm. In 1962 a subsidiary of the Company and Sunset International Petroleum Corporation ("Sunset"), a non-affiliated public company, jointly acquired interests in certain unimproved lands for the purpose of developing the lands as planned communities for dwellings and other projects, Although this was the Company's first venture into land development, the Company did own real estate, but primarily as an incident to the ownership of motion picture theatres. In 1965 the Company terminated its relationship with Sunset by exchanging subsidiaries, cash, notes and other securities. Such exchanges resulted in Sunset acquiring the Company's interest in various real estate ventures, and the Company acquiring among other things Sunset's interest in a 29-story office and apartment building, known as Fox Plaza, in San Francisco, California. In February, 1963 the Company acquired the business and substantially all of the assets subject to outstanding liabilities of Mobile Rentals Corporation ("Mobile"), publicly held, in exchange for 483.000 shares of the Company's Common Stock. The business of Mobile as it evloved over the years was the manufacture and installation of relocatable modular units which could be used as single buildings or connected so as to create commercial, educational and recreationol complexes. Additionally, Mobile purchased trailer units which were leased or sold for such purposes as offices, school classrooms, laboratories, conference rooms, storage facilities, etc. Mobile changed its name in June, 1966 to Designed Facilities Corporation (“Designed"). Although the operation of Designed was profitable, the Company determined that this type of manufacturing business was incompatible with its basic business philosophy, and therefore on July 1, 1968 Designed was sold to Kaiser Aluminum Corporation by the transfer of all of the issued and outstanding shares of stock of such wholly owned subsidiary for cash. In August, 1963 a subsidiary of the Company acquired the assets and business of Mission Pak Company ("Mission"), which was engaged in the business of packaging and selling processed and fresh fruits. Prior to acquisition, the Company acquired for cash a minority stock and debenture interest, and thereafter accomplished the acquisition by the issuance of shares of the Company's Common Stock in exchange for Mission's assets subject to liabilities. Mission's principal business is to sell its products at retail through mail and retail stores taken for short term leases during the peak Christmas holiday season. The amount of business done by Mission is relatively insignificant in the overall Company complex. In August of 1964, pursuant to an offer made to the owners thereof, the Company acquired approximately 95% of the outstanding Guarantee Stock of Columbia Savings and Loan Association, a California corporation (“Columbia"). Columbia is an operating savings and loan association engaged in the business of making loans, principally secured by first liens on real estate, to enable borrowers to purchase, construct, improve and finance real property. Loan funds are obtained largely from savings placed with Columbia and from borrowings by Columbia from the Federal Home Loan Bank.. Under the terms of the offer the Company issued an aggregate of $12,687,200, principal amount, of its 5% Subordinated Debentures and 848,638 Common Stock Purchase Warrants, granting the right to purchase Common Stock at $15.00 per share. This constituted the entry of the Company into the financial services field. In December of 1967 the Company acquired the issued and outstanding shares of stock of Banner Productions, Inc. ("Banner") and certain affiliated companies, privately owned, in exchange for 50,000 shares of the Company's Series A Cumulative Convertible Preferred Stock and the right to receive from escrow the Company's Series B Cumulative Preferred Stock, predicated upon an earnings formula for a certain period of time, not in excess of 70,000 of such shares. Banner produced a television series known as "TARZAN", owned "TARZAN" features and had rights to produce additional "TARZAN" films. Additionally, Banner owned certain other properties not significant in nature. In the Company's opinion, re-entry into the television field at this time was a desired and natural expansion of its business. The Company envisioned through Banner, the cross-fertilization of ideas and products (viz. a motion picture produced by the Company suitable for conversion into a television series and vice versa, the extraction of a motion picture script from a television series), a utilization of its know-how in distributing to the television industry motion pictures produced by the Company and acquired for its library, and the creation of additional television material, all to give to the Company a viable television arm. In March, 1968 the Company acquired approximately 71% of the issued and outstanding shares of the Common Stock of Grosset & Dunlap, Inc. (“Grosset") from seven stockholders, and then by a tender offer for the publicly held stock acquired an additional approximate 27% of such shares for a total of 98%, for an aggregate price of approximately $49,000,000 in cash. (The cash was obtained through bank loans.) Thereafter the Company acquired the balance of Grosset by a statutory merger effective August 19, 1968. Grosset and its wholly owned subsidiary, Bantam Books, Inc., are engaged in the business of publishing and distributing books. They develop publishing ideas, secure and edit manuscripts, select books and arrange for reprint licenses, commission art work, design formats, supervise production, and promote and distribute books. Grosset deals essentially in hardcover books while Bantam's field is that of mass market paperback books. Here again the Company saw the opportunity for the cross-fertilization of ideas which has come to pass. In August, 1968 the Company acquired 100% of the issued and outstanding shares of Common stock of Educational Film Productions, Inc. ("Educational"), a private company, for the payment of approximately $110,000 in cash and the obligation to pay additional cash amounts predicated upon an earnings formula. Educational is engaged in creating short motion picture films to be utilized as teaching aids in the medical profession. The Company has undertaken to advance the cash needed for the development of such films. The fit of Educational into the Company and its business concepts is apparent. In June, 1968 the Company purchased approximately 400,000 shares (approximately 7%) of the issued and outstanding Common Stock of Great American Holding Corporation ("Holding Corporation"), a holding corporation owning shares of several affiliated insurance companies. Thereafter, by tender offer made and commenced on September 30, 1968, the Company acquired an additional approximate 68% for a total of 75%; then through a renewed tender offer commenced on January 10, 1969, an additional approximate 18% was acquired for a total of 93%. By statutory merger effective February 25, 1969, the Company acquired full ownership of Holding Corporation. The Company has issued or will issue for the Holding Corporation stock tendered, approximately $270,725,400 of its 4% Convertible Debentures and 8,121,762 of its $40 Common Stock Purchase Warrants. This acquisition was in keeping with the Company's philosophy of complementing the financial service phase of its business. Again, pursing the concept of cross-fertilization, the Company saw an opportunity to create mutual benefits with other of its subsidiaries, viz., a variation on the Sears Roebuck concept of selling insurance in its retail shops, namely, the possible use of its theatres for the sale of insurance; further promise if offered by an expansion of the persons (shareholders and policyholders) interested in the Company, with the resultant additional potential for the Company's theatres, books and other products. Pursuant to the Company's avowed intention to seek to expand in profitable insurance business (contrary to the apprehension expressed by some persons and governmental authorities that the Company intended to liquidate the insurance operation), the Company has made a tender offer for all of the issued and outstanding shares of Common Stock of Republic Indemnity Company of America ("Republic") at $15.00 cash per share, for an approximate total price of $13,000,000.* Republic is engaged primarily in the Workmen's Compensation aspect of the insurance business and has shown a profit and a potential for profit commensurate with the offer made by the Company. The Company has also entered into an agreement to purchase all of the outstanding shares of Guarantee Stock of Harbor Savings and Loan Association, subject to approval of interested regulatory agencies and audits to be made by the Company, for a total price of approximately $6,500,000 payable in cash. The merger of Harbor and Columbia will provide a larger and stronger savings and loan association geared to meet the expectant increased demands for borrowings, and to create an organization capable of better serving the public by a more efficient operation with an expected attendant increase in profits. In presenting the brief outline above, I have not included some minor acquisitions which, however, will appear in the information supplied under subsequent paragraphs. In addition to the disposition reference stated above, the Company sold its CATV systems in separate transactions, the first occurring in 1966 and the second in 1967. The one transaction that comes within the purview of being "proposed merger or acquisition transactions that were abandoned during the period from 3/9/61 to 1/1/69", is the abortive deal with Warner Bros.-Seven Arts Limited ("W-7A"). This acquisition was abandoned in January, 1968, when the Company and W-7A decided, after an exploration of the entire matter, that no acceptable method could be adopted for the consummation of the transaction. I shall take up the requests made in Attachment A. To facilitate the handling of the material furnished I have placed in containers folders fastened in subdividers labeled to correspond as closely as possible to the requested items. I. In the container marked "I" you will find the items "1" through "5" of the referenced letter. 1. Under item "1" you will find (a) the overall structure of the Company; (b) the details of the primary management structure of the corporate headquarters on January 1, 1969 (corporate structure on January 1, 1960 presently not available); (c) a list of all subsidiaries or affiliates in which the Company had fifty percent or more of the voting stock as it existed on January 1, 1960 and on January 1, 1969. It should be noted here that the somewhat unusual number of subsidiaries is attributable to a Company policy of having corporations with ownerships of as little as one theatre, or for a particular piece of property. This policy was initiated from the very commencement of the Company's existence. Although there has been consolidation of these corporations over the years, there remains a substantial number of these kinds of subsidiaries. The Company does not have any management manual or statement of policy for the use of senior corporate management officials in the consideration of proposed mergers or acquisitions of outside corporations. There is no distinct and separate staff organization for mergers and acquisitions, and therefore no chart for the same is included. 2. Under item "2" is a list of the persons whose management functions have included responsibility for identification, development, evaluation and final decision on merger and acquisition transactions during the period of March 9, 1961 through February 1, 1969. (It should be noted that Mr. Samuel Schulman joined the Company in August, 1963, and Mr. Harold A. Lipton in October, 1963.) 3. With respect to item "3", the Company has not retained or used any investment banking firm, consultant, broker or other persons outside of the Company organization to develop or evaluate participation in proposed merger or acquisition transactions during the period of March 9, 1961 through February 1, 1969. If any person has acted as such it has been on an ad hoc basis and pertinent details are included in documents submitted in response to item "6". 4. Under item "4" is a list of the transactions during the period of January 1, 1960 to February 1, 1969, in which the Company acquired or disposed of fifty percent or more of the voting stock of another corporation. It should be noted that this list will not include those subsidiaries referred to in item "1" which have been used as part of the Company's business policy of individual or multiple I am informed that as of the writing of this letter more than 80% have tendered their shares to the Company. |