Mr. MOORE. That is what I wanted to bring out, Mr. Davis, and I appreciate your particular position with respect to the history of the program. May I also add, Mr. Chairman, that in all of this recital of Mr. Davis, in 1957, and 1956, and 1959, and 1960, the gentleman from West Virginia was also a member of the Select Committee on Small Business and I had my words in on this act at that time although I am not mentioned in your statement. I just want you to know that I was just as interested. Mr. DAVIS. I appreciate that. The CHAIRMAN. Mr. Moore has always been a very valuable member of this committee. You mentioned better public relations, reduce interest rates on certain types of loans and creating a secondary market for certain investments and adjusting interest rates downward on amounts of investments with a ceiling of under $100,000-this is a matter that we could go into quite lengthily-and tighter regulations on conflicts of interest and self dealing. Would you hold yourself in readiness to come back to the committee at another time? Mr. DAVIS. Yes, sir. The CHAIRMAN. We are going to excuse you now and call Mr. Ruvelson as our next witness. Mr. DAVIS. Yes, sir; and I am hoping to be here all day. The CHAIRMAN. We have a 12 o'clock adjournment deadline which we have to make for another purpose but we will be back at 2 p.m. and we want to hear you more. Thank you, Mr. Davis. Mr. DAVIS. Thank you, gentlemen. (Additional testimony received from Mr. Davis later in the day is printed in the record at this point:) TESTIMONY OF LEE DAVIS Resumed The CHAIRMAN. Mr. Lee Davis, will you come to the witness stand again? I think our counsel has a few questions that we didn't get to ask this morning because of the time limitation. The CHAIRMAN. Mr. Mitchell. Mr. MITCHELL. Mr. Davis, this is concerning the affiliated transactions or "self-dealing" regulations that SBA now has and the new provision in S. 298. Do you feel that the regulations which SBA now has, including the full disclosure provision that is set out in S. 298, are sufficient to protect the industry from possible evils of self-dealing? Mr. DAVIS. I doubt it. My feeling was that the SBA's rule should be tightened possibly to the point of preapproving instead of postapproving officers and directors. Now, in our bylaws in the Tennessee Investors, Inc., we had a bylaw that prohibited any officer, director, or connected person from borrowing or having anything to do with it. In other words, we put it in the bylaws before SBA was thinking about the rule. But it seems to me that it ought to be more specific and SBA ought to have some veto power disapproving things in advance or barring some approval. Mr. MITCHELL. You say that you had rules against self-dealing in the bylaws of Tennessee Investors Inc.? Mr. DAVIS. Yes, sir. We had rules that no officer, director, employee, anybody connected could in any way be directly or indirectly connected with any borrowing from the company. Mr. MITCHELL. Do the bylaws of Southeastern Capital now have those same rules? Mr. DAVIS. It is still in there. Mr. MITCHELL. I have here, Mr. Davis, a proxy statement issued for the annual meeting of stockholders of Southeastern Capital Corp., July 15, 1963, part of which advises stockholders that two of the members, Mr. Bevington and Mr. Marchman, who are up for election to the board of directors, also own stock in Oak Ridge Atom Industries which has been financed by Southeastern, and also own stock in Management Investment Corp, which is another owner of Oak Ridge Atom Industries, a three-way affiliated transaction situation. How would that be compatible with that bylaw which you Mr. DAVIS. It wouldn't be. The SEC took exception to it and the corporation should have taken exception to it under the same bylaw. Mr. MITCHELL. Were these two gentlemen elected to the board of directors of Southeastern? Mr. DAVIS. They were elected. Mr. MITCHELL. Are they serving now? Mr. DAVIS. Yes, sir. Mr. MITCHELL. Mr. Chairman, I would like to have this proxy statement by Southeastern Capital received into the record at this point. The CHAIRMAN. Without objection, it will be included in the record. SOUTHEASTERN CAPITAL CORP., PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JULY 15, 1963 This statement is furnished in connection with the solicitation by the management of Southeastern Capital Corp. of proxies to be used at its annual meeting of stockholders to be held in Nashville, Tenn., on July 15, 1963. A form of proxy is enclosed herewith. Any stockholder who executes and delivers the proxy may revoke it at any time prior to its use. If the enclosed form of proxy is executed and returned the shares represented by it will be voted on all matters that properly come before the meeting for a vote. If instructions are specified thereon with respect to proposal (c), such shares will be voted in accordance with those instructions and, if no contrary instruction is specified, the shares will be voted in favor of proposal (c). The cost of soliciting the proxies will be borne by the company. Directors, officers and regular employees of the company may solicit proxies by telephone, telegram, or personal interview. Only holders of issued and outstanding shares of common stock of the company of record at the close of business on June 14, 1963, are entitled to notice of and to vote at the meeting. Each stockholder is entitled to one vote per share held. The number of shares outstanding on June 14, 1963, was 568,253. ELECTION OF DIRECTORS At the stockholders meeting a board of directors of 15 members is to be elected to hold office until the next annual meeting of stockholders after their election and until their respective successors are elected and shall have qualified. It is the intention of the persons named in the enclosed form of proxy to vote such proxy for the election of the following 15 persons as directors of the company. In case any of the nominees named below should become unavailable for election for any presently unforeseen reason the persons named in the proxy will have the right to use their discretions to vote for a substitute. The first column below lists the names of the nominees, their other positions, if any, with the company, and their principal occupations at present and for the last 5 years; the second column lists the number of shares of the company's common stock beneficially owned by each nominee as of June 14, 1963. 1. R. Lee Davis, president of the company; until November 1961, president, Lee Davis & Associates, Inc., Nashville, Tenn__ 2. Robert F. Evans, vice president of the company, until December 1959, vice president, treasurer, and director, Volunteer State Life Insurance Co., Chattanooga, Tenn---. 3. Alan S. Anderson, Economist. Paine, Webber, Jackson & Curtis, 4. E. Milton Bevington, president, Bevington & Co., Atlanta, Ga., fran- 7. Granger Hansell, partner, Hansell, Post, Brandon & Dorsey, attor- 8. Dr. Gilbert Harold, president, Allied Publications, Inc., Nashville, Tenn., and Fort Lauderdale, Fla-- 9. Persis D. Houston, Jr., president from 1957 to 1960, and since then vice chairman of the board, First American National Bank of Nashville, Nashville, Tenn... 10. Edwin L. Jones, Sr., president from 1945 to 1960 and since then, chairman of the board, J. A. Jones Construction Co., Charlotte, N.C____ 11. Robert L. Marchman, partner, Hansell, Post, Brandon & Dorsey, attorneys at law, Atlanta, Ga- 12. Vernon H. Sharp, chairman, Bransford, Sharp, Wallace & Co., a general insurance agency, Nashville, Tenn_-_. 13. Sidney A. Swensrud, retired; until 1957, chairman and from 1950 to 1953, president Gulf Oil Corp., Pittsburgh, Pa., Ligonier, Pa., and Naples, Fla. 14. Fred J. Turner, retired; until 1958, president and chairman of the board, Southern Bell Telephone & Telegraph Co., Atlanta, Ga---15. Jack E. Whitaker, chairman of the board, Hamilton National Bank, Chattanooga, Tenn_-_ 1 500 shares owned by Alan S. Anderson and 30,100 shares owned by Sidney A. Swensrud are included in 45,350 shares in the name of Paine, Webber, Jackson & Curtis. 2 Messrs. Bevington, Hansell, and Marchman are representatives of Phoenix, Inc., Atlanta, Ga., which owns 29,535 shares of Southeastern. 3 P. D. Houston, Jr., is vice chairman of the board of the First American National Bank, Nashville, which owns 2,430 shares. 4 Jack E. Whitaker is chairman of the board of the Hamilton National Bank which owns 2,400 shares. Messrs. Bevington, Hansell, and Marchman are nominees for election as directors for the first time. All other nominees are now directors of the company and are standing for reelection. Messrs. Davis, Harold, Houston, and Whitaker were first elected in 1958; Anderson, Jones, and Turner were first elected in 1961; Evans, Sharp, and Swensrud were first elected on April 29, 1963; Bransford and Dudley were first elected on May 22, 1963. The company is a licensed small business investment company under the Small Business Investment Act of 1958 and, consequently, it is in the business of making loans to and the investing in other companies which qualify as small business concerns under the act. Any person elected as an officer or director of a small business investment company is subject to approval of the Small Business Administration. All directors above nominated have been approved except Messrs. Bevington, Hansell, and Marchman. In the event Messrs. Bevington, Hansell, or Marchman are elected and the Small Business Administration then declines to approve their election, they may not serve thereafter, and the vacancy thus created may be filled for the unexpired term by action of the board of directors. None of the nominees have at any time had an interest direct or indirect in any of the portfolio companies and have not been indebted to such companies or to Southeastern, except Messrs. Bevington and Marchman are directors of Oak Ridge Atom Industries, Inc., a portfolio company and are officers and directors of Management Investment Corp. which owns 312,250 shares of common stock in Oak Ridge Atom Industries, Inc. It would appear that Messrs. Bevington and Marchman are participants in a joint enterprise with Southeastern by virtue of their ownership of stock in Management Investment Corp. and its ownership in Oak Ridge Atom Industries, Inc. (19.23 percent) in which Southeastern holds a 19.23 percent stock interest. If they are elected to Southeastern's board any transactions in connection with this joint enterprise concerning Oak Ridge Atom Industries, Inc., would, in the opinion of the Division of Corporate Regulations of the Securities and Exchange Commisson, be in violation of section 17(d) of the Investment Company Act of 1940 and rule 17-d-1 adopted thereunder, in the absence of an order under such rule. Messrs. Bevington and Marchman have agreed that if elected, and in the absence of an order under rule 17-d-1, they will not participate in decisions of Southeastern Capital Corp's management regarding Oak Ridge Atom Industries, Inc., and will not serve as an officer or director of Management Investment Corp. and Oak Ridge and will not sell or purchase any securities of Management Investment Corp. or of Oak Ridge without first obtaining an appropriate determination of the Commission in respect thereto. Compensation paid by the company to all officers and directors of the company for the year ended March 31, 1963, amounted to $53,400. RATIFICATION OF SELECTION OF AUDITORS BY THE BOARD OF DIRECTORS In accordance with the requirements of the Investment Company Act of 1940 the majority of those members of the board of directors who are not officers or employees of the company, nor investment advisers of the company or affiliated persons of an investment adviser, has selected Ernst & Ernst, independent public accountants, as the company's auditors with respect to its operations for the fiscal year ending March 31, 1964, and its selection is submitted to the stockholders for ratification or rejection. OTHER MATTERS As of the date of this proxy statement, the management does not know of any other matter which will come before the meeting. In the event that any other matter properly comes before the meeting, the persons named in the enclosed form of proxy intend to vote all proxies in accordance with their judgment on such matters. By order of the board of directors. JUNE 28, 1963. WILSON SIMS, Secretary. If you do not expect to be personally present at the meeting, please date, fill in, and sign the enclosed proxy (print name under signature) and return it promptly in the enclosed return envelope. The CHAIRMAN. Madam Reporter, we will ask for you to place Mr. Davis' testimony this afternoon following the testimony this morning so that it will be continuous. Mr. Mitchell, do you have the SBA law and regulations on the self-dealing feature that we could have placed in the record following this testimony? Mr. MITCHELL. Yes. The CHAIRMAN. These will be included. Mr. MITCHELL. That will be SBA regulation section 107.716 and Mr. MITCHELL (continuing). Section 312 of Public Law 88-273. (The documents referred to follow :) Public Law 88-273,1 88th Congress, S. 298, February 28, 1964 An ACT To Amend the Small Business Investment Act of 1958 * "CONFLICTS OF INTEREST "SEC. 312. For the purpose of controlling conflicts of interest which may be detrimental to small business concerns, to small business investment companies, to the shareholders of either, or to the purposes of this Act, the Administration shall adopt regulations to govern transactions with any officer, director, or shareholder of any small business investment company, or with any person or concern in which any interest, direct or indirect, financial or otherwise, is held by any officer, director, or shareholder of (1) any small business investment company, or (2) any person or concern with an interest, direct or indirect, financial or otherwise, in any small business investment company. Such regulations shall include appropriate requirements for public disclosure (including disclosure in the locality most directly affected by the transaction) necessary to the purposes of this section." (b) That part of the Table of Contents of such Act which describes the matter included in title III is amended by adding at the end thereof the following: "Sec. 312. Conflict of interest." Approved February 28, 1964. [From SBA Regulation] § 107.716 Self-dealing limitation. (a) Self-dealing to the prejudice of SBA or the Licensee's shareholders is prohibited. (b) Without the prior written approval of SBA, a licensee shall not purchase Equity Securities of, or make a loan to, an officer or a director of the Licensee, or any person owning or controlling, directly or indirectly ten or more percent of the stock of said Licensee, or any close relative of such officer, director, or stock owner or controller, nor shall the Licensee purchase Equity Securities of or make a loan to any company in which such officer or director or such owner or controller of the Licensee's stock, or his close relative is an officer or director or owns or controls ten or more percent of the stock of such company: Provided, further, That without the prior written approval of SBA a Licensee shall not make such purchase of such securities or make such loan within six months after the termination of such officership or directorship in the Licensee, or within six months after the termination of such ownership or control of ten or more percent of the Licensee's stock. Nothing herein contained is intended to preclude a Licensee from permitting an officer, employee or representative from serving as a director, officer, or in any other capacity in the management of a small business concern for the purpose of protecting its investment in or loan to such concern. (c) Without the prior written approval of SBA, no Licensee, nor any officer or director thereof, shall borrow money from a small business concern, or from any officer, director or owner thereof, which has sold Equity Securities as defined in § 107.501 to or has borrowed money from said Licensee. The CHAIRMAN. With that, Mr. Davis, we thank you again. We may be in touch with you for your further counsel. TESTIMONY OF ALAN K. RUVELSON, PRESIDENT OF FIRST MIDWEST CAPITAL CORP., MINNEAPOLIS, MINN. Mr. RUVELSON. Mr. Chairman The CHAIRMAN. Mr. Ruvelson, you may be seated, and the committee is certainly pleased to see you again. We know you are also a pioneer in this field, and we will be pleased to hear your testimony. Mr. RUVELSON. Thank you, Mr. Chairman. May I take the opportunity to thank you, Mr. Chairman, and the members and staff of your committee for the invitation to appear at 1 The entire text of Public Law 88-273 can be found at p. 212 of the hearing record. |