These cards contained over 250 written comments, in addition to the checks, which you will enjoy reading. In addition to the comments on the cards, there have been 46 personal letters, some very long and interesting. There have been about 20 long-distance calls.

These cards and letters are available in Austin at my office for your inspection and study. Some of them you might find enlightening. Time may permit copies of all comments and letters being compiled for mailing to you at a future date. While it is presumed Mr. Butler is receiving identical cards as are being returned here, I doubt if the comments and letters to him are the same.

Mr. Director, in view of the fact that over 90 percent of the stockholders favor merger or liquidation, will you as a director take steps-whichever is in the best interest of the stockholders-to immediately liquidate or merge this company? Please call or write me your position at an early date.

Please excuse this informal and rather crude correspondence *** but it is getting rather expensive any way it is sent.

Yours truly,

NELSON PUETT, Jr.

JANUARY 7, 1964.

MR. JOSEPH BERNSTEIN,

Securities and Exchange Commissioner,
Washington, D.C.

DEAR MR. BERNSTEIN: This morning my brother received your letter with a request for information. We do not agree that my letter to the Gulf-Southwest stockholders, dated December 14, 1963, is in any way a solicitation of anything. It is merely a request that the stockholders make known their wishes to the present management.

As a matter of fact, I sincerely hope that the present management will abide by the wishes of the stockholders and will within the next few weeks merge or liquidate this company. However, because we want to cooperate with you in every way, my brother is preparing an answer to your letter which will contain all the information you requested. I am sure we will abide by any further request you may make.

Being an absolute novice to this sort of thing, I was overwhelmed at the response from the Gulf-Southwest stockholders, and I am writing you to let you know that in my office as of this morning there are over 1,900 replies, many, many of which suggest, request, and demand an investigation and protection from the Securities and Exchange Commission. All of these comments, letters, and a briefing on numerous telephone calls are available to you or your representatives.

It has come as a great surprise to me, also, that so many of these stockholders state that they purchased this stock because they thought it had quasi-Government status, and was to some degree sponsored, controlled, regulated, and underwritten by the Federal Government.

Anyway, I thought it was proper to pass on to you, as well as to the Small Business Administration, the fact that so many of these stockholders are appealing to you or to the Small Business Administration, or to both, for help and protection in their tragic situation.

Yours very truly,

NELSON PUETT, Jr.

JANUARY 13, 1964.

Mr. WILLARD O. HUNTER,
Post Office Box 31-M,

Pasadena, Calif.

DEAR MR. HUNTER: Thank you so much for taking the time and effort to write such a long and thoughtful letter regarding the Gulf-Southwest Corp. and SBIC's in general.

I certainly agree with you that the entire SBIC industry has certainly not performed as several hundred thousand investors evidently anticipated. I believe in the months ahead that many, if not a majority, of the publicly owned SBIC's will be liquidated or merged. It appears that this is no place for the public investor, but that companies should be owned principally by those that operate them and who are the beneficiaries of the operation.

While it is true, as you state, Gulf-Southwest is not the only SBIC that is performing poorly, but it is one of the worst. According to the latest SBIC

evaluation report of December 1963, of the 45 publicly owned SBIC's studied, Gulf-Southwest ranked sixth from last in market price to book value, and eighth from last in market price to issue price. It has been suggested to me that the fact we still have a large cash reserve is the only thing that keeps the Gulf-Southwest picture from being much worse.

You state in your letter that for the 6 months ending September 30, 1963, Gulf-Southwest shows a profit of $171,257. You, perhaps, are not aware that sometime during the period from August 1963, to November 1963, the book value of Gulf-Southwest was decreased from $10.79 to $10.53, which it was on November 30, 1963. This would indicate a loss in excess of $400,000 which, of course, would more than wipe out any profit shown on September 30.

As far as I know, the stockholders have not been notified of the nature of these losses, nor even the existence of the losses. However, it has been called to my attention by other dissatisfied stockholders that these losses are small when compared to the probable loss they say exists in the Advance Pattern investment. You noticed our company reported in June of 1963, that they had invested $505,000 in Advance Pattern and, in order to protect this investment, that they might have to invest as much as $350,000 more. As you can see by their report of September 1963, they had invested not only the original $505,000 investment, but an additional amount of over a million dollars, making a total investment as of September 30, 1963, in Advance Pattern of over a million and a half dollars. I have been told by a number of people that, sad to say, it is possible that this entire investment will be lost.

You might also be interested in noting that in late 1962, and through March of 1963, 15 of the 18 directors of Gulf-Southwest sold Gulf-Southwest stock, and through the last report that I have, which is through December 10, 1963, the records show that only 5 repurchased any stock whatsoever, and only two repurchased an amount equal to or in excess of that they previously had sold. Now if the management and directors of Gulf-Southwest believed as you dothat the market price of stock does not reflect its true value-then they certainly have been missing a wonderful opportunity to make a profitable investment.

Mr. Hunter, from your letter you certainly seem to have read all financial statements published by Gulf-Southwest, and other material pertaining to the corporation. I am wondering if you have ever read any report on the salaries, expense reimbursements, legal fees, or other remuneration received by GulfSouthwest directors or officers from the business concerns that Gulf-Southwest has made loans to.

As of this date I have received 2,116 cards in reply to my letter to the stockholders, of which all but 9 cards expressed dissatisfaction, and over 90 percent favor merger or liquidation now. In addition, we received over 300 written comments, and 73 personal letters such as yours, as well as 32 long-distance telephone calls.

It is certainly hoped that you will attend the board of directors' meeting and will, before that, take the trouble to write the directors and ask them to please abide by the wishes of the majority of the stockholders and immediately arrange a merger or liquidation of this company.

Again let me thank you for your interest, and I assure you that I hope as you do that something can be worked out so that the remaining Gulf-Southwest investors will not have to take the terrible losses that so many unfortunate people who have already sold this stock have had to suffer.

Yours truly,

NELSON PUETT, Jr.

FEBRUARY 26, 1964.

Mr. KENNETH S. BATTYE,

Legg & Co., Bankers,

Baltimore, Md.

DEAR MR. BATTYE: Thank you very much for the copy of your letter to Mr. Knox Tyson regarding Gulf-Southwest Corp. My attorney is at this time preparing a proxy statement to be filed with the Securities and Exchange Commission regarding a solicitation of proxies in an attempt to change the management of Gulf-Southwest at the next stockholder's meeting. In that you and your group own a substantial amount of shares of Gulf-Southwest, I would appreciate it if you or a designee of your group would consent to stand for election on a new board of directors.

Incidentally, from several sources I have concluded that the largest investment of Gulf-Southwest-that in Advance Pattern-is in a very sad condition, and may indeed be a total loss. While in New York last week, I talked to Mr. Leonard Laundergan. Mr. Laundergan represents himself as a financial adviser to Mr. Koen, past president and founder of Advance Pattern. He had some very interesting and startling information as to the way Gulf-Southwest went into this investment. As you are close to New York, it would be of help if you would talk to this gentleman, and perhaps to Mr. Koen, and see what your impression is of this Advance Pattern situation.

Also, in preparation for the actual physical management of the company, I have talked to the trust officers of several large city banks, and a competent trust department of a bank will completely manage this company for a very small fee, which in no event would be more than one-half of 1 percent of the amount invested in small businesses which, in the case of Gulf-Southwest, would run around $40,000 to $45,000 per year. This would be about an 80-percent saving in expenses on our present situation.

It has been brought to my attention that, while the salaried expenses paid directly by Gulf-Southwest are extremely high, this is not the entire expense situation. It appears that the companies such as Advance Pattern have on their payroll additional personnel who are actually working for Gulf-Southwest and, of course, these companies are using the moneys invested by Gulf-Southwest to pay these people. In a study of the Gulf-Southwest financial statement, we have seen no mention of this fact that the small businesses who are partially, and in some cases nearly completely owned by Gulf-Southwest, are paying salaries and other fees to people connected with Gulf-Southwest.

Incidentally, the final results of the canvass of the stockholders which I sent out on December 14 (a few are still coming in) show that we had over 2,300 replies. We had about 900 for immediate liquidation, 900 for merger, 150 for either one, and 200 others have indicated that they were disappointed and didn't check either lequidation or merger. It is impossible to ascertain with absolute accuracy how many shares of stock these 2,300 stockholders represent, because a large number of stockholders erased their number off the post card. However, we believe the number of shares received to be between 35 and 45 percent of the total outstanding stock.

Naturally, it is extremely disappointing that Mr. Tyson in his letter of January 24, 1964, did not even mention the results of this canvass, but merely stated "We appreciate the confidence which the overwhelming majority of our stockholders have expressed in our management." These results certainly do not indicate an overwhelming confidence.

Thank you again for your interesting and very intelligent comments on the situation as indicated by your letter of February 24 to Mr. Knox Tyson.

Yours truly,

The CHAIRMAN. Do you wish to proceed further?
Mr. PUETT. That is all in my prepared statement.

NELSON PUETT, Jr.

I would like to just carry this a little further. I notice the gentleman from-I have here these vital statistics. The only SBIC's that I am familiar with are the publicly owned, which the information is published on those.

I notice in this first Midwest Capital, this gentleman is up here inquiring. This record is as of January 31, 1964. They have a total of 10 loans. The other one had a total of 17. Well, 10 loans in 5 years. really to me is not very many loans. If you add up all the loans made by all the publicly owned SBIC's, there are less than 800. Well, I daresay that any large city bank is financing and helping more than 800 small businesses in one bank.

So I would just want to put that out to get the scope of the thing in perspective as to actually what it has done and is doing.

The CHAIRMAN. There is a difference in a loan and in an investment in a company to see the success as the previous witness testified. They may place large amounts of equity capital in a small business concern

that employs people and pays taxes to see that this small business does not fail and go into bankruptcy but succeeds and moves forward.

Mr. PUETT. Supposedly this list here includes all the number of loans and investments, whether they be equity or loans, that is included by SBIC.

For instance, the SBIC's would study like Gulf-well, all of them, the largest number of investments that any of them have in any company and any of them have is 32. And the smallest is 5. In GulfSouthwest, for instance, they have a total of 23 loans. Well, they have 22 people on their payroll. Well, obviously to me, I collect over a thousand loans with one bookkeeper and myself. Well, this gentleman, according to this, he has 10 loans. Well, he has four people on his payroll.

I think perhaps Mr. Moore hit the nail on the head. If you want to help small businesses, well, then perhaps the SBA should be the one to lend them the money directly.

What is the difference in charging a man 8- or 10-percent interest and taking a cut of his business? Like this gentleman said, we are only loan equity. Sure, if I come in there and want to develop some land, they say: "Yes, we are going to lend you the money, but we want 20 percent of your business," 30 percent, 40 percent, 50 percent. If you think it is bad to charge high interest, is it not worse to help a man and take a cut of his business?

The CHAIRMAN. This is supposed to be money that is not available elsewhere, that could not be obtained even for this purpose elsewhere. And the requirement of a purchase of stock is not mandatory but optional. You are not required to do it under the law, if you know this.

Apparently, as you stated, Mr. Puett, your testimony is purely from the public investor's point of view. Your testimony is directed to that. And you have large investments, and you have made substantial investments, I believe some 35,000 or 36,000 shares, in 3 companies in Texas. You have made these stock investments purely for stock profit purposes. This is your point of view, as I understand it? And that is legitimate and proper and all right, and you are putting your money into the companies. And your several suggestions are well taken, and the committee will certainly give them careful thought and evaluation. Mr. ROBISON. Mr. Chairman.

The CHAIRMAN. Mr. Robison.

Mr. ROBISON. I have been leafing through the letters that Mr. Puett attaches to his prepared statement. I notice one paragraph in the letter of January 7 to Mr. Bernstein, the Securities and Exchange Commissioner here in Washington, and I quote this paragraph:

It has come as a great surprise to me also that so many of these stockholders state that they purchased this stock because they thought it had quasi-Government status, and was to some degree sponsored, controlled, regulated, and underwritten by the Federal Government.

Is this, in your judgment, something that is prevalent with respect to publicly owned SBIC's?

Mr. PUETT. Absolutely. I think when this thing was promoted it was promoted as a similar situation to a bank. Well, most people had had experience with bank stock. And it had always gone up—practically always, that is. And when these people bought this stock, they had some idea that they were buying something similar to a bank stock,

something that was underwritten in some way by the Federal Government.

When I sent out-I sent out a letter to all the stockholders of GulfSouthwest, the one you read there; and I got a total of over 2,500 replies 2,500. And they were all dissatisfied but nine, and I offered the whole file here. They were very interested. The experience was great for me. I got a great experience out of receiving these letters from all of these people. And in numerous cases the people claimed that they bought the stock because of that reason. And I think they did.

Mr. ROBISON. Thank you, Mr. Chairman.

Mr. PUETT. I do not think they bought it, as I heard one gentleman say up here earlier, because they knew they were going to lose money. I do not believe anybody actually bought the stock with the idea that we are going in a high-risk business that we are actually going to lose money in.

The CHAIRMAN. Mr. Mitchell.

Mr. MITCHELL. Mr. Puett, these 25 replies that you received, what total stock ownership

Mr. PUETT. I said 2,500 replies.

Mr. MITCHELL. 2,500. I am sorry. That is what I meant to say. Mr. PUETT. Well, it was hard to tell exactly, because I put a number on the postcard, and that corresponded to the number on the stockholders list, and a large number of them, including the larger stockholders, have erased the number. But I figured that it came to about 500,000 to 600,000 shares represented, of the Gulf-Southwest stock, that is.

Mr. MITCHELL. Mr. Puett, I have here a revised schedule 14(d) which you filed with the SEC in anticipation of a proxy fight in this

matter.

Mr. PUETT. Yes.

Mr. MITCHELL. And it is all right with you if that is filed as a part of your statement here with this other information, is it not? Mr. PUETT. Certainly.

Mr. MITCHELL. Mr. Chairman, may we include this in the record? The CHAIRMAN. Without objection, it may be received in the record at this point.

(The schedule 14 (d) follows:)

REVISED SCHEDULE 14D FOR NELSON PUETT, JR.

Item I. State the name and address of the issuer :

Answer. Gulf Southwest Capital Corp., Esperson Building, Houston, Tex. Item II. (a) State the following:

(1) Your name and business address:

Answer. Nelson Puett, Jr., 5425 Burnet Road, Austin, Tex.

(2) Your present principal occupation or employment and the name, principal business, and address of any corporation or other organization in which such employment is carried on:

Answer. Real estate broker, homebuilder; Puett-Duncan Realtors, 5425 Burnet Road, Austin, Tex.

(b) State the following:

(1) Your resident address:

Answer. 3709 Eastledge Drive, Austin, Tex.

(2) Information as to all material occupations, positions, officer, or employments during the past 10 years, etc.

Answer. Builder-realtor at the same address for the past 10 years.