By: Smith, Dalton H.B. No. 300 73R875 LJD-F A BILL TO BE ENTITLED 1-1 AN ACT 1-2 relating to the creation and operation of the Texas Small Business 1-3 Equity Commission and the development of certain businesses; 1-4 providing a penalty. 1-5 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-6 SECTION 1. Subtitle F, Title 4, Government Code, is amended 1-7 by adding Chapter 486 to read as follows: 1-8 CHAPTER 486. TEXAS SMALL BUSINESS EQUITY COMMISSION 1-9 SUBCHAPTER A. GENERAL PROVISIONS 1-10 Sec. 486.001. LEGISLATIVE FINDINGS. The legislature finds 1-11 that: 1-12 (1) the development and expansion of business, 1-13 commerce, and industry are essential to the economic growth of the 1-14 state and to the full employment, welfare, and prosperity of its 1-15 citizens; and 1-16 (2) the measures authorized by this chapter and the 1-17 assistance provided by this chapter, especially with respect to 1-18 financing, are in the public interest and serve a public purpose of 1-19 the state economically by the securing and retaining of private 1-20 business enterprises and the resulting maintenance of a higher 1-21 level of employment, economic activity, and stability. 1-22 Sec. 486.002. DEFINITIONS. In this chapter: 1-23 (1) "Board" means the governing board of the 1-24 commission. 2-1 (2) "Bonds" means any bonds, refunding bonds, notes, 2-2 debentures, interim certificates, grants, or other evidences of 2-3 indebtedness of the commission, whether in temporary or in 2-4 definitive form and whether or not exempt from federal taxation. 2-5 (3) "Candidate project" means a business idea to be 2-6 developed in the form of a feasibility study for promotion by a 2-7 public or private body, for which business there is a demonstrated 2-8 need but an entrepreneurial group with the technical expertise and 2-9 financial capability and commitment to carry out the project does 2-10 not exist. 2-11 (4) "Certified development company" means a 2-12 development company organized to operate on a local, regional, or 2-13 statewide basis to sell debentures pertaining to identifiable small 2-14 businesses with the SBA's guarantee and to render other assistance 2-15 to small businesses. 2-16 (5) "Commission" means the Texas Small Business Equity 2-17 Commission. 2-18 (6) "Development company" means a for-profit or 2-19 nonprofit enterprise incorporated under the laws of this state for 2-20 the purpose of furthering the economic development of its community 2-21 and environs and with authority to promote and assist the growth 2-22 and development of small businesses in the areas covered by its 2-23 operations. The term includes a certified development company, a 2-24 community development corporation regulated by a federal agency, 2-25 and an economic development corporation formed under the 2-26 Development Corporation Act of 1979 (Article 5190.6, Vernon's Texas 2-27 Civil Statutes). 3-1 (7) "Disadvantaged concern" means a small business 3-2 owned by a person or persons whose participation in the free 3-3 enterprise system is hampered because of social or economic 3-4 disadvantages. 3-5 (8) "Distressed area" means: 3-6 (A) a county with a population of less than 3-7 25,000 that has an unemployment rate in excess of five percent, 3-8 according to statistics of the Texas Employment Commission, and 3-9 that has been designated as a distressed area by its governing 3-10 body; and 3-11 (B) any subarea of a political subdivision that 3-12 has been traditionally recognized by custom or by previous 3-13 governmental designation to be a subarea and that possesses all of 3-14 the following characteristics, certified to by the political 3-15 subdivision in which the subarea is located: 3-16 (i) a per capita income that is 80 percent 3-17 or less of the median income of the political subdivision in which 3-18 it is located; 3-19 (ii) an unemployment rate that is three 3-20 percent higher than the average unemployment rate of the political 3-21 subdivision taken as a whole; and 3-22 (iii) a percentage of individuals and 3-23 families in poverty that is 10 percent or more of the entire 3-24 subarea. 3-25 (9) "Feasibility study" means a study that is directly 3-26 and immediately relevant to the potential creation or expansion of 3-27 a small business. The study must include preliminary engineering 4-1 and architectural plans, location studies, marketing studies, 4-2 organizational plans, studies of the demand and supply of labor, 4-3 water, and sewerage, soil surveys and foundation studies, studies 4-4 of competition, distribution, transportation, loan packaging, 4-5 financial forecasts, taxes, fiscal and other incentives, and other 4-6 related studies of the business environment, all of which are 4-7 directed toward the practical and real establishment of a small 4-8 business. 4-9 (10) "Federal leverage" means financial assistance 4-10 provided to a qualified small business financing company by the SBA 4-11 or by another federal agency, including the purchase or guarantee 4-12 of debt instruments or preferred securities or the grant or loan of 4-13 funds. 4-14 (11) "Investment company" means a corporation or a 4-15 limited partnership to which a license has been granted by the SBA 4-16 for providing capital to small businesses. The term includes 4-17 investment companies licensed as provided by Section 301(c) or (d) 4-18 of the Small Business Investment Act (15 U.S.C. Section 681(c) or 4-19 (d)) and investment companies registered under the Investment 4-20 Company Act of 1940 (15 U.S.C. Section 80a-1 et seq.). 4-21 (12) "Leverage" means federal, private, public, and 4-22 state leverage. 4-23 (13) "Licensee" means a qualified small business 4-24 financing company licensed under this chapter. 4-25 (14) "New product" means a product, including a 4-26 device, technique, process, or service, that is or may be 4-27 exploitable commercially, the production or provision of which does 5-1 not exist in this state or does not constitute a traditional 5-2 activity, type of enterprise, or method of production or service 5-3 within this state. The term does not include pure research but 5-4 applies to those products, devices, techniques, processes, or 5-5 services that have advanced beyond the theoretical stage and are 5-6 readily capable of being, or have been, reduced to practice. 5-7 (15) "Private capital" means the combined paid-in 5-8 capital, paid-in surplus, and retained earnings, or partnership 5-9 capital and retained earnings, of a for-profit qualified small 5-10 business financing company or the funds belonging to or provided or 5-11 arranged by a nonprofit qualified small business financing company, 5-12 whether derived from a private or a public source, but excluding 5-13 federal or state leverage. The term includes capital that is: 5-14 (A) cash and property actually received in 5-15 exchange for shares of stock or partnership shares issued by the 5-16 company; 5-17 (B) cash and property contributed to the company 5-18 without obligation; 5-19 (C) cash and property for which the company is 5-20 indebted on a long-term, subordinated basis; or 5-21 (D) guarantees of capital pledged by third 5-22 parties on behalf of a company as approved by the commission. 5-23 (16) "Private leverage" means private financial 5-24 assistance exceeding that required under this chapter to be matched 5-25 with state leverage and that is provided to a qualified small 5-26 business financing company. 5-27 (17) "Public leverage" means public financial 6-1 assistance exceeding that required under this chapter to be matched 6-2 with state leverage and that is provided to a qualified small 6-3 business financing company. 6-4 (18) "Qualified financial institution" means a banking 6-5 or thrift institution, insurance company, trust fund, pension fund, 6-6 or related corporation, or other person engaged primarily in 6-7 lending or investing funds that is selected by the commission as a 6-8 person to which guarantees are provided to induce the person to 6-9 provide financial assistance to qualified small business financing 6-10 companies in amounts at least equal to the total of the guarantees 6-11 provided. 6-12 (19) "Qualified small business financing company" 6-13 means a corporation or a limited partnership organized as provided 6-14 by federal regulations and in conformity with this chapter, to 6-15 which a federal license, state charter, or other authorization has 6-16 been granted to operate as an investment company, development 6-17 company, or other small business financing company as determined by 6-18 the commission. 6-19 (20) "SBA" means the Small Business Administration. 6-20 (21) "Small business" means a small business as 6-21 defined by the SBA that for purposes of size eligibility or other 6-22 factors meets the applicable criteria set forth in 13 C.F.R. 6-23 Section 121. 6-24 (22) "Small business growth concern" means a small 6-25 business given funding priority under Section 486.045. 6-26 (23) "State leverage" means financial assistance 6-27 provided to a licensee, directly or in cooperation with qualified 7-1 financial institutions, through the purchase or guarantee of 7-2 debentures or other debt instruments, the grant or loan of funds, 7-3 or the purchase of equity securities as provided under this 7-4 chapter. 7-5 Sec. 486.003. TEXAS SMALL BUSINESS EQUITY COMMISSION; BOARD. 7-6 (a) The Texas Small Business Equity Commission is a state agency. 7-7 (b) The commission is governed by a board composed of: 7-8 (1) nine members appointed by the governor with the 7-9 advice and consent of the senate; and 7-10 (2) the attorney general, state treasurer, and 7-11 agriculture commissioner as ex officio nonvoting members. 7-12 (c) In making the appointments the governor must attempt to 7-13 ensure full and fair representation of the general public, 7-14 including women and ethnic minorities. 7-15 (d) Appointed members serve six-year terms with the terms of 7-16 one-third of the members expiring February 1 of each odd-numbered 7-17 year. 7-18 (e) At its first meeting following February 1 of each 7-19 odd-numbered year, the board shall elect its presiding officer and 7-20 other officers it considers necessary. 7-21 (f) Appointed members of the board serve without 7-22 compensation for service on the board but are entitled to 7-23 reimbursement of actual and necessary expenses incurred in the 7-24 performance of official duties. 7-25 Sec. 486.004. EXECUTIVE DIRECTOR; STAFF. The board may hire 7-26 an executive director and staff necessary to carry out the duties 7-27 of the commission. 8-1 Sec. 486.005. GENERAL POWERS AND DUTIES. (a) The board may 8-2 adopt reasonable rules to govern the affairs and conduct of its 8-3 business, including rules on policies and forms for loan 8-4 applications and credit instruments. 8-5 (b) The commission has all powers necessary to carry out the 8-6 purposes of this chapter, including the power to: 8-7 (1) develop and implement programs of financing 8-8 assistance, grants, and investment for the projects and programs 8-9 described by this chapter; 8-10 (2) acquire, by purchase, lease, option, gift, grant, 8-11 bequest, or devise, property or an interest in property that the 8-12 commission considers necessary; 8-13 (3) sell, convey, mortgage, lease, transfer, donate, 8-14 option, exchange, or otherwise dispose of property or an interest 8-15 in property as the objectives and purposes of the commission may 8-16 require; 8-17 (4) enter into contracts with any person; and 8-18 (5) procure insurance against property loss in amounts 8-19 as necessary and desirable. 8-20 (Sections 486.006-486.020 reserved for expansion 8-21 SUBCHAPTER B. EQUITY LEVERAGING PROGRAM; PROGRAM FINANCING 8-22 Sec. 486.021. EQUITY LEVERAGING PROGRAM. (a) The 8-23 commission may provide funds or guarantees to a qualified financial 8-24 institution to induce the institution to provide financial 8-25 assistance to qualified small business financing companies or to 8-26 small businesses in an amount at least equal to the total of those 8-27 funds or guarantees. 9-1 (b) The commission may make, renew, participate in, induce, 9-2 or guarantee loans, either directly or in cooperation with 9-3 qualified financial institutions, to qualified small business 9-4 financing companies licensed under this chapter. A loan must be 9-5 repayable in not less than five and not more than 30 years, with 9-6 due allowance for prepayment arrangements as may be approved by the 9-7 commission. The loan shall be subordinated to loans of other 9-8 providers of long-term leverage funds so that the amount loaned 9-9 qualifies as equity, paid-in capital, or matching funds for 9-10 purposes of obtaining additional public or private leverage. 9-11 (c) The commission may make, participate in, or guarantee 9-12 loans, either directly or in cooperation with banks or other 9-13 lending agencies through agreements to participate on an immediate 9-14 or deferred basis, to offset the costs of feasibility studies for 9-15 candidate projects, with emphasis on new product and service 9-16 development. The loans may be made to small businesses or to 9-17 appropriate public or private bodies desiring to prepare and 9-18 promote candidate projects of interest to the economic development 9-19 of the state or a subdivision or region of the state. 9-20 (d) The commission shall adapt its programs in a manner that 9-21 makes maximum use of new sources of leverage and federal and other 9-22 programs, in the interest of expanding the small business sector in 9-23 this state and encouraging the existence of capital markets 9-24 accessible to small businesses. 9-25 (e) The commission may induce qualified financial 9-26 institutions to invest in nonvoting equity securities of qualified 9-27 small business financing companies licensed under this chapter. If 10-1 a licensee is not allowed by law or governmental regulations to 10-2 issue nonvoting securities, the commission may approve the 10-3 licensee's petition for a waiver of the requirement that investment 10-4 be limited to nonvoting securities, and the commission may 10-5 negotiate terms with a licensee in certain cases of default or 10-6 noncompliance under which holders of nonvoting securities may 10-7 obtain the right to vote their shares. 10-8 Sec. 486.022. FUNDS COMMITTED FOR LOAN GUARANTEES; 10-9 AVAILABILITY OF EXCESS PORTION. (a) If commission funds have been 10-10 set aside, pledged, or otherwise allocated to guarantee a loan and 10-11 a portion of the loan has been repaid so that the full pledged or 10-12 allocated amount is no longer necessary to secure the unpaid 10-13 portion of the loan, the commission shall reduce the funds pledged 10-14 or allocated for the guarantee to the amount necessary to secure 10-15 the unpaid portion of the loan and shall use the excess money for 10-16 the purposes and programs of the commission as provided by this 10-17 chapter. 10-18 (b) Funds may not be released from a guarantee or part of a 10-19 guarantee if the release would alter the obligation of the 10-20 commission for the unpaid portion of the guaranteed loan. 10-21 Sec. 486.023. SELECTION OF QUALIFIED FINANCIAL INSTITUTION. 10-22 (a) The commission shall select a qualified financial institution 10-23 using the following criteria: 10-24 (1) the convenience of the institution to the 10-25 commission and to its licensees; 10-26 (2) the level of the institution's provision of 10-27 private leverage to small businesses; 11-1 (3) the rate of interest offered by the institution on 11-2 commission deposits; and 11-3 (4) the stability of the institution and its 11-4 reputation for integrity and community service. 11-5 (b) The commission may use similar criteria for the 11-6 selection of one or more banking institutions in which to deposit 11-7 its funds and provide safekeeping for its securities. 11-8 Sec. 486.024. PROGRAM FINANCING. (a) The commission may: 11-9 (1) borrow money and apply for and receive from a 11-10 federal agency, the state, a political subdivision of the state, or 11-11 a public or private source a grant, loan, or advance for or in the 11-12 aid of an economic development cooperative project; 11-13 (2) give security as required for the grant, loan, or 11-14 advance; and 11-15 (3) enter into and carry out a contract related to the 11-16 grant, loan, or advance. 11-17 (b) Public notice must be given before an action under this 11-18 section, and the action must be approved by a two-thirds majority 11-19 of the board. 11-20 (c) The commission may undertake the financing of the cost 11-21 of a project for an eligible small business from the proceeds of 11-22 its bonds by: 11-23 (1) entering into a lease for the facilities of the 11-24 eligible small business being financed; 11-25 (2) selling those facilities to the eligible small 11-26 business under a sales contract; or 11-27 (3) entering into another transaction the commission 12-1 considers appropriate to accomplish the purposes of this chapter 12-2 and the security of the bonds. 12-3 Sec. 486.025. REVENUE BONDS. (a) The commission may issue 12-4 revenue bonds, in an amount not to exceed $50 million annually, to 12-5 carry out the purposes of this chapter and that are payable from 12-6 and secured by a pledge of assets of the commission derived from 12-7 its undertakings, including loans, grants, or contributions of 12-8 funds made by the federal government or by state or local 12-9 governments. The principal and interest on any bonds issued by the 12-10 commission may be secured by a second mortgage or other instrument 12-11 covering all or part of land or of a development project, including 12-12 any additions, improvements, extensions to, or enlargements of the 12-13 development project. 12-14 (b) Bonds issued under this section, together with all 12-15 interest on and income from the bonds, are exempt from all state 12-16 taxes. 12-17 (c) If bonds can be refunded to obtain interest rates that 12-18 are lower than the interest paid on existing bonds, the commission 12-19 may refund bonds by the issuance of new bonds, whether the bonds to 12-20 be refunded have or have not matured, and may refund bonds partly 12-21 to refund outstanding bonds. Refunding bonds may be sold and the 12-22 proceeds applied to the purchase, redemption, or payment of the 12-23 bonds to be refunded or exchanged for the bonds to be refunded. 12-24 (d) The bonds must be authorized by resolution of the board. 12-25 The bonds mature at the time or times as the resolution provides, 12-26 except that a bond may not mature more than 30 years after the date 12-27 of issue. The bonds must bear the date, bear interest at a rate, 13-1 be in the denomination, be in the form, carry the registration 13-2 privileges, be executed in the manner, be payable in the medium of 13-3 payment at the place, and be subject to the terms of redemption, 13-4 including redemption before maturity, as the resolution provides. 13-5 (e) The bonds may be sold by the commission in the manner 13-6 and from time to time at public or private sale, at the price or 13-7 prices determined by the board, and the commission may pay all 13-8 expenses and commissions that it considers necessary or 13-9 advantageous in connection with the issuance and sale. The bonds 13-10 are negotiable instruments. 13-11 (f) Bonds authorized to be issued by the board shall be 13-12 submitted to and approved by the bond review board before issuance. 13-13 (g) The bonds are legal instruments in which public officers 13-14 or public bodies of the state, its political subdivisions, 13-15 insurance companies and associations, and other persons carrying on 13-16 insurance business, banks, bankers, banking associations, trust 13-17 companies, savings and loan associations, investment companies, and 13-18 other persons carrying on banking business, administrators, 13-19 guardians, executors, trustees, and other fiduciaries, and other 13-20 persons authorized to invest in bonds or in other obligations of 13-21 the state, may invest funds, including capital, in their control or 13-22 belonging to them. The bonds are also securities that may be 13-23 deposited with and received by public officers and bodies of the 13-24 state, an agency or political subdivision of the state, and public 13-25 corporations for any purpose for which the deposit of bonds or 13-26 other obligations is authorized by law. 13-27 (h) If a member of the board or an officer of the commission 14-1 ceases to be a member or officer before delivery of bonds signed by 14-2 the member or officer, the member's or officer's signature or 14-3 facsimile of the signature is valid and sufficient for all 14-4 purposes, as if the member or officer had remained in office until 14-5 delivery. 14-6 (i) The commission may contract with the holders of its 14-7 bonds as to the custody, collection, securing, investment, and 14-8 payment of money of the commission and of money held in trust or 14-9 otherwise for the payment of bonds and may carry out the contract. 14-10 A bank or trust company may give security for the deposits. 14-11 (j) The commission may create an insurance or guaranty fund 14-12 to insure the payment or repayment of all or part of the principal 14-13 of or redemptions, prepayment premiums, penalties, or interest on: 14-14 (1) its bonds; or 14-15 (2) any instrument executed, obtained, or delivered in 14-16 connection with the issuance and sale of its bonds. 14-17 Sec. 486.026. EXEMPTION FROM TAXATION. Funds, bonds, or 14-18 other evidences of indebtedness issued by the commission, their 14-19 transfer, and the income from them, including any profits made on 14-20 their sale, are free from taxation in this state. 14-21 (Sections 486.027-486.040 reserved for expansion 14-22 SUBCHAPTER C. LICENSING AND REQUIREMENTS 14-23 FOR SMALL BUSINESS FINANCING COMPANIES 14-24 Sec. 486.041. LICENSE REQUIRED. Funds may not be provided 14-25 by the commission or a qualified financial institution under this 14-26 chapter to a qualified small business financing company unless the 14-27 company has been issued a license under this chapter. 15-1 Sec. 486.042. APPLICATION FOR LICENSE. A qualified small 15-2 business financing company may apply to the commission for a 15-3 license establishing the eligibility of the company to participate 15-4 in the equity leveraging program provided by this chapter. 15-5 Sec. 486.043. APPROVAL OR DENIAL OF LICENSE APPLICATION. 15-6 (a) The commission shall develop for the board's adoption rules 15-7 and reporting requirements as the commission considers proper for 15-8 adequate investigations concerning the advisability of approving an 15-9 application for a license. The rules must include provisions: 15-10 (1) for ascertaining that the applicant is a holder of 15-11 a valid license, authorization, or charter to operate as a 15-12 qualified small business financing company; 15-13 (2) for ascertaining that the applicant is currently 15-14 in compliance with all applicable federal and state law; 15-15 (3) to assure the financial capacity of the applicant 15-16 to raise the capital, in the case of an applicant proposing to 15-17 receive state leverage funds, conditioned on its own promise of 15-18 first having raised or increased its own private paid-in capital in 15-19 the required proportion; 15-20 (4) for ascertaining the qualifications and competence 15-21 of the board members and management of the applicant; and 15-22 (5) for obtaining assurances that the proposed board 15-23 members and management of the applicant intend to comply with this 15-24 chapter. 15-25 (b) After receipt and due consideration of an application, 15-26 the commission shall approve or deny the application and shall 15-27 notify the applicant of the action. 16-1 (c) If an application is denied, the commission shall 16-2 specify in writing the reasons for the denial and forward them to 16-3 the applicant. 16-4 (d) A license may not be transferred or surrendered without 16-5 prior written approval of the commission. 16-6 Sec. 486.044. LICENSEE'S APPLICATION FOR FINANCIAL 16-7 ASSISTANCE. (a) After a qualified small business financing 16-8 company has been granted a license, it may apply to the commission 16-9 for financial assistance under this chapter. The commission shall 16-10 accept and process applications on a first-come, first-served 16-11 basis, but it may restrict, allocate, or parcel out assistance or 16-12 set other reasonable conditions as it considers appropriate to the 16-13 furtherance of the purposes of this chapter. 16-14 (b) The commission shall establish and publish the 16-15 procedures to be followed in applying for financial assistance 16-16 under this chapter. The commission shall establish appropriate 16-17 procedures to assure proper use of its money and the outside 16-18 leverage obtained through its use, including assurance that: 16-19 (1) the concerns being financed by the licensees are 16-20 small businesses actually headquartered and operated in this state 16-21 and that they meet other criteria established by state law, 16-22 including applicable rules; 16-23 (2) the licensees use their funds in ways that permit 16-24 their portfolio companies to maximize their outside financing and 16-25 leverage; 16-26 (3) the licensees keep all uninvested funds on deposit 16-27 with, or securities in the safekeeping of, financial institutions 17-1 located in this state; 17-2 (4) proper record-keeping and reporting are performed; 17-3 and 17-4 (5) all licensees comply with the laws, including 17-5 rules, of this state and other regulatory bodies to which they are 17-6 subject. 17-7 Sec. 486.045. PRIORITY FOR FUNDS DISTRIBUTED BY LICENSEE. 17-8 (a) The greatest possible portion of the funds authorized by this 17-9 chapter shall be placed through licensees in small business growth 17-10 concerns that contribute most directly to greater employment, 17-11 productivity, and production of wealth in this state, with priority 17-12 given to those concerns that are also disadvantaged businesses or 17-13 are to be located in a distressed area. 17-14 (b) A small business is considered a small business growth 17-15 concern if its primary activity falls clearly within the following 17-16 industrial classifications provided by the Standard Industrial 17-17 Classification Manual prepared by the Office of Management and 17-18 Budget: 17-19 (1) Division A--Agriculture, Forestry, and Fisheries 17-20 (limited to new products or services); 17-21 (2) Division B--Mining, Including Oil and Gas; 17-22 (3) Division C--Heavy Industrial Construction and 17-23 Related Services (Group 162); 17-24 (4) Division D--Manufacturing, with the exclusion of 17-25 Main Group 21, Tobacco Manufacturing; 17-26 (5) Division E--Transportation, Communication, and 17-27 Electric, Gas, and Sanitary Services, with the exception of Public 18-1 Utilities; 18-2 (6) Division F--Regional Wholesale Distribution, 18-3 defined as "Merchant Wholesalers" under Major Group 50, and 18-4 franchisors, no groups specified; 18-5 (7) Division G--Industrial Parks and Regional 18-6 Wholesale Trade Marts, no groups specified; 18-7 (8) Division H--Major Industrial Repairs and Related 18-8 Services and Family Oriented Tourist Attractions, with the 18-9 exclusion of businesses primarily providing lodging and meals, no 18-10 groups specified; or 18-11 (9) Divisions D, F, H and Others--Firms that derive 18-12 over 50 percent of their revenue by exporting products or services 18-13 to foreign countries. 18-14 (c) A small business that does not qualify as a small 18-15 business growth concern under Subsection (b) may be considered a 18-16 small business growth concern only if it is shown that the business 18-17 adds directly to greater employment, productivity, and production 18-18 of wealth within this state and receives the recommendation of the 18-19 commission. 18-20 Sec. 486.046. LICENSEE'S ACCOUNTING REQUIREMENTS. (a) On 18-21 each disbursement of funds to a licensee, the licensee shall create 18-22 a separate Texas fund account and immediately transfer to that 18-23 account: 18-24 (1) all leverage funds received under this chapter; 18-25 (2) matching private capital, in an amount not less 18-26 than the agreed-on proportion of private capital of the licensee, 18-27 representing cash, unencumbered cash equivalent securities, or 19-1 guarantees of capital pledged by third parties on behalf of the 19-2 licensee or one-fourth of the amount of the cumulative total of 19-3 state leverage funds, whichever is greater; 19-4 (3) in the case of an investment company, all, or the 19-5 reasonable proportion to which the commission and the licensee 19-6 agree, of federal or other outside leverage available or received 19-7 in the future, until the proportion that the outside leverage in 19-8 the Texas fund bears to the total under Subdivisions (1) and (2) 19-9 equals or exceeds the proportion that the federal or other outside 19-10 leverage not in the Texas fund bears to the private capital of the 19-11 licensee not in the Texas fund; and 19-12 (4) in the case of a development company, all, or the 19-13 reasonable proportion to which the commission and the licensee 19-14 agree, of interest earned on the deposit or loan of the funds 19-15 specified under Subdivisions (1) and (2) and all, or the 19-16 reasonable proportion to which the commission and the licensee 19-17 agree, of federal or outside leverage available or received in the 19-18 future as a result of this chapter. 19-19 (b) Money in a Texas fund may be used only as provided by 19-20 this chapter. 19-21 (c) Not later than the 15th day after the date of each 19-22 disbursement by a licensee from its Texas fund, the licensee shall 19-23 remit to the commission a report in a form provided by the 19-24 commission certifying: 19-25 (1) the name, address, and phone number of the small 19-26 business receiving the disbursement and the name of its chief 19-27 executive officer; 20-1 (2) the amount and terms of the financing; 20-2 (3) the primary and secondary industrial 20-3 classification codes of the recipient's business; 20-4 (4) the assets, capital, and number of employees of 20-5 the recipient, before financing, and assets, capital, and estimated 20-6 number of employees after financing; 20-7 (5) whether the recipient is a business headquartered 20-8 or operating in this state; 20-9 (6) whether the recipient is a small business, a 20-10 disadvantaged concern, or a small business in a distressed area or 20-11 state enterprise zone; and 20-12 (7) that the financing complies with the requirements 20-13 of this chapter and the rules of the board. 20-14 (d) A licensee shall maintain current financial records and 20-15 books of account in accordance with accepted accounting standards 20-16 and shall furnish to the commission a copy of financial reports at 20-17 the same time and with the same regularity as the reports are 20-18 prepared for management, stockholders, partners, or other 20-19 regulating agencies, but not less than once annually, together with 20-20 accompanying independent public accountant's certificates. 20-21 Sec. 486.047. INSPECTION OF RECORDS BY COMMISSION; AUDIT. 20-22 (a) The commission may at any time inspect records of a licensee 20-23 during normal business hours if the commission considers an 20-24 inspection appropriate. 20-25 (b) Except as provided by Subsection (c), reasonable 20-26 inspection fees may be charged to a licensee for not more than one 20-27 inspection annually. 21-1 (c) If a discrepancy or another reason is found by the 21-2 commission, the commission may cause the books of the licensee to 21-3 be audited at the licensee's expense. 21-4 Sec. 486.048. PERIODIC REVIEW OF LICENSEE'S OPERATIONS. (a) 21-5 The commission periodically may review the operations of a 21-6 licensee. The review must include an investigation of the 21-7 management and intended use of funds provided under this chapter. 21-8 (b) Based on the results of a periodic review, the 21-9 commissioner may: 21-10 (1) outline corrective steps that must be taken by the 21-11 licensed qualified small business financing company to retain that 21-12 license; or 21-13 (2) revoke the license of the qualified small business 21-14 financing company. 21-15 (c) If corrective steps that have been ordered are not taken 21-16 or the license is revoked, all funds that the licensee has received 21-17 under this chapter are immediately due and payable. If a senior 21-18 lender such as the SBA has provided additional leverage to the 21-19 licensee, the commission may not take action to collect the funds 21-20 without prior consultation with and full regard for the rights of 21-21 priority of the senior lender. 21-22 Sec. 486.049. APPLICATIONS TO OTHER LICENSING BODIES; COPIES 21-23 TO COMMISSION AND APPROVAL REQUIRED. (a) Unless specifically 21-24 exempted in writing by the commission, a licensee making 21-25 application to other licensing bodies for changes or approvals of 21-26 any nature shall make a copy of the application available to the 21-27 commission. 22-1 (b) If the changes or approvals sought involve a 10 percent 22-2 or more change in ownership on a cumulative basis, change in 22-3 control, change in management, decrease in capital, repayment of 22-4 leverage funds, merger, consolidation, reorganization, liquidation, 22-5 or other event the commission considers would materially affect the 22-6 commission's interest, the application shall be made only with the 22-7 prior approval of the commission. Written proof of receipt by the 22-8 commission is required, and, in the absence of a written dissent or 22-9 objection by the commission within 30 days after the date of 22-10 receipt, approval of the commission is presumed. 22-11 (Sections 486.050-486.060 reserved for expansion 22-12 SUBCHAPTER D. PROHIBITED 22-13 ACTIVITIES; OFFENSES 22-14 Sec. 486.061. GENERAL OFFENSE. (a) A person commits an 22-15 offense if the person violates this chapter or a rule adopted under 22-16 this chapter. 22-17 (b) An offense under this section is a Class A misdemeanor. 22-18 Sec. 486.062. SELF-DEALING. (a) A person may not self-deal 22-19 to the prejudice of a small business, a licensee, partners, board 22-20 members, or shareholders of a licensee, the commission, or an 22-21 associate of the commission. 22-22 (b) In this section, "associate of the commission" means an 22-23 officer, director, employee, or other individual regularly serving 22-24 the commission in the capacity of a paid investment adviser or 22-25 attorney at law, or a close relative of that individual. For the 22-26 purposes of this definition, an individual in any of the 22-27 relationships described by this subsection within six months before 23-1 or after the date on which the commission provided assistance to a 23-2 licensee is considered to have been in that relationship on the 23-3 date of the commission's assistance. The term does not include an 23-4 unpaid adviser of the commission unless the adviser is also 23-5 involved in any of the relationships described by this subsection. 23-6 (c) For the purposes of Subsection (b), "close relative" 23-7 means an ancestor, lineal descendant, brother or sister and lineal 23-8 descendants of either, spouse, father-in-law, mother-in-law, 23-9 son-in-law, daughter-in-law, brother-in-law, or sister-in-law. 23-10 Sec. 486.063. CONFLICT OF INTEREST BY LICENSEE AND 23-11 ASSOCIATES. (a) A licensee and associates of a licensee shall 23-12 follow rules concerning conflicts of interest and prohibited 23-13 activities of the appropriate federal regulatory body under whose 23-14 jurisdiction the licensee is principally governed. 23-15 (b) In this section, "associate of a licensee" means an 23-16 associate as defined by the SBA in 13 C.F.R. Section 107 or as 23-17 defined under the regulations of another federal regulatory body 23-18 under whose jurisdiction the licensee is principally governed. 23-19 Sec. 486.064. USING FUNDS TO BENEFIT FROM DIFFERENCE IN 23-20 INTEREST RATES. A licensee may not use commission funds solely as 23-21 a means to obtain a benefit from a difference in interest rates. 23-22 Sec. 486.065. SLOW DISBURSEMENT OF FUNDS BY LICENSEE. The 23-23 board shall adopt rules governing the schedule for a licensee's 23-24 disbursement of funds. A licensee may not be unreasonably slow in 23-25 disbursing funds from its Texas fund to small business concerns. 23-26 Sec. 486.066. CONFLICT OF INTEREST BY COMMISSION MEMBER OR 23-27 STAFF. A member or employee of the commission may not directly or 24-1 indirectly be a party to or be in any manner interested in any 24-2 agreement with the commission by which liability or indebtedness is 24-3 created against the commission. An agreement made in violation of 24-4 this section is void. 24-5 SECTION 2. (a) Of the governor's original appointees to the 24-6 Texas Small Business Equity Commission, the governor shall 24-7 designate three members for terms expiring February 1, 1995, three 24-8 for terms expiring February 1, 1997, and three for terms expiring 24-9 February 1, 1999. 24-10 (b) The governor shall provide for the organizational 24-11 meeting of the commission. 24-12 SECTION 3. This Act takes effect September 1, 1993. 24-13 SECTION 4. The importance of this legislation and the 24-14 crowded condition of the calendars in both houses create an 24-15 emergency and an imperative public necessity that the 24-16 constitutional rule requiring bills to be read on three several 24-17 days in each house be suspended, and this rule is hereby suspended.