77R12282 DWS-F By George, et al. H.B. No. 2369 Substitute the following for H.B. No. 2369: By Averitt C.S.H.B. No. 2369 A BILL TO BE ENTITLED 1-1 AN ACT 1-2 relating to state financing of the development and production of 1-3 Texas biotechnological and biomedical products and small 1-4 businesses; providing for the issuance of bonds. 1-5 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-6 SECTION 1. Chapter 403, Government Code, is amended by 1-7 adding Subchapter P to read as follows: 1-8 SUBCHAPTER P. PRODUCT DEVELOPMENT AND SMALL BUSINESS INCUBATORS 1-9 Sec. 403.401. DEFINITIONS. In this subchapter: 1-10 (1) "Board" means the Product Development and Small 1-11 Business Incubator Board. 1-12 (2) "Comptroller" includes the designee of the 1-13 comptroller. 1-14 (3) "Financing" means a loan, loan guarantee, or 1-15 equity investment from the product development fund to a person for 1-16 use in the development and production of a product in this state, 1-17 or a grant, loan, or loan guarantee from the small business 1-18 incubator fund to a person for use in the development of a small 1-19 business in this state. 1-20 (4) "Office" means the office of the comptroller. 1-21 (5) "Product" includes an invention, device, 1-22 technique, or process, without regard to whether a patent has or 1-23 could be granted, that has advanced beyond the theoretical stage 1-24 and has or is readily capable of having a commercial application. 2-1 The term does not include pure research. 2-2 (6) "Product fund" means the Texas product development 2-3 fund. 2-4 (7) "Program" means the product development program or 2-5 the small business incubator program. 2-6 (8) "Small business fund" means the Texas small 2-7 business incubator fund. 2-8 Sec. 403.402. PRODUCT DEVELOPMENT AND SMALL BUSINESS 2-9 INCUBATOR BOARD. (a) The Product Development and Small Business 2-10 Incubator Board is created in the office. 2-11 (b) The board shall administer the programs, the product 2-12 fund, and the small business fund. 2-13 Sec. 403.403. MEMBERS OF THE BOARD; APPOINTMENT; TERMS OF 2-14 OFFICE. (a) The board consists of the comptroller and six persons 2-15 appointed by the governor. 2-16 (b) In appointing members of the board, the governor shall 2-17 appoint: 2-18 (1) two persons having significant business leadership 2-19 experience in technology, particularly experience with the transfer 2-20 of research results into commercial applications; 2-21 (2) two persons employed by institutions of higher 2-22 education of this state who have experience in technological 2-23 research and its commercial applications; and 2-24 (3) two persons experienced and knowledgeable in 2-25 structuring and providing financing for technological products or 2-26 businesses. 2-27 (c) Appointed members of the board serve two-year staggered 3-1 terms with the terms of three members expiring February 1 of each 3-2 odd-numbered year and the terms of three members expiring February 3-3 1 of each even-numbered year. 3-4 (d) The comptroller is the presiding officer of the board. 3-5 (e) The board shall appoint a secretary of the board whose 3-6 duties may be prescribed by law and by the board. 3-7 (f) Appointed members of the board serve without pay but are 3-8 entitled to reimbursement for their actual expenses incurred in 3-9 attending meetings of the board or in performing other work of the 3-10 board if that work is approved by the comptroller. 3-11 Sec. 403.404. REMOVAL OF BOARD MEMBER. (a) It is a ground 3-12 for removal from the board if an appointed member: 3-13 (1) cannot because of illness or disability discharge 3-14 the member's duties for a substantial part of the term for which 3-15 the member is appointed; or 3-16 (2) is absent from more than half of the regularly 3-17 scheduled board meetings that the member is eligible to attend 3-18 during a calendar year unless the absence is excused by majority 3-19 vote of the board. 3-20 (b) The validity of an action of the board is not affected 3-21 by the fact that the action was taken when a ground for removal of 3-22 a board member existed. 3-23 Sec. 403.405. TRAINING OF BOARD MEMBERS. (a) Before an 3-24 appointed member of the board may assume the member's duties, the 3-25 member must complete at least one course of the training program 3-26 established under this section. 3-27 (b) A training program established under this section shall 4-1 provide information to the member regarding: 4-2 (1) the enabling legislation that created the board; 4-3 (2) the programs operated by the board; 4-4 (3) the role and functions of the board; 4-5 (4) the rules of the board, with an emphasis on the 4-6 rules that relate to disciplinary and investigatory authority; 4-7 (5) the current budget for the board; 4-8 (6) the results of the most recent formal audit of the 4-9 board; 4-10 (7) the requirements of the: 4-11 (A) open meetings law, Chapter 551; 4-12 (B) open records law, Chapter 552; and 4-13 (C) administrative procedure law, Chapter 2001; 4-14 (8) the requirements of the conflict of interest laws 4-15 and other laws relating to public officials; and 4-16 (9) any applicable ethics policies adopted by the 4-17 board or the Texas Ethics Commission. 4-18 Sec. 403.406. MEETINGS. (a) The board shall hold regular 4-19 meetings in Austin and other meetings at places and times scheduled 4-20 by the board in formal sessions and called by the comptroller. 4-21 (b) The board shall develop and implement policies that 4-22 provide the public with a reasonable opportunity to appear before 4-23 the board and to speak on any issue under the jurisdiction of the 4-24 board. 4-25 (c) The board shall make minutes of all meetings available 4-26 in the board's office for public inspection. 4-27 Sec. 403.407. APPLICABILITY OF OPEN MEETINGS LAW AND 5-1 ADMINISTRATIVE PROCEDURE LAW. The board is subject to the open 5-2 meetings law, Chapter 551, and the administrative procedure law, 5-3 Chapter 2001. 5-4 Sec. 403.408. STAFF. (a) The employees of the comptroller 5-5 selected by the comptroller for that purpose serve as the staff of 5-6 the board. 5-7 (b) The comptroller shall select and supervise the staff of 5-8 the board and perform other duties delegated to the comptroller by 5-9 the board. 5-10 (c) The comptroller shall provide to members of the board 5-11 and to board staff, as often as necessary, information regarding 5-12 their qualifications for office or employment under this subchapter 5-13 and their responsibilities under applicable laws relating to 5-14 standards of conduct for state officers or employees. 5-15 (d) The board shall develop and implement policies that 5-16 clearly separate the policy-making responsibilities of the board 5-17 and the management responsibilities of the comptroller and the 5-18 office. 5-19 Sec. 403.409. PROGRAM AND FACILITY ACCESSIBILITY. (a) The 5-20 board shall comply with federal and state laws related to program 5-21 and facility accessibility. 5-22 (b) The board shall prepare and maintain a written plan that 5-23 describes how a person who does not speak English can be provided 5-24 reasonable access to the board's programs and services. 5-25 Sec. 403.410. POWERS OF THE BOARD; BONDS. (a) The board has 5-26 the powers necessary and reasonable to carry out this subchapter 5-27 and may adopt rules, policies, and procedures necessary or 6-1 reasonable to implement this subchapter. 6-2 (b) The board may issue general obligation bonds, up to the 6-3 amounts authorized and as provided by Section 71, Article XVI, 6-4 Texas Constitution, to fund the program. 6-5 (c) Not more than an amount equal to five percent of the 6-6 total amount of bonds issued may be used to pay administrative fees 6-7 involved in selling the bonds. 6-8 Sec. 403.411. TEXAS PRODUCT DEVELOPMENT FUND. (a) The Texas 6-9 product development fund is a revolving fund in the state treasury. 6-10 (b) The product fund is composed of proceeds of bonds issued 6-11 under this subchapter, financing application fees, loan repayments, 6-12 guarantee fees, royalty receipts, dividend income, money 6-13 appropriated by the legislature for authorized purposes of the 6-14 product fund, amounts received by the state from loans, loan 6-15 guarantees, and equity investments made under this subchapter, 6-16 amounts received by the state from federal grants or other sources, 6-17 and any other amounts received under this subchapter and required 6-18 by resolution of the board to be deposited in the product fund. 6-19 The product fund contains a program account, an interest and 6-20 sinking account, and other accounts that the board authorizes to be 6-21 created and maintained. Money in the product fund is available for 6-22 use by the board under this subchapter. Notwithstanding any other 6-23 provision of this subchapter, any money in the fund may be used for 6-24 debt service. 6-25 (c) Money in the program account of the product fund, minus 6-26 the costs of issuance of bonds under this subchapter and necessary 6-27 costs of administering the product fund, may be used only to 7-1 provide financing to aid in the development and production, 7-2 including the commercialization, of new or improved products in 7-3 this state. The board shall provide financing from the product 7-4 fund on the terms and conditions that the board determines to be 7-5 reasonable, appropriate, and consistent with the purposes and 7-6 objectives of the product fund and this subchapter, for the purpose 7-7 of aiding in the development and production of new or improved 7-8 products in this state. 7-9 Sec. 403.412. SMALL BUSINESS INCUBATOR FUND. (a) The Texas 7-10 small business incubator fund is a revolving fund in the state 7-11 treasury. 7-12 (b) The small business fund is composed of proceeds of bonds 7-13 issued under this subchapter, financing application fees, loan 7-14 repayments, guarantee fees, royalty receipts, dividend income, 7-15 money appropriated by the legislature for authorized purposes of 7-16 the small business fund, amounts received by the state from loans, 7-17 loan guarantees, and equity investments made under this subchapter, 7-18 amounts received by the state from federal grants or other sources, 7-19 and any other amounts received under this subchapter and required 7-20 by resolution of the board to be deposited in the small business 7-21 fund. The small business fund contains a project account, an 7-22 interest and sinking account, and other accounts that the board 7-23 authorizes to be created and maintained. Money in the small 7-24 business fund is available for use by the board under this 7-25 subchapter. Notwithstanding any other provision of this subchapter, 7-26 any money in the fund may be used for debt service. 7-27 (c) Money in the project account of the small business fund, 8-1 minus the costs of issuance of bonds under this subchapter and 8-2 necessary costs of administering the small business fund, may be 8-3 used only to provide financing to foster and stimulate the 8-4 development of small businesses in this state. The board shall 8-5 provide financing from the small business fund on the terms and 8-6 conditions that the board determines to be reasonable, appropriate, 8-7 and consistent with the purposes and objectives of the small 8-8 business fund and this subchapter, for the purpose of fostering and 8-9 stimulating the development of new or existing small businesses in 8-10 this state. 8-11 Sec. 403.413. ELIGIBLE PRODUCTS AND BUSINESSES; FINANCING. 8-12 (a) Financing may be made under this subchapter only for a product 8-13 or small business approved by the board. 8-14 (b) In determining eligible products and small businesses, 8-15 the board shall give special preference to products or businesses 8-16 in the areas of biotechnology and biomedicine that have the 8-17 greatest likelihood of commercial success, job creation, and job 8-18 retention in this state. The board shall give further preference 8-19 to providing financing to projects or businesses that are: 8-20 (1) grantees under the small business innovation 8-21 research program established under 15 U.S.C. Section 638, as 8-22 amended; 8-23 (2) companies formed in this state to commercialize 8-24 research funded at least in part with state funds; 8-25 (3) applicants that have acquired other sources of 8-26 financing; 8-27 (4) companies formed in this state and receiving 9-1 assistance from designated state small business development 9-2 centers; or 9-3 (5) applicants who are residents of this state doing 9-4 business in this state and performing financed activities 9-5 predominantly in this state. 9-6 (c) The board shall adopt rules governing the terms and 9-7 conditions of the financing, specifically including requirements 9-8 for appropriate security or collateral, equity interest, and the 9-9 rights and remedies of the board and office in the event of a 9-10 default on the loan. The rules must include a requirement that 9-11 applicants report to the board on the use of money distributed 9-12 through either fund. 9-13 (d) Before approving the provision of financing to a person, 9-14 the board shall enter into an agreement with the person under which 9-15 the board will obtain an appropriate portion of royalties, patent 9-16 rights, equitable interests, or a combination of those royalties, 9-17 rights, and interests from or in the product or proceeds of the 9-18 product for which financing is requested. Contracts executed under 9-19 this subchapter must include agreements to ensure proper use of 9-20 funds and the receipt of royalties, patent rights, or equity 9-21 interest, as appropriate. 9-22 (e) The board may appoint an advisory committee of experts 9-23 in the areas of biotechnology and biomedicine to review projects 9-24 and businesses seeking financing from the board. 9-25 (f) The amount of financing provided to a single recipient 9-26 may not exceed 10 percent of the total amount of bonds issued. 9-27 (g) A claim of the state for a payment owed to the state 10-1 under this subchapter by a person who has been provided financing 10-2 has priority over all other claims against the person. 10-3 Sec. 403.414. APPLICATION PROCESS. (a) To apply for 10-4 financing from the board, an applicant shall submit to the board: 10-5 (1) an application for financing on a form prescribed 10-6 by the board; and 10-7 (2) a reasonable application fee set by the board. 10-8 (b) The application must include a business plan, containing 10-9 the information required by the board, including at a minimum: 10-10 (1) information regarding: 10-11 (A) the history and financial condition of the 10-12 applicant, including the applicant's income statement; 10-13 (B) the applicant's present markets and market 10-14 prospects; and 10-15 (C) the integrity of the applicant's management; 10-16 (2) a statement of the feasibility of the product for 10-17 which financing is requested, including the state of development of 10-18 any product to be developed and the proposed schedule of its 10-19 commercialization; and 10-20 (3) if applicable, documentation of attempts to obtain 10-21 private financing. 10-22 (c) The board shall determine, with respect to each 10-23 application for financing, whether: 10-24 (1) the product or business for which financing is 10-25 requested is economically sound; 10-26 (2) there is a reasonable expectation that the product 10-27 or business will be successful; 11-1 (3) the product or business will create or preserve 11-2 jobs and otherwise benefit the economy of the state; 11-3 (4) the applicant has the management resources and 11-4 other funding to complete the project; 11-5 (5) financing is necessary because full financing is 11-6 unavailable in traditional capital markets or credit has been 11-7 offered on terms that would preclude the success of the project; 11-8 and 11-9 (6) there is reasonable assurance that the potential 11-10 revenues to be derived from the sale of the product will be 11-11 sufficient to repay any financing approved by the board. 11-12 (d) After considering the application and all other 11-13 information it considers relevant, the board shall approve or deny 11-14 the application and promptly notify the applicant of its decision. 11-15 Sec. 403.415. INFORMATION CONFIDENTIAL. (a) Information 11-16 described by Subsection (b) collected, assembled, or maintained by 11-17 or for the board is confidential and may not be disclosed by the 11-18 board, the comptroller, or the office. 11-19 (b) This section applies to information in any form provided 11-20 by or on behalf of an applicant for financing or a recipient of 11-21 financing under this subchapter, including information contained 11-22 in, accompanying, or derived from any application or report, that 11-23 relates to a product, to the development, application, manufacture, 11-24 or use of a product, or to the markets, market prospects, or 11-25 marketing of a product, and that is proprietary information of 11-26 actual or potential commercial value to the applicant or recipient 11-27 that has not been disclosed to the public. Confidential 12-1 information includes scientific and technological information, 12-2 including computer programs and software, and marketing and 12-3 business operation information, regardless of whether the product 12-4 to which the information relates is patentable or capable of being 12-5 registered under copyright or trademark laws or has a potential for 12-6 being sold, traded, or licensed for a fee. This section does not 12-7 make confidential information in an account, voucher, or contract 12-8 relating to the receipt or expenditure of public funds by the board 12-9 or the comptroller under this subchapter. 12-10 (c) Any application for financing that is withdrawn by the 12-11 applicant before approval or funding or that is denied by the board 12-12 shall be returned to the applicant promptly on request, together 12-13 with all materials submitted by or on behalf of the applicant that 12-14 relate to the application, except that the board may retain a 12-15 record of the submission and disposition of the application that 12-16 does not include any information described by Subsection (b). 12-17 Sec. 403.416. PROGRAM COORDINATION. The board and office 12-18 shall coordinate the administration and funding of the programs. 12-19 SECTION 2. This Act takes effect immediately if it receives 12-20 a vote of two-thirds of all the members elected to each house, as 12-21 provided by Section 39, Article III, Texas Constitution. If this 12-22 Act does not receive the vote necessary for immediate effect, this 12-23 Act takes effect September 1, 2001.