MISSISSIPPI LEGISLATURE

1998 Regular Session

To: Ways and Means

By: Representative Reeves

AN ACT TO BRING FORWARD FOR PURPOSES OF AMENDMENT SECTIONS 57-77-1, 57-77-3, 57-77-5, 57-77-7, 57-77-9, 57-77-11, 57-77-13, 57-77-15, 57-77-17, 57-77-19, 57-77-21, 57-77-23, 57-77-25, 57-77-27, 57-77-29, 57-77-31, 57-77-33, 57-77-35, 57-77-37 AND 57-77-39, MISSISSIPPI CODE OF 1972, WHICH PROVIDE FOR THE CREATION OF THE MAGNOLIA CAPITAL CORPORATION AND THE MAGNOLIA VENTURE CAPITAL CORPORATION AND PROVIDE THE POWERS AND DUTIES OF SUCH ENTITIES; AND FOR RELATED PURPOSES. 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MISSISSIPPI:

SECTION 1. Section 57-77-1, Mississippi Code of 1972, is brought forward as follows:

57-77-1. This chapter shall be known, and may be cited, as the Venture Capital Act of 1994.

SECTION 2. Section 57-77-3, Mississippi Code of 1972, is brought forward as follows:

57-77-3. It is the purpose of this chapter to establish the Magnolia Capital Corporation, the Magnolia Venture Capital Corporation and the Magnolia Venture Capital Fund Limited Partnership for the purposes of increasing the rate of capital formation; stimulating new growth-oriented business formations; creating new jobs for Mississippi; developing new technology; enhancing tax revenue for the state; and supplementing conventional business financing.

SECTION 3. Section 57-77-5, Mississippi Code of 1972, is brought forward as follows:

57-77-5. The following words shall have the meaning ascribed herein unless the context clearly requires otherwise:

(a) "Fund" means the Magnolia Venture Capital Fund Limited Partnership, a limited partnership, established and operated as described in this chapter.

(b) "Corporation" means the Magnolia Capital Corporation.

(c) "Qualified investment" means a qualified interest, which interest is purchased solely for cash in an amount not less than Ten Thousand Dollars ($10,000.00) for individuals; and not less than Fifty Thousand Dollars ($50,000.00) for corporations.

(d) "General partner" means the Magnolia Venture Capital Corporation.

(e) "Qualified interest" means, in the case of the Magnolia Venture Capital Corporation, a general partnership interest in the fund and, in the case of all other persons, a limited partnership interest in the fund.

(f) "State tax liability" means a taxpayer's total income tax liability that is incurred under the Mississippi Income Tax Law before applying the credits provided by Section 27-7-22.11.

(g) "Taxpayer" means any individual, corporation, partnership, trust or other entity that has any state tax liability and has made a qualified investment.

(h) "Venture capital" means investments in either common stock, preferred stock, or bonds convertible to either common or preferred stock, or options, warrants or rights to receive any of the foregoing, or any other similar investment in or loan to a Mississippi business.

(i) "Mississippi business" means a corporation, general partnership, limited partnership, joint venture, trust, proprietorship or any other similar entity or organization which is either established and operating, or will be established to operate, in Mississippi.

(j) "Start-up business" means a Mississippi business which is in the first thirty-six (36) months of providing goods or services in the ordinary course of business or a Mississippi business which qualified as a start-up business under this definition at the time it entered the venture capital fund portfolio.

(k) "Program" means the venture capital loan program established in this chapter.

(l) "Seller" means the State Bond Commission.

(m) "Department" means the Mississippi Department of Economic and Community Development.

(n) "General Fund" means the General Fund of the State of Mississippi.

(o) "Loan" means a loan by the department to Magnolia Capital Corporation in accordance with this chapter.

SECTION 4. Section 57-77-7, Mississippi Code of 1972, is brought forward as follows:

57-77-7. A taxpayer is entitled to a credit, determined in accordance with Section 27-7-22.1, which must be applied against the state tax liability which may be imposed on the taxpayer.

SECTION 5. Section 57-77-9, Mississippi Code of 1972, is brought forward as follows:

57-77-9. (1) The Magnolia Capital Corporation shall be formed and operated pursuant to the laws of this state. The articles of incorporation, bylaws and any other agreement relating to the organization or operation of the corporation must comply with the provisions set forth in this section. The corporation will be a not-for-profit corporation.

(2) The executive director of the department shall cause the corporation to be formed, and he shall designate the incorporators. The initial board of directors shall consist of thirteen (13) members, all of whom will be appointed by the executive director of the department. Members of the initial board of directors shall serve staggered terms as follows: four (4) for terms of five (5) years each, three (3) for terms of four (4) years each, three (3) for terms of three (3) years each and three (3) for terms of two (2) years each, in accordance with the bylaws. After the terms of initial directors expire, successors may be chosen in the manner provided by the bylaws of the corporation. Members of the initial board are eligible to succeed themselves. If a director is a full-time state employee, he may not receive per diem.

(3) The articles of incorporation shall provide that the name of the corporation is the "Magnolia Capital Corporation," and the registered agent shall be designated by the executive director of the department. The corporation's existence begins upon filing of the articles of incorporation. The corporation's existence is perpetual, unless dissolved as provided herein. The general nature of the business of the corporation is to serve as the sole stockholder of the Magnolia Venture Capital Corporation. The bylaws, the organizational minutes, the election of officers, and any other actions appropriate or necessary for the organization and operation of the corporation shall be of that form and content as determined by the board of directors. Nothing contained in this chapter may prohibit the board of directors of the corporation from altering, amending or otherwise modifying the articles of incorporation, bylaws or any other agreement governing the corporation as otherwise permitted under the laws of this state, except that the general nature of the business of the corporation may not be amended, altered or otherwise modified or restricted and except that the corporation may be dissolved, merged or otherwise cease to exist pursuant to the appropriate vote of the board of directors. The executive director of the department may expend any discretionary funds he has available and considers appropriate for the purpose of organizing the corporation.

SECTION 6. Section 57-77-11, Mississippi Code of 1972, is brought forward as follows:

57-77-11. (1) The Magnolia Venture Capital Corporation shall be formed and operated pursuant to the laws of this state. The articles of incorporation, bylaws and any other agreement relating to the organization or operation of the Magnolia Venture Capital Corporation must comply with the provisions set forth in this section. The Magnolia Venture Capital Corporation will be a for profit corporation.

(2) The executive director of the department shall cause the Magnolia Venture Capital Corporation to be formed, and he shall designate the incorporators. The initial board of directors shall consist of five (5) members, all of whom will be appointed by the executive director of the department. Members of the initial board of directors shall serve staggered terms as follows: three (3) for terms of five (5) years each and two (2) for terms of three (3) years each, in accordance with the bylaws. After the terms of initial directors expire, successors shall be chosen in the manner provided by the bylaws of the Magnolia Venture Capital Corporation. Members of the initial board are eligible to succeed themselves. If a director is a full-time state employee, he may not receive per diem.

(3) The articles of incorporation shall provide that the name of the entity is the "Magnolia Venture Capital Corporation," and the registered agent shall be designated by the executive director of the department. The Magnolia Venture Capital Corporation's existence begins upon filing of the articles of incorporation. The Magnolia Venture Capital Corporation's existence is perpetual, unless dissolved as provided herein. The Magnolia Venture Capital Corporation is authorized to issue shares of a number, class and par or no-par value as provided in its articles of incorporation. The general nature of the business of the Magnolia Venture Capital Corporation is to serve as general partner of the Magnolia Venture Capital Fund Limited Partnership, to provide venture capital to Mississippi businesses, to provide financing to high-growth oriented businesses, and to undertake any acts appropriate or necessary to carry out the foregoing. The bylaws, the organizational minutes, the election of officers, the issuance of any stock of the Magnolia Venture Capital Corporation, and any other actions appropriate or necessary for the organization and operation of the Magnolia Venture Capital Corporation shall be of that form and content as determined by the board of directors. Nothing contained in this chapter may prohibit the shareholders or board of directors of the corporation from altering, amending or otherwise modifying the articles of incorporation, bylaws or any other agreement governing the Magnolia Venture Capital Corporation as otherwise permitted under the laws of this state, except that the general nature of the business of the Magnolia Venture Capital Corporation may not be amended, altered or otherwise modified or restricted and except that the Magnolia Venture Capital Corporation may be dissolved, merged or otherwise cease to exist pursuant to the appropriate vote of the board of directors and shareholders. The executive director of the department may expend any discretionary funds he has available and considers appropriate for the purpose of organizing the Magnolia Venture Capital Corporation and promoting the sale of the qualified investments.

(4) The Magnolia Venture Capital Corporation shall cause the fund to be formed as a limited partnership. The partnership agreement relating to the organization and operation of the fund must be of that form and content as determined by the board of directors of the Magnolia Venture Capital Corporation. The Magnolia Venture Capital Corporation shall be the sole general partner of the fund, and the initial limited partner shall be a person or entity designated by the Magnolia Venture Capital Corporation's board of directors. Additional limited partners may be admitted to the fund in accordance with the terms of the partnership agreement.

(5) The fund shall raise funds to provide financing to high-growth oriented businesses. A "high-growth oriented business" is a corporation, general partnership, limited partnership, joint venture, trust, proprietorship, or other similar entity or organization which is expected to experience significant sales growth over the subsequent five-year period. All investments made from investment monies raised by the fund, for which the tax credit provided by this chapter is allowed and for which the tax credit is made available by the fund in the prospectus or offering, must be made to provide venture capital to Mississippi businesses, this venture capital to be used primarily for the purpose of enhancing the production capacity of these businesses or their ability to do business in Mississippi. Seventy percent (70%) of these investment monies acquired by the fund for which the tax credit is allowed and available must be invested to provide venture capital financing of start-up businesses. The remaining thirty percent (30%) may be invested as the general partner of the fund determines to provide capital to Mississippi businesses.

(6) No business may be transacted or indebtedness incurred (not including indebtedness authorized to be incurred in Sections 57-77-15 and 57-77-17) except that as is incidental to the organization of the Magnolia Venture Capital Corporation or of the fund or to obtaining subscriptions to or payment for qualified interests, until consideration of Four Million Five Hundred Thousand Dollars ($4,500,000.00) has been paid to Magnolia Venture Capital Corporation or to the fund.

(7) All securities issued by either the Mississippi Venture Capital Corporation or the fund shall be exempt securities with regard to the Mississippi Uniform Securities Act.

SECTION 7. Section 57-77-13, Mississippi Code of 1972, is brought forward as follows:

57-77-13. Magnolia Venture Capital Corporation, but not the shareholders thereof, is exempt from all state income taxes and corporate license fees.

SECTION 8. Section 57-77-15, Mississippi Code of 1972, is brought forward as follows:

57-77-15. The Magnolia Capital Corporation shall make application for a loan to the department in a form satisfactory to the department.

SECTION 9. Section 57-77-17, Mississippi Code of 1972, is brought forward as follows:

57-77-17. The department shall lend funds under this chapter to Magnolia Capital Corporation in accordance with the following terms and conditions:

(a) Loan funds received by Magnolia Capital Corporation in accordance with this chapter shall be used for the purpose of providing venture capital to Mississippi businesses through the Mississippi Venture Capital Fund Limited Partnership;

(b) The loan agreement between the department and Magnolia Capital Corporation shall contain language necessary to effect the escrow of a portion of the loan in an account for the benefit of the department which, when the monies are invested in zero coupon bonds for a period not to exceed fifteen (15) years, shall mature at a value equal to or greater than one hundred percent (100%) of the total principal amount loaned to Magnolia Venture Capital Corporation; and

(c) The interest rate on the loan to Magnolia Capital Corporation shall be set by the executive director of the department.

SECTION 10. Section 57-77-19, Mississippi Code of 1972, is brought forward as follows:

57-77-19. The department shall assist the Magnolia Capital Corporation with such corporation's compliance with the program provided for in this chapter.

SECTION 11. Section 57-77-21, Mississippi Code of 1972, is brought forward as follows:

57-77-21. Magnolia Capital Corporation shall submit the following reports to the department:

(a) An annual audit of loan funds received in connection with the program;

(b) An annual report each year describing all venture capital assistance provided to businesses by Magnolia Venture Capital Corporation and the fund, such reports to include at least the following: a description of the business receiving assistance, the project to be assisted and the purpose of such assistance; a description of each loan and equity investment, including the terms and conditions thereof and use of the venture fund's assistance by the business; history of the assistance pool, including amounts expended for administration and management, principal amount of equity investments, losses, loans and other relevant data.

SECTION 12. Section 57-77-23, Mississippi Code of 1972, is brought forward as follows:

57-77-23. Magnolia Capital Corporation and Magnolia Venture Capital Corporation are hereby authorized to engage legal counsel, accountants, financial advisors, appraisers, consultants and others as needed in connection with providing venture capital to businesses pursuant to this chapter, and to charge the costs of these services to the businesses receiving such assistance or charge the proceeds of such assistance therefor. To the extent required by the department, such professional services shall be engaged on a statewide program basis.

SECTION 13. Section 57-77-25, Mississippi Code of 1972, is brought forward as follows:

57-77-25. (1) The department shall adopt and publish the eligibility criteria for Magnolia Capital Corporation to participate in the program as set forth in this chapter, a timetable and process for review of applications from Magnolia Capital Corporation, and program report forms, all in accordance with this chapter; provided, however, that Magnolia Venture Capital Corporation shall have sole authority over the approval of assistance and the management of the assistance provided under this chapter.

(2) Magnolia Venture Capital Corporation shall prepare and adopt such uniform applications, forms, procedures and requirements for use in connection with the program as it deems necessary and appropriate.

SECTION 14. Section 57-77-27, Mississippi Code of 1972, is brought forward as follows:

57-77-27. No assistance shall be provided to a business under this chapter unless the business certifies to the Magnolia Venture Capital Corporation, in a form satisfactory to the department, that it will not discriminate against any employee or against any applicant for employment because of race, religion, color, national origin, sex or age.

SECTION 15. Section 57-77-29, Mississippi Code of 1972, is brought forward as follows:

57-77-29. (1) There is hereby created a special fund in the State Treasury, to be known as the Venture Capital Fund, out of which loans authorized in connection with the program shall be disbursed. All monies received by issuance of bonds to carry out the purposes of this chapter shall be deposited into the Venture Capital Fund.

(2) All funds repaid to the State Treasury under this chapter or designated hereunder for repayment of any bonds issued under this chapter shall be delivered to the State Treasurer for deposit in the State General Fund.

SECTION 16. Section 57-77-31, Mississippi Code of 1972, is brought forward as follows:

57-77-31. (1) All bonds issued under the authority of this chapter shall be redeemed at maturity, together with all interest due, from time to time, on the bonds, and these principal and interest payments shall be paid from the General Fund.

(2) In the event that all or any part of the bonds and notes are purchased, they shall be canceled and returned to the loan and transfer agent as canceled and paid bonds and notes; and, thereafter, all payments of interest thereon shall cease and the canceled bonds, notes and coupons shall be destroyed as promptly as possible after cancellation but not later than two (2) years after cancellation. A certificate evidencing the destruction of the canceled bonds, notes and coupons shall be provided by the loan and transfer agent to the seller.

(3) The State Treasurer shall determine and report to the Department of Finance and Administration and Joint Legislative Budget Office by September 1 of each year the amount of money necessary for the payment of the principal of and interest on outstanding obligations for the following fiscal year and the times and amounts of the payments. It shall be the duty of the Governor to include in every executive budget submitted to the Legislature full information relating to the issuance of bonds and notes under the provisions of this chapter and the status of the General Fund for the payment of the principal of and interest on the bonds and notes.

(4) Except as otherwise provided by law, the rate of interest on any loans made using funds from the Venture Capital Fund shall be in accordance with Section 57-77-17. Notwithstanding the provisions of any other law to the contrary, the interest rate charged shall not be set such that the aggregate of the interest, penalties and other payments in connection with such assistance made using funds from the Venture Capital Fund will cause the bonds issued pursuant to this chapter to be deemed arbitrage bonds pursuant to Section 148 of the Internal Revenue Code of 1986 and the regulations promulgated thereunder. In the case of assistance initially funded from the proceeds of notes and subsequently funded from renewal bonds and notes, the interest rate to be charged on the assistance shall be established in accordance with Section 57-77-17 upon the sale of bonds or notes, as the case may be, for such assistance.

SECTION 17. Section 57-77-33, Mississippi Code of 1972, is brought forward as follows:

57-77-33. (1) The seller is authorized to borrow, on the credit of the state, money not exceeding the aggregate sum of Twenty Million Dollars ($20,000,000.00). Such borrowing may be evidenced by the issuance of bonds or notes, and the rate of interest on any such bonds or notes which are not subject to taxation shall not exceed the rates set forth in Section 75-17-101, Mississippi Code of 1972, for general obligation bonds.

(2) As evidence of indebtedness authorized in this chapter, general or limited obligation bonds or notes of the state shall be issued from time to time to provide monies necessary to carry out the purposes of this chapter for such total amount, in such form, in such denominations, payable in such currencies (either domestic or foreign or both), and subject to such terms and conditions of issue, redemption and maturity, rate of interest and time of payment of interest as the seller directs, except that such bonds shall mature or otherwise be retired in annual installments beginning not more than five (5) years from date thereof and extending not more than twenty (20) years from the date thereof.

(3) All bonds and notes issued under authority of this chapter shall be signed by the chairman of the seller, or by his facsimile signature, and the official seal of the seller shall be affixed thereto, attested by the secretary of the seller.

(4) All bonds and notes issued under authority of this chapter may be general or limited obligations of the state, and the full faith and credit of the State of Mississippi as to general obligation bonds, or the revenue derived from projects assisted as to limited obligation bonds, are hereby pledged for the payment of the principal of and interest on such bonds and notes.

(5) Such bonds and notes and the income therefrom shall be exempt from all taxation in the State of Mississippi.

(6) Bonds may be issued as coupon bonds or registered as to both principal and interest as the seller may determine. If interest coupons are attached, they shall contain the facsimile signature of the chairman and the secretary of the seller.

(7) As to bonds issued hereunder and designated as taxable bonds by the seller, any immunity of the state to taxation by the United States Government of interest on bonds or notes issued by the state is hereby waived.

SECTION 18. Section 57-77-35, Mississippi Code of 1972, is brought forward as follows:

57-77-35. (1) Whenever bonds are issued, they shall be offered for sale at not less than par value and accrued interest and shall be sold by the seller at public or private sale, from time to time, in such manner and at such price as may be determined by the seller to be most advantageous.

(2) Any portion of any bond issue so offered and not sold or subscribed for at public sale may be disposed of by private sale by the seller in such manner and at such prices not less than par and accrued interest, as the seller shall direct.

(3) When bonds are issued from time to time, the bonds of each issue shall constitute a separate series to be designated by the seller or may be combined for sale as one (1) series with other general obligation bonds of the State of Mississippi.

(4) Until permanent bonds can be prepared, the seller may, in its discretion, issue in lieu of permanent bonds temporary bonds in such form and with such privileges as to registration and exchange for permanent bonds as may be determined by the seller.

(5) Pending their application to the purposes authorized, bond proceeds held or deposited by the State Treasurer may be invested or reinvested as are other funds in the custody of the State Treasurer in the manner provided by law. All earnings received from the investment or deposit of such funds shall be paid into the State Treasury to the credit of the Venture Capital Fund.

(6) The State Treasurer shall prepare the necessary registry book to be kept in the office of the duly authorized loan and transfer agent of the state for the registration of any bonds, at the request of the owners thereof, according to the terms and conditions of issue directed by the seller.

(7) All costs and expenses in connection with the issue of and sale and registration of the bonds and notes in connection with this chapter, and all costs and expenses in connection with implementation of the program and development of application forms, procedures and requirements for use in connection with the program, may be paid from the proceeds of bonds and notes issued under this chapter.

(8) The seller may provide, in the resolution authorizing the issuance of such bonds, for the employment of one or more persons or firms to assist in the sale of the bonds; to enter into contracts with financial institutions located either within or without the State of Mississippi to chapter as registrar, paying agents, transfer agents, or otherwise; for rating of the bonds; and to purchase insurance.

SECTION 19. Section 57-77-37, Mississippi Code of 1972, is brought forward as follows:

57-77-37. (1) The proceeds realized from the sale of bonds and notes under this chapter shall be paid to the State Treasurer and deposited into the Venture Capital Fund and specifically dedicated to the purposes enumerated in this chapter.

(2) All nonfederal funds which may become available for the purposes of this chapter shall be deposited in the Venture Capital Fund and shall be allocated for the purposes of this chapter.

SECTION 20. Section 57-77-39, Mississippi Code of 1972, is brought forward as follows:

57-77-39. The Attorney General of the State of Mississippi shall represent the seller in issuing, selling and validating bonds or notes herein provided for, and the seller is hereby authorized and empowered to expend from the proceeds derived from the sale of the bonds or notes authorized hereunder all necessary administrative, legal and other expenses incidental and related to the issuance of bonds or notes authorized under this chapter.

SECTION 21. This act shall take effect and be in force from and after July 1, 1998.