MISSISSIPPI LEGISLATURE

1998 Regular Session

To: Ways and Means

By: Representative Reeves

AN ACT TO CREATE SECTION 57-77-2, MISSISSIPPI CODE OF 1972, TO EXPRESS LEGISLATIVE FINDINGS REGARDING THE VENTURE CAPITAL ACT OF 1994; TO PROVIDE THAT NO FUNDS MAY BE EXPENDED UNDER THE VENTURE CAPITAL ACT UNTIL CERTAIN REQUIREMENTS ARE SATISFIED; TO AMEND SECTIONS 57-77-3, 57-77-5, 57-77-9, 57-77-11, 57-77-17, 57-77-21, 57-77-23, 57-77-25, 57-77-29 AND 57-77-35, MISSISSIPPI CODE OF 1972, TO PROVIDE AND CLARIFY THAT THE MAGNOLIA CAPITAL CORPORATION, THE MAGNOLIA VENTURE CAPITAL CORPORATION AND THE MAGNOLIA VENTURE CAPITAL FUND LIMITED PARTNERSHIP ARE INSTRUMENTALITIES OF THE STATE OF MISSISSIPPI AND THAT THE FUNDS OF SUCH ENTITIES ARE PUBLIC FUNDS; TO AMEND THE CORPORATE CHARTERS OF THE MAGNOLIA CAPITAL CORPORATION AND THE MAGNOLIA VENTURE CAPITAL CORPORATION; TO PROVIDE THAT UNLESS OTHERWISE PROVIDED IN THE VENTURE CAPITAL ACT OF 1994, ACTIONS TAKEN BY THE STATE OF MISSISSIPPI OR THE MISSISSIPPI DEPARTMENT OF ECONOMIC AND COMMUNITY DEVELOPMENT UNDER SUCH ACT SHALL NOT BE CONSTRUED TO WAIVE THE SOVEREIGN IMMUNITY OF THE STATE OR DEPARTMENT PURSUANT TO EITHER STATE LAW OR THE ELEVENTH AMENDMENT TO THE UNITED STATES CONSTITUTION; TO REVISE THE MEANING OF THE TERM "DEPARTMENT" FOR PURPOSES OF THE VENTURE CAPITAL ACT; TO DEFINE THE TERM "APPOINTING AUTHORITY" FOR PURPOSES OF THE VENTURE CAPITAL ACT; TO REVISE THE COMPOSITION OF THE BOARD OF DIRECTORS OF THE MAGNOLIA CAPITAL CORPORATION AND TO REVISE THE TERMS OF SUCH BOARD OF DIRECTORS; TO REVISE THE COMPOSITION OF THE BOARD OF DIRECTORS OF THE MAGNOLIA VENTURE CAPITAL CORPORATION AND TO REVISE THE TERMS OF SUCH BOARD OF DIRECTORS; TO PROVIDE THAT THE BOARD OF DIRECTORS OF THE MAGNOLIA VENTURE CAPITAL CORPORATION SHALL RECEIVE NO COMPENSATION FOR THEIR SERVICES OTHER THAN PER DIEM AND REIMBURSEMENT FOR ACTUAL AND NECESSARY EXPENSES INCURRED IN THE PERFORMANCE OF THEIR DUTIES; TO PROVIDE AND CLARIFY THAT THE MISSISSIPPI VENTURE CAPITAL CORPORATION AND/OR THE MISSISSIPPI VENTURE CAPITAL FUND LIMITED PARTNERSHIP SHALL ALWAYS MAINTAIN PRIVATE CAPITAL INVESTMENTS TOTALING AT LEAST $4,500,000.00; TO REVISE HOW OFTEN THE MAGNOLIA CAPITAL CORPORATION MUST SUBMIT CERTAIN REPORTS REGARDING THE VENTURE CAPITAL LOAN PROGRAM TO THE MISSISSIPPI DEPARTMENT OF ECONOMIC AND COMMUNITY DEVELOPMENT; TO PROVIDE THAT CERTAIN PROPOSED ACTIONS BY THE MAGNOLIA CAPITAL CORPORATION AND THE MAGNOLIA VENTURE CAPITAL CORPORATION ARE NOT VALID UNLESS TAKEN BY VALIDLY APPOINTED BOARDS OF DIRECTORS; TO PROVIDE FOR THE DISPOSITION OF CERTAIN FUNDS IF THE MAGNOLIA VENTURE CAPITAL CORPORATION IS DISSOLVED; TO PROVIDE THAT NO FUNDS IN THE MAGNOLIA VENTURE CAPITAL FUND MAY BE USED TO PROVIDE FINANCING FOR ANY BUSINESS IN WHICH A DIRECTOR OR AN EMPLOYEE OF THE MAGNOLIA CAPITAL CORPORATION OR THE MAGNOLIA VENTURE CAPITAL CORPORATION HAS A DIRECT OR INDIRECT INTEREST; TO PROVIDE THAT CERTAIN PORTIONS OF THIS ACT SHALL BE RETROACTIVE; TO PROVIDE THAT NOTHING IN THIS ACT SHALL BE CONSTRUED TO RELIEVE ANYONE FROM CIVIL OR CRIMINAL LIABILITY; AND FOR RELATED PURPOSES. 

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

SECTION 1. The following shall be codified as Section 57-77-2, Mississippi Code of 1972:

57-77-2. The Legislature finds that the Venture Capital Act of 1994, Sections 57-77-1 through 57-77-39, Mississippi Code of 1972, has not been implemented in accordance with the legislative intent. The Legislature finds that the Venture Capital Act of 1994 needs to be amended for the purpose of clarifying the legislative intent and for the further purpose of ensuring public trust in the venture capital loan program by providing safeguards in the operation of the program and over the proper administration of the use of public funds. The Legislature finds that persons are purporting to serve on the Magnolia Capital Corporation Board of Directors and the Magnolia Venture Capital Corporation Board of Directors in violation of the legislative intent of the Venture Capital Act of 1994. Pursuant to Section 178 of the Mississippi Constitution of 1890, the Legislature finds that it is in the public interest to amend the charters of incorporation of the Magnolia Capital Corporation and the Magnolia Venture Capital Corporation which were authorized to be formed under the provisions of the Venture Capital Act of 1994, and the amendments made to Sections 57-77-9 and 57-77-11 by House Bill No. 1240, 1998 Regular Session, shall be amendments to the charters of incorporation of the Magnolia Capital Corporation and the Magnolia Venture Capital Corporation.

The Legislature recognizes that matters relating to the Magnolia Capital Corporation and the Magnolia Venture Capital Corporation, and actions taken pursuant to the Venture Capital Act of 1994, are the subject of litigation pending on the effective date of House Bill No. 1240, 1998 Regular Session. For that reason, the Legislature intends that no funds in the Venture Capital Fund, no funds transferred from the Venture Capital Fund to the Department of Economic and Community Development for subsequent transfer to the Magnolia Capital Corporation, no funds transferred to the Magnolia Capital Corporation, and no funds transferred by the Magnolia Capital Corporation to the Magnolia Venture Capital Corporation and/or the Magnolia Venture Capital Fund Limited Partnership may be expended before a final adjudication by a court of competent jurisdiction that: (a) the Magnolia Capital Corporation and the Magnolia Venture Capital Corporation are solvent corporations; (b) the corporations are authorized to operate under House Bill No. 1240, 1998 Regular Session; and (c) any monies expended illegally, without authority under either the Venture Capital Act of 1994 or House Bill No. 1240, 1998 Regular Session, or under orders of the court, are recovered and reimbursed to the state.

SECTION 2. Section 57-77-3, Mississippi Code of 1972, is amended 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. The Magnolia Capital Corporation, the Magnolia Venture Capital Corporation, and the Magnolia Venture Capital Fund Limited Partnership shall be instrumentalities of the State of Mississippi and their operations and activities shall be subject to review by the State Auditor of Public Accounts, the Attorney General of Mississippi, the Mississippi Ethics Commission, the Joint Legislative Committee on Performance Evaluation and Expenditure Review, and any other state officer or agency as provided by law. Funds obtained from the special fund in the State Treasury known as the Venture Capital Fund and any earnings on such amounts, which are held and disbursed by the Magnolia Capital Corporation, the Magnolia Venture Capital Corporation and/or the Magnolia Venture Capital Fund Limited Partnership, except funds invested by private limited partners, shall remain, and shall be considered to be, public funds. Funds loaned by the department pursuant to Section 57-77-17, and all earnings on such funds shall remain, and shall be considered to be, public funds. Except as provided in Section 57-77-33(7), nothing in this chapter shall be construed to waive the sovereign immunity of the State of Mississippi or the department pursuant to either state law or the Eleventh Amendment to the United States Constitution. No action by the State of Mississippi or by the department, or by any officer or agent of the State of Mississippi or of the department, shall be considered a waiver of the sovereign immunity of the State of Mississippi or the department pursuant to either state law or the Eleventh Amendment to the United States Constitution. The entering into of any contract, loan agreement, pledge agreement, or other instrument by the State of Mississippi or the department shall not be considered a waiver of the sovereign immunity of the State of Mississippi pursuant to either state law or the Eleventh Amendment to the United States Constitution. The sovereign immunity of the State of Mississippi pursuant to either state law or the Eleventh Amendment to the United States Constitution may only be waived by express authorization set forth in an enactment of the Mississippi Legislature.

SECTION 3. Section 57-77-5, Mississippi Code of 1972, is amended 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 Institute for Technology 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.

(p) "Appointing authority" means the Governor, the Lieutenant Governor or the Speaker of the House, as appropriate, in appointing members to the board of directors of the Magnolia Venture Capital Corporation.

SECTION 4. Section 57-77-9, Mississippi Code of 1972, is amended 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. Except as otherwise provided in this subsection (2), 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. The terms of the members of the board of directors in place (including any initial directors and successors) before the effective date of House Bill No. 1240, 1998 Regular Session, shall expire on the effective date of House Bill No. 1240, 1998 Regular Session, and such persons shall cease to serve on the board of directors and shall relinquish all powers and control of the corporation and assets of the corporation. From and after the effective date of House Bill No. 1240, 1998 Regular Session, the board of directors shall consist of three (3) members who shall be the State Treasurer, the Attorney General and the executive director of the department. If the position on the board of directors held by the State Treasurer or Attorney General, becomes vacant through death, resignation or otherwise, the position will be filled by the person acting as State Treasurer or Attorney General, as appropriate, until the Office of State Treasurer or Attorney General, as appropriate, is filled in the manner provided by law. If the position on the board of directors held by the executive director of the department becomes vacant through death, resignation or otherwise, the position will be filled by the person acting as executive director of the department until the appointment of a new executive director in the manner provided by law. The directors may not receive per diem.

(3) (a) 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. Consistent with the provisions of this chapter, 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 method of electing directors may not be amended, altered or otherwise modified or restricted; 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.

(b) The provisions of this subsection (3), as amended by House Bill No. 1240, 1998 Regular Session, shall be retroactive to April 8, 1994.

(4) In addition to other powers and duties, the corporation may take all actions it deems necessary to carry out the provisions of this chapter, and the board of directors shall meet at least one (1) time on a quarterly basis to assess the venture capital loan program and whether or not the provisions of this chapter are being complied with. In addition to any other powers and duties, if the corporation determines, as evidenced by a majority vote of the board of directors, that any member of the Magnolia Venture Capital Corporation board of directors is not performing the duties of such member in a manner consistent with the provisions of this chapter, the corporation may recommend to the appropriate appointing authority that such member of the Magnolia Venture Capital Corporation board of directors be replaced.

SECTION 5. Section 57-77-11, Mississippi Code of 1972, is amended 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. Except as otherwise provided in this subsection (2), 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. The terms of the members of the board of directors in place (including any initial directors and successors) before the effective date of House Bill No. 1240, 1998 Regular Session, shall expire on the effective date of House Bill No. 1240, 1998 Regular Session, and such persons shall cease to serve on the board of directors and shall relinquish all powers and control of the corporation and assets of the corporation. From and after the effective date of House Bill No. 1240, 1998 Regular Session, the board of directors shall be composed of five (5) members, three (3) of whom shall be appointed by the Governor and one (1) of whom shall be appointed by the Lieutenant Governor and one (1) of whom shall be appointed by the Speaker of the House. Members of the initial board, appointed from and after the effective date of House Bill No. 1240, 1998 Regular Session, shall serve staggered terms as follows: one (1) member appointed by the Governor for a term of one (1) year, one (1) member appointed by the Governor for a term of two (2) years, one (1) member appointed by the Governor for a term of three (3) years, one (1) member appointed by the Lieutenant Governor for a term of four (4) years, and one (1) member appointed by the Speaker of the House for a term of five (5) years. If the position of an initial director, appointed from and after the effective date of House Bill No. 1240, 1998 Regular Session, becomes vacant through death, resignation or otherwise, the appropriate appointing authority shall appoint another person to complete the unexpired term. If the position of a successor director becomes vacant through death, resignation or otherwise, the appropriate appointing authority shall appoint another person to complete the unexpired term. After the terms of the initial directors, appointed from and after the effective date of House Bill No. 1240, 1998 Regular Session, expire, successors shall be chosen by the appropriate appointing authority and shall serve for terms of five (5) years. The appropriate appointing authority may remove a member of the board of directors if, in the opinion of the appointing authority, the board member is not performing his or her duties in a manner consistent with the provisions of this chapter. Members of the initial board, appointed from and after the effective date of House Bill No. 1240, 1998 Regular Session, and successor directors are eligible to succeed themselves if reappointed by the appropriate appointing authority. Members of the board shall receive a per diem as provided in Section 25-3-69, for each day or fraction thereof in performance of their duties, and shall be reimbursed for their actual and necessary expenses incurred in the performance of their duties as provided in Section 25-3-41. Members of the board shall receive no compensation other than that provided in this subsection (2). If a director is a full-time state employee, he may not receive per diem.

(3) (a) 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. Consistent with the provisions of this chapter, 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 method of electing directors shall not be amended, altered or otherwise modified; 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.

(b) The provisions of this subsection (3), as amended by House Bill No. 1240, 1998 Regular Session, shall be retroactive to April 8, 1994.

(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) Except as otherwise provided in subsection (8), 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) Except as otherwise provided in subsection (8), 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 as a capital investment by a private investor or private investors to Magnolia Venture Capital Corporation or to the fund. It is the intent of the Legislature that the Magnolia Venture Capital Corporation and/or the fund shall always maintain a capital investment from a private investor or private investors of at least Four Million Five Hundred Thousand Dollars ($4,500,000.00). If the Magnolia Venture Capital Corporation and/or the fund fail to obtain a capital investment from a private investor or private investors of at least Four Million Five Hundred Thousand Dollars ($4,500,000.00), or if after having obtained such investment, the total of the private capital investments ever falls below Four Million Five Hundred Thousand Dollars ($4,500,000.00), Magnolia Venture Capital Corporation and the fund shall suspend making investments and incurring indebtedness, and, if so directed by Magnolia Capital Corporation, the board of directors of Magnolia Venture Capital Corporation shall dissolve Magnolia Venture Capital Corporation and the fund in the manner provided by law and direct that all sums, causes of action and other assets held by the Magnolia Venture Capital Corporation and the fund be paid and/or assigned to the State Treasurer who shall administer such sums and other assets as provided by law.

(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.

(8) No funds in the Venture Capital Fund, no funds transferred from the Venture Capital Fund to the Department of Economic and Community Development for subsequent transfer to the Magnolia Capital Corporation, no funds transferred to the Magnolia Capital Corporation, and no funds transferred by the Magnolia Capital Corporation to the Magnolia Venture Capital Corporation and/or the Magnolia Venture Capital Fund Limited Partnership may be expended before a final adjudication by a court of competent jurisdiction that: (a) the Magnolia Capital Corporation and the Magnolia Venture Capital Corporation are solvent corporations; (b) the corporations are authorized to operate under House Bill No. 1240, 1998 Regular Session; and (c) any monies expended illegally, without authority under either the Venture Capital Act of 1994 or House Bill No. 1240, 1998 Regular Session, or under orders of the court, are recovered and reimbursed to the state.

SECTION 6. Section 57-77-17, Mississippi Code of 1972, is amended 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 remain, and shall be considered to be, public funds and 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.

(d) Funds received by the Magnolia Venture Capital Corporation and/or the Magnolia Venture Capital Fund Limited Partnership shall be subject to any loan agreement made between the department and the Magnolia Capital Corporation pursuant to this chapter; and, in the event of default on such loan agreement, such funds shall, upon demand of the department, be returned to the Venture Capital Fund in the State Treasury, regardless of whether or not the Magnolia Venture Capital Corporation or the Magnolia Venture Capital Fund Limited Partnership was a party to any loan agreement evidencing any such loan.

(e) From and after the effective date of House Bill No. 1240, 1998 Regular Session, no funds in the Venture Capital Fund, no funds transferred from the Venture Capital Fund to the Department of Economic and Community Development for subsequent transfer to the Magnolia Capital Corporation, no funds transferred to the Magnolia Capital Corporation, and no funds transferred by the Magnolia Capital Corporation to the Magnolia Venture Capital Corporation and/or the Magnolia Venture Capital Fund Limited Partnership may be expended before a final adjudication by a court of competent jurisdiction that: (a) the Magnolia Capital Corporation and the Magnolia Venture Capital Corporation are solvent corporations; (b) the corporations are authorized to operate under House Bill No. 1240, 1998 Regular Session; and (c) any monies expended illegally, without authority under either the Venture Capital Act of 1994 or House Bill No. 1240, 1998 Regular Session, or under orders of the court, are recovered and reimbursed to the state.

SECTION 7. Section 57-77-21, Mississippi Code of 1972, is amended 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) Quarterly reports 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 8. Section 57-77-23, Mississippi Code of 1972, is amended as follows:

57-77-23. Subject to the provisions of this section, 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. However, no such professional services may be engaged unless done so through action taken by a validly appointed board of directors having the legal authority to engage such services. To the extent required by the department, such professional services shall be engaged on a statewide program basis.

SECTION 9. Section 57-77-25, Mississippi Code of 1972, is amended 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 recommend to Magnolia Capital Corporation the approval of assistance under this chapter, and Magnolia Capital Corporation shall have sole authority over the approval of assistance provided under this chapter, and Magnolia Venture Capital Corporation shall have sole authority over 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 10. Section 57-77-29, Mississippi Code of 1972, is amended 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 to Magnolia Capital Corporation 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. No funds in the Venture Capital Fund, no funds transferred from the Venture Capital Fund to the department for subsequent transfer to the Magnolia Capital Corporation, no funds transferred to the Magnolia Capital Corporation, and no funds transferred by the Magnolia Capital Corporation to the Magnolia Venture Capital Corporation and/or the Magnolia Venture Capital Fund Limited Partnership may be used to provide financing for, or to contract for goods or services with, any business in which a director, employee, or limited partner of the Magnolia Capital Corporation, the Magnolia Venture Capital Corporation or the Magnolia Venture Capital Fund Limited Partnership, or the spouse of any such director, employee or limited partner has a direct or indirect interest. No funds in the Venture Capital Fund, no funds transferred from the Venture Capital Fund to the department for subsequent transfer to the Magnolia Capital Corporation, no funds transferred to the Magnolia Capital Corporation, and no funds transferred by the Magnolia Capital Corporation to the Magnolia Venture Capital Corporation and/or the Magnolia Venture Capital Fund Limited Partnership may be used to provide financing for, or to contract for goods or services with, any business in which a person who has been engaged pursuant to Section 57-77-23 or the spouse of such person has a direct or indirect interest. No funds in the Venture Capital Fund, no funds transferred from the Venture Capital Fund to the Department of Economic and Community Development for subsequent transfer to the Magnolia Capital Corporation, no funds transferred to the Magnolia Capital Corporation, and no funds transferred by the Magnolia Capital Corporation to the Magnolia Venture Capital Corporation and/or the Magnolia Venture Capital Fund Limited Partnership may be expended before a final adjudication by a court of competent jurisdiction that: (a) the Magnolia Capital Corporation and the Magnolia Venture Capital Corporation are solvent corporations; (b) the corporations are authorized to operate under House Bill No. 1240, 1998 Regular Session; and (c) any monies expended illegally, without authority under either the Venture Capital Act of 1994 or House Bill No. 1240, 1998 Regular Session, or under orders of the court, are recovered and reimbursed to the state.

(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. Any monetary assets received pursuant to Section 57-77-11(6) shall be applied to pay the debt service on the bonds issued under the Venture Capital Act of 1994, in accordance with the proceedings authorizing the issuance of such bonds and as directed by the State Bond Commission. Any nonmonetary assets shall be administered in the manner provided by law. Any monies remaining in the fund after it is utilized as provided for in this subsection (2) shall be deposited into the State General Fund.

SECTION 11. Section 57-77-35, Mississippi Code of 1972, is amended 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, validly incurred pursuant to this chapter, 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 12. Nothing in this act shall be construed as relieving or exempting anyone from liability both civil and criminal.

SECTION 13. This act shall take effect and be in force from and after its passage, except for Sections 2, 6, 8 and 11, which shall take effect and be in force retroactively from and after April 8, 1994.