10 TAC §§177.1 - 177.8
The Product Development and Small Business Incubator Board
(board) proposes new Chapter 177, §§177.1, 177.2, 177.3, 177.4,
177.5, 177.6, 177.7 and 177.8, Product Development and Small Business Incubator
Fund, relating to the issuance of Product Development and Small Business Incubator
bonds authorized by Texas Constitution, Article XVI, Section 71, and the Product
Development and Small Business Incubator Fund loan program authorized by Texas
Government Code, Chapter 489, Subchapter D. The Product Development and Small
Business Incubator Board is created by Texas Government Code, Chapter 489,
Subchapter D, within the Texas Economic Development Bank (bank) in the Office
of the Governor, Economic Development and Tourism Division.
The proposed new rules are necessary to implement a revolving loan program
that will loan the proceeds of bonds issued pursuant to Texas Constitution,
Article XVI, Section 71, and Texas Government Code, Chapter 489, Subchapter
D. The program will provide financing to aid in the development and production,
including the commercialization, of new or improved products in the state.
The program will also provide financing to foster and stimulate the development
of small business in the state.
Proposed §177.1 states that the rules apply to the Product Development
and Small Business Incubator program.
Proposed §177.2 defines terms used in the rules.
Proposed §177.3 sets forth procedures for the board, including provisions
for meetings, officers, committees, and public contact with the board.
Proposed §177.4 sets forth general uses of bond proceeds.
Proposed §177.5 sets forth general terms for loans made under the
program.
Proposed §177.6 sets forth general application requirements for loans
made under the program.
Proposed §177.7 sets forth general monitoring and reporting requirements
for loan recipients.
Proposed §177.8 provides that loan recipients will be required to
enter into a loan agreement that contains specific terms for the loan, including
collateral and repayment requirements.
Mike Chrobak, Chief Financial Officer for the bank, has determined for
each year of the first five years that the rules are in effect there will
be no fiscal implications to the state or to local governments as a result
of the rules. No cost to either government or the public will result from
the rules. There will be no cost to small businesses or micro-businesses.
Mr. Chrobak has also determined that for each year of the first five years
the rules are in effect the public benefit anticipated as a result of the
rules is the economic benefit to the state that results from the implementation
of the program and resulting development of new products and businesses, particularly
in the areas of biotechnology, biomedicine, and emerging technologies. No
economic costs are anticipated to persons who are required to comply with
the proposed amendments, other than the application fee and closing fee applicable
to program users.
Written comments on the proposed rules may be hand delivered to the Office
of the Governor, General Counsel Division, 1100 San Jacinto, Austin, Texas
78701, mailed to P.O. Box 12428, Austin, Texas 78711-2428, faxed to (512)
463-1932, or emailed to rabbott@governor.state.tx.us. Comments should be addressed
to the attention of Robin Abbott, Assistant General Counsel. Comments must
received within 30 days of publication of the proposed rules.
The rules are proposed pursuant to Texas Government Code §489.210,
which directs the Product Development and Small Business Incubator Board to
adopt rules for implementation of the program, and Texas Government Code,
Chapter 2001, Subchapter B which prescribes the standards for rulemaking by
state agencies.
Texas Government Code, Chapter 489, Subchapter D, is affected by this proposal.
§177.1.Scope.
The rules in this chapter apply to the Product Development and Small
Business Incubator Fund established by Article XVI, Section 71, of the Texas
Constitution and by Government Code, Chapter 489, Subchapter D.
§177.2.Definitions.
(a)
The following words and terms, when used in this chapter,
shall have the following meanings, unless the context clearly indicates otherwise.
(1)
Applicant - means any individual, partnership, corporation
or any other private entity, whether organized for profit, or a city, county,
district, or any other political subdivision, public entity, quasi-governmental
entity, or agency of the state or federal government that applies for funding
under the program.
(2)
Bank - means the Texas Economic Development Bank established
under Texas Government Code, Chapter 489.
(3)
Board - means the Product Development and Small Business
Incubator Board.
(4)
Financing - unless otherwise defined by Texas Government
Code, Subchapter D, means a loan, loan guarantee, or equity investment from
the product fund to a person for use in the development and production of
a product in this state, or a grant, loan, or loan guarantee from the small
business fund to a person for use in the development of a small business in
this state.
(5)
Office - means the Economic Development and Tourism Office
in the Office of the Governor
(6)
Product - unless otherwise defined by Texas Government
Code, Subchapter D, includes an invention, device, technique, or process,
without regard to whether a patent has been or could be granted, that has
advanced beyond the theoretical stage and has or is readily capable of having
a commercial application. The term does not include pure research (basic research).
(7)
Product fund - means the Texas product development fund.
(8)
Program - means the product development program or the
small business incubator program.
(9)
Small business fund - means the Texas small business incubator
fund.
(10)
Unit - means the State of Texas.
(11)
User - means any individual, partnership, corporation,
or any other private entity, whether organized for profit, or a city, county,
district, or any other political subdivision, public entity, quasi-governmental
entity, or agency of the state or federal government that has been approved
for financing under the program.
(b)
Amendment and suspension of the rules. These sections may
be amended by the board at any time in accordance Government Code, Chapter
2001, Subchapter B, as amended. The board may suspend or waive a section,
not statutorily imposed, in whole or in part, upon the showing of good cause
or when, at the discretion of the board, the particular facts or circumstances
render such waiver of the section appropriate in a given instance.
§177.3.Procedures of the Board.
(a)
Officers.
(1)
The board chair shall be appointed by the Governor.
(A)
The chair shall have the duty to generally direct, supervise,
or control the business of the board and shall exercise supervisory duties
as may be required or given her by the board from time to time.
(B)
The chair is hereby authorized to represent, both verbally
and in written communications, the official position of the board and the
department on issues concerning the fund.
(2)
Vice Chair. The vice chair of the board shall have such
powers and duties as may be assigned to him by the chair and shall exercise
the powers of the chair during any time that the chair is absent or unable
to act. During any time that the vice chair is absent or unable to act, either
the chair or the vice chair may designate another board member to exercise
the powers of the chair.
(3)
Secretary. The secretary shall keep or cause to be kept
the minutes of all meetings and records of all actions of the board. During
any time that the secretary is absent or unable to fulfill his duties, the
secretary or the chair may designate another board member to exercise the
powers of the secretary.
(4)
To the extent permitted by law, the board may designate
the chair, any member or members, or staff to act on behalf of the full board.
(b)
Committees.
(1)
Standing committees of the board. By a majority vote, the
board may from time to time establish standing committees to assist the board
in carrying out its duties. Such committees will be made up of not less than
two and not more than four members of the board, and shall serve the board
in an advisory capacity. Standing committees may be established to expire
upon a certain term and/or may be dissolved at any time by a majority vote
of the board.
(2)
Advisory committees. By a majority vote, the board may
from time to time establish advisory committees, made up of any individuals
and for any legal purpose, to study, advise, make recommendations, and otherwise
assist the board in carrying out its duties. Advisory committees may be established
to expire upon a certain term and/or may be dissolved at any time by a majority
vote of the board.
(3)
Special committees, made up of any individuals and for
any legal purpose, may be appointed and dissolved at any time by majority
vote of the board.
(4)
A member of a standing committee, an advisory committee,
or a special committee shall serve without compensation, and members shall
not be reimbursed for expenses unless reimbursement is deemed necessary and
feasible by the board, subject to any applicable limitation on reimbursement
provided by the General Appropriations Act or other law.
(c)
Meetings.
(1)
The board shall hold regular meetings, as called by the
chair, at least two times per year.
(2)
Public appearances at board meetings. Members of the public
may appear before the board regarding any issue under the board's jurisdiction.
(A)
Unless otherwise required or instructed by staff, a person
or organization wishing to be placed on the board meeting agenda must provide
a written statement of such request. The request must identify the name of
the presenter(s) and the topic of discussion desired to be discussed, and
must be delivered to the office at 221 East 11th Street, Austin, Texas 78701,
or mailed to P.O. Box 12728, Austin, Texas 78711-2728, or faxed to (512) 936-0520.
The request must include a contact person's name, mailing address, telephone
number, and fax number, if available.
(B)
Within 30 days after receipt of the request, the requestor
will be notified of the time and place of the next board meeting for which
the requestor may be placed on the agenda and the amount of time scheduled
for the requestor's presentation.
(3)
Public comment on scheduled agenda items. Member of the
public may comment on scheduled agenda items as determined by the board, consistent
with the Texas Open Meetings Act.
(A)
Members of the public who wish to speak on a scheduled
board agenda item must complete a comment sheet, identifying the presenter
and the item to be addressed, prior to board discussion on the item. Comment
sheets will be available to members of the public prior to and during board
meetings.
(B)
The chairman will recognize the presenter at the point
in the agenda where the comments are most relevant and may determine an appropriate
amount of time for the presentation. The board may further limit presentations
at any time in accordance with the Act.
(4)
To the greatest extent practicable and where consistent
with the Texas Open Meetings Act, meetings shall proceed in accordance with
Robert's Rules of Order. In the event a point of order is raised with respect
to any process or action of the governing board, a determination regarding
the validity of the process or action shall be within the discretion of the
Governor's General Counsel division.
(5)
Meeting accessibility. Any disabled or non-English speaking
person who requires assistance in order to attend a board meeting will be
reasonably accommodated whenever possible. Any person requiring an accommodation
must contact the bank as set out in paragraph (1)(A) of this subsection.
(6)
Written communication with the Board. Applications and
other written communications regarding the program should be addressed to
the attention of the Office of the Governor, Economic Development and Tourism
Division, Texas Economic Development Bank, Attn: Product Development and Small
Business Incubator Program, Post Office Box 12428, Austin, Texas 78711-2428.
§177.4.Bonds.
(a)
Use of product development bond proceeds. The proceeds
of the product development bonds may be used:
(1)
to fund reasonably required reserve accounts.
(2)
to pay costs incurred in issuing the bonds; and
(3)
to either:
(A)
fund loans made by the bank to an applicant to provide
financing to aid in the development and production, including the commercialization,
of new or improved products in this state; or
(B)
refund or redeem all or part of any outstanding bonds of
the corporation.
(b)
Use of small business incubator bond proceeds. The proceeds
of the small business incubator bonds may be used:
(1)
to fund reasonably required reserve accounts.
(2)
to pay all costs incurred in issuing the bonds; and
(3)
to either:
(A)
fund loans made by the bank to an applicant to provide
financing to foster and stimulate the development of small businesses in this
state;
(B)
refund or redeem all or part of any outstanding bonds of
the corporation.
(c)
In no event shall the board, the governing body, the office,
or the unit have any obligation, financial or otherwise, to any person for
failure to issue, sell, or deliver its bonds.
§177.5.Loans.
(a)
Term of loan. The following requirements regarding the
maximum term of a loan apply to any loan made under the program.
(1)
Real property. The maximum term of a loan to finance real
property may not exceed 20 years.
(2)
Tangible personal property. The maximum terms of a loan
to finance tangible personal property may not exceed 15 years.
(3)
Other loans. The maximum term of a loan shall have a maturity
satisfactory to the board and any third-party guarantor or insurer.
(b)
Interest rate. The interest rate shall be determined by
the board or its designee, considering, among other things, the funding needed
to cover the cost of bond financing, bond service providers and reasonable
and customary administrative and programmatic costs.
(c)
Amortization. Each loan shall be repaid over the term of
the loan in a manner acceptable to the program and any third party, insurer,
or guarantor of the loan.
(d)
Terms and conditions of financing. Terms and conditions
of financing must include requirements for, at minimum, the repayment of loan
principal and interest payments and security or collateral, such as equity
interest, royalties, patent rights, or a combination of those royalties and
interests from or in the product or the proceeds of the product for which
financing is requested.
(e)
Security. Unless otherwise approved by the board, no loan
may be made by the bank to an applicant if the applicant's equity participation
in its business, if required by the bank, came from a loan secured by a lien
on the business.
(f)
Other terms. The bank and the board shall specify terms
and conditions with respect to each investment as they deem to be reasonable,
appropriate and consistent with the purposes and objectives of the fund.
§177.6.Application.
(a)
To apply for financing from the fund, an applicant shall
submit to the bank:
(1)
an application for financing on a form prescribed by the
bank; and
(2)
an application fee as prescribed by the bank, payable to
the Office of the Governor, Texas Economic Development Bank.
(b)
The application must include a business plan containing
the information required by the bank. All confidential and proprietary information
shall be identified by the applicant in the business plan. This information
must be treated as confidential as provided by the exception set forth in
Government Code, Section 489.215, and other law. The business plan will include
at a minimum, as applicable, information regarding:
(1)
an executive summary which does not contain any confidential
or proprietary information and is no longer than two typewritten, double spaced
pages;
(2)
the prior three years audited financial statements, as
applicable, and projected financial statements, including loan repayment.
The financial documents must include the applicant's income statement, balance
sheet and cash flow statement;
(3)
the applicant's present markets and market prospects;
(4)
a discussion of the economic and other benefits to the
State of Texas, including the anticipated effects on the emerging technology
industry cluster(s) in which the applicant belongs;
(5)
the background and integrity of the applicant's management;
(6)
a statement of the feasibility of the product for which
financing is requested, including the state of development of any product
to be developed and the proposed schedule of its commercialization;
(7)
if applicable, documentation of attempts to obtain private
financing;
(8)
a financial plan that shows how loan proceeds will generate
income to repay the loan;
(9)
use of funds and business model;
(10)
the name, street address, mailing address, telephone number,
fax number and electronic mail address for the business and the business'
authorized officer with a signed statement from each, as applicable, that
the contents of the application are true and correct to their best knowledge
and belief; and
(11)
authorization of the applicant's board of directors to
participate in the program.
(c)
In determining which products and businesses are eligible
for financing, the bank shall consider criteria, which includes but is not
limited to, the following:
(1)
the product or business for which financing is requested
is economically sound;
(2)
there is a reasonable expectation that the product or business
will be successful;
(3)
the product or business will create or preserve jobs and
otherwise benefit the economy of the state;
(4)
the applicant has the management resources and other funding
to complete the project;
(5)
financing is necessary because full financing is unavailable
in traditional capital markets or credit has been offered on terms that would
preclude the success of the project;
(6)
there is reasonable assurance that the potential revenues
to be derived from the sale of the product will be sufficient to repay any
financing approved by the bank;
(7)
the extent to which the product or business will leverage
non-state funds;
(8)
the number of jobs to be created or retained in the state;
and
(9)
availability of program funds.
(d)
In determining eligible products and businesses, the bank
shall give special preference to products or businesses in the areas of semiconductors,
nanotechnology, biotechnology, biomedicine, and such other emerging technologies
or areas that have the greatest likelihood of commercial success, job creation,
and job retention in this state.
(e)
The bank shall give further preference to providing financing
to projects or businesses that are:
(1)
grantees under the small business innovation research program
established under 15 U.S.C. Section 638, as amended;
(2)
companies formed in this state to commercialize research
funded at least in part with state funds;
(3)
applicants that have acquired other sources of financing;
(4)
companies formed in this state and receiving assistance
from designated state small business development centers; or
(5)
applicants who are residents of this state doing business
in this state and performing financed activities predominantly in this state.
(f)
After considering the application and all other information
it considers relevant, the bank shall approve or deny the application and
promptly notify the applicant of its decision.
(g)
Application and closing fee. The Bank shall charge an application
fee of $500.00 for all applications. In addition, successful applicants may
be required to pay, upon financing by the bank, a closing fee.
§177.7.Monitoring and Reporting Requirements.
(a)
Any user under the program will be required to meet reporting
and compliance requirements, as set out in the agreement between the user
and the bank, including, but not limited to:
(1)
annual submission of audited fiscal year end financial
statements;
(2)
annual update, including but not limited to efforts and
progress toward commercialization;
(3)
the use of money distributed through either fund;
(4)
notification within 10 days of a user's name change or
any other non-material change in the user's product or business;
(5)
notification in advance of any anticipated material change
to the user's product or business; and
(6)
notification within five days of any material change to
the user's product or business.
(7)
In the event of a name change, sale, or assumption, or
similar change, notification to the bank must include a copy of the certificate
of amendment to the articles of incorporation, and/or the d/b/a statement
under which the user operates, filed with the Texas Secretary of State, as
applicable.
(b)
Projects may be subject to on site monitoring visits, by
the board, the bank or its designee.
§177.8.Loan Agreements.
Before providing financing to a person, the bank will enter into an
agreement with the person that will set forth the terms and conditions of
the loan. The agreement must ensure the proper use of funds and will include,
but is not limited to, provisions for collateral to secure the loan, reporting
requirements, and repayments.
This agency hereby certifies that the proposal has been reviewed
by legal counsel and found to be within the agency's legal authority to adopt.
Filed with the Office of
the Secretary of State on March 14, 2005.
TRD-200501123
Mae C. Jemison, M.D.
Chair
Office of the Governor, Economic Development and Tourism Division
Earliest possible date of adoption: April 24, 2005
For further information, please call: (512) 936-0181