< Back to H.R. 2806 (104th Congress, 1995–1996)

Text of the Venture Capital Marketing Association Charter Act

This bill was introduced on December 18, 1995, in a previous session of Congress, but was not enacted. The text of the bill below is as of Dec 18, 1995 (Introduced).

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HR 2806 IH

104th CONGRESS

1st Session

H. R. 2806

To amend the Small Business Investment Act of 1958 to create the Venture Capital Marketing Association, to transfer certain functions of the Small Business Administration to the Association, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

DECEMBER 18 (legislative day, DECEMBER 15), 1995

Mr. TORKILDSEN introduced the following bill; which was referred to the Committee on Small Business, and in addition to the Committees on Commerce and Banking and Financial Services, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned


A BILL

To amend the Small Business Investment Act of 1958 to create the Venture Capital Marketing Association, to transfer certain functions of the Small Business Administration to the Association, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ‘Venture Capital Marketing Association Charter Act’.

SEC. 2. AMENDMENT TO TABLE OF CONTENTS; CONFORMING AMENDMENT.

    (a) AMENDMENT TO TABLE OF CONTENTS- The table of contents contained in section 101 of the Small Business Investment Act of 1958 (15 U.S.C. 661 note) is amended by inserting after the item relating to section 322 the following:

‘Part B--Venture Capital Marketing Association

      ‘Sec. 351. Purposes.

      ‘Sec. 352. Venture Capital Marketing Association.

      ‘Sec. 353. Common and preferred stock.

      ‘Sec. 354. Obligations and securities.

      ‘Sec. 355. Legal investments and exempt securities.

      ‘Sec. 356. Loan and investment operations.

      ‘Sec. 357. Servicing guaranteed securities and assets in liquidation.

      ‘Sec. 358. Qualification of small business investment companies.

      ‘Sec. 359. Operations of small business investment companies.

      ‘Sec. 360. Leverage formula.

      ‘Sec. 361. Audits of the Corporation.

      ‘Sec. 362. Regulation of financial safety and soundness.

      ‘Sec. 363. Government oversight and reports.

      ‘Sec. 364. Books and records.’.

    (b) CONFORMING AMENDMENT- The Small Business Investment Act of 1958 (15 U.S.C. 661 et seq.) is amended by inserting before section 301 the following:

‘PART A--GENERAL PROVISIONS’.

SEC. 3. VENTURE CAPITAL MARKETING ASSOCIATION.

    Title III of the Small Business Investment Act of 1958 (15 U.S.C. 681-687m) is amended by adding at the end the following:

‘PART B--VENTURE CAPITAL MARKETING ASSOCIATION

‘SEC. 351. PURPOSES.

    ‘Congress hereby declares that the purposes of this part are--

      ‘(1) to establish a Government-sponsored private corporation which will serve as a source of private capital and a secondary market and warehousing facility for loans and investments in small business investment companies, and will provide liquidity for small business loans and investments;

      ‘(2) to stimulate and supplement the orderly and necessary flow of private equity capital and long-term loan funds to improve the availability of investment capital for small business concerns;

      ‘(3) to encourage the formation of new small business investment companies; and

      ‘(4) to provide for an orderly transfer of certain functions of, and securities and assets guaranteed or owned by, the Administration to the Venture Capital Marketing Association as constituted under this part.

‘SEC. 352. VENTURE CAPITAL MARKETING ASSOCIATION.

    ‘(a) ESTABLISHMENT- There is a hereby created a body corporate to be known as the Venture Capital Marketing Association (hereinafter in this part referred to as the ‘Corporation’). The Corporation shall have succession until dissolved. The Corporation shall establish and maintain its principal office in the Washington, D.C., metropolitan area and shall be deemed, for purposes of venue and jurisdiction in civil actions, to be a resident and citizen of the jurisdiction of which it establishes its principal office. Offices may be established by the Corporation in such other place or places as it may deem necessary or appropriate for the conduct of its business.

    ‘(b) TAX STATUS- The Corporation, including its franchise, capital, reserves, surplus, mortgages, and other security holdings and income, shall be exempt from all taxation now or hereafter imposed by any State, or by any county, municipality, or local taxing authority, except that any real property of the Corporation shall be subject to State, county, municipal, or local taxation to the same extent according to its value as other real property is taxed.

    ‘(c) INTERIM BOARD OF DIRECTORS- Not later than 60 days after the effective date of this part, the President shall appoint an interim Board of Directors of the Corporation, one of whom the President shall designate as the interim Chairman. The interim Board shall consist of 5 members, one of whom shall be a representative of small business, 3 of whom shall be representatives

of small business investment companies, and one of whom shall be a representative of the Administration. The interim Board shall arrange for an initial offering of voting common stock solely to small business investment companies and take whatever other actions are necessary to proceed with the operations of the Corporation.

    ‘(d) PERMANENT BOARD OF DIRECTORS- The Corporation shall have a permanent Board of Directors which shall consist of 15 members. When small business investment companies have purchased and fully paid for $20,000,000 of common stock of the Corporation, the Board shall be constituted as follows:

      ‘(1) The holders of common stock shall elect 10 members to the Board of Directors.

      ‘(2) The President shall appoint, with the advice and consent of the Senate, the remaining 5 directors within 60 days of the stock purchase specified in this subsection.

    ‘(e) TRANSITION- Upon the election of the 10 members of the Board of Directors by the holders of common stock of the Corporation, the interim Board shall turn over the affairs of the Corporation to the permanent Board of Directors, but the members of the interim Board shall continue to serve in an interim capacity as the Presidential appointees to the permanent Board until such time as the permanent Presidential appointees are confirmed by the Senate.

    ‘(f) TERMS- (1) The members of the Board of Directors elected by the common shareholders shall be elected for a term ending on the date of the next annual meeting of the common shareholders of the Corporation, and shall serve until their successors have been elected and have qualified. Any vacancy which occurs after the annual election of the members shall be filled by the Board, but only for the unexpired portion of the term.

    ‘(2) The members of the Board of Directors appointed by the President shall serve until their successors have been appointed and have qualified. The terms of such members shall be staggered as follows: one member shall serve an initial term of one year, one member shall serve an initial term of 2 years, one member shall serve an initial term of 3 years, one member shall serve an initial term of 4 years, and one member shall serve an initial term of 5 years. All subsequent appointments shall be for a term of 5 years, except that any vacancy shall be filled for the unexpired term of the vacancy. Such members shall be removed only for cause. Of the Presidential appointees, at least 2 members shall be representatives of small business.

    ‘(g) OPERATIONS; EXECUTIVE OFFICERS- The Board shall determine the general policies which will govern the operations of the Corporation. The Board shall select, appoint, and compensate qualified persons to fill such offices as may be provided for in the bylaws, with such executive functions, powers, and duties as may be prescribed by the bylaws or by the Board of Directors, and such persons shall be the executive officers of the Corporation and shall discharge all such executive functions, powers, and duties.

    ‘(h) GENERAL POWERS- The Corporation shall have the power--

      ‘(1) to sue and be sued, complain and defend, in its corporate name and through its own counsel;

      ‘(2) to adopt, alter, and use a corporate seal, which shall be judicially noticed;

      ‘(3) to adopt, amend, and repeal by its Board of Directors, such bylaws, rules, and regulations as may be necessary for the conduct of its business;

      ‘(4) to conduct its business, carry out its operations, and have officers and exercise the powers granted by this section in any State without regard to any qualification, licensing, or similar law in any State;

      ‘(5) to lease, purchase, or otherwise acquire, own, hold, improve, use, or otherwise deal in and with any property, real, personal, or mixed, or any interest therein, wherever situated;

      ‘(6) to accept gifts or donations of services, or of property, real, personal, or mixed, tangible or intangible, in aid of any of the purposes of the Corporation;

      ‘(7) to sell, convey, mortgage, pledge, lease, exchange, and otherwise dispose of its property and assets;

      ‘(8) to appoint such attorneys, officers, employees, and agents as may be required, determine their qualifications, define their duties, fix their compensation, require bonds for them and fix the penalty thereof; and

      ‘(9) to enter into contracts, to execute instruments, to incur liabilities, and to do all things as are necessary or incidental to the proper management of its affairs and the proper conduct of its business.

    ‘(i) NOTICE- When the permanent Board of Directors is duly constituted and the Corporation is ready to conduct business, it shall so notify the Administration and the Secretary of the Treasury.

‘SEC. 353. COMMON AND PREFERRED STOCK.

    ‘(a) VOTING COMMON STOCK- (1) The Corporation shall have voting common stock with such par value as may be fixed by its Board of Directors from time to time. Each share of voting common stock shall be vested with all voting rights, each share being entitled to one vote with rights of cumulative voting at all elections of directors.

    ‘(2) The initial number of shares of voting common stock that the Corporation may issue and have outstanding shall be established by the interim Board of Directors. The number of shares of voting common stock may be increased or decreased by the affirmative vote of the holders of at least a majority of the total outstanding shares.

    ‘(3) The holders of the voting common stock shall not have preemptive rights.

    ‘(4) Such dividends as may be declared by the Board of Directors in its discretion shall be paid by the Corporation to the holders of its voting common stock.

    ‘(5) In order to accumulate funds for its capital surplus account from small business investment companies--

      ‘(A) the Corporation shall require each small business investment company to make payments of nonrefundable capital contributions to the Corporation equal to 1 percent of the private capital of each such company;

      ‘(B) the Corporation may require each small business investment company to make payments of nonrefundable capital contributions to the Corporation not to exceed 1 percent of any increases in the private capital of such company;

      ‘(C) the Corporation also may require each small business investment company which issues a small business investment security to the Corporation to make, or commit to make, a nonrefundable capital contribution to the Corporation not to exceed 1 percent of the unpaid principal balance or unredeemed original issue amount of such security;

      ‘(D) the Corporation, from time to time, shall issue to each small business investment company voting common stock evidencing any capital contributions made pursuant to this subsection;

      ‘(E) such voting common stock shall be retained by such companies in accordance with such rules as may be established by the Corporation: Provided, That subject to any stock retention requirements established by the Corporation, such voting common stock may be transferred to another small business investment company, and such transferred stock may be used to meet the capital contribution requirements of paragraph (4) of this subsection: Provided further, That subject to any stock retention requirements established by the Corporation, such voting common stock may be freely transferred if there is a bona fide public market for such stock on a nationally recognized stock exchange.

    ‘(6) In order to accumulate additional funds for its capital surplus account--

      ‘(A) subject to approval by a majority of the voting shareholders and approval by a majority of the Board of Directors, including not less than a majority of the members appointed by the President and confirmed by the Senate, the Corporation may obtain nonrefundable capital contributions to the Corporation by issuing voting common stock to private investors other than small business investment companies;

      ‘(B) the Corporation, from time to time, shall issue to such investors voting common stock evidencing any capital contributions made pursuant to this subsection;

      ‘(C) such voting common stock shall be retained by such investors in accordance with such rules as may be established by the Corporation: Provided, That subject to any stock retention requirements established by the Corporation, such voting common stock may be freely transferred if there is a bona fide public market for such stock on a nationally recognized stock exchange.

    ‘(b) NONVOTING COMMON STOCK- (1) The voting shareholders of the Corporation also may authorize the issuance of nonvoting common stock having such par value as may be fixed by its Board of Directors from time to time.

    ‘(2) The maximum number of shares of nonvoting common stock may be established and increased or decreased by the affirmative vote of the holders of at least a majority of the total outstanding voting shares.

    ‘(3) The holders of the nonvoting common stock shall not have preemptive rights.

    ‘(4) Such dividends as may be declared by the Board of Directors in its discretion shall be paid by the Corporation to the holders of its nonvoting common stock.

    ‘(5) Any nonvoting common share issued shall be fully transferable, except that, as to the Corporation, it shall be transferable only on the books of the Corporation.

    ‘(c) NONVOTING PREFERRED STOCK- (1) The voting shareholders of the Corporation also may authorize the issuance of nonvoting preferred stock, having such par value as may be fixed by its Board of Directors from time to time.

    ‘(2) The maximum number of shares of preferred stock may be established and increased or decreased by the affirmative vote of the holders of at least a majority of the total outstanding voting shares.

    ‘(3) The holders of the preferred shares shall be entitled to such rate of dividends and such shares shall be subject to such redemption or other conversion provisions as may be provided for at the time of issuance. No dividends shall be payable on any share of common stock at any time when any dividend is due on any share of preferred stock and has not been paid. The voting shareholders of the Corporation may prescribe that any class of preferred stock of the Corporation may be converted into voting or nonvoting common stock of the Corporation.

    ‘(4) Any preferred share issued shall be freely transferable, except that, as to the Corporation, it shall be transferable only on the books of the Corporation.

    ‘(5) In the event of any liquidation, dissolution, or winding up of the Corporation’s business, the holders of any outstanding preferred shares shall be paid in full at par value thereof, plus all accrued dividends, before the holders of the common shares receive any payment.

    ‘(d) DEPOSITORY INSTITUTIONS- Notwithstanding any other provision of law, any depository institution, as defined in section 19(b)(1)(A) of the Federal Reserve Act (12 U.S.C. 461(b)(1)(A)), shall be authorized to make payments to the Corporation of the capital contributions referred to in this section, to receive stock of the Corporation evidencing such capital contributions, and to dispose of such stock, subject to the provisions of this title.

‘SEC. 354. OBLIGATIONS AND SECURITIES.

    ‘(a) ISSUANCE OF OBLIGATIONS- The Corporation is authorized to issue and have outstanding obligations having such maturities and bearing such rate or rates of interest as may be determined by a majority vote of the Board of Directors. Such obligations shall be issued at such times, bear interest at such rates, and contain such terms and conditions as the Corporation shall determine, with the approval of the Secretary of the Treasury. Such obligations may be redeemable at the option of the Corporation before maturity in such manner as may be stipulated therein. The Corporation shall insert appropriate language in each of its obligations issued under this section and under section 356 clearly indicating that such obligations, together with the interest thereon, are not guaranteed by the United States and do not constitute a debt or obligation of the United States or any agency or instrumentality thereof other than the Corporation. The Corporation is authorized to purchase in the open market any of its obligations outstanding under this subsection at any time and at any price. Any obligation or security of the Corporation may be issued and sold in definitive form, in book entry form or in such other form, with or without delivery of physical evidence or ownership, as shall be prescribed by the Corporation.

    ‘(b) ISSUANCE OF SUBORDINATED OBLIGATIONS- For the purposes of this section, the Corporation is authorized to issue obligations which are subordinated to any or all other obligations of the Corporation, including subsequent obligations. Any of such obligations may be convertible into shares of common stock in such manner, at such price or prices, and such time or times as may be stipulated therein.

    ‘(c) PURCHASE AND SALE OF OBLIGATIONS BY SECRETARY OF THE TREASURY- (1) The Secretary of the Treasury, in the Secretary’s discretion, may purchase any obligation issued by the Corporation pursuant to subsection (a) of this section as now or hereafter in force and for such purpose of the Secretary of the Treasury is authorized to use as a public debt transaction the proceeds of the sale of any securities hereafter issued under chapter 31 of title 31, United States Code, as now or hereafter in force, and the purposes for which securities may be issued under chapter 31 of title 31, United States Code, as now or hereafter in force, are extended to include such purchases. The authorities provided to the Secretary of the Treasury by the preceding sentence shall be available only to such extent and in such amounts as are provided in advance in appropriations Acts. The Secretary of the Treasury shall not at any time purchase any obligations under this subsection if such purchase would increase the aggregate principal amount of the Secretary’s then outstanding holdings of such obligations under this subsection to an amount greater than $1,000,000,000. Any purchase of obligations by the Secretary of the Treasury under this subsection shall be made solely to prevent or to enable the Corporation to correct an inability of the Corporation to pay amounts required to be paid on account of obligations or securities issued or guaranteed by the Corporation. Any purchase of obligations by the Secretary of the Treasury under this subsection shall be on such terms and conditions as shall be determined by the Secretary of the Treasury. Each such purchase of obligations by the Secretary of the Treasury under this subsection shall take into consideration the current average rate on outstanding marketable obligations of the United States of comparable maturities as of the last day of the month preceding the making of such purchase.

    ‘(2) The Secretary of the Treasury may, at any time, sell on such terms and conditions and at such price or

prices as the Secretary may determine any of the obligations acquired by the Secretary under this section. All redemptions, purchases, and sales by the Secretary of the Treasury of such obligations under this section shall be treated as public debt transactions of the United States.

‘SEC. 355. LEGAL INVESTMENTS AND EXEMPT SECURITIES.

    ‘(a) LAWFUL INVESTMENTS- All obligations issued by the Corporation pursuant to sections 354 and 356, all nonvoting common stock issued by the Corporation pursuant to section 353(b), all preferred stock issued by the Corporation pursuant to section 353(c), and all obligations guaranteed by the Corporation pursuant to section 356 shall be lawful investments, and may be acceptable as security for all fiduciary, trust, and public funds, the investment or deposit of which shall be under authority or control of the United States or of any officer or officers thereof.

    ‘(b) TREATMENT OF CORPORATION UNDER FEDERAL RESERVE ACT- The Corporation shall, for the purposes of section 14(b)(2) of the Federal Reserve Act (12 U.S.C. 355(b)(2)), be deemed to be an agency of the United States.

    ‘(c) TREATMENT OF OBLIGATIONS UNDER TITLE 31- The obligations of the Corporation shall be deemed to be obligations of the United States for purposes of section 3124 of title 31, United States Code.

    ‘(d) TREATMENT OF CORPORATION UNDER TITLE 11- For the purpose of section 101(27) of title 11, United States Code, the Corporation shall be deemed to be an agency of the United States; however, for the purpose of section 101(41) of title 11, United States Code, the Corporation shall not be deemed to be a governmental unit, but instead shall be deemed to be a corporation.

‘SEC. 356. LOAN AND INVESTMENT OPERATIONS.

    ‘(a) SMALL BUSINESS INVESTMENT SECURITIES- After the permanent Board of Directors has been duly constituted, the Corporation is authorized, subject to the provisions of this section, pursuant to commitments or otherwise, to make advances on the security of, purchase or repurchase, service, sell or resell, offer participations or pooled interests in, act as an issuer or guarantor of, or otherwise deal in, at prices and on terms and conditions determined by the Corporation, small business investment securities.

    ‘(b) REQUIREMENTS- The Corporation is authorized to issue and guarantee securities based on the small business investment securities specified under subsection (a) of this section. Securities issued or guaranteed by the Corporation pursuant to this subsection may be in the form of debt obligations secured by pools of small business investment securities, trust certificates of beneficial ownership in such pools of small business investment securities, or equity securities based on such small business investment securities or any combination thereof. Small business investment securities set aside pursuant to the issuance or guarantee of such debt obligations, trust certificates, or equity securities shall at all times provide for payments that, in the reasonable judgment of the Corporation, are adequate to ensure payment of the obligations on such securities.

    ‘(c) PERFECTION OF SECURITY INTERESTS- Notwithstanding the provisions of any State law to the contrary, including the Uniform Commercial Code as in effect in any State, a security or ownership interest in small business investment securities created by the Corporation or by any eligible small business investment company may be perfected either through the taking of possession of such securities or by the filing of notice of such interest in such securities in the manner provided by such State law for perfection of security or ownership interests in accounts.

‘SEC. 357. SERVICING GUARANTEED SECURITIES AND ASSETS IN LIQUIDATION.

    ‘(a) IN GENERAL- To carry out the purposes set forth in section 351, and notwithstanding any law, rule, or regulation, the Administration is authorized and directed to enter into a contract with the Corporation under which the Corporation will manage and service all small business investment company securities and commitments outstanding on the effective date of this part and all assets in default or in liquidation status held by the Administration on such effective date, or managed by any third party on the Administration’s behalf, as the result of default or liquidation proceedings by the Administration involving small business investment companies. Such outstanding small business investment company securities shall include, but are not limited to, all debentures and participating securities guaranteed or owned by the Administration and all preferred stock issued to the Administration.

    ‘(b) DEADLINE- The Administration and the Corporation shall enter into a contract under subsection (a) no later than 30 days following the appointment of the interim Board of Directors under section 352(c).

    ‘(c) TERMS AND CONDITIONS- The contract under subsection (a) shall provide for the following:

      ‘(1) All such outstanding securities, commitments, and assets, together with all of the documentation, files, and books and records pertaining thereto, shall be transferred from the Administration to the Corporation which shall act solely as the managing and servicing agent on behalf of the Administration for all such securities, commitments, and assets.

      ‘(2) All of the obligations for which the Administration is responsible on all securities which are transferred to the Corporation for management and servicing shall remain in full force and effect as obligations of the Administration, including, but not limited to, guarantees of or commitments to debentures or participating securities, or guarantees of certificates of interest, or contracts for the purchase of debentures or preferred stock.

      ‘(3) Except as provided in paragraph (6), all of the benefits to which the Administration is entitled on all securities which are transferred to the Corporation for management and servicing shall remain in full force and effect, including, but not limited to, payments of principal and interest of debentures, payments of priority payments and profit participations on, and redemptions of, participating securities, and payments of dividends and redemptions on preferred stock.

      ‘(4) For purposes of managing and servicing all such securities, commitments, and assets the Corporation shall be considered the successor entity to the Administration under all trust agreements, contracts, and any other agreements relating to such securities, commitments, and assets.

      ‘(5) All payments received by the Corporation on the outstanding portfolio transferred to the Corporation and all receipts from the liquidation of assets transferred to the Corporation, net of management and servicing fees, shall be immediately paid to the Administration.

      ‘(6) Notwithstanding section 4(c)(5) of the Small Business Act (15 U.S.C. 633(c)(5)), the following fees shall be paid to the Corporation for managing and servicing the transferred securities, commitments, and assets:

        ‘(A) On the portfolio of outstanding securities and commitments, a fee equal to 2 percent per fiscal year of the aggregate balance outstanding on the effective date of this part, and 2 percent per fiscal year of the remaining aggregate balance outstanding at the beginning of each fiscal year thereafter. This fee shall be paid in advance upon determination of the aggregate balance outstanding at the beginning of each period.

        ‘(B) On the portfolio of assets in default or in liquidation, an incentive fee equal to 10 percent of the aggregate amount collected during each fiscal year. This fee shall be deducted from the amount collected by the Corporation as such assets are liquidated.

      ‘(7) Notwithstanding section 4(c)(5) of the Small Business Act (15 U.S.C. 633(c)(5)), control over the outstanding balance in the fund established under section 303(g)(2) of the Small Business Investment Act (15 U.S.C. 683(g)(2)) shall be transferred from the Administration to the Corporation for use in carrying out the Corporation’s management and servicing functions.

    ‘(d) REPORT TO CONGRESS- Not later than 60 days after executing the contract to manage and service the securities, commitments, and assets in default of liquidation, the Corporation shall submit to the Committees on Small Business of the Senate and the House of Representatives a report describing the activities of the Administration, the Corporation, and their representatives under this section.

‘SEC. 358. QUALIFICATION OF SMALL BUSINESS INVESTMENT COMPANIES.

    ‘(a) ESTABLISHMENT OF CRITERIA- The Corporation shall establish appropriate criteria for the qualification of small business investment companies to conduct business with the Corporation, and shall redetermine the qualifications of any small business investment company upon a change of control due to a transfer of ownership. Such criteria may include, among other things, the general business reputation and character of the owners and management of the small business investment company, and the probability of successful operations of such small business investment company, including adequate profitability and financial soundness. Licensees in good standing which make capital contributions and acquire common stock of the Corporation pursuant to section 353(a), contract with the Corporation pursuant to the provisions of section 359(a), and authorize the release of records to the Corporation pursuant to section 323(d) shall be deemed to be qualified under this section.

    ‘(b) MINIMUM AMOUNT OF PRIVATE CAPITAL- Each small business investment company authorized to operate under the authority of this part shall have private capital of not less than $5,000,000, except that this provision shall not apply to licensees in good standing as of the date the Administration receives notice pursuant to section 352(i). In all cases, such private capital shall be in an amount determined by the Corporation to be adequate to assure a reasonable prospect that the company will be operated soundly and profitably, and managed actively and prudently.

    ‘(c) BANK PURCHASES OF OWNERSHIP INTERESTS IN SMALL BUSINESS INVESTMENT COMPANIES- Notwithstanding the provisions of section 23A of the Federal Reserve Act (12 U.S.C. 371c), ownership interests in small business investment companies shall be eligible for purchase by national banks of the Federal Reserve System and nonmember insured banks to the extent permitted under applicable State law, except that in no event may any such bank acquire ownership interests in any small business investment company if, upon the making of that acquisition, the aggregate amount of ownership interest in small business investment companies then held by the bank would exceed 5 percent of its capital and surplus.

    ‘(d) POWERS OF SMALL BUSINESS INVESTMENT COMPANIES- Each small business investment company shall have authority to purchase stock issued by the Corporation and to borrow money and to issue debentures and other obligations or securities under such conditions and subject to such rules as the Corporation may prescribe.

    ‘(e) INAPPLICABILITY OF CERTAIN PROVISIONS TO SMALL BUSINESS INVESTMENT COMPANIES- Thirty days after the Administration receives notice from the Corporation pursuant section 352(i), the provisions of sections 301 through 306, sections 308 through 318, and sections 320 through 322 shall not apply to small business investment companies which qualify under section 358(a).

    ‘(f) REFERENCES- All specific references to small business investment companies operating under the Small Business Investment Act of 1958 in any law of the United States, or regulations promulgated thereunder by any agency of the United States Government, or any law of any State in effect on the effective date of this part, shall be deemed to refer to and include small business investment companies operating under the provisions of this part.

‘SEC. 359. OPERATIONS OF SMALL BUSINESS INVESTMENT COMPANIES.

    ‘(a) RULES- The Corporation shall contract with small business investment companies qualified under section 358 governing the operations of such companies in accordance with the provisions and purposes of this title. The Corporation shall adopt rules effectuating the provisions of subsections (c) through (o) of this section and such rules, or changes therein, shall be approved by a majority vote of the members of the Board of Directors, including not less than a majority of the members appointed by the President and confirmed by the Senate.

    ‘(b) PROVISION OF EQUITY CAPITAL AND LOANS- Each small business investment company is authorized to provide equity capital and loans to small business concerns in such manner and under such terms as the small business investment company may fix in accordance with the rules of the Corporation. Equity investments and loans made under this section may be made directly or in cooperation with other investors or lenders on a participation or guaranteed basis. Each small business investment company may provide consulting and advisory services on a fee basis and have on its staff persons competent to provide such services.

    ‘(c) PROHIBITION OF CERTAIN ACTIVITIES- Small business investment companies shall engage only in lawful activities and those which are contemplated by this title and in no other activities and the Corporation shall adopt rules to so provide.

    ‘(d) CONFLICTS- For the purpose of eliminating conflicts of interest which may be detrimental to small business concerns, to small business investment companies, to the shareholders or partners of either, to the Corporation, or to the purposes of this part, the Corporation shall adopt rules to govern transactions with any person or concern, whether direct or indirect, financial or otherwise, involving any small business investment company, or any officer, director, shareholder, or partner of any small business investment company, which would cause such detrimental conflict of interest.

    ‘(e) RESTRICTION ON CONTROL OF SMALL BUSINESS CONCERNS- The Corporation shall adopt rules which shall provide that small business investment companies, either singularly or jointly, shall not be permitted to assume control over small business concerns except on a temporary basis if reasonably necessary for the protection of its investment and then only under rules adopted by the Corporation.

    ‘(f) INVESTMENT IN SMALL BUSINESS CONCERNS- Except as otherwise provided by rules adopted by the Corporation and approved by the Administration, small business investment companies shall only invest in a small business concern which, together with its affiliates, is independently owned and operated, is not dominant, in its field of operations, and--

      ‘(1) does not have a net worth in excess of $18,000,000, and does not have average net income after Federal income taxes (excluding any carry-over losses) for the preceding 2 completed fiscal years in excess of $6,000,000; or

      ‘(2) otherwise qualifies under size standards for financial assistance established by the Administration under the Small Business Act.

    ‘(g) MINIMUM PERIOD OF FINANCINGS- Except as otherwise provided by rules adopted by the Corporation, financings of small business concerns by small business investment companies shall be for a minimum period of 5 years.

    ‘(h) LIMITATION ON AMOUNT OF OBLIGATIONS AND SECURITIES FOR SINGLE ENTERPRISE- Except as otherwise provided by rules adopted by the Corporation, the aggregate amount of obligations and securities acquired and for which commitments may be issued by any small business investment company under the provisions of this title for any single enterprise shall not exceed 20 percent of the private capital of such company.

    ‘(i) PROHIBITION ON FINANCING OF CERTAIN ACTIVITIES- Except as otherwise provided by rules adopted by the Corporation, small business investment companies shall not provide financing to a small business concern for relending, foreign investments, passive investments, or for the acquisition of real estate.

    ‘(j) DETERMINATION OF VALUE OF INVESTMENTS- The Board of Directors, including not less than a majority of the members appointed by the President, shall adopt rules to require each small business investment company to adopt written guidelines for determination of the value of investments made by such company. The board of directors of corporations and the general partners of partnerships shall have the sole responsibility for making a good faith determination of the fair market value of the investments made by such company. Determinations shall be made and reported to the Corporation not less than semiannually or at more frequent intervals as the Corporation determines appropriate: Provided, That any company which does not have outstanding financial assistance from the Administration or under the provisions of this title shall be required to make such determinations and reports to the Corporation annually, unless the Corporation, in its discretion, determines otherwise.

    ‘(k) MINIMIZATION OF RISK OF LOSS- The Board of Directors, including not less than a majority of the members appointed by the President, shall adopt rules to minimize the risk of loss to the Corporation on the total amount of securities issued by any individual small business investment company or by small business investment companies under common control.

    ‘(l) FINANCIAL AUDIT- Each small business investment company shall have a financial audit conducted by an independent certified public accountant certified or licensed by a regulatory authority of a State or other political subdivision of the United States at least annually and at such other times as may be required by the Corporation.

    ‘(m) COMPLIANCE AUDIT- At least once every 2 years, each small business investment company shall have an audit of such company’s compliance with the rules of the Corporation conducted by an independent certified public accountant selected by the Corporation or, in the discretion of the Corporation, such audit may be conducted by employees or agents of the Corporation.

    ‘(n) OTHER REPORTS- Each small business investment company also shall make such other reports to the Corporation at such times and in such form as the Corporation may require.

    ‘(o) MEASURES TO ENSURE COMPLIANCE- The Corporation shall adopt appropriate measures to ensure compliance by small business investment companies with the provisions of this section. Failure of a small business investment company to comply with the provisions of this section shall entitle the Corporation to take corrective action warranted under the circumstances which shall include, but is not limited to--

      ‘(1) loss of qualification by such company to do business with the Corporation;

      ‘(2) suspension or termination of agreements between the Corporation and such company;

      ‘(3) assessment of penalties against such company or its officers, directors, or general partners;

      ‘(4) removal or suspension of officers, directors, or general partners of such company; and

      ‘(5) assumption of control and operations of such company by the Corporation.

    In appropriate cases, the Corporation is authorized, in its discretion, to refer violations of law to the Administration for investigation or to refer such violations to the United States Attorney in the jurisdiction in which such violations may have occurred or in which the small business investment company, or its officers, directors, or general partners, are located.

    ‘(p) STATE LAWS- In order to facilitate the orderly and necessary flow of long-term loans and equity funds from small business investment companies to small business concerns, the provisions of the Constitution or the laws of any State expressly limiting the rate or amount of interest, discount points, finance charges, or other charges which may be charged, taken, received, or reserved by lenders shall not apply to any business loan made by a small business investment company pursuant to provisions of this part. This subsection shall apply to business loans made by a small business investment company in any State on or after the effective date of this part, unless such State adopts a law or certifies that the voters of such State have voted in favor of any provision, constitutional or otherwise, which states explicitly and by its terms that such State does not want the provisions of this subsection to apply to business loans made in such State. In any case in which a State takes an action described in this subsection, such State law or constitutional or other provision shall not apply to any business loan made by a small business investment company pursuant to a commitment to make such loan which was entered into on or after the effective date of this part and prior to the date on which such action was taken.

‘SEC. 360. LEVERAGE FORMULA.

    ‘(a) IN GENERAL- The total amount of leverage that may be provided by the Corporation to a small business investment company shall not exceed 300 percent of the private capital of such company: Provided, That nothing in this subsection shall require any such company that on the effective date of this part has outstanding leverage

in excess of 300 percent of its private capital to prepay such excess.

    ‘(b) FORMULA- After the effective date of this part, the maximum amount of outstanding leverage made available to a small business investment company by the Corporation shall be determined by the amount of such company’s private capital--

      ‘(1) if the company has private capital of not more than $15,000,000, the total amount of leverage shall not exceed 300 percent of private capital;

      ‘(2) if the company has private capital of more than $15,000,000 but not more than $30,000,000, the total amount of leverage shall not exceed $45,000,000 plus 200 percent of the amount of private capital over $15,000,000; and

      ‘(3) if the company has private capital of more than $30,000,000, the total amount of leverage shall not exceed $75,000,000 plus 100 percent of the amount of private capital over $30,000,000 but not to exceed an additional $15,000,000.

    ‘(c) DEBT AND EQUITY TYPE SECURITIES- Subject to the foregoing dollar and percentage limits, a small business investment company may issue to the Corporation both debt and equity type securities: Provided, That the total amount of equity type securities issued to the Corporation shall not exceed 200 percent of the company’s private capital.

    ‘(d) MAXIMUM AMOUNT OF OUTSTANDING LEVERAGE- In no event shall the aggregate amount of outstanding leverage of any such company or companies which are commonly controlled as determined by the Corporation exceed $90,000,000, unless the Corporation determines on a case by case basis to permit a higher amount for companies under common control and imposes such additional terms and conditions as it determines appropriate to minimize the risk of loss to the Corporation.

‘SEC. 361. AUDITS OF THE CORPORATION.

    ‘(a) ANNUAL AUDIT- The accounts of the Corporation shall be audited annually. Such audits shall be conducted in accordance with generally accepted auditing standards by independent certified public accountants who are certified or licensed by a regulatory authority of a State or other political subdivision of the United States. A report of each such audit shall be furnished to the Office of Investment Oversight. The audit shall be conducted at the place or places where the accounts are normally kept. The representatives of the Office of Investment Oversight shall have access to all books and records of the Corporation, and they shall be afforded full facilities for verifying transactions with the balance or securities held by depositories, fiscal agents, and custodians.

    ‘(b) REPORTS BY OFFICE OF INVESTMENT OVERSIGHT- A report of each such audit for a fiscal year shall be made by the Office of Investment Oversight to the President and to the Committees on Small Business of the Senate and the House of Representatives not later than 6 months following the close of such fiscal year. The report shall set forth the scope of the audit and shall include a statement of assets and liabilities, capital and surplus or deficit, a statement of surplus or deficit analysis, a statement of income and expense, a statement of sources and application of funds, and comments and information as may be deemed necessary to keep the President and the Congress informed of the operations and financial condition of the Corporation, together with such recommendations with respect thereto as the Office of Investment Oversight may deem advisable, including a report of any impairment of capital or lack of sufficient capital noted in the audit. A copy of each such report shall be furnished to the Corporation at the same time it is submitted to the President.

‘SEC. 362. REGULATION OF FINANCIAL SAFETY AND SOUNDNESS.

    ‘(a) ESTABLISHMENT OF OFFICE OF INVESTMENT OVERSIGHT- There is hereby established in the Small Business Administration an Office to be known as the Office of Investment Oversight, which shall have responsibility for reviewing the regulatory and financial performance of the Corporation as provided herein. The Office shall be headed by a Director who shall be appointed by the Administrator, and shall receive compensation at the rate provided by law for Associate Administrators of the Small Business Administration.

    ‘(b) DEFINITIONS- For purposes of this section, the following definitions apply:

      ‘(1) The term ‘core capital’ means, with respect to the Corporation, the sum of the following (as determined in accordance with generally accepted accounting principles):

        ‘(A) The par value of outstanding common stock.

        ‘(B) The par value of outstanding preferred stock.

        ‘(C) Paid-in capital.

        ‘(D) Retained earnings.

      ‘(2) The term ‘regulatory capital’ means, with respect to the Corporation, the core capital of the Corporation plus an allowance for losses, as determined in accordance with generally accepted accounting principles.

    ‘(c) RISK-BASED CAPITAL TEST- Not later than 2 years after the effective date of this part, the Director of the Office of Investment Oversight shall, by regulation, establish a risk-based capital test under this section for the Corporation. When applied to the Corporation, the risk-based capital test shall determine the amount of regulatory capital for the Corporation that is sufficient for the Corporation to maintain positive capital during a 10-year period in which both of the following circumstances occur:

      ‘(1) CREDIT RISK- With respect to securities representing an interest in, or obligations backed by, a pool of qualified loans owned or guaranteed by the Corporation and other obligations of the Corporation, losses on the underlying qualified loans occur throughout the United States at a rate of default and severity (based on any measurements of default reasonably related to prevailing industry practice in determining capital adequacy) reasonably related to the rate and severity that occurred in contiguous areas of the United States containing an aggregate of not less than 5 percent of the total population of the United States that, for a period of not less than 2 years (as established by the Director), experienced the highest rates of default and severity of venture investing losses in other such areas for any period of such duration, as determined by the Director.

      ‘(2) INTEREST RATE RISK- Interest rates on Treasury obligations of varying terms increase or decrease over the first 12 months of such 10-year period by not more than the lesser of (A) 50 percent (with respect to the average interest rates on such obligations during the 12-month period preceding the 10-year period), or (B) 600 basis points, and remain at such level for the remainder of the period. This paragraph may not be construed to require the Director to determine interest rate risk under this paragraph based on the interest rates for various long-term and short-term obligations all increasing or all decreasing concurrently.

    ‘(d) CONSIDERATIONS IN ESTABLISHMENT OF THE TEST- In establishing the risk based capital test under subsection (c)--

      ‘(1) the Director shall take into account appropriate distinctions based on various types of venture investing products, varying terms of Treasury obligations, and any other factors the Director considers appropriate;

      ‘(2) the Director shall conform loan and investment data used in determining credit risk to the minimum diversification standards applicable to pools of qualified loans;

      ‘(3) the Director shall take into account any retained subordinated participating interests held by the Corporation;

      ‘(4) the Director may take into account other methods or tests to determine credit risk developed by the Corporation; and

      ‘(5) the Director shall consider any other information submitted by the Corporation in writing.

    ‘(e) REVISING THE TEST- Upon the expiration of the 6-year period beginning on the effective date of this part, the Director shall examine the risk-based capital test under subsection (c) and may revise the test. In making revisions under this subsection, the Director shall take into account that, before the effective date of this part, the Corporation did not issue or guarantee securities based on pools of qualified loans and investments. To the extent that the revision of the risk-based capital test causes a change in the classification of the corporation within the enforcement levels established under subsection (k), the Director shall waive the applicability of any additional enforcement actions available because of such change for a reasonable period of time, to permit the Corporation to increase the amount of regulatory capital of the Corporation accordingly.

    ‘(f) RISK BASED CAPITAL LEVEL- For purposes of this section, the risk-based capital level for the Corporation shall be equal to the sum of the following amounts:

      ‘(1) CREDIT AND INTEREST RATE RISK- The amount of the regulatory capital determined by applying the risk-based capital test under subsection (c) to the Corporation, adjusted to account for foreign exchange risk.

      ‘(2) MANAGEMENT AND OPERATIONS RISK- To provide for management and operations risk, 30 percent of the amount of regulatory capital determined by applying the risk-based capital test under subsection (c) to the Corporation.

    ‘(g) REGULATIONS- The regulations establishing the risk-based capital test under this section shall contain specific requirements, definitions, methods, variables, and parameters used under the risk-based capital test and in implementing the test (such as loan loss severity, float income, loan-to-value ratios, taxes, yield curve slopes, default experience, prepayment rates, and performance of pools of qualified loans and investments). The regulations shall be sufficiently specific to permit an individual other than the Director to apply the test in the same manner as the Director.

    ‘(h) AVAILABILITY OF STATISTICAL MODEL- The Director shall make copies of the statistical model or models used to implement the risk-based capital test under this section available for public acquisition and may charge a reasonable fee for such copies.

    ‘(i) MINIMUM CAPITAL LEVEL- For purposes of this section, after the 6th year following the effective date of this part the minimum capital level for the Corporation shall be an amount of core capital equal to the sum of--

      ‘(1) 2.00 percent of the aggregate on-balance sheet assets of the Corporation, as determined in accordance with generally accepted accounting principles; and

      ‘(2) 0.30 percent of the unpaid principal balance of outstanding securities issued by the Corporation and backed by pools of qualified loans and investments and substantially equivalent instruments issued or guaranteed by the Corporation, and other off-balance sheet obligations of the corporation.

    ‘(j) CRITICAL CAPITAL LEVEL- For the purposes of this section, the critical capital level for the Corporation shall be an amount of core capital equal to the sum of--

      ‘(1) 1.25 percent of the aggregate on-balance sheet assets of the Corporation, as determined in accordance with generally accepted accounting principles; and

      ‘(2) 0.20 percent of the unpaid balance of outstanding securities guaranteed by the Corporation and backed by pools of qualified loans and investments and substantially equivalent instruments issued or guaranteed by the Corporation, and other off-balance sheet obligations of the Corporation.

    ‘(k) ENFORCEMENT LEVELS- The Director shall classify the Corporation, for purposes of this section, according to the following enforcement levels:

      ‘(1) LEVEL I- The Corporation shall be classified as within level I if the Corporation--

        ‘(A) maintains an amount of regulatory capital that is equal to or exceeds the risk-based capital level established under section (c); and

        ‘(B) equals or exceeds the minimum capital level established under subsection (i).

      ‘(2) LEVEL II- The Corporation shall be classified as within level II if the Corporation--

        ‘(A)(i) maintains an amount or regulatory capital that is less than the risk-based capital level; and

        ‘(ii) equals or exceeds the minimum capital level; or

        ‘(B) is otherwise classified as within level II under subsection (b)

      ‘(3) LEVEL III- The Corporation shall be classified as within level III if the Corporation--

        ‘(A)(i) does not equal or exceed the minimum capital level; and

        ‘(ii) equals or exceeds the critical capital level established under subsection (j); or

        ‘(B) is otherwise classified as within level III under subsection (b).

      ‘(4) LEVEL IV- The Corporation shall be classified as within level IV if the Corporation--

        ‘(A) does not equal or exceed the critical capital level; or

        ‘(B) is otherwise classified as within level IV under subsection (b).

    ‘(l) DISCRETIONARY CLASSIFICATION- If, at any time, the Director determines in writing (and provides written notification to the Corporation and the Administration) that the Corporation is taking any action not approved by the Director that could result in a rapid depletion of core capital or that the value of the property securitized by the Corporation or subject to underlying securities guaranteed by the Corporation has decreased significantly, the Director may classify the Corporation--

      ‘(1) as within level II, if the Corporation is otherwise within level I;

      ‘(2) as within level III, if the Corporation is otherwise within level II; or

      ‘(3) as within level IV, if the Corporation is otherwise within level III.

    ‘(m) SEMI-ANNUAL DETERMINATION- After the 6th year following the effective date of this part, the Director shall determine the classification of the Corporation for purposes of this part on not less than a semi-annual basis.

    ‘(n) NOTICE- Upon determining under subsection (c) or (i) that the Corporation is within level II or III, the Director shall provide written notice to the Congress and to the Corporation--

      ‘(1) that the Corporation is within such level;

      ‘(2) that the Corporation is subject to the provisions of subsection (o) or (q), as applicable; and

      ‘(3) stating the reasons for the classification of the Corporation within such level.

    ‘(o) MANDATORY ACTIONS APPLICABLE TO LEVEL II- If the Corporation is classified as within level II, the Corporation shall--

      ‘(1) within the time period determined by the Director, submit to the Director a capital restoration plan and, after approval, carry out the plan; and

      ‘(2) not make any payment of dividends that would result in the Corporation being reclassified as within level III or IV.

    ‘(p) RECLASSIFICATION FROM LEVEL II TO LEVEL III- The Director shall immediately reclassify the Corporation as within level III (and the Corporation shall be subject to the provisions of section (q)) if--

      ‘(1) the Corporation is within level II; and

      ‘(2)(A) the Corporation does not submit a capital restoration plan that is approved by the Director; or

      ‘(B) the Director determines that the Corporation has failed to make, in good faith, reasonable efforts necessary to comply with such a capital restoration plan and fulfill the schedule for the plan approved by the Director.

    ‘(q) SUPERVISORY ACTIONS APPLICABLE TO LEVEL III- If the Corporation is classified as within level III--

      ‘(1) the Corporation shall, within the time period determined by the Director, submit to the Director a capital restoration plan and, after approval, carry out the plan; and

      ‘(2) the Corporation shall not make any payment of dividends that would result in the Corporation being reclassified as within level IV or make any other payment of dividends unless the Director approves the payment before it is made.

      ‘(3) the Director may approve a payment of dividends by the Corporation only if the Director determines that the payment--

        ‘(A) will enhance the ability of the Corporation to meet the risk-based capital level and the minimum capital level promptly;

        ‘(B) will contribute to the long-term safety and soundness of the Corporation; or

        ‘(C) is otherwise in the public interest.

    ‘(r) RECLASSIFICATION FROM LEVEL III TO LEVEL IV- The Director shall immediately reclassify the Corporation as within level IV if--

      ‘(1) the Corporation is classified as within level III; and

      ‘(2)(A) the Corporation does not submit a capital restoration plan that is approved by the Director; or

      ‘(B) the Director determines that the Corporation has failed to make, in good faith, reasonable efforts necessary to comply with such a capital restoration plan and fulfill the schedule for the plan approved by the Director.

    ‘(s) DISCRETIONARY SUPERVISORY ACTIONS- In addition to any other actions taken by the Director (including actions under subsection (q)), the Director may, at any time, take any of the following actions if the Corporation is classified as within level III:

      ‘(1) Limit any increase in, or order the reduction of, any obligations of the Corporation, including off-balance sheet obligations.

      ‘(2) Limit or prohibit the growth of the assets of the Corporation or require contraction of the assets of the Corporation.

      ‘(3) Prohibit the Corporation from making any payment of dividends.

      ‘(4) Require the Corporation to acquire new capital in any form and in any amount sufficient to provide for the reclassification of the Corporation as within level II.

      ‘(5) Require the Corporation to terminate, reduce, or modify any activity that the Director determines creates excessive risk to the Corporation.

      ‘(6) Appoint a conservator for the Corporation consistent with this Act.

‘SEC. 363. GOVERNMENT OVERSIGHT AND REPORTS.

    ‘(a) COMMITTEES ON SMALL BUSINESS- In order to conduct legislative oversight of the Corporation’s activities, the Committees on Small Business of the Senate and the House of Representatives shall have access to the books and records of the Corporation at any time.

    ‘(b) GENERAL ACCOUNTING OFFICE- At the request of either the Committee on Small Business of the Senate or the House of Representatives, the books and records of the Corporation shall be subject to examination by the General Accounting Office.

    ‘(c) OFFICE OF INVESTMENT OVERSIGHT- In order to ensure that the public purposes of this part are carried out, the Office of Investment Oversight shall have authority to review the Corporation’s criteria for the qualification of small business investment companies to conduct business with the Corporation and the Corporation’s rules governing the operations of small business investment companies. The Office of Investment Oversight may examine the books and records of the Corporation and may require the Corporation to make such reports as the Administration deems desirable. Not later than January 31st of each year, the Office of Investment Oversight shall submit to the Committees on Small Business of the Senate and the House of Representatives a report containing findings made by the Office under this section.

    ‘(d) ANNUAL REPORT BY CORPORATION- The Corporation shall, as soon as practicable after the end of each fiscal year, transmit to the President, the Committees on Small Business of the Senate and the House of Representatives, and the Administration a report on its operations and activities for such fiscal year.

    ‘(e) REPORT BY GENERAL ACCOUNTING OFFICE- Not later than 7 years after the effective date of this part, the General Accounting Office shall prepare a report to be transmitted to the Committees on Small Business of the Senate and the House of Representatives. The report shall review the impact that the Corporation has had in achieving the purposes of the Venture Capital Marketing Association Charter Act, including but not limited to an assessment of the impact on small business concerns receiving funding through the Corporation’s activities and the impact on small business investment companies as a result of the Corporation’s activities. In preparing this report, the General Accounting Office shall have access to the books and records of the Corporation.

‘SEC. 364. BOOKS AND RECORDS.

    ‘The Administration shall furnish to the Corporation all books and records of the Administration necessary to carry out the provisions of this title within 30 days after written request by the Corporation. Any such information received by the Corporation shall be kept confidential by the Corporation, its officers, agents, and employees under the same provisions which would have been applicable if it had been retained by the Administration.’.

SEC. 4. TRANSFER AND PHASE-OUT.

    (a) IN GENERAL- Title III of the Small Business Investment Act of 1958 is amended by inserting after section 322 the following:

‘SEC. 323. TRANSFER AND PHASE-OUT.

    ‘(a) DEADLINE- A licensee in good standing shall have a period of 3 months from the date the Administration receives notice under section 352(i) in which to qualify under section 358(a).

    ‘(b) ISSUANCE OF REGULATIONS- Within 6 months after receiving notice under section 352(i), the Administration shall promulgate final rules and regulations to effect the orderly termination of operations of any license in good standing which has not qualified under section 358(a), and the Administration shall enter into a contractual agreement with the Corporation which provides for the administration of such rules and regulations by the Corporation.

    ‘(c) REQUIREMENTS FOR REGULATIONS- The final rules and regulations adopted by the Administration for termination of the operations of any licensee under subsection (b) of this section shall, among other things, suspend such licensees’s authority to obtain financial assistance from the Administration and shall require revocation of the license of any such licensee effective within 2 years after the publication of such rules and regulations, except that the license revocation for any such licensee which has outstanding debentures shall be within 2 years after such debentures are due or paid, whether voluntarily or otherwise.’.

    (b) CONFORMING AMENDMENT- The table of contents contained in section 101 of the Small Business Investment Act of 1958 (15 U.S.C. 661 note), as amended by section 2(a) of this Act, is further amended by inserting after the item relating to section 322 the following:

      ‘Sec. 323. Transfer and phase-out.’.

SEC. 5. DEFINITIONS.

    Section 103 of the Small Business Investment Act of 1958 (15 U.S.C. 662) is amended--

      (1) by inserting before the semicolon in paragraph (3) the following: ‘or a company qualified to conduct business with the Corporation under section 358’;

      (2) by striking paragraph (9) and inserting the following:

      ‘(9) notwithstanding any other provision of law, the term ‘private capital’ means the combined private paid-in capital and paid-in surplus of a corporate small business investment company, or the private partnership capital of an unincorporated small business investment company, inclusive of (A) any funds invested in the small business investment company by a public or private pension fund, (B) any funds invested in the small business investment company by State or local government entities, to the extent that such investment does not exceed 33 percent of a small business investment company’s total private capital and otherwise meets criteria established by the Corporation, and (C) unfunded commitments from institutional or individual investors that meet criteria established by the Corporation, but it excludes any funds which are borrowed by the small business investment company from any source or which are obtained or derived, directly or indirectly, from any Federal source, including the Administration: Provided, That no unfunded commitment from an investor may be used for the purpose of meeting the minimum amount of private capital required by this Act or as the basis for the Corporation to issue obligations or securities to provide financing to small business investment companies;’;

      (3) by striking the period at the end of paragraph (10) and inserting a semicolon; and

      (4) by adding at the end the following:

      ‘(11) the term ‘Corporation’ means the Venture Capital Marketing Association, as constituted under this Act;

      ‘(12) the term ‘Board of Directors’ means the Board of Directors of the Corporation;

      ‘(13) the term ‘law’ includes any law of the United States or any State (including any rule of law or of equity);

      ‘(14) the term ‘organization’ means any corporation, partnership, association, business trust, or other business entity;

      ‘(15) the term ‘security’ has the meaning given such term by section 2(l) of the Securities Act of 1933 (15 U.S.C. 77b(l);

      ‘(16) the term ‘small business investment security’ includes--

        ‘(A) debentures, bonds, promissory notes, obligations or equity securities issued by small business investment companies; and

        ‘(B) such other small business investment company securities as determined by the Corporation;

      ‘(17) the term ‘licensee in good standing’ means a small business investment company which was approved by the Administration to operate under the provisions of this Act and was issued a license as provided in section 301, unless such licensee (A) is in default under Debentures issued to the Administration and such Debentures have been declared due and payable by the Administration, (B) has engaged in events which the Administration has determined to be in violation of provisions of Participating Securities or Preferred Securities, or (C) has been placed in liquidation status by the Administration; and

      ‘(18) the term ‘books and records of the Corporation’ means the books and records of the Venture Capital Marketing Association, including but not limited to books, accounts, financial records, reports, files, all memoranda and documents obtained by employees or agents of the Corporation or by independent certified public accountants during audits of small business investment companies and all reports and information from such companies to the Corporation, and all other papers, things or property belonging to or in use by the Corporation.

SEC. 6. AMENDMENT TO SMALL BUSINESS ACT.

    Section 5(b)(2) of the Small Business Act (15 U.S.C. 634(b)(2)) is amended by striking ‘collection;’ and by inserting ‘collection: Provided, That nothing in this Act nor any other law shall authorize the Administration to sell, hypothecate, pledge, or in any way encumber small business investment securities made or issued by such Administration except as authorized by section 357 of the Small Business Investment Act of 1958;’.

SEC. 7. AMENDMENT TO REVISED STATUTES.

    The 6th sentence of the 7th paragraph of section 5136 of the Revised Statutes of the United States (12 U.S.C. 24) is amended by inserting after ‘Student Loan Marketing Association,’ the following: ‘or obligations or other instruments or securities of the Venture Capital Marketing Association,’.

SEC. 8. EFFECT ON OTHER LAWS.

    Except as otherwise provided by this Act, or as otherwise provided by the Corporation or by the laws hereafter enacted by the Congress expressly in limitations of provisions of this Act, the powers and functions of the Corporation and of the Board of Directors shall be exercisable, and the provisions of this Act shall be applicable and effective, without regard to any other law.

SEC. 9. APPLICABILITY TO STATES, TERRITORIES, AND POSSESSIONS.

    Notwithstanding any other law, this Act and the amendments made by this Act shall be applicable to the several States, the District of Columbia, and Commonwealth of Puerto Rico, and the territories and possessions of the United States.

SEC. 10. AMENDMENT TO TITLE 18.

    Section 1006 of title 18, United States Code, is amended by inserting before ‘or any Small Business Investment Company,’ the following: ‘, the Venture Capital Marketing Association,’.

SEC. 11. EFFECTIVE DATE.

    This Act and the amendments made by this Act shall become effective on the date of the enactment of this Act.