House File 2745 - Introduced



                                   HOUSE FILE       
                                   BY  COMMITTEE ON ECONOMIC GROWTH

                                   (SUCCESSOR TO HSB 597)


    Passed House, Date               Passed Senate,  Date             
    Vote:  Ayes        Nays           Vote:  Ayes        Nays         
                 Approved                            

                                      A BILL FOR

  1 An Act relating to certified capital companies and providing a
  2    certified capital company insurance premium tax credit and
  3    penalties.
  4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
  5 TLSB 5939HV 81
  6 tm/cf/24

PAG LIN



  1  1    Section 1.  NEW SECTION.  15E.401  SHORT TITLE.
  1  2    This division shall be known and may be cited as the "Iowa
  1  3 Seed Growth Fund Act".
  1  4    Sec. 2.  NEW SECTION.  15E.402  DEFINITIONS.
  1  5    As used in this division, unless the context otherwise
  1  6 requires:
  1  7    1.  "Affiliate" means, with respect to a certified
  1  8 investor, any of the following:
  1  9    a.  A person who, directly or indirectly, beneficially
  1 10 owns, whether through rights, options, convertible interests,
  1 11 or otherwise controls or holds power to vote, ten percent or
  1 12 more of the outstanding voting securities or other voting
  1 13 ownership interests of the certified investor.
  1 14    b.  A person, ten percent of whose outstanding voting
  1 15 securities or other voting ownership interests are directly or
  1 16 indirectly beneficially owned, whether through rights,
  1 17 options, convertible interests, or otherwise controlled or
  1 18 held with power to vote by the certified investor.
  1 19    c.  A person directly or indirectly controlling, controlled
  1 20 by, or under common control with the certified investor.
  1 21    d.  A partnership in which the certified investor is a
  1 22 general partner.
  1 23    e.  A person who is an officer, director, or agent of the
  1 24 certified investor or is an immediate family member of such an
  1 25 officer, director, or agent.
  1 26    2.  "Certified capital company" means the Iowa capital
  1 27 investment corporation organized pursuant to section 15E.64.
  1 28    3.  "Certified capital company tax credit" means the tax
  1 29 credit made available under section 15E.412.
  1 30    4.  "Certified capital investment" means an investment in a
  1 31 certified capital company that is certified pursuant to
  1 32 section 15E.404, subsection 2, and that fully funds either the
  1 33 investor's equity interest in a certified capital company or a
  1 34 qualified debt instrument that a certified capital company
  1 35 issues.
  2  1    5.  "Certified investor" means a person who makes a
  2  2 certified capital investment.
  2  3    6.  "Director" means the director of the department or the
  2  4 director's designee.
  2  5    7.  "Investment date" means, with respect to each
  2  6 investment pool, the date on which the last certified capital
  2  7 investment that is part of that investment pool was invested
  2  8 in the certified capital company.
  2  9    8.  "Investment pool" means the aggregate of all certified
  2 10 capital investments in a certified capital company that are
  2 11 made as part of the same transaction, except that investments
  2 12 received more than thirty days apart shall not be considered
  2 13 part of the same investment pool.
  2 14    9.  "Qualified business" means a business which is a
  2 15 qualified business under section 15E.405.
  2 16    10.  "Qualified debt instrument" means a debt instrument
  2 17 that meets all of the following criteria:
  2 18    a.  A certified capital company issues the instrument at
  2 19 par value or at a premium.
  2 20    b.  The instrument has an original maturity date of at
  2 21 least five years from the date on which it was issued.
  2 22    c.  The instrument has a repayment schedule that is no
  2 23 faster than a level principal amortization over five years.
  2 24    d.  The instrument does not contain an equity component or
  2 25 interest, distribution, or payment features which are related
  2 26 to the certified capital company's profitability or the
  2 27 performance of its investment portfolio, whether the component
  2 28 or features are part of or attached to the qualified debt
  2 29 instrument or are distributed or sold separately and purchased
  2 30 or obtained by the holder of the qualified debt instrument or
  2 31 any of its affiliates.
  2 32    11.  "Qualified distribution" means a distribution or
  2 33 payment by a certified capital company for any of the
  2 34 following:
  2 35    a.  The reasonable costs, not to exceed two percent of the
  3  1 capital that may be invested by the certified capital company,
  3  2 of forming, syndicating, or operating the certified capital
  3  3 company, provided that all of the following apply:
  3  4    (1)  No such distribution or payment is made directly or
  3  5 indirectly to a certified investor or an affiliate thereof.
  3  6    (2)  At the time the certified capital company closes an
  3  7 investment pool and after deducting the aggregate of the costs
  3  8 of organizing, forming, syndicating, insuring, and terminating
  3  9 the certified capital company's obligations, the certified
  3 10 capital company has, not including investments from qualified
  3 11 investors, cash or permissible investments equal to at least
  3 12 fifty percent of the amount of certified capital company tax
  3 13 credit allocated to the certified capital company.
  3 14    b.  An annual management fee that does not exceed two and
  3 15 one=half percent of the capital that may be invested by the
  3 16 certified capital company.
  3 17    c.  Reasonable and necessary fees paid for professional
  3 18 services related to the operation of the certified capital
  3 19 company.
  3 20    d.  A projected increase in federal or state taxes,
  3 21 including penalties and interest on those taxes, of the equity
  3 22 owners of the certified capital company if those amounts are
  3 23 related to the certified capital company's ownership,
  3 24 management, or operation.
  3 25    12.  "Qualified investment" means an investment in a
  3 26 qualified business by a certified capital company that meets
  3 27 the requirements under section 15E.406.
  3 28    13.  "Qualified investor" means a person who makes an
  3 29 investment in a certified capital company that is not a
  3 30 certified capital investment and that does not qualify for
  3 31 certified capital company tax credits.  A "qualified investor"
  3 32 shall not be a certified investor.  The department may
  3 33 establish by rule the requirements for a qualified investor.
  3 34    14.  "Targeted business" means a business that is an early=
  3 35 seed=capital stage=of=development business and that meets one
  4  1 or more of the following requirements:
  4  2    a.  Has its principal place of business in an enterprise
  4  3 zone certified pursuant to section 15E.195.
  4  4    b.  Has its principal place of business in an area
  4  5 designated as a revitalization area pursuant to section 404.1.
  4  6    c.  Is a participant in the business resource center
  4  7 program established pursuant to section 15E.21.
  4  8    d.  Has its principal place of business located in an area
  4  9 designated as an economic enterprise area pursuant to section
  4 10 15E.233.
  4 11    e.  Is a participant in a business accelerator program
  4 12 established pursuant to section 15E.351.
  4 13    f.  Is engaged in one or more of the following industries:
  4 14    (1)  Biotechnology.
  4 15    (2)  Advanced manufacturing.
  4 16    (3)  Information technology.
  4 17    g.  Meets other criteria established by the department.
  4 18    Sec. 3.  NEW SECTION.  15E.403  CERTIFICATION OF CERTIFIED
  4 19 CAPITAL COMPANIES.
  4 20    1.  The department shall certify a person as a certified
  4 21 capital company if the department determines that all of the
  4 22 following conditions have been met:
  4 23    a.  The directors, officers, general partners, trustees,
  4 24 managers, members, or persons having a similar function are
  4 25 familiar with the requirements of this division.
  4 26    b.  At least two officers, directors, general partners,
  4 27 trustees, managers, or members each have at least four years
  4 28 of experience in the venture capital industry, or the person
  4 29 retains the services of an investment advisor with expertise
  4 30 in the area of venture capital investment.
  4 31    c.  The person has included, in any offering material
  4 32 involving the sale of securities, the statements required
  4 33 under section 15E.404, subsection 1.
  4 34    d.  The person has not engaged in dishonest or unethical
  4 35 practices as the department may define by rule adopted
  5  1 pursuant to chapter 17A.
  5  2    2.  In order to be certified, the person shall enter into
  5  3 an agreement with the department.  At a minimum, the agreement
  5  4 shall include provisions relating to annual reviews as
  5  5 provided in section 15E.409, subsection 1, and the payment of
  5  6 all returns on investments to the department as provided in
  5  7 section 15E.408, subsection 2.
  5  8    3.  The department shall adopt rules pursuant to chapter
  5  9 17A relating to procedures for defining conflicts of
  5 10 interests.
  5 11    Sec. 4.  NEW SECTION.  15E.404  INVESTMENTS IN CERTIFIED
  5 12 CAPITAL COMPANIES.
  5 13    1.  Any offering material involving the sale of securities
  5 14 of a certified capital company shall include all of the
  5 15 following statements:
  5 16    a.  "By authorizing the formation of a certified capital
  5 17 company, the state does not necessarily endorse the quality of
  5 18 management or the potential for earnings of the company and is
  5 19 not liable for damages or losses to a certified investor in
  5 20 the certified capital company.  Use of the word "certified" in
  5 21 an offering is not a recommendation or endorsement of the
  5 22 investment by the Department of Economic Development."
  5 23    b.  "Investments in a prospective certified capital company
  5 24 prior to the time the company is certified are not eligible
  5 25 for a certified capital company tax credit under section
  5 26 15E.412 of the Iowa Code.  Investments in a certified capital
  5 27 company are not eligible for a certified capital company tax
  5 28 credit under section 15E.412 of the Iowa Code, unless the
  5 29 proposed investment is certified under section 15E.404,
  5 30 subsection 2 of the Iowa Code, before the investment is made.
  5 31 In the event that certain statutory provisions are violated,
  5 32 the state may require forfeiture of unused certified capital
  5 33 company tax credits and repayment of used certified capital
  5 34 company tax credits."
  5 35    2.  Certification of capital investments shall occur
  6  1 according to the following procedure:
  6  2    a.  Application for certification of a capital investment
  6  3 shall be submitted by providing notice to the department on a
  6  4 form prescribed by the department.  The notice shall include
  6  5 the name of the person applying for certification, the name of
  6  6 the certified capital company, the amount of the proposed
  6  7 investment, and any other information specified by the
  6  8 department.  The notice shall also include an undertaking by
  6  9 the person to make the capital investment within five days
  6 10 after the department notifies the person that the capital
  6 11 investment has been certified.
  6 12    b.  The department may certify a capital investment under
  6 13 this subsection only if, after the certification, the
  6 14 department will not have certified a total of more than fifty
  6 15 million dollars in certified capital investments under this
  6 16 subsection.  A certified capital company shall not file
  6 17 applications on behalf of its certified investors to make
  6 18 certified capital investments in excess of the maximum amount
  6 19 of investments that may be certified under this subsection.
  6 20    c.  Prior to the first day of the thirteenth month
  6 21 beginning after the effective date of this Act, the department
  6 22 shall not certify an investment under this subsection if,
  6 23 after the certification, the certified investor, together with
  6 24 all affiliates of the certified investor, would have invested
  6 25 more than fifteen million dollars in certified capital
  6 26 investments.
  6 27    d.  If, as a result of the limitations under paragraph "b"
  6 28 or "c", the department does not certify the full amount
  6 29 requested in applications for certified capital investments
  6 30 submitted under paragraph "a", the department shall allocate
  6 31 the amounts available for certification on a pro rata basis in
  6 32 accordance with this paragraph.  The pro rata allocation for
  6 33 each certified investor shall be the product of both of the
  6 34 following:
  6 35    (1)  A fraction, the numerator of which is the amount of
  7  1 the certified capital company tax credit requested on behalf
  7  2 of the certified investor and the denominator of which is the
  7  3 total amount of all certified capital company tax credits
  7  4 requested on behalf of all certified investors.
  7  5    (2)  The total amount of investments for which certified
  7  6 capital tax credits may be allowed under paragraph "b".
  7  7    3.  Capital investments shall not be certified on behalf of
  7  8 the certified investors of a certified capital company unless
  7  9 the aggregate amount of capital certified on behalf of all of
  7 10 the certified investors of such certified capital company
  7 11 would be at least five million dollars, after giving effect to
  7 12 any allocation required by subsection 2, paragraph "d".  Any
  7 13 capital investments that are not allocated to the certified
  7 14 investors of a certified capital company shall be reallocated
  7 15 to the other capital companies making applications for
  7 16 certified capital investments on the same day in accordance
  7 17 with the provisions of subsection 2, paragraph "d", as if the
  7 18 certified capital company which received no allocation
  7 19 pursuant to this subsection had never submitted applications
  7 20 for certified capital investments.
  7 21    4.  Capital investments shall not be certified on behalf of
  7 22 the certified investors of a certified capital company unless
  7 23 the certified capital company has received irrevocable written
  7 24 commitments from qualified investors stating that such
  7 25 qualified investors will invest amounts with the certified
  7 26 capital company which total at least fifty percent of the
  7 27 amount of capital investment for which the certified capital
  7 28 company receives certification.  Such investments from
  7 29 qualified investors must be received within two years of the
  7 30 date on which the certified capital company receives
  7 31 certification from the department.
  7 32    Sec. 5.  NEW SECTION.  15E.405  QUALIFIED BUSINESSES.
  7 33    1.  A business is a qualified business if the business is
  7 34 in need of venture capital and is unable to obtain sufficient
  7 35 conventional financing.  To demonstrate that the business is
  8  1 unable to obtain sufficient conventional financing, the
  8  2 business shall provide written documentation in a format
  8  3 approved by the department that the business has failed in at
  8  4 least two attempts in the preceding twelve months to obtain
  8  5 funding for a loan from a bank or other commercial lender with
  8  6 sufficient lending capacity.  The amount of the loans the
  8  7 business attempted to obtain must have been not greater than
  8  8 the amount of funding the business proposes to receive from a
  8  9 certified capital company.  The business shall further certify
  8 10 in writing that the business cannot reasonably be expected to
  8 11 qualify for financing from a bank or other commercial lender
  8 12 under the standards of commercial lending.  In addition, the
  8 13 business shall meet all of the following requirements at the
  8 14 time that a certified capital company, or any affiliate of the
  8 15 certified capital company, makes its first investment in the
  8 16 business:
  8 17    a.  The business is headquartered in this state and its
  8 18 principal business operations are located in this state.
  8 19    b.  The business has no more than one hundred employees, at
  8 20 least seventy=five percent of whom are employed in the state.
  8 21    c.  During the two most recent fiscal years of the
  8 22 business, the business had, together with all of the
  8 23 affiliates of the business, an average annual net income,
  8 24 after federal income taxes and excluding any carryover losses,
  8 25 of not more than five million dollars as determined in
  8 26 accordance with generally accepted accounting principles.
  8 27    d.  The business has, together with the affiliates of the
  8 28 business, a net worth that is not in excess of fifteen million
  8 29 dollars.
  8 30    e.  The business is not predominately engaged in the
  8 31 provision of professional services provided by accountants,
  8 32 attorneys, or physicians.
  8 33    f.  The business is not engaged in the development of real
  8 34 estate for resale.
  8 35    g.  The business is not engaged in banking or lending and
  9  1 does not make any loans to, or investments in, certified
  9  2 capital companies.
  9  3    h.  The business is predominantly engaged in any of the
  9  4 following:
  9  5    (1)  Manufacturing, processing, or assembling products.
  9  6    (2)  Conducting research and development.
  9  7    (3)  Providing services.
  9  8    i.  It is the intent of the business to provide long=term
  9  9 attractive compensation packages with many of the compensation
  9 10 packages for owners and employees to be risk and venture=based
  9 11 with a focus on future returns.
  9 12    j.  The business intends to retain its operations and
  9 13 employees in the state after receipt of investments from a
  9 14 certified capital company.  In any agreement for moneys from
  9 15 the certified capital company, the certified capital company
  9 16 shall require the recapture or repayment of moneys if the
  9 17 business moves its operations and employees out of the state
  9 18 after receipt of the moneys.
  9 19    2.  A certified capital company may, prior to making an
  9 20 investment in a specified business, request a written opinion
  9 21 from the department that a business in which it proposes to
  9 22 invest is a qualified business.  If the department determines
  9 23 that the business meets the requirements under subsection 1,
  9 24 the department shall issue a written opinion stating that the
  9 25 business is a qualified business.  If the department
  9 26 determines that the business in which the certified capital
  9 27 company proposes to invest does not meet the requirements
  9 28 under subsection 1, paragraphs "a" through "j", the department
  9 29 may consider the business a qualified business and approve the
  9 30 investment if the department determines that the proposed
  9 31 investment will further economic development in this state.
  9 32    3.  Upon approval by the department, any business which is
  9 33 classified as a qualified business at the time of the first
  9 34 investment in the business by a certified capital company
  9 35 shall remain classified as a qualified business and may
 10  1 receive follow=on investments from any certified capital
 10  2 company or any of its affiliates, and the follow=on
 10  3 investments shall be qualified investments even though the
 10  4 business does not meet the definition of a qualified business
 10  5 at the time of such follow=on investments, provided that at
 10  6 the time of the follow=on investment the business provides
 10  7 written documentation in a format approved by the department
 10  8 that the business has failed in at least two attempts in the
 10  9 preceding twelve months to obtain funding for a loan from a
 10 10 bank or other commercial lender with sufficient lending
 10 11 capacity.  The amount of the loans the business attempted to
 10 12 obtain must have been not greater than the amount of the
 10 13 follow=on investments.  The business shall further certify in
 10 14 writing that the business cannot reasonably be expected to
 10 15 qualify for financing from a bank or other commercial lender
 10 16 under the standards of commercial lending.
 10 17    Sec. 6.  NEW SECTION.  15E.406  OPERATION OF CERTIFIED
 10 18 CAPITAL COMPANIES.
 10 19    1.  In order for a certified capital company to prevent
 10 20 disqualification of an investment pool under section 15E.409,
 10 21 the certified capital company shall ensure that the investment
 10 22 pool makes qualified investments in accordance with the
 10 23 schedule under subsection 2.  An investment is a qualified
 10 24 investment if the investment meets all of the following
 10 25 requirements:
 10 26    a.  The investment is a cash investment in a qualified
 10 27 business for the purchase of any of the following:
 10 28    (1)  An equity security of the qualified business.
 10 29    (2)  A debt security of the qualified business if the debt
 10 30 has a maturity of at least five years and if one of the
 10 31 following conditions is met:
 10 32    (a)  The debt is unsecured.
 10 33    (b)  The debt is convertible into equity securities or
 10 34 equity participation instruments such as options or warrants.
 10 35    b.  As a condition of the investment, the qualified
 11  1 business agrees not to use the proceeds from the investment
 11  2 for the purpose of relocating its operations.
 11  3    c.  As a condition of the investment, the qualified
 11  4 business agrees, as long as the certified capital company
 11  5 continues to hold the investment, not to relocate its
 11  6 headquarters out of this state.
 11  7    d.  As a condition of the investment, the qualified
 11  8 business agrees, as long as the certified capital company
 11  9 continues to hold the investment, to maintain at least
 11 10 seventy=five percent of its employees in this state.
 11 11    e.  As a condition of the investment, the qualified
 11 12 business agrees, as long as the certified capital company
 11 13 continues to hold the investment, to maintain at least
 11 14 seventy=five percent of its employees at work sites that were
 11 15 maintained by the qualified business at the time that the
 11 16 investment was made, unless the qualified business obtains an
 11 17 exemption from the department under this paragraph.
 11 18    f.  As an alternative to a qualified business making the
 11 19 agreements set forth in paragraphs "c", "d", and "e", a
 11 20 certified capital company making the investment may agree that
 11 21 if, during the period in which its investment in such
 11 22 qualified business is outstanding or within three months after
 11 23 the termination or repayment of such investment, the qualified
 11 24 business relocates its headquarters outside of this state or
 11 25 fails to continue to satisfy the conditions set forth in
 11 26 paragraph "d" or "e", then the cumulative amount of qualified
 11 27 investments for the investment pool from which such qualified
 11 28 investments were made shall be reduced by the amount of the
 11 29 qualified investment in such business for the purposes of
 11 30 section 15E.408 only, unless either of the following apply:
 11 31    (1)  The certified capital company invests an amount, at
 11 32 least equal to the investment within six months of the
 11 33 relocation or failure to satisfy the conditions set forth in
 11 34 paragraph "d" or "e", as applicable.
 11 35    (2)  The qualified business demonstrates that it has
 12  1 returned its headquarters to this state or has reestablished
 12  2 compliance with the conditions set forth in paragraph "d" or
 12  3 "e", as applicable, within three months of such relocation or
 12  4 failure, as applicable.
 12  5    2.  a.  A certified capital company shall ensure that each
 12  6 of its investment pools makes qualified investments within ten
 12  7 years after the investment date for a particular investment
 12  8 pool, and that the certified capital company has made
 12  9 qualified investments cumulatively equal to at least one
 12 10 hundred percent of the investment pool with at least forty
 12 11 percent of such qualified investments having been made in
 12 12 targeted businesses.
 12 13    b.  The proceeds of all capital of a qualified investment
 12 14 returned to a certified capital company by a qualified
 12 15 business may be placed in new qualified investments, which
 12 16 shall count toward the percentage requirements under paragraph
 12 17 "a" and section 15E.408, subsection 2.  The department shall
 12 18 adopt rules that provide that proceeds from the sale of an
 12 19 investment in a qualified business that are reinvested in that
 12 20 qualified business, or an affiliate of the qualified business,
 12 21 shall be only partially counted toward the percentage
 12 22 requirements under paragraph "a", section 15E.408, subsection
 12 23 2, and section 15E.409, subsection 4, paragraph "a",
 12 24 subparagraph (2).
 12 25    3.  All certified capital investments in a certified
 12 26 capital company that are not invested in qualified investments
 12 27 may be held or invested by the certified capital company as it
 12 28 considers appropriate, except that a certified capital company
 12 29 shall not invest certified capital investments in an insurance
 12 30 company or in an affiliate of an insurance company.
 12 31    4.  A certified capital company shall not make a qualified
 12 32 investment in a person if, at the time of the investment, more
 12 33 than fifteen percent of the total certified capital of the
 12 34 certified capital company would be invested in that person and
 12 35 affiliates of that person.
 13  1    5.  A certified capital company shall not be managed or
 13  2 controlled by, or have a general partner that is, an insurance
 13  3 company or an affiliate of an insurance company.
 13  4    Sec. 7.  NEW SECTION.  15E.407  REPORTING REQUIREMENTS AND
 13  5 FEES.
 13  6    1.  As soon as practical after the receipt of a certified
 13  7 capital investment, a certified capital company shall report
 13  8 all of the following to the department:
 13  9    a.  The name of the certified investor from which the
 13 10 certified capital investment was received, including the
 13 11 certified investor's tax identification number.
 13 12    b.  The amount of the certified capital investment.
 13 13    c.  The date on which the certified capital investment was
 13 14 received by the certified capital company.
 13 15    2.  As soon as practical after the receipt of information
 13 16 by the certified capital company that a qualified business has
 13 17 violated an agreement made under section 15E.406, subsection
 13 18 1, paragraphs "b" through "e", the certified capital company
 13 19 shall notify the department of the violation and the facts
 13 20 giving rise to the violation.
 13 21    3.  On or before January 31 each year, a certified capital
 13 22 company shall report all of the following to the department:
 13 23    a.  The amount of the certified capital company's certified
 13 24 capital at the end of the preceding calendar year.
 13 25    b.  Whether the certified capital company has invested more
 13 26 than fifteen percent of its total certified capital in any one
 13 27 person.
 13 28    c.  All qualified investments that the certified capital
 13 29 company has made during the previous calendar year and the
 13 30 investment pool from which each qualified investment was made.
 13 31    4.  Within ninety days of the end of the certified capital
 13 32 company's fiscal year, the certified capital company shall
 13 33 provide to the department a copy of its annual audited
 13 34 financial statements, including the opinion of an independent
 13 35 certified public accountant.  The audit shall address the
 14  1 methods of operation and conduct of the business of the
 14  2 certified capital company to determine whether the certified
 14  3 capital company is complying with this division and the rules
 14  4 adopted pursuant to this division, including whether certified
 14  5 capital investments have been invested in the manner required
 14  6 under section 15E.406.  The financial statements provided
 14  7 under this subsection shall be segregated by investment pool
 14  8 and shall be separately audited on that basis to allow the
 14  9 department to determine whether the certified capital company
 14 10 is in compliance with section 15E.406, subsection 2.
 14 11    5.  On or before January 31 of each year, a certified
 14 12 capital company shall pay a nonrefundable certification fee of
 14 13 five thousand dollars to the department, unless January 31 is
 14 14 within six months of the date on which the certified capital
 14 15 company was certified under section 15E.403.  If a certified
 14 16 capital company fails to pay its certification fee on or
 14 17 before that date, the company must pay, in addition to the
 14 18 certification fee, a late fee of five thousand dollars to
 14 19 continue its certification.
 14 20    6.  If the department determines that a document submitted
 14 21 by a certified capital company under this section contains a
 14 22 trade secret as defined in section 550.2, the information
 14 23 shall be treated as a confidential trade secret not subject to
 14 24 release under section 22.7.
 14 25    7.  The department may impose an administrative penalty on
 14 26 a certified capital company that violates this division.  The
 14 27 amount of the penalty shall not exceed twenty=five thousand
 14 28 dollars, and each day a violation continues or occurs is a
 14 29 separate violation for the purpose of imposing a penalty.  The
 14 30 amount of the penalty shall be based on all of the following:
 14 31    a.  The seriousness of the violation, including the nature,
 14 32 circumstances, extent, and gravity of the violation.
 14 33    b.  The economic harm caused by the violation.
 14 34    c.  The history of previous violations.
 14 35    d.  The amount necessary to deter a future violation.
 15  1    e.  Efforts to correct the violation.
 15  2    f.  Any other matter that justice may require.
 15  3    A proceeding to impose the penalty is considered to be a
 15  4 contested case proceeding under chapter 17A.
 15  5    Sec. 8.  NEW SECTION.  15E.408  DISTRIBUTIONS.
 15  6    1.  A certified capital company may make a distribution or
 15  7 payment only if one of the following conditions is met:
 15  8    a.  The distribution or payment is a qualified
 15  9 distribution.
 15 10    b.  The department made a written determination that the
 15 11 distribution or payment may be made without adversely
 15 12 affecting the ability of the certified capital company to make
 15 13 qualified investments in an amount cumulatively equal in the
 15 14 aggregate to one hundred percent of the certified capital
 15 15 investment in the investment pool from which the distribution
 15 16 or payment is to be made.
 15 17    c.  The certified capital company has made qualified
 15 18 investments in an amount cumulatively equal in the aggregate
 15 19 to one hundred percent of the certified capital investments in
 15 20 the investment pool and has made investments in targeted
 15 21 businesses equal in the aggregate to at least forty percent of
 15 22 the certified capital investments in the investment pool.
 15 23    d.  The distribution or payment is payment of principal or
 15 24 interest owed to a debt holder of a certified capital company,
 15 25 even if the debt holder is also a holder of equity and even if
 15 26 the indebtedness is a certified capital investment.
 15 27    2.  At the time of making such a distribution after
 15 28 satisfying the requirements of subsection 1, the certified
 15 29 capital company shall pay to the department an amount equal to
 15 30 one hundred percent of the return on investment on the
 15 31 certified investment capital invested in the certified capital
 15 32 company.
 15 33    Sec. 9.  NEW SECTION.  15E.409  COMPLIANCE REVIEWS ==
 15 34 DECERTIFICATION == DISQUALIFICATION.
 15 35    1.  The department shall conduct an annual review of each
 16  1 certified capital company to determine if the certified
 16  2 capital company is complying with the requirements of this
 16  3 division, to advise the certified capital company regarding
 16  4 the status of its investments as qualified investments, and to
 16  5 ensure that an investment has not been made in violation of
 16  6 this division.  The cost of the annual review shall be paid by
 16  7 each certified capital company according to a reasonable fee
 16  8 schedule adopted by the department.
 16  9    2.  Any material violation of section 15E.406, subsection
 16 10 2, is a ground for disqualification of the noncomplying
 16 11 investment pool.  If the department determines that the
 16 12 certified capital company is not in compliance with section
 16 13 15E.406, subsection 2, with respect to an investment pool, the
 16 14 department shall send a written notice to the certified
 16 15 capital company and the department of revenue stating that the
 16 16 investment pool has been disqualified.
 16 17    3.  Any material violation of section 15E.406, subsections
 16 18 2 through 4, or section 15E.407, subsections 1 through 4, is a
 16 19 ground for decertification of the noncomplying certified
 16 20 capital company.  If the department determines that the
 16 21 certified capital company is not in compliance with section
 16 22 15E.406, subsections 2 through 4, or section 15E.407,
 16 23 subsections 1 through 4, the department shall send a written
 16 24 notice to the certified capital company that the certified
 16 25 capital company may be subject to decertification in one
 16 26 hundred twenty days from the date on which the notice was
 16 27 mailed, unless the certified capital company brings itself
 16 28 into full compliance.  If at the end of the one=hundred=
 16 29 twenty=day period the certified capital company has not
 16 30 brought itself into full compliance, the department shall send
 16 31 a notice to the certified capital company and the commissioner
 16 32 of insurance stating that the certified capital company has
 16 33 been decertified.
 16 34    4.  a.  A certified capital company may voluntarily
 16 35 decertify itself as a certified capital company if any of the
 17  1 following conditions are met:
 17  2    (1)  It has been at least ten years since the last
 17  3 certified capital investment was made in the certified capital
 17  4 company.
 17  5    (2)  The certified capital company has made qualified
 17  6 investments in an amount cumulatively equal to at least one
 17  7 hundred percent of the certified capital investment in the
 17  8 certified capital company.
 17  9    b.  A certified capital company wishing to decertify itself
 17 10 under this subsection shall send a notice to the department
 17 11 certifying that the certified capital company is eligible for
 17 12 decertification under paragraph "a".  The decertification is
 17 13 effective on the date that the notice under this paragraph is
 17 14 received by the department.
 17 15    5.  Approval by the department of a voluntary
 17 16 decertification of a certified capital company shall be
 17 17 required prior to the voluntary decertification if the
 17 18 decertification occurs within five years from the date the
 17 19 certified capital company was originally certified.
 17 20    6.  Decertification of a certified capital company or
 17 21 disqualification of an investment pool has the effects
 17 22 specified in section 15E.412.
 17 23    7.  The department shall notify a certified investor when
 17 24 the certified capital company tax credit arising from a
 17 25 certified investment is no longer subject to recapture and
 17 26 forfeiture under section 15E.412.
 17 27    Sec. 10.  NEW SECTION.  15E.410  DEPARTMENT EVALUATION OF
 17 28 THE PROGRAM.
 17 29    Beginning on January 31, 2008, and on every January 31 of
 17 30 each even=numbered year thereafter, the department shall
 17 31 submit a report to the general assembly regarding the program
 17 32 under this division.  The report shall include all of the
 17 33 following:
 17 34    1.  The total amount of certified capital investments made
 17 35 during the previous two calendar years, as well as the total
 18  1 amount of certified capital investments made since July 1,
 18  2 2006.
 18  3    2.  Statistical information on the qualified investments
 18  4 made by certified capital companies during the previous two
 18  5 calendar years.
 18  6    3.  The department's assessment of the number of jobs
 18  7 created in this state during the previous two calendar years
 18  8 as a result of the certified capital company program under
 18  9 this division.
 18 10    Sec. 11.  NEW SECTION.  15E.411  RULES.
 18 11    The department shall adopt rules pursuant to chapter 17A
 18 12 necessary to administer this division.
 18 13    Sec. 12.  NEW SECTION.  15E.412  CERTIFIED CAPITAL COMPANY
 18 14 INSURANCE PREMIUM TAX CREDIT.
 18 15    1.  A certified investor which is an insurance company
 18 16 organized under the laws of this state or admitted to do
 18 17 business in this state shall earn, two years after it makes a
 18 18 certified capital investment, a vested tax credit against the
 18 19 insurance premium tax liability of the certified investor
 18 20 under chapter 432, or similar taxes, equal to one hundred
 18 21 percent of the certified investor's certified capital
 18 22 investment.  A certified investor shall be entitled to claim
 18 23 up to ten percent of the vested premium tax credit in any
 18 24 taxable year of the certified investor.  The credit to be
 18 25 applied against a certified investor's premium tax liability
 18 26 in any one year shall not exceed such certified investor's
 18 27 premium tax liability for such taxable year.  Any credit in
 18 28 excess of the tax liability for a taxable year may be credited
 18 29 to the tax liability for succeeding taxable years until
 18 30 depleted.
 18 31    2.  If a certified capital company is decertified, or an
 18 32 investment pool is disqualified, under section 15E.409, before
 18 33 the certified capital company fulfills the investment
 18 34 requirement under section 15E.406, subsection 2, paragraph
 18 35 "a", subparagraph (1), with respect to the investment pool, a
 19  1 certified investor that has received a tax credit under this
 19  2 section shall be subject to a recapture tax equal to the tax
 19  3 credit claimed with respect to the investment pool.  A
 19  4 certified investor shall not claim any remaining tax credits
 19  5 with respect to that investment pool.
 19  6    3.  If a certified capital company fulfills the investment
 19  7 requirement under section 15E.406, subsection 2, paragraph
 19  8 "a", subparagraph (1), with respect to the investment pool but
 19  9 the certified capital company is decertified, or an investment
 19 10 pool is disqualified under section 15E.409, before the
 19 11 certified capital company fulfills the investment requirement
 19 12 under section 15E.406, subsection 2, paragraph "a",
 19 13 subparagraph (2), for that investment pool, a certified
 19 14 investor that has received a tax credit under this section
 19 15 with respect to that investment pool shall be subject to a
 19 16 recapture tax equivalent to all tax credits claimed under this
 19 17 section for taxable years after the taxable year that includes
 19 18 the second anniversary of the investment date of the
 19 19 investment pool.  A certified investor shall not claim any
 19 20 remaining tax credits for taxable years after the taxable year
 19 21 that includes the second anniversary of the investment date of
 19 22 the investment pool.
 19 23    4.  If a certified capital company fulfills the investment
 19 24 requirement under section 15E.406, subsection 2, paragraph
 19 25 "a", subparagraphs (1) and (2), with respect to the investment
 19 26 pool but the certified capital company is decertified, or an
 19 27 investment pool is disqualified under section 15E.409, before
 19 28 the certified capital company fulfills the investment
 19 29 requirement under section 15E.406, subsection 2, paragraph
 19 30 "a", subparagraph (3), for that investment pool, a certified
 19 31 investor that has received a tax credit under this section
 19 32 with respect to that investment pool shall be subject to a
 19 33 recapture tax equivalent to all tax credits claimed under this
 19 34 section for taxable years after the taxable year that includes
 19 35 the third anniversary of the investment date of the investment
 20  1 pool.  A certified investor shall not claim any remaining tax
 20  2 credits for taxable years after the taxable year that includes
 20  3 the third anniversary of the investment date of the investment
 20  4 pool.
 20  5    5.  If a certified capital company satisfies the investment
 20  6 requirements under section 15E.406, subsection 2, paragraph
 20  7 "a", with respect to the investment pool, but the certified
 20  8 capital company is decertified, a certified investor that has
 20  9 received a tax credit under this section with respect to that
 20 10 investment pool shall not be subject to a recapture tax with
 20 11 respect to the tax credits previously utilized or forfeit any
 20 12 unused credits, provided that such decertification did not
 20 13 occur prior to the fourth anniversary of the investment date
 20 14 of the investment pool.  If the decertification did occur
 20 15 prior to the fourth anniversary of the investment date of the
 20 16 investment pool, all tax credits claimed or to be claimed
 20 17 prior to such anniversary shall not be subject to recapture or
 20 18 forfeiture, but all credits to be taken after such anniversary
 20 19 shall be forfeited.
 20 20    6.  A certified investor may sell a certified capital
 20 21 company tax credit to another insurance company organized
 20 22 under the laws of this state or admitted to do business in
 20 23 this state if the certified investor notifies the department
 20 24 of revenue of the sale and includes with the notification a
 20 25 copy of the transfer documents.
 20 26    7.  Once a certified capital company has voluntarily
 20 27 decertified all investment pools under its control, the
 20 28 certified capital company shall not be subject to regulation
 20 29 by the department.  However, after a certified capital company
 20 30 has voluntarily decertified, the department shall continue to
 20 31 monitor any qualified business which received an investment
 20 32 from the decertified certified capital company and make an
 20 33 annual report to the general assembly by January 31 of each
 20 34 year regarding the monitoring of qualified businesses.  The
 20 35 report shall include the number of jobs created by the
 21  1 qualified business, the average wage of the jobs in that
 21  2 qualified business, and other useful information as deemed
 21  3 appropriate by the department which would illustrate the
 21  4 impact the business has on the economy of the state.  The
 21  5 department shall continue to monitor and report to the general
 21  6 assembly on the qualified business until all tax credits have
 21  7 been claimed by the certified investors of that decertified
 21  8 certified capital company or ten years have elapsed from the
 21  9 date the decertified certified capital company was certified,
 21 10 whichever is longer.
 21 11                           EXPLANATION
 21 12    This bill relates to certified capital companies and
 21 13 provides a certified capital company insurance premium tax
 21 14 credit and penalties.
 21 15    The bill provides that the department of economic
 21 16 development shall certify the Iowa capital investment
 21 17 corporation organized pursuant to Code section 15E.64 as a
 21 18 certified capital company provided certain conditions are met.
 21 19 The bill provides that, upon certification, the certified
 21 20 capital company shall enter into an agreement with the
 21 21 department which, at a minimum, shall include provisions
 21 22 relating to annual reviews and the payment of all returns on
 21 23 investments to the department.
 21 24    The bill provides a procedure for certifying capital
 21 25 investments in a certified capital company.  The bill
 21 26 prohibits the department from certifying more than $50 million
 21 27 in certified investments in a certified capital company.  The
 21 28 bill provides that, prior to the first day of the thirteenth
 21 29 month beginning after the effective date of the bill, the
 21 30 department shall not certify an investment if, after
 21 31 certification, the certified investor would have invested more
 21 32 than $15 million in certified capital investments.  The bill
 21 33 prohibits capital investments from being certified unless the
 21 34 aggregate amount of capital certified on behalf of all of the
 21 35 certified investors of the certified capital company would be
 22  1 at least $5 million.  The bill prohibits capital investments
 22  2 from being certified unless the certified capital company has
 22  3 received irrevocable written commitments from qualified
 22  4 investors stating that such qualified investors will invest
 22  5 amounts with the certified capital company which total at
 22  6 least 50 percent of the amount of capital investment for which
 22  7 the certified capital company receives certification.
 22  8    The bill provides that a business is a qualified business
 22  9 if the business is in need of venture capital, is unable to
 22 10 obtain sufficient conventional financing, and meets certain
 22 11 other criteria.  The bill allows a certified capital company
 22 12 to request a written opinion from the department to determine
 22 13 whether a specified business is a qualified business.  The
 22 14 bill provides that, upon approval by the department, any
 22 15 business which is classified as a qualified business at the
 22 16 time of the first investment in the business shall remain
 22 17 classified as a qualified business and may receive follow=on
 22 18 investments from a certified capital company and the follow=on
 22 19 investments shall be qualified investments even though the
 22 20 business does not meet the definition of a qualified business
 22 21 at the time of such follow=on investments, provided certain
 22 22 criteria are met.
 22 23    The bill provides that an investment is a qualified
 22 24 investment if the investment is a certain type of cash
 22 25 investment, the qualified business agrees not to use the
 22 26 proceeds for the purpose of relocating operations, the
 22 27 qualified business agrees not to relocate its headquarters out
 22 28 of this state as long as the certified capital company
 22 29 continues to hold the investment, the qualified business
 22 30 agrees to maintain at least 75 percent of its employees in
 22 31 this state as long as the certified capital company continues
 22 32 to hold the investment, and the qualified business agrees to
 22 33 maintain at least 75 percent of its employees at work sites
 22 34 that were maintained by the qualified business at the time the
 22 35 investment was made unless the business receives an exemption
 23  1 as long as the certified capital company continues to hold the
 23  2 investment.  The bill allows some alternatives to some of the
 23  3 qualifications for a qualified investment.
 23  4    The bill provides that a certified capital company shall
 23  5 ensure that each of its investment pools makes qualified
 23  6 investments within 10 years after the investment date for a
 23  7 particular investment pool and that the certified capital
 23  8 company has made qualified investments cumulatively equal to
 23  9 at least 100 percent of the investment pool with at least 40
 23 10 percent of such qualified investments having been made in
 23 11 targeted businesses.  The bill allows proceeds of qualified
 23 12 investments returned to a certified capital company by a
 23 13 qualified business to be placed in new qualified investments.
 23 14 The bill allows certified capital investments that are not
 23 15 invested in qualified investments to be held or invested by
 23 16 the certified capital company as it considers appropriate,
 23 17 except that investments in an insurance company are
 23 18 prohibited.  The bill prohibits a certified capital company
 23 19 from making a qualified investment in a person if, at the time
 23 20 of investment, more than 15 percent of the total certified
 23 21 capital of the certified capital company would be invested in
 23 22 that person.  The bill prohibits a certified capital company
 23 23 from being managed or controlled by, or having a general
 23 24 partner that is, an insurance company.
 23 25    The bill creates reporting requirements for a certified
 23 26 capital company upon the receipt of a certified capital
 23 27 investment and upon the violation of an agreement by a
 23 28 qualified business.  The bill provides annual reporting
 23 29 requirements for certified capital companies.  The bill
 23 30 requires a certified capital company to pay an annual
 23 31 nonrefundable certification fee of $5,000 to the department.
 23 32 The bill allows the department to impose administrative
 23 33 penalties on certified capital companies not to exceed
 23 34 $25,000.
 23 35    The bill provides that a certified capital company may make
 24  1 distributions or payments only if certain criteria are met.
 24  2    The bill requires the department to conduct annual
 24  3 compliance reviews of certified capital companies.  The bill
 24  4 allows certain violations to be grounds for disqualification
 24  5 of noncomplying investment pools.  The bill allows certain
 24  6 violations to be grounds for decertification of noncomplying
 24  7 certified capital companies.  The bill allows a certified
 24  8 capital company to voluntarily decertify if certain criteria
 24  9 are met and the department approves the voluntary
 24 10 decertification.
 24 11    The bill requires the department to conduct a review of the
 24 12 program every two years beginning January 31, 2008, for
 24 13 submission to the general assembly.
 24 14    The bill provides that a certified investor which is an
 24 15 insurance company shall earn, two years after it makes a
 24 16 certified investment, a vested tax credit against the
 24 17 insurance premium tax liability of the certified investor.
 24 18 The bill provides that the tax credit shall be equal to 10
 24 19 percent of the vested premium tax credit in any taxable year
 24 20 of the certified investor.  The bill allows for a recapture
 24 21 tax in the event of a certified capital company being
 24 22 decertified or an investment pool being disqualified.  The
 24 23 bill allows a certified investor to sell a tax credit to
 24 24 another insurance company if the certified investor notifies
 24 25 the department of revenue of the sale.
 24 26 LSB 5939HV 81
 24 27 tm:rj/cf/24