8 Colo. Code Regs. § 1501-2
STATEMENT OF BASIS AND STATUTORY AUTHORITY
These rules implement the Certified Capital Companies' Program pursuant to 10-3.5-101 through 10-3.5-110, 24-48.5-106 and 10-1-103, C.R.S. This program was created by the Colorado State Legislature with the primary purpose being to provide assistance in the formation of new businesses and the expansion of existing businesses that create jobs in the state by providing an incentive for insurance companies to invest in Certified Capital Companies. The Certified Capital Companies will then invest the funds in Colorado Businesses.
Insurance companies will invest cash in Certified Capital Companies, which are for-profit companies, which have received certification from the Colorado Office of Economic Development to do business under this program. The Certified Capital Companies will then invest in certain types of Colorado Businesses utilizing the cash they received from the insurance companies to make these investments. Although the Colorado Statute and this regulation direct the Certified Capital Companies' investment to certain types of Colorado Businesses, the Certified Capital Companies will retain a large amount of flexibility in the decision making process in terms of which businesses receive investment funding from this program. Once a business is determined to be generally eligible under the Statute and this regulation, the Certified Capital Companies have final decision making authority as to whether to invest in such business. A Certified Capital Company may not make any investments in Colorado Businesses, using funds from this program, until it has received its certification from the Colorado Office of Economic Development and until investing insurance companies have received vested Premium Tax Credit Allocations in exchange for their cash investment in the Certified Capital Company.
In exchange for the insurance companies' cash investment in Certified Capital Companies, this program authorizes the Allocation of Premium Tax Credits to insurance companies as an incentive for insurance companies to invest in Certified Capital Companies. The legislature authorized a Premium Tax Credit Allocation Pool of $100 million for this program. Additionally, the Statute further divided the Pool into a $25 million Rural Pool and a $75 million Statewide Pool. The $25 million Rural Pool shall be available for investment in Designated Rural Counties in Colorado. The $75 million Statewide Pool shall be available for investment statewide throughout Colorado. The Colorado Office of Economic Development has fully allocated all of the premium tax credits for the Program as of April 15, 2002.
PURPOSE OF REGULATION
This regulation implements the Certified Capital Companies' Program pursuant to 10-3.5-101 through 10-3.5-110, 24-48.5-106 and 10-1-103, C.R.S. in which the Statute requires that the Colorado Office of Economic Development promulgate such regulation. This regulation clarifies certain definitions and provides for new definitions as needed. It describes the requirements for maintaining its status as a Certified Capital Company and the process for decertification for failure to comply with certain legislative requirements. It provides a fine schedule for certain non-compliance issues. This regulation provides requirements for the insurance company's cash investment in a Certified Capital Company. It provides for technical corrections and amendments to statutes. It describes the Premium Tax Credit Allocation Process, the methods for claiming Premium Tax Credits, and the process for transferring or selling
Premium Tax Credits. It details the Distributions Review, which describes a method for calculating the internal rate of return or the 15% calculations pursuant to 103-3.5-108, C.R.S., to be conducted by the Colorado Office of Economic Development and the required reports Certified Capital Companies must file with the Colorado Office of Economic Development.
By promulgating this regulation, the Colorado Office of Economic Development will increase public access to information, public participation in the formulation of administrative policy and procedures, and increase public accountability of the Colorado Office of Economic Development.
DEFINITIONS 10-3.5-103, C.R.S.
The following language provides definitions for terms provided under 10-3.5-101 through 10-3.5-110, 24-48.5-106 and 10-1-103, C.R.S. that were utilized in the Statute for this program and provides new definitions, both of which are necessary for the implementation of the CAPCOs' Program by the Colorado Office of Economic Development. The following words and terms shall have the meanings provided herein, unless the context clearly indicates otherwise.
"Applicant" means one who applies to be a Certified Capital Company. Applicant can also mean proposed Certified Capital Company. If the Office approves Applicant's request, then the Applicant's status shall change to a Certified Capital Company.
"Business Day" is defined the same as a working day.
"CAPCO" is a Colorado Certified Capital Company certified pursuant to the Certified Capital Companies' Program, 10-3.5-101 through 10-3.5-110, 24-48.5-106 and 10-1-103, C.R.S, and specifically pursuant to the definition provided at 10-3.5-103(4), C.R.S.
"Capitalization" shall be relevant for the purposes of initial certification pursuant to 10-3.5.-104(2)(c), C.R.S. A CAPCO shall utilize Generally Accepted Accounting Principles ("GAAP") in recording Equity Capitalization of the CAPCO. At the time of certification, a CAPCO shall have Equity Capitalization of non-Certified Equity Capital in the amount of $500,000. CAPCOs shall maintain separate and independent records for their non-Certified Equity Capitalization as well as separate and independent records for each Specific Pool of Certified Capital (for example, the Rural Pool and the Statewide Pool as applicable to each CAPCO). Equity Capitalization used in CAPCO Distribution language of this article shall be considered Equity Capitalization from any source at any time.
"ColoradoBusiness(es)" are eligible for funding from this program if they meet the eligibility requirements stated under the definition of "Qualified Business" and/or "Qualified Rural Business" under this program's Statute and this regulation.
"ColoradoEconomic Development Commission" ("EDC") was legislatively created in 1987, pursuant to 24-46-102, C.R.S. as amended, to encourage, promote and stimulate economic development in Colorado.
"Day" means a calendar day as in seven days in a week.
"DesignatedRural County" means any county, but not any city and county, in this state that, as of the effective date of this article, has a population of not more than one hundred fifty thousand people and, if the county's population exceeds twenty thousand people, that has a growth rate that does not exceed the statewide average for the period 1990-2000 by more than twenty-five percent as defined in the two most recent decennial censuses.
County | 1990 Population | 2000 Population | Growth Rate |
Eagle | 21,928 | 41,659 | 90.0% |
Fremont | 32,273 | 46,145 | 43.0% |
Garfield | 29,974 | 43,791 | 46.1% |
Summit | 12,881 | 23,548 | 82.8% |
Teller | 12,468 | 20,555 | 64.9% |
County" for the purposes of this program until the 2010 decennial census is issued. At that time, all "Designated Rural Counties" shall be reviewed by the Office and an amendment to the rule shall be published if the "Designated Rural Counties" change based on the Office's review at that time.
"Director" means the Director of the Colorado Office of Economic Development.
"Distressed Urban Community" means any county or portion of a county in this state as defined by the Office.
"Distributions" has the meaning as outlined in the Statute and this regulation, except for the purposes of the internal rate of return calculations or the 15% calculations pursuant to 10-3.5-108, C.R.S. where "Distributions" shall have the meaning specifically defined within this regulation where internal rate of return calculations or the 15% calculations are described.
"Distributions Review" means the internal rate of return calculation or the 15% calculations, which the Office shall complete pursuant to 10-3.5-108, C.R.S. and which review shall be completed on an ongoing basis and as part of the Annual Review, if needed, pursuant to 103-3.5-109, C.R.S.
"Full-time Equivalent" means an individual who generally works 2080 hours per calendar year.
"Generally Accepted Accounting Principles" ("GAAP") means conventions, rules, and procedures that define accepted accounting practice, including broad guidelines as well as detailed procedures. The basic doctrine was set forth by the Accounting Principles Board of the American Institute of Certified Public Accountants, which was superseded in 1973 by the Financial Accounting Standards Board ("FASB"), an independent self-regulatory organization. GAAP shall be utilized by CAPCO's in all instances unless an alternative treatment is specified in a specific situation and fully explained in writing by the Independent Certified Public Accountant.
"Headquarters or Headquartered for a CAPCO" means the chief place of business from which policies are made and orders are issued.
Each CAPCO and its managing/operating company (if applicable), receiving such certification from the Office, shall maintain a separate physical site location, contact information and contact persons from any other Certified Capital Company and its respective managing/operating company (if applicable). A CAPCO and its managing/operating company may occupy the same physical site location.
"Headquarters or Headquartered for a Qualified Business or a Qualified Rural Business" means the chief place of business from which policies are made and orders are issued.
"Immediate Family Member" means spouse, child by birth or adoption, stepchild, stepparent, parent, sibling, legal guardian, significant other or lawful representative.
"Indebtedness" has the meaning as outlined in the Statute and this regulation, except for the purposes of the internal rate of return calculations or the 15% calculations pursuant to 10-3.5-108, C.R.S. where "Indebtedness" shall have the meaning specifically defined within this regulation where internal rate of return calculations or the 15% calculations are described. Qualified Debt instruments (including payment of principal and interest) shall be included in the definition of Indebtedness and shall be included in the IRR calculation but not in the 15% calculations as specifically stated in the Statute.
Repayments of debt from an unrelated, unaffiliated entity/third party in an arms-length transaction at market rates ("Indebtedness exception") shall not be defined as Indebtedness or included as a Distribution for the purpose of the IRR calculation or the 15% calculations. Such payments shall be considered solely as an outflow of cash.
On a case-by-case basis, the Office will consider extending the "Indebtedness exception" to repayments of debt to equity holders (except for Qualified Debt instruments) and related/affiliated entities, will consider not defining the principal amount loaned as Indebtedness and will consider not including the principal amount loaned as a Distribution for the purpose of the IRR calculation or the 15% calculation. However as approved on a case-by-case basis, interest and other forms of return (above and beyond the principal amount loaned) will not be defined as Indebtedness but shall be defined as a Distribution and shall be included in the IRR calculation or the 15% calculation for these type of transactions. A CAPCO shall not convert equity to debt and use the exceptions provided in this paragraph-meaning that any such conversions shall be treated as equity for the purposes of the IRR or the 15% calculations.
"Indirectly" means deviating from a direct line or relationship, not going straight to the point, not directly aimed at or achieved, as well as any other indirect means or acts. Indirectly may involve one or more intermediaries.
"Investment of Cash" means a transaction, which in substance and in form, results in a CAPCO disbursement of cash. Examples of transactions excluded from this definition are circular transactions as determined by the Office; accruals of principal, interest, royalty or other income; letters of credit; loan guarantees; and loan collection expenses or legal fees incurred by a CAPCO in protecting its collateral interest in an investment.
Investment of Cash further means the commitment of cash in a business in order to earn a financial return. Investing in a business is different and distinct from traditional lending to a business. Investing in a business involves a higher level of risk in exchange for a return exceeding that, which is typical in the banking or lending industry.
An Investment of Cash by a CAPCO shall have a minimum term of 1 year unless determined otherwise by the Office. This provision is not intended to preclude:
In regards to revolving lines of credit, the highest outstanding balance that has been borrowed by the Qualified Business on any one date within the term of the revolver will be the amount of Qualified Investment dollars that are credited towards the requirements within this program.
"Material" means having significant importance as determined by the Office.
"Premium Tax Credit Allocation Pool" means the Premium Tax Credit Allocation Pool of $100 million, which has been authorized by the State of Colorado's Legislature. The Premium Tax Credit Allocation Pool of $100 million dollars shall be referred to as the Pool. Additionally, the Pool has been further divided into a $25 million Rural Pool and a $75 million Statewide Pool and shall be known generally as Specific Pools. The $25 million Rural Pool, shall be available for investment in Designated Rural Counties in Colorado. The $75 million Statewide Pool, shall be available for investment statewide throughout Colorado. The Colorado Office of Economic Development has fully allocated all of the premium tax credits for the Program as of April 15, 2002.
"Principal Office" means the office designated by an entity or person as its principal office in the document most recently delivered by the principal office to the secretary of state for filing and filed by the secretary of state providing such information, including any statement of change of principal office. If the secretary of state does not maintain such information, then the entity or person shall provide such designating information in a format required by the Office.
Each CAPCO and its managing/operating company (if applicable), receiving such certification from the Office, shall maintain a separate physical site location, contact information and contact persons from any other Certified Capital Company and its respective managing/operating company (if applicable). A CAPCO and its managing/operating company may occupy the same physical site location.
"Principal Business Operations" means more than 50% of the business' total assets are physically present in Colorado and more than 50% percent of the business' net income is allocable or apportionable to Colorado in accordance with Colorado income tax law regardless of whether such business is taxable or tax-exempt for Colorado income tax purposes. In addition, more than 75% of the business' existing total salaries, wages and/or other compensation are paid to Colorado employees (calculated on a fulltime equivalent basis).
In regard to a Designated Rural County or a Distressed Urban Community, the Principal Business Operations means more than 50% of the business' total assets are physically present in a Colorado Designated Rural County or Distressed Urban Community, as applicable, and more than 50% percent of the business' net income is allocable or apportionable to Colorado in accordance with Colorado income tax law regardless of whether such business is taxable or tax-exempt for Colorado income tax purposes. In addition, more than 75% of the business' existing total salaries, wages and/or other compensation are paid to Colorado employees (calculated on a full-time equivalent basis).
"Statute" means 10-3.5-101 through 10-3.5-110, 24-48.5-106 and 10-1-103, C.R.S.
"Utilized" shall have the meaning as outlined in the Statute and this regulation, except for the purposes of the internal rate of return calculations pursuant to 10-3.5-108, C.R.S. where "Utilized" shall have the meaning specifically defined within this regulation where internal rate of return calculations are described. The definition of "Utilized" for the internal rate of return calculations shall be the allocated amount of Premium Tax Credits available for use in any given year [10% of the Premium Tax Credits allocated to the Certified Investor(s)]. However, the Office shall use the actual amount (as previously applied on Colorado premium tax returns) of Premium Tax Credits Utilized by a Certified Investor if a CAPCO provides the Office with verifiable documentation (prior to each proposed Distribution review and the Annual Review) demonstrating the amount of Premium Tax Credits Utilized by a Certified Investor. The amount Utilized shall not be adjusted subsequent to a completed proposed Distribution review or Annual Review.
"Working Days" means a business day in which the Colorado Office of Economic Development is open for normal business. A business day shall begin at 8:30AM Mountain Standard Time or Mountain Daylight Time, as applicable, and shall end at 5:00PM Mountain Standard Time or Mountain Daylight Time, as applicable.
CERTIFIED CAPITAL COMPANY APPLICATION 10-3.5-104, C.R.S.
Filing of Certified Capital Company Application
Requirements of an Application
The application shall contain:
During the Pool application process, a statement, signed by a legally authorized representative of the Applicant, that states the Applicant has at least two principals or at least two individuals (hereafter identified as key employees) employed to manage the funds who each have at least two years of experience in either the venture capital or investment banking industry if the Applicant is applying to be a Certified Capital Company for only the Rural Pool. Such statement shall also be signed by the two principals or the two key employees.
"BY AUTHORIZING THE FORMATION OF A CERTIFIED CAPITAL COMPANY, THE STATE DOES NOT NECESSARILY ENDORSE THE QUALITY OF MANAGEMENT OR THE POTENTIAL FOR EARNINGS OF SUCH COMPANY AND IS NOT LIABLE FOR DAMAGES OR LOSSES TO A CERTIFIED INVESTOR IN THE COMPANY. USE OF THE WORD "CERTIFIED" IN AN OFFERING DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE INVESTMENT BY THE COLORADO OFFICE OF ECONOMIC DEVELOPMENT. IF ANY APPLICABLE PROVISIONS OF THE "CERTIFIED CAPITAL COMPANY ACT" ARE VIOLATED, THE STATE MAY REQUIRE FORFEITURE OF UNUSED PREMIUM TAX CREDITS AND REPAYMENT OF USED PREMIUM TAX CREDITS."
Approval of Application and Issuance of Certification
Within thirty (30) days after receipt of an application (unless amendments to the application have been submitted), the Office shall issue the certification or deny the certification. The Office shall review and approve or reject applications in the order submitted, treating all applications received on the same day as being received simultaneously unless the application is incomplete (refer to "Incomplete Applications"). The Office shall consider the requirements stated in the Statute, along with the information requested in this regulation, to determine if an Applicant shall be certified to be a Certified Capital Company. The certification issued by the Office shall indicate whether the certification is applicable to credits allocated pursuant only to the Rural Pool, only the Statewide Pool, or both the Rural Pool and the Statewide Pool during the Pool application process. The certification issued by the Office shall state that the certification is contingent upon all information submitted, except for maintaining Equity Capitalization, during the application phase continuing to be accurate and in force unless written approval for variances have been requested by the Applicant and approved by the Office. The certification issued by the Office shall be effective from the date of issuance and shall continue until such time as the CAPCO has been decertified pursuant to 10-3.5-109 C.R.S., whether such decertification is a result of the CAPCO's Annual Review or otherwise.
Incomplete Application
In the event of an incomplete application or if additional information has been requested by the Office, the application shall be treated as having been received on the date originally submitted only if the Applicant submits the additional information within fifteen (15) days after the date of the Office's written request. Upon receiving all requested information, the Office shall have ten (10) days from the day that the completed information was submitted to approve or reject the application and certification request. If all application requirements are not met within the time frame stated herein, the application shall be deemed withdrawn and the Office shall have no obligation to provide additional notices to the Applicant.
Denial of Application
If an application is denied, the Office shall communicate in detail to the Applicant the grounds for the denial, including suggestions for the removal of such grounds. A denied Applicant must refile its revised application after taking into account the Office's communication on the grounds for the denial and suggestions for the removal of such grounds. The application will then be treated as a new application in respect to the application process and time frames for reviewing it. Based on the extent of the revisions that need to be made by the Applicant and then reviewed by the Office, the Office shall determine if a new application fee shall be charged. False, inaccurate, or misleading information provided in the application shall be grounds for rejection of the application and denial of further consideration.
PREMIUM TAX CREDIT ALLOCATION PROCESS 10-3.5-106, C.R.S.
Premium Tax Credit Allocation Pools
The Premium Tax Credit Allocation Pool of $100 million has been authorized by the CAPCO Statute. Additionally, the Pool is further divided into a $25 million Rural Pool and a $75 million Statewide Pool, which may generally be referred to as Specific Pools.
Premium Tax Credit Allocation Claims
With respect to claims being filed for both the Rural Pool and the Statewide Pool, the maximum amount of Premium Tax Allocation Claims that any one Certified Investor and Affiliates may file, in the aggregate, in one or more Certified Capital Companies shall not exceed Fifteen Million dollars ($15,000,000).
If a Certified Capital Company, on an aggregate basis with its Affiliates, files Premium Tax Credit Allocation Claims in excess of the limits described herein, the Office shall consider the Premium Tax Credit Allocation Claim as not filed and shall mail it back to the CAPCO by regular mail.
With respect to claims being filed for only the Statewide Pool, the maximum amount of Premium Tax Allocation Claims that any one Certified Investor and Affiliates may file, in the aggregate, in one or more Certified Capital Companies shall not exceed Fifteen Million dollars ($15,000,000).
If a Certified Company, on an aggregate basis with its Affiliates, files Premium Tax Credit Allocation Claims in excess of the limits described herein, the Office shall consider the Premium Tax Credit Allocation Claim as not filed and shall mail it back to the CAPCO by regular mail.
With respect to claims being filed for only the Rural Pool, the maximum amount of Premium Tax Credit Allocation Claims that any one Certified Investor and Affiliates may file in one or more Certified Capital Companies, in the aggregate, shall not exceed Twenty-Five Million Dollars ($25,000,000).
If a Certified Company, on an aggregate basis with its Affiliates, files Premium Tax Credit Allocation Claims in excess of the limits described herein, the Office shall consider the Premium Tax Credit Allocation Claim as not filed and shall mail it back to the CAPCO by regular mail.
The following definition of control shall be used by the Office.
Control means a person (e.g., firm, company, entity, natural person), who directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the specific person. "Control" , including the terms "controlling" , "controlled by" , and "under common control with" , means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract other than commercial contract for goods or non-management services, or otherwise. Control is presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing fifteen percent or more of the voting securities of any other person. Each of a company's officers, directors, or partners exercising executive responsibility (or persons having similar status or functions) is presumed to "control" the company. A person is presumed to control a corporation if the person:
The control determination shall include a review of:
In addition to the "test" based on status or voting control, an examination of the contractual, consulting, and other "arrangements" shall be undertaken to see if "control" is being directly or indirectly exercised.
If the CAPCOs, insurance companies, and/or other persons, as applicable, are not able to certify that they meet the above definition of control, then it shall be the responsibility of the CAPCOs, insurance companies, and/or other persons, as applicable, to submit an executed "Confirmation of Compliance with Affiliate and Control Definitions Form" (as issued by the Office), but specify on the Form the areas of non-compliance. Additionally, it shall be the responsibility of the CAPCOs, insurance companies, and/or other persons, as applicable, to provide documentation to the Office which substantiates that such control does not exist.
Calculation Method Utilized For Certified Capital For Which Premium Tax Credits Are Allowed
The earliest date that Premium Tax Credit Allocation Claims for the Pool can be filed with the Office is April 8, 2002. The Certified Capital and Premium Tax Credits shall be allocated to Certified Investors, in Certified Capital Companies, in the order in which Premium Tax Credit Allocation Claims requesting an allocation of Premium Tax Credits under each Specific Pool are filed with the Office by Certified Capital Companies on behalf of their Certified Investors. The two Specific Pools, for which Premium Tax Credit Allocations shall be calculated, are the Rural Pool and the Statewide Pool.
The Office shall begin the process by ensuring that all requirements stated under "Premium Tax Credit Allocation Claims" have been met. The Office shall then begin allocating the Rural Pool ($25,000,000) based on the Premium Tax Credit Allocation Claims filed with the Office. All of the Rural Pool must be fully allocated before the Office can begin allocating the Statewide Pool ($75,000,000).
If two or more CAPCOs (and their Affiliates) file Premium Tax Credit Allocation Claims related to a Specific Pool with the Office on behalf of their Certified Investors on the same day and the sum of such Premium Tax Credit Allocation Claims exceeds, in the aggregate, the maximum aggregate amount available under such Specific Pool at the time of filing, the Certified Capital for which Premium Tax Credits are allocated shall be allocated among all Certified Investors filing on the same day utilizing a prorated basis for calculation purposes and as described herein.
The process herein determines the amount of Certified Capital for which Premium Tax Credits are allowed.
Calculation Example A
After the Office verified compliance with all requirements stated under "Premium Tax Credit Allocation Claims," assume that three Certified Capital Companies certified only for the Rural Pool were the only CAPCOs that submit a Premium Tax Credit Allocation Claim for the Rural Pool. On April 8, 2002, if CAPCO A's (and its Affiliates) Investors request $10 million dollars (over ten years) in premium tax credits; CAPCO B's (and its Affiliates) Investors request $10 million dollars (over ten years) in premium tax credits; and CAPCO C's (and its Affiliates) Investors request $25 million dollars (over ten years) in premium tax credits, then the total premium tax credits' requests of $45 million dollars exceed the $25 million dollars in premium tax credits available under the Rural Pool. Therefore, CAPCO A's (and its Affiliates) Investors would be allocated ($10,000,000/$45,000,000) x $25,000,000 = .22 x $25,000,000 = $5,555,556 in tax credits (over ten years); CAPCO B's (and its Affiliates) Investors would be allocated the same amount of tax credits as CAPCO A's investors which is $5,555,556 (over ten years) and CAPCO C's (and Affiliates) Investors would be allocated ($25,000,000/$45,000,000) x $25,000,000 = .56 x $25,000,000 = $13,888,888 in tax credits (over ten years). The Office reserves the right to round up or down within $1.00 at its discretion in allocating Premium Tax Credits.
Calculation Example B
If not fully allocated on the first day that a request(s) were received by the Office, then Premium Tax Credit Allocations shall be made in the amount requested. The premium tax credit allocations for claims filed on the first day shall be subtracted from the maximum available under the Specific Pool. The remaining balance shall become the new maximum available under the Specific Pool; however, the new maximum available will not impact the CAPCO's Premium Tax Credit Allocation Claims' limits as described in all requirements stated under "Premium Tax Credit Allocation Claims". This process will continue to be utilized if Premium Tax Credit Allocation Claims for each specific date do not exceed the remaining, unallocated tax credit balance. In the event that Premium Tax Credit Allocation Claims exceed the remaining, unallocated tax credit balance on a specific date, the pro-rated calculation method shall then be utilized.
After the Office verified compliance with all requirements stated under "Premium Tax Credit Allocation Claims", assume that two Certified Capital Companies certified only for the Rural Pool and one Certified Capital Company certified for both the Rural Pool and the Statewide Pool were the only CAPCOs that submit a Premium Tax Credit Allocation Claim for the Rural Pool.
On April 8, 2002, if CAPCO A's (and Affiliates) Investors request $5 million dollars (over ten years) in premium tax credits; CAPCO B's (and Affiliates) Investors request $5 million dollars (over ten years) in premium tax credits; and CAPCO C's (and Affiliates) Investors request $10 million dollars (over ten years) in premium tax credits, then the total requests of $20 million dollars do not exceed the $25 million dollars in premium tax credits available under the Rural Pool. Therefore, CAPCO A's Investors would be allocated $5,000,000 in premium tax credits (over ten years); CAPCO B's Investors would be allocated the same amount of premium tax credits as CAPCO A's Investors which is $5,000,000 (over ten years) and CAPCO C's Investors would be allocated $10,000,000 in premium tax credits (over ten years). After the $20 million dollars are allocated, $5 million dollars in premium tax credits will still be available. On April 11, 2002, CAPCO D's (and Affiliates) Investors request $5 million dollars (over ten years) in premium tax credits and CAPCO E's (and Affiliates) Investors request $10 million dollars (over ten years) in premium tax credits, then the total new requests of $15 million dollars exceed the remaining $5 million dollars in premium tax credits available after the initial allocation. Therefore, CAPCO D's Investors would be allocated ($5,000,000/$15,000,000) x $5,000,000 = .33 x $5,000,000 = $1,666,667; and CAPCO E's Investors would be allocated ($10,000,000/$15,000,000) x $5,000,000 = .67 x $5,000,000 = $3,333,333. The Office reserves the right to round up or down within a $1.00 at its discretion in allocating Premium Tax Credits.
Calculation Example C
Assume that either Calculation A or Calculation B has occurred. The Rural Pool would be fully allocated. The Office shall allocate Premium Tax Credits from the Statewide Pool using the same method described in Calculation Example A and Calculation B.
Calculation Method Utilized For Premium Tax Credit Allocations to Individual Investors
After calculating the Capital for which "Premium Tax Credits Are Allowed" for each CAPCO that submitted Premium Tax Credit Allocation Claims on behalf of its Certified Investors, the Office shall calculate the Premium Tax Credit Allocations to each Certified Investor of a Certified Capital Company. The amount of Capital for which "Premium Tax Credits Are Allowed" under a Specific Pool shall be allocated among the Certified Investors on a pro-rata basis. The pro-rata allocation for any one Certified Investor shall bear the same relation to the maximum aggregate amount available under each Specific Pool, as that Certified Investor's Premium Tax Credit Allocation under such Specific Pool bears to the total of all Premium Tax Credit Allocation Claims seeking an Allocation of Premium Tax Credits pursuant to the same Specific Pool filed on behalf of all Certified Investors on the same day. Upon the receipt of the Investor's Certified Capital in the amounts calculated herein, the amount determined by these calculations shall be the amount of Certified Capital provided to the CAPCO.
Calculation Example D
Based on the calculation previously made under "Calculation Method Utilized For Certified Capital For Which Premium Tax Credits Are Allowed, Calculation Example A", the amount of the Certified Capital for which "Premium Tax Credits Are Allowed" was determined. The Office shall now complete the pro-rata calculation to determine each Investor's Allocation of Premium Tax Credits.
For simplicity, assume that none of the Investors (and Affiliates) are the same Investors (and Affiliates)- thus eliminating the need to verify that individual Investors (and Affiliates) have not exceeded certain maximum limitations. Assume that CAPCO's (and Affiliates) submitted the following Premium Tax Credit Allocation Claims on behalf of their respective Investors (and Affiliates):
CAPCO A:
Investor's Initial Claim | Investor's Allocation |
Investor 1 @ $1,000,000 | ($1,000,000/$45,000,000)X$25,000,000 = $555,556 |
Investor 2 @ $1,000,000 | ($1,000,000/$45,000,000)X$25,000,000 = $555,556 |
Investor 3 @ $1,000,000 | ($1,000,000/$45,000,000)X$25,000,000 = $555,556 |
Investor 4 @ $1,500,000 | ($1,500,000/$45,000,000)X$25,000,000 = $833,333 |
Investor 5 @ $1,500,000 | ($1,500,000/$45,000,000)X$25,000,000 = $833,333 |
Investor 6 @ $ 500,000 | ($ 500,000/$45,000,000) X $25,000,000 = $277,778 |
Investor 7 @ $ 500,000 | ($ 500,000/$45,000,000) X $25,000,000 = $277,778 |
Investor 8 @ $ 500,000 | ($ 500,000/$45,000,000) X $25,000,000 = $277,778 |
Investor 9 @ $1,000,000 | ($1,000,000/$45,000,000)X$25,000,000 = $555,555 |
Investor 10 @ $1,500,000 | ($1,000,000/$45,000,000)X$25,000,000 = 833,333 |
Total $10,000,000 | Total $5,555,556 |
CAPCO B:
Investor 1 @ $1,200,000 | ($1,200,000/$45,000,000)X$25,000,000 = $666,667 |
Investor 2 @ $1,200,000 | ($1,200,000/$45,000,000)X$25,000,000 = $666,667 |
Investor 3 @ $1,2000,000 | ($1,200,000/$45,000,000)X$25,000,000 = $666,667 |
Investor 4 @ $1,200,000 | ($1,200,000/$45,000,000)X$25,000,000 = $666,667 |
Investor 5 @ $1,200,000 | ($1,200,000/$45,000,000)X$25,000,000 = $666,667 |
Investor 6 @ $500,000 | ($ 500,000/$45,000,000) X $25,000,000 = $277,778 |
Investor 7 @ $500,000 | ($ 500,000/$45,000,000) X $25,000,000 = $277,778 |
Investor 8 @ $500,000 | ($ 500,000/$45,000,000) X $25,000,000 = $277,778 |
Investor 9 @ $1,000,000 | ($1,000,000/$45,000,000)X$25,000,000 = $555,555 |
Investor 10 @ $1,500,000 | ($1,500,000/45,000,000) X $25,000,000 = $833,332 |
Total $10,000,000 | Total $5,555,556 |
CAPCO C:
Investor 1 @ $3,750,000 | ($3,750,000/$45,000,000)X$25,000,000=$2,083,333 |
Investor 2 @ $3,750,000 | ($3,750,000/$45,000,000)X$25,000,000= $2,083,333 |
Investor 3 @ $3,750,000 | ($3,750,000/$45,000,000)X$25,000,000= $2,083,333 |
Investor 4 @ $3,750,000 | ($3,750,000/$45,000,000)X$25,000,000= $2,083,333 |
Investor 5 @ $3,750,000 | ($3,750,000/$45,000,000)X$25,000,000= $2,083,333 |
Investor 6 @ $3,750,000 | ($3,750,000/$45,000,000)X$25,000,000= $2,083,333 |
Investor 7 @ $500,000 | ($500,000/$45,000,000)X $25,000,000 = $277,778 |
Investor 8 @ $2,000,000 | ($2,000,000/$45,000,000)X$25,000,000= $1,111,112 |
Total $25,000,000 | Total $13,888,888 |
TOTAL SPECIFIC POOL ALLOCATION = $25,000,000 ($5,555,556 + $5,555,556 + $13,888,888)
Calculation Example E
Based on the calculation previously made under "Calculation Method Utilized For Certified Capital For Which Premium Tax Credits Are Allowed, Calculation Example B", the amount of the Certified Capital for which "Premium Tax Credits Are Allowed" was determined. The Office shall now complete the pro-rata calculation to determine each Investor's Allocation of Premium Tax Credits.
For simplicity, assume that none of the Investors (and Affiliates) are the same Investors (and Affiliates)- thus eliminating the need to verify that individual Investors (and Affiliates) have not exceeded certain maximum limitations. No calculations are needed for CAPCO A, CAPCO B, and CAPCO C since the Individual Investors shall receive the amount requested. Calculations are needed for CAPCO D and CAPCO E. Assume that CAPCO's (and Affiliates) submitted the following Premium Tax Credit Allocation Claims on behalf of their respective Investors:
CAPCO A:
Investor's Initial Claim | Investor's Allocation |
Investor 1 @ $750,000 | $750,000 |
Investor 2 @ $750,000 | $750,000 |
Investor 3 @ $750,000 | $750,000 |
Investor 4 @ $750,000 | $750,000 |
Investor 5 @ $750,000 | $750,000 |
Investor 6 @ $750,000 | $750,000 |
Investor 7 @ $500,000 | $500,000 |
Total $5,000,000 | Total $5,000,000 |
CAPCO B:
Investor 1 @ $750,000 | $750,000 |
Investor 2 @ $750,000 | $750,000 |
Investor 3 @ $750,000 | $750,000 |
Investor 4 @ $750,000 | $750,000 |
Investor 5 @ $750,000 | $750,000 |
Investor 6 @ $750,000 | $750,000 |
Investor 7 @ $500,000 | $500,000 |
Total $5,000,000 | Total $5,000,000 |
CAPCO C:
Investor 1 @ $1,500,000 | $1,500,000 |
Investor 2 @ $1,500,000 | $1,500,000 |
Investor 3 @ $1,500,000 | $1,500,000 |
Investor 4 @ $1,500,000 | $1,500,000 |
Investor 5 @ $1,500,000 | $1,500,000 |
Investor 6 @ $1,500,000 | $1,500,000 |
Investor 7 @ $1,000,000 | $1,000,000 |
Total $10,000,000 | $10,000,000 |
CAPCO D:
Investor 1 @ $750,000 | ($750,000/$15,000,000) X $5,000,000* = $250,000 |
Investor 2 @ $750,000 | ($750,000/$15,000,000) X $5,000,000* = $250,000 |
Investor 3 @ $750,000 | ($750,000/$15,000,000) X $5,000,000* = $250,000 |
Investor 4 @ $750,000 | ($750,000/$15,000,000) X $5,000,000* = $250,000 |
Investor 5 @ $750,000 | ($750,000/$15,000,000) X $5,000,000* = $250,000 |
Investor 6 @ $750,000 | ($750,000/$15,000,000) X $5,000,000* = $250,000 |
Investor 7 @ $500,000 | ($500,000/$15,000,000) X $5,000,000* = $166,667 |
Total $5,000,000 | Total $1,666,667 |
*$5,000,000 is the denominator since this is the amount of the Specific Pool that was available on the day that CAPCO D and CAPCO E made their Premium Tax Credit Allocation Claims.
CAPCO E:
Investor 1 @ $1,500,000 | ($1,500,000/$15,000,000)X$5,000,000* = $500,000 |
Investor 2 @ $1,500,000 | ($1,500,000/$15,000,000)X$5,000,000* = $500,000 |
Investor 3 @ $1,500,000 | ($1,500,000/$15,000,000)X$5,000,000* = $500,000 |
Investor 4 @ $1,500,000 | ($1,500,000/$15,000,000)X$5,000,000* = $500,000 |
Investor 5 @ $1,500,000 | ($1,500,000/$15,000,000)X$5,000,000* = $500,000 |
Investor 6 @ $1,500,000 | ($1,500,000/$15,000,000)X$5,000,000* = $500,000 |
Investor 7 @ $1,000,000 | ($1,000,000/$15,000,000)X$5,000,000* = $333,333 |
Total $10,000,000 | Total $3,333,333 |
*$5,000,000 is the denominator since this is the amount of the Specific Pool that was available on the day that CAPCO D and CAPCO E made their Premium Tax Credit Allocation Claims.
TOTAL SPECIFIC POOL ALLOCATION = $25,000,000 ($5,000,000 + $5,000,000 + $10,000,000 + 1,666,667 + $3,333,333)
Allocation Date and Written Notification of Premium Tax Credit Allocation
Within 5 business days (except as noted below) after the Office receives a Premium Tax Credit Allocation Claim filed by a Certified Capital Company on behalf of one or more of its Certified Investors, the Office shall notify (by overnight courier with signature of receipt required) the Certified Capital Company of the amount of tax credits allocated to each of the Certified Investors in such Capital Company. Such date shall be the Allocation Date. An alternative Certified Investor or other investor may not contribute Certified Capital to the CAPCO in lieu of the Certified Investor listed on the Office's notification.
However, Premium Tax Credit Allocation Claims filed for the Statewide Pool shall not be allocated until the Rural Pool has been fully allocated. The Office shall begin allocating the Statewide Pool the next business day after the Rural Pool has been fully allocated. Within 5 business days after the Office begins allocating the Statewide Pool, as applicable, the Office shall notify the Certified Capital Company of the amount of tax credits allocated to each of the Certified Investors in such Certified Capital Company. Such date shall be the Allocation Date. An alternative Certified Investor may not contribute Certified Capital to the CAPCO in lieu of the Certified Investor listed on the Office's notification.
The Written Notification of Premium Tax Credit Allocation shall require that the CAPCO submit to the Office, within 30 business days of the date of the Written Notification of Premium Tax Credit Allocation, a copy of all material documents relating to each Certified Investor's investment of Certified Capital and a report containing the following information:
With respect to a CAPCO that participated in both the Rural Pool and the Statewide Pool, the 5-business day and 30-business daytime periods set forth in this section will begin on the Allocation Date for the Statewide Pool.
Forfeiture of Allocation and Reallocation of Premium Tax Credits
In the event that a CAPCO does not receive an investment of Certified Capital equaling the amount of Premium Tax Credits Allocated to the CAPCO's investors within 5 business days of the receipt of the Office's notification (by overnight courier with signature of receipt required) of the Premium Tax Credit Allocated to the CAPCO's investors, the CAPCO shall notify the Office immediately, within 24 hours, by overnight courier with signature of receipt required. As a result of such notification from the CAPCO, the Premium Tax Credit Allocation for the specific investor(s) shall be forfeited. If the Office has not received a copy of all documents relating to each Certified Investor's investment of Certified Capital and the required report within 30 business days, the Premium Tax Credit Allocation for the specific investor(s) shall be forfeited.
If forfeiture of Premium Tax Credit Allocations occurs, the Office shall recalculate the Premium Tax Credit Allocations for each Specific Pool, if affected by such forfeiture, and shall redistribute the forfeited Premium Tax Credit Allocations based on other investor's initial commitment of Certified Capital. Such recalculation shall utilize the same methods described in the Premium Tax Credit Allocation Process but the now ineligible investors shall not be included in the calculations. If such a pro rata redistribution occurs, the Office shall notify (by overnight courier with signature of receipt required) the Certified Capital Company of the new amount of tax credits allocated to each of the eligible Certified Investors in such Capital Company. Such date of notification shall be the new Allocation Date and the requirements described in this section for receiving investments and notifying the Office shall begin as of such new Allocation Date.
CONTINUING CERTIFICATION REQUIREMENTS 10-3.5-107 C.R.S.
A Certified Capital Company must fully comply with all of the requirements described under the following sections of "CONTINUING CERTIFICATION REQUIREMENTS".
Continued Accuracy of Information Submitted in the Application
Whenever any material information that the CAPCO supplied in its initial application becomes inaccurate or obsolete (including, but not limited to, retention of the two experienced principals or key employees reflected in the application), the CAPCO shall file an amended application in a format prescribed by the Office, including originally executed signatory pages. Amended applications shall be submitted within 10 business days of the information becoming inaccurate or obsolete; however, amended applications shall be filed within 5 business days in the event any of the experienced principals or key employees required in the Statute leaves the CAPCO. Amended applications shall be filed in the same manner and using the same methods as described in the section, "Filing of Certified Capital Company Application" ; however, no fee shall be required. The CAPCO shall notify its Certified Investors of the amended application and a copy of such notification shall be provided to the Office. Amended applications shall demonstrate the CAPCO's continued ability to be in compliance with initial application requirements.
Continuation as a Viable Going Concern
The CAPCO shall, as soon as possible, but in any event within 5 business days, notify the Office and its Certified Investors in writing when the CAPCO may be unable to continue as a viable going concern or when the CAPCO is subject to litigation which may affect its viability as a going concern. Examples of when a CAPCO may be unable to continue as a viable going concern include, but are not limited to, the inability of a CAPCO to make scheduled debt payments (including principal, interest, and any applicable fees) and/or other obligations of the CAPCO, either in the ordinary course of business or otherwise, within the terms of when such payments are due. Notifications shall either be hand delivered with signature of receipt required, or delivered by a courier service or certified mail with signature of receipt required. Such notifications must be delivered to the Office of Economic Development located at 1625 Broadway, Suite 1700, Denver, CO 80202.
Upon the CAPCO notifying the Office by the procedure outlined in this section or if a viable going concern issue is noted in any audits, procedural reviews, or compliance reviews received by the Office, the CAPCO shall immediately discontinue any further investment of Certified Capital in Qualified Businesses or Qualified Rural Businesses unless interim management by an entity authorized in the Statute has occurred.
Interim Management Notification
In the event interim management is assumed as authorized in the Statute, the assuming entity shall immediately notify the Office in writing and provide a plan and timetable for selecting replacement CAPCO management. Such notification shall be hand delivered with signature of receipt required, or delivered by a courier service or certified mail with signature of receipt required. The notification must be delivered to the Office of Economic Development located at 1625 Broadway, Suite 1700, Denver, CO 80202. By the 10th of the following month in which the interim management was assumed and continuing monthly thereafter, the assuming entity shall provide a written status update on the hiring of replacement management.
Submittal of Documentation for Certified Investor's Investment of Certified Capital
The Written Notification of Premium Tax Credit Allocation shall require that the CAPCO submit to the Office, within 30 business days of the date of the Written Notification of Premium Tax Credit Allocation, a copy of all material documents relating to each Certified Investor's investment of Certified Capital and a report containing the information described in the "Allocation Date and Written Notification of Premium Tax Credit Allocation" section of "PREMIUM TAX CREDIT ALLOCATION PROCESS" in this regulation. All documents relating to the Certified Investors' investment of Certified Capital in the CAPCO shall be made available at the time of Audit or Office Annual Review.
Eligibility Determination For CAPCO Qualified Investments
A CAPCO shall use its Certified Capital to make Qualified Investments in Qualified Businesses and/or Qualified Rural Businesses. Such Qualified Investments shall occur after the Allocation Date pertaining to such Certified Capital. If a CAPCO substitutes Certified Capital for any investment made prior to the Allocation Date and/or the CAPCO uses Certified Capital to purchase all or part of an investment made prior to the Allocation Date, then such use of Certified Capital shall not be considered a Qualified Investment under this program.
In order to meet Qualification requirements, the CAPCO's investment:
The CAPCO shall be required to provide a certification (format to be contained in the Qualified Business Determination form) that the loan that it proposes to make is not a loan as defined under Colorado State Banking Board Commercial Bank Rules (CB101.42). Loan decline letters shall not be required when such certification is provided and accepted by the Office. The Office will consult with the Division of Banking when such approval is requested.
For Qualified Businesses/Qualified Investments that previously were approved by the Office but did not receive approval as meeting the definition of seed and early stage as defined in 10-3.5-103 (15.5) C.R.S at the time of the initial Qualified Investment, a CAPCO can complete the information found in Exhibit A of this regulation and submit it to the Office for approval.
Eligibility of Other Investments of Certified Capital
All Certified Capital, not currently invested in Qualified Investments by the CAPCO, shall be invested in types of investments authorized specifically by 10-3.5-107(6), C.R.S.
January 31st Report and Continued Certification Fee
On or before January 31st of each year, each CAPCO shall submit the following to the Office: A report containing:
Annual Audit by an Independent Certified Public Accountant [Expired 5/15/07 per House Bill 07-1167]
Annual Business Plan Review Meetings
During each calendar year from 2003 to 2010, the Office shall hold a meeting in each of 5 counties that have populations of no more than 150,000 individuals at which a representative from each CAPCO shall be present to review business plans from Qualified Businesses Headquartered in those counties.
Schedule of Qualified Investments
The aggregate cumulative amount of all Qualified Investments made by the CAPCO from an Allocation Date from each Specific Pool shall be considered in the calculation of the percentage requirements under the following "Schedule of Investments" section of "CONTINUING CERTIFICATION REQUIREMENTS" unless otherwise noted. Any proceeds, defined as cash for the purposes of the following "Schedule of Investments" section of "CONTINUING CERTIFICATION REQUIREMENTS", received by the CAPCO from a Qualified Investment or from other uses may be invested in another Qualified Investment and shall be utilized to calculate the "Schedule of Investments" with respect to investments of Certified Capital unless otherwise noted. The date cash is placed in the business, as evidenced by the date of a check or other means of funds transfer, shall be the date utilized for determining if the Schedule of Qualified Investments has been met.
The CAPCO must meet specific time frames, percentages and requirements pertaining to Qualified Investments as follows:
Qualified Business or a Qualified Rural Business, as applicable, at the time of such continuing investments except that:.
Qualified Rural Business at the time of the first investment in said business by a
CAPCO, when such investment occurs on or after May 27, 2004, but subsequently violates the requirement of section 10-3.5-103(11)(b)(I) or 11(c) within the first six months after such Qualified Investment, shall not be deemed to be a Qualified Business or a Qualified Rural Business, as applicable, and may not receive continuing investments from any Certified Capital Company or any of its affiliates. Additionally if this exception occurs, the Qualified Investment shall not be used in the 30% and 50% calculations described within this Schedule of Qualified Investments and the calculations described in 10-3.5-109(2)(a).
Operations outside of Colorado after six months but less than three years after the initial Qualified Investment shall:
DISTRIBUTIONS-REMITTANCE OF PROCEEDS 10-3.5-108 and 10-3.5-109 C.R.S.
Eligible Distributions
Schedules and Other Information
On or after May 27, 2004, equity holders may contribute additional equity to a CAPCO at anytime upon submittal of a certification by the CAPCO to the Office in writing that there is a legitimate business purpose for the equity contribution which is not intended as a device for the purpose of reducing its internal rate of return (or otherwise avoiding or reducing required Distributions to the non-profit entities designated in the Statute).
Eligible Distributions, described in the above section, are for the purpose of determining what type of Distributions may be made and the potential timing of such Distributions. However, once a CAPCO has met the 100%/6 month/1/3 seed or early stage investment requirements, unless otherwise approved by the Office, a CAPCO shall make Distributions as soon as commercially reasonable. A CAPCO shall use the Eligible Distributions section described above and the Distribution Review-Remittance of Portion of Proceeds section to determine whether such Distributions impact the amount of funds, if any, required to be transferred to the non-profit entities designated in the Statute.
Before May 27, 2004, the information needed by the Office to perform the Distributions Review includes, but is not limited to, the following: schedule of all Distributions itemized by type of Distribution (with the exception of Qualified Distributions but including and not limited to, principal and interest payments with respect to Qualified Debt instruments); schedule of Qualified Investments; schedule of outflows of Certified Capital; and schedule of Additional Capital.
In addition on or after May 27, 2004, Distributions out of proceeds or gains from Qualified Investments, proceeds or gains from any other use of Certified Capital, proceeds or gains from equity capitalization contributions, equity capitalization contributions, Certified Capital allocated to Certified Investors on a particular allocation date, proposed Distributions, schedule of debt for unaffiliated entity/third party in an arms-length transaction, and schedule of debt to equity holders and related/affiliated entities shall be included on such schedules and shall specifically be examined when a CAPCO proposes to make a Distribution and as a part of the Annual Review.
Actual Distributions shall be verified against the schedules during each Annual Review. If the schedules submitted for the Annual Review are the same as the schedules previously submitted to the Office for prior calculations and no further Distributions are proposed, the Office will not need to make new calculations at that time.
Distributions Review
Thereafter, the CAPCO shall submit to the Office complete schedules (which shall include future estimated amounts as described previously) when proposing to make a Distribution. Such schedules shall be submitted to the Office thirty days prior to a proposed Distribution and shall provide a cumulative record of the required information including specific dates on which transactions occurred (or shall occur) beginning with the Allocation Date for the Specific Pool of Certified Capital and continuing through the date of submittal. The CAPCO shall also have calculated the amount of transfers identified in 10-3.5-108(3) utilizing either the internal rate of return calculation or the 15% calculation method as further described in these regulations.
On a case-by-case basis, the Office will consider extending the "Indebtedness exception" to repayments of debt to equity holders (except for Qualified Debt instruments) and related/affiliated entities, will consider not defining the principal amount loaned as Indebtedness and will consider not including the principal amount loaned as a Distribution for the purpose of the IRR calculation. However as approved on a case-by-case basis, interest and other forms of return (above and beyond the principal amount loaned) will not be defined as Indebtedness but shall be defined as a Distribution and shall be included in the IRR calculation for these type of transactions. Additionally, this paragraph does not apply to Qualified Debt instruments (including payment of principal and interest) that will be included in the IRR calculation as specifically stated in the Statute. A CAPCO shall not convert equity to debt and use the exceptions provided in this paragraph-meaning that any such conversions shall be treated as equity for the purposes of the IRR calculations.
The CAPCO shall make the transfers required pursuant to 10-3.5-108(3)(c) and (d). However, Distributions to pay any projected increase in federal or state taxes of the equity owners of a CAPCO resulting from operations or ownership of the CAPCO, Distributions to repay principal and interest on a CAPCO's Indebtedness, including repayments of Indebtedness of the CAPCO on which Certified Investors earned premium tax credits, payments on items specifically approved under the "Indebtedness exception" or Distributions to return equity capitalization paid into the CAPCO before May 28, 2004, shall either be reported to the Division of Housing or accrued for reporting at a later date as determined by the Economic Development Commission. In no event shall this paragraph restrict a CAPCO's ability to make repayments of Indebtedness, including making repayments of Indebtedness of the CAPCO on which Certified Investors earned premium tax credits.
The CAPCO shall report to the Division of Housing in the Department of Local Affairs within 30 days of receiving notification from the Office the amount of money equal to 15% of the proposed Distribution amount (or actual Distributions that have already occurred on or after May 27, 2004 for the initial review to take place upon the adoption of these regulations). However, this calculation shall not include Qualified Distributions or Distributions to pay any projected increase in federal or state taxes of the equity owners of a CAPCO resulting from operations or ownership of the CAPCO, or Distributions to repay principal and interest on a CAPCO's Indebtedness, including repayments of Indebtedness of the CAPCO on which Certified Investors earned premium tax credits, payments on items specifically approved under the "Indebtedness exception" or Distributions to return equity capitalization paid into the CAPCO before May 28, 2004.
In order for the Office to verify items exempted under the definition of "Indebtedness" and thus not included as a Distribution for the purpose of the 15% calculations, a CAPCO shall submit a certified statement signed by both the unrelated, unaffiliated entity/third party and the CAPCO stating that the transaction does not meet the definition of "Indebtedness". Such certified statement shall be submitted to the Office for its concurrence prior to the CAPCO beginning to make payments related to such transaction and shall clearly delineate all payments to be made.
On a case-by-case basis, the Office will consider extending the "Indebtedness exception" to repayments of debt to equity holders (except for Qualified Debt Instruments) and related/affiliated entities, will consider not defining the principal amount loaned as Indebtedness and will consider not including the principal amount loaned as a Distribution for the purpose of the 15% calculations. However as approved on a case-by-case basis, interest and other forms of return (above and beyond the principal amount loaned) will not be defined as Indebtedness but shall be defined as a Distribution and shall be included in the 15% calculation for these type of transactions. A CAPCO shall not convert equity to debt and use the exceptions provided in this paragraph-meaning that any such conversions shall be treated as equity for the purposes of the IRR calculations.
The CAPCO shall make the transfers required pursuant to 10-3.5-108(3)(c) and (d).
The CAPCO shall continue the 15% Distribution calculation until the internal rate of return exceeds 10%-at that time the IRR calculation described in #4 and #5 above will be used to determine transfer amounts. Amounts previously transferred shall be taken into consideration when determining the net amount of future transfers under the internal rate of return calculation.
Example - Distributions Review-Remittance of Proceeds
XYZ, a venture capital firm, applies to the Office to become a CAPCO. XYZ has $500,000 in equity capitalization and meets all other application requirements. The Office notifies XYZ that its application for certification has been approved.
XYZ submits Premium Tax Credit Allocation Claim forms totaling $10,000,000 out of the 2002 Statewide Pool. The Office is able to allocate all $10,000,000 in Premium Tax Credits to XYZ's Certified Investors. Ten percent (10%) of the Premium Tax Credit Allocations are available for use in Years 2 through 11 (ten years). Within the required 5 business days, XYZ receives all $10,000,000 of Certified Capital from its Certified Investors. The Certified Capital received from Certified Investors is comprised of $10,000,000 in Qualified Debt at an interest rate of 7%. Qualified Debt payments in this example are based on payments being made by a CAPCO over a twelve-year period and include payments of cash and Premium Tax Credits. If a 12-year level and fully amortizing payment schedule is used, the Qualified Debt payments (amount of cash and Premium Tax Credits) will be different. XYZ makes tax Distributions annually in years 3 thru 10.
XYZ shall invest the $10,000,000 of Certified Capital in Qualified Businesses. By the end of year 6, XYZ has made Qualified Investments cumulatively equal to: 100% of the Certified Capital allocated to its Certified Investors and met the 6-month requirement, and at least one-third of the Certified Capital allocated to its Certified Investors under the Statewide Pool in Qualified Businesses that are in seed or early stage.
For the purposes of this example, the schedules contained in this section have been received within 90 business days of the CAPCO's fiscal year end and report the following annual results:
In this example, the internal rate of return (IRR) and the Distributions are calculated annually at the end of each calendar year. However, calculations shall be made on a proposed Distribution and Annual Review basis as described within this section. The CAPCO does not report any amount to the Division of Housing until year 6 in accordance with the Statute and regulations, since the only Distributions made prior to year 6 are Qualified Debt and Tax Distributions. Additionally in years 1 through 8, the IRR is less than 10% and there is no requirement to report any portion of the Qualified Debt and the Tax Distributions to the Division of Housing. As of the end of year 6, the CAPCO is assumed to have invested cumulative amounts in Qualified Businesses equal to 100% of the Certified Capital allocated to it and makes a onetime Distribution of the initial "equity capitalization" of $500,000 (made prior to May 27, 2004). On 12/31 in years 6, 7 and 8, XYZ makes "Other Distributions" to XYZ Equity Holders of $1,500,000. Since the IRR does not exceed 10% in years 6, 7, or 8, the basis for the calculation of the amount reported to the Division of Housing in the Department of Local Affairs is determined to be the "Other Distributions" only, which equals $225,000 for each year, computed as 15% of $1,500,000. No other Distributions are included in this amount due to the IRR being less than 10% for that year. Therefore, in year 8 the cumulative payments reported to the Division of Housing since the IRR is less than 10% equals $675,000 (3 times $225,000).
In year 9, XYZ makes an "Other Distribution" to XYZ Equity Holders in the amount of $1,500,000 and Qualified Debt and Tax Distributions totaling $1,595,466. When the IRR is calculated for that year, it equaled 11.62%. Since the IRR exceeds 10%, the Office then determines the basis for the calculation of the amount to be reported to the Division of Housing. The basis for year 9 is calculated by taking the total Distributions of $3,095,466 (not including Qualified Distributions) minus the Distributions needed to generate a 10% IRR ($1,167,000) which equals $1,928,466. The amount to be reported to the Division of Housing is $0, using the 20% calculation, $1,928,466 times 20% or $385,693 less $385,693 in credit due to XYZ for payments made in years when there were Distributions made and the IRR was less than 10%. This results in an outstanding credit still due to XYZ of $289,307 ($675,000-$385,693). In year 10, XYZ makes an "Other Distribution" to XYZ Equity Holders totaling $1,500,000 and Qualified Debt and Tax Distributions totaling $1,595,466. When the IRR is calculated for that year, it equals 13.57%. Since the IRR exceeds 10%, the Office then determines the basis for the calculation of the amount to be reported to the Division of Housing. The basis for year 10 since the IRR exceeded 10% in year 9 is calculated by taking the total Distributions of $3,095,466 (not including Qualified Distributions). The amount to be reported to the Division of Housing is $329,786, using the 20% calculation is $3,095,466 times 20% or $619,093 less $289,307 in outstanding credit due to XYZ for payments made in years when there were Distributions made and the IRR was less than 10%. This results in no outstanding credit due to XYZ.
In year 11, XYZ makes an "Other Distribution" to XYZ Equity Holders totaling $1,500,000 and Qualified Debt and Tax Distributions totaling $1,000,000. When the IRR is calculated for that year, it equals 14.74%. Since the IRR exceeds 10%, the Office then determines the basis for the calculation of the amount to be reported to the Division of Housing. The basis for year 11 since the IRR exceeded 10% in year 9 is calculated by taking the total Distributions of $2,500,000 (not including Qualified Distributions). The amount to be reported to the Division of Housing is $500,000, using the 20% calculation is $2,500,000 times 20% or $500,000, there was no outstanding credit due to XYZ for payments made in years when there were Distributions made and the IRR was less than 10%. In year 12, XYZ does not make an "Other Distribution" to XYZ Equity Holders, but does make Qualified Debt Distributions totaling $500,000. When the IRR is calculated for that year, it equals 14.93%. Since the IRR exceeds 10%, the Office then determines the basis for the calculation of the amount to be reported to the Division of Housing. The basis for year 12 since the IRR exceeded 10% in year 9 is calculated by taking the total Distributions of $500,000 (not including Qualified Distributions). The amount to be reported to the Division of Housing is $100,000, using the 20% calculation is $500,000 times 20% or $100,000, there was no outstanding credit due to XYZ for payments made in years when there were Distributions made and the IRR was less than 10%.
In the event that XYZ is proposing a Distribution that will cause the IRR to exceed 10% and the proposed Distribution includes Qualified Debt Distributions, Tax Distributions and "Other Distributions", a CAPCO may make the Other Distributions first and calculate the amount to be reported to the Division of Housing using the 15% calculation method until the "Other Distributions" causes the IRR to be 10%. Once the
IRR is 10%, the CAPCO shall use the IRR/20% calculation method for the remainder of the "Other Distributions", Qualified Debt Distributions, and Tax Distributions to determine the total amount to be reported to the Division of Housing. In this type of situation only, a CAPCO may have a portion of its proposed Distribution amount reported to the Division of Housing from the 15% calculation plus a portion from the 20% calculation. In all other cases, only one calculation method shall be used.
Such Distributions Review shall continue on a proposed Distribution review basis and an Annual Distribution Review basis as described within these regulations.
NOTE: Internal Rate of Return calculations are computed using a Microsoft Excel spreadsheet with the Analysis Tool Pak - VBA and the XIRR formula.
ANNUAL REVIEW-DECERTIFICATION-PENALTIES 10-3.5-109 C.R.S.
The Office shall conduct an Annual Review of each CAPCO to determine whether the CAPCO is abiding by the requirements of certification, to advise the Certified Capital Company as to the eligibility status of its Qualified Investments, and to ensure that no investment has been made in violation of the Statute and this regulation.
Additional program information will be reviewed as needed. The cost of the Annual Review shall be paid by each CAPCO according to a reasonable fee schedule adopted by the Office. Upon completion of its review, the Office shall send an invoice for the Annual Review to the CAPCO. The total invoiced amount shall include the number of billable hours associated with the Annual Review and the Annual Review report. The billable hourly rate shall be $50 per hour. Payment shall be due within 30 business days from the date of the invoice. Payment shall be made by certified, cashier's check, or company check.
Decertification-Penalties
CAPCO No Longer Subject To Regulation By Office
A CAPCO shall no longer be subject to regulation by the Office except insofar as is necessary to oversee the Distributions made pursuant to 10 3.5 108 (3) (b), C.R.S. if the following requirements have been met:
Material Determination
In all cases, the Office reserves the right to determine the materiality of a requested item unless such item has specifically been addressed in the Statute or this regulation.
Use, Transfer and/or Sale of Premium Tax Credits
Due to the "estimated" nature of quarterly tax payments, Premium Tax Credits may only be used on an annual basis against actual Premium Tax Liabilities. Premium Tax Credits may first be used for the March payment that is due in 2004, with regard to the actual tax liability for the calendar year 2003.
The Premium Tax Credits, established pursuant to the Statute for this program, may be transferred or sold. A transfer or sale shall not affect the time schedule for taking the Premium Tax Credit as provided in the Statute in 10-3-5.105, C.R.S.
In the event of a change in ownership or control of the holder of Premium Tax Credits, transfers of such Premium Tax credits to a new owner may occur without being subject to the once per calendar year limitation except that such transfers shall occur no later than December 31st of each calendar/tax year in order to be valid for Premium Taxes related to such calendar/tax year ending December 31st which are due on March 1st of the following calendar/tax year.
EXHIBIT A
COLORADO OFFICE OF ECONOMIC DEVELOPMENT & INTERNATIONAL TRADE (Office)
PRE-EXISTING QUALIFIED INVESTMENT AS SEED/EARLY STAGE INVESTMENT CERTIFICATION FOR THE 2002 POOL
Seed or early stage, in reference to a Qualified Business, means that the Qualified Business, at the time of the initial Qualified Investment, either: (please check which of the below situation(s) were true at the time of the initial Qualified Investment)
I do hereby certify that we have read and understand the above statement and that this information and documentation supplied to the Colorado Office of Economic Development & International Trade for review is true and accurate.
8 CCR 1501-2
Annotations The rule section entitled "Annual Audit by an Independent Certified Public Accountant" (adopted 09/15/ 2006) was not extended by House Bill 07-1167 and therefore expired 05/15/2007.