N.Y. Tax Law § 11: Certified capital companies

§ 11. Certified capital companies. (a) Definitions. For the purpose of

this section the following terms shall mean:

(1) "Certification date" - the date on which a certified capital

company is so designated by the department for a specific certified

capital company program.

(2) "Certified capital" - an investment of cash by a certified

investor in a certified capital company which fully funds the purchase

price of either or both its equity interest in the certified capital

company or a qualified debt instrument issued by the certified capital

company. Any such investment shall be subject to the provisions of

article fourteen of the insurance law.

(3) "Certified capital company" - a partnership, corporation, trust or

limited liability company, organized on a for-profit basis that is

located, headquartered and licensed or registered to conduct business in

New York, that has as its primary business activity the investment of

cash in qualified businesses and that is certified by the department as

meeting the criteria set forth in subdivision (b) of this section.

(4) "Certified investor" - any insurance company that contributes

certified capital.

(5) "Department" - the department of financial services; provided,

however, that "department" shall mean the department of economic

development with regard to any application, certification, report,

submission, filing or other action required or governed by this section

occurring on or after August first, two thousand eleven.

(6) "Net profits on certified investments" - the amount of money

returned to the certified capital company in repayment of or exchange

for the certified capital company's qualified investment or investments

in the qualified business in excess of the amount of such qualified

investment or investments. Such number shall aggregate all of the

certified capital company's qualified investments where gains on

qualified investments are netted against losses on qualified

investments.

(7) "Qualified business" - an independently owned and operated

business that meets all of the following conditions as of the time of

the first investment in the business:

(A) It is headquartered in New York state, and its principal business

operations are located in New York state, and the qualified investment

it receives is used solely to support its business operations in the

state, except for advertising, promotions and sales purposes. In cases

where the qualified investment is made in a start-up company such

capital must be used solely to establish and support its business

operations in New York state, except for advertising, promotions and

sales purposes.

(B) It has either (i) no more than one hundred employees, at least

eighty percent of whom are employed in New York state or, (ii) no more

than two hundred employees, at least eighty percent of whom are employed

in this state, and during the fiscal year immediately preceding the

qualified investment it had, together with its affiliates, gross

revenues of no more than five million dollars, on a consolidated basis

as determined in accordance with generally accepted accounting

principles, except that, with respect to certified capital company

program three and certified capital company program four and certified

capital company program five, in the case of a company located in an

empire zone established pursuant to article eighteen-B of the general

municipal law such gross revenues shall not exceed eight million

dollars.

(C) It is involved in commerce for the purpose of developing and

manufacturing products and systems, including but not limited to high

technology products and systems such as computers, computer software,

medical equipment, biotechnology, telecommunications equipment and

products, processing or assembling all types of products, conducting

research and development on all types of products or providing services,

but excluding real estate, real estate development, insurance and

businesses predominantly engaged in professional services provided by

accountants, lawyers or physicians.

(D) The business was not organized by a certified capital company or

an affiliate of a certified capital company, but this paragraph shall

not prohibit a certified capital company from providing financial,

technical or similar advice to a business before making an investment in

such business.

(E) The business does not have a financial relationship, such as an

ownership interest, investment interest, or compensation agreement, with

a certified capital company or any affiliate of a certified capital

company before the date on which a certified capital company makes its

first investment in the business, but this paragraph shall not prohibit

a certified capital company from providing financial, technical or

similar advice to a business before making an investment in such

business.

(F) For purposes of this paragraph, the term "independently owned and

operated business" means (i) in the case of a corporation or limited

liability company, a corporation where no more than fifty percent of the

voting stock of the corporation or limited liability company is owned or

controlled, directly or indirectly, by a single corporation, a single

partnership or a single limited liability company, and (ii) in the case

of a partnership, association, or other entity, a partnership,

association or other entity where no more than fifty percent of the

capital, profits or other beneficial interest in such partnership,

association or other entity is owned or controlled, directly or

indirectly, by a single corporation, a single partnership or a single

limited liability company; provided, however, that the term shall

include, as a single "independently owned and operated business," parent

and subsidiary or affiliated corporations or limited liability companies

(i) that are engaged in an integrated for-profit business enterprise,

and (ii) in which at least eighty percent of the voting stock or

membership interests of all of the corporations or limited liability

companies is owned or controlled, directly or indirectly, by a common

group of shareholders or members, and no more than fifty percent of the

voting stock or membership interests of all of the corporations or

limited liability companies is owned or controlled, directly or

indirectly, by a single corporation, single partnership, or single

limited liability company that is not part of such group or parent

company or affiliated corporations or limited liability companies.

(8) "Qualified debt instrument" - a debt instrument issued by a

certified capital company, at par value or a premium, with an original

maturity date of at least five years from date of issuance, a repayment

schedule which is not faster than a level principal amortization, and

interest, distribution or payment features which are not related to the

profitability of the certified capital company or the performance of the

certified capital company's investment portfolio.

(9) "Qualified distribution" - any distribution or payment by a

certified capital company in connection with the following:

(A) Reasonable costs and expenses of such equity holders incurred by

such equity holders in connection with forming, syndicating, managing

and operating the certified capital company, including (i) an annual

management fee in an amount that does not exceed two and one-half

percent of the certified capital of the certified capital company with

respect to a particular certified capital company program; (ii) the

reasonable and necessary fees paid for professional services (such as

legal and accounting services) related to the operation of the certified

capital company; (iii) with respect to program four and any subsequent

program, all payments by the certified capital company in satisfaction

of its indebtedness to its certified investors, provided that no more

than thirty-five percent of such certified capital company's certified

capital may be used to purchase U.S. treasury securities, other

investment-grade securities, a guaranty, indemnity, bond, insurance

policy or other payment undertaking, or any combination thereof; and

provided further, that nothing in this provision shall be construed to

limit a certified capital company from expending non-certified capital

in satisfaction of such indebtedness; and (iv) with respect to program

four and any subsequent program, the reasonable costs and expenses of

forming, syndicating, or organizing the certified capital company,

separate from the costs of insuring or defeasing the obligations of the

certified capital company, provided, however, that such costs and

expenses shall not exceed five percent of the certified capital

company's certified capital; and

(B) Any increase or projected increase in federal or state taxes,

including penalties and interest related to state and federal income

taxes, of the equity owners of a certified capital company resulting

from the earnings or other tax liability of the certified capital

company to the extent that the increase is related to the ownership,

management or operation of a certified capital company.

(10) "Qualified investment" - the investment of cash by a certified

capital company in a qualified business for the purchase of any debt,

equity or hybrid security, of any nature and description whatever,

including a debt instrument or security which has the characteristics of

debt but which provides for conversion into equity or equity

participation instruments such as options or warrants, provided however,

in the case of certified capital programs three, four and five, that any

such debt instrument have a maturity of at least twenty-four months from

the date such debt is incurred; and further provided that a certified

capital company, after the investment and assuming full conversion and

exercise of any equity participation instruments, shall not own more

than fifty percent of the voting equity of the qualified business,

except in the case of a follow-on investment where a specific exemption

is granted by the department under subparagraph (D) of paragraph one of

subdivision (c) of this section. Furthermore, except in the case of a

follow-on investment, if a certified capital company owns more than

fifteen percent of the equity in a company or has a seat on the board of

directors of such company, then a certified capital company cannot

invest in such company unless the following conditions are met: (i) at

least one other investor who is not an affiliate of the certified

capital company participates in the same round of investment on the same

terms and conditions as the certified capital company; and (ii) the

certified capital company and its affiliates invest no more than fifty

percent of the total investment made in that round of investment.

(11) "Early stage business" - a qualified business which is involved,

at the time of investment, in activities related to the development of

initial product or service offerings, such as prototype development or

establishment of initial production or service processes, or, which is

less than two years old and during the fiscal year immediately preceding

the qualified investment had, together with its affiliates, gross

revenues of no more than two million dollars, on a consolidated basis as

determined in accordance with generally accepted accounting principles.

(12) "Superintendent" - the superintendent of financial services;

provided, however, that "superintendent" shall mean the commissioner of

economic development with regard to any application, certification,

report, submission, filing or other action required or governed by this

section occurring on or after August first, two thousand eleven.

(13) "Certified capital company program" - a calendar year or years

for which taxpayers may be allocated and allowed credits pursuant to

this section and subdivision (k) of section fifteen hundred eleven of

this chapter and delineated as a separate program by this section.

(14) "Starting date" - the date on which a certified capital company

is allocated certified capital for a specific certified capital company

program pursuant to subdivision (b) of this section.

(15) "Underserved area" - a county, including a county wholly within a

city, in which, as of January first, two thousand, less than twenty-five

percent of the qualified investments in qualified businesses were made

by certified capital companies under certified capital company program

one. The superintendent shall prepare a list of such counties by July

first, two thousand.

(16) "Start-up business" - a qualified business which is involved, at

the time of investment, in activities related to the development of

initial product or service offerings, such as prototype development or

establishment of initial production or service processes, or, which is

less than two years old and during the fiscal year immediately preceding

the qualified investment had, together with its affiliates, gross

revenues of no more than two million dollars, on a consolidated basis as

determined in accordance with generally accepted accounting principles

and has fewer than twenty employees at the time of the investment; and,

in addition, which has emerged within the year prior to the date of

investment or is emerging from, or utilizes a technology transferred

from, a university or college research facility located in New York

state, a not-for-profit research facility located in New York state, or

an industrial research facility located in New York state, or which is

conducting research in conjunction with or in the research facilities of

a university or college located in New York state, or which is located

in or has emerged within the year prior to the date of investment or is

emerging from an incubator facility located in New York state.

(b) Certification. (1) The superintendent shall establish by rule or

regulation the procedures for making an application to become a

certified capital company. The applicant shall pay a non-refundable

application fee of five hundred dollars at the time of filing the

application with the department.

(2) The superintendent may certify partnerships, corporations, trusts

or limited liability companies, organized on a for profit basis, which

submit an application to be designated as a certified capital company if

such applicant is located, headquartered and licensed or registered to

conduct business in New York, has as its primary business activity the

investment of cash in qualified businesses and meets the other criteria

set forth in this subdivision.

(3) A certified capital company's initial capitalization, at the time

of seeking certification, must be five hundred thousand dollars or more.

(4) The superintendent shall review the organizational documents of

each applicant for certification and the business history of the

applicant, determine that the applicant's cash, marketable securities

and other liquid assets are at least five hundred thousand dollars, and

determine that the officers and the board of directors, general

partners, trustees, managers, or members are trustworthy and are

thoroughly acquainted with the requirements of this subdivision.

(5) The superintendent shall verify that at least two principals of

the certified capital company or any manager of the certified capital

company each have no less than five years of experience in the venture

capital or a venture capital-related industry.

(6) Any offering material involving the sale of securities of the

certified capital company shall include the following statement:

"Authorizing the formation of a Certified Capital Company does not

constitute the endorsement of the state of New York as to either the

quality of management or the potential for earnings of such company and

the state of New York 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

state of New York.

Investments in a prospective Certified Capital Company prior to the

time such company is certified with respect to a certified capital

company program are not eligible for tax credits. In the event certain

statutory provisions (as specified in section 11 of the Tax Law) are

violated, the state of New York may require forfeiture of unused tax

credits and repayment of used tax credits."

(7) Within sixty days of application, the superintendent shall issue

the certification or shall refuse the certification and communicate in

detail to the applicant the grounds for the refusal, including

suggestions for the removal of those grounds.

(8) The superintendent may certify any previously certified capital

company which has remained in compliance with the requirements of this

section upon the application of such company to be designated a

certified capital company for a certified capital company program for

which it is not so designated. Such new certification shall be

considered a separate certification from any other such certification

under this section and investments in and by such company shall be

considered separately for purposes of subdivisions (c) and (d) of this

section.

(9) The superintendent shall start accepting applications to become a

certified capital company in certified capital company program two by

November first, nineteen hundred ninety-nine, and shall start accepting

applications to become a certified capital company in certified capital

company program three by August first, two thousand, and shall begin

accepting applications to become a certified capital company in

certified capital company program four by the later of August first, two

thousand four or not more than sixty days after the effective date of

section one of part D of chapter fifty-nine of the laws of two thousand

four and shall begin accepting applications to become a certified

capital company in certified capital company program five by the later

of July first, two thousand five or not more than sixty days after the

effective date of the chapter of the laws of two thousand five which

amended this paragraph.

(10) A certified capital company may obtain a guaranty, indemnity,

bond, insurance policy and/or other payment undertaking for the benefit

of its certified investors from any entity; provided, however, that, in

no case shall more than one certified investor of such certified capital

company or affiliates of such certified investor be entitled to provide

such guaranty, indemnity, bond, insurance policy and/or other payment

undertaking in favor of the certified investors of the certified capital

company and its affiliates in this state.

(c) Requirements for continuance of certification. (1) To continue to

be certified with respect to a particular certified capital company

program, a certified capital company must make qualified investments

according to the following schedule:

(A) Within two years after the starting date of a specific certified

capital company program of a certified capital company, at least

twenty-five percent of its certified capital allocable to such certified

capital company program must be placed in qualified investments.

(B) Within three years after the starting date of a specific certified

capital company program of a certified capital company, at least forty

percent of its certified capital allocable to such certified capital

company program must be placed in qualified investments.

(C) Within four years after the starting date of a specific certified

capital company program of a certified capital company, at least fifty

percent of its certified capital allocable to such certified capital

company program must be placed in qualified investments, at least fifty

percent of which must have been placed in early stage businesses, except

that in the case of program four and any subsequent program, at least

twenty-five percent of which must have been placed in early stage

businesses and an additional twenty-five percent of which must have been

placed in start-up businesses, and except that in the case of qualified

investments made in qualified businesses located in empire zones

established pursuant to article eighteen-B of the general municipal law

under the provisions of certified capital company program three, program

four and program five from allocations of certified capital made

specifically for such targeted investments in such zones, the

requirement for qualified investments in early stage and start-up

businesses shall not apply.

(D) A certified capital company, at least fifteen working days prior

to making a proposed investment in a specific business, shall certify in

writing to the superintendent that (i) the business in which it proposes

to invest meets the definition of a qualified business as set forth in

subdivision (a) of this section or, in the case of a follow-on

investment, that such business continues to meet the requirements set

forth in subparagraphs (A) and (C) of paragraph seven of subdivision (a)

of this section and, in either case, an explanation of its determination

that the business meets such requirements, and (ii) with respect to

certified capital company program three, program four and program five,

whether or not such business is located in an empire zone established

pursuant to article eighteen-B of the general municipal law or in an

underserved area outside an empire zone. The certification to the

superintendent shall include a sworn statement from the business in

which the certified capital company proposes to invest, which statement

shall evidence the intention of the business to maintain its

headquarters in New York and conduct its primary business operations in

the state of New York after its receipt of the investment by the

certified capital company. If the superintendent determines that the

business does not meet the definition of a qualified business, or, in

the case of a follow-on investment, that such business does not meet the

requirements set forth in subparagraphs (A) and (C) of paragraph seven

of subdivision (a) of this section, then it shall, within the fifteen

working day period prior to the making of the proposed investment,

notify the certified capital company of its determination and provide an

explanation thereof, provided, however, that the department may, upon

written request of a certified capital company and at the discretion of

the department, grant, in writing, an exemption to the percentage

limitations of paragraph ten of subdivision (a) of this section.

(E) All certified capital not placed in qualified investments by the

certified capital company may be held or invested in such manner as the

certified capital company, in its discretion, deems appropriate. The

proceeds of all certified capital returned to a certified capital

company after being originally placed in qualified investments may be

placed again in qualified investments and shall count toward any

requirement in this subdivision with respect to placing certified

capital in qualified investments.

(F) If within ten years after the starting date of certified capital

company program four or program five, and within twelve years after the

starting date of certified capital company programs one, two, and three,

one hundred percent of the certified capital allocable to a certified

capital company participating in such program has not been placed in

qualified investments, the specific certified capital company shall no

longer be permitted to receive management fees; provided that such

restriction shall not apply (i) with respect to certified capital

company programs one, two, and three, to any certified capital company

that has not, prior to October thirty-first, two thousand four,

received, as opposed to accrued, any management fees, or (ii) with

respect to any certified capital company program, to a certified capital

company in which at least fifty percent of the voting stock, capital,

membership interests, or other beneficial ownership interests, as the

case may be, are owned by an entity that is managed, directly or

indirectly, by a non-profit corporation.

(2) Any business which is classified as a qualified business at the

time of the first investment in said business by a certified capital

company shall remain classified as a qualified business and may receive

follow-on investments from any certified capital company, and such

follow-on investments shall be qualified investments even though such

business may not meet the definition of a qualified business at the time

of such follow-on investments, provided, however, that such business

continues to meet the requirements set forth in subparagraphs (A) and

(C) of paragraph seven of subdivision (a) of this section, and such

business reaffirms its intention to maintain its headquarters in New

York and conduct its primary business operations in the state of New

York as required in subparagraph (D) of paragraph one of this

subdivision.

(3) No qualified investment may be made by a certified capital company

to the extent such investment would cause the company's total qualified

investment outstanding with respect to the qualified business receiving

such investment to exceed fifteen percent of the total certified capital

of the certified capital company at the time of such investment.

(4) Documents and other materials submitted by certified capital

companies or by businesses for purposes of the continuance of

certification shall not be public records if such records are determined

by the superintendent to be trade or business secrets and shall be

maintained in a confidential manner by the superintendent.

(5) The aggregate cumulative amount of all qualified investments made

by the certified capital company for a certified capital company program

from its starting date for such program will be considered in the

calculation of the percentage requirements under subparagraphs (A), (B)

and (C) of paragraph one of this subdivision, provided, however, that

any amounts received by a certified capital company from a qualified

business as (i) commitment fees, closing fees, or other similar fees

(excluding reimbursement of out-of-pocket expenses, including legal fees

and accounting fees) in excess of one percent of the certified capital

company's investment in the qualified business or (ii) license fees,

royalties, or similar charges shall not be considered in any of the

percentage calculations under this section.

(6) Each certified capital company shall report the following to the

superintendent:

(A) As soon as practicable after the receipt of certified capital or

an irrevocable funding commitment subject only to the receipt of an

allocation pursuant to subdivision (h) of this section, (i) the name of

each certified investor from which the certified capital was received,

including such certified investor's insurance tax identification number;

(ii) the amount of each certified investor's investment of certified

capital; and (iii) the date on which the certified capital was received.

Provided, however, that requests for allocation of tax credits with

respect to certified capital company program two by certified capital

companies on behalf of their certified investors which are received by

the superintendent on or before March first, two thousand shall be

treated as having been received on March first, two thousand for tax

credits to be utilized in two thousand one, and if satisfactory, shall

be given equal priority for allocation, and provided, however, that

requests for allocation of tax credits with respect to certified capital

company program three by certified capital companies on behalf of their

certified investors which are received by the superintendent on or

before December first, two thousand shall be treated as having been

received on December first, two thousand for tax credits to be utilized

in two thousand two, and if satisfactory, shall be given equal priority

for allocation, and provided, however, that requests for allocation of

tax credits with respect to certified capital company program four by

certified capital companies on behalf of their certified investors which

are received by the superintendent on or before December first, two

thousand four shall be treated as having been received on December

first, two thousand four for tax credits to be utilized in two thousand

six, and if satisfactory, shall be given equal priority for allocation,

and provided, however, that requests for allocation of tax credits with

respect to certified capital company program five by certified capital

companies on behalf of their certified investors which are received by

the superintendent on or before the later of (i) November first, two

thousand five and (ii) the one hundred twentieth day after the date on

which the superintendent began accepting applications for certification

in connection with certified capital company program five pursuant to

paragraph nine of subdivision (b) of this section shall be treated as

having been received on such later date for tax credits to be utilized

in two thousand seven, and if satisfactory, shall be given equal

priority for allocation.

(B) On an annual basis, on or before January thirty-first of each

year, (i) the amount of the certified capital company's certified

capital at the end of the immediately preceding year; (ii) whether or

not the certified capital company has invested more than fifteen percent

of its total certified capital in any one business; (iii) all qualified

investments that the certified capital company made during the previous

calendar year, including the number of employees of each qualified

business in which it has made investments at the time of such investment

and as of December first of the preceding calendar year. For any

qualified business where the certified capital company no longer has an

investment, the certified capital company shall provide employment

figures for such company as of the last day before the investment was

terminated. Such report shall provide a separate accounting by each

certified capital company program; and (iv) all qualified investments

made in empire zones and underserved areas outside such empire zones as

required under certified capital company program three, certified

capital company program four and certified capital company program five.

(C) Each certified capital company shall provide to the superintendent

annual audited financial statements, which shall include the opinion of

an independent certified public accountant, within ninety days of the

close of its fiscal year. The audit shall address whether the funds

received by the certified capital company have been invested as required

under subparagraphs (A), (B) and (C) of paragraph one of this

subdivision. Upon receiving notification and documentation by a

certified capital company that it has satisfied the requirements of

subparagraph (C) of paragraph one of this subdivision that it has

invested fifty percent of its certified capital, the department shall

have sixty days to notify such certified capital company that it has or

has not met such requirement, with a reason for such determination if it

has not, in the judgment of the department, met such requirement. If the

department does not provide such notification within sixty days, the

certified capital company shall then be deemed to have met such

requirement.

(D) On or before April first of each year, each certified capital

company shall pay an annual, non-refundable certification fee of five

hundred dollars to the superintendent; provided that no such fee shall

be required within six months of the initial certification date of a

certified capital company.

(E)(1) Within thirty days of the decision on an application for

certification pursuant to subdivision (b) of this section, the

superintendent shall submit a copy of such application and the related

decision to the department of taxation and finance. The superintendent

shall submit a copy of all filings of certifications pursuant to

subparagraph (D) of paragraph one of this subdivision and any

determination made thereon within fifteen days of such filing.

(2) The superintendent shall annually, by March first, submit to the

department of taxation and finance a list of persons who may claim the

tax credit for the previous taxable year and any other information

necessary to assist the department of taxation and finance to determine

eligibility for such tax credit.

(d) Distributions. (1) A certified capital company may make qualified

distributions at any time. In order for a certified capital company to

make a distribution other than a qualified distribution from a certified

capital company program, to its equity holders, either (A) the aggregate

cumulative amount of all qualified investments for such program must

equal or exceed one hundred percent of its certified capital allocable

to such certified capital company program, or (B) it must have received

written authorization to make such distribution from the superintendent.

In no event, however, shall any such distribution to its equity holders,

other than a qualified distribution, be made by a certified capital

company from a certified capital company program unless an amount equal

cumulatively to at least ninety percent of its certified capital of such

program is invested in companies that conduct their principal business

operations in New York state.

(2) In the event that a business in which a qualified investment is

made relocates its principal business operations to another state during

such investment, or within three months after the termination of such

investment, the cumulative amount of qualified investment shall be

reduced by the amount of such qualified investment, for the purposes of

this subdivision only, unless (A) the certified capital company invests

an amount at least equal to the investment of certified capital in the

relocated business in a qualified business located in New York state

within six months of the relocation or (B) unless the business

demonstrates that it has returned its principal business operations to

New York state within three months of such relocation. A business shall

be deemed to have relocated its principal business operations outside

New York state if the primary workplace of more than fifty percent of

the employees of such business within the state is relocated to another

state.

(3) In the event that a business in which a qualified investment is

made under certified capital company program three, certified capital

company program four or certified capital company program five,

relocates its principal business operation within the earlier of four

years after the date of such qualified investment or three months after

the termination of such investment, whereby the requirements of

paragraph three of subdivision (h) of this section to make qualified

investments in qualified businesses located in empire zones established

pursuant to article eighteen-B of the general municipal law or in

underserved areas outside such empire zones no longer are satisfied, the

cumulative amount of qualified investment shall be reduced by the amount

of such qualified investment, for the purposes of this subdivision only,

unless (A) the certified capital company invests an amount at least

equal to the investment of certified capital in the relocated business

in a qualified business located in either an empire zone or in an

underserved area outside an empire zone so that the requirements of

paragraph three of subdivision (h) of this section are again satisfied

within six months of such relocation, unless the certified capital

company certifies to the superintendent that a good faith effort was

made to make additional qualifying investments under the requirements of

paragraph three of subdivision (h) of this section, or (B) the business

demonstrates that it has returned its principal business operation to

New York state in either an empire zone or in an underserved area

outside an empire zone within three months of such relocation, or (C)

the business demonstrates that it had a valid business purpose for

relocating its principal business operation. A business shall be deemed

to have relocated its principal business operations outside of an empire

zone or an underserved area outside an empire zone if the primary

workplace of more than fifty percent of the employees of such business

within an empire zone or an underserved area outside an empire zone is

relocated to an area outside the state or outside an empire zone or an

underserved area outside an empire zone.

(4) Payments to debt holders of a certified capital company may be

made without restriction with respect to repayments of principal and

interest on indebtedness owed to them by a certified capital company,

including indebtedness of the certified capital company on which

certified investors earned tax credits. A debt holder that is also a

certified investor or equity holder of a certified capital company may

receive payments with respect to such debt without any restriction

whatsoever.

(5) A certified capital company that receives certified capital

investments under program four and any subsequent program shall pay to

the department for deposit in the general fund an amount equal to thirty

percent of the net profits on qualified investments. A certified capital

company shall make all payments required under this paragraph

concurrently with and pro rata to distributions of profits and gains to

its equity owners; however, nothing contained in this paragraph shall be

construed to affect qualified distributions.

(6) The amount of any payment required under paragraph five of this

subdivision shall be reduced to fifteen percent of such net profits on

qualified investments if, at the time of such net profits distribution,

such certified capital company irrevocably commits to both: (A)

re-invest the remaining fifteen percent of such net profits not being

paid to the general fund under paragraph five of this subdivision into

qualified businesses, and (B) invest an additional amount equal to at

least fifteen percent of such net profits distribution into qualified

businesses which additional amount shall come from a separate pool of

venture capital that is controlled by the certified capital company but

that does not contain certified capital. In making investments from

funds established under this paragraph, the certified capital company

shall follow the requirements set forth in subparagraph (D) of paragraph

one of subdivision (c) of this section pertaining to obtaining approval

of the investment being in a qualified business, except that

requirements pertaining to empire zones and underserved areas

requirements shall not apply. Once qualified investments in qualified

businesses have been made pursuant to this paragraph equal to thirty

percent of the net profits on qualified investments, then the

requirements under this subdivision shall have been satisfied and the

proceeds from such qualified businesses may be distributed without

restriction.

(e) Decertification. (1) The superintendent shall conduct an annual

review of each certified capital company to determine if the certified

capital company 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 this subdivision. The cost of the annual review shall be

paid by each certified capital company according to a reasonable fee

schedule adopted by the superintendent.

(2) Any material violation of subdivision (c) of this section with

respect to a particular certified capital company program shall be

grounds for decertification of the certified capital company with

respect to such program. If the superintendent determines that a

certified capital company is not in compliance with the requirements of

subdivision (c) of this section with respect to a particular certified

capital company program, it shall, by written notice, inform the

officers of the certified capital company that the certified capital

company will be subject to decertification with respect to such program

in one hundred twenty days from the date of mailing of the notice,

unless the deficiencies are corrected and the certified capital company

is again in compliance with all requirements for certification.

(3) At the end of the one hundred twenty day grace period, if the

certified capital company is still not in compliance with subdivision

(c) of this section with respect to a particular certified capital

company program, the superintendent shall send a notice of

decertification to the certified capital company with respect to such

program and to all other appropriate state agencies.

(4) Notwithstanding the provisions of paragraphs two and three of this

subdivision, if a certified capital company in certified capital company

programs three, four and five fails to satisfy the requirement in

subparagraph (B) of paragraph one of subdivision (c) of this section

because it has been unable to make a sufficient amount of qualified

investments in qualified businesses located either in empire zones

established pursuant to article eighteen-B of the general municipal law

or in underserved areas outside such empire zones, such certified

capital company shall not be subject to decertification at that time.

However, if such certified capital company fails to satisfy the

requirement in subparagraph (C) of paragraph one of subdivision (c) of

this section because it has been unable to make a sufficient amount of

qualified investments in qualified businesses located either in such

empire zones or in underserved areas outside such empire zones, but

certifies to the superintendent that it had made a good faith effort to

make such investments, such certified capital company shall be allowed

two additional years to satisfy the requirement in such subparagraph

(C). If, after the conclusion of such two year period, the certified

capital company still has not been able to satisfy the requirement to

make such investments, and such certified capital company certifies to

the superintendent that it had made a good faith effort to make such

investments, the requirement in paragraphs three, four and five of

subdivision (h) of this section to make qualified investments in

qualified businesses located in empire zones or in underserved areas

shall be waived. Such certified capital company shall then be allowed

one additional year to satisfy the requirement in such subparagraph (C),

and if, at the conclusion of that additional one year period, such

requirement is still not satisfied, such certified capital company shall

be subject to decertification and the provisions of paragraphs two and

three of this subdivision shall apply.

(5) Once a certified capital company has invested an amount

cumulatively equal to one hundred percent of its certified capital with

respect to a particular certified capital company program in qualified

investments and has met all other requirements under this subdivision,

the certified capital company shall no longer be subject to regulation

by the superintendent and shall no longer be subject to the requirements

of subdivision (c) of this section with respect to such program. Upon

receiving documented certification by a certified capital company that

it has invested an amount equal to one hundred percent of its certified

capital, the department shall have sixty days to notify such certified

capital company that it has or has not met such requirement with a

reason for such determination if it has not, in the judgment of the

department, met such requirement. If the department does not provide

such notification within sixty days, the certified capital company shall

then be deemed to have met such requirement.

(6) The superintendent shall send written notice of such

decertification to the address of each certified investor whose tax

credit has been subject to recapture or forfeiture, using the address

shown on the last filing submitted to the superintendent.

(f) Revocation of certification. The superintendent may revoke the

certification of a certified capital company, or, at the discretion of

the superintendent, the certification of a certified capital company

with respect to a particular certified capital company program only, if

any material representation to the superintendent in connection with the

application process proves to have been falsely made or if the

application materially violates any requirement established by the

superintendent pursuant to this subdivision. In addition, the

superintendent may revoke the certification of a certified capital

company if such certified capital company (i) falsely certified,

pursuant to paragraph three of subdivision (d) of this section that a

good faith effort was made to make additional qualifying investments

under the requirements of paragraph three of subdivision (h) of this

section, or (ii) falsely certified, pursuant to paragraph four of

subdivision (e) of this section, that it had made a good faith effort to

make a sufficient amount of qualifying investments in qualifying

businesses located in empire zones established pursuant to article

eighteen-B of the general municipal law or in underserved areas outside

such empire zones.

(g) Registration requirements. All investments for which tax credits

are allowable under the provisions of subdivision (k) of section fifteen

hundred eleven of this chapter shall satisfy the conditions of being

registered or specifically exempt from registration by provisions or

regulations under sections three hundred fifty-nine-e through three

hundred fifty-nine-ff of the general business law.

(h) Maximum permitted credits. (1) Certified capital company program

one. The aggregate amount of certified capital for which taxpayers may

be allocated and allowed tax credits pursuant to this paragraph and

subdivision (k) of section fifteen hundred eleven of this chapter may

not exceed fifty million dollars for calendar year nineteen hundred

ninety-nine, which certified capital may be invested in certified

capital companies beginning in calendar year nineteen hundred

ninety-eight. In calendar year two thousand or thereafter, tax credits

may be allowed pursuant to this paragraph and such subdivision (k) for

an additional fifty million dollars of certified capital, which

certified capital may be invested in certified capital companies

beginning in calendar year nineteen hundred ninety-nine, if not

allocated to calendar year nineteen hundred ninety-eight in accordance

with this paragraph. Therefore, the total amount of certified capital

for which tax credits may be allowed pursuant to this paragraph and such

subdivision (k) shall be one hundred million dollars.

During any calendar year in which the limitation described in this

paragraph will limit the amount of certified capital, certified capital

will be allocated in order of priority based upon the date of filing of

information described in subparagraph (A) of paragraph six of

subdivision (c) of this section. Certified capital limited in any

calendar year by the application of the provisions of this paragraph

shall be allowed and allocated in the immediately succeeding calendar

year in order of priority set forth in this paragraph. The

superintendent shall advise any certified capital company in writing

within fifteen days after receiving such filing, whether the limitations

of this paragraph then in effect will be applicable with respect to the

investments and credits described in such filing with the

superintendent.

Certified capital may be raised by each certified capital company with

respect to certified capital company program one at any time subsequent

to its certification date, and credits shall be allocated to and vested

in certified investors at the time of each such investment as provided

in this paragraph, although such credits shall not be first allowed or

incurred for state tax purposes, until, at the earliest, tax years

beginning in nineteen hundred ninety-nine with respect to the first

fifty million dollars of credits and tax years beginning in two thousand

with respect to the next such fifty million dollars of credits.

(2) Certified capital company program two. The aggregate amount of

certified capital for which taxpayers may be allocated and allowed tax

credits pursuant to this paragraph and subdivision (k) of section

fifteen hundred eleven of this chapter may not exceed thirty million

dollars for calendar year two thousand one, which certified capital may

be invested in certified capital companies beginning in calendar year

nineteen hundred ninety-nine.

During any calendar year in which the limitation described in this

paragraph will limit the amount of certified capital, certified capital

will be allocated in order of priority based upon the date of filing of

information described in subparagraph (A) of paragraph six of

subdivision (c) of this section. The superintendent shall advise any

certified capital company in writing, within fifteen days after

receiving such filing, whether the limitations of this paragraph then in

effect will be applicable with respect to the investments and credits

described in such filing with the superintendent.

Certified capital may be raised by each certified capital company with

respect to certified capital company program two at any time subsequent

to its certification date, and credits shall be allocated to and vested

in certified investors at the time of each such investment as provided

in this paragraph, although such credits shall not be first allowed or

incurred for state tax purposes, until, at the earliest, tax years

beginning in two thousand one.

(3) Certified capital company program three. The aggregate amount of

certified capital for which taxpayers may be allocated and allowed tax

credits pursuant to this paragraph and subdivision (k) of section

fifteen hundred eleven of this chapter may not exceed one hundred fifty

million dollars for calendar year two thousand two, which certified

capital may be invested in certified capital companies beginning in

calendar year two thousand.

During any calendar year in which the limitation described in this

paragraph will limit the amount of certified capital, certified capital

will be allocated in order of priority based upon the date of filing of

information described in subparagraph (A) of paragraph six of

subdivision (c) of this section. The superintendent shall advise any

certified capital company in writing, within fifteen days after

receiving such filing, whether the limitations of this paragraph then in

effect will be applicable with respect to the investments and credits

described in such filing with the superintendent.

Certified capital may be raised by each certified capital company with

respect to certified capital company program three at any time

subsequent to its certification date, and credits shall be allocated to

and vested in certified investors at the time of each such investment as

provided in this paragraph, although such credits shall not be first

allowed or incurred for state tax purposes, until, at the earliest, tax

years beginning in two thousand two. One-third of the certified capital

raised by each certified capital company with respect to certified

capital company program three shall be used to make qualified

investments in qualified businesses located in empire zones established

pursuant to article eighteen-B of the general municipal law, and

one-third of such certified capital shall be used to make qualified

investments in qualified businesses located in underserved areas outside

such empire zones.

(4) Certified capital company program four. The aggregate amount of

certified capital for which taxpayers may be allocated and allowed tax

credits pursuant to this paragraph and subdivision (k) of section

fifteen hundred eleven of this chapter may not exceed sixty million

dollars for calendar year two thousand six, which certified capital may

be invested in certified capital companies beginning in calendar year

two thousand four.

During any calendar year in which the limitation described in this

paragraph will limit the amount of certified capital, certified capital

will be allocated in order of priority based upon the date of filing of

information described in subparagraph (A) of paragraph six of

subdivision (c) of this section. The superintendent shall advise any

certified capital company in writing, within fifteen days after

receiving such filing, whether the limitations of this paragraph then in

effect will be applicable with respect to the investments and credits

described in such filing with the superintendent.

Certified capital may be raised by each certified capital company with

respect to certified capital company program four at any time subsequent

to its certification date, and credits shall be allocated to and vested

in certified investors at the time of each such investment as provided

in this paragraph, although such credits shall not be first allowed or

incurred for state tax purposes, until, at the earliest, tax years

beginning in two thousand six. One-third of the certified capital raised

by each certified capital company with respect to certified capital

company program four shall be used to make qualified investments in

qualified businesses located in empire zones established pursuant to

article eighteen-B of the general municipal law, and one-third of such

certified capital shall be used to make qualified investments in

qualified businesses located in underserved areas outside such empire

zones, provided, however, that in the case of an investment made by a

certified capital company in an empire zone located in an underserved

area, the certified capital company making such an investment may choose

to designate such investment as an investment in an underserved area but

not as an investment in an empire zone for the purpose of meeting the

requirements of this paragraph. Fifty percent of the total amount of

capital invested by a certified capital company at the time of one

hundred percent investment of funds shall be invested in qualified

businesses that are involved in commerce for the primary purpose of

developing and manufacturing products and systems covered by the

activities set forth in paragraph (b) of subdivision one of section

thirty-one hundred two-e of the public authorities law and have a ratio

of research and development expenditures to net sales which equals or

exceeds six percent during the fiscal year immediately preceding the

qualified investment.

(5) Certified capital company program five. The aggregate amount of

certified capital for which taxpayers may be allocated and allowed tax

credits pursuant to this paragraph and subdivision (k) of section

fifteen hundred eleven of this chapter may not exceed sixty million

dollars for calendar year two thousand seven, which certified capital

may be invested in certified capital companies beginning in calendar

year two thousand five.

During any calendar year in which the limitation described in this

paragraph will limit the amount of certified capital, certified capital

will be allocated in order of priority based upon the date of filing of

information described in subparagraph (A) of paragraph six of

subdivision (c) of this section. The superintendent shall advise any

certified capital company in writing, within fifteen days after

receiving such filing, whether the limitations of this paragraph then in

effect will be applicable with respect to the investments and credits

described in such filing with the superintendent.

Certified capital may be raised by each certified capital company with

respect to certified capital company program five at any time subsequent

to its certification date, and credits shall be allocated to and vested

in certified investors at the time of each such investment as provided

in this paragraph, although such credits shall not be first allowed or

incurred for state tax purposes, until, at the earliest, tax years

beginning in two thousand seven. One-third of the certified capital

raised by each certified capital company with respect to certified

capital company program five shall be used to make qualified investments

in qualified businesses located in empire zones established pursuant to

article eighteen-B of the general municipal law, and one-third of such

certified capital shall be used to make qualified investments in

qualified businesses located in underserved areas outside such empire

zones, provided, however, that in the case of an investment made by a

certified capital company in an empire zone located in an underserved

area, the certified capital company making such an investment may chose

to designate such investment as an investment in an underserved area but

not as an investment in an empire zone for the purpose of meeting the

requirements of this paragraph. Fifty percent of the total amount of

capital invested by a certified capital company at the time of one

hundred percent investment of funds shall be invested in qualified

businesses that are involved in commerce for the primary purpose of

developing and manufacturing products and systems covered by the

activities set forth in paragraph (b) of subdivision one of section

thirty-one hundred two-e of the public authorities law and have a ratio

of research and development expenditures to net sales which equals or

exceeds six percent during the fiscal year immediately preceding the

qualified investment.

(i) Maximum certified capital. The maximum amount of certified capital

per certified capital company program invested in one or more certified

capital companies allowed in any one year to any one certified investor

shall not exceed ten million dollars for certified capital company

programs one and three, and eight million dollars for certified capital

company programs two, four and five for such year, provided, however,

that if the aggregate amount of certified capital for such year, as set

forth in subdivision (h) of this section, has not been reached sixty

days prior to the end of the year to which such aggregate amount

applies, the provisions of this subdivision shall cease to apply for the

remainder of such year. In addition, the aggregate amount of tax credits

allowed in any taxable year to any affiliated group of taxpayers in

relation to certified capital may not exceed such maximum amount,

whether or not such taxpayers file a combined return pursuant to

subdivision (f) of section fifteen hundred fifteen of this chapter. For

purposes of the preceding sentence, the term "affiliated group" shall

have the same meaning as described in section 1504 of the internal

revenue code, except that the references to "at least eighty percent" in

such section 1504 shall be read as "more than fifty percent".

(k) Rules and regulations. The superintendent, in consultation with

the department of taxation and finance, shall prescribe such rules and

regulations as he or she shall deem necessary in order to implement the

provisions of this section within one hundred twenty days of the

effective date of this section.

(l) For the purposes of this section, the term "empire zone" shall

also include, in relation to investments made by a certified capital

company in which at least fifty percent of the voting stock, capital,

and membership interests, as the case may be, are owned by an entity

that is managed directly or indirectly, by a non-profit corporation, the

liberty zone as defined in section one of part AA of chapter three

hundred eighty-three of the laws of two thousand one, the resurgence

zone as defined in section one of part A of chapter three hundred

eighty-three of the laws of two thousand one and a federal empowerment

zone designated pursuant to section 1391 of the internal revenue code.