Section 26-C2922. ELIGIBLE RECIPIENTS AND INVESTMENT REQUIREMENTS – INNOVATION FINANCE PROGRAM

 

2922.1 To qualify for an Investment, an Eligible Recipient shall:

 

 (a) Be a non-public company that is registered in the District and is subject to tax under the laws of the District;

 

(b)Have at closing, or sign an agreement pledging that it will have within six (6) months after funding:

 

(1)Its principal offices within the District, demonstrated by a lease or a deed; and

 

(2) At least seventy-five percent (75%) of its employees working in the District; and

 

(a) Have less than seven hundred and fifty (750) existing employees, including those of its affiliates and subsidiaries

 

2922.2To qualify for an Investment, an Eligible Recipient may also be subject to at least one of the following requirements:

 

(a) Provide proof by the time of funding that District residents are employed in at least fifty percent (50%) of its W-2 and 1099 employee positions;

 

(b) Sign an agreement by the time of funding pledging that at least fifty percent (50%) of its W-2 and 1099 employee positions will be occupied by District residents within six (6) months of funding;

 

(c) Provide proof by the time of funding that the Eligible Recipient is at least fifty percent (50%) owned by District residents and provides at least twenty-five percent (25%) of its W-2 and 1099 employee positions to District residents; or

 

(d) Demonstrate by the time of funding that the Eligible Recipient will, within six months of funding, create or retain at least one District resident job for every one hundred thousand dollars ($100,000) in investment support that the District provides. 

 

2922.3If the funding from the District of Columbia to an Eligible Recipient that is not a Certified Business Enterprise is three hundred thousand dollars ($300,000) or more, the Eligible Recipient shall execute a First Source Agreement if District law requires. 

 

2922.4The provisions of § 2922.1 and, where applicable § 2922.2, may be waived, and the deadlines extended, in whole or in part, by the Commissioner if the Eligible Recipient demonstrates a reasonable need for waiver, if the waiver will not violate the SSBCI Guidelines of the U.S. Department of the Treasury, and if the waiver is in the best interest of the District.

 

2922.5The Eligible Recipient and any owner of the Eligible Recipient that has at least a twenty percent (20%) interest in the Eligible Recipient shall execute covenants, pledging to continue to comply with the Program requirements from § 2922.1 and, where applicable § 2922.2, for the later of (i) a Liquidation Event or (ii) ten (10) years.

 

2922.6In addition to its own pro rata share in the total return on investment (ROI) on a performing investment, the Innovation Finance Company may receive a maximum of twenty-five percent (25%) carried interest of DISB’s pro rata share of the total ROI.  The Parties agree that the twenty-five percent (25%) share of DISB’s pro rata share as set forth in this section is specifically in lieu of the payment of any Innovation Finance management fees or administrative fees that may be assessed to DISB pro rata with other investors, if any, in respect of an investment in an Eligible Recipient. 

 

2922.7If the District’s investment involves a Limited Partnership interest in a Fund where at least two thirds of the capital is from the private sector, the DISB may agree to pay a maximum annual management fee of two percent (2%) of assets under management in addition to a maximum of twenty percent (20%) carried interest on DISB’s pro rata share of the total ROI provided the carried interest and management fee are deferred and only paid from the total ROI. 

 

2922.8Under the Enhanced Investment category, an Eligible Recipient of an Enhanced Investment shall also sign an agreement to comply with at least one (1) of the following additional enrollment criteria for which an enhanced investment return of five percent (5%) shall be provided to the Eligible Recipient for each:

 

(a) The Eligible Recipient shall sign an agreement to allocate at least ten percent (10%) of all new and future hires to be targeted new hires as defined by the Federal Work Opportunities Tax Credit Act, 26 U.S.C. § 51(d) for the duration of the Enrolled Investment;

 

(b) The Eligible Recipient shall meet at least one (1) of the following:

 

(1)Be a Certified Business Enterprise or pledge to become a Certified Business Enterprise within six (6) months of funding; or

 

(2)Be a business enterprise more than fifty percent (50%) woman or minority owned. 

 

(c)The Eligible Recipient shall have its principal office located in a census tract where the poverty rate exceeds twenty percent (20%); and

 

(d)The Eligible Recipient shall have its principal office located on retail priority areas as identified under D.C. Official Code § 2-1217.73.

 

2922.9The Eligible Recipient of an Enhanced Investment, and any owner of the Eligible Recipient that has at least a twenty percent (20%) interest in the Eligible Recipient shall execute covenants pledging to continue to comply with the additional enrollment criteria as described under § 2922.8 for the enrollment category chosen by the Eligible Recipient.

 

2922.10The Eligible Recipient of an Enhanced Investment may receive five percent (5%) of DISB’s pro rata share of the total ROI for meeting each of the economic development goals stated in § 2922.8, up to a total of fifteen percent (15%).

 

2922.11In both categories of enrollment, DISB shall receive the proportional benefit of all amounts received from the Eligible Recipient or realized from the Eligible Recipient’s collateral following default or loss.

 

2922.12An Enrolled Investment may be used to refinance a loan or line of credit from a different lender under the Innovation Finance Program.

 

2922.13An Eligible Recipient shall not be:

 

(a) An executive officer, director, or principal shareholder of the Innovation Finance Company enrolling the investment;

 

(b) A member of the immediate family of an executive officer, director, or principal shareholder of the Innovation Finance Company enrolling the investment;

 

(c) A related interest of an executive officer, director, principal shareholder, or member of the immediate family;

 

(d) A business engaged in speculative activities that develop profits from fluctuations in price rather than through the normal course of trade, such as wildcatting for oil or dealing in commodities futures, unless those activities are incidental to the regular activities of the business and part of a legitimate risk management strategy to guard against price fluctuations related to the regular activities of the business;

 

(e) A business that earns more than half of its annual net revenue from lending activities, unless the business is a non-bank or non-bank holding company or community development financial institution;

 

(f) A business engaged in pyramid sales, where a participant's primary incentive is based on the sales made by an ever-increasing number of participants; or

 

(g) A business engaged in activities that are prohibited by federal or District of Columbia law.

 

2922.14For the purpose of these Eligible Recipient restrictions, as described in § 2922.13(a), (b), and (c) above, the terms “executive officer,” “director,” “principal shareholder,” “immediate family,” and “related interest” refer to the same relationship to an Innovation Finance Company as the relationship described in 12 C.F. R. part 215 or any successor to such part.

 

2922.15An Eligible Recipient under the Innovation Finance Program shall certify that no principal of the Eligible Recipient has been convicted of a sex offense against a minor as such term is defined in Section 111 of the Sex Offender Registration and Notification Act (42 U.S.C. § 16911). 

 

2922.16For the purposes of the certification required under § 2921.3(e) and § 2922.15, “principal” is defined as:

 

(a)If a sole proprietorship, the proprietor;

 

(b) If a partnership, each managing partner and each partner who holds twenty percent (20%) or more ownership interest in the partnership; or

 

(c)If a corporation, limited liability company, association or a development company, each director, each of the five (5) most highly compensated executives, officers, or employees of the entity, and each direct or indirect holder of twenty percent (20%) or more of the ownership stock or stock equivalent of the entity.

 

2922.17An Eligible Recipient shall use the investments facilitated by the Innovation Finance Program for a business purpose, including working capital, inventory, expansion, renovations, start-up costs, and refinancing.  The entire proceeds of the investment shall be used within the District. 

 

2922.18The investment from the Innovation Finance Program shall not be used:

 

(a) To repay delinquent federal or District of Columbia income taxes unless the Eligible Recipient has a payment plan in place with the relevant taxing authority;

 

(b) To repay taxes held in trust or escrow, for example, payroll or sales taxes;

 

(c) To reimburse funds owed to any owner, including any equity injection or injection of capital for the business’s continuance; 

 

(d) To purchase any portion of the ownership interest of any owner of the business;

 

(e) To acquire or hold passive investments;

 

(f) For legal or illegal gambling; or

 

(g) For evangelizing, proselytizing, or lobbying.

 

2922.19An Innovation Finance Company shall file an investment for enrollment in the Innovation Finance Program by:

 

(a) Delivering to DISB a copy of the District SSBCI Program Enrollment Form executed by an authorized officer of the Innovation Finance Company;

 

(b) Providing DISB with any other documentation and information related to the investment that DISB requires; and

 

(c) Complying with any other enrollment procedures that DISB may reasonably require in writing.

 

2922.20The filing of an investment for enrollment shall be considered to occur on the date on which the Innovation Finance Company submits to DISB the documentation requested by DISB in § 2922.21 and, where applicable, § 2922.22.

 

2922.21DISB shall review the investment and related transaction documents that memorialize the terms and conditions of the investment, and DISB shall issue a final approval if the investment, Innovation Finance Company, Eligible Recipient, and other aspects of the transaction, are determined to comply and satisfy all applicable requirements.

 

2922.22The Innovation Finance Company and Eligible Recipient shall execute all documentation requested by DISB to memorialize the terms and conditions of the investment to be enrolled in the Innovation Finance Program. 

 

2922.23The Innovation Finance Company, Eligible Recipient, and all other parties to the transaction, shall execute all of the documents required to close or settle the transaction. The terms, conditions, and material language of the executed documents shall be consistent with those upon which DISB issued a final approval.

 

2922.24The investment shall be considered enrolled in the Finance Innovation Program when DISB receives copies of all executed transaction documents that it previously approved and submits a funding request to the Office of the Chief Financial Officer.

 

2922.25DISB shall not commit capital from SSBCI Program Funds to an Innovation Finance Company until the Innovation Finance Company has met all requirements set forth in § 2922.1 and, where applicable, § 2922.22.

 

 

authority

Section 105(c) of the 21st Century Financial Modernization Act of 2000, effective June 9, 2001 (D.C. Law 13-308; D.C. Official Code § 26-551.05(c) (2012 Repl. and 2016 Supp. )).

source

Final Rulemaking published at 61 DCR 9181 (September 5, 2014); as amended by Final Rulemaking published at 63 DCR 11535 (September 16, 2016).