718981 Notice of Final Rulemaking - Certified Capital Companies

DEPARTMENT OF INSURANCE, SECURITIES AND BANKING

NOTICE OF FINAL RULEMAKING

 

The Acting Commissioner of the Department of Insurance, Securities and Banking, pursuant to the authority set forth in section 10 of the Certified Capital Companies Act of 2003, effective March 10, 2004 (D.C. Law 15-87; D.C. Official Code § 31-5239), hereby gives notice of the adoption of the following amendments to the certified capital company rules published in Subtitle A of Title 26, “Insurance”, Chapter 56, “Certified Capital Companies”, of the District of Columbia Municipal Regulations (DCMR).  These proposed rules provide a list of informational items certified capital companies are required to file in support of an application to make initial and follow-on qualified investments; establish a process certified capital companies shall follow to obtain a waiver from the qualified business criteria; and describe the information certified capital companies shall provide the Commissioner as part of the annual economic impact study and annual review process.

 

A Notice of the Proposed Rulemaking was published in the D.C. Register on December 24, 2010, at 57 DCR 12262.  No substantive changes were made to the rulemaking.  The rules shall become effective upon the publication in the D.C. Register. 

 

Chapter 56, CERTIFIED CAPITAL COMPANIES, of Subtitle A, INSURANCE, of Title 26 of the DCMR is amended as follows:

 

Section 5605 is repealed and replaced with a new section 5605 to read as follows:

 

5605                QUALIFIED INVESTMENTS

 

5605.1             Prior to making a proposed investment in a business, a certified capital company shall request from the Commissioner a written determination of whether the business is considered a “qualified business,” as defined in the Act.

 

5605.2             A certified capital company shall provide the Commissioner with the following information in support of its request for a determination of whether a business is eligible to receive an initial or follow-on investment:

 

(a)                A complete Qualified Business Application signed by an executive officer of the applicant;

 

(b)               A term sheet or other detailed description of the proposed equity investment or loan to be made by the certified capital company;

 

(c)                The applicant’s business plan;

 

(d)               The applicant’s current financial statements, including an income statement, balance sheet and cash flow statement;

 

(e)        An affidavit that is signed by the president or chief executive officer of the applicant that includes the following statements:

 

(1)        The applicant agrees to use one hundred percent (100%) of the funds received from the certified capital company solely for the purpose of supporting the applicant’s business operations in the District, except for advertising, promotions and sales purposes;

 

(2)        The applicant is current on all District tax obligations;

 

(3)        The applicant has obtained all required business licenses and permits, and the business is currently in good standing in the District at the time of the filing of the Qualified Business Application; and

 

(4)        The applicant currently satisfies all of the criteria to be a qualified business, as defined by the Act, unless a waiver is obtained, and will continue to meet such criteria for six (6) consecutive months immediately following the receipt of an initial or follow-on investment from the CAPCO.

 

(f)                A copy of the applicant’s articles of incorporation or organization, as filed with the District or other state of incorporation or organization;

 

(g)               A copy of a letter from a bank or other commercial lender denying the applicant’s request for conventional financing.  The letter shall include the amount of financing requested by the applicant and shall not be dated more than one hundred twenty (120) days prior to the date the Qualified Business Application is filed with the Commissioner; 

 

(h)               A copy of the applicant’s lease, sublease or property deed establishing the location of its business operations in the District;

 

(i)                 A current list of all of the applicant’s full and part-time employees. An owner of the applicant who also manages the activities of the applicant or provides any type of services to the applicant on a regular basis, regardless of whether he or she is compensated by the applicant, shall be deemed an employee;

 

(j)                 The following information for a sufficient number of employees to determine that at least twenty-five percent (25%) of the employees listed in paragraph (i) of this subsection are residents of the District:

 

(1)               A copy of the employee’s IRS form W-4;

 

(2)               A current payroll report showing the wages or salaries paid, and the taxes withheld for each employee;

 

(3)               A copy of each employee’s driver’s license or non-driver identification card issued by the District’s Department of Motor Vehicles; and

 

(4)               A copy of a telephone, cable or utility bill, residential lease or voter registration card that shows each employee’s home address.

 

(k)        Each document filed pursuant to paragraph (j) of this subsection to establish an employee’s residency in the District shall have identical addresses.  Documents with different addresses will be unacceptable.

 

5605.3                         The Commissioner shall consider the following factors in determining if a person is an employee or an independent contractor:

(a)                Whether the person performing services is engaged in an occupation or business distinct from that of the alleged employer;

(b)               Whether or not the work is a part of the regular business of the alleged employee or alleged employer;

(c)                Whether the alleged employer or the worker supplies the instrumentalities, tools, and the place of business for the person doing the work;

(d)               The alleged employee’s investment in the equipment or materials required by his or her task, or the cost of any labor needed to perform the task;

(e)                Whether the service rendered requires a special skill;

(f)                The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the alleged employer or by a specialist without supervision;

(g)               The alleged employee’s opportunity for profit or loss depending on his or her managerial skill;

(h)               The length of time for which the services are to be performed;

(i)                 The degree of permanence of the working relationship;

(j)                 The method of payment, whether by time or by the job; and

(k)               Whether the parties believe they are creating an employer-employee relationship.

5605.4             A certified capital company that applies to make a certified investment in a business that is unable to provide all of the information required in subsection 5604.2(k)(3) and (4) shall file a detailed written explanation describing the circumstances of the employee’s residency status, and request a waiver of the requirement to provide one (1) or more documents for that employee.  Acceptable reasons for being unable to provide one (1) or more of the required documents include the fact that an employee is homeless; does not have a fixed address in the District; or has a temporary living arrangement in the District and does not have any utilities in his or her name at that address.  The Commissioner may, at his or her discretion, waive one (1) or more of the documents required to be filed to establish an employee’s residency status in the District. 

 

5605.5             If the Commissioner fails to notify the certified capital company of its determination within the twenty (20) day period required by section 6(e) of the Act, D.C. Official Code § 31-5235(e), the business shall be deemed to be a qualified business.

 

5605.6             (a)        A business that satisfies the requirements of a qualified business at the time of the initial or follow-on investment shall continue to satisfy the requirements for six (6) consecutive months following the initial or follow-on investment; provided, however, that any employee that has resigned their employment with the qualified business, is no longer a resident of District, or has been terminated by the qualified business for cause, shall continue to be considered an employee for purposes of the requirement set forth in sections 2(12)(A)(i) and (ii) of the Act, D.C. Official Code § 31-5231(2)(12)(A)(i) and (ii).

 

(b)        The certified capital company shall obtain a monthly payroll report from each qualified business within ten (10) days after the end of each calendar month, for six (6) consecutive months following an initial or follow-on investment.  The certified capital company shall make the payroll reports available to the Commissioner during the annual review process.

 

5605.7             If at any time during the six (6) month period following an initial or follow-on investment in a qualified business the business does not satisfy the requirements of a qualified business, the business shall have thirty (30) days from the date of non-compliance to cure the deficiency.  The business shall provide the certified capital company with proof that it has cured the deficiency, and the certified capital company shall make that information available to the Commissioner during the annual review of the certified capital company.

 

5605.8             For purposes of section 2(12)(A)(v) of the Act, D.C. Official Code § 31-5231(2)(12)(A)(v), a business that has previously obtained conventional financing from a bank or commercial lender and requires additional capital, shall certify that it is unable to obtain the additional capital in the form of conventional financing from a bank or commercial lender.  The business shall provide the proof set forth in section 5605.2(g) of this chapter.

 

5605.9             A certified capital company may make an approved qualified investment to a qualified business in installments or tranches over a period not to exceed six (6) months from the date of the approval of the initial or follow-on investment.  Any amount of the qualified investment that is not provided to a qualified business within the six (6) month period shall not be considered a qualified investment for purposes of the Act without a new approval of such investment by the Commissioner pursuant to this section.

 

5605.10           Any amount of an initial or follow-on investment that is repaid by a qualified business to a certified capital company within twenty-four (24) months of the date of the certified investment shall not be considered a certified investment for purposes of the Act; provided, however, that this provision shall not apply to any interest, dividend, principal payments made based on an amortization of at least twenty-four (24) months or other profit distribution payments made.  For purposes of this section, there shall be a rebuttable presumption that any amount of the certified investment that is returned to a certified capital company within the twenty four (24) month period was not used by the qualified business for the purposes described in the Qualified Business Application.  A certified capital company shall be permitted to receive credit for one hundred percent (100%) of its investment in a qualified business even though the funds were returned within the aforementioned period, if the certified capital company can provide proof to the Commissioner that the qualified business chose to repay the certified investment from its profits or from some other source such as a private equity investor, lender or debt capital provider.  Nothing in this subsection shall prevent a certified capital company from exercising any of its rights as a creditor, including the acceleration of debt owed upon a default by the qualified business under the terms of the debt instrument or upon the acquisition, merger or sale of all or substantially all of the assets of the qualified business.

 

Section 5606 is repealed and replaced with a new Section 5606 to read as follows:

 

5606                WAIVER OF QUALIFIED BUSINESS REQUIREMENTS

 

5606.1             A certified capital company that applies to make an initial certified investment in a business that does not satisfy all of the requirements to be a qualified business shall file a written request for a waiver of one (1) or more of the requirements.

 

5606.2             A letter requesting the Commissioner to waive one (1) or more of the requirements for qualification of a qualified business shall contain the following information:

(a)        The name of the certified capital company requesting the waiver;

 

(b)        The name of the business for which the certified capital company is requesting the waiver;

 

(c)        The amount of capital that the certified capital company proposes to invest in the business for which the certified capital company is requesting the waiver; and

 

(d)       A statement that demonstrates how the proposed investment by certified capital company in the business for which the certified capital company is requesting the waiver will further economic development in the District.

 

5606.3             In determining if a waiver will further economic development in the District pursuant to § 5606.2(d), the Commissioner shall consider whether the business intends to use the certified investment to save existing jobs or create new jobs for District residents, expand its operations in the District, create new or additional tax revenue for the District Government, or engage in economic activity that will benefit other businesses located in the District.

5606.4             A certified capital company that obtains a waiver for one (1) or more of the eligibility criteria pursuant to this subsection shall, no later than two hundred and ten (210) days after making the initial investment, establish to the satisfaction of the Commissioner that the business is a qualified business as defined in the Act.  For purposes of investments made in installments, the two hundred and ten (210) day period shall commence from the date of the first installment.

 

5606.5             A certified capital company shall file an affidavit with the Commissioner signed by an executive officer of the qualified business confirming that the business satisfies the requirements of a qualified business as defined in the Act.  In support of the affidavit required by this subsection, the certified capital company shall submit sufficient documentary proof.  For example, if the business received a waiver of the District’s residency requirement, the certified capital company shall obtain a complete list of employees, payroll reports, and at least one (1) current form of proof of residency from each employee claiming to reside in the District, and make those documents available to the Commissioner during the annual review of the certified capital company.
 

A new Section 5614 is added to read as follows:

 

5614                ECONOMIC IMPACT STUDY AND ANNUAL REVIEW

 

5614.1             The Commissioner shall conduct an annual economic impact study of the certified capital companies to determine their economic impact on the District’s economy beginning with the year ending December 31, 2009 through December 31, 2014. 

 

5614.2             The Commissioner shall conduct an annual review of each certified capital company to determine if the certified capital company is in compliance with the requirements for initial and continuing certification, and to determine the eligibility status of its initial and follow-on investments.  The Commissioner need not re-examine a certified capital company or any of its qualified investments to determine compliance with the Act, if the Commissioner has determined during a prior annual review that the initial certification of the certified investment company, or any of its certified investments, were made in compliance with the Act.

 

5614.3             The Commissioner may retain consultants, lawyers, economists or other experts to perform the economic studies and annual reviews.  The costs of these experts shall be borne by the certified capital companies.

 

5614.4             The Commissioner may, at his or her discretion, select a single qualified firm to conduct one (1) or more of the annual economic impact studies and the annual reviews.

 

5614.5             A certified capital company shall provide the Commissioner with the following information for each of its qualified investments within thirty (30) days of his or her request:

 

(a)                The name, job title, home and work addresses, and dates of employment for each employee that worked for the qualified business during the period covered by the economic study;

 

(b)               Payroll records showing salaries or wages paid, and taxes withheld for each employee of the qualified business during the period covered by the economic study;

 

(c)                Copies of all District tax returns filed by the qualified business during the period covered by the economic study;

 

(d)               Financial statements for the year being studied by the Commissioner, and the year immediately preceding; and

 

(e)                Evidence of payments made by each qualified business to significant suppliers, vendors, contractors, landlords, and professional service firms, which may include accounting, legal, financial, information technology, architectural and engineering services, among others.

 

5614.6             The Commissioner may request any additional information from a certified capital company that will assist the Commissioner in his or her efforts to determine the economic impact of the District’s certified capital company program.

 

5614.7             A certified capital company shall provide the Commissioner with the following information for each loan or investment as part of the annual review process:

 

(a)                A list of loans or investments, and the names and addresses of the businesses that received funding during the period under review;

 

(b)               A complete set of transaction documents, including but not limited to, the term sheet, note, shareholders agreement, purchase agreement, and proof of transfer of funds;

 

(c)                The qualified business application and all attachments thereto, business plan, payroll report, W-4s, government-issued identification cards, proofs of District residency, and a list of names and addresses of each employee employed by the business at the time of funding, articles of incorporation or organization, lease or other evidence showing the business’ principal place of business in the District, an affidavit certifying the business’ inability to obtain conventional financing, and a letter from a commercial lender denying the business’ application for conventional financing;

 

(d)               All documents demonstrating that any waivers granted by the Commissioner have been satisfied;

 

(e)                All documents demonstrating that a business determined to be a qualified business continued to satisfy that requirement for the six (6)-month period following the qualified investment;

 

(f)                All information related to the initial certification and funding of the certified capital company;

 

(g)               The certified capital company’s audited financial statements and agreed-upon procedures report prepared by the certified capital company’s independent auditor;

 

(h)               Proof of payment of the annual certification fee; and

 

(i)                 Premium tax credit transfer affidavits and certified investors’ annual notice of tax credit transfers.

 

5614.8             A certified capital company shall require each qualified business that it funded to provide it with copies of all records required in this section at the time of the certified capital company’s initial or follow-on investment, and such other documents as requested by Commissioner.  A certified capital company shall retain copies of the records set forth in this section until the certified capital company has made cumulatively equal to one hundred percent (100%) of its certified capital.

 

5614.9             A certified capital company shall inform each business applying for certified capital of the business’ obligation to provide information and cooperate with the annual economic impact studies and annual reviews at the time of the certified capital company’s initial and follow-on investments.  The certified capital company shall also make each business’s cooperation with the annual economic studies and annual reviews a term and condition of receiving certified capital, including a provision that a failure to cooperate with the economic studies or annual reviews shall constitute a breach of the agreement.  A certified capital company shall cooperate with the Commissioner during the annual economic study, and shall make every reasonable effort to obtain information from its qualified businesses.

 

5614.10           The Commissioner shall analyze the data received from the certified capital companies and determine the annual economic impact that each certified capital company has made on the District’s economy, including an annual assessment of the economic impact of activities of the certified capital companies on an aggregate basis.  The Commissioner may also consider general economic data, including reasonable and reliable extrapolations and assumptions, to evaluate the economic impact of the certified capital company program on the District’s economy.  The Commissioner shall document his or her findings in a written report to be made available to the public; provided however, that any proprietary or confidential information of a qualified business or certified capital company shall be exempted from such written report.

 

Section 5699 is amended as follows: 

 

Act –  the Certified Capital Companies Act of 2003, effective March 10, 2004 (D.C. Law 15-87; D.C. Official Code §§ 31-5231, et seq.).