1-1 By: Sibley S.B. No. 899 1-2 (In the Senate - Filed March 4, 1999; March 8, 1999, read 1-3 first time and referred to Committee on Economic Development; 1-4 May 14, 1999, reported adversely, with favorable Committee 1-5 Substitute by the following vote: Yeas 4, Nays 0; May 14, 1999, 1-6 sent to printer.) 1-7 COMMITTEE SUBSTITUTE FOR S.B. No. 899 By: Sibley 1-8 A BILL TO BE ENTITLED 1-9 AN ACT 1-10 relating to certain investments by insurance companies and related 1-11 organizations; providing an administrative penalty. 1-12 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-13 SECTION 1. Chapter 4, Insurance Code, is amended by adding 1-14 Subchapter B to read as follows: 1-15 SUBCHAPTER B. PREMIUM TAX CREDIT FOR INVESTMENT IN 1-16 CERTIFIED CAPITAL COMPANY 1-17 Art. 4.51. DEFINITIONS. In this subchapter: 1-18 (1) "Affiliate" of another person means: 1-19 (A) a person who is an affiliate for purposes of 1-20 Section 2, Article 21.49-1 of this code; 1-21 (B) a person who directly or indirectly: 1-22 (i) beneficially owns 10 percent or more 1-23 of the outstanding voting securities or other ownership interests 1-24 of the other person, whether through rights, options, convertible 1-25 interests, or otherwise; or 1-26 (ii) controls or holds power to vote 10 1-27 percent or more of the outstanding voting securities or other 1-28 ownership interests of the other person; 1-29 (C) a person 10 percent or more of the 1-30 outstanding voting securities or other ownership interests of which 1-31 are directly or indirectly: 1-32 (i) beneficially owned by the other 1-33 person, whether through rights, options, convertible interests, or 1-34 otherwise; or 1-35 (ii) controlled or held with power to vote 1-36 by the other person; 1-37 (D) a partnership in which the other person is a 1-38 general partner; or 1-39 (E) an officer, director, employee, or agent of 1-40 the other person, or an immediate family member of the officer, 1-41 director, employee, or agent. 1-42 (2) "Certification date" means the date on which a 1-43 certified capital company is certified under this subchapter. 1-44 (3) "Certified capital" means an investment of cash by 1-45 a certified investor in a certified capital company that fully 1-46 funds the purchase price of either its equity interest in the 1-47 company or a qualified debt instrument issued by the company. 1-48 (4) "Certified capital company" means a partnership, 1-49 corporation, or trust or limited liability company, whether 1-50 organized on a profit or not-for-profit basis, that has as its 1-51 primary business activity the investment of cash in qualified 1-52 businesses and that is certified as meeting the criteria of this 1-53 subchapter. 1-54 (5) "Certified investor" means an insurance company or 1-55 other person that has state premium tax liability that either: 1-56 (A) contributes certified capital pursuant to an 1-57 allocation of premium tax credits under this subchapter; or 1-58 (B) becomes irrevocably committed to contribute 1-59 certified capital by preparing and executing a premium tax credit 1-60 allocation claim. 1-61 (6) "Early stage business" means a qualified business 1-62 that: 1-63 (A) is involved, at the time of a certified 1-64 capital company's first investment, in activities related to the 2-1 development of initial product or service offerings, such as 2-2 prototype development or establishment of initial production or 2-3 service processes; or 2-4 (B) was initially organized less than two years 2-5 before the date of the certified capital company's first investment 2-6 and, during the fiscal year immediately preceding the year of the 2-7 first investment had, on a consolidated basis with its affiliates, 2-8 gross revenues of not more than $2 million as determined in 2-9 accordance with generally accepted accounting principles. 2-10 (7) "Person" means a natural person or entity, 2-11 including a corporation, general or limited partnership, or trust 2-12 or limited liability company. 2-13 (8) "Premium tax credit allocation claim" means a 2-14 claim for allocation of premium tax credits. 2-15 (9) "Qualified business" means a business that, at the 2-16 time of a certified capital company's first investment in the 2-17 business: 2-18 (A) is headquartered in this state and intends 2-19 to remain in this state after receipt of the investment by the 2-20 certified capital company; 2-21 (B) has its principal business operations 2-22 located in this state and intends to maintain business operations 2-23 in this state after receipt of the investment by the certified 2-24 capital company; 2-25 (C) has agreed to use the qualified investment 2-26 primarily to: 2-27 (i) support business operations, other 2-28 than advertising, promotion, and sales operations, in this state; 2-29 or 2-30 (ii) in the case of a start-up company, 2-31 establish and support business operations, other than advertising, 2-32 promotion, and sales operations, in this state; 2-33 (D) has not more than 100 employees and employs 2-34 at least 80 percent of its employees in this state; 2-35 (E) is primarily engaged in: 2-36 (i) manufacturing, processing, or 2-37 assembling products; 2-38 (ii) conducting research and development; 2-39 or 2-40 (iii) providing services; and 2-41 (F) is not primarily engaged in: 2-42 (i) retail sales; 2-43 (ii) real estate development; 2-44 (iii) the business of insurance, banking, 2-45 or lending; or 2-46 (iv) the provision of professional 2-47 services provided by accountants, attorneys, or physicians. 2-48 (10) "Qualified debt instrument" means a debt 2-49 instrument issued by a certified capital company, at par value or a 2-50 premium, that: 2-51 (A) has an original maturity date of at least 2-52 five years after the date of issuance; 2-53 (B) has a repayment schedule that is not faster 2-54 than a level principal amortization over five years; 2-55 (C) has an annualized internal rate of return 2-56 that: 2-57 (i) is computed using the purchase price 2-58 of the qualified debt instrument, all payments of principal and 2-59 interest on the qualified debt instrument, and all future tax 2-60 credits projected to be received with respect to the qualified debt 2-61 instrument; and 2-62 (ii) does not exceed by more than 300 2-63 basis points the yield made, on the date of issuance of the 2-64 qualified debt instrument, on the five-year United States Treasury 2-65 security most recently issued, as of that date, by the United 2-66 States Treasury; and 2-67 (D) does not have: 2-68 (i) an equity component; or 2-69 (ii) interest, distribution, or payment 3-1 features or components that are related to the profitability of the 3-2 company or the performance of the company's investment portfolio 3-3 whether the features or components are part of or attached to the 3-4 qualified debt instrument or are distributed or sold separately and 3-5 purchased or obtained by the holder of the qualified debt 3-6 instrument or any of its affiliates. 3-7 (11) "Qualified distribution" means any distribution 3-8 or payment by a certified capital company in connection with: 3-9 (A) the reasonable costs and expenses of 3-10 forming, syndicating, managing, and operating the company, provided 3-11 that the distribution or payment is not made directly or indirectly 3-12 to a certified investor or an affiliate of a certified investor, 3-13 including: 3-14 (i) reasonable and necessary fees paid for 3-15 professional services, including legal and accounting services, 3-16 related to the formation and operation of the company; and 3-17 (ii) an annual management fee in an amount 3-18 that does not exceed two and one-half percent of the value of the 3-19 assets of the company; and 3-20 (B) any projected increase in federal or state 3-21 taxes, including penalties and interest related to state and 3-22 federal income taxes, of the equity owners of the company resulting 3-23 from the earnings or other tax liability of the company to the 3-24 extent that the increase is related to the ownership, management, 3-25 or operation of the company. 3-26 (12) "Qualified investment" means the investment of 3-27 cash by a certified capital company in a qualified business for the 3-28 purchase of any debt, equity, or hybrid security of any nature or 3-29 description, including a debt instrument or security that has the 3-30 characteristics of debt but that provides for conversion into 3-31 equity or equity participation instruments such as options or 3-32 warrants. 3-33 (13) "State premium tax liability" means any liability 3-34 incurred by any person under Subchapter A of this chapter or under 3-35 Article 9.59 of this code. 3-36 Art. 4.52. DUTIES OF COMPTROLLER; RULES. The comptroller 3-37 shall administer this subchapter and may adopt rules and forms as 3-38 necessary to implement this subchapter. 3-39 Art. 4.53. CERTIFICATION. (a) The comptroller by rule 3-40 shall establish the application procedures for certified capital 3-41 companies. 3-42 (b) An applicant must file an application not later than 3-43 April 17, 2000, in the form prescribed by the comptroller 3-44 accompanied by a nonrefundable application fee of $7,500. The 3-45 application must include an audited balance sheet of the applicant, 3-46 with an unqualified opinion from an independent certified public 3-47 accountant, as of a date not more than 35 days before the date of 3-48 the application. 3-49 (c) To qualify as a certified capital company: 3-50 (1) the applicant must have, at the time of 3-51 application for certification, an equity capitalization of at 3-52 least $500,000 in the form of unencumbered cash or cash 3-53 equivalents; 3-54 (2) at least two principals or persons employed to 3-55 manage the funds of the applicant must have at least two years of 3-56 experience in the venture capital industry; and 3-57 (3) the applicant must satisfy any additional 3-58 requirement imposed by the comptroller by rule. 3-59 (d) The comptroller shall review the application, 3-60 organizational documents, and business history of each applicant 3-61 and shall ensure that the applicant satisfies the requirements of 3-62 this subchapter. 3-63 (e) Not later than the 30th day after the date an 3-64 application is filed, the comptroller shall: 3-65 (1) issue the certification; or 3-66 (2) refuse to issue the certification and communicate 3-67 in detail to the applicant the grounds for the refusal, including 3-68 suggestions for the removal of those grounds. 3-69 Art. 4.54. MANAGEMENT BY CERTAIN ENTITIES PROHIBITED. 4-1 (a) An insurance company, group of insurance companies, or other 4-2 persons who may have state premium tax liability or the affiliates 4-3 of the insurance companies or other persons may not, directly or 4-4 indirectly: 4-5 (1) manage a certified capital company; 4-6 (2) beneficially own, whether through rights, options, 4-7 convertible interests, or otherwise, more than 10 percent of the 4-8 outstanding voting securities of a certified capital company; or 4-9 (3) control the direction of investments for a 4-10 certified capital company. 4-11 (b) Subsection (a) of this article applies without regard to 4-12 whether the insurance company or other person or the affiliate of 4-13 the insurance company or other person is licensed by or transacts 4-14 business in this state. 4-15 (c) This article does not preclude a certified investor, 4-16 insurance company, or any other party from exercising its legal 4-17 rights and remedies, including interim management of a certified 4-18 capital company, if authorized by law, with respect to a certified 4-19 capital company that is in default of its statutory or contractual 4-20 obligations to the certified investor, insurance company, or other 4-21 party. 4-22 Art. 4.55. OFFERING MATERIAL USED BY CERTIFIED CAPITAL 4-23 COMPANY. Any offering material involving the sale of securities of 4-24 the certified capital company must include the following statement: 4-25 By authorizing the formation of a certified capital 4-26 company, the State of Texas does not endorse the 4-27 quality of management or the potential for earnings of 4-28 the company and is not liable for damages or losses to 4-29 a certified investor in the company. Use of the word 4-30 "certified" in an offering does not constitute a 4-31 recommendation or endorsement of the investment by the 4-32 comptroller of public accounts. If applicable 4-33 provisions of law are violated, the State of Texas may 4-34 require forfeiture of unused premium tax credits and 4-35 repayments of used premium tax credits. 4-36 Art. 4.56. REQUIREMENTS FOR CONTINUANCE OF CERTIFICATION. 4-37 (a) To continue to be certified, a certified capital company 4-38 shall make qualified investments according to the following 4-39 schedule: 4-40 (1) before the third anniversary of its certification 4-41 date, a company must have made qualified investments in an amount 4-42 cumulatively equal to at least 30 percent of its certified capital; 4-43 and 4-44 (2) before the fifth anniversary of its certification 4-45 date, a company must have made qualified investments in an amount 4-46 cumulatively equal to at least 50 percent of its certified capital, 4-47 subject to Subsection (b) of this article. 4-48 (b) At least 50 percent of the amount of qualified 4-49 investments required by Subsections (a)(1) and (2) of this article 4-50 must be placed in early stage businesses. 4-51 (c) The aggregate cumulative amount of all qualified 4-52 investments made by the certified capital company after its 4-53 certification date shall be considered in the computation of the 4-54 percentage requirements under this subchapter. Any proceeds 4-55 received from a qualified investment may be invested in another 4-56 qualified investment and count toward any requirement in this 4-57 subchapter with respect to investments of certified capital. 4-58 (d) A business that is classified as a qualified business at 4-59 the time of the first investment in the business by a certified 4-60 capital company remains classified as a qualified business and may 4-61 receive follow-on investments from any certified capital company. 4-62 Except as provided by this subsection, a follow-on investment made 4-63 under this subsection is a qualified investment even though the 4-64 business may not meet the definition of a qualified business at the 4-65 time of the follow-on investment. A follow-on investment does not 4-66 qualify as a qualified investment if, at the time of the follow-on 4-67 investment, the qualified business no longer has its principal 4-68 business operations in this state. 4-69 (e) A qualified investment may not be made at a cost to a 5-1 certified capital company greater than 15 percent of the total 5-2 certified capital of the company at the time of investment. 5-3 (f) If, before the first anniversary of the date that a 5-4 certified capital company makes an investment in a qualified 5-5 business, the qualified business moves its principal business 5-6 operations from this state, the investment may not be considered a 5-7 qualified investment for purposes of the percentage requirements 5-8 under this subchapter. 5-9 (g) A certified capital company shall invest any certified 5-10 capital not invested in qualified investments in: 5-11 (1) cash deposited with a federally insured financial 5-12 institution; 5-13 (2) certificates of deposit in a federally insured 5-14 financial institution; 5-15 (3) investment securities that are obligations of the 5-16 United States or its agencies or instrumentalities or obligations 5-17 that are guaranteed fully as to principal and interest by the 5-18 United States; 5-19 (4) investment-grade instruments rated at least "A" or 5-20 its equivalent by a nationally recognized rating organization; 5-21 (5) obligations of this state or any municipality or 5-22 political subdivision of this state; or 5-23 (6) any other investments approved in advance and in 5-24 writing by the comptroller. 5-25 Art. 4.57. EVALUATION OF BUSINESS BY COMPTROLLER. (a) A 5-26 certified capital company may, before making an investment in a 5-27 business, request from the comptroller a written opinion as to 5-28 whether the business in which it proposes to invest is a qualified 5-29 business or an early stage business. 5-30 (b) The comptroller shall, not later than the 15th business 5-31 day after the date of the receipt of a request under Subsection (a) 5-32 of this article, determine whether the business meets the 5-33 definition of a qualified business or an early stage business, as 5-34 applicable, and notify the certified capital company of the 5-35 determination and an explanation of its determination. 5-36 (c) If the comptroller fails to notify the certified capital 5-37 company with respect to the proposed investment within the period 5-38 specified by Subsection (b) of this article, the business in which 5-39 the company proposes to invest is considered to be a qualified 5-40 business or early stage business, as appropriate. 5-41 Art. 4.58. REPORTS TO COMPTROLLER; AUDITED FINANCIAL 5-42 STATEMENT. (a) Each certified capital company shall report to the 5-43 comptroller as soon as practicable after the receipt of certified 5-44 capital: 5-45 (1) the name of each certified investor from whom the 5-46 certified capital was received, including the certified investor's 5-47 insurance premium tax identification number; 5-48 (2) the amount of each certified investor's investment 5-49 of certified capital and premium tax credits; and 5-50 (3) the date on which the certified capital was 5-51 received. 5-52 (b) Not later than January 31 of each year, each certified 5-53 capital company shall report to the comptroller: 5-54 (1) the amount of the company's certified capital at 5-55 the end of the preceding year; 5-56 (2) whether or not the company has invested more than 5-57 15 percent of its total certified capital in any one business; 5-58 (3) each qualified investment that the company made 5-59 during the preceding year and, with respect to each qualified 5-60 investment, the number of employees of the qualified business at 5-61 the time the qualified investment was made; and 5-62 (4) any other information required by the comptroller, 5-63 including any information required by the comptroller to comply 5-64 with Article 4.74 of this code. 5-65 (c) Not later than April 1 of each year, the company shall 5-66 provide to the comptroller an annual audited financial statement 5-67 that includes the opinion of an independent certified public 5-68 accountant. The audit shall address the methods of operation and 5-69 conduct of the business of the company to determine whether: 6-1 (1) the company is complying with this subchapter and 6-2 the rules adopted under this subchapter; 6-3 (2) the funds received by the company have been 6-4 invested as required within the time provided by Article 4.56(a) of 6-5 this code; and 6-6 (3) the company has invested the funds in qualified 6-7 businesses. 6-8 Art. 4.59. RENEWAL. (a) Not later than January 31 of each 6-9 year, each certified capital company shall pay a nonrefundable 6-10 renewal fee of $5,000 to the comptroller. 6-11 (b) Notwithstanding Subsection (a) of this article, a 6-12 renewal fee is not required within six months of the initial 6-13 certification date of a certified capital company. 6-14 Art. 4.60. DISTRIBUTIONS; REPAYMENT OF DEBT. (a) A 6-15 certified capital company may make a qualified distribution at any 6-16 time. To make a distribution or payment, other than a qualified 6-17 distribution, a company must have made qualified investments in an 6-18 amount cumulatively equal to 100 percent of its certified capital. 6-19 (b) Notwithstanding Subsection (a) of this article, a 6-20 company may make repayments of principal and interest on its 6-21 indebtedness without any restriction, including repayments of 6-22 indebtedness of the company on which certified investors earned 6-23 premium tax credits. 6-24 Art. 4.61. ANNUAL REVIEW; DECERTIFICATION. (a) The 6-25 comptroller shall conduct an annual review of each certified 6-26 capital company to: 6-27 (1) ensure that the company continues to satisfy the 6-28 requirements of this subchapter and that the company has not made 6-29 any investment in violation of this subchapter; and 6-30 (2) determine the eligibility status of its qualified 6-31 investments. 6-32 (b) The cost of the annual review shall be paid by each 6-33 certified capital company according to a reasonable fee schedule 6-34 adopted by the comptroller. 6-35 (c) A material violation of Article 4.56, 4.58, or 4.59 of 6-36 this code is grounds for decertification of the certified capital 6-37 company. If the comptroller determines that a company is not in 6-38 compliance with Article 4.56, 4.58, or 4.59 of this code, the 6-39 department shall notify the officers of the company in writing 6-40 that the company may be subject to decertification after the 120th 6-41 day after the date of mailing of the notice, unless the 6-42 deficiencies are corrected and the company returns to compliance 6-43 with those articles. 6-44 (d) The comptroller may decertify a certified capital 6-45 company, after opportunity for hearing, if the comptroller finds 6-46 that the company is not in compliance with Article 4.56, 4.58, or 6-47 4.59 of this code at the end of the period established by 6-48 Subsection (c) of this article. Decertification under this 6-49 subsection is effective on receipt of notice of decertification by 6-50 the company. The comptroller shall notify any appropriate state 6-51 agency of the decertification. 6-52 Art. 4.62. ADMINISTRATIVE PENALTY. (a) The comptroller may 6-53 impose an administrative penalty on a certified capital company 6-54 that violates this subchapter. 6-55 (b) The amount of the penalty may not exceed $25,000, and 6-56 each day a violation continues or occurs is a separate violation 6-57 for the purpose of imposing a penalty. The amount of the penalty 6-58 shall be based on: 6-59 (1) the seriousness of the violation, including the 6-60 nature, circumstances, extent, and gravity of the violation; 6-61 (2) the economic harm caused by the violation; 6-62 (3) the history of previous violations; 6-63 (4) the amount necessary to deter a future violation; 6-64 (5) efforts to correct the violation; and 6-65 (6) any other matter that justice may require. 6-66 (c) The enforcement of the penalty may be stayed during the 6-67 time the order is under judicial review if the person pays the 6-68 penalty to the clerk of the court or files a supersedeas bond with 6-69 the court in the amount of the penalty. A person who cannot afford 7-1 to pay the penalty or file the bond may stay the enforcement by 7-2 filing an affidavit in the manner required by the Texas Rules of 7-3 Civil Procedure for a party who cannot afford to file security for 7-4 costs, subject to the right of the comptroller to contest the 7-5 affidavit as provided by those rules. 7-6 (d) The attorney general may sue to collect the penalty. 7-7 (e) A proceeding to impose the penalty is considered to be a 7-8 contested case under Chapter 2001, Government Code. 7-9 Art. 4.63. RECAPTURE AND FORFEITURE OF PREMIUM TAX CREDITS: 7-10 DECERTIFICATION OF COMPANY. (a) Decertification of a certified 7-11 capital company may cause the recapture of premium tax credits 7-12 previously claimed and the forfeiture of future premium tax credits 7-13 to be claimed by certified investors with respect to the company, 7-14 as follows: 7-15 (1) decertification of a company on or before the 7-16 third anniversary of its certification date causes the recapture of 7-17 any premium tax credit previously claimed and the forfeiture of any 7-18 future premium tax credit to be claimed by a certified investor 7-19 with respect to the company; 7-20 (2) for a company that meets the requirements for 7-21 continued certification under Article 4.56(a)(1) of this code and 7-22 subsequently fails to meet the requirements for continued 7-23 certification under Article 4.56(a)(2) of this code, any premium 7-24 tax credit that has been or will be taken by a certified investor 7-25 on or before the third anniversary of the certification date is not 7-26 subject to recapture or forfeiture, but any premium tax credit that 7-27 has been or will be taken by a certified investor after the third 7-28 anniversary of the certification date of the company is subject to 7-29 recapture or forfeiture; 7-30 (3) for a company that has met the requirements for 7-31 continued certification under Articles 4.56(a)(1) and (2) of this 7-32 code and is subsequently decertified, any premium tax credit that 7-33 has been or will be taken by a certified investor on or before the 7-34 fifth anniversary of the certification date is not subject to 7-35 recapture or forfeiture, but any premium tax credit to be taken 7-36 after the fifth anniversary of the certification date is subject to 7-37 forfeiture only if the company is decertified on or before the 7-38 fifth anniversary of its certification date; and 7-39 (4) for a company that has invested an amount 7-40 cumulatively equal to 100 percent of its certified capital in 7-41 qualified investments, any premium tax credit claimed or to be 7-42 claimed by a certified investor is not subject to recapture or 7-43 forfeiture under this article. 7-44 (b) The comptroller shall send written notice to the address 7-45 of each certified investor whose premium tax credit is subject to 7-46 recapture or forfeiture, using the address shown on the last 7-47 premium tax filing. 7-48 Art. 4.64. RECAPTURE AND FORFEITURE OF PREMIUM TAX CREDITS: 7-49 QUALIFIED BUSINESS LEAVES STATE. (a) The comptroller shall adopt 7-50 rules under which premium tax credits previously claimed by 7-51 certified investors are subject to recapture and future premium tax 7-52 credits to be claimed by certified investors are subject to 7-53 forfeiture with respect to an investment made by a certified 7-54 capital company in a qualified business if the qualified business 7-55 fails to maintain its principal business operations in this state 7-56 as required by the rules. 7-57 (b) The rules adopted by the comptroller must specify the 7-58 manner in which the recapture and forfeiture of premium tax credits 7-59 under this article may be apportioned among certified investors in 7-60 a certified capital company. 7-61 (c) The comptroller shall send written notice to the address 7-62 of each certified investor whose premium tax credit is subject to 7-63 recapture or forfeiture, using the address shown on the last 7-64 premium tax filing. 7-65 Art. 4.65. INDEMNITY AGREEMENTS AND INSURANCE AUTHORIZED. A 7-66 certified capital company may agree to indemnify, or purchase 7-67 insurance for the benefit of, a certified investor for losses 7-68 resulting from the recapture or forfeiture of premium tax credits 7-69 under Article 4.63 or 4.64 of this code. 8-1 Art. 4.66. PREMIUM TAX CREDIT. (a) A certified investor 8-2 who makes an investment of certified capital shall in the year of 8-3 investment earn a vested credit against state premium tax liability 8-4 equal to 100 percent of the certified investor's investment of 8-5 certified capital, subject to the limits imposed by this 8-6 subchapter. A certified investor may take up to 10 percent of the 8-7 vested premium tax credit in any taxable year of the certified 8-8 investor. 8-9 (b) The credit to be applied against state premium tax 8-10 liability in any one year may not exceed the state premium tax 8-11 liability of the certified investor for the taxable year. Any 8-12 unused credit against state premium tax liability may be carried 8-13 forward indefinitely until the premium tax credits are used. 8-14 (c) A certified investor claiming a credit against state 8-15 premium tax liability earned through an investment in a company is 8-16 not required to pay any additional retaliatory tax levied under 8-17 Article 21.46 of this code as a result of claiming that credit. An 8-18 investment made under this subchapter is a "Texas investment" for 8-19 purposes of Subchapter A of this chapter and Article 9.59 of this 8-20 code. 8-21 Art. 4.67. PREMIUM TAX CREDIT ALLOCATION CLAIM FORM. (a) A 8-22 premium tax credit allocation claim must be prepared and executed 8-23 by a certified investor on a form provided by the comptroller. The 8-24 certified capital company must file the claim with the comptroller 8-25 not later than August 17, 2000. The premium tax credit allocation 8-26 claim form must include an affidavit of the certified investor 8-27 under which the certified investor becomes legally bound and 8-28 irrevocably committed to make an investment of certified capital in 8-29 a certified capital company in the amount allocated even if the 8-30 amount allocated is less than the amount of the claim, subject only 8-31 to the receipt of an allocation under Article 4.69 of this code. 8-32 (b) A certified investor may not claim a premium tax credit 8-33 under Article 4.66 of this code for an investment that has not been 8-34 funded, even if the certified investor has committed to fund the 8-35 investment. 8-36 Art. 4.68. TOTAL LIMIT ON CREDITS. (a) The total amount of 8-37 certified capital for which premium tax credits may be allowed 8-38 under this subchapter for all years in which premium tax credits 8-39 are allowed is $100 million. 8-40 (b) The total amount of certified capital for which premium 8-41 tax credits may be allowed for all certified investors under this 8-42 subchapter may not exceed the amount that would entitle all 8-43 certified investors in certified capital companies to take total 8-44 credits of $10 million in a year. 8-45 (c) A certified capital company and its affiliates may not 8-46 file premium tax credit allocation claims in excess of the maximum 8-47 amount of certified capital for which premium tax credits may be 8-48 allowed as provided in this article. 8-49 Art. 4.69. PRO RATA ALLOCATION OF CREDITS. (a) This 8-50 article applies only if the total premium tax credits claimed by 8-51 all certified investors exceeds the total limits on premium tax 8-52 credits established by Article 4.68(a) of this code. 8-53 (b) The comptroller shall allocate the total amount of 8-54 premium tax credits allowed under this subchapter to certified 8-55 investors in certified capital companies on a pro rata basis in 8-56 accordance with this article. 8-57 (c) The pro rata allocation for each certified investor 8-58 shall be the product of: 8-59 (1) a fraction, the numerator of which is the amount 8-60 of the premium tax credit allocation claim filed on behalf of the 8-61 investor and the denominator of which is the total amount of all 8-62 premium tax credit allocation claims filed on behalf of all 8-63 certified investors; and 8-64 (2) the total amount of certified capital for which 8-65 premium tax credits may be allowed under this subchapter. 8-66 (d) If, as a result of the pro rata allocation of premium 8-67 tax credits under Subsection (c) of this article, certified 8-68 investors in any certified capital company that submitted premium 8-69 tax credit allocation claims would not be allocated at least $7.5 9-1 million in premium tax credits for all years for which credits are 9-2 allowed, the comptroller: 9-3 (1) may not make any allocation to the certified 9-4 investors of the certified capital company that would receive the 9-5 lowest pro rata allocation and that company may not continue to 9-6 operate as a certified capital company and that company's 9-7 certification under this subchapter terminates; 9-8 (2) shall continue to apply the allocation formula 9-9 established under Subsection (c) of this article, without 9-10 considering the premium tax credit allocation claims filed on 9-11 behalf of the certified investors in the company that was denied an 9-12 allocation under Subdivision (1) of this subsection; and 9-13 (3) shall continue application of the allocation 9-14 formula, as provided by this subsection, until the allocation 9-15 process results in the allocation of at least $7.5 million in 9-16 premium tax credits to the certified investors of each company 9-17 receiving an allocation under this article. 9-18 (e) Not later than September 15, 2000, the comptroller shall 9-19 notify each certified capital company of the amount of tax credits 9-20 allocated to each certified investor. 9-21 (f) If a certified capital company does not receive an 9-22 investment of certified capital equaling the amount of premium tax 9-23 credits allocated to a certified investor for which it filed a 9-24 premium tax credit allocation claim before the end of the 10th 9-25 business day after the date of receipt of notice of allocation, the 9-26 company shall notify the comptroller by overnight common carrier 9-27 delivery service and that portion of capital allocated to the 9-28 certified investor shall be forfeited. The comptroller shall 9-29 reallocate the forfeited capital among the certified investors in 9-30 the other certified capital companies that originally received an 9-31 allocation so that the result after reallocation is the same as if 9-32 the initial allocation under this article had been performed 9-33 without considering the premium tax credit allocation claims that 9-34 were subsequently forfeited. 9-35 (g) The maximum amount of certified capital for which a 9-36 premium tax credit allocation may be allowed on behalf of any one 9-37 certified investor and its affiliates, whether by one or more 9-38 certified capital companies, may not exceed $2 million a year. 9-39 Art. 4.70. TREATMENT OF CREDITS AND CAPITAL. In any case 9-40 under this code or another insurance law of this state in which the 9-41 assets of a certified investor are examined or considered, the 9-42 certified capital may be treated as an admitted asset, subject to 9-43 the applicable statutory valuation procedures. 9-44 Art 4.71. IMPACT OF TAX CREDITS CLAIMED BY A CERTIFIED 9-45 INVESTOR ON INSURANCE RATES. A certified investor is not required 9-46 to reduce the amount of premium tax included by the investor in 9-47 connection with ratemaking for any insurance contract written in 9-48 this state because of a reduction in the investor's Texas premium 9-49 tax derived from the credit granted under this subchapter. 9-50 Art. 4.72. TRANSFERABILITY OF CREDIT. (a) A certified 9-51 investor may transfer or assign premium tax credits to: 9-52 (1) an affiliate of the certified investor; 9-53 (2) another entity that may be a certified investor, 9-54 if a merger, acquisition, or total assumption of reinsurance among 9-55 or between the entities occurs; or 9-56 (3) another entity, in connection with a 9-57 rehabilitation or receivership process, if the comptroller, after 9-58 consultation with the commissioner, by order approves the transfer 9-59 or assignment. 9-60 (b) The comptroller shall adopt rules to facilitate the 9-61 transfer or assignment of premium tax credits. A certified 9-62 investor may transfer or assign premium tax credits only in 9-63 compliance with the rules adopted under this subsection. 9-64 (c) The transfer or assignment of a premium tax credit does 9-65 not affect the schedule for taking the premium tax credit under 9-66 this subchapter. 9-67 Art. 4.73. PROMOTION. The Texas Department of Economic 9-68 Development shall promote the program established under this 9-69 subchapter in the Texas Business and Community Economic Development 10-1 Clearinghouse. 10-2 Art. 4.74. REPORT TO LEGISLATURE. (a) The comptroller 10-3 shall prepare a biennial report with respect to results of the 10-4 implementation of this subchapter. The report must include: 10-5 (1) the number of certified capital companies holding 10-6 certified capital; 10-7 (2) the amount of certified capital invested in each 10-8 certified capital company; 10-9 (3) the amount of certified capital the certified 10-10 capital company has invested in qualified businesses as of January 10-11 1, 2002, and the cumulative total for each subsequent year; 10-12 (4) the total amount of tax credits granted under this 10-13 subchapter for each year that credits have been granted; 10-14 (5) the performance of each certified capital company 10-15 with respect to renewal and reporting requirements imposed under 10-16 this subchapter; 10-17 (6) with respect to the qualified businesses in which 10-18 certified capital companies have invested: 10-19 (A) the classification of the qualified 10-20 businesses according to the industrial sector and the size of the 10-21 business; 10-22 (B) the total number of jobs created by the 10-23 investment and the average wages paid for the jobs; and 10-24 (C) the total number of jobs retained as a 10-25 result of the investment and the average wages paid for the jobs; 10-26 and 10-27 (7) the certified capital companies that have been 10-28 decertified or that have failed to renew the certification and the 10-29 reason for any decertification. 10-30 (b) The comptroller shall file the report with the governor, 10-31 the lieutenant governor, and the speaker of the house of 10-32 representatives not later than December 15 of each even-numbered 10-33 year. 10-34 SECTION 2. Articles 4.01 through 4.08, 4.10, 4.11, 4.11A, 10-35 4.11B, 4.11C, 4.12, and 4.17, 4.18, and 4.19, Insurance Code, are 10-36 redesignated as Subchapter A, Chapter 4, Insurance Code, and a 10-37 subchapter heading is added to read as follows: 10-38 SUBCHAPTER A. IMPOSITION AND COLLECTION OF TAXES AND FEES 10-39 SECTION 3. (a) Not later than the 60th day after the 10-40 effective date of this Act, the comptroller of public accounts of 10-41 the State of Texas shall adopt rules necessary to implement 10-42 Subchapter B, Chapter 4, Insurance Code, as added by this Act. The 10-43 comptroller of public accounts shall begin accepting applications 10-44 for certification as a certified capital company under that 10-45 subchapter on the 90th day after the effective date of this Act. 10-46 (b) A certified investor may not make an investment with a 10-47 certified capital company under Subchapter B, Chapter 4, Insurance 10-48 Code, as added by this Act, before January 1, 2001. 10-49 SECTION 4. The importance of this legislation and the 10-50 crowded condition of the calendars in both houses create an 10-51 emergency and an imperative public necessity that the 10-52 constitutional rule requiring bills to be read on three several 10-53 days in each house be suspended, and this rule is hereby suspended, 10-54 and that this Act take effect and be in force from and after its 10-55 passage, and it is so enacted. 10-56 * * * * *