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                                 * * * * *