La. Admin. Code tit. 10 § XV-303
A. The following terms shall have the meanings provided herein, unless the context clearly indicates otherwise.
Affiliate and/or Affiliated Company-
a. solely for purposes of the transfer or sale of income or premium tax credits pursuant to R.S. 51:1924(F), R.S. 22:1068(E)(4), and LAC 10:XV.305.B, affiliate is defined as follows:
i. any person that controls, is controlled by or under common control with another person (including any person that would become an affiliate as a result of a business combination); or
ii. members, partners, or shareholders and any family members thereof, of a legal entity that invests in a CAPCO;
b. for all other purposes, the term affiliate is defined as follows:
i. when used with respect to a specified person or legal entity, affiliate means a person or legal entity controlling, controlled by or under common control with, another person or legal entity, directly or indirectly through one or more intermediaries;
ii. when used with respect to a qualified Louisiana business, affiliate means a legal entity that directly, or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, a qualified Louisiana business;
c. for purposes of R.S. 22:1068(E)(2)(c), a group of affiliates shall mean a person and not less than all affiliates of such person;
d. the test relating to being under common control with will not apply to investments closed prior to the effective date of this rule or to any qualified Louisiana business in which the investing certified Louisiana capital company has invested in prior to the effective date of this rule;
e. Clause ii of this Section shall not include as an affiliate those legal entities that are controlled by either an angel or institutional investor.
Angel Investor in a QualifiedLouisianaBusiness-for purposes of excluding certain companies from being an affiliate of a qualified Louisiana business, an angel investor shall be defined as any investor that has provided early state funds to a business unless such investor is, the founder, or a family member of the founder, of the qualified Louisiana business.
Application- a completed application as determined by the commissioner.
Associate of a CAPCO-
a. any of the following:
i. a person serving a CAPCO, or an entity that directly or indirectly controls a CAPCO, as any of the following: officer, director (including advisory, regional directors and directors emeritus), employee (provided such employee has significant management and policy responsibilities and powers, or is highly compensated in comparison with the other people employed with the employee), agent, investment or other advisor, manager (inthe case of a manager-managed limited liability company), managing member (in the case of a member-managed limited liability company), accountant, or general/special counsel;
ii. a person directly or indirectly owning, controlling or holding with the power to vote 10 percent or more of the outstanding voting securities or other ownership interests of the CAPCO;
iii. a current or former spouse, parent, child, sibling, father-in-law, mother-in-law, brother-in-law, sister-in-law, son-in-law or daughter-in-law of any person described in §303 AAssociate of a CAPCO.a.i or ii;
iv. a person individually or collectively controlled by or under common control, directly or indirectly, with any person described in §303 AAssociate of a CAPCO.a.i, ii or iii;
v. a person that invests in the CAPCO and has received an income tax credit or premium tax reduction under the CAPCO Program;
vi. an affiliate of any person described in §303 AAssociate of a CAPCO.a.v; or
vii.(a). a person that, within six months before or at any time after the date that a CAPCO invests in the person, is controlled by a CAPCO or any of its affiliates. A CAPCO's primary purpose is to provide venture capital to qualified Louisiana businesses in need of capital; not to invest in subsidiaries of the CAPCO or its affiliates, or companies that a CAPCO or its affiliates intend to control. Such investments will result in an associate determination and will not be considered "qualified investments" in assessing a CAPCO's compliance with its continuing certification requirements;
(b).Section 303 AAssociate of a CAPCO.a.vii.(a) does not apply to an investment made by a CAPCO in a qualified Louisiana business if, within six months before or at any time after the date of the investment, the qualified Louisiana business is not controlled by the CAPCO or its affiliates. However, even though a CAPCO may not intend to control a business in which it invests, it may obtain control over the qualified Louisiana business after its initial investment. If control is acquired after the initial investment as a result of the following circumstances, such control will not create an associate relationship under §303 AAssociate of a CAPCO.a.vii.(a):
(i). persons controlled by the CAPCO as a means of protecting the CAPCO's investment or resulting from a material breach of any financing agreement; or
(ii). instances involving transitory or short-term control of a person by a CAPCO (or an affiliate of the CAPCO) solely to remedy actions by the person that may cause the CAPCO's investment in such person to fail to be treated as a qualified investment, on the good faith belief that such operation of the person is necessary to ensure that the investment in the person will be treated as a qualified investment;
b. for the purposes of this definition, if any associate relationship described in §303 AAssociate of a CAPCO.a.i-vi exists between a person and the CAPCO at any time within six months before or at any time after the date that the CAPCO makes its initial investment in such person, that associate relationship is considered to exist on the date of the financing.
BIDCO- a Business and Industrial Development Corporation licensed pursuant to the Louisiana Business and Industrial Development Corporation Act, R.S. 51:2386 et seq.
Business- for the purposes of determining if a qualified Louisiana business operates primarily in Louisiana or performs substantially all of its production in Louisiana means an entity, together with all of that entity's affiliates that would directly or indirectly receive an economic benefit from a financing by a CAPCO. For purposes of this definition, an affiliate of the entity includes any entity which will become an affiliate of the entity as a result of a financing from a CAPCO.
CAPCO- a Certified Louisiana Capital Company certified pursuant to the Louisiana Capital Companies Tax Credit Program, R.S. 51:1921 et seq.
Capitalization-for purposes of initial certification, pursuant to R.S. 51:1925(B):
a.Generally Accepted Accounting Principles (GAAP) Capital-common stock, preferred stock, general partnership interests, limited partnership interests, surplus and any other equivalent ownership interest, all of which shall be exchanged for cash; undivided profits or loss which shall be reduced by a fully-funded loan loss reserve; contingency or other capital reserves and minority interests; less all organization costs;
b.Less: the following, when any preferred or common stock, partnership interests, or other equivalent ownership interests are subject to redemption or repurchase by the CAPCO: preferred stock, common stock, partnership interests, limited partnership interests, and other equivalent ownership interests shall be multiplied by the following percentage reductions and deducted from capital:
Within five years from redemption or repurchase | 20 percent |
Within four years from redemption or repurchase | 40 percent |
Within three years from redemption or repurchase | 60 percent |
Within two years from redemption or repurchase | 80 percent |
Within one year from redemption or repurchase | 100 percent |
c. notwithstanding the foregoing, there will be no reduction for a withdrawal within five years after certification, provided the withdrawal is contemplated by all governing documents and disclosed to all prospective investors and any such withdrawal is concurrently replaced by an equal amount of cash GAAP capital. Moreover, the amount contemplated to be withdrawn shall not be the basis for any income tax credit or premium tax reduction.
Capitalize a Business-for purposes of LAC 10:XV.303.Investment.b.i.(d)-the investment of cash in a business in exchange for common stock, or an equivalent ownership interest. Additionally, this shall include subordinated debt only if:
a. it is used to refinance senior debt thereby allowing a qualified Louisiana business to expand; or
b. the CAPCO agrees to subordinate such debt to any current or future senior indebtedness owed by the business, provided that, in the case of future indebtedness, the senior indebtedness is incurred by the portfolio company within three months of the date the CAPCO made the subordinated debt investment.
CertifiedLouisianaCapital Company Group-any two or more CAPCOs which share common management or is under common control, whether such management or control is accomplished directly or indirectly.
Change of Control- for purposes of LAC 10:XV.319.A shall mean:
a. a change in beneficial ownership of 50 percent or more of the outstanding shares of the CAPCO or 50 percent or more of the combined voting power of the CAPCO; provided that any transfer to a person or entity who was a shareholder as of the later of the certification date for the CAPCO or the date of the CAPCO's last notification under LAC 10:XV.319.A for whom the Office of Financial Institutions has received a current Biographical Affidavit and conducted a current background check shall be disregarded; or
b. individuals who constitute the voting power of the board of directors, board of managers or other governing board of the CAPCO as of the later of the CAPCO's certification date or the date of the CAPCO's last notification under LAC 10:XV.319.A cease to comprise more than 50 percent of the voting power of such board of directors, board of managers, or other board; or
c. a change in the general partner or manager of the CAPCO or a change of control with respect to such general partner or manager; or
d. any merger or consolidation if a change of control has occurred based upon the surviving entity being considered to be a continuation of the CAPCO that was the party to the merger or consolidation transaction.
Commissioner- the Commissioner of the Office of Financial Institutions.
Control-
a. solely for purposes of determining whether a qualified Louisiana business controls, is controlled by, or is under common control with another person, or if a person is an associate of a CAPCO, control means:
i. the power or authority, whether exercised directly or indirectly, to direct or cause the direction of management and/or policies of a legal entity by contract or otherwise; or
ii. to directly or indirectly own of record or beneficially hold with the power to vote, or hold proxies with discretionary authority to vote, 50 percent or more of the then outstanding voting securities issued by a legal entity, when such control is used with respect to a specified person or legal entity;
b. for all other purposes, control means:
i. the power or authority, whether exercised directly or indirectly, to direct or cause the direction of management and/or policies of a legal entity by contract or otherwise; or
ii. to directly or indirectly own of record or beneficially hold with the power to vote, or hold proxies with discretionary authority to vote 25 percent or more of the then outstanding voting securities issued by a legal entity.
a. execution of all legal documents and elimination of all material contingencies associated with the consummation of the transaction; and
b. the date that the CAPCO receives a cash investment of certified capital that is available for investment in qualified Louisiana businesses.
Equity Features- includes [pursuant to R.S. 51:1923(4) and (5)] the following.
a.Royalty Rights- rights to receive a percent of gross or net revenues, may be either fixed or variable, may provide for a minimum or maximum dollar amount per year or in total, may be for an indefinite or fixed period of time, and may be based upon revenues in excess of a base amount.
b.Net Profit Interests- rights to receive a percent of operating or net profits, may be either fixed or variable, may provide for a minimum or maximum dollar amount per year or in total, may be for an indefinite or fixed period of time, and may be based upon operating or net profits in excess of a base amount.
c.Warrants for Future Ownership- options on the stock of the qualified Louisiana business. The qualified Louisiana business may repurchase a warrant (a "call") or the qualified Louisiana business may be required to repurchase a warrant (a "put") at some fixed amount or an amount based on a pre-agreed upon formula.
d.EquitySaleParticipation Rights- conversion options of debt, to convert all or a portion of the debt to the qualified Louisiana business's stock, then to participate in the sale of the stock of the qualified Louisiana business.
e.Equity Rights- the receipt or creation of a significant equity interest in a qualified Louisiana business.
f. And such other conceptually similar rights and elements as the OFI may approve.
Family Member- spouse, parent, child, sibling, father-in-law, mother-in-law, brother-in-law, sister-in-law, son-in-law or daughter-in-law.
Financing Assistance Provided in Cash and The Investment of Cash- a transaction, which in substance and in form, results in a disbursement of cash.
Examples of transactions excluded from this definition are: circular transactions as determined by the commissioner; capitalization of accrued principal, interest, royalty or other income; letters of credit; loan guarantees; loan collection expenses or legal fees incurred by a CAPCO in protecting its collateral interest in an investment.
Headquartered in Louisiana-at least 80 percent of the total employees of such business shall be domiciled in the state of Louisiana and that at least 80 percent of the payroll of such business be paid to such employees. In analyzing whether the business has a substantial portion of its assets located in Louisiana, Subparagraph a of the definition of Operates Primarily in Louisiana shall be utilized in making the determination. The application of this definition shall only be made to investments made from pools of capital certified in 2002 or thereafter.
Institutional Investor-shall include venture capital companies, investment companies, mutual funds, brokerage companies, insurance companies, pension funds, investment banks, Small Business Investment Companies licensed by the U.S. Small Business Administration under the Small Business Investment Act of 1958, CAPCOs, BIDCOs, and any other corporation, limited liability company, or partnership with total assets in excess of $5,000,000 formed for the purpose of making investment in multiple businesses. Examples:
a. a company founded by an individual seeks additional capital to continue product development. A high net worth individual or an institutional investor reviews the investment and elects to provide capital. Following this investment, the company is able to develop its product to a certain stage. Now, the company is in need of a larger investment to bring the product to market and a certified Louisiana capital company desires to invest. Under this scenario, neither the net worth nor the net income of the angel or institutional investor or any companies controlled by the angel or institutional investor would be combined with the qualified Louisiana business in determining if the limits founds in R.S. 51:1923(13)(a) would be exceeded;
b. a high net worth individual controls one or more companies that are not considered qualified Louisiana businesses. This high net worth individual founds another company and provides the capital for startup and product development and now seeks funding by a certified Louisiana capital company. Under this scenario, the founder of the company seeking investment would not be considered an angel or institutional investor.
Investment
a. for purposes of earning tax credits or reductions under R.S. 51:1923(1) and (2), R.S. 51:1924(A) and (B), or R.S. 22:1068(E), means a transaction that, in substance and in form, is the investment of cash in exchange for:
i. common stock, preferred stock, or an equivalent ownership interest in a CAPCO; or
ii. a loan receivable or note receivable from a CAPCO which has a stated final maturity date of not less than five years from the origination date of the loan or note;
iii. notwithstanding the above, an investment shall also include debt instruments which are obligations of the investing insurance company to a certified Louisiana capital company. Such debt instruments shall be converted into cash at a rate of not less than 10 percent per year from the date of the investment;
iv. however, at all times, in order to perfect the tax credits earned as a result of an investment described in Subparagraphs a-c of this Paragraph, the CAPCO shall have at least 50 percent of the certified capital of each investment pool that is received in cash:
(a). available to be invested in qualified investments in qualified Louisiana businesses;
(b). invested in qualified investments made subsequent to the investment date of the investment pool; or
(c). a combination of §303 AInvestment.a.iv.(a) and (b);
b. i. an Investment furthers economic development within Louisiana. If the proceeds from an investment are used in a manner consistent with representations contained in the affidavit required to be obtained from the qualified Louisiana business prior to an investment in the business and the documented use of such proceeds promote Louisiana economic development. Proceeds shall be determined to promote Louisiana economic development if more than 50 percent of the proceeds derived from the investment are used by the qualified Louisiana business for two or more of the following purposes:
(a). to hire significantly more Louisiana employees;
(b). to directly purchase or lease furniture, fixtures, land or equipment that will be used in the Louisiana operations of the business or to construct or expand production or operating facilities located in Louisiana. This does not include the purchase of these assets as part of a buyout of a company;
(c). to purchase inventory for resale from Louisiana-based operations or outlets;
(d). to capitalize a business in order for the business to secure future debt financing to support the Louisiana operations of the business;
(e). to increase or preserve working capital and/or cash flows for Louisiana operations of the business. However, except as allowed in Subclause (d) above, this does not include those investments whereby the proceeds of the investment will be utilized to refinance existing debt of the business;
(f). to preserve or expand Louisiana corporate headquarters operations. Preserve means a company that is in danger of failing or contemplating a move out-of-state;
(g). to support research and development or technological development within Louisiana;
(h). to fund start-up businesses that will operate primarily in Louisiana; or
(i). to provide for an additional economic benefit not otherwise described above. However, before this purpose may be used as a basis for a determination that the investment furthers economic development within Louisiana, the CAPCO shall request in writing and the commissioner shall issue a written response to the CAPCO that, based upon relevant facts and circumstances, the proposed investment will further Louisiana economic purposes and result in a significant net benefit to the state. The commissioner's letter opinion shall be issued within 30 days of the request by the CAPCO, and shall be part of the annual review required to be performed by the department and billed according to provisions contained in §307. D However, upon written notification to the CAPCO, the 30-day period can be extended by the commissioner if he determines that the initial information submitted is insufficient or incomplete for such determination;
ii. an investment by a CAPCO in interim construction financing shall not be considered to further economic development within Louisiana, unless the same CAPCO also provides the debt funding that refinances the interim funding upon completion and the permanent financing is determined to further economic development within Louisiana;
iii. for purposes of Subclause b.i.(e) of this definition, an investment by a CAPCO to refinance interim debt of a qualified Louisiana business will be considered to further economic development within Louisiana if the commitment to fund the investment by the CAPCO occurs before the funding of the interim debt.
LouisianaEmployees-
a. full-time and part-time employees and officers, converted to a full-time equivalent basis, that perform services in Louisiana for a qualified Louisiana business in exchange for salaries, wages and/or other compensation, which is included in Louisiana withholding tax returns filed by the qualified Louisiana business;
b. the term Louisianaemployees shall not include:
i. attorneys, accountants or advisors providing consulting or professional services to a qualified Louisiana business on a contract basis; or
ii. employees of any business that perform services (contractor) for a qualified Louisiana business.
For example: a contractor may enter into an agreement to perform services for a qualified Louisiana business. The contractor's employees that perform services under that agreement would not be Louisiana employees under this definition.
Net Income- net income as defined under or consistent with Generally Accepted Accounting Principles.
Net Worth- net worth as defined under or consistent with Generally Accepted Accounting Principles.
Office- the Office of Financial Institutions (OFI).
Operates Primarily in Louisiana-a business operates primarily inLouisiana if, at the time of the initial investment, the business is in good standing with the Louisiana Secretary of State, if applicable, and meets one or more of the following:
a. the business has more than 50 percent of its total assets located in Louisiana;
b. more than 50 percent of the business' net income is allocable or apportionable to Louisiana in accordance with Louisiana income tax law, but disregarding whether the business is taxable or tax-exempt for Louisiana income tax purposes;
c. more than 50 percent of the total salaries, wages and/or other compensation of the business are paid to Louisiana employees; or
d. the CAPCO has, prior to investing in the business, received a written opinion from the commissioner that, based upon relevant facts and circumstances, the business has demonstrated it operates primarily in Louisiana and will continue to operate primarily in Louisiana for at least one year from the date of any financing by a CAPCO. The commissioner's letter opinion shall be issued within 30 days of the request by the CAPCO, and shall be part of the annual review required to be performed by the department and billed according to provisions contained in §307. D However, upon written notification to the CAPCO, the 30-day period can be extended by the commissioner if he determines that the initial information submitted is insufficient or incomplete for such determination.
Note: For investments made utilizing certified capital raised during 2002 or 2003, Subparagraph c is superseded by R.S. 51:1923(13)(a)(i) which requires that at least 80 percent of the total employees of such business shall be domiciled in the state of Louisiana and that at least 80 percent of the payroll of such business be paid to such employees. Therefore, in addition to meeting this new 80 percent test, in order for the business to be deemed to operate primarily in Louisiana, one or more of Subparagraphs a, b or d must be met.
Participation between CAPCOs- are loans or other investments in which one or more CAPCOs have an ownership interest. If a loan or investment is determined to meet the definition of a qualified investment, a CAPCO may only include its participation (ownership interest) as a qualified investment.
Performs Substantially All of Its Production in Louisiana- a business performs substantially all of its production in Louisiana if:
a. the business derives more than 50 percent of its gross receipts from the sale of manufactured, produced or processed goods; and
b. more than 50 percent of the total value added to the business' finished product is added within Louisiana.
NOTE: For investments made utilizing certified capital raised during 2002 or 2003, R.S. 51:1923(13)(a)(i) adds a new requirement that at least 80 percent of the total employees of such business shall be domiciled in the state of Louisiana and that at least 80 percent of the payroll of such business be paid to such employees. Therefore, in addition to meeting this new 80 percent test, in order for the business to be deemed to perform substantially all of its production in Louisiana, this new 80 percent test must be met in addition to Subparagraphs a and b.
Permissible Investments-for purposes of R.S. 51:1926(B), cash deposited with a federally-insured financial institution; certificates of deposit in federally-insured financial institutions; investment securities that are obligations of the United States, its agencies or instrumentalities, or obligations that are guaranteed fully as to principal and interest by the United States; investment-grade instruments (rated in the top four rating categories by a nationally recognized rating organization); obligations of any state, municipality or of any political subdivision thereof; money market mutual funds or mutual funds that only invest in permissible investments of a kind and maturity permitted by this definition; or any other investments approved in advance and in writing by the commissioner. All permissible investments which are included in the calculation under Subclause a.(iv)(a) of the definition of Investment in LAC 10:XV.303 shall have a maturity of two years or less or the terms of the investment instrument shall provide that the principal is repayable to the CAPCO within 10 days following demand by the CAPCO in connection with funding a qualified investment. This limitation on the maturity of an investment shall only apply to investments made subsequent to the date of this rule.
Person- a natural person or juridical entity. If used with respect to acquiring control of or controlling a specified person, person includes a combination of two or more persons acting in concert.
Primary Business Activity of a CAPCO- the investment of a CAPCO's certified capital primarily in qualified investments in qualified Louisiana businesses. Primary business activity is demonstrated by having at all times, a minimum of 50 percent of total certified capital of each investment pool, which has been collected in cash, available for investment in or having been invested as qualified investments in qualified Louisiana businesses.
Sophisticated Investor- any of the following:
a. an institutional investor such as a bank, savings and loan association or other depository institution insured by the Federal Deposit Insurance Corporation, registered investment company or insurance company;
b. a corporation with total assets in excess of $5,000,000;
c. a natural person whose individual net worth, or joint net worth with that person's spouse at the time of his purchase, exceeds $1,000,000; or
d. a natural person with an individual income in excess of $200,000 in each of two most recent years or joint income with that person's spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year.
Total Certified Capital under Management- for purposes of investment limits, pursuant to R.S. 51:1926(B):
a.GAAP Capital-common stock, preferred stock, general partnership interests, limited partnership interests, surplus and other equivalent ownership interests, all of which shall be exchanged for cash and is available for investment in qualified investments; undivided profits or loss which shall be reduced by a fully-funded loan loss reserve; contingency or other capital reserves and minority interests; reduced by all organization costs;
b. Plus: Qualified Non-GAAP Capital: the portion of debentures, notes or any other quasi-equity/debt instruments with a maturity of not less than five years which is available for investment in qualified investments;
c. Less: The following, when any GAAP capital or Qualified Non-GAAP capital is subject to redemption or repurchase by the CAPCO:
i. the GAAP Capital and Qualified Non-GAAP Capital subject to redemption or repurchase shall be multiplied by the following percentage reductions and deducted from capital:
Within five years from redemption or repurchase | 20 percent |
Within four years from redemption or repurchase | 40 percent |
Within three years from redemption or repurchase | 60 percent |
Within two years from redemption or repurchase | 80 percent |
Within one year from redemption or repurchase | 100 percent |
d. the portion of an investment that is guaranteed by the United States Small Business Administration or the United States Department of Agriculture's Business and Industry Guaranteed Loan Program shall be excluded from the amount of the investment when determining the investment limit pursuant to R.S. 51:1926(B).
La. Admin. Code tit. 10, § XV-303