§ 11 — Certified capital companies

§ 11. Certified capital companies. (a) Definitions. For the purpose of\nthis section the following terms shall mean:\n (1) "Certification date" - the date on which a certified capital\ncompany is so designated by the department for a specific certified\ncapital company program.\n (2) "Certified capital" - an investment of cash by a certified\ninvestor in a certified capital company which fully funds the purchase\nprice of either or both its equity interest in the certified capital\ncompany or a qualified debt instrument issued by the certified capital\ncompany. Any such investment shall be subject to the provisions of\narticle fourteen of the insurance law.\n (3) "Certified capital company" - a partnership, corporation, trust or\nlimited liability company, organized on a for-profit basis that is\nlocated, headquartered and licensed or registered to conduct business in\nNew York, that has as its primary business activity the investment of\ncash in qualified businesses and that is certified by the department as\nmeeting the criteria set forth in subdivision (b) of this section.\n (4) "Certified investor" - any insurance company that contributes\ncertified capital.\n (5) "Department" - the department of financial services; provided,\nhowever, that "department" shall mean the department of economic\ndevelopment with regard to any application, certification, report,\nsubmission, filing or other action required or governed by this section\noccurring on or after August first, two thousand eleven.\n (6) "Net profits on certified investments" - the amount of money\nreturned to the certified capital company in repayment of or exchange\nfor the certified capital company's qualified investment or investments\nin the qualified business in excess of the amount of such qualified\ninvestment or investments. Such number shall aggregate all of the\ncertified capital company's qualified investments where gains on\nqualified investments are netted against losses on qualified\ninvestments.\n (7) "Qualified business" - an independently owned and operated\nbusiness that meets all of the following conditions as of the time of\nthe first investment in the business:\n (A) It is headquartered in New York state, and its principal business\noperations are located in New York state, and the qualified investment\nit receives is used solely to support its business operations in the\nstate, except for advertising, promotions and sales purposes. In cases\nwhere the qualified investment is made in a start-up company such\ncapital must be used solely to establish and support its business\noperations in New York state, except for advertising, promotions and\nsales purposes.\n (B) It has either (i) no more than one hundred employees, at least\neighty percent of whom are employed in New York state or, (ii) no more\nthan two hundred employees, at least eighty percent of whom are employed\nin this state, and during the fiscal year immediately preceding the\nqualified investment it had, together with its affiliates, gross\nrevenues of no more than five million dollars, on a consolidated basis\nas determined in accordance with generally accepted accounting\nprinciples, except that, with respect to certified capital company\nprogram three and certified capital company program four and certified\ncapital company program five, in the case of a company located in an\nempire zone established pursuant to article eighteen-B of the general\nmunicipal law such gross revenues shall not exceed eight million\ndollars.\n (C) It is involved in commerce for the purpose of developing and\nmanufacturing products and systems, including but not limited to high\ntechnology products and systems such as computers, computer software,\nmedical equipment, biotechnology, telecommunications equipment and\nproducts, processing or assembling all types of products, conducting\nresearch and development on all types of products or providing services,\nbut excluding real estate, real estate development, insurance and\nbusinesses predominantly engaged in professional services provided by\naccountants, lawyers or physicians.\n (D) The business was not organized by a certified capital company or\nan affiliate of a certified capital company, but this paragraph shall\nnot prohibit a certified capital company from providing financial,\ntechnical or similar advice to a business before making an investment in\nsuch business.\n (E) The business does not have a financial relationship, such as an\nownership interest, investment interest, or compensation agreement, with\na certified capital company or any affiliate of a certified capital\ncompany before the date on which a certified capital company makes its\nfirst investment in the business, but this paragraph shall not prohibit\na certified capital company from providing financial, technical or\nsimilar advice to a business before making an investment in such\nbusiness.\n (F) For purposes of this paragraph, the term "independently owned and\noperated business" means (i) in the case of a corporation or limited\nliability company, a corporation where no more than fifty percent of the\nvoting stock of the corporation or limited liability company is owned or\ncontrolled, directly or indirectly, by a single corporation, a single\npartnership or a single limited liability company, and (ii) in the case\nof a partnership, association, or other entity, a partnership,\nassociation or other entity where no more than fifty percent of the\ncapital, profits or other beneficial interest in such partnership,\nassociation or other entity is owned or controlled, directly or\nindirectly, by a single corporation, a single partnership or a single\nlimited liability company; provided, however, that the term shall\ninclude, as a single "independently owned and operated business," parent\nand subsidiary or affiliated corporations or limited liability companies\n(i) that are engaged in an integrated for-profit business enterprise,\nand (ii) in which at least eighty percent of the voting stock or\nmembership interests of all of the corporations or limited liability\ncompanies is owned or controlled, directly or indirectly, by a common\ngroup of shareholders or members, and no more than fifty percent of the\nvoting stock or membership interests of all of the corporations or\nlimited liability companies is owned or controlled, directly or\nindirectly, by a single corporation, single partnership, or single\nlimited liability company that is not part of such group or parent\ncompany or affiliated corporations or limited liability companies.\n (8) "Qualified debt instrument" - a debt instrument issued by a\ncertified capital company, at par value or a premium, with an original\nmaturity date of at least five years from date of issuance, a repayment\nschedule which is not faster than a level principal amortization, and\ninterest, distribution or payment features which are not related to the\nprofitability of the certified capital company or the performance of the\ncertified capital company's investment portfolio.\n (9) "Qualified distribution" - any distribution or payment by a\ncertified capital company in connection with the following:\n (A) Reasonable costs and expenses of such equity holders incurred by\nsuch equity holders in connection with forming, syndicating, managing\nand operating the certified capital company, including (i) an annual\nmanagement fee in an amount that does not exceed two and one-half\npercent of the certified capital of the certified capital company with\nrespect to a particular certified capital company program; (ii) the\nreasonable and necessary fees paid for professional services (such as\nlegal and accounting services) related to the operation of the certified\ncapital company; (iii) with respect to program four and any subsequent\nprogram, all payments by the certified capital company in satisfaction\nof its indebtedness to its certified investors, provided that no more\nthan thirty-five percent of such certified capital company's certified\ncapital may be used to purchase U.S. treasury securities, other\ninvestment-grade securities, a guaranty, indemnity, bond, insurance\npolicy or other payment undertaking, or any combination thereof; and\nprovided further, that nothing in this provision shall be construed to\nlimit a certified capital company from expending non-certified capital\nin satisfaction of such indebtedness; and (iv) with respect to program\nfour and any subsequent program, the reasonable costs and expenses of\nforming, syndicating, or organizing the certified capital company,\nseparate from the costs of insuring or defeasing the obligations of the\ncertified capital company, provided, however, that such costs and\nexpenses shall not exceed five percent of the certified capital\ncompany's certified capital; and\n (B) Any increase or projected increase in federal or state taxes,\nincluding penalties and interest related to state and federal income\ntaxes, of the equity owners of a certified capital company resulting\nfrom the earnings or other tax liability of the certified capital\ncompany to the extent that the increase is related to the ownership,\nmanagement or operation of a certified capital company.\n (10) "Qualified investment" - the investment of cash by a certified\ncapital company in a qualified business for the purchase of any debt,\nequity or hybrid security, of any nature and description whatever,\nincluding a debt instrument or security which has the characteristics of\ndebt but which provides for conversion into equity or equity\nparticipation instruments such as options or warrants, provided however,\nin the case of certified capital programs three, four and five, that any\nsuch debt instrument have a maturity of at least twenty-four months from\nthe date such debt is incurred; and further provided that a certified\ncapital company, after the investment and assuming full conversion and\nexercise of any equity participation instruments, shall not own more\nthan fifty percent of the voting equity of the qualified business,\nexcept in the case of a follow-on investment where a specific exemption\nis granted by the department under subparagraph (D) of paragraph one of\nsubdivision (c) of this section. Furthermore, except in the case of a\nfollow-on investment, if a certified capital company owns more than\nfifteen percent of the equity in a company or has a seat on the board of\ndirectors of such company, then a certified capital company cannot\ninvest in such company unless the following conditions are met: (i) at\nleast one other investor who is not an affiliate of the certified\ncapital company participates in the same round of investment on the same\nterms and conditions as the certified capital company; and (ii) the\ncertified capital company and its affiliates invest no more than fifty\npercent of the total investment made in that round of investment.\n (11) "Early stage business" - a qualified business which is involved,\nat the time of investment, in activities related to the development of\ninitial product or service offerings, such as prototype development or\nestablishment of initial production or service processes, or, which is\nless than two years old and during the fiscal year immediately preceding\nthe qualified investment had, together with its affiliates, gross\nrevenues of no more than two million dollars, on a consolidated basis as\ndetermined in accordance with generally accepted accounting principles.\n (12) "Superintendent" - the superintendent of financial services;\nprovided, however, that "superintendent" shall mean the commissioner of\neconomic development with regard to any application, certification,\nreport, submission, filing or other action required or governed by this\nsection occurring on or after August first, two thousand eleven.\n (13) "Certified capital company program" - a calendar year or years\nfor which taxpayers may be allocated and allowed credits pursuant to\nthis section and subdivision (k) of section fifteen hundred eleven of\nthis chapter and delineated as a separate program by this section.\n (14) "Starting date" - the date on which a certified capital company\nis allocated certified capital for a specific certified capital company\nprogram pursuant to subdivision (b) of this section.\n (15) "Underserved area" - a county, including a county wholly within a\ncity, in which, as of January first, two thousand, less than twenty-five\npercent of the qualified investments in qualified businesses were made\nby certified capital companies under certified capital company program\none. The superintendent shall prepare a list of such counties by July\nfirst, two thousand.\n (16) "Start-up business" - a qualified business which is involved, at\nthe time of investment, in activities related to the development of\ninitial product or service offerings, such as prototype development or\nestablishment of initial production or service processes, or, which is\nless than two years old and during the fiscal year immediately preceding\nthe qualified investment had, together with its affiliates, gross\nrevenues of no more than two million dollars, on a consolidated basis as\ndetermined in accordance with generally accepted accounting principles\nand has fewer than twenty employees at the time of the investment; and,\nin addition, which has emerged within the year prior to the date of\ninvestment or is emerging from, or utilizes a technology transferred\nfrom, a university or college research facility located in New York\nstate, a not-for-profit research facility located in New York state, or\nan industrial research facility located in New York state, or which is\nconducting research in conjunction with or in the research facilities of\na university or college located in New York state, or which is located\nin or has emerged within the year prior to the date of investment or is\nemerging from an incubator facility located in New York state.\n (b) Certification. (1) The superintendent shall establish by rule or\nregulation the procedures for making an application to become a\ncertified capital company. The applicant shall pay a non-refundable\napplication fee of five hundred dollars at the time of filing the\napplication with the department.\n (2) The superintendent may certify partnerships, corporations, trusts\nor limited liability companies, organized on a for profit basis, which\nsubmit an application to be designated as a certified capital company if\nsuch applicant is located, headquartered and licensed or registered to\nconduct business in New York, has as its primary business activity the\ninvestment of cash in qualified businesses and meets the other criteria\nset forth in this subdivision.\n (3) A certified capital company's initial capitalization, at the time\nof seeking certification, must be five hundred thousand dollars or more.\n (4) The superintendent shall review the organizational documents of\neach applicant for certification and the business history of the\napplicant, determine that the applicant's cash, marketable securities\nand other liquid assets are at least five hundred thousand dollars, and\ndetermine that the officers and the board of directors, general\npartners, trustees, managers, or members are trustworthy and are\nthoroughly acquainted with the requirements of this subdivision.\n (5) The superintendent shall verify that at least two principals of\nthe certified capital company or any manager of the certified capital\ncompany each have no less than five years of experience in the venture\ncapital or a venture capital-related industry.\n (6) Any offering material involving the sale of securities of the\ncertified capital company shall include the following statement:\n "Authorizing the formation of a Certified Capital Company does not\nconstitute the endorsement of the state of New York as to either the\nquality of management or the potential for earnings of such company and\nthe state of New York is not liable for damages or losses to a Certified\nInvestor in the company. Use of the word 'certified' in an offering does\nnot constitute a recommendation or endorsement of the investment by the\nstate of New York.\n Investments in a prospective Certified Capital Company prior to the\ntime such company is certified with respect to a certified capital\ncompany program are not eligible for tax credits. In the event certain\nstatutory provisions (as specified in section 11 of the Tax Law) are\nviolated, the state of New York may require forfeiture of unused tax\ncredits and repayment of used tax credits."\n (7) Within sixty days of application, the superintendent shall issue\nthe certification or shall refuse the certification and communicate in\ndetail to the applicant the grounds for the refusal, including\nsuggestions for the removal of those grounds.\n (8) The superintendent may certify any previously certified capital\ncompany which has remained in compliance with the requirements of this\nsection upon the application of such company to be designated a\ncertified capital company for a certified capital company program for\nwhich it is not so designated. Such new certification shall be\nconsidered a separate certification from any other such certification\nunder this section and investments in and by such company shall be\nconsidered separately for purposes of subdivisions (c) and (d) of this\nsection.\n (9) The superintendent shall start accepting applications to become a\ncertified capital company in certified capital company program two by\nNovember first, nineteen hundred ninety-nine, and shall start accepting\napplications to become a certified capital company in certified capital\ncompany program three by August first, two thousand, and shall begin\naccepting applications to become a certified capital company in\ncertified capital company program four by the later of August first, two\nthousand four or not more than sixty days after the effective date of\nsection one of part D of chapter fifty-nine of the laws of two thousand\nfour and shall begin accepting applications to become a certified\ncapital company in certified capital company program five by the later\nof July first, two thousand five or not more than sixty days after the\neffective date of the chapter of the laws of two thousand five which\namended this paragraph.\n (10) A certified capital company may obtain a guaranty, indemnity,\nbond, insurance policy and/or other payment undertaking for the benefit\nof its certified investors from any entity; provided, however, that, in\nno case shall more than one certified investor of such certified capital\ncompany or affiliates of such certified investor be entitled to provide\nsuch guaranty, indemnity, bond, insurance policy and/or other payment\nundertaking in favor of the certified investors of the certified capital\ncompany and its affiliates in this state.\n (c) Requirements for continuance of certification. (1) To continue to\nbe certified with respect to a particular certified capital company\nprogram, a certified capital company must make qualified investments\naccording to the following schedule:\n (A) Within two years after the starting date of a specific certified\ncapital company program of a certified capital company, at least\ntwenty-five percent of its certified capital allocable to such certified\ncapital company program must be placed in qualified investments.\n (B) Within three years after the starting date of a specific certified\ncapital company program of a certified capital company, at least forty\npercent of its certified capital allocable to such certified capital\ncompany program must be placed in qualified investments.\n (C) Within four years after the starting date of a specific certified\ncapital company program of a certified capital company, at least fifty\npercent of its certified capital allocable to such certified capital\ncompany program must be placed in qualified investments, at least fifty\npercent of which must have been placed in early stage businesses, except\nthat in the case of program four and any subsequent program, at least\ntwenty-five percent of which must have been placed in early stage\nbusinesses and an additional twenty-five percent of which must have been\nplaced in start-up businesses, and except that in the case of qualified\ninvestments made in qualified businesses located in empire zones\nestablished pursuant to article eighteen-B of the general municipal law\nunder the provisions of certified capital company program three, program\nfour and program five from allocations of certified capital made\nspecifically for such targeted investments in such zones, the\nrequirement for qualified investments in early stage and start-up\nbusinesses shall not apply.\n (D) A certified capital company, at least fifteen working days prior\nto making a proposed investment in a specific business, shall certify in\nwriting to the superintendent that (i) the business in which it proposes\nto invest meets the definition of a qualified business as set forth in\nsubdivision (a) of this section or, in the case of a follow-on\ninvestment, that such business continues to meet the requirements set\nforth in subparagraphs (A) and (C) of paragraph seven of subdivision (a)\nof this section and, in either case, an explanation of its determination\nthat the business meets such requirements, and (ii) with respect to\ncertified capital company program three, program four and program five,\nwhether or not such business is located in an empire zone established\npursuant to article eighteen-B of the general municipal law or in an\nunderserved area outside an empire zone. The certification to the\nsuperintendent shall include a sworn statement from the business in\nwhich the certified capital company proposes to invest, which statement\nshall evidence the intention of the business to maintain its\nheadquarters in New York and conduct its primary business operations in\nthe state of New York after its receipt of the investment by the\ncertified capital company. If the superintendent determines that the\nbusiness does not meet the definition of a qualified business, or, in\nthe case of a follow-on investment, that such business does not meet the\nrequirements set forth in subparagraphs (A) and (C) of paragraph seven\nof subdivision (a) of this section, then it shall, within the fifteen\nworking day period prior to the making of the proposed investment,\nnotify the certified capital company of its determination and provide an\nexplanation thereof, provided, however, that the department may, upon\nwritten request of a certified capital company and at the discretion of\nthe department, grant, in writing, an exemption to the percentage\nlimitations of paragraph ten of subdivision (a) of this section.\n (E) All certified capital not placed in qualified investments by the\ncertified capital company may be held or invested in such manner as the\ncertified capital company, in its discretion, deems appropriate. The\nproceeds of all certified capital returned to a certified capital\ncompany after being originally placed in qualified investments may be\nplaced again in qualified investments and shall count toward any\nrequirement in this subdivision with respect to placing certified\ncapital in qualified investments.\n (F) If within ten years after the starting date of certified capital\ncompany program four or program five, and within twelve years after the\nstarting date of certified capital company programs one, two, and three,\none hundred percent of the certified capital allocable to a certified\ncapital company participating in such program has not been placed in\nqualified investments, the specific certified capital company shall no\nlonger be permitted to receive management fees; provided that such\nrestriction shall not apply (i) with respect to certified capital\ncompany programs one, two, and three, to any certified capital company\nthat has not, prior to October thirty-first, two thousand four,\nreceived, as opposed to accrued, any management fees, or (ii) with\nrespect to any certified capital company program, to a certified capital\ncompany in which at least fifty percent of the voting stock, capital,\nmembership interests, or other beneficial ownership interests, as the\ncase may be, are owned by an entity that is managed, directly or\nindirectly, by a non-profit corporation.\n (2) Any business which is classified as a qualified business at the\ntime of the first investment in said business by a certified capital\ncompany shall remain classified as a qualified business and may receive\nfollow-on investments from any certified capital company, and such\nfollow-on investments shall be qualified investments even though such\nbusiness may not meet the definition of a qualified business at the time\nof such follow-on investments, provided, however, that such business\ncontinues to meet the requirements set forth in subparagraphs (A) and\n(C) of paragraph seven of subdivision (a) of this section, and such\nbusiness reaffirms its intention to maintain its headquarters in New\nYork and conduct its primary business operations in the state of New\nYork as required in subparagraph (D) of paragraph one of this\nsubdivision.\n (3) No qualified investment may be made by a certified capital company\nto the extent such investment would cause the company's total qualified\ninvestment outstanding with respect to the qualified business receiving\nsuch investment to exceed fifteen percent of the total certified capital\nof the certified capital company at the time of such investment.\n (4) Documents and other materials submitted by certified capital\ncompanies or by businesses for purposes of the continuance of\ncertification shall not be public records if such records are determined\nby the superintendent to be trade or business secrets and shall be\nmaintained in a confidential manner by the superintendent.\n (5) The aggregate cumulative amount of all qualified investments made\nby the certified capital company for a certified capital company program\nfrom its starting date for such program will be considered in the\ncalculation of the percentage requirements under subparagraphs (A), (B)\nand (C) of paragraph one of this subdivision, provided, however, that\nany amounts received by a certified capital company from a qualified\nbusiness as (i) commitment fees, closing fees, or other similar fees\n(excluding reimbursement of out-of-pocket expenses, including legal fees\nand accounting fees) in excess of one percent of the certified capital\ncompany's investment in the qualified business or (ii) license fees,\nroyalties, or similar charges shall not be considered in any of the\npercentage calculations under this section.\n (6) Each certified capital company shall report the following to the\nsuperintendent:\n (A) As soon as practicable after the receipt of certified capital or\nan irrevocable funding commitment subject only to the receipt of an\nallocation pursuant to subdivision (h) of this section, (i) the name of\neach certified investor from which the certified capital was received,\nincluding such certified investor's insurance tax identification number;\n(ii) the amount of each certified investor's investment of certified\ncapital; and (iii) the date on which the certified capital was received.\nProvided, however, that requests for allocation of tax credits with\nrespect to certified capital company program two by certified capital\ncompanies on behalf of their certified investors which are received by\nthe superintendent on or before March first, two thousand shall be\ntreated as having been received on March first, two thousand for tax\ncredits to be utilized in two thousand one, and if satisfactory, shall\nbe given equal priority for allocation, and provided, however, that\nrequests for allocation of tax credits with respect to certified capital\ncompany program three by certified capital companies on behalf of their\ncertified investors which are received by the superintendent on or\nbefore December first, two thousand shall be treated as having been\nreceived on December first, two thousand for tax credits to be utilized\nin two thousand two, and if satisfactory, shall be given equal priority\nfor allocation, and provided, however, that requests for allocation of\ntax credits with respect to certified capital company program four by\ncertified capital companies on behalf of their certified investors which\nare received by the superintendent on or before December first, two\nthousand four shall be treated as having been received on December\nfirst, two thousand four for tax credits to be utilized in two thousand\nsix, and if satisfactory, shall be given equal priority for allocation,\nand provided, however, that requests for allocation of tax credits with\nrespect to certified capital company program five by certified capital\ncompanies on behalf of their certified investors which are received by\nthe superintendent on or before the later of (i) November first, two\nthousand five and (ii) the one hundred twentieth day after the date on\nwhich the superintendent began accepting applications for certification\nin connection with certified capital company program five pursuant to\nparagraph nine of subdivision (b) of this section shall be treated as\nhaving been received on such later date for tax credits to be utilized\nin two thousand seven, and if satisfactory, shall be given equal\npriority for allocation.\n (B) On an annual basis, on or before January thirty-first of each\nyear, (i) the amount of the certified capital company's certified\ncapital at the end of the immediately preceding year; (ii) whether or\nnot the certified capital company has invested more than fifteen percent\nof its total certified capital in any one business; (iii) all qualified\ninvestments that the certified capital company made during the previous\ncalendar year, including the number of employees of each qualified\nbusiness in which it has made investments at the time of such investment\nand as of December first of the preceding calendar year. For any\nqualified business where the certified capital company no longer has an\ninvestment, the certified capital company shall provide employment\nfigures for such company as of the last day before the investment was\nterminated. Such report shall provide a separate accounting by each\ncertified capital company program; and (iv) all qualified investments\nmade in empire zones and underserved areas outside such empire zones as\nrequired under certified capital company program three, certified\ncapital company program four and certified capital company program five.\n (C) Each certified capital company shall provide to the superintendent\nannual audited financial statements, which shall include the opinion of\nan independent certified public accountant, within ninety days of the\nclose of its fiscal year. The audit shall address whether the funds\nreceived by the certified capital company have been invested as required\nunder subparagraphs (A), (B) and (C) of paragraph one of this\nsubdivision. Upon receiving notification and documentation by a\ncertified capital company that it has satisfied the requirements of\nsubparagraph (C) of paragraph one of this subdivision that it has\ninvested fifty percent of its certified capital, the department shall\nhave sixty days to notify such certified capital company that it has or\nhas not met such requirement, with a reason for such determination if it\nhas not, in the judgment of the department, met such requirement. If the\ndepartment does not provide such notification within sixty days, the\ncertified capital company shall then be deemed to have met such\nrequirement.\n (D) On or before April first of each year, each certified capital\ncompany shall pay an annual, non-refundable certification fee of five\nhundred dollars to the superintendent; provided that no such fee shall\nbe required within six months of the initial certification date of a\ncertified capital company.\n (E)(1) Within thirty days of the decision on an application for\ncertification pursuant to subdivision (b) of this section, the\nsuperintendent shall submit a copy of such application and the related\ndecision to the department of taxation and finance. The superintendent\nshall submit a copy of all filings of certifications pursuant to\nsubparagraph (D) of paragraph one of this subdivision and any\ndetermination made thereon within fifteen days of such filing.\n (2) The superintendent shall annually, by March first, submit to the\ndepartment of taxation and finance a list of persons who may claim the\ntax credit for the previous taxable year and any other information\nnecessary to assist the department of taxation and finance to determine\neligibility for such tax credit.\n (d) Distributions. (1) A certified capital company may make qualified\ndistributions at any time. In order for a certified capital company to\nmake a distribution other than a qualified distribution from a certified\ncapital company program, to its equity holders, either (A) the aggregate\ncumulative amount of all qualified investments for such program must\nequal or exceed one hundred percent of its certified capital allocable\nto such certified capital company program, or (B) it must have received\nwritten authorization to make such distribution from the superintendent.\nIn no event, however, shall any such distribution to its equity holders,\nother than a qualified distribution, be made by a certified capital\ncompany from a certified capital company program unless an amount equal\ncumulatively to at least ninety percent of its certified capital of such\nprogram is invested in companies that conduct their principal business\noperations in New York state.\n (2) In the event that a business in which a qualified investment is\nmade relocates its principal business operations to another state during\nsuch investment, or within three months after the termination of such\ninvestment, the cumulative amount of qualified investment shall be\nreduced by the amount of such qualified investment, for the purposes of\nthis subdivision only, unless (A) the certified capital company invests\nan amount at least equal to the investment of certified capital in the\nrelocated business in a qualified business located in New York state\nwithin six months of the relocation or (B) unless the business\ndemonstrates that it has returned its principal business operations to\nNew York state within three months of such relocation. A business shall\nbe deemed to have relocated its principal business operations outside\nNew York state if the primary workplace of more than fifty percent of\nthe employees of such business within the state is relocated to another\nstate.\n (3) In the event that a business in which a qualified investment is\nmade under certified capital company program three, certified capital\ncompany program four or certified capital company program five,\nrelocates its principal business operation within the earlier of four\nyears after the date of such qualified investment or three months after\nthe termination of such investment, whereby the requirements of\nparagraph three of subdivision (h) of this section to make qualified\ninvestments in qualified businesses located in empire zones established\npursuant to article eighteen-B of the general municipal law or in\nunderserved areas outside such empire zones no longer are satisfied, the\ncumulative amount of qualified investment shall be reduced by the amount\nof such qualified investment, for the purposes of this subdivision only,\nunless (A) the certified capital company invests an amount at least\nequal to the investment of certified capital in the relocated business\nin a qualified business located in either an empire zone or in an\nunderserved area outside an empire zone so that the requirements of\nparagraph three of subdivision (h) of this section are again satisfied\nwithin six months of such relocation, unless the certified capital\ncompany certifies to the superintendent that a good faith effort was\nmade to make additional qualifying investments under the requirements of\nparagraph three of subdivision (h) of this section, or (B) the business\ndemonstrates that it has returned its principal business operation to\nNew York state in either an empire zone or in an underserved area\noutside an empire zone within three months of such relocation, or (C)\nthe business demonstrates that it had a valid business purpose for\nrelocating its principal business operation. A business shall be deemed\nto have relocated its principal business operations outside of an empire\nzone or an underserved area outside an empire zone if the primary\nworkplace of more than fifty percent of the employees of such business\nwithin an empire zone or an underserved area outside an empire zone is\nrelocated to an area outside the state or outside an empire zone or an\nunderserved area outside an empire zone.\n (4) Payments to debt holders of a certified capital company may be\nmade without restriction with respect to repayments of principal and\ninterest on indebtedness owed to them by a certified capital company,\nincluding indebtedness of the certified capital company on which\ncertified investors earned tax credits. A debt holder that is also a\ncertified investor or equity holder of a certified capital company may\nreceive payments with respect to such debt without any restriction\nwhatsoever.\n (5) A certified capital company that receives certified capital\ninvestments under program four and any subsequent program shall pay to\nthe department for deposit in the general fund an amount equal to thirty\npercent of the net profits on qualified investments. A certified capital\ncompany shall make all payments required under this paragraph\nconcurrently with and pro rata to distributions of profits and gains to\nits equity owners; however, nothing contained in this paragraph shall be\nconstrued to affect qualified distributions.\n (6) The amount of any payment required under paragraph five of this\nsubdivision shall be reduced to fifteen percent of such net profits on\nqualified investments if, at the time of such net profits distribution,\nsuch certified capital company irrevocably commits to both: (A)\nre-invest the remaining fifteen percent of such net profits not being\npaid to the general fund under paragraph five of this subdivision into\nqualified businesses, and (B) invest an additional amount equal to at\nleast fifteen percent of such net profits distribution into qualified\nbusinesses which additional amount shall come from a separate pool of\nventure capital that is controlled by the certified capital company but\nthat does not contain certified capital. In making investments from\nfunds established under this paragraph, the certified capital company\nshall follow the requirements set forth in subparagraph (D) of paragraph\none of subdivision (c) of this section pertaining to obtaining approval\nof the investment being in a qualified business, except that\nrequirements pertaining to empire zones and underserved areas\nrequirements shall not apply. Once qualified investments in qualified\nbusinesses have been made pursuant to this paragraph equal to thirty\npercent of the net profits on qualified investments, then the\nrequirements under this subdivision shall have been satisfied and the\nproceeds from such qualified businesses may be distributed without\nrestriction.\n (e) Decertification. (1) The superintendent shall conduct an annual\nreview of each certified capital company to determine if the certified\ncapital company is abiding by the requirements of certification, to\nadvise the certified capital company as to the eligibility status of its\nqualified investments, and to ensure that no investment has been made in\nviolation of this subdivision. The cost of the annual review shall be\npaid by each certified capital company according to a reasonable fee\nschedule adopted by the superintendent.\n (2) Any material violation of subdivision (c) of this section with\nrespect to a particular certified capital company program shall be\ngrounds for decertification of the certified capital company with\nrespect to such program. If the superintendent determines that a\ncertified capital company is not in compliance with the requirements of\nsubdivision (c) of this section with respect to a particular certified\ncapital company program, it shall, by written notice, inform the\nofficers of the certified capital company that the certified capital\ncompany will be subject to decertification with respect to such program\nin one hundred twenty days from the date of mailing of the notice,\nunless the deficiencies are corrected and the certified capital company\nis again in compliance with all requirements for certification.\n (3) At the end of the one hundred twenty day grace period, if the\ncertified capital company is still not in compliance with subdivision\n(c) of this section with respect to a particular certified capital\ncompany program, the superintendent shall send a notice of\ndecertification to the certified capital company with respect to such\nprogram and to all other appropriate state agencies.\n (4) Notwithstanding the provisions of paragraphs two and three of this\nsubdivision, if a certified capital company in certified capital company\nprograms three, four and five fails to satisfy the requirement in\nsubparagraph (B) of paragraph one of subdivision (c) of this section\nbecause it has been unable to make a sufficient amount of qualified\ninvestments in qualified businesses located either in empire zones\nestablished pursuant to article eighteen-B of the general municipal law\nor in underserved areas outside such empire zones, such certified\ncapital company shall not be subject to decertification at that time.\nHowever, if such certified capital company fails to satisfy the\nrequirement in subparagraph (C) of paragraph one of subdivision (c) of\nthis section because it has been unable to make a sufficient amount of\nqualified investments in qualified businesses located either in such\nempire zones or in underserved areas outside such empire zones, but\ncertifies to the superintendent that it had made a good faith effort to\nmake such investments, such certified capital company shall be allowed\ntwo additional years to satisfy the requirement in such subparagraph\n(C). If, after the conclusion of such two year period, the certified\ncapital company still has not been able to satisfy the requirement to\nmake such investments, and such certified capital company certifies to\nthe superintendent that it had made a good faith effort to make such\ninvestments, the requirement in paragraphs three, four and five of\nsubdivision (h) of this section to make qualified investments in\nqualified businesses located in empire zones or in underserved areas\nshall be waived. Such certified capital company shall then be allowed\none additional year to satisfy the requirement in such subparagraph (C),\nand if, at the conclusion of that additional one year period, such\nrequirement is still not satisfied, such certified capital company shall\nbe subject to decertification and the provisions of paragraphs two and\nthree of this subdivision shall apply.\n (5) Once a certified capital company has invested an amount\ncumulatively equal to one hundred percent of its certified capital with\nrespect to a particular certified capital company program in qualified\ninvestments and has met all other requirements under this subdivision,\nthe certified capital company shall no longer be subject to regulation\nby the superintendent and shall no longer be subject to the requirements\nof subdivision (c) of this section with respect to such program. Upon\nreceiving documented certification by a certified capital company that\nit has invested an amount equal to one hundred percent of its certified\ncapital, the department shall have sixty days to notify such certified\ncapital company that it has or has not met such requirement with a\nreason for such determination if it has not, in the judgment of the\ndepartment, met such requirement. If the department does not provide\nsuch notification within sixty days, the certified capital company shall\nthen be deemed to have met such requirement.\n (6) The superintendent shall send written notice of such\ndecertification to the address of each certified investor whose tax\ncredit has been subject to recapture or forfeiture, using the address\nshown on the last filing submitted to the superintendent.\n (f) Revocation of certification. The superintendent may revoke the\ncertification of a certified capital company, or, at the discretion of\nthe superintendent, the certification of a certified capital company\nwith respect to a particular certified capital company program only, if\nany material representation to the superintendent in connection with the\napplication process proves to have been falsely made or if the\napplication materially violates any requirement established by the\nsuperintendent pursuant to this subdivision. In addition, the\nsuperintendent may revoke the certification of a certified capital\ncompany if such certified capital company (i) falsely certified,\npursuant to paragraph three of subdivision (d) of this section that a\ngood faith effort was made to make additional qualifying investments\nunder the requirements of paragraph three of subdivision (h) of this\nsection, or (ii) falsely certified, pursuant to paragraph four of\nsubdivision (e) of this section, that it had made a good faith effort to\nmake a sufficient amount of qualifying investments in qualifying\nbusinesses located in empire zones established pursuant to article\neighteen-B of the general municipal law or in underserved areas outside\nsuch empire zones.\n (g) Registration requirements. All investments for which tax credits\nare allowable under the provisions of subdivision (k) of section fifteen\nhundred eleven of this chapter shall satisfy the conditions of being\nregistered or specifically exempt from registration by provisions or\nregulations under sections three hundred fifty-nine-e through three\nhundred fifty-nine-ff of the general business law.\n (h) Maximum permitted credits. (1) Certified capital company program\none. The aggregate amount of certified capital for which taxpayers may\nbe allocated and allowed tax credits pursuant to this paragraph and\nsubdivision (k) of section fifteen hundred eleven of this chapter may\nnot exceed fifty million dollars for calendar year nineteen hundred\nninety-nine, which certified capital may be invested in certified\ncapital companies beginning in calendar year nineteen hundred\nninety-eight. In calendar year two thousand or thereafter, tax credits\nmay be allowed pursuant to this paragraph and such subdivision (k) for\nan additional fifty million dollars of certified capital, which\ncertified capital may be invested in certified capital companies\nbeginning in calendar year nineteen hundred ninety-nine, if not\nallocated to calendar year nineteen hundred ninety-eight in accordance\nwith this paragraph. Therefore, the total amount of certified capital\nfor which tax credits may be allowed pursuant to this paragraph and such\nsubdivision (k) shall be one hundred million dollars.\n During any calendar year in which the limitation described in this\nparagraph will limit the amount of certified capital, certified capital\nwill be allocated in order of priority based upon the date of filing of\ninformation described in subparagraph (A) of paragraph six of\nsubdivision (c) of this section. Certified capital limited in any\ncalendar year by the application of the provisions of this paragraph\nshall be allowed and allocated in the immediately succeeding calendar\nyear in order of priority set forth in this paragraph. The\nsuperintendent shall advise any certified capital company in writing\nwithin fifteen days after receiving such filing, whether the limitations\nof this paragraph then in effect will be applicable with respect to the\ninvestments and credits described in such filing with the\nsuperintendent.\n Certified capital may be raised by each certified capital company with\nrespect to certified capital company program one at any time subsequent\nto its certification date, and credits shall be allocated to and vested\nin certified investors at the time of each such investment as provided\nin this paragraph, although such credits shall not be first allowed or\nincurred for state tax purposes, until, at the earliest, tax years\nbeginning in nineteen hundred ninety-nine with respect to the first\nfifty million dollars of credits and tax years beginning in two thousand\nwith respect to the next such fifty million dollars of credits.\n (2) Certified capital company program two. The aggregate amount of\ncertified capital for which taxpayers may be allocated and allowed tax\ncredits pursuant to this paragraph and subdivision (k) of section\nfifteen hundred eleven of this chapter may not exceed thirty million\ndollars for calendar year two thousand one, which certified capital may\nbe invested in certified capital companies beginning in calendar year\nnineteen hundred ninety-nine.\n During any calendar year in which the limitation described in this\nparagraph will limit the amount of certified capital, certified capital\nwill be allocated in order of priority based upon the date of filing of\ninformation described in subparagraph (A) of paragraph six of\nsubdivision (c) of this section. The superintendent shall advise any\ncertified capital company in writing, within fifteen days after\nreceiving such filing, whether the limitations of this paragraph then in\neffect will be applicable with respect to the investments and credits\ndescribed in such filing with the superintendent.\n Certified capital may be raised by each certified capital company with\nrespect to certified capital company program two at any time subsequent\nto its certification date, and credits shall be allocated to and vested\nin certified investors at the time of each such investment as provided\nin this paragraph, although such credits shall not be first allowed or\nincurred for state tax purposes, until, at the earliest, tax years\nbeginning in two thousand one.\n (3) Certified capital company program three. The aggregate amount of\ncertified capital for which taxpayers may be allocated and allowed tax\ncredits pursuant to this paragraph and subdivision (k) of section\nfifteen hundred eleven of this chapter may not exceed one hundred fifty\nmillion dollars for calendar year two thousand two, which certified\ncapital may be invested in certified capital companies beginning in\ncalendar year two thousand.\n During any calendar year in which the limitation described in this\nparagraph will limit the amount of certified capital, certified capital\nwill be allocated in order of priority based upon the date of filing of\ninformation described in subparagraph (A) of paragraph six of\nsubdivision (c) of this section. The superintendent shall advise any\ncertified capital company in writing, within fifteen days after\nreceiving such filing, whether the limitations of this paragraph then in\neffect will be applicable with respect to the investments and credits\ndescribed in such filing with the superintendent.\n Certified capital may be raised by each certified capital company with\nrespect to certified capital company program three at any time\nsubsequent to its certification date, and credits shall be allocated to\nand vested in certified investors at the time of each such investment as\nprovided in this paragraph, although such credits shall not be first\nallowed or incurred for state tax purposes, until, at the earliest, tax\nyears beginning in two thousand two. One-third of the certified capital\nraised by each certified capital company with respect to certified\ncapital company program three shall be used to make qualified\ninvestments in qualified businesses located in empire zones established\npursuant to article eighteen-B of the general municipal law, and\none-third of such certified capital shall be used to make qualified\ninvestments in qualified businesses located in underserved areas outside\nsuch empire zones.\n (4) Certified capital company program four. The aggregate amount of\ncertified capital for which taxpayers may be allocated and allowed tax\ncredits pursuant to this paragraph and subdivision (k) of section\nfifteen hundred eleven of this chapter may not exceed sixty million\ndollars for calendar year two thousand six, which certified capital may\nbe invested in certified capital companies beginning in calendar year\ntwo thousand four.\n During any calendar year in which the limitation described in this\nparagraph will limit the amount of certified capital, certified capital\nwill be allocated in order of priority based upon the date of filing of\ninformation described in subparagraph (A) of paragraph six of\nsubdivision (c) of this section. The superintendent shall advise any\ncertified capital company in writing, within fifteen days after\nreceiving such filing, whether the limitations of this paragraph then in\neffect will be applicable with respect to the investments and credits\ndescribed in such filing with the superintendent.\n Certified capital may be raised by each certified capital company with\nrespect to certified capital company program four at any time subsequent\nto its certification date, and credits shall be allocated to and vested\nin certified investors at the time of each such investment as provided\nin this paragraph, although such credits shall not be first allowed or\nincurred for state tax purposes, until, at the earliest, tax years\nbeginning in two thousand six. One-third of the certified capital raised\nby each certified capital company with respect to certified capital\ncompany program four shall be used to make qualified investments in\nqualified businesses located in empire zones established pursuant to\narticle eighteen-B of the general municipal law, and one-third of such\ncertified capital shall be used to make qualified investments in\nqualified businesses located in underserved areas outside such empire\nzones, provided, however, that in the case of an investment made by a\ncertified capital company in an empire zone located in an underserved\narea, the certified capital company making such an investment may choose\nto designate such investment as an investment in an underserved area but\nnot as an investment in an empire zone for the purpose of meeting the\nrequirements of this paragraph. Fifty percent of the total amount of\ncapital invested by a certified capital company at the time of one\nhundred percent investment of funds shall be invested in qualified\nbusinesses that are involved in commerce for the primary purpose of\ndeveloping and manufacturing products and systems covered by the\nactivities set forth in paragraph (b) of subdivision one of section\nthirty-one hundred two-e of the public authorities law and have a ratio\nof research and development expenditures to net sales which equals or\nexceeds six percent during the fiscal year immediately preceding the\nqualified investment.\n (5) Certified capital company program five. The aggregate amount of\ncertified capital for which taxpayers may be allocated and allowed tax\ncredits pursuant to this paragraph and subdivision (k) of section\nfifteen hundred eleven of this chapter may not exceed sixty million\ndollars for calendar year two thousand seven, which certified capital\nmay be invested in certified capital companies beginning in calendar\nyear two thousand five.\n During any calendar year in which the limitation described in this\nparagraph will limit the amount of certified capital, certified capital\nwill be allocated in order of priority based upon the date of filing of\ninformation described in subparagraph (A) of paragraph six of\nsubdivision (c) of this section. The superintendent shall advise any\ncertified capital company in writing, within fifteen days after\nreceiving such filing, whether the limitations of this paragraph then in\neffect will be applicable with respect to the investments and credits\ndescribed in such filing with the superintendent.\n Certified capital may be raised by each certified capital company with\nrespect to certified capital company program five at any time subsequent\nto its certification date, and credits shall be allocated to and vested\nin certified investors at the time of each such investment as provided\nin this paragraph, although such credits shall not be first allowed or\nincurred for state tax purposes, until, at the earliest, tax years\nbeginning in two thousand seven. One-third of the certified capital\nraised by each certified capital company with respect to certified\ncapital company program five shall be used to make qualified investments\nin qualified businesses located in empire zones established pursuant to\narticle eighteen-B of the general municipal law, and one-third of such\ncertified capital shall be used to make qualified investments in\nqualified businesses located in underserved areas outside such empire\nzones, provided, however, that in the case of an investment made by a\ncertified capital company in an empire zone located in an underserved\narea, the certified capital company making such an investment may chose\nto designate such investment as an investment in an underserved area but\nnot as an investment in an empire zone for the purpose of meeting the\nrequirements of this paragraph. Fifty percent of the total amount of\ncapital invested by a certified capital company at the time of one\nhundred percent investment of funds shall be invested in qualified\nbusinesses that are involved in commerce for the primary purpose of\ndeveloping and manufacturing products and systems covered by the\nactivities set forth in paragraph (b) of subdivision one of section\nthirty-one hundred two-e of the public authorities law and have a ratio\nof research and development expenditures to net sales which equals or\nexceeds six percent during the fiscal year immediately preceding the\nqualified investment.\n (i) Maximum certified capital. The maximum amount of certified capital\nper certified capital company program invested in one or more certified\ncapital companies allowed in any one year to any one certified investor\nshall not exceed ten million dollars for certified capital company\nprograms one and three, and eight million dollars for certified capital\ncompany programs two, four and five for such year, provided, however,\nthat if the aggregate amount of certified capital for such year, as set\nforth in subdivision (h) of this section, has not been reached sixty\ndays prior to the end of the year to which such aggregate amount\napplies, the provisions of this subdivision shall cease to apply for the\nremainder of such year. In addition, the aggregate amount of tax credits\nallowed in any taxable year to any affiliated group of taxpayers in\nrelation to certified capital may not exceed such maximum amount,\nwhether or not such taxpayers file a combined return pursuant to\nsubdivision (f) of section fifteen hundred fifteen of this chapter. For\npurposes of the preceding sentence, the term "affiliated group" shall\nhave the same meaning as described in section 1504 of the internal\nrevenue code, except that the references to "at least eighty percent" in\nsuch section 1504 shall be read as "more than fifty percent".\n (k) Rules and regulations. The superintendent, in consultation with\nthe department of taxation and finance, shall prescribe such rules and\nregulations as he or she shall deem necessary in order to implement the\nprovisions of this section within one hundred twenty days of the\neffective date of this section.\n (l) For the purposes of this section, the term "empire zone" shall\nalso include, in relation to investments made by a certified capital\ncompany in which at least fifty percent of the voting stock, capital,\nand membership interests, as the case may be, are owned by an entity\nthat is managed directly or indirectly, by a non-profit corporation, the\nliberty zone as defined in section one of part AA of chapter three\nhundred eighty-three of the laws of two thousand one, the resurgence\nzone as defined in section one of part A of chapter three hundred\neighty-three of the laws of two thousand one and a federal empowerment\nzone designated pursuant to section 1391 of the internal revenue code.\n