Ala. Admin. Code r. 281-2-1-.01

Current through Register Vol. 43, No. 1, October 31, 2024

Section 281-2-1-.01 - Definitions

As used in this chapter, the following terms shall have the following meanings:

(1) "ACT" means Act No. 2002-429.

(2) "ADO" means the Alabama Development Office.

(3) "AFFILIATE". An affiliate of another person shall include any of the following:

(a) A person who directly or indirectly either:

(i) Beneficially owns fifteen percent (15%) or more of the outstanding voting securities or other voting ownership interests of the other person, whether through rights, options, convertible interests, or otherwise; or

(ii) Controls or holds power to vote fifteen percent (15%) or more of the outstanding voting securities or other voting ownership interests of the other person.

(b) A person owning fifteen percent (15%) or more of the outstanding voting securities or other voting ownership interests of which are directly or indirectly either:

(i) Beneficially owned by the other person, whether through rights, options, convertible interests, or otherwise; or

(ii) Controlled or held with power to vote by the other person.

(c) A partnership or limited liability company in which the other person is a general partner, managing member or manager, as the case may be.

(d) An officer, director, employee, or agent of the other person, or an immediate family member of the officer, director, employee, or agent.

(e) The term affiliate shall include, in addition to the persons listed above in this subsection, any person, directly or indirectly, controlling, controlled by or under common control with such person. As used in this definition, the term "CONTROLS", including the term "CONTROLLING", "CONTROLLED BY" and "UNDER COMMON CONTROL WITH" means the following:

(i) In connection with certified investors means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract other than commercial contract for goods or non-management services, or otherwise, unless the power is the result of an official position with a corporation or a corporate office held by the person. Control is presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing fifteen percent (15%) or more of the voting securities of any other person.

(ii) In connection with persons other than certified investors means the possession, directly or indirectly, of the power to direct the management or policies of a person, whether through the ownership of voting securities, by contract or otherwise. Each of a company's officers, directors or partners exercising executive responsibility (or persons having similar status or functions) is presumed to control the company. A person is presumed to control a corporation if the person:

(1) directly or indirectly has the right to vote fifteen percent

(15%) or more of a class of the corporation's voting securities, or

(2) has the power to sell or direct the sale of fifteen percent (15%) or more of a class of the corporation's voting securities. A person is presumed to control a partnership if the person has the right to receive upon dissolution, or has contributed, fifteen percent (15%) or more of the capital of the partnership. A person is presumed to control a limited liability company if the person:

(1) directly or indirectly has the right to vote fifteen percent (15%) or more of a class of the interests of the limited liability company;

(2) has the right to receive upon dissolution, or has contributed, fifteen percent (15%) or more of the capital of the limited liability company or

(3) is an elected manager of the limited liability company.

(iii) In addition to the above definitions, if a person owns or controls less than the threshold of voting securities involved (15%), that person's relationship with the remaining members in control or management should be examined to determine if a control block exists, directly or indirectly.

(iv) In addition to the test based on status or voting control, an examination of the contractual, consulting, and other arrangements shall be undertaken to determine if control is being directly or indirectly exercised.

(4) "ALLOCATION DATE" means the date on which the certified investors of a CAPCO are allocated certified capital by the ADO under the Act.

(5) "APPLICANT" means a Person who applies to be a CAPCO.

(6) "BINDING LETTER OF INTENT" means an agreement of a certified investor to make an investment of certified capital in a CAPCO up to a certain specified amount that is subject to an allocation of tax credits pursuant to the Act and these rules. The amount of the specified investment may not be subject to reduction for reasons other than application of the provisions of the Act and these rules.

(7) "BUSINESS DAY" means any day on which the ADO is open for the transaction of normal business.

(8) "CAPCO" means a certified capital company as defined below.

(9) "CERTIFIED CAPITAL" means an investment of cash by a certified investor in a CAPCO that fully funds the purchase price of an equity interest in the CAPCO or a qualified debt instrument issued by the CAPCO. As used in this definition,

(a) The term "INVESTMENT IN CASH BY A CERTIFIED INVESTOR" means a disbursement of cash by a certified investor.

(b) The term "EQUITY INTEREST" means an interest in a person, other than an individual, that provides a return contingent on the economic performance of that person that is not a debt interest, including common stock, preferred stock, partnership interest or membership interest.

(10) "CERTIFIED CAPITAL COMPANY" means a partnership, corporation, trust or limited liability company, whether organized on a profit or not-for-profit basis, that has as its primary business activity the investment of cash in qualified technology businesses and that is certified as meeting the criteria of the Act.

(11) "CERTIFIED INVESTOR" means an insurance company or other person that has state premium tax liability, that contributes certified capital pursuant to an allocation of premium tax credits under the Act.

(12) "COMPLETE CONTACT INFORMATION" means the physical address, mailing address, telephone number, facsimile number and e-mail address of a person.

(13) "DIRECTOR" means the Director of the ADO.

(14) "ENTERPRISE WITH WHICH THE PERSON IS ASSOCIATED" means any enterprise of which the person or a member of his or her family is an officer, director, partner, managing member, or beneficial owner of more than 10% of the ownership interests of the enterprise.

(15) "FAMILY MEMBER OF THE PUBLIC EMPLOYEE" means the spouse or a dependent of the public employee.

(16) "FAMILY MEMBER OF THE PUBLIC OFFICIAL" means the spouse, a dependent, an adult child and his or her spouse, a parent, a spouse's parents, a sibling and his or her spouse, of the public official.

(17) "FULLY FUNDS" means an amount alone that is sufficient to satisfy the certified investor's obligations relating to the purchase of an equity interest in, or qualified debt instrument issued by, a CAPCO or a CAPCO's obligations relating to the purchase of an equity interest in, or debt instrument issued by, a qualified technology business, as the case may be.

(18) "GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" means those conventions, rules and procedures that constitute accepted accounting practices in the United States, as determined by the Financial Accounting Standards Board and any successor organization thereto that is charged with the promulgation of such conventions, rules and procedures.

(19) "GENERALLY ACCEPTED AUDITING STANDARDS" means those conventions, rules and procedures that constitute accepted auditing practices in the United States, as determined by the American Institute of Certified Public Accountants and any successor organization thereto that is charged with the promulgation of such conventions, rules and procedures.

(20) "INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT" means any of the certified public accountants listed on the Division of Purchasing Professional Provider List maintained by the State of Alabama Department of Finance.

(21) "KEY EMPLOYEES" means the two (2) principals or persons employed or engaged to manage the funds of the applicant as required by Section 3(c)(2) of the Act.

(22) "MANAGERS" means all of the persons that are, or will be, involved in the management of an applicant or a CAPCO, as the case may be.

(23) "ORGANIZATIONAL DOCUMENTS" means the documents pursuant to which an applicant was formed and its business will be conducted. For example, the organization documents for a limited liability company include the certificate of organization, the operating agreement and any agreements between the persons having an ownership in the limited liability company.

(24) "PERSON" means a natural person or entity, including a corporation, general or limited partnership, trust or limited liability company.

(25) "PREMIUM TAX CREDIT ALLOCATION CLAIM" means a claim for allocation of premium tax credits.

(26) "PRIME RATE" shall be the rate of interest published in the Wall Street Journal as the prime rate.

(27) "PUBLIC EMPLOYEE" means any person employed at the state, county, or municipal level of government or their instrumentalities in the State of Alabama, including governmental corporations and authorities, but excluding employees of hospitals or other health care corporations including contract employees of those hospitals or other health care corporations, who is paid in whole or in part from state, county or municipal funds. For purposes of this chapter, a public employee does not include a person employed on a part-time basis whose employment is limited to providing professional services other than lobbying, the compensation for which constitutes less than 50 percent of the part-time employee's income. For purposes of this Act, a person shall retain his or her status as a public employee for a period of two (2) years after her or she leaves public employment.

(28) "PUBLIC OFFICIAL" means any person elected to public office in the State of Alabama, whether or not that person has taken office, by the vote of the people at state, county, or municipal level of government or their instrumentalities, including governmental corporations, and any person appointed to a position at the state, county, or municipal level of government or their instrumentalities, including governmental corporations. For purposes of this Act, a public official includes the chairs and vice-chairs or the equivalent offices of each state political party as defined in Section 17-16-2. For purposes of this Act, a person shall retain his or her status as a public official for a period of two (2) years after he or she leaves public office.

(29) "QUALIFIED TECHNOLOGY BUSINESS" means a business that, at the time of a CAPCO's first investment in the business:

(a) Is headquartered in the State of Alabama and intends to remain in the State of Alabama after receipt of the investment by the CAPCO, or is headquartered in another state and intends to relocate its headquarters to the State of Alabama after receipt of the investment by the CAPCO. As used in this definition, the terms "HEADQUARTERED" and "HEADQUARTERS" mean:

(i) The office from which the material investment and administrative functions of the qualified technology business physically are conducted; and

(ii) The physical location in which the material books and records of the qualified technology business are maintained.

(b) Has its principal business operations located in the State of Alabama and intends to maintain business operations in the State of Alabama after receipt of the investment by the CAPCO, or has its principal business operations located in another state, and intends to relocate business operations to the State of Alabama within ninety (90) days after receipt of investment by the CAPCO. As used in this definition, the term "PRINCIPAL BUSINESS OPERATIONS" means:

(i) The physical location in which the material operations of the qualified technology business are conducted; and

(ii) That one of the following applies to the business:

(A) a minimum of forty percent (40%) of the annual expenditures of the qualified technology business are spent or proposed to spent in the State of Alabama;

(B) a minimum of forty percent (40%) of the assets of the qualified technology business are located or held in the State of Alabama; or

(C) a minimum of forty percent (40%) of the revenues generated or proposed to be generated by the qualified technology business are generated or proposed to be generated by services performed from or products manufactured or assembled in the State of Alabama.

(c) Has agreed to use the qualified investment primarily to either support business operations in the State of Alabama, or in the case of a start-up company, establish and support business operations in the State of Alabama, except in each case, advertising, sales and promotional operations which may be conducted outside of the State of Alabama. As used in this definition, the term "SUPPORT BUSINESS OPERATIONS" means the expansion, modernization or retention of current operations. The term "SUPPORT BUSINESS OPERATIONS" will not generally include the relocation of business operations from one location in the State of Alabama to another, unless it can be documented to the satisfaction of the ADO that (i) there is a legitimate business reason for such relocation or (ii) but for the CAPCO's investment, the business would relocate to another state.

(d) Has not more than one hundred (100) employees and either employs at least eighty percent (80%) of its employees in the State of Alabama, or pays at least eighty percent (80) percent of its payroll to employees in the State of Alabama. As used in this definition, the term "EMPLOYEES IN THE STATE OF ALABAMA" means employees that are residents of the State of Alabama, as determined for purposes of Alabama income taxation, and the term "EMPLOYEES" means natural persons that are engaged by a qualified technology business for wages for a minimum of 2,080 hours per year.

(e) Is primarily engaged in any of the following:

(i) Manufacturing, processing, or assembling products.

(ii) Conducting research and development.

(iii) Providing services.

(f) Is not primarily engaged in any of the following:

(i) Retail sales.

(ii) Real estate development.

(iii) The business of insurance, banking, lending, lobbying, or political consulting.

(iv) The provision of professional services provided by accountants, attorneys, or physicians.

(g) As used in subsections (e) and (f) of this section, the term "PRIMARILY" means over fifty percent (50%) of the revenues of an enterprise for the preceding fiscal year, as determined in accordance with generally accepted accounting principles, or, in the case of a new enterprise, over fifty percent (50%) of the projected revenues of an enterprise.

(30) "QUALIFIED DEBT INSTRUMENT" means a debt instrument issued by a CAPCO to a Certified Investor, at par value or a premium, that:

(a) Has an original maturity date of at least five (5) years after the date of issuance.

(b) Has a repayment schedule that is not faster than a level principal amortization over five (5) years. A repayment schedule is NOT FASTER THAN A LEVEL PRINCIPAL AMORTIZATION OVER FIVE (5) YEARS if the repayment schedule for the debt instrument issued by the CAPCO has a scheduled outstanding principal balance greater than a hypothetical note with the same price and yield as the CAPCO's debt instrument which provides for principal to be amortized over equal, consecutive daily payments, where payments are first allocated to accrued interest and then to principal. For purposes of determining compliance with the preceding two sentences, insignificant deviations from the five (5) year level principal amortization standard shall be disregarded. An "insignificant deviation" is any acceleration of the five (5) year principal amortization standard that lasts less than ninety (90) days.

(c) Has no interest, distribution, or payment features that are related to the profitability of the CAPCO or the performance of the CAPCO's investment portfolio.

In the event a CAPCO redeems or repurchases a qualified debt instrument within five (5) years of issuance, any premium tax credits used by the investor applicable to the qualified debt instrument redeemed or repurchased shall be immediately repaid to the ADO. The foregoing sentence shall not apply (i) to any repurchase or redemption made after a CAPCO has made cumulative qualified investments equal to at least 100% of its certified capital and (ii) to any principal or interest payments made with respect to a qualified debt instrument that are made in accordance with the requirements of subsections (b) and (c) of this definition.

(31) "QUALIFIED DISTRIBUTION" means any distribution or payment from certified capital by a CAPCO in connection with the following:

(a)

(i) The reasonable costs and expenses of forming, organizing and syndicating the certified capital company, including the costs of financing and insuring the obligations of the certified capital company so long as, at the time the certified capital company initially receives its investment of certified capital from its certified investors, the certified capital company has cash or Permissible Investments equal to at least fifty percent (50%) of the amount of certified capital such certified capital company initially received as investment from its certified investors and

(ii) the reasonable costs and expenses of managing and operating the certified capital company, including but not limited to reasonable and necessary fees paid for professional services (such as legal and accounting services) related to the operation of the certified capital company and an annual management fee in an amount that does not exceed two and one-half percent (2 1\2%) of the certified capital of the certified capital company; provided that no distribution or payment authorized by this paragraph (a) be made directly or indirectly to a certified investor, except for distributions or payments made in consideration for a guaranty, indemnity, bond, insurance policy or other payment undertaking described by Section 4(b) of the Act, and other costs of financing and insuring the obligations of the CAPCO.

(b) Any projected increase in federal or state taxes, including penalties and interest related to state and federal income taxes, of the equity owners of the CAPCO resulting from the earnings or other tax liability of the CAPCO to the extent that the increase is related to the ownership, management, or operation of the CAPCO.

(32) "QUALIFIED INVESTMENT" means the investment of cash by a CAPCO in a qualified technology business for the purchase of any debt, debt participation, equity or hybrid security of any nature or description, including a debt instrument or security that has the characteristics of debt but that provides for conversion into equity or equity participation instruments such as options or warrants. As used in this subsection, the term "INVESTMENT OF CASH BY A CAPCO" means a disbursement of cash by a CAPCO in a qualified technology business that fully funds the purchase price of any of the interests listed above in the qualified technology business and that would be considered a venture capital investment as defined in Regulation 281-2-1-.02(2)(c). For purposes of determining the amount of a particular qualified investment, any fees, charges or other compensation (other than interest, dividends, profit distributions or other similar forms of payment) paid by a qualified technology business to a CAPCO shall reduce the amount of the CAPCO's qualified investment in the qualified technology business.

(33) "REASONABLE" means fair, proper, just or suitable under the circumstances.

(34) "STATE PREMIUM TAX LIABILITY" includes:

(a) Any liability incurred by any person under Chapter 4A of Title 27 of the Code of Ala. 1975, the Alabama Insurance Code.

(b) If the tax liability imposed under Chapter 4A of Title 27, the Alabama Insurance Code, on January 1, 2002, is eliminated or reduced, any tax liability imposed on an insurance company or other person that had premium tax liability under Chapter 4A of Title 27, the Alabama Insurance Code, on that date.

(c) Any tax liability incurred by any person under Section 31 of Chapter 10 of Title 27 of the Code of Ala. 1975, the Alabama Insurance Code.

(d) If the tax liability imposed under Section 31 of Chapter 10 of Title 27 of the Code of Ala. 1975, the Alabama Insurance Code, on January 1, 2002, is eliminated or reduced, any tax liability imposed on an insurance company or other person that had premium tax liability under Section 31 of Chapter 10 of Title 27 of the Code of Ala. 1975, the Alabama Insurance Code, on that date.

(35) "VOTING SECURITIES OR OTHER VOTING INTERESTS" means securities or other interests, the holders of which are presently entitled to vote for the election of directors or the appointment or election of managers, other than interim management as permitted in Regulation 281-2-1-.05(4).

F. Neal Wade

Ala. Admin. Code r. 281-2-1-.01

New Rule: Filed July 25, 2003; effective August 29, 2003. Amended: Filed February 6, 2008; effective March 12, 2008.

Statutory Authority:Code of Ala. 1975, as amended; Act 2002-429.