PURPOSE: This rule provides definitions for terms and phrases contained in the Missouri Certified Capital Company Law, sections 135.500 through 135.529, RSMo Supp. 1997. The following definitions relate to the content of the Missouri Certified Capital Company Law.

1. (1) “Affiliate of a certified capital company,” as used in sections 135.100 to 135.529, RSMo means “affiliate of a certified company” as used in section 135.500.2(1), RSMo.
2. (2) “Affiliate of an insurance company” means the same as “affiliate of an investor,” as defined herein.

3. (3) “Affiliate of an investor” means:

   1. (A) Any person, directly or indirectly owning, controlling, or holding power to vote ten percent (10%) or more of the outstanding voting securities or other ownership interests of the investor;
   2. (B) Any person whose ten percent (10%) or more of outstanding voting securities or other ownership interest are directly or indirectly owned, controlled, or held with power to vote by the investor;
   3. (C) Any person directly or indirectly controlling, controlled by, or under common control with the investor;
   4. (D) A partnership in which the investor is a general partner; or
   5. (E) Any person who is an officer, director, or agent of the investor.
4. (4) “CAPCO” means the same as a certified capital company.
5. (5) “Capital in a qualified Missouri business” means capital invested in a Missouri qualified business exclusive of an investment which has a refunding nature, such as a revolving line of credit or the repurchase of equity. In such cases, the annual average amount outstanding at the end of each month shall be the amount of “capital in a qualified Missouri business.” For example, if the annual average (twelve
6. (12) month-end amount outstanding) for the first year is $100,000, and the second year annual average is $200,000, then the amount considered to be “capital in a qualified Missouri business” is $150,000.

7. (6) “An investment of cash,” as used in section 135.500.2(4), RSMo, means:

   1. (A) An investment of cash in exchange for an equity interest of any type, including common stock, preferred stock, partnership interests, or shares in a limited liability company; or
   2. (B) An investment of cash in exchange for a debt instrument such as a note or debenture; however, such debt instrument must have an original maturity date of at least five
8. (5) years from the date of issuance and may be repaid in accordance with a schedule which is no faster than a level principal amortization over five (5) years, and may not contain payment or distribution features which are related to the certified capital company’s (CAPCO’s) profitability or the performance of the CAPCO’s investment portfolio. In the event a CAPCO redeems or repurchases debt securities within five (5) years of issuance, any premium tax credits used by the investor applicable to such debt securities shall be immediately repaid to the Department of Economic Development.
9. (7) “Primary business activity,” as used in section 135.500.2(5), RSMo, means that the CAPCO’s preponderance of business operations are for the investment of cash in qualified Missouri businesses.
10. (8) “Investor,” as used in section 135.500.2(8), means “any insurance company that contributes cash.” The insurance company/investor must either purchase an ownership position in a CAPCO; provide a loan to a CAPCO; or some combination thereof, if the CAPCO is established as a for profit entity. If the CAPCO is a nonprofit entity, the insurance company/investor may provide a loan to the CAPCO or make a contribution with no further repayment consideration.
11. (9) “Liquidating distributions,” as used in section 135.500.2(9), RSMo, means distributions, except: a) qualified distributions and b) repayments of principal and interest on indebtedness of the CAPCO, including indebtedness of the CAPCO on which investors earned premium tax credits. Earnings include any funds provided to an investor or the CAPCO except qualified distributions.
12. (10) “Reasonable costs and expenses of forming, syndicating, managing, and operating the certified capital company,” as used in section 135.500.2(11)(a), RSMo, means an annual management fee paid to a CAPCO or to an affiliate of a CAPCO in an amount that does not exceed two and one-half percent (2 1/2%) of the CAPCO’s certified capital, plus reasonable and necessary fees paid for professional services (such as legal and accounting services) related to the operation of the CAP- CO. Professional firms providing services to 4 CSR 80-7

a CAPCO cannot be affiliated with the CAP- CO, or such fees shall be included in the limit for the CAPCO or CAPCO affiliate.

1. (11) “Management fees for managing and operating the certified capital company,” as used in section 135.500.2(11)(b), RSMo, means “reasonable costs and expenses,” as stated in section 135.500.2(11)(a), RSMo.
2. (12) “Any increase in federal or state taxes,” as used in section 135.500.2(11)(c), RSMo, means distributions related to the payment of such taxes resulting from the earnings or other tax liability of the CAPCO.
3. (13) “Independently owned and operated business,” as used in section 135.500.2(13), RSMo, shall not include a business that, when taken together with any company (other than a CAPCO that intends to invest in the business) owns fifty percent (50%) or more of the equity of such business at the time the CAPCO invests in the business, and does not meet the other requirements of a “qualified Missouri business” as stated in section 135.500.2(13), RSMo.
4. (14) “Located in Missouri,” as used in section 135.500.2(13), RSMo, means that the primary operations of the business is physically located in the state of Missouri at the time of the CAPCO’s investment.
5. (15) “In need of venture capital,” as used in section 135.500.2 (13), RSMo, means the company requires additional debt and/or equity funds for expansion, additional sales growth, modernization, or retention of current operations, except that the requirement of funds would generally not include funds for a business that plans to relocate from one
6. (1) area (generally thirty (30) miles or more) in the state to another, unless it can be documented that, but for the CAPCO’s investment, the business would relocate to another state.
7. (16) “Venture capital,” as used in section 135.500.2(13), RSMo, means any type of debt financing and/or equity investment.
8. (17) “Cannot obtain conventional financing,” as used in section 135.500.2(13), RSMo, means that the business has failed in an attempt to obtain loan funding from banks or other commercial lenders, or that the business could not reasonably be expected to qualify for such loans under normal commercial lending standards.
9. (18) “Such business shall have no more than two hundred employees, eighty percent of which are employed in Missouri,” as used in section 135.500.2(13), RSMo, means that such employment requirements are applicable at the time that the CAPCO invests in the business.
10. (19) “Such business shall be involved in commerce for the purpose of manufacturing, processing, or assembling products, conducting research and development, or providing services in interstate commerce,” as used in section 135.500.2(13), RSMo, means that over fifty percent (50%) of the revenue of the business for the immediately preceding calendar year or, if a new enterprise, fifty percent (50%) of the projected revenues of the new enterprise must be derived from these specified types of commercial categories taken as a whole. Service means conducting work on behalf of another person or business.

11. (20) “Qualified Missouri business,” as defined in section 135.500.2(13), RSMo, shall not include:

    1. (A) A business engaged primarily as a passive business (irregular or noncontinuous operations, or which derives substantially all of its income from passive investments that generate interest, dividends, royalties, or capital gains);
    2. (B) A subsidiary of the CAPCO;
    3. (C) Another CAPCO;
    4. (D) An affiliate of the CAPCO (except that, pursuant to section 135.500.2(1), RSMo, if a legal entity is not an affiliate before a CAPCO initially invests in the entity, it will not be deemed an affiliate of the CAPCO merely as a result of the CAPCO’s investment);
    5. (E) An investor of the CAPCO or an affiliate or subsidiary of an investor of the CAP- CO (unless approved in writing by the department);
    6. (F) Any business whose primary operation is retail sales, real estate sales or development; insurance; or professional services provided by accountants, lawyers, or physicians. (“Primary,” as used in this sentence, shall mean over fifty percent (50%) of the business’ revenues for the preceding fiscal year, or, if a new enterprise, projected revenues over fifty percent (50%) of its projected revenue for its first fiscal year, taken as a whole); or
    7. (H) Any business that promotes a religion, political party or candidate, any illegal business, or gambling.

12. (21) “Services in interstate commerce,” as used in section 135.500.2(13), RSMo, means that the business must demonstrate the reasonable potential that, within a period of at least three (3) years after the date of the CAP- CO’s investment, at least one-third (1/3) of its annual revenues will be derived from out of the state of Missouri. The department shall determine whether or not such business will likely meet the one-third (1/3) out-of-state revenue requirement based on—

    1. (A) The typical in-state/out-state sales of other similar service companies; and
    2. (B) Whether a marketing plan of the business provides reasonable documentation that the company can derive at least one-third (1/3) of its revenue from out of state within three (3) years. The failure of a qualified Missouri business to achieve the out-of-state revenue test shall not be a cause for decertification of the investment or any other penalty.
13. (22) “In existence,” as used in section 135.500.2(13), RSMo, means the date that the business first started producing a product or providing a service.
14. (23) “Related provisions,” as used in section 135.500.2(14), RSMo, are sections 148.320, 148.340, and 148.376, RSMo.
15. (24) “Funding period,” as used in section 135.505, RSMo, shall mean the time (twelve
16. (12) months from the date of certification) that the CAPCO has to obtain its investments from investors.
17. (25) “At all times during the company’s (CAPCO’s) participation in the program,” as used in section 135.508, RSMo, is the time period between the date that the CAPCO is certified and the date the CAPCO has invested at least one hundred percent (100%) of its certified capital in qualified Missouri businesses.

18. (26) “Liquid asset base for certified companies,” as used in section 135.508, RSMo, means a contribution, equity investment, or loan to the CAPCO from any source. The liquid asset base shall be segregated and separately accounted for on the CAPCO’s books in an account known as the “CAPCO Liquid Asset Base Account” (hereafter referred to as base account). The base account may be invested in—

    1. (A) Certificates of deposit or other obligations, maturing within three (3) years after acquisition thereof, issued by any bank or trust company incorporated under the laws of the United States of America;
    2. (B) Marketable obligations maturing within five (5) years or less after the acquisition thereof which are rated “A” or better by any nationally recognized credit rating agency;
    3. (C) Mortgage-backed securities with an average life of five (5) years or less, after the acquisition thereof, which are rated “A” or better by any nationally recognized credit rating agency;
    4. (D) Open market commercial paper;
    5. (E) Interests in money market funds, the portfolio of which is limited to cash and the obligations described in subsections (26)(A) through (D) above; or
    6. (F) With the prior written approval of the Department of Economic Development, qualified investments as defined in the Missouri Certified Capital Company law. The base account shall be a minimum of five hundred thousand dollars ($500,000). Any amounts in excess of five hundred thousand dollars ($500,000), including earnings on the liquid asset base, may be withdrawn from the liquid asset base and placed in qualified investments.
19. (27) “Thoroughly acquainted,” as used in section 135.508, RSMo, means the officers, directors, partners, trustees, and managers of a CAPCO must sign a notarized sworn affidavit which certifies that they have read and fully understood the requirements of sections 135.500 to 135.529, RSMo.
20. (28) “Distributions,” as it appears in section 135.516.2, RSMo, that includes the phrase “other than qualified distributions” in the same sentence, is meant to be “liquidating distributions,” as defined in section 135.500.2(9), RSMo.
21. (29) “A cost,” as used in section 135.516.3, RSMo, means “an amount.”

AUTHORITY: section 135.529, RSMo Supp. 1997.* Emergency rule filed Jan. 2, 1997, effective Feb. 3, 1997, expired July 1, 1997. Original rule filed Dec. 15, 1997, effective June 30, 1998.

*Original authority 1996.