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Tony MastinFrom: Tony MastinSent: Wednesday, January 27, 2010 10:55 PMTo: Dawn CashSubject: RE: cap co report

The three are:

Tony MastinAdministrator

From: Dawn CashSent: Wednesday/ January 27/ 2010 3:55 PMTo: Tony MastInSubject: RE: cap co reportI spoke with , They are ..vorking on the data for one cap co:or something along those lines, They say they didn't even know about this until after theDecember deadline when called for some information on one he was working.They had to call their client to track down the letter and just got the information from themthis week. They say they can have the data to you by late next week ...could be earlierdepending 011 weather, etc. They will probably close at noon tomorrow.The primary concern, however, is that you are asking after THREE cap cos and they are onlyaware of one that they need to be preparing so I told them 1would get with you to clarify whichthree,

From: Tony MastinSent: Wednesday, January 27, 2010 10:28 AMTo: Dawn CashSubject: RE: cap co reportAlso, please call . They have not completed the survey for the last three cap cos.Please tell her we need the information quickly, Thanks.Tony MastinAdministrator

from: Dawn CashSent: Wednesday, January 27, 20109:36 AM

2/22/20 I 0


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Tony MastinFrom: Tony MastinSent: Thursday, December 31,20094:09 PMTo: Dawn CashSubject: RE:

It looks fine to me,Tony M.astinAdm inistrator

From: Daw n c ashSent: Thursday, December 31, 2009 2:14 PMTo: Tony MastinSubject:Attached is a draft response to the request you sent this morning. Since this isone of those where apparently sent you new information on Dec iath and Lisa issuedit on the 15th, while I was out of town, I never had a draft of the LR he was asking us to startfrom. So I've cut and pasted as best I could in an attempt to replicate exactly what you and Lisadid before.

Dawn Cash, DirectorTax Policy and Research DivisionOklahoma Tax Commission45.521.3123

2/2212010


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Tony MastinFrom:Sent:To:Subject:Attachments:

Tony MastinThursday, December 31,20098:00 AMDawn Cash

Another one.Tony MastinAdministrator

From:Sent: Thursday, December 31, 2009 12:49 AMTo:Subject:Dear Tony,

asked me to send an amended letter Ruling that shows that it will close through

Attached please find the amended requests-the only changes are the names of the capital company, the name ofthe borrower, the name of the fund, and the reduction of the preferred dividend from 10% to 7%.Thanks,

2 /22 /2010


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12/15/2009 TUE 9142 FAX 5220063 111009 /022

T A X P o U C ~ D IV IS IO ND A W N C A S H , D l l 1 C T O ~

P H O N E ( 4 0 S } S l 1 S 1 3 3F A C S ~ L E ( 4 0 S } 5 2 Z 1 X ) S 3

Decembe r 1 5 ,2 0 0 9

Re: OUf f ile n umber L~- 0 " -;L0gDear Mr.This letter rulin g is in respon se to your letter rulin g request dated D ecem ber 1 1, 2 00 9w herein you posed a series of rulin g requests relatin g to the R ural V en ture C apital Form ationIncentive Act (68 O .S. 2357.71 et seq.). Follow ing a verbatim restatement of the facts as'outlined in your letter, are the specific rulings requested and our responses thereto, .The client, ..' is a limitedlia bility c ompany , th at anticipates me et in g t he requirements of a "qua lif ie d small business capital

com pan y" as def in ed in the Sm all B usin ess C apital Form ation In cen tive A ct, T it. 68 O .S~ 2357.60 e t. s eq . a nd a " qu alif ie d rural small b usin ess cap ital compan y" as defined in the Rural. V en ture C apital Fo rm atio n Incentive Act; Tit. 68 O .S. 2 35 7.7 1 et, se q. (c ollec tiv ely the"Bus in es s I n ce n ti ve Ac ts ") (t he "Cap ita l Company" ).T he C apital C om pan y in ten ds to o rg an iz e an oth er O kla homa lim ited liability company,, as a n Investment Fun d (the "Fund") f or th e p urp os e o fa llow in g in vesto rs an d/o r le nd in g institutions to m ake in vestm en ts th ro ug h the F un d in to eith er:(i) a "qualified rural small busin ess capital com pan y" as def in ed in T it. 68 O .S. 2357.72(8) ,which will in tum invest s uch funds in to, .. a lim ited liability

com pan y that anticipates m eetin g the requirem en ts as an "O klahom a rural small busihessven ture" as defin ed in T it. 68 O .S. 2 35 7.7 2(6 ) (th e "Ve ntu re "); o r (ii) d ire ctly in to th e Ven tu re .I t is i nt en d ed fo r a ll i nve stmen t p roce ed s contributed to the Fund to qualify fo r th e Oklah oma ta xc re dits p rovid ed f or it i th e Ru ra l Ven tu re Capit al Format ion I ncen tive A ct, T it. 68 O .S. 2357.71et. seq.STATEMENT OF FACTS:

2 5 0 1 N O R T H L IN C O lN t a o U L E V A R D t { ) ( L \ K O M A C IT Y ' O K l A H O M A 7 3 1 9 4I T l S O O R N iS S lQ l f l O S E IN E T H E P E D P l o r O K l . A l t O l M B Y P R O N O T l N S iA l C O N ! 'U A J jC E T H R O U G l ! O O A U n ' S t l I I ' l C E A I ID I l I R A t l M I N I S T R A T I J I I


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12/15/2009 TUB 9:44 FAX 522U063 Iii'JDl0/022

D ec em ber 1 5, 2 00 9Page2 of7

1. The Venture is an Oklahom a lim ited liability company that intends to start aservices firm . The Venture will acquire acom plex in cluding lan d, buildin gs, equipm ent and other assets. The V enture n eeds f in an cialassistan ce: f or th e pu rch ase of lan d an d assets an d to p ay f or w orkin g capital associated w ith th ep roject (th e "P roject"). T he Ventures principle place of business will be located I I I .. The Venture will have within 180 days at least 50 % of its employees orassets located in Oklahoma, The Venture is.owned by two companies yo 49% by

an d 51% by , is owned 100% by (collectively referred to as the"O wners"). As a startup com pany the Venture needs financial assistan ce b ec au se n eith er th eV en tu re n or th e Own ers h ave f un ds availab le for the P roject.2 . The Fund will be formed as a limited liability com pan y u nd er O klah om a law . T he F un dw ill raise cap ital for th e p urp ose of m akin g ven tu re cap ital in vestm en ts in tho V en ture w hich , asdiscussed below , is intended to qualify as an "O klahom a sm all busin ess ven rore" as def ined Inth e Bus in es s I nc en tiv e Acts. I n ve stments will be m ade through a designated series of the

a l imi ted l iab il ity com pan y (th e "CapitalCompany").3. The Capital Company is a "series" liability company registered andq ualif ied to do b usin ess in O klah om a w ith its p rin cip le place of b usin ess w ith in Oklahoma. Thedebts, liabilities, ob ligation s an d exp en ses in curred , con tracted f or or oth erw ise existing withrespect to a particular series shall be en forceable again st the assets of such series on ly. an d 110tagainst the assets of the lim ited liability company generally or any other series thereof . The, an O klahom a n ot- fo r- pr of it c or po ratio n, own s1 0 0 0 1 0 of the Common U nits of the Capital Com pan y. T he C apital Com pan y is a for prof it entity.The purpose of tile Capital Company is to qualify as a "qualified small business capitalcom pan y" an d/or a "qualif ied rural sm all business capital com pan y" as def in ed in the B usinessIn cen tive A cts an d to mak e "Qu alif ie d I nv estm en ts" o f " eq uity ," lin ear equity" or "subordinateddebt," in compan ies qualifying as "Oklahom a sm all business ven tures" and "Oklahoma ruralsm all business ventures" as def in ed in the B usin ess In cen tive A cts. For purposes of this letter,the tenus "equity," linear equity'! or "subordinated debt," shall have the same mean ings asprovided in th e B usin ess I nc en tive A cts .4 . The Capital Company will be capitalized with cash and con tractual commitments tocontribute funds on dem an d to the Capital C om pan y w ith a substantial penalty for breach of thecommitments. Con tributions and investm ents w ill be separate for each series of the CapitalC ompan y. T he c ombin ed amou nt of c ap italiz ation f or all se rie s will be a m inim um of $1 ,0 0 0,0 0 0Of such g reater am oun t as req uired to m eet the requ irem en ts of 68 O .S . 2 357 .61 (n ot more th antwenty p erc en t (2 0% ) of the capitalization may b e in vested in I D l Y on e Oklah oma small b usin essven ture) an d 68 O .S. 2 35 '1 .7 2 (n ot more th an tw en ty -f iv e p erc en t (2 5% ) of th o c ap italiz atio n o fth e Capital C ompan y be in vested in an yon e O klah om a ru ral sm all b usin ess ven ture).5. The Venture will be engaged in a law ful business activity under an Industry Numberqualifying in 68 O,S. 2357 .7 2 (6 )(d) s peci fic all y Division I, Major Group ,IndustryGroup Number ~Section of the Standard Industrial Codes and w ill qualify as a "sm all. b usin ess" as d ef in ed by th e f ed era l Small Bus in es s Admin istr atio n.


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l2/1S(2009 TU B 9:45 p n x 5220063 [illOH/022

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6. N either the Fund nor the Capital Company shan own a direct voting in terest ill th eVenture other than the Qualif ied Investments. .7. The Fund will n ot borrow fun ds for it s capital. The Fun d w ill raise all of its capital frominvestors. The Fund intends to issue two types of securities: (a) Common Units; and (b )P ref erred U nits, T he subscription price for the Common U nits m ay be m ore or less per un i t thanthe subscription price of th e Preferred Units. The Fund may issue multiple classes of PreferredU n its. T he su bsc rip tio n p ric e f or d if fe re nt classe s o f P ref erre d U n its m ay b e d if fe re nt.8. The Common Units will be purchased by , a nOklahoma l imi ted liability com pan y (the "C ommon In vestor"). T he C ommon In vestor will bemanaged by the same manager of the Fund and th e manager of the Capital Company. TheC ommon I nv esto r will be formed for the purpose of raisin g capital f rom fin an cial lendingin stitution s to in vest in the F un d. T he C ommon In vestor w ill in vest in tho Fun d in exchan ge for"C ommon U nits" an d w ill b e th e sole C ommon Unit holder. . .

,.9 . The Common Investor w ill borrow all proceeds that it invests in the Fund from a. c ommerc ial le nd in g in stitu tio n (th e " Ban k Loan"). I t i s : e xp ec te d th at the B an k L oan m ay havea guaranty issued by (the "USDA Guaranties"). The tenus of theB an k L oan w ill require a loan guaran tee from the C ommon In vestor, the P referred In vestors,and the Owners. The Bank Loan will also be conditional upon the Capital Company'swillingness to make the Venture Loan to the Venture and w ill be cross collateralized. with theVenture Loan,10 . To raise additional capital, the Fund in tends to issue its P referred U nits to P referredInvestors. Investors in the Preferred U nits will also be admitted as M embers of the Funde Fre fc rre d I nv esto rs" ), P rio r to in ve stin g in th e Fund, it is e xp ec te d th at certain o f t he P re fe rr edI nvestors m ay b orrow f un ds to purchase the un its. N either the Fun d n or the C apital C om pan ywill b e a b orrowe r or guarantor o f s uc h bor row in g .I L The Fund will invest a portion of its capital in a series.of the Cap ita l Company'sP referred U nits in return for 1 00 % of all outstan din g units of th e C ap ital C om pan y's P ref erredSeries X U nits. T he proceeds of the Fun d's series in vestm en t in the C apital C om pan y are to bein vested by the C apital C om pan y in to the V en ture. T he balan ce, if an y, of an y proceeds in the 'Fund af ter deduction for expenses and reserves, will be directly invested (th e " DirectInvestment") in t he Vent ur e pur su an t to t he d irec t investment p rovis io ns o f t he Busi ne ss I n cen ti veActs (68 O.S. 2357.74). The Direct Investment in the Venture wiJ1 be under the same tenusan d con dition s as the Capi ta l Company's in vestm en t in th e V en tu re. T he D irect I nv estm en t willbe limited to the lesser of 20 0% of the Fund's investment in the Capital Company or 200%of the investm ent m ade by the Capital Company in the Venture. The Fund's investment in th eVen tu re d irectly or th rou gh th e C ap ital C ompan y is in ten ded t o qual ify a s a "Qualif ied I nv estmen t" asdefined in the Business Incentive Acts.12 . Capital Company and Fund investments in the Venture will be in the form of "equity andn ear eq uity secu rities" as d ef in ed in th e B usin ess I ncen tive A cts. S pecif ically , it is expec ted t ha tth e C ap ital C ompan y will use the proceeds from the "Fund's Series Investm ent" to m ake a loanto the Venture in the form of subordinated n otes. T he "Venture Loan" or th e "Qua lif ie dI n ve stment" s ha ll have a m aturity date of not less than f ive years an d the V en ture L oan shall be


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12115/20D9 1'US 9: 47 I"AX 522006J !l]012!O 22

D ecem ber 1 5, 2 Q0 9P ag e 4 o f7

subordinated to all other indebtedn ess of the issuer that has been issued or is to be issued t o af in an cial len din g in stitu tion . F urth erm ore, th e Venture L oan shall not have a repaym ents ch ed ule . o r an y righ t to rep aym en t that w ou ld allow for a repaym en t schedu le, th at is fasterthan a l ev el p ri nc ip al amor tiz ati on over five years, The Venture Loan shall con stitute acon tractual obligat ion owed by the Venture directly to the Capital Company. The Ven tu re w il lis su e it s "equity an d n ear equity securities" in e xc han ge f or th e " Qu alif ied I nv estm en t" w ith inth irty ( 30 ) d ay s of'the date as of w hich the in vestm en t occurs.13. The funds from the Q ualif ied Investm ent w ill be deposited by the Ven ture in itscorporate accounts. The Venture may be required to se cu re its s ec uritie s is su ed to th e Cap ita lC om pan y and the Fund w ith a m ortg ag e on real estate improvements an d a secu rity in terest in oth erassets, T he Q ualif ied Investment will be used for the P roject in a m anner consisten t w ith itsoperating ag re em en t. T he V en tu re will expend at least 50% of th e proceeds received from theQ ualified I nvestm en t w ithin eighteen (1 8) m on ths of the date of the Q ualif ied Inves tment f or th e" acqu is it ion o f tangible or in tan gib le asse ts w hic h are u sed in t he a ct iv e conduct of th e trad e orb usin ess or for wor kin g ca pita l, in clu din g b ut not lim ited to pay roll, f or { be activ e con du ct of th etrade or b usin ess f or which the determination of th e small business qualification w as m ade asrequired by 68 O.S. 2357.72 (6) (e).14. The Ven ture shall be required to pay a one-time program fee to th e C ap ital C om pan y ofnot more than 10% of the total Qualified I nv estm en t (th e "Program Fee") t o c ompen sa te theCap ital C omp an y f or a1 1 comp lian ce , re po rtin g, a cc ou ntin g, an d legal measu re s re qu ired to betaken un der the B usin ess I ncen tive A cts for q ualif ication as a q ualif ied sm all bu sin ess capitalcompany,15. 111e Operating Agreemen t of th e F ood w ill p rov id e that all state tax credits e arn ed u nd er th eBusiness I n centi ve Ac ts will b e a llo ca te d p ro rata amo ng th e P re fe rre d I nv es to rs an d th e CommonInvestor. Cash distributions w ill be made 1 0 0% to th e P re fe rre d Investors un til the cashdistributions have b een sufficient to provide to the Preferred Investors. a ten percen t (1 0% )d iv id en d. C ash distribu tion s will then be made 10 0% to the Common I nv esto r u ntil th e c ashdistribution s have been suff icien t to provide the Com mon Investor a return of its capitalcontribution plus a 20 % annual return. The reaf te r d is tr ibu ti on s w i ll be a ll ocat ed p ro -r at a among a llMembers. A fter the cash d is tr ibu tions to the Preferred Investors h av e p rovid ed a 1 0% d ivid en d, alltax cred its h ave b een properly allocated to the P referred Investors an d th e C ommon In vestor,and af ter the Ven ture has satisf ied the. investmen t of proceeds requirement of 68 O .S. 2 35 7.6 3B (A )(1 ), th e Fun d w ill h av e th e option to redeem the P referred U nits at 1% o f th eir o rig in alcapital contribution.16. The Fund will be formed a s a limi te d lia bil ity c ompany under Oklahoma Jaw. The Fund>th e COmmon Investor, and the Capital Company will be managed by

, an Oklahoma limited liability com pan y (the "M an ager"). N either the P referred I nvestorsnor the C ommon Investor shall be en titled to man ag e th e F un d or th e Cap it al Company .17. Neither the Fund nor the Capital Company will elect to be treated as corporationsN either the Fun d n or the C apital Com pan y will elect to be treated as corporation s for Federalincome t a x . purposes an d will therefore be classif ied as a "partn ership " f or federal an d stateincome tax purposes and shall alw ays be operated in a manner con sisten t w ith suchc la ss if ic atio n . Bo th th e F un d an d th e C ap ital Company in ten d to be a "pass through entity" as


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12/15/2009 TUE 9:49 FAX 5220063 0014/02LR-09-208D ecemb er 1 5, 2 0 0 9P ag e 6 o f1

e. T he C apita l C om pany has investm ent of not m ore than tw enty-five percent (25%) of itscapita liza tion in anyone com pany at ally tim e during . the calendar year of the C apita lCompany.3. The use of tl1e proceeds of the Q ualified Investment for the Project is a legitimateb usin ess p urp ose of th e V en tu re as d ef in ed in 6 8 O .S . 2357.73 (b).

Yes. T he a cq uisitio n o f lan d, bu ild in gs, equipment and other assets for the operation of amedical services firm sa tisfie s a le gitim ate b usine ss p urp ose o f th e V en ture as re qu ired un de r6 8 O kla . S ta t. 2357. 73(B} .4. The Fund will be en titled to the 30 % tax credit described in 68 O .S. 2357.73resultin g from its in vestm en t in the Capital C om pany to the extent of the Capital Company 'sinvestment in th e Venture and sh all n ot b e d im in ish ed by the Program Fee paid to the Capital

Company.Y es. The credit in 68 o .S . 2 35 7. 7 3 is fo r q ua lifie d in ve stm e nts w hic h a re a ctu ally in ve ste d ina n Ok la homa rural sm a ll b us in ess v en tu re a nd u se d in p ur su it o f a le gitim a te b usin es s p urp os e.P rog ram fe es, p ro vid ed th ey a re re aso nab le, a re a leg itim ate exp en se o f th e v enture . H ow eve r,t hi s e xpen se is n ot a "q ua lifie d in ve stm ent for th e a cq uisitio n of ta ng ib le or in ta ng ib le assets orfo r w orkin g ca pita l" [S ec tio n 2 35 7.7 2(6 )(j)] an d will not be included in the 5 0% exp en dit ur erequirement.

5. The Fund w ill also be en titled to th e 30% tax credit described in 68 a.s. 2357.74 resulting f rom its D ir ec t Investment in th e Contract.Y es. A sha re ho lde r o r p artn er o f a qu alifie d ru ra l sm all b usin ess c ap ita l c om pa ny th at h as m ad ea qualified investment in an Oklahoma rural sm all business venture m ay make a directinvestment in an Oklahoma ru ral sm all b usin ess venture to th e ex te nt allowable under thep ro vis io ns o f S e ct io n 2357.74 o f T itl e 68 .

-6. The 30 % tax credits earned by the Fund may be allocated by the Fund pro rata.amongthe Prefe rred I nvestors an d th e C ommon I nvestor wh ic h p ar tie s will be en titled to claim th eir p rorata share of thecredits.T he T ax P olic y D i vision a gree s tha t sh are hold ers, p artn ers o r m em bers o f p ass-thro ug h e ntitie sthat are entitled to a credit under 2357.73 and 2357.74 o f T itle 68 m ay receive an allocationo f th e c re dits from th e p ass-th rou gh e ntity p ro vid ed th e leg al o blig atio n to re pa y a ny b orro we dfunds m ust be unlim ited and continuing , and m ust be equal to or g reater than the m em ber's pro

: ra ta e q.u ity s ha re of the pa ss-thro ug h en tity a nd th e a llo catio n m ay n ot e xce ed th e m em ber's p ro-ra ta e qu ity sh ar e o f th e p ass- th ro ug h e ntity .. 7. Immediately upon the statutory requiremen ts being melt i.e. in vestm en t in to theC apital C om pan y and investment by it in to the V enture or direct investm en t in to the V enture, the

credits will pass th rou gh to the P referred I nvestors an d can b e immediately used by t hem aga in s tan y tax then due for the Preferred I nvestor's current tax year as w ell as future tax years under thecarry-forward provisions of the statute. .


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12/15/2009 TOE 9:50 FAX 5220063

December 15,2009Page7 of7

Id,j0151022

Shareholders , partners or m em bers of pass-throug h entities that are entitled to a credit un der2357.73 and 2357:74 of Title 68 may receive an allocation o f the credits from the pass-through entity. Once a llo ca te d to the shareho lders . partners or members, the credits mayimmediate ly be used to offset v ar io us O k la hom a ta x lia bility fo r the same year in which thein ve stm en t w as mad e, in clud in g O klahom a inco me ta xes, bank priv ileg e taxes and insurancec om pa ny p re miu m ta xe s w he n d ue . T he c re dit m ay a lso b e u se d to o ffse t e stim ate d in come ta xe s;however, if th e c re di t exceeds the a mo unt o f ta xes du e, th e amount of the claim not used m ay bec ar rie d fo rw ar d to a fu tu re ta xa ble year b ut m ay n ot b e u se d to o ffse t e stim ate d ta x lia bilitie s togenerate a refund of the credits. '

T his resp on se ap plies 'o nly to th e circumstan ces set ou t in you r req uest d ated D ecem ber11 , 20 09 . Pursuan t to Commission R ule 710 :1 -3-73(e), this Letter R uling m ay be generallyr elie d upo n only by th e entity to whom it is issu ed an d its in vestors, assumin g th at all pertinentfacts have been accurately an d com pletely stated, an d th at there has been no change in applicablelaw.

P le ase b e ad vise d that th e issuance of tills ru lin g d oes n ot p reclu de the Oklah oma T axC ommission from con ductin g an audit or exam in ation un der 68 O kla. Stat. 2 06 of an y report orreturn claim ing a credit for the transactions outlined in this letter ruling. The Commissionr es er ve s th e right to is su e an y assessm en t, correction , or ad ju stm en t au th orized u nd er 68 O kla.S ta t. 22 1.

Sincerely.Oklahom a T ax Commission

~JbrvLisaR.HawsTax Policy & Rese ar ch D iv is io n


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STATEMENT OF FACTS:1. The Venture is an Oklahoma limited liability company that intends to start. a medicalservices finn in , The Venture will acquire a medicalcomplex including land, buildings, equipment and other assets. The Venture needs financialassistance for the purchase of land and assets and to pay for working capital associated with theproject (the "Project"). The Venture's principle place of business will be located in~Oklahoma. The Venture will have within 180 days at least 50% of its employees orassets located in Oklahoma. The Venture is owned by two companies - 49% by CapitalInvestors, Inc. and 51 % by

, is owned 100% by . (collectively referred to as the"Owners"). As a startup company the Venture needs financial assistance because neither theVenture nor the Owners have funds available for the Project.2. The Fund will be formed as a limited liability company under Oklahoma law. The Fundwill raise capital for the purpose of making venture capital investments in the Venture which, asdiscussed below, is intended to qualify as an If Oklahoma small business venture" as defined inthe Business Incentive Acts. Investments will be made through the

Ian Oklahoma limited liability company (the "Capital Company.3, The Capital Company is an O klah om a lim ited liability company with its principle place ofbusiness within Oklahoma. The Capital Company is owned by

, an Oklahoma series l imited liability company, d irectly and tn rougn a separate seriesknown as , and ,an Oklahoma lim ited liab ility company. The Capital Company is taxed as a partnership.

The Capital Company is a fo r profit entity. One purpose of the Capital Company is to qualify asa "qualified small business capital company" and/or a "qualified rural small business capitalcompany" as defined in the Business I ncen tive Acts and to make " Qu alif ie d I nv estm en ts" of"equity," "near equity" 01' "subordinated debt," in companies qualifying as 1I0klah0111(;1 smallbusiness ventures" and "Oklahoma rural small business ventures" as defined in the BusinessIncentive Acts. For purposes of this letter, the terms "equity," "ncar equity" or "subordinateddebt," shall have the same meanings as provided in th e Business Incent ive Acts.4. The Capital Company will be capitalized with cash and contractual commitments tocontribute funds on demand to the Capital Company with a substantial penalty for breach of thecommitments. TIle capitalization will be a minimum of $1,000,000 or such greater amount asrequired to meet the requirements of68 O.S. .2357.61 (not more than twenty percent (20%) of thecapitalization may be invested in anyone Oklahoma small business venture) and 68 O.S. 2357.72(not more than twenty-five percent (25%) of the capitalization of the Capital Company beinvested in anyone Oklahoma rural small business venture).5. The Venture will be engaged in a lawful business activity under an Industry Numberqualifying in 68 O.S. 2357.72(6)(d) specifically Division I, Major Group 80, IndustryGroup Number 801, Section 8011 of the Standard Industrial Codes and will qualify as a "smallbusiness" as defined by the federal Small Business Administration.6. Neither the Fund nor the Capital Company shall own a direct voting interest in the

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right to repayment that would allow for a repayment schedule, that is faster than a levelprincipal amortization over five years. The Venture Loan shall constitute a contractualobligation owed by the Venture directly to the Capital Company. The Venture will issue its"equity and near equity securities" in exchange for the "Qualified Investment" within thirty (30)days of the date as of which the investment occurs.13. The funds from the Qualified Investment will be deposited by the Venture in itscorporate accounts. The Venture may be required to secure its securities issued to the CapitalCompany and the Fund with a mortgage on real estate improvements and a security interest in otherassets. The Qualified Investment will be used for the Project in a manner consistent with itsoperating agreement. The Venture will expend at least 50% of the proceeds received from theQualified Investment within eighteen (18) months of the date of the Qualified Investment for theacquisition of tangible or intangible assets which are used in the active conduct of the trade orbusiness or for working capital, including but not limited to payroll, for the active conduct of thetrade or business for which the determination of the small business qualification was made asrequired by 68 O.S. 2357.72 (6) (e).14. The Venture shall be required to pay a one-time program fee to the Capital Company ofnot more than 10% of the total Qualified Investment (the "Program Fee") to compensate theCapital Company for all compliance, reporting, accounting, and legal measures required to betaken under the Business Incentive Acts for qualification as a qualified small business capitalcompany.15. The Operating Agreement of the Fund will provide that all state ta x credits earned under theBusiness Incentive Acts will be allocated pro rata among tile Preferred Investors and the CommonInvestor. Cash distributions wil1 be made 100% to the Preferred Investors until the cashdistributions have been sufficient to provide to the Preferred Investors a seven percent (7%)dividend. Cash distributions will then be made 100% to the Common Investor until the cashdistributions have been sufficient to provide the Common Investor a return of its capitalcontribution plus a 20% annual return. Thereafter distributions will be allocated pro-rata among allMembers. After the cash distributions to the Preferred Investors have provided a seven percent (7%)dividend, all tax credits have been properly allocated to the Preferred Investors and the CommonInvestor, and after the Venture has satisfied the investment of proceeds requirement of 68 o.S, 2357.63B(AX1), the Fund will have the option to redeem the Preferred Units at 1% of their originalcapital contribution.16. The Fund will be formed as a limited liability company under Oklahoma law. The Fund,the Common Investor, and the Capital Company will be managed by, an Oklahoma limited liability company (the "Manager").Neither the Preferred Investors nor the Common Investor shall be entitled to manage the Fundor the Capital Company.17. Neither the Fund nor the Capital Company will elect to be treated as corporationsNeither the Fund 1101 ' the Capital Company will elect to be treated as corporations for Federalincome tax purposes and will therefore be classified as a "partnership" for federal and stateincome tax purposes and shall always be operated in a manner consistent with suchclassification, Both the Fund and the Capital Company intend to be a "pass through entity" asthat term is used in 68 O.S. 2357.73 (g).

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18. Offering materials involving the solicitation of any of the investments to be made in theFund shall include the disclaimer set forth in 68 O.S. 2357.74 A (F). Contractual provisions shallbe included in relevant documents which shall provide that the Qualified Investment shall not betransferred, withdrawn or otherwise returned within five years of the closing of the transactioncontemplated hereunder. The Capital Company will comply with the requirements set forth in 68O.S. 2357.74 A (A) (2), (4)& (5).

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RULINGS REQUESTED:Based on these facts, the Venture respectfully requests a letter ruling from the Tax Policy andResearch Division of the Oklahoma Tax Commission that:

1. The Venture will qualify as an "Oklahoma rural small business venture" as defined in68 O.S. 2357.72(6).2. The Capital Company will qualify as a "Qualified rural small business capital

company" as defined in 68 O.S. 2357.72(8).3. The use of the proceeds of the Qualified Investment for the Project is a legitimate

business purpose of the Venture as defined in 68 O.S. 2357.73 (b).4. The Fund will be entitled to the 30% tax credit described in 68 O.S. 2357.73

resulting from its investment in the Capital Company to the extent of the Capital Company'sinvestment in the Venture and shall not be diminished by the Program Fee paid to the CapitalCompany.

5. The Fund will also be entitled to the 30% tax credit described in 68 O.S. 2357.74resulting from its Direct Investment in the Contract.

6. The 30% tax credits earned by the Fund may be allocated by it 100% to the PreferredInvestors which parties will be entitled to claim their pro rata share of the credits.

7. Immediately upon the statutory requirements being met, i.e. investment into theCapital Company and investment by it into the Venture or direct investment into the Venture, thecredits will pass through to the Preferred Investors and can be immediately used by them against anytax then due for the Preferred Investor's current tax year as well as future tax years under the carry-forward provisions of the statute.

Thank you for your time and attention to this matter. Please contact me atif you have any questions or comments regarding this matter.

Regards,

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FlowchartPreferred InvestorInvests to receive

Preferred Units and Tax CreditsCommon InvestorThe "Investment" LLCBorrows money from commercial

loans and invests to receiveCommon Units

Common Units&Tax Credits &ProfitsPreferred

PreferredUnits & TaxCredits &Profits

The "Fund" LLCTotal Investment is used to purchase Special Class of theCapital Company or make Direct Investment to the "Venture" LLC

FundInvestment

Special Class ofMembership &Profits "Manage men t"Manager of theInvestment, LLC,the Fund, LLC andthe CapitalCompanyThe "Capital Company", LLCCapita] is used to make subordinatedVenture Loan to Venture to be usedfor asset acquisition or working

capital

Notes,Mortgage, &Debt Service

The "Venture" CompanyUses Venture Loan proceeds for asset acquisition or working capital and to pay program cost.

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Page 1 of 1

Tony MastinFrom: Tony MastinSent: Wednesday, December 30,200910:46 PMTo: Dawn CashAttachments:

T on y M astinAdministrator

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Re: Our File No. LR"

r J l A . w . . ~ - t ( P Ifrej, ,&+~l, O ~ h ~P rII) r - t o t r l l, . _ " I : r{I'0-5SIJ t."J,Dear Mr.

This letter ruling is in response to your inquiry of December 22, 2009 where you posed aseries of ruling requests relating to the Small Business Capital Formation Incentive Act(68 O.S. 2357.60 et seq.) and the Rural Venture Capital Formation Incentive Act (68O'S. 2357.70 et seq.), Following a restatement of the facts outline in your letter, are thespecific rulings requested and our responses thereto.

L Summary of Transaction.A. The Fund. (the"Fund"), is an Oklahoma limited liability company that was formed on December 18,2009, for the purpose of raising equity capital from accredited investors (the "Investors")

for investment in a QRSBCC (defined below) and/or a QSBCC (defined below) andRSBVs (defined below), andlor SBVs (defined below).

1. The Fund will issue two classes of units, common units andpreferred units. The members of the Fund will be the Investors and..... ., an Oklahoma limited liability company (". '). Themanager of the Fund will be an Oklahomalimited liability company ("Manager"). The preferred units of the Fund will be offered toInvestors in exchange for contributions to capital of the Fund (together with the. Contribution described below, the "Investments"). The Fundanticipates that it will receive Investments in an amount ranging from $7 million(consisting of $1 million of cash equity and $6 million of proceeds from the InvestorLoans) to $75 mi1lion (consisting of $7.5 million of cash equity and $67.5 million ofproceeds from the Investor Loans). However, the Fund cannot be certain of the aggregateamount of Investments it will ultimately obtain. The aggregate amount of Investmentsmay differ materially from the amount the Fund currently expects to accept. The Fundwill not elect to be treated as an association taxable as a corporation for federal incometax purposes.

2. will receive the common units of theFund in exchange for a contribution of capital to the Fund of not less than $10,000("- . . _. .. . "), Manager will be the manager of the Fund and wi11receive a management fee from the Fund in that capacity.


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equal to 30% of the cash amount invested in the QRSBCC that is subsequently investedill a RSBV. The tax credits must be claimed for the taxable year in which the QRSBCCinvests funds in the RSBV and may be carried forward for three years but may not betaken as a refund or transferred. The RSBV may not use the capital provided by theQRSBCC for the acquisition of any other legal entity.2. Small Busine..Act. In accordance with Section 2357.62(A)and (B) of the Small Business Act) Oklahoma tax credits can be generated by making a"qualified investment" in a "qualified small business capital company" (a "QSBCC')Such credits are equal to 20% of the cash amount invested in the QSBCC that issubsequently invested in a SBV. The tax credits must be claimed for the taxable year inwhich the QSBCC invests funds in the SBV and may be carried forward for three yearsbut may not be taken as a refund or transferred. The SBY may not use the capital

provided by the QSBCC for the acquisition of any other legal entity.B. Investments in Coniunction with Direct Investments.

1. Rural Act. In accordance with Section 2357.74 of the RuralAct, Oklahoma tax credits (collectively with the Oklahoma tax credits generated asdescribed in paragraph II.A.l in accordance with Section 2357.73 of the Rural Act) the"Rural Credits"} can be generated by making a "qualified investment" in a RSBV inconjunction with an investment in such RSBV made by a QRSBCC. Such credits areequal to 30% of the cash amount of the "qualified investment" made in the RSBY. Aswith the direct investment, the tax credits must be claimed for the taxable year in whichthe investment is made in a RSBV and may be carried forward for three years but maynot be taken as a refund or transferred, In addition, the investment made into the RSBVmust meet the following requirements: (i) the investment must be made by a shareholderor partner of a QRSBCC that has invested funds in a RSBV; (ii) the funds must beinvested in the purchase of "equity" or "near-equity" in a RSBV; (iii) the investmentmust be made under the same terms and conditions as the investment made by theQRSBCC; and (iv) the investment must be limited to the lesser of 200% of any qualifiedinvestment by the taxpayer in the QRSBCC or 200% of the qualified investment made bythe QRSBCC in the RSBV.

2. Small Business Act. In accordance with Section 2357.63 of theSmall Business Act, Oklahoma tax credits (collectively with the Oklahoma tax creditsgenerated as described in paragraph II.A.2 in accordance with Section 2357.62 of theSmall Business Act, the "Small Business Credits" and) collectively with the RuralCredits, the "Credits") can be generated by making a "qualified investment" in a SBY inconjunction with an investment in such SBV made by a QSBCC. Such credits are equalto 20% of the cash amount of the "qualified investment" made in the SBY. As with thedirect investment, the tax credits must be claimed for the taxable year in which theinvestment is made in a SBV and may be carried forward for three years but may not betaken as a refund or transferred. In addition, the investment made into the SBV mustmeet the following requirements: (i) the investment must be made by a shareholder orpartner of a QSBCC that has invested funds in a SBY; (ii) the funds must be invested inthe purchase of "equity" or "near-equity" in a SBV; (iii) the investment must be made


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Page 1of

Tony MastinFrom : Tony MastinSent: Monday, December 15, 2008 5:01 PMTo: Dawn CashSubject: RE: cap co GP number

okTony MastinAdministrator

From: D aw n C ashSent: Mond aY I D ecembe r 15 , 20084:47 PMTo: Tony MastinSubject: R E: cap co G P num berReese just told me the $200 million was for '09. They were trying to determine whether webusted the 5% built in. He has not added it all up yet to see whether this would be correct for'09.

From: Ton y Ma stinSent: Mon da y, D ec embe r 15,2008 11:40 AMTo: D aw n C as hSubject: RE: cap co GP numberI understand your reasoning. Do we really know that there were only $140 million potentialcredits? If you are comfortable with that as the ceiling then I am fine reducing the potentialpayout.I just read your last email. Negative $200 million for what?Tony MastinAdministrator

From: D aw n C as hSent: M ond ay, De ce mbe r 15, 2008 11:14 AMTo: Tony MastinSubject: cap co G P num berI think we should drop the number we are using on the potential cap co credits taken againstGP by at least $25 million.We know that no more than $140 million potential credits were generated in '06. We'vealready paid out on approximately $25 million on the GP side, which leaves $115million. We

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Page I of 3

Tony MastinFrom: Tony MastinSent: Thursday. July 02, 2009 1:41 PMTo: Dawn CashSubject: RE Letter Ruling Clarification

Thanks.Tony MastinAdministrator

From: D aw n C ashSent: Thursday, Jury 02,2009 1:41 PMTo: Tony MastinSubject: RE: Letter Ruling CJarificatlonIt looks good to me. I have made a clerical suggestion:However, please note the credit is not a fully refundable credit. The statutes specifically provide that ifthe tax credit exceeds the amount of taxes due, the amount of the claim not used may be carried forwardto a future taxable year. Therefore, the credit may not be used to offset estimated tax liabilities to generatea refund of the credits upon filing of the applicable income tax return.

From: Tony MastinSent: Thursday, July 02,2009 11:16 AMTo: Dawn CashSubject: FW: Letter Ruling ClarificationPlease review my response. I promised to send it out this afternoon.Please accept this email to confirm that shareholders, partners or members of pass-through entities thatare entitled to a credit under 2357.73 and 2357.74 of TitIe 68 may be used to offset estimated taxliabilities. This corrects the previous ruling that you received.However, please note the credit is not a fully refundable credit. The statutes specifically provide the is thetax credit exceeds the amount of taxes due, the amount of the claim not used may be carried forward to afuture taxable year. Therefore, the credit may not be used to offset estimated tax liabilities to generate arefund of the credits upon filing of the applicable income tax return.Tony MastinAdministrator

From:Sent: Thursday, July 02, 2009 10:24 AM

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Documents

OTC Email 2