Session of 1998
By Joint Committee on Economic Development
            9             AN ACT concerning abolishing state sponsored technology-based ven-
10             ture-capital funds; amending K.S.A. 1997 Supp. 74-8316 and repealing
11             the existing section; also repealing K.S.A. 1997 Supp. 74-8317, 74-8318
12             and 74-8319.
14       Be it enacted by the Legislature of the State of Kansas:
15           Section 1. K.S.A. 1997 Supp. 74-8316 is hereby amended to read as
16       follows: 74-8316. (a) The Kansas technology enterprise corporation is
17       hereby authorized to facilitate the establishment of a technology-based
18       venture-capital fund in which the corporation may invest only moneys
19       from the economic development initiatives fund specifically so allocated.
20       The corporation may credit also the fund with gifts, donations or grants
21       received from any source other than state government and with proceeds
22       from the fund. Investments in the fund shall qualify for the income tax
23       credit allowed pursuant to K.S.A. 74-8304, and amendments thereto.
24           (b) The technology-based venture-capital fund may invest the assets
25       as follows:
26           (1) To carry out the purposes of this act through investments in qual-
27       ified securities and through the forms of financial assistance authorized
28       by this act, including:
29           (A) Loans, loans convertible to equity, and equity;
30           (B) leaseholds;
31           (C) management or consultant service agreements;
32           (D) loans with warrants attached that are beneficially owned by the
33       fund;
34           (E) loans with warrants attached that are beneficially owned by a
35       party other than the fund; and
36           (F) the fund, in connection with the provision of any form of financial
37       assistance, may enter into royalty agreements with an enterprise.
38           (2) To invest in such other investments as are lawful for Kansas fi-
39       duciaries pursuant to K.S.A. 17-5001 et seq. and amendments thereto.
40           (c) Distributions received by the corporation may be reinvested in
41       any fund consistent with the purposes of this act.
42           (d) The corporation may invest only in a fund whose investment
43       guidelines permit the fund's purchase of qualified securities issued by an

HB 2588


  1       enterprise as a part of a resource and technology project subject to the
  2       following:
  3           (1) Receipt of an application from the enterprise which contains:
  4           (A) A business plan including a description of the enterprise and its
  5       management, product and market;
  6           (B) a statement of the amount, timing and projected use of the capital
  7       required;
  8           (C) a statement of the potential economic impact of the enterprise,
  9       including the number, location and types of jobs expected to be created;
10       and
11           (D) such other information as the fund manager or the fund's board
12       of directors shall request.
13           (2) Approval of the investment by the fund may be made after the
14       fund manager or the fund's board of directors finds, based upon the
15       application submitted by the enterprise and such additional investigation
16       as the fund manager or the fund's board of directors shall make and
17       incorporate in its minutes, that:
18           (A) The proceeds of the investment will be used only to cover the
19       venture-capital needs of the enterprise except as authorized by this sec-
20       tion;
21           (B) the enterprise has a reasonable possibility of success;
22           (C) the fund's participation is instrumental to the success of the en-
23       terprise because funding otherwise available for the enterprise is not
24       available on commercially feasible terms;
25           (D) the enterprise has the reasonable potential to create a substantial
26       amount of employment within the state;
27           (E) the entrepreneur and other founders of the enterprise have al-
28       ready made or are contractually committed to make a substantial financial
29       and time commitment to the enterprise;
30           (F) the securities to be purchased are qualified securities;
31           (G) there is a reasonable possibility that the fund will recoup at least
32       its initial investment; and
33           (H) binding commitments have been made to the fund by the enter-
34       prise for adequate reporting of financial data to the fund, which shall
35       include a requirement for an annual report, or if required by the fund
36       manager, an annual audit of the financial and operational records of the
37       enterprise, and for such control on the part of the fund as the fund man-
38       ager shall consider prudent over the management of the enterprise, so as
39       to protect the investment of the fund, including in the discretion of the
40       fund manager and without limitation, the right of access to financial and
41       other records of the enterprise.
42           (e) All investments made pursuant to this section shall be evaluated
43       by the fund's investment committee and the fund shall be audited an-

HB 2588


  1       nually by an independent auditing firm.
  2           (f) The fund shall not make investments in qualified securities issued
  3       by enterprises in excess of the amount necessary to own more than 49%
  4       of the qualified securities in any one enterprise at the time of the purchase
  5       by the fund, after giving effect to the conversion of all outstanding con-
  6       vertible qualified securities of the enterprise, except that in the event of
  7       severe financial difficulty of the enterprise, threatening, in the judgment
  8       of the fund manager, the investment of the fund therein, a greater per-
  9       centage of such securities may be owned by the fund.
10           (g) At least 75% of the total investment of the fund must be in Kansas
11       businesses.
12           The Kansas technology enterprise corporation shall remit to the state
13       treasurer any moneys, including accrued interest but less any outstanding
14       obligations, credited to the technology-based venture-capital fund, pre-
15       viously established pursuant to this section.
16           The treasurer shall deposit such money in the state treasury to the credit
17       of the economic development initiatives fund.
18           Sec. 2. K.S.A. 1997 Supp. 74-8316, 74-8317, 74-8318 and 74-8319
19       are hereby repealed.
20           Sec. 3. This act shall take effect and be in force from and after its
21       publication in the Kansas register.