Session of 2000
By Committee on Economic Development

  9             AN  ACT concerning venture capital; enacting the Kansas certified capital
10             company act.
12       Be it enacted by the Legislature of the State of Kansas:
13             Section  1. This act shall be known and may be cited as the "Kansas
14       certified capital company act." The purpose of this act is to enhance the
15       development of seed and venture capital in Kansas and to support the
16       modernization and expansion of the state's rural economy. As used in this
17       act, unless the context clearly requires otherwise, the following terms
18       mean:
19             (a) "Affiliate of a certified capital company" means:
20             (1) Any person that directly or indirectly, owns, controls or possesses
21       the power or ability to vote 10% or more of the outstanding voting se-
22       curities or other beneficial ownership interests of the Kansas certified
23       capital company;
24             (2) any person 10% or more of whose outstanding voting securities
25       or other beneficial ownership interests are directly or indirectly owned,
26       controlled or possessed of the power to be voted by the Kansas certified
27       capital company;
28             (3) any person directly or indirectly controlling, controlled by or un-
29       der common control of the Kansas certified capital company;
30             (4) any partnership in which the Kansas certified capital company is
31       a general partner; or
32             (5) any person who is an officer, director, general partner, managing
33       member, manager director or agent of the Kansas certified capital com-
34       pany or an immediate family member of such person.
35             (b) "Affiliate of an investor" means:
36             (1) Any person that directly or indirectly, owns, controls or possesses
37       the power or ability to vote 10% or more of the outstanding voting se-
38       curities or other beneficial ownership interests of the investor;
39             (2) any person 10% or more of whose outstanding voting securities
40       or other beneficial ownership interests are directly or indirectly owned,
41       controlled or possessed with the power to be voted by the investor;
42             (3) any person directly or indirectly controlling, controlled by or un-
43       der common control with the investor;


  1             (4) a partnership in which the investor is a general partner; or
  2             (5) any person who is an officer, director or agent of the investor or
  3       an immediate family member of such officer, director or agent.
  4             (c) "Applicable percentage" means 100%.
  5             (d) "Capco" means any certified capital company.
  6             (e) "Capital in a qualified Kansas business" means any note, stock,
  7       partnership or membership interest or other form of equity investment
  8       or hybrid security, of any nature and description whatsoever, including a
  9       debt instrument or security which has the characteristics of indebtedness
10       but which provides for conversion into equity or equity participation in-
11       struments such as options or warrants which are acquired by a Kansas
12       certified capital company as a result of a transfer of cash to a business.
13       Capital in a qualified Kansas business shall not include secured debt
14       instruments.
15             (f) "Certified capital" means cash, marketable securities and other
16       assets held by a certified capital company equal to the amount of certified
17       capital investment made by investors in the certified capital company.
18             (g) "Certified capital company" means any partnership, corporation,
19       trust or limited liability company, whether organized on a profit or not
20       for profit basis, that is domiciled in and qualified to conduct business in
21       Kansas and that has as its primary business activity, the investment of cash
22       in qualified Kansas businesses, and which is certified by the secretary as
23       satisfying the criteria of this act.
24             (h) "Certified capital investment" means an investment of cash by an
25       investor made in such manner as to acquire a beneficial ownership inter-
26       est in a Kansas certified capital company.
27             (i) "Commissioner" means the securities commissioner of Kansas or
28       persons acting under the supervision of the commissioner.
29             (j) "In existence" means the date of the first sale of goods or services
30       by a qualified Kansas business or a business seeking to be so qualified.
31             (k) "Investor" means any person that invests cash. If the investor is
32       a natural person, the investor shall have a net worth of at least $1,000,000
33       and such net worth shall be at least 10 times the amount of the investor's
34       certified investment in a capco. The investor's net worth shall not include
35       the value of any equity in the investor's primary residence.
36             (l) "Liquidating distribution" means any distribution other than a
37       qualified distribution.
38             (m) "Person" means any natural person or any business association,
39       including but not limited to, a corporation, limited liability company, gen-
40       eral or limited partnership or trust.
41             (n) "Qualified distribution" means any distribution or payment re-
42       mitted to equity holders of a certified capital company for costs and ex-
43       penses of forming, syndicating, managing or operating the certified capital


  1       company, including an annual management fee and reasonable and nec-
  2       essary fees in accordance with industry custom for professional fees in-
  3       cluding, but not limited to, legal and accounting fees, relating to operating
  4       the certified capital company.
  5             (o) "Qualified Kansas business" means:
  6             (1) A business that satisfies the requirements of subparagraphs (A)
  7       through (F) of this subsection.
  8             (A) Such business is independently owned and operated and has its
  9       principal business office located in Kansas or, in the case of a company
10       domiciled outside the state of Kansas, which certifies that the company's
11       principal business office will be located in Kansas within six months fol-
12       lowing the date of the initial investment.
13             (B) At least 50% of the employees of the business shall reside in
14       Kansas or, in the case of a company domiciled outside the state of Kansas,
15       certifies that at least 50% of its employees will reside in Kansas within six
16       months following the date of the initial qualified venture capital
17       investment.
18             (C) Such business is in need of venture capital and cannot obtain
19       conventional financing to fund its further development and future
20       operations.
21             (D) Such business shall be engaged in commerce for the purpose of
22       manufacturing, processing, assembling or distributing products, conduct-
23       ing research and development or providing services in interstate
24       commerce.
25             (E) For businesses involved in commerce for the purpose of provid-
26       ing services in interstate commerce, that business must demonstrate that
27       more than 50% of its gross revenues are derived from sales outside the
28       state of Kansas, or in the case of an early stage business, provide reason-
29       able documentation that the company will derive at least 50% of its gross
30       sales outside the state within a three-year period.
31             (F) Such business, at the time of the initial qualified venture capital
32       investment, shall have been in existence less than five years and shall not
33       have had gross sales in excess of $1,000,000 in any single fiscal year.
34             (2) Any business which, subject to paragraph (a)(6) of section 5 and
35       amendments thereto, is approved as a qualified Kansas business at the
36       time of the first qualified venture capital investment in such business by
37       a Kansas certified capital company, for a period of seven years following
38       the date of such first investment, shall continue to be classified as a qual-
39       ified Kansas business and may receive follow-on investments from any
40       Kansas certified capital company, and such follow-on investments shall
41       constitute qualified venture capital investments even though such busi-
42       ness may not meet other qualifications of this subsection at the time of
43       such follow-on investments.


  1             (3) A qualified Kansas business shall not include:
  2             (A) Any commercial enterprise primarily engaged in the sale at retail
  3       of goods or services taxable under the Kansas retailer's sales tax act; any
  4       service provider set forth in K.S.A. 17-2707, and amendments thereto;
  5       any bank, savings and loan or lending institution; any real estate, real
  6       estate development or insurance company; or any commercial enterprise
  7       deriving its revenues directly from noncommercial customers in exchange
  8       for personal services;
  9             (B) a business engaged primarily as a passive business, irregular or
10       noncontinuous operations, or which derives substantially all of its income
11       from passive investments that generate interest, dividends, royalties or
12       capital gains;
13             (C) a business engaged in oil and gas exploration and development;
14             (D) a business engaged in agricultural activity as defined by K.S.A.
15       2-3203 and amendments thereto;
16             (E) a subsidiary of a certified capital company;
17             (F) another certified capital company;
18             (G) an affiliate of the certified capital company; or
19             (H) an investor of the certified capital company or an affiliate or sub-
20       sidiary of an investor of the certified capital company unless approved in
21       writing by the secretary.
22             (4) At the time of the initial qualified venture capital investment, the
23       qualified Kansas business shall certify that the business shall remain dom-
24       iciled in Kansas for the next 10 years and any new manufacturing facility
25       financed directly by a qualified investment shall be located in and shall
26       remain in Kansas for the 10 years following.
27             (p) "Qualified venture capital investment" means the investment of
28       cash by a Kansas certified capital company in such a manner as to acquire
29       capital in a qualified Kansas business.
30             (q) "Secretary" means the secretary of commerce and housing or per-
31       sons under the secretary's direction.
32             (r) "Tax credit" means a transferable, nonrefundable credit against
33       the tax imposed by the Kansas income tax act, the premium tax or priv-
34       ilege fee imposed pursuant to K.S.A. 40-252, and amendments thereto,
35       or the privilege tax as measured by net income of financial institutions
36       imposed pursuant to chapter 79, article 11 of the Kansas Statutes
37       Annotated.
38             Sec.  2. (a) Any investor that makes a certified capital investment shall
39       earn a vested tax credit against state tax liability equal to 100% of the
40       amount of such investor's certified capital investment. The investor, or a
41       person to whom the credits were duly transferred, shall be entitled to use
42       not more than 10% of the vested credit per taxable year for taxable years
43       commencing after taxable year 2001. If the amount of the tax credit al-


  1       lowed under subsection (a) exceeds the tax liability of the taxpayer for
  2       any taxable year, such excess amount shall be refunded to the taxpayer.
  3             (b) No certified capital investment in a capco by any one person shall
  4       be less than $25,000.
  5             (c) The total amount of tax credits which may be allowed shall not
  6       exceed $50,000,000. The total amount of tax credits which may be allowed
  7       under this act shall not exceed $5,000,000 per fiscal year.
  8             Sec.  3. (a) The secretary may certify profit or not-for-profit entities
  9       which submit an application to be designated as a capco. The secretary
10       shall compile a list of every capco, including the address and telephone
11       number of the capco's principal place of business. The secretary shall
12       publicize the list in order to inform Kansas companies of the availability
13       of potential investment capital.
14             (b) The secretary shall review the organizational documents for each
15       applicant for certification and the business history of the applicant to
16       determine:
17             (1) That at the time of application, the applicant owns cash, market-
18       able securities and other liquid assets valued at no less than $500,000;
19       that prior to January 1, 2000, the applicant was designated as an inno-
20       vation and commercialization corporation or an affiliate of an innovation
21       and commercialization corporation created under the Kansas technology
22       enterprise corporation innovation and commercialization corporation
23       program; and
24             (2) that the officers and the board of directors, general partners, trus-
25       tees, managing members or managers, as the case may be, are thoroughly
26       acquainted with the requirements of this act and acknowledge such by a
27       signed certification.
28             (c) To continue to be certified, the capco must own and periodically
29       shall demonstrate to the secretary, as the secretary may require, that the
30       liquid asset base for the certified capital company is at least $500,000 at
31       all times during the capco's participation in the program authorized by
32       this act and that such moneys have been used for making qualified venture
33       capital investments.
34             (d) With respect to any person who submits or has submitted an
35       application to become a capco, the commissioner shall investigate to de-
36       termine and shall report annually to the secretary whether any of the
37       directors, trustees, managers, officers, general partners, beneficial owners
38       of 10% or more of any class of equity securities, or any promoters em-
39       ployed or otherwise associated with that person at the time of such
40       application:
41             (1) Has been affiliated with any company that has filed a registration
42       statement which is subject to a currently effective stop order entered
43       pursuant to any state law;


  1             (2) has been convicted of any felony or misdemeanor in connection
  2       with the purchase or sale of any security or any felony involving fraud or
  3       deceit including, but not limited to, forgery, embezzlement of money
  4       under false pretenses, larceny or conspiracy to defraud;
  5             (3) is currently subject to any state administrative order or judgment
  6       entered by a state securities administrator or is subject to any state ad-
  7       ministrative order or judgment in which fraud or deceit was found and
  8       an order or judgment was entered;
  9             (4) is currently subject to any state administrative order or judgment
10       which prohibits the use of any exemption from registration in connection
11       with the purchase or sale of securities;
12             (5) is subject to any order, judgment or decree of any court of com-
13       petent jurisdiction temporarily or preliminarily restraining or enjoining,
14       or is subject to any order, judgment or decree of any court of competent
15       jurisdiction permanently restraining or enjoining that person from engag-
16       ing in or continuing any conduct or practice in connection with the pur-
17       chase or sale of any security, rendering investment advice or involving the
18       making or any false filing with any state; and
19             (6) has been convicted of or plead nolo contendere to any criminal
20       offense other than a misdemeanor involving motor vehicle violations.
21             (e) The secretary shall review documentation regarding the qualifi-
22       cations of the persons who will actively manage the capco and make a
23       determination as to whether such persons possessed sufficient knowledge
24       and professional experience in the areas of investment, venture capital,
25       business management and evaluation, portfolio management and such
26       other area of expertise to the degree that a reasonable person would be
27       confident in such manager's ability to manage the capco. No certification
28       shall be issued when it is the finding of the secretary that such persons
29       do not possess this requisite degree of knowledge and expertise. If the
30       secretary makes such a finding, the secretary shall communicate the basis
31       for the finding to the applicant within 30 days of making the finding.
32             (f) No investor shall individually, or collectively with or through one
33       or more affiliates, by means of ownership, agreement or otherwise, own,
34       control or possess the power or ability to cause or direct the making of
35       any qualified venture capital investments by a capco.
36             (g) Within 75 days of application, the secretary shall either issue the
37       certification and notify the secretary of the department of revenue of such
38       certification or shall refuse the certification and communicate in detail to
39       the applicant the grounds for the refusal, including any suggestions for
40       the removal of those grounds.
41             Sec.  4. (a) A capco shall have a period of 365 days from the date of
42       receiving certification from the secretary in which to procure the amount
43       of certified capital investment required by subsection (b). All certified


  1       capital investments in the capco shall be received within such 365 day
  2       funding period, notwithstanding the provisions of subsection (c).
  3             (b) Before closing its fund of certified capital investment, and pur-
  4       suant to subsection (b) of section 3, and amendments thereto, a capco
  5       shall raise a minimum aggregate certified capital investment of no less
  6       than $5,000,000. In the case of a capco designated prior to January 1,
  7       2000, as an innovation and commercialization corporation or an affiliate
  8       of an innovation and commercialization corporation created under the
  9       Kansas technology enterprise corporation innovation and commerciali-
10       zation corporation program, such minimum certified capital investment
11       shall be no less than $1,000,000. No capital investments shall be certified
12       by the secretary until such time when the minimum cumulative invest-
13       ments are met. Failure of a capco to raise the minimum cumulative in-
14       vestments may result in the revocation of the certification by the
15       secretary.
16             (c) Once fully capitalized pursuant to the provisions of subsection (b),
17       a capco may make application to the secretary for authorization to seek
18       additional certified capital investment.
19             Sec.  5. (a) To continue to be certified, a capco shall make qualified
20       venture capital investments according to the following schedule:
21             (1) Within three years after the date on which a capco is certified as
22       a capco, at least 25% of its certified capital shall be, or have been, used
23       for making qualified venture capital investments;
24             (2) within four years after the date on which a capco is certified as a
25       capco, at least 40% of its certified capital shall be, or have been, used for
26       making qualified venture capital investments;
27             (3) within five years after the date on which a capco is certified as a
28       capco, at least 50% of its total certified capital shall be, or have been,
29       used for making qualified venture capital investments;
30             (4) within seven years after the date on which a capco is certified as
31       a capco, at least 70% of its total certified capital shall be, or have been,
32       used for making qualified venture capital investments;
33             (5) a capco shall not make an investment in an affiliate of the capco
34       or an affiliate of an investor. For the purposes of this subsection, if a
35       company is not an affiliate before a capco initially invests in the company,
36       it shall not be deemed to be an affiliate if such capco provides additional
37       qualified venture capital investment to such company subsequent to its
38       initial investment. No corporate officer, employee or shareholder, no lim-
39       ited or general partner or other person personally affiliated with any capco
40       shall personally invest in any portfolio company regardless of whether the
41       portfolio company is affiliated with the capco;
42             (6) a capco, at least 15 working days prior to making what it deter-
43       mines to be any initial qualified venture capital investment, shall first


  1       certify to the secretary that the company in which it proposes to invest
  2       meets the definition of a qualified Kansas business pursuant to section 1,
  3       and amendments thereto. The capco shall state the amount of capital it
  4       intends to invest and identify the business in which it intends to make
  5       the investment. The capco shall also provide to the secretary a written
  6       explanation of the basis for its determination that the business meets the
  7       definition of a qualified Kansas business, if the secretary determines that
  8       the business does not meet the definition of a qualified Kansas business,
  9       the secretary, within the 15 working-day period prior to the making of
10       the proposed investment, shall notify the capco of the determination and
11       provide the capco an explanation thereof. If the secretary fails to notify
12       the capco of the determination within the 15 working-day period pre-
13       scribed herein, the business in which the capco proposes to invest shall
14       be deemed to be a qualified Kansas business. If a capco fails to notify the
15       secretary prior to making an initial investment in a business, the business
16       in which the capco invested shall be deemed not to be a qualified Kansas
17       business even though the business, at the time of the investment, met
18       the requirements of section 1, and amendments thereto; and
19             (7) all certified capital which is not then required to be invested in
20       qualified venture capital investments or which has been previously in-
21       vested in qualified venture capital investments and returned by the com-
22       pany, may be held or invested in such manner as the capco, in its discre-
23       tion, deems appropriate. The proceeds of all certified capital which is
24       returned by a capco after it was originally invested in qualified venture
25       capital investments, may be invested in other qualified venture capital
26       investments and shall be credited toward any requirement in this act with
27       respect to placing certified capital in qualified venture capital
28       investments.
29             (b) A capco may make qualified distributions at any time. In order to
30       lawfully make liquidating distributions, a capco must have invested an
31       aggregate amount equal to 100% of its certified capital in qualified ven-
32       ture capital investments.
33             (c) Cumulative liquidating distributions to equity holders in excess of
34       the certified capital company's original certified capital and any additional
35       capital contributions to the certified capital company shall be subject to
36       audit by a certified public accounting firm acceptable to the secretary, at
37       the expense of the certified capital company.
38             (d) If at the time any liquidating distribution is made by a capco, the
39       aggregate sum of all liquidating distributions of the capco exceeds the
40       aggregate sum of the capco's original certified capital and any subsequent
41       qualified venture capital contributions to the capco, as determined by
42       audit, the capco, prior to any additional distributions, shall pay to the state
43       treasurer's office 10% of the proportion of the distribution in excess of


  1       such amount.
  2             (e) Documents and other materials submitted by capcos or by busi-
  3       nesses for purposes of original certification or the continuance of certi-
  4       fication as a capco shall not be public records if it is determined by the
  5       secretary that disclosure of such information would compromise trade
  6       secrets of qualified Kansas businesses unless otherwise specified in this
  7       act.
  8             (f) Each capco shall report the following to the secretary:
  9             (1) As soon as practicable, but in any case no later than 15 days, after
10       the receipt of a certified capital investment, the name of each investor
11       from whom the certified capital investment was received, the amount of
12       each investor's certified capital investment and the date when the certi-
13       fied capital investment was received;
14             (2) within 90 days of the close of the capco's fiscal year, annual au-
15       dited financial statements. The audit shall address the methods of oper-
16       ation and conduct of business of the capco to determine if the capco is
17       complying with the statutes and program rules and that the funds received
18       by the capco have been invested in accordance with the time limits pro-
19       vided by this act; and
20             (3) at the end of each quarter, that no more than 20% of the assets
21       of a capco shall be invested in a single qualified Kansas business at any
22       one time unless the capco can demonstrate that a greater percentage in
23       a single qualified Kansas business at any one time is the result of losses
24       suffered by the capco in other qualified venture capital investments.
25             (g) Any material related to the sale of ownership in a capco or solic-
26       iting investment in a capco shall include the following statement: "By
27       authorizing the formation of a certified capital company, the State of
28       Kansas does not endorse the quality of management or the potential for
29       earnings of a particular company. the use of the word "certified" in an
30       offering does not constitute a recommendation or endorsement of an
31       investment by the Kansas Securities Commission or any other State
32       Official."
33             (h) The secretary may establish reasonable initial filing fees for ap-
34       plications for certification pursuant to this act and may also establish an
35       annual nonrefundable fee for capcos seeking continued certification.
36             Sec.  6. (a) To ensure that no qualified venture capital investment or
37       investor's certified capital investment has been made in violation of this
38       act, the secretary shall conduct an annual review of each capco to deter-
39       mine if the capco is complying with the requirements of certification. The
40       costs of the annual review shall be paid by each capco according to a
41       reasonable fee schedule adopted by the secretary.
42             (b) Any material violation of this act shall be grounds for decertifi-
43       cation under this section. If the secretary determines that a capco is not


  1       in compliance with the requirements for continuing certification, the sec-
  2       retary, by written notice, shall inform the officers of the capco and the
  3       board of directors, managers, trustees or general partners that they may
  4       be decertified within 120 days from the date of mailing of the notice,
  5       unless they correct the deficiencies detailed in the notice and demon-
  6       strate to the secretary's satisfaction that the capco is again in compliance
  7       with the requirements for certification as determined by the secretary.
  8             (c) At the end of the 120-day grace period, if the capco is still not in
  9       compliance, the secretary may send a notice of decertification to the
10       capco and to the secretary of revenue including a list of the decertified
11       capitol investment by investor and transferee.
12             (d) Decertification of a capco prior to the capco meeting all require-
13       ments of paragraphs (1) through (4) of subsection (a) of section 5, and
14       amendments thereto, shall cause the recapture of all tax credits previously
15       allowed to an investor or transferee and the forfeiture of all future tax
16       credits to otherwise be claimed by an investor or transferee with respect
17       to any certified capital investment in the decertified capco.
18             (e) Decertification of a capco after it has met all requirements of
19       paragraphs (1) through (4) of subsection (a) of section 5, and amendments
20       thereto, shall cause the forfeiture of tax credits commencing with the
21       taxable year of the investor or transferee in which the decertification arose
22       and for all future taxable years with no recapture of tax credits allowed
23       to an investor or transferee with respect to the taxable years which ended
24       before the decertification occurred. Once a capco has invested 100% of
25       its certified capital in qualified Kansas businesses, all future tax credits to
26       be claimed by investors with respect to the capco pursuant to this act
27       shall not be subject to recapture.
28             Sec.  7. The secretary shall prepare and submit an annual report to
29       the governor and the legislature no later than October 1 of each year.
30       Such report shall be presented to the standing committee on commerce
31       in the senate, standing committee on economic development in the house
32       of representatives and the joint committee on economic development.
33       Such report shall include but not be limited to:
34             (a) The total dollar amount each capco received from all investors
35       allowed tax credits and any other investors and the identity of all investors
36       allowed tax credits;
37             (b) the total amount invested by each capco in qualified Kansas busi-
38       nesses, the identity and location of those businesses, the amount invested
39       in each qualified Kansas business and the total number of permanent full-
40       time jobs created or retained by each qualified Kansas business as a result
41       of the investment; and
42             (c) the cumulative amount of any liquidating disbursements received
43       by the state from the capcos.


  1             Sec.  8. The secretary may revoke the certification of a capco if any
  2       material representation to the secretary in connection with the application
  3       process proves to have been falsely made or if the application materially
  4       violates any requirement established by the secretary.
  5             Sec.  9. (a) Any investor that is not subject to taxation under the pro-
  6       visions of the Kansas income, privilege or premium tax that makes a cer-
  7       tified capital investment shall be deemed to acquire an interest in the
  8       nature of a transferable tax credit limited to 100% of such investment.
  9       The credit established pursuant to this act may be sold or transferred
10       subject to approval by the secretary. An investor as described in this sec-
11       tion shall not be allowed a refund for the interest herein created. Only
12       the full amount of the credit for any one investment may be transferred
13       and the credit may be transferred only one time. Documentation of any
14       credit transfer shall be provided to the secretary. The secretary shall trans-
15       mit a copy of such documentation to the secretary of revenue.
16             (b) The secretary, after consulting with the secretary of revenue, shall
17       develop such rules and regulations as are necessary to facilitate the op-
18       eration of the transfer program consistent with the interest of the state
19       in tracking the transfer of ownership and the use of tax credits earned by
20       the transferee, but which shall not be overly burdensome to the transfer
21       process.
22             (c) Any such sale or transfer shall not affect the time schedule for
23       taking the tax credit, as provided in this act. Any tax credits recaptured
24       pursuant to section 6 and amendments thereto shall be the liability of the
25       taxpayer which actually claimed the tax credit. In approving the sale or
26       transfer of the tax credit pursuant to this section, the secretary may re-
27       quire the transferor or the transferee or both to execute guarantees or
28       post bonds with respect to any potential tax credit recapture.
29             (d) Any payment received for tax credits pursuant to this section is
30       taxable income of the transferor of the credit and the amount equal to
31       the difference the dollar value of the tax credit transferred minus the
32       sales price of the tax credit shall be taxable income of the transferee.
33             (e) The secretary shall make and promulgate rules and regulations
34       consistent with the provisions of this act as are necessary or useful to carry
35       out the provisions of this act.
36             (f) Every final order, decision, license or other official act of the sec-
37       retary pursuant to this act is subject to review in accordance with the act
38       for judicial review and civil enforcement of agency actions, K.S.A. 77-601
39       et seq. and amendments thereto.
40             (g) In view of the objectives of these requirements and the underlying
41       policies of the act, the act is not available with respect to any transaction
42       or series of transactions that, although in technical compliance with these
43       rules, is part of a plan or scheme to evade the requirements of this act or


  1       to distort the benefits entitled to be realized under the act. In such cases,
  2       no investor in any capco shall be entitled to the benefit of any tax credits
  3       provided for hereunder.
  4             (h) The offer or sale of a security by a capco pursuant to this act shall
  5       be subject to the registration requirements of K.S.A. 17-1254, 17-1255,
  6       17-1257, 17-1258, 17-1259 and 17-1260 and amendments thereto.
  7        Sec.  10. This act shall take effect and be in force from and after its
  8       publication in the statute book.