Session of 1999
SENATE BILL No. 315
By Committee on Commerce
9 AN ACT concerning venture capital; enacting the Kansas certified capital
10 company act; amending K.S.A. 1998 Supp. 17-1262 and repealing the
11 existing section.
13 Be it enacted by the Legislature of the State of Kansas:
14 New Section 1. This act shall be known and may be cited as the
15 "Kansas Certified Capital Company Act". The purpose of this act is to
16 enhance the development of seed and venture capital in Kansas and to
17 support the modernization and expansion of the state's rural economy.
18 As used in this act, the following terms mean:
19 (a) "Certified capital company" means any partnership, corporation,
20 trust or limited liability company, whether organized on a profit or not
21 for profit basis, that is domiciled in and qualified to conduct business in
22 Kansas and that has as its primary business activity, the investment of cash
23 in qualified Kansas businesses, and which is certified by the securities
24 commissioner of Kansas as satisfying the criteria of this act.
25 (b) "Capco" means any certified capital company.
26 (c) "Tax credit" means a transferable, non-refundable credit against
27 the tax imposed by the Kansas income tax act, the premium tax or priv-
28 ilege fee imposed pursuant to K.S.A. 40-252, and amendments thereto,
29 or the privilege tax as measured by net income of financial institutions
30 imposed pursuant to chapter 79, article 11 of the Kansas Statutes
32 (d) "Applicable percentage" means one hundred percent.
33 (e) "Capital in a qualified Kansas business" means any note, stock,
34 partnership or membership interest or other form of equity investment
35 or hybrid security, of any nature and description whatsoever, including a
36 debt instrument or security which has the characteristics of indebtedness
37 but which provides for conversion into equity or equity participation in-
38 struments such as options or warrants which are acquired by a Kansas
39 certified capital company as a result of a transfer of cash to a business.
40 Capital in a qualified Kansas business shall not include secured debt
42 (f) "Certified capital investment" means an investment of cash by an
43 investor made in such manner as to acquire a beneficial ownership inter-
SB 315 2
1 est in a Kansas certified capital company.
2 (g) "Certified capital" means cash, marketable securities and other
3 liquid assets held by a certified capital company equal to the amount of
4 certified capital investment made by investors in the certified capital
6 (h) "Commission" means the Kansas securities commission.
7 (i) "Commissioner" means the securities commissioner of Kansas or
8 a person acting under the supervision of the commissioner.
9 (j) "Investor" means any natural person or entity, including a cor-
10 poration, limited liability company, general or limited partnership, trust
11 or limited liability company that invests cash.
12 (k) "Liquidating distribution" means payments remitted to investors
13 or to the certified capital company derived from earnings.
14 (l) "Person" means any natural person or entity, including a corpo-
15 ration, limited liability company, general or limited partnership, trust or
16 limited liability company.
17 (m) "Qualified distribution" means any distribution or payment re-
18 mitted to equity holders of a certified capital company in connection with
19 the following:
20 (1) Reasonable costs and expenses of forming, syndicating, managing
21 or operating the certified capital company;
22 (2) Fees paid to qualified managers for managing or operating the
23 certified capital company.
24 (n) "Qualified venture capital investment" means the investment of
25 cash by a Kansas certified capital company in such a manner as to acquire
26 capital in a qualified Kansas business.
27 (o) "Qualified Kansas business" means:
28 (1) A business that satisfies the requirements of paragraphs (A)
29 through (B) of this subsection.
30 (A) Such business is independently owned and operated and has its
31 principal business office located in Kansas or, in the case of a company
32 domiciled outside the state of Kansas, which certifies that the company's
33 principal business office will be located in Kansas within six months fol-
34 lowing the date of the initial investment;
35 (B) such business shall, at the time of the initial qualified venture
36 capital investment, have no more than 50 full time equivalent employees,
37 at least fifty percent of whom are resident in Kansas or, in the case of a
38 company domiciled outside the state of Kansas, certifies that at least fifty
39 percent of its employees will be resident in Kansas within six months
40 following the date of the initial qualified venture capital investment;
41 (C) such business is in need of venture capital and cannot obtain
42 conventional financing to fund its further development and future
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1 (D) such business shall be engaged in commerce for the purpose of
2 manufacturing, processing or assembling or distributing products, con-
3 ducting research and development or providing services in interstate
5 (E) For businesses involved in commerce for the purpose of provid-
6 ing services in interstate commerce, that business must demonstrate that
7 more than fifty percent of its gross revenues are derived from sales out-
8 side the state of Kansas, or in the case of an early stage business, provide
9 reasonable documentation that the company will derive at least fifty per-
10 cent of its gross sales outside the state within a three-year period.
11 (2) Any business which, subject to audit, is properly classified as a
12 qualified Kansas business at the time of the first qualified venture capital
13 investment in such business by a Kansas certified capital company shall,
14 for a period of seven years following the date of such first investment,
15 continue to be classified as a qualified Kansas business and may receive
16 follow-on investments from any Kansas certified capital company, and
17 such follow-on investments shall constitute qualified venture capital in-
18 vestments even though such business may not meet other qualifications
19 of this subsection at the time of such follow-on investments.
20 (3) A qualified Kansas business shall not include:
21 (A) Any commercial enterprise primarily engaged in the sale at retail
22 of goods or services taxable under the Kansas retailer's sales tax act; any
23 service provider set forth in K.S.A. 17-2707, and amendments thereto;
24 any bank, savings and loan or lending institution; any real estate, real
25 estate development or insurance company; or any commercial enterprise
26 deriving its revenues directly from noncommercial customers in exchange
27 for personal services;
28 (B) a business engaged primarily as a passive business, irregular or
29 noncontinuous operations, or which derives substantially all of its income
30 from passive investments that generate interest, dividends, royalties or
31 capital gains;
32 (C) a business engaged in oil and gas exploration and development;
33 (D) a subsidiary of a certified capital company;
34 (E) another certified capital company;
35 (F) an affiliate of the certified capital company;
36 (G) an investor of the certified capital company or an affiliate or sub-
37 sidiary of an investor of the certified capital company unless approved in
38 writing by the commissioner.
39 (4) At the time of the initial qualified venture capital investment, the
40 qualified Kansas business shall certify that the business shall remain dom-
41 iciled in Kansas for the next 10 years and any new manufacturing facility
42 financed directly by a qualified investment shall be located in and shall
43 remain in Kansas for the 10 years following.
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1 (p) "Affiliate of a certified capital company" means:
2 (1) any person that directly or indirectly, owns, controls or possesses
3 the power or ability to vote ten percent or more of the outstanding voting
4 securities or other beneficial ownership interests of the Kansas certified
5 capital company;
6 (2) any person ten percent or more of whose outstanding voting se-
7 curities or other beneficial ownership interests are directly or indirectly
8 owned, controlled or possessed with the power to be voted by the Kansas
9 certified capital company;
10 (3) any person directly or indirectly controlling, controlled by, or un-
11 der common control with the Kansas certified capital company;
12 (4) any partnership in which the Kansas certified capital company is
13 a general partner;
14 (5) any person who is an officer, director, general partner, managing
15 member, manager director or agent of the Kansas certified capital com-
16 pany or an immediate family member of such person.
17 (q) "Affiliate of an investor" means:
18 (1) Any person that directly or indirectly, owns, controls or possesses
19 the power or ability to vote ten percent or more of the outstanding voting
20 securities or other beneficial ownership interests of the investor;
21 (2) any person ten percent or more of whose outstanding voting se-
22 curities or other beneficial ownership interests are directly or indirectly
23 owned, controlled, or possessed with the power to be voted by the
25 (3) any person directly or indirectly controlling, controlled by or un-
26 der common control with the investor;
27 (4) a partnership in which the investor is a general partner;
28 (5) any person who is an officer, director or agent of the investor or
29 an immediate family member of such officer, director or agent.
30 New Sec. 2. (a) Any investor that makes a certified capital investment
31 shall earn a vested tax credit against state tax liability equal to 100% of
32 the amount of such investor's certified capital investment. An investor, or
33 person to whom the credits were duly transferred, shall be entitled to use
34 not more than 10% of the vested credit per year beginning with tax filings
35 for calendar year 2001. Any tax credit not used by an investor, or a person
36 to whom the credits were duly transferred, in any single year may be
37 carried forward and applied against tax liabilities of such investor or trans-
38 feree for subsequent calendar years.
39 (b) A tax credit claimed against state tax liability as described in sub-
40 section (a) may not exceed the state tax liability of the investor, or person
41 to whom the credits were duly transferred, for any taxable year. All such
42 credits against state tax liability may be carried forward indefinitely until
43 the credits are utilized.
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1 (c) If the investor is an individual, the investor shall have a personal
2 net worth of at least $1,000,000 and at least ten times the amount of such
3 investor's certified capital investment in a capco. The investor's net worth
4 shall not include the value of any equity in such investor's primary
6 (d) No certified capital investment in a capco by any one person shall
7 be less than $50,000.
8 (e) The commission shall be responsible for the administration of the
9 tax credits authorized by this act.
10 (f) The total amount of tax credits which may be allocated by the
11 commissioner shall not exceed $50,000,000. The total amount of tax cred-
12 its which may be claimed under this act shall not exceed $5,000,000 per
14 New Sec. 3. (a) The commissioner may certify profit or not-for-profit
15 entities which submit an application to be designated as a capco. The
16 commissioner shall compile a list of every capco, including the address
17 and telephone number of the capco's principal place of business. The
18 commissioner shall forward the list to the secretary of commerce and
19 housing. The secretary of commerce and housing shall publicize the list
20 in order to inform Kansas companies of the availability of potential in-
21 vestment capital. The commission shall review the organizational docu-
22 ments for each applicant for certification and the business history of the
23 applicant to determine:
24 (1) that at the time of application, the applicant owns cash, market-
25 able securities and other liquid assets valued at no less than $500,000, or
26 that the applicant is designated as an innovation and commercialization
27 corporation or an affiliate of an innovation and commercialization cor-
28 poration created under the Kansas technology enterprise corporation in-
29 novation and commercialization corporation program;
30 (2) that the officers and the board of directors, general partners, trus-
31 tees, managing members, or managers, as the case may be, are thoroughly
32 acquainted with the requirements of this act and acknowledge such by a
33 signed certification.
34 (b) To continue to be certified, the capco must own and shall peri-
35 odically provide information to the commissioner as the commissioner
36 may require in order for the commissioner to determine that the liquid
37 asset base for the certified capital company is at least $500,000 at all times
38 during the capco's participation in the program authorized by this act or
39 that such moneys have been used for making qualified venture capital
41 (c) No entity which submits an application to be designated as a capco
42 shall be certified by the commissioner if any of its directors, trustees,
43 managers, officers, general partners, beneficial owners of 10% or more
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1 of any class of its equity securities, or any promoters employed or oth-
2 erwise associated with it at the time of such application:
3 (1) Has been affiliated with any company that has filed a registration
4 statement which is subject to a currently effective stop order entered
5 pursuant to any state law;
6 (2) has been convicted of any felony or misdemeanor in connection
7 with the purchase or sale of any security or any felony involving fraud or
8 deceit including, but not limited to, forgery, embezzlement, obtaining
9 money under false pretenses, larceny or conspiracy to defraud;
10 (3) is currently subject to any state administrative order or judgment
11 entered by a state securities administrator or is subject to any state ad-
12 ministrative order or judgment in which fraud or deceit was found and
13 an order or judgment was entered;
14 (4) is currently subject to any state administrative order or judgment
15 which prohibits the use of any exemption from registration in connection
16 with the purchase or sale of securities;
17 (5) is subject to any order, judgment or decree of any court of com-
18 petent jurisdiction temporarily or preliminarily restraining or enjoining,
19 or is subject to any order, judgment or decree of any court of competent
20 jurisdiction permanently restraining or enjoining that person from engag-
21 ing in or continuing any conduct or practice in connection with the pur-
22 chase or sale of any security, rendering investment advice, or involving
23 the making or any false filing with any state;
24 (6) has been convicted of or plead nolo contendere to any criminal
25 offense other than a misdemeanor involving motor vehicle violations.
26 (d) The commissioner shall further review documentation regarding
27 the qualifications of the persons who will actively manage the capco and
28 make a determination as to whether such persons possessed sufficient
29 knowledge and professional experience in the areas of investment, ven-
30 ture capital, business management and evaluation, portfolio management,
31 and such other area of expertise to the degree that a reasonable person
32 would be confident in such manager's ability to manage the capco. No
33 certification shall be issued when it is the opinion of the commissioner
34 that such persons do not possess this requisite degree of knowledge and
36 (e) No investor shall individually, or collectively with or through one
37 or more affiliates, by means of ownership, agreement or otherwise, own,
38 control, or possess the power or ability to cause or direct the making of
39 any qualified venture capital investments by a capco.
40 (f) Within 75 days of application, the commission shall either issue
41 the certification and notify the secretary of the department of revenue of
42 such certification or shall refuse the certification and communicate in
43 detail to the applicant the grounds for the refusal, including any sugges-
SB 315 7
1 tions for the removal of those grounds.
2 New Sec. 4. (a) A capco shall have a period of 365 days from the
3 date of receiving certification from the commissioner in which to procure
4 the amount of certified capital investment required by subsection (b). All
5 certified capital investments in the capco shall be received within such
6 three-hundred-sixty-five-day funding period, notwithstanding the provi-
7 sions of subsection (c).
8 (b) Before closing its fund of certified capital investment, and pur-
9 suant to subsection (a) of section 3, and amendments thereto, a capco
10 shall raise a minimum aggregate certified capital investment of no less
11 than $5,000,000. In the case of a capco designated as an innovation and
12 commercialization corporation or an affiliate of an innovation and com-
13 mercialization corporation created under the KTEC innovation and com-
14 mercialization corporation program, such minimum certified capital in-
15 vestment shall be no less than $1,000,000. No tax credits shall be issued
16 by the commissioner until such time when these minimum cumulative
17 investments are met. Failure of a capco to raise the minimum cumulative
18 investments may result in the revocation of the certification by the
20 (c) Once fully capitalized pursuant to the provisions of subsection (b),
21 a capco may make application to the commissioner for authorization to
22 seek additional certified capital investment.
23 New Sec. 5. (a) To continue to be certified, a capco shall make qual-
24 ified venture capital investments according to the following schedule:
25 (1) Within three years after the date on which a capco is certified as
26 a capco at least 25% of its certified capital shall be, or have been, used
27 for making qualified venture capital investments;
28 (2) within four years after the date on which a capco is certified as a
29 capco at least 40% of its certified capital shall be, or have been, used for
30 making qualified venture capital investments;
31 (3) within five years after the date on which a capco is certified as a
32 capco at least 50% of its total certified capital shall be, or have been, used
33 for making qualified venture capital investments;
34 (4) within seven years after the date on which a capco is certified as
35 a capco at least 70% of its total certified capital shall be, or have been,
36 used for making qualified venture capital investments.
37 (5) A capco shall not make an investment in an affiliate of the capco
38 or an affiliate of an investor. For the purposes of this subsection, if a legal
39 entity is not an affiliate before a capco initially invests in the entity, it
40 shall not be deemed to be an affiliate if such capco provides additional
41 qualified venture capital investment to such entity subsequent to its initial
42 investment. No corporate officer, employee or shareholder, no limited or
43 general partner or other person personally affiliated with any capco shall
SB 315 8
1 personally invest in any portfolio company regardless of whether the port-
2 folio company is affiliated with the capco.
3 (6) A capco, at least 15 working days prior to making what it deter-
4 mines to be any initial qualified venture capital investment, shall first
5 certify to the commissioner that the company in which it proposes to
6 invest meets the definition of a qualified Kansas business pursuant to
7 paragraph (15) of subsection (a) of section 1, and amendments thereto.
8 The capco shall state the amount of capital it intends to invest and identify
9 the business in which it intends to make the investment. The capco shall
10 also provide to the commissioner a written explanation of the basis for its
11 determination that the business meets the definition of a qualified Kansas
12 business, if the commissioner determines that the business does not meet
13 the definition of a qualified Kansas business, the commissioner shall,
14 within the fifteen-working-day period prior to the making of the proposed
15 investment, notify the capco of the determination and provide the capco
16 an explanation thereof. If the commissioner fails to notify the capco of
17 his or her determination within the 15 working day period prescribed
18 herein, the business in which the capco proposes to invest shall be
19 deemed to be a qualified Kansas business. If a capco fails to notify the
20 commissioner prior to making an initial investment in a business, the
21 business in which the capco invested shall be deemed not to be a qualified
22 Kansas business even though the business, at the time of the investment,
23 met the requirements of paragraph (o) of subsection (a) of section 1, and
24 amendments thereto;
25 (7) All certified capital which is not then required to be invested in
26 qualified venture capital investments or which has been previously in-
27 vested in qualified venture capital investments and returned by the com-
28 pany, may be held or invested in such manner as the capco, in its discre-
29 tion, deems appropriate. The proceeds of all certified capital which is
30 returned by a capco after it was originally invested in qualified venture
31 capital investments, may be invested in other qualified venture capital
32 investments and shall be credited toward any requirement in this act with
33 respect to placing certified capital in qualified venture capital
35 (b) A capco may make qualified distributions at any time. In order to
36 lawfully make liquidating distributions, a capco must have invested an
37 aggregate amount equal to 100% of its certified capital in qualified ven-
38 ture capital investments.
39 (c) Cumulative liquidating distributions to equity holders in excess of
40 the certified capital company's original certified capital and any additional
41 capital contributions to the certified capital company shall be subject to
42 audit by a nationally recognized, certified public accounting firm accept-
43 able to the commissioner, at the expense of the certified capital company.
SB 315 9
1 The audit shall determine whether aggregate cumulative liquidating dis-
2 tributions to all investors and equity holders, when combined with all tax
3 credits utilized by investors pursuant to this act, have resulted in an annual
4 internal rate of return of 15% computed on the sum of total original
5 certified capital of the certified capital company and any additional capital
6 contributions to the certified capital company.
7 (d) If at any time of any such distribution made by the capco which
8 has achieved the annual internal rate of return specified under subsection
9 (c) such distribution taken together with all other such distributions made
10 by the certified capital company, other than qualified distributions, ex-
11 ceeds in the aggregate the sum of the certified capital company's original
12 certified capital and any additional capital contributions to the certified
13 capital company, as determined by the audit, the certified capital com-
14 pany shall, prior to any additional distributions, pay to the Kansas state
15 treasurer's office 25% of the proportion of such distribution in excess of
16 such amount.
17 (e) Documents and other materials submitted by Kansas certified
18 capital companies or by businesses for purposes of original certification
19 or the continuance of certification shall not be public records if it is de-
20 termined by the commissioner that disclosure of such information would
21 compromise trade secrets of qualified Kansas businesses or the privacy
22 rights of any investor and shall be maintained in a secured environment
23 by the commissioner.
24 (f) Each capco shall report the following to the commission:
25 (1) As soon as practicable, but in any case no later than 15 days, after
26 the receipt of a certified capital investment, the name of each investor
27 from whom the certified capital investment was received, the amount of
28 each investor's certified capital investment, and the date when the cer-
29 tified capital investment was received;
30 (2) Each capco shall provide to the commissioner, annual audited
31 financial statements to the commission within 90 days of the close of the
32 fiscal year. The audit shall address the methods of operation and conduct
33 of business of the capco to determine if the capco is complying with the
34 statutes and program rules and that the funds received by the capco have
35 been invested in accordance with the time limits provided by this act.
36 (3) At the end of each quarter, that no more than 20% of the assets
37 of a capco shall be invested in a single qualified Kansas business at any
38 one time unless the capco can demonstrate that a greater percentage in
39 a single qualified Kansas business at any one time is the result of losses
40 suffered by the capco in other qualified venture capital investments.
41 New Sec. 6. To ensure that no qualified venture capital investment
42 or investor's certified capital investment has been made in violation of
43 this act, the commissioner shall conduct an annual review of each capco
SB 315 10
1 to determine if the capco is complying with the requirements of certifi-
2 cation, and shall advise the capco as to the status of its investments as
3 qualified venture capital investments. The costs of the annual review shall
4 be paid by each capco according to a reasonable fee schedule adopted by
5 the commission.
6 (b) Any material violation of this act shall be grounds for decertifi-
7 cation under this section. If the commission determines that a company
8 is not in compliance with any requirements for continuing in certification,
9 it shall, by written notice, inform the officers of the company and the
10 board of directors, managers, trustees or general partners that they may
11 be decertified within 120 days from the date of mailing of the notice,
12 unless they correct the deficiencies detailed in the notice and demon-
13 strate to the commissioner's satisfaction that the capco is again in com-
14 pliance with the requirements for certification as determined by the
16 (c) At the end of the one-hundred-twenty-day grace period, if the
17 capco is still not in compliance, the commission may then send a notice
18 of decertification to the capco and to the secretary of department of
19 revenue. Decertification of a capco prior to the capco meeting all require-
20 ments of paragraph (1) through (3) of subsection (a) of section 5, and
21 amendments thereto, shall cause the recapture of all tax credits previously
22 claimed by an investor and the forfeiture of all future tax credits to oth-
23 erwise be claimed by an investor with respect to his or her certified capital
24 investment in the capco. Decertification of a capco after it has met all
25 requirements of paragraphs (1) to (3) of subsection (a) of section 5, and
26 amendments thereto, shall cause the forfeiture of tax credits commencing
27 with the taxable year of the investor in which the decertification arose
28 and for all future taxable years with no recapture of tax credits obtained
29 by an investor with respect to the investor's tax years which ended before
30 the decertification occurred. Once a capco has invested 100% of its cer-
31 tified capital in qualified Kansas businesses, all future tax credits to be
32 claimed by investors with respect to said capco pursuant to this act shall
33 be nonforfeitable.
34 New Sec. 7. The commissioner shall prepare and submit an annual
35 report to the governor and the legislature no later than October 1 of each
36 year. Such report shall be presented to the standing committee on com-
37 merce in the senate, standing committee on economic development in
38 the house of representatives, and the joint committee on economic de-
39 velopment. Such report shall include but not be limited to:
40 (1) The total dollar amount each capco received from all investors
41 receiving tax credits and any other investors and the identity of all inves-
42 tors receiving tax credits;
43 (2) the total amount invested by each capco in qualified Kansas busi-
SB 315 11
1 nesses, the identity and location of those businesses, the amount invested
2 in each qualified Kansas business, and the total number of permanent
3 full-time jobs created or retained by each qualified Kansas business as a
4 result of the investment.
5 (3) The cumulative amount of any liquidating disbursements received
6 by the state from the Kansas certified capital companies.
7 New Sec. 8. The commission may revoke the certification of a capco
8 if any material representation to the commission in connection with the
9 application process proves to have been falsely made or if the application
10 materially violates any requirement established by the commission pur-
11 suant to this act.
12 New Sec. 9. (a) The tax credit established pursuant to this act may
13 be sold or transferred in accordance with rules and regulations adopted
14 by the commission. The commission, in cooperation with the secretary of
15 the department of revenue, shall develop such rules and regulations to
16 facilitate the operation of the program consistent with the interest of the
17 state in tracking the transfer of ownership and the use of tax credits
18 earned by the holder in due course.
19 (b) Any such sale or transfer shall not affect the time schedule for
20 taking the tax credit, as provided in this act. Any tax credits recaptured
21 pursuant to section 6 shall be the liability of the taxpayer which actually
22 claimed the tax credit. In approving the sale or transfer of the tax credit
23 pursuant to this section, the commission may require the transferor or
24 the transferee or both the transferor and the transferee to execute guar-
25 antees or post bonds with respect to any potential tax credit recapture.
26 (c) Any payment received for tax credits is taxable income of the
27 transferor of the credit and any difference between the transfer price and
28 the sale price of the tax credit shall be taxable income of the transferee.
29 (d) The commission shall make and promulgate rules and regulations
30 consistent with the provisions of this act as are necessary or useful to
31 carryout the provisions of this act which are necessary to implement the
33 (e) Every final order, decision, license or other official act of the com-
34 missioner pursuant to this act is subject to administrative review in ac-
35 cordance with the Kansas administrative procedure act.
36 (f) In view of the objectives of these requirements and the underlying
37 policies of the act, the act is not available with respect to any transaction
38 or series of transactions that, although in technical compliance with these
39 rules, is part of a plan or scheme to evade the requirements of this act or
40 to distort the benefits entitled to be realized under the act. In such cases,
41 no investor in any capco shall be entitled to the benefit of any tax credits
42 provided for hereunder.
43 Sec. 10. K.S.A. 1998 Supp. 17-1262 is hereby amended to read as
SB 315 12
1 follows: 17-1262. Except as expressly provided in this section, the follow-
2 ing transactions shall be exempt from the registration requirements of
3 K.S.A. 17-1254, 17-1255, 17-1257, 17-1258, 17-1259 and 17-1260, and
4 amendments thereto:
5 (a) Any isolated transaction, whether effected through a broker-
6 dealer or not.
7 (b) Any nonissuer distribution by or through a registered broker-
8 dealer of outstanding securities at a price reasonably related to the current
9 market price of such securities, if Moody's manual, Standard & Poor's
10 manual, or any recognized securities manual approved by the commis-
11 sioner, contains the names of the issuer's officers and directors, a balance
12 sheet of the issuer as of a date within 18 months, and a profit and loss
13 statement for either the fiscal year preceding that date or the most recent
14 year of operations. If the commissioner finds that the sale of certain se-
15 curities in this state under this exemption would work or tend to work a
16 fraud on purchasers thereof, the commissioner may revoke the exemption
17 provided by this subsection with respect to such securities by issuing an
18 order to that effect and sending copies of such order to all registered
20 (c) Any nonissuer transaction by a registered broker-dealer pursuant
21 to an unsolicited order or offer to buy. The commissioner may require,
22 by rules and regulations, that: (1) The customer acknowledge upon a
23 specified form that the sale was unsolicited; and (2) a signed copy of each
24 such form be preserved by the broker-dealer for a specified period.
25 (d) Any transactions in a bond or other evidence of indebtedness
26 secured by a real or chattel mortgage or deed of trust, or by an agreement
27 for the sale of real estate or chattels, if the entire mortgage, deed of trust
28 or agreement, together with all the bonds or other evidences of indebt-
29 edness secured thereby, is offered and sold as a unit.
30 (e) Any transaction by an executor, administrator, sheriff, marshal,
31 receiver, trustee in bankruptcy, guardian or conservator; any transaction
32 executed by a bona fide pledgee without any purpose of evading this act
33 or any transaction incident to a judicially approved reorganization in
34 which a security is issued in exchange for one or more outstanding se-
35 curities, claims or property interests.
36 (f) Any offer or sale to a bank, savings institution, trust company,
37 insurance company, investment company as defined in the investment
38 company act of 1940, pension or profit-sharing trust or other financial
39 institution or institutional buyer or to a broker-dealer or underwriter.
40 (g) Any offer or sale of a preorganization certificate or subscription
41 if: (1) No commission or other remuneration is paid or given directly or
42 indirectly for soliciting any prospective subscriber and no advertising has
43 been published in connection with any such sale; (2) no payment is made
SB 315 13
1 by any subscriber; and (3) such certificate or subscription is expressly
2 voidable by the subscriber until such subscriber has been notified of final
3 acceptance or completion of the organization and until the securities sub-
4 scribed for have been registered. The commissioner may require, by rules
5 and regulations or by order, reports of sales under this exemption.
6 (h) Any transaction pursuant to an offer to existing security holders
7 of the issuer, including persons who at the time of the transaction are
8 holders of convertible securities, nontransferable warrants or transferable
9 warrants exercisable within 90 days of their issuance, if: (1) No commis-
10 sion or other remuneration (other than a standby commission) is paid or
11 given directly or indirectly for soliciting any security holder in this state;
12 or (2) the issuer first files a notice specifying the terms of the offer and
13 the commissioner does not by order disallow the exemption within the
14 next five full business days.
15 (i) Any offer (but not a sale) of a security if: (1) Registration state-
16 ments for such security have been filed under both this act and the se-
17 curities act of 1933 if no stop order or refusal order is in effect and no
18 public proceeding or examination looking toward such an order is pending
19 under either act; or (2) a registration statement for such security has been
20 filed under K.S.A. 17-1256 or 17-1258, and amendments thereto, no stop
21 order or emergency order issued pursuant to K.S.A. 17-1260, and amend-
22 ments thereto, is in effect and the offer is made on behalf of the issuer
23 by a registered broker-dealer.
24 (j) The issuance of any stock dividend, whether the corporation dis-
25 tributing the dividend is the issuer of the stock or not, if nothing of value
26 is given by stockholders for the distribution other than the surrender of
27 a right to a cash dividend where the stockholder can elect to take a div-
28 idend in cash or stock.
29 (k) A transaction involving the distribution of the securities of an is-
30 suer to the security holders of another person in connection with a
31 merger, consolidation, exchange of securities, sale of assets or other re-
32 organizations to which the issuer, or its parent or subsidiary, and the other
33 person, or its parent or subsidiary, are parties, if:
34 (1) The securities to be distributed are registered under the securities
35 act of 1933 before the consummation of the transaction; or
36 (2) the securities to be distributed are not required to be registered
37 under the securities act of 1933, written notice of the transaction and a
38 copy of the materials, if any, by which approval of the transaction will be
39 solicited is given to the commissioner at least 10 days before the consum-
40 mation of the transaction and the commissioner does not disallow, by
41 order, the exemption within the next 10 days.
42 (l) The offer or sale of securities by an issuer that is a corporation,
43 limited partnership or limited liability company formed under the laws
SB 315 14
1 of the state of Kansas, if: (1) The aggregate number of sales by the issuer
2 in the twelve-month period ending on the date of the sale does not exceed
3 20 sales; (2) the seller believes that the purchaser is purchasing for in-
4 vestment; (3) no commission nor other remuneration is paid or given,
5 directly or indirectly, for soliciting the purchaser; and (4) neither the
6 issuer nor any person acting on its behalf shall offer or sell the securities
7 by any form of general solicitation or general advertising, including, but
8 not limited to, the following: (A) Any advertisement, article, notice or
9 other communication published in any newspaper, magazine or similar
10 media or broadcast over television or radio or (B) any seminar or meeting
11 whose attendees have been invited by any general solicitation or general
13 In calculating the number of sales in a twelve-month period, sales made
14 in violation of K.S.A. 17-1255, and amendments thereto, and sales exempt
15 from registration under subsection (a) or (l) shall be taken into account.
16 For purposes of the exemption in this subsection, a husband and wife
17 shall be considered as one purchaser. A corporation, partnership, asso-
18 ciation, joint-stock company, trust or other unincorporated organization
19 shall be considered as one purchaser unless it was organized for the pur-
20 pose of acquiring the purchased securities. In such case each beneficial
21 owner of equity interest or equity securities in the entity shall be consid-
22 ered a separate purchaser. The commissioner may withdraw this exemp-
23 tion or impose conditions upon its use.
24 (m) Any transaction pursuant to rules and regulations adopted by the
25 commissioner for limited offerings which was adopted for the purpose of
26 furthering the objectives of compatibility with federal exemptions and
27 uniformity among the states.
28 (n) Any transaction pursuant to rules and regulations adopted by the
29 commissioner concerning the offer or sale of an oil, gas or mining lease,
30 fee or title if the commissioner finds that registration is not necessary or
31 appropriate for the protection of investors.
32 (o) Any offer or sale by an investment company, as defined by K.S.A.
33 16-630, and amendments thereto, of its investment certificates.
34 (p) The offer or sale of a security, issued by Kansas Venture Capital,
35 Inc., or its successors.
36 (q) The offer or sale of a security issued by capco as defined in section
37 1, and amendments thereto.
38 Sec. 11. K.S.A. 1998 Supp. 17-1262 is hereby repealed.
39 Sec. 12. This act shall take effect and be in force from and after its
40 publication in the statute book.