Session of 1998
HOUSE BILL No. 2588
By Joint Committee on Economic Development
12-17
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.
13
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
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2
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-
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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.
22