SENATE BILL No. 487

      An Act concerning Kansas Venture Capital, Inc.; providing a means for the redemption of
      the state's investment therein; amending K.S.A. 74-8203 and 74-8303 and K.S.A. 1997
      Supp. 74-8205, 74-8206, 74-8304, 74-8307 and 74-8401 and repealing the existing sec-
      tions.

Be it enacted by the Legislature of the State of Kansas:

    Section 1. K.S.A. 74-8203 is hereby amended to read as follows:
74-8203. The secretary of the department of commerce is authorized to
certify investment in nonvoting preferred stock of Kansas Venture Cap-
ital, Inc. in a total not to exceed $10,000,000 $5,000,000 by the pooled
money investment board as provided in K.S.A. 75-4205, and amendments
thereto, under the following terms and conditions:

    (a) When banks, savings and loan associations, individuals, corpora-
tions or other entities have invested $3,500,000 of private, equity capital
in voting common stock in Kansas Venture Capital, Inc., the pooled
money investment board shall match that amount in nonvoting preferred
stock. Subsequent investments by the pooled money investment board
shall occur quarterly and shall equal the amount of additional common
stock subscribed and called by Kansas Venture Capital, Inc. At no time
shall the investment in preferred stock exceed the amount of investment
in common stock, at no time shall the investment in preferred stock ex-
ceed $5,000,000 until subscriptions have been accepted for at least
$10,000,000 of common stock, and at no time shall the pooled money
investment board's aggregate investment exceed $10,000,000.

    (b) The nonvoting preferred stock invested in by the pooled money
investment board will receive the same rate of dividend and the same
rate of capital appreciation at the same time on the same terms as the
voting common stock invested in by banks, savings and loan associations,
individuals, corporations or other entities.

    (c) Every outstanding share representing the nonvoting preferred
stock is assured of being fully repaid to the pooled money investment
board before one share of the voting common stock is repaid to any bank,
savings and loan association, individual, corporation or other entity. In
the event that capital impairment compromises the ability of Kansas Ven-
ture Capital, Inc. to repay fully the nonvoting preferred stock, the pooled
money investment board shall have the power to convert its shares to
voting stock to protect its investment.

    (d) Investments in common stock of Kansas Venture Capital, Inc.
shall meet the terms and conditions of K.S.A. 74-8301 to 74-8311, inclu-
sive, and amendments thereto, enacting the Kansas venture capital com-
pany act.

    (e) The investments of voting common stock and nonvoting preferred
stock shall be invested in ways which do not compromise the integrity of
the small business association license approved under the small business
investment act on June 17, 1977.

    (f) Kansas Venture Capital, Inc. may invest in one or more Kansas
venture capital companies located in Kansas which meet the require-
ments of K.S.A. 74-8301 to 74-8311, inclusive, and amendments thereto.
Such investment shall not qualify for the tax credit allowed by K.S.A.
74-8304, and amendments thereto.

    (g) A total of 15 board members to oversee the operations of Kansas
Venture Capital, Inc. are elected by the voting common stock sharehold-
ers in accordance with the following terms and conditions:

    (1) Eight are representatives of Kansas financial institutions. The
eight shall represent a reasonable balance of relative proportion of in-
vestment in the common stock of Kansas Venture Capital, Inc. by Kansas
commercial banks, savings and loan associations, insurance companies,
and other appropriate financial intermediaries, and shall be recognized
for outstanding knowledge and leadership in their fields.

    (2) Two shall be venture capitalists or investment counselors familiar
with the types of investments in which Kansas Venture Capital, Inc. will
invest its funds, and shall be recognized for outstanding knowledge and
leadership in their fields.

    (3) Five shall represent the business sectors of special importance to
the Kansas economy in which Kansas Venture Capital, Inc. shall be ex-
pected to invest its funds, and shall be recognized for outstanding knowl-
edge and leadership in their fields.

    (h) The board has conducted a national search and has selected a
president for Kansas Venture Capital, Inc. who meets a national standard
of experience, ability and initiative for similar chief executive positions
for venture capital corporations investing high risk equity in firms which
meet the purpose of this act.

    (i) Funds invested by Kansas Venture Capital, Inc. shall be invested
at 100% in Kansas businesses or in Kansas venture capital companies
which invest 100% of the funds invested in such companies by Kansas
Venture Capital, Inc., in Kansas businesses in which the funds so invested
were to be used solely for the purpose of enhancing their productive
capacity within the state, or to add value to goods or services produced
or processed within the state.

    (j) The pooled money investment board shall enter into an agreement
with Kansas venture capital, inc., by which the board of Kansas venture
capital, inc. will redeem and the pooled money investment board will sell
the nonvoting preferred stock representing the board's investment in Kan-
sas venture capital, inc. pursuant to this section. The agreement shall
provide that the preferred stock shall be redeemed in exchange for total
consideration of $5,000,000. Such payment may be made in such install-
ments as the board of Kansas venture capital, inc. deems appropriate.
Kansas venture capital, inc. shall make an initial minimum payment of
$1,000,000 payable on or before July 31, 1998. Kansas venture capital,
inc. shall continue to make minimum payments of $1,000,000, or with
respect to the final payment, such lesser amount as will permit full re-
demption of the stock on or before July 31st of each successive year until
the entire amount of the stock is redeemed. The agreement shall further
provide that the payment obligation of Kansas venture capital, inc. shall
be deferred as to any scheduled payment or portion thereof in the event
that the making of such payment would result in the corporation having
a book value of less than $10,000,000 or cause the corporation to be in
violation of the minimum capital requirements or other provisions of the
small business investment act of 1958, and amendments thereto, or the
rules and regulations thereunder. Any deferred payment, subject to the
deferral conditions contained herein, shall be payable on the next sched-
uled payment date, when such amount plus any scheduled payment shall
either be paid in full, further deferred to the next payment date or paid
in part to the extent that such deferred payment would not result in fur-
ther deferral of the combined payment. After each installment payment
is received, a percentage of the nonvoting preferred stock shall be re-
deemed proportionally to the percentage of the $5,000,000 payment to be
made by the corporation. All such redemption payments shall be made to
the pooled money investment board. The pooled money investment board
shall remit to the state treasurer all moneys received by or for it from
Kansas venture capital, inc. for the redemption of the nonvoting preferred
stock. Upon receipt of each such remittance, the state treasurer shall de-
posit the entire amount in the state treasury to the credit of the public
water supply loan fund.

    Sec. 2. K.S.A. 1997 Supp. 74-8205 is hereby amended to read as
follows: 74-8205. (a) Except as otherwise provided in K.S.A. 74-8207, and
amendments thereto, every national banking association, state bank, sav-
ings and loan association or insurance company investing in stock issued
by Kansas Venture Capital, Inc. shall be entitled to a credit in an amount
equal to 25% of the total amount of cash investment in such stock against
the tax liability imposed against such taxpayer pursuant to K.S.A. 79-1106
to 79-1116, inclusive, and amendments thereto or K.S.A. 40-252 or 40-
2801, and amendments thereto, as the case requires. The amount by
which that portion of the credit allowed by this section exceeds the tax-
payer's tax liability in any one taxable year may be carried forward until
the total amount of the credit is used.

    (b) The provisions of this section shall be applicable to investments
made in all taxable years commencing after December 31, 1985 1997,
and prior to January 1, 1998 until all allowed credits are exhausted.

    Sec. 3. K.S.A. 1997 Supp. 74-8206 is hereby amended to read as
follows: 74-8206. (a) Except as otherwise provided in K.S.A. 74-8207, and
amendments thereto, every taxpayer investing in stock issued by Kansas
Venture Capital, Inc. shall be entitled to a credit in an amount equal to
25% of the total amount of cash investment in such stock against the
income tax liability imposed against such taxpayer pursuant to article 32
of chapter 79 of the Kansas Statutes Annotated. The amount by which
that portion of the credit allowed by this section exceeds the taxpayer's
tax liability in any one taxable year may be carried forward until the total
amount of the credit is used. If the taxpayer is a corporation having an
election in effect under subchapter S of the federal internal revenue code
or a partnership, the credit provided by this section shall be claimed by
the shareholders of such corporation or the partners of such partnership
in the same manner as such shareholders or partners account for their
proportionate shares of the income or loss of the corporation or partner-
ship.

    (b) No taxpayer claiming a credit under this section for cash invest-
ment in stock issued by Kansas Venture Capital, Inc. shall be eligible to
claim a credit for the same investment under the provisions of K.S.A. 74-
8301 to 74-8311, inclusive, and amendments thereto.

    (c) The provisions of this section, and amendments thereto, shall be
applicable to all taxable years commencing after December 31, 1985
1997, and prior to January 1, 1998 until all allowed credits are exhausted.

    Sec. 4. K.S.A. 74-8303 is hereby amended to read as follows: 74-
8303. For the purposes of this act, the following terms shall have the
meanings provided herein, unless the context clearly indicates otherwise:

    (a) ``Department'' means the department of commerce;

    (b) ``equity'' means all forms of equity such as common stock, pre-
ferred stock with or without voting rights and without regard to seniority
of equity position, forms of subordinate or convertible debt, or both, with
warrants or other means of equity conversion attached, or any other
means of financing which meet generally accepted national standards for
venture capital investment in the United States;

    (c) ``Kansas business'' means any small business owned by an individ-
ual, any partnership, association or corporation domiciled in Kansas, or
any corporation, even if a wholly owned subsidiary of a foreign corpora-
tion, that does business primarily in Kansas or does substantially all of its
production in Kansas;

    (d) ``Kansas venture capital company'' means any for-profit partner-
ship, limited liability company or corporation that has as its primary busi-
ness activity the investment of funds in return for equity in ventures that
are in need of capital for expansion, new product development or similar
business purposes and that may be certified by the secretary as meeting
the criteria of this act and thus eligible for the tax credit provided in this
act;

    (e) ``secretary'' means the secretary of the department of commerce;

    (f) ``cash investment'' means money or its equivalent in consideration
for:

    (1) An equity interest, such as a general or limited partnership inter-
est, common or preferred stock with or without voting rights and without
regard to seniority position, forms of subordinate or convertible debt, or
both, with warrants or other means of equity conversion attached; or

    (2) a debt instrument, such as a note or debenture, which is unse-
cured, subordinated to the general creditors of the debtor, and requires
no payments of principal (other than principal payments required to be
made out of any future profits of such debtor) for at least a seven-year
period after commencement of its term.

    Sec. 5. K.S.A. 1997 Supp. 74-8304 is hereby amended to read as
follows: 74-8304. (a) There shall be allowed as a credit against the tax
imposed by the Kansas income tax act on the Kansas taxable income of a
taxpayer and against the tax imposed by K.S.A. 40-252 or 40-2801, and
amendments thereto, on insurance companies for a cash investment in a
certified Kansas venture capital company in an amount equal to 25% of
such taxpayer's cash investment in any such company in the taxable year
in which such investment is made and the taxable years following such
taxable year until the total amount of the credit is used. The amount by
which that portion of the credit allowed by this section exceeds the tax-
payer's liability in any one taxable year may be carried forward until the
total amount of the credit is used. If the taxpayer is a corporation having
an election in effect under subchapter S of the federal internal revenue
code or a partnership, the credit provided by this section shall be claimed
by the shareholders of such corporation or the partners of such partner-
ship in the same manner as such shareholders or partners account for
their proportionate shares of the income or loss of the corporation or
partnership.

    (b) The secretary of revenue shall allow credits that are attributable
to not more than $50,000,000 of cash investments in certified Kansas
venture capital companies and certified local seed capital pools allowable
pursuant to K.S.A. 74-8401 and amendments thereto, which shall include
not more than $10,000,000 for Kansas Venture Capital, Inc. The credits
shall be allocated by the secretary for cash investments in certified Kansas
venture capital companies in the order that completed applications for
designation as Kansas venture capital companies are received by the sec-
retary. Any certified Kansas venture capital company may apply to the
secretary at any time for additional allocation of such credit based upon
then committed cash investments, but priority as to such additional al-
location shall be determined at the time of such subsequent application.
Notwithstanding the provisions of subsection (c), investors in Kansas ven-
ture capital companies established after July 1, 1984, which otherwise
meet the requirements specified in this act, shall be, upon certification
of the Kansas venture capital company, entitled to the tax credit provided
in subsection (a) in the calendar year in which the investment was made.

    (c) No taxpayer shall claim a credit under this section for cash in-
vestment in Kansas Venture Capital, Inc. No Kansas venture capital com-
pany shall qualify for the tax credit allowed by Chapter 332 of the 1986
Session Laws of Kansas for investment in stock of Kansas Venture Capital,
Inc.

    (d) The provisions of this section, and amendments thereto, shall be
applicable to cash investments made in any taxable year commencing after
December 31, 1985, and prior to January 1, 1998.

    Sec. 6. K.S.A. 1997 Supp. 74-8307 is hereby amended to read as
follows: 74-8307. (a) To continue in certification, a Kansas venture capital
company must:

    (1) Invest at least 30% of its original capitalization at the end of the
initial three years in such a manner as to acquire equity in the ventures
in which the investments are made;

    (2) have invested at least 50% in the same manner at the end of five
years; and

    (3) have invested at least 75% in the same manner at the end of seven
years.

    (b) Invest at least 60% of the total investment of the Kansas venture
capital company, except for Kansas Venture Capital, Inc. must be in Kan-
sas businesses in which the funds so invested were to be used solely for
the purpose of enhancing their productive capacity within the state, or to
add value to goods or services produced or processed within the state.

    (c) Funds Until such time as Kansas Venture Capital, Inc. redeems
the nonvoting preferred stock representing the investment made by the
pooled money investment board pursuant to K.S.A. 74-8203, and amend-
ments thereto, funds invested by Kansas Venture Capital, Inc. shall be
invested at 100% in Kansas businesses or in Kansas venture capital com-
panies which invest 100% of the funds invested in such companies by
Kansas Venture Capital, Inc. in Kansas businesses in which the funds so
invested were to be used solely for the purpose of enhancing their pro-
ductive capacity within the state, or to add value to goods or services
produced or processed within the state. After such redemption by Kansas
Venture Capital, Inc., the requirements of this subsection shall expire.

    (d) No more than 20% of the assets of a Kansas venture capital com-
pany may be invested in the equity of a single business at any one time,
unless the Kansas venture capital company can reasonably demonstrate
that a greater percentage in a single company at any one time is the result
of losses suffered by the Kansas venture capital company in other invest-
ments.

    (e) The use of invested funds by a Kansas business for oil and gas
exploration and development, for real estate development or apprecia-
tion, for banking or lending operations, or service or retail are not ac-
ceptable investments to qualify for the tax credit provided in this act. Any
investments by Kansas venture capital companies in any of these sectors
shall not be counted as equity investments for the purpose of continuing
certification under this section.

    (f) For a service sector firm to be considered as an eligible investment
under the provisions of this act, the firm must fall within standard indus-
trial classification codes major service sector groups 70 through 89, and
must also demonstrate one of the following:

    (1) More than one-half of its gross revenues are a result of sales to
commercial or governmental customers outside the state of Kansas; or

    (2) more than one-half of its gross revenues are a result of sales to
Kansas manufacturing firms within major groups 20 through 39; or

    (3) more than one-half of its gross revenues are a result of a combi-
nation of sales described in (1) and (2).

    (g) Documents and other materials submitted by Kansas venture cap-
ital companies or by Kansas businesses for purposes of the continuance
and certification shall not be public records if such records are deter-
mined by the secretary to be trade or business secrets under the uniform
trade secrets act (K.S.A. 60-3320 to 60-3330, inclusive, and amendments
thereto) and shall be maintained in a secured environment by the sec-
retary.

    (h) At the time of an initial investment by a certified Kansas venture
capital company, no investors in that certified Kansas venture capital com-
pany shall own a majority equity interest in a business in which the ven-
ture capital company is investing.

    Sec. 7. K.S.A. 1997 Supp. 74-8401 is hereby amended to read as
follows: 74-8401. (a) There shall be allowed as a credit against the tax
imposed by the Kansas income tax act on the Kansas taxable income of a
taxpayer and against the tax imposed by K.S.A. 40-252 and amendments
thereto on insurance companies for cash investment in a certified local
seed capital pool an amount equal to 25% of such taxpayer's cash invest-
ment in any such pool in the taxable year in which such investment is
made and the taxable years following such taxable year until the total
amount of the credit is used. The amount by which that portion of the
credit allowed by this section exceeds the taxpayer's liability in any one
taxable year may be carried forward until the total amount of the credit
is used. If the taxpayer is a corporation having an election in effect under
subchapter S of the federal internal revenue code or a partnership, the
credit provided by this section shall be claimed by the shareholders of
such corporation or the partners of such partnership in the same manner
as such shareholders or partners account for their proportionate shares
of the income or loss of the corporation or partnership.

    (b) The total amount of credits allowable pursuant to this section and
credits allowable pursuant to K.S.A. 74-8205, 74-8206 and 74-8304, and
amendments thereto, shall be attributable to not more than $50,000,000
of cash investments in Kansas venture capital companies, Kansas Venture
Capital, Inc. and local seed capital pools. With respect to the additional
amount of cash investments made eligible for tax credits by this act,
$10,000,000 of such amount shall be dedicated and reserved until De-
cember 31, 1990, for cash investments in a seed capital fund or funds in
which the Kansas technology enterprise corporation, or its subsidiaries,
is an investor. The $50,000,000 amount of cash investments now eligible
for the tax credits allowed pursuant to this section and K.S.A. 74-8205,
74-8206 and 74-8304 and amendments thereto shall be reduced to the
extent that the total amount of cash investments received by such seed
capital fund or funds before January 1, 1991, is less than $10,000,000.
However, any such credits which were not claimed for investments made
prior to January 1, 1991, may be allowed to a taxpayer for cash investment
made in taxable years prior to January 1, 2000, in the technology-based
venture-capital company authorized pursuant to K.S.A. 74-8316 Kansas
Venture Capital, Inc. pursuant to K.S.A. 74-8205 and 74-8206, and
amendments thereto, not to exceed $2,595,236 of the $10,000,000 re-
served under this subsection reserved under this subsection for invest-
ment in seed capital funds in which the Kansas technology enterprise
corporation or its subsidiaries was an investor.

    (c) As used in this section, (1) ``local seed capital pool'' means money
invested in a fund established to provide funding for use by small busi-
nesses for any one or more of the following purposes: (A) Development
of a prototype product or process; (B) a marketing study to determine
the feasibility of a new product or process; or (C) a business plan for the
development and production of a new product or process;

    (2) ``Kansas business'' means any small business owned by an individ-
ual, any partnership, association or corporation domiciled in Kansas, or
any corporation, even if a wholly owned subsidiary of a foreign corpora-
tion, that does business primarily in Kansas or does substantially all of its
production in Kansas.

    (d) No credit from income tax liability shall be allowed for cash in-
vestment in a local seed capital pool unless: (1) The amount of private
cash investment therein is $200,000 or more; (2) the moneys necessary
to administer and operate the pool are funded from sources other than
the private and public cash investments; and (3) funds invested by the
local seed capital pool shall be invested at 100% in Kansas businesses.

    (e) Public funds may be invested in a local seed capital pool except
that each dollar of public funds, other than that which may be used to
administer and operate a pool, shall be matched by not less than $2 of
private cash investment. Public funds shall have a senior position to any
private cash investment and may receive a lower rate of return than that
allowable for a private cash investment.

    (f) The provisions of this section, and amendments thereto, shall be
applicable to all taxable years commencing after December 31, 1986.

    New Sec. 8. At such time as the board of Kansas Venture Capital,
Inc. redeems all of its nonvoting preferred stock as authorized pursuant
to K.S.A. 74-8203, and amendments thereto, the provisions of K.S.A. 74-
8203, 74-8204, 74-8207, 74-8208, 74-8209 and 74-8210 shall expire.

    Sec. 9. K.S.A. 74-8203 and 74-8303 and K.S.A. 1997 Supp. 74-8205,
74-8206, 74-8304, 74-8307 and 74-8401 are hereby repealed.

    Sec. 10. This act shall take effect and be in force from and after its
publication in the statute book.

I hereby certifiy that the above Bill originated in the
Senate, and passed that body

__________________________________

__________________________________

President of the Senate.

__________________________________

Secretary of the Senate.

Passed the House __________________________

__________________________________

Speaker of the House.

__________________________________

Chief Clerk of the House.

Approved__________________________________

__________________________________

Governor.