Investments to Company or Institutions

Issue No. 2

June 20, 2008

Policy

The Kansas Bioscience Authority (KBA) is dedicated to integrity and strives to do business in an entrepreneur-friendly manner. As an independent, publicly-funded entity, our investment process must be fully transparent for our investments and stakeholders.

The KBA's investment process was developed based on an analysis of best practices from across the economic development and investment communities, particularly as they related to the funding of bioscience research and commercialization activities. After studying programs of similar organizations and professional venture investors, and combining the best elements of each, KBA's process was specifically tailored to its planned activities and enables future reference, benchmarking and review.

Investment Process

The KBA has a rigorous, yet efficient, investment process designed to make sound investment decisions and manage our portfolio. The KBA follows a seven-stage process in evaluating potential investment opportunities, with go/no-go decision points at the end of each phase. All investments made by the KBA will follow this process.

Program Guidelines and Application Submission: Each program managed by the KBA has its own unique program guidelines and application materials, but the review process defined below is the same regardless of statutory program.

Application Assessment: Initial assessment of all application submissions is by a KBA staff member applying program guidelines, eligibility and investment criteria and is based on a review of written submissions provided by the entity seeking investment (e.g., academic research institution, startup, mature company) . We reject many opportunities at this assessment stage with an email or telephone call. We aim to qualify submissions quickly before either party allocates and uses significant resources. Each rejected investment submission has the opportunity to request a debriefing session with a KBA staff member and is given the opportunity to reapply with a modified submission.

Scientific and Financial Due Diligence: All eligible applications are subjected to extensive scientific and financial due diligence, among other evaluation criteria required by the program's guidelines. KBA staff members will conduct due diligence on most investment opportunities but may also choose to contract with outside parties to provide additional capability in unique circumstances.

If, after scientific and financial due diligence, the KBA staff concludes the opportunity to be potentially suitable for investment, an initial project approval is prepared for presentation to the KBA investment committee, a standing committee of the KBA board of directors.

Initial Project Approval (IPA): During the investment committee IPA meeting, the nature of each opportunity is discussed along with due diligence findings and recommendations provided by KBA staff members or outside contractors and a consensus view determines whether to recommend the investment to the full board of directors for financing.

Executive Committee/Full Board of Directors Approval: Final investment approval is based on a review of the investment proposal by the executive committee and/or board of directors of the KBA. The KBA executive committee and/or board of directors has the right to change terms, funding levels and other financing parameters.

Investment Documentation: After each investment is approved by the KBA executive committee or board of directors, KBA staff members will complete legal documentation.

Monitoring and Reporting: All KBA investments will be closely monitored by the authority's staff. This includes reporting required of all investments on project success and progress against milestones and objectives. These reports should provide a clear statement of work including objectives, tasks, milestones and economic development outcomes. Monitoring is also intended to enable the KBA to provide on-going assistance to its investments.

Compliance

To ensure rigorous and consistent evaluation of all investment proposals and the transparency of the KBA investment process, all investments considered by the KBA should follow the investment process.

Investment Committee

The investment committee is a standing committee of the board chartered to evaluate potential investment opportunities. All prospective investments will be presented for consideration by the investment committee under the investment process described above, prior to consideration by the executive committee or board of directors.

The investment committee shall, at the call of its chair or the CEO, consider potential investments that have been reviewed and evaluated by the KBA staff and/or external evaluators. All materials regarding a potential investment shall be transmitted to the committee at least 48 hours prior to the meeting. Investments approved by the committee shall be documented in the form of a clear resolution outlining the terms of the potential investment.

The chief financial officer will then communicate to the full board a brief summary of all investments approved by the investment committee within one week following the investment committee meeting.

Confidentiality

The KBA has developed and approved a conflict of interest and documentation policy that restricts disclosure by directors and officers and prohibits personal use of information gathered through their official capacities with the authority.

External reviewers will be asked to comply with this policy and sign confidentiality agreements.

Post-Award Reporting Requirements

A report on milestones will be required before each payment is made, in addition to a final report on project success and progress against milestones and objectives. The reports should provide a clear statement of work, including objectives, tasks, and expected outcomes. Reports will be required for all parties to an agreement with the KBA, including academic research institutions and private companies partnering with lead companies.

Company Impact Metrics: The company's chief financial officer (or equivalent) is responsible for reporting on the economic impact created by grant project activities. The KBA expects reporting on economic impacts including:

• Full-time jobs created or jobs retained and total associated wages
• Part-time jobs created or retained and total associated wages
• Increased revenues
• Number of strategic partners
• Number of patents applied for and granted
• Federal funds acquired (e.g., Small Business Innovation Research [SBIR] or Small Business Technology Transfer [STTR] funds)
• Capital expenditures (purchases of new equipment or construction/ rehabilitation of facilities at the company)
• New start-up companies created
• Number of commercial products or services (e.g. Trademark)
• Third party funding
  • Venture capital
  • Other investments (e.g. strategic partners)

Partner Impact Metrics: Reporting from partner institution must include:

• Grants acquired for activities conducted under the proposal
• Income generated by commercializing a product identified in the proposal
• Invention disclosures, licenses, patent applications, and patents awarded for technologies developed under this proposal

Economic Impact Monitoring: Annually for 10 years following the funded period, the award recipient will be required to report economic impacts resulting from the project.

Repayment Requirements

The business activities created or developed from the grant activities shall remain in operation within Kansas for a period of 10 years subsequent to the expiration of the grant funding period. In the event that the grantee relocates grant activities outside the state, the grant shall be terminated and repaid in its entirety.

Conflict of Interest

A key factor in establishing and protecting the KBA's reputation and credibility with our stakeholders is establishing total transparency and accountability. Central to this is a governance structure that includes a conflict of interest policy that is strictly adhered to by all KBA staff members and directors.

The KBA board of directors approved a conflict of interest and documentation policy at its January 2007 meeting. Additionally, to conform to our statute and best practices, the KBA has extended its conflict of interest and documentation policy to the review, consideration, documentation and monitoring of investments. Furthermore, the KBA’s statute requires that the authority’s board of directors be notified of any conflicts and that those conflicts be recorded in the minutes of a regular board of directors meeting.

Under no circumstances does the KBA solicit or accept donations in return for KBA funds.