Call to Order: A quorum being present the Board of Directors meeting was called to order at 7:33 a.m. by Chairwoman Sandra Lawrence in Manhattan, Kansas. Directors participating were John Carlin, Dave Franz, Dan Glickman via teleconference, Angela Kreps, Ed McKechnie, Bill Sanford, Ray Smilor and Jon Wefald. Others attending were Tom Thornton, Jan Katterhenry, Jim Mitchell, Chuck Willis, Bret Healy, Gary Micheel and Marsh LoScalzo all of KBA. Doug Anning was present from Polsinelli.

Review of the July 15, 2008 Annual Meeting Minutes: Ms. Lawrence asked for a motion to approve the July 15th minutes. Dr. Smilor made a motion to adopt the minutes, Mr. McKechnie seconded. The motion passed unanimously.

President’s Report: Mr. Thornton reported that the FY 2009 Annual Operating Plan (AOP) was considered by the board at the annual meeting on August 15th and it was approved. He reviewed the progress to date and provided a synopsis of each focus area for third quarter 2008.

Dr. Smilor noted that he appreciated Mr. Thornton going through the AOP in this detailed fashion.

Kansas Bioscience Park Update: Mr. Thornton introduced Gary Micheel who gave an update on the Benefit District and the KBA building. There are three Benefit District contracts: road and sewer, landscaping and the water line. They are within the approved $7.9 million Benefit District budget. Mr. Micheel reported that we are on schedule to complete the park infrastructure by October 2010. PGAV was selected as the architect for the building. It will be a 35,000 square foot facility at the Kansas Bioscience Park in Olathe. We are aiming for a LEED Silver Rating for sustainability. The cost range is approximately $12-14 million for the building; the project cost range is $17-19M for building, fees and furnishings.

Heartland BioVentures Presentation: Mr. Thornton updated the board on the activities of the Heartland BioVentures (HBV). He reported that the executive committee agreed with the recommendation to create an advisory board which will assist in the development of a comprehensive plan to promote the commercialization of bioscience innovations in Kansas. Mr. Sanford would chair the advisors.

Heartland BioVentures recommended that Chairwoman Lawrence approve Mr. Sanford as chair and appoint these individuals to the advisory board: John L. Brooks, (president and managing director Medical Capital Group); Tim Ceserak, (president, KochGenesis); Dr. Steven St. Peters, (managing director, MPM Capital) and Tom Wiggans, chairman and CEO, Peplin; board of overseers, the Hoover Institution at Stanford University; and trustee, University of Kansas Endowment Association.

Mr. Carlin made a motion to approve the appointments, Mr. Franz seconded the motion. The motion passed unanimously.

Dr. Mitchell gave an Operational Summary of the Heartland BioVentures plan. He discussed the purpose of the document, HBV’s mission, organization, program emphases and operational milestones as well as an outline for a short-term plan that will drive HBV’s core focus areas and budget for FY 2009. He noted that the plan would include strategies related to: Commercialization, Business Development, and Capital Formation.

Mr. Thornton presented a program which would allow for Heartland BioVentures to provide early stage “seed” financing to Heartland BioVentures clients. The KBA recommendation is to approve the POCI program; authorize Heartland Bioscience staff (Jim Mitchell) to develop and implement the program in conjunction with the HBV Advisory Board; allocate $1.5 million from previously committed funds available to Heartland BioVentures to implement the program.

Ms. Kreps made a motion to approve the POCI program and allocate the funds. Dr. Smilor seconded the motion. The motion passed unanimously.

Mr. Thornton gave an Executive Summary, presenting a request for qualifications (RFQ) for Venture Capital Fund Management Services. The RFQ would invite submissions from qualified and experienced firms in Kansas to provide venture capital fund management services to the KBA. The RFQ is made for the purpose of selecting qualified institutional venture capital fund manager(s) to invest and manage up to $50 million of capital committed by the KBA. Applicants must demonstrate that the principal operations of the fund would be in the State of Kansas.

The goals and objectives of this venture capital initiative are to:

• Generate superior, risk-adjusted returns for the capital being committed by the KBA;
• Increase the likelihood that high growth potential bioscience companies in Kansas access growth capital to gain full scale commercialization;
• Encourage the development and growth of a vibrant Kansas-based private equity community;
• Enhance the visibility of Kansas as a market for attractive venture capital opportunities;
• Facilitate public and private partnerships within the State.

The focal areas are the five sectors of bioscience investment in Kansas.

Mr. Thornton remarked that the action being sought from the board is to allow Heartland BioVentures to invest in the fund(s) selected under the RFQ, prioritizing investment in early-stage bioscience funds in Kansas.

Mr. Carlin made a motion for the board to authorize the President and CEO of KBA to complete and distribute the RFQ with the understanding that responses coming back will be reviewed by the HBV advisory board; and subsequent funding will be through the investment committee. Dr. Smilor seconded the motion. The motion passed unanimously.

Financials: Ms. Katterhenry introduced Armand Yambao and François Otieno from EnnisKnupp. Mr. Yambao gave an introduction and overview of the firm. They are one of the largest independent firms, founded in 1981. They are completely free of conflict of interests and 100% owned by 28 active employees. The company growth has been driven by private equity, now up to 100+ employees. Mr. Otieno gave an overview of recent events in money markets. The KBA portfolio is conservatively managed in order to preserve capital and maintain liquidity

Committee Reports:

Executive: Ms. Lawrence referred to the set of Minutes that were approved by the committee from the August 15, September 12, September 22 and September 29, 2008 meetings.

Investment: Dr. Smilor brought various investments to the board for approval.

He spoke of the process involved in evaluating the investments. Representatives of each of the groups requesting an investment is invited to the board meeting.

Colwich-based ICM will receive $1 million for a collaborative bioenergy research project to bring cellulosic ethanol solutions to the marketplace using non-food sources such as switchgrass, corn fiber and sorghum. ICM will work with Edenspace Systems, Diamond Ag and Kansas Statue University following the U.S. Department of Energy’s recent selection of ICM as one of four small-scale biorefinery companies to lead biomass-to-ethanol research efforts using innovative conversion technologies. Dr. Smilor asked for a motion from the board to approve the investment, Mr. Carlin moved, Mr. Sanford seconded. The motion passed unanimously.

As part of the KBA’s development of a strategic plan to advance the state’s national bioenergy leadership, Kansas State University in Manhattan requested $300,000 to create a county-level inventory of biomass resources such as agricultural crop residues; grain and oilseed crops, and herbaceous energy crops. This data will highlight opportunities for the state as its bioenergy sector expands to help the country meet the National Renewable Fuels Standard, which federally mandates a significant increase in non-corn based biofuel use. Mr. Carlin made a motion to approve the committee’s recommendation, Mr. Sanford seconded, the motion passed unanimously.

The University of Kansas Cancer Center in Kansas City requested $750,000 and Via Christi Medical Center in Wichita requested $327,500 to support their respective research goals in drug development and biomaterials. The KU Cancer Center will hire three researchers, Nikki Cheng, PhD; Philippe Prochasson, PhD; and Fariba Behbod, PhD to support the work of center director Dr. Roy Jensen as KU seeks National Cancer Institute designation as a comprehensive cancer center. Via Christie’s funds will secure a research to work with KBA eminent scholar Dr. Paul Wooley as he studies the biocompatibility of composite implants leading to orthopedic surgery applications such as prosthetic joints. Mr. Carlin made a motion to accept the investment recommendation, Mr. McKechnie seconded the motion. The motion passed unanimously.

Prairie Village based, NOWA Technology requested $1.5 million to commercialize its patent-pending technology that chemically extracts marketable products such as fuel oil and mineral salts from municipal wastewater and eliminates the need to incinerate or landfill sludge. This proprietary process reduces wastewater treatment costs while providing significant environmental benefits. NOWA must demonstrate that they have matched $2.5MM in funding from other sources prior to KBA funding.

Dr. Smilor proposed that the board consider the proposal as presented in the board book. Mr. Sanford proposed that the staff consider a milestone approach where pro-rata payments could be made based on achievement of certain milestones. Mr. McKechnie moved, and Mr. Sanford seconded, a proposal that the staff continue to work with NOWA representatives to refine the proposal and to present that to a future investment committee meeting for approval. The motion passed unanimously.

Pinnacle Technology of Lawrence Pinnacle requested $375,000 for the commercialization of a wireless neurochemical biosensor for laboratory research that supports the pre-clinical development of new pharmaceuticals. The investment will partially match an $840,000 Phase II Small Business Innovation Research grant from the National Institutes of Health. Mr. Carlin made a motion to adopt the committee’s recommendation, Mr. Franz seconded and the motion passed unanimously.

Project Broadway an animal-health biotechnology company requested $300,000 for the commercialization of a new drug to treat a common equine disorder to move its headquarters to Kansas. The company is expected to hire seven employees upon relocation. The KBA investment committee recommended $300,000 to support the relocation of Project Broadway to Kansas based on the milestones. Mr. Carlin made a motion to accept the investment committee’s recommendation, Ms. Kreps seconded, the motion passed unanimously.

Wichita Center for Graduate Medical Education (WCGME) WCGME requested funding of $5.88 million for a research program that will lead to the creation of three new research centers. These centers are intended to improve health care delivery and patient outcomes; lead to new drugs, medical products and intellectual property; and serve as the basis for sustained accreditation of the 14 medical residency programs in Wichita. In September, the KBA executive committee approved up to $250,000 for the development of a long–range strategic plan by WCGME to assure continued research and commercialization activities and sustained, long-term funding. Mr. Carlin moved to accept the recommendation, Mr. McKechnie seconded, the motion passed unanimously.

BTIIP: Dr. Smilor reported that this program was developed to support the expansion of Kansas bioscience companies. During the development of the FY 2009 Annual Operating Plan, the Bioscience Tax Investment Incentive Program was reviewed, it was determined that the funds which would have been used to support this program would be used to support other programs, focused on future performance. There have been some recent applications to the program. Currently KBA is not funding this program and it has been removed from the website. Dr. Smilor asked if the board had any interest in renewing the program. The board determined to delay discussion on this topic until the January 2009 board meeting.

The investment committee report concluded at 11:55 a.m. Ms. Lawrence stated that the board would adjourn and go to the Stakeholders Luncheon; however the board meeting would reconvene at 1:30 p.m. to cover some additional agenda items.

At 1:30 p.m. Ms. Lawrence called the meeting to order.

Audit Committee: Ms. Kreps gave an overview of the Audit. She addressed the Independent Auditors Report utilizing the Government Auditing Standards. In the opinion of the AGH the financial statements presented fairly, in all material respects, the financial position of the KBA as of June 30, 2008 and 2007 and conformed to the accounting principles. She referred to the Management Discussion and Analysis assessing the authority’s net assets growth to $84.8 million as of June 2008. She remarked that auditor’s opinion was an “unqualified opinion,” the highest standard the auditor could give.

Mr. Sanford made a motion to accept the Audit, Dr. Smilor seconded the motion and the motion passed unanimously.

Bioenergy Working Group: Bret Healy outlined a proposal for a Sorghum Action Plan. The action plan advocates for federal policy in three main fronts: The US Renewable Fuels Standard; the Advanced Biofuel sections in the Farm Bill and a potential new production tax credit for “other” advanced biofuels contained in the US Renewable Fuels Standard. Taken together, action in these three policy areas could positively advantage Kansas biofuels producers using grain sorghum as a feedstock by $75 million and up on an annual basis.

The potentially most valuable change is pursuit of the new production tax credit. The Congress is meeting in November. This opens up the first opportunity to pursue the tax credit.

Dr. Smilor made a motion to approve the proposal, Ms. Kreps seconded the motion and it passed unanimously.

Executive Session: Ms. Lawrence stated that there were items to be discussed that would qualify for the attorney-client privilege, and that also pertain to the financial condition and financial operations of the authority and how such financial information and records relate to the business and operational strategies of the Authority.

WHEREAS, the Board of Directors of the Kansas Bioscience Authority (the “Authority”) in this meeting of October 28, 2008 needs to review, consider, and discuss (i) financial and operational information and records related to the financial condition and financial operations of the Authority and how such financial information and records relate to the business and operational strategies of the Authority; (ii) operational information and records related to the marketing and operations of the Authority and how such information and records relate to the marketing, business, and operational strategies of the Authority; and (iii) matters with counsel for the Authority that would be subject to the attorney-client privilege; and

WHEREAS, pursuant to Kansas law, in particular the Kansas Bioscience Authority Act, as codified in K.S.A. §74-99b01 to §74-99b89 and elsewhere (the “Act”), the Authority may discuss and consider the following in executive session when, in the opinion of the Board, disclosure of such would be harmful to the competitive position of the Authority: (i) plans that could affect the value of property, real or personal, owned or desirable for ownership by the Authority; (ii) the condition, acquisition, use, or disposition of real or personal property, and (iii) contracts for bioscience research, bioscience product manufacturing or commercialization, construction and renovation of bioscience facilities, and marketing or operational strategies; and

WHEREAS, pursuant to the Act, records of the Authority shall not be subject to the provisions of the Kansas Open Records Act, when in the opinion of the Board, the disclosure of the information in the records would be harmful to the competitive position of the Authority, provided those records include, but are not limited to (i) proprietary information gathered by or in the possession of the Authority from third parties pursuant to a promise of confidentiality; (ii) contract cost estimates prepared for confidential use in awarding contracts for research development, construction, renovation, commercialization, or the purchase of goods or services; or (iii) data, records, or information of a proprietary nature produced or collected by or for the Authority, its employees, officers, or members of the board; financial statements not publicly available that may be filed with the Authority from third parties; the identity, accounts, or account status of any customer of the Authority; consulting or other reports paid for by the Authority to assist the Authority in connection with its strategic planning and goals; and the determination of marketing and operational strategies; and

WHEREAS, the Board believes that the disclosure of any such items and records would be harmful to the competitive position of the Authority; be it

RESOLVED, it is the opinion of the Board that the disclosure of such items would be harmful to the competitive position of the Authority, and therefore the Board declares that its review, consideration, and discussion of such financial and operational information and records at this Board meeting shall occur in executive session; and

FURTHER RESOLVED, it is the opinion of the Board that the disclosure of such records and information would be harmful to the competitive position of the Authority, and therefore, such records and information to be reviewed at this Board meeting shall not be subject to the provisions of the Kansas Open Records Act; and

FURTHER RESOLVED, that the Board of Directors shall meet in executive session for 20 minutes from l:40 p.m. until 2:00 p.m. on Tuesday, October 28, 2008 unless the Board of Directors earlier concludes its review, consideration, and discussion prior to 2:00 p.m., in which event, the executive session shall adjourn at such earlier time; and

FURTHER RESOLVED, that the following persons shall remain and participate in the executive session of the Board inasmuch as their involvement is important to the Board’s review, consideration, and discussion: Doug Anning, Esq.

Mr. McKechnie made a motion to recess into executive session, Dr. Smilor seconded the motion and it passed unanimously.

Return to Open Session

Upon a motion duly made and seconded, and unanimously approved, the board moved into open session at 1:54 p.m.

Appointment of Research Institution Leaders as Advisors to KBA Board. The board discussed appointing the Chancellor of KU, President of KSU and the President of WSU to serve as non-voting advisors to the KBA board on matters relating to bioscience research. These advisors would not serve on board committees and would be invited into executive sessions at the request of the chair based on the topic under consideration. Resolutions were drafted and the board reviewed them. Mr. Carlin made a motion to adopt the resolution to appoint the leaders of the three major Kansas research institutions (KU, KSU and WSU) to serve in a non-voting advisory capacity to the Board. Dr. Smilor seconded the motion, the motion passed unanimously.

Recognition of Service by Hemenway and Wefald. Upon a motion duly made and seconded, and passed unanimously by the board, the board officially thanked Drs. Hemenway and Wefald for their service on the board and authorized the Chair to provide suitable certificates of recognition and thanks for their years of devoted service to the board and to the KBA.

Adjournment: There being no further discussion or other business, Mr. McKechnie made a motion to adjourn, Dr. Smilor seconded the motion. The meeting adjourned at 2:00 p.m.