Minnesota Session Laws - 1997, Regular Session

                            CHAPTER 197-H.F.No. 379 
                  An act relating to commerce; regulating securities; 
                  authorizing small corporate offering registrations; 
                  proposing coding for new law in Minnesota Statutes, 
                  chapter 80A. 
        BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
           Section 1.  [80A.115] [SMALL CORPORATE OFFERING 
        REGISTRATION.] 
           Subdivision 1.  [FILING REQUIREMENTS.] A security meeting 
        the conditions set forth in this section may be registered by 
        filing a small corporate offering registration form otherwise 
        known as a form U-7 adopted by the North American Securities 
        Administrators Association as a uniform state securities 
        registration form. 
           Subd. 2.  [AVAILABILITY.] Registration under this section 
        is available only to the issuer of the securities and not to an 
        affiliate of that issuer or to any other person for resale of 
        the issuer's securities.  The issuer must be a corporation 
        organized under the laws of one of the states or possessions of 
        the United States.  Registration under this section is not 
        available to any of the following issuers: 
           (1) an issuer that engages in or proposes to engage in the 
        business of petroleum exploration or production or mining or 
        other extractive industries; 
           (2) an investment company, including a mutual fund; 
           (3) an issuer subject to the reporting requirements of 
        section 13 or 15(d) of the Securities Exchange Act of 1934; 
           (4) a direct participation program; 
           (5) a development stage company that either has no specific 
        business plan or purpose or has indicated that its business plan 
        is to engage in a merger or acquisition with an unidentified 
        company or companies or other entity or person; and 
           (6) an issuer seeking to register a debt offering unless 
        the commissioner finds that the issuer has demonstrated a 
        reasonable ability to service the debt. 
           Subd. 3.  [DISQUALIFICATION.] (a) An issuer is disqualified 
        from registration under this section if the issuer or any of its 
        officers, directors, ten-percent stockholders, promoters, or any 
        selling agents of the securities to be offered, or any officer, 
        director, or partner of the selling agent: 
           (1) has filed a registration statement that is the subject 
        of a currently effective registration stop order entered under a 
        federal or state securities law within five years before the 
        filing of the small corporate offering registration application; 
           (2) has been convicted within five years before the filing 
        of the small corporate offering registration application of a 
        felony or misdemeanor in connection with the offer, purchase, or 
        sale of a security or a felony involving fraud or deceit, 
        including, but not limited to, forgery, embezzlement, obtaining 
        money under false pretenses, larceny, or conspiracy to defraud; 
           (3) is currently subject to a state administrative 
        enforcement order or judgment entered by a state securities 
        administrator or the securities and exchange commission within 
        five years before the filing of the small corporate offering 
        registration application, or is subject to a federal or state 
        administrative enforcement order or judgment in which fraud or 
        deceit, including, but not limited to, making untrue statements 
        of material facts or omitting to state material facts, was found 
        and the order or judgment was entered within five years before 
        the filing of the small corporate offering registration 
        application; 
           (4) is currently subject to an order, judgment, or decree 
        of a court of competent jurisdiction temporarily restraining or 
        enjoining, or is subject to an order, judgment, or decree of a 
        court of competent jurisdiction, permanently restraining or 
        enjoining the party from engaging in or continuing any conduct 
        or practice in connection with the purchase or sale of any 
        security or involving the making of a false filing with a state 
        or with the securities and exchange commission entered within 
        five years before the filing of the small corporate offering 
        registration application; or 
           (5) is subject to a state's administrative enforcement 
        order, or judgment that prohibits, denies, or revokes the use of 
        an exemption for registration in connection with this offer, 
        purchase, or sale of securities. 
           Clauses (1) to (4) do not apply if the person subject to 
        the disqualification is duly licensed or registered to conduct 
        securities-related business in the state in which the 
        administrative order or judgment was entered against the person 
        or if the dealer employing the party is licensed or registered 
        in this state and the form BD filed in this state discloses the 
        order, conviction, judgment, or decree relating to the person.  
           (b) No person disqualified under this subdivision may act 
        in any capacity other than that for which the person is licensed 
        or registered.  A disqualification under this subdivision is 
        automatically waived if the state securities administrator or 
        federal agency that created the basis for disqualification 
        determines upon a showing of good cause that it is not necessary 
        under the circumstances to deny the registration. 
           Subd. 4.  [CONDITIONS.] In order to register under this 
        section, all of the following conditions must be satisfied: 
           (1) the offering price for common stock and the exercise 
        price, if the securities offered are options, warrants, or 
        rights for common stock, and the conversion price if the 
        securities are convertible into common stock must be equal to or 
        greater than $5 per share; and 
           (2) the aggregate offering price of the securities offered, 
        within or outside this state, may not exceed $1,000,000 less the 
        aggregate offering price of all securities sold within the 12 
        months before the start of and during the offering of the 
        securities under securities and exchange commission Rule 504 in 
        reliance on an exemption under section 3(b) of the Securities 
        Act of 1933.  The issuer may not split its common stock, or 
        declare a stock dividend for two years after effectiveness of 
        the registration, except that in connection with a subsequent 
        public offering, the issuer may upon application and consent of 
        the commissioner take this action. 
           Subd. 5.  [CONTENTS OF REGISTRATION FORM.] The small 
        corporate offering registration form (form U-7) must comply with 
        and contain all exhibits required by the Instructions for Use of 
        Form U-7 as adopted by the North American Securities 
        Administrators Association.  The registration must include 
        financial statements prepared in accordance with generally 
        accepted accounting principles.  An issuer that has not 
        conducted significant operations shall provide statements of 
        receipts and disbursements in lieu of statements of income. 
        Interim financial statements may be unaudited.  All other 
        financial statements shall be audited by independent certified 
        public accountants.  Financial statements may be unaudited if 
        reviewed by independent certified public accountants in 
        accordance with the accounting and review service standards 
        promulgated by the American Institute of Certified Public 
        Accountants and: 
           (1) the issuer has not previously sold securities through 
        an offering involving the general solicitation of prospective 
        investors by means of advertising, mass mailings, public 
        meetings, cold call telephone solicitation, or any other method 
        directed toward the public; 
           (2) the issuer has not been previously required under 
        federal or state securities laws to provide audited financial 
        statements in connection with any sale of its securities; and 
           (3) the aggregate amount of all previous sales of 
        securities by the issuer, exclusive of debt financing with banks 
        and similar commercial lenders does not exceed $1,000,000. 
           Subd. 6.  [STOP ORDERS.] The commissioner may in the 
        commissioner's discretion issue a stop order for any of the 
        following additional reasons: 
           (1) the issuer's principal place of business is not in this 
        state or in North Dakota, South Dakota, Iowa, or Wisconsin; 
           (2) at least 50 percent of the issuer's full-time employees 
        are not located in this state or in North Dakota, South Dakota, 
        Iowa, or Wisconsin; or 
           (3) at least 80 percent of the net proceeds of the offering 
        are not going to be used in connection with the operations of 
        the issuer in this state or in North Dakota, South Dakota, Iowa, 
        or Wisconsin.  
           Subd. 7.  [SUITABILITY.] The commissioner may, in the 
        commissioner's discretion, require investors in a particular 
        offering to meet suitability standards relating to annual gross 
        income, net worth, or other factors to determine the suitability 
        of the investment for the investor. 
           Subd. 8.  [FINANCIAL REPORTING REQUIREMENTS.] The issuer 
        shall deliver to investors on an annual basis financial 
        statements prepared in accordance with generally accepted 
        accounting principles. 
           Subd. 9.  [EFFECTIVE DATE.] A registration statement under 
        this section becomes effective when the commissioner so orders. 
           Sec. 2.  [EFFECTIVE DATE.] 
           Section 1 is effective the day following final enactment. 
           Presented to the governor May 19, 1997 
           Signed by the governor May 20, 1997, 10:22 a.m.