2007 Minnesota Statutes

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 $1 per share;
(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;
(3) unless an issuer or its predecessors have demonstrated profitable operations for two of
the three fiscal years prior to registration, determined in accordance with generally accepted
accounting principles, after taxes and excluding extraordinary items, the fair value of the equity
investment, as defined by the commissioner by rule, of such issuer shall be at least five percent of
the equity investment, as defined by the commissioner by rule, that would result from the sale of
all the securities proposed to be offered; and
(4) the maximum quantity of cheap stock, as defined by the commissioner by rule, allowable,
expressed as a percentage of the total number of shares to be outstanding after the proposed
offering, shall be determined by calculating the fair value of equity investment as a percentage of
equity investment in accordance with the following formulations. If the percentage is 20 percent
or less, the maximum quantity of cheap stock allowable shall be 50 percent. If the percentage is
greater than 20 percent, the maximum quantity of cheap stock allowable shall be two times the
percentage plus ten percent. The maximum quantity of cheap stock allowable shall not exceed 90
percent of the total number of shares to be outstanding after the proposed offering.
    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. If no stop order is in effect and no proceeding is pending under
section 80A.13, a registration statement under this section becomes effective automatically at
5:00 p.m. on the 20th full business day after the filing of the registration statement or the last
amendment of it, or at such earlier time as the commissioner by order determines.
History: 1997 c 197 s 1; 1999 c 103 s 1,2
NOTE: This section is repealed by Laws 2006, chapter 196, article 1, section 51, effective
August 1, 2007. Laws 2006, chapter 196, article 1, section 52.