§ 10-04-06 — Exempt transactions

North Dakota § 10-04-06

• Jurisdiction: North Dakota
• Title 10: Corporations
• Ch. 10-04: Supervision of Issue and Sale of Securities

Text

Except as hereinafter in this section expressly provided, sections 10-04-04, 10-04-07.1,
10-04-07.2, 10-04-08, 10-04-08.4, and 10-04-10 do not apply to any of the following
transactions:
1. A transaction by an executor, administrator of an estate, sheriff, marshal, receiver,
guardian, conservator, or trustee in bankruptcy.
2. The sale, in good faith and not for the purpose of avoiding the provisions of this
chapter, by a pledgee of securities pledged for a bona fide debt.
3. An isolated sale of any security made by or on behalf of a bona fide owner for the
owner's account, such owner not being an issuer, underwriter, broker-dealer, or agent

and such sale not being made in the course of repeated and successive transactions
of a like character. This subsection shall not exempt any broker-dealer or agent
participating in an isolated sale from registering in accordance with section 10-04-10.
4. A transaction by an issuer for:
a. Securities dividends or other distributions by a corporation, cooperative, limited
partnership, limited liability limited partnership, or limited liability company out of
its earnings or surplus; or
b. The sale or distribution of additional capital stock of a corporation or cooperative,
interest of a partnership, or membership interest of a limited liability company to
or among its own stockholders, partners, or members.
5. A sale or offer to sell to:
a. An institutional investor;
b. A federal covered investment adviser; or
c. Any other person exempted by rule adopted or order issued by the commissioner.
6. Any transaction incident to a vote by stockholders, partners, or members pursuant to
the articles of incorporation, bylaws, partnership agreement, articles of organization,
member-control agreement, or the applicable corporation, partnership, or limited
liability company statute on a merger, consolidation, exchange of securities, or sale of
corporate, partnership, or limited liability company assets in consideration of the
issuance of securities of another corporation, partnership, or limited liability company,
other reorganization to which the issuer, or its parent or subsidiary and the other
person or its parent or subsidiary, are parties, or any transaction incident to a judicially
approved reorganization in which a security is issued in exchange for one or more
outstanding securities, claims, or property interests, or partly in such exchange and
partly for cash, or the solicitation of tenders of securities by an offeror in a tender offer
in compliance with rule 162 adopted under the Securities Act of 1933.
7. A transaction under an offer to existing securityholders of the issuer, including persons
that at the date of the transaction are holders of convertible securities, options, or
warrants, if a commission or other remuneration, other than a standby commission, is
not paid or given, directly or indirectly, for soliciting a securityholder in this state.
8. A nonissuer transaction by or through a broker-dealer and agent, both of which are
registered or exempt from registration under this chapter, or a resale transaction by a
sponsor of a unit investment trust registered under the Investment Company Act of
1940, in a security of a class that has been outstanding in the hands of the public for at
least ninety days, if, at the date of the transaction:
a. The issuer of the security is engaged in business, the issuer is not in the
organizational stage or in bankruptcy or receivership, and the issuer is not a
blank check, blind pool, or shell company that has no specific business plan or
purpose or has indicated that its primary business plan is to engage in a merger
or combination of the business with, or an acquisition of, an unidentified person;
b. Such securities are sold at prices reasonably related to the current market price;
c. Such securities do not constitute the whole or part of an unsold allotment to, or
subscription or participation by, the broker-dealer as an underwriter of the security
or a redistribution;
d. Such securities are listed in Mergent's Industrial Manual, Mergent's Bank and
Finance Manual, Mergent's Transportation Manual, Mergent's Public Utility
Manual, or Fitch investor service, incorporated, are on the OTCQX or OTCQB
markets operated by OTC Markets Group Incorporated, or are filed under
section 13 or 15(d) of the Securities Exchange Act of 1934 [ch. 404, title I, sec. 1;
48 Stat. 881; 15 U.S.C. 78 et seq.]; and
e. Any one of the following requirements is met:
(1) The issuer of the security has a class of equity securities listed on a national
securities exchange registered under section 6 of the Securities Exchange
Act of 1934 or designated for trading on the national association of
securities dealers automated quotation system;

(2) The issuer of the security is a unit investment trust registered under the
Investment Company Act of 1940;
(3) The issuer of the security, including its predecessors, has been engaged in
continuous business for at least three years; or
(4) The issuer of the security has total assets of at least two million dollars
based on an audited balance sheet as of a date within eighteen months
before the date of the transaction or, in the case of a reorganization or
merger when the parties to the reorganization or merger each had the
audited balance sheet, a pro forma balance sheet for the combined
organization.
9. a. Any transaction pursuant to an offer directed by the offeror to not more than
thirty-five persons, other than those designated in subsection 5, in this state
during any period of twelve consecutive months, whether or not the offeror or any
of the offerees is then present in this state, if all of the following conditions are
met:
(1) The seller reasonably believes that all the buyers in this state, other than
those designated in subsection 5, are purchasing for investment.
(2) Except for offers or sales with respect to persons designated in
subsection 5, no security may be offered or sold under this subdivision
except through or by a broker-dealer and agent registered in accordance
with section 10-04-10, unless it is offered and sold through an officer,
director, governor, or partner of the issuer and no commission or other
remuneration is paid, either directly or indirectly.
(3) The offeror applies for and obtains the written approval of the commissioner
prior to making any offers in this state and pays a nonrefundable filing fee of
one hundred fifty dollars, which fee must accompany the application for
approval.
The commissioner may, as to any security or transaction or any type of security
or transaction, withdraw or further condition this exemption, or increase or
decrease the number of offerees permitted, or waive the condition in paragraph 1.
b. Any offer or sale in this state of common stock, preferred stock, limited liability
company membership interests, or limited partnership interests of an issuer
during any period of twelve consecutive months if all of the following conditions
are met:
(1) The issuer reasonably believes that all the buyers in this state, other than
those designated in subsection 5, are purchasing for investment.
(2) Except with respect to offers and sales made to persons designated in
subsection 5, no security may be sold under this subdivision except through
or by a broker-dealer and agent registered in accordance with section
10-04-10, unless it is offered and sold through an officer, director, governor,
or partner of the issuer and no commission or other remuneration is paid,
either directly or indirectly.
(3) The issuer is both organized under the laws of this state and has its
principal place of business in this state.
(4) No public advertising matter or general solicitation, except tombstone
advertisements approved by the commissioner, is used in connection with
any offers or sales.
(5) An offering disclosure document in the form approved by the commissioner
must be delivered to each offeree prior to the sale of the security.
(6) The gross proceeds of the offering may not exceed five million dollars.
(7) The issuer must apply for and obtain the written approval of the
commissioner prior to making any offer or sale in this state by filing an
application prescribed by the commissioner, a copy of the offering disclosure
document, and any other information or documents the commissioner may
require, together with a nonrefundable filing fee of one hundred fifty dollars.

(8) All funds raised in the offering are placed in an escrow account until the total
offering amount has been sold.
The commissioner may withdraw or further condition this exemption or waive the
conditions in paragraphs 5 and 6.
c. The issuer must file a report of all offers and sales made in this state pursuant to
subdivision a or b on a form prescribed by the commissioner within thirty days
after the completion of the offering or expiration of the twelve-month approval
period, whichever occurs first.
d. The exemptions provided under subdivisions a and b may not be combined.
e. An exemption under this subsection is not available for the securities of any
issuer if the issuer or any promoter, officer, director, manager, partner, or
underwriter of the issuer:
(1) Has filed a registration statement that is the subject of a currently effective
registration stop order entered pursuant to any federal or state securities law
within five years prior to the filing of the application required under this
exemption.
(2) Has been convicted within five years prior to the filing of the application
required under this exemption of any felony or misdemeanor in connection
with the offer, purchase, or sale of any security or any felony involving fraud
or deceit, including forgery, embezzlement, obtaining money under false
pretenses, larceny, or conspiracy to defraud.
(3) Is currently subject to any state administrative enforcement order or
judgment entered by any state securities administrator or the securities and
exchange commission within five years prior to the filing of the application
required under this exemption or is subject to any federal or state
administrative enforcement order or judgment in which fraud or deceit,
including making untrue statements of material facts, was found and the
order of judgment was entered within five years prior to the filing of the
application required under this exemption.
(4) Is subject to any federal or state administrative enforcement order or
judgment which prohibits, denies, or revokes the use of any exemption from
registration in connection with the offer, purchase, or sale of securities.
(5) Is currently subject to any order, judgment, or decree of any court of
competent jurisdiction temporarily or preliminarily restraining or enjoining, or
is subject to any order, judgment, or decree of any court of competent
jurisdiction, permanently restraining or enjoining, such part from engaging in
or continuing any conduct or practice in connection with the purchase or
sale of a security or involving the making of any false filing with any state or
with the securities and exchange commission entered within five years prior
to the filing of the application required under this exemption.
(6) Has been or is the subject of any order issued by the United States postal
service that was entered within five years prior to reliance on this exemption
and alleged any fraudulent or unlawful conduct.
f. Subdivision e does not apply if the commissioner determines, upon a showing of
good cause, that it is not necessary under the circumstances that the exemption
should not be denied.
10. The sale of capital stock of a corporation or membership interests of a limited liability
company if the corporation or limited liability company is organized under the statutes
of this state or the sale of memberships, including dues, in a nonprofit corporation
incorporated in North Dakota if the corporation or limited liability company is organized
and operated for the primary purpose of promoting community development.
11. Any security issued in connection with an employees' stock purchase, savings, option,
profit-sharing, pension, or similar employees' benefit plan, including any securities,
plan interests, and guarantees issued under a compensatory benefit plan or
compensation contract, contained in a record, established by the issuer, its parents, its

majority-owned subsidiaries, or the majority-owned subsidiaries of the issuer's parent
for the participation of their employees, including offers or sales of such securities to:
a. Directors; general partners; trustees, if the issuer is a business trust; officers;
consultants; and advisers;
b. Family members who acquire such securities from those persons through gifts or
domestic relations orders;
c. Former employees, directors, general partners, trustees, officers, consultants,
and advisers if those individuals were employed by or providing services to the
issuer when the securities were offered; and
d. Insurance agents who are exclusive insurance agents of the issuer, or the
issuer's subsidiaries or parents, or who derive more than fifty percent of their
annual income from those organizations.
12. The sale of a security issued by the United States, or the state of North Dakota, or any
political subdivision or instrumentality of the state of North Dakota; provided, that the
offer for sale and sale are made by an official or employee of the issuer or of the Bank
of North Dakota acting in an official capacity and not for personal pecuniary profit, or
by a bank or similar financial association or institution or an official or employee thereof
solely as an accommodation to customers of such association or institution and
without asking or receiving a commission or remuneration other than an
accommodation fee not to exceed one hundred dollars in connection with the
transaction.
13. Any offer or sale of shares of capital stock issued by a professional corporation,
professional limited liability company, or professional limited liability partnership which
is organized and operated pursuant to chapter 10-31.
14. The offer or sale of a security issued by North Dakota united dues credit trust to
members of North Dakota united.
15. a. An offer, but not a sale, of a security made by or on behalf of an issuer for the
sole purpose of soliciting an indication of interest in receiving a prospectus or
similar disclosure document for the security if all of the following conditions are
satisfied:
(1) The issuer is or will be a business entity organized under the laws of one of
the states or possessions of the United States or one of the provinces or
territories of Canada; is engaged in or proposes to engage in a business
other than petroleum exploration or production, mining, or other extractive
industries; and is not a blind pool offering or other offering for which the
specific business or properties cannot now be described.
(2) The issuer may solicit indications of interest in a project or business only
within a period of twelve months after receiving approval from the
commissioner and does not pay a commission or fee to any person for
soliciting a potential investor or prospective purchaser in this state unless
the person who receives the commission or fee is registered as a
broker-dealer or agent in this state.
(3) The issuer intends to register securities in this state, rely upon subsection 8
of section 10-04-05 for the issuance of a security, or receive approval for an
exemption under subsection 5 of section 10-04-05 or subsection 9 of this
section.
(4) The issuer files a solicitation of interest form and copies of any advertising
or marketing materials, including scripts for use in telephone, television,
electronic, or computer publications, for approval by the commissioner at
least ten business days before the issuer begins soliciting indications of
interest from potential purchasers and at least ten business days before
publishing or distributing any materials or information to any person.
(5) The issuer obtains approval of the commissioner for any amendments or
changes in filed forms, marketing materials, or advertisements at least ten
business days before distributing the amended marketing materials or
amended advertising information to any person.

(6) The issuer does not use any solicitation of interest form, script,
advertisement, or other material which the issuer has been notified by the
commissioner not to distribute, to solicit indications of interest.
(7) Except for scripted broadcasts and published notices, the issuer does not
communicate with any offeree about the contemplated offering unless the
offeree is provided with the most current solicitation of interest form at or
before the time of the communication or within five days from the
communication.
(8) The issuer stops all communications with prospective investors made in
reliance on this exemption immediately after filing an application to register
or qualify the securities with the commissioner or with the securities and
exchange commission.
(9) The issuer does not accept money or sign completed contracts for sales of
securities with any person while soliciting indications of interest and does
not complete any sales of securities until at least ten business days after
completing a securities registration or approval to offer and sell securities in
this state.
(10) The issuer does not make a sale until three days after delivery to the
purchaser of a prospectus or similar disclosure document.
(11) The issuer does not know, and in the exercise of reasonable care could not
know, that the issuer or any officer, director, manager, ten percent
shareholder, promoter, partner, or agent of the issuer:
(a) Has been the subject of or filed a registration statement that is the
subject of a stop order, administrative enforcement order, judgment,
injunction, or restraining order issued by any federal or state securities
agency, any court of competent jurisdiction, or the United States
postal service and which prohibits, denies, or revokes the registration
or use of any exemption from registration in connection with the offer,
sale, or purchase of a security, franchise, commodity, or other financial
transaction or which involves fraud, deceit, misstatements of material
facts, forgery, embezzlement, obtaining money under false pretenses,
larceny, conspiracy to defraud, or similar deceptive acts within five
years prior to the filing of the solicitation of interest form; or
(b) Has been convicted of any felony or misdemeanor involving the offer,
purchase, or sale of a security, franchise, commodity, or financial
transaction, or any felony or misdemeanor involving fraud, deceit,
forgery, embezzlement, conspiracy to defraud, or a similar financial
crime.
The prohibitions listed above shall 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 such person or if the broker-dealer employing such party is
licensed or registered in this state and the form B-D filed with this state
discloses the order, conviction, judgment, or decree relating to such person.
A person disqualified under this subsection may not act in a capacity other
than that for which the person is licensed or registered. Any disqualification
caused by this section is automatically waived if the agency, which created
the basis for disqualification, determines upon a showing of good cause that
it is not necessary under the circumstances that the exemption be denied.
b. The issuer shall comply with the requirements set forth below. Failure to comply
will not result in the loss of the exemption from the requirements of section
10-04-04, but is a violation of this chapter, is actionable by the commissioner
under section 10-04-16, and constitutes grounds for denying or revoking the
exemption as to a specific security or transaction.

(1) Any published notice must contain at least the identity of the chief executive
officer of the issuer, a brief and general description of its business and
products, and the following legends:
(a) NO MONEY OR OTHER CONSIDERATION IS BEING SOLICITED
AND NONE WILL BE ACCEPTED;
(b) NO SALES OF THE SECURITIES WILL BE MADE OR
COMMITMENT TO PURCHASE ACCEPTED UNTIL DELIVERY OF A
PROSPECTUS OR SIMILAR DISCLOSURE DOCUMENT THAT
INCLUDES COMPLETE INFORMATION ABOUT THE ISSUER AND
THE OFFERING;
(c) AN INDICATION OF INTEREST MADE BY A PROSPECTIVE
INVESTOR INVOLVES NO OBLIGATION OR COMMITMENT OF
ANY KIND; and
(d) THIS OFFER IS BEING MADE PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER THE FEDERAL AND STATE
SECURITIES LAWS. NO SALE MAY BE MADE UNTIL THE
OFFERING STATEMENT IS QUALIFIED BY THE SECURITIES AND
EXCHANGE COMMISSION AND IS REGISTERED OR APPROVED
IN THIS STATE.
(2) Any script for broadcast must contain at least the identity of the chief
executive of the issuer, a brief description of its business and products, its
address and telephone number, and the following legends:
(a) THIS IS FOR AN INDICATION OF INTEREST ONLY AND INVOLVES
NO OBLIGATION OR COMMITMENT OF ANY KIND UPON A
PROSPECTIVE INVESTOR;
(b) NO MONEY OR OTHER CONSIDERATION IS BEING SOLICITED;
and
(c) THIS OFFER IS MADE PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER FEDERAL AND STATE SECURITIES
LAWS.
c. Offers made on reliance of this exemption will not result in a violation of section
10-04-04 by virtue of being integrated with subsequent offers or sales of
securities unless such subsequent offers and sales would be integrated under
federal securities laws.
16. An offer or sale of common stock, limited liability company membership interests, or
limited partnership interests by a person to a person or other subscribers, not
exceeding ten in number, for the sole purpose of organization in this state, if the
securities are not acquired for the purpose of resale to others for a period of twelve
months, advertising has not been published or circulated in connection with the offer or
sale, and all sales are consummated within ten days after the date of organization.
17. Any offer or sale of a security by an issuer in a transaction provided all of the following
conditions are met:
a. Sales of securities may be made only to persons who are, or the issuer
reasonably believes are, accredited investors as defined in 17 CFR 230.501(a)
promulgated by the securities and exchange commission.
b. The exemption is not available to an issuer that is in the development stage 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.
c. The issuer reasonably believes that all purchasers are purchasing for investment
and not with the view to, or for, sale in connection with a distribution of the
security. Any resale of a security sold in reliance of this exemption within twelve
months of sale must be presumed to be with a view to distribution and not for
investment, except a resale pursuant to a registration statement effective under
section 10-04-04 or to an accredited investor pursuant to an exemption available
under subsection 5.

d. (1) The exemption is not available to an issuer if the issuer, any of the issuer's
predecessors, any affiliated issuer, any of the issuer's directors, officers,
general partners, beneficial owners of ten percent or more of any class of its
equity securities, any of the issuer's promoters presently connected with the
issuer in any capacity, any underwriter of the securities to be offered, or any
partner, director, or officer of such underwriter:
(a) Within the last five years, has filed a registration statement that is the
subject of a currently effective registration stop order entered by any
state securities administrator or the securities and exchange
commission;
(b) Within the last five years, has been convicted of any criminal offense
in connection with the offer, purchase, or sale of any security, or
involving fraud or deceit;
(c) Is currently subject to any state or federal administrative enforcement
order or judgment, entered within the last five years, finding fraud or
deceit in connection with the purchase or sale of any security; or
(d) Is currently subject to any order, judgment, or decree of any court of
competent jurisdiction, entered within the last five years, temporarily,
preliminarily, or permanently restraining or enjoining such party from
engaging in or continuing to engage in any conduct or practice
involving fraud or deceit in connection with the purchase or sale of any
security.
(2) Paragraph 1 does not apply if:
(a) The party subject to the disqualification is licensed or registered to
conduct securities-related business in the state in which the order,
judgment, or decree creating the disqualification was entered against
such party;
(b) Before the first offer under this exemption, the state securities
administrator, or the court or regulatory authority that entered the
order, judgment, or decree, waives the disqualification; or
(c) The issuer establishes that it did not know and in the exercise of
reasonable care, based on a factual inquiry, could not have known
that a disqualification existed under this subdivision.
e. (1) A general announcement of the proposed offering may be made by any
means.
(2) The general announcement must include only the following information,
unless additional information is specifically permitted by the commissioner:
(a) The name, address, and telephone number of the issuer of the
securities;
(b) The name, a brief description, and price, if known, of any security to
be issued;
(c) A brief description of the business of the issuer in twenty-five words or
less;
(d) The type, number, and aggregate amount of securities being offered;
(e) The name, address, and telephone number of the person to contact
for additional information; and
(f) A statement that:
[1] Sales will only be made to accredited investors;
[2] No money or other consideration is being solicited or will be
accepted by way of this general announcement; and
[3] The securities have not been registered with or approved by any
state securities agency or the securities and exchange
commission and are being offered and sold pursuant to an
exemption from registration.
f. The issuer, in connection with an offer, may provide information in addition to the
general announcement under subdivision e, if such information:

(1) Is delivered through an electronic database that is restricted to persons who
have been prequalified as accredited investors; or
(2) Is delivered after the issuer reasonably believes that the prospective
purchaser is an accredited investor.
g. Telephone solicitation is not permitted unless prior to placing the call, the issuer
reasonably believes that the prospective purchaser to be solicited is an
accredited investor.
h. Dissemination of the general announcement of the proposed offering to persons
who are not accredited investors does not disqualify the issuer from claiming the
exemption.
i. The issuer shall file with the department a notice of transaction, a consent to
service of process, a copy of the general announcement, and a nonrefundable
filing fee of one hundred dollars within fifteen days after the first sale in this state.
In the event the filing is not made within fifteen days after the first sale in this
state, the filing fee is two hundred fifty dollars.
j. The security offered or sold under this subsection is offered or sold by a
broker-dealer and agent registered in accordance with section 10-04-10, or
offered and sold through an officer, director, governor, or partner of the issuer and
no commission or other remuneration is paid.
18. The offer or sale of a security issued by an organization organized under and operated
in compliance with chapter 10-06.1.
19. Any offer or sale of an agricultural-related cooperative security by or on behalf of an
agricultural producer, as defined by section 32-44-01, to a person for the purpose of
producing and selling agricultural products, as defined by section 32-44-01, to the
cooperative. Commissions or other remuneration may not be paid or given directly or
indirectly for soliciting any prospective buyer in this state, except to a broker-dealer or
agent registered in this state, to an agent of a bank or a commercial trust department,
to a licensed real estate agent, or to a licensed auctioneer if the sale is made at a
bona fide public auction.
20. A transaction in a note, bond, debenture, or other evidence of indebtedness secured
by a mortgage or other security agreement if:
a. The note, bond, debenture, or other evidence of indebtedness is offered and sold
with the mortgage or other security agreement as a unit;
b. A general solicitation or general advertisement of the transaction is not made; and
c. A commission or other remuneration is not paid or given, directly or indirectly, to a
person not registered under this chapter as a broker-dealer or as an agent.
21. A nonissuer transaction by a federal covered investment adviser with investments
under management in excess of one hundred million dollars acting in the exercise of
discretionary authority in a signed record for the account of others.