USA

SECURITIES ACT OF WASHINGTON

SECURITIES DIVISION DRAFT

COMMENTS RE: DRAFT

RCW 21.20.705  Debenture companies -- Definitions.

When used in this chapter, unless the context otherwise requires:

(1) "Debenture company" means an issuer of any note, debenture, or other debt obligation for money used or to be used as capital or operating funds of the issuer, which is offered or sold in this state, and which issuer is engaged or proposes to engage in the business of investing, reinvesting, owning, holding, or trading in: (a) Notes, or other debt obligations, whether or not secured by real or personal property; (b) vendors' interests in real estate contracts; (c) real or personal property to be leased to third parties; or (d) real or personal property. The term "debenture company" does not include an issuer by reason of any of its securities which are exempt from registration under RCW 21.20.310 or offered or sold in transactions exempt from registration under RCW 21.20.320 (1) or (8); and

(2) "Acquiring party" means any person becoming or attempting to become a controlling person under RCW 21.20.717.

§ 59.  DEBENTURE COMPANIES--DEFINITIONS.  The definitions in this section apply throughout this subchapter, unless the context otherwise requires:

    (1)(a) "Debenture company" means an issuer of any note, debenture, or other debt obligation for money used or to be used as capital or operating funds of the issuer, which is offered or sold in this state, and which issuer is engaged or proposes to engage in the business of investing, reinvesting, owning, holding, or trading in:

        (i) Notes or other debt obligations, whether or not secured by real or personal property;

        (ii) Vendors' interests in real estate contracts;

        (iii) Real or personal property to be leased to third parties; or

        (iv) Real or personal property.

    (b) "Debenture company" does not include an issuer by reason of any of its securities which are:

        (i) Exempt from registration under section 8 of this act;

        (ii) Offered or sold in transactions exempt from registration under section 9 (13), (20), or (25) of this act; or

        (iii) Federal covered securities under Section 18(b)(4)(D) of the Securities Act of 1933 for which the issuer has made the filing and paid the fee required under section 14 of this act.

(c) An issuer that the director finds is not primarily engaged in the activities described in (a)(i) through (iv) of this subsection is not a debenture company.

    (2) "Acquiring party" means any person becoming or attempting to become a controlling person under section 62 of this act.

    (3) A "director" of a debenture company means any director of a debenture company that is organized as a corporation or any other person performing similar functions with respect to any other organization constituting a debenture company.

    (4) An "officer" of a debenture company means its president; any vice president in charge of a principal business unit, division, or function (such as sales, administration, or finance); any other officer who performs a policy-making function; or any other person who performs similar policy-making functions for the debenture company.  Executive officers of subsidiaries may be deemed executive officers of the debenture company if they perform such policy-making functions for the debenture company.

RCW definitions generally retained with updated language.

RCW 21.20.710  Debenture companies -- Capital requirements.

(1) Except as provided in subsection (2) of this section, a debenture company shall not offer for sale any security other than capital stock if such sale would result in the violation of the following capital requirements:

(a) For outstanding securities other than capital stock totaling from $1 to $1,000,000, a debenture company shall have a net worth of at least $200,000.

(b) In addition to the requirement set forth in (a) of this subsection:

(i) A debenture company with outstanding securities other than capital stock totaling in excess of $1,000,000 but not over $100,000,000 shall have additional net worth equal to at least ten percent of the outstanding securities in excess of $1,000,000 but not over $100,000,000; and

(ii) A debenture company with outstanding securities other than capital stock totaling in excess of $100,000,000 shall have additional net worth equal to at least five percent of the outstanding securities in excess of $100,000,000.

(c) Every debenture company shall hold at least one-half the amount of its required net worth in cash or comparable liquid assets as defined by rule, or shall demonstrate comparable liquidity to the satisfaction of the director.

(2) The director may for good cause in the interest of the existing investors, waive the requirements of subsection (1) of this section. If the director waives the minimum requirements set forth in subsection (1) of this section, the debenture company shall increase its new [net] worth or liquidity in accordance with conditions imposed by the director until such time as the debenture company can meet the requirements of this section without waiver from the director. 

§ 60.  DEBENTURE COMPANIES--CAPITAL REQUIREMENTS.  A debenture company shall not offer for sale any security other than equity securities if such sale would result in the violation of the following capital requirements:

   (1) For outstanding securities other than equity securities totaling from one dollar to one million dollars, a debenture company shall have a net worth of at least two hundred thousand dollars;

   (2) In addition to the requirement set forth in subsection (1) of this section:

        (a) A debenture company with outstanding securities other than equity securities totaling in excess of one million dollars but not over one hundred million dollars shall have additional net worth equal to at least ten percent of the outstanding securities in excess of one million dollars but not over one hundred million dollars; and

        (b) A debenture company with outstanding securities other than equity securities totaling in excess of one hundred million dollars shall have additional net worth equal to at least five percent of the outstanding securities in excess of one hundred million dollars; and

   (3) Every debenture company shall hold at least one-half the amount of its required net worth in cash or comparable liquid assets as defined by rule, or shall demonstrate comparable liquidity to the satisfaction of the director.

RCW generally retained with updated language.

RCW 21.20.715  Debenture companies -- Maturity date requirements.

Any debenture company offering debt securities to the public shall provide that at least fifty percent of the amount of those securities sold have maturity dates of two years or more.

§ 61.  DEBENTURE COMPANIES--MATURITY DATE REQUIREMENTS.  (1) Any debenture company offering debt securities to the public shall provide that at least fifty percent of the amount of those securities outstanding have maturity dates of two years or more.

(2) If good cause is shown, the director may, in his or her discretion, waive or modify the requirements of this section.  In determining whether to make such a waiver or modification, the director may take into consideration the impact of the waiver or modification on the protection of investors and the safety and soundness of the debenture company and other appropriate factors.

RCW with additional discretionary waiver provision.

RCW 21.20.717  Debenture companies -- Controlling person -- Exceptions.

(1) For purposes of the provisions of this chapter relating to debenture companies a person shall be deemed a controlling person if:

(a) Such person directly or indirectly, or acting through one or more other persons owns, controls, or has power to vote twenty-five percent or more of any class of voting securities of a debenture company;

(b) Such person controls in any manner the election of a majority of the directors or trustees of a debenture company; or

(c) The director determines, after notice and opportunity for hearing, that such person, directly or indirectly, exercises a controlling influence over the management or policies of a debenture company.

(2) The director may except, by order, for good cause shown, any person from subsection (1) of this section if the director finds the exception to be in the public interest and that the exception does not threaten the protection of investors.

§ 62.  DEBENTURE COMPANIES--CONTROLLING PERSON--EXCEPTIONS.  (1) For purposes of this subchapter, a person shall be deemed a controlling person if:

        (a) Such person directly or indirectly, or acting through one or more other persons owns, controls, or has power to vote twenty-five percent or more of any class of voting securities of a debenture company;

        (b) Such person controls in any manner the election of a majority of the board of directors, board of trustees, or other managing body of a debenture company; or

        (c) The director determines, after notice and opportunity for hearing, that such person, directly or indirectly, exercises a controlling influence over the management or policies of a debenture company.

   (2) The director may except, by order, for good cause shown, any person from subsection (1) of this section if the director finds the exception to be in the public interest and that the exception does not threaten the protection of investors.

RCW with updated language.

RCW 21.20.720  Debenture companies -- Prohibited activities by directors, officers, or controlling persons.

(1) A director, officer, or controlling person of a debenture company shall not:

(a) Have any interest, direct or indirect, in the gains or profits of the debenture company, except to receive dividends upon the amounts contributed by him or her, the same as any other investor or shareholder and under the same regulations and conditions: PROVIDED, That nothing in this subsection shall be construed to prohibit salaries as may be approved by the debenture company's board of directors;

(b) Become a member of the board of directors or a controlling shareholder of another debenture company or a bank, trust company, or national banking association, of which board enough other directors or officers of the debenture company are members so as to constitute with him or her a majority of the board of directors.

(2) A director, an officer, or controlling person shall not:

(a) For himself or herself or as agent or partner of another, directly or indirectly use any of the funds held by the debenture company, except to make such current and necessary payments as are authorized by the board of directors;

(b) Receive directly or indirectly and retain for his or her own use any commission on or benefit from any loan made by the debenture company, or any pay or emolument for services rendered to any borrower from the debenture company in connection with such loan;

(c) Become an indorser, surety, or guarantor, or in any manner an obligor, for any loan made from the debenture company and except when approval has been given by the director of financial institutions or the director's administrator of securities upon recommendation by the company's board of directors.

(d) For himself or herself or as agent or partner of another, directly or indirectly borrow any of the funds held by the debenture company, or become the owner of real or personal property upon which the debenture company holds a mortgage, deed of trust, or property contract. A loan to or a purchase by a corporation in which he or she is a stockholder to the amount of fifteen percent of the total outstanding stock, or in which he or she and other directors, officers, or controlling persons of the debenture company hold stock to the amount of twenty-five percent of the total outstanding stock, shall be deemed a loan to or a purchase by such director or officer within the meaning of this section, except when the loan to or purchase by such corporation occurred without his or her knowledge or against his or her protest.

§ 63.  DEBENTURE COMPANIES--PROHIBITED ACTIVITIES BY DIRECTORS, OFFICERS, OR CONTROLLING PERSONS. 

    (1) A director, officer, or controlling person of a debenture company shall not:

             (a) Have any interest, direct or indirect, in the gains or profits of the debenture company, except to receive dividends upon the amounts contributed by him or her, the same as any other investor or shareholder and under the same regulations and conditions.  However, this subsection shall not be construed to prohibit salaries as may be approved by the debenture company's board of directors; or

             (b) Become a member of the board of directors or a controlling equity owner of another debenture company or a bank, trust company, or national banking association, of which board enough other directors or officers of the debenture company are members so as to constitute with him or her a majority of the board of directors.

     (2) A director, an officer, or controlling person shall not:

             (a) For himself or herself or as agent or partner of another, directly or indirectly use any of the funds held by the debenture company, except to make such current and necessary payments as are authorized by the board of directors;

             (b) Receive directly or indirectly and retain for his or her own use any commission on or benefit from any loan made by the debenture company, or any pay or emolument for services rendered to any borrower from the debenture company in connection with such loan;

             (c) Become an indorser, surety, or guarantor, or in any manner an obligor, for any loan made from the debenture company and except when approval has been given by the director or the director's administrator of securities upon recommendation by the company's board of directors; or

             (d) For himself or herself or as agent or partner of another, directly or indirectly borrow any of the funds held by the debenture company, or become the owner of real or personal property upon which the debenture company holds a mortgage, deed of trust, or property contract.  A loan to or a purchase by an entity in which he or she is an equity holder to the amount of fifteen percent of the total outstanding equity securities, or in which he or she and other directors, officers, or controlling persons of the debenture company hold stock to the amount of twenty-five percent of the total outstanding equity securities, shall be deemed a loan to or a purchase by such director or officer within the meaning of this section, except when the loan to or purchase by such entity occurred without his or her knowledge or against his or her protest.

(3) A debenture company may not have as a director, officer, or controlling person any person who is currently the subject of an order, judgment, adjudication, determination, or conviction that would constitute grounds for discipline under section 32(4) (a) through (f), (h), or (k) through (m) of this act.

RCW with updated language and statutory disqualifiers.

RCW 21.20.725  Debenture companies -- Debentures payable on demand -- Interest -- Certificates of debenture.

(1) A debenture company shall not issue any debenture payable on demand nor pay or accrue interest beyond the maturity date of any debenture.

(2) Debenture companies shall not issue certificates of debentures in passbook form, or in any other form which suggests to the holder that such moneys may be withdrawn on demand.

(3) Each certificate of debenture or an application for a certificate shall specify on the face of the certificate or application therefor, in twelve point bold face type or larger, that such debenture is not insured by the United States government, the state of Washington, or any agency thereof.

§ 64.  DEBENTURE COMPANIES--DEBENTURES PAYABLE ON DEMAND--INTEREST CERTIFICATES OF DEBENTURE.  (1) A debenture company shall redeem each debenture on its maturity date.  A debenture company shall not issue any debenture payable on demand nor pay or accrue interest beyond the maturity date of any debenture.

    (2) Debenture companies shall not issue certificates of debentures in passbook form, or in any other form that suggests to the holder that such moneys may be withdrawn on demand.

    (3) Each certificate of debenture or an application for a certificate shall specify on the face of the certificate or application therefore, in twelve-point bold face type or larger, that such debenture is not guaranteed or insured by the United States government, the state of Washington, or any other government, governmental agency, or instrumentality thereof.

RCW with updated language.

RCW 21.20.727  Debenture companies -- Acquisition of control -- Requirements -- Violation -- Penalty.

(1) It is unlawful for any person to acquire control of a debenture company until thirty days after filing with the director a copy of the notice of change of control on the form specified by the director. The notice or application shall be under oath and contain substantially all of the following information plus any additional information that the director may prescribe as necessary or appropriate in the particular instance for the protection of investors, borrowers, or shareholders and the public interest:

(a) The identity and business experience of each person by whom or on whose behalf acquisition is to be made;

(b) The financial and managerial resources and future prospects of each person involved in the acquisition;

(c) The terms and conditions of any proposed acquisition and the manner in which the acquisition is to be made;

(d) The source and amount of the funds or other consideration used or to be used in making the acquisition, and a description of the transaction and the names of the parties if any part of these funds or other consideration has been or is to be borrowed or otherwise obtained for the purpose of making the acquisition;

(e) Any plan or proposal which any person making the acquisition may have to liquidate the debenture company, to sell its assets, to merge it with any other company, or to make any other major change in its business or corporate structure or management;

(f) The identification of any person employed, retained, or to be compensated by the acquiring party, or by any person on its behalf, who makes solicitations or recommendations to shareholders for the purpose of assisting in the acquisition and a brief description of the terms of the employment, retainer, or arrangement for compensation; and

(g) Copies of all invitations for tenders or advertisements making a tender offer to shareholders for the purchase of their stock to be used in connection with the proposed acquisition.

(2) When a person, other than an individual or corporation, is required to file an application under this section, the director may require that the information required by subsection (1)(a), (b), and (f) of this section be given with respect to each person who has an interest in or controls a person filing an application under this subsection.

(3) When a corporation is required to file an application under this section, the director may require that the information required by subsection (1)(a), (b), and (f) of this section be given for the company, each officer and director of the company, and each person who is directly or indirectly the beneficial owner of twenty-five percent or more of the outstanding voting securities of the company.

(4) If any tender offer, request, or invitation for tenders or other agreements to acquire control is proposed to be made by means of a registration statement under the Securities Act of 1933 (48 Stat. 74; 15 U.S.C. Sec. 77(a)), as amended, or in circumstances requiring the disclosure of similar information under the Securities Exchange Act of 1934 (48 Stat. 881; 15 U.S.C. Sec. 78(a)), as amended, the registration statement or application may be filed with the director in lieu of the requirements of this section.

(5) Any acquiring party shall also deliver a copy of any notice or application required by this section to the debenture company proposed to be acquired within two days after the notice or application is filed with the director.

(6) Any acquisition of control in violation of this section shall be ineffective and void.

(7) Any person who wilfully or intentionally violates this section or any rule adopted pursuant thereto is guilty of a gross misdemeanor and shall be punished pursuant to chapter 9A.20 RCW.  Each day’s violation shall be considered a separate violation.

§ 65.  DEBENTURE COMPANIES--ACQUISITION OF CONTROL--REQUIREMENTS--VIOLATION--PENALTY. 

   (1) It is unlawful for any person to acquire control of a debenture company until thirty days after filing with the director a copy of the notice of change of control on the form specified by the director.  The notice or application shall be under oath and contain substantially all of the following information plus any additional information that the director may prescribe as necessary or appropriate in the particular instance for the protection of investors, borrowers, or shareholders and the public interest:

        (a) The identity and business experience of each person by whom or on whose behalf acquisition is to be made;

        (b) The financial and managerial resources and future prospects of each person involved in the acquisition;

        (c) The terms and conditions of any proposed acquisition and the manner in which the acquisition is to be made;

        (d) The source and amount of the funds or other consideration used or to be used in making the acquisition, and a description of the transaction and the names of the parties if any part of these funds or other consideration has been or is to be borrowed or otherwise obtained for the purpose of making the acquisition;

        (e) Any plan or proposal which any person making the acquisition may have to liquidate the debenture company, to sell its assets, to merge it with any other company, or to make any other major change in its business or corporate structure or management;

        (f) The identification of any person employed, retained, or to be compensated by the acquiring party, or by any person on its behalf, who makes solicitations or recommendations to shareholders for the purpose of assisting in the acquisition and a brief description of the terms of the employment, retainer, or arrangement for compensation; and

        (g) Copies of all invitations for tenders or advertisements making a tender offer to shareholders for the purchase of their stock to be used in connection with the proposed acquisition.

   (2) When a person, other than an individual or corporation, is required to file an application under this section, the director may require that the information required by subsection (1)(a), (b), and (f) of this section be given with respect to each person who has an interest in or controls a person filing an application under this subsection.

   (3) When a corporation is required to file an application under this section, the director may require that the information required by subsection (1)(a), (b), and (f) of this section be given for the company, each officer and director of the company, and each person who is directly or indirectly the beneficial owner of twenty-five percent or more of the outstanding voting securities of the company.

   (4) If any tender offer, request, or invitation for tenders or other agreements to acquire control is proposed to be made by means of a registration statement under the Securities Act of 1933 (48 Stat. 74; 15 U.S.C. Sec. 77(a)), as amended, or in circumstances requiring the disclosure of similar information under the Securities Exchange Act of 1934 (48 Stat. 881; 15 U.S.C. Sec. 78(a)), as amended, the registration statement or application may be filed with the director in lieu of the requirements of this section.

   (5) Any acquiring party shall also deliver a copy of any notice or application required by this section to the debenture company proposed to be acquired within two days after the notice or application is filed with the director.

   (6) Any acquisition of control in violation of this section shall be ineffective and void.

   (7) Any person who willfully or intentionally violates this section or any rule adopted under this section is guilty of a gross misdemeanor and shall be punished pursuant to chapter 9A.20 RCW.  Each day's violation shall be considered a separate violation.

RCW

RCW 21.20.730  Debenture companies -- Acquisition of control -- Grounds for disapproval.

The director may disapprove the acquisition of a debenture company within thirty days after the filing of a complete application under RCW 21.20.727 or an extended period not exceeding an additional fifteen days if:

(1) The poor financial condition of any acquiring party might jeopardize the financial stability of the debenture company or might prejudice the interests of the investors, borrowers, or shareholders;

(2) The plan or proposal of the acquiring party to liquidate the debenture company, to sell its assets, to merge it with any person, or to make any other major change in its business or corporate structure or management is not fair and reasonable to the debenture company's investors, borrowers, or stockholders or is not in the public interest;

(3) The business experience and integrity of any acquiring party who would control the operation of the debenture company indicates that approval would not be in the interest of the debenture company's investors, borrowers, or shareholders;

(4) The information provided by the application is insufficient for the director to make a determination or there has been insufficient time to verify the information provided and conduct an examination of the qualification of the acquiring party; or

(5) The acquisition would not be in the public interest.

§ 66.  DEBENTURE COMPANIES--ACQUISITION OF CONTROL--GROUNDS FOR DISAPPROVAL.  The director may disapprove the acquisition of a debenture company within thirty days after the filing of a complete application under section 65 of this act or an extended period not exceeding an additional fifteen days if:

     (1) The poor financial condition of any acquiring party might jeopardize the financial stability of the debenture company or might prejudice the interests of the investors, borrowers, or shareholders;

     (2) The plan or proposal of the acquiring party to liquidate the debenture company, to sell its assets, to merge it with any person, or to make any other major change in its business or corporate structure or management is not fair and reasonable to the debenture company's investors, borrowers, or stockholders or is not in the public interest;

     (3) The business experience and integrity of any acquiring party who would control the operation of the debenture company indicates that approval would not be in the interest of the debenture company's investors, borrowers, or shareholders;

     (4) The information provided by the application is insufficient for the director to make a determination or there has been insufficient time to verify the information provided and conduct an examination of the qualification of the acquiring party;

     (5) The acquiring party, an employee, associate, partner, officer, or director, of the acquiring party or a person having a similar status or performing similar functions, or a person directly or indirectly in control of the acquiring party, is currently the subject of an order, judgment, adjudication, determination, or conviction that would constitute grounds for discipline under section 32(4) (a) through (f), (h), or (k) through (m) of this act; or

      (6) The acquisition would not be in the public interest.

RCW with addition of statutory disqualifiers.

RCW 21.20.732  Debenture companies -- Notice of charges -- Hearing -- Cease and desist orders.

(1) The director may issue and serve upon a debenture company a notice of charges if in the opinion of the director any debenture company:

(a) Is engaging or has engaged in an unsafe or unsound practice in conducting the business of the debenture company;

(b) Is violating or has violated RCW 21.20.815, 21.20.820, or 21.20.830, or any rule, order, or condition adopted or imposed thereunder; or

(c) Is about to do the acts prohibited in (a) or (b) of this subsection when the opinion that the threat exists is based upon reasonable cause.

(2) The notice shall contain a statement of the facts constituting the alleged violation or violations or act or acts or the practice or practices and shall fix a time and place at which a hearing will be held to determine whether an order to cease and desist should issue against the debenture company. The hearing shall be set in accordance with chapter 34.05 RCW.

Unless the debenture company appears at the hearing by a duly authorized representative, it shall be considered to have consented to the issuance of the cease and desist order. If the debenture company is deemed to have consented or if upon the record made at the hearing the director finds that any violation, act, or practice specified in the notice of charges has been established, the director may issue and serve upon the debenture company an order to cease and desist from the violation, act, or practice. The order may require the debenture company and its directors, officers, controlling persons, employees, and agents to cease and desist from the violation, act, or practice and may require the debenture company to take affirmative action to correct the conditions resulting from the violation, act, or practice.

(3) A cease and desist order shall become effective at the expiration of ten days after the service of the order upon the debenture company concerned except that a cease and desist order issued upon consent shall become effective at the time specified in the order and shall remain effective as provided therein unless it is stayed, modified, terminated, or set aside by action of the director or a reviewing court.

§ 67.  DEBENTURE COMPANIES--NOTICE OF CHARGES--HEARING--CEASE AND DESIST ORDERS.  (1) The director may issue and serve upon a debenture company a notice of charges if it appears to the director any debenture company:

             (a) Is engaging or has engaged in an unsafe or unsound practice in conducting the business of the debenture company;

             (b) Is violating or has violated section 73, 74, or 76 of this act, or any rule, order, or condition adopted or imposed thereunder; or

             (c) Is about to do the acts prohibited in (a) or (b) of this subsection when the appearance that the threat exists is based upon reasonable cause.

     (2) The notice shall contain a statement of the facts constituting the alleged violation, act, or practice and shall fix a time and place at which a hearing will be held to determine whether an order to cease and desist should issue against the debenture company.  The hearing shall be set in accordance with chapter 34.05 RCW.

     Unless the debenture company appears at the hearing by a duly authorized representative, it shall be considered to have consented to the issuance of the cease and desist order.  If the debenture company is deemed to have consented or if upon the record made at the hearing the director finds that any violation, act, or practice specified in the notice of charges has been established, the director may issue and serve upon the debenture company an order to cease and desist from the violation, act, or practice.  The order may require the debenture company and its directors, officers, controlling persons, employees, and agents to cease and desist from the violation, act, or practice and may require the debenture company to take affirmative action to correct the conditions resulting from the violation, act, or practice.

(3) A cease and desist order shall become effective at the expiration of ten days after the service of the order upon the debenture company concerned except that a cease and desist order issued upon consent shall become effective at the time specified in the order and shall remain effective as provided therein unless it is stayed, modified, terminated, or set aside by action of the director or a reviewing court.

RCW with updated language.

RCW 21.20.734  Debenture companies -- Temporary cease and desist orders.

Whenever the director determines that any violation, act, or practice specified in RCW 21.20.732 or its continuation is likely to cause insolvency or substantial dissipation of assets or earnings of the debenture company or to otherwise seriously prejudice the interests of its security holders, the director may also issue a temporary order requiring the debenture company and its directors, officers, controlling persons, employees, and agents to cease and desist from the violation, act, or practice. The order shall become effective upon service on the debenture company and shall remain effective pending the completion of the administrative proceedings under the notice and until such time as the director dismisses the charges specified in the notice or until the effective date of a cease and desist order issued against the debenture company under RCW 21.20.732.

§ 68.  DEBENTURE COMPANIES--TEMPORARY CEASE AND DESIST ORDERS.  Whenever the director determines that any violation, act, or practice specified in section 67 of this act or its continuation is likely to cause insolvency or substantial dissipation of assets or earnings of the debenture company or to otherwise seriously prejudice the interests of its security holders, the director may also issue a temporary order requiring the debenture company and its directors, officers, controlling persons, employees, and agents to cease and desist from the violation, act, or practice.  The order shall become effective upon service on the debenture company and shall remain effective pending the completion of the administrative proceedings under the notice and until such time as the director dismisses the charges specified in the notice or until the effective date of a cease and desist order issued against the debenture company under section 67 of this act.

RCW

RCW 21.20.740  Reports -- Requirements.

(1) Every issuer which has registered securities under Washington state securities law shall file with the director reports described in subsection (2) of this section. Such reports shall be filed with the director not more than one hundred twenty days (unless extension of time is granted by the director) after the end of the issuer's fiscal year.

(2) The reports required by subsection (1) of this section shall contain such information, statements and documents regarding the financial and business conditions of the issuer and the number and description of securities of the issuer held by its officers, directors and controlling shareholders and shall be in such form and filed at such annual times as the director may require by rule or order. For the purposes of RCW 21.20.720, 21.20.740 and 21.20.745, a "controlling shareholder" shall mean a person who is directly or indirectly the beneficial holder of more than ten percent of the outstanding voting securities of an issuer.

(3)(a) The reports described in subsection (2) of this section shall include financial statements corresponding to those required under the provisions of RCW 21.20.210 and to the issuer's fiscal year setting forth in comparative form the corresponding information for the preceding year and such financial statements shall be furnished to all shareholders within one hundred twenty days (unless extension of time is granted by the director) after the end of such year, but at least twenty days prior to the date of the annual meeting of shareholders.

(b) Such financial statements shall be prepared as to form and content in accordance with rules prescribed by the director and shall be audited (except that financial statements filed prior to July 1, 1976 need be audited only as to the most recent fiscal year) by an independent certified public accountant who is not an employee, officer or member of the board of directors of the issuer or a holder of securities of the issuer. The report of such independent certified public accountant shall be based upon an audit made in accordance with generally accepted auditing standards with no limitations on its scope.

(4) The director may by rule or order exempt any issuer or class of issuers from this section for a period of up to one year if the director finds that the filing of any such report by a specific issuer or class of issuers is not necessary for the protection of investors and the public interest.

(5) For the purposes of RCW 21.20.740 and 21.20.745, "issuer" does not include issuers of:

(a) Securities registered by the issuer pursuant to section 12 of the securities and exchange act of 1934 as now or hereafter amended or exempted from registration under that act on a basis other than the number of shareholders and total assets.

(b) Securities which are held of record by less than two hundred persons or whose total assets are less than $500,000 at the close of the issuer's fiscal year.

(6) Any issuer who has been required to file under RCW 21.20.740 and who subsequently becomes excluded from the definition of "issuer" by virtue of RCW 21.20.740(5) must file a certification setting forth the basis on which they claim to no longer be an issuer within the meaning of this chapter.

(7) The reports filed under this section shall be filed and maintained by the director for public inspection. Any person is entitled to receive copies thereof from the director upon payment of the reasonable costs of duplication.

(8) Filing of reports pursuant to this section shall not constitute an approval thereof by the director or a finding by the director that the report is true, complete and not misleading. It shall be unlawful to make, or cause to be made, to any prospective purchaser, seller, customer or client, any representation inconsistent with this subsection.

§ 69. REPORTS--REQUIREMENTS.  (1) Every issuer that has registered securities under Washington state securities law shall file with the director reports described in subsection (2) of this section.  Such reports shall be filed with the director not more than one hundred twenty days after the end of the issuer's fiscal year, unless an extension of time is granted by the director.

    (2) The reports required by subsection (1) of this section shall contain such information, statements, and documents regarding the financial and business conditions of the issuer and the number and description of securities of the issuer held by its officers, directors, and controlling equity owners and shall be in such form and filed at such annual times as the director may require by rule or order.  For the purposes of sections 63, 69, and 70 of this act, a "controlling equity owner" means a person who is directly or indirectly the beneficial holder of more than ten percent of the outstanding voting securities of an issuer.

    (3)(a) The reports described in subsection (2) of this section shall include financial statements corresponding to those required under the provisions of section 16 of this act and to the issuer's fiscal year setting forth in comparative form the corresponding information for the preceding year and such financial statements shall be furnished to all equity owners within one hundred twenty days after the end of such year, unless an extension of time is granted by the director, but at least twenty days prior to the date of the annual meeting of equity owners.

             (b) Such financial statements shall be prepared as to form and content in accordance with rules prescribed by the director and shall be audited by an independent certified public accountant who is not an employee, officer, or member of the board of directors of the issuer or a holder of securities of the issuer.  The report of such independent certified public accountant shall be based upon an audit made in accordance with generally accepted auditing standards with no limitations on its scope.

    (4) The director may by rule or order exempt any issuer or class of issuers from this section for a period of up to one year if the director finds that the filing of any such report by a specific issuer or class of issuers is not necessary for the protection of investors and the public interest.

    (5) For the purposes of this section and section 70 of this act, "issuer" does not include issuers of:

             (a) Securities registered by the issuer pursuant to Section 12 of the Securities and Exchange Act of 1934 as now or hereafter amended or exempted from registration under that act on a basis other than the number of shareholders and total assets; or

             (b) Securities which are held of record by less than two hundred persons or whose total assets are less than five hundred thousand dollars at the close of the issuer's fiscal year.

    (6) Any issuer who has been required to file under this section and who subsequently becomes excluded from the definition of "issuer" by subsection (5) of this section must file a certification setting forth the basis on which they claim to no longer be an issuer within the meaning of this chapter.

    (7) The reports filed under this section shall be filed and maintained by the director for public inspection.  Any person is entitled to receive copies thereof from the director upon payment of the reasonable costs of duplication.

    (8) Filing of reports pursuant to this section shall not constitute an approval thereof by the director or a finding by the director that the report is true, complete, and not misleading.  It shall be unlawful to make, or cause to be made, to any prospective purchaser, seller, customer, or client, any representation inconsistent with this subsection.

RCW

RCW 21.20.745  Reports -- Violations of reporting requirements -- Penalties -- Contribution.

(1) It is unlawful for any person, including the officers and directors of any issuer, to fail to file a report required by RCW 21.20.740 or to file any such report which contains an untrue statement of a material fact or an omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading unless such person did not know, and in the exercise of reasonable care could not have known, of the failure, untruth or omission. In addition to any other penalties or remedies provided by chapter 21.20 RCW, each officer and director of an issuer which violates this subsection shall be personally liable for damages as provided in subsection (2) of this section if such officer or director:

(a) Had actual notice of the issuer's duty to file reports;

(b) Knew, or in the exercise of reasonable care could have known of the violation; and

(c) Could have prevented the violation.

(2) Any issuer and other person who violate subsection (1) of this section shall be liable jointly and severally for the damages occasioned by such violation, together with reasonable attorney fees and costs to any person who, during the continuation of the violation and without actual notice of the violation, purchases or sells any securities of the issuer within six months following the date the violation commenced.

(3) No suit or action may be commenced under subsection (2) of this section more than one year after the purchase or sale.

(4) Any person held liable under this section shall be entitled to contribution from those jointly and severally liable with that person.

§ 70.  REPORTS--VIOLATIONS OF REPORTING REQUIREMENTS--PENALTIES--CONTRIBUTION.  (1) It is unlawful for any person, including the officers and directors of any issuer, to fail to file a report required by section 69 of this act or to file any such report which contains an untrue statement of a material fact or an omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading, unless the person sustains burden of proof that the person did not know and, in the exercise of reasonable care, could not have known of the failure, untruth, or omission.  In addition to any other penalties or remedies provided by this chapter, each officer and director of an issuer which violates this subsection shall be personally liable for damages as provided in subsection (2) of this section if such officer or director:

             (a) Had actual notice of the issuer's duty to file reports;

             (b) Knew, or in the exercise of reasonable care could have known, of the violation; and

             (c) Could have prevented the violation.

    (2) Any issuer and other person who violate subsection (1) of this section shall be liable jointly and severally for the damages occasioned by such violation, together with reasonable attorneys' fees and costs to any person who, during the continuation of the violation and without actual notice of the violation, purchases or sells any securities of the issuer within six months following the date the violation commenced.

    (3) No suit or action may be commenced under subsection (2) of this section more than one year after the purchase or sale.

    (4) Any person held liable under this section shall be entitled to contribution from those jointly and severally liable with that person.

RCW with updated language.

RCW 21.20.750  Reports -- Suspension of sale of securities until reporting requirements complied with.

In case of a violation of RCW 21.20.740 and 21.20.745, the director may suspend sale or trading by or through a broker-dealer of the securities of the issuer until the failure to file a report or statement or the inaccuracy or omissions in any report or statement are remedied as determined by the director.

§ 71.  REPORTS--SUSPENSION OF SALE OF SECURITIES UNTIL REPORTING REQUIREMENTS COMPLIED WITH.  In case of a violation of sections 69 and 70 of this act, the director may suspend sale or trading by or through a broker-dealer of the securities of the issuer until the failure to file a report or statement or the inaccuracy or omissions in any report or statement are remedied as determined by the director.

RCW

RCW 21.20.800  Severability -- 1973 1st ex.s. c 171.

If any provision of this 1973 amendatory act, or its application to any person or circumstance is held invalid, the remainder of the act, or the application of the provision to other persons or circumstances is not affected.

Eliminated

RCW 21.20.805  Effective date -- Construction -- 1973 1st ex.s. c 171.

*This 1973 amendatory act shall take effect on January 1, 1975: PROVIDED HOWEVER, That debenture companies registered pursuant to chapter 21.20 RCW as of January 1, 1974, and for which there are no stop orders outstanding shall have until January 1, 1975, to comply with the requirements of section 7 of this 1973 amendatory act.

Eliminated

RCW 21.20.810  Application of chapter not limited.

Nothing in RCW 21.20.700 through 21.20.750 and 21.20.815 through 21.20.855 limits the application of other provisions of this chapter.

§ 72.  Application of chapter not limited.  Nothing in sections 46(7), 59 through 71, and 73 through 111 of this act limits the application of other provisions of this chapter.

RCW

RCW 21.20.815  Debenture companies -- Equity investments.

(1) A debenture company shall not, without prior written consent of the director:

(a) Make equity investments in a single project or subsidiary of more than ten percent of its assets or of more than its net worth, whichever is greater; or

(b) Make equity investments, including investments in subsidiaries, other than investments in income-producing real property, which in the aggregate exceed twenty percent of its assets.

(2) For the purposes of this section, an equity investment does not include any acquisition of real property in satisfaction, or on account, of debts previously contracted in the regular course of the debenture company's business, or in satisfaction of judgments, vendors' interests in real property contracts, or liens if the real property has not been held by the debenture company for more than three years from the date it was acquired and any additional time permitted by the director.

§ 73.  DEBENTURE COMPANIES--EQUITY INVESTMENTS.  (1) A debenture company shall not, without prior written consent of the director:

       (a) Make equity investments in a single project or subsidiary of more than ten percent of its assets or of more than its net worth, whichever is greater; or

       (b) Make equity investments, including investments in subsidiaries, other than investments in income-producing real property, which in the aggregate exceed twenty percent of its assets.

   (2) For the purposes of this section, an equity investment does not include any real property, held by the debenture company for not more than three years, or such longer period as permitted by the director, which was acquired in satisfaction or on account of debts previously contracted in the regular course of the debenture company's business, judgments, vendors' interests in real property contracts, or liens.

   (3) If good cause is shown, the director may, in his or her discretion, waive or modify the requirements of this section.  In determining whether to make such a waiver or modification, the director may take into consideration the impact of the waiver or modification on the protection of investors and the safety and soundness of the debenture company and other appropriate factors.

RCW with updated language and additional discretionary waiver provision.

RCW 21.20.820  Debenture companies -- Loans to any one borrower -- Limitations.

(1) Except as provided in subsection (3) of this section, a debenture company shall not loan or invest in a loan or loans to any one borrower more than two and one-half percent of the debenture company's assets without prior written consent of the director.

(2) For the purpose of this section, loans made to affiliates of the borrower are deemed to have been made to the borrower.

(3)(a) If good cause is shown, the director may waive in whole or in part the limitation in subsection (1) of this section.

(b) A loan or obligation shall not be subject to the limitation in subsection (1) of this section to the extent that the loan is secured or covered by guarantee, or by commitment or agreement to take over or to purchase the loan, made by any federal reserve bank or by the United States or any department, bureau, board, commission, or establishment of the United States, including any corporation wholly owned directly or indirectly by the United States.

§ 74.  DEBENTURE COMPANIES--LOANS TO ANY ONE BORROWER--LIMITATIONS.  (1) Except as provided in subsection (3) of this section, a debenture company shall not loan or invest in a loan or loans to any one borrower more than two and one-half percent of the debenture company's assets without prior written consent of the director.

    (2) For the purpose of this section, loans made to affiliates of the borrower are deemed to have been made to the borrower.

    (3)(a) If good cause is shown, the director may, in his or her discretion, waive or modify subsection (1) of this section.  In determining whether to make such a waiver or modification, the director may take into consideration the impact of the waiver or modification on the protection of investors and the safety and soundness of the debenture company and other appropriate factors.

        (b) A loan or obligation shall not be subject to the limitation in subsection (1) of this section to the extent that the loan is secured or covered by guarantee, or by commitment or agreement to take over or to purchase the loan, made by any federal reserve bank or by the United States or any department, bureau, board, commission, or establishment of the United States, including any corporation wholly owned directly or indirectly by the United States.

RCW with updated language and additional discretionary waiver provision.

RCW 21.20.825  Debenture companies -- Bad debts.

(1) Any debt due a debenture company on which interest is one year or more past due and unpaid shall be considered a bad debt and shall be charged off the books of the debenture company unless:

(a) Such debt is well-secured and in the course of collection by legal process or probate proceedings; or

(b) Such debt is represented or secured by bonds having a determinable market value currently quoted on a national securities exchange, provided that in such case, such bonds shall be carried on the books of the debenture company at such value as the director may from time to time direct, but in no event may such carrying value exceed the market value thereof.

(2) A final judgment held by a debenture company shall not be considered an asset of the debenture company after two years from the date of its entry excluding any time for appeal unless extended by the director in writing for a specified period.

§ 75.  DEBENTURE COMPANIES--BAD DEBTS.  (1) Any debt due a debenture company on which interest is one year or more past due and unpaid shall be considered a bad debt and shall be charged off the books of the debenture company unless:

        (a) Such debt is well-secured and in the course of collection by legal process or probate proceedings; or

        (b) Such debt is represented or secured by bonds having a determinable market value currently quoted on a national securities exchange, provided that in such case, such bonds shall be carried on the books of the debenture company at such value as the director may from time to time direct, but in no event may such carrying value exceed the market value thereof.

    (2) A final judgment held by a debenture company shall not be considered an asset of the debenture company after two years from the date of its entry excluding any time for appeal unless extended by the director in writing for a specified period.

    (3) If good cause is shown, the director may, in his or her discretion, waive or modify the requirements of this section.  In determining whether to make such a waiver or modification, the director may take into consideration the impact of the waiver or modification on the protection of investors and the safety and soundness of the debenture company and other appropriate factors.

RCW with additional discretionary waiver provision.

RCW 21.20.830  Debenture companies -- Investments in unsecured loans.

(1) A debenture company shall not invest more than twenty percent of its assets in unsecured loans.

(2)(a) Except as provided in (b) of this subsection, a loan shall be deemed unsecured if the ascertained market value of the collateral securing the loan does not exceed one hundred twenty-five percent of the loan and all senior indebtedness.

(b) A loan shall not be deemed unsecured to the extent that the loan is guaranteed or insured by the federal housing administration, the administrator of veterans' affairs, the farmers home administration, or an insurer authorized to do business in this state, or any other guarantor or insurer approved by the director.

§ 76.  DEBENTURE COMPANIES--INVESTMENTS IN UNSECURED LOANS.  (1) A debenture company shall not invest more than twenty percent of its assets in unsecured loans.

    (2)(a) Except as provided in (b) of this subsection, a loan shall be deemed unsecured if the ascertained market value of the collateral securing the loan does not exceed one hundred twenty-five percent of the loan and all senior indebtedness.

        (b) A loan shall not be deemed unsecured to the extent that the loan is guaranteed or insured by the federal housing administration, the administrator of veterans' affairs, the farmers home administration, or an insurer authorized to do business in this state, or any other guarantor or insurer approved by the director.

    (3) If good cause is shown, the director may, in his or her discretion, waive or modify the requirements of this section.  In determining whether to make such a waiver or modification, the director may take into consideration the impact of the waiver or modification on the protection of investors and the safety and soundness of the debenture company and other appropriate factors.

RCW with additional discretionary waiver provision.

RCW 21.20.835  Debenture companies -- Debenture holders -- Notice of maturity date of debenture.

Every debenture company shall notify each of its debenture holders of the maturity date of the holder's debenture by sending a notice to the holder not more than forty-five days nor less than fifteen days prior to the maturity date of the debenture at the holder's last known address.

§ 77.  DEBENTURE COMPANIES--DEBENTURE HOLDERS--NOTICE OF MATURITY DATE OF DEBENTURE.  Every debenture company shall notify each of its debenture holders of the maturity date of the holder's debenture by sending a notice to the holder not more than forty-five days nor less than fifteen days prior to the maturity date of the debenture at the holder's last known address.

RCW

RCW 21.20.840  Debenture companies -- Annual financial statement.

A debenture company shall send annually and in a timely manner either a copy of its annual financial statements or a summary of its financial statements for the most recent fiscal year to each debenture holder at the debenture holder's last known address. If a summary is sent, the debenture company shall make available to any debenture holder upon request a copy of its complete annual financial statements for its most recent fiscal year.

§ 78.  DEBENTURE COMPANIES--ANNUAL FINANCIAL STATEMENT.  A debenture company shall send annually and in a timely manner either a copy of its annual financial statements or a summary of its financial statements for the most recent fiscal year to each debenture holder at the debenture holder's last known address.  If a summary is sent, the debenture company shall make available to any debenture holder upon request a copy of its complete annual financial statements for its most recent fiscal year.

RCW

RCW 21.20.845  Debenture companies -- Rules.

The director may adopt rules to govern examinations and reports of debenture companies and to otherwise govern the administration of debenture companies under this chapter.

§ 79.  DEBENTURE COMPANIES--RULES.  The director may adopt rules to govern examinations and reports of debenture companies and to otherwise govern the administration of debenture companies under this chapter.

RCW

RCW 21.20.850  Debenture companies -- Record maintenance and preservation -- Examination.

Every debenture company shall make and keep such accounts and other records as shall be prescribed by the director. All records so required shall be preserved for three years unless the director prescribes otherwise for particular types of records. All the records of a debenture company are subject at any time or from time to time to such reasonable periodic, special, or other examinations by representatives of the director, within or without this state, as the director deems necessary or appropriate in the public interest or for protection of investors.

§ 80.  DEBENTURE COMPANIES--RECORD MAINTENANCE AND PRESERVATION--EXAMINATION.  Every debenture company shall make and keep such accounts and other records as shall be prescribed by the director.  All records so required shall be preserved for three years unless the director prescribes otherwise for particular types of records.  All the records of a debenture company are subject at any time or from time to time to such reasonable periodic, special, or other examinations by representatives of the director, within or without this state, as the director deems necessary or appropriate in the public interest or for protection of investors.

RCW

RCW 21.20.855  Debenture companies -- Examination reports and information -- Exempt from public disclosure -- Use in civil actions.

(1) Examination reports and information obtained by the director or the director's representatives in conducting examinations pursuant to RCW 21.20.700 shall not be subject to public disclosure under chapter 42.17 RCW.

(2) In any civil action in which the reports are sought to be discovered or used as evidence, any party may, upon notice to the director, petition the court for an in camera review of the report. The court may permit discovery and introduction of only those portions of the report which are relevant and otherwise unobtainable by the requesting party. This subsection shall not apply to an action brought or defended by the director.

§ 81.  DEBENTURE COMPANIES--EXAMINATION REPORTS AND INFORMATION--EXEMPT FROM PUBLIC DISCLOSURE--USE IN CIVIL ACTIONS.  (1) Reports, working papers, documents, materials, or information produced by, obtained by, or disclosed to the director or the director's representatives in connection with an examination pursuant to section 46(7) of this act shall not be subject to public disclosure under chapter 42.56 RCW.

(2) In any civil action in which the reports are sought to be discovered or used as evidence, any party may, upon notice to the director, petition the court for an in camera review of the report.  The court may permit discovery and introduction of only those portions of the report that are relevant and otherwise unobtainable by the requesting party.  This subsection shall not apply to an action brought or defended by the director.

RCW with additions to conform to Z Bill § 51(2)(a).