WSR 98-17-013
PERMANENT RULES
DEPARTMENT OF
FINANCIAL INSTITUTIONS
(Securities Division)
[Filed August 10, 1998, 8:40 a.m.]
Date of Adoption: August 6, 1998.
Purpose: To foster greater uniformity, the Securities Division is adopting certain NASAA Statements of Policy in place of state-specific regulations on the same subjects. It is anticipated that such action would ease the burden of securities registration in this state by eliminating nonuniform regulations. In addition, the division is codifying various interpretive and policy statements as required pursuant to the Governor's Executive Order 97-02.
Citation of Existing Rules Affected by this Order: Repealing WAC 460-10A-050, 460-10A-060, 460-10A-130, 460-10A-180, 460-10A-190 through 460-10A-210, 460-16A-035, 460-16A-075, 460-16A-090 through 460-16A-111, 460-16A-150 through 460-16A-175, 460-16A-190 and 460-16A-210; and amending WAC 460-10A-160, 460-16A-020, 460-16A-115, 460-16A-120, 460-16A-205, 460-17A-030, 460-17A-040, and 460-17A-070.
Statutory Authority for Adoption: RCW 21.20.450.
Adopted under notice filed as WSR 98-14-074 on June 30, 1998.
Number of Sections Adopted in Order to Comply with Federal Statute: New 0, amended 0, repealed 0; Federal Rules or Standards: New 0, amended 0, repealed 0; or Recently Enacted State Statutes: New 0, amended 0, repealed 0.
Number of Sections Adopted at Request of a Nongovernmental Entity: New 0, amended 0, repealed 0.
Number of Sections Adopted on the Agency's Own Initiative: New 0, amended 8, repealed 24.
Number of Sections Adopted in Order to Clarify, Streamline, or Reform Agency Procedures: New 0, amended 8, repealed 24.
Number of Sections Adopted Using Negotiated Rule Making: New 0, amended 0, repealed 0; Pilot Rule Making: New 0, amended 0, repealed 0; or Other Alternative Rule Making: New 0, amended 8, repealed 24.
Other Findings Required by Other Provisions of Law as Precondition to Adoption or Effectiveness of Rule: No rule may be made unless the director of the Department of Financial Institutions finds that the action is necessary or appropriate in the public interest or for the protection of investors and consistent with the purposes fairly intended by the policy and provisions of chapter 21.20 RCW.
Effective Date of Rule: Thirty-one days after filing.
August 6, 1998
John L. Bley
Director
OTS-2244.1
AMENDATORY SECTION (Amending Order 304, filed 2/28/75, effective 4/1/75)
WAC 460-10A-00101 Definitions. The terms used in these rules shall have the meanings set forth in the statutes pursuant to which these rules are adopted, if defined therein, or the meanings expressed in the definitions contained in these rules.
Note: Additional definitions may be found in the North American Securities Administrators Association (NASAA) statement of policy regarding corporate securities definitions, which has been adopted pursuant to WAC 460-16A-205 (1)(m).
[Order 304, § 460-10A-000 (codified as WAC 460-10A-00101), filed 2/28/75, effective 4/1/75. Formerly chapter 460-10 WAC.]
AMENDATORY SECTION (Amending Order SDO-161-89, filed 10/11/89, effective 11/11/89)
WAC 460-10A-160 Nationally recognized securities manual.
For the purpose of ((RCW 21.20.320(2) ")) WAC 460-44A-100,
"Nationally recognized securities manual" shall mean: Fitch
Investors Service, Moodys Investors Service (((except for Moodys
International Manual))), and Standard and Poor's Corporation
Records((; provided that the outstanding securities of issuers
meet the following requirements:
(1) An entry describing the issuer and meeting the
informational requirements of RCW 21.20.320(2) was published in
Moodys Investors Service OTC-Industrial Manual and such an entry
has appeared continuously in that manual since August 9, 1986 and
the issuer has not subsequently reorganized, merged,
consolidated, or had a stock split; or
(2) An entry describing the issuer and meeting the
informational requirements of RCW 21.20.320(2) was published in
Fitch Investors Service, Standard and Poor's Corporation Records
or Moody's Investor Services (other than the OTC-Industrial
Manual and Moody's International Manual) and such an entry has
appeared continuously in that manual since September 30, 1989,
and the issuer has not subsequently reorganized, merged,
consolidated, or had a stock split; or
(3) Securities of the issuer have been registered with the
Securities and Exchange Commission pursuant to section 12 of the
Securities and Exchange Act of 1934, and the issuer has been
subject to the reporting requirements of section 13 of that act,
and has promptly filed all reports required by section 13 for the
three reporting periods immediately preceding the claim of the
RCW 21.20.320(2) transactional exemption; or
(4) The issuer is a unit investment trust registered under
section 8 of the Investment Company Act of 1940 and securities
involved were initially registered under RCW 21.20.140; or
(5)(a) The security is of a class which has been outstanding
in the hands of the public for at least ninety days; (b) the
issuer of the security is a going concern actually engaged in
business and not in the developmental stage or in bankruptcy or
receivership; and (c) the issuer of the security, including any
predecessors, has been in continuous operation for at least five
years)).
[Statutory Authority: RCW 21.20.450 and 21.20.320(2). 89-21-032 (Order SDO-161-89), § 460-10A-160, filed 10/11/89, effective 11/11/89; 86-15-023 (Order SDO-89-86), § 460-10A-160, filed 7/14/86; Order 342, § 460-10A-160, filed 9/29/75.]
REPEALER
The following sections of the Washington Administrative Code are repealed:
WAC 460-10A-050 Promotional shares defined.
WAC 460-10A-060 Affiliate.
WAC 460-10A-130 Person.
WAC 460-10A-180 Promoter.
WAC 460-10A-185 Control.
WAC 460-10A-190 Equity security.
WAC 460-10A-195 Promotional or developmental stage corporation.
WAC 460-10A-200 Public market.
WAC 460-10A-205 Significant earnings.
WAC 460-10A-210 Unaffiliated institutional investor.
OTS-2245.1
AMENDATORY SECTION (Amending Order 304, filed 2/28/75, effective 4/1/75)
WAC 460-16A-020 Interpretive opinions and no-action
letters. ((Each request for a written interpretive opinion of
the administrator shall be made in writing and shall fully set
forth the question presented and the particular facts and
circumstances upon which the opinion is requested. Each
interpretive opinion is applicable only to the transaction
identified in the request therefor, and may not be relied upon in
connection with any other transaction, and are discretionary with
the division.)) The administrator, in his or her discretion, may
honor requests from interested persons for no-action letters and
interpretive opinions. The following procedures must be followed
in requesting a no-action or interpretive opinion from the
division:
(1) The request must be submitted to the administrator in writing. The letter should be captioned with the name of the party who will be relying upon the administrator's response and should indicate that a no-action or interpretive opinion is sought. The filing fee required by RCW 21.20.340 must accompany the request.
(2) The requesting letter should cite the particular statutes or rules for which interpretation or no-action is sought.
(3) The names of all involved companies and parties should be disclosed. The division cannot issue interpretive or no-action letters relating to unnamed companies or individuals or hypothetical situations, nor on matters of pending, or in preparation for, litigation.
(4) The request should be tailored to resolving the immediate issues and should not attempt to discuss every possible situation that may arise in the future.
(5) The letter should be concise and contain all material facts necessary to resolve the issues at hand. Relevant supporting documents may be included, but are not a substitute for subsection (6) of this section.
(6) It is important that the letter identify the issues at hand, the proposed resolution, and the precedents or other legal authority supporting that position.
(7) The administrator will not issue no-action or interpretive opinions regarding the availability of exemptions pursuant to RCW 21.20.320(1).
Letters that are not prepared in accordance with the above-listed procedures may be returned to the sender for compliance.
[Order 304, § 460-16A-020, filed 2/28/75, effective 4/1/75. Formerly chapter 460-16 WAC.]
AMENDATORY SECTION (Amending Order 304, filed 2/28/75, effective 4/1/75)
WAC 460-16A-115 Reimbursement of expenses incurred by
promoters. Actual and necessary expenses paid by a promoter in
connection with the founding or organizing of a business
enterprise, the offering of its securities and the acquisition of
assets with which the issuer is to carry on its business may be
reimbursed out of the proceeds of the sale of securities,
subject, however, in the case of selling expenses to the
limitation on total selling expenses contained in WAC ((460-16A-075 of these rules)) 460-16A-205 (1)(t).
[Order 304, § 460-16A-115, filed 2/28/75, effective 4/1/75. Formerly chapter 460-16 WAC.]
AMENDATORY SECTION (Amending WSR 96-11-021, filed 5/6/96, effective 6/6/96)
WAC 460-16A-120 Price variance. (1) Securities of the same class to be offered under the same registration statement should be offered and sold at the same price.
(2) The administrator may waive the provision of subsection (1) of this section to allow reduced sales commissions for purchases of large blocks of the issuer's securities, provided the net proceeds from such sales are the same as those realized from the sale of securities at the full commission price.
[Statutory Authority: RCW 21.20.450. 96-11-021, § 460-16A-120, filed 5/6/96, effective 6/6/96; Order 304, § 460-16A-120, filed 2/28/75, effective 4/1/75. Formerly chapter 460-16 WAC.]
AMENDATORY SECTION (Amending WSR 96-11-017, filed 5/6/96, effective 6/6/96)
WAC 460-16A-205 Adoption of NASAA statements of policy. (1) In order to promote uniform regulation, the administrator adopts the following North American Securities Administrators Association (NASAA) statements of policy for offerings registering pursuant to RCW 21.20.180 or 21.20.210:
(a) Registration of publicly offered cattle feeding programs, as adopted September 17, 1980;
(b) Registration of commodity pool programs, as adopted with amendments through August 30, 1990;
(c) Equipment programs, as adopted with amendments through
((March 29, 1992)) October 24, 1991;
(d) Registration of oil and gas programs, as adopted with
amendments through ((March 29, 1992)) October 24, 1991;
(e) Real estate investment trusts, as adopted with amendments through September 29, 1993;
(f) Real estate programs, as adopted with amendments through
((March 29, 1992)) October 24, 1991;
(g) Loans and other material affiliated transactions, as
adopted with amendments through ((April 25, 1993)) November 18,
1997;
(h) Options and warrants, as adopted with amendments through
((April 25, 1993)) November 18, 1997;
(i) Registration of direct participation programs - omnibus guidelines, as adopted March 29, 1992;
(j) ((Registration of periodic payment plans, as adopted
March 29, 1992;)) Mortgage program guidelines, as adopted
September 10, 1996;
(k) Church bonds, as adopted April 29, 1981;
(l) Health care facility offerings, pertaining to the offering of nonprofit health care facility bonds, as adopted April 5, 1985;
(m) ((Investment companies investing in debt securities
rated below investment grade, as adopted April 17, 1994;))
Corporate securities definitions, as adopted April 27, 1997;
(n) ((Registration of master fund/feeder funds, as adopted
September 15, 1992;)) Impoundment of proceeds, as adopted with
amendments through April 27, 1997;
(o) ((Telephone transactions, as adopted September 29, 1993;
and)) Preferred stock, as adopted with amendments through April
27, 1997;
(p) Promotional shares, as adopted ((September 3, 1987))
November 18, 1997, except that the term promotional shares shall
be limited to those equity securities which were issued within
the last three years and that all promotional shares in excess of
twenty-five percent of the shares to be outstanding upon
completion of the offering may be required to be deposited in
escrow absent adequate justification that escrow of such shares
is not in the public interest and not necessary for the
protection of investors; ((and))
(q) Registration of asset-backed securities, as adopted October 25, 1995, except for offerings registering or required to register pursuant to chapter 460-33A WAC or RCW 21.20.705 through 21.20.855;
(r) Promoters' equity investment, as adopted with amendments through April 27, 1997;
(s) Specificity in use of proceeds, as adopted April 27, 1997;
(t) Underwriting expenses, underwriter's warrants, selling expenses, and selling security holders, as adopted with amendments through April 27, 1997;
(u) Unsound financial condition, as adopted April 27, 1997; and
(v) Unequal voting rights, as adopted October 24, 1991.
(2) An offering registering pursuant to RCW 21.20.180 or 21.20.210 that falls within one or more of the statements of policy listed in subsection (1) of this section must comply with the requirements of said statement of policy or policies.
(3) The statements of policy referred to in subsection (1) of this section are found in CCH NASAA Reports published by Commerce Clearing House. Copies are also available at the office of the securities administrator.
[Statutory Authority: RCW 21.20.450. 96-11-017, § 460-16A-205, filed 5/6/96, effective 6/6/96; 95-17-068, § 460-16A-205, filed 8/16/95, effective 9/16/95; 93-01-075, § 460-16A-205, filed 12/14/92, effective 1/14/93; 91-04-008, § 460-16A-205, filed 1/25/91, effective 2/25/91.]
REPEALER
The following sections of the Washington Administrative Code are repealed:
WAC 460-16A-035 Voting rights of common stock.
WAC 460-16A-075 Selling expenses.
WAC 460-16A-090 Pro rata options to shareholders.
WAC 460-16A-095 Options to purchasers of debt securities.
WAC 460-16A-110 Rights of promotional shares.
WAC 460-16A-111 Equity investment of promoters.
WAC 460-16A-150 Imposition of impound condition.
WAC 460-16A-155 Operation of impound condition.
WAC 460-16A-156 Source of impound deposits.
WAC 460-16A-160 Subscription agreements and purchase receipts.
WAC 460-16A-165 Depositary.
WAC 460-16A-170 Release of impounds.
WAC 460-16A-175 Failure to comply with impound condition.
WAC 460-16A-190 Petition for repeal or adoption of new rules.
WAC 460-16A-210 Prohibited practices with regard to preferred stock.
OTS-2246.1
AMENDATORY SECTION (Amending WSR 96-11-027, filed 5/6/96, effective 6/6/96)
WAC 460-17A-030 Availability. (1) SCOR is intended to allow small companies to conduct limited offerings of securities. SCOR uses a simplified offering format designed to provide adequate disclosure to investors concerning the issuer, the securities offered, and the offering itself. Certain issuers may not be able to make adequate disclosure using the SCOR format and will, therefore, be unable to utilize SCOR. The administrator finds that SCOR is generally unsuitable for the following issuers and programs and that, therefore, they will not be allowed to utilize SCOR unless written permission is obtained from the administrator based upon a showing that adequate disclosure can be made to investors using the SCOR format:
(a) Holding companies, companies whose principal purpose is owning stock in, or supervising the management of, other companies;
(b) Portfolio companies, such as a real estate investment
trusts ((as defined in Section (1)(q) of the North American
Securities Administrators Association's Statement of Policy
regarding real estate investment trusts as adopted by the
administrator in WAC 460-16A-205 (1)(e)));
(c) Issuers with complex capital structures;
(d) Commodity pools;
(e) Equipment leasing programs; and
(f) Real estate programs.
(2) These rules are available only to the issuer of the securities and not to any affiliate of that issuer or to any other person for resale of the issuer's securities. In addition, each of the following requirements must be met:
(a) The issuer must be a corporation or centrally managed
limited liability company organized under the law((s of one of
the states or possessions)) of the United States or Canada, or
any state, province, or territory or possession thereof, or the
District of Columbia, and have its principal place of business in
one of the foregoing.
(b) The issuer must engage in a business other than petroleum exploration or production or mining or other extractive industries.
(c) ((The offering is not a "blind pool" or other offering
for which the specific business to be engaged in or property to
be acquired by the issuer cannot be specified.)) The issuer is
not a development stage company that either has no specific
business plan or purpose or has indicated that its business plan
is to engage in merger or acquisition with an unidentified
company or companies or other entity or person.
(d) 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
$1.00 per share. The offering price for common ownership
interests in limited liability company (and the exercise price,
if the securities are options, warrants, or rights for common
ownership interests, and the conversion price if the securities
are convertible into common ownership interests) must be equal to
or greater than (($100.00)) $1.00 per unit of interest.
(e) The aggregate offering price of the securities offered (within or outside this state) shall not exceed $1,000,000 less the aggregate offering price of all securities sold within the twelve months before the start of and during the offering of the securities under Securities and Exchange Commission Rule 504 in reliance on any exemption under section 3(b) of the Securities Act of 1933, in reliance on the exemption under section 3 (a)(11) of that act, or in violation of section 5(a) of that act.
(3) SCOR registration is not available to investment companies subject to the Investment Company Act of 1940, nor is it available to issuers subject to the reporting requirements of section 13 or section 15(d) of the Securities Exchange Act of 1934.
[Statutory Authority: RCW 21.20.450. 96-11-027, § 460-17A-030, filed 5/6/96, effective 6/6/96; 91-04-009, § 460-17A-030, filed 1/25/91, effective 2/25/91; 88-17-012 (Order SDO-048-88), § 460-17A-030, filed 8/8/88.]
AMENDATORY SECTION (Amending WSR 96-11-027, filed 5/6/96, effective 6/6/96)
WAC 460-17A-040 Disqualification from use of SCOR registration. (1) SCOR registration shall not be available for securities of any issuer if that issuer or any of its officers, directors, ten percent shareholders, promoters or any selling agents of the securities to be offered, or any officer, director, or partner of such selling agent:
(((1))) (a) Has filed ((a)) an application for registration
((statement)) which is the subject of a currently effective
registration stop order entered pursuant to any federal ((or)),
state, or provincial securities law within five years prior to
the filing of the SCOR registration application;
(((2))) (b) Has been convicted within five years prior to
the filing of the SCOR registration application of any felony or
misdemeanor in connection with the offer, purchase or sale of any
security or any felony involving fraud or deceit, including, but
not limited to, forgery, embezzlement, obtaining money under
false pretenses, larceny, or conspiracy to defraud;
(((3))) (c) Is currently subject to any federal ((or)),
state, or provincial administrative enforcement order or judgment
entered by any state or provincial securities administrator or
the Securities and Exchange Commission within five years prior to
the filing of the SCOR registration application ((or));
(d) Is subject to any federal ((or)), state, or provincial
administrative enforcement order or judgment in which fraud or
deceit, including but not limited to making untrue statements of
material facts and omitting to state material facts, was found
and the order or judgment was entered within five years prior to
the filing of the SCOR registration application;
(((4))) (e) Is subject to any federal ((or)), state, or
provincial administrative enforcement order or judgment which
prohibits, denies, or revokes the use of any exemption from
registration in connection with ((this)) the offer, purchase, or
sale of securities;
(((5))) (f) 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)), or permanently ((restraining or enjoining))
restrains or enjoins such 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 any false filing with
any state or with the Securities and Exchange Commission, entered
within five years prior to the filing of the SCOR registration
application; ((provided, however,)) or
(g) Has violated the law of a foreign jurisdiction governing or regulating any aspect of the business of securities or banking or, within the past five years, has been the subject of an action of a securities regulator of a foreign jurisdiction denying, revoking, or suspending the right to engage in the business of securities as a broker-dealer, agent, or investment adviser or is the subject of an action of any securities exchange or self-regulatory organization operating under the authority of the securities regulator of a foreign jurisdiction suspending or expelling such person from membership in such exchange or self-regulatory organization.
(2) The prohibitions of ((this subsection and))
subsection((s)) (1)(a) through (((3))) (c) and (e) of this
section shall not apply if the person subject to the
disqualification is duly licensed or registered to conduct
securities related business in the state or province in which the
administrative order or judgment was entered against such person,
or if the broker-dealer employing such ((party)) person is
licensed or registered in this state and the Form BD filed in
this state discloses the order, conviction, judgment, or decree
relating to such person.
(3) No person disqualified under this section may act in any
capacity other than that for which the person is licensed or
registered. Any disqualification caused by this section is
automatically waived if the ((state securities administrator or
other state or federal agency)) jurisdiction which created the
basis for disqualification determines upon a showing of good
cause that it is not necessary under the circumstances that ((the
exemption)) registration be denied.
[Statutory Authority: RCW 21.20.450. 96-11-027, § 460-17A-040, filed 5/6/96, effective 6/6/96; 88-17-012 (Order SDO-048-88), § 460-17A-040, filed 8/8/88.]
AMENDATORY SECTION (Amending WSR 96-11-027, filed 5/6/96, effective 6/6/96)
WAC 460-17A-070 Application of chapter 460-16A WAC to registrations under this chapter. The provisions of chapter 460-16A WAC shall not apply to registrations under this chapter except:
(1) The promotional shares rules adopted in WAC 460-16A-205 (1)(p) shall apply except that promotional shares need be escrowed only to the extent that such shares exceed sixty percent of the shares to be outstanding upon the completion of the offering;
(2) ((The impound provisions of WAC 460-16A-150 through 460-16A-175 shall apply;
(3) WAC 460-16A-035 shall apply;
(4) WAC 460-16A-075 shall apply except that for offerings
with an aggregate offering price of under $500,000 selling
expenses which do not exceed twenty percent of the offering price
will be considered reasonable so long as total compensation paid
to any underwriter does not exceed fifteen percent;
(5) WAC 460-16A-200 shall apply;
(6) WAC 460-16A-210 shall apply;
(7))) The loan and material affiliated transaction
provisions of WAC 460-16A-205 (1)(g) shall apply except that the
independent director requirements may be waived;
(3) The options and warrants provisions of WAC 460-16A-205 (1)(h) shall apply;
(4) WAC 460-16A-205 (1)(t), concerning selling and underwriting expenses, shall apply;
(5) The impoundment of proceeds provisions of WAC 460-16A-205 (1)(n) shall apply;
(6) WAC 460-16A-205 (1)(s), concerning specificity in the use of proceeds, shall apply;
(7) WAC 460-16A-205 (1)(u) may be applied to issuers in unsound financial condition;
(8) The preferred stock provisions of WAC 460-16A-205 (1)(o) shall apply;
(9) WAC 460-16A-205 (1)(v), concerning unequal voting rights, shall apply; and
(10) The administrator reserves the right to apply chapter 460-16A WAC (or any provision therein) to offerings under this chapter if the administrator determines that such application, even in the small business offering context, is necessary for the protection of investors.
[Statutory Authority: RCW 21.20.450. 96-11-027, § 460-17A-070, filed 5/6/96, effective 6/6/96; 91-04-009, § 460-17A-070, filed 1/25/91, effective 2/25/91. Statutory Authority: RCW 21.20.210, 21.20.240, 21.20.250 and 21.20.450. 88-17-012 (Order SDO-048-88), § 460-17A-070, filed 8/8/88.]