AN ACT Relating to debt-related securities; amending RCW 21.20.705, 21.20.715, 21.20.720, and 21.20.320; adding new sections to chapter 21.20 RCW; prescribing penalties; and providing an effective date.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

Sec. 1. Section 6, chapter 171, Laws of 1973 1st ex. sess. as amended by section 1, chapter 140, Laws of 1979 and RCW 21.20.705 are each amended to read as follows:

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~~)) to be used as operating funds of the issuer, which is offered or sold in this state ((~~and is required to be registered under the provisions of this chapter;~~)), and which issuer is engaged or proposes to engage in the business of investing, reinvesting, owning, holding, ((~~leasing,~~)) or trading in: (a) Notes, or other debt obligations, whether or not secured by real ((~~or chattel mortgages, deeds of trust, land, land~~)) or personal property ((~~contracts, or security agreements and financing statements under the uniform commercial code~~)); (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);

(2) "Supervisor" means the supervisor of banking;

(3) "Acquiring party" means the person acquiring control of a debenture company through the purchase of stock; and

(4) "Person" means any individual, corporation, partnership, association, business trust, or other organization.

Sec. 2. Section 8, chapter 171, Laws of 1973 1st ex. sess. and RCW 21.20.715 are each amended to read as follows:

Any debenture company offering debt securities to the public shall provide that at least fifty percent of the amount of those securities sold ((~~after July 1, 1973, shall~~)) have maturity dates of two years or more.

NEW SECTION. Sec. 3. For purposes of the provisions of this chapter relating to debenture companies:

(1) A company or shareholder shall be deemed to have control over another company if:

(a) Such company or shareholder, 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 the other company;

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

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

(2) Notwithstanding any other provision of this chapter, no company may be deemed to own or control another company by virtue of its ownership or control of shares in a fiduciary capacity, except as provided in section 6 (1)(b) of this act or if the company owning or controlling such shares is a business trust.

Sec. 4. Section 9, chapter 171, Laws of 1973 1st ex. sess. as last amended by section 41, chapter 68, Laws of 1979 ex. sess. and RCW 21.20.720 are each amended to read as follows:

(1) A director ((or)), 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 ((~~depositor~~)) 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) ((~~Neither~~)) A director ((~~nor~~)), 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 licensing 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 ((or)), 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.

NEW SECTION. Sec. 5. (1) A debenture company and its subsidiaries may engage in a covered transaction with an affiliate only if:

(a) In the case of any affiliate, the aggregate amount of covered transactions of the debenture company and its subsidiaries will not exceed ten percent of the capital stock and surplus of the debenture company; and

(b) In the case of all affiliates, the aggregate amount of covered transactions of the debenture company and its subsidiaries will not exceed twenty percent of the capital stock and surplus of the debenture company.

(2) For the purpose of this section, any transaction by a debenture company with any person shall be deemed to be a transaction with an affiliate to the extent that the proceeds of the transaction are used for the benefit of, or transferred to, that affiliate.

(3) A debenture company and its subsidiaries may not purchase a low-quality asset from an affiliate unless the debenture company or such subsidiary, pursuant to an independent credit evaluation, committed itself to purchase such asset prior to the time such asset was acquired by the affiliate.

(4) Any covered transactions and any transactions exempt under section 8 of this act between a debenture company and an affiliate shall be on terms and conditions that are consistent with safe and sound practices.

NEW SECTION. Sec. 6. For the purpose of sections 5 through 9 of this act:

(1) The term "affiliate" with respect to a debenture company means:

(a) Any company that controls the debenture company and any other company that is controlled by the company that controls the debenture company;

(b) Any company:

(i) That is controlled directly or indirectly, by a trust or otherwise, by or for the benefit of shareholders who beneficially or otherwise control, directly or indirectly, by trust or otherwise, the debenture company or any company that controls the debenture company; or

(ii) In which a majority of its directors or trustees constitute a majority of the persons holding any such office with the debenture company or any company that controls the debenture company;

(c)(i) Any company, including a real estate investment trust, that is sponsored and advised on a contractual basis by the debenture company or any subsidiary or affiliate of the debenture company; or

(ii) Any investment company with respect to which a debenture company or any affiliate thereof is an investment advisor as defined in section 80a-2(a)(20) of Title 15 U.S.C.; and

(d) Any company that the director determines by regulation or order to have a relationship with the debenture company or any subsidiary or affiliate of the debenture company such that covered transactions by the debenture company or its subsidiary with that company may be affected by the relationship to the detriment of the debenture company or its subsidiary.

(2) The following shall not be considered to be an affiliate:

(a) Any company that is a subsidiary of a debenture company, unless a determination is made under subsection (1)(d) of this section not to exclude such subsidiary company from the definition of affiliate; and

(b) Any company where control results from the exercise of rights arising out of a bona fide debt previously contracted, but only for the period of time specifically authorized under applicable state or federal law or regulation or, in the absence of such law or regulation, for a period of two years from the date of the exercise of such rights or the effective date of this section, whichever date is later, subject, upon application, to authorization by the director for good cause shown of extensions of time for not more than one year at a time, but such extensions in the aggregate shall not exceed three years.

(3) The term "subsidiary" with respect to a specified company means a company that is controlled by such specified company.

(4) The term "company" means a corporation, partnership, business trust, association, or similar organization and, unless specifically excluded, the term "company" includes a "debenture company."

(5) The term "covered transaction" means with respect to an affiliate of a debenture company:

(a) A loan or extension of credit to the affiliate;

(b) A purchase of or an investment in securities issued by the affiliate;

(c) A purchase of assets, including assets subject to an agreement to repurchase, from the affiliate, except such purchase of real and personal property as may be specifically exempted by the director by order or regulation;

(d) The acceptance of securities issued by the affiliate as collateral security for a loan or extension of credit to any person or company; or

(e) The issuance of a guarantee, acceptance, or letter of credit, including an endorsement or standby letter of credit, on behalf of an affiliate.

(6) The term "aggregate amount of covered transactions" means the amount of the covered transactions about to be engaged in added to the current amount of all outstanding covered transactions.

(7) The term "low-quality asset" means an asset that falls in any one or more of the following categories:

(a) An asset classified as " substandard," "doubtful," or "loss" or treated as "other loans especially mentioned" in the most recent report of examination or inspection of an affiliate prepared by either a federal or state supervisory agency;

(b) An asset in a nonaccrual status;

(d) An asset whose terms have been renegotiated or compromised due to the deteriorating financial condition of the obligor.

NEW SECTION. Sec. 7. (1) Each loan or extension of credit to, or guarantee, acceptance, or letter of credit issued on behalf of, an affiliate by a debenture company or its subsidiary shall be secured at the time of the transaction by collateral having a market value equal to:

(a) One hundred percent of the amount of such loan or extension of credit, guarantee, acceptance, or letter of credit, if the collateral is composed of:

(i) Obligations of the United States or its agencies;

(ii) Obligations fully guaranteed by the United States or its agencies as to principal and interest; or

(iii) Notes, drafts, bills of exchange, or bankers' acceptances that are eligible for rediscount or purchase by a federal reserve bank;

(b) One hundred ten percent of the amount of such loan or extension of credit, guarantee, acceptance, or letter of credit if the collateral is composed of obligations of any state or political subdivision of any state;

(c) One hundred twenty percent of the amount of such loan or extension of credit, guarantee, acceptance, or letter of credit if the collateral is composed of other debt instruments, including receivables; or

(d) One hundred thirty percent of the amount of such loan or extension of credit, guarantee, acceptance, or letter of credit if the collateral is composed of stock, leases, or other real or personal property.

(2) Any such collateral that is subsequently retired or amortized shall be replaced by additional eligible collateral where needed to keep the percentage of the collateral value relative to the amount of the outstanding loan or extension of credit, guarantee, acceptance, or letter of credit equal to the minimum percentage required at the inception of the transaction.

(3) A low-quality asset shall not be acceptable as collateral for a loan or extension of credit to, or guarantee, acceptance, or letter of credit issued on behalf of, an affiliate.

(4) The securities issued by an affiliate of the debenture company shall not be acceptable as collateral for a loan or extension of credit to, or guarantee, acceptance, or letter of credit issued on behalf of, that affiliate or any other affiliate of the debenture company.

NEW SECTION. Sec. 8. The provisions of sections 5 through 9 of this act, except section 5(4) of this act, shall not be applicable to:

(1) Giving immediate credit to an affiliate for uncollected items received in the ordinary course of business;

(2) Making a loan or extension of credit to, or issuing a guarantee, acceptance, or letter of credit on behalf of, an affiliate that is fully secured by:

(a) Obligations of the United States or its agencies; or

(b) Obligations fully guaranteed by the United States or its agencies as to principal and interest;

(3) Purchasing assets having a readily identifiable and publicly available market quotation and purchased at that market quotation; and

(4) Purchasing from an affiliate a loan or extension of credit that was originated by the debenture company and sold to the affiliate subject to a repurchase agreement or with recourse.

NEW SECTION. Sec. 9. (1) The director may issue such further regulations and orders, including definitions consistent with sections 5 through 8 of this act, as may be necessary to administer and carry out the purposes of sections 5 through 8 of this act and to prevent evasions thereof.

(2) The director may, at the director's discretion, by regulation or order exempt transactions or relationships from the requirements of sections 5 through 8 of this act if the director finds such exemptions to be in the public interest and consistent with the purposes of sections 5 through 8 of this act.

NEW SECTION. Sec. 10. (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;

(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.

NEW SECTION. Sec. 11. The director may disapprove the acquisition of a debenture company within thirty days after the filing of a complete application under section 10 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; or

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

NEW SECTION. Sec. 12. (1) A debenture company:

(a) May acquire any interest in unimproved or improved real property;

(b) May construct, alter, and manage improvements of any description on real estate in which it holds a substantial equity interest.

(2) The powers granted under subsection (1) of this section do not include, and a debenture company shall not:

(a) Manage any real property in which the debenture company does not own a substantial equity interest;

(b) Engage in activities of selling, leasing, or otherwise dealing in real property as an agent or broker; or

(c) Acquire any equity interest in any one to four family dwelling that is used as a principal residence by the owner of the dwelling; however, this shall not prohibit a debenture company from making loans secured by such dwelling where all or part of the debenture company's anticipated compensation results from the appreciation and sale of such dwelling.

(3) The aggregate amount of funds invested under this section shall not exceed one hundred percent of a debenture company's capital surplus and undivided profits.

(4) The supervisor shall limit the amount that may be invested in a single project investment and may adopt any rule necessary to the safe and sound exercise of powers granted by this section.

NEW SECTION. Sec. 13. The total loans and extensions of credit by the debenture company to a person outstanding at any one time shall not exceed twenty percent of the capital and surplus of such debenture company. The following loans and extensions of credit shall not be subject to this limitation:

(1) Loans or extensions of credit secured by bonds, notes, certificates of indebtedness, or treasury bills of the United States or by other such obligations wholly guaranteed as to principal and interest by the United States;

(2) Loans or extensions of credit to or secured by unconditional takeout commitments or guarantees of any department, agency, bureau, board, commission, or establishment of the United States or any corporation wholly owned directly or indirectly by the United States.

(3) Loans or extensions of credit secured by collateral having a readily ascertained market value of at least one hundred fifteen percent of the outstanding amount of the loan or extension of credit.

For the purposes of this section, "capital" includes the amount of common stock outstanding and unimpaired, the amount of preferred stock outstanding and unimpaired, and capital notes or debentures issued pursuant to chapter 21.20 RCW.

For the purposes of this section, "surplus" includes capital surplus, reflecting the amounts paid in excess of the par or stated value of capital stock or amounts contributed to the debenture company other than for capital stock, and amounts transferred to surplus from undivided profits pursuant to resolution of the board of directors.

The term "person" includes any individual, sole proprietor, partnership, joint venture, association, trust, estate, business trust, corporation, sovereign government or agency, instrumentality, or political subdivision thereof, or any similar entity or organization.

The supervisor may prescribe rules to administer and carry out the purposes of this section, including rules to define or further define terms used in this section and to establish limits or requirements other than those specified in this section for particular classes or categories of loans or extensions of credit, and to determine when a loan putatively made to a person shall, for purposes of this section, be attributed to another person.

NEW SECTION. Sec. 14. (1) All examination reports and all information obtained by the supervisor and the supervisor's staff in conducting examinations of debenture companies is confidential and privileged information and shall not be made public or otherwise disclosed to any person, firm, corporation, agency, association, governmental body, or other entity.

(2) Subsection (1) of this section notwithstanding, the supervisor may furnish all or any part of the examination reports prepared by the supervisor's office to:

(a) Federal and state agencies empowered to investigate debenture companies;

(b) Officials empowered to investigate criminal charges subject to legal process, valid search warrant, or subpoena;

(d) The attorney general in his or her role as legal advisor to the supervisor;

(e) Liquidating agents of a distressed debenture company;

(f) A person or organization officially connected with the debenture company as officer, director, attorney, auditor, or independent attorney or independent auditor.

(3) All examination reports furnished under subsections (2) and (4) of this section shall remain the property of the division of banking, and be confidential and no person, agency, or authority to whom reports are furnished or any officer, director, or employee thereof may disclose or make public any of the reports or any information contained therein except in published statistical material that does not disclose the affairs of any individual or corporation: PROVIDED, That nothing in this section prevents the use in criminal prosecution of reports furnished under subsection(2) of this section.

(4) The examination report made by the division of banking is designed for use in the supervision of the debenture company. The report shall remain the property of the supervisor and shall be furnished to the debenture company solely for its confidential use. Under no circumstances may the debenture company or any of its directors, officers, or employees disclose or make public in any manner the report or any portion thereof, to any person or organization not connected with the debenture company as officer, director, employee, attorney, auditor, or candidate for executive office with the debenture company. The debenture company may also, after execution of an agreement not to disclose information in the report, disclose the report or relevant portions thereof to a party proposing to acquire or merge with the debenture company.

(5) Examination reports and information obtained by the supervisor and the supervisor's staff in conducting examinations shall not be subject to public disclosure under chapter 42.17 RCW.

(6) In any civil action in which the reports are sought to be discovered or used as evidence, any party may, upon notice to the supervisor, 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 does not apply to an action brought or defended by the supervisor.

NEW SECTION. Sec. 15. The supervisor may adopt uniform rules under chapter 34.04 RCW to govern examinations and reports of debenture companies, the form in which they report their assets, liabilities, and reserves, charge off bad debts, and otherwise keep their records and accounts, and otherwise to govern the administration of debenture companies under this chapter.

The supervisor shall have the power, and broad administrative discretion, to administer and interpret the provisions of this chapter relating to debenture companies to facilitate the financial stability of debenture companies and to protect the public interest.

NEW SECTION. Sec. 16. Violation of any rule by a debenture company or its officers, employees, or agents, in addition to any other penalty provided in this title, shall subject the offender to a penalty of one hundred dollars for each offense, to be recovered by the attorney general in a civil action in the name of the state. Each day's continuance of the violation shall be a separate and distinct offense.

NEW SECTION. Sec. 17. The supervisor or one of the supervisor's employees, without previous notice, shall visit each debenture company at least once every eighteen months, and oftener if necessary, for the purpose of making a full investigation into the condition of such company, and for that purpose may administer oaths and examine under oath any director, officer, employee, or agent of such company. The supervisor may make such other full or partial examinations as deemed necessary and may examine any other company that owns any portion of a debenture company located in the state of Washington. The supervisor may visit and examine into the affairs of any nonpublicly held corporation in which the debenture company has an investment or any publicly held corporation the capital stock of which is controlled by the debenture company; may appraise and revalue such corporations' investments and securities; and shall have full access to all the books, records, papers, securities, correspondence, bank accounts, and other papers of such corporations for such purposes. Any wilful false swearing in any examination under this section shall be punished as perjury in the second degree under RCW 9A.72.030.

NEW SECTION. Sec. 18. The supervisor shall collect from each debenture company for each examination of its condition, and for supervision and enforcement, the estimated cost of such examination, supervision, and enforcement.

NEW SECTION. Sec. 19. Each official communication, directed by the supervisor or by one of the supervisor's deputies to any debenture company or to any officer thereof relating to an investigation or examination conducted by the banking department or containing suggestions or recommendations relative to the conduct of the business of the debenture company shall be submitted by the officer receiving it to the board of directors at the next meeting of such board and shall be duly noted in the minutes of the meeting of such board.

NEW SECTION. Sec. 20. No person may engage in a debenture business except in compliance with and subject to the provisions of this title.

NEW SECTION. Sec. 21. (1) The supervisor may issue and serve upon a debenture company a notice of charges if in the opinion of the supervisor 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 the law, a rule, or any condition imposed in writing by the supervisor in connection with the granting of any application or other request by the debenture company or any written agreement made with the supervisor; 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 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 not earlier than ten days nor later than thirty days after service of the notice unless a later date is set by the supervisor at the request of the debenture company.

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 this consent or if upon the record made at the hearing the supervisor finds that any violation or practice specified in the notice of charges has been established, the supervisor may issue and serve upon the debenture company an order to cease and desist from the violation or practice. The order may require the debenture company and its directors, officers, employees, and agents to cease and desist from the violation or practice and may require the debenture company to take affirmative action to correct the conditions resulting from the violation 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 supervisor or a reviewing court.

NEW SECTION. Sec. 22. Whenever the supervisor determines that the acts specified in section 21 of this act or their 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 depositors, the supervisor may also issue a temporary order requiring the debenture company to cease and desist from the violation or practice. The order shall become effective upon service on the debenture company and shall remain effective unless set aside, limited, or suspended by a court in proceedings under section 21 of this act pending the completion of the administrative proceedings under the notice and until such time as the supervisor 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 21 of this act.

NEW SECTION. Sec. 23. Within ten days after a debenture company has been served with a temporary cease and desist order, the debenture company may apply to the superior court in the county of its principal place of business for an injunction setting aside, limiting, or suspending the order pending the completion of the administrative proceedings pursuant to the notice served under section 21 of this act.

The superior court shall have jurisdiction to issue the injunction.

NEW SECTION. Sec. 24. In the case of a violation or threatened violation of a temporary cease and desist order issued under section 22 of this act, the supervisor may apply to the superior court of the county of the principal place of business of the debenture company for an injunction to enforce the order, and the court shall issue an injunction if it determines that there has been a violation or threatened violation.

NEW SECTION. Sec. 25. (1) Any administrative hearing provided in section 21 of this act may be held at such place as is designated by the supervisor and shall be conducted in accordance with chapter 34.04 RCW. Within sixty days after the hearing the supervisor shall render a decision which shall include findings of fact upon which the decision is based and shall issue and serve upon each party to the proceeding an order or orders consistent with section 16 of this act.

Unless a petition for review is timely filed in the superior court of the county of the principal place of business of the affected debenture company under subsection (2) of this section and until the record in the proceeding has been filed as therein provided, the supervisor may at any time modify, terminate, or set aside any order upon such notice and in such manner as the supervisor considers proper. Upon filing the record, the supervisor may modify, terminate, or set aside any order only with permission of the court.

The judicial review provided in this section for an order is exclusive.

(2) Any party to the proceeding or any person required by an order issued under sections 21 through 24 of this act to refrain from any of the violations or practices stated therein may obtain a review of any order served under subsection (1) of this section other than one issued upon consent by filing in the superior court of the county of the principal place of business of the affected debenture company within ten days after the date of service of the order a written petition praying that the order of the supervisor be modified, terminated, or set aside. A copy of the petition shall be immediately served upon the supervisor and the supervisor shall then file in the court the record of the proceeding. The court shall have jurisdiction upon the filing of the petition, which jurisdiction shall become exclusive upon the filing of the record to affirm, modify, terminate, or set aside in whole or in part the order of the supervisor except that the supervisor may modify, terminate, or set aside an order with the permission of the court. The judgment and decree of the court shall be final, except that it is subject to appellate review under the rules of court.

(3) The commencement of proceedings for judicial review under subsection (2) of this section shall not operate as a stay of any order issued by the supervisor unless specifically ordered by the court.

(4) Service of any notice or order required to be served under sections 21 through 24 of this act shall be accomplished in the same manner as required for the service of process in civil actions in superior courts of this state.

NEW SECTION. Sec. 26. The supervisor may apply to the superior court of the county of the principal place of business of the debenture company affected for the enforcement of any effective and outstanding order issued under sections 21 through 24 of this act and the court shall have jurisdiction to order compliance therewith.

No court has jurisdiction to effect by injunction or otherwise the issuance or enforcement of any order or to review, modify, suspend, terminate, or set aside any order except as provided in section 24 of this act.

Sec. 27. Section 32, chapter 282, Laws of 1959 as last amended by section 1, chapter 90, Laws of 1986 and RCW 21.20.320 are each amended to read as follows:

The following transactions are exempt from RCW 21.20.040 through 21.20.300 except as expressly provided:

(1) Any isolated transaction, or sales not involving a public offering, whether effected through a broker-dealer or not; or any transaction effected in accordance with any rule by the director establishing a nonpublic offering exemption pursuant to this subsection where registration is not necessary or appropriate in the public interest or for the protection of investors.

(2) Any nonissuer distribution of an outstanding security by a registered broker-dealer if (a) a recognized securities manual contains the names of the issuer's officers and directors, a balance sheet of the issuer as of a date within eighteen months, and a profit and loss statement for either the fiscal year preceding that date or the most recent year of operations, or (b) the security has a fixed maturity or a fixed interest or dividend provision and there has been no default during the current fiscal year or within the three preceding fiscal years, or during the existence of the issuer and any predecessors if less than three years, in the payment of principal, interest, or dividends on the security.

(3) Any nonissuer transaction effected by or through a registered broker-dealer pursuant to an unsolicited order or offer to buy; but the director may by rule require that the customer acknowledge upon a specified form that the sale was unsolicited, and that a signed copy of each such form be preserved by the broker-dealer for a specified period.

(4) Any transaction between the issuer or other person on whose behalf the offering is made and an underwriter, or among underwriters.

(5) Any transaction in a bond or other evidence of indebtedness secured by a real or chattel mortgage or deed of trust, or by an agreement for the sale of real estate or chattels, if the entire mortgage, deed of trust, or agreement, together with all the bonds or other evidences of indebtedness secured thereby, is offered and sold as a unit. A bond or other evidence of indebtedness is not offered and sold as a unit if the transaction involves:

(a) A partial interest in one or more bonds or other evidences of indebtedness secured by a real or chattel mortgage or deed of trust, or by an agreement for the sale of real estate or chattels; or

(b) One of multiple bonds or other evidences of indebtedness secured by one or more real or chattel mortgages or deeds of trust, or agreements for the sale of real estate or chattels, sold to more than one purchaser as part of a single plan of financing; or

(6) Any transaction by an executor, administrator, sheriff, marshal, receiver, trustee in bankruptcy, guardian, or conservator.

(7) Any transaction executed by a bona fide pledgee without any purpose of evading this chapter.

(8) Any offer or sale to a bank, savings institution, trust company, insurance company, investment company as defined in the Investment Company Act of 1940, pension or profit-sharing trust, or other financial institution or institutional buyer, or to a broker-dealer, whether the purchaser is acting for itself or in some fiduciary capacity.

(9) Any transaction pursuant to an offering not exceeding five hundred thousand dollars effected in accordance with any rule by the director if the director finds that registration is not necessary in the public interest and for the protection of investors.

(10) Any offer or sale of a preorganization certificate or subscription if (a) no commission or other remuneration is paid or given directly or indirectly for soliciting any prospective subscriber, (b) the number of subscribers does not exceed ten, and (c) no payment is made by any subscriber.

(11) Any transaction pursuant to an offer to existing security holders of the issuer, including persons who at the time of the transaction are holders of convertible securities, nontransferable warrants, or transferable warrants exercisable within not more than ninety days of their issuance, if (a) no commission or other remuneration (other than a standby commission) is paid or given directly or indirectly for soliciting any security holder in this state, or (b) the issuer first files a notice specifying the terms of the offer and the director does not by order disallow the exemption within the next five full business days.

(12) Any offer (but not a sale) of a security for which registration statements have been filed under both this chapter and the Securities Act of 1933 if no stop order or refusal order is in effect and no public proceeding or examination looking toward such an order is pending under either act.

(13) The issuance of any stock dividend, whether the corporation distributing the dividend is the issuer of the stock or not, if nothing of value is given by stockholders for the distribution other than the surrender of a right to a cash dividend where the stockholder can elect to take a dividend in cash or stock.

(14) Any transaction incident to a right of conversion or a statutory or judicially approved reclassification, recapitalization, reorganization, quasi reorganization, stock split, reverse stock split, merger, consolidation, or sale of assets.

(15) The offer or sale by a registered broker-dealer, or a person exempted from the registration requirements pursuant to RCW 21.20.040, acting either as principal or agent, of securities previously sold and distributed to the public: PROVIDED, That:

(a) Such securities are sold at prices reasonably related to the current market price thereof at the time of sale, and, if such broker-dealer is acting as agent, the commission collected by such broker-dealer on account of the sale thereof is not in excess of usual and customary commissions collected with respect to securities and transactions having comparable characteristics;

(b) Such securities do not constitute the whole or a part of an unsold allotment to or subscription or participation by such broker-dealer as an underwriter of such securities or as a participant in the distribution of such securities by the issuer, by an underwriter or by a person or group of persons in substantial control of the issuer or of the outstanding securities of the class being distributed; and

(c) The security has been lawfully sold and distributed in this state or any other state of the United States under this or any act regulating the sale of such securities.

(16) Any transactions by a mutual or cooperative association issuing to its patrons any receipt, written notice, certificate of indebtedness, or stock for a patronage dividend, or for contributions to capital by such patrons in the association if any such receipt, written notice, or certificate made pursuant to this paragraph is nontransferable except in the case of death or by operation of law and so states conspicuously on its face.

(17) Any transaction effected in accordance with any rule adopted by the director establishing a limited offering exemption which furthers objectives of compatibility with federal exemptions and uniformity among the states, provided that in adopting any such rule the director may require that no commission or other remuneration be paid or given to any person, directly or indirectly, for effecting sales unless the person is registered under this chapter as a broker-dealer or salesperson.

NEW SECTION. Sec. 28. If any provision of this 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.

NEW SECTION. Sec. 29. Sections 3 and 5 through 26 of this act are added to chapter 21.20 RCW and shall be codified within the subchapter "ADDITIONAL PROVISIONS."

NEW SECTION. Sec. 30. Sections 1 through 26 of this act shall take effect January 1, 1988. The director of licensing and the supervisor of banking may take whatever action is necessary to implement this act on its effective date. This act applies to any person, individual, corporation, partnership, or association whether or not in existence on or prior to January 1, 1988. The director of licensing and the supervisor of banking may adopt transition rules in order to allow debenture companies in existence prior to January 1, 1988 a reasonable amount of time to comply with the requirements of this act. Transition rules shall require compliance with this act not later than January 1, 1990.