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On December 1, 2016, Parker Hannifin Corporation and CLARCOR Inc. announced that the companies have entered into a definitive agreement under which Parker will acquire CLARCOR for approximately $4.3 billion in cash, including the assumption of net debt. The transaction has been unanimously approved by the board of directors of each company. Upon closing of the transaction, expected to be completed by or during the first quarter of Parker’s fiscal year 2018, CLARCOR will be combined with Parker’s Filtration Group to form a leading and diverse global filtration business. Bass, Berry & Sims has served CLARCOR as primary corporate and securities counsel for 10 years and served as lead counsel on this transaction. Read more here.

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Securities Law Exchange BlogSecurities Law Exchange blog offers insight on the latest legal and regulatory developments affecting publicly traded companies. It focuses on a wide variety of topics including regulation and reporting updates, public company advisory topics, IPO readiness and exchange updates including IPO announcements, M&A trends and deal news.

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SEC Adopts Regulation A+: New Avenue to Capital for Small Businesses and Start-ups

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April 9, 2015

On March 25, 2015, the SEC adopted final rules to update and expand Regulation A, an existing exemption from registration for smaller issuers of securities. The updated exemption, often referred to as Regulation A+, will permit smaller companies to offer and sell up to $50 million of securities in a 12-month period, subject to eligibility, disclosure and reporting requirements.

The adopted rules will become effective 60 days after publication in the Federal Register. To review the SEC's adopting release, click here.

Background

Existing Regulation A has provided a rarely used exemption from the registration requirements of the Securities Act of 1933 for securities offerings by small private U.S. and Canadian companies. It essentially allows small private companies to offer freely tradable securities while going through a mini-registration process. Two major drawbacks of the existing Regulation A were that it required companies to register their offerings in every state where securities would be offered and that it limited those offerings to $5 million. The state registration requirements were costly and burdensome and the offerings raised too little capital. The new amendments were adopted to implement Section 401 of the JOBS Act, which was intended to improve access to capital for small businesses.

Final Rule

The final rules implement the mandated rulemaking under the JOBS Act by providing two tiers of offerings: (i) Tier 1, which would consist of securities offerings of up to $20 million in a 12-month period, and (ii) Tier 2, which would consist of securities offerings of up to $50 million in a 12-month period. For offerings of up to $20 million, the issuer could elect whether to proceed under Tier 1 or Tier 2. Both tiers would be subject to basic requirements as to issuer eligibility, disclosure and other matters, drawn from the current provisions of Regulation A. Both tiers would also permit companies to submit draft offering statements on a confidential basis to the SEC before filing, permit the continued use of solicitation materials after filing the offering statement, require the electronic filing of offering materials and otherwise align Regulation A with current practice for registered offerings.

The Regulation A+ exemption would be limited to companies organized in and with their principal place of business in the U.S. or Canada. In general, the following companies would be ineligible to use Regulation A+:

  • An issuer that is already an SEC-reporting company;
  • An investment company registered or required to be registered under the Investment Company Act of 1940 or a business development company as defined in section 2(a)(48) of the Investment Company Act of 1940;
  • Development stage companies that have no specific business plan or purpose or have indicated their business plan is to engage in a merger or acquisition with an unidentified company; and
  • An issuer that is disqualified under the SEC's "bad actor" disqualification rules.

Takeaway

The adoption of Regulation A+ is another key step in the SEC's ongoing efforts to facilitate capital formation. While Tier 1 offerings will be subject to both SEC and state review (a significant expense that has generally turned issuers away from Regulation A in the past), Tier 2 offerings will provide for the preemption of state securities law registration, which has the potential to work effectively for capital raises of up to $50 million. In addition, Tier 2 offerings will provide a conditional exemption from Section 12(g) of the Securities Exchange Act of 1934, so that Tier 2 issuers have some breathing room to raise capital and grow without triggering the burden of full SEC reporting requirements.

A summary chart comparing the key provisions of Tier 1 offerings and Tier 2 offerings is presented below.

  Tier 1  Tier 2 

Annual Offering Limit  $20 million, including no more than $6 million on behalf of selling securityholders that are affiliates of the issuer.  $50 million, including no more than $15 million on behalf of selling securityholders that are affiliates of the issuer.  
Application of State Securities Laws  No exemption provided.  Preemption of state securities law registration and qualification requirements for securities offered or sold to "qualified purchasers," which is defined to be any person to whom securities are offered or sold in a Tier 2 offering, or where securities are listed on a national securities exchange. 
Limitations on Investors   No limit.  Investment limit applicable to persons who are not accredited investors. 
SEC Filing Requirements  
  • Issuers must file with the SEC a Form 1-A (named, the "Offering Circular"), which is reviewed and qualified with the SEC.
  • Confidential SEC review of the Offering Circular is permitted, so long as the Offering Circular is publicly filed not later than 21 calendar days before qualification.
  • Permit continuous or delayed offerings.  
Same as Tier 1. 
Solicitation Materials  Issuers may "test the waters" with the general public either before or after the filing of the Offering Circular.   Same as Tier 1.  
Financial Statement Requirement  
  • Periods:
    • Balance sheets and related financial statements for the two previous fiscal year ends (or for such shorter time that they have been in existence).
    • Financial statements must be dated not more than nine months before the date of non-public submission, filing or qualification, with the most recent annual or interim balance sheet not older than nine months. If interim financial statements are required, they must cover a period of at least six months.
  • Unaudited. The financial statements prepared for Tier 1 offerings need not be audited. However, if an audit was obtained for other purposes and that audit was performed in accordance with U.S. generally accepted auditing standards or the standards of the Public Company Accounting Oversight Board (PCAOB) by an independent auditor, those audited financial statements must be filed. The auditor does not need to be registered with the PCAOB.
 
  • Periods:
    • Same as Tier 1.
  • Audited. The financial statements prepared for Tier 2 offerings must be audited in accordance with either U.S. generally accepted auditing standards or the standards of the PCAOB by an independent auditor. The auditor does not need to be registered with the PCAOB. Interim financial statements may be unaudited.
 
Ongoing Reporting   Exit Reporting. File on EDGAR an exit report not later than 30 calendar days after termination or completion of an offering.  Annual, Semiannual and Current Reporting. File on EDGAR annual and semiannual reports, as well as current event reports. 

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