[co-authored by: Marty Dunn]

This is a very brief, initial summary.  We will be reporting on the final rule in an upcoming alert.  The SEC’s proposed rules already had provided a very practical format for private issuers seeking to raise capital.  The proposing release generated mixed comments, with practitioners largely supporting the SEC’s proposal, and others raising concerns about the pre-emption of state securities review.

From today’s open meeting, and without having yet reviewed the final rules, it sounds like the SEC has taken an approach that seeks to promote capital formation, while preserving the disclosure requirements (both initial disclosure requirements and periodic reporting requirements for larger offerings) and other investor protection measures that were central to the proposing release.

The final rule establishes two tiers:  Tier 1, for offerings that raise up to $20 million in proceeds in a 12-month period, including no more than $6 million of securities sold on behalf of selling securityholders, and a Tier 2, for offerings that raise up to $50 million in proceeds, including no more than $15 million of securities sold on behalf of selling securityholders.  This will permit smaller and emerging companies to have an opportunity to raise substantial capital.  The $50 million limit is, by statute, subject to periodic review by the SEC to determine whether the threshold is reasonable.  The final rule also will include a limitation on the overall amount of securities that may be sold on behalf of selling securityholders.

The exemption will not be available to certain bad actors and to other entities, such as investment companies.

The final rule, consistent with the proposed rule, modernizes the offering process by, for example, requiring that Regulation A+ offering statements be filed on EDGAR.  The final rule incorporates a confidential submission process, similar to that available to EGCs relying on the JOBS Act, as well as the use of test-the-waters communications.  Consistent with the proposed rule, a Tier 2 offering will be subject to rigorous disclosure standards, including a requirement to include audited financial statements, as well as to an investor limit. Issuers conducting Tier 2 offerings will also be subject to a requirement to file annual, semiannual and current event reports.

Most important to the success of Tier 2 offerings, Tier 2 offerings, given the detailed disclosure requirements and SEC review, will not be subject to state securities review.  In addition, the final rule provides for a Tier 2 issuer to concurrently file a short-form Form 8-A to register a class of securities under Exchange Act Section 12(g) or 12(b)—this means that a Tier 2 issuer will, if it chooses to do so, be able to conduct a Regulation A+ offering and list on a national securities exchange.