Corp Fin has issued a new CDI regarding Form S-3 and limited primary offerings under General Instruction I.B.6., that is, “baby shelf” offerings by issuers with public floats below $75 million. As you may recall, Instruction I.B.6 allows a company with a public float below $75 million to use Form S-3 for a primary offering to sell no more than one-third of its public float within a 12-month period.

This CDI cautions companies to beware of using structures that appear to be designed to evade the size limitations of the Instruction. In the example, a company structures a transaction to sell securities to investors, with some of the shares sold in a takedown off of its baby shelf registration statement and some of the shares sold to the same investors in a separate private placement and then concurrently registered for resale on a separate Form S-3 (in reliance on Instruction I.B.3 for secondary sales). In that circumstance, the CDI says, the staff would count the securities registered for resale on Form S-3 against the company’s available capacity under the baby shelf; if the aggregate number of securities exceeded the Instruction I.B.6 limitation, Corp Fin would view that structure as an impermissible evasion of the I.B.6 offering size. Under those facts, “an issuer may not rely on Instruction I.B.3 to register the resale of the balance of the securities on Form S-3 unless it has sufficient capacity under Instruction I.B.6 to issue that amount of securities at the time of filing the resale registration statement. If it does not, it would need to either register the resale on Form S-1 or wait until it has sufficient capacity under that instruction to register the resale on Form S-3.”

SideBar: But maybe it’s not quite as bad as it sounds: remember that, under the FAST Act, smaller reporting companies using a Form S-1 can now elect to forward incorporate by reference information filed after the effective date of the registration statement. (See this PubCo post.)