On Nov. 2, 2016, the Division of Corporation Finance issued guidance regarding the use of Form S-3’s “baby shelf” provisions.  Under Form S-3, an exchange-listed company with less than $75 million in public float may rely on Instruction I.B.6 of Form S-3 to sell no more than one-third of its public float within a 12-month period. 

The SEC clarified that an issuer cannot effectively evade the offering size limitation by issuing securities on a primary basis to one or more investors under the shelf, and simultaneously issuing securities in a private placement that it concurrently registers for resale on a separate Form S-3.  Under the CDI, the securities registered for resale on Form S-3 would be counted against the issuer’s available capacity. 

Consequently, an issuer may not register the resale of the privately-placed 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 an issuer does not have sufficient capacity, then it must either register the resale on Form S-1 or wait until it has sufficient capacity under Instruction I.B.6 to register the resale on Form S-3.