SEC Staff Provides Relief for At-the-Market Offerings Following Loss of Form S-3 Shelf Eligibility Under Instruction I.B.1.

Background

To conduct a registered offering on Form S-3 under General Instruction I.B.1, a company must have a public float of at least US$75 million. Companies that fall below this threshold may still use Form S-3, but only subject to the more restrictive baby shelf rules under General Instruction I.B.6, which limit the amount of securities that can be offered and sold to no more than one-third of the company’s public float over any rolling 12-month period.

ATM offerings are typically structured as ongoing programs under which a company sells securities incrementally over time. Under Section 10(a)(3) of the Securities Act, a company is required to update its registration statement so that the information contained therein is not more than 16 months old. For most reporting companies, this update is accomplished by filing an annual report on Form 10-K, which is incorporated by reference into the registration statement. If a company's public float drops below US$75 million at the time of a Section 10(a)(3) update, historically a company would lose eligibility under I.B.1 and need to limit its sales to the baby shelf threshold.

The SEC Staff's Position

The staff confirmed in new Form S-3 Corporation Finance Interpretation (CFI) 116.26 that it will not object if a company in this situation continues to offer and sell the full amount of securities covered by the prospectus supplement filed prior to the Section 10(a)(3) update, even if that amount would exceed the offering limits that would otherwise apply under General Instruction I.B.6. Subsequent 10(a)(3) updates at a time when a company’s public float is below US$75 million do not affect how much a company may continue to sell under a pre-existing ATM prospectus supplement.

This relief applies where:

• The company had an effective Form S-3 registration statement and was eligible under General Instruction I.B.1 at the time the prospectus supplement was filed;
• The company filed a prospectus supplement for an ATM offering of an amount of securities it reasonably expected to offer and sell;
• At the time of the next Section 10(a)(3) update, the company's public float has fallen below US$75 million, rendering it ineligible under I.B.1; and
• The company remains eligible to use Form S-3 under General Instruction I.B.6 (the baby shelf).

Although not directly addressed by the CFI, it would be reasonable to conclude that this guidance would also apply to foreign private issuers (FPIs) using Form F-3. The analogous eligibility provisions for FPIs are General Instruction I.B.1 of Form F-3 (requiring a public float of at least US$75 million) and General Instruction I.B.5 of Form F-3 (the baby shelf equivalent, which corresponds to General Instruction I.B.6 of Form S-3). For FPIs, the Section 10(a)(3) update is typically accomplished by filing an annual report on Form 20-F, rather than a Form 10-K. Accordingly, an FPI that was eligible under General Instruction I.B.1 of Form F-3 at the time it filed its ATM prospectus supplement, but whose public float subsequently fell below US$75 million at the time of its Form 20-F filing, should be able to rely on the same principles articulated in this guidance, provided that the FPI remains eligible to use Form F-3 under General Instruction I.B.5.