On March 19, 2026, the SEC’s Division of Corporation Finance issued a new Corporation Finance Interpretation (CFI) and shined a light through the foggy sky surrounding the use of Form S-3 for issuers subject or soon to be subject to baby shelf restrictions.
Issuers with a public float of $75 million or more can use Form S-3 under General Instruction I.B.1 as a primary shelf registration statement without limitation on the amount of securities that can be sold. Issuers with a public float less than $75 million are restricted under General Instruction I.B.6 from selling more than one-third of their public float during a 12-month period, i.e. the “baby shelf” limit. New CFI Question 116.26 addresses the previously ambiguous situation where an issuer not subject to the baby shelf limit has an at-the-market (“ATM”) offering program for an amount of securities it reasonably expects to sell, but subsequently falls below $75 million in public float at the time of its next Section 10(a)(3) update (typically corresponding with the issuer’s Form 10-K filing) and then becomes subject to the baby shelf limit.
This new guidance clarifies that, in this scenario, an issuer can continue to offer and sell the full amount covered by the ATM’s prospectus, even after the issuer becomes subject to the baby shelf limit. To rely on this guidance, an issuer must have:
- an effective Form S-3 file under General Instruction I.B.1,
- launched an ATM by entering into a sales agreement with a selling agent, and
- filed a prospectus supplement for the offering covering an amount of securities that it reasonably expects to offer and sell.
If an issuer takes the steps above, it should maintain access to the full ATM program capacity covered by the prospectus supplement filed before its eligibility status changed. However, once an issuer becomes subject to the baby shelf limit, new offerings requiring a new prospectus supplement filed after the Section 10(a)(3) update would be subject to the baby shelf limit.
What to Do Now
If not already doing so, companies should establish procedures to review their public float and Form S-3 eligibility well before the filing of their Form 10-K to determine if the baby shelf limit could soon apply, and whether this guidance could apply to facilitate further sales under an ATM program. Practitioners helping establish ATM programs should consider this guidance when drafting agency agreements for ATMs to ensure covenants in the agreement would not prevent an issuer from taking advantage of this guidance.
If you have any questions, please contact a member of Harter Secrest & Emery’s Securities and Capital Markets group for the latest insights about this development.