United States: Confidential Treatment Process Gets Easier

The SEC has approved rule changes that significantly simplify the process for public companies to redact confidential information from the exhibits required to be filed as part of SEC reports and registration statements. These welcome changes were made as part of the FAST Act Modernization and Simplification of Regulation S-K rule amendments approved by the SEC in late March.

Although the confidential treatment process has been made easier, the substantive rules regarding when confidential information may be omitted from an exhibit have not changed and companies need to continue to exercise appropriate judgment at the time of filing to determine what information may be redacted.

Changes That Are Effective April 2, 2019

  • Companies are no longer required to submit a confidential treatment request (CT request) when they redact information from material contracts filed as exhibits under S-K 601(b)(10), if the information redacted is not material and would likely cause competitive harm to the company if publicly disclosed. A similar provision applies to plans of acquisition, reorganization, arrangement, liquidation or succession filed under S-K 601(b)(2) and to material contracts voluntarily included in a Form 8-K reporting under Item 1.01 (if that 8-K exhibit is intended to be incorporated by reference into a future periodic report).
  • In each case, the revised rules require the company to:
    • mark the exhibit index to indicate that portions of the exhibit have been omitted;
    • include a prominent statement on the first page of the redacted exhibit that certain identified information has been excluded from the exhibit because it is not material and would likely cause competitive harm to the company if publicly disclosed; and
    • indicate with brackets where the information has been omitted from the version of the exhibit that is publicly filed.
  • The SEC staff can request an unredacted copy of the exhibit, as well as the company's materiality and competitive harm analysis. A company can request confidential treatment under Rule 83 of any supplemental materials submitted to the SEC staff in response to its requests and the staff will generally destroy all supplemental materials upon completion of their review.

Changes That Are Effective May 2, 2019

  • Companies are allowed to omit entire schedules and similar attachments to required exhibits provided the omitted schedules and attachments do not contain information material to an investment or voting decision and the omitted information is not otherwise disclosed in the exhibit itself or the related filing in which the exhibit is included. The filed exhibit must contain a list briefly identifying the contents of any omitted schedules and attachments. If the exhibit already contains a list that conveys the subject matter of the omitted schedules and attachments, no separate list is required. While companies are not required to include an explicit statement agreeing to furnish a supplemental copy of any omitted schedule or attachment to the SEC upon request, the company must comply with any such request it receives from the SEC staff.
  • Companies are allowed to eliminate personally identifiable information, such as bank account numbers, social security numbers, home addresses and similar information, from required exhibits without submitting a CT request for the redacted information. This new rule codifies the SEC staff's existing practice of not requiring submission of a CT request when omitting personally identifiable information.

Implementation Tips

  1. Because the substantive rules regarding when redaction of information is appropriate have not changed, companies should continue to focus on redacting no more information than necessary to prevent competitive harm and should continue to follow the relevant guidance set forth in Staff Legal Bulletin No. 1. As is currently the case, companies may not redact material information.
  2. If a company has a CT request pending under the old rules, it may, but is not required to, withdraw its pending application. The SEC staff will continue to process pending CT requests that are not withdrawn, as well as new CT requests, under the rules that were in effect prior to April 2, 2019 (i.e., Securities Act Rule 406 and Exchange Act Rule 24b-2, neither of which was amended as part of the rule changes). Companies that decide to withdraw their pending application should refile the exhibits in redacted form in an amended filing with the SEC that conforms to the requirements of the new rules. Companies can contact the Assistant Director office responsible for reviewing their filings to coordinate the withdrawal of any pending application and the refiling of exhibits.
  3. If a company has previously received an order granting confidential treatment and the order is still in effect, the grant of confidential treatment will continue until the date stated on the order. Absent further guidance from the SEC staff regarding the handling of renewals, the safest course of action may be to file a traditional renewal application.
  4. While the SEC staff has stated, in an announcement issued on April 1, 2019, that it intends to review filings for compliance with the new rules, it remains to be seen how much scrutiny the staff will apply in practice. In the context of Securities Act registration statements, the staff will continue to ask companies to resolve any pending confidential treatment comments relating to redacted exhibits before submitting a request for acceleration of the effective date. With respect to Exchange Act filings, the staff will continue its selective review of company filings and, as part of that process, may assess whether redactions from exhibits appear to be limited to information that is not material and that would likely cause competitive harm if publicly disclosed.
  5. If a redacted exhibit is going to be reviewed, the SEC staff will send a letter to request a paper copy of the unredacted exhibit marked to highlight the confidential information. In order to minimize the risk of inadvertent public disclosure of competitive information, the staff plans to separate requests related to redacted exhibits from other correspondence relating to the regular filing review. Once the staff reviews the unredacted materials, they may or may not ask for an analysis of why the redacted information is not material and would likely cause competitive harm if publicly disclosed. If a company's analysis does not support the redactions, the staff can require the company to file an amendment that includes additional information disclosed in the exhibit. If staff review does not lead to comments, or after resolution of any comments, the staff will send a letter indicating that their review is complete. The staff will release the initial request for an unredacted exhibit and the closing of review letter on EDGAR as correspondence. The staff will not publish comments regarding redacted exhibits nor a company's responses to such comments.
  6. The new relief from the requirement to file a CT request only applies to exhibits filed under S-K 601(b)(2) (relating to plans of acquisition, reorganization, arrangement, liquidation or succession) and S-K 601(b)(10) (relating to material contracts), and not to the other exhibits required to be filed under S-K 601. The other changes (i.e., the ability to omit schedules or similar attachments and to exclude personally identifiable information) apply more broadly. When drafting new agreements, in order to further reduce the possibility of inadvertent disclosure, companies may want to consider placing confidential information that is not material in schedules or other similar attachments that are no longer required to be filed.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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