by Cydney Posner
On June 29, Corp Fin announced that it was extending the process for confidential submission of draft registration statements, currently available only for IPOs of emerging growth companies, to IPOs of companies that are not EGCs, as well as for most follow-on offerings made in the first year after going public. The extension of this confidential process will allow more companies to defer the public disclosure of sensitive or competitive information until they are almost ready to market the offering—and potentially to avoid the public disclosure altogether if they ultimately decide not to proceed with the offering. The new process will become available on July 10, 2017. (See this PubCo post.) Subsequently, Corp Fin issued a series of FAQs to provide additional guidance.
The FAQs are summarized below.
- An issuer that is not able to rely on Securities Act Section 6(e)(2) (which applies to EGCs) should submit its draft registration statement using EDGAR submission type DRS and follow the instructions (which are not limited to EGCs) regarding preparation and submission of draft registration statements in Volume II of the EDGAR Filer Manual. There may be subsequent updates.
- In a footnote to the announcement, the staff indicated that it would “keep submitted nonpublic draft registration statements confidential subject to the provisions of applicable law.” The FAQ advises that, because the confidentiality provisions of Section 6(e)(2) are limited to EGCs, an issuer relying on the new Corp Fin policy “should consider requesting confidential treatment under Rule 83… for its draft registration statement and associated correspondence when seeking a nonpublic review.”
- Issuers requesting confidential treatment under Rule 83 may do so electronically using submission type DRSLTR at the time of submission of their electronic draft registration statements. If the request is submitted electronically, the issuer need not also send paper copies of the request and the materials to Corp Fin or the SEC’s FOIA Office. A legend indicating that confidential treatment under Rule 83 has been requested should be included at the top of each page of the electronically submitted draft registration statement.
SideBar: Confidential treatment requests for company responses to SEC comment letters are not a new thing, but what is the staff contemplating for a Rule 83 confidential treatment request for a draft registration statement? Remember that a confidential treatment request under Rule 83 is much less involved, at least initially, than a CTR under Rule 406 or Rule 24b-2. For example, the staff does not consider or determine whether the information will be kept confidential until it actually receives a FOIA request. As a result, the company is not required to prepare and submit the typical letter exhaustively detailing its rationale for confidentiality at the time of submission of the request; rather, the rationale substantiating the request would be required only if a FOIA request is actually made. Although the rumor is that the staff is less likely to challenge Rule 83 requests, typically, in seeking confidential treatment, even under Rule 83, companies are still supposed to craft the request narrowly. For example, historically, in connection with confidentiality of response letters, the staff has said that it will “question a request for confidential treatment under Rule 83 that is on its face overly broad. We also remind companies and their counsel that there must be an appropriate basis for a request for confidential treatment.” And from a mechanical standpoint, normally, Rule 83 requires that a redacted copy of the document be submitted, excising all confidential information desired to be protected. Will the same “narrowness” constraint be applied in the context of a draft registration statement or will the staff, hopefully, confirm that issuers are permitted to seek confidential treatment of the entire document, particularly given that EDGAR appears to be configured to allow it? In informal conversations today, a staff member indicated that the staff is still considering how Rule 83 will be implemented in this context.
- Corp Fin indicated in its announcement that issuers that need to apply for EDGAR access codes should check the JOBS Act § 106 box on the Form ID, even if they are not EGCs. Checking the box has no “legal significance”: it simply helps Corp Fin “preserve the nonpublic status of an issuer’s drafts until the issuer publicly files them.”
- The issuer should convey its agreement with the public filing guidelines set forth in the announcement in a cover letter to its draft registration statement.
- Under the expanded process for confidential submission, an issuer conducting an IPO or an initial Exchange Act registration must publicly file its registration statement, the initial nonpublic draft registration statement and all draft amendments at least 15 days before it conducts its road show or, if there is no road show, at least 15 days before the effective date. An issuer conducting an offering in the first 12 months after its IPO (and, presumably, the first 12 months after its initial Exchange Act registration) must publicly file its registration statement and its non-public draft registration statement no later than 48 hours prior to any requested effective time. (Note that, according to the announcement, for follow-ons, only the initial submission will be treated confidentially; responses to staff comments must be made in a public filing, not a revised draft registration statement.) In all cases, “the first publicly filed registration statement should be complete, including signatures, signed audit reports, consents, exhibits and accompanied by any required filing fees.”
- When an issuer submits its responses to staff comments on draft registration statements, it should identify information “for which it intends to seek confidential treatment upon public filing to ensure that the staff does not include that information in its comment letters.”
- In the announcement, the staff indicated that it will not delay review of a registration statement that omits certain financial information “if an issuer reasonably believes omitted financial information will not be required at the time the registration statement is publicly filed.” The staff noted that this “relief is intended to be similar to the relief provided by Section 71003 of the Fixing America’s Surface Transportation Act, which allows an EGC to omit financial information that ‘relates to a historical period that the issuer reasonably believes will not be required to be included…at the time of the contemplated offering.’” (Emphasis added.) In the FAQs, the staff highlights the distinction, emphasizing that the relief offered under the new policy to non-EGCs is more limited than the relief provided to EGCs under the FAST Act. As a result, the staff will not process a non-EGC’s publicly filed registration statement that omits financial information that it reasonably believes will not be required to be included in the registration statement at the time of the contemplated offering: a “registration statement must conform to the applicable rules and forms in effect on the initial filing date. [The staff ] will, however, process a draft registration statement that is substantially complete except for financial information the issuer reasonably believes will not be required at the time the registration statement is publicly filed.”
- Because it is “submitted” and not “filed” with the SEC, a draft registration statement is not required to be signed by the registrant or by any of its officers or directors, nor is it required to include the consent of auditors or other experts.
- Of course, the filed public registration statement must include all signatures and consents. However, the issuer is not required to go back and obtain signatures and consents for any of the previous nonpublic submissions, even when they are ultimately included as part of the public filing of the registration statement.
- Because the voluntary “submission” of a draft registration statement is not a “filing” of a registration statement, no filing fee is due at that time. Rather, the filing fee is due when the registration statement is first filed publicly on EDGAR.
- Consistent with past practice, the staff will publicly release on EDGAR its comment letters and issuer responses to staff comment letters related to nonpublic draft submissions no earlier than 20 business days following the effective date of a registration statement.
- A Canadian issuer filing under the Multi-Jurisdictional Disclosure System may use the new expanded process.
- However, the new process is not available for offerings of asset-backed securities.
- In a footnote to the announcement, the staff confirmed that issuers must qualify as EGCs to take advantage of the other accommodations provided to EGCs by the JOBS Act. Accordingly, an issuer that is not an EGC may not use test-the-waters communications with QIBs and institutional accredited investors pursuant to Securities Act Section 5(d).
- The submission of a draft registration statement does not constitute a ”filing” for purposes of the prohibition in Section 5(c) against making offers of a security in advance of filing a registration statement.
- An issuer that submits a draft registration statement for nonpublic review may not make a public communication about its offering in reliance on the Rule 134 safe harbor. That safe harbor is not available until the issuer files a registration statement that satisfies the requirements of Rule 134 (public filing of the registration statement with a preliminary prospectus).
- However, an issuer that submits a confidential draft registration statement is permitted to make a public communication about its offering in reliance on Rule 135. But, the staff notes, a public statement about the offering “may affect” whether the SEC can withhold the draft registration statement in response to a FOIA request.