Corp Fin has amended Disclosure Guidance Topic No. 7, Confidential Treatment Applications Submitted Pursuant to Rules 406 and 24b-2, to modify the alternatives available for companies with confidential treatment orders that are about to expire. The guidance—which, as always, is just that and not intended to be binding—addresses procedures for CTRs that were submitted, not under the new streamlined approach adopted last year (see this PubCo post), but rather under the old traditional approach that still lives but is now rarely used. Under the prior guidance, when a CT order obtained under the traditional process was about to expire, companies could use a short-form application for extensions, but they were not permitted to transition to the streamlined new process by simply filing the redacted exhibit on EDGAR following the streamlined procedures. However, under the new amended guidance, transition to the new streamlined approach is now one of the permitted alternatives.

You might recall that, under the SEC’s streamlined approach to confidential treatment adopted in FAST Act Modernization and Simplification of Regulation S-K, companies are now able to redact information from material contracts without the need to submit in advance formal confidential treatment requests, so long as the redacted information (i) is not material and (ii) would be competitively harmful if publicly disclosed. Upon request by the staff, companies are required to submit, on a supplemental basis, an unredacted paper copy and supporting analyses regarding materiality and competitive harm. Because it is streamlined and much more convenient, this process is preferred by most companies. (See this PubCo post.) But, as noted above, the amended guidance topic isn’t so much about the new process—it’s about old process, which continues in place as an alternative. (Some filings, such as Schedules 13D or filings with exhibit requirements in Item 1016 of Reg M-A, are not eligible for the new approach and are still required to submit CTRs as the only method available to secure confidential treatment.) 

The amended guidance provides three alternative approaches to obtaining an extension (or not) when a CT order is about to expire:

  • First, if the exhibit is still material but none of the information in the exhibit is still confidential, the company can simply refile an unredacted copy of the exhibit.
  • Second, to extend the confidential period, companies can file an application under Rule 406 or Rule 24b-2 to continue to protect the confidential information from public release.
    • If the order was initially issued less than three years ago, companies may submit (to a short form application, which provides a more efficient process to file an application to extend the duration of confidentiality.  The short form requires the company to affirm that the most recent application continues to be “true, complete and accurate,”  indicate the desired duration of the extension and provide a brief explanation to support the request. Under the short form, the company is not required to resubmit the exhibit or the supporting analysis unless there is a change in the analysis. If the company reduces the amount of omitted information, a revised redacted exhibit must be filed. (See this PubCo post.)
    • If the order was initially issued more than three years ago, the short-form application is not available; the company would be required, unless the third alternative below is elected, to go through the CTR process again, filing a new, complete application under Rule 406 or Rule 24b-2. (Apparently, under the SEC’s updated records management program, all CTR materials are destroyed three years after the order date.)
  • Third, if the order was initially issued more than three years ago, companies may elect—and most companies will likely elect—to transition to the streamlined new approach, described above, that is set forth in Reg S-K Item 601(b)(10). To accomplish the transition, the company would be required to refile the material contract in redacted form and comply with the legend and other requirements of the streamlined approach. The SEC expects most companies to transition to the streamlined process. With regard to timing, the staff will not recommend enforcement action if a company refiles a redacted exhibit under this streamlined approach in the company’s first Exchange Act report following the expiration of the CT order. However, a company may elect to transition earlier—so long as the transition is at least three years following the initial issuance of the CT order—by complying with the rules for the streamlined process in a new filing or by amending a previously filed document to refile a redacted exhibit, either before or after expiration of the CT order.

Posted by Cydney Posner