To start the new year, Corp Fin has posted an updated version of Disclosure Guidance: Topic No. 7, Confidential Treatment Applications Submitted Pursuant to Rules 406 and 24b-2. The guidance addresses procedures for CTRs that were submitted, not under the streamlined approach adopted in 2019 (see this PubCo post), but rather under the old traditional process that continues in use to a limited extent. The revamped guidance—which, as always, is just that and not intended to be binding—explains that the guidance has been generally updated, but the focus is on changes made regarding alternatives for confidential treatment orders that are about to expire. The processes for obtaining extensions have gone through a number of permutations. Under this newest update, the guidance provides that different extension procedures apply depending on whether the CT order was initially granted more or less than three years ago. The prior version of this guidance, adopted in 2021, pegged the type of extension procedure available to a fixed date (October 15, 2017) rather than to a rolling three-year period. But the version before that did use a rolling three-year period. Go figure.
You might recall that, under the 2019 amendments to Item 601(b) of Reg S-K, the SEC adopted a new streamlined approach to confidential treatment requests, with a further update to that process slipped into the 2020 adopting release on private company exemptions. (See this PubCo post and this PubCo post.) Under the streamlined approach, companies are able to redact information from material contracts without the need to submit in advance formal confidential treatment requests, so long as the company customarily and actually treats that redacted information as private or confidential and the omitted information is not material. (Remember that the 2019 SCOTUS decision in Food Marketing Institute v. Argus Leader Media broadened the definition of “confidentiality” under FOIA Exemption 4, the exemption on which companies rely most often, and tossed out the requirement to also show that disclosure would likely cause competitive harm to the company. See this PubCo post.) Upon request by the staff, companies are required to provide, on a supplemental basis, an unredacted paper copy and supporting analyses regarding materiality. (See this PubCo post and this PubCo post.) Because it is streamlined and much more convenient, this process has been preferred by most. But the updated guidance isn’t about CTRs submitted under the new streamlined process—it’s about old traditional process, which has continued in place as an alternative. In addition, 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.
More specifically, the updated guidance addresses the alternatives available when an order for confidential treatment is about to expire. There are three alternatives: refile an unredacted exhibit, request an extension or transition to the new streamlined process.
- Refile unredacted. If the exhibit is still material but none of the information in the exhibit remains confidential, the company can simply refile an unredacted copy of the exhibit.
- Request extension. To extend the period of confidentiality, companies can file an application under Rule 406 or Rule 24b-2 to continue to protect the confidential information from public release.
- If the CT order was initially issued less than three years ago, companies may submit, to CTExtensions@sec.gov, the short-form extension application, which provides an expeditious 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.
- If the CT order was initially issued more than three years ago, the short-form application is not available; unless the third alternative below is elected, the company would be required to file with the Office of the Secretary, before the order expires, the long-form extension application for confidential treatment under Rule 406 or Rule 24b-2. Companies should be sure to leave sufficient time for staff review and processing. The same substantive and procedural matters that applied to the initial CTR apply equally to the long-form extension applications, and all of the information and documentation that were required for the initial CTR would be required here, including, together with the substantive supporting argument, a copy of the unredacted agreements, a copy of the original CT order, copies of the original application and copies of any staff correspondence. In addition, the company must “affirm in writing that the most recent application for which confidential treatment was granted continues to be true, complete and accurate in all material respects regarding the redacted information for which the applicant continues to request confidential treatment and neither the information redacted nor the analysis related to the materiality of the redacted information has changed.”
- Transition to the streamlined rules under Item 601 of Reg S-K. If the CT order was initially issued more than three years ago, companies may elect—and most companies will elect—to transition to the streamlined process that is set forth in Reg S-K Item 601(b)(10). The streamlined approach allows companies to file redacted exhibits without submitting an explanation or substantiation to the SEC, or even providing an unredacted copy of the exhibit, except upon request of the staff. 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 (Item 601(b)(10)(iv)). 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, if the CT order was initially granted more than three years ago, the company does not have to wait for the order to expire to effect the transition. Rather, the company can transition by complying with those rules in a new filing or by amending a previously filed document to refile a redacted exhibit.
