The SEC just made it a little easier to maintain the confidentiality of sensitive information that is the subject of a soon-to-expire confidential treatment order. As discussed below, under the SEC's latest guidance a company can now use the simplified confidential treatment process available for new exhibits when seeking to extend confidential treatment of previously filed exhibits.
Previously, on March 20, 2019, the SEC amended its exhibit filing requirements to allow companies to omit immaterial, competitively harmful information without having to submit a full-blown confidential treatment request detailing the basis for the omission of information and requesting staff approval of the omissions. Shortly thereafter, the Division of Corporation Finance took the position that, in situations where a confidential treatment order obtained under either Rule 406 or Rule 24b-2 was about the expire, “[r]efiling the redacted exhibit in the manner specified by the recently adopted redacted exhibit rules will not provide confidential treatment for the previously filed CTR information." See the announcement here and our discussion of the announcement here.
Subsequently, on September 9, 2020, the Division formally changed its position by updating CF Disclosure Guidance Topic No. 7 (Confidential Treatment Applications Submitted Pursuant to Rules 406 and 24b-2) (available here) to provide companies with the ability to transition to the new redaction rules under certain circumstances. As updated, Topic 7 states:
If it has been more than three years since the initial confidential treatment order was issued, and if the contract continues to be material, companies have the option to transition to compliance with the requirements set out in Regulation S-K Item 601(b)(10) and other parallel rules, referred to here as the redacted exhibit rules. The redacted exhibit rules allow for the filing of redacted exhibits without submitting an explanation or substantiation to the SEC, or providing an unredacted copy of the exhibit, except upon request of the staff.
In order to transition to the redacted exhibits rules in these situations, a company would only be required to refile the material contract in redacted form and comply with the legend and other requirements of the applicable redacted exhibit rule, most commonly Item 601(b)(10)(iv) of Regulation S-K. We anticipate that many, if not most, companies will chose to transition to this process since substantiation of compliance and submission of unredacted materials to the staff is only required upon staff request.
In doing so, the Staff has clarified that, when a company opts to take advantage of this option, it should refile the redacted exhibit, marked in compliance with the current redacted exhibit rules, in the company's first Exchange Act report following the expiration of the confidential treatment order.
Updated Topic 7 also sets forth two other options which have been and remain available to companies facing soon-to-expire confidential treatment orders. The first alternative is for the company to simply refile the unredacted exhibit. The second alternative is to apply for an extension to the confidential period pursuant to Rule 406 or Rule 24b-2 prior to the confidential treatment order's expiration, which can be done by submitting a short-form application (available here) to [email protected] (if the initial order was issued less than three years ago) or a complete application (if the initial order was issued more than three years ago).
This new guidance provides a welcome alternative to filing a full-blown confidential treatment request when seeking a simple extension of a previously granted confidential treatment request.
Special thanks to Chris Connelly in our Orange County office for his work on this article.