On September 9, 2020, the U.S. Securities and Exchange Commission (SEC) staff amended CF Disclosure Guidance Topic No. 7, Confidential Treatment Applications Submitted Pursuant to Rules 406 and 24b-2 (Guidance Topic No. 7) to specify options available when a confidential treatment order is about to expire. Notably, the amendments permit companies to maintain confidential treatment in some cases by transitioning from reliance on Rules 406 or 24b-2 to the “streamlined” redaction rules of Regulation S-K Item 601(b)(10)(iv).
Background: Companies desiring to redact sensitive information from material contracts filed as exhibits under the Securities Act or the Exchange Act have two options:
(1) They may obtain a confidential treatment order (CTO) by making a confidential treatment request (CTR) under Rule 406 (for Securities Act filings) or Rule 24b-2 (for Exchange Act filings), which requires written application to the SEC. CTOs, if granted, expire at a certain time.
(2) They may file a redacted exhibit relying on the “streamlined” process under Regulation S-K Item 601(b)(10)(iv). Companies may redact immaterial, competitively harmful information without submitting in advance an explanation to the SEC staff or providing an unredacted copy. The staff may later review and challenge the redactions.
Typically, companies prefer the Item 601(b) process and use the CTR process only as a fallback if redactions are challenged or if the filing is not covered by Item 601(b) (such as Schedule 13D and Regulation M-A Item 1016 exhibits). However, prior to its adoption in March 2019, the Item 601(b) process was not an option.
The prior Guidance Topic No. 7 permitted a CTO to be extended by submitting a short-form application. Companies could not maintain confidential treatment by transitioning to reliance on Item 601(b).
Guidance Amendments: The amendments to Guidance Topic No. 7 expand the options companies have to extend confidential treatment when a CTO is about to expire:
- If the CTO initially was issued more than 3 years ago, it may be extended by either:
- Transitioning to Item 601(b) confidential treatment (and other parallel rules), which requires re-filing the exhibit in compliance with the Item 601(b)(10)(iv) requirements. The transition may occur any time after the 3-year period following the initial issuance of the CTO, even if the CTO has not yet expired. The staff will not recommend enforcement action if the company re-files the exhibit in its first Exchange Act report following the expiration of the CTO; or
- Submitting a complete CTR application (the short-form application is not available).
- If the CTO initially was issued less than 3 years ago, companies may extend by filing a short-form CTR application.
- If the information in a material contract exhibit no longer needs protection after the expiration of the CTO, it must be re-filed in unredacted form.