The U.S. Securities and Exchange Commission (SEC) recently adopted new rules and procedures that permit public companies to file redacted material contracts as exhibits to SEC filings without applying for a confidential treatment request (CTR). These new rules present a major overhaul of the SEC’s prior CTR regime, which proved to be time-consuming, expensive, and uncertain for registrants. The new rules and procedures, primarily amending Regulation S-K Item 601(b), will provide much needed relief to companies by reducing the significant cost and time expended to prepare and process CTRs, without necessarily diminishing the quality of information available to investors. The new rules and procedures became effective on April 2, 2019.
Under the SEC’s prior CTR procedures, a company seeking to omit competitively sensitive information from material contracts was required to submit a detailed application to the SEC identifying the particular text for which confidential treatment was sought, a statement of the legal grounds for the redaction, and an explanation why (based on the facts and circumstances of the particular case) disclosure of the redacted information was unnecessary for the protection of investors.
Under the new rules and procedures, companies can redact certain information from material contract exhibits on their own accord, without first submitting a CTR, provided that the redacted information (i) is not material, and (ii) would be competitively harmful if publicly disclosed. To comply with these rules, the company must:
- mark the exhibit index of the relevant SEC filing to indicate that portions of the exhibit or exhibits have been omitted;
- include a prominent statement on the first page of the redacted exhibit that certain identified information has been excluded from the exhibit because it is both (i) not material, and (ii) would be competitively harmful if publicly disclosed; and
- indicate with brackets where the information has been omitted from the filed version of the exhibit.
The SEC has stated that it intends to review registrants’ filings to determine compliance with the new procedures. Consequently, while public companies will have significantly more flexibility to protect their competitively sensitive material on the front end, this does not mean companies are completely free from SEC scrutiny on the back end. In this regard, companies should still consider it a best practice to document their justifications for the redactions and be prepared to submit them to the SEC if the company is reviewed.