SEC Pares Back Required Content for Exhibit Filings: Takeaways for PE

9 May 2019

On March 20, 2019, the SEC announced the adoption of amendments to Regulation S-K intended to modernize and simplify disclosure requirements applicable to SEC reporting companies. Two of those amendments have significant implications for private equity sponsors seeking to exit investments, whether through IPO or sale of a portfolio company.

Omission of Schedules to Exhibits

When publicly filing a merger, acquisition or similar agreement—for example, in connection with a public company’s purchase of a portfolio company—reporting companies customarily exclude from the filing the disclosure schedules and other immaterial attachments to the agreement. Prior to the recent amendments, these omissions were permitted only for material merger, acquisition and similar agreements. Under the new rules, immaterial schedules and similar attachments may be omitted from all exhibit filings, including material contracts such as credit agreements and services agreements. This provides welcome relief to reporting companies, including post-IPO portfolio companies, some of which had already been omitting such immaterial schedules and attachments from material contracts—in some cases, resulting in an SEC comment requesting that the company refile the exhibits in full.

To benefit from the new rules, the information in the omitted schedules and attachments must be (i) not material and (ii) not otherwise disclosed in the body of the exhibit or in the base disclosure document to which the exhibit is attached. Reporting companies must file with the applicable exhibit a list briefly identifying the contents of the omitted schedules and attachments, unless that information is already included in the exhibit (for example, in the table of contents). In addition, reporting companies should be prepared to furnish omitted materials to the SEC upon request.

Elimination of Formal Process for Confidential Treatment Requests

Reporting and soon-to-be reporting companies—for example, a portfolio company preparing the S-1 registration statement for its IPO—often must publicly file material contracts and agreements that contain sensitive information. In these instances, the company typically submits to the SEC a confidential treatment request (“CTR”) to omit this information from the public filing, on the basis that its public disclosure would cause it substantial competitive harm. Following review of the application, which can take several weeks, the SEC issues a confidential treatment order granting or denying the CTR. This process is time-consuming and potentially disruptive to a reporting company’s business. For example, the SEC will not declare a pending registration statement effective while a CTR is being reviewed.

The new rules permit reporting companies to omit confidential information from (i) material merger, acquisition and similar agreements and (ii) material contracts not made in the ordinary course of business without filing a formal CTR. Instead, companies need only make appropriate markings to the exhibit and exhibit index indicating the existence of information that was omitted because it is both immaterial and would likely cause competitive harm to the company if publicly disclosed. Exhibits that do not fall under one of the two categories noted above (e.g., underwriting agreements and debt indentures) do not benefit from these new rules governing CTRs.

While the new rules eliminate the formality of the CTR process, the substantive requirements related to assertions of confidentiality remain intact. On April 1, 2019, the SEC announced the establishment of a task force and procedures for reviewing registrant filings to assess whether redactions to exhibits appear to comply with the relevant rules for redacting confidential information. Reporting companies should be prepared, upon request from the SEC, to promptly provide supplemental materials similar to those currently required in a CTR, including an unredacted copy of the exhibit and an analysis supporting confidential treatment of the redacted information. If the supplemental materials do not support a company’s redactions, the SEC may request that the company file an amendment to its public filing that includes some, or all, of the previously redacted information.

Other Changes and Effective Dates

The new rules also include amendments to various other disclosure requirements applicable to current and periodic reports (e.g., Forms 8-K, 10-K and 10-Q) and offering documents, including with respect to executive officer disclosure, Section 16 “insider” filings (i.e., Forms 3, 4 and 5), and the rules governing incorporation by reference. We summarize these and other selected changes in our recent client update, accessible here.

The rules governing redaction of confidential information became effective on April 2, 2019. Companies with pending CTRs may, but are not required to, withdraw the requests. Most of the remaining final rules, including the rules governing the omission of schedules to exhibits, became effective on May 2, 2019.

The Private Equity Report Spring, 2019, Vol 19, No 1