On March 20, 2019, the U.S. Securities and Exchange Commission adopted amendments to Regulation S-K designed to modernize and simplify disclosure requirements for public companies, investment advisers, and investment companies. The final rules (adopting release available here), which were adopted largely as originally proposed in October 2017 (see our prior alert available here), were made pursuant to the SEC's mandate under the Fixing America's Surface Transportation (FAST) Act. We expect reporting companies will welcome these changes, particularly those related to MD&A and exhibit filings.
Set forth below are certain changes that could have a significant impact on a registrant's disclosure practices:
- Management's Discussion and Analysis (MD&A) (Item 303 of Regulation S-K). Instruction 1 to Item 303(a) previously required that MD&A cover a registrant's financial condition, changes in financial condition, and results of operations for the last three fiscal years covered by the financial statements. Registrants will now be able to omit narrative discussions about the earliest of the three years if such discussion was already included in any of the registrant's prior filings on EDGAR, so long as the registrant identifies the location in the prior filing where the omitted discussion may be found. Importantly, the SEC did not adopt the proposed express condition that the omitted discussion not be material to an understanding of the registrant's financial condition, changes in financial condition and results of operations. The SEC believes these revisions to Item 303 will give registrants the flexibility to tailor their MD&A in a manner most suited to their particular circumstances.
- Exhibits (Item 601 of Regulation S-K). Several of the amendments impact a reporting company’s exhibits-filing practice across a wide range of SEC forms. For instance:
- Confidential Treatment Requests. The amendments allow registrants to omit confidential information from material contracts filed under Item 601(b)(10) and agreements under Item 601(b)(2) without submitting a confidential treatment request (CTR) in instances where the registrant determines such information is (i) not material and (ii) would likely cause competitive harm if publicly disclosed. Registrants will still be required to mark the exhibit index to indicate that portions of the exhibit or exhibits have been omitted and 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 (i) not material and (ii) would likely cause competitive harm to the registrant if publicly disclosed. The registrant also must indicate by brackets where information is omitted from the filed version of the exhibit. The SEC has made clear that the amendments would modify the CTR process only, and not the underlying substantive requirements for determining whether redacted information is eligible for confidential treatment.
- Personally Identifiable Information (PII). As a matter of practice, the SEC generally does not object where a registrant omits PII (e.g., bank account numbers, social security numbers, home addresses, etc.) from exhibits without also submitting a CTR. To codify this current practice, the SEC adopted new Item 601(a)(6) to allow registrants to omit PII from their required Item 601 exhibits without submitting a CTR for the information.
- Omissions of Schedules and Similar Attachments. Item 601 generally required registrants to file complete copies of related exhibits, except with respect to material plans of acquisition, reorganization, arrangement, liquidation or succession. Registrants will now be permitted to omit schedules and similar attachments to exhibits for all exhibits filed under Item 601, unless they contain material information and that information is not otherwise disclosed in the exhibit or the disclosure document. Registrants are still required to provide with each exhibit a list briefly identifying the contents of any omitted schedules or attachments.
- Limitations on Material Contracts Required to Be Filed. Item 601(b)(10) required material contracts to be filed when either (i) the contract must be performed in whole or in part at or after the filing of the registration statement or report or (ii) the contract was entered into not more than two years before the filing. The amendment limits the two-year lookback to "newly reporting registrants" only. A "newly reporting registrant" includes any registrant that had no Exchange Act reporting obligation at the time of the filing, and any registrant that has not filed an annual report since the revival of a previously suspended Exchange Act reporting obligation.
- Description of Property (Item 102 of Regulation S-K). Registrants are now only required to provide disclosure about physical property to the extent that such property is "material" to the registrant. The adopting release specifically notes that the SEC is not modifying any of the instructions in Item 102 specific to the mining, real estate, and oil and gas industries.
- Executive Officers (Item 401 of Regulation S-K). The amendment clarifies that any disclosure about executive officers required by Item 401 of Regulation S-K would not need to be duplicated in the registrant's proxy statement if the information is already included in Part I of the registrant's Form 10-K under a separate section entitled "Information about our Executive Officers."
- Compliance with Section 16(a) of the Exchange Act (Item 405). The amendment changes disclosure in three ways. First, the disclosure heading changed from "Section 16(a) Beneficial Ownership Reporting Compliance" to "Delinquent Section 16(a) Reports." Second, registrants are encouraged to exclude the heading when there are no delinquencies to report. Third, the SEC eliminated the checkbox on the cover of Form 10-K related to the disclosure of delinquent filers. In addition, the SEC eliminated the requirement in Rule 16a-3(e) that reporting persons furnish Section 16 reports to the registrant and clarified in Item 405 that registrants may, but are not required to, rely only on Section 16 reports filed on EDGAR (as well as any written representations from reporting persons) to assess whether there are any Section 16(a) delinquencies to report.
- Corporate Governance (Item 407 of Regulation S-K). Item 407(e)(5) was revised in order to clarify that, because an emerging growth company is not required to provide a Compensation Discussion and Analysis (CD&A) in its annual report or proxy statement, its compensation committee need not state, as would otherwise be required, whether it has reviewed and discussed the CD&A nor whether it recommended to the board that the CD&A be included in the annual report or proxy statement.
The amendments relating to the redaction of confidential information in certain exhibits will become effective immediately upon publication in the Federal Register and the remaining amendments will become effective 30 days after they are published in the Federal Register.
I The amendments incorporate the criteria for permissible non-disclosure set forth in Section 522(b)(4) of the Freedom of Information Act (FOIA) on which most applicants for confidential treatment rely. A CTR may still be necessary if a registrant intends to rely on other bases for confidential treatment.
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