June Edition 2023

76 while a company buyback program is ongoing. However, this interplay may be difficult to monitor with director and officer Rule 10b5-1 plans. To the extent that companies follow any informal procedures for such trading, they may want to assess documenting these. Companies should begin planning for their new disclosures regarding objectives, rationales and processes for share repurchases and consider what impact these disclosures may have on investors, research analysts and others. It would be useful for companies to draft sample language well in advance of the compliance date for such disclosure to allow for input from their investor and/or public relations departments, finance department, law department, outside counsel, senior management and directors. The new disclosure requirements regarding objectives, rationales and processes must be tailored to the specific issuer. Among the possible ways to avoid boilerplate disclosure, the adopting release highlighted the following suggestions from commentators as being helpful: • Discussing other possible ways for the issuer to use the funds allocated for the repurchase; • Comparing the repurchase with other investment opportunities that the company would ordinarily consider, such as capital expenditures and other uses of capital; • Discussing the expected impact of the repurchases on the value of remaining shares; • Discussing the factors driving the repurchase, including an issuer’s belief as to whether its stock is undervalued, prospective internal growth opportunities are economically viable or the valuation for potential targets is attractive; and • Discussing the sources of funding for the repurchase, where material, such as, for example, in the case where the source of funding results in tax advantages that would not otherwise be available for a repurchase. Companies and their boards of directors may want to consider how they document their decisions regarding buybacks and whether they seek more formal advice of their financial intermediaries that act as repurchase agents, whether in the form of a presentation or otherwise, addressing the expected impact of the repurchases, other uses of cash and similar matters. While the buyback rationale disclosure must be tailored for each company’s particular circumstances, a sample rationale and disclosure is set forth below: