Corporate Governance

Shearman & Sterling LLP 37 | SEC Proposes Significant Changes to Share Repurchase Disclosure and Rule 10b5-1 Requirements and Disclosure WHAT SHOULD COMPANIES DO NOW? As the sampling of comments above reflects, there is significant opposition to components of these proposed rules and potentially meaningful impacts on companies and their executives and directors if they are adopted in their current form. It is unclear at this time when final rules may be adopted, but companies should prepare as if the 11 rules may become effective some time in 2023. In preparation for final rules, companies should be considering the following action items: Preparing for Changes to Share Repurchases • Prepare for Next-Day Filings: Companies with existing stock buyback programs will need to be prepared to make next-day filings of the new Form SR after they or any affiliated purchaser make a share repurchase. This will require an assessment of existing plans and internal control capabilities for tracking daily purchases, as well as coordination with the brokers for the plans. • Consider the Implications of Potential Cooling-Off Period: Companies that use Rule 10b5-1 in conjunction with their buybacks will need to consider the implications of a potential 30-day cooling- off period and whether continued use of Rule 10b5-1 will be practical. Similar consideration should be given to the potential prohibition on overlapping plans. If the conclusion is that the company will be limited in its ability to achieve its objectives with fewer days in the market, it may need to reconsider its approach for returning capital to shareholders. • Prepare for Enhanced Quarterly Filings: Review current Form 10-Q and Form 10-K (or Form 20-F) share repurchase disclosures and consider what would need to change to comply with proposed revised Item 703, including disclosure about the company's objectives or rational for repurchasing shares and process for determining the amount of repurchase. Also consider updating policies related to purchases and sales by officers and directors during a repurchase program. Preparing for Changes to 10b5-1 Plans • Update Insider Trading Policies: Companies should expect to publicly disclose their insider trading policies or, if they have not adopted one, explain why not. Take the time in advance of the new rules to review and update the current insider trading policy to reflect best practices or strengthen existing provisions. Controls around Section 16 filings should also be modified to reflect the new Form 4 requirements relating to gifts. • Review Existing 10b5-1 Plans: Educate directors and executive officers about the proposal and be prepared to quickly modify 10b5-1 plans to comply with the new rules, including implementation of cooling-off periods and preparing for director and officer certifications. Consider what disclosures about existing plans will need to be made in future filings under the new rules. • Evaluate Option Grant Policies: Revised Item 402 of Regulation S-K would require narrative disclosure of option grant policies and practices regarding the timing of options. Evaluate existing policies and disclosures in preparation for the new rules.

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