Launching a Share Repurchase Program — What Are the Key Disclosure and Process Considerations?

Public companies frequently adopt share repurchase programs to return capital to stockholders, offset dilution, or support capital allocation objectives. Although repurchase programs are common, they raise a variety of disclosure, securities law, governance, and trading considerations.

Repurchase activity may implicate SEC (U.S. Securities and Exchange Commission) Rule 10b-18, Rule 10b5-1, Regulation Fair Disclosure, Regulation M, insider trading controls, and periodic reporting obligations. Companies should also carefully evaluate whether existing disclosures remain materially accurate and complete in light of the planned repurchase activity.

This short guide is intended to highlight key disclosure and process considerations and does not provide a comprehensive discussion of Rule 10b-18, Rule 10b5-1, Regulation M, or other technical securities law and trading issues that may apply to issuer repurchase activity. It focuses on traditional open market repurchase programs and does not address accelerated share repurchase programs or other more complex repurchase structures.

What Should Companies Consider?

Before launching a repurchase program, companies should carefully evaluate the size, duration, and flexibility of the proposed authorization, as well as the intended source of funds and the potential impact on liquidity, leverage, surplus, solvency, and debt covenant compliance. Companies should also consider applicable state corporate law requirements, including surplus and solvency considerations, as well as any restrictions contained in debt agreements or other financing arrangements. Boards should ensure that the repurchase authorization process is appropriately documented and supported by management’s analysis of the company’s financial condition, capital allocation priorities, and other strategic considerations.

Open market share repurchase transactions should be structured to comply with Rule 10b-18. Rule 10b-18. Rule 10b-18 provides a voluntary, nonexclusive safe harbor from certain market manipulation liability provisions under the federal securities laws for issuer repurchase activity that satisfies the rule’s conditions relating to the manner, timing, price, and volume of repurchases.

Companies should also consider whether repurchases may occur during blackout periods, whether the company is in possession of material nonpublic information, and whether the company’s insider trading policy applies to issuer repurchases or otherwise requires specific approvals, certifications, or trading window procedures before repurchase activity may commence. Companies should also consider whether implementation through a Rule 10b5-1 trading plan may be appropriate. Repurchase activity may also intersect with existing or contemplated securities offerings or other capital markets transactions, including potential Regulation M considerations.

In addition, companies should evaluate how repurchase activity may affect investor messaging, earnings guidance, risk factors, management discussion and analysis disclosure, and other public statements. Companies should also consider whether repurchases could affect dilution, equity compensation practices, or employee benefit plans and whether additional monitoring of director, officer, and affiliate trading activity may be appropriate during the program.

Disclosure Considerations

Companies typically announce repurchase programs through a broadly disseminated press release and may also furnish or file an SEC Form 8-K. Disclosure often includes

• the aggregate dollar or share amount of the authorization;
• the anticipated duration of the program;
• whether repurchases may occur from time to time;
• whether the program may be suspended or terminated;
• whether repurchases may be conducted in open market or private transactions; and
• the objective or rationale for the share repurchases.

Companies often reserve the right to suspend, modify, or terminate repurchase programs at any time based on market conditions, capital allocation priorities, or other considerations. Public companies are also required to provide periodic disclosure regarding repurchase activity in forms 10-Q and 10-K. Companies should consider any exchange notifications relating to share repurchase programs.

Practical Checklist

• Has the board approved the repurchase authorization and implementation parameters?
• What are the objectives or rationales for the share repurchase program and what process or criteria will be used to determine the amount of repurchase authorization?
• Have insider trading policy, blackout period, and material nonpublic information considerations been evaluated?
• Has the company considered whether existing public disclosures require updating before commencing repurchases?
• Is a Rule 10b5-1 trading plan appropriate?
• Has notice been provided to the applicable stock exchange in advance of the announcement?
• Will repurchases be implemented through procedures and trading instructions designed to support compliance with Rule 10b-18 and/or
  Rule 10b5-1?
• Could any offering or sale of shares restrict any repurchases under Regulation M?
• Have applicable state law, surplus, solvency, and debt covenant considerations been evaluated?
• Have disclosure obligations under forms 8-K, 10-Q, and 10-K been evaluated?
• Have directors and officers been reminded of applicable trading restrictions?
• Have accounting, tax, and treasury considerations been evaluated?