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Insider Trading Compliance Manual
March 6, 2007
In order to take an active role in the prevention of insider trading
violations by its officers, directors, employees, consultants, attorneys,
advisors and other related individuals, we have adopted the policies
and procedures described in this Memorandum.
I. Adoption of Insider Trading Policy
Effective as written above, we have adopted the Insider Trading
Policy attached hereto as Exhibit A (the "Policy"), which
prohibits trading based on material, nonpublic information regarding
us ("Inside Information"). The Policy covers all officers
and members of our board of directors (the "directors"),
all our other employees and its subsidiaries, all secretaries and
assistants supporting our directors and consultants or our contractors
or their subsidiaries who have or may have access to Inside Information
and members of the immediate family or household of any such person,
or any affiliate (as such term is defined under the Securities Act
of 1933, as amended) of any such person or our Company. The Policy
(and/or a summary thereof) is to be delivered to all our new employees,
consultants and related individuals who are within the categories
of covered persons upon the commencement of their relationships,
and is to be circulated to all covered personnel at least annually.
II. Designation of Certain Persons
A. Section 16 Individuals. All our directors
and executive officers are subject to the reporting and liability
provisions of Section 16 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") and the rules and regulations
promulgated thereunder ("Section 16 Individuals"). Attached
hereto as Exhibit B is a separate memorandum which discusses the
relevant terms of Section 16.
B. Other Persons Subject to our Policy.
In addition, certain employees, consultants, and advisors as described
in Section I above, or certain of their respective affiliates,
have, or are likely to have, from time to time access to Inside
Information and together with the Section 16 Individuals, are
subject to our Policy, including the pre-clearance requirement
described in Section IV. A. below.
III. Appointment of Compliance Officer
We have appointed Eric G. Walters as the Company's Insider Trading
Compliance Officer (the "Compliance Officer").
IV. Duties of Compliance Officer
The Compliance Officer has been designated by the Board to handle
any and all matters relating to our Insider Trading Compliance Program.
Certain of those duties may be delegated to outside counsel with
special expertise in securities issues and relevant law. The duties
of the Compliance Officer shall include the
following:
A. Pre-clearing
all transactions involving our securities by the Section 16 Individuals
and those individuals having regular access to Inside Information,
defined for these purposes to include our employees and our subsidiaries,
all secretaries and assistants supporting such directors, officers
and employees, and consultants or contractors or our subsidiaries
who have or may have access to Inside Information and members
of the immediate family or household of any such person, in order
to determine compliance with the Policy, insider trading laws,
Section 16 of the Exchange Act and Rule 144 promulgated under
the Securities Act of 1933, as amended. Attached hereto as Exhibit
C is a Pre-Clearance Checklist to assist the Compliance Officer's
performance of this duty.
B. Assisting in the
preparation and filing of Section 16 reports (Forms 3, 4 and 5)
for all Section 16 Individuals.
C. Serving as our designated
recipient copies of reports filed with the Securities and Exchange
Commission by Section 16 Individuals under Section 16 of the Exchange
Act.
D. Performing periodic
reviews of available materials, which may include Forms 3, 4 and
5, Form 144, officers and director's questionnaires, and reports
received from our stock administrator and transfer agent, to determine
trading activity by officers, directors and others who have, or
may have, access to Inside Information.
E. Circulating the
Policy (and/or a summary thereof) to all covered employees, including
Section 16 Individuals, on an annual basis, and providing the
Policy and other appropriate materials to new officers, directors
and others who have, or may have, access to Inside Information.
F. Assisting the Board
of Directors in implementation of the Policy and Sections I and
II of this memorandum.
G. Coordinating our
counsel regarding all securities compliance matters.
H. Retaining copies
of all appropriate securities reports, and maintaining records
of his activities as Compliance Officer.
I. Oversee the
implementation of trading suspensions applicable to directors,
officers, or some or all employees that may be ordered by the
Board or CEO.
Exhibit A
Application of Policy
This Policy applies to all transactions in our securities, including
common stock, options and warrants to purchase common stock and
any other securities the Company may issue from time to time, such
as preferred stock, warrants and convertible debentures, as well
as to derivative securities relating to our stock, whether or not
issued by us, such as exchange-traded options. It applies to all
our officers and directors, all our other employees and our subsidiaries,
all secretaries and assistants supporting such directors, officers
and employees, and our consultants or contractors or our subsidiaries
who have or may have access to Material Nonpublic Information (as
defined below) regarding us and members of the immediate family
or household of any such person, or any affiliate (as such term
is defined under the Securities Act of 1933, as amended) of any
such person or of us. This group of people is sometimes referred
to in this Policy as "Insiders." This Policy also applies
to any person who receives Material Nonpublic Information from any
Insider.
Any person who possesses Material Nonpublic Information regarding
us is an Insider for so long as such information is not publicly
known.
Definition of Material Nonpublic Information
It is not possible to define all categories of material information.
However, information should be regarded as material if there is
a reasonable likelihood that it would be considered important to
an investor in making an investment decision regarding the purchase
or sale of our securities. Nonpublic information is information
that has not been previously disclosed to the general public and
is otherwise not available to the general public.
While it may be difficult to determine whether particular information
is material, there are various categories of information that are
particularly sensitive and, as a general rule, should always be
considered material. In addition, material information may be positive
or negative. Examples of such information may include:
- Financial results
- Projections of future earnings or losses
- Major contract awards, cancellations or write-offs
- Joint ventures with third parties
- Research milestones
- News of a pending or proposed merger or acquisition
- News of the disposition of material assets
- Impending bankruptcy or financial liquidity problems
- Gain or loss of a substantial customer or supplier
- Results of trials
- New product announcements of a significant nature
- Significant pricing changes
- Stock splits
- New equity or debt offerings
- Significant litigation exposure due to actual or threatened
litigation
- Changes in senior management
- Capital investment plans
- Changes in dividend policy
Certain Exceptions
For purposes of this Policy, we consider that the exercise of stock
options for cash under our stock option plan (but not the sale of
any such shares) is exempt from this Policy, since the other party
to the transaction is us itself and the price does not vary with
the market but is fixed by the terms of the option agreement or
the plan.
Statement of Policy
General Policy
It is our policy to prohibit the unauthorized disclosure of any
nonpublic information acquired in the workplace and the misuse of
Material Nonpublic Information in securities trading.
Specific Policies
1. Trading on Material Nonpublic Information. With certain
exceptions, no officer or director, no employee or its subsidiaries
and no consultant or contractor or any of our subsidiaries and
no members of the immediate family or household of any such person,
shall engage in any transaction involving a purchase or sale of
our securities, including any offer to purchase or offer to sell,
during any period commencing with the date that he or she possesses
Material Nonpublic Information concerning us, and ending at the
close of business on the second Trading Day following the date
of public disclosure of that information, or at such time as such
nonpublic information is no longer material. However, see Section
2 under "Permitted Trading Period" below for a full
discussion of trading pursuant to a pre-established plan or by
delegation.
As used herein, the term "Trading Day" shall mean a
day on which national stock exchanges and the NASDAQ National
Market are open for trading.
2. Tipping. No Insider shall disclose ("tip")
Material Nonpublic Information to any other person (including
family members) where such information may be used by such person
to his or her profit by trading in our securities to which such
information relates, nor shall such Insider or related person
make recommendations or express opinions on the basis of Material
Nonpublic Information as to trading in our securities.
Regulation FD (Fair Disclosure) is an issuer disclosure rule
implemented by the SEC that addresses selective disclosure. The
regulation provides that when we, or person acting on our behalf,
discloses material nonpublic information to certain enumerated
persons (in general, securities market professionals and holders
of our securities who may well trade on the basis of the information),
it must make public disclosure of that information. The timing
of the required public disclosure depends on whether the selective
disclosure was intentional or unintentional; for an intentional
selective disclosure, we must make public disclosures simultaneously;
for a non-intentional disclosure we must make public disclosure
promptly. Under the regulation, the required public disclosure
may be made by filing or furnishing a Form 8-KSB, or by another
method or combination of methods that is reasonably designed to
effect broad, non-exclusionary distribution of the information
to the public.
It is our policy that all communications with the press be handled
through Michael F. Adams, President and CEO or Eric G. Walters,
Vice President and CFO (telephone (978) 657-0075).
3. Confidentiality of Nonpublic Information. Nonpublic
information relating to us is our property and the unauthorized
disclosure of such information is forbidden.
4. Duty to Report Inappropriate and Irregular Conduct.
All employees, and particularly managers and/or supervisors, have
a responsibility for maintaining financial integrity within our
company, consistent with generally accepted accounting principles
and both federal and state securities laws. Any employee who becomes
aware of any incidents involving financial or accounting manipulation
or irregularities, whether by witnessing the incident or being
told of it, must report it to their immediate supervisor and to
our Audit Committee. In certain instances, employees are allowed
to participate in federal or state proceedings. For a more complete
understanding of this issue, employees should consult their employee
manual and/or seek the advice of counsel. The Compliance Officer
can provide you with contact information for our outside general
corporate and securities counsel.
Potential Criminal and Civil Liability and/or
Disciplinary Action
1. Liability for Insider Trading. Insiders may be subject
to penalties of up to $1,000,000 and up to ten (10) years in jail
for engaging in transactions in our securities at a time when
they possess Material Nonpublic Information regarding our Company.
In addition, the SEC has the authority to seek a civil monetary
penalty of up to three times the amount of profit gained or loss
avoided by illegal insider trading. "Profit gained"
or "loss avoided" generally means the difference between
the purchase or sale price of our stock and its value as measured
by the trading price of the stock a reasonable period after public
dissemination of the nonpublic information.
2. Liability for Tipping. Insiders may also be liable
for improper transactions by any person (commonly referred to
as a "tippee") to whom they have disclosed Material
Nonpublic Information regarding our Company or to whom they have
made recommendations or expressed opinions on the basis of such
information as to trading in our securities. The Securities and
Exchange Commission (the "SEC") has imposed large penalties
even when the disclosing person did not profit from the trading.
The SEC, the stock exchanges and the National Association of Securities
Dealers, Inc. use sophisticated electronic surveillance techniques
to monitor and uncover insider trading.
3. Possible Disciplinary Actions. Individuals subject
to the Policy who violate this Policy shall also be subject to
disciplinary action by us, which may include suspension, forfeiture
of perquisites, ineligibility for future participation in our
equity incentive plans and/or termination of employment.
Permitted Trading Period
1. Black-Out Period and Trading Window.
To ensure compliance with this Policy and applicable federal
and state securities laws, we require that all officers; directors;
employees with the title of general manager, controller or more
senior; and members of the immediate family or household of any
such person refrain from conducting transactions involving the
purchase or sale of our securities, other than during the period
in any fiscal quarter (including the year end) commencing forty
eight hours following the date and time of public disclosure of
the financial results for the prior fiscal quarter or year with
respect to the Form 10-K and Form 10-Q, as applicable, and ending
on the fifteenth calendar day of the third month of the fiscal
quarter (including the year end) (the "Trading Window").
If such public disclosure occurs on a Trading Day before the markets
close, then such date of disclosure shall be considered the first
Trading Day following such public disclosure.
The safest period for trading in our securities, assuming the
absence of Material Nonpublic Information, is generally the first
ten Trading Days of the Trading Window. The last month of each
fiscal quarter and the period of time from the end of such quarter
until the public disclosure of quarterly results are particularly
sensitive periods of time for transactions in our securities from
the perspective of compliance with applicable securities laws.
This is because officers, directors and certain other employees,
as any quarter progresses, are increasingly likely to possess
Material Nonpublic Information about the expected financial results
for the quarter. The purpose of the Trading Window is to avoid
any unlawful or improper transactions.
It should be noted that even during the Trading Window any person
possessing Material Nonpublic Information concerning our Company
should not engage in any transactions in our securities until
such information has been known publicly for at least two Trading
Days. We have adopted the policy of delaying trading for "commencing
forty eight hours following the date and time of public disclosure"
because the securities laws require that the public be informed
effectively of previously undisclosed material information before
Insiders trade in our stock. Public disclosure may occur through
a widely disseminated press release or through filings, such as
Forms 10-K, 10-Q and 8-K, with the SEC. Furthermore, in order
for the public to be effectively informed, the public must be
given time to evaluate the information disclosed by our Company.
Although the amount of time necessary for the public to evaluate
the information may vary depending on the complexity of the information,
generally two Trading Days is a sufficient period of time.
Although we may from time to time require during a Trading Window
that directors, officers, selected employees and others suspend
trading because of developments known to us and not yet disclosed
to the public, each person is individually responsible at all
times for compliance with the prohibitions against insider trading.
Trading in our securities during the Trading Window should not
be considered a "safe harbor," and all directors, officers
and other persons should use good judgment at all times.
From time to time, our Company, at the direction of the CEO or
the Board, may also require that directors, officers, selected
or all employees and others suspend trading because of developments
known to us and not yet disclosed to the public. In such event,
such persons are advised not to engage in any transaction involving
the purchase or sale of our securities during such period and
should not disclose to others the fact of such suspension of trading.
Such suspension shall last for the duration of the period set
by the Board or the CEO, as applicable which shall be the earlier
of: (i) two Trading Days after such developments have been disseminated
to the public or (ii) such time as the Board or the CEO, as applicable,
have determined that the developments are no longer material.
Notwithstanding these general rules, Insiders may trade outside
of the Trading Window provided that such trades are made pursuant
to a pre-established plan or by delegation; these alternatives
are discussed in the next section.
2. Trading According to a Pre-established Plan or by Delegation.
Trading which is not "on the basis of" material non-public
information may not give rise to insider trading liability. The
United States Securities and Exchange Commission has adopted Rule
10b5-1 under which insider trading liability can be avoided if
Insiders follow very specific procedures. In general, such procedures
involve trading according to pre-established instructions (a "Pre-established
Trade").
Pre-established Trades must:
a) Be documented by a contract, written plan, or formal
instruction which provides that the trade take place in the
future. For example, an Insider can contract to sell his or
her shares on a specific date, or simply delegate such decisions
to an investment manager, 401(k) plan administrator or similar
third party. This documentation must be provided to our Insider
Trading Compliance Officer.
b) Include in its documentation the specific amount,
price and timing of the trade, or the formula for determining
the amount, price and timing. For example, the Insider can buy
or sell shares in a specific amount and on a specific date each
month, or according to a pre-established percentage (of the
Insider's salary, for example) each time that the share price
falls or rises to pre-established levels. In the case where
trading decisions have been delegated, the specific amount,
price and timing need not be provided.
c) Be implemented at a time when the Insider does not
possess Material Nonpublic Information. As a practical matter,
this means that the Insider should set up Pre-established Trades,
or delegate trading discretion, only during a "Trading
Window" (discussed in Section 1, above). However, in doing
so, the Insider should take into account the considerations
described in Section 1 above, including, without limitation,
the fact that use of the Trading Window may not provide a "safe
harbor" for the Insider. And,
d) Remain beyond the scope of the Insider's influence
after implementation. In general, the Insider must allow the
Pre-established Trade to be executed without changes to the
accompanying instructions, and the Insider cannot later execute
a hedge transaction that modifies the effect of the Pre-established
Trade. An Insider wishing to change the amount, price or timing
of a Pre-established Trade, or terminate a Pre-established Trade,
can do so only during a "Trading Window" (discussed
in Section 1, above). If the Insider has delegated decision-making
authority to a third party, the Insider cannot subsequently
influence the third party in any way and such third party must
not possess material non-public information at the time of any
of the trades.
Prior to implementing a pre-established plan for trading, all
officers and directors must receive the approval for such plan
from our Insider Trading Compliance Officer. No pre-established
plan or any amendment thereto may become effective until 30
calendar days after the execution date of any such plan or amendment.
3. Pre-Clearance of Trades
Even during a Trading Window, all Insiders must comply with our
"pre-clearance" process prior to trading in our securities,
implementing a pre-established plan for trading, or delegating
decision-making authority over the Insider's trades. To do so,
each officer and director must contact our Insider Trading Compliance
Officer prior to initiating any of these actions. However, once
a pre-established plan or delegation of trading authority is approved
by the Compliance Officer the Insiders shall not be required to
pre-clear trades executed pursuant to the plan or delegated authority.
We also require compliance with the pre-clearance process from
all other employees, consultants and contractors, other than and
in addition to officers and directors.
4. Individual Responsibility
As Insiders, every person subject to this Policy has the individual
responsibility to comply with this Policy against insider trading,
regardless of whether we have recommended a Trading Window to
that Insider or any other Insiders of our company. The guidelines
set forth in this Policy are guidelines only, and appropriate
judgment should be exercised in connection with any trade in our
securities.
An Insider may, from time to time, have to forego a proposed
transaction in our securities even if he or she planned to make
the transaction before learning of the Material Nonpublic Information
and even though the Insider believes he or she may suffer an economic
loss or forego anticipated profit by waiting.
Applicability of Policy to Inside Information
Regarding Other Companies
This Policy and the guidelines described herein also apply to Material
Nonpublic Information relating to other companies, including our
customers, vendors or suppliers ("business partners"),
when that information is obtained in the course of employment with,
or other services performed on behalf of us. Civil and criminal
penalties, as well as termination of employment, may result from
trading on inside information regarding our business partners. All
employees should treat Material Nonpublic Information about our
business partners with the same care as is required with respect
to information relating directly to our company.
Prohibition Against Buying and Selling
Company Common Stock Within a Six-Month Period
Directors, Officers and 10% Shareholders
Purchases and sales (or sales and purchases) of Company common
stock occurring within any six-month period in which a mathematical
profit is realized result in illegal "short-swing profits."
The prohibition against short-swing profits is found in Section
16 of the Exchange Act. Section 16 was drafted as a rather arbitrary
prohibition against profitable "insider trading" in a
company's securities within any six-month period regardless of the
presence or absence of material nonpublic information that may affect
the market price of those securities. Each executive officer, director
and 10% shareholder of our company is subject to the prohibition
against short-swing profits under Section 16. Such persons are required
to file Forms 3, 4 and 5 reports reporting his or her initial ownership
of our common stock and any subsequent changes in such ownership.
The Sarbanes-Oxley Act of 2002 requires officers and directors ("insiders")
who must report transactions on Form 4 to do so by the end of the
second business day following the transaction date. Please note
that the prohibition against short-swing profits and the reporting
requirements apply to trades made pursuant to a pre-established
plan or delegation of trading authority.
Profit realized, for the purposes of Section 16, is calculated
generally to provide maximum recovery by us. The measure of damages
is the profit computed from any purchase and sale or any sale and
purchase within the short-swing (i.e., six-month) period, without
regard to any setoffs for losses, any first-in or first-out rules,
or the identity of the shares of common stock. This approach sometimes
has been called the "lowest price in, highest price out"
rule.
Inquiries
Please direct your questions as to any of the matters discussed
in this Policy to our Insider Trading Compliance Officer.
Exhibit B
Section 16 Memorandum
To: All Officer, Directors and 10% Shareholders ("Section
16 Individuals")
Re: Overview of Section 16 Under the Exchange Act of 1934,
as Amended
A. Introduction.
This Memorandum provides an overview of Section 16 of the Exchange
Act of 1934, as amended (the "Exchange Act"), and the
related rules promulgated by the Securities and Exchange Commission
(the "SEC"). Although each executive officer, director
and 10% shareholder (commonly called an "Insider") of
CardioTech International, Inc. is personally responsible for complying
with the provision of Section 16, failure to comply strictly with
its reporting provision will result in obligations on the part
of our Company to publicly disclose such failure. Moreover, Congress
has granted to the SEC authority to seek monetary court-imposed
fines on Insiders who fail to timely comply with their reporting
obligations.
Section 16(a) of the Exchange Act provides that insiders of a
corporation with a class of securities registered under Section
12 of the Exchange Act (i) must file an initial report of their
beneficial ownership of equity securities of the corporation (including
derivative securities such as options, warrants and stock appreciation
rights) as of the later of the date on which the corporation becomes
subject to Section 12 of the Exchange Act or ten days after the
date they attain insider status, and (ii) must report subsequent
changes in their beneficial ownership of equity and derivative
securities of the corporation. Section 16(b) provides that insiders
are liable to the corporation for any profits made on six-month
short-swing transactions in the corporation's securities. Section
16(c) prohibits insiders from engaging in both traditional short
sales of the corporation's securities and certain other transactions
that are economically or functionally equivalent to a short sale.
B. Reporting Requirements Under Section 16(a).
1. General. An Insider must disclose his or her holdings
at the time he or she attains insider status and must disclose
all subsequent changes in such holdings during the time the
individual is an Insider (and, in certain circumstances, for
up to six months after the individual ceases to be an Insider).
Disclosure is made on one of three forms: the Initial Statement
of Beneficial Ownership of Securities on Form 3; the Statement
of Changes in Beneficial Ownership of Securities on Form 4;
and the Annual Statement of Changes in Beneficial Ownership
of Securities on Form 5.
2. Method of Filing.
(a) SEC. The Sarbanes-Oxley Act mandates that all Form 4s
must be filed electronically through EDGAR.
(b) Company. In addition, the rules under Section 16 require
that a copy of the applicable Form be sent to our person designated
by us to receive such reports at the same time that copies
are sent to the SEC. If no person such has been designated,
reports are to be sent to the Corporate Secretary at our principal
executive offices. If the designated person at our company
does not receive a copy of the Form within three days of its
due date, we cannot presume that the filing with the SEC was
timely made, which may result in the need to make disclosure
of the late filing in our proxy statement.
(c) Filing Date. In the event that a due date falls on a
weekend or SEC holiday, the Form will be deemed timely filed
if it is received (or receipt is guaranteed) by the next business
day after such weekend or holiday.
(d) Securities to be Reported. A person who is subject to
Section 16 must only report as beneficially owned those securities
in which he or she has a pecuniary interest. See the discussion
of "beneficial ownership" below at Section D.
3. Initial Report of Ownership - Form 3. Under Section
16(a), Insiders are required to make an initial report on Form
3 to the SEC of their holdings of all equity securities of the
corporation (whether or not such equity securities are registered
under the Exchange Act). This would include all traditional
types of securities, such as Common Stock, Preferred Stock and
Junior Stock, as well as all types of derivative securities,
such as warrants to purchase stock, options to purchase stock,
puts and calls. Even Insiders who do not beneficially own any
equity securities of our company must file a report on Form
3 to that effect.
(a) Initial Filing Deadline. The initial statement of ownership
for persons who become officers, directors or 10% shareholders
of our company must be filed within ten days after the date
on which they become an officer, director or 10% shareholder,
and should reflect ownership as of the date they became such
an Insider.
(b) One-Time Filing. An Insider is required to file an initial
statement of beneficial ownership on Form 3 only once, unless
such person ceases to be an Insider and later becomes an Insider
again. Thus, an additional statement on such Form is not required
when either (1) the Insider attains a second "Insider"
position (such as the election of the President to the Board
of Directors), or (2) an additional class of equity securities
of our Company is registered under Section 12.
4. Changes in Ownership - Form 4. An Insider should
use Form 4 to report (i) all transactions that are not exempt
from Section 16(b), (ii) all exercises and conversions of derivative
securities (e.g. stock options) regardless of whether they are
exempt and (iii) vesting of options. Directors, officers and
10% shareholders of U.S. public companies will be required to
file their Form 4 reports under Section 16 of the Exchange Act
by the second business day after execution of a transaction.
(a) Prior Transactions. Our Insiders need not report transactions
that occurred prior to the date they first became an officer,
director or 10% shareholder, and those transactions may not
become a basis for short-swing profit liability such Section
16(b). However, a director or officer who becomes subject
to Section 16 solely as a result of the issuer first registering
a class of its equity securities pursuant to Section 12 of
the Exchange Act is subject to the reporting and liability
provisions of Section 16 with respect to any transactions
conducted in the six months prior to the first transaction
requiring a filing on Form 4 after such registration.
(b) Termination of Insider Status. If a person ceases to
be an officer or director, he or she continues to be subject
to the reporting and liability provision of Section 16 for
up to six months following termination of such status. As
a result, he or she must file a Form 4 with respect to any
non-exempt change in beneficial ownership which occurs within
six months after any change in ownership which occurred before
he or she ceased to be an officer or director. Such an individual
must also file a Form 5 after his or her termination to report
exempt and previously unreported transactions for that portion
of the issuer's fiscal year during which he or she was an
officer or director, as well as to report exempt and previously
unreported transactions occurring within six months of the
last transaction conducted while the person was an officer
or director subject to Section 16.
A 10% shareholder whose beneficial ownership (under the Section
13(d) voting or investment control test) drops below 10% need
not report any subsequent transactions on Form 4 after reporting
less than 10% but must file a Form 5 with respect to any exempt
or previously unreported transactions that occurred during
the portion of the fiscal year that such person was a 10%
shareholder.
Both Form 4 and Form 5 have an exit box that should be checked
when the Insider after reporting less than 10% files his or
her final Form 4 or Form 5 if a final filing is required.
(c) What Constitutes a Change in Beneficial Ownership. Generally,
an Insider is deemed to have acquired (disposed of) beneficial
ownership of a security at the time he or she makes a firm
commitment to acquire (dispose of) the security. (Please see
Section D below for a complete definition of "Beneficial
Ownership.") If it is necessary that certain conditions
outside the Insider's control be satisfied prior to the consummation
of the purchase or sale and if it is uncertain whether such
conditions will be satisfied, the Insider will not be deemed
to have acquired beneficial ownership or to have divested
himself or herself until such time as the conditions prescribed
are satisfied and the undertaking to purchase or sell becomes
a firm commitment.
An Insider is deemed to have acquired ownership of a derivative
security (whether issued by us or a third party) upon grant
or acquisition, regardless of when it becomes exercisable.
Similarly, an Insider is deemed to have disposed of ownership
of a derivative security upon its sale, cancellation or expiration.
See Sections B.6 and C below.
(d) Report Each Change of Ownership. Except for certain exempt
transactions that may be reported on a Form 5, every change
of ownership must be reported on Form 4.
5. Special Transactional Reporting Requirements. Changes
in beneficial ownership that constitute exempt transactions
under Section 16(a) or Section 16(b), other than the exercise
of an option, need not be reported currently on Form 4. Such
transactions fall into two categories: (i) those which must
be reported in the annual filing on Form 5, and (ii) those which
need not be reported at all. The following are some examples
of transactions in these categories.
(i) Annual Filing on Form 5
(a) Small Acquisitions. Reporting an acquisition of an equity
security not exceeding $10,000 in market value, or of the
right to acquire such securities, may be deferred until the
annual filing on Form 5, so long as (A) total acquisitions
of the same class of security (including securities underlying
derivative securities) within the preceding six months do
not exceed $10,000 in market value, and (B) the person making
the acquisition does not within six months thereafter make
any disposition that is not exempt from Section 16(b) of the
Exchange Act. Once either of the conditions described in (A)
and (B) is not met, the small acquisition must be reported
on Form 4 within ten days after the end of the calendar month
in which the condition(s) fail.
(b) Gifts and Inheritance. Acquisitions and dispositions
of our securities pursuant to bona fide gifts or by will or
the laws of descent and distribution are exempt from the liability
provisions of Section 16(b). Insiders need not report such
acquisitions or dispositions until the Form 5 for the fiscal
year in which such transaction occurs.
(c) Option Grants Under Rule 16b-3. The grant of an option
to an Insider pursuant to Rule 16b-3 is exempt from liability
and is reportable on Form 5. See Section C below.
(ii) No Reporting Required.
(a) Stock Splits and Stock Dividends. Insiders need not report
the acquisition or disposition of stock via stock splits or
stock dividends that are provided pro rata to all security
holders, and such acquisitions and dispositions are exempt
from the liability provision of Section 16(b). It is advisable
for Insiders to use the extra space provided on Form 4 or
Form 5 to explain any change in their holdings resulting from
such events.
(b) Pro Rata Rights. Acquisitions of shareholder rights granted
pro rata to all holders of a class of registered equity securities
(including so-called "poison pill" shareholder rights)
are exempt from the reporting and liability provisions of
Section 16.
6. Year-End Filing - Form 5. An Insider must file a
Form 5 within 45 days after the end of the issuer's fiscal year
(May 14) unless all holdings and transactions that are required
to be reported on Form 5 (including exempt transactions) have
already been reported as of the date the Form 5 is due.
If not previously reported, the following transactions must
be reported on Form 5: (a) any transaction during the last fiscal
year that was exempt from the operation of the short-swing profit
recovery rules under Section 16(b) (such as grants of options
under Rule 16b-3); and (b) any holdings or transactions that
should have been reported during our last fiscal year (two fiscal
years for the first Form 5 filed) on a Form 3 or Form 4, but
were not reported. The Form 5 filing requirements apply to each
person who was an Insider during any portion of the applicable
fiscal year.
7. Reporting Obligations Regarding Certain Transactions
in Derivative Securities. In general, the acquisition or disposition
of any option, warrant, put or call, whether or not transferable
or then exercisable, is a reportable purchase or sale of the
underlying security to which such derivative security relates,
and requires the filing of a Form 4.
(a) Grant of Option or Warrant. If a derivative security
is granted pursuant to Rule 16b-3, the otherwise reportable
purchase is exempt and need not be reported until the annual
filing on Form 5. If an Insider receives a derivative security
other than pursuant to Rule 16b-3, the acquisition is deemed
to be a purchase for Section 16 purposes and must be currently
reported on Form 4.
(b) Exercise or Conversion of Option, Warrant or Other Right.
The exercise of any option, warrant or other right to purchase
securities must be currently reported on Form 4.
(c) Pledges. The right of a pledgee or borrower of securities
to sell the pledged or borrowed securities is not a derivative
security or "option" for purposes of Section 16,
and the acquisition or disposition of such a right does not
require the filing of a Form 4. Moreover, the SEC Staff has
taken the position that bona fide pledges or loans of securities
do not represent changes in beneficial ownership and need
not be reported by the pledgor or lender. However, the sale
of the pledged or borrower securities by the pledgee or borrower
must be reported by the pledgor or lender and may result in
Section 16(b) liability for the pledgor or lender.
(d) Rights Without a Fixed Price. Rights that do not have
a fixed exercise or conversion price, such as a right to purchase
stock at a future date at a specified percentage of its market
value on the date of purchase, are not derivative securities
and need not be reported, unless such rights have a floor
or ceiling to the exercise or conversion price.
C. Securities Acquired Pursuant to Rule 16b-3.
1. General. Rule 16b-3 generally provides exemptions from Section
16(b) for discretionary transactions by Insiders (e.g., not
at the volition of the Insider). Rule 16b-3 provides that a
grant or award of equity securities is exempt from Section 16
if any of the following conditions are met:
(1) the transaction is approved in advance by the board of
directors or a committee of the board composed solely of two
or more non-employee directors;
(2) the transaction is approved in advance by the shareholders,
or subsequently ratified by the shareholders by the date of
the next annual meeting of shareholders; or
(3) the securities so acquired are held by the officer or
director for six months following the date of such acquisition.
2. Transactions Must Comply with Rule 16b-3. Individual transactions
must meet certain general requirements in order to qualify for
beneficial treatment under Rule 16b-3.
D. Determining Beneficial Ownership.
The issue of beneficial ownership arises in two contexts under
Section 16:
1. Determining Who is a 10% Holder. Beneficial ownership
in the Section 16 context is determined by reference to Rule 13d-3,
which provides that a person is the beneficial owner of securities
if that person has or shares voting or disposition power with
respect to such securities, or can acquire such power within 60
days through the exercise or conversion of derivative securities.
2. Determining Beneficial Ownership for Reporting and
Short-Swing Profit Liability. For all Section 16 purposes other
than determining who is a 10% holder, beneficial ownership means
a direct or indirect pecuniary interest in the subject securities
through any contract, arrangement, understanding, relationship
or otherwise. "Pecuniary interest" means the opportunity,
directly or indirectly, to profit or share in any profit derived
from a transaction in the subject securities. Discussed below
are several of the situations that may give rise to an indirect
pecuniary interest.
(a) Family Holdings. An Insider is deemed to have an indirect
pecuniary interest in securities held by members of the Insider's
immediate family sharing the same household. Immediate family
includes grandparents, parents (and step-parents), spouses,
siblings, children (and step-children) and grandchildren, as
well as parents-in-law, siblings-in-law, children-in-law and
all adoptive relationships. An Insider may disclaim beneficial
ownership of shares held by members of his or her immediate
family, but the burden of proof will be on the Insider to uphold
the lack of a pecuniary interest.
(b) Partnership Holdings. Beneficial ownership of a partnership's
securities is attributed to the general partner of a limited
partnership in proportion of such person's partnership interest.
Such interest is measured by the greater of the general partner's
share of partnership profits or of the general partner's capital
account (including any limited partnership interest held by
the general partner).
(c) Corporate Holdings. Beneficial ownership of securities
held by a corporation will not be attributed to its shareholders
who are not controlling shareholders and who do not have or
share investment control over the corporation's portfolio securities.
(d) Derivative Securities. Ownership of derivative securities
(warrants, stock appreciation rights, convertible securities,
options and the like) is treated as indirect ownership of the
underlying equity securities. Acquisition of derivative securities
must be reported, although the timing of such reporting depends
upon the Rule 16b-3 status of the employee plan under which
the grant was made.
E. Delinquent Filings.
1. Disclosure Requirements. Item 405 of Regulation S-K requires
the Company to disclose in its proxy statements, information
statements and Annual Reports on Form 10-KSB information regarding
delinquent filings under Section 16(a) by Insiders. Our Company
must identify by name its Insiders who, during the fiscal year,
reported transactions late or failed to file required reports,
and must disclose the number of delinquent filings and transactions
for each such Insider. We do not have an obligation to research
and make inquiry regarding the delinquent Section 16(a) filings
but may rely on the information disclosed on Forms 3, 4 and
5. We may also rely on a written representation from the Insider
that no Form 5 filing is required but should retain the representation
for two years. The cover page of Form 10-KSB has been amended
to provide a box which can only be checked by us if we know
at the time of filing that there are no delinquent filings that
will require disclosure pursuant to Item 405. The SEC has indicated
that it will select for review any Form 10-KSB that does not
have the box checked and that they will be using the disclosure
of delinquencies to assist in their enforcement efforts.
2. Correcting Late Filings. If a particular transaction or
holding has not been reported, the Insider must file a new form
for the transaction. The transaction reported in an untimely
manner would be disclosed pursuant to Item 405 for the fiscal
year in which the report was filed, even if the transaction
related to and should have been reported in a prior fiscal year.
3. Potential Liability. The SEC has been empowered by Congress
to seek civil penalties against those who fail to comply with
the reporting requirements of Section 16. Penalties may be sought
for any violations occurring on or after October 15, 1990. Penalties
for failure to timely file may range from $5,000 to $100,000
per violation. Moreover, if the SEC obtains a cease-and-desist
order prohibiting future violations of the reporting requirements
under Section 16, each day that a filing is late may be treated
as a separate offense, thereby multiplying the penalty amount
by the number of days that the form is delinquent.
F. Other Prohibited Insider Transactions Under Section
16(c).
Section 16(c) of the Exchange Act provides that it is unlawful
for an Insider to sell any equity security (including a derivative
security) of the corporation if the person selling the security
(1) does not own the security sold, or (2) owns the security but
does not deliver it against such sale within 20 days thereafter,
or does not, within five days after such sale, deposit it in the
mails or other usual channels of transportation.
Clause (1) above is directed to the tradition "short sale"
where the seller borrows stock to make delivery on sale and repays
his or her loan with securities purchased thereafter.
Clause (2) above is directed to either long sales or "short
sales against the box" where delivery is not made within
the required time limits.
The interactions of Section 16(c) with the derivative securities
concept is not entirely clear, but the establishment of or increase
in a "put equivalent position" (a broadly defined term
that includes any type of short position) is considered functionally
and economically equivalent to a prohibited short sale if the
Insider does not own underlying securities sufficient to cover
the put equivalent position.
Exhibit C
Pre-Clearance Checklist
Individual Proposing to Trade:_________________________
Number of Shares covered by Proposed Trade:_________________________
Date:_________________________
____ Trading Window. Confirm that the trade will be made during
our "trading window."
____ Section 16 Compliance. Confirm, if the individual is subject
to Section 16, that the proposed trade will not give rise to any
potential liability under Section 16 as a result of matched past
(or intended future) transactions. Also, ensure that a Form 4 has
been or will be completed and will be timely filed.
____ Prohibited Trades. Confirm, if the individual is subject to
Section 16, that the proposed transaction is not a "short sale,"
put, call or other prohibited or strongly discouraged transaction.
____Rule 144 Compliance. Confirm that:
____Current public information requirement has been met;
____Shares are not restricted or, if restricted, the one year
holding period has been met;
____Volume limitations are not exceeded (confirm that the individual
is not part of an aggregated group);
____The manner of sale requirements have been met; and
____The Notice of Form 144 Sale has been completed and filed.
____Rule 10b-5 Concerns. Confirm that (i) the individual has been
reminded that trading is prohibited when in possession of any material
information regarding us that has not been adequately disclosed
to the public, and (ii) the Insider Trading Compliance Officer has
discussed with the individual any information known to the individual
or the Insider Trading Compliance Officer which might be considered
material, so that the individual has made an informed judgment as
to the presence of inside information.
________________________________________
Signature of Insider Trading Compliance Officer
Transactions Report
Officer or Director:
I. Transactions in___________ (specify dates):
____ No transactions
____ The transactions described below
| Owner of Record |
Transaction
Date (1) |
Transaction
Code (2) |
Security (Common,
Preferred) |
Number of Securities
Acquired |
Number of Securities Disposed
of |
Purchase/ Sale Unit Price
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(1)
(a) Brokerage transactions - trade date
(b) Other purchases and sales - date firm commitment is made
(c) Option and SAR exercises - date of exercise |
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d) Acquisitions
under stock bonus plan - date of grant(e) Conversion - date
of surrender of convertible security(f) Gifts - date on which
gift is made |
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(2) Transaction Codes:
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(P) Pre-established
Purchase or Sale
(N) Purchase or Sale (not "Pre-established")
(G) Gift(M) Option exercise (in the money option) |
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(Q) Transfer
pursuant to marital settlement
(U) Tender of shares
(W) Acquisition or disposition of will
(J) Other acquisition or disposition (specify) |
II. Securities Ownership After Sale
A. Our Securities Directly or Indirectly Owned (other
than stock options noted below):
| Title of Security (e.g.,
Preferred, Common, etc.) |
Number of Shares/Units |
Record Holder (if not
Reporting Person) |
Relationship to Reporting
Person |
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B. Stock Option Ownership:
Vesting Dates Expiration Date Exercises to Date (Date, No. of
Shares)
| Date of Grant |
Number of Shares |
Exercise Price |
Vesting Dates |
Expiration Date |
Exercises to Date (Date,
No. of Shares) |
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