SEC's Insider Trading Rules – Model Disclosures

Rule

Location

iXBRL Tagging

Frequency

Compliance Date

Director and Officer Disclosure:

“Insider Trading Arrangements and Related Disclosure” adopting release:

Reg. S-K, Item 408(a).

Form 10-Q, Part II, Item 5. Other Information.

Form 10-K, Part II, Item 9B. Other Information.

Required.

Quarterly (4^th quarter covered in 10-K).

Include in 10-Q or 10-K covering first full fiscal quarter beginning on or after April 1, 2023 (for smaller reporting companies (SRC): on or after October 1, 2023).

Introductory Drafting Notes:

• Generally, this rule requires the company to provide quarterly disclosure regarding the adoption and termination (including modifications) of Rule 10b5-1 trading arrangements by its directors and officers.
• The rule requires the same disclosures for “non-Rule 10b5-1 trading arrangements” used by directors and officers. The SEC adopted the “non-Rule 10b5-1 trading arrangement” disclosure obligation out of concern that insiders would choose to trade in reliance on defenses other than Rule 10b5-1 in order to avoid these new disclosure requirements. Defined at new Reg. S-K, Item 408(c), a “non-Rule 10b5-1 trading arrangement” is an arrangement having terms consistent with the prior rule (i.e., a Rule 10b5-1 trading arrangement with no cooling-off periods or mandatory certifications). We believe entry into such arrangements will be atypical going forward. However, we do anticipate some initial “non-Rule 10b5-1 trading arrangement” disclosures because, subject to further SEC guidance, we believe the termination (including modification) of a Rule 10b5-1 trading arrangement that was established under the prior rule (i.e., adopted prior to February 27, 2023) should be disclosed as the termination of a “non-Rule 10b5-1 trading arrangement.” See below under “Transition Disclosures Drafting Notes”.
• The model below uses tabular presentation for the required disclosures, with additional explanatory footnote text to be included as appropriate. However, narrative disclosure is allowed as there is no prescribed format for this disclosure.
• The model below does not include a description of the director’s or officer’s purpose for adopting, modifying, or terminating a reportable trading arrangement, which is not required by the new rules. Under certain circumstances, companies may wish to include such disclosure on a case-by-case basis for investor relations or other reasons.
• Disclosure is still required even if there were no reportable adoptions or terminations (including modifications) during a quarter. Refer to the introductory text of the model below for an example.
• When a trading arrangement ends by its terms and without any action by the individual, no “termination” event is required to be disclosed. Accordingly, in describing the duration of each trading arrangement at adoption, we recommend disclosing the circumstances that would lead to an automatic termination. See, e.g., model footnote 2 below. If an automatic termination circumstance is disclosed initially, subject to further SEC guidance, we believe its occurrence should not require a subsequent “termination” event disclosure.
• Under new Rule 10b5-1(c)(1)(iv), any modification to the amount, price, or timing terms of a trading arrangement is treated as the termination of the existing trading arrangement and the adoption of a new trading arrangement. Because the rule treats a modification as a simultaneous termination and adoption, we believe the conservative way to address the disclosure is to report the termination of the existing trading arrangement in one line of the table, and the adoption of a new trading arrangement in a subsequent line in the table.
• The rule requires providing a description of the material terms of each trading arrangement at both adoption and termination of such trading arrangements. Accordingly, when reporting a termination, a company could satisfy the rule’s requirement by incorporating the description of the trading arrangement by reference to the original adoption disclosure. See, e.g., model footnote 5 below. If incorporating the description of a trading arrangement by reference to a prior disclosure, ensure compliance with Exchange Act Rule 12b-23, “Incorporation By Reference,” and General Instruction D to Form 10-Q or General Instruction G to Form 10-K, as applicable.

Transition Disclosures Drafting Notes:

• As indicated above, when disclosing the termination of a Rule 10b5-1 trading arrangement established under the prior rule (i.e., adopted prior to February 27, 2023) it should be listed as a “non-Rule 10b5-1 trading arrangement.” We recommend indicating by footnote that such a trading arrangement did satisfy the then-applicable Rule 10b5-1(c) affirmative defense requirements. See, e.g., model footnote 3 below.
• When reporting a termination (including a modification), if the terms of the original trading arrangement were not previously disclosed (as will be the case for most initial disclosures under these rules), include additional explanatory footnote text if necessary to describe the original trading arrangement.

Model Disclosure

Insider Adoption or Termination of Trading Arrangements:

During the fiscal quarter ended [QUARTER END DATE], none of our directors or officers informed us of the adoption, modification or termination of a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Regulation S-K, Item 408[, except as described in the table below:][.]

1. Except as indicated by footnote, each trading arrangement marked as a “Rule 10b5-1 Trading Arrangement” is intended to satisfy the affirmative defense of Rule 10b5-1(c), as amended (the “Rule”).
2. Except as indicated by footnote, each trading arrangement permitted or permits transactions through and including [the earlier to occur of (a) the completion of all purchases or sales or (b)] the date listed in the table. Each trading arrangement marked as a “Rule 10b5-1 Trading Arrangement” only permitted or only permits transactions upon expiration of the applicable mandatory cooling-off period under the Rule. [Except as indicated by footnote, each arrangement also provided or provides for automatic expiration in the event of death, a personal bankruptcy filing, the filing of a divorce petition, employment termination (in which case such automatic termination will occur at the beginning of the next open trading window), public announcement of a merger, recapitalization, acquisition, tender or exchange offer, or other business combination or reorganization resulting in the exchange or conversion of the [common stock] of the Company into shares of another company, or the conversion of the Company’s [securities] into rights to receive fixed amounts of cash or into debt securities and/or preferred stock (whether in whole or in part).]
3. [Complied with the then-applicable requirements of Rule 10b5-1(c) when adopted in [MONTH][YEAR].]
4. [Consider with counsel any other material terms, except terms with respect to price, to be disclosed by footnote for each trading arrangement.]
5. [For additional details about the material terms of this arrangement, refer to the description under the heading “Insider Adoption or Termination of Trading Arrangements” contained in [Part II, Item 5. Other Information of our Quarterly Report on Form 10-Q for the quarter ended [DATE]]/[Part II, Item 9B. Other Information of our Annual Report on Form 10-K for the year ended [DATE]], which is incorporated herein by reference.]

Rule

Location

iXBRL Tagging

Frequency

Compliance Date

Disclosure:

“Insider Trading Arrangements and Related Disclosure” adopting release:

Reg. S-K, Item 408(b)(1).

Form 10-K, Part III, Item 10. Directors, Executive Officers and Corporate Governance.

AND

Schedule 14A, Item 7. Directors and Executive Officers

Required.

Annual

Include in first filing covering first full fiscal year beginning on or after April 1, 2023 (for smaller reporting companies: on or after October 1, 2023).

Exhibit Filing:

“Insider Trading Arrangements and Related Disclosure” adopting release:

Reg. S-K, Item 408(b)(2), &

Reg. S-K, Item 601(b)(19).

Form 10-K, Part IV, Item 15. Exhibits and Financial Statement Schedules.

Not required.

Same as immediately above.

Same as immediately above.

Introductory Drafting Notes:

• Generally, this rule requires annual disclosure about whether the company has adopted policies prohibiting insider trading and related procedures (and if not, why not). If the company has adopted such insider trading policies and procedures, the company must file its policies and procedures as an exhibit.
• As a Form 10-K, Part III disclosure, this disclosure could be incorporated by reference from the proxy statement to be filed prior to the 120^th day following fiscal year end. However, the company’s policies and procedures are still to be filed as an exhibit to the 10-K.
• In the unlikely event the company has embedded its entire insider trading policy into its code of ethics (as defined in Reg. S-K, Item 406(b)) and that code of ethics is filed as an exhibit pursuant to Reg. S-K, Item 406(c)(1), the model below should be revised to reflect that fact and to refer to the proper exhibit.

Model Disclosure

Insider Trading Arrangements and Policies:

We are committed to promoting high standards of ethical business conduct and compliance with applicable laws, rules and regulations. As part of this commitment, we have adopted our [Insider Trading Policy] governing the purchase, sale, and/or other dispositions of our securities by our [directors, officers, employees and [designated] contractors], [as well as by [COMPANY NAME] itself,] that we believe is reasonably designed to promote compliance with insider trading laws, rules and regulations, and the exchange listing standards applicable to us. A copy of our [Insider Trading Policy], including any amendments thereto, [is filed as Exhibit 19.1 to this Annual Report on Form 10-K]/[was filed as Exhibit 19.1 to our Annual Report on Form 10-K for the year ended [DATE]].

Rule

Location

iXBRL Tagging

Frequency

Compliance Date

Disclosure:

“Insider Trading Arrangements and Related Disclosure” adopting release:

Reg. S-K, Item 402(x)(1).

Form 10-K, Part III, Item 11. Executive Compensation.

And

Schedule 14A, Item 8. Compensation of Directors and Executive Officers.

Required.

Annual

Include in first filing covering first full fiscal year beginning on or after April 1, 2023 (for smaller reporting companies: on or after October 1, 2023).

Introductory Drafting Notes:

• Generally, this rule requires annual disclosure about company policies and practices around the timing of options grants and the release of material nonpublic information.
• As a Form 10-K, Part III disclosure, this could be incorporated by reference from the proxy statement to be filed prior to the 120^th day following the company’s fiscal year end.
• The model below assumes the company (a) generally only approves grants of stock options on a predetermined schedule, (b) has a policy of not awarding option grants in anticipation of the release of material nonpublic information, and (c) prevent grants of stock options during any company-imposed trading blackout periods or close in time to the public disclosure by the company of material nonpublic information. Of course, policies and practices vary, and the model below will need to be adjusted based on the policies and practices actually adopted. The model below also includes sample text for companies that do not grant stock options.
• Companies may consider including this narrative disclosure in the CD&A, as an update/replacement for any existing disclosures therein about equity or option grant practices in light of the 2006 Executive Compensation Release guidance (where the SEC stated that under Reg. S-K, Item 402(b)(2)(iv), companies may be required to disclose in the CD&A information about the timing of option grants in close proximity to the release of material nonpublic information by the company).

Model Disclosure

Policies and Practices Related to the Grant of Certain Equity Awards Close in Time to the Release of Material Nonpublic Information:

[[Beginning in 20XX, our compensation committee ceased granting]/[We do not grant] stock options or similar awards as part of our equity compensation programs. If stock options or similar awards are granted, o][O]ur policy is to not grant stock options or similar awards in anticipation of the release of material nonpublic information that is likely to result in changes to the price of our common stock, such as a significant positive or negative earnings announcement, and not time the public release of such information based on stock option grant dates. In addition, it is our policy to not grant stock options or similar awards during periods in which there is material nonpublic information about our company, including (i) during “blackout” periods or outside a “trading window” established in connection with the public release of earnings information under our insider trading policy (each, a “Blackout”) or (ii) at any time during the four business days prior to or the one business day following the filing of our periodic reports or the filing or furnishing of a Form 8-K that discloses material nonpublic information (each, a “Filing Window”). These restrictions do not apply to RSUs or other types of equity awards that do not include an exercise price related to the market price of our common stock on the date of grant.

Our executive officers are not permitted to choose the grant date for their individual stock option grants. [Stock option grants to our employees, including our executive officers, [and our directors] are generally made annually at a meeting of the Committee that is held during the first quarter of each year, and the grants are effective on the date of the meeting (or on the next trading day following such date if it is not a trading day). However, if the meeting occurs during a Blackout or a Filing Window, the stock option grants will not be effective until after the [first] business day following the earnings announcement, unless such day is within a Filing Window, in which case such grants will not be effective until after the [first] business day following the filing of the applicable report with the Securities and Exchange Commission.]

During the period covered by this report, we have not timed the disclosure of material nonpublic information for the purpose of affecting the value of executive compensation.

Rule

Location

iXBRL Tagging

Frequency

Compliance Date

Disclosure:

“Insider Trading Arrangements and Related Disclosure” adopting release:

Reg. S-K, Item 402(x)(2).

Form 10-K, Part III, Item 11. Executive Compensation.

And

Schedule 14A, Item 8. Compensation of Directors and Executive Officers.

Required.

Annual

Include in first filing covering first full fiscal year beginning on or after April 1, 2023 (for smaller reporting companies: on or after October 1, 2023).

Introductory Drafting Notes:

• Generally, this rule requires a new table to disclose the grant of any option awards beginning four business days before the filing of a periodic report or the filing or furnishing of a current report on Form 8-K that discloses material nonpublic information, including earnings information, other than a Form 8-K that discloses a material new option award grant under Item 5.02(e), and ending one business day after a triggering event.
• As a Form 10-K, Part III disclosure, this could be incorporated by reference from the proxy statement to be filed prior to the 120^th day following the company’s fiscal year end.
• The tabular disclosure should be included with the other Reg. S-K, Item 402 tabular disclosures, and not as part of the CD&A.
• If there were no reportable awards made close in time to the release of material nonpublic information, the table can be omitted. The company would use the introductory text provided below without the bracketed “except as summarized in the table below” text.

Model Disclosure

Fiscal Year [YEAR] Grants of Certain Equity Awards Close in Time to the Release of Material Nonpublic Information:

[In accordance with our policy, d]/[D]uring the fiscal year ended [YEAR END DATE], none of our named executive officers were awarded options with an effective grant date during any period beginning four business days before the filing or furnishing of a Form 10-Q, Form 10-K, or Form 8-K that disclosed material nonpublic information (other than a Form 8-K that disclosed a material new option award grant under Item 5.02(e)), and ending one business day after the filing or furnishing of such reports[, except as summarized in the table below:]

1. Amounts reflect the grant date fair value of option awards in accordance with Accounting Standards Codification Topic 718.