Xponential, Inc.


In the course of their employment with the Company or its subsidiaries, directors, officers and employees frequently come into possession of confidential and highly sensitive information concerning the Company or other corporations with which the Company has contractual relationships or may be negotiating transactions.

Much of this information has a potential for affecting the market price of securities issued by the corporations involved.  Under some circumstances, federal securities laws impose potentially onerous civil and criminal penalties on persons who improperly disclose or use material, non-public information, in connection with a purchase or sale of securities.

In 1988, Congress passed insider trading legislation that explicitly empowers the Securities and Exchange Commission (“SEC”) to seek substantial civil penalties from any person who at the time of an insider trading violation, “directly or indirectly controlled the person who committed such violation,” i.e., an employer.  Civil penalties for persons who control violators can equal the greater of $1,000,000 or three times the profit gained or losses avoided.  Employers may also be subject to criminal penalties of $2,500,000 for insider trading violations committed by employees.  Accordingly, when the maximum criminal penalty is combined with the maximum civil penalty, employers of persons who trade on the basis of insider information may be liable for up to $3,500,000 – even for employee violations that yield a small profit gained or loss avoided.

The statute provides that any “controlling person” may be liable for civil penalties up to the amount specified above if the controlled person both (i) knew or recklessly disregarded the fact that the employee was likely to engage in a violation and (ii) failed to take appropriate steps to prevent that violation before it occurred.  Moreover, in recent years, the SEC and governmental prosecutors have been vigorously enforcing the insider trading laws against both individuals and institutions.

Given all of these factors, the Company has determined to provide specific guidance concerning the propriety of various personal transactions, and to impose specific procedures in certain cases to attempt to reasonably ensure that neither the Company nor its employees violates insider trading laws.

Explanation of the Law.  The federal securities laws and regulations have been held to prohibit the purchase or sale of a security at a time when the person trading in that security possesses material non-public information concerning the issuer of the security, or the market for the security, which has not yet become a matter of general public knowledge and which has been obtained or is being used in breach of a duty to maintain the information in confidence.  Communication of non-public information to a third party, under circumstances where improper trading can be anticipated, is also prohibited.  “Material non-public information” includes information that is not available to public at large which could affect the market price of the security and to which a reasonable investor would attach importance in deciding whether to buy, sell or retain the security.

Common examples of information that will frequently be regarded as material are:  impending bankruptcy or financial liquidity problems; projections by a corporation’s officers of future earnings or losses; news of a pending or proposed merger or acquisition, or a tender offer or exchange offer; news of a significant sale of assets or the disposition of a subsidiary; changes in dividend policies or the declaration of a stock split or the offering of additional securities; changes in management; significant new products or discoveries; or the gain or loss of a substantial customer or supplier.  It should be noted that either positive or adverse information may be material.

Information is considered to be available to the public only when it has been released to the public through appropriate channels (e.g., by means of a press release or a statement from one of the corporation’s senior officers) and enough time has elapsed to permit the investment market to absorb and evaluate the information.  Once public release has occurred, information will normally be regarded as absorbed and evaluated within two or three business days thereafter.

Company Policy.  As long as an officer, director or employee has material non-public information relating to the Company or any other corporation with which the Company has a contractual relationship, it is Company policy that the officer, director or employee may not buy or sell securities of that corporation.  Equally important, the information may not be passed along to others.

To avoid potential liability, under the Company’s policy a director, officer or other employees of the Company must not purchase or sell securities of the Company or of any other issuer of a security at a time when such officer, director or employee is aware of any material non-public information about the issuer, regardless of how that information was obtained.  The officer, director or employee also must not permit any member of his or her immediate family or anyone acting on his behalf, or anyone to whom he has disclosed the information, to purchase or sell such securities.

After the information has been publicly disclosed through appropriate channels, a reasonable time should be allowed to elapse (at least three business days) before trading in the security, to allow for public dissemination and evaluation of the information.

The Company is available to advise and provide assistance.  Any person who has a question regarding the propriety of a proposed transaction or who has a question about the policy is encouraged to contact Mr. Robert W. Schleizer.

© 2008 Xponential, Inc. | All Rights Reserved