SEC Rule 10b5-1 Trading Plans. Executive Financial Services Solutions for Corporate Executives

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1 SEC Rule 10b5-1 Trading Plans Executive Financial Services Solutions for Corporate Executives

2 SEC Rule 10b5-1» Allows directors, officers, employees and others who may come into possession of material, non-public ( inside ) information about a company or its stock to adopt a Trading Plan which can provide an affirmative defense against any allegation that trades under this plan were based on such information.» A Trading Plan ( Plan ) creates a pre-established buying or selling program for a specified period of time.» A person entering into a Plan may not be in possession of inside information about a company or its stock at the time the plan is adopted.» Once a person has adopted a Plan, that person may not exercise any subsequent influence over Plan transactions scheduled to be made.

3 Reasons To Enter Into A Trading Plan» To establish an orderly and disciplined trading program designed to provide an affirmative defense against allegations of trading while aware of inside information about a company or its stock.» The need or desire to purchase or sell stock on a regular basis over time.» To monetize stock for portfolio diversification or to pay important expenses.

4 Reasons To Enter Into A Trading Plan (cont d)» Allows an insider to focus on company business rather than on investment strategies.» Reduces the administrative burdens of a company s general counsel regarding the processing of insider sales.» Alleviates concerns over corporate black-out periods and the inconvenience of preclearing trades with the insider s company. (Note, however, Section 16 insiders and 144 affiliates will still need to file appropriate forms with the SEC).

5 Factors To Consider Before Adopting A Trading Plan» Trading flexibility diminished.» It may not be possible to modify or terminate a Rule 10b5-1 plan whenever the insider wishes to do so.» SB policy and guidelines regarding price, liquidity, size of Plan, etc. will determine the acceptability of any Plan.

6 Trading Plan Basics» Most companies require that Rule 10b5-1 plans be established only during open window periods (This does not prohibit negotiating a proposed plan prior to the opening of a corporate window.)» Issuer acknowledgement of the 10b5-1 Plan is required.» Enables insiders to buy or sell stock during blackout periods (subject to company approval).» Some companies impose a mandatory waiting period (a hiatus period) between the establishment of a Plan and the first day that purchases or sales may take place under the Plan.

7 Trading Plan Basics (cont d.)» The Plan provides a standing instruction for Morgan Stanley Smith Barney to buy or sell a certain number of shares on a specific date or dates at a limit or market price.» Trading Plans can be used for: a single or series of stock options exercise(s) and sale(s) a single or series of sale transactions for existing shares a combination of sale transactions and stock option exercises company stock repurchase programs individual stock purchase programs restricted stock grant sales» Morgan Stanley Smith Barney usually files a Form 144 on or prior to the first sale date, and quarterly thereafter.» Morgan Stanley Smith Barney does not file Form 4 or 5 for Section 16 Insiders. (Most companies file for their Section 16 Insiders.)

8 Trading Plan Basics (cont d.)» Trading of non-rule 10b5-1 designated shares outside the plan is allowed. However, care needs to be used to avoid subsequent influence especially in the context of Rules 144/145 volume restrictions.» Termination and modification of plans are permitted, but should be discussed with company counsel.» A Trading Plan can be modified only if the insider is not in possession of inside information at the time of the modification. Morgan Stanley Smith Barney s prototype Rule 10b5-1 Plan requires approval by the Company and Morgan Stanley Smith Barney of any modification to a Trading Plan.» Hedging of shares within a Rule 10b5-1 Plan is not allowed.

9 Types Of Orders» Every Trading Plan must include: A defined time period The number of shares (including option exercises) to be sold The type of order to be used:» Market Order: An order will be placed during the scheduled purchase or sale period to buy or sell a specific number of shares at the then prevailing market price.*» Limit Order: An order will be placed during the scheduled purchase or sale period to buy or sell a specific number of shares, at or below, or at or above, a specific price.* * Orders are executed on a not held basis, which means that Morgan Stanley Smith Barney has time and price discretion to sell shares in one or more transactions in order to obtain the best possible price during the course of a trading day.

10 A Comprehensive Approach to Rule 10b5-1 Plans» Morgan Stanley Smith Barney has a dedicated team that draws upon our trading and regulatory experience. The team includes your Morgan Stanley Smith Barney Financial Advisor, the Executive Financial Services department (which approves transactions in restricted and control stock), the Special Equity Transactions Group (which executes the trades) and our Stock Plan Services Department (when a Rule 10b5-1 plan is adopted by a participant in any employee stock plan for which Morgan Stanley Smith Barney provides administration, record keeping and/or trade execution service.)» From strategy formulation to trade execution and settlement, our team is involved in every step to implement a 10b5-1 trading program.

11 Why Use Morgan Stanley Smith Barney for a 10b5-1 Sales Plan?» Morgan Stanley Smith Barney has years of experience in establishing and implementing 10b5-1 plans for individuals and issuers.» Morgan Stanley Smith Barney has a demonstrated history of leadership and focus on the Restricted and Control securities market. Affiliates, Section 16 insiders and companies can feel confident that they will receive professional execution from our experienced team.» Morgan Stanley Smith Barney is one of the largest traders of NASDAQ and NYSE stocks. Its trading expertise results in efficient execution of plan transactions, particularly with respect to control and restricted securities.

12 Disclaimer» This presentation is for general information only and is not intended to provide specific advice or recommendations for any individual. We suggest that you consult your legal advisor and Issuer s counsel prior to executing any 10b5-1 trading plan.» Morgan Stanley Smith Barney LLC and its affiliates do not provide tax or legal advice. To the extent that this material or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Any such taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor.» 2009 Morgan Stanley Smith Barney LLC. Member SIPC.