Through regular company-imposed blackout periods, WiLAN insiders are prevented from trading in shares or disposing of shares resulting from an option exercise.
Trading of WiLAN securities by insiders is subject to WiLAN’s insider trading policy. This policy instructs WiLAN employees and members of its Board of Directors to not buy or sell WiLAN shares during blackout periods or during other periods in which they are in possession of undisclosed material information.
Generally speaking, blackout periods begin two weeks before the end of a fiscal quarter and end the day that financial results for a given fiscal quarter are released.
It is important to know that company management may be blacked out from trading during times over and above the preset blackout periods because they are in possession of material undisclosed company information. Historically this restriction has resulted in many months of additional blackout periods.
Upcoming blackout periods (dates are subject to change):
March 17, 2014 to April 30, 2014 inclusive
June 16, 2014 to July 30, 2014 inclusive
September 16, 2014 to October 30, 2014 inclusive
December 3, 2014 to December 31, 2014
WiLAN strongly encourages its officers and directors to hold WiLAN shares and has implemented policies that encourage share ownership at a meaningful level. However, insiders may occasionally sell shares as part of an option exercise or simply because of their cash needs. Investors should not interpret such sales as a lack of confidence on the insider’s part. Insiders frequently sell a small portion of their shares but still maintain a significant investment in the company.
WiLAN insiders and the Board often have limited time windows during which they are allowed to buy or sell shares. This is because the company imposes trading blackouts on insiders when they are in possession of material undisclosed information or near the time of the release of financial information.
As a result of these blackouts, an insider may only have a certain period of days or weeks during a year during which he or she can buy or sell WiLAN shares.
Share options are granted to WiLAN employees at the market price at the time of the grant. If the stock rises in value the employee can choose to exercise the option and sell the resulting shares to realize a gain. This is a form of compensation that is intended to align the option holder with shareholders since both will benefit from a rise in the share price.
Blackout periods can be particularly problematic with respect to share options. Since share options typically have a limited term, an employee may have to exercise the options and sell the resulting shares in order to avoid having the options expire during a blackout period.
From time to time, employees may find themselves with a large number of in-the-money options that are nearing their expiry date. It is often preferable for the employee to exercise a portion of those options and to sell the resulting shares before the expiry date, rather than wait until expiry and then be forced to exercise and sell the whole block of shares. Generally, a smaller sale of shares can be absorbed more easily in the routine trading of the market than a large block, which could cause a significant decrease in the share price.
Investors should not interpret an exercise of a share option and resulting sale of the share as a lack of confidence in the company, since this is the way this form of compensation is generally intended to operate. In fact, the need to fund income tax liabilities that automatically arise when share options are exercised may make it a problem if the employee does not sell a portion of the shares that result from exercising share options.
Like any investor, WiLAN employees and members of its Board are responsible for ensuring their financial well-being and that of their families. Responsible financial planning usually requires an investment strategy that ensures a proper investment portfolio diversification. Having a significant percentage of a portfolio invested in one single investment is generally not recommended. However for some employees, including members of the management team, the value of their company holdings can represent a large percentage of their overall investment portfolio. As the value of WiLAN shares increases this portion can become too large. This may necessitate reducing their WiLAN holdings when permitted by WiLAN’s insider trading policy, to restore the proper asset balance of their portfolio. Again, this does not reflect a lack of confidence in the company or mean that the share price will not increase in the future.