EXHIBIT 19.1
ONE STOP SYSTEMS, INC.
INSIDER TRADING POLICY
Last Updated: March 2024
This Insider Trading Policy (this “Policy”) provides the standards of One Stop Systems, Inc. (the “Company”) on trading and causing the trading of the Company’s securities or securities of other publicly-traded companies while in possession of material non-public information. This Policy prohibits entering into transactions in the Company’s securities in certain circumstances and applies to all directors, officers and employees of the Company, as well as independent contractors or consultants who have access to material non-public information of the Company (collectively, “Covered Persons”). Part II(1)(a)(i) imposes special additional trading restrictions which apply to all (i) directors of the Company and its subsidiaries, and (ii) members of the executive team of the Company and its subsidiaries.
One of the principal purposes of the federal securities laws is to prohibit so-called “insider trading.” Simply stated, insider trading occurs when a person uses material non-public information obtained through involvement with the Company to make decisions to purchase, sell, give away or otherwise trade the Company’s securities or to provide that information to others outside the Company. The prohibitions against insider trading apply to trades, tips and recommendations by virtually any person, including all persons associated with the Company and its subsidiaries, if the information involved is “material” and “non-public.” These terms are defined in this Policy under Part I, Section 3 below. The prohibitions would apply to any Covered Persons who buys or sells Company stock on the basis of material non-public information that he or she obtained about the Company, its customers, suppliers, or other companies with which the Company has contractual relationships or may be negotiating transactions.
PART I
This Policy applies to all transactions in the Company’s securities, including common stock, restricted stock units, options, warrants and any other securities that the Company may issue, such as preferred stock, notes, bonds and convertible securities, as well as to derivative securities relating to any of the Company’s securities, whether or not issued by the Company.
This Policy applies to all employees of the Company and its subsidiaries, all officers of the Company and its subsidiaries, and all members of the Company’s Board of Directors. This Policy also applies to all independent contractors or consultants who have access to material non-public information of the Company (each, a “Material IC”).
Information dealing with the following subjects is reasonably likely to be found material in particular situations:
(i) | significant changes in the Company’s, business, prospects or business strategy; |
(ii) | significant write-downs in assets or increases in reserves; |
(iii) | developments regarding significant litigation or government agency investigations; |
(iv) liquidity problems;
Material information is not limited to historical facts but may also include projections and forecasts. With respect to a future event, such as a merger, acquisition, other strategic transaction, offering of
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securities or introduction of a new product, the point at which negotiations or product development are determined to be material is determined by balancing the probability that the event will occur against the magnitude of the effect the event would have on a company’s operations or stock price should it occur. Thus, information concerning an event that would have a large effect on stock price, such as a merger, may be material even if the possibility that the event will occur is relatively small. When in doubt about whether particular non-public information is material, presume it is material.
If you are unsure whether information is material, you should consult the Compliance Officer before making any decision to disclose such information (other than to persons who need to know it) or to trade in or recommend securities to which that information relates.
Non-public information may include:
As with questions of materiality, if you are not sure whether information is considered public, you should either consult with the Compliance Officer or assume that the information is “non-public” and treat it as confidential.
(iv) pre-clearing all trading in securities of the Company by Covered Persons in accordance with the procedures set forth in Part II, Section 3 below; and
(iv) providing approval of any transactions under Part II, Section 4 below.
Penalties for trading on or communicating material non-public information can be severe, both for individuals involved in such unlawful conduct and their employers and supervisors, and may include jail terms, criminal fines, civil penalties and civil enforcement injunctions. Given the severity of the potential penalties, compliance with this Policy is absolutely mandatory.
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In addition, a person who tips others may also be liable for transactions by the tippees to whom he or she has disclosed material non-public information. Tippers can be subject to the same penalties and sanctions as the tippees, and the SEC has imposed large penalties even when the tipper did not profit from the transaction.
The SEC can also seek substantial penalties from any person who, at the time of an insider trading violation, “directly or indirectly controlled the person who committed such violation,” which would apply to the Company and/or management and supervisory personnel. These control persons may be held liable for up to the greater of $1 million or three times the amount of the profits gained or losses avoided. Even for violations that result in a small or no profit, the SEC can seek a minimum of $1 million from a company and/or management and supervisory personnel as control persons.
PART II
All Covered Persons are prohibited from entering into transactions in the Company’s securities during blackout periods.
Covered Persons are permitted to trade in the Company’s securities when no blackout period is in effect. Except as noted above in Section 1(b), generally this means that Covered Persons can trade during
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the period beginning on the day that the blackout period under Section 1(a) ends and ending on the day that the next blackout period under Section 1(a) begins. However, even during this trading window, a Covered Person who is in possession of any material non-public information should not trade in the Company’s securities until the information has been made publicly available or is no longer material. In addition, the Company may close this trading window if a special blackout period under Part II, Section 1(c) above is imposed and will re-open the trading window once the special blackout period has ended.
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The following are certain limited exceptions to the restrictions imposed by the Company under this Policy. Please be aware that even if a transaction is subject to an exception to this Policy, you will need to separately assess whether the transaction complies with applicable law. For example, even if a transaction is indicated as exempt from this Policy, you may need to comply with the “short-swing” trading restrictions under Section 16 of the Exchange Act, to the extent applicable. You are responsible for complying with applicable law at all times.
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All Covered Persons are required to sign the attached acknowledgment and certification.
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ACKNOWLEDGMENT AND CERTIFICATION
The undersigned does hereby acknowledge receipt of the Company’s Insider Trading Policy. The undersigned has read and understands (or has had explained) such Policy and agrees to be governed by such Policy at all times in connection with the purchase and sale of securities and the confidentiality of non-public information.
(Signature)
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Date:
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(Please print name)
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APPENDIX A
RULE 10B5-1 TRADING PLANS
General
Rule 10b5-1 under the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), can protect directors and officers of One Stop Systems, Inc. and its subsidiaries and affiliates (collectively, the “Company,” “we” or “us”) and other individuals from insider trading liability for transactions under a previously established contract, plan or instruction. This rule presents an opportunity for insiders to establish arrangements to sell, gift or purchase our securities without the sometimes arbitrary restrictions imposed by closed trading periods – even when material nonpublic information exists. The arrangements may include blind trusts, other trusts, pre-scheduled stock option exercises and sales, pre-arranged trading instructions, and other brokerage and third-party arrangements.
The rule only provides an “affirmative defense” (which must be proven) if there is an insider trading lawsuit. It does not prevent anyone from bringing a lawsuit, nor does it prevent the media from writing about the sales. The plan must be documented, bona fide, and previously established (at a time when the insider did not possess any material nonpublic information); must include certain representations, as required by Rule 10b5-1; must specify the price, amount, and date of trades or provide a formula or mechanism to be followed related thereto; and the applicable Cooling-off Period (as defined below) must be satisfied before any transactions may be entered into pursuant to such plan.
Establishment of a 10b5-1 Plan
In order to ensure compliance with the Company’s policies, reduce the risk of litigation or adverse press, ensure that the Company has access to relevant information that it needs in order to satisfy its disclosure obligations under the Exchange Act and/or the Securities Act of 1933, as amended (the “Securities Act”), as applicable, and to confirm all tax reporting information is captured correctly and timely, if you would like to establish and use such a trading plan:
Amending a 10b5-1 Plan
Under Rule 10b5-1, adoption of certain material amendments to a 10b5-1 plan will be treated by the SEC as though you have adopted a new plan. If you have already adopted a 10b5-1 plan, and such plan is in effect, a material amendment to such plan may trigger certain additional obligations,
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including inclusion of certain additional provisions in your amended plan and waiting a period of time before you may enter into any transactions thereunder (see the section entitled “Cooling off-Period,” below). Additionally, you may not materially amend your plan while in possession of material non-public information.
Amendments that will trigger a new cooling off period and that will be treated as adoption of a new plan include, without limitation, changes to:
You must provide the Compliance Officer with prior notice of your intent to amend an effective 10b5-1 trading plan, as well a as a copy of any such amendment, prior to amending your plan. You should consult the Compliance Officer as well as your own tax and legal advisers before amending an effective 10b5-1 plan to determine whether such amendment(s) will trigger a new cooling off period and/or subject you to any other obligations.
Cooling-off Period
Once you have adopted a new 10b5-1 trading plan, including adopting certain material amendments to an effective 10b5-1 trading plan, Rule 10b5-1 requires that you wait a requisite period of time, commencing on the date that the plan (or material amendment thereto) was adopted, to begin trading under the plan (such waiting period, the “Cooling-off Period”). The applicable Cooling-off Period is as follows:
Notwithstanding the foregoing, in no event will the applicable Cooling-off Period exceed 120 days following adoption of the plan (or a material amendment thereto).
Mandatory 10b5-1 Plan Provisions
Pursuant to Rule 10b5-1, directors and officers of the Company that adopt a Rule 10b5-1 trading plan will be required to include the following provisions in a 10b5-1 plan adopted by such individuals:
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Certain Limitations
Subject to limited exceptions, an individual may only have one 10b5-1 trading plan in effect at any given time. If you have already adopted a 10b5-1 plan that is in effect, you may not qualify for the affirmative defenses under Rule 10b5-1 if you establish a subsequent plan for the purchase or sale of any class of securities of the Company on the open market during the same period.
Additionally, the affirmative defense available under Rule 10b5-1 will only be available for one single-trade plan during any consecutive 12-month period. For this purpose, a “single-trade plan” includes any plan adopted under rule 10b5-1 that is designed to effect the purchase or sale of Company securities as a single transaction and which has the practical effect of requiring such a result. Plans that may result in multiple transactions, or which allow for the agent’s future acts to depend on events or data not known at the time the plan is entered into, generally will not be deemed single-trade plans.
The foregoing limitations are subject to certain exceptions. You should consult the Compliance Officer, including in order to obtain pre-approval of any 10b5-1 plan you intend to adopt, as well as your own tax and legal advisers before establishing more than one trading plan under Rule 10b5-1.
Termination of 10b5-1 Plans
In order to ensure that the Company has access to relevant information that it needs in order to satisfy its disclosure obligations under the Exchange Act and/or Securities Act, as applicable, you must notify the Compliance Officer promptly if you have terminated an effective 10b5-1 plan.
SEC Filings
Establishing a trading plan under Rule 10b5-1 is likely to implicate other laws, rules and/or regulations, such as Section 16 of the Exchange Act and Rule 144 under the Securities Act. The Company is also required to include certain disclosures regarding 10b5-1 trading plans adopted by its officers and directors in its periodic reports filed with the SEC pursuant to the Exchange Act, as discussed in further detail below.
Under Section 16 of the Exchange Act, generally a report on Form 4 must be filed with the SEC by the second business day following the execution date of a transaction under a Rule 10b5-1 trading plan and the applicable box must be checked to disclose to the public that the transaction reported in the Form 4 was completed pursuant to a 10b5-1 trading plan adopted by the reporting person. A transaction under a Rule 10b5-1 trading plan could also be subject to short-swing profit recovery.
Additionally, sales of our securities under Rule 144 may require the filing of a Form 144 with the SEC, which must be properly tailored to address sales under such a plan. Therefore, if you establish such a plan, we will need to establish a procedure with whomever is handling your transactions to ensure:
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Additionally, Forms 4 and 5 require disclosure of whether a reported transaction was made pursuant to a plan that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c).
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As mentioned above, Rule 10b5-1 is an SEC rule. There will be ongoing interpretations of what can and cannot be done under this rule. Needless to say, some brokers, investment bankers and advisers may approach you suggesting a variety of arrangements. You must consult the Compliance Officer, and should consult with your own tax and legal advisers, before establishing a trading plan under Rule 10b5-1.
Your notice to us, and pre-approval by the Compliance Officer, are essential before establishing a Rule 10b5-1 trading plan. If you have any questions, please contact the Compliance Officer.
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