EXHIBIT 19.1
LGI HOMES, INC. INSIDER TRADING POLICY
Background and Purpose
LGI Homes, Inc. (the “Company”) has adopted this Insider Trading Policy for our directors, officers, employees and consultants with respect to the trading of the Company's securities, as well as the securities of publicly traded companies with whom we have a business relationship. Securities include common stock, performance based stock units, restricted stock units, debt securities and any other type of securities or equity interests that the Company may issue, as well as derivative securities that are not issued by the Company, such as exchange-traded put or call options or swaps relating to the Company’s securities. For purposes of this policy, “securities” and “stock” may be used interchangeably.
Federal and state securities laws prohibit the purchase or sale of a company's securities by persons who are aware of material information about the company that is not generally known or available to the public. These laws also prohibit persons who are aware of such material nonpublic information from disclosing this information to others who may trade. Companies and their controlling persons are also subject to liability if they fail to take reasonable steps to prevent insider trading by company personnel.
The Company’s Board of Directors has adopted this policy to promote compliance with federal and state securities laws that prohibit certain persons who are aware of material nonpublic information about a company from: (i) trading in the securities of that company; or (ii) providing material nonpublic information to other persons who may trade on the basis of that information.
It is important that you understand the breadth of activities that constitute illegal insider trading and the consequences, which can be severe. Both the U.S. Securities and Exchange Commission (the “SEC”) and the Financial Industry Regulatory Authority, Inc. (FINRA) investigate and are very effective at detecting insider trading. The SEC, together with the U.S. Attorneys, vigorously pursue insider trading violations. Cases have been successfully prosecuted against trading by employees through foreign accounts, trading by family members and friends, and trading involving only a small number of shares.
This policy is designed to prevent insider trading or allegations of insider trading, and to protect the Company's reputation for integrity and ethical conduct. This policy serves to prevent both actual insider trading and the appearance of possible insider trading. It is your obligation to understand and comply with this policy. Should you have any questions regarding this policy, contact the Compliance Officer (as defined below).
Administration of the Policy
The General Counsel shall serve as the compliance officer for the purposes of this policy, and in his/her absence, our Chief Executive Officer or another employee designated by the General Counsel shall be responsible for administration of this policy (the “Compliance Officer”). All determinations and interpretations by the Compliance Officer shall be final and not subject to further review.
Penalties for Noncompliance
Potential penalties for insider trading violations include hefty fines and imprisonment. In addition, the Company can be fined for failing to prevent insider trading.
Scope of Policy
Persons Covered. This policy applies to directors, officers, employees, and consultants of the Company or its subsidiaries. The same restrictions that apply to you apply to your family members who reside with you, anyone else who lives in your household and any family members who do not live in your household but whose transactions in Company securities are directed by you or are subject to your influence or control (such as parents or children who consult with you before they trade in Company securities). This policy also applies to any entities that you influence or control, including any corporations, partnerships or trusts (collectively referred to as “Controlled Entities”), and transactions by these Controlled Entities should be treated for the purposes of this policy and applicable securities laws as if they were for your own account. You are responsible for making sure that the purchase or sale of any security covered by this policy by any such person or entity complies with this policy.
Companies Covered. The prohibition on insider trading in this policy includes trading in the securities of other firms, such as customers or suppliers of the Company and those with which the Company may be negotiating major transactions, such as an acquisition, investment or sale. Information that is not material to the Company may nevertheless be material to one of those other firms.
Transactions Covered. Trading includes purchases and sales of capital stock, derivative securities such as put and call options and convertible debentures or preferred stock, and debt securities (debentures, bonds and notes). The trading restrictions do apply, however, to any sale of the underlying stock or to a cashless exercise of the option through a broker, as this entails selling a portion of the underlying stock to cover the costs of exercise.
Generally Prohibited Activities
The Company considers it improper and inappropriate for those employed by or associated with the Company to engage in short-term or speculative transactions in the Company's securities or in other transactions in the Company's securities that may lead to inadvertent violations of the insider trading laws.
Trading on Inside Information. You may not trade in the securities of the Company, directly or through family members or other persons or entities, if you are aware of material nonpublic information relating to the Company. Similarly, you may not trade in the securities of any other company if you are aware of material nonpublic information about that company which you obtained in the course of your employment with the Company.
Tipping. You may not pass material nonpublic information on to others or recommend to anyone the purchase or sale of any securities when you are aware of such information. This practice, known as “tipping,” also violates the securities laws and can result in the same civil and criminal penalties that apply to insider trading, even though you did not trade and did not gain any benefit from another's trading.
Misappropriation. You may not disclose material nonpublic information to persons within the Company whose jobs do not require them to have that information, or outside of the Company to other persons, including, but not limited to, family, friends, business associates, investors and expert consulting firms, unless any such disclosure is made in accordance with the Company’s policies regarding the protection or authorized external disclosure of information regarding the Company.
Hedging. The Company’s employees, officers and directors may not engage in any hedging or monetization transactions with respect to the Company’s securities, including, but not limited to,
through the use of financial instruments such as exchange-traded funds, prepaid variable forwards, equity swaps, puts, calls, collars, forwards and other derivative instruments, or through the establishment of a short position in the Company’s securities. These transactions are speculative in nature and therefore create the appearance that the transaction is based on material nonpublic information.
Short Sales. You may not engage in short sales of the Company's securities (sales of securities that are not then owned), including a “sale against the box” (a sale with delayed delivery).
Publicly Traded Options. You may not engage in transactions in publicly traded options, such as puts, calls or other derivative or speculative securities, on an exchange or in any other organized market.
Financial Instruments. You may not purchase or use financial instruments (including prepaid variable forward contracts, equity swaps, collars, and exchange-traded funds) that are designed to hedge or offset any decrease in the market value of the Company's securities.
Standing Orders. Standing orders should be used only for a very brief period of time. A standing order placed with a broker to sell or purchase stock at a specified price leaves you with no control over the timing of the transaction. A standing order transaction executed by the broker when you are aware of material nonpublic information may result in unlawful insider trading.
Margin Accounts and Pledges. Securities held in a margin account or pledged as collateral for a loan may be sold without your consent by the broker if you fail to meet a margin call or by the lender in foreclosure if you default on the loan. Because a margin or foreclosure sale may occur at a time when you are aware of material nonpublic information or otherwise are not permitted to trade in Company securities, you are prohibited from holding Company securities in a margin account and are strongly discouraged from pledging Company securities as collateral for a loan. Directors, officers, employees and consultants interested in pledging Company securities as collateral for a loan must obtain pre-clearance from the Compliance Officer. See the Pre-Clearance Procedures described in this policy.
Definition of Material Non-Public Information
Note that inside information has two important elements - materiality and public availability.
Material Information. Information is material if there is a substantial likelihood that a reasonable investor would consider it important in deciding whether to buy, hold or sell a security. Any information that could reasonably be expected to affect the price of the security is material. Common examples of material information are:
•Projections of future sales, earnings or losses or other earnings guidance.
•Earnings that are inconsistent with the consensus expectations of the investment community.
•Private confirmation or rejection of public rumors.
•Changes in control and significant mergers, acquisitions, tender offers, joint ventures or acquisitions or dispositions of significant assets.
•A change in management and other senior personnel.
•Events regarding the Company's securities, including defaults on senior securities, calls of securities for redemption, repurchase plans, declaration of a stock split, changes in dividends, changes in the rights of security holders or the public or private offering of additional securities.
•Bankruptcies, receiverships or severe financial liquidity problems.
•A change in auditors or auditor notification that the Company may no longer rely on an auditor's audit report.
•A cyberattack or any other significant cyber incident involving the Company or any of its subsidiaries.
•Actual or threatened major litigation, or the resolution of such litigation.
•Significant developments regarding customers, suppliers or finance sources.
•Significant new products or discoveries.
The above list is not exhaustive. Both positive and negative information can be material. Because trading that receives scrutiny will be evaluated after the fact with the benefit of hindsight, questions concerning the materiality of particular information should be resolved in favor of materiality, and trading should be avoided. You may always contact the Compliance Officer with questions.
Nonpublic Information. Nonpublic information is information that is not generally known or available to the public. One common misconception is that material information loses its “nonpublic” status as soon as a press release is issued disclosing the information. In fact, information is considered to be available to the public only when it has been released broadly to the marketplace (such as by a press release or an SEC filing) and the investing public has had time to absorb the information fully. As a general rule, information is considered nonpublic until the second full trading day after the information is released. For example, if the Company announces financial earnings before trading begins on a Tuesday, the first time you can buy or sell Company securities is the opening of the market on Thursday (assuming you are not aware of other material nonpublic information at that time). However, if the Company announces earnings after trading begins on that Tuesday, the first time you can buy or sell Company securities is the opening of the market on Friday.
Exceptions
Gift Exception. Bona fide gifts are not transactions subject to this policy, unless the person making the gift has reason to believe at the time the gift is made that (i) the recipient intends to sell the Company's securities while the officer, employee or director is aware of material nonpublic information, or (ii) the person making the gift is subject to the trading restrictions specified herein under the heading “Additional Provisions for Insiders” and, at the time the gift is made, the sales by the recipient of the Company's securities is reasonably expected to occur during a blackout period.
Post-Termination Transactions
This policy continues to apply to your transactions in Company securities even after you have terminated employment or your service relationship has ended if you are aware of material nonpublic information at the time your employment or service relationship with the Company or its subsidiaries terminates. In such case, you may not trade in the Company's securities until that information has become public or is no longer material.
Unauthorized Disclosure
Maintaining the confidentiality of Company information is essential for competitive, security and other business reasons, as well as to comply with securities laws. You should treat all information you learn about the Company or its business plans in connection with your employment as confidential and proprietary to the Company. Inadvertent disclosure of confidential or inside information may expose the Company and you to significant risk of investigation and litigation.
The timing and nature of the Company's disclosure of material information to outsiders is subject to legal rules, the breach of which could result in substantial liability to you, the Company and its management. Accordingly, it is important that responses to inquiries about the Company by the press,
investment analysts or others in the financial community be made on the Company's behalf only through authorized individuals.
Personal Responsibility
You should remember that the ultimate responsibility for adhering to this policy and avoiding improper trading rests with you. If you violate this policy, the Company may take disciplinary action against you, including dismissal for cause, whether or not your failure to comply with this policy results in a violation of law. This includes violations made by your Controlled Entities or individuals over which you have or may be deemed to have control.
Company Assistance
Your compliance with the Company's Insider Trading Policy is of the utmost importance both for you and for the Company. If you have any questions about this policy or its application to any proposed transaction, contact the Compliance Officer.
Policy Subject to Revision
The Company may change or otherwise revise the terms of this policy from time to time to respond to developments in law and practice. The Company will take steps to inform all affected persons of any material changes or revisions to this policy.
ADDITIONAL PROVISIONS FOR INSIDERS
In addition to the rules above, directors, executive officers, and employees designated in the attached Schedule I (collectively “Insiders”), are subject to blackout and trading pre-clearance procedures. Family members who reside with any Insider and other members of the Insider’s household, must also follow the pre-clearance procedures set out below before engaging in any transaction involving the Company's securities (including a stock plan transaction such as an option exercise, or a gift, loan, pledge or hedge, contribution to a trust or any other transfer). Family members include, any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law.
Pre-Clearance Procedures
A request for pre-clearance should be submitted to the Compliance Officer at least two trading days before the requested transaction. Clearance of a transaction is only valid for the period designated on the pre- clearance form. If the transaction does not take place within the approved trading period, clearance must be re-requested. The Compliance Officer is under no obligation to approve a trade submitted for pre- clearance, and may determine not to permit the trade. The Compliance Officer himself or herself may not trade in Company securities unless the Chief Executive Officer has approved the trade(s) in accordance with the procedures set forth in this policy.
Blackout Procedures
All Insiders are subject to the following blackout periods.
Quarterly Blackout Periods. The Company’s announcement of its quarterly financial results almost always has the potential to have a material effect on the market for the Company’s securities. Therefore,
you may not trade in the Company's securities during the period beginning on the 8th day prior to the end of the quarter and ending after the second full trading day following the release of the Company's earnings
for that quarter. Persons subject to these quarterly blackout periods include the persons currently listed on the attached Schedule I and all other persons who are informed by the Compliance Officer that they are subject to the quarterly blackout periods.
Interim Earnings Guidance and Event-Specific Blackouts. The Company may on occasion issue interim earnings guidance or other potentially material information by means of a press release, SEC filing on Form 8-K or other means designed to achieve widespread dissemination of the information. You should anticipate that trading will be blacked out while the Company is in the process of assembling the information to be released and until the information has been released and fully absorbed by the market.
From time to time, an event may occur that is material to the Company and is known by only a few directors or executives. So long as the event remains material and nonpublic, the persons who are aware of the event, as well as other persons covered by the quarterly earnings blackout procedures, may not trade in the Company's securities. The existence of an event- specific blackout will not be announced other than to those who are aware of the event giving rise to the blackout. If, however, a person whose trades are subject to pre-clearance requests permission to trade in the Company's securities during an event-specific blackout, the compliance officer will inform the requesting person of the existence of a blackout period, without disclosing the reason for the blackout. Any person made aware of the existence of an event-specific blackout should not disclose the existence of the blackout to any other person. The failure of the compliance officer to designate a person as being subject to an event-specific blackout will not relieve that person of the obligation not to trade while aware of material nonpublic information.
Even if a blackout period is not in effect, at no time may you trade in Company securities if you are aware of material nonpublic information about the Company.
Open Trading Window. Trading is permitted during open trading windows. In general, the Company’s trading window opens after the close of trading on the second full trading day following the Company’s public announcement of quarterly earnings, and remains open through the 8th day prior to the end of that quarter.
Hardship Exception. A covered person who has an unexpected and urgent need to sell the Company's securities in order to generate cash may, in appropriate circumstances, be permitted to sell the Company's securities even during the quarterly blackout period. Hardship exceptions may be granted only by the Compliance Officer and must be requested at least three trading days before the requested transaction. A hardship exception may be granted only if the Compliance Officer concludes that the Insider is not in possession of material nonpublic information at the time of the transaction.
Rule 10b5-1 Plans. The Company requires that all Rule 10b5-l plans adopted by an Insider (or subsequently modified) be approved in writing in advance of such adoption or modification by the Compliance Officer.
At the time of the adoption or modification of a Rule 10b5-l plan, an Insider will be required to provide a written certification to the Compliance Officer that the Insider’s Rule 10b5-1 plan meets all of the requirements of Rule 10b5-1, that the Insider is not aware of any material, nonpublic information about the Company or its securities at the time of adoption or modification, as the case may be, and that the Insider is adopting the Rule 10b5-1 plan in good faith and not as part of a plan or scheme to evade the
prohibitions on insider trading. If an Insider provides this certification and the Insider’s Rule 10b5-1 plan meets the requirements of Rule 10b5-1, subsequent trades in the securities of the Company may occur pursuant to the Rule 10b5-1 plan. Such trades may occur regardless of whether the Insider is aware of material non-public information at the time of the trade. The Rule 10b5-1 plan must either specify (including by formula) the
amount, pricing and timing of transactions in advance or delegate discretion on those matters to an independent third party. Once the Rule 10b5-1 plan is adopted, the Insider must not exercise any influence over the amount of securities to be traded, the price at which they are to be traded or the date of the trade. If the Insider modifies or changes the number of securities to be purchased or sold, price or timing of the purchase or sale of securities, or the formula, algorithm, or computer program that affects the amount, price, or timing of the purchase or sale of securities, it will be deemed under Rule 10b5-1 to be a termination of the Insider’s Rule 10b5-1 plan and the adoption of a new Rule 10b5-1 plan. Overlapping Rule 10b5-1 plans will not be approved if the overlapping plan does not fit within one of the exceptions specified in Rule 10b5-1.
The first transaction under an Insider’s Rule 10b5-1 plan may not be made until the later of (i) ninety (90) days after the adoption of the Rule 10b5-1 plan, and (ii) two business days after the release of the Company’s financial results for the quarter in which the Rule 10b5-1 plan was adopted or modified.
Rule 10b5-1 Plan Exception. Trades in the Company's securities executed by Insiders pursuant to an approved Rule 10b5-l plan are not subject to the prohibition on trading provided that the Rule 10b5-1 plan is set up in accordance with this policy.
LGI Code of Conduct
The LGI Homes, Inc. Code of Business Conduct and Ethics, which, as it relates to the trading in securities of the Company, applies to the persons subject to this addendum and is incorporated by reference herein.
Schedule I Insiders
Chief Executive Officer
Chief Operating Officer
Chief Financial Officer
Executive Vice President of Acquisitions General Counsel
Chief Marketing Officer Division Presidents
All Vice Presidents and above
All Accounting personnel
All Financial Reporting personnel
All Internal Controls personnel
All IT personnel
All Legal and Compliance personnel
Director of Accounts Payable
Director of Employee Relations
Director of Operations
National Finance Manager
Executive Assistant to the Chief Executive Officer
All Members of the Board of Directors
