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March 22, 2004 MICROTEL INTERNATIONAL INC. POLICY STATEMENT ON INSIDER TRADING Introduction Scarcely a day goes by without another insider trading scandal appearing in the media. Increasing attention is being paid to this area by the Congress and by the Securities and Exchange Commission (“SEC”). This concern was behind the passage of the Insider Trading and Securities Fraud Enforcement Act of 1988 (the “Act”), which imposes penalties on employers and their officers and directors and supervisory employees (collectively, “controlling persons”) for insider trading actions of employees. Considering how difficult it is to detect insider trading, Congress chose to make liable a controlling person who failed to take preventive actions once he or she knew or was reckless in disregarding indications that his or her controlled person was engaging or about to engage in insider trading. This policy statement, which supercedes our prior policy statement, has been prepared to assist you in avoiding liability. Insider trading becomes very critical in a company such as ours. Trading in our common stock while in possession of material non-public information would be a violation of law and subject to heavy fines and penalties. In addition to responding to the Act, we are adopting this Policy Statement to avoid even the appearance of improper conduct on the part of anyone employed by or associated with our company (not just so-called “insiders”). We cannot afford to have our reputation for integrity and ethical conduct damaged by improper conduct. “Insider trading” means the purchase or sale of a security (such as our common stock) while in possession of material, non-public information. A “purchase” or “sale” includes the exercise of options, warrants, or the sale of options or puts with respect to a security. “Material” information is information that a reasonable investor would consider in making a decision whether to buy or sell. It is any information which could affect, positively or negatively, the price of the stock. “Non-public” means information that has not been sufficiently disseminated into the public marketplace so that purchasers and sellers alike are on equal footing as regards to information. A minimum of two business days should be allowed to transpire after any press release to insure that the public marketplace is aware of the information disclosed. “Tipping” is also actionable as insider trading. “Tipping” refers to the passing on of material, non-public information to another person (including family members and members of household) who in turn purchases or sells a security. Although it is not possible to detail every circumstance where the purchase or sale of stock may constitute insider trading, there are a few situations which would clearly constitute insider trading. These include the purchase of our common stock based on new, significant contracts, the introduction of a new product line, dividend announcements, favorable or unfavorable earnings for any fiscal period, the receipt of a large purchase order, changes in management, the addition of a substantial customer or similar events, without there having been appropriate disclosure to the public through a press release or similar means. It would also constitute insider trading to sell our common stock in the event of any unfavorable news. It should be noted that although it is technically necessary for a person to “know” the information before he or she can be accused of illegally trading on such information, knowledge could be presumed if the person has any kind of relationship (such as officer, employee, or supplier) with our company. The Consequences The consequences of insider trading violations can be staggering: For individuals who trade on inside information (or tip information to others): • A civil penalty of up to three times the profit gained or loss avoided; • A criminal fine (no matter how small the profit) of up to $1 million; and • A jail term of up to ten years. For any controlling person (other than the company or employer) who fails to take appropriate steps to prevent illegal trading: • A civil penalty of the greater of $1 million or three times the profit gained or loss avoided as a result of the employee’s violations. For a company or employer that fails to take appropriate steps to prevent illegal trading: • A civil penalty of the greater of $1 million or three times the profit gained or loss avoided as a result of the employee’s violation; and • A criminal penalty of up to $2.5 million. Moreover, if an employee violates our insider trading policy, company imposed sanctions, including dismissal for cause, could result from failing to comply with the company’s policy or procedures. Needless to say, any of the above consequences, even an SEC investigation that does not result in prosecution, can tarnish one’s reputation and irreparably damage a career. Our Policy If a director, officer or any employee has material non-public information relating to our company, it is our policy that neither that person nor any related person may buy or sell securities of our company or engage in any other action to take advantage of, or pass on to others, that information. This policy also applies to information relating to any other company, including our customers or suppliers, obtained in the course of employment. Transactions that may be necessary or justifiable for independent reasons (such as the need to raise money for an emergency expenditure) are no exception. Even the appearance of an improper transaction must be avoided to preserve our reputation for adhering to the highest standards of conduct. All transactions in our stock (acquisitions, dispositions, transfers, margin transactions, etc.) by directors, officers and employees must be pre-cleared by our Chief Financial Officer. If you contemplate a transaction, you should contact our Chief Financial Officer in advance of the transaction. This requirement does not apply to stock option exercises, but would cover market sales of option stock. Twenty-Twenty Hindsight Remember, if your securities transactions become the subject of scrutiny, they will be viewed after the fact with benefit of hindsight. As a result, before engaging in any transaction you should carefully consider how regulators and others might view your transaction in hindsight. Transactions by Family Members The very same restrictions apply to your family members and others living in your household. Employees are expected to be responsible for the compliance of their immediate family and personal household. Tipping Information to Others Whether the information is proprietary information about a company or information that could have an impact on its stock price, employees must not pass the information on to others. The above penalties apply, whether or not you derive any benefit from another’s actions. When outsiders make an inquiry, the answer to which would reveal material, non-public information, employees should not respond to the inquiry. Employees should refer all such inquiries to our Chief Financial Officer. Additional Prohibited Transactions Because we believe it is improper and inappropriate for any of our personnel to engage in short-term or speculative transactions involving our stock, it is our policy that directors, officers and employees should not engage in any of the following activities with respect to our securities: • Purchase of our stock on margin. • Short sales. • Buying or selling puts or calls. Confidential Information In order to help protect yourselves and our company, it is imperative that you hold certain information in strict confidence. This not only includes matters relating to major projects and proprietary software, but also materials that may look like inconsequential memoranda or facsimile transmissions. To that end, please do not read documents that were not meant for you. If this is unavoidable in certain situations, please notify the intended recipient and keep the confidential information to yourself. Company Assistance Any person who has any questions about this Policy Statement or about specific transactions may obtain additional guidance from our Chief Financial Officer. Remember, however, the ultimate responsibility for adhering to the Policy Statement and avoiding improper transactions rests with you. In this regard, it is imperative that you use your best judgment. Reporting Insider Trading The success of our policy rests on internal awareness and confidential reporting. Any person with knowledge of insider trading (or tipping) should make a report to our Chief Financial Officer or the Chairman of our Audit Committee. The reports will be confidential and can be made without fear of retribution. In addition, Congress has permitted the SEC to pay a bounty to any informant whose testimony leads to the imposition of a civil penalty. The bounty is not to exceed 10% of the imposed penalty and is to be taken from the penalty when paid. Informants should first inform our Chief Financial Officer or the Chairman of our Audit Committee prior to approaching the SEC, so that we may take immediate action to prevent further violations. Certifications Employees will be required to certify their understanding of and intent to comply with this Policy Statement on Insider Trading. Officers and directors and other key employees may be required to certify compliance on an annual basis.
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