This is in response to your correspondence asking whether Listing Rule 5605(a)(2) (the “Rule”) specifically prohibits the Director Candidate from being considered an independent director of the Target, following a merger between the Company and the Target.

The Listing Rules specifically prohibit a company from concluding that a director is independent in certain circumstances, as set forth in the Rule.  If any of these circumstances are present with respect to a director, then the company’s board is not permitted to conclude that the director is independent.  On the other hand, if the enumerated circumstances are not present, then, under the Rule and IM-5605, a director can only be considered independent if the board affirmatively determines that no relationship exists that would interfere with the exercise of independent judgment in carrying out the director’s responsibilities.

According to the information you provided, the Company was initially formed as a special purpose acquisition company (the “SPAC”) for the sole purpose of conducting an initial public offering to raise funds to engage in a merger or acquisition with one or more unidentified operating companies. The company has announced plans to combine with the Target (the “Business Combination”) and has applied to list the combined company on Nasdaq following the Business Combination.

You stated that prior to the Business Combination, the SPAC has no employees, and no assets other than an indirect interest in the trust account.  The Director Candidate is an executive officer, but not an employee, of the SPAC, and receives no compensation from the SPAC for serving as an executive officer, except as described below.  Upon the closing of the Business Combination, the Director Candidate is expected to resign as an executive officer.  Following the Business Combination, the sole operations of the company will be the operations of the Target.  The company’s financial statements will carry forward the historical financial statements of the Target.
You stated that the stockholders of the SPAC approved payment by the SPAC, directly or indirectly, of a monthly amount for health care benefits to be provided to all of the SPAC’s executive officers, including the Director Candidate. The maximum amount allowed for this benefit, in the aggregate for all of the SPAC’s executive officers, is approximately $72,000 per year (the “HealthCare Expenses”).  An unaffiliated management entity pays the HealthCare Expenses and is reimbursed for such expenses by the Company.  There are no individual payments to the Director Candidate or any other member of the SPAC’s management.

Following our review of the information you provided, and based on your representation that the Director Candidate was not an employee of the SPAC or the Target, we have determined that the Director Candidate’s prior service as a non-employee officer of the SPAC does not preclude the Board from finding that the Director Candidate is independent under the Rule, provided the Director Candidate resigns prior to, or upon, the consummation of the Business Combination.  Further, to the extent the HealthCare Expenses are treated as compensation to the Director Candidate, such compensation would be less than $120,000 during any period of twelve consecutive months within the prior three years and, therefore, would not prevent the Director Candidate from being considered independent under Rule 5605(a)(2)(B).

Notwithstanding this determination, the Company remains subject, on an ongoing basis, to Rule 5605(a)(2) and IM-5605, which require the Company’s board to make an affirmative determination that no relationship exists between the Company and the Director Candidate that would interfere with their exercise of independent judgment in carrying out their responsibilities as directors. As noted above, we are not expressing any opinion as to the whether the Board could reasonably make such a determination.

This is in response to your correspondence asking whether Listing Rule 5605(a)(2) (the “Rule”) specifically prohibits the Company from deeming the Directors independent.

The Listing Rules specifically prohibit a finding of independence in certain circumstances, as set forth in the Rule. If any of the circumstances enumerated in the Rule are present with respect to a director, then that director cannot be deemed independent, and the board is not permitted to conclude otherwise. On the other hand, if the enumerated circumstances are not present, then the board must, under the Rule and IM-5605, affirmatively determine that no relationship exists that would interfere with the exercise of independent judgment in carrying out the director’s responsibilities.

We discuss below whether the Rule specifically prohibits a finding of independence with respect to the Directors, given payments the Company has made, and will continue to make, to the Lessor, which is partially owned by the Directors. We do not address the broader question of whether the relationships described among the Directors, the Lessor, and the Company would interfere with the exercise of the Directors’ independent judgment and express no opinion as to the whether such a determination by the Company’s board that they do not interfere would be appropriate in this instance.

According to the information you provided, the Company has a lease agreement for its main office with the Lessor. You also indicated that the annual lease payments made by the Company to the Lessor in the current fiscal year are in excess of $200,000 and 5% of the Lessor’s consolidated gross revenues for the year (the “Payments”).

You explained that the Lessor is organized as Limited Liability Company and that it currently has less than 10 members, each holding a membership interest between 5% and 22.5%. You also stated that one of these members, the only managing member of the Lessor, holds a 20.0% membership interest. Under the Lessor’s operating agreement, the managing member makes all of the control decisions for the Lessor. The operating agreement also provides that all material items require approval of 65% of the membership and routine items require the approval of 51% of the membership. Each of the Directors indirectly owns membership interests in the Lessor of between 17% and 20%.

You also stated that the Directors do not perform any policy making function for the Lessor and do not have a family member who is a partner in, or controlling Shareholder, or an Executive Officer of the Lessor. You further stated that under the Lessor’s operating agreement, you believe the non-managing members’ interest in the Lessor is similar to the interest of a limited partner in a partnership.

Following our review of the information you provided, we have determined that the Company’s board of directors is not precluded by Rule 5605(a)(2)(D) from finding that the Directors are independent, notwithstanding the Payments. We have reached this conclusion because none of the Directors is (i) a partner in; (ii) a controlling Shareholder of; or (iii) an Executive Officer of the Lessor.

Although the Directors are members of the Lessor, and the Lessor is a limited liability company, you suggested that the Company’s structure could more appropriately be viewed as similar to that of a limited partnership. To the extent that we accept that view, the Directors’ membership interests would be analogous to limited partnership interests and, as noted in IM-5605, the reference to “partner” in Listing Rule 5605(a)(2)(D) is not intended to include limited partners. On the other hand, to the extent the Company’s structure is treated like a corporation, the Directors would be shareholders and none of the Directors would be a controlling Shareholder of the Lessor because under the current ownership and operational structure of the Lessor, as governed by the operating agreement, neither of the Directors has the ability individually to exercise either significant influence over the Lessor’s operations or the power to direct or cause the direction of the management and policies of the Lessor. This determination is made based on the specific facts and circumstances you described, including the small number of members of the Lessor, the Directors’ inability (based on their membership interests) to determine the vote on either routine or material items; and the fact that there is a member -- the only managing member -- who makes all the control decisions for the Lessor and has an ownership position that is no less than each of the Directors’. Finally, none of the Directors is an Executive Officer of the Lessor under the Listing Rules because they are not the managing member of the Lessor and do not perform any policy making function for the Lessor. In addition, and as explained in IM-5605, Rule 5605(a)(2)(B) is generally intended to capture situations where compensation is made directly to (or for the benefit of) a director. Nonetheless we note that to the extent we were to look through the Lessor and treat the Payments as compensation made directly to the Lessor’s members, the portion of the payments attributable to each Director would be less than $120,000 in the current fiscal year and the Payments would therefore not prevent the Directors from being considered independent by Rule 5605(a)(2)(B).

Notwithstanding this determination, the Company remains subject, on an ongoing basis, to Rule 5605(a)(2) and IM-5605, which require the Company’s board to make an affirmative determination that no relationship exists between the Company and the Directors that would interfere with their exercise of independent judgment in carrying out their responsibilities as directors. As noted above, we are not expressing any opinion as to the whether the Board could reasonably make such a determination.

This is in response to your request asking whether the Director is eligible to be an independent member of the company's board of directors under Listing Rule 5605(a)(2)(A) and IM-5605 (the "Rules"), notwithstanding his prior service as the company's Executive Chairman.

According to the information you provided, the Director previously served as an independent member of the company's board of directors (the "Board") and non-executive Chairman. The Director did not fall within any of the disqualifications from serving as an independent director in Listing Rule 5605(a)(2) and the Board made an affirmative determination that the Director did not have a relationship that would impair his independent judgment in carrying out the responsibilities of a director. Additionally, up until his appointment as Executive Chairman, the Director served as a member of the Compensation Committee and Nominating and Corporate Governance Committee.

Last year, the Board undertook evaluations of the company's management team. In order to get a better inside perspective of senior management, the Board asked the Director to serve as Executive Chairman, given his years of senior executive experience and his professional relationship with the company's President and Chief Executive Officer.

You stated that at the time of the Director's appointment, the independent directors of the Board understood that the Director's service as Executive Chairman would be temporary, allowing the Board to complete its assessment and, if necessary, undertake and complete a change in senior management. To that end, the employment agreement with the Director was structured such that it could be terminated on short notice for any reason whatsoever without incurring significant cost to the company.

Approximately four months later, the company appointed a new President and Chief Executive Officer. Simultaneously with this appointment, the Director resigned his position as Executive Chairman and transitioned back to his position as non-executive Chairman of the Board. Upon resigning from the position as Executive Chairman, the Director ceased to be an officer and employee of the company and his employment agreement was terminated. You stated that in relation to his employment, the Director did not receive severance or termination benefits, was not awarded any equity compensation, is not due any future compensation and did not participate in any employee benefit plan after his employment.

Following our review of the information you provided, we have concluded that the Director's service as Executive Chairman would not preclude the company from making a determination that the Director is independent on a going-forward basis. Under IM-5605, employment by a director as an Executive Officer on an interim basis does not disqualify that director from being considered independent following such employment pursuant to Listing Rule 5605(a)(2)(A), provided that the interim employment did not last longer than one year.

Notwithstanding this conclusion, pursuant to Listing Rule 5605(a)(2) and IM-5605, the company's board has the responsibility to make an affirmative determination that no relationship exists that would interfere with the Director's exercise of independent judgment in carrying out the responsibilities of a director. In assessing the Director's independence, the Board should consider his service as Executive Chairman. We are not expressing an opinion as to whether it would be appropriate for the company's board to make such a finding with respect to the Director. Please also note that if the Director participated in the preparation of the company's financial statements while serving as Executive Chairman, Rule 5605(c)(2)(A)(iii) precludes his service on the audit committee for three years.

This is in response to your correspondence asking whether certain payments made by the Company to the Director preclude the Director from being considered independent under Listing Rules 5605(a)(2)(B) and 5605(a)(2)(D) (the "Rules") and to serve on the Company's audit committee under Listing Rule 5605(c)(2)(A)(ii). The payments were made to the Director as consideration for Director's ownership in the Target in connection with the Company's acquisition of the Target.

According to the information you provided, the Company agreed to acquire a controlling interest in the Target (the "Acquisition") through an offer, open to all Target shareholders, to purchase at least 80% of the outstanding shares of the Target. As a result of the Acquisition, the Target became a subsidiary of the Company. The Director, directly and indirectly, owned approximately 10% of the Target.

As consideration for the Target, the Company paid cash and issued shares of the Company's common stock (the "Merger Consideration"). Accordingly, as an owner of shares in the Target, the Director received Merger Consideration pro ratably in the same manner as the Target's other shareholders. You stated that the Company accounted for the Merger Consideration as acquisition consideration and not as compensation.

Following our review of the information you provided, we have determined that the Company's board of directors is not precluded by the Rules from finding that the Director is independent and that the Director is eligible under Listing Rule 5605(c)(2)(A) to serve on the Company's audit committee. The Merger Consideration is not compensation under Listing Rule 5605(a)(2)(B) because it was paid pro ratably to all shareholders of the Target and the Company accounted for the payment as acquisition consideration and not compensation. Listing Rule 5605(a)(2)(D) is not implicated by the Acquisition because the Merger Consideration is a payment to the shareholders of the Target rather than a payment for "property or services" to the Target itself as an organization, as contemplated by Listing Rule 5605(a)(2)(D). In addition to the independence requirements under Listing Rule 5605(a)(2), Listing Rule 5605(c)(2)(A)(ii) requires that audit committee members meet the criteria for independence set forth in Rule 10A-3(b)(1) under the 1934 Act. Under these facts and circumstances, the Merger Consideration does not constitute a direct or indirect "consulting, advisory or other compensatory fee from the issuer or any subsidiary thereof," as described in by Rule 10A-3(b)(1)(ii)(A) and, therefore, Listing Rule 5605(c)(2)(A)(ii) would not prohibit the Director from serving on the Company's audit committee.

Notwithstanding this determination, the Company remains subject, on an ongoing basis, to Rule 5605(a)(2) and IM-5605, which require the Company's board to make an affirmative determination that no relationship exists between the Company and the Director that would interfere with the exercise of independent judgment in carrying out the responsibilities as a director. We are not expressing any opinion as to the whether the Board could reasonably make such a determination.