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Frequently Asked Questions
  Staff Interpretation Letter 2006-13
Identification Number 823
This is in response to your correspondence regarding Marketplace Rules 4200(a)(15)(B) and 4200(a)(15)(D) (the “Rules”).  You asked whether the Director is eligible to serve as an independent director notwithstanding the payments the company made to an insurance agency (the “Agency”) of which the Director is a 52% owner and President.
 
According to the information you provided, the Agency has approximately 20 employees.  The company makes payments (the “Premiums”) to the Agency consisting of insurance policy premiums payable by the company to insurance companies (the “Insurance Companies”) under the terms of the company’s insurance policies with the Insurance Companies.  You stated that the Agency, as part of its normal course of business as an insurance agency, collects the Premiums from the company and remits the bulk of the Premiums to the Insurance Companies.  You further stated that the amounts retained constitute commissions payable by the company’s insurers to the Agency (the “Commissions”).
 
The Premiums were approximately $200,000 in 2003, $65,000 in 2004, and $100,000 in 2005, and the Commissions were approximately $20,000, $8,000, and $10,000, respectively.  You stated that the Agency was acting in its capacity as the agent of the Insurance Companies in collecting the premiums and was obligated to pass those amounts, less the Commissions, to the Insurance Companies.  You stated that the only amounts included in the Agency’s revenues were the Commissions, which were less than $200,000 during each of 2003, 2004, and 2005.  The Commissions are income to the Agency, and any profits of the Agency are distributed to its shareholders according to their respective ownership interest in the company.
 
Following our review of the information you provided and based on your representations, we have determined the company’s Board is not precluded by the Rules from finding that the Director is independent.  As the Premiums are paid to the Agency for services of the Agency, they are appropriately considered under Listing Rule 4200(a)(15)(D), rather than Listing Rule 4200(a)(15)(B).  Further, in reviewing the payments made to the Agency under Listing Rule 4200(a)(15)(D), it is appropriate to consider only the Commissions, as these are the amounts retained by the Agency and included in the Agency’s revenues and are the amounts that represent the payments from the company to the Agency for “property or services”.  The Director is not ineligible under Listing Rule 4200(a)(15)(D) because the Commissions did not exceed $200,000 in any of the past three fiscal years.  We also note, in any event, that the Premiums did not exceed 5% of the total premiums collected by the agency in any of the past three fiscal years.  Please note that we are not making a determination regarding the eligibility to qualify as an independent director under any other provision of Listing Rule 4200(a)(15).  In addition, pursuant to IM-4200, a company’s board has a responsibility to make an affirmative determination that no relationship exists that would impair the independence of any individuals serving as independent directors.  We are not expressing any opinion as to whether it would be appropriate for the company’s Board to make such a finding.
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 823
material_search_footer*The Publication Date reflects the date of first inclusion in the Reference Library, which was launched on July 31, 2012, or a subsequent update to the material. Material may have been previously available on a different Nasdaq web site.
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