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Frequently Asked Questions
  Staff Interpretation Letter 2004-27
Identification Number 925
Rule 4200(a)(15)(A):  “Independent director” means a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship, which, in the opinion of the company's board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The following persons shall not be considered independent:  (A) a director who is, or at any time during the past three years was, employed by the company or by any parent or subsidiary of the company.
 
IM-4200.  Definition of Independence:  The Rule’s reference to a “parent or subsidiary” is intended to cover entities the issuer controls and consolidates with the issuer’s financial statements as filed with the U.S. Securities and Exchange Commission (but not if the issuer reflects such entity solely as an investment in its financial statements).
 
Relevant Facts:  Listed Company has a Director on its board who was formerly employed by another entity (“Entity A”).  Entity A is a Foreign Private Issuer incorporated in England.  During the period of the Director’s employment, Entity A owned approximately 50% to 60% of the Listed Company’s outstanding common stock, but Entity A’s voting power was limited to 49% of the total votes eligible to be cast on any matter submitted to a vote of the Listed Company’s stockholders.  Following the recent sale of a portion of its holdings, Entity A now owns less than 10% of the Listed Company’s common stock and holds less than 10% of the voting power.
 
Entity A prepares its financial statements in accordance with U.K. GAAP, and such information is available to U.S. investors through Entity A’s filings with the Securities and Exchange Commission.  For the past three years, Entity A has held less than 50% of the voting power in the Listed Company’s securities.  Consequently, the Listed Company was considered an “associate” and was not consolidated as part of Entity A’s financial statements.
 
Issue:  Based on these facts, is the Director precluded from serving as an independent director to the Listed Company, pursuant to Listing Rule 4200(a)(15)(A) or IM-4200?
 
Determination:  No.  NASDAQ determined that the Listed Company’s board is not precluded from finding that the Director is independent, since Entity A held less than 50% of the voting power in the Listed Company’s securities during the previous three years and did not consolidate its financial statements with those of the Listed Company.  Accordingly, Entity A is not the parent of the Listed Company within the meaning of the Rule and IM-4200.
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 925
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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