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Frequently Asked Questions
  Staff Interpretation Letter 2012-2
Identification Number 1039
This is in response to your interpretive 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)(B) (the "Rule").  The Director received certain payments and benefits from the company, which are described below.  You asked whether these amounts are "non-discretionary" for purposes of the Rule and, therefore, not prohibited by the Rule's limit on compensation (the "Limitation").
The Director previously was the company's Chief Executive Officer.  He ceased being an employee of the company more than three years ago.  At that time, the company and the Director negotiated an agreement (the "Transition Agreement") pursuant to which the company is obligated to make payments for various periods of time, including ongoing payments for: (i) healthcare coverage; and (ii) payments under the company's Supplemental Executive Retirement Plan (the "SERP").  In addition, other payment obligations under the Transition Agreement ended during the prior three years, including payments for: (i) life insurance coverage; (ii) a car allowance; and (iii) compensation for serving as Chairman of the company's Board, or, if the Director died or was removed as Chairman, the lump sum value of the amounts he would have otherwise received as Chairman (collectively with the ongoing payments described in the prior sentence, the "Payments").  The Transition Agreement accelerated the date when the Director became eligible to receive payments under the SERP and resulted in a recalculation of the amount of those payments.  In addition, the Transition Agreement extended the post-employment period during which the Director retained his eligibility for healthcare coverage under his employment agreement.  You stated that the Payments are legal obligations of the company, which are not contingent in any way on continued service to the company by the Director.
Following our review of the information you provided, we have concluded that for purposes of the Rule, the Payments are non-discretionary and, as such, need not be considered in determining whether the Director has accepted compensation from the company in excess of the Limitation.  We have reached this conclusion because the Payments are legal obligations of the company and are not contingent on continued service to the company by the Director. Accordingly, under the Rule, the Payments do not preclude the company's board of directors from determining that the Director is independent.
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 impair the independence of any individual serving as an independent director.  In assessing the Director's independence, the Board should consider his prior service as the company's Chief Executive Officer and the Payments made to him pursuant to the Transition Agreement, along with any other relationships that the Director has with the company and its executive officers and employees, in order to determine whether any of these relationships individually or in the aggregate may interfere with the Director's exercise of independent judgment in carrying out his responsibilities of a director.  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.
Publication Date*: 7/31/2012 Mailto Link Identification Number: 1039
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