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.