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Frequently Asked Questions
  Staff Interpretation Letter 2008-10
Identification Number 755
This is in response to your correspondence regarding the Director’s eligibility to serve as an independent director on the company’s board of directors (the “Board”).  Specifically, you asked about the applicability of Marketplace Listing Rule 4200(a)(15)(B)(ii) to compensation and consulting fees that the company paid to the Director’s Son.
According to the information you provided, the Director’s Son was employed as a vice president of the company from August 2002 until September 2005 but was not an “officer” as that term is defined in Rule 16a-1(f) under the Securities Exchange Act of 1934 (the “Act”).  When he ceased to be an employee in September 2005, the Director’s Son entered into an independent contractor agreement (the “Agreement”) with the company pursuant to which he provided consulting services.  In 2005, the company paid the Director’s Son more than $100,000 in compensation as an employee (the “Compensation”).  The aggregate amount the company paid the Director’s Son under the Agreement, which was terminated in 2006, was less than $100,000 (the “Consulting Fees”).
Following our review of the information you provided, we have concluded that for determining the Director’s eligibility to be independent, the Compensation is not counted in the calculation of whether the Director’s Son received in excess of $100,000 during any period of twelve consecutive months within three years preceding the date of the independence determination.  The compensation is not counted because Listing Rule 4200(a)(15)(B)(i) excludes compensation paid to a Family Member as an employee other than an executive officer.  IM-4200 indicates that the rule’s reference to executive officer means those officers covered in SEC Rule 16a-1(f) under the Act.  You stated that the Director’s Son was not an executive officer under Rule 16a-1(f).  The Consulting Fees would contribute to the calculation.  However, because the Consulting Fees were less than the $100,000 threshold, they would not preclude the company’s Board from finding that the Director is independent.  As such, the Compensation and Consulting Fees would not preclude the Director from being found to be an independent director under Listing Rule 4200(a)(15)(B).  Please note that 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 regarding the Director.
Publication Date*: 7/31/2012 Mailto Link Identification Number: 755
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