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Frequently Asked Questions
  Staff Interpretation Letter 2007-8  
Identification Number 784
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 whether certain payments made by the University to the Director (“Director Royalties” as defined below) should be considered to be compensation from the company for purposes of Marketplace Listing Rule 4200(a)(15)(B).
According to the information you provided, the Director has been a member of the Board for approximately eight years and has been a professor at the University for more than twenty years.  Pursuant to a license agreement, the University licensed to the company certain intellectual property rights (the “Licensed Technology”), including certain patent rights relating to patents of which the Director is named as inventor.  Under this license agreement, the company pays the University a specified amount of royalties (the “Royalties”) on net sales received by the company from the sale of products based on the Licensed Technology.  The University pays the Director a portion of the Royalties (the “Director Royalties”) pursuant to an agreement between the Director and the University.
You stated that the amount of the Director Royalties is controlled solely by the University.  The company has no formal or informal agreement, understanding, or arrangement with the Director or the University regarding the amount, if any, of the Royalties that will be paid to the Director.  In addition, you stated that the amount of Director Royalties is determined according to the University’s fixed rate for this type of arrangement.
Following our review of the information you provided, we have determined that the Director Royalties are not compensation from the company for purposes of Listing Rule 4200(a)(15)(B).  We have reached this conclusion:
(i) because the Director Royalties are not paid by the company but instead are paid pursuant to an agreement between the Director and the University and (ii) based on your representations that the company has no control or influence over whether any Director Royalties are paid.  Accordingly, the Director Royalties would not preclude the company’s Board from finding that the Director is independent.  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: 784
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