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Frequently Asked Questions
  Staff Interpretation Letter 2006-17    
Identification Number 827
This is in response to your correspondence regarding the applicability of Marketplace Listing Rule 4200(a)(15).  You asked whether the Director Candidate is eligible to be an independent member of the company’s board of directors notwithstanding: (i) his serving as the Chief Executive Officer of Target, an entity the company expects to acquire; and (ii) the payments he will receive under the terms of the Severance Agreement with the Target.  Specifically, your question relates to Rules 4200(a)(15)(A) and 4200(a)(15)(B) (the “Rules”).
In the first quarter of 2006, the company entered into an agreement to acquire the Target.  Effective at the closing of the acquisition, the Director Candidate would no longer be employed by the Target, and he would not become an employee of the company.  The Director Candidate would join the company’s board of directors following the closing of the acquisition.
According to the information you provided, under the terms of the Severance Agreement, due to the termination of the Director Candidate’s employment as a result of the acquisition, the Target will be obligated to: (i) pay the Director Candidate an amount equal to 24 months of his base salary; and (ii) reimburse the Director Candidate’s expenses for continuing healthcare coverage for up to an 18-month period.
You stated that the company’s President and Chief Executive Officer has been a member of Target’s board of directors since April 2005, but played no role in recommending or approving the Director Candidate’s compensation or the Severance Agreement.
Following our review of the information you provided, we have determined that the company’s board of directors is not precluded by the Rules from finding that the Director Candidate is independent.  Specifically, the Director Candidate is not precluded by Listing Rule 4200(a)(15)(A) because, following the closing of the acquisition, the Director Candidate: (i) will no longer be employed by the Target; and (ii) will not become an employee of the company.  The Director Candidate is not precluded by Listing Rule 4200(a)(15)(B) because the payments under the Severance Agreement will be non-discretionary and will be as a result of a pre-existing agreement not involving the company.  Please note that we are not making a determination regarding the eligibility to qualify as an independent director under any other provision of Listing Rule 4200(a)(15).  In addition, 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 with respect to the Director Candidate.
Publication Date*: 7/31/2012 Mailto Link Identification Number: 827
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