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Frequently Asked Questions
  Staff Interpretation Letter 2006-27
Identification Number 837
This is in response to your correspondence regarding the applicability of Marketplace Listing Rule 4200(a)(15).  You asked whether the Director is eligible to be an independent member of the company’s board of directors notwithstanding payments made to the Director by the company and the Former Subsidiary in connection with: (i) the spin-off by the company of the Former Subsidiary (the “Spin-off”), and (ii) a rights offering covering shares of the Former Subsidiary’s common stock (the “Rights Offering”) conducted by the Former Subsidiary following the Spin-off.  Specifically, your question relates to Listing Rule 4200(a)(15)(B) (the “Rule”).  Prior to the Spin-off, the Former Subsidiary had been wholly-owned by the company.
According to the information you provided, pursuant to a Standby Purchase Agreement (the “Agreement”) relating to the Rights Offering, certain payments were made to the Investor, an entity controlled by the Director and that is the company’s largest shareholder.  The Agreement was entered into among the Investor, the company, and the Former Subsidiary prior to the Spin-off.  Pursuant to the Agreement, the Investor agreed to purchase all of the shares it was eligible to receive in the Rights Offering and all shares that remained unpurchased upon conclusion of the Rights Offering.  In return, the company paid to the Director a fee, which was less than $60,000, following the final approval of the Spin-off by the company’s board of directors and prior to the effectiveness of the Spin-off.  In addition, as compensation for the Agreement, after the effectiveness of the Spin-off, the Former Subsidiary issued to the Director warrants exercisable for shares of the Former Subsidiary’s common stock (the “Warrants”) and reimbursed (or is obligated to reimburse) the Director for expenses relating to the Rights Offering and the Spin-off.  In the aggregate, the fee paid by the company, the value of the Warrants, and the amount of expenses subject to reimbursement (collectively, the “Payments”) exceed $60,000.
Following our review of the information you provided, we have determined that the Director is not eligible to be an independent director under the Rule because the Director received payments that exceed $60,000 over a twelve-month period within the past three years.  Although a portion of the Payments were made after the Spin-off and were made by the Former Subsidiary rather than by the company, each component of the Payments was made pursuant to an agreement which was entered into among the company, the Investor, and the Former Subsidiary at a time when the Former Subsidiary was still wholly-owned by the company.  As such, for purposes of the Rule, the Payments are attributed to the company.
Publication Date*: 7/31/2012 Mailto Link Identification Number: 837
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