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  Staff Interpretation Letter 2005-35
Identification Number 882
This is in response to your letters regarding Marketplace Rules 4200(a)(15)(B) and 4200(a)(15)(D) (the “Rules”).  You asked whether Mr. X (the “Proposed Director”) would be eligible to serve as an independent director on the company’s board of directors (the “Board”) pursuant to the definition set forth in the Rules.
According to the information you provided, the Proposed Director is the Chief Executive Officer and controlling stockholder of the Firm, which was retained by the company in 2004 to assist the Board in formulating and implementing an executive succession plan (the “Project”).  You stated that the Firm reported to the company’s board of directors in connection with the Project.  The Proposed Director owns 80% of the Firm, and the balance is held by other executives and consultants of the Firm, none of whom is a family member or affiliate of the Proposed Director.  You stated that while the number of employees can vary according the requirements of specific projects, the Firm currently has 15 employees.
The Project was completed, and all of the consulting fees paid, in 2004.  During the fiscal year ended December 31, 2004, the company paid less than $20,000 to the Firm including amounts for the reimbursement of expenses and amounts the Firm paid to a subcontractor.  You stated that the Project was not unusual or remarkable in size or scope of billings for the Firm.  You also stated that upon election of the Proposed Director to the Board, it is expected that neither the Proposed Director nor the Firm would be hired for any future consulting engagements with the company.
Following our review of the information you provided, we have determined the company’s Board is not precluded by the Rules from finding that the Proposed Director is independent.  In this regard, we note that Listing Rule 4200(a)(15)(D) is applicable, rather than Listing Rule 4200(a)(15)(B), because the payments were made to an entity (the Firm) of which the Proposed Director is an executive officer and the controlling shareholder and not directly to or for the benefit of the Proposed Director.  Under Listing Rule 4200(a)(15)(D), the Proposed Director is eligible to be independent because the payments were less than the greater of 5% of the Firm’s revenues or $200,000 in the current year or any of the past three fiscal years.  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.
Publication Date*: 7/31/2012 Mailto Link Identification Number: 882
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