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  Staff Interpretation Letter 2004-22
Identification Number 920
Rule 4200(a)(15)(D):  “Independent director” means a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship, which, in the opinion of the company's board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The following persons shall not be considered independent: … (D) a director who is, or has a Family Member who is, a partner in, or a controlling shareholder or an executive officer of, any organization to which the company made, or from which the company received, payments for property or services in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenues for that year, or $200,000, whichever is more, other than the following: (i) payments arising solely from investments in the company’s securities; or (ii) payments under non-discretionary charitable contribution matching programs.
Relevant Facts:  A director of a listed company is a partner of a law firm that serves as executor and trustee for a client of one of the company’s bank subsidiaries.  The law firm does not provide any services to the parent company or the subsidiary, nor does the director in question directly provide any services to the accounts in question.  The legal fees billed by the law firm are paid from the assets of the estate/trust and do not exceed the 5%/$200,000 test of Listing Rule 4200(a)(15)(D).  Lastly, the law firm was only retained after a specific, unsolicited request by the client and after the subsidiary’s determination as a fiduciary that the representation was appropriate.
Issue:  Based on these facts, is the director precluded from serving as an independent director on the audit committee?
Determination:  No.  The director would not be precluded from serving as an independent member of the audit committee.  The law firm was selected to serve as counsel for trusts and estates overseen by the subsidiary at the specific, unsolicited recommendation of a client and upon the subsidiary’s determination as a fiduciary that such representation is appropriate.  The director will not serve as counsel to the subsidiary’s clients.  While it is NASDAQ’s view that this relationship would not constitute a direct or indirect “consulting, advisory or other compensatory fee from the issuer or any subsidiary thereof,” as contemplated by Rule 10A-3(b)(1)(ii)(A), should the Securities and Exchange Commission determine otherwise, this interpretation could no longer be relied upon.  NASDAQ is not making a determination regarding the eligibility of the director to qualify as an independent director under any other provision of the rules.  In addition, a company’s board has a responsibility to make an affirmative determination that no relationships exist that would impair the independence of an individual serving as an independent director
Publication Date*: 7/31/2012 Mailto Link Identification Number: 920
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