Rules 4200(a)(15)(B) and 4200(a)(15)(C): “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:
(B) a director who accepted or who has a Family Member who accepted any payments from the company or any parent or subsidiary of the company in excess of $60,000 during the current or any of the past three fiscal years, other than the following: (i) compensation
for board or board committee service; (ii) payments arising solely from investments in the company’s securities; (iii) compensation paid to a Family Member who is a non-executive employee of the company or a parent or subsidiary of the company; (iv) benefits
under a tax-qualified retirement plan, or non-discretionary compensation; or (v) loans permitted under Section 13(k) of the Act. Provided, however, that audit committee members are subject to additional, more stringent requirements under Listing Rule 4350(d).
(C) a director who is a Family Member of an individual who is, or at any time during the past three years was, employed by the company or by any parent or subsidiary of the company as an executive officer;
Relevant Facts: In November 2002, a director (the “Director”) was appointed to the audit committee of a company. At the time, and until October 2003, the company was a wholly-owned subsidiary of the parent company (the “Parent”). In October 2003, the
Parent distributed to its stockholders on pro-rata basis all of the outstanding shares of the company (the “Distribution’). Upon the closing of the Distribution, the company commenced trading on The NASDAQ Stock Market. The Director’s sibling was employed
by the Parent as an executive officer from February 2002 until the Distribution. The Director’s sibling then ceased to be employed by the Parent.
Issue: Based on these facts, is the Director precluded from serving as an independent director for the company, pursuant to Listing Rule 4200(a)(15)(B) or Listing Rule 4200(a)(15)(C)?
Determination: Yes. NASDAQ determined that the Director is not independent under the Rules. For purposes of the three-year look-back under the Rules, employment with a parent company is deemed to end on the earlier of when: (i) the employment relationship
with the former parent terminates; or (ii) the parent/subsidiary relationship terminates. Because the Parent employed the Director’s sibling as an executive officer within the past three years, and because the sibling was employed during a period in which
the parent/subsidiary relationship existed, the Director is not currently eligible to serve as an independent director, pursuant to Listing Rule 4200(a)(15)(C). Further, in the event that the Parent paid the Director’s sibling in excess of $60,000 during
one of the past three years, the Director would also be ineligible, pursuant to Listing Rule 4200(a)(15)(B).