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Staff Interpretation Letters
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Identification Number
846
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This is in response to your correspondence regarding the Director’s eligibility to serve as an independent director on the company’s board of directors. Specifically, you asked whether certain payments (the “Payments”) should be considered under Listing
Rule 4200(a)(15)(B) or Listing Rule 4200(a)(15)(D). The company has applied to list on The NASDAQ Global Market.
The Firm has provided engineering consulting services (the “Services”) to the company or its subsidiaries in exchange for the Payments. The Director had, and the Director’s Son has, a relationship with the Firm. Specifically, until 2004, the Director
and the Director’s Son were the sole members of the Firm. Thereafter, the Firm admitted new members. The Director was the controlling member of the Firm until earlier this year when he sold his ownership interest to the remaining six members. The Director’s
Son is currently the controlling member of the Firm, but plans to sell his ownership interest shortly after the company’s initial public offering. After this sale, neither the Director nor the Director’s Son will be a partner, controlling shareholder, or
executive officer, or their equivalent, of the Firm. While neither the Director nor the Director’s Son currently personally performs any of the Services, in the past portions of the Services were provided by the Director and the Director’s Son, along with
other partners of the Firm. The Director spent twenty hours performing Services in the current year, all prior to selling his ownership interest, and the Director’s Son has not performed any of the Services for over two years.
Following our review of the information you provided and based on your representations, we have determined that the Payments should be considered under Listing Rule 4200(a)(15)(B) during the time period when the Director and the Director’s Son were the
sole members of the Firm. As such, with regard to the Payments, the Director’s eligibility to be independent is measured according to whether the Payments exceeded $60,000 during any period of twelve consecutive months during the period that began on the
date that is three years preceding the date of the determination of independence and ended on the date that additional owners acquired their interests in the Firm. After the date when the additional owners acquired their interests, the assessment of independence
may be made under Listing Rule 4200(a)(15)(D). Under Listing Rule 4200(a)(15)(D), the Director would be eligible to be independent if: (i) neither the Director nor the Director’s Son is a partner in, controlling shareholder, or executive officer of the Firm,
or (ii) the Payments in the current fiscal year or any of the past three years do not exceed 5% of the Firm’s consolidated gross revenues or $200,000, whichever is more. You did not ask us to reach a determination regarding the eligibility of the Director
to be an independent director. Please note that 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 regarding the Director.
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Publication Date*:
7/31/2012
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Identification Number:
846
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