Rules 4200(a)(15)(B) and 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:
(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.
(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.
Relevant Facts: A company represented that a member of its board of directors (the “Director”) is an officer of a partnership that manages several venture capital funds (“Management Partnership”). The company is a limited partner in one of these funds
(the “Capital Fund”) and has invested approximately $3 million over the past four years, which represents only 2% of Capital Fund’s investments. The Capital Fund pays a management fee to the Management Partnership, which does not exceed 5% of that entity’s
consolidated gross revenues and is less than $200,000 per year. The company also stated that while the Capital Fund does not hold any of the company’s securities, the Director in question personally holds an indirect equity interest in the company of less
than 5% of the total voting power outstanding.
Issue: Based on these facts, is the Director precluded from serving as an independent director, pursuant to Rules 4200(a)(15)(B) or 4200(a)(15)(D)?
Determination: No. Because the Director is an executive officer of an organization to which the company made payments for services, it is appropriate to apply the corporate measurements of paragraph (D) rather than the individual measurements of paragraph
(B) under Listing Rule 4200(a)(15). In that regard, because the company’s payments do not exceed the greater of 5% of the Management Partnership’s consolidated gross revenues or $200,000 per year, the Director is not precluded from serving as an independent
director. Moreover, as stated in IM-4200, NASDAQ does not believe that ownership of company stock by itself would preclude a board finding of independence. Accordingly, the Director’s indirect equity interest in the company’s common stock also does not preclude
a board finding of independence.