Rule 4200(a)(15)(B): “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.
Rule 4350(c)(3)(C): If the compensation committee is comprised of at least three members, one director who is not independent as defined in Listing Rule 4200 and is not a current officer or employee or a Family Member of an officer or employee, may be
appointed to the compensation committee if the board, under exceptional and limited circumstances, determines that such individual’s membership on the committee is required by the best interests of the company and its shareholders, and the board discloses,
in the proxy statement for the next annual meeting subsequent to such determination (or, if the issuer does not file a proxy, in its Form 10-K or 20-F), the nature of the relationship and the reasons for the determination. A member appointed under this exception
may not serve longer than two years.
Relevant Facts: Mr. X served as the interim chief executive officer from June 30 through September 30, 2003. The company paid him in excess of $60,000 for his service as interim CEO.
Issue: Notwithstanding the amount of compensation received from the company, is Mr. X precluded from serving as an independent director, pursuant to Listing Rule 4200(a)(15)(B)?
Determination: Yes. Based on the facts presented, NASDAQ determined that Mr. X is precluded from serving as an independent director, pursuant to Listing Rule 4200(a)(15)(B), because the compensation received as interim CEO was in excess of $60,000.
Issue: In the event that Mr. X is precluded from serving as an independent director, do “exceptional and limited” circumstances exist such that the board may appoint Mr. X to the compensation committee?
Determination: When a director is not a current officer or employee or a Family member of an officer or employee, use of the exception is contingent on whether a company’s board determines that the individual’s membership on the committee is required
by the best interests of the company and its shareholders. Approval by NASDAQ is not required. Rather, pursuant to Listing Rule 4350(c)(3)(C), the board must disclose, in its proxy statement for the next annual meeting subsequent to the board’s determination,
the nature of the relationship and the reasons for the determination to rely upon the exception.