Rule 4200(a)(14)(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 accepts any compensation from the corporation or any of its affiliates in excess of $60,000
during the previous fiscal year, other than compensation for board service.
Relevant Facts: In April 2003, Mr. X was appointed by the company’s board to serve as “Lead Director” and to coordinate the search for a new chief executive officer (“CEO”), following to the departure of the company’s former CEO. The company agreed to
pay this individual a $25,000 monthly fee with a cap of $60,000 for his service as Lead Director.
In August 2003, the company announced the appointment of a new CEO and eliminated the function of Lead Director. Therefore, the monthly compensation for the Lead Director covered the period between April and August 2003, subject to the $60,000 cap. Effective
September 2003, Mr. X was elected non-executive chairman of the board of directors (“Chairman”). In this capacity, he is entitled to compensation consisting of cash and the company’s common stock in an amount that will not exceed $60,000 annually. Such compensation
is in addition to the annual fees paid to directors for board service, which consists of $15,000 in cash and $20,000 in common stock.
The company represented that all payments made to Mr. X were for board services only. Additionally, the company stated that it did not consider Mr. X as either an officer or an employee.
Issue: Notwithstanding the compensation received from the company, is this individual precluded from serving as an independent director, pursuant to Listing Rule 4200(a)(14)(B)?
Determination: No. Based on the company’s submissions, it was determined that Mr. X is not precluded from serving as an independent director, pursuant to Listing Rule 4200(a)(14)(B), because the compensation received as Lead Director and Chairman were
related to his board service, and therefore, the Rule was not applicable in this case.