Independent Director Requirements for Nasdaq Listed Companies

The Nasdaq Stock Exchange, Inc., has adopted Rule 4350(c)(1), which requires that every company listed on Nasdaq must have independent directors as the majority of the company's board of directors. Each listed company must publicly disclose which of its directors are considered independent by identifying the independent directors in the company's annual meeting proxy statement or in the company's annual report on Securities and Exchange Commission Form 10-K.

Independent directors for purposes of Nasdaq Rule 4350(c)(1) are defined in Nasdaq Rule 4200(a)(15). Generally, an independent director must not have any relationship with the listed company or any subsidiary of the listed company that would interfere with the independent director's exercise of business judgment. An independent director may not be an employee or an officer of the listed company or of a subsidiary of the listed company.

The Nasdaq has specified factors that would preclude a director of the listed company from being considered independent:

• Employment by the listed company within the last three years or employment by a subsidiary or parent of the listed company within the last three years;


• Receipt of payments over $60,000 during any of the past three years by the director or by a member of the director's family unless the payments were for being a member of the listed company's board of directors, a salary for family members who were non-executive employees, or non-discretionary compensation;


• Status in any of the past three years in any entity doing business with the listed company as a controlling shareholder or executive officer or a member of a family with a person who is a controlling shareholder or executive officer of that entity, if the business was greater than 5% of gross revenues of that entity or of the listed company or greater than $200,000, unless the payments came only from an investment in the listed company's securities or were non-discretionary matching charitable contributions;


• Service as an executive officer of another organization if during the last three years any executive officer of the Nasdaq-listed company served on the compensation committee of the other organization;


• Association with the outside auditor of the listed company, including current partners or family members who are current partners of the outside auditor of the listed company or partners or employees of the outside auditor who worked on the listed company's audit within the last three years.

Family members are defined in Nasdaq Rule 4200(a)(14) as parents, children, and brothers and sisters (including in-laws) of the director and anyone living in the home of the director.

Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.