NYSE American Board Independence Standards
Posted by Securities Attorney Laura Anthony | January 19, 2020 Tags: ,

NYSE American Company Guide Rule 803 delineates the requirements independent directors and audit committees.  NYSE American Company Guide Rule 802 requires that a majority of the board of directors of a listed company be “independent.”  Rule 803 requires that all members of the audit committee be independent and defines independence and Rules 804 and 805 require that all directors on the nominating and compensation committees, if a company has such committees, be independent.

Under NYSE American Company Guide Rule 803, an “independent director” means a person other than an executive officer or employee of a company.  The board of directors must make an affirmative finding that a director does not have a relationship which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director for that director to qualify as independent.  However, the NYSE American rules specify certain relationships that would disqualify a person from being considered independent.  Stock ownership is not on the list and is not enough, without more, to preclude independence.

Company Guide Rule 803 specifies that the following people cannot be considered independent:

(i) a director who is, or at any time during the past three years was, employed by the company, provided however, interim employment of less than one year would not be a disqualifier as long as such employment had since terminated.  In addition, employment by an entity that was later acquired by the company would not disqualify a director from being independent provided the former officer was not employed by the company after the acquisition;

(ii) a director who accepted or who has a family member who accepted any compensation from the company in excess of $120,000 during any period of twelve consecutive months within the three years preceding the determination of independence, other than: (a) compensation for board or board committee service; (b) compensation paid to a family member who is an employee but not an executive of the company; (c) benefits under a tax-qualified retirement plan, or non-discretionary compensation; or (d) compensation received while acting as an interim officer as long as such employment lasted for less than a year and has since terminated.  Options received for services should be valued using a commonly accepted option pricing formula, such as the Black-Scholes or binomial model at the time of grant.  The option value is considered a payment upon grant even if the option does not immediately vest or if there are conditions to vesting or exercise.  This prohibition is meant to capture any compensation that directly benefits the director or family member and as such would include political contributions to a campaign by either.  However, it is not meant to capture ordinary course business transactions such as interest on an arm’s-length loan;

(iii) a director who is a family member of an individual who is, or at any time during the past three years was, employed by the company as an executive officer;

(iv) a director who is, or has a family member who is, a partner in (other than limited partner), 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, other than the following: (a) payments arising solely from investments in the company’s securities; or (b) payments under non-discretionary charitable contribution matching programs;

(v) a director of the company who is, or has a family member who is, employed as an executive officer of another entity where at any time during the past three years any of the executive officers of the company serve on the compensation committee of such other entity; or

(vi) a director who is, or has a family member who is, a current partner of the company’s outside auditor, or was a partner or employee of the company’s outside auditor who worked on the company’s audit at any time during any of the past three years.

Reference to the “company” includes parents and subsidiaries or any other entities that the company consolidates financial statements with, including variable interest entities.  “Executive officer” refers to any person covered by SEC Rule 16a-1(f) and in particular the company’s president, principal financial officer, principal accounting officer, any vice-present in charge of a principal business unit, division or function or any officer or person who performs a policymaking function, which can include officers of a parent or subsidiary.

For purposes of Rule 803, “family member” means a person’s spouse, parents, children and siblings, mothers-in-law and fathers-in-law, sons-in-law and daughters-in-law, brothers-in-law and sisters-in-law, and anyone (other than domestic employees) who shares such person’s home.  This definition differs from the  – see HERE.

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