Client Alert

Nasdaq and NYSE Amend Definition of Independent Director

September 5, 2008

On August 8, 2008, the SEC approved Nasdaq’s proposed rule change to amend the definition of “independent director” under Nasdaq Rule 4200(a)(15) to increase the threshold for compensation that may be received from the company by an independent director in a twelve-month period from $100,000 to $120,000. Similarly, the NYSE has proposed amending its "independent director" definition to, among other things, increase the threshold to $120,000. These amendments make the director independence threshold consistent with the $120,000 disclosure threshold for transactions with directors under Item 404 of Regulation S-K.

Similarly, on August 12, 2008, the NYSE proposed amending the definition of “independent director” under Section 303A.02 of the NYSE Listed Company Manual to increase the director compensation threshold from $100,000 to $120,000. In addition, the NYSE proposed amending the bright line test regarding an independent director’s affiliation with a listed company’s internal or external auditor. The proposed change would bring the NYSE standard more in line with Nasdaq and AMEX standards. Currently, under the NYSE's rules a director will not be independent if:

• the director or an immediate family member is a current partner of a firm that is the company’s internal or external auditor;
• the director is a current employee of such a firm;
• the director has an immediate family member who is a current employee of such a firm and who participates in the firm’s audit, assurance or tax compliance (tax planning excluded) practice; or
• the director or an immediate family member was within the last three years (but is no longer) a partner or employee of such a firm and personally worked on the listed company’s audit within that time.

The NYSE's proposed amendment would preclude a finding of independence under the auditor test with respect to an immediate family member only where the family member:

• is a current partner of the company’s internal or external auditor;
• is a current employee of such a firm and personally works on the listed company’s audit; or
• was within the last three years (but is no longer) a partner or employee of such a firm and personally worked on the listed company’s audit within that time.

The NYSE amendments are expected to be effective on September 11, 2008 unless the SEC approves the amendments sooner.

Comments on the NYSE's proposed amendments are due by September 15, 2008. Information on submitting comments to the SEC can be found on the SEC's website at www.sec.gov/rules/submitcomments.htm.