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Is the telecommunications company, D&E Communications, Inc. (DECC), in violation of NASDAQ listing standards?

Steven B. Silverman, age 73, a director of D&E Communications, Inc., is counsel in the law firm of Cohen, Seglias, Pallas, Greenhall & Furman, P.C., which serves as labor counsel to D&E. Mr. Silverman is Chairman of the compensation committee and is a member of the strategic planning review committee. Not withstanding the $280,300 paid to his law firm in 2005, Mr. Silverman was determined by the Board of Directors to be independent.

D. Mark Thomas, age 58, is a managing partner in the law firm of Thomas, Thomas, Armstrong & Niesen, Harrisburg, Pennsylvania, which serves as regulatory counsel to D&E. He has been a director of the Company since 1997. Mr. Thomas serves as lead director and Vice Chairman, and as such he chairs executive sessions of the Board. Mr. Thomas is a member of the compensation committee, nominating and governance committee and the executive committee. Notwithstanding the $83,900 paid to his law firm in 2005, Mr. Thomas was determined by the Board of Directors to be independent.

By Nasdaq definition “an independent director is a non-employee, whose relationship, in the opinion of the Board of Directors, would not interfere with the exercise of independent judgment in carrying out the responsibilities of a director.”

Technically, under NASDAQ rules, neither man is in violation of Nasdaq rules, for [given that] D& E Communications did not make “payments for services in the current (or any of the past three fiscal years) that exceeded five percent of the recipient’s [respective law firm] consolidated gross revenues for that year, or $200,000, (whichever was more),” their respective independence was not compromised.

The 10Q Detective disagrees. Both men serve on the compensation committee of D&E, thus the possibility for “interference in judgment” does exist. Hypothetically, let us suppose that Cohen, Seglias, Pallas , et. al. was replaced as labor counsel for D&E--What material effect would this future act have on Stephen Silverman’s judgement in agreeing to bonus compensation for D&E’s senior management? In addition to the three-year “look back” litmus test, perchance a three-year “look forward” would be a proper reagent for the Nasdaq to consider when defining independence?

How does that English proverb go? “You scratch my back and I'll scratch yours."

Source: D&E Communications: An Itch to Scratch? (DECC)