AUDIT COMMITTEE CHARTER
AS OF FEBRUARY 2004
The primary functions of the Audit Committee are to oversee the:
(i) systems of internal and disclosure controls regarding the finance, accounting, legal issues, regulatory compliance and ethical behavior;
(ii) accounting and financial reporting and disclosure processes and the audits of the Company’s financial statements;
(iii) financial statement and other financial information provided to the public or reporting agency; and
(iv) performance of the Company’s Internal Audit Department and independent auditors. Consistent with these functions, the Committee will encourage continuous improvement of, and foster adherence to, the Company’s policies, procedures and practices at all levels.
Although the Committee has the powers and responsibilities set forth in this Charter, the role of the Committee is oversight. The members of the Committee are not full-time employees of the Company and may or may not be accountants or auditors by profession or experts in the fields of accounting or auditing and, in any event, do not serve in such capacity. Consequently, it is not the duty of the Committee to conduct audits or determine that the Company’s financial statements and disclosures are complete and accurate and are in accordance with generally accepted accounting principles and applicable rules and regulations. These are the responsibilities of Management and the independent auditors.
The Audit Committee shall be comprised of three or more directors as determined by the Board of Directors, each of whom shall satisfy the independence requirements of Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended, and Rule 10A-3(b)(1) thereunder and the independence and financial literacy requirements of NASD Rule 4350(d)(2)(A), and at least one of whom shall satisfy the expertise and experience requirements of Item 401(h) of Regulation S-K and NASD Rule 4350(d)(2)(A)(iv).
Notwithstanding the foregoing, one director who (1) is not “independent” as defined in the Nasdaq rules; (2) satisfies the criteria for independence set forth in Section 10A(m)(3) of the Exchange Act and the rules thereunder; and (3) is not a current officer or employee or a family member of such officer or employee, may be appointed to the audit committee, if the board, under exceptional and limited circumstances, determines that membership on the audit committee by the individual is required by the best interests of the company and its stockholders, and the board discloses, in the next annual proxy statement subsequent to such, the nature of the relationship and the reasons for that determination. A member appointed under this exception may not serve on the Audit Committee for more than two years and may not chair the audit committee.
Committee members should be appointed by the Board at the annual organizational meeting of the Board of Directors. Members shall serve until their successors shall be duly appointed and qualified. The Committee’s chairperson shall be designated by the full Board or, if it does not do so, the Committee members shall elect a chairperson by vote of a majority of the full Committee. The Committee may form and delegate authority to subcommittees when appropriate.
The Audit Committee shall meet, at a minimum, four times per year on a quarterly basis, or more frequently as circumstances require. The Committee shall require members of Management, the Internal Audit Department, the independent auditors and others to attend meetings and to provide pertinent information, as necessary. As part of its job to foster open communications, the Committee can meet in separate executive sessions during each of its four regularly scheduled meetings. They should meet
separately with Management, the head of the Internal Audit Department and the Company’s independent auditors to discuss any matters that the Committee (or any of these groups) believes should be discussed privately as they consider necessary.
IV. Responsibilities and Duties
In recognition of the fact that the Company’s independent auditors are ultimately accountable to the Audit Committee, the Committee shall have the sole authority and responsibility to select, evaluate, and, where appropriate, replace the independent auditors or nominate the independent auditors for stockholder approval. The Committee shall approve in advance all audit engagement fees and terms and all non-audit engagements with the independent auditors. The Committee shall consult with Management but shall not delegate these responsibilities.
To fulfill its responsibilities and duties, the Audit Committee shall:
With respect to the independent auditors:
(i) Have sole authority to appoint, determine funding for and oversee the work of the independent auditors (including resolution of disagreements between Management and the independent auditors regarding financial reporting) for the purpose of preparing its audit report or related work.
(ii) Develop pre-approved policies and procedures for audit and non-audit services.
(iii) Have the sole authority to review in advance, and grant any appropriate pre-approvals of, (a) all auditing services to be provided by the independent auditors, (b) all non-audit services to be provided by the independent auditors, and (c) in connection therewith to approve all fees and other terms of engagement.
(iv) The Committee shall also review and approve disclosures required to be included in Securities and Exchange Commission periodic reports filed under Section 13(a) of the Securities Exchange Act of 1934 with respect to non-audit services.
(v) Review the performance of the Company’s independent auditors during quarterly meetings.
(vi) On an annual basis, review and discuss with the auditors all relationships they have with the Company in order to evaluate their independence. The Committee: (i) shall ensure that the auditors submit to the Committee on an annual basis a written statement (as required by the Independent Standards Board Standards No. 1) detailing all relationships and services that may impact their objectivity and independence; (ii) shall discuss with the independent auditors any disclosed relationship or services that may impact the objectivity and independence of the auditors; and (iii) shall satisfy itself as to the auditors’ independence.
(vii) At least annually, obtain and review an annual report from the auditors describing (i) the auditors’ internal quality control procedures and (ii) whether any material issues have been raised by the most recent internal quality control review, peer review, governmental or professional authority review. Obtain the corrective action steps being taken to deal with any such issues.
(viii) Confirm that the lead audit partner, or the lead audit partner responsible for reviewing the audit, for the Company’s independent auditors has not performed audit services for the Company for each of the five previous fiscal years.
(ix) Review all reports required to be submitted by the independent auditors to the Committee under Section 10A of the Securities Exchange Act of 1934 and Item 2-07 of Regulation S-X thereunder.
(x) Review, based on upon the recommendation of the auditors and the Internal Audit Department, the scope and plan of the work to be done by the auditors for each fiscal year.
With respect to financial statements:
(i) Review and discuss with Management, the Internal Audit Department and the auditors the Company’s quarterly financial statements (including disclosures made in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”) and the auditors’ review of the quarterly financial statements prior to submission to stockholders, and governmental body, any stock exchange or the public.
(ii) Review and discuss with Management, the Internal Audit Department and the auditors the Company’s annual audited financial statements (including disclosures made in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”) and the auditors’ review of the quarterly financial statements prior to submission to stockholders, any governmental body, any stock exchange or the public.
(iii) Discuss with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61, as amended, relating to the conduct of the audit.
(iv) Recommend to the Board of Directors that the Company’s quarterly statements and annual audited financial statements be included in the Company’s Form 10-Q and 10-K, respectively, as required to be filed with the Securities and Exchange Commission.
(v) Prepare the report required by the Securities and Exchange Commission to be included in the Company’s annual proxy statement and any other Committee reports required by NASDAQ.
Periodic and Annual Reviews:
(i) Periodically review separately with Management, the auditors and the Internal Audit Department (i) any significant disagreement between Management and the auditors or the Internal Audit Department in connection with the preparation of the financial statements, (ii) any difficulties encountered during the course of the audit (including restrictions on the scope of work or access to required information), and (iii) Management’s response to each.
(ii) Periodically meet separately with the auditors and obtain, (i) their judgments about the quality, appropriateness and acceptability of the Company’s accounting principles and financial disclosure practices, as applied in its financial reporting and (ii) the completeness and accuracy of the Company’s financial statements.
(iii) Consider and approve, if appropriate, significant changes to the Company’s accounting principles and financial disclosure practices as suggested by the auditors, Management or Internal Audit Department. Review with the auditors, Management and the Internal Audit Department, at appropriate intervals the extent to which any changes or improvements in accounting of financial practices, as approved by the Committee, have been implemented.
(iv) Review with Management, auditors, Internal Audit and legal counsel any legal, regulatory or compliance matters that could have a significant impact on the Company’s financial statements, including significant changes in accounting standards or rules as promulgated by the Financial Accounting Standards Board, the Securities and Exchange Commission or other regulatory authorities with relevant jurisdiction.
(v) Obtain and review an annual report from Management relating to the accounting principles used in preparation of the Company’s financial statements (including those policies for which Management is required to exercise discretion or judgments regarding the implementation thereof).
Discussions with Management:
(i) Review and discuss with Management, the Company’s earnings/press releases (including the use of “pro-forma” or “adjusted” non-GAAP information) as well as financial information and earnings guidance provided to analysts and rating agencies.
(ii) Review and discuss with Management, all material, off-balance sheet transactions, arrangements, obligations (including contingent obligations) and other relationships of the Company with unconsolidated entities or other persons, that may have a material current or future effect on financial condition, changes in financial condition, results of operations, liquidity, capital resources, or capital reserves.
(iii) Inquire about the application of the Company’s accounting policies on a consistent basis from period to period, and the compatibility of these accounting policies with generally accepted accounting principles, and the Company’s provisions for future occurrences which may have a material impact on the financial statements of the Company.
(iv) Review and discuss with Management (i) the Company’s major financial risk exposures and the steps Management has taken to monitor and control such exposures (including Management’s risk assessment and risk management policies), and (ii) the program that Management has established to monitor compliance with its code of business ethics and conduct for directors, officers and employees.
(v) Review and discuss with Management all disclosures made by the Company concerning any material changes in the financial condition or operations of the Company.
(vi) Obtain explanations from Management for unusual variances in the Company’s financial statements. Review annually the independent auditor’s letter of recommendations to Management and Management’s response.
With respect to the internal audit function and internal and disclosure controls:
(i) Review, based upon the recommendation of the auditors and the head of the Internal Audit Department, the scope and plan of the work to be done by the Internal Audit Department.
(ii) Review and approve the appointment and replacement of the head of the Internal Audit Department, and review on an annual basis the performance of the Internal Audit Department.
(iii) In consultation with the auditors and the Internal Audit Department, (a) review the adequacy of the Company’s internal and disclosure control structure and system, and the procedures designed to insure compliance with laws and regulations, and (b) discuss the responsibilities, budget and staffing needs of the Internal Audit Department.
(iv) Establish procedures for (i) the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters, and (ii) the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters.
(i) Review and approve all related-party transactions
(ii) Review and approve (i) any change or waiver in the Company’s code of business conduct and ethics for directors or executive officers, and (ii) any disclosure made on Form 8-K or the Company’s website regarding such waiver or change.
(iii) Review and approve disclosure relating to audit fees and the audit committee’s pre-approval policies required by Item 9(e) of Schedule 14A and Item 16 of Form 10-K, and disclosure relating to the Committee required by Item 7(d) of Schedule 14A.
(iv) Prepare the report required by Item 7(d)(3)(i) of Schedule 14A.
(v) Establish the policy for the Company’s hiring of employees or former employees of the independent auditors who were engaged on the Company’s account.
(vi) Review any Management decision to seek a second opinion from auditors other than the Company’s regular independent auditors with respect to any significant accounting issue.
(vii) Review with Management and the auditors the sufficiency and quality of the Internal Audit Department staff and other financial and accounting personnel of the Company.
(viii) Review and reassess the adequacy of this Charter annually and recommend to the Board any changes the Committee deems appropriate.
(ix) The Committee shall conduct an annual performance evaluation.
(x) Perform any other activities consistent with the Charter, the Company’s By-laws and governing law as the Committee or the Board deems necessary or appropriate.
(i) The Audit Committee shall have the authority to engage independent legal, accounting and other consultants to advise the Committee. The Committee may request any officer or employee of the Company or the Company’s outside counsel or independent auditors to attend a meeting of the Committee to meet with any members of, or consultants to, the Committee.
(ii) The Committee shall determine the extent of funding necessary for payment of compensation to the independent auditors for purpose of rendering or issuing the annual audit report and to any independent legal, accounting and other consultants retained to advise the Committee.