CHARTER OF THE AUDIT COMMITTEE OF THE
BOARD OF DIRECTORS OF PAC-WEST TELECOMM, INC.
The Audit Committee of the Board of Directors (the "Committee") is
designated by the Board of Directors of the Corporation (the "Board")
to assist the Board generally in its oversight of:
the integrity of the Corporation's financial
reporting process and systems of internal controls regarding finance,
accounting and legal compliance;
the independence and performance of the
Corporation's independent auditors and the performance of the Corporation's
internal audit function;
the hiring and firing of the Corporation's
auditor and any non-audit work performed by the Corporation's auditor; and
the Corporation's legal compliance and ethics
policies and procedures, including the Corporation's Code of Business Conduct
and Ethics (the "Code").
addition, the Committee is responsible for providing an avenue of communication
among the independent auditors, management of the Corporation and the Board and
the preparation of the report of audit committee required by the Securities and
Exchange Commission (the "Commission") to be included in the
Corporation's annual proxy statement. The Committee shall also serve as a
qualified legal compliance committee ("QLCC") within the meaning of
the Securities Exchange Act of 1934, as amended, and the rules and regulations
of the Commission promulgated thereunder (the "Exchange Act").
Committee has the authority to conduct any investigation appropriate to fulfill
its responsibilities, and, in connection therewith, it may contact the
independent auditors, internal auditors or management of the Corporation. In
addition, the Committee has the authority to retain, at the Corporation's
expense, special legal, accounting or other advisors or experts it deems
necessary or appropriate in connection with the performance of its duties.
The Committee shall consist of at least three members, including a Chairperson
(the "Chairperson"), comprised solely of "independent"
directors as defined by the Nasdaq Stock Market's listing standards, Section
10A(m)(3) of the Exchange Act. The members of the Committee shall be appointed
by the Board upon the recommendation of the Nominating Committee members and
shall serve one-year terms unless removed (with or without cause at any time)
or reappointed by the Board. Each member of the Committee shall be financially
literate and at least one member of the Committee must have the requisite
accounting or related financial management experience and expertise to qualify
as an "audit committee financial expert" as defined by the
Commission. All vacancies on the Committee shall be filled by the Board. The
Board shall designate one of the members as Chairperson.
The Committee shall meet at least quarterly and as often as it determines
appropriate to carry out its obligations under this Charter. The Committee
shall meet periodically (but not less than annually) with management, the
internal auditors and the Corporation's independent auditors in separate
executive sessions. The Committee may request any officer or employee of the
Corporation or the Corporation's outside counsel or independent auditors to
attend a Committee meeting or to meet with any members of, or consultants to,
the Committee. Meetings of the Committee may be held in person or by telephone.
Committee shall keep a separate book of minutes of their proceedings and
actions. All meetings shall be at the call of the Chairperson. The Committee
shall elect a Secretary to the Committee who shall give notice personally or by
mail, telephone, facsimile or electronically to each member of the Committee of
all meetings, not later than 12 noon of the day before the meeting, unless all
of the members of the Committee in office waive notice thereof in writing at or
before the meeting, in which case the meeting may be held without the aforesaid
advance notice. A majority of the members of the Committee shall constitute a
quorum for the transaction of business.
and Responsibilities. In addition
to any other responsibilities which may be assigned from time to time by the
Board, the Committee is responsible for and has authority to conduct the
Retention of Advisors
(a) The Committee shall
have the authority, to the extent it deems necessary or appropriate, to retain
independent legal, accounting or other advisors. The Corporation shall provide
for appropriate funding, as determined by the Committee, for payment of
compensation to the independent auditors for the purpose of rendering or
issuing an audit report and to any advisors employed by the Committee.
(b) The Committee shall
have sole authority to retain and terminate the Corporation's independent
auditors and to propose the independent auditors for ratification by the
shareholders at the Annual Meeting of Shareholders.
(c) The Committee shall
approve the fees and terms of all audit engagements and shall pre-approve all
auditing services and permitted non-audit services to be performed for the
Corporation by the independent auditors (subject to de minimus exceptions
described in Section 10A(i)(1)(B) of the Exchange Act that are approved by the
Committee prior to completion of the audit). The Committee shall establish
policies and procedures for such approval and pre-approval. The Committee may,
from time to time, delegate its authority to pre-approve non-audit services on
a preliminary basis to one or more Committee members, provided that such
designees present any such approvals to the full Committee at the next Committee
meeting. The Committee may consult with management regarding these matters but
may not delegate this authority to management.
(d) The Committee shall
review and approve the scope and staffing of the independent auditors' annual
(e) The Committee shall
evaluate the independent auditors' qualifications, performance and
independence, and shall present its conclusions and recommendations with
respect to the independent auditors to the full Board at least annually. As
part of such evaluation, at least annually, the Committee shall:
(i) obtain and review a
report or reports from the Corporation's independent auditors;
describing the independent auditors' internal
describing any material issues raised by (1) the
most recent internal quality-control review or peer review of the auditing
firm, or (2) any inquiry or investigation by governmental or professional
authorities, within the preceding five years, regarding one or more independent
audits carried out by the auditing firm; and any steps taken to deal with any
describing all relationships between the
independent auditors and the Corporation;
assuring that Section 10A of the Exchange Act
has not been implicated;
(ii) review and evaluate
the senior members of the independent auditor team(s), particularly the lead
audit and review partners;
(iii) consider whether the
lead audit or review partner should be rotated more frequently than is required
by law, so as to assure continuing auditor independence;
(iv) consider whether the independent
auditors should be rotated, so as to assure continuing auditor independence;
(v) actively engage in a
dialogue with the independent auditors with respect to any disclosed
relationships or services that may impact the auditors' objectivity and independence;
(vi) recommend that the
Board take appropriate action in response to the independent auditors' report
to satisfy itself of the auditors' independence; and
(vii) obtain the opinion of
management and the internal auditors of the independent auditors' performance.
(f) The Committee shall
establish policies for the Corporation's hiring of current or former employees
of the independent auditors.
Disclosure and other Compliance Matters
(g) Prior to the filing
of the Corporation's Annual Reports on Form 10-K, the Committee shall
review and discuss the audited financial statements, including the
Corporation's disclosures under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" with management, the internal
auditors and the independent auditors.
(h) Prior to the filing
of the Corporation's Quarterly Reports on Form 10-Q, the Committee shall review
and discuss the Corporation's quarterly financial statements with management,
the internal auditors and the independent auditors.
(i) Prior to filing a
report of the independent auditors with the Commission, the Committee shall
discuss with the independent auditors:
(i) all critical
accounting policies and practices to be used;
(ii) all alternative
treatments of financial information within generally accepted accounting
principals that have been discussed with management, ramifications of the use
of such alternative treatments, and the treatment preferred by the independent
(iii) other material
written communications between the independent auditors and management; and
(iv) all matters
required to be discussed with the Committee by the independent auditors
pursuant to Statement on Auditing Standards No. 61.
(j) The Committee shall
review, in conjunction with management, the Corporation's policies with respect
to the Corporation's earnings press releases and all financial information,
such as earnings guidance, provided to analysts and rating agencies, including
the types of information to be disclosed and the types of presentation to be
made and paying particular attention to the use of "pro forma" or
"adjusted" non-GAAP information.
(k) The Committee shall,
in conjunction with the Chief Executive Officer and Chief Financial Officer of
the Corporation, review the Corporation's internal controls and disclosure
controls and procedures, including whether there are any significant
deficiencies in the design or operation of such controls and procedures, any
corrective actions taken with regard to such deficiencies and weaknesses and
any fraud involving management or other employees with a significant role in
such controls and procedures.
(l) The Committee shall
review the Corporation's policies and practices with respect to risk assessment
and risk management, including discussing with management the Corporation's
major financial risk exposures and the steps that have been taken to monitor
and control such exposures.
Committee shall establish procedures for:
(i) the receipt,
retention and treatment of complaints received by the Corporation regarding
accounting, internal accounting controls or auditing matters; and
(ii) the confidential,
anonymous submission by employees of the Corporation of concerns regarding
questionable accounting or auditing matters.
(n) The Committee shall
review any significant complaints regarding accounting, internal accounting
controls or auditing matters received pursuant to such procedures.
(o) The Committee shall
prepare the audit committee report that Commission rules require to be included
in the Corporation's annual proxy statement.
(p) The Committee shall
meet privately (without members of management present) and separately with each
of the internal auditors and the independent auditors, at least annually.
Legal Compliance and Ethics
(q) The Committee shall
advise the Board with respect to the Corporation's Code of Business Conduct and
Ethics (the "Code of Conduct"), and annually review and assess the
adequacy of the Code of Conduct and recommend any proposed changes to the
Board. In connection with this review and assessment, the Committee shall
discuss with management, the Corporation's independent auditor and General
Counsel the Corporation's procedures for monitoring compliance with the Code of
(r) The Committee shall
be responsible for receiving, addressing and responding to alleged violations
of the Code of Conduct and other policies of the Corporation and complaints
involving the Corporation's accounting, auditing and internal auditing controls
and disclosure practices.
(s) The Committee shall
establish procedures for receipt, retention and treatment of complaints
received by the Committee alleging violations of the Code of Conduct and other
policies of the Corporation or involving the Corporation's accounting, auditing
and internal auditing controls and disclosure practices.
(t) The Committee shall
serve as a QLCC, which will be responsible for, among other things:
(i) receiving reports by
the Corporation's attorneys of evidence of a material violation of the
securities laws or breach of fiduciary duty or similar violations by the
Corporation or its agents (a "Reported Violation");
(ii) conducting any
necessary inquiry into Reported Violations;
(iii) requiring the
Corporation to adopt appropriate remedial measures to prevent an ongoing, or
alleviate a past Reported Violation, and providing the Board, the Chief
Executive Officer and the General Counsel notice of such remedial measures; and
notifying the Commission of the Reported
Violation if it decides, by a majority vote, that the Corporation has failed to
take any remedial measure that the QLCC has imposed upon the Corporation.
Reporting to the Board
(u) The Committee shall
report to the Board periodically. This report shall include a review of any
issues that arise with respect to the quality or integrity of the Corporation's
financial statements, the Corporation's compliance with legal and regulatory
requirements, the qualifications, independence and performance of the
Corporation's independent auditors, the performance of the internal audit
function, compliance by the Corporation with legal and regulatory requirements
and any other matters that the Committee deems appropriate or is requested to
be included by the Board.
(v) At least annually,
the Committee shall evaluate its own performance and report to the Board on
(w) The Committee shall
periodically review and assess the adequacy of this Charter and recommend any
proposed changes to the Board. This Charter may only be adopted, amended or
repealed by the Board, upon recommendation by the Committee.
(x) The Committee shall
perform any other activities consistent with this Charter, the Company's
Articles of Incorporation, Bylaws and governing law, as the Committee deems
necessary or appropriate.
Inherent in the Audit Committee's Role. It
is not the duty of the Committee to plan or conduct audits or to determine that
the Corporation's financial statements are complete and accurate and are in
accordance with generally accepted accounting principals. This is the
responsibility of management and the independent auditors of the Corporation.
Furthermore, while the Committee is responsible for reviewing the Corporation's
policies and practices with respect to risk assessment and management, it is
the responsibility of the Chief Executive Officer and senior management to
determine the appropriate level of the Corporation's exposure to risk.
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