Audit Committee Charter
July 24, 2008
This charter governs the operations of the Audit Committee (the “Committee”) of the Board of Directors of Telular Corporation (the “Company”).
Composition, Organization and Compensation
The Committee shall be composed of not less than three Directors, each of whom (i) meet the independence and experience requirements of The NASDAQ National Market (“NASDAQ”), Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”), (ii) shall not have participated in the preparation of the financial statements of the Company or any current subsidiary of the Company at any time during the past three years, and (iii) have no relationship that would interfere with the exercise of his or her independent judgment. If a Committee member ceases to be independent for reasons outside the member’s reasonable control, his or her membership on the Committee may continue until the earlier of the Company’s next annual shareholders’ meeting or one year from the occurrence of the event that caused the failure to qualify as independent.
Each of the Committee members shall be able to read and understand fundamental financial statements, including the Company’s balance sheet, income statement and cash flow statement, at the time of his or her appointment to the Committee. At least one member of the Committee shall be an “audit committee financial expert” (as defined by applicable NASDAQ and SEC rules and regulations).
The Board of Directors has sole authority to appoint and remove members of the Committee. The Board may remove members of the Audit Committee from such committee at any time, with or without cause. Each member of the Committee shall serve a one-year term or shall serve until such member’s successor shall be duly elected and qualified.
The Board of Directors has authority to select a Chairman of the Committee. If the Board does not select a Chair of the Committee, the Committee shall elect a Chair by majority vote. The Chair of the Committee may be the incumbent Chairman or another member of the committee and must be independent as defined by NASDAQ rules.
The compensation of Committee members shall be as determined by the Board of Directors. No member of the Committee may receive compensation from the Company (other than fees paid for Board or Board committee service) if such additional compensation would exceed the threshold amounts established in Exchange Act Rule 10A-3(b)(1) and Rule 4200(a) of the NASDAQ listing standards with regard to director independence.
Purpose
The purpose of the Committee is to assist the Board of Directors in fulfilling its oversight responsibilities. The Committee’s primary duties and responsibilities are to oversee:
- the integrity of the Company’s disclosure controls, its financial reporting process and systems of internal controls regarding finance, accounting and legal compliance;
- the independence and performance of the Company’s independent auditor (the “Independent Auditor”), which shall be a registered public accounting firm as defined in the Sarbanes-Oxley Act of 2002 (the “SOX Act”);
- compliance with ethics policies adopted by management and the Board of Directors; and
- the maintenance of open channels of communication among the Independent Auditor, management and the Board of Directors.
In discharging its oversight role, the Committee is empowered to investigate any matter brought to its attention appropriate to fulfilling its responsibilities and has full access to the Independent Auditor as well as all books, records, facilities, and personnel of the Company and the authority to retain, at the expense of the Company, special legal, accounting or other advisors it deems necessary or appropriate to carry out its responsibilities.
Responsibilities and Processes
The primary responsibility of the Committee is to oversee the Company’s accounting and financial reporting process including the annual audits of the annual financial statements and the review of the quarterly financial statements of the Company on behalf of the Board of Directors and report the results of its activities to the Board of Directors. Management is responsible for preparing the Company’s financial statements, and the Independent Auditor is responsible for auditing the annual financial statements and reviewing the quarterly financial statements.
The following are the principal functions performed by the Committee in carrying out its oversight responsibilities. This description is set forth as a guide, with the understanding that the Committee may supplement the description as appropriate.
Review Procedures
1. The Committee shall review and reassess the adequacy of this charter periodically, as conditions indicate, but not less than annually, submit any proposed changes that it deems necessary or appropriate to the Board of Directors for its approval and have the charter published at least every three years in accordance with SEC rules and regulations.
2. The Committee shall review the Company’s annual audited financial statements, the management’s discussion and analysis of financial performance disclosures, and other disclosures that contain financial statement information prior to filing or distribution. Such review shall include discussion with management and the Independent Auditor of significant issues, including changes in accounting principles, reporting standards, regulatory agency pronouncements, practices, judgments and any alternatives that have or may have in the future a significant impact on the consolidated financial statements of the Company.
3. In consultation with the management and the Independent Auditor, the Committee shall: (a) consider the integrity of the Company’s financial reporting processes and controls; (b) discuss significant financial risk exposures and the steps management has taken to monitor, control, and report such exposures; and (c) review significant findings prepared by the Independent Auditor together with management’s responses.
4. The Committee shall review with management and the Independent Auditor the Company’s quarterly financial results prior to the release of earnings and/or the Company’s quarterly financial statements prior to filing or distribution. The Committee shall discuss any significant changes to the Company’s accounting principles and any items required to be communicated by the Independent Auditor in accordance with AICPA SAS 61.
5. The Committee shall review earnings releases and earnings guidance issued by the Company for the purpose of ensuring that such press releases and guidance properly disclose financial information presented in accordance with generally accepted accounting principles (“GAAP”) and, to the extent pro forma or non-GAAP information is included, adequately disclose how such pro forma or non-GAAP information differs from the comparable GAAP information and that such pro forma or non-GAAP information is not given undue prominence, and to ensure that such press releases and guidance do not otherwise provide misleading presentations of the Company’s results of operations or financial condition.
6. The Committee shall review with management and the Independent Auditor all significant litigation.
7. The Committee shall provide sufficient opportunity for the Independent Auditor to meet privately with the members of the Committee and otherwise shall, from time to time as it deems appropriate, meet separately with management and the Independent Auditor as necessary to assure a smooth functioning of the annual audit and otherwise to fulfill it responsibilities.
8. On at least an annual basis, the Committee shall review with the Company’s counsel, any legal matters that could have a significant impact on the organization’s financial statements, the Company’s compliance with applicable laws and regulations, and inquiries received from regulators or governmental agencies.
9. The Committee shall consider the effectiveness of the Company’s internal control system, including information technology security and control.
10. The Committee shall coordinate the Board of Director’s oversight of the Company’s internal accounting controls and the Company’s disclosure controls and procedures. The Committee shall receive and review the reports of the CEO and CFO required by Section 302 of the SOX Act (and the applicable rules thereunder) and Rule 13a-14 of the Exchange Act.
11. The Committee shall establish, review, and update periodically a Code of Ethical Conduct and ensure that management has established a system to enforce this Code.
12. The Committee shall review all related-party transactions, defined by reference to transactions required to be disclosed under Item 404 of Regulation S-K on an ongoing basis and approve such transactions as appropriate.
13. The Committee shall annually prepare a report to shareholders as required by the SEC. The report shall be included in the Company’s annual proxy statement.
14. The Committee shall perform any other activities consistent with this charter, the Company’s by-laws, and governing law, as the Committee or the Board or Directors deems necessary or appropriate.
15. The Committee shall engage and determine funding for such independent legal, accounting and other advisors as it deems necessary or appropriate to carry out its responsibilities. Such independent advisors may be the regular advisors to the Company. The Committee is empowered, without further action by the Board of Directors, to cause the Company to pay the compensation of such advisors as established by the Committee and to cause the Company to pay all other expenses incurred by the Committee in carrying out its duties.
16. The Committee shall conduct or authorize investigations into any matters within the scope of its responsibilities as it shall deem appropriate, including the authority to request any officer, employee or advisor of the Company to meet with the Committee or any advisors engaged by the Committee.
17. The Committee is empowered to investigate any other matters brought to the Committee’s attention within the scope of its responsibilities.
18. The Committee shall perform such other duties as may be delegated from time to time by the Board of Directors.
Independent Auditor
19. The Committee is solely and directly responsible for appointing, evaluating, retaining and, when necessary, terminating the Independent Auditor. The Committee may, in its discretion, seek shareholder ratification of the Independent Auditor it appoints.
20. The Committee shall require the Independent Auditor to report directly to the Committee, and the Committee shall have the sole and direct responsibility for overseeing the Independent Auditor, including resolution of any disagreements between Company management and the Independent Auditor regarding financial reporting. In connection with its oversight role, the Committee shall, from time to time as appropriate, obtain and review the reports required to be made by the Independent Auditor pursuant to paragraph (k) of Section 10A of the Exchange Act regarding:
- critical accounting policies and practices;
- alternative disclosures and treatments of financial information within generally accepted accounting principles that have been discussed with Company management, ramifications of the use of such alternative disclosures and treatments, and the disclosure and treatment preferred by the Independent Auditor; and
- other material written communications between the Independent Auditor and Company management.
21. The Committee shall take, or recommend that the full Board of Directors take, appropriate action to ensure the independence of the independent auditor. This includes ensuring the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit as required by law. It shall consider whether, in order to assure continuing auditor independence, it is appropriate to adopt a policy of rotating the independent auditing firm on a regular basis.
22. The Committee shall obtain and review a formal written statement from the Independent Auditor setting forth all relationships between the Independent Auditor and the Company, including disclosures required by Independence Standards Board Standard No. 1. The Committee shall actively engage in dialogue with the Independent Auditor concerning any disclosed relationships or services that might impact the objectivity and independence of the auditors.
23. The Committee shall be solely and directly responsible for setting the compensation of the Independent Auditor. The Committee is empowered, without further action by the Board of Directors, to cause the Company to pay the compensation of the Independent Auditor established by the Committee.
24. The Committee shall pre-approve all audit services, which may entail providing comfort letters in connection with securities underwritings, and all non-audit services (other than de minimis non-audit services as defined by the SOX Act (and the applicable rules thereunder)) to be provided to the Company by the Independent Auditors. The Committee shall cause the Company to disclose in its SEC periodic reports the approval by the Committee of any non-audit services to be performed by the Independent Auditor.
25. The Committee will review and evaluate the lead partner of the independent auditor team and shall establish hiring policies for partners and employees or former partners and employees of the Independent Auditor that satisfy all applicable laws and regulatory requirements.
26. The Committee annually, in advance of the annual audit of the Company’s financial statements, shall review with the Independent Auditor the audit plan, including without limitation the adequacy of staffing and the compensation arrangements. Following completion of the annual audit, and prior to releasing the year-end earnings, the Committee shall meet with the Independent Auditor to review the results of the audit. The Committee shall also discuss certain matters required to be communicated to audit committees in accordance with AICPA SAS 61.
27. The Committee shall consider the independent auditors’ judgments about the quality and appropriateness of the Company’s accounting principles as applied in its financial reporting.
28. The Committee shall obtain and review a report from the independent auditor at least annually regarding (a) the independent auditor’s internal quality-control procedures, (b) any material issues raised by the most recent internal quality-control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities within the preceding five years respecting one or more independent audits carried out by the firm and (c) any steps taken to deal with any such issues.
Meetings and Minutes
The Committee shall hold meetings, in person or by telephone, at such times and with such frequency as it deems necessary to carry out its duties and responsibilities under this charter. The Committee shall hold at least four meetings per year either in person, by video conference or by telephone.
The Committee shall meet privately in executive session at least annually with management, the Independent Auditor, and as a Committee to discuss any matters that the Committee, management or the Independent Auditor believes should be discussed. In addition, the Committee, or at least its Chair, shall communicate with management and the Independent Auditor quarterly to review the Company’s financial statements and significant findings based upon the auditors limited review procedures.
Special meetings of the Committee may be called by any member of the Committee, with notice of any such special meeting to be given in accordance with the Company’s Bylaws. A majority of the members of the Committee shall constitute a quorum for the transaction of business by the Committee. At the discretion of the Committee, other members of the Board of Directors and any officer or employee of the Company may be invited to attend and participate in meetings of the Committee. If approved by the Board of Directors, the Committee may delegate any of its responsibilities under this Charter to a subcommittee composed solely of members of the Committee.
The Committee also may act by unanimous written consent in accordance with the terms of the Company’s Bylaws.
Minutes of each Committee meeting and records of all other Committee actions shall be prepared by a secretary of the meeting designated by the Committee, and shall be retained with the permanent records of the Company.
Periodically, a report on the Committee’s activities shall be provided to the Board of Directors by the Chairman of the Committee (or, in the Chairman’s absence, by another member of the Committee).
