Audit Committee Charter
Leap Wireless Audit Committee Charter
AUDIT COMMITTEE CHARTER
of the Audit Committee
of Leap Wireless International, Inc.
(as amended through January 19, 2005)
This Audit Committee Charter was adopted by the Board of Directors (the "Board")
of Leap Wireless International, Inc. (the "Company") on November 19,
2004 [and amended on January 19, 2005].
The purpose of the Audit Committee (the "Committee") is to oversee the
accounting and financial reporting processes of the Company and the audits of
the financial statements of the Company.
In addition to the powers and responsibilities expressly delegated to the Committee
in this Charter, the Committee may exercise any other powers and carry out any
other responsibilities delegated to it by the Board from time to time consistent
with the Company's bylaws. The powers and responsibilities delegated by the Board
to the Committee in this Charter or otherwise shall be exercised and carried out
by the Committee as it deems appropriate without requirement of Board approval,
and any decision made by the Committee (including any decision to exercise or
refrain from exercising any of the powers delegated to the Committee hereunder)
shall be at the Committee's sole discretion. While acting within the scope of
the powers and responsibilities delegated to it, the Committee shall have and
may exercise all the powers and authority of the Board. To the fullest extent
permitted by law, the Committee shall have the power to determine which matters
are within the scope of the powers and responsibilities delegated to it.
Notwithstanding the foregoing, the Committee's responsibilities are limited to
oversight. Management of the Company is responsible for the preparation, presentation
and integrity of the Company's financial statements as well as the Company's financial
reporting process, accounting policies, internal accounting controls and disclosure
controls and procedures. The independent auditor is responsible for performing
an audit of the Company's annual financial statements, expressing an opinion as
to the conformity of such annual financial statements with generally accepted
accounting principles and reviewing the Company's quarterly financial statements.
It is not the responsibility of the Committee to plan or conduct audits or to
determine that the Company's financial statements and disclosure are complete
and accurate and in accordance with generally accepted accounting principles and
applicable laws, rules and regulations. Each member of the Committee shall be
entitled to rely on the integrity of those persons within the Company and of the
professionals and experts (including the Company's senior internal audit executive
(and others responsible for the internal audit function, including contracted
non-employee or audit or accounting firms engaged to provide internal audit services)
(the "senior internal audit executive") and the Company's independent
auditor) from which the Committee receives information and, absent actual knowledge
to the contrary, to rely on the accuracy of the financial and other information
provided to the Committee by such persons, professionals or experts.
Further, auditing literature, particularly Statement
of Accounting Standards No. 71, defines the term "review" to include
a particular set of required procedures to be undertaken by independent auditors.
The members of the Committee are not independent auditors, and the term "review"
as used in this Charter is not intended to have that meaning and should not
be interpreted to suggest that the Committee members can or should follow the
procedures required of auditors performing reviews of financial statements.
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The authorized number of directors comprising the Committee shall be three directors.
Each Committee member must be able to read and understand fundamental financial
statements, including a company's balance sheet, income statement and cash flow
statement. Members of the Committee are not required to be engaged in the accounting
and auditing profession and, consequently, some members may not be expert in
financial matters, or in matters involving auditing or accounting. However,
at least one member of the Committee shall have past employment experience in
finance or accounting, requisite professional certification in accounting, or
any other comparable experience or background which results in the individual's
financial sophistication, including being or having been a chief executive officer,
chief financial officer or other senior officer with financial oversight responsibilities.
In addition, either at least one member of the Committee shall be an "audit
committee financial expert" within the definition adopted by the Securities
and Exchange Commission (the "SEC") or the Company shall include disclosure
in its periodic reports required pursuant to the Securities Exchange Act of
1934, as amended (the "Exchange Act") of the reasons why at least
one member of the Committee is not an "audit committee financial expert."
Each Committee member shall satisfy the independence requirements of the NASDAQ
and Rule 10A-3(b)(1) under the Exchange Act; provided, that if a member of the
Committee ceases to be independent for reasons outside the member's reasonable
control, then the member may remain on the Committee until the earlier of the
Company's next annual stockholders meeting or one year from the occurrence of
the event that caused the member to cease to be independent.
The members of the Committee, including the chair of the Committee (the "Chair"),
shall be appointed (from time to time after the adoption of this Charter) by
the Board on the recommendation of the Nominating Committee. Committee members
may only be removed from the Committee with cause by the Board.
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III. Meetings and Procedures
The Chair (or in his or her absence, a member designated by the Chair) shall
preside at each meeting of the Committee and set the agendas for Committee meetings.
The presence of a majority of the Committee members then in office shall constitute
a quorum for the transaction of Committee business. The Committee shall have
the authority to establish its own rules and procedures for notice and conduct
of its meetings so long as they are not inconsistent with any provisions of
the Company's bylaws that are applicable to the Committee.
The Committee shall meet at least once during each fiscal quarter and may meet
more frequently as the Committee deems desirable. The Committee shall meet separately,
periodically, but at least annually, with management, with the senior internal
audit executive and with the independent auditor. Members of the Committee may
participate in meetings of the Committee by means of conference telephone or
similar communications equipment by means of which all persons participating
in the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.All directors that are not members
of the Committee may attend and observe meetings of the Committee, but shall
not participate in any discussion or deliberation unless invited to do so by
the Committee, and in any event shall not be entitled to vote. The Committee
may, at its discretion, include in its meetings members of the Company's management,
representatives of the independent auditor, the senior internal audit executive,
any other financial personnel employed or retained by the Company or any other
persons whose presence the Committee believes to be necessary or appropriate.
The Committee shall have the sole authority, as it deems appropriate, to retain
and/or replace, as needed, any independent counsel, experts or advisors (accounting,
financial or otherwise) that the Committee believes to be necessary or appropriate.
The Committee may also use the services of the Company's regular legal counsel
or other advisors to the Company. The Company shall provide for appropriate
funding, as determined by the Committee in its sole discretion, for payment
of compensation to the independent auditor for the purpose of rendering or issuing
an audit report or performing other audit, review or attest services, for payment
of compensation to any persons retained by the Committee and for ordinary administrative
expenses of the Committee that are necessary or appropriate in carrying out
The Committee may conduct or authorize investigations into any matters within
the scope of the powers and responsibilities delegated to the Committee.
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IV. Duties and Responsibilities
Interaction with the Independent Auditor
- Appointment and Oversight. The Committee shall be directly responsible
for the appointment, compensation, retention and oversight of the work of
the independent auditor (including resolution of any disagreements between
Company management and the independent auditor regarding financial reporting)
for the purpose of preparing or issuing an audit report or related work or
performing other audit, review or attest services for the Company, and the
independent auditor shall report directly to the Committee.
- Pre-Approval of Services. Before the independent auditor is engaged
by the Company or its subsidiaries to render audit or non-audit services,
the Committee shall pre-approve the engagement. Committee pre-approval of
audit and non-audit services will not be required if the engagement for the
services is entered into pursuant to pre-approval policies and procedures
established by the Committee regarding the Company's engagement of the independent
auditor, provided the policies and procedures are detailed as to the particular
service, the Committee is informed of each service provided and such policies
and procedures do not include delegation of the Committee's responsibilities
under the Exchange Act to the Company's management. The Committee may delegate
to one or more designated members of the Committee the authority to grant
pre-approvals, provided such approvals are presented to the Committee at a
subsequent meeting. If the Committee elects to establish pre-approval policies
and procedures regarding non-audit services, the Committee must be informed
of each non-audit service provided by the independent auditor. Committee pre-approval
of non-audit services (other than review and attest services) also will not
be required if such services fall within available exceptions established
by the SEC.
- Independence of Independent Auditor. The Committee shall, at least
annually, review the independence and quality control procedures of the independent
auditor and the experience and qualifications of the independent auditor's
senior personnel that are providing audit services to the Company, and in
performing such review, the Committee shall solicit the opinions of management
and the senior internal audit executive. In conducting its review:
- The Committee shall obtain and review a report prepared by the independent
auditor describing (a) the auditing firm's internal quality-control procedures
and (b) any material issues raised by the most recent internal quality-control
review, or peer review, of the auditing 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 auditing firm,
and any steps taken to deal with any such issues.
- The Committee shall ensure that the independent auditor prepare and deliver,
at least annually, a written statement delineating all relationships between
the independent auditor and the Company, consistent with Independence Standards
Board Standard 1. The Committee shall actively engage in a dialogue with the
independent auditor with respect to any disclosed relationships or services
that, in the view of the Committee, may impact the objectivity and independence
of the independent auditor. If the Committee determines that further inquiry
is advisable, the Committee shall take appropriate action in response to the
independent auditor's report to satisfy itself of the auditor's independence.
- The Committee shall confirm with the independent auditor that the independent
auditor is in compliance with the partner rotation requirements established
by the SEC.
- The Committee shall, if applicable, consider whether the independent auditor's
provision of any permitted information technology services or other non-audit
services to the Company is compatible with maintaining the independence of the
Annual Financial Statements and Annual Audit
- Meetings with Management, the Independent Auditor and the Senior Internal
- The Committee shall meet with management, the independent auditor and the
senior internal audit executive in connection with each annual audit to discuss
the scope of the audit, the procedures to be followed and the staffing of the
- The Committee shall review and discuss with management and the independent
auditor: (A) major issues regarding accounting principles and financial statement
presentations, including any significant changes in the Company's selection
or application of accounting principles, complex or unusual transactions, highly
judgmental areas and major issues as to the adequacy of the Company's internal
controls and any special audit steps adopted in light of material control deficiencies;
(B) any analyses prepared by management or the independent auditor setting forth
significant financial reporting issues and judgments made in connection with
the preparation of the Company's financial statements, including analyses of
the effects of alternative GAAP methods on the Company's financial statements;
and (C) the effect of recent regulatory and professional accounting pronouncements,
as well as off-balance sheet structures, on the Company's financial statements.
- The Committee shall review and discuss the annual audited financial statements
with management and the independent auditor, including the Company's disclosures
under "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and consider whether they are complete and consistent
with information known to committee members.
- Separate Meetings with the Independent Auditor.
- The Committee shall review with the independent auditor any problems or
difficulties the independent auditor may have encountered during the course
of the audit work, including any restrictions on the scope of activities or
access to required information or any significant disagreements with management
and management's responses to such matters. Among the items that the Committee
should consider reviewing with the Independent Auditor are: (A) any accounting
adjustments that were noted or proposed by the auditor but were "passed"
(as immaterial or otherwise); (B) any communications between the audit team
and the independent auditor's national office respecting auditing or accounting
issues presented by the engagement; and (C) any "management" or "internal
control" letter issued, or proposed to be issued, by the independent auditor
to the Company. The Committee shall obtain from the independent auditor assurances
that Section 10A(b) of the Exchange Act has not been implicated in connection
with any such problem or difficulty.
- The Committee shall discuss with the independent auditor the report that
such auditor is required to make to the Committee regarding: (A) all accounting
policies and practices to be used that the independent auditor identifies as
critical; (B) all alternative treatments within GAAP for policies and practices
related to material items that have been discussed among management and the
independent auditor, including the ramifications of the use of such alternative
disclosures and treatments, and the treatment preferred by the independent auditor;
and (C) all other material written communications between the independent auditor
and management of the Company, such as any management letter, reports on observations
and recommendations on internal controls, independent auditor's engagement letter,
independent auditor's independence letter, schedule of unadjusted audit differences
and a listing of adjustments and reclassifications not recorded, if any.
- The Committee shall discuss with the independent auditor the matters required
to be discussed by Statement on Auditing Standards No. 61, "Communication
with Audit Committees," as then in effect.
- Recommendation to Include Financial Statements in Annual Report.
The Committee shall, based on the review and discussions in paragraphs 4(iii)
and 5(iii) above, and based on the disclosures received from the independent
auditor regarding its independence and discussions with the auditor regarding
such independence pursuant to subparagraph 3(ii) above, determine whether
to recommend to the Board that the audited financial statements be included
in the Company's Annual Report on Form 10-K for the fiscal year subject to
Quarterly Financial Statements
- Meetings with Management and the Independent Auditor. The Committee
shall review and discuss the quarterly financial statements with management
and the independent auditor, including the Company's disclosures under "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
- Appointment. The Committee shall be directly responsible for the
appointment, compensation and oversight of the Company's senior internal audit
executive, and the senior internal audit executive shall report directly to
the Committee. In furtherance of this responsibility, the Committee shall
have the sole authority to appoint or replace the senior internal audit executive.
The Committee shall consult with management but shall not delegate these responsibilities.
The Committee shall periodically review the effectiveness of the internal
- Separate Meetings with the Senior Internal Audit Executive. The Committee
shall meet periodically, but at least annually, with the Company's senior
internal audit executive to discuss the internal audit charter; the responsibilities,
activities, budget, staffing and organizational structure of the Company's
internal audit function; any recommended changes to the activities of the
internal audit department; and any issues that the senior internal audit executive
believes warrant Committee attention. The Committee shall discuss with the
senior internal audit executive any significant reports to management prepared
by the senior internal audit executive and any responses from management.
Other Powers and Responsibilities
- The Committee may to the extent it deems appropriate discuss with management
and/or the independent auditor the Company's earnings press releases (with particular
focus on any "pro forma" or "adjusted" non-GAAP information),
as well as financial information and earnings guidance provided to analysts
and rating agencies. The Committee's discussion in this regard may be general
in nature (i.e., discussion of the types of information to be disclosed and
the type of presentation to be made) and need not take place in advance of each
earnings release or each instance in which the Company may provide earnings
- The Committee shall review all related party transactions on an ongoing
basis and all such transactions must be approved by the Committee.
- The Committee shall discuss with management and the independent auditor
any correspondence from or with regulators or governmental agencies, any employee
complaints or any published reports that raise material issues regarding the
Company's financial statements, financial reporting process, accounting policies
or internal audit function.
- The Committee shall discuss with the Company's General Counsel or outside
counsel any legal matters brought to the Committee's attention that could reasonably
be expected to have a material impact on the Company's financial statements.
- The Committee shall request assurances from management, the independent
auditor and the Company's senior internal audit executive that the Company's
foreign subsidiaries and foreign affiliated entities, if any, are in conformity
with applicable legal requirements, including disclosure of affiliated party
- The Committee shall discuss with management the Company's policies with
respect to risk assessment and risk management. The Committee shall discuss
with management the Company's significant financial risk exposures and the actions
management has taken to limit, monitor or control such exposures.
- The Committee shall set clear hiring policies for employees or former employees
of the Company's independent auditor.
- The Committee shall establish procedures for the receipt, retention and
treatment of complaints received by the Company regarding accounting, internal
accounting controls or auditing matters. The Committee shall also establish
procedures for the confidential and anonymous submission by employees regarding
questionable accounting or auditing matters.
- The Committee shall provide the Company with the report of the Committee
with respect to the audited financial statements required by Item 306 of Reg.
S-K, for inclusion in each of the Company's annual proxy statements.
- The Committee, through its Chair, shall regularly (and as requested by the
Chairman of the Board) report to and review with the Board any issues that arise
with respect to the quality or integrity of the Company's financial statements,
the Company's compliance with legal or regulatory requirements, the performance
and independence of the Company's independent auditor, the performance of the
Company's internal audit function or any other matter the Committee determines
is necessary or advisable to report to the Board. The Chair shall report to
the Board regarding the activities of the Committee at appropriate times and
as otherwise requested by the Chairman of the Board.
- The Committee shall evaluate its own performance on an annual basis, including
its compliance with this Charter, and provide the Board with any recommendations
for changes in procedures or policies governing the Committee. The Committee
shall conduct such evaluation and review in such manner as it deems appropriate.
- The Committee shall at least annually review and reassess this Charter and
submit any recommended changes to the Board for its consideration.
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|Michael B. Targoff
Robert V. LaPenta