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Genelabs Technologies, Inc.
Audit Committee
Charter
Approved by the Board of Directors
January 23, 2004
As
amended January 27, 2006
I. Purpose
The Audit Committee (the "Committee") of the Board of Directors (the
"Board") of Genelabs Technologies, Inc. (the "Corporation") shall
provide assistance to the Board in fulfilling its oversight
responsibility to the shareholders, potential shareholders, the
investment community and others regarding the quality and integrity of
the Corporation’s financial statements, the financial reporting process,
the systems of internal accounting and financial controls, the
qualifications and independence of any registered public accounting firm
engaged by the Corporation to prepare or issue an audit report or
perform other audit, review or attest services (the "Independent
Auditors"), and the performance of the Independent Auditors. In so
doing, it is the responsibility of the Committee to maintain free and
open communication between the directors, the Independent Auditors, the
internal auditors, if any, and the financial management of the company.
II. Organization
This charter governs the operations of the Committee. The Committee
shall be comprised of at least three directors, as determined by the
Board. Each member of the Committee shall be qualified to serve on the
Committee pursuant to the requirements of the Nasdaq Stock Market, Inc.
(“Nasdaq”) and shall satisfy the independence requirements of Rule 10A-3
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Members of the Committee shall also qualify as
"non-employee directors" within the meaning of Rule 16b-3 promulgated
under the Exchange Act, and "outside directors" within the meaning of
Section 162(m) of the Internal Revenue Code of 1986, as amended, and
shall satisfy any other necessary standards of independence under the
federal securities and tax laws. No member of the Committee may have
participated in the preparation of the financial statements of the
Corporation (or any current subsidiary of the Corporation) at any time
during the three years prior to the member's appointment to the
Committee. All Committee members will be financially literate and must
be able to read and understand fundamental financial statements,
including the Corporation’s balance sheet, statement of operations and
statement of cash flows. In addition, the Board shall determine whether
at least one member of the Committee is an "audit committee financial
expert" as defined by the SEC pursuant to the Sarbanes-Oxley Act of 2002
and, as such, has past employment experience in finance or accounting,
requisite professional certification in accounting, or other comparable
experience or background which results in the member’s financial
sophistication, including having been a CEO or CFO. The Committee shall
review and reassess this charter at least annually and report to the
Board any recommended amendments to this charter and any recommended
changes to the Corporation's or the Board's policies or procedures.
III. Meetings
The Committee shall meet as often as it determines necessary to carry
out its duties and responsibilities. The Committee should meet
separately on a periodic basis with management and the Independent
Auditors, and, beginning at such time as the Committee feels appointment
of an internal audit function is warranted, the director of internal
audit. A majority of the members of the Committee present in person or
by means of a conference telephone or other communications equipment by
means of which all persons participating in the meeting can hear each
other shall constitute a quorum. The Committee shall maintain minutes of
its meetings and records relating to those meetings.
Any vacancy on the Committee shall be
filled by majority vote of the Board. No member of the Committee shall
be removed except by majority vote of the Board.
IV. Duties and Responsibilities
The primary responsibility of the Committee is to oversee the
Corporation’s financial reporting process on behalf of the Board and
report the results of these activities to the Board. While the Committee
has the responsibilities and powers set forth in this Charter, it is not
the duty of the Committee to plan or conduct audits. Management is
responsible for the preparation, presentation, and integrity of the
Corporation’s financial statements and for the appropriateness of the
accounting principles and reporting policies that are used by the
Corporation.
The Committee, in carrying out its duties
and responsibilities, believes its policies and procedures should remain
flexible, in order to best react to changing conditions and
circumstances. The Committee should take appropriate actions to set the
overall corporate “tone” for quality financial reporting, sound business
risk practices, and ethical behavior. The following shall be the duties
and responsibilities of the Committee and are set forth as a guide with
the understanding that the Committee may supplement them as appropriate:
A. Oversight of
Financial Reporting Process and Internal Controls:
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The Committee shall review and
discuss with management the financial statements and the disclosures
under Management’s Discussion and Analysis of Financial Condition
and Results of Operations.
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The Committee shall review with
management the progress and results of all internal audit projects,
and, when deemed necessary or appropriate by the Committee, assign
additional internal audit projects to the Corporation's internal
auditing department.
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The Committee shall review with
financial management and the Independent Auditors their judgments
about the quality, not just acceptability, of accounting principles
and the clarity of the financial disclosure practices used or
proposed to be used, and particularly, the degree of aggressiveness
or conservatism of the organization’s accounting principles and
underlying estimates, and other significant decisions made in
preparing the financial statements.
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The Committee shall receive periodic
updates from management and the Independent Auditors assessing the
impact of significant accounting or financial reporting developments
that may have a bearing on the Corporation.
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The Committee shall review and
discuss with the Independent Auditors the results of the quarterly
reviews of the Corporation’s financial statements, including any
comments or recommendations of the auditors.
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The Committee shall review and
discuss with the Independent Auditors the results of the year-end
audit of the Corporation’s financial statements, including any
comments or recommendations of the auditors, and, based on such
review, discussions and other information available to the
Committee, recommend to the Board whether the Corporation’s
financial statements should be included in the Annual Report on Form
10-K.
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The Committee shall review with
management and the Independent Auditors, through periodic meetings,
discussion, and inquiry, the adequacy and effectiveness of the
accounting and financial controls, including the Corporation’s
policies and procedures to assess, monitor, and manage business
risk, and legal and ethical compliance programs.
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The Committee shall review with the
chief executive officer, chief financial officer and Independent
Auditors the following:
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all significant deficiencies and
material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to
adversely affect the Corporation’s ability to record, process,
summarize and report financial information; and
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any fraud, whether or not
material, that involves management or other employees who have a
significant role in the Corporation’s internal control over
financial reporting.
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The Committee shall provide
sufficient opportunity for the internal auditors and Independent
Auditors to meet with the members of the Committee without members
of management present. Among the items to be discussed in these
meetings are the Independent Auditors’ evaluation of the
Corporation’s financial, accounting and auditing personnel, and the
cooperation that the Independent Auditors received during the course
of their review or audit.
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If required by the SEC, the Committee
shall review the yearly report prepared by management, and attested
to by the Independent Auditors, assessing the effectiveness of the
Corporation’s internal control over financial reporting and stating
management’s responsibility for establishing and maintaining
adequate control over financial reporting prior to its inclusion in
the Corporation’s Annual Report on Form 10-K.
B. Selection,
Evaluation and Oversight of the Independent Auditors:
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The Committee shall be directly
responsible for the appointment and termination, compensation, and
oversight of the work of the Independent Auditors, including
resolution of disagreements between management and the Independent
Auditors regarding financial reporting. The Independent Auditors
shall report directly to the Committee.
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The Committee shall review, and in
its sole discretion pre-approve, the Independent Auditors' annual
engagement letter including proposed fees and all audit and
non-audit services provided by the Independent Auditors and shall
not engage the Independent Auditors to perform the specific
non-audit services proscribed by law or regulation. The Committee
may delegate pre-approval authority to a member of the Committee,
and decisions delegated in such manner must be reported at the next
scheduled meeting of the Committee.
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At least annually, the Committee
shall obtain and review a report by the Independent Auditors
describing the firm’s quality control procedures and material issues
raised by the most recent internal quality control review, peer
review, or review performed by a designated professional
organization.
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The Committee shall review the
performance of the Independent Auditors, including the lead partner.
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The Committee shall also take
appropriate action to oversee the independence of the Independent
Auditors and shall assess their independence by, among other things:
obtaining and reviewing a formal written statement from the
Independent Auditors that delineates all relationships between the
Independent Auditors and the Corporation, consistent with
Independence Standards Board Standard 1; and by actively engaging
the Independent Auditors in a dialogue covering relationships or
services that may impact their objectivity or independence. In
addition, the Committee shall monitor compliance with Section 10A of
the Exchange Act and Rule 2-01 of Regulation S-X, as applicable.
Based on its assessment, the Committee shall take, or shall
recommend that the Board take, appropriate action to oversee the
independence of the Independent Auditors.
C. Oversight of
Annual Audit and Quarterly Reviews:
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The Committee shall review with the
Independent Auditors their annual audit plan, including the timing
and scope of audit activities, the adequacy of audit staffing and
compensation, and, during the year, the Committee shall monitor the
progress and results of the procedures performed under the audit
plan.
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The Committee shall review with the
Independent Auditors and the Corporation’s management the following
information which is required to be reported by the Independent
Auditors:
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critical accounting policies and
practices;
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alternative treatment of
financial information that has been discussed by the Independent
Auditors and management, ramifications of the use of such
alternative treatment or disclosure, and the treatment preferred
by the Independent Auditors; and
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material written communications
between the Independent Auditors and management, such as any
management letter and any schedule of unadjusted differences.
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The Committee shall resolve all
disagreements between the Independent Auditors and management
regarding financial reporting.
D. Miscellaneous
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If not done by the Board, the
Committee shall establish and implement policies and procedures for
the Committee’s or Board’s review and approval or disapproval of
proposed transactions or courses of dealings with respect to which
executive officers or directors or members of their immediate
families have an interest, including all transactions required to be
disclosed by Item 404(a) of Regulation S-K.
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The Committee shall meet periodically
with the general counsel, and outside counsel when appropriate, to
review legal and regulatory matters, including (i) any matters that
may have a material impact on the financial statements of the
Corporation and (ii) any matters involving potential or ongoing
material violations of law or breaches of fiduciary duty by the
Corporation or any of its directors, officers, employees, or agents
or breaches of fiduciary duty to the Corporation.
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The Committee shall prepare the
report required by the rules of the SEC to be included in the
Corporation’s annual proxy statement.
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The 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.
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The Committee shall secure
independent expert advice to the extent the Committee determines it
to be appropriate, including retaining, with or without Board
approval, independent counsel, accountants, consultants or others,
to assist the Committee in fulfilling its duties and
responsibilities, the cost of such independent expert advisors to be
borne by the Corporation.
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The Committee shall determine the
funding required to carry out the Committee's duties appropriately,
and shall inform the Board of the Committee's funding requirements.
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The Committee shall perform such
additional activities and consider such other matters as the
Committee or the Board deems necessary or appropriate.
V. Outside Advisers
The Committee may conduct or authorize investigations into or studies of
matters within the Committee's scope of responsibilities, and may
retain, at the Corporation's expense, such independent counsel or other
consultants or advisers as it deems necessary.
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In fulfilling their responsibilities hereunder, it is recognized that
the members of the Committee are not full-time employees of the
Corporation, it is not the duty or responsibility of the Committee or
its members to conduct "field work" or other types of auditing or
accounting reviews or procedures or to set auditor independence
standards, and each member of the Committee shall be entitled to rely on
(i) the integrity of those persons and organizations within and outside
the Corporation from which it receives information and (ii) the accuracy
of the financial and other information provided to the Committee absent
actual knowledge to the contrary.
Nothing contained in this Charter is
intended to create, or should be construed as creating, any
responsibility or liability of the members of the Committee, except to
the extent otherwise provided under applicable federal or state law.
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