Audit Committee Charter

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I. General

A.       Purpose. The purposes of the Audit Committee of the Board of Directors (“Board”) of Vonage Holdings Corp. (collectively referred to with its subsidiaries as the “Company”) shall be to assist the Board in fulfilling its review and oversight responsibilities relating to:

1.       The reliability and integrity of the Company’s financial statements and related disclosures;

2.       The system of internal control within the Company;

3.       Compliance by the Company with all applicable laws and regulations;

4.       The qualifications, independence and performance of the Company’s outside auditors;

5.       Performance of the Company’s internal audit function; and

6.       Performance of the Company’s risk management function.

B.       SEC Report. If the Company prepares a proxy statement for its annual meeting of stockholders, the Audit Committee also shall prepare the Audit Committee’s report, made pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), to be included in such proxy statement . Subject to the review and oversight of the Audit Committee, management shall be responsible for preparing all other reports and disclosures made under the Exchange Act.

C.      Role. The Audit Committee’s role is one of oversight. It is not the duty of the Audit Committee to plan or conduct audits or to 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 outside auditor.

Each member of the Audit Committee, in exercising his or her business judgment, shall be entitled to rely on the integrity of those persons and organizations within and outside the Company from whom he or she receives information, and on the accuracy of the financial and other information provided to the Audit Committee by such persons or organizations. The Audit Committee does not provide any expert or other special assurance as to the Company’s financial statements or any expert or professional certification as to the work of the Company’s outside auditor.

 

II. Committee Membership

A.       The Audit Committee shall consist of no fewer than three members, the exact number of which will be determined from time to time by the Board. The Board will appoint the members of the Audit Committee and its Chair based on nominations made by the Nominating and Governance Committee. Each Audit Committee member shall serve at the pleasure of the Board for such term or terms as the Board or Nominating and Governance Committee may determine or until such Audit Committee member is no longer a member of the Company’s Board. Unless otherwise determined by the Board (in which case disclosure of such determination shall be made in the Company’s annual proxy statement), no member of the Audit Committee may serve on the audit committee of more than two other public companies.

B.       Except as otherwise permitted by the applicable rules of the New York Stock Exchange, each member of the Audit Committee shall be independent as defined by such rules and Rule 10A-3(b)(1) of the Exchange Act.

C.      Each member of the Audit Committee must be financially literate, as such qualification is interpreted by the Board in its business judgment, or must become financially literate within a reasonable period of time after his or her appointment to the Audit Committee. At least one member of the Audit Committee shall meet the SEC’s definition of an “audit committee financial expert.” The designation or identification of a person as an audit committee financial expert is not intended to (a) impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the Audit Committee and Board in the absence of such designation or identification, or (b) affect the duties of any other member of the Audit Committee or Board. The Audit Committee may, in its discretion, delegate such of its authority as it deems appropriate to one or more subcommittees.

D.      The Chair of the Audit Committee shall be appointed by the Board upon the recommendation of the Nominating and Governance Committee.

E.       The members of the Audit Committee may be removed or replaced, and any vacancies on the Audit Committee shall be filled by the Board upon the recommendation of the Nominating and Governance Committee.

 

III. Operations and Executive Sessions

A.       The Audit Committee shall hold such regular meetings as may be desirable, but not less frequently than quarterly. Special meetings may be called by the Chair of the Audit Committee or at the request of the outside auditors. The Audit Committee shall meet without management in executive sessions and shall meet periodically in executive session with each of the Company’s Chief Legal Officer, Chief Financial Officer, the internal auditor and the outside auditor.

B.       The Audit Committee shall discuss with management, the Company’s Chief Legal Officer and the outside auditor any correspondence with regulators or governmental agencies and any published reports that raise material issues regarding the Company’s financial statements or accounting policies.

C.      The Audit Committee shall discuss with the Company’s Chief Legal Officer legal matters that may have a material impact on the Company’s financial statements or compliance policies.

D.      The Audit Committee shall make regular reports to the Board, and such other reports of significant or material item(s) or event(s), as necessary. The Audit Committee shall review and reassess the adequacy of this Charter annually and recommend any proposed changes to the Board for approval. The Audit Committee shall annually review its own performance.

E.       The operating procedures for the Audit Committee with respect to meetings, notice of meetings, quorums and records shall be the same as stipulated for the Board of Directors set forth in the Company’s By-laws.

F.       The Audit Committee shall have the authority, to the extent it deems necessary or appropriate to retain special legal, accounting or other consultants to advise the Committee. The Audit Committee shall promptly report to the Board any such retention. The Audit Committee may request any officer or employee of the Company or the Company’s outside counsel or outside auditor to attend a meeting of the Committee or to meet with any members of, or consultants to, the Committee.

 

IV. Financial Statement and Disclosure Matters

The Audit Committee is responsible for overseeing and reviewing the Company’s financial reporting process on behalf of the Board.

A.       The Audit Committee shall review and discuss with management and the outside auditor the annual audited financial statements, including disclosures made in management’s discussion and analysis (“MD&A”), and recommend to the Board whether the audited financial statements should be included in any SEC reports that the Company is required to file.

B.       The Audit Committee shall review and discuss with management and the outside auditor the Company’s quarterly financial statements, including MD&A disclosures and the results of the outside auditors’ reviews of the quarterly financial statements.

C.      The Audit Committee shall review and discuss with the outside auditor (a) the development, selection and disclosure of critical accounting policies and practices to be used by the Company in preparing its financial statements; (b) analyses of the effect of alternative treatments of financial information within GAAP discussed with management and ramifications of the use of these alternative disclosures and treatment; and (c) other material communications between the outside auditor and management such as any management letter or schedule of unadjusted differences.

D.      The Audit Committee shall review and discuss with management the Company’s earnings press releases before they are issued, including the use of “pro forma” or “adjusted” non-GAAP information, as well as financial information and earnings guidance provided to analysts, rating agencies and others.

E.       The Audit Committee shall discuss with management and the outside auditor the effect of regulatory and accounting initiatives as well as off-balance sheet arrangements on the Company’s financial statements.

F.       The Audit Committee shall discuss with management the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures, including the Company’s risk assessment and risk management policies.

G.      The Audit Committee shall discuss with the outside auditor the matters required to be discussed by Statement on Auditing Standards No. 61, “Communication with Audit Committees,” as amended from time to time.

H.      The Audit Committee shall discuss, as appropriate, the adequacy of the Company’s internal control over financial reporting with the internal audit department, the outside auditor and management, including, without limitation, reports regarding (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

I.         The Audit Committee shall review and discuss with management, the internal audit department and the outside auditors, management’s annual report on the Company’s internal control over financial reporting and the outside auditor’s attestation report regarding management’s report.

J.        The Audit Committee shall review and discuss, as appropriate, any changes implemented by management to address control deficiencies or to make controls more effective.

K.       The Audit Committee shall review with management, and any outside professionals as the Committee considers appropriate, the effectiveness of the Company’s disclosure controls and procedures.

L.       The Audit Committee shall consider important trends and developments in financial reporting practices as the Audit Committee may, in its discretion, determine to be advisable. The Audit Committee may seek guidance from expert advisors in evaluating such developments.

M.      The Audit Committee shall prepare the report required by the SEC to be included in the Company’s annual proxy statement.

 

V. Oversight of the Company’s Relationship with the Outside Auditor

A.       The Audit Committee shall be directly responsible for the appointment, compensation, evaluation, retention and oversight of the work of the Company’s outside auditors in connection with their provision of audit, review or attest services relating to the Company’s financial statements. The outside auditor shall report directly to the Audit Committee. The Audit Committee shall normally consult with management about its appointment, retention and compensation of outside auditors, but its decision shall be made in executive session.

B.       The Audit Committee shall review and approve, in advance, the annual plan and scope of work of the outside auditor, including staffing of the audit, and shall review with the outside auditor any audit-related concerns and management’s response. The Audit Committee shall authorize the outside auditors to perform such supplemental reviews or audits as the Audit Committee may deem desirable.

C.      The Audit Committee shall have the sole authority to pre-approve all auditing services and all permitted non-audited services (including the fees and terms thereof) to be performed for the Company by the outside auditor, to the extent required by law, according to established procedures. The Audit Committee may delegate to one or more Committee members, the authority to grant pre-approvals for audit and permitted non-audit services to be performed for the Company by the outside auditor, provided that decisions of such members to grant pre-approvals shall be presented to the full Audit Committee at its next regularly scheduled meeting.

D.      The Audit Committee shall review and evaluate the experience, qualifications and performance of the senior members of the outside auditor team on an annual basis. As part of such evaluation, the Audit Committee shall review with the lead audit partner whether any of the audit team members receive any discretionary compensation from the audit firm with respect to procurement or performance of any services for the Company, other than audit, review or attest services, by the outside auditor.

E.       The Audit Committee shall obtain and review with the lead audit partner a report from the outside auditor at least annually regarding (a) the auditor’s internal quality-control procedures, and (b) any material issues raised by the most recent 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 outside audits carried out by the firm, and any steps taken to deal with any such issues.

F.       At least annually, the Audit Committee shall assess the independent auditor’s independence. In connection with this assessment, the Audit Committee shall obtain and review a report by the independent auditor describing all relationships between the auditor and the Company, including the disclosures required by Independence Standards Board Standard No. 1. The Audit Committee shall engage in an active dialogue with the auditor concerning any disclosed relationships or services that might impact the objectivity and independence of the auditor.

G.      The Audit Committee shall assure that the lead audit partner of the outside auditor and the audit partner responsible for reviewing the audit are rotated at least every five years.

H.      The Audit Committee shall preapprove the hiring of any employee or former employee of the independent auditor who was a member of the Company’s audit team during the preceding three -fiscal years. In addition, the Committee shall preapprove the hiring of any employee or former employee of the independent auditor (within the preceding three fiscal years) for senior positions within the Company, regardless of whether that person was a member of the Company’s audit team.

 

VI. Oversight of the Company’s Internal Audit Function

A.       The Audit Committee shall review with management and approve the appointment of the Company’s internal auditor(s).

B.       The Audit Committee shall review and discuss the internal audit department’s organization, responsibilities, plans, results, budget and staffing.

C.      The Audit Committee shall review any significant reports to management prepared by the internal auditing department and management’s responses and resolve significant differences between internal audit and management.

D.      The Audit Committee shall participate in the appointment, evaluation, replacement, reassignment or dismissal of the principal head of internal audit.

E.       The internal auditor shall report directly to the Audit Committee, subject to the day-to-day management of the Chief Financial Officer.

F.       The Audit Committee shall approve the charter of the internal audit function.

 

VII. Compliance Oversight Responsibilities

1.       The Audit Committee shall obtain from the outside auditor assurance that Sections (a) through (k) of Section 10A of the Exchange Act have been complied with.

2.       The Audit Committee shall review and approve the Company’s Code of Conduct applicable to directors, officers and employees, and obtain and review reports from management and the Company’s internal auditors regarding activities not in material conformity with applicable laws and regulations, including the Company’s Code of Conduct, and advise the Board with respect to any material issues that have been brought to the Committee’s attention concerning such compliance issues.

3.       The Audit Committee shall review and approve in advance any proposed related party transactions, review reports and disclosures of related party transactions, and present material related party transactions to the Board for approval.

4.       The Audit Committee shall review potential conflicts of interest and related-party transactions between the Company and Board members and executive officers.

5.       The Audit Committee shall review with the Company the procedures established by the Company that monitor compliance with its loan and indenture covenants and restrictions, if any.

6.       The Audit Committee shall establish procedures for the receipt, retention, confidential treatment, and investigation of:

7.       Complaints received by the Company from third parties regarding accounting, internal accounting controls, or auditing matters.

8.       Confidential anonymous submissions by employees of the Company of concerns regarding questionable accounting or auditing matters or any other matter involving failure to comply with applicable law or regulations or the Company’s Code of Conduct.

9.       The Audit Committee shall discuss with management and the outside auditor any correspondence with regulators or governmental agencies and any employee complaints or published reports that raise material issues regarding the Company’s financial statements or accounting policies.

10.    The Audit Committee shall discuss with management legal matters that may have a material impact on the financial statements or the Company’s compliance policies.

 

VIII. Risk Management

The Audit Committee shall oversee the Company’s risk assessment and risk management policies, including the development of guidelines and policies to govern the process by which the Company’s exposure to risk is handled.

 

IX. Audit Committee Funding

As determined by the Audit Committee, the Company shall provide for appropriate funding for payment of (a) compensation to the Company’s outside auditors engaged for the purpose of rendering or issuing an audit report or related work or performing other audit, review or attest services for the Company, (b) compensation to outside legal counsel or any other advisors employed by the Audit Committee, and (c) ordinary administrative expenses of the Audit Committee that are necessary or appropriate in carrying out its duties.