AMENDED AND RESTATED AUDIT COMMITTEE CHARTER
2003 Audit Charter: IBC
Adopted September 24, 2002
Revised July 9, 2003
The primary purposes of the Audit Committee of the Board of Directors (the "Board") of Interstate Bakeries Corporation (the "Corporation") are to (A) assist the Board in fulfilling its oversight of (1) the integrity of the Corporation's financial statements, (2) the Corporation's compliance with legal and regulatory requirements, (3) the independent auditor qualifications and independence, (4) the performance of the Corporation's internal auditor function and independent auditors and (5) the system of internal controls and disclosure controls and procedures established by management and (B) prepare the report required by Securities and Exchange Commission ("SEC") proxy rules to be included in the Corporation's annual proxy statement. The Audit Committee is expected to maintain and encourage free and open communication with the independent auditors, the internal auditors, management of the Corporation and the Board and should foster adherence to the Corporation's policies, procedures and practices at all levels.
II. Composition of the Audit Committee.
A. Independence. The Audit Committee shall be comprised of three or more independent directors appointed by the Board. All members of the Audit Committee shall satisfy the independence standards required by the SEC, the New York Stock Exchange listed company rules and any other legal requirements as shall from time to time be in effect. There shall be an annual review of the independence of each member of the Audit Committee.
B. Qualifications. All members of the Audit Committee shall have a working knowledge of basic finance, accounting and auditing practices and shall be capable of reading and understanding fundamental financial statements, including a company's balance sheet, income statement and cash flow statement or will be able to do so within a reasonable period of time after his or her appointment to the Audit Committee. At least one member of the Audit Committee shall have accounting or related financial management expertise, as required by the New York Stock Exchange listing standards and as such qualification is interpreted by the Board in its business judgment.
No director may serve as a member of the Audit Committee if such director serves on the audit committee of more than two other public companies, unless the Board determines that such simultaneous service would not impair the ability of such director to effectively serve on the Audit Committee.
C. Appointment/Removal. Members of the Audit Committee shall be appointed by the Board at its annual meeting and shall generally serve until their successors shall be duly appointed and qualified. A member of the Audit Committee shall be deemed to have resigned from the Audit Committee at such time that the member shall have been removed from the Board pursuant to the Bylaws of the Corporation or such member has resigned or otherwise terminated his or her membership of the Board. A member of the Audit Committee shall also be deemed to have resigned from the Audit Committee at such time that a majority of the independent members of the Board have determined that such member of the Audit Committee is no longer an independent director of the Board.
D. Chairperson. The Board shall elect one member of the Audit Committee to serve as the Chairperson. The Chairperson shall be responsible for the overall leadership of the Audit Committee, including presiding over the meetings, reporting to the Board and acting as a liaison with the Chief Executive Officer, the lead independent audit partner and the Director of Internal Audit.
III. Meeting Requirements and Structure.
The Audit Committee shall meet at least four times annually, or more frequently as circumstances dictate. During at least two of these meetings, separate executive sessions will be held with the independent auditors, the Director of Internal Audit and corporate management to discuss privately any matters these groups or the Audit Committee deem necessary. A majority of the members of the Audit Committee shall constitute a quorum. The vote of a majority of the members present at any meeting at which a quorum is present shall be the act of the Audit Committee. The Members of the Audit Committee may participate in a meeting of the Committee by means of conference call or similar communications arrangements by means of which all persons participating in the meeting can hear each other. The Audit Committee may request (a) any
officer or employee of the Corporation, (b) the Corporation's outside counsel, or (c) the Corporation's independent auditors to attend any meeting (or portion thereof) of the Audit Committee, or to meet with any members of or consultants to the Audit Committee, and to provide such information as the Audit Committee deems necessary or desirable.
IV. Responsibilities and Duties.
A. Independent Auditors. The Audit Committee is directly responsible for appointing, retaining, compensating, evaluating, terminating and overseeing the work of the independent auditors engaged by the Corporation for the purpose of preparing or issuing an audit report or related work or performing other audit, review or attest services for the Corporation. The independent auditors shall report directly to the Audit Committee and shall, in all respects, be accountable to the Audit Committee. Accordingly, the Audit Committee is responsible for:
1. Selecting the Corporation's independent auditors, after considering their independence and effectiveness, and approving, in advance of the provision thereof, all audit and, subject to the de minimus exception of Section 10A(i) of the Securities Act of 1934 and the SEC rules promulgated thereunder, all permitted non-audit services to be provided to the Corporation by such independent auditors. The Audit Committee shall have the sole authority to approve all fees and other compensation to be paid to the independent auditors for any approved audit or non-audit services, including the fees, terms and conditions for the performance of such services. The Audit Committee may delegate to one or more designated members of the Audit Committee the authority to grant pre-approvals of audit and non-audit services in accordance with all applicable laws, rules and regulations, and all pre-approvals will be presented to the full Audit Committee at the next scheduled meeting,
2. At least annually, obtaining and reviewing a report by the independent auditors describing: (A) the 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 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 any steps taken to deal with any such issues,
3. At least annually, obtaining and reviewing a report by the independent auditors describing all relationships between the independent auditors and the Corporation and obtaining a written statement from the independent auditors to determine and confirm the auditors' independence in relation to the Corporation,
4. Reviewing and evaluating the independent auditors' qualifications, performance and independence, including a review and evaluation of the lead partner on the independent auditors' engagement with the Corporation, and presenting its conclusions to the full Board,
5. Approving any proposed discharge of the independent auditors when circumstances warrant,
6. At least annually, consulting with the independent auditors out of the presence of management, if deemed appropriate, about:
(a) the matters required to be discussed by Statement on Auditing Standards 61, as it may be modified or supplemented, relating to the conduct of the audit;
(b) the audit process, including, without limitation, any problems or difficulties encountered in the course of the performance of the audit, including any restrictions on the independent auditor's activities or access to requested information imposed by management, and management's response thereto, and any significant disagreements with management; and
(c) the Corporation's internal controls and the responsibilities, budget and staffing of the Corporation's internal audit function, including any "management" or "internal control" letter issued or proposed to be issued by such auditor to the Corporation,
7. Resolving disagreements, if any, between management and the independent auditors regarding financial reporting, and
8. Reviewing and approving the overall nature and scope of the audit process, receive and review all reports and recommendations of the independent auditors and providing the independent auditors complete access to the Audit Committee and the Board to discuss all appropriate matters.
B. Financial Reporting Process. The Audit Committee is responsible for:
1. Reviewing and discussing with management and the independent auditors the annual audited financial statements, including any opinion, certification, annual report on Form 10-K submitted to the SEC or other annual report sent to stockholders, along with the Corporation's disclosures under "Management's Discussion and Analysis of Financial Condition and Results of Operations" to determine that they are satisfied with the disclosures and content of the financial statements for presentation to the stockholders and others and recommend to the Board whether the annual audited financial statements should be included in the Corporation's Form 10-K,
2. Reviewing and discussing with management and the independent auditors the quarterly financial statements, including any opinion, certification, quarterly report on Form 10-Q submitted to the SEC or other quarterly report sent to stockholders, along with the Corporation's disclosures under "Management's Discussion and Analysis of Financial Condition and Results of Operations" to determine that they are satisfied with the disclosures and content of the financial statements for presentation to the stockholders and others; provided, however, this review and discussion may be performed by the entire Audit Committee or, in the alternative, the Chairperson of the Audit Committee or designee Audit Committee member, and other members as deemed appropriate by the Chairperson,
3. Reviewing and discussing with management earnings press releases (paying particular attention to any use of "pro forma," or "adjusted" non-GAAP, information), as well as financial information and earnings guidance provided to analysts and rating agencies; provided, however, this review and discussion may be performed by the entire Audit Committee or, in the alternative, the Chairperson of the Audit Committee or designee Audit Committee member, and other members as deemed appropriate by the Chairperson,
4. Discussing with management and the independent auditors:
(a) significant issues regarding accounting and auditing principles and practices and financial statement presentations, including all critical accounting policies and estimates, any significant changes in the Corporation's selection or application of accounting principles, any significant issues as to the adequacy of the Corporation's internal controls and any special audit steps adopted in light of material control deficiencies,
(b) analyses prepared by management and/or the independent auditor setting forth significant financial reporting issues, adjustments and judgments made in connection with the preparation of the financial statements, including analyses of the effects of alternative GAAP methods on the financial statements, and the view of each as to appropriateness of such judgments and adjustments,
(c) the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on the financial statements,
(d) any significant changes to the Corporation's auditing and accounting principles and practices suggested by the independent auditor, internal audit personnel or management, and
(e) when and as required by Section 404 of the Sarbanes-Oxley Act of 2002, management's internal control report prepared in accordance with rules promulgated by the SEC.
C. Process Improvement. In conjunction with the Audit Committee's review of financial statements and reports, the Audit Committee shall:
1. Obtain and review reports from Management regarding internal controls and disclosure controls and procedures,
2. Obtain and review reports submitted by the independent auditors regarding:
(a) the Corporation's critical accounting policies and practices to be used,
(b) all alternative treatments within GAAP for policies and practices related to material items that have been discussed with management, including the ramifications of the use of such alternative disclosures and treatments and the treatment preferred by the independent auditors, and
(c) other material written communications between the independent auditors and management, such as any management letter or schedule of unadjusted differences.
3. Discuss policies with respect to risk assessment and risk management,
4. Meet separately with management, with internal auditors (or other personnel responsible for the internal audit function) and with independent auditors, in each case, on a periodic basis,
5. Review with the independent auditors any audit problems or difficulties and management's response,
6. Set clear policies for the Corporation with respect to hiring employees or former employees of the independent auditors,
7. Maintain free and open communication between the Audit Committee and the Corporation's Internal Audit Department to confirm and ensure their continual independence and objectivity,
8. Review the appointment and termination of senior internal audit personnel and review the overall internal audit function of the corporation, including the Internal Audit Charter, reporting obligations and the qualifications of the department employees,
9. Review the proposed internal audit plan on an annual basis, and continually monitor the department's performance against the plan, and
10. Review all internal audit reports to be aware of any potentially significant issues or control weaknesses and corporate management's responses to these issues.
D. Ethical and Legal Compliance. The Audit Committee shall:
1. Establish procedures to receive, handle, and retain complaints received by the Corporation regarding accounting, internal accounting controls, disclosure controls and procedures or auditing matters and establish procedures for the confidential, anonymous submission by employees of the Corporation of concerns regarding questionable accounting or auditing matters,
2. Investigate, as it deems appropriate, any matter brought to its attention,
3. As appropriate, obtain advice and assistance from outside legal, accounting or other advisors, with full power to retain and compensate all such persons, as deemed necessary to carry out its duties,
4. Review, with the Corporation's counsel, legal compliance matters including corporate securities trading policies,
5. Review, with the Corporation's counsel, any legal matter that could have a significant impact on the Corporation's financial statements, and
6. Perform any other activities consistent with this Charter, the Corporation's By-laws and governing law, as the Audit Committee or the Board deems necessary or appropriate.
E. Other Functions. The Audit Committee shall also:
1. Perform an annual evaluation of its performance, which shall compare the performance of the Audit Committee with the requirements of this Charter and set forth the goals and objectives of the Audit Committee for the upcoming year. The performance evaluation by the Audit Committee shall be conducted in such manner as the Audit Committee deems appropriate and shall be reviewed with the full Board,
2. Review and reassess the adequacy of the Audit Committee Charter on an annual basis and recommend any proposed changes to the Board for approval,
3. Prepare minutes of all Audit Committee meetings,
4. Regularly report all Audit Committee activities to the full Board and review with the Board any issues that arise with respect to:
(a) the integrity of the Corporation's financial statements,
(b) the Corporation's compliance with legal and regulatory requirements,
(c) the qualifications, performance and independence of the Corporation's independent auditor,
(d) the performance of the Corporation's internal audit function, and
(e) the system of internal controls and disclosure controls and procedures established by management.
The report to the Board may take the form of an oral report by the chairperson of the Audit Committee or any other member of the Audit Committee designated by the Audit Committee to make this report,
5. Prepare an annual Audit Committee Report to be included in the Corporation's Proxy Statement for submission to the shareholders,
6. Review with corporate management, the independent auditors and the internal auditors any legal matters, risks or exposures that could have a significant impact on the financial statements and what steps management has taken to minimize the corporation's exposure, and
7. Create and establish the membership for the Advisory Committee, which shall serve as the "named fiduciary" (as such term is defined in § 402(a) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) of the Corporation's employee benefit plans subject to ERISA, and of other committees as needed. The Audit Committee shall delegate to the Advisory Committee and such other committees, if any, such duties and responsibilities as the Audit Committee deems appropriate, which duties and responsibilities shall be reflected in the respective charters adopted and maintained by the Audit Committee.
V. Reliance on Others; Resources.
A. Reliance on Others. The Audit Committee, and each member of the Audit Committee in his or her capacities as such, shall be entitled to rely, in good faith, upon the records of the Corporation and upon such information, opinions, reports or statements, or other information prepared or presented to it or such member by (i) any of the officers or other employees of the Corporation or its subsidiaries whom the Audit Committee or such member believes to be reliable and competent in the matters presented, (ii) counsel, independent auditors, other public accountants, consultants or other persons as to matters which the Audit Committee or member believes to be within the professional competence of such person, or (iii) another committee of the Board as to matters within its designated authority which the Audit Committee or member believes to merit confidence.
B. Resources. The Corporation shall pay to the independent auditors engaged by the Corporation for the purposes of rendering or issuing an audit report or performing other audit, review or attest services for the Corporation and to any outside accounting, legal or other advisor retained by the Audit Committee such compensation, including, without limitation, usual and customary expenses and charges, as shall be determined by the Audit Committee. In addition, the Corporation shall pay all ordinary administrative expenses of the Audit Committee that are necessary or appropriate in carrying out its duties.