2003 Committee Charter : OCACHARTER
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
ORTHODONTIC CENTERS OF AMERICA, INC.
ARTICLE I. OVERVIEW
Primary Functions of the Audit Committee
The primary functions of the Audit Committee (the "Audit Committee") of the Board of Directors (the "Board of Directors") of Orthodontic Centers of America, Inc. ("OCA") are to:
Assist the Board of Directors in fulfilling its oversight responsibilities with respect to (i) the integrity of OCA's financial statements, (ii) compliance with legal and regulatory requirements, (iii) OCA's independent auditors and their qualifications and independence, and (iv) the performance of OCA's internal audit function and independent auditors;
Select, engage, oversee, evaluate and determine the compensation of OCA's independent auditors; and
Prepare the Audit Committee report required to be included in OCA's annual proxy statement.
Carry out the other duties and responsibilities enumerated in Article IV of this Charter.
The Audit Committee's job is one of oversight and it recognizes that OCA's management is responsible for preparing OCA's financial statements and that OCA's independent auditors are responsible for auditing those financial statements. Additionally, the Audit Committee recognizes that management, including OCA's accounting and financial reporting and controls staff, as well as OCA's independent auditors, have more time, knowledge and more detailed information with respect to OCA than do Audit Committee members; consequently, in carrying out its oversight responsibilities, the Audit Committee is not providing any expert or special assurance as to OCA's financial statements or any professional certification as to the outside auditor's work.
Authority of the Audit Committee
OCA's independent auditors shall report directly to the Audit Committee. The Board of Directors and the Audit Committee are in place to represent OCA's shareholders; accordingly, OCA's independent auditors are ultimately accountable to the Board of Directors and the Audit Committee.
The Audit Committee will have the authority to conduct any investigation appropriate to fulfilling its responsibilities contained in this Charter, and it will have the authority to communicate directly with OCA's independent auditors as well as any employee of OCA.
The Audit Committee will have the authority to engage and retain, at OCA's expense, special or independent accounting, legal or other advisers, consultants or experts as the Audit Committee determines necessary to carry out its duties.
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ARTICLE II. COMPOSITION AND QUALIFICATIONS
Number of Members
The Audit Committee shall be comprised of three or more members of the Board of Directors, as determined from time to time by the Board of Directors.
Each member of the Audit Committee must be (1) a member of the Board of Directors and (2) Independent (as defined below).
For purposes of this Charter:
"Independent" means that the relevant person:
Has no relationship to OCA that may interfere with the exercise of his or her independence from management and OCA,
May not, other than in his or her capacity as a member of the Audit Committee, the Board of Directors or any other committee of the Board of Directors, directly or indirectly accept (as discussed below) any consulting, advisory or other compensatory fee from OCA,
May not be an Affiliated Person (as defined below) of OCA or of any of its subsidiaries, and
Otherwise meets and fulfils each of the standards and qualifications for an independent member of the Audit Committee as prescribed by the New York Stock Exchange and applicable federal securities laws and regulations.
"Indirectly accept" includes acceptance of any consulting, advisory or compensatory fee by a spouse, a minor child or stepchild or a child or stepchild sharing a home with the relevant person or by an entity in which such relevant person is a partner, member or principal or occupies a similar position and which provides accounting, consulting, legal, investment banking, financial or other advisory services or any similar services to OCA.
"Affiliated Person" means any person that directly, or indirectly through one or more intermediaries, Controls, or is Controlled By, or is under Common Control With (all as defined below), OCA or any of its subsidiaries. A director, Executive Officer (as defined below), partner, member, principal or designee of an Affiliated Person will be deemed to be an Affiliated Person.
A person will be deemed not to be in Control of OCA or a subsidiary thereof for purposes hereof if the person is not:
The beneficial owner, directly or indirectly, of more than 10% of any class of equity securities thereof;
An Executive Officer thereof; and
A director thereof.
"Control" (including the terms "Controlling," "Controlled By" and under "Common Control With") means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of OCA or any of its subsidiaries, whether through the ownership of voting securities, by contract or otherwise.
"Executive Officer" means, when used with reference to a company, corporation, entity or other person, means its president, any vice president of it in charge of a principal business unit, division or function (such as sales, administration or finance), any other officer who performs a policy making function or any other person who performs similar policy making functions for it. Executive Officers of a subsidiary of any such person may be deemed Executive Officers of such person if they perform policy making functions for such person.
In addition, the following restrictions shall apply to each member of the Audit Committee:
Employees. A director who is an employee (including non-employee executive officers) of OCA or any of its affiliates may not serve on the Audit Committee until three years following the termination of his or her employment. In the event the employment relationship is with a former parent or predecessor of OCA, the director could serve on the Audit Committee after three years following the termination of the relationship between OCA and the former parent or predecessor.
Business Relationship. In making a determination regarding the independence of a director who has a business relationship with OCA, the Board of Directors should consider, among other things, the materiality of the relationship to OCA, to the director, and, if applicable, to the organization with which the director is affiliated. A "business relationship" can include commercial, industrial, banking, consulting, legal, accounting and other relationship. A director can have this relationship directly with OCA, or the director can be a partner, officer or employee of an organization that has such a relationship. The director may serve on the Audit Committee without the Board of Directors' determination of Independence after three years following the termination of, as applicable, either (i) the relationship between the organization with which the director is affiliated and OCA, (ii) the relationship between the director and his or her partnership status, shareholder interest or executive officer position, or (iii) the direct business relationship between the director and OCA.
Cross Compensation Committee Link. A director who is employed as an executive of another corporation where any of OCA's executives serves on that corporation's compensation committee may not serve on OCA's Audit Committee.
Immediate Family. A director who is an Immediate Family Member (as defined below) of an individual who is an executive officer of OCA or any of its affiliates cannot serve on the Audit Committee until three years following the termination of such employment relationship. "Immediate Family Member" includes a person's spouse, parents, children, siblings, mothers-in-law and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone (other than employees) who shares such person's home.
Financial Literacy Requirements
Each member of the Audit Committee must be financially literate, as such qualification is interpreted by the Board of Directors from time to time in its business judgment, or must become financially literate within a reasonable period of time after his or her appointment to the Audit Committee.
Financial Expert Requirements
At least one member of the Audit Committee must be an "audit committee financial expert" within the meaning of Item 401(h) of Regulation S-K promulgated by the Securities and Exchange Commission ("SEC") pursuant to Section 407(a) of the Sarbanes-Oxley Act of 2002, as the Board of Directors interprets such qualification in its business judgment.
Pursuant to Item 401(h) of Regulation S-K, an "audit committee financial expert" means a person who has the following attributes:
An understanding of generally accepted accounting principles and financial statements;
The ability to assess the general application of such principles in connection with the accounting for estimates, accruals and reserves;
Experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by OCA's financial statements, or experience actively supervising one or more persons engaged in such activities;
An understanding of internal controls and procedures for financial reporting; and
An understanding of audit committee functions.
Such person shall have acquired such attributes through any one or more of the following:
Education and experience as a principal financial officer, principal accounting officer, controller, public accountant or auditor or experience in one or more positions that involve the performance of similar functions;
Experience actively supervising a principal financial officer, principal accounting officer, controller, public accountant, auditor or person performing similar functions;
Experience overseeing or assessing the performance of companies or public accountants with respect to the preparation, auditing or evaluation of financial statements; or
Other relevant experience.
The designation or identification of a person as an audit committee financial expert shall not 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 of Directors in the absence of such designation or identification. The designation or identification of a person as an audit committee financial expert does not affect the duties, obligations or liability of any other member of the Audit Committee or Board of Directors.
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ARTICLE III. MEETINGS
Meetings At Least Once Per Quarter
The Audit Committee will meet at least once per calendar quarter and more frequently as the Audit Committee deems appropriate, advisable or desirable.
Meetings of the Audit Committee may be called by the Chairman of the Audit Committee or two or more members of the Audit Committee.
Unless the Board of Directors designates a Chairman of the Audit Committee, the Audit Committee shall designate such Chairman by a majority vote of the members of the Audit Committee.
Meetings With Independent Auditors and Management
The Audit Committee should meet at least annually with OCA's chief financial officer, and separately with OCA's independent auditors, to discuss any matters that the Audit Committee or any of these persons believe should be discussed privately.
In addition, the Audit Committee, or at least its Chairman, should communicate with OCA's independent auditors and management quarterly to review OCA's financial statements and significant findings consistent with Item 2 of Article IV below.
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ARTICLE IV. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties, the Audit Committee will:
Preparation and Review of Reports and Documents
Prior to filing of each of OCA's Annual Reports on Form 10-K with the SEC, advise the Board of Directors as to whether the Audit Committee recommends that OCA's audited annual financial statements be included in such Form 10-K.
As the basis for that determination, the Audit Committee will:
Review and discuss with management OCA's audited annual financial statements;
Discuss those matters communicated by OCA's independent auditors to the Audit Committee as required by Statement of Auditing Standards No. 61 ("SAS 61"), as well as the results of the audit; and
Receive and review the written disclosures and the letter from the independent auditors regarding the auditors' independence as required by Independent Standards Board Statement No. 1 ("ISBS 1"), as such may be modified or supplemented, and discuss with the independent auditors the auditors' independence.
Review any significant disagreements among management and the independent auditors in connection with the preparation of the annual audited financial statements. This review should also include discussion with management and the independent auditors of significant issues regarding accounting principles, practices and judgments.
Review the interim financial statements included in each of OCA's Quarterly Reports on Form 10-Q. This review should include discussion with management and OCA's independent auditors of any matters required to be discussed by Statement on Auditing Standards No. 71. The review should also include a review of any significant disagreements between management and the independent auditors in connection with the preparation of the interim financial statements. The Chairman of the Audit Committee may represent the entire Audit Committee for purposes of this review.
Annually prepare, in conjunction with OCA's legal counsel, a report of the Audit Committee for inclusion in OCA's annual proxy statement as required by the SEC.
At a minimum, this report must state whether the Audit Committee:
(a) Reviewed and discussed OCA's audited annual financial statements with management;
(b) Discussed with OCA's independent auditors the matters required to be discussed by SAS 61;
(c) Received from OCA's independent auditors the written disclosures and letter regarding the auditors' independence as required by ISBS 1, and discussed with OCA's independent auditors the auditors' independence; and
(d) Based on the review and discussions noted above, whether the Audit Committee recommended to the Board of Directors that the audited financial statements be included in OCA's Annual Report on Form 10-K for filing with the SEC.
Cooperate with management, the Board of Directors and OCA's legal counsel to ensure that a written filing is made with the New York Stock Exchange annually affirming each Audit Committee member's independence and financial literacy, one member's accounting or related financial management expertise and that the Audit Committee has performed its annual review and reassessment of the adequacy of this Charter.
Review and reassess the adequacy of this Charter on at least an annual basis. If the Audit Committee determines that the Charter needs to be amended, it will submit its proposals for amendments to the Board of Directors for approval.
Cooperate with management, the Board of Directors and OCA's legal counsel to ensure that this Charter is filed with the SEC at least every three years as an appendix to OCA's proxy statement for its annual meeting of stockholders in accordance with SEC rules and regulations.
Cooperate with management, the Board of Directors and OCA's legal counsel to ensure that OCA discloses in its proxy statement for its annual meeting of shareholders whether the Audit Committee members are "Independent" as defined in Article II of this Charter, and disclose certain information regarding any member of the Audit Committee who is not "Independent."
Review earnings releases or other press releases announcing the results of OCA's earnings, results of operations or financial condition for a completed quarter or other period, prior to issuance of the releases.
Annually select OCA's independent auditors, and approve any proposed dismissal of the independent auditors when circumstances warrant. The Audit Committee has the ultimate authority and responsibility to select, oversee, evaluate and, where appropriate, replace the independent auditors, or to nominate the auditors to be submitted for shareholder approval. The independent auditors shall report directly to the Audit Committee. Audit and non-audit services provided to OCA by its independent auditors shall be subject to pre-approval by the Audit Committee.
Consider the independence and effectiveness of the independent auditors.
Determine and approve the fees and other compensation to be paid to the independent auditors.
On an annual basis, (a) ensure the receipt of the report of the independent auditors to the Audit Committee as required under ISBS 1, (b) review and discuss with the independent auditors all significant relationships included in such report to determine if these relationships may impair the independent auditors' independence, and (c) in response to such report, review the independence and performance of the independent auditors.
Consider whether the provision of any non-audit services by the independent auditors is compatible with maintaining the auditors' independence.
Confer with OCA's independent auditors out of the presence of management about internal controls and the completeness and accuracy of OCA's financial statements.
Prior to the filing with the SEC of OCA's Annual Report on Form 10-K, discuss certain matters with the independent auditors required to be communicated by the independent auditors to the Audit Committee in accordance with SAS 61, as well as the results of the audit of the financial statements included in such Annual Report.
Financial Reporting Process
In consultation with OCA's independent auditors and Chief Financial Officer, review the integrity of OCA's financial reporting processes, both internal and external.
Consider the judgments and recommendations of OCA's independent auditors about the quality and appropriateness of OCA's accounting principles as applied in OCA's financial reporting.
Consider and approve, if appropriate, significant changes to OCA's auditing and accounting principles and practices as suggested by the independent auditors or management.
Periodically review and discuss with management and the independent auditors OCA's internal controls regarding finance, accounting and legal compliance.
Other Audit Committee Responsibilities
Periodically assess this Charter and self-assess the Audit Committee's performance and compliance with this Charter.
Establish procedures for the:
Receipt, retention and treatment of complaints received by OCA regarding accounting, internal accounting controls or auditing matters; and
Confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.
Engage independent counsel and other advisers, as it determines necessary to carry out the Audit Committee's duties.
Perform other activities consistent with this Charter, OCA's Restated Certificate of Incorporation and Bylaws and the Delaware Business Corporation Act, as the Audit Committee or the Board of Directors deems necessary or appropriate.
Maintain minutes of meetings and periodically report to the Board of Directors on significant results of the foregoing activities.
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ARTICLE V. FUNDING
OCA shall provide for appropriate funding, as determined by the Audit Committee, in its capacity as a committee of the Board of Directors, for payment of compensation:
To any registered public accounting firm engaged for the purpose of rendering or issuing an audit report or related work or performing other audit, review or attest services for OCA; and
To any independent counsel and other advisers engaged by the Audit Committee, as it determines necessary to carry out its duties.