CHARTER OF THE
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
I. AUDIT COMMITTEE PURPOSE
The Audit Committee (the "Committee") of MAXXAM Inc. (the "Corporation")
is appointed by the Board of Directors (the "Board") to aid the Board in
fulfilling its oversight responsibilities. The Committee's primary duties
and responsibilities are to:
o Serve as an independent and objective party to oversee the integrity
of the Corporation's accounting and financial reporting processes
and internal control system, including the Corporation's systems of
internal controls regarding finance and accounting, that management
and the Board have established. Consistent with this function, the
Committee should encourage continuous improvement of, and should
foster adherence to, the Corporation's policies, procedures and
practices at all levels.
o Review and appraise the independence and performance of the
Corporation's independent accountants and the performance of the
Corporation's internal auditing department or other body performing
that function on behalf of the Corporation (the "Internal Audit
o Provide an open avenue of communication among senior management, the
independent accountants, the Internal Audit Group, and, as
necessary, the Board.
The purpose of this Charter is to outline the duties and responsibilities
of the Committee. Neither the existence nor the provisions of this Charter
may be relied upon by any person as a basis for asserting any liability
against anyone serving as a member of the Committee at any time or against
any person or entity providing services to or on behalf of the Committee.
The Committee shall have the authority to engage independent counsel and
other advisers as it determines necessary to carry out its duties. The
Committee shall also have, and the Board by ratification of this Charter
grants to the Committee, the appropriate funding, as determined by the
Committee, in its capacity as a committee of the Board, for payment of (a)
compensation to any registered public accounting firm engaged for the
purpose of preparing or issuing an audit report or performing other audit,
review or attest services for the Corporation or any of its subsidiaries,
(b) compensation to any advisers employed by the Committee, and (c)
ordinary administrative expenses of the Committee that are necessary or
appropriate in carrying out its duties.
II. AUDIT COMMITTEE COMPOSITION AND MEETINGS
The size and composition of the Committee and the qualification of its
members shall meet the requirements of all laws, rules and regulations,
including those of any exchange on which the Corporation's securities are
listed (i.e. on such matters as having an Audit Committee Financial Expert
and having members who satisfy requisite independence and financial
literacy standards). Committee members may enhance their familiarity with
finance and accounting by participating in educational programs conducted
by the Corporation, an outside consultant or other third party.
The members of the Committee shall be elected by the Board annually (by
written consent or at a regular or special meeting of the Board). The
Chairman of the Committee shall be selected in accordance with the
procedures established in the Corporation's By-laws.
The Committee shall meet at least four times annually, on a quarterly
basis, and shall meet more frequently if circumstances dictate. In
addition, the Committee (or at least its Chairman) shall meet with
management and the independent accountants quarterly to review the
Corporation's financial statements, consistent with Section III.3. below.
As part of its duty to foster open communication, the Committee shall meet
as it deems necessary with management, including the chief financial,
legal and accounting officers, with the director of the Internal Audit
Group, and with the independent accountants in separate executive sessions
to discuss any matters that the Committee or any of these persons or
groups believe should be discussed privately.
III. COMMITTEE RESPONSIBILITIES AND DUTIES
1. Review and reassess the adequacy of this Charter at least annually
and update it as conditions dictate. Submit this Charter to the
Board for approval whenever the Committee recommends any changes,
but (whether or not changes are recommended) at least annually. Have
the Corporation publish this Charter and provide any requisite
certification in accordance with any applicable Securities and
Exchange Commission, stock exchange or other requirements.
2. Establish regular and separate systems of reporting to the Committee
by each of management and the independent accountants regarding any
significant judgments made in management's preparation of the
financial statements and the view of each as to appropriateness of
3. Review with financial management and the independent accountants the
Corporation's annual and quarterly financial statements prior to
their issuance. The Committee may designate the Chairman to
represent the entire Committee for purposes of the review of the
quarterly (other than year-end) financial statements.
4. Consider and approve, if appropriate, major changes to the
Corporation's auditing, accounting, and internal control principles
and practices as suggested by management, the independent
accountants, or the Internal Audit Group, and subsequently review
with such persons, as appropriate, the extent to which such changes
have been implemented.
5. Advise the independent accountants that: (a) they are directly
accountable to the Committee, as representatives of the
Corporation's shareholders; and (b) the Committee has sole authority
and responsibility to select, evaluate, and, where appropriate,
replace the independent accountants.
6. Confer with the independent accountants concerning the scope of
their examinations of the books and records of the Corporation and
its subsidiaries; review and approve the independent accountants'
annual engagement letter; direct the attention of the independent
accountants to specific matters or areas deemed by the Committee to
be of special significance; and authorize the independent
accountants to perform such supplemental reviews or audits as the
Committee may deem desirable.
7. Approve the fees and other compensation to be paid to the
independent accountants taking into account all appropriate factors,
including the range and cost of audit and non-audit services
performed by the independent accountants.
8. The Committee shall pre-approve all audit and non-audit services to
be furnished by the independent accountants to the Corporation or
its subsidiaries; provided that (a) the Chairman (or, in the absence
of the Chairman, another Committee member) may pre-approve such
services on an emergency basis so long as the Committee subsequently
ratifies this action, and (b) pre-approval is waived in those
instances permitted by applicable SEC regulation so long as the
Committee subsequently approves such services within any applicable
deadline. The Committee may not approve the performance by the
independent accountants of any non-audit services listed under
Section 201(a) of the Sarbanes-Oxley Act of 2002 ("S-Ox Act") or
Section (c)(4) of Rule 2-01 of SEC Regulation S-X ("Rule 2-01"). In
assessing whether other non-audit services may be performed, the
Committee shall focus on whether such services would be consistent
with the provisions of Rule 2-01.
9. At least annually, review with management and the independent
accountants any significant risks and exposures to the Corporation
and its subsidiaries and the steps that management has taken to
monitor and control such risks and exposures.
10. Review with management and the independent accountants the audit
activities and significant audit findings of the independent
11. At least annually, consult with the independent accountants out of
the presence of management about internal controls and the quality
and appropriateness of the Corporation's accounting principles as
applied in its financial statements.
12. On an annual basis, prior to the issuance of the independent
accountants' opinion on the Corporation's financial statements, the
Committee shall (a) receive from the independent accountants the
report required by Rule 2-07 of SEC Regulation S-X (critical
accounting policies and practices to be used, alternative GAAP
treatments which have been discussed with management, and material
written communications between the firm and management), and (b)
obtain a formal written statement from the independent accountants
delineating all relationships between the independent accountants
and the Corporation consistent with Independence Standards Board
Standard 1 "Independence Discussions with Audit Committees." The
Committee shall review the statement and actively engage in a
dialogue with the independent accountants with respect to any
disclosed relationships or services that may impact the objectivity
and independence of the accountants. The Committee shall take
appropriate action to monitor and oversee the independence of the
13. Following completion of the annual audit, (a) review separately with
each of management and the independent accountants any significant
difficulties encountered during the course of the audit, including
any restrictions on the scope of work or access to required
information, and (b) review any significant disagreement among
management and the independent accountants or the Internal Audit
14. At least annually, inquire of management and the independent
accountants as to whether they are aware of any consultations with
other independent accountants regarding accounting and auditing
matters that would have a material effect on the Corporation's
15. The Committee shall monitor and review the performance of the
Internal Audit Group
16. Confer with the Internal Audit Group concerning the focus of the
work to be performed during the year.
17. Direct the special attention of the Internal Audit Group to specific
matters or areas deemed by the Committee to be of special
significance, and authorize the Internal Audit Group to perform such
supplemental reviews or audits as the Committee may deem desirable.
18. Review an executive summary of the internal reports to management
prepared by the Internal Audit Group and management's response.
19. Review and appraise the performance of the Corporation's Internal
20. The Committee shall review and reassess, at least annually, the
procedures for (a) the receipt, retention and treatment of
complaints received by the Corporation regarding accounting,
internal accounting controls, or auditing matters, and (b) the
confidential anonymous submission by employees regarding
questionable accounting or auditing matters, as required by the S-Ox
Act. The Committee shall update such procedures as conditions
Other Audit Committee Responsibilities
21. Perform any other activities consistent with this Charter, the
Corporation's By-laws and governing law, as the Committee or the
Board deems necessary or appropriate.
22. Report to the Board periodically, but at least annually, concerning
the activities of the Committee.