2003 Committee Charter : ATN

ACTION PERFORMANCE COMPANIES, INC. (the "Company")
AUDIT COMMITTEE CHARTER
Purpose
The purpose of the Audit Committee (the "Committee") shall be as follows:
1. To oversee the accounting and financial reporting processes of the Company and
audits of the financial statements of the Company.
2. To provide assistance to the Board of Directors with respect to its oversight of the
following:
(a) The integrity of the Company's financial statements.
(b) The Company's compliance with legal and regulatory requirements.
(c) The independent auditor's qualifications and independence.
(d) The performance of the Company's internal audit function and independent
auditor.
3. To prepare an audit committee report as required by the SEC rules to be included
in the Company's annual proxy statement.
Composition
The Committee shall consist of three or more members of the Board of Directors, each of
whom is determined by the Board of Directors to be "independent" under the rules of the New
York Stock Exchange and Rule 10A-3(b)(i) under the Securities Exchange Act of 1934 adopted
pursuant to the Sarbanes-Oxley Act. No member of the Committee shall receive directly or
indirectly any consulting, advisory, or other compensatory fees from the Company other than (1)
director's fees for service as a director of the Company, including reasonable compensation for
serving on the Committee and regular benefits that other directors receive and (2) a pension or
similar compensation for past performance, provided that such compensation is not conditioned
on continued or future service to the Company. In addition, no member of the Committee may
be an affiliate of the Company or any subsidiary of the Company whether by way of being an
officer or owning more than 10 percent of the Company's voting securities. No member of the
Committee may serve on the audit committee of more than three public companies, including the
Company, unless the Board of Directors (1) determines that such simultaneous service would not
impair the ability of such member to effectively serve on the Committee and (2) discloses such
determination in the Company's annual proxy statement.
Qualifications
All members of the Committee shall be financially literate, as such qualification is
interpreted by the Board of Directors (or must become financially literate within a reasonable
period of time after his or her appointment). In addition, at least one member must have
accounting or related financial management expertise, as such qualifications are interpreted by
the Board of Directors in its business judgment, or be an "audit committee financial expert" as
defined in the rules of the Securities and Exchange Commission (the "SEC"). Committee
members may enhance their familiarity with finance and accounting by participating in
educational programs conducted by the Company or by an outside consultant.
Appointment and Removal
The members of the Committee shall be appointed by the Board of Directors. A member
shall serve until such member's successor is duly elected and qualified or until such member's
earlier resignation or removal. The members of the Committee may be removed, with or without
cause, by a majority vote of the Board of Directors.
Chairman
Unless a Chairman is elected by the full Board of Directors, the members of the
Committee shall designate a Chairman by the majority vote of the full Committee membership.
The Chairman will chair all regular sessions of the Committee and set the agendas for
Committee meetings.
Delegation to Subcommittees
In fulfilling its responsibilities, the Committee shall be entitled to delegate any or all of
its responsibilities to a subcommittee of the Committee.
Meetings
The Committee shall meet at least quarterly, or more frequently as circumstances dictate.
The Chairman of the Committee or a majority of the members of the Committee may call
meetings of the Committee. Any one or all members of the Committee may participate in a
meeting of the Committee by means of a conference call or similar communication device by
means of which all persons participating in the meeting can hear each other.
All non-management directors who are not members of the Committee may attend
meetings of the Committee, but may not vote. In addition, the Committee may invite to its
meetings any director, member of management of the Company, and such other persons as it
deems appropriate in order to carry out its responsibilities. The Committee may also exclude
from its meetings any persons it deems appropriate.
As part of its goal to foster open communication, the Committee shall periodically meet
separately with each of management, the director of the internal auditing department, and the
independent auditor to discuss any matters that the Committee or any of these groups believe
would be appropriate to discuss privately. In addition, the Committee should meet with the
independent auditor and management quarterly to review the Company's financial statements in
a manner consistent with that outlined in this Charter.
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Duties and Responsibilities
The Committee shall carry out the duties and responsibilities set forth below. These
functions should serve as a guide with the understanding that the Committee may determine to
carry out additional functions and adopt additional policies and procedures as may be appropriate
in light of changing business, legislative, regulatory, legal, or other conditions. The Committee
shall also carry out any other duties and responsibilities delegated to it by the Board of Directors
from time to time related to the purposes of the Committee outlined in this Charter. The
Committee may perform any functions it deems appropriate under applicable law, rules, or
regulations, the Company's by-laws, and the resolutions or other directives of the Board,
including review of any certification required to be reviewed in accordance with applicable law
or regulations of the SEC.
In discharging its oversight role, the Committee is empowered to study or investigate any
matter of interest or concern that the Committee deems appropriate. In this regard and as it
otherwise deems appropriate, the Committee shall have the authority, without seeking Board
approval, to engage and obtain advice and assistance from outside legal and other advisors as it
deems necessary to carry out its duties. The Committee also shall have the authority to receive
appropriate funding, as determined by the Committee, in its capacity as a committee of the Board
of Directors, from the Company for the payment of compensation to any accounting firm
engaged for the purpose of preparing or issuing an audit report or performing other audit, review,
or attest services for the Company; to compensate any outside legal or other advisors engaged by
the Committee; and to pay the ordinary administrative expenses of the Committee that are
necessary or appropriate in carrying out its duties.
The Committee shall be given full access to the Company's internal audit group, Board
of Directors, corporate executives, and independent auditor as necessary to carry out these
responsibilities. While acting within the scope of its stated purpose, the Committee shall have all
the authority of the Board of Directors, except as otherwise limited by applicable law.
Notwithstanding the foregoing, the Committee is not responsible for certifying the
Company's financial statements or guaranteeing the independent auditor's report. The
fundamental responsibility for the Company's financial statements and disclosures rests with
management and the independent auditor. It also is the job of the CEO and senior management,
rather than that of the Committee, to assess and manage the Company's exposure to risk.
Documents/Reports Review
1. Discuss with management and the independent auditor, prior to public
dissemination, the Company's annual audited financial statements and quarterly
financial statements, including the Company's disclosures under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
discuss with the independent auditors the matters required to be discussed by
Statement of Auditing Standards No. 61.
2. Discuss with management and the independent auditor, prior to the Company's
filing of any quarterly or annual report, (a) whether any significant deficiencies in
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the design or operation of internal controls exist that could adversely affect the
Company's ability to record, process, summarize, and report financial data; (b) the
existence of any material weaknesses in the Company's internal controls; and (c)
the existence of any fraud, whether or not material, that involves management or
other employees who have a significant role in the Company's internal controls.
3. Discuss with management and the independent auditor the Company's earnings
press releases (paying particular attention to the use of any "pro forma" or
"adjusted" non-GAAP information), as well as financial information and earnings
guidance provided and the type of presentations made to analysts and rating
agencies. The Committee's discussion in this regard may be general in nature
(i.e., discussion of the types of information to be disclosed and the type of
presentation to be made) and need not take place in advance of each earnings
release or each instance in which the Company may provide earnings guidance.
4. Discuss with management and the independent auditor the Company's major
financial risk exposures, the guidelines and policies by which risk assessment and
management is undertaken, and the steps management has taken to monitor and
control risk exposure.
Independent Auditors
5. Directly appoint, retain, compensate, evaluate, and terminate any accounting firm
engaged by the Company for the purpose of preparing or issuing an audit report or
performing other audit, review, or attest services for the Company and, in its sole
authority, approve all audit engagement fees and terms as well as all non-audit
engagements with such independent auditor.
6. Oversee the work of any accounting firm engaged by the Company for the
purpose of preparing or issuing an audit report or performing other audit, review,
or attest services for the Company, including resolving any disagreement between
management and the auditor regarding financial reporting.
7. Pre-approve all audit, audit related, tax, and other services permitted by law or
applicable SEC regulations (including fee and cost ranges) to be performed by the
independent auditor for the Company. Any pre-approved services that will
involve fees or costs exceeding pre-approved levels will also require specific preapproval
by the Committee. Unless otherwise specified by the Committee in preapproving
a service, the pre-approval will be effective for the 12-month period
following pre-approval. The Committee will not approve any non-audit services
prohibited by applicable SEC regulations or any services in connection with a
transaction initially recommended by the independent auditor, the purpose of
which may be tax avoidance and the tax treatment of which may not be supported
by the Internal Revenue Code and related regulations.
8. To the extent deemed appropriate, delegate pre-approval authority to the
Chairman of the Committee or any one or more other members of the Committee
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provided that any member of the Committee who has exercised any such
delegation must report any such pre-approval decision to the Committee at its
next scheduled meeting. The Committee will not delegate the pre-approval of
services to be performed by the independent auditor to management.
9. Require that the independent auditor, in conjunction with the Chief Financial
Officer, be responsible for seeking pre-approval for providing services to the
Company and that any request for pre-approval must inform the Committee about
each service to be provided and must provide detail as to the particular service to
be provided.
10. Inform each accounting firm performing work for the Company that such firm
shall report directly to the Committee.
11. Review and evaluate, at least annually, the qualifications, performance, and
independence of the independent auditor, including the lead audit partner. In
conducting its review and evaluation, the Committee should do the following:
(a) At least annually, obtain and review a report by the Company's independent
auditor describing (i) the auditing firm's internal quality-control procedures;
(ii) any material issues raised by the most recent internal quality-control
review, or peer review, of the auditing 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 auditing firm, and any steps taken to deal with any such issues; and
(iii) the auditor's independence and all relationships between the independent
auditor and the Company.
(b) Discuss with management the timing and process for implementing the
rotation of the lead audit partner, the concurring audit partner, and any other
active audit engagement team partner, and consider whether there should be
regular rotation of the audit firm itself.
(c) Confirm with the independent auditor that the lead (or coordinating) audit
partner, the concurring (or reviewing) partner, and each other active audit
engagement team partner satisfies the rotation requirements of Rule 2-
01(c)(6) of Regulation S-X.
(d) Take into account the opinions of management and the Company's internal
auditor (or other personnel responsible for the internal audit function) in
assessing the qualifications, performance, and independence of the
independent auditor.
Financial Reporting Process
12. In consultation with the independent auditor, management, and the internal
auditor, review the integrity of the Company's financial reporting processes, both
internal and external. In that connection, the Committee should obtain and discuss
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with management and the independent auditor reports from management and the
independent auditor regarding (a) all critical accounting policies and practices to
be used by the Company and the related disclosure of those critical accounting
policies under "Management's Discussion and Analysis of Financial Condition
and Results of Operations"; (b) analyses prepared by management and/or the
independent auditor setting forth significant financial reporting issues and
judgments made in connection with the preparation of the financial statements; (c)
all alternative treatments of financial information within generally accepted
accounting principles that have been discussed with the Company's management,
the ramifications of the use of the alternative disclosures and treatments, and the
treatment preferred by the independent auditor; (d) major issues regarding
accounting principles and financial statement presentations, including any
significant changes in the Company's selection or application of accounting
principles; (e) major issues as to the adequacy of the Company's internal controls
and any specific audit steps adopted in light of material control deficiencies; (f)
issues with respect to the design and effectiveness of the Company's disclosure
controls and procedures, management's evaluation of those controls and
procedures, and any issues relating to such controls and procedures during the
most recent reporting period; (g) the effect of regulatory and accounting
initiatives as well as off-balance sheet structures on the financial statements of the
Company; (h) any significant matters arising from any audit, whether raised by
management, the internal auditor, or the independent auditor, relating to the
Company's financial statements; and (i) any other material written
communications between the independent auditor and the Company's
management, including any "management" letter or schedule of unadjusted
differences.
13. Review periodically the effect of regulatory and accounting initiatives, as well as
off-balance sheet structures, on the financial statements of the Company.
14. Review with the independent auditor any audit problems or difficulties
encountered and management's response thereto. In this regard, the Committee
will regularly review with the independent auditor (a) any audit problems or other
difficulties encountered by the auditor in the course of the audit work, including
any restrictions on the scope of the independent auditor's activities or on access to
requested information, and any significant disagreements with management and
(b) management's responses to such matters. Without excluding other
possibilities, the Committee may review with the independent auditor (i) any
accounting adjustments that were noted or proposed by the auditor but were
"passed" (as immaterial or otherwise), (ii) any communications between the audit
team and the audit firm's national office respecting auditing or accounting issues
presented by the engagement, and (iii) any "management" or "internal control"
letter issued, or proposed to be issued, by the independent auditor to the
Company.
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15. Advise management, the internal audit department, and the independent auditor
that they are expected to provide the Committee a timely analysis of any
significant financial reporting issues and practices.
16. Obtain from the independent auditor assurance that the audit of the Company's
financial statements was conducted in a manner consistent with Section 10A of
the Securities Exchange Act of 1934, which sets forth procedures to be followed
in any audit of financial statements required under the Securities Exchange Act of
1934.
17. Request the internal auditor to provide the Committee with summaries and, as
appropriate, the significant reports to management prepared by the internal
auditor and any management responses thereto.
18. Review the form of the opinion the independent auditor proposes to render.
19. Review and discuss with the independent auditor the responsibilities, budget, and
staffing of the Company's internal audit function.
Legal Compliance/General
20. Review periodically, with the Company's legal counsel, any significant legal,
compliance, or regulatory matters that may have a material effect on the
Company's financial statements or the Company's business or compliance
policies, including material notices or inquiries from governmental agencies.
21. Inquire of management regarding the existence of any significant deficiencies and
major weaknesses in the design or operation of internal control over financial
reporting that are reasonably likely to affect the Company's ability to record,
process, summarize, and report information and 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.
22. Discuss with management and the independent auditor the Company's guidelines
and policies with respect to risk assessment and risk management. The
Committee will discuss the Company's major financial risk exposures and the
steps management has taken to monitor and control such exposures.
23. Set clear hiring policies for employees or former employees of the independent
auditor. At a minimum, these policies will provide that any public accounting
firm may not provide audit services to the Company if the CEO, controller, CFO,
chief accounting officer, or any person serving in an equivalent position for the
Company was employed by the audit firm and participated in any capacity in the
audit of the Company within one year of the initiation of the current audit.
24. Establish procedures for (a) the receipt, retention, and treatment of complaints
received by the Company regarding accounting, internal accounting controls, or
auditing matters; and (b) the confidential, anonymous submission by employees
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of the Company of concerns regarding questionable accounting or auditing
matters.
Reports
25. Prepare an audit committee report as required to be included in the Company's
proxy statement, pursuant to and in accordance with applicable rules and
regulations of the SEC.
26. Report regularly to the full Board of Directors. In this regard, the Committee will
review with the full board any issues that arise with respect to the quality or
integrity of the Company's financial statements, the Company's compliance with
legal or regulatory requirements, the performance and independence of the
Company's independent auditors, or the performance of the internal audit
function.
27. The Committee shall provide such recommendations as the Committee may deem
appropriate. The report to the Board of Directors may take the form of an oral
report by the Chairman or any other member of the Committee designated by the
Committee to make such report.
28. Maintain minutes or other records of meetings and activities of the Committee.
Committee Functioning
In conjunction with the Nominating/Corporate Governance Committee of the Board of
Directors, the Committee will give consideration to the qualifications and criteria for
membership of the Committee; the appointment and removal of members of the Committee; and
the structure and operations of the Committee.
Annual Performance Evaluation
The Committee will perform a review and evaluation, at least annually, of the
performance of the Committee, including reviewing the compliance of the Committee with this
Charter. In addition, the Committee will review and reassess, at least annually, the adequacy of
this Charter and recommend to the Board of Directors any improvements to this Charter that the
Committee considers necessary or valuable. The Committee will conduct such evaluations and
reviews in such manner as it deems appropriate.
Limitation of Audit Committee's Role
With respect to the foregoing responsibilities and processes, the Committee recognizes
that the Company's financial management, including the internal audit staff, as well as the
independent auditor have more time, knowledge, and detailed information regarding the
Company than do Committee members. Consequently, in discharging its oversight
responsibilities, the Committee will not provide or be deemed to provide any expertise or special
assurance as to the Company's financial statements or any professional certification as to the
independent auditors' work.
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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 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 independent auditor. It also is not the duty of the
Committee to conduct investigations or to assure compliance with laws and regulations and the
Company's internal policies and procedures.