AUDIT COMMITTEE CHARTER
The Audit Committee (the
“Committee”) of Material Sciences Corporation (the “Corporation”) shall provide
assistance to the Corporation’s Board of Directors (the “Board”) in fulfilling
the Board’s responsibility to oversee: (a) the Corporation’s accounting,
auditing and reporting practices; (b) the qualifications, independence and
performance of the independent auditors; (c) the Corporation’s system of
internal controls, including the performance of the internal audit function;
(d) the Corporation’s disclosure policies and practices; (e) the quality and
integrity of the Corporation’s financial statements; and (f) compliance by the
Corporation with legal and regulatory requirements.
In carrying out its duties, the
Committee shall maintain free and open communication with the Board, the
independent auditors, the internal auditors and members of management.
While the Committee has the
responsibilities and powers set forth in this Audit Committee Charter, the Committee’s
role is one of oversight and it recognizes that the Corporation’s management is
responsible for preparing the Corporation’s financial statements and that the
independent auditors are responsible for auditing those financial statements.
Consequently, in carrying out its oversight responsibilities, the Committee is
not providing any expert or special assurance as to the Corporation’s financial
statements or any professional certification as to the work of the independent
auditors. Furthermore, it is not the responsibility of the Committee to conduct
general investigations or to assure compliance with laws and regulations and
the Corporation’s compliance policies.
- The Committee shall be comprised of at least
three members of the Board, one of whom shall be appointed as the chairman
of the Committee (the “Chair”).
- The Board will appoint the Chair and members of
the Committee following nomination by the Nominating and Governance
- All members of the Committee will be independent
directors as defined by the New York Stock Exchange listing standards, and
no member of the Committee can be an “affiliated person” as defined under
applicable Securities and Exchange Commission rules and regulations.
- Each Committee member must be financially
literate, or must become financially literate within a reasonable period
of time after his or her appointment to the Committee.
- At least one member of the Committee shall have
accounting or related financial management experience.
- Director’s fees are the only compensation that
Committee members may receive from the Corporation other than any
retirement or similar benefit which may be permissible under relevant SEC
and NYSE rules.
- The Committee shall meet at least four times per year
or more frequently as circumstances require. The Committee may ask members
of management or others to attend the meeting and provide pertinent
information as necessary. The Committee may from time to time form one or
more subcommittees, each of which may take such actions as may be
delegated by the Committee.
- All meetings shall be at the call of the Chair of the
Committee. A majority of the members of the Committee shall constitute a
quorum for the transaction of business.
- Periodically, the Committee will meet separately with
each of the independent auditors, the internal audit function staff and
members of management. Such private meetings will occur at least quarterly
or as requested by the Committee, the independent auditors or the internal
audit function staff.
Authority and Responsibilities
Among other items, the Committee
Oversight of Independent Auditors
- Have the sole authority, at the Corporation’s
expense, to: (a) appoint, (b) retain, (c) terminate, (d) compensate and
(e) oversee the Corporation’s independent auditors, which shall report
directly to the Committee.
- Have the sole authority to approve all audit
services, internal control-related services and permitted non-audit
services, including the fees and terms thereof, of the independent
auditors. In accordance with the pre-approval policies established by the
Committee, the Committee, or a member of the Committee, must pre-approve
any audit, internal-control related or non-audit service provided to the
Corporation by the independent auditor.
- Review and evaluate the qualifications,
performance and independence of the independent auditors, including its
lead audit partner, and periodically present its conclusions to the Board.
- At least annually, obtain and review a report by
the independent auditors describing: (a) the internal quality-control
procedures used by the independent auditors; (b) any material issues
raised by the most recent internal quality-control review or peer review
of the independent auditors, or by any inquiry or investigation by
governmental or professional authorities, within the preceding five years,
with respect to one or more independent audits carried out by the
independent auditors, and any steps taken to deal with such issues; and
(c) all relationships between the independent auditors and the
- Consider whether or not there should be a
regular rotation of the independent auditors, and monitor the periodic
rotation of the independent auditors’ lead partner and the audit partner
responsible for reviewing the audit.
- Review the proposed scope of the annual audit to
be conducted by the independent auditors. Discuss any significant changes
in the planned scope or conduct of the annual audit, the coordination of
the internal and external audit functions and the independent auditors’
opinion rendered with respect to the annual financial statements.
Oversight of Internal Audit Function
- Review the performance of the Corporation’s
internal audit function (which shall report jointly to the Committee and
- Review the adequacy and effectiveness of the
Corporation’s internal controls, any special audit steps adopted in light
of any material control deficiencies, and the performance and
qualifications of the internal audit function staff.
- Review and discuss significant findings on
specific audits completed by the internal audit function and management’s
responses to such findings, including any follow-up action undertaken as a
result of such findings.
- Discuss any significant changes in the planned
scope or conduct of the internal audit, and the coordination of the
internal and external audit functions.
- Discuss with management and the independent
auditors the internal audit function responsibilities, budget and staffing
and any recommended changes in the planned scope of the internal audit.
- Review and approve the Internal Auditing Mission
Statement and Charter on an annual basis.
Financial and Disclosure Matters
- Prepare a report that the rules of the Securities
Exchange Act of 1934 require to be included in the Corporation’s annual
- Review and discuss the Corporation’s reporting process,
disclosure controls and procedures and internal controls over financial
reporting, which have been designed under the supervision of the Chief
Executive Officer and Chief Financial Officer.
- Review and discuss with both management and the
independent auditors prior to public disclosure the Corporation’s (a)
annual audited and quarterly financial statements, (b) Annual Report on
Form 10-K and Quarterly Reports on Form 10-Q, including the “Management’s
Discussion and Analysis of Financial Condition and Results of Operations”
and (c) annual report to shareowners.
- Review and discuss disclosures made to the Committee by
the Corporation’s Chief Executive Officer and Chief Financial Officer during
their certification process for the Annual Report on Form 10-K and
Quarterly Reports on Form 10-Q about any significant deficiencies in the
design or operation of the Corporation’s internal control over financial
reporting or material weaknesses therein and any fraud involving
management or other employees who have a significant role in the
Corporation’s internal controls over financial reporting.
- Review and discuss with management and the independent
auditors the Corporation’s annual report on internal controls over
financial reporting and the independent auditor’s attestation of such
report prior to the filing of the report with the Securities and Exchange
- Review and discuss with the independent auditors any
audit problems or difficulties and other issues and recommendations
identified by the independent auditors together with management’s
- Review with the independent auditors any restrictions
on the scope of the independent auditors’ activities or access to
requested information, and review and resolve any significant
disagreements between the independent auditors and management.
- Review with the independent auditors: (a) any
accounting adjustments noted or proposed by the auditors that were passed
(as immaterial or otherwise); (b) communications between the independent
auditors and the auditors’ national office with respect to material issues
presented by the engagement and related to the Corporation’s financial
statements; and (c) any management or internal control letter issued, or
proposed to be issued, by the independent auditors to the Corporation.
- Review and discuss earnings press releases generally,
including the use of “proforma” or “non-GAAP” presentations,
as well as financial information, forward-looking statements and earnings
guidance provided to shareowners, analysts and rating agencies.
- Review legal, regulatory, environmental and other
matters including any off-balance sheet or off-shore transactions that
have or could have an impact on the financial structure or financial
results of the Corporation, or any non-ordinary course of business
- Review and discuss policies regarding risk assessment
and risk management, and significant risks and exposures confronted by the
Corporation and the steps management has taken to monitor and control such
- Review compliance with the Corporation’s debt
- Review and discuss the Corporation’s tax strategy,
insurance coverage and related matters.
- Review and discuss (a) major issues regarding
accounting principles and financial statement presentations, including any
significant changes in the Corporation’s selection or application of
accounting principles, (b) the accounting treatment accorded significant
transactions, (c) the development, selection and disclosure of critical
accounting policies and practices, (d) significant financial reporting
issues and judgments about the quality, not just the acceptability, of the
Corporation’s accounting principles and underlying estimates made in
connection with the preparation of the financial statements, including
analyses of the effects of alternative generally accepted accounting
principles methods, regulatory and accounting initiatives and off-balance
sheet structures on the financial statements, and (e) other material
written communications between the independent auditor and management,
such as any management letter or schedule of unadjusted differences.
- Annually review the Committee’s charter and, if
necessary and appropriate, recommend changes to the Board.
- Establish hiring practices for employees or former
employees of the independent auditors consistent with applicable rules and
- Conduct or authorize investigations into any matters
within the Committee’s scope of responsibility.
- At its sole discretion and the Corporation’s expense,
obtain advice and assistance from outside legal, financial, accounting or
- Report to the Board on the Committee’s activities on a
- Establish and maintain procedures for the receipt,
retention and treatment of complaints received by the Corporation
regarding accounting, internal accounting controls or auditing matters,
including appropriate procedures for the confidential, anonymous
submission by employees of all concerns regarding questionable accounting
or auditing matters.
- Review with management and the internal audit function,
the results of management’s review of the Corporation’s compliance, and
systems for ensuring compliance, with its code of conduct and applicable
laws and regulations. Review reports and disclosures of insider and
affiliated party transactions and make recommendations to Board related
- Perform an annual self-assessment of the performance of
the Committee in accordance with the relevant law and NYSE listing