CHARTER OF THE AUDIT COMMITTEE
------------------------------
Adopted by Board of Directors on February 17, 2000
Amended by Board of Directors on May 10, 2001
1. General (Structure, Process, and Membership Requirements).
---------------------------------------------------------
(a) Membership. The Fairchild Corporation (the "Corporation")
shall have an audit committee (the "Audit Committee")
comprised of at least three members ("Members") of the
Corporation's Board of Directors. Each Member of the Audit
Committee shall be independent of the Corporation's management
and shall be free from any relationship that would interfere
with the exercise of judgment independent of the Corporation's
management.
Members of the Audit Committee shall meet the following
criteria:
(i) Independence of Audit Committee Members: Each Member
must be independent. "Independent" is defined as
having no relationship with the Corporation that may
interfere with the Member's exercise of his
independence from management of the Corporation.
(ii) Financial Literacy: Each Member must be financially
literate (as interpreted by the Corporation's Board
of Directors in its business judgment).
(iii) Accounting or Related Financial Management Expertise:
At least one Member of the Audit Committee must have
accounting or related financial management expertise
(as interpreted by the Corporation's Board of
Directors in its business judgment).
(iv) No Employment of Audit Committee Members: Neither
the Member nor anyone in his immediate family may be
an officer or employee of the Corporation (or any of
its affiliates) or have been an officer or employee
of the Corporation (or any of its affiliates) in the
last three years.
(v) No Business Relationship Between Audit Committee
Members and the Corporation: If a Member (or any
organization in which such Member is a partner,
controlling shareholder or executive officer) has (or
in the last three years, has had) a business
relationship with the Corporation (including a
commercial, industrial, banking, consulting, legal,
accounting, or other relationship), the Board of
Directors must specifically determine that (in the
Board of Directors' business judgment) such business
relationship does not interfere with the Member's
exercise of his independent judgment. In making this
determination, the Board shall consider, among other
things, the materiality of the relation to the
Corporation, to the Member, and, if applicable, to
the organization with which the director is
affiliated.
(vi) No Cross Compensation Links: If any executive
officer of the Corporation is a member of the audit
committee of another organization, then no executive
officer of such other organization may serve as a
Member of the Corporation's Audit Committee.
(b) Purpose. The purpose of the Audit Committee shall be to
-------
assist the Corporation's Board of Directors in discharging its
responsibilities with respect to (i) the Corporation's
internal accounting, auditing, and financial reporting
controls, policies, procedures, and practices (collectively,
"Internal Controls"), and (ii) the Corporation's outside
auditors.
(c) Appointment and Term. The Chairman and each other Member of
--------------------
the Audit Committee shall be appointed by the Corporation's
Board of Directors to serve a term of one year or until their
successors have been duly appointed and assume office.
(d) Committee Meetings. The Audit Committee shall hold at least
------------------
four regular meetings each year, and such additional meetings
as the Chairman or a majority of the Members of the Audit
Committee may deem necessary or advisable. The Audit Committee
may require the presence and participation of any officer or
employee of the Corporation, the Corporation's internal
auditors, or the Corporation's outside auditors at any meeting
of the Audit Committee.
(e) Minutes. The Audit Committee shall prepare and approve
-------
minutes of its meetings, and such minutes shall be submitted
to the Corporation's Board of Directors for review and to the
Corporation's Secretary for inclusion in the Corporation's
minute books.
(f) Reports of Actions. The Audit Committee shall promptly report
------------------
all actions it has taken to the Corporation's Board of
Directors for ratification.
2. Responsibilities of the Audit Committee (Scope of Audit Committee's
-------------------------------------------------------------------
Responsibilities and How It Carries Out These Responsibilities).
---------------------------------------------------------------
(a) Internal Controls. The Audit Committee shall review the
-----------------
actions taken by the Corporation's management to ensure that
the Corporation adopts, maintains and adheres to a system of
internal controls that provides reasonable assurances that
(1) all transactions of the Corporation are properly
authorized and are reflected in the books and records of the
Corporation, (2) the risk of financial misconduct is
minimized and any such misconduct is promptly detected and
reported, (3) the Corporation is able to prepare and publish
financial statements that are fairly presented, have been
prepared in accordance with generally accepted accounting
principles, and comply with all Securities and Exchange
Commission ("SEC"), New York Stock Exchange ("NYSE"), and
--- ----
Financial Accounting Standards Board ("FASB") requirements,
----
and (4) the internal and external audits of the Corporation
are adequate and comply with all SEC, NYSE, and FASB
requirements. The Audit Committee shall review with the
Corporation's Chief Financial Officer and outside auditors at
least annually the adequacy and effectiveness of the
Corporation's internal controls.
(b) Financial Statements. The Audit Committee shall review the
--------------------
Corporation's published financial statements, including
without limitation (1) any unusual or non-recurring items
therein, (2) the accounting principles applied therein, (3)
any changes in previously applied accounting principles, and
(4) management's report accompanying the Corporation's annual
financial statements included in the Corporation's Annual
Report to Shareholders.
(c) Internal Audit. The Audit Committee shall review (1) the
--------------
Corporation's internal audit plans with management and the
Corporation's outside auditors (which review shall be
conducted at least annually), (2) management's appointment,
replacement, reassignment, or dismissal of the Corporation's
internal auditors, (3) the progress and key findings of the
Corporation's internal audits, (4) the compensation paid by
the Corporation to its internal auditors for all services
rendered (which review shall be conducted at least annually),
(5) all reports, criticisms, problems, issues,
recommendations, or other matters submitted or raised by the
Corporation's internal auditors, and management's responses,
actions, and follow-up with respect thereto, and (6) all
disagreements between management and the Corporation's
internal auditors.
(d) Independent Outside Auditors. The Audit Committee shall
----------------------------
annually review (1) management's recommendation with respect
to the selection of the Corporation's outside auditors, and
provide to the Corporation's Board of Directors a
recommendation with respect to such selection, (2) the scope
of the Corporation's annual examination and audit with the
Corporation's outside auditors, (3) management's evaluation of
the independence of the Corporation's outside auditors, (4)
the letter from the Corporation's outside auditors with
respect to their independence from the Corporation's
management and their unrestricted access to the Audit
Committee, (5) the report from the Corporation's outside
auditors with respect to the services that they have provided
to the Corporation and other related matters (including the
percentage hours worked on the Corporation's audit engagement
by persons other than the outside auditors' full time
employees), (6) the compensation paid by the Corporation to
its outside auditors for all services rendered, (7) all
reports, criticisms, problems, issues, recommendations, or
other matters submitted or raised by the Corporation's outside
auditors, and management's responses, actions, and follow-up
with respect thereto, and (8) all disagreements between
management and the Corporation's outside auditors.
The outside auditors of the Corporation are ultimately
accountable to the Board of Directors and the Audit Committee.
The Audit Committee and the Board of Directors have the
ultimate authority and responsibility to select, evaluate and,
where appropriate, replace the outside auditors (or to
nominate the outside auditors to be proposed for shareholder
approval in any proxy statement).
The Audit Committee is responsible for:
(i) Obtaining annually from the Corporation's outside
auditors a formal written statement to the Audit
Committee delineating (A) all relationships between
the auditors and the Corporation and its officers,
directors, and substantial shareholders, and (B) all
services furnished by the auditors to the Corporation
and its officers, directors, and substantial
shareholders, in each case during the audit and
engagement period and bearing upon the auditors'
independence for purposes of SEC and Independence
Standards Board ("ISB") requirements and rules;
(ii) Actively engaging in a dialogue with the outside
auditors with respect to any disclosed relationships
or services that may impact the objectivity and
independence of the outside auditors;
(iii) Recommending that the Board of Directors take
appropriate action in response to the outside
auditors' report to satisfy itself of the outside
auditors' independence;
(iv) Reviewing copies of annual disclosure statements from
the Corporation's officers, directors, ten percent
(10%) or more shareholders, employees employed by us
in an accounting or financial oversight role, and, if
relevant, employees known formerly to have been
partners, principals, shareholders, or professional
employees of the Corporation's outside auditors or
known to be close family relatives of such persons
(or the relevant portions of such statements)
regarding any relationships between the auditors and
the Corporation or its officers, directors, ten
percent (10%) or more shareholders, or such employees
and any services furnished by the Corporation's
outside auditors to the Corporation or its officers,
directors, or ten percent (10%) or more shareholders
bearing upon the auditors' independence from the
Corporation for purposes of SEC and ISB requirements
and rules; and
(v) Actively engaging in a dialogue with the
Corporation's officers, directors, ten percent (10%)
or more shareholders, employees employed by the
Corporation in an accounting or financial oversight
role, and, if relevant, employees formerly partners,
principals, shareholders, or professional employees
of the Corporation's outside auditors with respect to
any relationships or services disclosed by them or
the Corporation's outside auditors that may impact on
the objectivity and independence of the Corporation's
outside auditors.
(e) Second Opinions. The Audit Committee shall review decisions
---------------
by management to obtain second opinions on significant
accounting issues and any actions taken by management in
reliance on such opinions.
(f) Meetings. The Audit Committee shall meet at least annually
--------
with (1) appropriate officers and employees of the Corporation
to discuss tax matters affecting the Corporation, and (2)
in-house counsel to discuss legal matters affecting the
Corporation.
3. Annual Consultation with Outside Auditors. In order to ensure that the
-----------------------------------------
Audit Committee receives all the information necessary to carry out its
responsibilities, the Audit Committee shall request, at least annually,
confirmation from the Corporation's outside auditors that they have
informed the Audit Committee as to (a) the initial selection of and
changes in significant accounting policies and their application, (b)
the process used in formulating sensitive accounting estimates, (c)
adjustments proposed by the auditor but not recorded by the Corporation
that could cause future financial statements to be materially
misstated, (d) disagreements with management and whether or not they
have been satisfactorily resolved, (e) cases when management consulted
with other accountants about auditing and accounting matters, (f)
difficulties encountered in performing the annual audit, and (g) any
other significant internal control or financial reporting matter.
4. Preparation of Annual Financial Statements. Each year, prior to
------------------------------------------
releasing the Corporation's audited financial statements, the Audit
Committee shall take the following actions:
(a) The Audit Committee shall review and discuss the audited
financial statements with management;
(b) The Audit Committee shall discuss with the Corporation's
outside auditors the matters required to be discussed by SAS
61, as may be modified or supplemented;
(c) The Audit Committee shall receive and review the written
disclosures and the letter from the Corporation's outside
auditors required by ISB Standard No. 1, as may be modified or
supplemented, and the reports and statements it is to obtain
pursuant to Section 2(d) above, and shall discuss the
auditors' independence with the auditors and the Corporation's
officers, directors, ten percent (10%) or more shareholders,
and relevant employees;
(d) Based on the review and discussions referred to in
sub-paragraphs (a) through (c) above, the Audit Committee
shall determine (and shall report in the Corporation's Annual
Proxy Statement) if it recommends to the Board of Directors
that the financial statements be included in the Annual Report
on Form 10-K. In connection therewith, the Audit Committee
shall consider whether any non-audit services rendered by the
Corporation's outside auditors to the Corporation during the
audit or engagement period are consistent with the auditors'
independence from the Corporation and shall report the fact of
such consideration in the Corporation's Annual Proxy
Statement;
(e) Each Member of the Audit Committee shall provide such
information as may be reasonably requested by the Corporation
in order to enable the Board to review whether the Members of
the Audit Committee are independent, as defined in NYSE
listing standards and Section 1 hereof;
(f) The Audit Committee shall review its own compliance with the
policies and procedures of this Charter, including, without
limitation, compliance with the following Sections:
Section 2(a) (review with the Corporation's Chief Financial
Officer and outside auditors the adequacy and effectiveness of
the Corporation's internal controls);
Section 2(b) (review the Corporation's financial statements);
Section 2(c) (review with the Corporation's management and
outside auditors the Corporation's internal audit plans);
Section 2(d) (review the recommendation and selection of the
Corporation's outside auditors; determine that the outside
auditors are independent);
Section 2(e) (review any decisions by the Corporation's
management to obtain second opinions on significant accounting
issues);
Section 2(f) (meet with the Corporation's officers and
employees to discuss tax and legal matters); and
Section 3 (annual consultation with the Corporation's outside
auditors).
(g) The Corporation shall provide to the NYSE written confirmation
regarding:
(i) The Board's annual determination regarding the
independence of Members of the Audit Committee;
(ii) The financial literacy of the Audit Committee
Members;
(iii) The determination that at least one Audit Committee
Member has accounting or related financial management
expertise; and
(iv) The Audit Committee's annual review and reassessment
of the adequacy of this Charter.
5. Compliance with NYSE Requirements. Sections 1(a), 2(d), and 4(g) of
this Charter are intended to comply with Rules 303.01 and 303.02 of the
NYSE Listed Company Manual (as last modified on 12/20/99). In the event
of any amendments to such Rules, the Board shall consider parallel
amendments to this Charter.
This Charter was approved by the Corporation's Board of Directors on February
17, 2000. It was amended by the Corporation's Board of Directors on May 10,
2001.