CHARTER OF THE AUDIT COMMITTEE
I. Purpose
The Audit Committee (the "Committee") of the Board of Directors (the "Board") of CONSOL Energy Inc. (the "Company") is appointed by, and generally acts on behalf of, the Board. The Committee's purposes shall be:
A. Oversight Function. To assist the Board in its oversight of (1) the integrity of the Company's financial statements; (2) the effectiveness of the Company's internal control over financial reporting; (3) the Company's compliance with legal and regulatory requirements; (4) the performance of the Company's internal audit function; and (5) the Company's risk management policies and related practices.
B. Independent Auditors. To interact directly with and evaluate the performance of the independent auditors, including to determine whether to engage or dismiss the independent auditors and to monitor the independent auditors' qualifications and independence; and
C. Compliance with SEC Requirements. To prepare the report required by the rules of the Securities and Exchange Commission (the "SEC") to be included in the Company's proxy statement.
Although the Committee has the powers and responsibilities set forth in this Charter, the role of the Committee is oversight. The members of the Committee are not full-time employees of the Company and may or may not be accountants or auditors by profession or experts in the fields of accounting or auditing and, in any event, do not serve in such capacity. Consequently, it is not the duty of the Committee to conduct audits, to independently verify management's representations, or to determine that the Company's financial statements are complete and accurate, prepared in accordance with generally accepted accounting principles ("GAAP"), or fairly present the financial condition, results of operations, and cash flows of the Company in accordance with GAAP. These are the responsibilities of management and the independent auditors. The Committee's considerations and discussions with management and the independent auditors do not assure that the Company's financial statements are presented in accordance with GAAP, that the audit of the Company's financial statements has been carried out in accordance with generally accepted auditing standards, or that the Company's independent auditors are in fact "independent."
II. Membership
A. Number of Directors and Independence. The Committee shall be composed of at least three directors, each of whom must be independent. A director shall qualify as independent if the Board has affirmatively determined that the member has met the independence criteria set forth in the Company's Corporate Governance Guidelines. In addition, members of the Committee must also satisfy the following additional requirements in order to be independent:
1. No Affiliation. No Committee member or immediate family member of such Committee member may be an affiliated person of the Company or any of its subsidiaries, as that term is defined by the SEC; and
2. No Compensatory Fees (other than Board-Related Fees). No Committee member shall accept, directly or indirectly, any consulting, advisory, or other compensatory fees from the Company or any of its subsidiaries, except for fees for services as a director and member of the Audit Committee and any other Board committee.
B. Financial Literacy, Accounting/Financial Expertise and Financial Expert. All members of the Committee must be financially literate or become financially literate within a reasonable time after appointment to the Committee. At least one member shall have accounting or related financial management expertise. To the extent possible, at least one member of the Committee shall be an "audit committee financial expert" as that term is defined by the SEC.
C. Term and Nomination of Chairperson and Resignation, Retirement or Removal of Member. The members of the Committee shall be nominated by the Nominating and Corporate Governance Committee and appointed by a majority of the Board for one-year terms. The Nominating and Corporate Governance Committee shall recommend, and the Board shall designate, one member of the Committee to serve as Chairperson. The members of the Committee shall serve until their resignation, retirement, or removal by the Board or until their successors shall be appointed. No member of the Committee shall be removed except by majority vote of the independent directors of the full Board then in office.
D. Limits on Public Company Service. Generally, no member of the Committee may serve simultaneously on the audit committees of more than three public companies without a specific Board determination that such simultaneous service will not impair the ability of such Committee member to serve on the Committee.
III. Meetings and Procedures
A. Number of Meetings and Quorum. The Committee shall meet as often as it may deem necessary and appropriate in its judgment, but in no event less than quarterly. A majority of the members of the Committee shall constitute a quorum.
B. Separate Meetings. The Committee shall meet with the independent auditors, the senior personnel performing the Company's internal audit function, and management in separate meetings, periodically as it deems necessary and appropriate in its judgment.
C. Calling a Special Meeting. The Chairperson of the Committee or a majority of the members of the Committee may call a special meeting of the Committee.
D. Additional Attendees at a Meeting. The Committee may request that any directors, officers, or employees of the Company, or other persons whose advice and counsel are sought by the Committee, attend any meeting to provide such information as the Committee requests. It is the Committee's intent that all non-employee directors be entitled to attend and observe any Committee meeting.
E. Rules of Procedure. The Committee shall fix its own rules of procedure, which shall be consistent with the Bylaws of the Company and this Charter.
F. Reports to the Board. The Committee shall report to the Board on the matters discussed at each meeting of the Committee, including describing all actions taken by the Committee at the meeting. See also SectionIV(E)(2) below.
G. Minutes. The Committee shall keep and approve written minutes of its meetings, which minutes shall be maintained with the books and records of the Company.
H. Delegation of Authority. The Committee may delegate authority to one or more members of the Committee where appropriate, but no such delegation shall be permitted if the authority is required by a law, regulation, or listing standard to be exercised by the Committee as a whole.
I. Advisors. The Committee shall have the authority to obtain advice and assistance from internal and external legal, accounting and other advisors, and the Company shall provide appropriate funding for the Committee to retain any such advisors without requiring the Committee to seek Board approval. The Committee shall be provided with appropriate funding for its ordinary administrative expenses that are necessary or appropriate, as determined by the Committee, for carrying out its duties.
J. Executive Session. The Committee may meet in Executive Session without members of Management present if the Chairperson of the Committee or members of the Committee deem that it is appropriate.
IV. Duties and Responsibilities
A. Financial Reporting Process.
1. Discussion Items. The Committee shall review and discuss with management and the independent auditors the annual audited financial statements to be included in the Company's annual report on Form 10-K, the quarterly financial statements to be included in the Company's Form 10-Qs, the Company's disclosures under "Management's Discussion and Analysis of Financial Condition and Results of Operations," earnings press releases and any other financial disclosures to be included in SEC filings prior to their release. This review should include, where appropriate, a discussion regarding: (a) the quality of the Company's earnings from a subjective as well as an objective standpoint; (b) the Company's accounting principles, critical accounting estimates, financial statement presentation; (c) significant financial reporting issues and judgments; (d) off-balance sheet structures and the use of pro forma or non-GAAP financial information; (e) the adequacy of the Company's internal controls, and any regulatory and accounting initiatives, correspondence with regulators, or published reports that raise material issues with respect to, or that could have a significant effect on, the Company's financial statements; and (f) financial information and earnings guidance provided to analysts and rating agencies that were not previously discussed with the Committee and such discussion will occur at least annually.
2. Financial Statements in Form 10-K. The Committee shall recommend to the Board whether the audited financial statements should be included in the Company's Form 10-K.
3. Audit Committee Report. The Committee shall prepare the report required by the rules of the SEC to be included in the Company's annual proxy statement.
B. Risks and Control Environment.
1. Risk Management. The Committee shall oversee the Company's policies and guidelines regarding risk assessment and risk management, including the risk of fraud; as well as the Company's major financial, legal, regulatory, environmental and similar risk exposures and the steps that management has taken to monitor and control such exposures, including reviewing and making recommendations to the Board regarding the Company's financial risk management programs and major insurance programs.
2. Code of Ethics and Business Conduct. The Committee shall review periodically the Employee and Board of Directors Codes of Ethics and Business Conduct, and shall have the sole authority to grant waivers of the Company's Code of Ethics and Business Conduct to the Company's directors and executive officers. The Committee will report all such waivers to the Board of Directors at the Board's next meeting.
3. Policies and Procedures Regarding Disclosures. The Committee shall meet periodically with the senior personnel performing the internal audit function, the general counsel's office, and the independent auditors to review the Company's policies and procedures regarding disclosures that may impact the financial statements and compliance with applicable laws and regulations and the Company's Code of Business Conduct.
4. Oversight of Controls. The Committee shall (a) discuss with management its process for performing required quarterly certifications under Section 302 of the Sarbanes-Oxley Act of 2002; (b) discuss with management, the internal auditors, and the independent auditors any (1) changes in internal control over financial reporting that may have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting that require disclosure and (2) any other changes in internal control over financial reporting that were considered for disclosure in the Company’s periodic filings with the SEC; (c) review management’s report and the independent auditors' reports on their assessment of the effectiveness of internal control over financial reporting as of the end of each fiscal year; (d) discuss with management and the internal auditors the process for assessing the effectiveness of internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002, including any significant deficiencies or material weaknesses identified; (e) discuss with the independent auditors the characterization of deficiencies in internal control over financial reporting and any differences between management’s assessment of the deficiencies and their own; and (f) determine that disclosure describing any identified material weaknesses and management’s remediation plans are clear and complete.
C. Independent Auditors.
1. Retention and Compensation. The Committee shall have the sole authority to retain, set compensation and retention terms for, terminate, oversee, and evaluate the activities of the Company's independent auditors. The independent auditors shall report directly to the Committee. The Company shall provide for appropriate funding, as determined by the Committee, for payment of compensation to the independent auditors.
2. Services. The Committee shall pre-approve all audit and non-audit services and fees provided by the independent auditors, including specific pre-approval of internal control-related services and shall receive certain disclosure, documentation, and discussion of non-prohibited tax services performed by the independent auditors based on PCAOB Rule 3524. The Committee shall not engage the independent auditors to perform non-audit services proscribed by law or regulation. The Committee may delegate pre-approval authority to a member of the Audit Committee. The decisions of any Committee member to whom pre-approval authority is delegated must be presented to the full Committee at its next scheduled meeting.
3. Staffing. Prior to initiation of the audit, the Committee shall meet with the independent auditors to discuss the planning, staffing and scope of the audit, including the impact of applicable rotation requirements and other independence rules on the staffing. The Committee shall oversee and ensure the mandated rotation of the lead (or coordinating) audit partner of the independent auditors in compliance with legal and SEC requirements.
4. Independent Auditor's Report. The Committee shall, at least annually, obtain and review a report by the independent auditors describing: (i) the independent auditors' internal quality-control procedures; (ii) any material issues raised by the most recent internal quality-control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities or the Public Company Accounting Oversight Board (PCAOB) , within the preceding five years, respecting one or more independent audits performed by the firm, and any steps taken to deal with any such issues; and (iii) in order to assess the firm's independence, all relationships between the firm and the Company.
5. Review of Reports. The Committee shall review periodically any reports prepared by the independent auditors and provided to the Committee relating to significant financial reporting issues and judgments including, among other things, the Company's selection, application, and disclosure of critical accounting policies and practices, all alternative treatments, assumptions, estimates or methods that have been discussed with management, including the ramifications of such treatments and the treatment preferred by the independent auditors, and any other material written communications between the independent auditors and management, such as any management letter or schedule of unadjusted differences.
6. Significant Issues. The Committee shall discuss with the independent auditors any significant changes in the audit plan, audit problems or difficulties, including any restrictions on the scope of the independent auditors' activities or on access to requested information, and management's response to same, shall discuss with the independent auditors any other matters required to be brought to its attention under applicable auditing standards, and shall resolve any disagreements between the independent auditors and management.
7. Annual Evaluation. After reviewing the reports from the independent auditors and the independent auditors' work throughout the audit period, the Committee will conduct an annual evaluation of the independent auditors' performance and independence, including considering whether the independent auditors' quality controls are adequate. This evaluation also shall include the review and evaluation of the audit engagement team, including the lead partner. In making its evaluation, the Committee shall take into account the opinions of management and the senior personnel performing the Company's internal audit function. The Committee shall present its conclusions with respect to the evaluation of the independent auditors to the Board.
8. Hiring Policies. The Committee shall set clear policies for the hiring by the Company of employees or former employees of the independent auditors.
D. Internal Audit Function.
1. Oversight. The Committee shall oversee the activities, organizational structure, compliance with professional standards, and qualifications of the persons performing the internal audit function.
2. Appointment of Senior Personnel. The Committee shall review and approve the appointment and replacement of the senior personnel performing the internal audit function.
3. Approval of Audit Plan, Budget, Staffing and Internal Audit Charter. The Committee shall review and approve the annual internal audit plan, departmental budget and staffing, and the internal audit charter.
4. Changes to Audit Plan and Difficulties with Audit. The Committee shall discuss with personnel performing the internal audit function any changes to the audit plan and any difficulties encountered during the course of the audits including restrictions of scope.
5. Significant Reports and Results of Special Projects. The Committee shall review any significant reports to management prepared by the Internal Audit department and the results of any special projects or investigations.
E. Evaluations and Reports.
1. Self-Evaluation. The Committee shall annually review and assess the performance of the Committee and deliver a report to the Board setting forth the results of its evaluation. In conducting this review, the Committee shall address matters that it considers relevant to its performance, including at a minimum, the adequacy, appropriateness, and quality of the information and recommendations presented to the Board, the manner in which they were discussed or debated, and whether the number and length of meetings of the Committee were adequate for the Committee to complete its work in a thorough and thoughtful manner. The Committee shall also obtain from the independent auditors their observations related to the effectiveness of the Committee.
2. Reports to the Board. The Committee shall make regular reports to the Board on its activities, including reviewing any issues that arise respecting the quality and integrity of the Company's public reporting, the Company's compliance with legal and regulatory requirements, the performance and independence of the Company's independent auditors, the performance of the Company's internal audit department, the effectiveness of the Company's disclosure controls and procedures, and the adequacy and effectiveness of the Company's risk management policies and related practices. See also Section III(F) above.
F. Other Matters.
1. Expenses and Perquisites. The Committee shall review with management policies and procedures with respect to officers' expense accounts and perquisites, including use of corporate assets; and consider the results of any review of these areas by Internal Auditing or the independent auditors. The Committee shall also review and approve expenses of the Chief Executive Officer.
2. Related Party Transactions. The Committee shall review, approve or ratify transactions between the Company (including its subsidiaries) and any related persons that are required to be reported under SEC Regulation S-K Item 404.
3. Anonymous Complaints. The Committee shall review procedures for (i) the receipt, retention, and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters, and (ii) the confidential, anonymous submission by Company employees of concerns regarding questionable accounting or auditing matters. The current status of the investigation of complaints shall be reviewed with appropriate parties.
4. Review of Charter. The Committee shall review and reassess the adequacy of this Charter annually and recommend any proposed changes to the Board for its approval.
5. Communications. The Committee shall maintain free and open communication with the Board, management, the internal auditor, and the independent auditors.
6. Other Activities. The Committee shall perform any other activities consistent with this Charter, the Company's Certificate of Incorporation, the Company's Bylaws, and governing law, as the Committee or the Board may deem necessary or appropriate.
Effective date: December 2, 2008