**Exhibit 99.1**

 

**EXCORESOURCES, INC.**

 

**AuditCommittee Charter**

 

ThisAudit Committee Charter (“Charter”) sets forth the purpose and membershiprequirements of the Audit Committee (the “Committee”) of the Board of Directors(the “Board”) of EXCO Resources, Inc. (the “Company”) and establishes theauthority and responsibilities delegated to it by the Board.

 

1.     **Purpose**.  The Committeehas oversight of (i) the accounting and financial reporting processes ofthe Company, (ii) the integrity of the Company’s financial statements anddisclosures, (iii) the Company’s compliance with legal and regulatoryrequirements, (iv) the qualifications and independence of the Company’sindependent auditing firm (the “External Auditors”), (v) the performanceof the Company’s internal audit function and External Auditors, (vi) theCompany’s internal control systems, and (vii) the Company’s process formonitoring compliance with the Company’s Code of Business Conduct and Ethics(the “Code of Conduct”).

 

2.     **Committee Members**.

 

2.1.          **Composition and Appointment**. The Committee shall consist of three (3) or more members of theBoard.  The members and Chairperson of the Committee shall be appointed bythe Board. Membership on the Committee shall rotate at the Board’sdiscretion.  The Board shall fill vacancies on the Committee and mayremove a Committee member from the membership of the Committee at any timewithout cause.  Members shall serve until their successors are appointedby the Board.

 

2.2.          **Independence**. Each member of the Committee shall be independent.  To be “independent,” a director must meet theindependence requirements of the New York Stock Exchange (“NYSE”) ListedCompany Manual and applicable state and federal law, including the rules andregulations of the Securities and Exchange Commission (the “SEC”) *(Rule 10A-3(b) under the SecuritiesExchange Act of 1934 (the “Exchange Act”))*, including the followingrequirements:

 

2.2.1.       Nodirector shall be considered “independent” if such director is an affiliate of,or a person affiliated with, the Company or any subsidiary thereof in anycapacity, other than in such director’s capacity as a member of the Board, theCommittee or any other Board committee.

 

2.2.2.       Nodirector shall be considered “independent” if such director receives, directlyor indirectly, any consulting, advisory or other compensatory fee from theCompany or any subsidiary thereof, other than fees received in such director’scapacity as a member of the Board, the Committee or any other Board committee.

 

2.2.3.       No director shall be considered “independent”unless the Board has affirmatively determined that the director has no materialrelationship with the Company (either directly or as a partner, shareholder orofficer of an organization that has a relationship with the Company, other thanin such director’s capacity as a member of the Board, the Committee or anyother Board committee.

 

2.2.4        Nodirector shall be considered “independent” if such director is, or has beenwithin the last three years, an employee of the Company or any subsidiarythereof, or an immediate family member is, or has been within the last threeyears, an executive officer, of the Company or any subsidiary thereof.

 

2.2.5.       Nodirector shall be considered “independent” if such director has received,or has an immediate family member who has received, during anytwelve-month period within 

 

1

----

 

the last three years,more than $100,000 in direct compensation from the Company or anysubsidiary thereof, other than director and committee fees and pension or otherforms of deferred compensation for prior service (provided such compensation isnot contingent in any way on continued service).

 

2.2.6.       Nodirector shall be considered “independent” if (A) such director oran immediate family member is a current partner of a firm that is theCompany’s internal or external auditor; (B) such director is a currentemployee of such a firm; (C) such director has an immediate family memberwho is a current employee of such a firm and who participates in the firm’saudit, assurance or tax compliance (but not tax planning) practice; or (D) suchdirector or an immediate family member was within the last three years (but isno longer) a partner or employee of such a firm and personally worked on theCompany’s audit within that time.

 

2.2.7.       Nodirector shall be considered “independent” if such director or an immediatefamily member is, or has been within the last three years, employed as anexecutive officer of another company where any of the Company or any subsidiarythereof’s present executive officers at the same time serves or served on thatcompany’s compensation committee.

 

2.2.8.       Nodirector shall be considered “independent” if such director is acurrent employee, or an immediate family member is a current executiveofficer, of a company that has made payments to, or received paymentsfrom, the Company or any subsidiary thereof for property or services in anamount which, in any of the last three fiscal years, exceeds the greaterof $1 million, or 2% of such other company’s consolidated gross revenues;except that contributions to tax exempt organizations shall not be considered “payments.”

 

For purposes of theabove, the term “immediate family member” includes a person’s spouse, parents,children, siblings, mothers and fathers-in-law, sons and daughters-in-law,brothers and sisters-in-law, and anyone (other than domestic employees) whoshares such person’s home and the term “executive officer” shall mean thoseofficers covered by Rule 16a-1(f) under the Securities Exchange Actof 1934, as amended (the “Exchange Act”), or any successor provision to suchrule.

 

Theterm “affiliate of,” or a “person affiliated with,” a specified person, means aperson that directly, or indirectly through one or more intermediaries,controls, or is controlled by, or is under common control with, the personspecified.  A person is deemed to be anaffiliate if he or she is an executive officer of an affiliate, a director whoalso is an employee of an affiliate, a general partner of an affiliate or amanaging member of an affiliate.  Theterm *control* (including the terms*controlling, controlled by* andunder *common control with*) meansthe possession, direct or indirect, of the power to direct or cause thedirection of the management and policies of a person, whether through theownership of voting securities, by contract, or otherwise.

 

2.3.          **Financial Statements**. No person that shall have participated in the preparation of the financialstatements of the Company or any current subsidiary of the Company at any timeduring the past three years may be a member of the Committee.

 

2.4.          **Financial Literacy**. The Board shall determine that each member of the Committee is “financiallyliterate,” as the Board shall interpret such qualification in its businessjudgment, which shall require at a minimum the ability to read and understandfundamental financial statements, including the Company’s balance sheet, incomestatement, and cash flow statement.  In addition, at least one member ofthe Committee must qualify as an audit committee financial expert as defined bythe SEC.  This person is presumed to have accounting or related financialmanagement expertise as required by NYSE corporate governance standards.  Under the SEC’s rule, “audit committeefinancial expert” is defined to mean a person who has the following fiveattributes:

 

2

----

 

(i)            anunderstanding of GAAP and financial statements;

 

(ii)           theability to assess the general application of GAAP in connection with theaccounting for estimates, accruals and reserves;

 

(iii)          experiencepreparing, auditing, analyzing or evaluating financial statements of a breadthand level of complexity of accounting generally comparable to those that canreasonably be expected to be raised by the company’s financial statements, orexperience actively supervising one or more persons engaged in such activities;

 

(iv)          anunderstanding of internal controls and procedures for financial reporting; and

 

(v)           anunderstanding of audit committee functions.

 

The rule furtherprovides that such person must have acquired these five attributes through:

 

(i)            educationand experience as a principal financial officer, principal accounting officer, controller,public accountant or auditor or experience in one or more positions thatinvolve the performance of similar functions;

 

(ii)           experienceactively supervising a principal financial officer, principal accountingofficer, controller, public accountant, auditor or person performing similarfunctions;

 

(iii)          experienceoverseeing or assessing the performance of companies or public accountants withrespect to the preparation, auditing or evaluation of financial statements; or

 

(iv)          otherrelevant experience.

 

2.5           **Simultaneous Service on Other Audit Committees**.  If a member of the Committee serves on theaudit committee (or, in the absence of an audit committee, the board committeeperforming equivalent functions, or, in the absence of such committee, theboard of directors) of more than two (2) public companies in addition tothe Company, the Board must affirmatively determine that such simultaneousservice on multiple audit committees will not impair the ability of such memberto serve on the Committee.  The basis forthe Board’s determination shall be disclosed in the Company’s proxy statementprepared in connection with its annual meeting of shareholders.

 

3.     **Authority**.

 

3.1.          **Education**.  To help ensurethat the members of the Committee have the proper knowledge to perform theirresponsibilities, Committee members shall have the authority, at the Company’sexpense, to attend outside educational programs, retain outside professionalsto conduct educational programs and undertake other appropriate steps to keepcurrent with developments in accounting, disclosure, risk management, internalcontrols and auditing matters that are relevant to the carrying out of theCommittee’s responsibilities.

 

3.2.          **Advisors**.  The Committeeshall have the authority to retain, at the Company’s expense, independentlegal, financial and other advisors (“Advisors”) it deems necessary to fulfillits responsibilities.

 

3.3.          **Investigations**. The Committee shall have the authority to conduct investigations that it deemsnecessary to fulfill its responsibilities.

 

3.4.          **Information**. The Committee shall have the authority to require any officer, director oremployee of the Company, the Company’s outside legal counsel and the ExternalAuditor to 

 

3

----

 

meet with the Committeeand any of its Advisors and to respond to their inquiries.  The Committeeshall have full access to the books, records and facilities of the Company incarrying out its responsibilities.

 

3.5.          **Funding**.  The Committeeshall have the authority to determine, on behalf of the Company, (i) thecompensation of (A) the External Auditor for its services in rendering anaudit report and (B) any Advisors employed by the Company pursuant to Section 3.2,and (ii) ordinary administrative expenses of the audit committee that arenecessary or appropriate in carrying out its duties.

 

4.     **Meetings**.

 

4.1.          **Frequency of Meetings**. The Committee shall meet at least once per fiscal quarter in connection with (i) itsreview and discussion of the Company’s financial statements and the Company’sdisclosures that are to be included in its Form 10-Q and Form 10-Kfilings with the SEC, including the disclosures under “Management’s Discussionand Analysis of Financial Condition and Results of Operations” and (ii) thepreparation of the Committee’s report to be included in the Company’s proxystatement in connection with the Company’s annual meeting of shareholderspursuant to Section 12.4 below, if such report is required by applicablelaw.  The Chairperson may call a special meeting at any time he or shedeems advisable.

 

4.2.          **Executive Sessions**. The Committee shall maintain free and open communication with (i) theCompany’s chief executive officer (“CEO”), (ii) the Company’s chieffinancial officer (“CFO”), (iii) the Company’s chief of internal auditing(“Internal Auditor”), (iv) the External Auditor, and (v) the Company’sgeneral counsel (“General Counsel”) and, if the Committee deems it necessary,periodically meet in separate executive (private) sessions with each suchperson, to discuss any matters that the Committee or any such person believesshould be discussed privately with the Committee.

 

4.3.          **Minutes**.  Minutes of eachmeeting of the Committee shall be kept to document the discharge by the Committeeof its responsibilities and a copy thereof shall be sent to the members of theBoard.

 

4.4.          **Quorum**.  A quorum shallconsist of the greater of one-third of the Committee’s membership or twopersons.  All action taken by the Committee shall be deemed approved onthe vote of a majority of its members.

 

4.5.          **Agenda**.  The Chairpersonof the Committee shall prepare an agenda for each meeting of the Committee, inconsultation with Committee members and any appropriate member of Company’smanagement or staff, as necessary.  As requested by the Chairperson,members of  the Company’s management and staff shall assist theChairperson with the preparation of any background materials necessary for anyCommittee meeting.

 

4.6.          **Presiding Officer**.** **The Chairperson of the Committeeshall preside at all Committee meetings.  If the Chairperson is absent ata meeting, a majority of the Committee members present at a meeting shallappoint a different presiding officer for that meeting.

 

5.     **General Oversight**.** **The Committee’s responsibilitiesshall include review of (i) major issues regarding accounting principlesand financial statement presentation, including any significant changes in theCompany’s selection or application of accounting principles, and major issuesas to the adequacy of the Company’s internal controls and any special auditsteps adopted in light of material control deficiencies; (ii) any analysesprepared by management or the External Auditor setting forth significantfinancial reporting issues and judgments made in connection with thepreparation of the Company’s financial statements, including any analyses ofthe effects of alternative generally accepted accounting principles (“GAAP”)methods on the presentation of the Company’s financial statements; (iii) the

 

4

----

 

effect of regulatory andaccounting industry initiatives, as well as off-balance sheet structures, onthe Company’s financial statements; and (iv) the type and presentation ofinformation to be included in earnings press releases that contain informationwith respect to the historical or projected financial performance of theCompany (with particular attention on the use of “pro forma,” or “adjusted”non-GAAP, information), as well as any other financial information provided toa financial analyst or a rating agency.

 

6.     **External Auditor Oversight**.

 

6.1.          **Selection and Evaluation**. Subject to shareholder ratification, if such ratification is required byapplicable law or the articles of incorporation or the bylaws of the Company,the Committee shall have sole responsibility and authority for the appointment,compensation, retention, oversight, termination and replacement of the ExternalAuditor and for the approval of all audit and engagement fees.  The Committeeshall annually, following the completion of the Audit Reports and at such othertimes as it deems appropriate, review and evaluate the performance of theExternal Auditor, including a specific evaluation of the External Auditor’slead (or coordinating) audit partner having primary responsibility for theCompany’s audit.  The Committee shallpresent its conclusions with respect to the External Auditor to the Board.

 

6.2.          **Pre-Approval of External Auditor Services**.

 
| 6.2.1. | ** ** | **Committee Pre-Approval**.   No audit services or non-audit services shall be provided to the Company by  the External Auditor unless first pre-approved by the Committee and unless  permitted by applicable securities laws and the rules and regulations of  the SEC.  If the Committee approves an audit service within the scope of  the engagement of the External Auditor, such audit service shall be deemed to  have been pre-approved for purposes of this Section.                                                                                                                                                                                                                                                                                      |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 6.2.2. | ** ** | **Pre-Approval Exception**.   Pre-approval shall not be required under Section 6.2.1. for non-audit  services provided by the External Auditor, if (i) the aggregate amount  of all such non-audit services provided to the Company constitutes not more  than the five percent (5%) of the total amount of revenues paid by the Company  to the External Auditor during the fiscal year in which such non-audit  services are provided, (ii) such non-audit services were not recognized  by the Company at the time of the External Auditor’s engagement to be  non-audit services, and (iii) such non-audit services are promptly  brought to the attention of the Committee and approved by the Committee prior  to the completion of the audit. |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 6.2.3. | ** ** | **Delegation of Pre-Approval Authority**.   The Committee may delegate to one (1) or more members of the Committee  the authority to grant pre-approval of non-audit services required by this  Section, including the pre-approval described in clause (iii) of  Section 6.2.2.  The decision of any member to whom such authority  is delegated to pre-approve non-audit services shall be presented to the full  Committee for its approval at its next scheduled meeting.                                                                                                                                                                                                                                                                             |

 

6.3.          **Independence**. The Committee shall periodically meet with management, the Internal Auditor andthe External Auditor to assess and satisfy itself that the External Auditor is “independent”in accordance with the rules and regulations of the SEC.  TheCommittee shall annually obtain from the External Auditor a written statementdelineating (i) all relationships between the External Auditor and theCompany that may impact the External Auditor’s objectivity and independence, (ii) confirmationthat none of the Company’s CEO, controller, CFO, chief accounting officer,Internal Auditor, or any person serving in an equivalent position to any of theforegoing for the Company, was employed by such External Auditor andparticipated in any capacity in the audit of the Company during the one (1) yearperiod preceding the date of the initiation of the audit for which the ExternalAuditor is engaged, and (iii) all the disclosures required by IndependenceStandards Board Standard No. 1.

 

5

----

 

6.4.          **Quality Control**. The Committee shall annually obtain and review a written report from theExternal Auditor describing (i) the External Auditor’s internalquality-control procedures; and (ii) any material issues raised by (a) theExternal Auditor’s most recent internal quality-control review, or peer reviewor (b) any inquiry or investigation by governmental or accountingprofession authorities, in each case, within the preceding five years,respecting one or more independent audits carried out by the External Auditor,and any steps taken to deal with any such issues.

 

6.5.          **Audit Partner Rotation**. The Committee shall annually obtain from the External Auditor a writtenstatement confirming that neither the lead (or coordinating) audit partnerhaving primary responsibility for the Company’s audit nor the audit partnerresponsible for reviewing the Company’s audit has performed audit services forthe Company in each of the Company’s five (5) previous fiscal years.

 

6.6.          **External Auditor Reports Review**. The Committee shall review with management, the Internal Auditor and theExternal Auditor (i) the reports required to be prepared by the ExternalAuditor under Section 10A(k) of the Exchange Act regarding (a) allcritical accounting policies and practices used by the Company and (b) allalternative treatments of the Company’s financial information within GAAP thathave been discussed with management, the ramifications of the use of suchalternative disclosures and treatments and the treatment preferred by theExternal Auditor; and (ii) all other material written communicationsbetween the External Auditor, management and the Internal Auditor, such as anymanagement letter or schedule of unadjusted differences.

 

6.7.          **Internal Control Assessment**. Effective for the Company’s year ending December 31, 2006, and annuallythereafter, the Committee shall annually obtain from the External Auditor awritten report in which the External Auditor attests to and reports on theassessment of the Company’s internal controls made by the Company’s management.

 

6.8           **Non-Audit Services**.  The Committee shall review with managementand decide whether to approve the retention of the External Auditor for anynon-auditing services proposed to be rendered to the Company, includingassessing their compatibility with maintaining the External Auditor’sindependence.  No non-audit services maybe provided to the Company by the External Auditor unless approved in advanceor as provided in Section 6.2.2 by the Committee under Section 6.2above.  The External Auditor shall notprovide to the Company, and the Committee shall not have the authority toapprove the provision to the Company by the External Auditor of, those servicesdescribed in Section 201 of the Sarbanes-Oxley Act of 2002 (the “Act”) orany other service that the Public Accounting Oversight Board established underthe Act determines, by regulation may not be provided to the Company by theExternal Auditor.

 

6.9.          **Accountability of External Auditor**. The External Auditor shall report directly to the Committee and shall beultimately accountable to the Committee.  The Committee shall obtain anannual written statement from the External Auditor confirming itsaccountability to the Committee.

 

6.10.        **Audit Assessment**. The Committee shall regularly review with management, the Internal Auditor andthe External Auditor any problems or difficulties encountered and management’sresponse in connection with the audit process, including any restrictions onthe scope of the External Auditor’s activities or on access to requestedinformation, any significant disagreements with management, any accountingadjustments that were noted or proposed by the External Auditor but that werepassed (as immaterial or otherwise), any communications between the ExternalAuditor’s team assigned to the Company’s audit and the External Auditor’snational office respecting auditing or accounting issues presented by the Company’s

 

6

----

 

audit, and any “management”or “internal control” letter issued, or proposed to be issued, by the ExternalAuditor to the Company.

 

6.11.        **SAS 61 Communications**. The Committee shall discuss with the External Auditor the matters required tobe discussed under Statement on Auditing Standards No. 61.

 

6.12.        **Audit Disagreement Inquiry**. The Committee shall periodically inquire of management and the External Auditoras to any disagreements that may have occurred between them relating to theCompany’s audit process, financial statements or disclosures.  TheCommittee shall have sole responsibility for the resolution of anydisagreements between management and the External Auditor regarding financialreporting.

 

6.13.        **Hiring Policy**. The Committee will, on an annual basis, confirm that the Company has not hiredan employee of the External Auditor and that no employment shall be offered toan employee of the External Auditor without the prior written approval of theCommittee.

 

7.     **Internal Auditing Oversight**.

 

7.1.          **Internal Auditing Staff**. The Committee shall annually evaluate the performance of the Internal Auditorand the internal auditing department with management and the External Auditor.

 

7.2.          **Internal Audit Process**. The Committee shall oversee the Company’s internal audit function and any otherappropriate control process in place for reviewing and approving the Company’sinternal transactions and accounting; provided, that (i) this Section 7.2shall not be construed to require the Company to establish a separate internalaudit department or dedicate employees to the task on a full-time basis and (ii) theCompany may choose to outsource this function to a firm other than any ExternalAuditor.  The Committee shall meet periodically, at its discretion, withthe Internal Auditor, the External Auditor and management to review (i) plansfor the internal audit program (including scope, responsibilities, budget andstaffing) for the coming year, (ii) the coordination of such plans withthe work of the External Auditor, and (iii) the progress and results ofthe internal auditing process.

 

7.3.          **Internal Audit Reports**. The Committee shall meet periodically, at its discretion, with the InternalAuditor to review any significant reports to management prepared by theinternal auditing staff.  The Internal Auditor shall provide a summary ofall significant internal audit reports to the Committee each quarter.  The Internal Auditor shall provide managementand the Committee with ongoing assessments of the Company’s risk managementprocesses and system of internal controls.

 

8.     **External Engineer**.  The Committee shall meet periodically, at itsdiscretion, with the Company’s independent petroleum engineer to review and discussthe procedures for determining the estimates of the Company’s oil and naturalgas reserves.

 

9.     **Financial Statements and Disclosure Oversight**.

 

9.1.          **SEC Filings, Earnings Releases and Guidance**. Prior to the filing by the Company with the SEC of any annual report on Form 10-Kor any quarterly report on Form 10-Q, the Committee shall review anddiscuss with management and the External Auditor the financial statements andthe disclosure under “Management’s Discussion and Analysis of FinancialCondition and Results of Operations” contained therein.  In addition, theCommittee shall periodically, at its discretion, review and discuss withmanagement and the External Auditor the Company’s procedures (including typesof information to be disclosed and the type of presentation to be made) withrespect to press releases that contain information regarding the Company’shistorical or projected financial performance and the provision of any suchinformation, earnings guidance or other financial information to a financialanalyst or rating agency.  Such 

 

7

----

 

reviews should includeconsideration of (i) off-balance sheet transactions, obligations(including contingent obligations) and other relationships with unconsolidatedentities or other persons that may have a current or future effect on theCompany’s financial condition, results of operation, liquidity, capitalexpenditures or significant components of revenues or expenses, (ii) proforma financial information, including any information required to reconcilesuch information with financial information prepared in accordance with GAAP; (iii) underlyingestimates upon which the presented financial information is based; (iv) thereasonableness of significant judgments made in the preparation of thepresented financial information; (v) whether, notwithstanding propertechnical application of the applicable accounting rules, the presentedfinancial information conforms to the accounting principles upon which therelevant accounting rules are based; and (vi) whether,notwithstanding proper technical application of the applicable accountingrules, the presented financial information misleads investors as to the Company’sunderlying economic condition.

 

9.2.          **Accounting Changes**. The Committee shall, before their implementation, review with management andthe External Auditor and approve all significant changes proposed to be made inthe Company’s accounting principles and practices.

 

9.3.          **Adequate Disclosure**. The Committee shall periodically, at its discretion, inquire of management, theExternal Auditor, the General Counsel and, if the Committee deems itappropriate, outside legal counsel as to whether the Company’s financialstatements comport with the disclosure requirements of federal securities laws,notwithstanding their conformity to accounting principles and practices.

 

9.4.          **Criticisms**. The Committee shall periodically, at its discretion, inquire of management, theGeneral Counsel and the External Auditor as to their knowledge of any criticismof the Company’s financial statements or disclosures by any financial analysts,rating agencies, media sources or other reliable third-party sources.  TheCommittee shall establish procedures for (i) the receipt, retention,treatment, investigation and resolution of complaints received by the Companyregarding accounting, internal accounting controls or auditing matters; and (ii) theconfidential anonymous submission by the Company’s employees of concernsregarding questionable accounting or auditing matters.

 

10.   **Internal Controls and Compliance with Laws and Regulationsand Code of Conduct Oversight**.

 

10.1.        **Internal Controls and Compliance Policies**. For the purpose of assessing their adequacy and effectiveness, the Committee (i) shallperiodically, at its discretion, review and assess with management, theInternal Auditor, the General Counsel and the External Auditor (a) theCompany’s internal control systems, including whether such controls arereasonably designed to ensure that appropriate information comes to theattention of the Committee in a timely manner, prevent violations of law andcorporate policy and permit the Company to prepare accurate and informativefinancial reports, (b) the Company’s policies on compliance with laws andregulations, (c) the Company’s Code of Conduct, and (d) the methodsand procedures for monitoring compliance with such policies; and (ii) shallelicit any recommendations for the improvement of the Code of Conduct and suchcontrols, policies, methods and procedures.  The Committee shall reviewwith management and the External Auditor, prior to its annual filing, theinternal control report (containing the annual assessment of the effectivenessof the internal control structure and procedures of the Company for ensuringthe accuracy of public disclosures) that is required to be filed by the Companywith the SEC on Form 10-K.

 

10.2.        **Information Security**. The Committee shall periodically, at its discretion, review and assess withmanagement and the External Auditor the adequacy of the security for theCompany’s information systems and the Company’s contingency plans in the eventof a systems breakdown or security breach.

 

8

----

 

10.3.        **Code of Conduct Violations**. The Committee shall periodically, at its discretion, inquire of management, theInternal Auditor and the External Auditor as to their knowledge of (i) anyviolation of the Code of Conduct, (ii) any waiver of compliance with theCode of Conduct, and (iii) any investigations undertaken with regard tocompliance with the Code of Conduct.  The Committee shall not have thepower to grant waivers to the Code of Conduct.  Any waiver of the Code ofConduct with respect to a director or executive officer may only be granted bythe Board.  All waivers granted by the Board shall be promptly reported tothe entire Board and be publicly disclosed as required by the rules andregulations of the SEC and NYSE.

 

10.4.        **Misconduct Allegations**. The Committee shall periodically, at its discretion, inquire of management andthe General Counsel of their knowledge of any allegations of director orofficer misconduct or misconduct by the Company (whether made by employees orthird parties).

 

10.5.        **Disagreements with Legal Counsel**. The Committee shall periodically, in its discretion, inquire of management, theGeneral Counsel and, if appropriate, outside legal counsel of any disagreementsthat may have occurred between management and legal counsel regarding anypublic disclosures or any other legal compliance issue.

 

10.6.        **Related Party Transactions Oversight**. The Company shall not enter into a related party transaction unless suchtransaction is approved by the Committee after a review of the transaction bythe Committee for potential conflicts of interest.  A transaction will beconsidered a “related party transaction” if the transaction would be requiredto be disclosed under Item 404 of Regulation S-K.

 

11.   **Risk Management Oversight**.

 

11.1.        **Risk Exposure**. The Committee shall periodically meet with management and each External Auditorto review and discuss (i) guidelines and policies with respect to riskassessment and risk management to the extent necessary or appropriate to governthe process by which the Company’s risk assessment and management is undertakenand handled (although the Committee is not required to be the sole bodyresponsible for risk assessment and management) and (ii) the Company’smajor financial risk exposures and the steps management has taken to monitorand control such exposures.  If the Company manages and assesses its riskthrough mechanisms other than the Committee, the mechanisms need not bereplaced by the Committee, but the processes in place should be reviewed in ageneral manner by the Committee.

 

11.2.        **Insurance**.  The Committeeshall periodically review and assess with management and the General Counselinsurance coverage, including Directors and Officers Liability, property andcasualty loss, well control, errors and omissions and surety bonds.

 

11.3.        **Special-Purpose Entities and Off-Balance Sheet Transactions**. The Committee shall periodically meet with management, the Internal Auditor,the General Counsel and the External Auditor to review and assess all “special-purpose”entities of the Company and all complex financing transactions involving theCompany, including all related off-balance sheet accounting matters.

 

11.4.        **Consultation with Legal Counsel**. The Committee shall periodically, at its discretion, review with the GeneralCounsel and, if the Committee deems it appropriate, outside legal counsel legalmatters (including material claims, pending legal proceedings, governmentinvestigations and material reports, notices or inquiries received fromgovernmental agencies) that may have a significant impact on the Company’sfinancial statements or risk management.

 

9

----

 

12.   **Reports and Assessments**.

 

12.1.        **Board Reports**. The Chairperson of the Committee shall, periodically, at his or her discretionor at the Board’s request, report to the Board on Committee actions and on thefulfillment of the Committee’s responsibilities under this Charter.  Suchreports shall include any issues that arise with respect to the quality orintegrity of the Company’s financial statements, the Company’s compliance withlegal or regulatory requirements, the performance and independence of theCompany’s External Auditors and the performance of the Company’s internal auditfunction.

 

12.2.        **Charter Assessment**. The Committee shall annually assess the adequacy of this Charter and advise theBoard and the Nominating and Corporate Governance Committee (the “GovernanceCommittee”) of its assessment and of its recommendation for any changes to theCharter.

 

12.3.        **Committee Self-Assessment**. The Committee shall annually make a self-assessment of its performance andshall report the results of such self-assessment to the Board and theGovernance Committee.

 

12.4.        **Proxy Statement Report**. The Committee shall prepare an annual report as required by the rules andregulations of the SEC and submit it to the Board for inclusion in the Company’sproxy statement prepared in connection with its annual meeting of shareholders,if such report is required by applicable law.

 

12.5.        **Recommend Action**. The Committee shall annually make a determination as to whether to recommend tothe Board that the audited financials (certified by the External Auditor) beincluded in the Company’s annual report on Form 10-K for filing with theSEC.

 

12.6.        **Board Access to External Auditor**. The Committee shall, whenever the Board of Directors or the Committee deems itappropriate, have the External Auditor attend a meeting of the Board to discussspecific issues and to answer questions from the directors.

 

13.   **General**.

 

13.1.        **Financial Statement Responsibility**. The Company’s management is responsible for the preparation, presentation andintegrity of the Company’s financial statements and disclosures, and theExternal Auditor is responsible for auditing year-end financial statements andreviewing quarterly financial statements and conducting other procedures. It is not the duty of the Committee to certify the Company’s financialstatements, to guarantee the External Auditor’s report or to plan or conductaudits.  Since the primary function of the Committee is oversight, theCommittee shall be entitled to rely on the expertise, skills and knowledge ofmanagement, the Internal Auditor and the External Auditor and the accuracy ofinformation provided to the Committee by such persons in carrying out itsoversight responsibilities.  Nothing in this Charter is intended to changethe responsibilities of management and the External Auditor.

 

13.2.        **Charter Guidelines**. While the responsibilities of the Committee set forth in Section 5 through12 above are contemplated to be the principal recurring activities of theCommittee in carrying out its oversight function, these responsibilities are toserve as a guide with the understanding that the Committee may diverge fromthem as it deems appropriate given the circumstances.

 

10

----