Overview and Purpose

The Audit Committee (the “Committee”) is a committee of the Board of Directors (the “Board”) and shall be appointed by the Board.

The Committee’s purposes are to assist the Board in oversight of

• the integrity of the Company’s financial statements,
• the Company’s compliance with legal and regulatory requirements,
• the independent auditor’s qualifications and independence, and
• the performance of the Company’s internal audit function and independent auditors,

and to prepare an audit committee report required by the Securities and Exchange Commission (“SEC”) to be included in the Company’s annual proxy statement.

Membership

The Committee shall be composed of at least three (3) members of the Board who shall be selected by the Board, each to serve a one (1) year renewable term expiring on the date of the annual meeting or upon appointment of their successors. Each Committee member shall be independent of management of the Company, free of any relationship that would, in the opinion of the Board, interfere with the exercise of independent judgment as a Committee member, and each shall at a minimum meet the independence requirements for audit committee members as set forth in the Rules of the New York Stock Exchange and other applicable requirements for audit committee membership imposed by the Securities Exchange Act of 1934 and regulations thereunder. The Chair of the Committee will be appointed by the Board of Directors.

The background of Committee members is to be compatible with the duties of the Committee. Each member of the Committee must be financially literate or must become financially literate within a reasonable period of time. The Board shall determine the qualifications of Committee members in the exercise of its business judgment.

Committee members shall meet the requirements of regulatory agencies and the Company’s Corporate Governance Prinicples.

In the event that a Committee member serves on the audit committee of more than three public companies, the Board must determine whether such simultaneous service impairs the ability to serve effectively on the Committee.

Meetings

The Committee shall meet at least four (4) times per year and at such other times as it deems necessary to fulfill its responsibilities.

Meetings may be called by the Committee Chair or by a majority of the Committee members.

A quorum for the transaction of business at any meeting of the Committee shall consist of a majority of the members, and the act of a majority of the Committee members present at any meeting at which a quorum is present shall be the act of the Committee.

Meetings shall be chaired by the Committee Chair or, in the Chair’s absence, by a member chosen by the Committee from among themselves.

Notices of meetings, agendas and related materials shall be provided to the Committee members no later than the day prior to the meeting. However, it should be a standard practice to deliver the agenda and materials for consideration to the Committee members at least five (5) working days prior to the meeting except in unusual circumstances.

The Committee will have full access to the Company’s books and records.

Meetings may be conducted with members physically present, or present by telephone or other communication facilities that permit all persons participating in the meeting to hear or communicate with each other, and such participation shall constitute presence in person at such meeting.

Attendance by invitation at all or a portion of Committee meetings is determined by the Committee and may include the Chief Financial Officer, representatives of the independent auditors, and such other officers, support staff or others as may be deemed appropriate.

A resolution consented to in writing (whether by document, e-mail, or other similar means) and signed by all Committee members who would be entitled to vote on that resolution at a meeting of the Committee shall be of the same effect as one passed at a Committee meeting.

Minutes shall be kept of all meetings of the Committee.

Duties and Responsibilities

As to the Independent Auditors:

To appoint (subject to shareholder ratification) and retain the Company’s independent auditors and to compensate, evaluate, and, if appropriate, terminate said auditors at its discretion. The independent auditors shall report directly to the Committee.

To discuss and review with the independent auditors the overall scope, responsibilities, plans, budget, and staffing of the audit, approve audit engagement fees and terms, and to approve other audit related services and non-audit services in accordance with the Company’s policy regarding such matters.

To at least annually obtain and review a report by the independent auditor describing: the audit firm’s internal quality-control procedures; 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, within the preceding five years, respecting one or more independent audits carried out by the firm, and any steps taken to deal with any such issues; and (to assess the auditor’s independence) all relationships between the independent auditor and the Company.
To evaluate the independent auditor’s qualifications, performance and independence and that of the lead partner of the independent auditor.

To obtain competitive bids for the independent audit engagement no less frequently than every five years.

To ensure rotation of the independent auditor’s audit partners as required by law, and set policies about the Company’s hiring of current or former employees of the independent auditor.

To review with management and the independent auditors reports from the independent auditors with respect to the critical accounting policies and practices of the Company, alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent auditors and other material written communications between the independent auditors and management such as any management letter or schedule of unadjusted differences.

To review with management and the independent auditors the Company’s annual and quarterly financial statements, including the Company’s disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

To meet with the independent auditors without management present to review with the independent auditor any audit problems or difficulties, 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 review with the independent auditor management’s response to audit problems or difficulties.

To resolve any disagreements between management and the independent auditors regarding financial reporting.

As to Other Financial and Accounting Matters:

To review any major issues regarding accounting principles and financial statement presentations, including any significant changes in the Company’s selection or application of accounting principles, and current accounting trends and developments.

To review any analyses prepared by management or the independent auditor setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including analyses of the effects of alternative GAAP methods on the financial statements.

To review the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, if any, on the financial statements of the Company.

To review the type and presentation of information to be included in the earnings press releases.

To review and recommend to the Board of Directors for approval and inclusion in the annual report on Form 10-K the annual audited financial statements and the Form 10-Q.

As to the Internal Audit Function:

To annually review and evaluate the internal audit function, including its staffing and performance, and make a determination of whether the internal auditor is independent of those functions being audited, and to review and evaluate the appropriateness of the internal audit plans for the year, including its scope, planning, and staffing.

To meet separately with the internal auditor to discuss any matters that the Committee believes should be discussed privately.

As to Internal Controls and Certifications:

To consider and review with management and the independent auditors the adequacy and effectiveness of the Company's system of internal controls, disclosure controls and computerized information systems controls and security (including any significant issues as to the adequacy of the Company's internal controls and any special audit steps adopted in light of material control deficiencies), and to recommend to management changes or improvements thereto.

To consider and review with management and the independent auditors the Company's internal control report under the SEC rules implementing section 404 of the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley") for inclusion in the Company's annual report.

To review the reports of the Chief Executive Officer and Chief Financial Officer required by section 302 of Sarbanes-Oxley, the certification required by section 302 and 906 of Sarbanes-Oxley and the management report and attestation of the independent auditors required by section 404 of Sarbanes-Oxley.

As to Other Matters:

To inquire of, review with management and the independent auditors, and discuss the Company’s guidelines and policies with respect to risk assessment and risk management, any significant financial risk exposures, and the steps management has taken to monitor and control such exposures.

To establish and maintain procedures for the receipt, retention, and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters, and for the confidential, anonymous submission by employees of concerns regarding accounting or auditing matters in accordance with SMC’s Whistleblower Policy.

To ensure that the full Board of Directors annually reviews the proven and probable reserve calculations.

To meet separately with management to discuss any matters that the Committee believes should be discussed privately.

To report regularly to the Board and review with the 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 auditors.

To ensure that the independent auditors, internal auditors, and management have coordinated their audit efforts to assure completeness of coverage, reduction of redundant efforts, and the effective use of audit resources.

Other

In fulfilling its duties the Committee may obtain advice and assistance from independent advisors, including legal and accounting advisors, as it deems necessary, and it has the authority to retain and compensate such advisors at its discretion without Board approval.

The Committee shall review annually the adequacy of the Audit Committee Charter and request Board approval for any changes it recommends.

The Committee shall annually undertake and review with the Board a performance evaluation of the Committee.

The Committee shall perform such other functions consistent with law as assigned by the Board and consider any other matters that in the opinion of the Committee, or at the request of the Board, would assist the Directors in meeting their responsibilities.

The Company shall provide appropriate funding (as determined by the Committee) for the payment of compensation to the independent auditors and the Committee’s legal and accounting advisers, as well as the administrative expenses of the Committee that are necessary and appropriate in carrying out its duties.

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While the members of the Committee have the duties and responsibilities set forth in this Charter, nothing contained in this Charter is intended to create, or should be construed as creating, any responsibility or liability of members of the Committee, except to the extent otherwise provided under applicable federal or state law.