AMENDED AND RESTATED AUDIT COMMITTEE CHARTER
Adopted by the Board of Directors on
April 15, 2004
The Audit Committee of the board of directors of Abraxas Petroleum Corporation (the "Company") shall consist of at least three members each of whom is independent of management and the Company. Members of the audit committee shall be considered independent if they meet the requirements of Section 10A(m)(3) of the Securities Exchange Act of 1934 (the "Exchange Act") and the rules and regulations of any exchange on which Abraxas securities are listed or quoted and the Securities and Exchange Commission. Members of the audit committee may receive no compensation from the Company other than directors' fees and shall not serve on the audit committee of more than two other public companies. All audit committee members will be financially literate and at least one member will be an "audit committee financial expert" as defined and required by federal rules and regulations and the rules of any exchange on which Abraxas securities are listed or quoted.
STATEMENT OF POLICY
The audit committee shall provide assistance to the directors in fulfilling their responsibility to the stockholders, potential stockholders, and investment community relating to corporate accounting, reporting practices of the Company, and the quality and integrity of financial reports of the Company. In so doing, it is the responsibility of the audit committee to oversee the accounting and financial reporting procedures of the Company and the audits of the financial statements of the Company and to maintain free and open communication between the directors, the independent auditors, and the financial management of the Company.
The audit committee shall meet as often as may be deemed necessary or appropriate in its judgment, but at least quarterly each year, and at such time and places as the audit committee shall determine. The audit committee shall meet separately, at least quarterly, with the auditors and management to discuss any matters that the auditors or management wish to bring to the audit committee's attention.
The audit committee shall have the authority to retain such outside counsel, accountants, experts and other advisors as it deems appropriate to assist the audit committee in the performance of its functions. The Company shall provide for appropriate funding, as determined by the audit committee, for payment of compensation to the independent auditor for the purpose of rendering or issuing an audit report, to any advisor employed by the audit committee and for ordinary administrative expenses of the audit committee that are necessary or appropriate in carrying out its duties.
In carrying out its responsibilities, the audit committee believes its policies and procedures should remain flexible, in order to best react to changing conditions and to ensure to the directors and stockholders that the corporate accounting and reporting practices of the Company are in accordance with all requirements and are of the highest quality.
In carrying out these responsibilities, the audit committee shall:
Obtain the full board of directors' approval of this Charter and review and reassess this Charter as conditions dictate (at least annually).
Have the sole authority and direct responsibility to appoint, evaluate, retain and, where appropriate, replace the independent auditors to be selected, subject to stockholders approval, to audit the financial statements of the Company and its divisions.
Have the sole authority and direct responsibility for the compensation and oversight of the work of the independent auditors (including resolution of disagreements between management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company. The independent auditor shall report directly to the audit committee.
Meet with the independent auditors and financial management of the Company to review and pre-approve the scope of the proposed audit and timely quarterly reviews for the current year and the procedures to be utilized, the adequacy of the independent auditor's compensation, and at the conclusion thereof, review such audit or review, including any comments or recommendations of the independent auditors.
Establish policies and procedures for the engagement of the independent auditors to provide permissible non-audit services, subject to the de minimus exceptions for non-audit services described in Section 10A(i)(l)(B) of the Exchange Act, which shall include pre-approval of permissible non-audit services to be provided by the independent auditors. The audit committee shall approve in advance all non-audit services to be provided by the independent auditors.
Review and evaluate the lead partner of the independent auditor team and ensure the rotation of the audit partners as required by law.
Discuss with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61 relating to the conduct of the audit, including any difficulties encountered in the course of the audit work, any restrictions on the scope of activities or access to requested information, and any significant disagreements with management.
Review at least annually with the independent auditors and the Company's financial and accounting personnel, the adequacy and effectiveness of the accounting and financial controls of the Company, and elicit any recommendations for the improvement of such internal controls or particular areas where new or more detailed controls or procedures are desirable. Particular emphasis should be given to the adequacy of internal controls to expose any payments, transactions, or procedures that might be deemed illegal or otherwise improper. Further, the committee periodically should review Company policy statements to determine their adherence to the code of conduct.
Establish procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters, including procedures for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.
Review and discuss with management, the internal auditors and the independent auditors the adequacy and effectiveness of the Company's legal, regulatory and ethical compliance programs.
Obtain from the independent auditor assurance that Section 10A(b) of the Exchange Act has not been implicated.
Periodically review the Company's policies and Code of Ethics, with particular focus on related party transactions and conflicts of interest involving, directly or indirectly, the principal executive officer, principal financial officer and principal accounting officer, and consider whether changes are needed. The term "related-party transaction" shall be consistent with the definition provided in the SEC Regulation S-K, Item 404(a).
Evaluate, decide whether to approve and monitor on an ongoing basis any related party transactions covered by the Company's policies and Code of Ethics and make decisions regarding the grant of any waiver of or deviation from the Company's policies and Code of Ethics.
Obtain reports from management and the independent auditor that the Company and its subsidiary/foreign affiliated entities are in conformity with applicable legal requirements.
Review reports received from regulators and other legal and regulatory matters that may have a material effect on the financial statements or related Company compliance policies.
Inquire of management and the independent auditors about significant risks or exposures and assess the steps management has taken to minimize such risks to the Company.
Review and discuss the financial statements with financial management and the independent auditors prior to the filing of the Company's Form 10-K and Form 10-Q (or prior to the press release of results, if possible) to determine that the independent auditors do not take exception to the disclosure and content of the financial statements therein, and discuss any other matters required to be communicated to the committee by the auditors. The chair of the committee may represent the entire committee for the purpose of review.
Review and discuss the financial statements contained in the annual report to stockholders with management and the independent auditors to determine that the independent auditors are satisfied with the disclosure and content of the financial statements to be presented to the stockholders. Review with financial management and the independent auditors the results of their timely analysis of significant financial reporting issues and practices, including changes in, or adoptions of, accounting principles and disclosure practices, and discuss any other matters required to be communicated to the committee by the auditors. Also review with financial management and the independent auditors their judgments about the quality, not just acceptability, of accounting principles and the clarity of the financial disclosure practices used or proposed to be used, and particularly, the degree of aggressiveness or conservatism of the organization's accounting principles and underlying estimates, and other significant decisions made in preparing the financial statements.
Discuss with management the Company's earnings press releases, including the use of "pro forma" or "adjusted" non-GAAP information, as well as financial information and earnings guidance provided to analysts and rating agencies. Such discussions may be done generally (consisting of discussing the types of information to be disclosed and the types of presentations to be made).
Provide sufficient opportunity for the independent auditors to meet with the members of the audit committee without members of management present. Among the items to be discussed in these meetings are the independent auditors' evaluation of the Company's financial and accounting personnel and the cooperation that the independent auditors received during the course of audit.
Review accounting and financial human resources and succession planning relative thereto.
Report the results of the annual audit to the board of directors. If requested by the board, invite the independent auditors to attend the full board of directors meeting to assist in reporting the results of the annual audit or to answer other directors' questions (alternatively, the other directors, particularly the other independent directors, may be invited to attend the audit committee meeting during which the results of the annual audit are reviewed).
On an annual basis, obtain from the independent auditors a written communication delineating all their relationships and professional services as required by Independent Standards Board Standard No. 1, Independence Discussions with Audit Committees. In addition, review with the independent auditors the nature and scope of any disclosed relationships or professional services that may impact the objectivity and independence of the auditors and take, or recommend that the board of directors take, appropriate action to ensure the continuing independence of the auditors.
Submit the minutes of all meetings of the audit committee to, or discuss the matters discussed at each committee meeting with, the board of directors.
Investigate any matter brought to its attention within the scope of its duties, with the power to retain outside counsel for this purpose if, in its judgment, that is appropriate.
Review and discuss with management, the internal auditors and the independent auditors the Company's internal controls (with particular emphasis on the scope and performance of the internal audit function), and review and discuss with the internal auditors the results of the internal audit program.
Review and discuss the Company's disclosure controls and procedures, and the quarterly assessments of such controls and procedures by the chief executive officer and chief financial officer.
LIMITATION OF AUDIT COMMITTEE'S ROLE
While the audit committee has the responsibilities and powers set forth in this Charter, it is not the duty of the audit committee to plan or conduct audits or to determine that the Company's financial statements and disclosures are complete and accurate and are in accordance with generally accepted accounting principles and applicable rules and regulations. These are the responsibilities of management and the independent auditor.