GMX RESOURCES INC.
AUDIT COMMITTEE CHARTER
As Amended and Approved
by the Board May 27, 2004
Audit Committee is appointed by the Board to assist the Board in monitoring (1)
the integrity of the financial statements of the Company, (2) the independent
auditor's qualifications and independence, (3) the performance of the Company's
internal audit function and independent auditors, and (4) the compliance by the
Company with legal and regulatory requirements.
Audit Committee shall prepare the report required by the rules of the
Securities and Exchange Commission (the "Commission") to be included
in the Company's annual proxy statement.
Audit Committee shall consist of no fewer than two members until no later than
July 31, 2005 ("Compliance Date") when the Company is required to
have at least three members to be in compliance with the Amended Corporate
Governance Rules of the NASDAQ Stock Market, Inc. ("NASDAQ
Rules"). After the Compliance Date, (i) the members of the Audit
Committee shall meet the independence and experience requirements of the NASDAQ
Rules, Section 10A(m)(3) of the Securities Exchange Act of 1934 (the
"Exchange Act") and the rules and regulations of the Commission; and
(ii) at least one member of the Committee shall be financially sophisticated as
contemplated by the NASDAQ Rules. Until the Company attains compliance
with the NASDAQ Rules, the membership of the Committee will comply with the
existing rules of NASDAQ, which require no fewer than two independent members.
Board shall use reasonable efforts to assure that at least one member of the
Audit Committee shall be an audit committee "financial expert" as
defined by the Commission. Audit Committee members shall not simultaneously
serve on the audit committees of more than two other public companies.
The members of the Audit Committee shall be appointed by the Board. Audit
Committee members may be replaced by the Board. Unless a Committee Chairman is
elected by the full Board, the Committee members may designate a Chairman.
Audit Committee shall meet as often as it determines, but no less frequently
than quarterly. The Audit Committee shall meet periodically with
management, the internal auditors and the independent auditor in separate
executive sessions. The Audit Committee may request any officer or employee of
the Company or the Company's outside counsel or independent auditor to attend a
meeting of the Committee or to meet with any members of, or consultants to, the
Committee Authority and Responsibilities
Audit Committee shall have the sole authority to appoint or replace the
independent auditor. The Audit Committee shall be directly responsible
for the compensation and oversight of the work of the independent auditor
(including resolution of disagreements between management and the independent
auditor regarding financial reporting) for the purpose of preparing or issuing
an audit report or related work. The independent auditor shall report directly
to the Audit Committee.
Audit Committee shall preapprove all auditing services and permitted non-audit
services (including the fees and terms thereof) to be performed for the Company
by its independent auditor, subject to the de minimis exceptions for non-audit
services described in Section 10(A)(i)(1)(B) of the Exchange Act which are
approved by the Audit Committee prior to the completion of the audit. The
Audit Committee delegate pre-approval authority to one or more members when
appropriate provided that any decisions to grant pre-approvals shall be
presented to the full Audit Committee at its next scheduled meeting.
Audit Committee shall have the authority, to the extent it deems necessary or
appropriate, to retain outside legal, accounting or other advisors. The
Company shall provide for appropriate funding, as determined by the Audit
Committee, for payment of compensation to the independent auditor and for
payment of compensation to any outside legal, accounting or other advisors employed
by the Audit Committee.
Audit Committee shall make regular reports to the Board. The Audit Committee
shall review and reassess the adequacy of this Charter annually and recommend
any proposed changes to the Board for approval. The Audit Committee shall
annually review the Audit Committee's own performance.
addition to any other matters that the Board may assign to the Audit Committee,
the Audit Committee shall:
Financial Statement and Disclosure Matters
- Review and discuss with
management and the independent auditor the annual audited financial
statements, including disclosures made in management's discussion and
analysis ("MD&A") of its Form 10-K filings, and recommend to
the Board whether the audited financial statements should be included in
the Company's Form 10-K.
- Review and
discuss with management and the independent auditor the Company's
quarterly financial statements prior to the filing of its Form 10-Q,
including the results of the independent auditor's review of the quarterly
- Discuss with management and
the independent auditor significant financial reporting issues and
judgments made in connection with the preparation of the Company's
financial statements, including any significant changes in the Company's
selection or application of accounting principles, any major issues as to
the adequacy of the Company's internal controls and any special steps
adopted in light of material control deficiencies.
- Review and
discuss at least annually prior to filing of the audit report with the
Commission, reports from the independent auditors on:
All critical accounting policies and practices
to be used.
All 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
Other material written communications between
the independent auditor and management, such as any management letter or
schedule of unadjusted differences.
- Discuss with management the
Company's earnings or sales or other financial press releases, including
the use of "pro forma" or "adjusted" non-GAAP
information, as well as financial information and earnings or sales
guidance provided to analysts, rating agencies, in press releases or
otherwise. Such discussion may be done generally (consisting of discussing
the types of information to be disclosed and the types of presentations to
- Discuss with management and
the independent auditor the effect of regulatory and accounting initiative
as well as off-balance sheet structures on the Company's financial
- Discuss with management the
Company's major financial risk exposures and the steps management has
taken to monitor and control such exposures, including the Company's risk
assessment and risk management policies.
- Discuss with the independent
auditor 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.
disclosures made to the Audit Committee by the Company's CEO and CFO
during their certification process for the Form 10-K and Form 10-Q about
any significant deficiencies in the design or operation of internal
controls or material weaknesses therein and any fraud involving management
or other employees who have a significant role in the Company's internal
Oversight of the Company's Relationship with the Independent Auditor
- Review and evaluate the lead
partner of the independent auditor team.
- Obtain and review a report
from the independent auditor at least annually regarding (a) the
independent auditor's internal quality-control procedures, (b) 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, (c) any
steps taken to deal with any such issues, and (d) all relationships
between the independent auditor and the Company as required by
Independence Standards Board Standard No. 1. Evaluate the
qualifications, performance and independence of the independent auditor,
including considering whether the auditor's quality controls are adequate
and the provision of permitted non-audit services is compatible with
maintaining the auditor's independence, taking into account the opinions
of management and internal auditors. The Audit Committee shall
present its conclusions with respect to the independent auditor to the
- Ensure the rotation of the
audit partners as required by law. Consider whether, in order to
assure continuing auditor independence, it is appropriate to adopt a
policy of rotating the independent auditing firm on a regular basis.
- Set the Board policies for
the Company's hiring of employees or former employees of the independent auditor
who participated in any capacity in the audit of the Company.
necessary, discuss with the national office of the independent auditor
issues on which they were consulted by the Company's audit team and
matters of audit quality and consistency.
- Meet with the independent
auditor prior to the audit to discuss the planning and staffing of the
- Obtain from the independent
auditor assurances that Section 10B of the Exchange Act has not been
Compliance Oversight Responsibilities
- Establish procedures for the
receipt, retention and treatment of complaints received by the Company
regarding accounting, internal accounting controls or auditing matters,
and the confidential, anonymous submission by employees of concerns
regarding questionable accounting or auditing matters.
- Discuss with management and
the independent auditor any correspondence with regulators or governmental
agencies and any published reports which raise material issues regarding
the Company's financial statements or accounting policies.
- Discuss with the Company's
legal counsel any matters that may have a material impact on the financial
statements or the Company's compliance policies.
- Review and approved all
related party transactions in order to comply with applicable state
corporate law, Commission disclosure rules and NASDAQ rules.
- Recommend and periodically
review the Company's Code of Ethics.
- Receive and make an
appropriate response to any "reports of a material violation"
from any attorney performing legal services which such attorney is
required to report if an appropriate response has not been made to a
report of such material violation by the Chief Executive Officer.
For this purpose, a "report of a material violation" has the
meaning contemplated by the "Standards of Professional Conduct for an
Attorney Appearing and Practicing Before the Commission in the
Representation of an Issuer" promulgated by the Commission.
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.