Exhibit 10.9
Flotek Industries, Inc.
Board of Directors
Audit Committee Charter
Organization
This charter governs the operations of the Audit Committee (the "Committee") of
Flotek Industries, Inc. (the "Company"). The Committee shall be appointed by the
Board of Directors and shall comprise at least three directors, each of whom
shall be independent of management and the Company, as defined under the rules
and regulations of the Securities and Exchange Commission (the "Commission") and
The Nasdaq Stock Market, Inc. ("Nasdaq"). A Committee member may not receive any
compensation from the Company except for his or her service on the Committee or
the Board of Directors. All Committee members shall be financially literate, and
at least one member shall be a "financial expert" as defined by the Commission
and Nasdaq. The financial expert shall have, through education and experience as
a public accountant or auditor or as a principal financial officer, comptroller
or principal accounting officer of a company, or in a position involving the
performance of similar functions, financial expertise in accounting and
auditing. The Committee shall review and reassess the adequacy of this Charter
annually and recommend any proposed changes to the Board for approval.
Meetings
The Committee shall meet as often as it determines, but not less frequently than
quarterly. The Committee shall meet periodically with management, the internal
auditors and the independent auditors in separate executive sessions. The
Committee may request any officer or employee of the Company or the Company's
outside counsel or independent auditors to attend a meeting of the Committee or
to meet with any members of, or consultants to, the Committee.
Statement of Policy
The Committee shall provide assistance to the Board of Directors in fulfilling
their oversight responsibility to the shareholders, potential shareholders, the
investment community, and others relating to the integrity of Company's
financial statements and the financial reporting process, the systems of
internal accounting and financial controls, the performance of the Company's
independent auditors, the annual independent audit of the Company's financial
statements, the independent auditors' qualifications and independence, and the
legal and regulatory compliance and ethics programs as established by management
and the Board of Directors. In so doing, it is the responsibility of the
Committee to maintain free and open communication among the Committee,
independent auditors and management of the Company. In discharging its oversight
role, the Committee is empowered to investigate any matter brought to its
attention with full access to all books, records, facilities and personnel of
the Company and the power to retain outside counsel or other experts for this
purpose.
Responsibilities and Processes
The primary responsibility of the Committee is to oversee the Company's
financial reporting process on behalf of the Board of Directors and report the
results of their activities to the Board of Directors. It is not the duty of the
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.
Management is responsible for preparing the Company's financial statements, and
the independent auditors are responsible for auditing those financial
statements. The Committee in carrying out its responsibilities believes its
policies and procedures should remain flexible, in order to best react to
changing conditions and circumstances. The Committee should take the appropriate
actions to set the overall corporate "tone" for quality financial reporting,
sound business risk practices and ethical behavior.
The Committee shall have the sole authority to appoint, determine funding for,
oversee and replace the independent auditors (subject, if applicable, to
shareholders ratification). The Committee shall be directly responsible for the
compensation and oversight of the work of the independent auditors (including
resolution of disagreements between management and the independent auditors
regarding financial reporting) for the purpose of preparing or issuing in audit
report or related work. The independent auditors shall report directly to the
Committee.
The 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 auditors, subject to the de minimus exceptions for non-audit
services described in Section 10A(i)(1)(B) of the Exchange Act which are
approved by the Committee prior to the completion of the audit. The Committee
may form and delegate authority to subcommittees consisting of one or more
members when appropriate, including the authority to grant preapprovals of audit
and permitted non-audit services, provided that decisions of such subcommittee
to grant preapprovals shall be presented to the full Committee at its next
scheduled meeting.
The Committee shall review and approve all related-party transactions involving
management or any Board member and the Company.
The Committee shall have the authority, to the extent it deems necessary or
appropriate, to retain independent legal, accounting or other advisors. The
Company shall provide for appropriate funding, as determined by the Committee,
for payment of compensation to the independent auditors for the purpose of
rendering or issuing an audit report and to any advisors employed by the
Committee.
The following shall be the principal recurring processes of the Committee in
carrying out its oversight responsibilities. The processes are set forth as a
guide with the understanding that the Committee may supplement them as
appropriate.
2
o The Committee shall have a clear understanding with management
and the independent auditors that the independent auditors are
ultimately accountable to the Board of Directors and the
Committee, as representatives of the Company's shareholders. The
Committee shall have the ultimate authority and responsibility to
evaluate and, where appropriate, replace the independent
auditors. Annually, the Committee shall review and recommend to
the Board of Directors the selection of the Company's independent
auditors, subject to shareholders' approval. The Committee shall
obtain and review a report from the independent auditors at least
annually regarding (a) the independent auditors' 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 government 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 auditors and Company.
The Committee shall evaluate the qualifications, performance and
independence of the independent auditors, including considering
whether the auditors' quality controls are adequate and the
provision of permitted non-audit services is compatible with
maintaining the auditors' independence, and taking into account
the opinions of management and internal auditors. The Committee
shall discuss with the auditors their independence from
management and the Company and the matters included in the
written disclosures required by the Independence Standards Board.
The Committee shall ensure the rotation of the lead (or
coordinating) audit partner having primary responsibility for the
audit and the audit partner responsible for reviewing the audit
as required by law.
o The Committee shall discuss with the independent auditors the
overall scope and plans for their respective audits, including
critical accounting policies and practices to be used and the
adequacy of staffing and compensation. Also, the Committee shall
discuss with management and the independent auditors the adequacy
and effectiveness of the Company's accounting and financial
controls, including the Company's major financial risk exposures,
the Company's system to monitor and manage business risk and
legal, regulatory and ethical compliance programs and the
Company's compliance with such system and programs. Further, the
Committee shall meet separately with the independent auditors,
with and without management present, to discuss with the
independent auditors the matters required to be discussed by
Statement and 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, any significant
disagreements with management and the results of the
examinations.
o The Committee shall review the interim financial statements with
management and the independent auditors prior to the filing of
the Company's Quarterly Report on Form 10-Q. Also, the Committee
shall discuss the results of the quarterly review and any other
matters required to be communicated to the Committee by the
independent auditors under generally accepted auditing standards.
The chair of the Committee may represent the entire Committee for
the purpose of this review.
3
o The Committee shall review with management and the independent
auditors the financial statements to be included in the Company's
Annual Report on Form 10-K/20-F (or the annual report to
shareholders if distributed prior to the filing of Form
10-K/20-F), including their judgment about the quality, not just
acceptability, of accounting principles, the reasonableness of
significant judgments, and the clarity of the disclosures in the
financial statements and recommend to the Board of Directors
whether the audited financial statements should be included in
the Company's Form 10-K/20-F. Also, the Committee shall discuss
the results of the annual audit and any other matters required to
be communicated to the Committee by the independent auditors
under generally accepted auditing standards.
o The Committee shall discuss with management and the independent
auditors 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,
alternative treatments of financial information within generally
accepted 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.
o The Committee shall review disclosures made to the Committee by
the Company's CEO and CFO during their certification process for
the Form 10-K/20-F and Form 10-Q regarding 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 controls.
o The Committee shall establish procedures for (i) the receipt,
retention and treatment of complaints received by the Company
regarding accounting, internal accounting controls or auditing
matters and the confidential and anonymous treatment of such
complaints, and (ii) the confidential, anonymous submissions by
employees of concerns regarding questionable accounting or
auditing matters.
4