Exhibit 99.12
HEADWATERS INCORPORATED
AUDIT COMMITTEE CHARTER
March 9, 2005
Purpose and Composition
- -----------------------
This Charter governs the operations of the Audit Committee. The Audit
Committee shall be comprised of three or more directors as determined by the
Board of Directors and shall meet the qualification requirements of the New York
Stock Exchange listing standards.
The members of the Audit Committee shall be elected by the Board of
Directors annually and shall serve until their successors are duly elected and
qualified. Unless a Chair is elected by the full Board of Directors, the members
of the Audit Committee may designate a Chair by majority vote of the full Audit
Committee membership.
Statement of Policy
- -------------------
The Audit Committee shall provide assistance to the Board of Directors
in overseeing the integrity of the Corporation's financial statements,
disclosure controls and procedures, the systems of internal accounting and
financial controls, the Corporation's compliance with legal and regulatory
requirements, the qualifications and independence of the independent auditors,
the performance of the Corporation's internal audit functions and independent
auditors, and the quarterly reviews and annual independent audit of the
Corporation's financial statements.
The independent auditor for the Corporation is ultimately accountable
to the Audit Committee and the Board of Directors. The Audit Committee and the
Board shall have the ultimate authority and responsibility to select, evaluate
and, where appropriate, replace the independent auditor.
Annual Performance Evaluation
- -----------------------------
The Audit Committee shall conduct an annual self-evaluation of the
Audit Committee's performance.
Responsibility and Processes
- ----------------------------
The primary responsibility of the Audit Committee is to oversee the
Corporation's financial reporting process on behalf of the Board of Directors
and report the results of its activities to the Board of Directors. It is not
the duty of the Audit Committee to plan or conduct audits, to determine that the
Corporation's financial statements are complete and accurate and are in
accordance with generally accepted accounting principles or to assure compliance
with laws. These are the responsibilities of management, the internal auditor,
and the independent auditor.
The following shall be the principal recurring processes of the Audit
Committee in carrying out its oversight responsibilities. The processes are set
forth as a guide with the understanding that the Audit Committee may alter or
supplement them as appropriate.
1. Annually, the Audit Committee shall recommend to the Board of
Directors the selection of the Corporation's independent auditor, subject to
stockholder ratification of the selection, if such ratification is required or
sought.
2. The Audit Committee shall discuss with the internal auditors and
independent auditor the overall scope and plans for their respective audit
examinations. The Audit Committee shall be responsible for the compensation,
retention, and oversight of the work of the independent auditor (including
resolution of any disagreements between management and the auditor regarding
financial reporting) for the purpose of preparing or issuing an audit report or
performing other audit, review, or attest services for the Corporation.
3. The Audit Committee shall ensure that the independent auditor
submits annually a formal written statement delineating all relationships
between the independent auditor and the Corporation. The Audit Committee is
responsible for engaging in a dialogue with the independent auditor with respect
to such disclosed relationships that may impact the objectivity and independence
of the independent auditor and recommending that the Board of Directors take
appropriate action to satisfy itself of the independent auditor's independence.
4. The Audit Committee shall establish policies and procedures for the
engagement of the independent auditor to provide non-audit services, and
consider whether the independent auditor's performance of an non-audit services
is compatible with the independent auditor's independence.
5. The Audit Committee shall at least annually obtain and review a
report by the independent auditor describing: the 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.
6. The Audit Committee should review the auditor's qualifications,
performance, and independence. This evaluation should include the review and
evaluation of the lead partner of the independent auditor. In making its
evaluation, the Audit Committee should take into account the opinions of
management and the Corporation's internal auditors. In addition to assuring the
regular rotation of the lead audit partner as required by law, the Audit
Committee should further consider whether, in order to assure continuing auditor
independence, there should be regular rotation of the audit firm itself. The
Audit Committee should present its conclusions with respect to the independent
auditor to the Board of Directors of the Corporation.
2
7. The Audit Committee shall discuss with management, the internal
auditors, and the independent auditor the adequacy and effectiveness of the
Corporation's internal controls, accounting and financial records, and the
system for monitoring and managing business risk and legal compliance. Further,
the Audit Committee shall meet separately with the independent auditor, with and
without management present, to discuss the results of their examinations.
8. The Audit Committee shall review and discuss with management, the
internal auditors, and the independent auditor the Corporation's interim
financial results to be included in the Corporation's quarterly reports filed
with the Securities and Exchange Commission, and the matters required to be
discussed by Statement on Auditing Standards No. 61 (Communications with Audit
Committees), as it may be modified or supplemented.
9. The Audit Committee shall review with management, the internal
auditors, and the independent auditor the financial statements, including
reviewing the Corporation's specific disclosures under "Management's Discussion
and Analysis of Financial Condition and Results of Operations," to be included
in the Corporation's Annual Report on Form 10-K (or the annual report to
shareholders if distributed prior to the filing of Form 10-K), as well as the
auditor's judgment about the quality, not just acceptability, of the
Corporation's accounting principles as applied in its financial reporting. The
review shall also include a discussion of the reasonableness of judgments and
estimates made in the preparation of the financial statements that may be viewed
as critical, as well as the clarity of financial statement disclosures. In
addition, the Audit Committee shall discuss the results of the annual audit and
any other matters required to be communicated to the Audit Committee by the
independent auditor under generally accepted auditing standards, including the
matters required to be discussed by Statement on Auditing Standards No. 61
(Communications with Audit Committees), as it may be modified or supplemented.
10. Based on its review and discussions of items 3 and 8, the Audit
Committee shall recommend to the Board of Directors whether the financial
statements, including the Corporation's specific disclosures under "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
should be included in the Annual Report on Form 10-K (or the annual report to
shareholders if distributed prior to the filing of Form 10-K).
11. As a whole, or through the Chair, the Audit Committee shall review
the impact on the financial statements of significant events, transactions, or
changes in accounting principles or estimates which potentially affect the
quality of the financial reporting with management and the independent auditor
prior to the filing of the Corporation's Reports on Form 10-Q or 10-K, or as
soon as practicable if the communications cannot be made prior to its filing.
12. Management and the independent auditor shall discuss with the Audit
Committee significant changes to the Corporation's auditing and accounting
3
principles, policies, controls, procedures and practices proposed or
contemplated by the independent auditor or management.
13. The Audit Committee shall review and reassess this Charter annually
and recommend any appropriate changes to the Board of Directors.
14. The Audit Committee shall discuss the Corporation's earnings press
releases, as well as financial information and earnings guidance provided to
analysts and ratings agencies.
15. The Audit Committee shall discuss guidelines and policies with
respect to risk assessment and risk management, including the Corporation's
major financial risk exposures and the steps management has taken to monitor and
control such exposures.
16. The Audit Committee shall meet separately, periodically, with
management, with internal auditors (or other personnel responsible for the
internal audit function) and with independent auditors.
17. The Audit Committee shall set clear hiring policies for employees
or former employees of the independent auditors.
18. The Audit Committee shall establish procedures for the receipt,
retention, and treatment of complaints received by the Corporation regarding
accounting, internal accounting controls, or auditing matters. The Audit
Committee shall also establish procedures for the confidential, anonymous
submission by employees of the Corporation of concerns regarding questionable
accounting or auditing matters.
19. The Corporation shall provide for appropriate funding, as
determined by the Audit Committee, for payment of compensation to the
independent auditor, compensation to any advisors employed by the Audit
Committee, and ordinary administrative expenses of the Audit Committee that are
necessary or appropriate in carrying out its duties.
20. The Audit Committee shall review with the independent auditor any
audit problems or difficulties, and management's response. The scope of review
should include any restrictions on the scope of the independent auditor's
activities or access to requested information, and any significant disagreement
that is brought to its attention, after inquiry, among management and the
independent auditor or internal auditor in connection with the preparation of
the Corporation's financial statements. The Audit Committee should encourage
both management and the independent auditor to communicate openly with the Audit
Committee regarding such disagreements. In addition, the Audit Committee shall
review with management and the independent auditor any pending or threatened
action by regulators or government agencies and any employee complaints or
published reports that raise material issues regarding the Corporation's
financial statements or accounting policies. The Audit Committee may request any
officer or employee of the Corporation or the Corporation's outside counsel or
independent auditor to attend a meeting of the Audit Committee or to meet with
any members of, or consultants to, the Audit Committee. The Audit Committee
4
shall also have the resources and authority appropriate to discharge its
responsibilities, including the authority to engage outside auditors for special
audits, reviews and other procedures and to retain special counsel and other
experts or consultants.
Reports
- -------
1. The Audit Committee shall prepare or cause the preparation of the
report required by the rules of the Securities and Exchange Commission for
inclusion in the Corporation's annual proxy statement.
2. The Committee shall submit any recommendations for changes to the
Audit Committee Charter to the full Board of Directors for approval.
3. The Audit Committee shall maintain minutes of its meetings and
regularly report its activities to the Board of Directors.
Reliance on Information Provided
In adopting this Audit Committee Charter, the Board of Directors
acknowledges that the Audit Committee members are not employees of the
Corporation and are not providing any expert or special assurance as to the
Corporation's financial statements or any professional certification as to the
independent auditor's work or auditing standards. Each member of the Audit
Committee shall be entitled to rely on the integrity of those persons and
organizations within and outside the Corporation that provide information to the
Audit Committee and the accuracy and completeness of the financial and other
information provided to the Audit Committee by such persons or organizations
absent actual knowledge to the contrary.
5