Establishment of the Audit Committee
It is the policy of Pine Cliff Energy Ltd. (the "Corporation") to establish and maintain an Audit Committee (the "Committee") to assist the Board of Directors of the Corporation (the "Board") in the exercise of its duties and responsibilities.
Composition of the Committee
The membership of the Committee shall be as follows:
(a) the Committee shall consist of a minimum of three directors of the Corporation;
(b) each of the members of the Committee must be "independent" within the meaning of National Instrument 52-110 – Audit Committees;
(c) all members of the Committee shall be “financially literate” in that they must be able to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the Corporation’s financial statements;
(d) members of the Committee shall be appointed annually by the Board, at the first meeting of the Board after the annual general meeting of shareholders of the Corporation, from among directors of the Corporation;
(e) the chair (the "Chair") of the Committee shall be appointed by the Board;
(f) a member of the Committee shall ipso facto cease to be a member of the Committee upon ceasing to be a director of the Corporation; and
(g) any member of the Committee may be removed or replaced at any time by resolution of the directors of the Corporation. If and whenever a vacancy shall exist on the Committee, the remaining members may exercise all its powers so long as a quorum remains.
Meetings of the Committee
Subject to the following requirements, the Committee may determine its own meeting procedures:
(a) The Committee shall convene at such dates, times and places as may be designated or approved by the Chair whenever a meeting is requested by the Board, a member of the Committee, the Corporation’s external auditors (the “Auditors”), the Chief Executive Officer of the Corporation (the "CEO") or a senior executive of the Corporation. The Committee shall convene a minimum of four times per year to correspond with the review of the annual and quarterly financial statements;
(b) Notice of each meeting shall be given to each member of the Committee, the Chairman of the Board, the CEO, the Auditors and all other persons the Committee determines should be provided with notice of the meeting;
(c) Notice of a meeting of the Committee shall:
(i) be in writing;
(ii) state the nature of the business to be transacted at the meeting in reasonable detail;
(iii) provide the location of the meeting and instructions how to participate remotely if required;
(iv) to the extent practicable, be accompanied by copies of documentation to be considered at the meeting; and
(v) be given at least two business days prior to the time stipulated for the meeting or such shorter period as the members of the Committee may permit;
(d) A quorum for the transaction of business at a meeting of the Committee shall consist of a majority of its members. Every motion at the Committee meeting shall be decided by a majority of votes cast; in the event of a tie vote on any matters, such matters shall be presented to the Board for its consideration and determination;
(e) Any member of the Committee may participate in a meeting of the Committee by means of such telephonic, electronic or other communication facilities as permit all persons participating in the meeting to communicate adequately with each other, and a member participating in such a meeting by any such means is deemed to be present at the meeting;
(f) In the absence of the Chair, the members of the Committee shall choose one of the members present to be chair of the meeting. In addition, the members of the Committee shall choose one of the persons present to be the secretary of the meeting;
(g) The Chairman of the Board, the CEO, senior financial Management and other parties may attend meetings of the Committee; however, the Committee: (i) shall meet with the Auditors independent of Management; and (ii) may meet separately with Management;
(h) The Committee shall meet in a separate, non-Management, in camera session at each meeting. The Committee may invite such officers, directors and employees of the Corporation or affiliates as it see fit from time to time to attend meetings of the Committee and to assist thereat in the discussion of matters being considered by the Committee;
(i) Minutes shall be kept of all meetings of the Committee and shall be signed by the chair and the secretary of the meeting; and
(j) Minutes of Committee meetings will be sent to all Board members and relevant Management. Reports on the conduct of the meetings will be made to the Board by the Chair or in their absence, by the chair of the meeting.
Duties and Responsibilities of the Committee
The Committee's primary duties and responsibilities are to assist the Board with the following:
(a) providing an open avenue of communication among Management, the Auditors and the Board;
(b) monitoring the adequacy of this Charter and recommending any proposed changes to the Board;
(c) reviewing the appointments of the Corporation’s Chief Financial Officer and any other key financial executives involved in the financial reporting process;
(d) identifying and monitoring the Management of the principal risks that could impact the financial reporting of the Corporation;
(e) reviewing with Management and the Auditors the adequacy and effectiveness of the Corporation’s accounting and financial controls and overseeing the integrity, adequacy and timeliness of its financial reporting processes. The Committee shall review to ensure, to its satisfaction, that adequate procedures are in place for the review of the Corporation’s disclosure of financial information extracted or derived from the Corporation’s financial statements and will periodically assess the adequacy of those procedures;
(f) reviewing with Management and the external auditors the audited annual financial statements and related documents and review with Management the unaudited quarterly financial statements and related documents, prior to filing or distribution, including matters
required to be reviewed under applicable legal or regulatory requirements, for submission to the Board of Directors for approval;
(g) reviewing with Management, where appropriate and prior to release, any news releases that disclose annual or interim financial results or contain other significant financial information that has not previously been released to the public;
(h) reviewing the Corporation’s financial reporting and accounting standards and principles and significant changes in such standards or principles or in their application, including key accounting decisions affecting the financial statements, alternatives thereto and the
rationale for decisions made;
(i) reviewing the quality and appropriateness of the accounting policies and the clarity of financial information and disclosure practices adopted by the Corporation, including consideration of the Auditors’ judgment about the quality and appropriateness of the Corporation’s accounting policies. This review may include discussions with the external auditors without the presence of Management;
(j) reviewing with Management and the Auditors, significant related party transactions and potential conflicts of interest;
(k) pre-approving all non-audit services in excess of $20,000 to be provided to the Corporation by the Auditors and applicable fees;
(l) if deemed necessary, inspecting any and all of the books and records of the Corporation, its subsidiaries and affiliates;
(m) discussing with Management, its subsidiaries and affiliates and staff of the Corporation, any affected party, contractors and consultants of the Corporation and the external auditors, such accounts, records and other matters as any member of the Committee considers necessary and appropriate;
(n) when there is to be a change of Auditors, reviewing all issues and provide documentation related to the change, including the information to be included in the Notice of Change of Auditors and documentation required pursuant to National Instrument 51-102 (or any successor legislation) of the Canadian Securities Administrators and the planned steps for an orderly transition;
(o) reviewing all securities offering documents (including the documents incorporated therein by reference) of the Corporation;
(p) reviewing findings, if any, from examinations performed by regulatory agencies with respect to financial matters;
(q) reviewing and overseeing Management’s procedure for monitoring the Corporation’s compliance with laws and regulations related to financial reporting;
(r) reviewing current and expected future compliance with covenants under financing agreements;
(s) reviewing the proposed issuance of debt and equity instruments including public and private debt, equity and hybrid securities, credit facilities with banks and others, and other credit arrangements such as material capital and operating leases. When applicable, the Committee shall review the related securities;
(t) monitoring and overseeing the independence of the Auditors by reviewing all relationships between the Auditors and the Corporation and all non-audit work performed for the Corporation by the Auditors;
(u) establishing and reviewing the Corporation’s procedures for the:
(i) receipt, retention and treatment of complaints regarding accounting, financial disclosure, internal controls or auditing matters; and
(ii) confidential, anonymous submission by employees of the Corporation regarding questionable accounting, auditing and financial reporting and disclosure matters.
(v) reviewing and approving the Corporation’s hiring policies regarding partners, employees and former partners and employees of the present and former Auditors of the Corporation;
(w) conducting or authorizing investigations into any matters that the Committee believes is within the scope of its responsibilities;
(x) performing such other functions and exercise such other powers as are prescribed from time to time for the audit committee of a reporting issuer in Parts 2 and 4 of NI 52-110, all other applicable laws and policies and procedures of all applicable regulatory authorities, the Business Corporations Act (Alberta) and the By-laws of the Corporation; and
(y) performing any other activities consistent with this Charter as the Committee or the Board deems necessary or appropriate.
Management and Auditor’s Role
Management is responsible for preparing the Corporation’s financial statements and other financial information and for the fair presentation of the information set forth in the financial statements in accordance with International Financial Reporting Standards. Management is also responsible for establishing internal controls and procedures and for maintaining the appropriate accounting and financial reporting principles and policies designed to assure compliance with accounting standards and all applicable laws and regulations.
The Auditors’ responsibility is to express an opinion on the Corporation’s financial statements, based on their audit conducted in accordance with generally accepted auditing standards.
At the earliest reasonable opportunity after each meeting, the Committee shall report to the Board the results of its activities and any reviews undertaken and make recommendations to the Board as deemed appropriate.
Access to Outside Advisors
The Committee has the authority to retain independent counsel, accountants or other advisors to assist it, as it considers necessary, to carry out its duties, and to set and pay the compensation of such advisors at the expense of the Corporation. If these costs exceed $10,000 per annum for a Committee member, such member will obtain prior approval from the Board for the amount exceeding $10,000 per annum. The Committee, and any outside advisors retained by it, will have access to all records and information relating to the Corporation and its subsidiaries which it deems
relevant to the performance of its duties.