This mandate (the “Mandate”) sets out the purpose, composition, responsibilities, and authority of the Audit Committee (the “Committee”) of the Board of Directors (the “Board”) of Baylin Technologies Inc. (the “Company”).
Purpose. The primary purpose of the Committee is to assist the Board in fulfilling its oversight responsibilities with respect to:
(a) financial reporting;
(b) the external auditors, including performance, qualifications, independence, and their audit of the Company’s financial statements;
(c) the Company’s internal audit function (if any);
(d) internal controls and disclosure controls;
(e) financial risk management; and
(f) related party transactions.
Composition and Membership
2.1 Members. The Board will appoint the members (the “Members”) of the Committee. The Members will hold office until their successors are appointed. The Board may remove a Member at any time and may fill any vacancy occurring on the Committee. A Member may resign at any time and a Member will automatically cease to be a Member on ceasing to be a director.
2.2 Independence. The Committee will be comprised of at least three directors. Subject to any exemption available under National instrument 52-110 – Audit Committees (“NI-52-110”), each Member must be independent, that is, free of any direct or indirect “material relationship” that could, in the Board’s view, reasonably interfere with the exercise of a Member's independent judgment. A Member will be considered to have a material relationship with the Company if he or she falls into one of the categories listed in Schedule A – Material Relationships.
2.3 Financial Literacy. Subject to any exemption available under NI 52-110, each Member must be “financially literate” within the meaning of NI 52-110. NI 52-110 provides that a director will be considered “financially literate” if he or she has the ability 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 Company’s financial statements.
2.4 Skills and Experience. Each Member must have, to the satisfaction of the Board, sufficient skills or experience as is relevant and will contribute to the carrying out of the Mandate of the Committee.
2.5 Chair and Secretary. The Board will appoint one of the Members (who must be independent) to act as the chair of the Committee (the “Chair”). The corporate secretary of the Company (the “Secretary”) will act as secretary of all meetings and will maintain minutes of meetings and deliberations of the Committee. If the Secretary is not in attendance at any meeting, the Committee will appoint another person who may, but need not, be a Member to act as the secretary of that meeting.
3.1 Holding of Meetings. The Committee will hold its meetings at such times and places as the Chair may determine, but in any event at least four times in any year (and more frequently if circumstances require). The Committee is to meet in advance of the filing of the quarterly and annual financial statements in order to review and discuss the unaudited or (as applicable) audited financial results for the preceding quarter or (as applicable) the full year and the related management’s discussion and analysis (“MD&A”). Members may attend meetings in person or by videoconference or telephone.
3.2 Meeting with Management and Auditors. The Committee will meet periodically with management, the external auditors and (if applicable) the internal auditors in separate sessions to discuss any matters that the Committee or each group believes should be discussed privately. The Committee will meet with the external auditors and (if applicable) the internal auditors in a separate session as part of each regularly scheduled meeting of the Committee at which the auditors are present.
3.3 Chair of Meetings. The Chair (if present) will act as the chair of meetings of the Committee. If the Chair is not present at a meeting, the Members in attendance may select one of their number to act as chair of the meeting.
3.4 Quorum and Voting. A majority of the Members will constitute a quorum for a meeting of the Committee. Each Member will have one vote and decisions of the Committee will be made by an affirmative vote of the majority. The Chair will not have a deciding or casting vote in the case of an equality of votes. The Committee may also exercise its powers by written resolution signed by all the Members.
3.5 Guests. The Committee may require any person (including officers and employees of the Company) as it sees fit to attend its meetings, to report to the Committee and to take part in the discussion and consideration of the affairs of the Committee.
3.6 In Camera Meetings. The Committee should meet in camera without members of management in attendance for part of each meeting.
3.7 Meeting Agenda. In advance of each regular meeting of the Committee, the Chair, with the assistance of the Secretary, will prepare and distribute to the Members and others (as deemed appropriate by the Chair) an agenda of matters to be addressed at the meeting, together with appropriate briefing materials. The Committee may require officers and employees of the Company to produce such information and reports as the Committee may deem appropriate in order for it to fulfill its duties.
Duties and Responsibilities
The Audit Committee has the following duties and responsibilities.
4.1 General Responsibilities.
(a) Create and maintain a Committee plan for the year.
(b) Review and assess this Mandate at least annually and refer its assessment and any proposed revisions to the Corporate Governance and Compensation Committee.
(c) Report and make recommendations periodically to the Board on the matters covered by this Mandate.
(d) Perform any other activities consistent with this Mandate and governing law, as the Committee or the Board deems necessary or appropriate.
4.2 Financial Reporting.
(a) Review and recommend to the Board for approval:
(i) the Company’s quarterly and annual financial statements and related MD&A; and
(ii) all other financial statements that require approval by the Board, including financial statements for use in prospectuses or other offering or public disclosure documents and financial statements required by regulatory authorities.
(b) Review press releases of annual and interim profit or loss prior to their publication or release or filing with any governmental body.
(c) Determine that adequate procedures are in place for the review of the Company’s public disclosure of financial information extracted or derived from its financial statements (other than the public disclosures referred to in paragraph (b)), and periodically assess the adequacy of those procedures.
(d) Oversee the work of the external auditors engaged for the purpose of preparing or issuing an auditors’ report or performing other audit, review or attest services for the Company, including the resolution of disagreements between management and the external auditors regarding financial reporting.
(e) Before the release of annual and quarterly financial statements and related disclosures to the public, obtain confirmation from the Chief Executive Officer and Chief Financial Officer as to the matters addressed in the certifications required by the securities regulatory authorities.
(f) Review any litigation, claim or other contingency that could have a material effect on the financial statements.
(g) Review the external auditors’ judgments about the quality and appropriateness (and not just the acceptability) of the Company’s accounting principles and financial disclosure practices, as applied in its financial reporting.
(h) Review the status of significant accounting estimates and judgments and special issues (for example, major transactions, changes in the selection or application of accounting policies, impairments and other write-offs, off-balance sheet items, and the effect of regulatory and financial initiatives).
(i) Review and (if appropriate) approve major changes to the Company’s accounting principles and practices as suggested by management with the concurrence of the external auditors.
4.3 External Auditors.
(a) Recommend to the Board (i) the selection of the external auditors for the purpose of preparing an auditors’ report, or performing other audit, review or attest services, taking into consideration independence and effectiveness, and (ii) the fees and other compensation to be paid to the external auditors.
(b) Require, in accordance with applicable law, that the external auditors report directly to the Committee.
(c) Pre-approve all audit and non-audit services to be provided to the Company or its subsidiaries by the external auditors in a manner consistent with NI 52-110.
(d) Oversee the work and review the performance of the external auditors and approve any proposed termination of their appointment when circumstances warrant.
(e) Monitor the relationship between management and the external auditors, including reviewing any management letters or other reports of the external auditors.
(f) Discuss with the external auditors any (i) difference of opinion with management on material auditing or accounting issues and (ii) audit problems or difficulties experienced by the external auditors in performing the audit. Where there is a significant unsettled issue, assist in arriving at an agreed course of action for the resolution of the matter.
(g) Periodically consult with the external auditors without management present about significant risks or exposures, internal controls and other steps that management has taken to control such risks, and the completeness and accuracy of the Company’s financial statements.
(h) Review and discuss with the external auditors on an annual basis all significant relationships they have with the Company to determine their independence.
(i) Review and approve the Company’s hiring policies regarding partners and employees and former partners and employees of the external auditors (both current and former).
(j) Consider any matter required to be communicated to the Committee by the external auditors under applicable generally accepted auditing standards, applicable law and listing standards, including the auditors’ report to the Audit Committee (and management’s response to the report).
4.4 Monitoring Financial Matters, Internal Controls, Management Systems and Disclosure Controls.
(a) Oversee management’s review of the adequacy of the Company’s accounting and financial reporting systems, including with respect to the integrity and quality of the Company’s financial statements and other financial information.
(b) Oversee management’s review of the adequacy of the Company’s internal controls and management systems to safeguard assets from loss and unauthorized use and to verify the accuracy of the financial records.
(c) Oversee management’s disclosure controls and procedures regarding the Company’s financial information to confirm that the Company’s financial information that is required to be disclosed under applicable law or stock exchange rules is disclosed in a timely manner.
(d) Review any special audit steps adopted in light of material control deficiencies.
(e) Oversee procedures for (i) the receipt, retention and treatment of complaints received by the Company regarding accounting, internal controls or auditing matters and (ii) the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.
4.5 Risk Management. Review management’s assessment and management of financial risk, including insurance coverage, and obtain the external auditors’ opinion of management’s assessment of significant financial risks facing the Company and how effectively such risks are being managed or controlled.
4.6 Related Party Transactions. Review and pre-approve any proposed related party transaction and situation involving a potential or actual conflict of interest involving a director, member of executive management, or affiliate, of the Company that is not required to be dealt with by an “independent committee”, other than routine transactions and situations arising in the ordinary course of business, consistent with past practice.
4.7 Financial Legal Compliance.
(a) Review management’s monitoring of the Company’s systems in place to ensure that the Company’s financial statements, reports and other financial information disseminated to regulatory authorities and the public satisfy legal requirements.
(b) Review with legal counsel any legal matters that could have a significant effect on the Company’s financial statements.
(c) Review with legal counsel the Company’s compliance with applicable law and inquiries received from regulator authorities and governmental agencies to the extent they may have a material impact on the financial position of the Company.
4.8 Expense Accounts and Management Perquisites. Recommend to the Board policies and procedures with respect to directors’ and executive management’s expense accounts and management perquisites and benefits, including their use of corporate assets and expenditures related to executive travel and entertainment, and review the results of the procedures performed in these areas by the external auditors.
4.9 Disclosure of Audit Committee Function.
(a) Oversee the preparation of, and recommend to the Board, the disclosure of the Committee’s composition and responsibilities and how they were discharged as required to be published annually in the Company’s management information circular or annual information form as required by applicable law, including NI 52-110.
(b) Approve any other significant information relating to matters within this Mandate contained in the Company’s disclosure documents.
4.10 Legal Compliance.
(a) Oversee management’s compliance with laws with respect to the audit function and recommend to the Board any changes to the Company’s practices in these areas.
(b) Satisfy itself that management monitors significant trends in the area of financial reporting and evaluates their impact on the Company.
4.11 Investigations. Direct and supervise the investigation into any matter brought to its attention and within the scope of this Mandate.
4.12 Other Duties. Perform such other duties as may be assigned to the Committee by the Board or as may be required by applicable law or regulatory authorities or as the Committee may consider to be necessary or appropriate for the performance of its responsibilities and duties.
Reporting. The Chair will report to the Board at each Board meeting on the Committee's activities since the last Board meeting.
Access to Information and Authority.
6.1 Access. The Committee will be entitled to unrestricted access to all information regarding the Company and its business that is necessary or desirable to fulfill its duties and all directors, officers and employees will be directed to co-operate as requested by Members.
6.2 Authority. The Committee has the authority to retain, at the Company's expense, independent legal, financial, compensation and other consultants, advisors and experts, to assist the Committee in fulfilling its duties and responsibilities, including sole authority to retain and to approve any such firm's fees and other retention terms without prior approval of or notice to the Board. The Committee also has the authority to communicate directly with the external auditors and (if applicable) the internal auditors.
6.3 Special Authority of Chair. In circumstances where it is not practicable for the Committee to meet or convene in a timely manner to consider any matter, and the matter is urgent, the Chair will be entitled to exercise (on behalf of the Committee) the authority of the Committee as set out in this Mandate. The Chair will advise the other Members of any authority exercised or other action taken as soon as practicable after exercising any such authority or taking any such action.
6.4 Extended Meaning of Company. References in this Mandate to the “Company” include (where the context requires) its subsidiaries.
Review of Mandate. The Committee will review and assess the adequacy of this Mandate annually and recommend any changes to the Board for its consideration.
May 11, 2022
Deemed Material Relationships
Section 1.4 of NI 52-110 provides that the following individuals are considered to have a “material relationship” with the Company (as issuer) and, as such, would not be considered independent:
(a) an individual who is, or has been within the last three years, an employee or executive officer of the issuer;
(b) an individual whose immediate family member is, or has been within the last three years, an executive officer of the issuer;
(c) an individual who:
(i) is a partner of a firm that is the issuer's external auditor,
(ii) is an employee of that firm, or
(iii) was within the last three years a partner or employee of that firm and personally worked on the issuer's audit within that time;
(d) an individual whose spouse, minor child or stepchild, or child or stepchild who shares a home with the individual:
(i) is a partner of a firm that is the issuer's external auditor,
(ii) is an employee of that firm and participates in its audit, assurance or tax compliance (but not tax planning) practice, or
(iii) was within the last three years a partner or employee of that firm and personally worked on the issuer's audit within that time;
(e) an individual who, or whose immediate family member, is or has been within the last three years, an executive officer of an entity if any of the issuer's current executive officers serves or served at that same time on the entity's compensation committee; and
(f) an individual who received, or whose immediate family member who is employed as an executive officer of the issuer received, more than $75,000 in direct compensation from the issuer during any 12-month period within the last three years.
Despite paragraphs (a) to (f), an individual will not be considered to have a material relationship with the Company solely because the individual or his or her immediate family member (i) has previously acted as an interim chief executive officer of the issuer, or (ii) acts, or has previously acted, as a chair or vice-chair of the board of directors or of any board committee of the issuer on a part-time basis.
Section 1.5 of NI 52-110 provides that, despite any determination made under section 1.4 of NI 52-110, any individual who
(a) accepts, directly or indirectly, any consulting, advisory or other compensatory fee from the issuer or any subsidiary entity of the issuer, other than as remuneration for acting in his or her capacity as a member of the board of directors or any board committee, or as a part-time chair or vice-chair of the board or any board committee, or
(b) is an affiliated entity of the issuer or any of its subsidiary entities,
is considered to have a material relationship with the issuer.
For the purpose of determining whether there is a “material relationship”, the indirect acceptance by an individual of any consulting, advisory or other compensatory fee includes acceptance of a fee by:
(a) an individual's spouse, minor child or stepchild, or a child or stepchild who shares the individual's home; or
(b) an entity in which such individual is a partner, member, an officer such as a managing director occupying a comparable position or executive officer, or occupies a similar position (except limited partners, non-managing members and those occupying similar positions who, in each case, have no active role in providing services to the entity) and which provides accounting, consulting, legal, investment banking or financial advisory services to the issuer or any subsidiary entity of the issuer.
For the purposes of determining whether there is a “material relationship”, compensatory fees do not include the receipt of fixed amounts of compensation under a retirement plan (including deferred compensation) for prior service with the issuer if the compensation is not contingent in any way on continued service.”
For purposes of determining whether or not a member has a material relationship with the Company, the following terms apply:
“affiliated entity” - a person or company is considered to be an affiliated entity of another person or company if (a) one of them controls or is controlled by the other or if both persons or companies are controlled by the same person or company, or (b) the person is an individual who is (i) both a director and an employee of an affiliated entity, or (ii) an executive officer, general partner or managing member of an affiliated entity;
“company” means any corporation, incorporated association, incorporated syndicate or other incorporated organization;
“control” means the direct or indirect power to direct or cause the direction of the management and policies of a person or company, whether through ownership of voting securities or otherwise, except that an individual will not be considered to control a company if the individual owns, directly or indirectly, ten per cent or less of any class of voting securities of such company and is not an executive officer of such company;
“executive officer” of an entity means an individual who is (a) a chair of the entity; (b) a vice-chair of the entity; (c) the president of the entity; (d) a vice-president of the entity in charge of a principal business unit, division or function including sales, finance or production; (e) an officer of the entity or any of its subsidiary entities who performs a policymaking function in respect of the entity; or (f) any other individual who performs a policymaking function in respect of the entity;
“immediate family member” means an individual’s spouse, parent, child, sibling, mother or father-in-law, son or daughter-in-law, brother- or sister-in-law, and anyone (other than an employee of either the individual or the individual’s immediate family member) who shares the individual’s home;
“person” means an individual, partnership, unincorporated association, unincorporated syndicate, unincorporated organization, trust, trustee, executor, administrator, or other legal representative; and
“subsidiary entity” means a person or company is considered to be a subsidiary entity of another person or company if it is controlled by (i) that other, or (ii) that other and one or more persons or companies each of which is controlled by that other, or (iii) two or more persons or companies, each of which is controlled by that other; or (b) it is a subsidiary entity of a person or company that is the other’s subsidiary entity.