EXHIBIT 99.3
ARCADIA RESOURCES, INC.
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
AS AMENDED AND RESTATED, EFFECTIVE JUNE 22, 2006
The Board of Directors (the "Board") of Arcadia Resources, Inc. ("ARI")
has established an Audit Committee (the "Committee") as a permanent standing
committee with the authority, responsibilities and specific duties as described
herein. This Charter of the Audit Committee of the Board of Directors (the
"Charter") and the composition of the Committee are intended to comply with
applicable law, including state and federal securities laws, the rules and
regulations of the Securities and Exchange Commission ("SEC") and any market or
exchange on which the Company's securities may be listed or quoted, and the
Company's Bylaws.
1. PURPOSE AND SCOPE
1.1. The purpose of the Committee is to assist the Board in fulfilling
its responsibility for the oversight of the quality and integrity of
the accounting, auditing and financial reporting practices of ARI.
The Committee's duties and responsibilities include oversight of:
- The accounting and financial reporting processes and systems
of internal accounting and financial controls of ARI;
including the effectiveness of ARI's internal controls;
- The integrity of ARI's financial statements;
- The annual independent audit of ARI's financial statements,
the engagement of the independent auditor, the evaluation of
the independent auditor's function, qualifications, services,
performance and independence;
- The compliance by ARI with legal and regulatory requirements
related to this Charter, including ARI's disclosure controls
and procedures, management's report on internal controls over
financial reporting and the report required by SEC rules to be
included ARI's annual proxy statement; and
- ARI's policies, practices and compliance regarding its Code of
Conduct.
2. AUDIT COMMITTEE CHARTER, MEMBERSHIP AND ORGANIZATION
2.1. Charter. The adequacy of this Charter shall be reviewed and
reassessed by the Committee at least annually. Any proposed changes
shall be submitted to the Board of Directors for its approval.
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2.2. Performance and Evaluation. The Committee shall evaluate on an
annual basis its performance in carrying out its duties and
responsibilities hereunder.
2.3. Membership; Chair. The Committee shall include no less than three
members of the Board and shall consist solely of Board members who
satisfy the requirements in Section 2.4 below. The members of the
Committee shall be appointed by the Board. Unless a Chair is
appointed by the Board, the members of the Committee shall designate
a Chair.
2.4. Independence. To the extent practicable, a majority of the members
of the Audit Committee shall be independent from management and
shall not have participated in the preparation of the financial
statements of ARI or any current subsidiary of ARI at any time
during the past three years. "Independence" shall be determined in
accordance with the applicable rules of any market or exchange on
which the Company's securities may be listed or quoted and Section
301 of the Sarbanes-Oxley Act of 2002 (the "Act") and applicable SEC
rules thereunder.
2.5. Financial Literacy. Each member of the Committee shall be able to
read and understand fundamental financial statements, including
ARI's balance sheet, income statement and statement of cash flows.
At least one member of the Committee shall be an audit committee
"financial expert" as defined by applicable SEC rules.
2.6. Meetings. In order to discharge its responsibilities, the Committee
shall each year establish a schedule of meetings; additional
meetings may be scheduled, but the Committee must meet at least
quarterly. In planning the annual schedule of meetings, the
Committee shall ensure that sufficient opportunities exist for its
members to meet separately with the independent auditors and/or the
head of ARI's internal audit function without management present; to
meet separately with management without the independent auditors
and/or head of ARI's internal audit function present; and to meet in
private with only the Committee members present. Such meetings may
be held in person or telephonically and may be held at such times
and places as the Committee determines.
2.7. Agenda, Minutes, and Reports. An agenda, together with materials
relating to the subject matter of each meeting shall be sent to
members of the Committee prior to each meeting. Minutes for all
meetings of the Committee shall be prepared to document the
Committee's discharge of its responsibilities. The minutes shall be
circulated in draft form to all Committee members to ensure an
accurate final record, and shall be approved at a subsequent meeting
of the Committee. In addition, the Committee shall make regular
reports to the Board, including therein any issues that arise with
respect to the quality or integrity of ARI's financial statements,
ARI's compliance with legal or regulatory requirements, the
performance of ARI's independent auditors, and the performance of
ARI's internal audit function. The Committee shall make such other
periodic reports to the Board as seem useful to it from time to
time, or as may be requested of it by the Board.
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3. AUDIT COMMITTEE AUTHORITY AND RESPONSIBILITIES
3.1. Authority to Engage Advisors. The Committee shall have sole
authority for the appointment, compensation, retention and oversight
of ARI's independent auditors. In addition, the Committee shall have
the authority to conduct or authorize investigations into any
matters within the scope of its authority. Such authority includes,
but is not limited to, the authority to engage independent legal,
accounting or other advisors, without Board approval, to assist in
the conduct of an investigation or as the Committee determines
appropriate to advise or assist in the performance of its duties.
ARI shall provide for the appropriate funding, as determined by the
Committee, for payment of compensation to any advisors employed by
the Committee and of the Committee's ordinary operating expenses
necessary or appropriate for carrying out its duties, subject only
to limitations imposed by applicable rules and regulations. The
Committee may request an officer or associate of ARI, or ARI'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.
3.2. Oversight of ARI's Relationship with the Independent Auditor.
3.2.1. ARI's independent auditor is solely responsible to the
Committee, as representatives of the shareholders.
3.2.2. The Committee shall have the ultimate authority and
responsibility to select, evaluate and, where appropriate,
replace the independent auditor. Selection of the independent
auditor shall occur at least annually, considering their
independence, evaluation of their services and compensation for
audit and non-audit services.
3.2.3. The Committee shall, prior to commencement of the annual audit,
review with management and the independent auditors the proposed
scope of the audit plan and fees, including the areas of
business to be examined, the adequacy of the personnel to be
assigned to the audit and other factors that may affect the time
lines of such audit.
3.2.4. ARI shall provide for appropriate funding, as determined by the
Committee, for payment of compensation to the independent
auditor for the purpose of rendering or issuing an audit report,
subject only to limitations imposed by applicable rules and
regulations.
3.2.5. The Committee shall pre-approve all audit services and non-audit
services (including fees and terms thereof) to be performed for
ARI by the independent auditors, other than de-minimis non-audit
services as defined under SEC rules.
3.2.6. The Committee shall give due consideration to whether the
independent auditor's performance of non-audit services is
compatible with maintaining
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the auditor's independence. In connection with this assessment,
the Committee shall obtain and review a report, at least
annually, from the independent auditor describing all
relationships between the independent auditor and ARI, including
the disclosures required by Independence Standard Boards
Standard No. 1.
3.2.7. The Committee also shall review a report from the independent
auditor at least annually regarding any material issues raised
by the most recent quality-control review, or peer review, of
the firm, or by any other inquiry or investigation regarding the
firm in the preceding five years.
3.2.8. The Committee shall require the independent auditor to review
the financial information included in ARI's quarterly report on
Form 10-Q prior to ARI filing such reports with the SEC.
3.3. Financial Statement and Disclosure Matters. The Committee shall have
the following specific duties and responsibilities with respect to
ARI's financial reporting process:
3.3.1. Annual Audited Financial Statements and Annual Report on Form
10-K. The Committee shall review and discuss with management and
the independent auditor (a) ARI's annual audited financial
statements, including disclosures made in management's
discussion and analysis, and recommend to the Board whether the
audited financial statements should be included in ARI's Form
10-K; and (b) the disclosure required regarding ARI's system of
internal controls required under SEC rules to be contained in
ARI's Form 10-K and the attestations or reports by the
independent auditors relating to such disclosure.
3.3.2. Quarterly Reports on Form 10-Q. The Committee shall review and
discuss with management and the independent auditor the (a) ARI
quarterly financial statements, including disclosures made in
management's discussion and analysis, prior to the filing of its
Form 10-Q with the SEC, including the results of the independent
auditor's review of the quarterly financial statements; and (b)
the disclosure regarding ARI's system of internal controls
required under SEC rules contained in ARI's Form 10-Q.
3.3.3. Required Discussions with Independent Auditor. The Committee
shall discuss with the independent auditors those matters
required to be discussed by Statement on Auditing Standards
("SAS") No. 61, as amended (Codification of Statements on
Auditing Standards, AU (Sections 380) and shall periodically
consult with regard to internal controls and the fullness and
accuracy of ARI's financial statements.
3.3.4. Other Discussions with Management and Independent Auditor. The
Committee shall review and discuss, on a quarterly basis, with
management and the independent auditors:
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- Major financial risk exposures and the steps management has
taken to monitor and control such exposures, including ARI's
risk assessment and risk management policies;
- Significant financial reporting issues and judgments made in
connection with the preparation of ARI's financial
statements;
- The clarity of financial disclosures made by ARI;
- The development, selection and disclosure of critical
accounting estimates and the analysis of alternative
assumptions or estimates, and the effects of such estimates
on ARI's financial statements;
- Significant changes in accounting principles, financial
reporting policies and internal controls implemented by ARI;
- Significant litigation, contingencies and claims against ARI
and material accounting issues that require disclosure in
ARI's financial statements;
- The adequacy and effectiveness of ARI's internal accounting
and financial controls and the recommendation of management,
the internal auditors, or the independent auditors for the
improvement of accounting practices and internal controls;
- Management's compliance with ARI's processes, procedures and
internal controls;
- Information regarding any "second" opinions sought by
management from an independent auditor with respect to the
accounting treatment of a particular event or transaction;
- Any difficulties encountered by the independent auditor in
the course of their audit work, including any restrictions
on the scope of activities or access to requested
information, and management's response, and any significant
disagreements with management;
- Management's use of "pro forma" or "non-GAAP" financial
information in ARI's quarterly and annual reports, or in
other information communicated to the public, such as in an
earnings press release;
- Review with management of ARI's current disclosure controls
and procedures;
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- Discuss with management and the independent auditor the
effect of regulatory initiatives and potential changes in
GAAP on the Company's financial statements; and
- Review with the independent auditors, the internal auditors
and management the extent to which changes or improvements
in financial or accounting practices have been implemented.
3.4. Compliance Oversight Responsibilities.
3.4.1. The Committee shall obtain from the independent auditor the
reports required to be furnished under Section 10A of the
Securities Exchange Act of 1934, if any, and obtain from the
independent auditor any information with respect to illegal acts
in accordance with Section 10A.
3.4.2. The Committee shall establish procedures for:
- The receipt, retention and treatment of complaints received
by ARI regarding accounting internal controls over financial
reporting, or auditing matters; and
- The confidential, anonymous submission by associates of ARI
of concerns regarding questionable accounting or auditing
matters.
3.5. Additional Responsibilities.
3.5.1. The Committee shall annually prepare a report for inclusion in
ARI's proxy statement relating to its annual shareholders
meeting. In that report the Committee shall state whether it
has:
- Reviewed and discussed the audited financial statements with
management;
- Discussed with the independent auditor the matters required
to be discussed by SAS No. 61, as amended (Codification of
Statements on Auditing Standards, AU Sections 380);
- Received from the independent auditor the written
disclosures and the letter required by Independence
Standards Board Standard No. 1;
- Based on the review and discussions referred to above under
Section 3.6.1, recommended to the Board that the audited
financial statements be included in ARI's Annual Report on
Form 10-K for the last fiscal year for filing with the SEC;
and
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- Determined which Committee members satisfy the independence
requirements of Section 2.4 of this Charter and which
Committee members, if any, do not satisfy the independence
requirements of Section 2.4 of this Charter.
3.5.2. The Committee shall review ARI's Code of Conduct (the "Code") at
least annually and ensure that management has established a
system to enforce the Code. The Committee shall recommend to
management any necessary changes to ensure that the Code is
adequate in meeting the Committee's requirements and that it
complies with the definition set forth in Section 406 of the Act
and any regulations thereunder.
3.5.3. The Committee shall oversee ARI's review of "related party
transactions" for potential conflict of interest situations and
shall be responsible for approving those transactions required
to be disclosed pursuant to SEC Regulation S-K, Item 404.
3.5.4. The Committee shall maintain minutes of all Committee meetings
and submit such minutes to the Board.
3.5.5. The Committee shall oversee compliance with the requirements of
the SEC for disclosure of auditors' services and audit committee
members, member qualifications and activities.
3.5.6. As appropriate, in the course of fulfilling its duties
hereunder, the Committee shall obtain advice and assistance from
outside legal, accounting or other advisors.
3.5.7. The Committee shall discuss policies with respect to risk
assessment and risk management.
3.5.8. The Committee shall set clear hiring policies for employees or
former employees of the independent auditors.
3.5.9. The Committee shall report regularly to the Board and recommend
to the Board any changes in the authority, responsibility or
duties of the Audit Committee.
3.5.10. Additionally, the Committee, if and when authorized by the Board
of Directors, shall act as ARI's "Qualified Legal Compliance
Committee," with such duties and responsibilities as the Board
of Directors may specify.
3.5.11. The Committee shall perform any other activities consistent with
this Charter, ARI's Bylaws and governing law, as the Committee
deems necessary or appropriate.
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4. LIMITATION ON AUDIT COMMITTEE'S ROLE
4.1. While the Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Committee to plan or conduct
audits, prepare ARI's financial statements, or determine if ARI's
financial statements and disclosures are complete and accurate and
are in accordance with accounting principles generally accepted in
the United States of America and applicable law. ARI's management is
responsible to ensure that the financial statements are prepared in
conformity with accounting principles generally accepted in the
United States, and that disclosures are complete and accurate. It is
the responsibility of ARI's independent auditors to plan and conduct
audits of the financial statements prepared by management.
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