morris harris GROUP INC.
May 4, 2004
The Audit Committee is a standing committee of the Board of
Directors (the “Board”) of Sanders Morris Harris Group Inc., a Texas corporation (the
“Company”). Its primary function is to
assist the Board in fulfilling its oversight responsibilities by:
Reviewing the financial reports and other financial
information provided by the Company to any governmental body or the public;
Reviewing the Company’s system of internal controls
regarding finance, accounting, legal compliance and ethics that management and
the Board have established; and the Company’s auditing, accounting and
financial reporting processes generally;
Reviewing the independence and performance of the Company’s
Providing an open avenue of communication among the
independent auditors, financial and senior management, and the Board; and
Monitoring and evaluating risks related to the Company’s
activities and the effectiveness and adequacy the Company’s risk management
measures including insurance coverage.
The Audit Committee
will primarily fulfill these responsibilities by carrying out the activities
enumerated in Section IV of this Charter.
The Audit Committee has direct access to the Company’s independent
auditors, other professional advisors and contractors engaged by the Company
and anyone in the Company. The
independent auditor will report directly to the Audit Committee and the Audit
Committee will be responsible for the resolution of any disagreements between
management and the independent auditor regarding financial reporting and
related policies and procedures. The
Audit Committee has authority to retain, at the Company’s expense, special
legal, accounting, or other consultants or experts it deems necessary in the
performance of its duties.
While the Audit
Committee has the responsibilities and powers set forth in this Charter, it is
not the duty of the Audit 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.
These are the responsibilities of management and the independent
The Audit Committee
shall be comprised of at least three directors.
All three of the Audit Committee members must be independent directors
and free from any relationship that, in the opinion of the Board, would interfere
with the exercise of the director’s independent judgment as a member of the
Directors with any of the
following relationships will not be considered independent:
director who is, or at any time during the past three years was, employed by
the Company or by any parent or subsidiary of the Company;
a director who accepted or who has a Family Member (which
means a person’s spouse, parents, children and siblings, whether by blood,
marriage or adoption, or anyone residing in such person’s home) who accepted
any payments from the Company or any parent or subsidiary of the Company in
excess of $60,000 during the current or any of the past three fiscal years,
other than the following:
Board or Board committee service;
solely from investments in the Company’s securities;
to a Family Member who is a non-executive employee of the Company or a parent
or subsidiary of the Company;
benefits under a
tax-qualified retirement plan, or non-discretionary compensation; or
under Section 13(k) of the Securities Exchange Act of 1934.
a director who is a Family Member of an individual who is,
or at any time during the past three years was, employed by the Company or by
any parent or subsidiary of the Company as an executive officer;
a director who is, or has a Family Member who is, a partner
in, or a controlling shareholder or an executive officer of, any organization
to which the Company made, or from which the Company received, payments for
property or services in the current or any of the past three fiscal years that
exceed 5% of the recipient’s consolidated gross revenues for that year, or
$200,000, whichever is more, other than the following:
solely from investments in the Company’s securities; or
non-discretionary charitable contribution matching programs.
a director of the Company who is, or has a Family Member
who is, employed as an executive officer of another entity where at any time
during the past three years any of the executive officers of the Company serve
on the compensation committee of such other entity;
a director who is, or has a Family Member who is, a current
partner of the Company’s outside auditor, or was a partner or employee of the
Company’s outside auditor who worked on the Company’s audit at any time during
any of the past three years; or
director who, other than in his or her capacity as a member of the Audit
Committee, the Board of Directors, or any other Board committee:
accepts directly or
indirectly any consulting, advisory, or other compensatory fee from the Company
or any of its subsidiaries. Compensatory
fees do not include the receipt of fixed amounts of compensation under a
retirement plan (including deferred compensation) for prior service with the
Company (provided that such compensation is not contingent in any way on
continued service); or
is an affiliated
person of the Company or any of its subsidiaries. An affiliated person of the Company or any of
its subsidiaries, means a person that directly, or indirectly through one or
more intermediaries, controls or is controlled by, or is under common control
with, the Company or any of its subsidiaries.
foregoing, one director who (i) is not independent by
reason of any of paragraphs 1 through 6 above, (ii) meets the requirements of
paragraph 7 above, and (iii) is not a current officer or employee or a Family
Member of such officer or employee, may be appointed to the Audit Committee if
the Board, under exceptional and limited circumstances, determines that
membership on the Audit Committee by the individual is required by the best
interest of the Company and its shareholders, and the Company discloses, in the
next annual proxy statement subsequent to such determination, the nature of the
relationship and the reasons for that determination. A member appointed under this exception may
not serve longer than two years and may not chair the Audit Committee.
member of the Audit Committee may have participated in the preparation of the
financial statements of the Company or any current subsidiary of the Company at
any time during the past three years and all members of the Audit Committee
must be able to read and understand fundamental financial statements, including
the Company’s balance sheet, income statement, and cash flow statement. At least one member of the Audit Committee
must have past employment experience in finance or accounting, requisite
professional certification in accounting, or any other comparable experience or
background which results in the individual’s financial sophistication,
including being or having been a chief executive officer, chief financial
officer or other senior officer with financial oversight responsibilities. A member of the Audit Committee who qualifies
as an “audit committee financial expert” under Item 401(h) of Regulation S-K is
presumed to qualify as a financially sophisticated Audit Committee member. The role of the financial expert will be that
of assisting the Audit Committee in overseeing the audit process, not auditing
The members of the
Audit Committee shall be elected by the Board at the annual organizational
meeting of the Board, or in the event of a vacancy on the Audit Committee, a
replacement member shall be elected at a Board meeting held as soon as
reasonably practical following the occurrence of such vacancy. Members of the Audit Committee shall serve
for a term coinciding with their Board term.
If a Chair of the Audit Committee is not appointed by the Board, the
Audit Committee shall itself elect a Chair.
The Audit Committee shall meet at least four times
annually, or more frequently as circumstances dictate. As part of its job to foster open
communication, the Audit Committee should meet at least annually with
management and the independent auditors in separate executive sessions to
discuss any matters that the Audit Committee and each of these groups believe
should be discussed privately.
Responsibilities and Duties
To fulfill its
responsibilities and duties the Audit Committee shall:
and Review Procedures
Evaluate annually its performance and the adequacy of this
Charter, including compliance with applicable law and The Nasdaq Stock Market, Inc. listing standards, and
recommend to the full Board any changes to this Charter as the Audit Committee
deems appropriate. The Audit Committee
shall submit the Charter to the full Board for approval and have the document
published at least every three years in accordance with the Regulations of the U.S. Securities
and Exchange Commission (“SEC”).
Review the Company’s annual financial results prior to
release of the results and annual audited financial statements and any reports
or other financial information prior to filing with, or distribution to, the
SEC, any governmental body, or the public, including any certification, report,
opinion, or review rendered by the independent auditors. The review should include discussion with management
and independent auditors of critical accounting policies and significant issues
regarding accounting principles, practices, estimates and judgments.
In consultation with management and the independent
auditors, consider the integrity of the Company’s financial reporting processes
and controls. Discuss significant financial risk exposures and the steps
management has taken to monitor, control and report such exposures. The Audit Committee should also review significant
findings prepared by the independent auditors, with management’s responses, the
status of management’s responses to previous recommendations from the
independent auditors and the status of any previous instructions to management
from the Audit Committee.
Review the Company’s quarterly financial
results prior to the release of results and the Company’s quarterly financial
statements prior to filing with the SEC. In connection with such review, discuss with
financial management and the independent auditors, the results of the
independent auditors review of the quarterly financial statements, any
significant changes to the Company’s accounting principles and any items
required to be communicated by the independent auditors in accordance with
AICPA SAS 61 (see item 14). The Chair of
the Audit Committee may represent the entire Audit Committee for purposes of
these reviews and discussions.
Review with management all significant
deficiencies and material weaknesses, if any, in the design or operation of
internal controls, and any fraud, without regard to materiality, that involves
management or any other employee who has a significant role in the Company’s
Review with independent auditors the recommendations
included in their management letter, if any, and their informal observations
regarding the competence and adequacy of financial and accounting procedures of
the Company. On the basis of this
review, make recommendations to the Board for any changes that seem
Periodically review with, and receive reports from,
management and the independent auditors regarding (i)
critical accounting policies and practices to be used in preparing Company
financial statements, (ii) all alternative treatments of financial information
within GAAP discussed with management, including the ramification of such
treatment and the treatment preferred by the auditors, and (iii) all other
material written communication between the auditor and management.
Review all written communication between the Company and
its officers, directors and employees on the one hand and the independent
auditors on the other hand relating to the Company’s audit engagement of the
Have the sole ultimate authority and responsibility to
appoint, select, evaluate, and, where appropriate replace the independent
auditors, thus making the independent auditors ultimately accountable to the
Review the performance of, and approve the fees and other
significant compensation to be paid to, the independent auditors’ firm.
On an annual basis, ensure its receipt from the independent
auditors of a formal written statement delineating all relationships between
the independent auditors and the Company consistent with Independence Standards
Board Standard 1 and review and discuss with the independent auditors all
significant relationships they have with the Company or services they provide
that could impair the auditors’ objectivity and independence.
Take appropriate action to oversee the independence of the
Review the independent auditors audit plan — discuss scope,
staffing, locations, reliance upon management, and internal audit and general
Prior to releasing the year-end results, discuss the
results of the audit with the independent auditors. Discuss certain matters required to be
communicated to audit committees in accordance with AICPA SAS 61.
Consider the independent auditors’ judgments about the
quality and appropriateness of the Company’s accounting principles as applied
in its financial reporting.
On at least an annual basis, review with the Company’s
counsel any legal matters that could have a significant impact on the Company’s
financial statements, the Company’s compliance with applicable laws and
regulations, and inquiries received from regulators or governmental agencies.
Establish procedures, and be responsible, for the receipt,
retention and treatment of complaints received by the Company regarding
accounting, internal controls, or auditing matters, and the confidential,
anonymous submissions by employees of concerns regarding questionable
accounting or auditing matters. Annually
review these procedures and revise them as the Audit Committee deems appropriate.
Annually prepare a report to shareholders as required by
the SEC. The report should be included
in the Company’s annual proxy statement.
Perform any other activities consistent with this Charter,
the Company’s bylaws, and governing law, as the Audit Committee or the Board
deems necessary or appropriate.
Review financial and accounting personnel succession
planning with the Company.
Pre-approve the retention of the independent auditor for
any permitted non-audit service and the fee for such service. The Audit Committee may delegate the
authority to pre-approve the retention of the independent auditor for permitted
non-audit services to one or more members of the committee. Those members, if any, who have authority to
pre-approve permitted non-audit services shall present the pre-approval of any
permitted non-audit service to the Audit Committee at the next meeting
following any such pre-approval.
Audit Committee will establish policies and procedures for the engagement of
the independent auditor to provide non-audit services. The Audit Committee will disclose in the
annual proxy statement whether it has considered whether the provision of
non-audit services is compatible with the auditor’s independence.
non-audit services shall include all non-audit services other than the
bookkeeping and other
services related to accounting records or financial statements;
systems design and implementation;
appraisal or valuation
services, fairness opinions, or contributions-in-kind reports;
or human resources;
broker or dealer,
investment adviser or investment banking services; and
legal services and expert services unrelated to the audit.
Review and approve all related party transactions.
Annually review policies and procedures as well as audit
results associated with directors’ and officers’ expense accounts and
perquisites. Annually review a summary
of director and officers’ related party transactions and potential conflicts of
Annually consult with the independent auditors out of the
presence of management about internal controls and the fullness and accuracy of
the organization’s financial statements.
Review and assess the adequacy of the Company’s ethics,
code of conduct or similar policy and report to the Board any recommended
changes to such policies.
Maintain minutes of meetings and periodically report to the
Board on significant results of the foregoing activities.
I, Sandra J. Williams, do hereby certify that I am the duly
elected Secretary of the Company and that the above is a true and correct copy
of the Charter for the Audit Committee adopted at a meeting of the Board of
Directors on May 4, 2004, and that this Charter is now in full force and
J. Williams, Secretary