Corporate Governance
Audit Committee Charter.
Charter of the Audit Committee of the Board of Directors of Z Squared, Inc.
A. Purpose
The purpose of the Audit Committee (the “Committee”) of the Board of Directors (the “Board”) of Z Squared, Inc. (the “Company”) is to assist the Board’s oversight of: (i) the Company’s accounting and financial reporting processes, the audits of the Company’s financial statements, and the integrity of the Company’s financial statements; (ii) the Company’s compliance with legal and regulatory requirements; (iii) the independent auditor’s qualifications and independence; (iv) the performance of the Company’s internal audit function, if any, and independent auditor and overseeing the work performed by the independent auditor; (v) the adequacy and effectiveness of internal control policies and procedures and the Company’s disclosure controls and procedures; and (vi) the Company’s policies on and overseeing risk assessment and risk management.
B. Structure and Membership
Number.
Except as otherwise permitted by applicable SEC and Nasdaq rules, the Committee shall consist of at least three members of the Board.
Independence.
Each member of the Committee must satisfy the requirements for independence and financial literacy under the applicable rules and regulations of the SEC and rules of Nasdaq, subject, in each case, to any permitted transition period or exemption. To the extent required under the rules of Nasdaq, no member of the 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.
Financial Literacy.
Each member of the Committee must be financially literate as determined by the Board in its business judgment and able to read and understand fundamental financial statements, including the Company’s balance sheet, income statement and cash flow statement, at the time of his or her appointment to the Committee. In addition, at least one member 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. Unless otherwise determined by the Board (in which case disclosure of such determination shall be made in the Company’s Annual Report on Form 10-K filed with the SEC), at least one member of the Committee shall be an “audit committee financial expert” as defined in the SEC rules and satisfy the financial sophistication requirements of Nasdaq.
Service on Other Audit Committees.
To the extent required by the Nasdaq rules, no member of the Committee may simultaneously serve on the audit committee of more than two other public companies, unless the Board determines that such simultaneous service would not impair the ability of the member to effectively serve on the Committee and this determination is disclosed in accordance with applicable rules of Nasdaq.
Chair.
Unless the Board elects a Chair of the Committee, the Committee shall elect a Chair by majority vote.
Compensation.
The compensation of Committee members shall be as determined by the Board. No member of the Committee may receive, directly or indirectly, any consulting, advisory or other compensatory fee from the Company or any of its subsidiaries, other than fees paid in his or her capacity as a member of the Board or of a committee of the Board.
Selection and Removal.
Members of the Committee shall be appointed by the Board. The Board may remove members of the Committee from such committee, with or without cause, at any time.
Rules and Procedures.
The Committee has the authority to establish its own rules and procedures for notice and conduct of its meetings so long as they are not inconsistent with any provisions of the Company’s bylaws that are applicable to the Committee.
C. Authority and Responsibilities
General.
The Committee shall discharge its responsibilities and shall assess the information provided by the Company’s management and the Company’s registered public accounting firm (the “independent auditor”), in accordance with its business judgment. Management is responsible for the preparation, presentation and integrity of the Company’s financial statements, for the appropriateness of the accounting principles and reporting policies that are used by the Company and for establishing and maintaining adequate internal control over financial reporting. The independent auditor is responsible for auditing the Company’s financial statements and the Company’s internal control over financial reporting and for reviewing the Company’s unaudited interim financial statements. The authority and responsibilities set forth in this Charter do not reflect or create any duty or obligation of the Committee to plan or conduct any audit, to determine or certify that the Company’s financial statements are complete, accurate, fairly presented, or in accordance with generally accepted accounting principles or applicable law, or to guarantee the independent auditor’s reports.
Oversight of Independent Auditor.
Selection. The Committee shall be solely and directly responsible for appointing (and recommending that the Board submit for stockholder ratification, if applicable), evaluating, retaining and, when necessary, terminating the engagement of the independent auditor.
Independence and Quality Control. The Committee shall take, or recommend that the full Board take, appropriate action to oversee the independence of the independent auditor. In connection with this responsibility, the Committee shall obtain and review the written disclosures and the letter from the independent auditor required by applicable requirements of the Public Company Accounting Oversight Board (the “PCAOB”) regarding the independent auditor’s communications with the Committee concerning independence. The Committee shall actively engage in dialogue with the independent auditor concerning any disclosed relationships or services that might impact the objectivity and independence of the auditor. In addition, to the extent required by applicable Nasdaq rules, the Committee must, at least annually, obtain and review a report from the independent auditor describing (a) the auditing firm’s internal quality control procedures, (b) any material issues raised by the most recent internal quality-control review or peer review of the auditing firm, or by an inquiry or investigation by governmental or professional authorities within the preceding five years relating to any independent audit conducted by the auditing firm, and any steps taken to deal with any such issues, and (c) to assess the auditor’s independence, all relationships between the independent auditor and the Company.
Compensation. The Committee shall have sole and direct responsibility for setting the compensation of the independent auditor. The Committee is empowered, without further action by the Board, to cause the Company to pay the compensation of the independent auditor established by the Committee.
Pre-approval of Services. The Committee, or the Chair of the Committee, shall pre-approve all audit services to be provided to the Company, whether provided by the principal auditor or other firms, and all other services (review, attest and non-audit) to be provided to the Company by the independent auditor; provided, however, that de minimis non-audit services may instead be approved in accordance with applicable SEC rules.
Oversight. The independent auditor shall report directly to the Committee, and the Committee shall have sole and direct responsibility for overseeing the work of the independent auditor, including resolution of disagreements between Company management and the independent auditor regarding financial reporting. In connection with its oversight role, the Committee shall, from time to time as appropriate, receive and consider the reports and other communications required to be made by the independent auditor regarding: critical accounting policies and practices; alternative treatments within generally accepted accounting principles for policies and practices related to material items that have been discussed with Company management; other material written communications between the independent auditor and Company management; and the other matters addressed in applicable PCAOB standards and SEC rules.
PCAOB Inspections. The Committee shall request the independent auditor to provide relevant information about inspections of the firm by the PCAOB, including whether any audit overseen by the Committee is selected by the PCAOB for an inspection and, if so, the findings of the inspection; whether the PCAOB’s inspection of other audits performed by the firm raised auditing or accounting issues similar to those presented in the Company’s audit; the firm’s response to PCAOB findings; and the firm’s remedial efforts in light of any quality control deficiencies that may have been identified by the PCAOB.
Audited Financial Statements.
Review and Discussion. The Committee shall review and discuss with the Company’s management and independent auditor the Company’s audited financial statements, including the matters required to be discussed by applicable PCAOB standards and SEC rules, and shall review the Company’s disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K filed with the SEC. The Committee shall also discuss the scope and results of the audit with the independent registered public accounting firm and review the Company’s interim and year-end financial statements with management and the independent registered public accounting firm.
Recommendation to Board. The Committee shall consider whether it will recommend to the Board that the Company’s audited financial statements be included in the Company’s Annual Report on Form 10-K to be filed with the SEC.
Audit Committee Report. The Committee shall prepare an annual committee report for inclusion where necessary in the proxy statement of the Company relating to its annual meeting of stockholders.
Audit Problems. The Committee shall discuss with the independent auditor any audit problems or difficulties and management’s response.
Interim Financial Statements and Other Financial Disclosures.
Interim Financial Statements. The Committee shall review and discuss with the Company’s management and independent auditor the Company’s unaudited financial statements, including reviewing the Company’s disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Quarterly Report on Form 10-Q to be filed with the SEC. The Committee shall direct the independent auditor to use its best efforts to perform all reviews of interim financial information prior to disclosure by the Company of such information and to discuss promptly with the Committee and the Chief Financial Officer any matters identified in connection with the auditor’s review of interim financial information which are required to be discussed by applicable auditing standards. The Committee shall direct management to advise the Committee in the event that the Company proposes to disclose interim financial information prior to completion of the independent auditor’s review of interim financial information.
Earnings Releases and Other Financial Disclosures. The Committee shall review and discuss the Company’s earnings press releases, as well as financial information and earnings guidance provided to analysts and rating agencies.
Controls and Procedures.
Oversight. The Committee shall coordinate the Board’s oversight of the Company’s internal control over financial reporting and disclosure controls and procedures.
Risk Management. The Committee shall discuss the Company’s policies with respect to risk assessment and risk management, including guidelines and policies to govern the process by which the Company’s exposure to risk is handled, and oversee management of the Company’s financial risks. The Committee shall also coordinate with the Board regarding oversight of material cybersecurity and technology risks, including by periodically receiving updates from management on the Company’s cybersecurity risk management program and any material cybersecurity incidents or vulnerabilities.
Procedures for Complaints. The Committee shall establish procedures for (i) the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters; and (ii) the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters.
Oversight of Related Person Transactions. The Committee shall periodically review the Company’s policies and procedures for reviewing and approving or ratifying “related person transactions” (defined as transactions required to be disclosed pursuant to Item 404 of Regulation S-K), including the Company’s Related Person Transaction Policy, and recommend any changes to the Board. In accordance with the Company’s Related Person Transaction Policy and applicable Nasdaq rules, the Committee shall conduct appropriate review and oversight of all related person transactions for potential conflict of interest situations on an ongoing basis.
Hiring of Independent Auditor Employees. The Committee shall set clear hiring policies for employees or former employees of the Company’s independent auditor.
Compensation Recovery Policy. The Committee shall oversee the Company’s compensation recovery (clawback) policy as required under applicable SEC rules and Nasdaq listing standards, including reviewing any determinations regarding the recovery of erroneously awarded incentive-based compensation from current or former executive officers pursuant to such policy.
Additional Duties. In addition to the duties and responsibilities expressly delegated to the Committee in this Charter, the Committee may exercise any other powers and carry out any other responsibilities consistent with this Charter, the purposes of the Committee, the Company’s bylaws and the applicable Nasdaq rules.
D. Procedures and Administration
Meetings.
The Committee shall meet as often as it deems necessary in order to perform its responsibilities. Such meetings may be in person, via video conference or held telephonically. The Committee may also act by unanimous written consent in lieu of a meeting. The Committee shall periodically meet separately with: (i) the independent auditor, (ii) Company management and (iii) the Company’s internal auditors (or other persons responsible for the internal audit function), if any. The Committee shall keep such records of its meetings as it shall deem appropriate.
Subcommittees.
The Committee may form and delegate authority to one or more subcommittees, as it deems appropriate from time to time under the circumstances (including a subcommittee consisting of a single member). Any decision of a subcommittee to pre-approve audit, review, attest or non-audit services shall be presented to the Committee at its next scheduled meeting.
Reports to Board.
The Committee shall report regularly to the Board.
Charter.
The Committee shall review and reassess the adequacy of this Charter and recommend any proposed changes to the Board for approval with such frequency as required by applicable Nasdaq rules.
Independent Advisors.
The Committee is authorized, without further action by the Board, to engage such independent legal, accounting and other advisors as it deems necessary or appropriate to carry out its responsibilities. Such independent advisors may be the regular advisors to the Company. The Committee is empowered, without further action by the Board, to cause the Company to pay the compensation of such advisors as established by the Committee.
Investigations.
The Committee shall have the authority to conduct or authorize investigations into any matters within the scope of its responsibilities as it shall deem appropriate, including the authority to request any officer, employee or advisor of the Company to meet with the Committee or any advisors engaged by the Committee.
Funding.
The Committee is empowered, without further action by the Board, to cause the Company to pay the ordinary administrative expenses of the Committee that are necessary or appropriate in carrying out its duties.
Self-Evaluation.
The Committee shall evaluate its own performance with such frequency as is required under applicable SEC and Nasdaq rules.