ZYVERSA THERAPEUTICS, INC.
AUDIT COMMITTEE CHARTER
Adopted by the Board of Directors on December 12, 2022
The purpose of the Audit Committee (the “Committee”) is to assist the Board of Directors (the “Board”) of ZyVersa Therapeutics, Inc. (the “Company”) in fulfilling its responsibility to oversee (a) the integrity of the Company’s financial statements, the Company’s accounting and financial reporting processes and financial statement audits, (b) the Company’s compliance with legal and regulatory requirements, (c) the Company’s systems of internal control over financial reporting and disclosure controls and procedures, (d) the independent auditor’s engagement, qualifications, performance, compensation and independence, (e) review and approval of related party transactions in accordance with the Policies and Procedures for Related Party Transactions, (f) compliance with the Company’s Code of Business Conduct and Ethics and the Audit Committee Procedures for Reporting Potential Wrongdoing, (g) the communication among the Company’s independent auditors, the Company’s financial and senior management and the Board, and (h) assessment and management of risk, including oversight of information technology and cybersecurity risk management.
In order to serve these functions, the Committee will have unrestricted access to Company personnel and documents, and will have the authority to direct and supervise an investigation into any matters within the scope of its duties.
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 or to determine that the Company’s financial statements are complete and accurate and are in accordance with generally accepted accounting principles. This is the responsibility of management and the Company’s independent auditors.
The Committee shall be composed of three (3) or more non-employee directors, as determined by the Board. The members of the Committee shall serve for such term or terms as the Board may determine or until earlier resignation or death. The Board shall appoint the members of the Committee and any member of the Committee may be replaced at any time with or without cause by the Board.
Each member shall satisfy the independence standards in accordance with applicable law, including the standards set forth in the NASDAQ listing rules, Rule 10A‑3 of the Securities Exchange Act of 1934 (the “Exchange Act”) and the independence requirements set forth in the applicable rules of the Securities and Exchange Commission (the “SEC”).
Each member of the Committee must be able to read and understand fundamental financial statements, including the Company’s balance sheet, income statement and cash flow statement. The Committee shall endeavor to include at least one member who qualifies as an “audit committee financial expert” for purposes of Item 407(d)(5)(ii) of Regulation S‑K. At a minimum, at least one member of the Committee will have accounting or related financial management expertise, as the Board interprets such qualification in its business judgment. A person who qualifies as an audit committee financial expert will also be presumed to have accounting or related financial management expertise. However, one director who does not meet the Nasdaq definition of independence, but who meets the criteria set forth in Section 10A(m)(3) under the Exchange Act and the rules thereunder, and who is not a current officer or employee or a family member of such individual, may serve for no more than two years on the Committee if the Board, under exceptional and limited circumstances, determines that such individual’s membership is required by the best interests of the Company and its shareholders. Such individual must satisfy the independence requirements set forth in Section 10A(m)(3) of the Exchange Act, and may not chair the Committee. The use of this “exceptional and limited circumstances” exception, as well as the nature of the individual’s relationship to the Company and the basis for the Board’s determination, shall be disclosed in the annual proxy statement.
In addition, if a Committee member ceases to be independent for reasons outside the member’s reasonable control, his or her membership on the Committee may continue until the earlier of the Company’s next annual shareholders’ meeting or one year from the occurrence of the event that caused the failure to qualify as independent. If the Company is not already relying on this provision, and falls out of compliance with the requirements regarding Committee composition due to a single vacancy on the Committee, then the Company will have until the earlier of the next annual shareholders’ meeting or one year from the occurrence of the event that caused the failure to comply with this requirement. The Company shall provide notice to Nasdaq immediately upon learning of the event or circumstance that caused the non-compliance, if it expects to rely on either of these provisions for a cure period.
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 preceding three years, and each member must be free from any relationship that, in the opinion of the Board, could interfere with the exercise of independent judgment as a member of the Committee.
Within the scope of the role of the Committee described above, the Committee is charged by the Board with the authority and responsibility to:
- Appoint, (and recommend that the Board submit for stockholder ratification, if applicable), compensate, retain and oversee the work performed by the independent auditor retained for the purpose of preparing or issuing an audit report or performing other audit or audit‑related services. The Committee will review the performance and independence of the independent auditor and remove the independent auditor, if circumstances warrant. The independent auditor shall report directly to the Committee and the Committee will oversee the resolution of any disagreements between management and the independent auditor, if any disagreements arise.
- Pre‑approve all audit, review, and non‑audit services (including any internal control‑related services) to be provided to the Company or its subsidiaries by the independent auditor. The Committee may establish pre‑approval policies and procedures in compliance with applicable SEC rules.
- Obtain and review at least annually a formal written report from the independent auditor delineating: (a) the auditor’s internal quality-control procedures; (b) any material issues raised by the most recent internal quality-control review, peer review or Public Company Accounting Oversight Board review of the auditor, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the auditor, and any steps taken to deal with any such issues; and (c) all relationships between the independent auditor and the Company or any of its subsidiaries, in order to assess the auditor’s objectivity and independence. After reviewing the foregoing report and the independent auditor’s work throughout the year, the Committee shall evaluate the independent auditor’s qualifications, performance and independence. This evaluation shall include the review and evaluation of the lead partner of the independent auditor. In making its evaluation, the audit committee shall take into account the opinions of management and, if applicable, the Company’s internal auditors (or other personnel responsible for the internal audit function). In addition to assuring the regular rotation of the audit partners on the engagement team as required by law, the Committee shall consider whether, in order to assure continuing auditor independence, there should be regular rotation of the audit firm itself. The Committee shall present its conclusions with respect to the independent auditor to the Board. Upon receipt of such written report, the Committee shall discuss with the independent auditor any such disclosed relationships and their impact on the independent auditor’s objectivity and independence, and take appropriate actions to oversee the independence of the independent auditor.
- Discuss with the independent auditors the matters required in accordance with the applicable requirements of the Public Company Accounting Oversight Board Auditing Standards No. 1301, Communications with Audit Committees, including such matters as: the quality and acceptability of the accounting principles applied in the financial statements; new or changed accounting policies, the effect of regulatory and accounting initiatives, and significant estimates, judgments, uncertainties or unusual transactions; the selection, application and effects of critical accounting policies and estimates applied by management; issues raised by any “management” or “internal control” letter from the auditors, problems or difficulties encountered in the audit and management’s response to such problems or difficulties, significant disagreements with management or other significant aspects of the audit; and any off-balance sheet transactions, and relationships with any unconsolidated entities or any other persons, which may have a material current or future effect on the financial condition or results of operations of the Company and are required to be reported under SEC rules.
- Discuss with the independent auditors the Committee’s understanding of the Company’s relationships and transactions with related parties that are significant to the Company; and to review and discuss with the Company’s independent auditors the auditors’ evaluation of the Company’s identification of, accounting for, and disclosure of its relationships and transactions with related parties, including any significant matters arising from the audit regarding the Company’s relationships and transactions with related parties.
- Set policies for the hiring of employees or former employees of the Company’s independent auditor.
- Review management’s report on internal controls and the independent auditor’s attestation of management’s report, when and as required by Section 404 of the Sarbanes‑Oxley Act of 2002, and discuss with management and the independent auditors (a) any significant deficiencies or material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.
- Review and discuss with management and the independent auditor, prior to release to the general public and legal and regulatory agencies, the annual audited financial statements and quarterly financial statements, including disclosures contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and matters required to be reviewed under applicable legal, regulatory or NASDAQ listing rule requirements, including without limitation critical accounting policies and practices.
- Discuss with management and the independent auditor, as appropriate, prior to release to the general public and legal and regulatory agencies, earnings press releases and financial information and, if applicable, earnings guidance, including the use of “pro forma” or “adjusted” non-GAAP information, as well as financial information and earnings guidance provided to analysts and rating agencies. Such discussion may be general (consisting of discussing the types of information to be disclosed and the types of presentations to be made).
- Discuss with management and the independent auditors all critical accounting policies and practices to be used in the audit; all alternative treatments within generally accepted accounting principles for policies and practices relating to material items, including the ramifications of the use of such alternative disclosures and treatments and the treatment preferred by the independent auditors; and other material written communications between independent auditor and management, such as any management letter or schedule of unadjusted differences.
- Recommend to the Board whether the financial statements should be included in the Company’s Annual Report on Form 10‑K.
- Review and discuss with management and the Auditors, as appropriate, (a) the Company’s guidelines and policies with respect to financial risk management, financial risk assessment, and assessment of brand and reputational risks including the Company’s major financial risk exposures and the steps taken by management to monitor and control these exposures, (b) management risks relating to data privacy, information technology and cybersecurity, including (i) the potential impact of those exposures on the Company’s business, financial results, operations and reputation, (ii) the steps management has taken to monitor and mitigate such exposures, (iii) the Company’s information governance policies and programs and (iv) major legislative and regulatory developments that could materially impact the Company’s privacy and data security risk exposure.
- Conduct any activities relating to the Company’s Code of Business Conduct and Ethics as may be delegated from time to time to the Committee by the Board.
- Review and investigate any matters pertaining to the integrity of management, including conflicts of interest, or adherence to standards of business conduct as required in the policies of the Company.
- Review and approve related party transactions according to such policies as may be adopted by the Board or a committee thereof from time to time.
- Meet, as frequently as it deems appropriate, separately with (a) the Chief Executive Officer, Principal Financial Officer and other members of senior management, (b) internal auditors (or other personnel responsible for the internal audit function), if applicable, and (c) the independent auditors, in each case to discuss any matters that the Committee or such persons believe should be discussed privately.
- Establish procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters, including procedures for the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting, auditing matters or violations of the Company’s Code of Business Conduct and Ethics.
- Prepare an audit committee report in accordance with SEC regulations to be included in the Company’s annual proxy statement to the extent applicable.
- At least annually, evaluate the performance of the Committee, review and reassess this charter and, if appropriate, recommend changes to the Board.
- Review management’s use of non-GAAP measures and metrics (including environmental, social and governance measures and metrics), and in particular how these measures are used to evaluate performance, whether they are consistently prepared and presented and what the Company’s disclosure controls and procedures relating to these are.
- Perform such other duties and responsibilities as may be assigned to the Committee by the Board.
By adopting this charter of the Committee, the Board delegates to the Committee full authority to:
- Investigate any matter brought to its attention with full access to all books, records, facilities and personnel of the Company.
- Delegate such of its authority and responsibilities as the Committee deems proper to subcommittees thereof, subject to all applicable laws and regulations.
- Appoint a chair of the Committee, unless a chair is designated by the Board.
- Select, retain and obtain, in the Committee’s sole discretion, the advice of outside counsel, accounting experts or other advisors as the Committee may deem appropriate in its sole discretion. The Committee shall have sole authority to approve related fees and retention terms. The Committee shall have available appropriate funding from the Company as determined by the Committee for payment of:
a. compensation to any accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company;
b. compensation to any advisors employed by the Committee; and
c. ordinary administrative expenses of the Committee that are necessary or appropriate in carrying out its duties.
V. COMMITTEE STRUCTURE AND OPERATIONS
- The Board shall designate a member of the Committee as the chairperson. The Committee shall meet in person or telephonically at such times and places as shall be determined by the Committee chairperson. The chairperson, with input from the other members of the Committee, shall set the agendas for Committee meetings. A majority of the members of the Committee shall constitute a quorum for purposes of holding a meeting and the Committee may act by a vote of a majority of members present at such meeting. In lieu of a meeting, the Committee may act by unanimous written consent.
- The Committee shall maintain minutes containing a summary of the actions taken at each Committee meeting and shall make regular reports to the Board with respect to actions taken by the Committee and areas of the Committee’s responsibilities. These reports shall include a review of any issues that arise with respect to the quality and integrity of the Company’s financial statements, the Company’s compliance with legal or regulatory requirements or the performance of the Company’s independent auditors.
VI. DELEGATION OF AUTHORITY
The Committee may from time to time, as it deems appropriate and to the extent permitted under applicable law, the rules promulgated under the Exchange Act and the SEC, and the Company’s Certificate of Incorporation and Bylaws, form, and delegate authority to, subcommittees consisting of one or more members when appropriate, including the authority to grant pre-approvals of audit and permitted non-audit services, provided that decisions of such subcommittee to grant pre-approvals shall be presented to the full Committee at its next scheduled meeting.
The Company shall make this charter freely available to stockholders on request and, provided the Company is subject to the periodic reporting requirements of the Exchange Act, shall publish it on the Company’s website.
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