Digital Domain Media Group, Inc.
Audit Committee Charter
Purpose
The Audit Committee is designated by the Board of Directors (the “Board”) of Digital Domain Media Group, Inc. (the “Company”) as a
standing committee of the Board to assist the Board in fulfilling certain of its oversight responsibilities to the Company’s shareholders and potential
shareholders, the investment community, and others. The Audit Committee’s purpose is to assist the Board in its oversight of:
- The integrity of the Company’s financial statements;
- The integrity of the Company’s accounting and financial reporting processes, financial statement audits and systems of internal
controls regarding finance and accounting;
- The Company’s compliance with legal and regulatory requirements;
- The qualifications, independence and performance of the Company’s independent auditors, and the performance of the Company’s
internal audit function; and
- The Company’s systems of disclosure controls and procedures, internal controls over financial reporting, and compliance with
ethical standards adopted by the Company.
Consistent with this function, the Audit Committee should encourage continuous improvement of, and should foster adherence to, the Company’s policies,
procedures, and practices at all levels. The Audit Committee should also provide for open communication among the Company’s independent auditors,
financial and senior management, internal audit function, and the Board.
The Audit Committee shall have the authority to conduct any investigation appropriate to fulfilling its responsibilities, and it shall have direct
access to the Company’s independent auditors as well as all personnel in the Company. The Audit Committee shall have the ability to retain special
legal, accounting, or other consultants or experts (collectively, “Advisors”) it deems necessary or advisable in the performance of its duties,
and it shall be provided with full access to all books, records and facilities of the Company for the purpose of discharging its responsibilities
hereunder. The Company shall provide funding, in the amounts and as otherwise determined by the Audit Committee, for payment of (i) compensation to
the Company’s independent auditors, (ii) compensation to any Advisors retained by the Audit Committee and (iii) ordinary administrative expenses of the
Audit Committee that are necessary or appropriate in carrying out its duties (including, without limitation, reimbursement of such expenses as are
reasonably incurred directly by the members of the Audit Committee).
This Charter is supplemented by, and subject to all applicable provisions of, the Company’s Corporate Governance Guidelines, as in effect from time to
time.
Committee Authority and Responsibilities
Review Procedures
1. Review and discuss with the Company’s management and the Company’s independent auditors (a) the Company’s audited financial statements
(including quality of the financial reporting decisions and judgments made in connection therewith) and (b) the related disclosures under “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” in each of the Company’s Annual Reports on Form 10-K to determine that the
Company’s management and the Company’s independent auditors are satisfied with the content of such financial statements and the quality of the related
disclosure. If appropriate in the Audit Committee’s determination, recommend to the Board that the Company’s audited financial statements be included
in each of the Company’s Annual Reports on Form 10-K.
2. In consultation with the Company’s management, the Company’s internal audit function, the Company’s independent auditors and the
Company’s legal counsel, review the integrity of the Company’s financial reporting processes (both internal and external) and controls and the
Company’s systems to monitor and manage business risk and ethical and legal regulatory compliance programs, and elicit any recommendations for the
improvement of such processes, controls and systems and particular areas where new or more detailed processes, controls or systems may be desirable.
Review and discuss the Company’s policies with respect to risk assessment and risk management, including appropriate guidelines and policies to govern
the process, as well as major financial risk exposures and the steps the Company’s management has taken to monitor, control, and report such
exposures. Review significant findings in any of the foregoing areas prepared by the Company’s independent auditors, together with the responses to
such findings by the Company’s management.
3. Review and discuss with the Company’s management and the Company’s independent auditors (a) the Company’s unaudited interim financial
statements (including the quality of the financial reporting decisions and judgments made in connection therewith) and (b) the related disclosures
under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in each of the Company’s Quarterly Reports on Form 10-Q.
Review and discuss the results of the independent auditors’ review of the Company’s unaudited interim financial statements. Discuss with the
independent auditors other information required to be communicated by the independent auditors in connection with such review prior to the inclusion of
such information in any of the Company’s Quarterly Reports on Form 10-Q. The chairperson of the Audit Committee may represent the entire Audit
Committee for purposes of this discussion.
4. Review and discuss with the Company’s Chief Executive Officer and Chief Financial Officer (a) their certifications to be provided
pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 (the “2002 Act”) and (b) management’s report on internal controls over
financial reporting required pursuant to Section 404 of the 2002 Act.
5. Annually review and discuss with the Company’s financial management and the Company’s independent auditors, (i) any analyses or other
written communications prepared by financial management and/or the independent auditors setting forth significant financial reporting issues and
judgments made in connection with the preparation of the Company’s financial statements, including analyses of the effects of alternative generally
accepted accounting principles (“GAAP”) methods on such financial statements; (ii) the Company’s critical and other accounting policies in light of the
Company’s current operations, current GAAP and current Securities and Exchange Commission (“SEC”) rules and regulations; (iii) any other
significant issues arising since the last such review regarding the Company’s accounting principles and financial statement presentations, including
any significant changes in the selection or application of accounting principles; and (iv) the effect of regulatory and accounting initiatives, as well
as off-balance sheet structures, on the financial statements of the Company.
6. Review and discuss with the Company’s management earnings press releases of the Company and review generally the type and presentation
of information to be included in the Company’s earnings press releases (paying particular attention to the inclusion therein of any “pro forma,”
“adjusted” or non-GAAP information).
7. Review and discuss generally with the Company’s management the type and presentation of any financial information and earnings guidance
provided by the Company to securities analysts and securities rating agencies.
8. Review relevant reports and financial information (other than as described supra) submitted by the Company to any governmental
body or the public.
9. Review the regular internal reports to management (or summaries thereof) prepared by the internal audit function, as well as
management’s response.
10. Review, with the Company’s legal counsel, legal compliance and legal matters that could have a significant impact on the Company’s
financial statements.
Independent Auditors
1. Directly appoint (and recommend to the Board that the appointment be submitted for shareholder ratification), determine the compensation
of, retain on behalf of the Company and oversee the work of the Company’s independent auditors to audit the financial statements of the Company and its
divisions and subsidiaries. Review the performance and independence of the independent auditors and remove the independent auditors if circumstances
warrant. The independent auditors shall report directly to the Audit Committee, and the Audit Committee shall resolve any disagreements between the
Company’s management and the independent auditors to the extent they arise.
2. Meet with the Company’s independent auditors and financial management of the Company to review the scope of the proposed audit for the
current year and the audit procedures to be utilized. At the conclusion thereof, review with the independent auditors such audit, including any
comments or recommendations of the independent auditors, any significant changes required in the independent auditors’ audit plan and any significant
difficulties or disagreements with the Company’s management encountered by the independent auditors during the audit, including any restrictions on the
scope of the independent auditor’s activities or on access by the independent auditors to requested information imposed by the Company’s management,
and management’s reasons therefor.
3. Consider whether the independent auditors’ provision of permissible nonaudit services is compatible with the auditors’ independence.
Discuss with the Company’s independent auditors the matters required to be so discussed by Statement on Auditing Standards No. 61,Communications With Audit Committees, 61, as amended by AU Section 380, as adopted by the Public Company Accounting Oversight Board (the “ PCAOB”), and as it may be further amended, modified or supplemented, relating to the conduct of the audit of the Company’s financial statements.
4. At least annually, obtain and review a report from the Company’s independent auditors describing:
(a) The independent auditors’ internal quality-control procedures;
(b) Any material issues raised by the most recent internal quality-control review or peer review, or by any
inquiry or investigation conducted by governmental or professional authorities during the preceding five years with respect to independent audits
carried out by the independent auditors, and any steps taken to deal with such issues; and
(c) All relationships between the independent auditors and the Company, addressing the matters set forth in
the PCAOB’s Rule 3526, Communication with Audit Committees Concerning Independence, as it may be amended, modified or supplemented.
This report should be used to evaluate the independent auditors’ qualifications, performance, and independence. Further, the Audit Committee will
review the experience and qualifications of the lead partner(s) of the independent auditors each year and determine that all partner rotation
requirements, as promulgated by applicable rules and regulations, are executed. The Audit Committee will also consider whether there should be rotation
of the independent auditors themselves.
5. Receive and review any other statements, certifications or documentation necessary to ensure that the Company’s independent auditors
meet the independence standard required by law. Review and discuss all such statements, certifications and documentation with the independent
auditors, and, if determined to be appropriate by the Audit Committee, take, or recommend that the full Board take, specific action to oversee the
independence of the Company’s independent auditors.
6. Review with the Company’s independent auditors any problems or difficulties (other than as described supra) and the Company’s
management’s response.
7. Review the Company’s independent auditors’ report on the Company’s assessment of internal control over financial reporting.
8. Hold timely discussions with the Company’s independent auditors regarding: (i) all critical accounting policies and practices used or to
be used by the Company; (ii) all alternative treatments of financial information within GAAP that have been discussed by the independent auditors with
management of the Company, ramifications of the use of such alternative treatments, and the treatment preferred or recommended by the independent
auditors; and (iii) all other material written communications between the independent auditors and the management of the Company, such as any
management letter or schedule of unadjusted differences.
9. Actively engage in dialogue with the Company’s independent auditors with respect to any disclosed relationships or services that may
affect the independence and objectivity of the independent auditors and take appropriate actions to oversee the independence of the independent
auditors.
10. Review and approve, in advance, both audit and nonaudit services to be provided by the Company’s independent auditors, including those that
fall under the following headings: “Audit,” “Audit-Related”, “Tax” and “Other Services” (as such terms are defined by the SEC’s rules and
regulations). The authority to grant preapprovals may be delegated to one or more designated members of the Audit Committee, whose decisions will be
presented to the full Audit Committee at its next regularly scheduled meeting. Determine the amount of compensation to be paid to the independent
auditors for such additional services. The Company shall provide funding, in the amount and as otherwise determined by the Audit Committee, for the
payment of compensation to the independent auditors for any and all such services.
11. Obtain assurance from the Company’s independent auditors that the audit of the Company’s financial statements was conducted in a manner
consistent with Section 10A of the Securities Exchange Act of 1934, as amended, which sets forth certain procedures to be followed in any audit of
financial statements included in reports under that Act.
Integrity of the Company’s Financial Statements, Financial Reporting Processes and Systems of Internal Controls over Financial Reporting
1. Periodically review with the Company’s management and the Company’s independent auditors significant risks and exposures in the
Company’s business, and the steps the Company’s management has taken to minimize such risks and exposures.
2. Periodically review, including with the Company’s management, the adequacy and effectiveness of the Company’s disclosure controls and
procedures and the Company’s systems of internal controls over financial reporting, including any significant deficiencies and significant changes in
internal controls.
3. Consider the risk of the Company’s management’s ability to override the Company's internal controls.
4. Understand the scope of the Company’s internal auditors’ and independent auditors’ review of internal controls over financial reporting
and obtain reports on significant findings and recommendations, together with management responses thereto.
5. On a quarterly basis, discuss the following with the Company’s management and the Company’s independent auditors, if applicable:
(a) all significant deficiencies in the design or operation of the Company’s systems of internal controls over
financial reporting which could adversely affect the Company’s ability to record, process, summarize and report financial data, and any material
weaknesses in the Company’s systems of internal controls over financial reporting; and
(b) any fraud, whether or not material, that involves the Company’s management or other employees of the
Company who have a significant role in the Company’s systems of internal controls over financial reporting.
In connection with the foregoing, receive and review any disclosure from the Company’s Chief Executive Officer or Chief Financial Officer made in
connection with the certification of the Company’s quarterly and annual reports filed with the SEC.
6. Review major issues regarding accounting principles and financial statement presentations, including any significant changes in the
Company’s selection or application of accounting principles, major issues as to the adequacy of the Company’s internal controls, and any special audit
steps adopted in light of material control deficiencies.
7. Review analyses prepared by the Company’s management and independent auditors setting forth significant financial reporting issues and
judgments made in connection with the preparation of the Company’s financial statements, including analyses of the effects of alternative GAAP methods
on the financial statements.
8. Review the effect of regulatory and accounting initiatives, as well as off-balance-sheet structures, on the financial statements of the
Company.
9. Review and approve all related-party transactions, defined as those transactions required to be disclosed under Item 404 of Regulation
S-K promulgated by the SEC.
10. Establish procedures for: (i) the receipt, retention and treatment of complaints directed to the Company regarding accounting, internal
accounting controls or auditing matters; (ii) the confidential, anonymous submission by employees of the Company of concerns regarding questionable
accounting or auditing matters; and (iii) the receipt and treatment of any evidence of a violation of the securities laws or breach of fiduciary duty
brought to the Audit Committee’s attention by the Company’s external legal counsel.
Internal Audit
1. Review and advise on the selection and removal of the Company’s internal audit director.
2. Review the activities and organizational structure of the Company’s internal audit function, as well as the qualifications of its
personnel.
3. On an annual basis, review and recommend changes (if any) to the Company’s internal audit charter.
4. Periodically review, with the Company’s internal audit director, any significant difficulties, disagreements with the Company’s
management, or scope restrictions encountered in the course of the internal audit function’s work.
5. Periodically review, with the Company’s independent auditors, the Company’s internal audit function’s responsibility, budget, and
staffing.
Other Audit Committee Responsibilities
1. Oversee, review, and periodically update the Company’s Code of Business Conduct and Ethics and the Company’s system to monitor
compliance with and enforce such code.
2. Report regularly to the Board regarding the execution of the Audit Committee's duties and responsibilities, the Audit Committee’s
activities, any issues encountered, and related recommendations.
3. Annually prepare the report required to be prepared by the Audit Committee pursuant to the rules of the SEC for inclusion in the
Company’s proxy statement relating to its annual shareholders meeting.
4. Review, with the Company’s independent auditors, the Company’s internal audit function, and with the Company’s management, the extent to
which changes or improvements in financial or accounting practices have been implemented.
5. Review, with the Company’s management, the Company's finance function, including its budget, organization, and quality of personnel.
6. Conduct an annual self-evaluation relative to the Audit Committee’s purpose, duties, and responsibilities outlined herein.
7. Establish policies for the Company’s hiring of current or former partners or employees of the Company’s independent auditors.
8. Perform any other activities consistent with this Charter, the Company’s Amended and Restated Bylaws (as may be amended from time to
time), and governing law, as the Audit Committee or the Board deems necessary or appropriate.
Committee Membership and Organization
1. Appointment and Term. The members of the Audit Committee shall be appointed annually by a majority vote of the whole Board.
Each member of the Audit Committee shall continue to be a member thereof until his/her successor is duly appointed, or until such earlier time as the
member resigns, is removed or ceases to be a member of the Board for any reason. The Board, by the vote of a majority of its members, may remove any
member of the Audit Committee at any time.
2. Composition. The Audit Committee shall be composed of at least three (3) directors, with the number of members to be determined
from time to time by the Board.
3. Qualifications; Compensation. Each member of the Audit Committee shall, in the judgment of the Board, be free from any
relationship that, in the opinion of the Board, would interfere with the exercise of his or her independent judgment, and shall meet all independence
and experience requirements applicable to members of audit committees, including (i) meeting the independence, experience and other requirements of the
securities exchange(s) on which the Company’s securities are listed from time to time, (ii) meeting the criteria for independence set forth in Section
301 of the 2002 Act, (iii) not owning or controlling 20% or more of the Company’s voting securities (or such lower measurement as may be established by
the SEC in rulemaking under Section 301 of the 2002 Act), and (iv) being able to read and understand fundamental financial statements, including a
company’s balance sheet, income statement, and cash flow statement, at the time of appointment to the Audit Committee. To help meet such requirements,
the Audit Committee will provide its members with annual continuing education opportunities in financial reporting and other areas relevant to the
Audit Committee. No member of the Audit Committee may accept any consulting, advisory, or other compensatory fee from the Company other than for
service to the Board or any committee thereof.
4. Audit Committee Financial Expert. At least one member of the Audit Committee shall 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, or shall otherwise qualify as an “audit committee financial expert” under the 2002 Act and the regulations promulgated
thereunder.
5. Chairperson. The Board shall appoint one of the members of the Audit Committee as the Chairperson of the Audit Committee. The
Chairperson shall have the responsibility for overseeing the Audit Committee’s effective fulfillment of its mandate, duties and responsibilities.
6. Meetings. The Chairperson of the Audit Committee will preside at each meeting thereof and, in consultation with the other
members of the Audit Committee, will determine the frequency of meetings, the length of each meeting and the agenda of items to be addressed at each
meeting. The Audit Committee shall meet at least quarterly, and more frequently if circumstances dictate. Briefing materials will be provided to the
members of the Audit Committee as far in advance of meetings as practicable. The Audit Committee shall have the authority to ask members of the
Company’s management and others to attend its meetings and provide pertinent information as it deems necessary or desirable. Each regularly scheduled
meeting of the Audit Committee will conclude with an executive session of such meeting absent members of management. As part of its responsibility to
foster open communication, the Audit committee will meet periodically with the Company’s management, the director of the Company’s internal audit
function, and the Company’s independent auditors in separate executive sessions. The Audit Committee is otherwise governed by the same rules regarding
meetings (including meetings by conference telephone or similar communications equipment), action without meetings, notice, waiver of notice, quorum
and voting requirements as are applicable to the Board.
7. Reporting and Minutes. The Audit Committee shall provide copies of minutes of meetings of the Audit Committee to the Board. All
notices of the Audit Committee’s meetings shall be provided to the Company’s management in order for payment of any applicable meeting fees and
expenses to be timely made. The Audit Committee shall report to the entire Board any discussions held by the Audit Committee with the Company’s
management. The Audit Committee shall report actions taken by the Audit Committee to the Board with such recommendations as the Audit Committee may
deem appropriate.
8. Review of Charter. The Audit Committee shall review this Charter on an annual basis and recommend any changes it deems necessary
or desirable thereto to the Board for approval. The Audit Committee shall publish this Charter whenever it is revised or at least every three years in
accordance with the SEC’s rules and regulations.
9. Limitation of Role. The duties of the Audit Committee are ones of oversight and supervision. 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 GAAP or applicable rules and regulations. The
fundamental responsibility for the Company’s financial statements and related disclosure rests with the Company’s management. The responsibility for
auditing the Company’s financial statements and for reviewing the Company’s unaudited interim financial statements is that of the Company’s independent
auditors. The Board recognizes that the Audit Committee in discharging its responsibilities hereunder will rely on the advice and information it
receives from the Company’s management and the Company’s independent auditors. The Board does, however, expect the Audit Committee to exercise
independent judgment in assessing the quality of the Company’s financial reporting process and its systems of internal controls over financial
reporting. The Board also expects that the Audit Committee will maintain free and open communications with the other members of the Board, the
Company’s independent auditors and the Company’s management.
