Audit Committee Charter

(Adopted: November 10, 2009)

PURPOSE AND ORGANIZATION

There shall be a standing committee of the Board of Directors (“Board”) of the Kansas Bioscience Authority (“Authority”) known as the Audit Committee (“Committee”). The Committee will assist the Board in fulfilling its responsibilities for, among other things, oversight of the quality and integrity of the Authority’s financial management, including its accounting, auditing, internal control, and financial reporting practices. The Committee may also have such other duties as may from time to time be assigned to it by the Board. The Committee will maintain free and open communications with the independent public accountants and auditors (the “Auditors”) and management (“Management”) of the Authority. In discharging its oversight role, the Committee is empowered to investigate any matter relating to the Authority’s financial management brought to its attention. The Committee has the authority to retain outside counsel, auditors, or other advisors in its sole discretion and at the Authority’s expense.

The Chairperson of the Board will determine the number of members of the Committee from time to time, which number will not be less than three (3). The Chairperson of the Board will appoint the members of the Committee from among the directors on the Board. No member of the Committee will be in a position where they receive, directly or indirectly, other than as a member of the Committee or the Board, any consulting, advisory or other compensatory fees from the Authority or any of its subsidiaries or affiliates. Indirect fees include, but are not limited to, payments by the Authority to the Committee member’s family members and payments to law firms, accounting firms, consulting firms, investment and other banks, or financial advisory firms in which the committee member of a family member is an owner, partner, member, executive officer or holder of a similar position. All members of the Committee should have a working familiarity with basic financial and accounting practices. In addition, to the extent possible, at least one member of the Committee should possess the following attributes:

• An understanding of generally accepted accounting principles (“GAAP”) and financial statements;
• Experience in the preparation or auditing of financial statements of entities comparable to the Authority and in the application of GAAP in connection with the accounting for estimates, accruals, and reserves that are generally comparable to the estimates, accruals and reserves, if any, used in the Authority’s financial statements;
• Experience with internal accounting and financial controls and procedures; and
• An understanding of audit committee functions.

Such person will be deemed to have such attributes if such person has acquired them through any one or more of the following:

• Education and experience as a principal financial officer, principal accounting officer, controller, public accountant or auditor or experience in one or more positions that involve the performance of similar functions;
• Experience actively supervising a principal financial officer, principal accounting officer, controller, public accountant, auditor or person performing similar functions; or
• Experience overseeing or assessing the performance of companies or public accountants with respect to the preparation, auditing or evaluation of financial statements.

Each Committee member will be appointed for a one (1)-year term, and will hold office until a successor is elected and qualified or until such director’s earlier death, resignation or removal. A Committee member will be deemed to have been removed from the Committee concurrently with and upon such member’s removal or resignation from his or her position as a director on the Board. Vacancies resulting from death, resignation or removal of a member or newly created Committee memberships resulting from any increase in the authorized number of members will be filled by the Chairperson of the Board, and any member so chosen will hold office until the next annual appointment of members by the Chairperson of the Board at which such member’s successor is duly appointed, or until such member’s earlier death, resignation or removal.

The Committee will have a Chairperson and a Vice-Chairperson as designated by the Chairperson of the Board from the Committee’s membership. The Committee Chairperson is responsible for the leadership of the Committee, including scheduling and presiding over meetings, setting agendas, and making regular reports to the Board. The Committee Vice-Chairperson, in the absence or disability of the Committee Chairperson, is to perform all of the duties of the Committee Chairperson. A majority of the members of the Committee will constitute a quorum.

The Committee will meet at least quarterly and more frequently if circumstances warrant and as the Committee considers necessary. The Committee Chairperson or a majority of the Committee’s members may call a Committee meeting whenever he, she or they believe there is a need. The Committee may ask members of Management, the Auditors and others who are involved in Authority financial management matters to attend and make reports at Committee meetings. The Committee will meet with the Auditors and Management in separate sessions, as necessary or appropriate, to discuss matters the Committee believes should be confidential.

The Committee will comply with the record keeping and reporting obligations contained in Section 6.7 of Article VI of the Authority’s Bylaws, as amended. The Committee may make appropriate recommendations to the Board within the scope of its responsibilities.

RESPONSIBILITIES

The Committee’s job is one of oversight. Management is responsible for the preparation of the Authority’s financial statements and the Auditors are responsible for auditing those financial statements. It is recognized that Management and the Auditors have more detailed knowledge and information regarding the Authority’s financial management practices than do Committee members; accordingly, the Committee’s oversight role is not expected to provide expert or special assurance as to the financial statements, or other financial information produced by the Authority.

The Committee is responsible to assist the Board in performing its fiduciary duties relative to the accounting and financial reporting practices and the integrity of the financial reports of the Authority. In this respect, it is the responsibility of the Committee to provide a medium for open communication between the Board, the Auditors and Management.

In fulfilling its responsibilities, the Committee’s policies and procedures should remain flexible in order that the Committee can best react to changing conditions and assure the Board that the Authority’s accounting and reporting practices are of the highest quality.

Although the Committee may wish to consider other duties from time to time, the general recurring activities of the Committee in carrying out its oversight role are described below. The Committee is responsible for the following:

• Recommending to the Board, (1) the Auditors to be retained to audit the Authority’s financial statements, (2) the proposed scope of such audit, and (3) the annual fees to be paid by the Authority for such services. To the extent possible, the Committee will engage in best efforts so that the Auditors’ lead or coordinating representative, and the Auditors’ representative responsible for reviewing the audit, do not serve in such capacities for a period of more than five (5) consecutive years. The Committee will ensure that the Auditors do not provide to the Authority any non-audit services (including bookkeeping, financial information systems, appraisal services, actuarial services, management or human resource services, investment advice, legal services, and other expert services unrelated to its function as auditor) concurrent with its auditing services The Auditors are to work with and through and report to the Committee, and will be ultimately accountable to the Committee.
• Ensuring that the Auditors view the Committee as their client and that the Auditors bring significant accounting, internal control and financial reporting issues directly to the attention of the Committee on a timely basis.
• Evaluating, both independently and with the Board and Management, the performance of the Auditors and, where appropriate, replacing the Auditors.
• Obtaining annually from the Auditors a formal written statement describing all relationships between the Auditors and the Authority. The Committee will actively engage in a dialogue with the Auditors with respect to any relationships that may affect the objectivity and independence of the Auditors and will take, or recommend that the Board take, appropriate actions to oversee and satisfy itself as to the Auditors’ ongoing independence.
• Reviewing the Authority’s audited financial statements, including financial disclosures and the auditor’s report, and discussing them with Management and the Auditors prior to the release of the financial statements to non-management personnel and the Board. These discussions must include the matters required to be discussed under Statement on Auditing Standards No. 61 (Communication with Audit Committees) and consideration of the quality of the Authority’s accounting principles as applied in its financial reporting, including a review of particularly sensitive accounting estimates, reserves and accrual, judgmental areas, audit adjustments (whether or not recorded), and other such inquiries the Committee or the Auditors deem appropriate. Based on such review, the Committee will make its recommendation to the Board as to the acceptance and approval or rejection and disapproval of the Authority’s audited financial statements prepared by the Auditors.
• Overseeing the relationship with the Auditors, including discussing with the Auditors the nature and rigor of the audit process, receiving and reviewing audit reports, and providing the Auditors full access to the Committee to report on any and all appropriate matters.
• Discussing with Management and the Auditors the quality and adequacy of and compliance with the Authority’s internal controls. Based on such discussions, the Committee will make recommendations to the Board in this regard as the Committee deems appropriate.
• Ensure, through discussions with the Auditors, that no restrictions were placed by Management on the Auditors or their examination.
• Review with the Auditors and the financial management of the Authority any proposed or implemented change in accounting principles and its potential affect on the financial statements.
• Require Management to inform the Committee when it seeks a second opinion on any significant accounting issue.
• Discussing with Management and/or the Authority’s or Committee’s legal counsel any legal matters (including the status of pending litigation) that may have a material impact on the Authority’s financial statements or operations and any material reports or inquiries from regulatory or governmental agencies.
• Developing and recommending to the Board policies with respect to matters within the purview and jurisdiction of the Committee and periodically reviewing such policies and recommending changes.
• Reviewing the Committee’s Charter from time to time and making recommendations to the Board in its regard.