AUDIT COMMITTEE CHARTER
FIRST HEALTH GROUP CORP.
The Audit Committee ("Committee") is appointed by the Board of Directors
("Board") of First Health Group Corp. ("Company") to assist the Board in
fulfilling its responsibility for oversight of the quality and integrity of the
accounting, auditing and reporting practices of the Company, oversight of the
Company's compliance with legal and regulatory requirements, and other such
duties as directed by the Board.
The membership of the Committee shall consist of at least three directors.
Each member must be able to read and understand fundamental financial
statements, including a company's balance sheet, income statement and cash flow
statement. At least one member shall be an "audit committee expert," as defined
by the SEC. Each member shall be free of any relationship that, in the opinion
of the Board, would interfere with his or her individual exercise of independent
judgment, and shall meet the Independent Director requirements as set forth in
the Audit Committee Standards of the Nasdaq Stock Market, Inc. (the "NASD"), as
well as Section 301 of the Sarbanes-Oxley Act of 2002 and all other applicable
laws and regulations. An independent outside director appointed by the Board
shall chair the Committee. He or she shall be responsible for leadership of the
Committee, including reviewing the agenda, presiding over the meetings, making
Committee assignments and reporting to the Board. The chairperson will also
maintain regular liaison with the management of the Company, internal audit and
the lead independent audit partner. Each member of the Committee shall receive
as compensation from the Company only those forms of compensation that are not
prohibited by Section 301 of the Sarbanes-Oxley Act of 2002 and the rules and
listing requirements promulgated thereunder by the Securities and Exchange
Commission ("SEC") and the NASD.
The Committee is empowered to investigate any matter relating to the
Company's accounting, auditing, internal control, financial reporting practices
or compliance with other legal or regulatory requirements brought to its
attention, with full power to retain outside counsel or other experts for this
purpose. In carrying out these responsibilities, the Committee shall have full
and free access to the independent public accountants, the general counsel, all
of the Company's non-employee attorneys and advisors, and executive and
financial management, in scheduled joint sessions or private meetings.
Similarly, the Company's independent public accountants, general counsel, and
executive and financial management will have full and free access to the
Committee and to the Board, and each is responsible for bringing before the
Committee or its chairperson in a timely manner any matter he/she feels
appropriate to the discharge of the Committee's responsibilities. The Committee
shall determine, and the Company shall provide, the funding for the Committee's
ordinary administrative expenses that are necessary or appropriate in carrying
out the its duties, as well as for the compensation of the independent auditors
or other advisors that the Committee chooses to engage. The powers and
responsibilities delegated to the Committee in this Charter or otherwise shall
be carried out by the Committee, as it deems appropriate, without Board
The chairperson of the Committee (or in his or her absence, a member
designated by the chairperson) shall preside at each meeting of the Committee
and set the agendas for Committee meetings. The Committee shall have 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. The Committee shall meet
at least once during each fiscal quarter and more frequently as the Committee
deems desirable. The Committee shall meet separately, periodically, with
management, with the internal auditor and with the independent auditor.
The Committee will reassess the Charter annually and present it to the
Board for its formal review and approval. The Committee will prepare and the
Company will publish an annual statement in the Company's proxy statement to
stockholders regarding the Committee's activities. The Charter will be published
by the Company in the Company's proxy statement to stockholders at least once
every three years. In addition, the Company will include annually in the
Company's proxy statement a summary approved by the Committee of the audit and
all other aggregate fees paid to the independent auditors, and a statement from
the Committee as to whether it has considered whether the provision of non-audit
services is compatible with maintaining auditor independence.
POWERS AND RESPONSIBILITIES
The Committee shall, as a part of its functions, advise management and
exercise the following powers and duties with respect to the following matters
involving the Company and, unless otherwise specified, any of its direct or
1. Review the Company's annual financial statements, annual reports,
registration statements, and material amendments to any of them, as filed
with the SEC. Such review shall include consideration of the quality of the
Company's accounting principles as applied in its financial reporting,
including a review of particular sensitive accounting estimates, reserves
and accruals, judgment areas and other such inquires as the Committee shall
deem appropriate. Based on the review, the Committee shall make its
recommendation to the Board as to the inclusion of the Company's audited
financial statements in the Company's Annual Report on Form 10-K. The
Committee shall review and discuss with management all Sarbanes-Oxley Act
Section 302 and 906 certifications as well as management's disclosure to
the Committee under Section 302 of the Sarbanes-Oxley Act.
2. Before the independent auditor is engaged by the Company to render
audit or non-audit services, the Committee shall pre-approve the
engagement, pursuant to the First Health Audit Committee Pre-Approval
Policy, incorporated herein by reference.
3. Review with management and the independent auditor the Company's
quarterly financial information prior to the Company's filing issuances of
earning releases. This review may be performed by the Committee or its
4. Receive reports outlining the Company's programs for compliance
with the financial disclosure requirements of applicable law, participate
in meetings relating to compliance with such disclosure requirements, and
make recommendations to the Board as appropriate.
5. Review the auditing of the Company's accounts with the independent
auditor, including its plan, scope, coverage and the results of its
auditing engagements. In addition, review with the independent auditor any
significant recommendations together with management's responses thereto.
6. Hold timely discussions with the independent auditor, separate from
the Company's management, regarding:
- All critical accounting policies and practices,
- All alternative treatments of financial information within the
generally accepted accounting principles that have been discussed with
management, ramifications of the use of such alternative disclosure
and treatments, and the treatment preferred by the independent
- Other material written communications between the independent auditor
and management, including the management letter and schedule of
- Any problems or difficulties the independent auditor may have
encountered during the course of the audit work, including any
restrictions on the scope of activities or access to required
information or any significant disagreements with management and
management's responses thereto.
- All matters required to be discussed by the Statement on Auditing
Standards No. 61 as then in effect.
7. The independent auditor to be selected or retained to audit the
financial statements of the Company shall report directly to the Committee,
and the Committee shall be directly responsible and have sole authority for
the following regarding the independent auditor:
- Appointment and oversight,
- Review of performance,
- Annual assessment of independence, including ensuring that the
independent auditor prepares and delivers, at least annually, to the
Company a written statement delineating all relationships between the
it and the Company, consistent with Independence Standards Board
- Resolution of any disagreements with management and the independent
public accountant regarding financial reporting,
- Removal, if circumstances warrant,
- Review of any audit problems or difficulties and management's
- Confirmation with the independent public accountant that the
independent public accountant complies with the partner rotation
requirements established by the SEC.
8. Review management's reports outlining the Company's processes to
maintain an adequate system of internal controls and related disclosures
and the independent auditor's attestation on management's assertions as
required by Section 404 of the Sarbanes-Oxley Act and make recommendations
to the Board as appropriate.
9. Receive reports from the Company's internal auditing division,
along with management's comments, and make recommendations to the Board as
10. Receive at least an annual report outlining the Company's
compliance with its Code of Business Conduct and Ethics and make
recommendations to the Board as appropriate.
11. Review with management and the independent auditor , significant
financial risks and exposures facing the Company, assess management's steps
to minimize them, and make appropriate recommendations for adequate
12. The Committee shall establish and the Company shall maintain
procedures for the receipt, retention, and treatment of complaints
regarding accounting, internal accounting, or auditing irregularities, as
well as procedures for the confidential, anonymous submission by employees
of the Company regarding questionable accounting or auditing matters, as
outlined in the Company's Code of Business Conduct and Ethics and required
by Section 301 of the Sarbanes-Oxley Act and the NASD rules.
13. Consider and approve or reject all proposed related party
transactions after prior Company review.
14. Perform such other duties and responsibilities as may be assigned
to the Committee by the Board.
The Committee is responsible for the duties set forth in this Charter but
is not responsible for either the preparation of the financial statements or the
auditing of the financial statements. Management has the responsibility for
preparing the financial statements and implementing internal controls and the
independent public accountants have the responsibility for auditing the
financial statements and monitoring the effectiveness of the internal controls.
The review of the financial statements by the Committee is not of the same
quality as the audit performed by the independent public accountants.