AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
CAREMARK RX, INC.
BE IT RESOLVED, that there shall be designated an Audit Committee (the "Audit Committee") of the Board of Directors (the "Board") of Caremark Rx, Inc. (together with its subsidiaries and affiliates, the "Company").
The Audit Committee shall consist solely of three or more directors as determined by the Board, each of whom shall be independent directors (as defined by: (1) Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended and the rules and regulations promulgated thereunder (the "Exchange Act"), and (2) the corporate governance listing standards of the New York Stock Exchange (NYSE)), and free from any relationship that, in the opinion of the Board, would interfere with the exercise of his or her independent judgment as a member of the Audit Committee. Each member of the Audit Committee shall be financially literate, or shall undertake to become financially literate within a reasonable period of time after being elected to the Audit Committee of the Board, and at least one member shall have accounting or related financial management expertise, as these qualifications are interpreted by the Board in its business judgment. In addition, unless otherwise determined by the Board, at least one member of the Audit Committee shall be an Audit Committee Financial Expert, as defined in Item 401 of Regulation S-K.
The Audit Committee shall:
(A) assist Board oversight of (1) the integrity of the Company's financial statements, (2) the company's compliance with legal and regulatory requirements, (3) the independent auditor's qualifications and independence, and (4) the performance of the Company's internal audit function and independent auditor; and (B) prepare the report required by the SEC's proxy rules to be included in the Company's annual proxy statement.
To accomplish the above purposes, the Audit Committee shall:
BE IT FURTHER RESOLVED, that the Audit Committee shall have the following additional responsibilities and duties:
(a) Hold regular quarterly meetings, or more frequently as circumstances dictate, and such special meetings as may be called by the Chairman of the Audit Committee or at the request of the Company's independent accountants or internal audit staff.
(b) Ensure that the Company maintains an internal audit function.
(c) Hold separate executive sessions with management, the independent auditor, and the Company's internal audit staff at least quarterly.
(d) Review the adequacy of this charter at least annually and submit any proposed changes to the Board for approval.
(e) Require the Company to file this Audit Committee Charter as an appendix to the proxy statement at least once every three years and maintain a copy on the Company's website.
(f) Directly appoint, oversee, retain, compensate, evaluate and if necessary terminate the independent auditor, resolve disagreements between management and the independent auditor regarding financial reporting, review any relationships between the Company and the independent auditor that could affect their independence, review the range and cost of audit and tax services performed by the independent auditors, and ensure compliance with the Board resolution which prohibits the performance of non-permissible, non-audit services by the independent auditor. All audit services and permissible non-audit services (including tax services) to be performed for the Company by its independent auditors, subject to the de minimus exemptions for non-audit services described in the Exchange Act that are preapproved by the Audit Committee prior to the completion of the audit, shall be pre-approved by the Audit Committee. The Audit Committee may delegate to one or more of its members the authority to pre-approve audit services and permissible non-audit services; provided, however, that all pre-approved services must be disclosed by such delegate to the full Audit Committee at its next scheduled meeting.
(g) Evaluate the independent auditor's qualifications, performance and independence on at least an annual basis after reviewing the reports described in item (i) below, including a review and evaluation of the lead partner of the independent auditor.
(h) Prior to commencement of the annual audit, confer with the independent auditor and the internal audit staff concerning the scope of their examinations of the books and records of the Company, review and approve the independent auditor's annual engagement letter and the proposed fees, direct the special attention of the independent auditor or internal audit staff to specific matters or areas deemed by the Audit Committee or the internal auditors to be of special significance, and authorize the independent auditor and internal audit staff to perform such supplemental reviews or audits as the Audit Committee may deem desirable.
(i) Obtain and review a report of the independent auditor at least annually:
(A) regarding (1) all critical accounting policies and practices used, (2) all alternative treatments within GAAP suggested to management, (3) all communications with management, and
(B) describing the independent auditor's internal quality-control procedures, any material issues raised by the most recent internal quality control review or peer review of the independent 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 independent auditor, and any steps taken to deal with any such issues; and (to assess the auditor's independence) all relationships between the independent auditor and the Company.
(j) Review the performance of and assure objectivity of the internal audit staff, including activities relating to compliance and ethics. The review will include discussion of the responsibilities, budget and staffing of the Company's internal audit function.
(k) Review with management, the independent auditor and internal auditors significant risks and exposures, audit activities and significant audit findings, assess the steps management has taken or should take to minimize those risks and discuss with management generally the Company's guidelines and policies with respect to risk assessment and risk management.
(l) Review and discuss with management and the independent auditor:
(A) the Company's unaudited quarterly financial statements and results of the independent auditors' reviews rendered with respect to such financial statements, including reviewing the nature and extent of any significant changes in accounting principles or the application thereof,
(B) the Company's audited annual financial statements and the independent auditors' opinion rendered with respect to such financial statements, including reviewing the nature and extent of any significant changes in accounting principles or the application thereof, and based on this review and discussion, recommend to the Board of Directors whether the audited financial statements should be included in the Company's Form 10-K,
(C) major issues regarding accounting principles and financial statement presentations and major issues as to the adequacy of the Company's internal controls and any special audit steps adopted in light of material control deficiencies,
(D) analyses prepared by management and/or the independent auditor setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including analyses of the effects of alternative GAAP methods on the financial statements, and
(E) the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on the financial statements of the Company.
(m) Review the Company's disclosures under "Management's Discussion and Analysis of Financial Condition and Results of Operations" prior to filing each Form 10-K and Form 10-Q.
(n) Discuss earnings press releases, as well as financial information and earnings guidance provided to analysts and rating agencies (paying particular attention to any use of "pro forma," or "adjusted" non-GAAP, information); provided that discussion of the types of information to be disclosed and the types of presentations to be made on a general basis shall be sufficient, and the Audit Committee need not discuss in advance each earnings release or each instance in which the company may provide earnings guidance.
(o) Obtain from the independent auditor their recommendations regarding the adequacy of internal controls and other matters relating to the accounting procedures and the books and records of the Company and reviewing the correction of controls deemed to be deficient, and obtain from the internal audit staff any related significant findings or difficulties encountered in the course of their audits, including any restrictions on the scope of their work or access to required information.
(p) Provide an open avenue of communication among the independent auditor, internal audit staff and Board and maintain minutes or other records of meetings and activities of the Audit Committee.
(q) Review with appropriate Company personnel the actions taken to ensure compliance with the Company's Code of Conduct and the results of material violations of such Code, review the programs and policies of the Company designed to ensure compliance with applicable laws and regulations and monitor the results of these compliance efforts, and review the procedures established by the Company that monitor the compliance by the Company with its loan and indenture covenants and restrictions.
(r) Conduct or authorize investigations into any matters within the Audit Committee's scope of responsibilities.
(s) At least annually, review with the independent auditor any audit problems or difficulties and management's response. The discussion will include any accounting adjustments that were noted or proposed by the independent auditor but were "passed" (as immaterial or otherwise), any communications between the independent audit team and the independent audit firm's national office respecting auditing or accounting issues presented by the engagement, and any "management" or "internal control" letter issued, or proposed to be issued, by the independent auditor to the Company.
(t) 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 submissions by Company employees of concerns regarding questionable accounting or auditing matters.
(u) Consider such other matters in relation to the financial affairs of the Company and its accounts and in relation to the internal and external audit of the Company as the Audit Committee may, in its discretion, determine to be advisable.
(v) Obtain advice and assistance from outside legal, accounting or other advisors as the Audit Committee deems necessary to carry out its duties, and receive appropriate funding, as determined by the Audit Committee, from the Company for payment of compensation to the outside legal, accounting or other advisors employed by the Audit Committee.
(w) Set clear hiring policies for employees or former employees of the independent auditors
(x) Report regularly to the Board.
(y) Conduct an annual self-evaluation of the Audit Committee's effectiveness in discharging its responsibilities and duties and report results of such evaluation to the Board.
BE IT FURTHER RESOLVED, that the following Board members are hereby appointed to serve on and shall constitute the Audit Committee until the Board shall otherwise determine:
Roger L. Headrick,
Ted H. McCourtney
Kristen E. Gibney Williams
Edwin M. Banks
Michael D. Ware