AGREEMENT AND PLAN OF MERGER

EXHIBIT 2.1

AGREEMENT AND PLAN OF MERGER

dated as of

November 1, 2006

among

CVS CORPORATION,

CAREMARK RX, INC.,

and

TWAIN MERGERSUB CORP.

TABLE OF CONTENTS ¹

 

1	The Table of Contents is not a part of this Agreement.

 

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T ABLE OF E XHIBITS

 

 

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AGREEMENT AND PLAN OF MERGER

AGREEMENT AND PLAN OF MERGER (as the same may be amended from time to time in accordance with its terms, this “ Agreement ”) dated as of November 1, 2006 among Caremark Rx, Inc., a Delaware corporation (“ Caremark ”), CVS Corporation, a Delaware corporation (“ CVS ”) and Twain MergerSub Corp., a Delaware corporation and a wholly owned subsidiary of CVS (“ MergerSub ”).

WHEREAS, the Board of Directors of each of CVS and Caremark has determined that a business combination between CVS and Caremark is fair to and in the best interests of their respective companies and stockholders and presents a unique opportunity for their respective companies to achieve long-term strategic and financial benefits, and accordingly has agreed to effect a business combination upon the terms and subject to the conditions set forth in this Agreement and has approved this Agreement and declared this Agreement and the Merger advisable;

WHEREAS, the combination of CVS and Caremark shall be effected by the terms of this Agreement through the Merger;

WHEREAS, in furtherance of the foregoing, the Board of Directors of each of CVS, Caremark, and MergerSub has approved this Agreement and the Merger, upon the terms and subject to the conditions of this Agreement, pursuant to which each share of capital stock of Caremark issued and outstanding immediately prior to the Effective Time will be converted into the right to receive shares of capital stock of CVS as set forth herein;

WHEREAS, CVS, in its capacity as sole stockholder of MergerSub, has agreed to approve and adopt this Agreement and the Merger by unanimous written consent in accordance with the requirements of Delaware Law as provided for herein and shall approve and adopt this Agreement and the Merger immediately after the execution of this Agreement;

WHEREAS, it is intended that the Merger shall qualify for U.S. federal income tax purposes as a reorganization within the meaning of Section 368(a) of the U.S. Internal Revenue Code of 1986 (the “ Code ”) and that this agreement shall constitute a plan of reorganization within the meaning of Treasury Regulations Section 1.368-2(g);

ACCORDINGLY, in consideration of the foregoing, and of the representations, warranties, covenants and agreements contained in this Agreement, and for other good and valuable consideration (the receipt and sufficiency of which is hereby acknowledged), the parties to this Agreement (each, a “ party ” and collectively, the “ parties ”) agree as follows:

ARTICLE 1

D EFINITIONS

Section 1.01 . Definitions. (a) As used in this Agreement, the following terms have the following meanings:

“ 1933 Act ” means the Securities Act of 1933.

“ 1934 Act ” means the Securities Exchange Act of 1934.

“ Acquisition Proposal ” means, other than the transactions contemplated by this Agreement, in respect of either Caremark or CVS, any offer, proposal or inquiry relating to, or any Third Party indication of interest in, (i) any acquisition or purchase, direct or indirect, of 20% or more of the consolidated assets of that Person and its Subsidiaries or over 20% of any class of equity or voting securities of that Person or any of its Subsidiaries whose assets, individually or in the aggregate, constitute more than 20% of the consolidated assets of that Person, (ii) any tender offer (including a self-tender offer) or exchange offer that, if consummated, would result in such Third Party beneficially owning 20% or more of any class of equity or voting securities of that Person or any of its Subsidiaries whose assets, individually or in the aggregate, constitute more than 20% of the consolidated assets of that Person or (iii) a merger, consolidation, share exchange, business combination, sale of substantially all the assets, reorganization, recapitalization, liquidation, dissolution or other similar transaction involving that Person or any of its Subsidiaries whose assets, individually or in the aggregate, constitute more than 20% of the consolidated assets of that Person.

“ Adverse Recommendation Change ” means either of the following, as the context may indicate, (a) either (i) any failure by the Board of Directors of CVS to make, or any withdrawal or modification in a manner adverse to Caremark of, the CVS Board Recommendation or (ii) any recommendation by CVS’s Board of Directors of an Acquisition Proposal or (b) either (i) any failure by the Board of Directors of Caremark to make, or any withdrawal or modification in a manner adverse to CVS of, the Caremark Board Recommendation or (ii) any recommendation by Caremark’s Board of Directors of an Acquisition Proposal.

“ Affiliate ” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with that Person.

“ Applicable Law ” means, with respect to any Person, any United States federal, state or local or any foreign law (in each case, statutory, common or otherwise), constitution, treaty, convention, ordinance, code, rule, regulation, order, injunction, judgment, decree, ruling or other similar requirement enacted, adopted, promulgated or applied by a Governmental Authority that is binding upon or applicable to that Person.

 

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“ Business Day ” means a day, other than Saturday, Sunday or any other day on which commercial banks in New York, New York are authorized or required by Applicable Law to close.

“ Caremark Balance Sheet ” means the consolidated balance sheet of Caremark as of June 30, 2006 and the footnotes thereto set forth in the most recent Quarterly Report on Form 10-Q filed by Caremark with the SEC.

“ Caremark Balance Sheet Date ” means June 30, 2006.

“ Caremark Disclosure Schedule ” means the disclosure schedule dated the date hereof regarding this Agreement that has been provided by Caremark to CVS.

“ Caremark Stock ” means the common stock, $0.001 par value, of Caremark.

“ Caremark Subsidiary ” means a Subsidiary of Caremark.

“ Caremark 10-K ” means Caremark’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005.

“ CVS Balance Sheet ” means the consolidated balance sheet of CVS as of July 1, 2006 and the footnotes thereto set forth in the most recent Quarterly Report on Form 10-Q filed by CVS with the SEC.

“ CVS Balance Sheet Date ” means July 1, 2006.

“ CVS Charter Amendment ” means the amendment of CVS’s certificate of incorporation to read as set forth in Exhibit A to this Agreement, which amendment shall become effective at the Effective Time, subject to the terms and conditions set forth in this Agreement.

“ CVS Disclosure Schedule ” means the disclosure schedule dated the date hereof regarding this Agreement that has been provided by CVS to Caremark.

“ CVS Share Issuance ” means the issuance of shares of CVS Stock to holders of Caremark Stock as a result of the Merger pursuant to the terms and subject to the conditions of this Agreement.

“ CVS Stock ” means the common stock, $0.01 par value, of CVS.

“ CVS Subsidiary ” means a Subsidiary of CVS.

“ CVS 10-K ” means CVS’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005.

“ Closing Date ” means the date of the Closing.

 

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“ Delaware Law ” means the General Corporation Law of the State of Delaware.

“ Environmental Laws ” means any Applicable Laws or any agreement with any Governmental Authority relating to (i) the effect of the environment on human health and safety, (ii) protection of the environment or (iii) to contaminants, pollutants, waste or hazardous substances.

“ Environmental Permits ” means all permits, licenses, franchises, certificates, approvals and other similar authorizations of Governmental Authorities required by Environmental Laws for the operation of the business of CVS or Caremark, as the case may be, or any of its respective Subsidiaries, as currently conducted.

“ ERISA ” means the Employee Retirement Income Security Act of 1974.

“ ERISA Affiliate ” of any entity means any other entity that, together with such entity, would be treated as a single employer under Section 414 of the Code.

“ GAAP ” means generally accepted accounting principles in the United States.

“ Governmental Authority ” means any transnational, domestic or foreign, federal, state or local governmental authority, department, court, administrative or regulatory agency, commission or official, including any political subdivision thereof.

“ HSR Act ” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

“knowledge ” means (i) in respect of CVS, the actual knowledge of the persons listed in Section 1.01 of the CVS Disclosure Schedule and (ii) in respect of Caremark, the actual knowledge of persons listed in Section 1.01 of the Caremark Disclosure Schedule.

“ Lien ” means, with respect to any property or asset, any mortgage, lien, pledge, charge, security interest, encumbrance or other adverse claim of any kind in respect of such property or asset. For purposes of this Agreement, a Person shall be deemed to own, subject to a Lien, any property or asset that it has acquired or holds, subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such property or asset.

“ Material Adverse Effect ” means, with respect to any Person, a material adverse effect on the business, financial condition or results of operations of that Person and its Subsidiaries, taken as a whole, except any such effect to the extent resulting from or arising in connection with (i) any change in the market price of

 

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the common stock of that Person after the date of this Agreement ( provided that this clause (i) shall not exclude any underlying circumstance, change, event, fact, development or effect that may have caused that change in market price), (ii) changes, circumstances or conditions generally affecting any industry in which that Person or any of its Subsidiaries participate, (iii) changes generally affecting United States or global economic conditions or financial markets, (iv) changes resulting from a change in GAAP, (v) changes resulting from any act of war or terrorism (or any escalation thereof) or (vi) changes, facts, circumstances or conditions that can be shown to have been proximately caused by the announcement or existence of this Agreement or any transaction contemplated hereby; provided that no exception enumerated in any of the immediately preceding clauses (ii)-(v) shall apply to the extent any such effect, change, circumstance, event, fact or development has a materially disproportionate effect on that Person and its Subsidiaries, taken as a whole, relative to other comparable companies in the industry in which that Person operates.

“ Person ” means an individual, corporation, partnership, limited liability company, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

“ Sarbanes-Oxley Act ” means the Sarbanes-Oxley Act of 2002.

“ SEC ” means the Securities and Exchange Commission.

“ Subsidiary ” means, with respect to any Person, any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at any time directly or indirectly owned by such Person.

“ Third Party ” means any Person, including as defined in Section 13(d) of the 1934 Act, other than CVS or any of its Affiliates (in respect of Caremark) or Caremark or any of its Affiliates (in respect of CVS).

(b) Each of the following terms is defined in the Section set forth opposite that term:

 

 

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Section 1.02 . Other Definitional and Interpretative Provisions. The words “hereof”, “herein” and “hereunder” and words of like import used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof. References to Articles, Sections, Exhibits and Schedules are to Articles, Sections, Exhibits and Schedules of this Agreement unless otherwise specified. All Exhibits and Schedules annexed hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth in full herein. Any capitalized terms used in any Exhibit or Schedule but not otherwise defined therein, shall have the meaning as defined in this Agreement. Any singular term in this Agreement shall be deemed to include the plural and any plural term the singular. Whenever the words “include”, “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the phrase “but not limited to”, whether or not they are in fact followed by those words or words of like import. “Writing”, “written” and comparable terms refer to printing, typing and other means of reproducing words (including electronic media) in a visible form. References to any agreement or contract are to that agreement or contract as amended, modified or supplemented from time to time in accordance with the terms hereof and thereof; provided that with respect to any agreement or contract listed on the CVS Disclosure Schedule, the Caremark Disclosure Schedule or any other schedule to this Agreement, all such amendments, modifications or supplements must also be listed in the appropriate schedule (subject in all cases to the terms of Section 11.05). Any reference in this Agreement to a statute shall be to that statute, as amended from time to time, and to the rules and regulations promulgated at that time under that statute. References to any Person include the successors and permitted assigns of that Person. References from or through any date mean, unless otherwise specified, from and including or through and including, respectively. References to “law” or “laws” shall be deemed also to include any Applicable Law.

ARTICLE 2

T HE M ERGER

Section 2.01 . The Merger. (a) At the Effective Time, MergerSub shall be merged (the “ Merger ”) with and into Caremark in accordance with Delaware

 

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Law, at which time the separate existence of MergerSub shall cease, and Caremark shall be the surviving corporation (the “ Surviving Corporation ”), and shall be a wholly owned, direct subsidiary of CVS.

(b) From and after the Effective Time, the Surviving Corporation shall possess all of the rights, powers, privileges and franchises and be subject to all of the obligations, liabilities, restrictions and disabilities of Caremark and MergerSub, all as provided under Delaware Law.

Section 2.02 . Effective Time. As soon as practicable after satisfaction or, to the extent permitted under this Agreement, waiver of all conditions to the Merger set forth in Article 9 (excluding conditions that, by their nature, cannot be satisfied until the Closing), the parties shall file a certificate of merger (the “ Certificate of Merger ”) with the Delaware Secretary of State in such form as is required by and executed and completed in accordance with the relevant provisions of Delaware Law and make all other filings or recordings required by Delaware Law to effect the Merger. The Merger shall become effective at such time (the “ Effective Time ”) as the Certificate of Merger is duly filed with the Delaware Secretary of State (or at such later time as CVS and Caremark mutually agree and specify in the Certificate of Merger).

Section 2.03 . Closing. Upon the terms and subject to the conditions set forth in Article 9, the closing of the Merger (the “ Closing ”) will take place as soon as practicable, but in no event later than five Business Days, after the satisfaction or waiver of the conditions (excluding conditions that, by their nature, cannot be satisfied until the Closing), or such other time and date that the parties agree to in writing. The Closing shall be held at the offices of Davis Polk & Wardwell unless another place is agreed to in writing by the parties hereto.

Section 2.04. Conversion of Shares. At the Effective Time, by virtue of the Merger and without any action on the part of the holders thereof;

(a) except as otherwise provided in Section 2.04(b), each share of Caremark Stock outstanding immediately prior to the Effective Time shall be cancelled and converted into the right to receive 1.670 (the “ Exchange Ratio ”) shares of CVS Stock (together with the cash in lieu of fractional shares of CVS Stock as specified below, the “ Merger Consideration ”);

(b) each share of Caremark Stock held by Caremark as treasury stock immediately prior to the Effective Time shall be canceled, and no payment shall be made with respect thereof in accordance with this Article 2 and

(c) each share of common stock, par value $.001 per share, of MergerSub outstanding immediately prior to the Effective Time shall be converted into the right to receive one share of common stock, par value $.001 per share, of the Surviving Corporation and shall constitute the only outstanding shares of capital stock of the Surviving Corporation.

 

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Section 2.05 . Surrender and Payment. (a) Prior to the Effective Time, CVS and Caremark shall appoint a mutually acceptable agent (the “ Exchange Agent ”) for the purpose of exchanging for the Merger Consideration (i) certificates representing shares of Caremark Stock (the “ Certificates ”) or (ii) uncertificated shares of Caremark Stock (the “ Uncertificated Shares ”). CVS shall (x) deposit with the Exchange Agent, to be held in trust for the holders of Caremark Stock, certificates (if such shares shall be certificated) representing shares of CVS Stock issuable pursuant to Section 2.04 in exchange for outstanding shares of Caremark Stock and (y) make available to the Exchange Agent, as needed, cash in amounts that are sufficient to pay cash in lieu of fractional shares pursuant to Section 2.07 and any dividends or other distributions pursuant to Section 2.05(f), in each case, to be paid in respect of the Certificates and the Uncertificated Shares. Promptly after the Effective Time, CVS shall send, or shall cause the Exchange Agent to send, to each holder of shares of Caremark Stock at the Effective Time a letter of transmittal and instructions (which shall specify that the delivery shall be effected, and risk of loss and title shall pass, only upon proper delivery of the Certificates or transfer of the Uncertificated Shares to the Exchange Agent) for use in such exchange.

(b) Each holder of shares of Caremark Stock shall be entitled to receive, upon (i) surrender to the Exchange Agent of a Certificate, together with a properly completed letter of transmittal, or (ii) receipt of an “agent’s message” by the Exchange Agent (or such other evidence, if any, of transfer as the Exchange Agent may reasonably request) in the case of a book-entry transfer of Uncertificated Shares, the aggregate Merger Consideration that such holder has a right to receive pursuant to Section 2.04. The shares of CVS Stock constituting part of such Merger Consideration, at CVS’s option, shall be in uncertificated book-entry form, unless a physical certificate is requested by a holder of shares of Caremark Stock or is otherwise required under Applicable Law. As a result of the Merger, at the Effective Time, all shares of Caremark Stock shall cease to be outstanding and each holder thereof shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration payable in respect thereof and any dividends or other distributions payable in respect thereof in accordance with Section 2.05(f).

(c) If any portion of the Merger Consideration is to be paid to a Person other than the Person in whose name the surrendered Certificate or the transferred Uncertificated Share is registered, it shall be a condition to such payment that (i) either such Certificate shall be properly endorsed or shall otherwise be in proper form for transfer or such Uncertificated Share shall be properly transferred and (ii) the Person requesting such payment shall pay to the Exchange Agent any transfer or other taxes required as a result of such payment to a Person other than the registered holder of such Certificate or Uncertificated Share or establish to the satisfaction of the Exchange Agent that such tax has been paid or is not payable.

(d) At the Effective Time, there shall be no further registration of transfers of shares of Caremark Stock that were outstanding prior to the Merger.

 

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If, after the Effective Time, Certificates or Uncertificated Shares are presented to the Surviving Corporation, they shall be canceled and exchanged for the Merger Consideration payable in respect thereof provided for, and in accordance with the procedures set forth, in this Article 2.

(e) Any portion of the Merger Consideration made available to the Exchange Agent pursuant to Section 2.05(a) that remains unclaimed by the holders of shares of Caremark Stock six months after the Effective Time shall be returned to CVS, upon demand, and any such holder who has not exchanged shares of Caremark Stock for the Merger Consideration in accordance with this Section 2.05 prior to that time shall thereafter look only to CVS for payment of the Merger Consideration, and any dividends and distributions with respect thereto, in respect of such shares without any interest thereon. Notwithstanding the foregoing, CVS shall not be liable to any holder of shares of Caremark Stock for any amounts properly paid to a public official pursuant to applicable abandoned property, escheat or similar laws. Any amounts remaining unclaimed by holders of shares of Caremark Stock six years after the Effective Time (or such earlier date, immediately prior to such time when the amounts would otherwise escheat to or become property of any Governmental Authority) shall become, to the extent permitted by Applicable Law, the property of CVS, free and clear of any claims or interest of any Person previously entitled thereto.

(f) No dividends or other distributions with respect to securities of CVS constituting part of the Merger Consideration, and no cash payment in lieu of fractional shares as provided in Section 2.07, shall be paid to the holder of any Certificates not surrendered or of any Uncertificated Shares not transferred until such Certificates or Uncertificated Shares are surrendered or transferred, as the case may be, as provided in this Section. Following such surrender or transfer, there shall be paid, without interest, to the Person in whose name the securities of CVS have been registered, (i) at the time of such surrender or transfer, the amount of any cash payable in lieu of fractional shares to which such Person is entitled pursuant to Section 2.07 and the amount of all dividends or other distributions with a record date after the Effective Time previously paid or payable on the date of such surrender with respect to such securities, and (ii) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time and prior to surrender or transfer and with a payment date subsequent to surrender or transfer payable with respect to such securities.

Section 2.06 . Stock Options. (a) The terms of each outstanding option to purchase shares of Caremark Stock under any employee stock option or compensation plan or arrangement of Caremark (a “ Caremark Stock Option ”), whether or not exercisable or vested, shall be adjusted as necessary to provide that, at the Effective Time, each Caremark Stock Option outstanding immediately prior to the Effective Time shall be deemed to constitute an option to acquire, on the same terms and conditions as were applicable under such Caremark Stock Option, the same number of whole shares of CVS Stock as the holder of such Caremark Stock Option would have been entitled to receive pursuant to the

 

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Merger had such holder exercised such Caremark Stock Option in full immediately prior to the Effective Time, at a price per share of CVS Stock equal to (i) the aggregate exercise price for the shares of Caremark Stock otherwise purchasable pursuant to such Caremark Stock Option divided by (ii) the aggregate number of whole shares of CVS Stock deemed purchasable pursuant to such so adjusted Caremark Stock Option rounded up to the nearest whole cent; provided that the option price, the number of shares purchasable pursuant to each such so adjusted option and the terms and conditions of exercise of each such so adjusted option shall be determined in order to comply with Section 409A of the Code and for any Caremark Stock Option to which Section 421 of the Code applies by reason of its qualification under any of Sections 422 through 424 of the Code, the option price, the number of shares purchasable pursuant to each such so adjusted option and the terms and conditions of exercise of each such so adjusted option shall be determined in order to comply with Section 424 of the Code.

(b) Prior to the Effective Time, Caremark shall (i) use all commercially reasonable efforts to obtain any consents from holders of options to purchase shares of Caremark Stock granted under Caremark’s stock option or compensation plans or arrangements and (ii) make any amendments to the terms of such stock option or compensation plans or arrangements that are necessary to give effect to the adjustments contemplated by this Section 2.06.

(c) CVS shall take such actions as are necessary for the assumption of Caremark Stock Options pursuant to this Section 2.06, including the reservation, issuance and listing of CVS Stock as is necessary to effectuate the transactions contemplated by this Section 2.06. CVS shall prepare and file with the SEC a registration statement on an appropriate form, or a post-effective amendment to a registration statement previously filed under the 1933 Act, with respect to the shares of CVS Stock subject to Caremark Stock Options and shares issuable to directors of Caremark under the Caremark Non- Employee Director Deferred Compensation Plan and shares held in the trusts set forth in clauses (a)(3)-(5) of Section 4.05 of the Caremark Disclosure Schedule and, where applicable, shall use all commercially reasonable efforts to have such registration statement declared effective as soon as practicable following the Effective Time and to maintain the effectiveness of such registration statement covering such Caremark Stock Options and shares issuable to directors of Caremark under the Caremark Non-Employee Director Deferred Compensation Plan (and to maintain the current status of the prospectus contained therein) for so long as such Caremark Stock Options remain outstanding. With respect to those individuals, if any, who, subsequent to the Effective Time, will be subject to the reporting requirements under Section 16(a) of the 1934 Act, where applicable, CVS shall use all commercially reasonable efforts to administer Caremark Stock Options assumed pursuant to this Section 2.06 in a manner that complies with Rule 16b-3 promulgated under the 1934 Act to the extent such Caremark Stock Options complied with such rule prior to the Merger.

 

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Section 2.07 . Fractional Shares. No certificates, scrip or shares of CVS Stock representing fractional shares of CVS Common Stock or book-entry credit of the same shall be issued upon the surrender for exchange of Certificates or Uncertificated Shares, and such fractional share interests shall not entitle the owner thereof to vote or to have any rights as a stockholder of CVS by virtue of such fractional share interests. All fractional shares of CVS Stock that a holder of shares of Caremark Stock would otherwise be entitled to receive as a result of the Merger shall be aggregated and if a fractional share results from such aggregation, such holder shall be entitled to receive, in lieu thereof, an amount in cash without interest determined by multiplying the closing sale price of a share of CVS Stock on the New York Stock Exchange (the “ NYSE ”) on the first trading day immediately following the Effective Time by the fraction of a share of CVS Stock to which such holder would otherwise have been entitled. CVS shall deposit with the Exchange Agent the funds required to make the cash payments required by this Section 2.07 when and as needed.

Section 2.08 . Withholding Rights. CVS and the Surviving Corporation shall be entitled to deduct and withhold from the consideration otherwise payable to any Person pursuant to this Article 2 such amounts as it is required to deduct and withhold with respect to the making of such payment under any provision of federal, state, local or foreign tax law. If CVS or the Surviving Corporation so withholds amounts, such amounts shall be treated for all purposes of this Agreement as having been paid to the Person in respect of which CVS or the Surviving Corporation made such deduction and withholding.

Section 2.09 . Lost Certificates. If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if required by the Surviving Corporation, delivery by such Person of an agreement in form reasonably satisfactory to the Surviving Corporation or, as the Surviving Corporation may reasonably deem necessary, the posting by such Person of a bond, in such reasonable amount as the Surviving Corporation may direct, as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent will issue, in exchange for such lost, stolen or destroyed Certificate, the Merger Consideration to be paid in respect of the shares of Caremark Stock represented by such Certificate, as contemplated by this Article 2.

Section 2.10 . Adjustments. If at any time during the period between the date of this Agreement and the Effective Time, any change in the outstanding shares of capital stock of CVS or Caremark shall occur by reason of any reclassification, recapitalization, stock split or combination, exchange or readjustment of shares, or any stock dividend thereon with a record date during such period, the Exchange Ratio and any amounts payable pursuant to Section 2.05(f) or Section 2.07 of this Agreement shall be appropriately adjusted.

 

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ARTICLE 3

T HE S URVIVING C ORPORATION

Section 3.01 . Certificate of Incorporation of the Surviving Corporation. The certificate of incorporation of Caremark shall be the certificate of incorporation of the Surviving Corporation until amended in accordance with Applicable Law.

Section 3.02 . Bylaws of the Surviving Corporation. The bylaws of Caremark shall be the bylaws of the Surviving Corporation until amended in accordance with Applicable Law.

Section 3.03 . Directors and Officers of the Surviving Corporation. From and after the Effective Time, until successors are duly elected or appointed and qualified in accordance with Applicable Law, the directors of MergerSub and the officers of Caremark, in each case, at the Effective Time shall be the directors and officers, respectively, of the Surviving Corporation.

ARTICLE 4

R EPRESENTATIONS AND W ARRANTIES OF C AREMARK

Subject in all respects to Section 11.05, except as set forth in the Caremark Disclosure Schedule or as disclosed in the Caremark SEC Documents filed on or after December 31, 2005 and before the date of this Agreement, Caremark represents and warrants that:

Section 4.01 . Corporate Existence and Power. Caremark is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has all corporate powers and all governmental licenses, authorizations, permits, consents and approvals required to carry on its business as now conducted, except for those licenses, authorizations, permits, consents and approvals the absence of which would not have, individually or in the aggregate, a Material Adverse Effect on Caremark. Caremark is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where such qualification is necessary, except for those jurisdictions where failure to be so qualified would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Caremark. Caremark has heretofore made available to CVS true and complete copies of the certificate of incorporation and bylaws of Caremark as currently in effect.

Section 4.02 . Corporate Authorization. (a) The execution, delivery and performance by Caremark of this Agreement and the consummation by Caremark of the transactions contemplated hereby are within the corporate powers of Caremark and, except for the required approval of Caremark’s stockholders in connection with the consummation of the Merger, have been duly authorized by all necessary corporate action on the part of Caremark. The affirmative vote of

 

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the holders of a majority of the outstanding shares of the Caremark Stock voting to adopt this Agreement (the “ Caremark Stockholder Approval ”) is the only vote of the holders of any of Caremark’s capital stock necessary in connection with the consummation of the transactions contemplated by this Agreement. Assuming due authorization, execution and delivery by the other parties hereto, this Agreement constitutes a valid and binding agreement of Caremark, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar Laws affecting creditors’ rights and remedies generally and to general principles of equity.

(b) At a meeting duly called and held, Caremark’s Board of Directors has (i) unanimously determined that this Agreement and the transactions contemplated hereby are advisable and in the best interests of Caremark’s stockholders, and declared the Merger and this Agreement to be advisable, (ii) unanimously approved and adopted this Agreement and the transactions contemplated hereby and (iii) unanimously resolved (subject to Section 8.07) to recommend Caremark’s stockholders grant the Caremark Stockholder Approval (such recommendation, the “ Caremark Board Recommendation ”).

Section 4.03 . Governmental Authorization. The execution, delivery and performance by Caremark of this Agreement and the consummation by Caremark of the transactions contemplated hereby require no action by or in respect of, or filing with, any Governmental Authority other than (i) the filing of a certificate of merger with respect to the Merger with the Delaware Secretary of State and appropriate documents with the relevant authorities of other states in which Caremark is qualified to do business, (ii) compliance with any applicable requirements of the HSR Act, (iii) compliance with any applicable requirements of the 1933 Act, the 1934 Act, and any other applicable U.S. state or federal securities laws, (iv) any required state “blue sky” notices or filings, (v) actions required by applicable Food and Drug Administration, Drug Enforcement Administration, Medicare/Medicaid, state boards of pharmacy and governmental controlled substances, federal and state insurance and other federal and state Governmental Authorities with jurisdiction over the dispensing or distribution of pharmaceutical products or over the provision of health care items or services, pharmacy benefit management services, durable medical equipment, insurance and risk sharing arrangements and products and services, third-party administrator and liquor authorities approvals, in each case, to the extent applicable (the “ Healthcare Regulatory Approvals ”) and (vi) any actions or filings the absence of which would not be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect on Caremark or materially to impair the ability of Caremark to consummate the transactions contemplated by this Agreement.

Section 4.04 . Non-contravention. The execution, delivery and performance by Caremark of this Agreement and the consummation by Caremark of the transactions contemplated hereby do not and will not (i) contravene, conflict with, or result in any violation or breach of any provision of the

 

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certificate of incorporation or bylaws of Caremark, (ii) assuming compliance with the matters referred to in Section 4.03, contravene, conflict with or result in a violation or breach of any provision of any Applicable Law, (iii) assuming compliance with the matters referred to in Section 4.03, contravene, require any consent or other action by any Person under, constitute a default, or an event that, with or without notice or lapse of time or both, would constitute a default, under, or cause or permit the termination, cancellation, acceleration or other change of any right or obligation or the loss of any benefit to which Caremark or any of its Subsidiaries is entitled under any provision of any agreement or other instrument binding upon Caremark or any of its Subsidiaries or any license, franchise, permit, certificate, approval or other similar authorization affecting, or relating in any way to, the assets or business of Caremark and its Subsidiaries or (iv) result in the creation or imposition of any Lien on any asset of Caremark or any of its Subsidiaries, except for such contraventions, conflicts, violations and breaches referred to in clause (ii) and for such failures to obtain any such consent or other action, defaults, terminations, cancellations, accelerations, changes, losses or Liens referred to in clauses (iii) and (iv) that would not be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect (ignoring, for this purpose only, clause (vi) of that definition) on Caremark or materially to impair the ability of Caremark to consummate the transactions contemplated by this Agreement.

Section 4.05 . Capitalization. (a) The authorized capital stock of Caremark consists of (i) 700,000,000 shares of common stock, par value $.001 per share, (ii) 500,000 shares of Series C Junior Participating Preferred Stock, par value $.001 per share and (iii) 9,500,000 shares of other Preferred Stock, par value $.001 per share. As of October 30, 2006, there were outstanding 426,457,837 shares of common stock, no shares of Series C Junior Participating Preferred Stock outstanding and no shares of other shares of Preferred Stock outstanding and employee stock options to purchase an aggregate of 20,096,505 shares of Caremark Stock (of which options to purchase an aggregate of 8,531,790 shares of Caremark Stock were exercisable). There are no securities convertible into or exchangeable for capital stock or other voting securities of Caremark outstanding and any other outstanding options or rights to acquire capital stock, voting securities or securities convertible into or exchangeable for capital stock or voting securities of Caremark. All outstanding shares of capital stock of Caremark have been, and all shares that may be issued pursuant to any equity compensation plan of Caremark will be, when issued in accordance with the respective terms thereof, duly authorized and validly issued and are fully paid and nonassessable. No Caremark Subsidiary or Affiliate owns any shares of capital stock of Caremark or any Caremark Securities. For each officer of Caremark subject to Section 16 of the 1934 Act, Section 4.05 of the Caremark Disclosure Schedule contains a complete and correct list, as of the date of this Agreement, of each outstanding employee stock option to purchase shares of Caremark Stock, including the holder, date of grant, exercise price, vesting schedule and number of shares of Caremark Stock subject thereto.

 

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(b) Except as set forth in this Section 4.05 and for changes since October 30, 2006 resulting from the exercise of employee stock options outstanding on such date, there are no outstanding (i) shares of capital stock or voting securities of Caremark, (ii) securities of Caremark convertible into or exchangeable for shares of capital stock or voting securities of Caremark or (iii) options or other rights to acquire from Caremark, or other obligation of Caremark to issue, any capital stock, voting securities or securities convertible into or exchangeable for capital stock or voting securities of Caremark (the items in clauses (i), (ii), and (iii) being referred to collectively as the “ Caremark Securities ”). There are no outstanding obligations of Caremark or any of its Subsidiaries to repurchase, redeem or otherwise acquire any Caremark Securities.

Section 4.06 . Subsidiaries. (a) Each Caremark Subsidiary is an entity duly incorporated or otherwise duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization, has all corporate, limited liability company or comparable powers and all governmental licenses, authorizations, permits, consents and approvals required to carry on its business as now conducted, except for those licenses, authorizations, permits, consents and approvals the absence of which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Caremark. Each such Caremark Subsidiary is duly qualified to do business as a foreign entity and is in good standing in each jurisdiction where such qualification is necessary, except for those jurisdictions where failure to be so qualified would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Caremark. All Significant Subsidiaries (as defined in Regulation S-X of the Exchange Act) of Caremark and their respective jurisdictions of incorporation are identified in Caremark 10-K.

(b) All of the outstanding capital stock of, or other voting securities or ownership interests in, each Caremark Subsidiary is owned by Caremark, directly or indirectly, free and clear of any Lien (other than statutory Liens for Taxes not yet payable) and free of any other limitation or restriction (including any restriction on the right to vote, sell or otherwise dispose of such capital stock or other voting securities or ownership interests). There are no outstanding (i) securities of Caremark or any of the Caremark Subsidiaries convertible into or exchangeable for shares of capital stock or other voting securities or ownership interests in any Caremark Subsidiary or (ii) options or other rights to acquire from Caremark or any of the Caremark Subsidiaries, or other obligations of Caremark or any of the Caremark Subsidiaries to issue, any capital stock or other voting securities or ownership interests in, or any securities convertible into or exchangeable for any capital stock or other voting securities or ownership interests in, any Subsidiary of Caremark (the items in clauses (i) and (ii) being referred to collectively as the “ Caremark Subsidiary Securities ”). There are no outstanding obligations of Caremark or any of the Caremark Subsidiaries to repurchase, redeem or otherwise acquire any Caremark Subsidiary Securities.

 

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Section 4.07 . SEC Filings and the Sarbanes-Oxley Act. (a) Caremark has made available to CVS (i) Caremark’s annual reports on Form 10-K for its fiscal years ended December 31, 2005 and 2004, (ii) its quarterly reports on Form 10-Q for its fiscal quarters ended March 31, 2006 and June 30, 2006, (iii) its proxy or information statements relating to meetings of, or actions taken without a meeting by, the stockholders of Caremark held since December 31, 2005, and (iv) all of its other reports, statements, schedules and registration statements filed with the SEC since December 31, 2005 (the documents referred to in this Section 4.07(a), collectively, the “ Caremark SEC Documents ”). For purposes of this Agreement, a document will be deemed made available if it is accessible on-line through the SEC’s EDGAR system as of the date hereof.

(b) As of its filing date (and as of the date of any amendment), each Caremark SEC Document complied, and each such Caremark SEC Document filed subsequent to the date hereof will comply, as to form in all material respects with the applicable requirements of the 1933 Act and the 1934 Act, as the case may be.

(c) As of its filing date (or, if amended or superseded by a filing prior to the date hereof, on the date of such filing), each Caremark SEC Document filed pursuant to the 1934 Act did not, and each such Caremark SEC Document filed subsequent to the date hereof will not, contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading.

(d) Each Caremark SEC Document that is a registration statement, as amended or supplemented, if applicable, filed pursuant to the 1933 Act, as of the date such registration statement or amendment became effective, did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading.

(e) Caremark has established and maintains disclosure controls and procedures (as defined in Rule 13a-15 under the Exchange Act). Such disclosure controls and procedures are designed to ensure that material information relating to Caremark, including its consolidated Subsidiaries, is made known to Caremark’s principal executive officer and its principal financial officer by others within those entities, particularly during the periods in which the periodic reports required under the 1934 Act are being prepared.

(f) Since January 1, 2005, Caremark and its Subsidiaries have established and maintained a system of internal control over financial reporting (as defined in Rule 13a-15 and Rule 15(d)-15(f) under the 1934 Act) (“ internal controls ”) sufficient to provide reasonable assurance regarding the reliability of Caremark’s financial reporting and the preparation of Caremark financial statements for external purposes in accordance with GAAP. Caremark has disclosed, based on its most recent evaluation of internal controls prior to the date

 

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hereof, to Caremark’s auditors and audit committee (x) any significant deficiencies and material weaknesses in the design or operation of internal controls which would reasonably be expected to adversely affect Caremark’s ability to record, process, summarize and report financial information and (y) any fraud, whether or not material, that involves management or other employees who have a significant role in internal controls.

(g) There are no outstanding loans or other extensions of credit made by Caremark or any of the Caremark Subsidiaries to any executive officer (as defined in Rule 3b-7 under the 1934 Act) or director of Caremark. Caremark has not, since the enactment of the Sarbanes-Oxley Act, taken any action prohibited by Section 402 of the Sarbanes-Oxley Act.

Section 4.08 . Financial Statements. The audited consolidated financial statements and unaudited consolidated interim financial statements of Caremark included in the Caremark SEC Documents fairly present, in all material respects, in conformity with GAAP applied on a consistent basis (except as may be indicated in the notes thereto and subject to normal year-end adjustments in the case of any unaudited interim financial statements), the consolidated financial position of Caremark and its consolidated Subsidiaries as of the respective dates thereof and their consolidated results of operations and cash flows for the periods indicated.

Section 4.09 . Information Supplied. The information supplied by Caremark for inclusion or incorporation by reference in the registration statement on Form S-4 or any amendment or supplement thereto pursuant to which shares of CVS Stock issuable in the Merger will be registered with the SEC (the “ Registration Statement ”) shall not at the time the Registration Statement is declared effective by the SEC (or, with respect to any post-effective amendment or supplement, at the time such post-effective amendment or supplement becomes effective) contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The information supplied by Caremark for inclusion in the joint proxy statement/prospectus, or any amendment or supplement thereto, to be sent to the Caremark stockholders and CVS stockholders in connection with the Merger and the other transactions contemplated by this Agreement (the “ Joint Proxy Statement ”) shall not, on the date the Joint Proxy Statement is first mailed to the stockholders of each of Caremark and CVS, at the time of the Caremark Stockholder Approval or at the time of the CVS Stockholder Approval, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The representations and warranties contained in this Section 4.09 will not apply to statements or omissions included or incorporated by reference in the Joint Proxy Statement based upon information furnished by CVS or any of its representatives specifically for use or incorporation by reference therein.

 

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Section 4.10 . Absence of Certain Changes. (a) Since the Caremark Balance Sheet Date, there has not been any event, occurrence, development or facts that has had or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Caremark.

(b) Since the Caremark Balance Sheet Date through the date of this Agreement, the business of Caremark and its Subsidiaries has been conducted in all material respects in the ordinary course of business consistent with past practices, and there has not been:

(i) any amendment of the certificate of incorporation, bylaws or other similar organizational documents (whether by merger, consolidation or otherwise) of Caremark or its Subsidiaries;

(ii) any splitting, combination or reclassification of any shares of capital stock of Caremark or any of its Subsidiaries or declaration, setting aside or payment of any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of its capital stock, or redemption, repurchase or other acquisition or offer to redeem, repurchase, or otherwise acquire any Caremark Securities or any Caremark Subsidiary Securities, except for (A) dividends by any of its Subsidiaries on a pro rata basis to the equity owners thereof, (B) regular quarterly cash dividends with customary record and payment dates on the shares of Caremark Stock not in excess of $0.10 per share per quarter, (C) any such transaction solely by a Caremark Subsidiary or between Caremark Subsidiaries and (D) share repurchases completed in accordance with the Caremark Share Repurchase Program, which program has been approved by Caremark’s Board of Directors on or prior to the date hereof;

(iii) (A) any issuance, delivery or sale, or authorization of the issuance, delivery or sale of, any shares of any Caremark Securities or Caremark Subsidiary Securities, other than the issuance of (1) any shares of Caremark Stock upon the exercise of Caremark Stock Options that are outstanding on the date of this Agreement in accordance with the terms of those options on the date of this Agreement, (2) any Caremark Subsidiary Securities to Caremark or any Caremark Subsidiary, (3) Caremark Securities to satisfy existing contractual obligations under the existing Caremark compensation and benefit plans, copies of which have been made available to CVS prior to the date hereof, (4) shares of Caremark Stock pursuant to the terms and conditions of its Employee Stock Purchase Plan in the form in which it exists on the date of this Agreement, and (5) Caremark Securities to officers, directors and employees in the ordinary course consistent with past practice, or (B) any amendment of any term of any Caremark Security or any Caremark Subsidiary Security (in each case, whether by merger, consolidation or otherwise);

 

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(iv) any acquisition (by merger, consolidation, acquisition of stock or assets or otherwise), directly or indirectly, by Caremark or any of its Subsidiaries of any assets, securities, properties, interests or businesses, other than (A) inventories and supplies in the ordinary course of the business of Caremark and its Subsidiaries in a manner that is consistent with past practices, (B) other acquisitions with a purchase price (including assumed indebtedness) that does not exceed $50 million individually or $100 million in the aggregate, (C) reasonable capital expenditures in connection with the business of Caremark in the ordinary course consistent with past practices and (D) such transactions between Caremark and any of its Subsidiaries or between any Subsidiaries of Caremark;

(v) any sale, lease or other transfer of, or creation or incurrence of any Lien on, any assets, securities, properties, interests or businesses of Caremark or any of its Subsidiaries, other than (A) sales of inventory in the ordinary course of business of Caremark and its Subsidiaries in a manner that is consistent with past practices or between any Caremark Subsidiaries, (B) sales of assets, securities, properties, interests or businesses with a sale price (including any related assumed indebtedness) that does not exceed $25 million individually or $50 million in the aggregate and (C) such transactions between Caremark and any of its Subsidiaries or between any Subsidiaries of Caremark;

(vi) the making by Caremark or any of its Subsidiaries of any loans, advances or capital contributions to, or investments in, any other Person, other than (A) in the ordinary course of business consistent with past practices or (B) between Caremark and any of its Subsidiaries or between any Subsidiaries of Caremark;

(vii) the creation, incurrence, assumption or sufferance to exist by Caremark or any of its Subsidiaries of any indebtedness for borrowed money or guarantees thereof, other than (A) in the ordinary course of business consistent with past practices, (B) borrowings under existing lines of credit or (C) between Caremark and any of its Subsidiaries or between any Subsidiaries of Caremark;

(viii) the entering into of any agreement or arrangement that limits or otherwise restricts in any material respect Caremark or any of its Subsidiaries or any successor thereto or that would be reasonably likely to, after the Effective Time, limit or restrict in any material respect Caremark, any of its Subsidiaries, the Surviving Corporation or, CVS, from engaging or competing in any material line of business in which such Person engages in as of the date hereof, in any location or with any Person, other than modifications, renewals or extensions of agreements or arrangements ( provided that such modifications, renewals or extensions do not materially increase limitations or restrictions on business);

 

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(ix) (A) the grant or increase of any severance or termination pay to (or amendment of any existing arrangement with) any director or individual with a title of senior vice president or higher (“ Designated Officer ”) of Caremark or any of its Subsidiaries, (B) any increase in benefits payable under any existing severance or termination pay policies or employment agreements, (C) the entering into of any employment, deferred compensation or other similar agreement (or amendment of any such existing agreement) with any director or Designated Officer of Caremark or any of its Subsidiaries, (D) the establishment, adoption or amendment (except as required by Applicable Law) of any collective bargaining, bonus, profit-sharing, thrift, pension, retirement, deferred compensation, compensation, stock option, restricted stock or other benefit plan or arrangement covering any director or Designated Officer of Caremark or any of its Subsidiaries or (E) any increase in cash or equity-based compensation, bonus or other benefits payable to any director or Designated Officer of Caremark or any of its Subsidiaries, other than, in the case of each of clauses (A) through (E) above, in the ordinary course of business consistent with past practices or to comply with Section 409A of the Code;

(x) any material labor dispute, other than routine individual grievances, or any activity or proceeding by a labor union or representative thereof to organize any employees of Caremark or any of its Subsidiaries, which employees were not subject to a collective bargaining agreement as of the Caremark Balance Sheet Date, or any material lockouts, strikes, slowdowns, work stoppages or threats thereof by or with respect to such employees;

(xi) any material change in Caremark’s methods of financial accounting, except as required by concurrent changes in GAAP or in Regulation S-X of the Exchange Act, as agreed to by its independent public accountants;

(xii) any settlement, or offer or proposal to settle, any litigation, arbitration, proceeding or dispute, in each case, that arises out of the transactions contemplated hereby; or

(xiii) any material method of Tax accounting adopted or changed, other than any such method adopted or changed pursuant to a request made to the applicable taxing authority.

 

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Section 4.11 . No Undisclosed Material Liabilities. There are no liabilities or obligations of Caremark or any of its Subsidiaries of any kind whatsoever, whether accrued, contingent, absolute, determined, determinable or otherwise, other than:

(a) liabilities or obligations disclosed and provided for in the Caremark Balance Sheet or in the notes thereto or in the Caremark SEC Documents filed prior to the date hereof;

(b) liabilities or obligations incurred in the ordinary course consistent with past practices since the Caremark Balance Sheet Date; and

(c) liabilities or obligations that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Caremark.

Section 4.12 . Compliance with Laws and Court Orders . Caremark and each of its Subsidiaries is and, since January 1, 2005, has been in compliance with, and to the knowledge of Caremark is not under investigation with respect to and, to the knowledge of Caremark, has not been threatened to be charged with or given notice of any violation of, any Applicable Law, except for failures to comply or violations that have not had and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Caremark.

Section 4.13 . Regulatory Compliance.

(a) Caremark and each Caremark Subsidiary have all required governmental licenses, permits, certificates, approvals and authorizations (“ Permits ”) necessary for the conduct of their business and the use of their properties and assets, as presently conducted and used, and neither Caremark nor any Caremark Subsidiary has received written notice from any Governmental Authority that any Permit is subject to any adverse action , or to the knowledge of Caremark, has any notice or adverse action been threatened, except where the failure to have any such Permit or the receipt of such notice would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Caremark.

(b) Caremark and each Caremark Subsidiary are in compliance with, to the extent applicable, (i) all rules and regulations of the Medicare and Medicaid programs, including any guidance interpreting such rules and regulations, and any other federal health care program; (ii) all federal laws, rules, regulations and applicable guidance relating to health care fraud and abuse, including, without limitation: (A) the Anti-Kickback Law, 42 U.S.C. § 1320a-7b, 42 C.F.R. § 1001.952, (B) the federal false coding statute, 42 U.S.C. § 1320a-7a, (C) the federal physician self-referral prohibition, 42 U.S.C. § 1395nn, 42 C.F.R. § 411.351 et seq., and (D) the false claims act, 31 U.S.C. § 3729 et seq.; (iii) any and all state laws relating to health care fraud and abuse; (iv) state laws relating to Medicaid or any other state health care or health insurance programs; (v) federal or state laws relating to billing or claims for reimbursement submitted to any third-party payor; (vi) any other federal or state laws relating to fraudulent, abusive or unlawful practices connected in any way with the provision of health care items or services, or the billing for or claims for reimbursement for such

 

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items or services provided to a beneficiary of any state, federal or other governmental health care or health insurance program or any private payor; and (vii) any and all state laws relating to insurance and risk sharing products, services and arrangements and the like, except where any failure to be in compliance with any of the foregoing matters described above in clauses (i) through (vii) would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Caremark. No third-party payment program has imposed a fine, penalty or other sanction on Caremark or its Subsidiaries and none of Caremark or its Subsidiaries has been excluded or suspended from participation in any such program, except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Caremark.

(c) Since January 1, 2005 and, to the knowledge of Caremark, at any time prior to January 1, 2005, neither Caremark, any Caremark Subsidiary, nor any director or executive officer of Caremark or any Caremark Subsidiary, with respect to actions taken on behalf of Caremark or a Caremark Subsidiary, (i) has been assessed a civil money penalty under Section 1128A of the Social Security Act or any regulations promulgated thereunder, (ii) has been excluded from participation in any federal health care program or state health care program (as such terms are defined by the Social Security Act), (iii) has been convicted of any criminal offense relating to the delivery of any item or service under a federal health care program relating to the unlawful manufacture, distribution, prescription, or dispensing of a prescription drug or a controlled substance or (iv) is a party to or subject to any action or proceeding concerning any of the matters described above in clauses (i) through (iii).

(d) Caremark and each Caremark Subsidiary are in compliance with all applicable laws, statutes, ordinances, rules and regulations of any federal, state or local governmental authority with respect to matters relating to patient or individual health care information, including, without limitation, the Health Insurance Portability and Accountability Act of 1996, Pub. L. No. 104-191, as amended, and any rules or regulations promulgated thereunder (collectively, the “ Healthcare Information Laws ”), except for failures to comply with any of the foregoing that would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Caremark.

(e) Caremark and each Caremark Subsidiary (i) are in compliance with all Applicable Laws and any other applicable guidance relating to the operation of pharmacies, the repackaging of drug products, the wholesale distribution of prescription drugs or controlled substances, and the dispensing of prescription drugs or controlled substances, (ii) are in compliance with all Applicable Laws and any other applicable guidance relating to the labeling, packaging, advertising, or adulteration of prescription drugs or controlled substances and (iii) are not subject to any sanction or other adverse action by any Governmental Authority for the matters described above in clauses (i) and (ii), except for such failures to comply or such sanctions described above in clauses (i) through (iii) that would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Caremark.

 

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Section 4.14 . Litigation. There is no action, suit, investigation or proceeding (or any reasonable basis therefor) pending against, or, to the knowledge of Caremark, threatened against or affecting, Caremark, any of its Subsidiaries, any present or former Designated Officer or director of Caremark or any of its Subsidiaries or any Person for whom Caremark or any Subsidiary may be liable or any of their respective properties before any court or arbitrator or before or by, before or with any Governmental Authority (including any of the Food and Drug Administration, Department of Health and Human Services, the Drug Enforcement Administration, state Medicaid agencies, state pharmacy boards, and other federal and state Governmental Authorities with jurisdiction over the dispensing or distribution of pharmaceutical products or over the provision of health care items or services) that, if determined or resolved adversely to Caremark, would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Caremark or that, as of the date of this Agreement, in any manner challenges or seeks to prevent, enjoin, alter or materially delay the Merger or any of the other transactions contemplated hereby.

Section 4.15 . Finders’ Fees. Except for UBS Securities LLC and J.P. Morgan Securities Inc., a copy of whose engagement agreements have been provided to CVS, there is no investment banker, broker, finder or other intermediary that has been retained by or is authorized to act on behalf of Caremark or any of its Subsidiaries who might be entitled to any fee or commission from Caremark or any of its Affiliates in connection with the transactions contemplated by this Agreement.

Section 4.16 . Opinions of Financial Advisor. Prior to the execution of this Agreement, the Board of Directors of Caremark has received the opinion of each of UBS Securities LLC and J.P. Morgan Securities Inc., financial advisors to Caremark, to the effect that, as of the date of such opinion and, based on the assumptions, qualifications and limitations contained therein, the Exchange Ratio is fair from a financial point of view, to holders of Caremark Stock.

Section 4.17 . Taxes . (a) Each Tax Return required by Applicable Law to be filed with any Taxing Authority by, or on behalf of, Caremark or any of its Subsidiaries has been filed when due in accordance with all Applicable Laws, and each such Tax Return is, or shall be at the time of filing, true and complete in all respects, excluding in each case any items or matters that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Caremark.

(b) Excluding in each case any items or matters that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Caremark, (i) Caremark and each of its Subsidiaries has paid (or has had paid on its behalf) or has withheld and remitted to the appropriate

 

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Taxing Authority all Taxes shown as due on all Tax Returns that have been filed, (ii) the accruals and reserves with respect to Taxes (other than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the Caremark Balance Sheet are adequate (as determined in accordance with GAAP) to cover all Taxes accruing or payable with respect to taxable periods (or portions thereof) ending on or before the Caremark Balance Sheet Date and (iii) adequate accruals and reserves (as determined in accordance with GAAP) have been or will be established for Taxes attributable to taxable periods (or portions thereof) commencing on the day following the Caremark Balance Sheet Date.

(c) The consolidated federal income Tax Returns for the affiliated group of which Caremark is the common parent through the Tax year ended December 31, 1995 have been examined and the examinations have been closed or are Tax Returns with respect to which the applicable period for assessment under Applicable Law, after giving effect to extensions or waivers, has expired.

(d) There is no claim, audit or suit now pending or, to Caremark’s knowledge, threatened against or with respect to Caremark or its Subsidiaries in respect of any federal or state income Tax; additionally, no claim or suit regarding an amount of Tax is now pending in connection with (i) any other Tax Return or (ii) circumstances where no Tax Return has been filed, excluding in each case any items or matters that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Caremark.

(e) During the five-year period ending on the date hereof, neither Caremark nor any of its Subsidiaries was a distributing corporation or a controlled corporation in a transaction intended to be governed by Section 355 of the Code.

(f) Neither Caremark nor any of its Subsidiaries has participated in a “reportable transaction” within the meaning of Treasury Regulation Section 1.6011-4(b)(1).

(g) “ Tax ” means (a) any tax, governmental fee or other like assessment or charge of any kind whatsoever (including withholding on amounts paid to or by any Person), together with any interest, penalty, addition to tax or additional amount imposed by any Governmental Authority (a “ Taxing Authority ”) responsible for the imposition of any such tax (domestic or foreign), and any liability for any of the foregoing as transferee, (b) liability for the payment of any amount of the type described in clause (a) as a result of being or having been before the Effective Time a member of an affiliated, consolidated, combined or unitary group, or a party to any agreement or arrangement, as a result of which liability to a Taxing Authority is determined or taken into account with reference to the activities of any other Person, and (c) liability for the payment of any amount as a result of being party to any Tax Sharing Agreement or with respect to the payment of any amount imposed on any Person of the type described in (a) or (b) as a result of any existing express or implied agreement or arrangement

 

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(including an indemnification agreement or arrangement). “ Tax Return ” means any report, return, document, declaration or other information or filing required to be supplied to any Taxing Authority with respect to Taxes, including information returns, any documents with respect to or accompanying payments of estimated Taxes, or with respect to or accompanying requests for the extension of time in which to file any such report, return, document, declaration or other information. “ Tax Sharing Agreements ” means all existing agreements or arrangements (whether or not written) binding a party or any of its Subsidiaries that provide for the allocation, apportionment, sharing or assignment of any Tax liability or benefit, or the transfer or assignment of income, revenues, receipts, or gains for the purpose of determining any Person’s Tax liability (excluding any indemnification agreement or arrangement pertaining to the sale or lease of assets or subsidiaries).

Section 4.18 . Employee Benefit Plans and Labor Matters. (a) Section 4.18(a) of the Caremark Disclosure Schedule contains a correct and complete list identifying each “employee benefit plan,” as defined in Section 3(3) of ERISA, each employment, severance or similar contract, plan, arrangement or policy and each other plan or arrangement (written or oral) providing for compensation, bonuses, profit-sharing, stock option or other stock-related rights or other forms of incentive or deferred compensation, vacation benefits, insurance (including any self-insured arrangements), health or medical benefits, employee assistance program, disability or sick leave benefits, workers’ compensation, supplemental unemployment benefits, severance benefits and post-employment or retirement benefits (including compensation, pension, health, medical or life insurance benefits) which covers any employee or former employee of Caremark or its Subsidiaries or its ERISA Affiliates or any of their dependents, with respect to which Caremark or any of its ERISA Affiliates has any material liability, whether current or contingent (individually, a “ Caremark Employee Plan ” and collectively, the “ Caremark Employee Plans ”). Copies of such plans (and, if applicable, related trust or funding agreements or insurance policies) and all amendments thereto and written interpretations thereof have been made available to CVS together with the most recent annual report (Form 5500 including, where applicable, all schedules) and tax return (Form 990) prepared in connection with any such plan or trust.

(b) No Caremark Employee Plan is subject to Title IV of ERISA.

(c) No Caremark Employee Plan is a multiemployer plan, as defined in Section 3(37) of ERISA (a “ Multiemployer Plan ”) or a multiple employer welfare arrangement as defined in Section 3(40) or ERISA (a “ MEWA ”).

(d) Except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Caremark, each Caremark Employee Plan that is intended to be qualified under Section 401(a) of the Code is so qualified and the plan as currently in effect has received a favorable determination letter to that effect from the Internal Revenue Service and

 

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Caremark is not aware of any reason why any such determination letter should be revoked or not be reissued. Caremark has made available to CVS copies of the most recent Internal Revenue Service determination letters with respect to each such Caremark Employee Plan. Each Caremark Employee Plan has been maintained in compliance with its terms and with the requirements prescribed by any and all statutes, orders, rules and regulations, including ERISA and the Code, which are applicable to such Caremark Employee Plan with such exceptions as would not be reasonably expected, individually or in the aggregate, to have a Material Adverse Effect on Caremark. No events have occurred with respect to any Caremark Employee Plan that could result in payment or assessment by or against Caremark or any of its ERISA Affiliates of any excise taxes under Sections 4972, 4975, 4976, 4977, 4979, 4980B, 4980D, 4980E or 5000 of the Code with such exceptions as would not be reasonably expected, individually or in the aggregate, to have a Material Adverse Effect on Caremark.

(e) There is no current or projected liability in respect of post-employment or post-retirement health or medical or life insurance benefits for retired, former or current employees of Caremark or its Subsidiaries, except as required to avoid excise tax under Section 4980B of the Code. No condition exists that would prevent Caremark or any of its ERISA Affiliates from amending or terminating any Caremark Employee Plan providing health or medical benefits in respect of any current or former employees of Caremark or its Subsidiaries other than limitations imposed under the terms of a collective bargaining agreement.

(f) All contributions and payments due under each Caremark Employee Plan, determined in accordance with prior funding and accrual practices, as adjusted to include proportional accruals for the period ending on the Effective Time, will be discharged and paid on or prior to the Effective Time except to the extent accrued as a liability in accordance with ordinary Caremark practice. There has been no amendment to, written interpretation of or announcement (whether or not written) by Caremark or any of its ERISA Affiliates relating to, or change in employee participation or coverage under, any Caremark Employee Plan which would increase materially the expense of maintaining such Caremark Employee Plan above the level of the expense incurred in respect thereof for the most recent fiscal year ended prior to the date hereof.

(g) No employee or former employee of Caremark or any of its Subsidiaries will become entitled to any bonus, retirement, severance, job security or similar benefit, or the enhancement of any such benefit, as a result of the transactions contemplated hereby alone or together with any other event. There is no contract, plan or arrangement (written or otherwise) covering any employee or former employee of Caremark or any of its Subsidiaries that, individually or collectively, could give rise to the payment of any amount that would not be deductible pursuant to the terms of Sections 280G or 162(m) of the Code, as a result of the transactions contemplated hereby alone or together with any other event.

 

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(h) There is no material action, suit, investigation, audit or proceeding (i) pending against or involving or, to the knowledge of Caremark, threatened against any Caremark Employee Plan or (ii) involving Caremark’s classification of individuals as either employees or independent contractors, in each case, before any arbitrator or any Governmental Authority.

(i) Neither Caremark nor any of its Subsidiaries is a party to or subject to, or is currently negotiating in connection with entering into, any collective bargaining agreement or other contract or understanding with a labor union or organization. Neither Caremark nor any of its Subsidiaries is the subject of any material proceeding asserting that Caremark or any of its Subsidiaries has violated any wage-hour Law or employment discrimination Law or committed an unfair labor practice or seeking to compel it to bargain with any labor union or labor organization nor is there pending or, to the knowledge of Caremark, threatened, nor has there been for the past five years, any labor strike, material dispute, walk-out, work stoppage, slow-down or lockout involving Caremark or any of its Subsidiaries with such exceptions as would not be reasonably expected, individually or in the aggregate, to have a Material Adverse Effect on Caremark or its Subsidiaries. To the knowledge of Caremark, as of the date hereof, there are no campaigns being conducted to solicit cards from Caremark employees to authorize (or to express an interest in authorizing) representation by a labor organization or other proposed bargaining unit representative.

Section 4.19 . Environmental Matters. (a) Except as to matters that would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Caremark:

(i) no written notice, notification, demand, request for information, citation, summons or order has been received by Caremark or any of its Subsidiaries relating to or arising out of any Environmental Law;

(ii) there are no judicial, administrative or other actions, suits or proceedings pending or, to the knowledge of Caremark, threatened against Caremark or any of its Subsidiaries which allege a violation of, or liability under, any Environmental Law;

(iii) Caremark and its Subsidiaries are in compliance with all Environmental Laws; and

(iv) Caremark and its Subsidiaries have obtained and are in compliance with all Environmental Permits and such Environmental Permits are valid and in full force and effect.

(b) Except as set forth in this Section 4.19 and in Section 4.03, no representations or warranties are being made with respect to environmental matters relating to Caremark or any of its Subsidiaries.

 

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Section 4.20 . Tax Treatment. Neither Caremark nor any of its Affiliates has taken or agreed to take any action, or is aware of any fact or circumstance, that would prevent the Merger from qualifying as a reorganization within the meaning of Section 368 of the Code (a “ 368 Reorganization ”).

Section 4.21 . Antitakeover Statutes. (a) Caremark has taken all action necessary to exempt the Merger, this Agreement and the transactions contemplated hereby from the restrictions on business combinations set forth in Section 203 of Delaware Law, and, accordingly, neither the restrictions on business combinations set forth in such Section nor in any other antitakeover or similar statute or regulation applies or purports to apply to the Merger or any other transactions contemplated by this Agreement. No other “control share acquisition,” “fair price,” “moratorium” or other antitakeover laws enacted under U.S. state or federal laws apply to this Agreement or any of the transactions contemplated hereby.

ARTICLE 5

R EPRESENTATIONS AND W ARRANTIES OF CVS

Subject in all respects to Section 11.05, except as set forth in the CVS Disclosure S