Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

Quarterly Report Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

For the Quarterly Period Ended June 30, 2009

Commission File Number 001-01011

 

 

CVS CAREMARK CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   05-0494040
(State of Incorporation)   (I.R.S. Employer Identification Number)

One CVS Drive, Woonsocket, Rhode Island 02895

(Address of principal executive offices)

Telephone: (401) 765-1500

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check One):

 

Large accelerated filer   x      Accelerated filer   ¨
Non-accelerated filer   ¨   (Do not check if a smaller reporting company)    Smaller Reporting Company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   x

Common Stock, $0.01 par value, issued and outstanding at July 30, 2009:

1,443,232,000 shares

 

 

 


Table of Contents

INDEX

 

          Page

Part I

Item 1.

  

Financial Statements

  
  

Consolidated Condensed Statements of Operations (Unaudited) - Second Quarter and Six Months Ended June  30, 2009 and June 28, 2008

   2
  

Consolidated Condensed Balance Sheets (Unaudited) - As of June 30, 2009 and December 31, 2008

   3
  

Consolidated Condensed Statements of Cash Flows (Unaudited) - Six Months Ended June 30, 2009 and June 28, 2008

   4
  

Notes to Consolidated Condensed Financial Statements

   5
  

Report of Independent Registered Public Accounting Firm

   17

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

   18

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

   34

Item 4.

  

Controls and Procedures

   34

Part II

Item 1.

  

Legal Proceedings

   35

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

   36

Item 4.

  

Submission of Matters to a Vote of Security Holders

   37

Item 6.

  

Exhibits

   38

Signatures

   40

 

1


Table of Contents
Part I    Item 1

 

CVS Caremark Corporation

Consolidated Condensed Statements of Operations

(Unaudited)

 

     Second Quarter Ended     Six Months Ended  

(In millions, except per share amounts)

   June 30,
2009
    June 28,
2008
    June 30,
2009
    June 28,
2008
 

Net revenues

   $ 24,871.1      $ 21,140.3      $ 48,265.0      $ 42,466.3   

Cost of revenues

     19,818.9        16,767.1        38,464.8        33,800.1   
                                

Gross profit

     5,052.2        4,373.2        9,800.2        8,666.2   

Operating expenses

     3,452.4        2,895.1        6,823.2        5,818.0   
                                

Operating profit

     1,599.8        1,478.1        2,977.0        2,848.2   

Interest expense, net

     127.9        114.7        270.0        245.6   
                                

Earnings from continuing operations before income tax provision

     1,471.9        1,363.4        2,707.0        2,602.6   

Income tax provision

     582.8        539.9        1,074.4        1,030.6   
                                

Earnings from continuing operations

     889.1        823.5        1,632.6        1,572.0   

Loss from discontinued operations, net of tax benefit

     (2.6     (48.7     (7.7     (48.7
                                

Net earnings

     886.5        774.8        1,624.9        1,523.3   

Preference dividends, net of income tax benefit

     —          3.6        —          7.1   
                                

Net earnings available to common shareholders

   $ 886.5      $ 771.2      $ 1,624.9      $ 1,516.2   
                                

Basic earnings per common share:

        

Earnings from continuing operations

   $ 0.61      $ 0.57      $ 1.123      $ 1.09   

Loss from discontinued operations

     —          (0.03     (0.005     (0.03
                                

Net earnings

   $ 0.61      $ 0.54      $ 1.118      $ 1.06   
                                

Weighted average basic common shares outstanding

     1,456.9        1,431.8        1,453.4        1,430.8   
                                

Diluted earnings per common share:

        

Earnings from continuing operations

   $ 0.60      $ 0.56      $ 1.110      $ 1.07   

Loss from discontinued operations

     —          (0.03     (0.005     (0.03
                                

Net earnings

   $ 0.60      $ 0.53      $ 1.105      $ 1.04   
                                

Weighted average diluted common shares outstanding

     1,471.8        1,468.7        1,469.9        1,468.5   
                                

Dividends declared per common share

   $ 0.07625      $ 0.06000      $ 0.15250      $ 0.12000   
                                

See accompanying notes to consolidated condensed financial statements.

 

2


Table of Contents
Part I    Item 1

 

CVS Caremark Corporation

Consolidated Condensed Balance Sheets

(Unaudited)

 

In millions, except share and per share amounts

   June 30,
2009
    December 31,
2008
 

Assets:

    

Cash and cash equivalents

   $ 1,225.3      $ 1,352.4   

Accounts receivable, net

     5,519.8        5,384.3   

Inventories

     9,400.5        9,152.6   

Deferred income taxes

     405.2        435.2   

Other current assets

     220.8        201.7   
                

Total current assets

     16,771.6        16,526.2   

Property and equipment, net

     8,119.7        8,125.2   

Goodwill

     25,483.8        25,493.9   

Intangible assets, net

     10,296.8        10,446.2   

Other assets

     364.1        368.4   
                

Total assets

   $ 61,036.0      $ 60,959.9   
                

Liabilities:

    

Accounts payable

   $ 3,599.9      $ 3,800.7   

Claims and discounts payable

     2,963.3        2,814.2   

Accrued expenses

     2,469.0        3,177.6   

Short-term debt

     1,328.0        3,044.1   

Current portion of long-term debt

     2,403.6        653.3   
                

Total current liabilities

     12,763.8        13,489.9   

Long-term debt

     7,305.2        8,057.2   

Deferred income taxes

     3,707.1        3,701.7   

Other long-term liabilities

     1,108.3        1,136.7   

Shareholders’ equity:

    

Preference stock, series one ESOP convertible, par value $1.00: authorized 50,000,000 shares; no issued and outstanding shares at June 30, 2009 and 3,583,000 shares issued and outstanding at December 31, 2008

     —          191.5   

Common stock, par value $0.01: authorized 3,200,000,000 shares; 1,606,118,000 shares issued at June 30, 2009 and 1,603,267,000 shares issued at December 31, 2008

     16.0        16.0   

Treasury stock, at cost: 146,634,000 shares at June 30, 2009 and 164,502,000 shares at December 31, 2008

     (5,182.5     (5,812.3

Shares held in trust; 1,700,000 shares at June 30, 2009 and at December 31, 2008

     (55.5     (55.5

Capital surplus

     27,013.2        27,279.6   

Retained earnings

     14,501.4        13,097.8   

Accumulated other comprehensive loss

     (141.0     (142.7
                

Total shareholders’ equity

     36,151.6        34,574.4   
                

Total liabilities and shareholders’ equity

   $ 61,036.0      $ 60,959.9   
                

See accompanying notes to consolidated condensed financial statements.

 

3


Table of Contents
Part I    Item 1

 

CVS Caremark Corporation

Consolidated Condensed Statements of Cash Flows

(Unaudited)

 

     Six Months Ended  

In millions

   June 30,
2009
    June 28,
2008
 

Cash flows from operating activities:

    

Cash receipts from revenues

   $ 35,109.7      $ 30,803.6   

Cash paid for inventory

     (25,029.4     (22,428.1

Cash paid to other suppliers and employees

     (7,150.6     (5,938.5

Interest received

     3.1        10.1   

Interest paid

     (284.2     (267.1

Income taxes paid

     (1,325.4     (787.9
                

Net cash provided by operating activities

     1,323.2        1,392.1   
                

Cash flows from investing activities:

    

Additions to property and equipment

     (1,091.3     (955.3

Proceeds from sale-leaseback transactions

     503.1        69.6   

Proceeds from sale or disposal of assets

     6.5        (14.0

Acquisitions (net of cash acquired) and investments

     (26.3     27.5   

Sale of short-term investment

     —          9.5   
                

Net cash used in investing activities

     (608.0     (862.7
                

Cash flows from financing activities:

    

Net reductions in short-term debt

     (1,716.1     (1,105.0

Dividends paid

     (220.7     (172.1

Proceeds from exercise of stock options

     91.4        278.9   

Excess tax benefits from stock based compensation

     4.8        52.2   

Additions to long-term debt

     1,000.0        —     

Reductions to long-term debt

     (1.7     (1.3

Repurchase of common stock

     —          (23.0
                

Net cash used in financing activities

     (842.3     (970.3
                

Net decrease in cash and cash equivalents

     (127.1     (440.9

Cash and cash equivalents at beginning of period

     1,352.4        1,056.6   
                

Cash and cash equivalents at end of period

   $ 1,225.3      $ 615.7   
                

Reconciliation of net earnings to net cash provided by operating activities:

    

Net earnings

   $ 1,624.9      $ 1,523.3   

Adjustments required to reconcile net earnings to net cash provided by operating activities:

    

Depreciation and amortization

     736.2        609.3   

Stock based compensation

     74.8        61.8   

Deferred income taxes and other non-cash items

     60.9        (8.1

Change in operating assets and liabilities, providing/(requiring) cash, net of effects from acquisitions:

    

Accounts receivable, net

     (135.6     121.9   

Inventories

     (255.0     6.9   

Other current assets

     (31.1     (30.3

Other assets

     (2.5     10.3   

Accounts payable and Claims and discounts payable

     (52.1     (544.6

Accrued expenses

     (743.8     (361.0

Other long-term liabilities

     46.5        2.6   
                

Net cash provided by operating activities

   $ 1,323.2      $ 1,392.1   
                

See accompanying notes to consolidated condensed financial statements.

 

4


Table of Contents
Part I    Item 1

 

CVS Caremark Corporation

Notes to Consolidated Condensed Financial Statements

(Unaudited)

Note 1

The accompanying consolidated condensed financial statements of CVS Caremark Corporation and its wholly-owned subsidiaries (the “Company”) have been prepared, in accordance with the rules and regulations of the Securities and Exchange Commission, without audit. In accordance with such rules and regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted, although the Company believes the disclosures included herein are adequate to make the information presented not misleading. These consolidated condensed financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto, which are included in Exhibit 13 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008 (the “2008 Form 10-K”).

The Company adopted Emerging Issues Task Force (“EITF”) Issue No. 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements,” during the first quarter of 2008 (“EITF 06-4”). EITF 06-4 requires the application of the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions” (“SFAS 106”) (if, in substance, a postretirement benefit plan exists), or Accounting Principles Board Opinion No. 12 (if the arrangement is, in substance, an individual deferred compensation contract) to endorsement split-dollar life insurance arrangements. SFAS 106 requires the Company to recognize a liability for the discounted value of the future premium benefits that the Company will incur through the death of the underlying insured. The adoption of EITF 06-4 did not have a material impact on the Company’s consolidated results of operations, financial position or cash flows.

The Company adopted EITF No. 06-10, “Accounting for Collateral Assignment Split-Dollar Life Insurance Agreements” (“EITF 06-10”), during the first quarter of 2008. EITF 06-10 provides guidance for determining a liability for the postretirement benefit obligation as well as recognition and measurement of the associated asset on the basis of the terms of the collateral assignment agreement. The adoption of EITF 06-10 did not have a material impact on the Company’s consolidated results of operations, financial position or cash flows.

The Company adopted SFAS No. 141 (revised 2007), Business Combinations (“SFAS 141R”), which replaces SFAS 141, during the first quarter of 2009. SFAS 141R establishes the principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. The Statement also establishes disclosure requirements that will enable users to evaluate the nature and financial effects of business combinations. As of June 30, 2009, the Company had $167.0 million of unrecognized tax benefits (after considering the federal benefit of state taxes) related to business combinations that would have been treated as an adjustment to the purchase price allocation if they had been recognized under SFAS 141. It is possible that a significant portion of these benefits will be recognized within the 2009 fiscal year and the recognition would affect the Company’s effective income tax rate rather than being treated as an adjustment to the purchase price allocation of the acquiree.

The Company adopted EITF No. 08-3, “Accounting by Lessees for Nonrefundable Maintenance Deposits” (“EITF 08-3”), during the first quarter of 2009. Under EITF 08-3, lessees should account for nonrefundable maintenance deposits as deposit assets if it is probable that maintenance activities will occur and the deposit is therefore realizable. Amounts on deposit that are not probable of being used to fund future maintenance activities should be expensed. The adoption of EITF 08-3 did not have a material effect on the Company’s consolidated results of operations, financial position or cash flows.

 

5


Table of Contents
Part I    Item 1

 

CVS Caremark Corporation

Notes to Consolidated Condensed Financial Statements

(Unaudited)

 

SFAS No. 157, “Fair Value Measurements” (“SFAS 157”) establishes a framework for measuring fair value and expands disclosures about fair value measurements. This Statement establishes a fair value hierarchy about the assumptions used to measure fair value and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset. The standard was effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued Staff Position No. 157-2 (“FSP 157-2”), “Effective Date of FASB Statement No. 157”. FSP 157-2 delays the effective date of FAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The adoption of FSP 157-2 did not have a material effect on the Company’s consolidated results of operations, financial position or cash flows. In October 2008, the FASB issued Staff Position No. 157-3 (“FSP 157-3”), “Determining the Fair Value of a Financial Asset when the Market for That Asset Is Not Active.” FSP 157-3 clarifies the application of FAS 157 in a market that is not active. The adoption of FSP 157-3 did not have a material effect on the Company’s consolidated results of operations, financial position or cash flows. In April 2009, the FASB issued Staff Position No. 157-4 (“FSP 157-4”), “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” FSP 157-4 provides additional guidance for estimating fair value in accordance with SFAS 157 when the volume and level of activity for the asset or liability have significantly decreased. FSP 157-4 also includes guidance on identifying circumstances that indicate a transaction is not orderly. The adoption of FSP 157-4 did not have a material effect on the Company’s consolidated results of operations, financial position or cash flows.

The Company adopted FASB Staff Position No. FAS 115-2 and 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (“FSP FAS 115-2 and 124-2”), during the second quarter of 2009. FSP FAS 115-2 and 124-2 amends the other-than-temporary impairment guidance for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. FSP FAS 115-2 and 124-2 does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. FSP FAS 115-2 and 124-2 does not require disclosures for earlier periods presented for comparative purposes at initial adoption. In periods after initial adoption, FSP FAS 115-2 and 124-2 requires comparative disclosures only for periods ending after initial adoption. The adoption of this FSP did not have a material impact on the Company’s consolidated results of operations, financial position or cash flows.

The Company adopted FASB FSP No. 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments (“FSP 107-1”), during the second quarter of 2009. FSP 107-1 amends SFAS No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments in interim as well as in annual financial statements. FSP 107-1 also amends APB Opinion 28, “Interim Financial Reporting,” to require those disclosures in all interim financial statements. The adoption of this FSP did not have a material impact on the Company’s consolidated results of operations, financial position or cash flows.

In April 2009, the FASB issued FASB Staff Position No. FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies” (“FSP 141(R)-1”), to amend SFAS 141 (revised 2007) “Business Combinations.” FSP 141(R)-1 addresses the initial recognition, measurement and subsequent accounting for assets and liabilities arising from contingencies in a business combination, and requires that such assets acquired or liabilities assumed be initially recognized at fair value at the acquisition date if fair value can be determined during the measurement period. If the acquisition-date fair value cannot be determined, the asset acquired or liability assumed arising from a contingency is recognized only

 

6


Table of Contents
Part I    Item 1

 

CVS Caremark Corporation

Notes to Consolidated Condensed Financial Statements

(Unaudited)

 

if certain criteria are met. This FSP also requires that a systematic and rational basis for subsequently measuring and accounting for the assets or liabilities be developed depending on their nature. The Company does not anticipate that the adoption of this statement will have a material impact on its consolidated results of operations, financial position or cash flows.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”). SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. SFAS 165 is effective for interim or annual financial periods ending after June 15, 2009. In response to SFAS 165, management has evaluated subsequent events through August 4, 2009, which is the date that the Company’s consolidated financial statements were filed. No material subsequent events have occurred since June 30, 2009 that required recognition or disclosure in these financial statements.

In June 2009, the Securities and Exchange Commission Staff issued Staff Accounting Bulletin No. 112 (“SAB 112”). SAB 112 amends or rescinds portions of the SEC staff’s interpretive guidance included in the Staff Accounting Bulletin Series in order to make the relevant interpretive guidance consistent with SFAS 141-R and SFAS 160. The Company does not anticipate that the adoption of this SAB will have a material impact on its consolidated results of operations, financial position or cash flows.

In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles- a replacement of FASB Statement No. 162 (“SFAS 168”). On the effective date of this Statement, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the Codification will become non-authoritative. SFAS 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company does not anticipate that the adoption of this SAB will have a material impact on its consolidated results of operations, financial position or cash flows.

On December 23, 2008, the Board of Directors of the Company approved a change in the Company’s fiscal year end from the Saturday nearest December 31 of each year to December 31 of each year to better reflect the Company’s position in the health care, rather than the retail, industry. The fiscal year change was effective beginning with the fourth quarter of fiscal 2008. The second quarter of 2009 and 2008 both include 91 days and the six months ended June 30, 2009 and June 28, 2008 include 181 days and 182 days, respectively.

In the opinion of management, the accompanying consolidated condensed financial statements include all adjustments (consisting only of normal recurring adjustments), which are necessary to present a fair statement of the Company’s results for the interim periods presented. Because of the influence of various factors on the Company’s operations, including business combinations, certain holidays and other seasonal influences, net earnings for any interim period may not be comparable to the same interim period in previous years or necessarily indicative of earnings for the full fiscal year.

Note 2

In connection with certain business dispositions completed between 1991 and 1997, the Company continues to guarantee store lease obligations for a number of former subsidiaries, including Linens ‘n Things. On May 2, 2008, Linens Holding Co. and certain affiliates, which operate Linens ‘n Things, filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. The Company’s loss from discontinued operations for the second quarter and six months ended

 

7


Table of Contents
Part I    Item 1

 

CVS Caremark Corporation

Notes to Consolidated Condensed Financial Statements

(Unaudited)

 

June 30, 2009 included $2.6 million ($4.3 million, net of a $1.7 million income tax benefit) and $7.7 million ($12.6 million, net of a $4.9 million income tax benefit) of lease-related costs (i.e., interest accretion and legal fees), respectively. The loss from discontinued operations for the second quarter and six months ended June 28, 2008 was $48.7 million ($78.8 million, net of a $30.1 million income tax benefit) of lease-related costs.

Note 3

The Company currently operates two business segments: Pharmacy Services and Retail Pharmacy. The operating segments are businesses of the Company for which separate financial information is available and for which operating results are evaluated on a regular basis by executive management in deciding how to allocate resources and in assessing performance. The Company’s business segments offer different products and services and require distinct technology and marketing strategies.

The Pharmacy Services business provides a full range of prescription benefit management (“PBM”) services including mail order pharmacy services, specialty pharmacy services, plan design and administration, formulary management and claims processing. The Company’s customers are primarily employers, insurance companies, unions, government employee groups, managed care organizations, other sponsors of health benefit plans and individuals throughout the United States. In addition, through the Company’s SilverScript Insurance Company (“SilverScript”) and Accendo Insurance Company (“Accendo”) subsidiaries, the Company is a national provider of drug benefits to eligible beneficiaries under the Federal Government’s Medicare Part D program. Currently, the pharmacy services business operates under the Caremark Pharmacy Services ® , Caremark ® , CVS Caremark™, CarePlus CVS/pharmacy™, CarePlus™, RxAmerica ® , AccordantCare™ and TheraCom ® names. As of June 30, 2009, the Pharmacy Services segment operated 50 retail specialty pharmacy stores, 20 specialty mail order pharmacies and 6 mail service pharmacies located in 25 states, Puerto Rico and the District of Columbia.

As of June 30, 2009, the Retail Pharmacy Segment included 6,949 retail drugstores, of which 6,887 operated a pharmacy, the online retail website, CVS.com ® and the retail health care clinics. The retail drugstores are located in 41 states and the District of Columbia operating primarily under the CVS/pharmacy ® , or Longs Drug  ® names. As of June 30, 2009, the Company operated 561 retail health care clinics in 25 states under the MinuteClinic ® name, of which 546 were located within CVS/pharmacy stores. The clinics utilize nationally recognized medical protocols to diagnose and treat minor health conditions and are staffed by board-certified nurse practitioners and physician assistants.

 

8


Table of Contents
Part I    Item 1

 

CVS Caremark Corporation

Notes to Consolidated Condensed Financial Statements

(Unaudited)

 

The Company evaluates segment performance based on net revenue, gross profit and operating profit before the effect of non-recurring charges and gains and certain intersegment activities and charges.

Following is a reconciliation of the Company’s business segments to the consolidated condensed financial statements as of and for the respective periods:

 

In millions

   Pharmacy
Services

Segment (1)
   Retail
Pharmacy
Segment
   Intersegment
Eliminations (2)
    Consolidated
Totals

Second Quarter Ended

          

June 30, 2009:

          

Net revenue

   $ 13,007.9    $ 13,797.2    $ (1,934.0   $ 24,871.1

Gross profit

     921.1      4,131.1      —          5,052.2

Operating profit

     637.5      962.3      —          1,599.8

June 28, 2008:

          

Net revenue

   $ 10,656.8    $ 11,770.8    $ (1,287.3   $ 21,140.3

Gross profit

     849.9      3,523.3      —          4,373.2

Operating profit

     614.1      864.0      —          1,478.1

Six Months Ended

          

June 30, 2009:

          

Net revenue

   $ 24,542.7    $ 27,294.1    $ (3,571.8   $ 48,265.0

Gross profit

     1,712.9      8,087.3      —          9,800.2

Operating profit

     1,123.3      1,853.7      —          2,977.0

June 28, 2008:

          

Net revenue

   $ 21,421.5    $ 23,616.4    $ (2,571.6   $ 42,466.3

Gross profit

     1,637.9      7,028.3      —          8,666.2

Operating profit

     1,144.1      1,704.1      —          2,848.2

Total assets:

          

June 30, 2009

   $ 33,100.2    $ 28,394.2    $ (458.4   $ 61,036.0

December 31, 2008

     32,904.1      28,404.5      (348.7     60,959.9

Goodwill:

          

June 30, 2009

   $ 18,818.5    $ 6,665.3    $ —        $ 25,483.8

December 31, 2008

     18,817.6      6,676.3      —          25,493.9

 

(1) Net revenues of the Pharmacy Services Segment include approximately $1.77 billion and $1.54 billion of Retail Co-payments for the second quarters ended June 30, 2009 and June 28, 2008, respectively. Net revenues of the Pharmacy Services Segment include approximately $3.44 billion and $3.20 billion of Retail Co-payments for the six months ended June 30, 2009 and June 28, 2008, respectively.

 

(2) Intersegment eliminations relate to intersegment revenues that occur when a Pharmacy Services Segment customer uses a Retail Pharmacy Segment store to purchase covered products. When this occurs, both segments record the revenue on a standalone basis.

 

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CVS Caremark Corporation

Notes to Consolidated Condensed Financial Statements

(Unaudited)

 

Note 4

The Company accounts for goodwill and intangible assets under SFAS No. 142, “Goodwill and Other Intangible Assets.” As such, goodwill and other indefinitely-lived intangible assets are not amortized, but are subject to annual impairment reviews, or more frequent reviews if events or circumstances indicate there may be impairment. During the third quarter of 2008, the Company performed its required annual goodwill impairment test, which concluded there was no impairment of goodwill.

The carrying amount of goodwill was $25.5 billion as of June 30, 2009 and December 31, 2008. The carrying amount of indefinitely-lived assets was $6.4 billion as of June 30, 2009 and December 31, 2008. Intangible assets with finite useful lives are amortized over their estimated useful life.

Following is a summary of the Company’s intangible assets as of the respective balance sheet dates:

 

     As of June 30, 2009     As of December 31, 2008  

In millions

   Gross
Carrying
Amount
   Accumulated
Amortization
    Gross
Carrying
Amount
   Accumulated
Amortization
 

Trademarks (indefinitely-lived)

   $ 6,398.0    $ —        $ 6,398.0    $ —     

Customer relationships and covenants not to compete

     4,770.5      (1,411.8     4,748.8      (1,240.4

Favorable leases and other

     767.4      (227.3     719.3      (179.5
                              
   $ 11,935.9    $ (1,639.1   $ 11,866.1    $ (1,419.9
                              

The amortization expense related to finite-lived intangible assets for the second quarter and six months ended June 30, 2009 was $107.3 million and $214.8 million, respectively.

Note 5

Accumulated other comprehensive loss consists of changes in the net actuarial gains and losses associated with pension and other post retirement benefit plans, unrealized losses on derivatives and adjustment to initially apply SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (“SFAS 158”). In accordance with SFAS 158, the amount included in accumulated other comprehensive income related to the Company’s pension and post retirement plans was $216.9 million pre-tax ($132.3 million after-tax) as of June 30, 2009 and as of December 31, 2008, respectively. The unrealized loss on derivatives totaled $13.9 million pre-tax ($8.8 million after-tax) and $16.6 million pre-tax ($10.5 million after-tax) as of June 30, 2009 and December 31, 2008, respectively.

Following are the changes in comprehensive income:

 

     Second Quarter Ended    Six Months Ended

(In millions)

   June 30, 2009    June 28, 2008    June 30, 2009    June 28, 2008

Net earnings, as reported

   $ 886.5    $ 774.8    $ 1,624.9    $ 1,523.3

Reclassification of unrealized loss on derivatives

     0.9      0.8      1.7      1.7
                           

Total comprehensive income, net of taxes

   $ 887.4    $ 775.6    $ 1,626.6    $ 1,525.0
                           

As of June 30, 2009, the Company had no freestanding derivatives in place.

 

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CVS Caremark Corporation

Notes to Consolidated Condensed Financial Statements

(Unaudited)

 

Note 6

Following are the components of net interest expense:

 

     Second Quarter Ended     Six Months Ended  

(In millions)

   June 30, 2009     June 28, 2008     June 30, 2009     June 28, 2008  

Interest expense

   $ 129.1      $ 118.5      $ 273.1      $ 255.7   

Interest income

     (1.2     (3.8     (3.1     (10.1
                                

Interest expense, net

   $ 127.9      $ 114.7      $ 270.0      $ 245.6   
                                

Note 7

On March 10, 2009, the Company issued $1.0 billion of 6.60% unsecured senior notes due March 15, 2019 (the “2009 Notes”). The 2009 Notes pay interest semi-annually and may be redeemed, in whole or in part, at a defined redemption price plus accrued interest. The net proceeds were used to repay the bridge credit facility, a portion of the Company’s outstanding commercial paper borrowings and for general corporate purposes.

As of June 30, 2009, the Company’s financial instruments included cash and cash equivalents. Due to the short-term nature of these instruments, the Company’s carrying value approximates fair value. The carrying amount and estimated fair value of long-term debt was $7.2 billion and $7.0 billion, respectively as of June 30, 2009. The carrying amount and estimated fair value of long-term debt was $7.9 billion and $6.9 billion, respectively as of December 31, 2008. The fair value of long-term debt was estimated based on rates currently offered to the Company for debt with similar terms and maturities.

On July 1, 2009, the Company issued a $300 million unsecured floating rate senior note due January 30, 2011 (the “the 2009 Floating Rate Note”). The 2009 Floating Rate Note pays interest quarterly. The net proceeds from the 2009 Floating Rate Note will be used for general corporate purposes.

Note 8

The Company received proceeds from sale-leaseback transactions totaling $503.1 million for the six months ended June 30, 2009. This compares to $69.6 million for the six months ended June 28, 2008. Under the transactions, the properties are sold at fair value and the resulting leases qualify and are accounted for as operating leases.

Note 9

The Company accounts for stock-based compensation in accordance with SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123(R)”). Compensation expense related to stock options, which includes the 1999 Employee Stock Purchase Plan (“1999 ESPP”) and the 2007 Employee Stock Purchase Plan (“2007 ESPP”) and collectively (the “ESPP”) for the quarter and six months ended June 30, 2009 totaled $31.3 million and $58.8 million, respectively, compared to $27.1 million and $47.8 million for the second quarter and six months ended June 28, 2008, respectively. Compensation expense related to restricted stock awards for the second quarter and six months ended June 30, 2009, totaled $9.0 million and $16.0 million, respectively, compared to $6.9 million and $14.0 million for the second quarter and six months ended June 28, 2008. During the second quarter ended June 30, 2009, the Company granted 15.9 million stock options with a weighted average fair value of $7.01 and a

 

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CVS Caremark Corporation

Notes to Consolidated Condensed Financial Statements

(Unaudited)

 

weighted average exercise price of $28.09 under the Company’s 1997 Incentive Compensation Plan. The Company has 71.7 million stock options outstanding as of June 30, 2009 with a weighted average exercise price of $28.42 and a weighted average contractual term of 4.74 years. In accordance with SFAS 123(R), compensation expense is recognized on a straight-line basis over the employee’s vesting period or to the employee’s retirement eligible date, if earlier.

Note 10

Basic earnings per common share is computed by dividing: (i) net earnings, after deducting the after-tax Employee Stock Ownership Plan (“ESOP”) preference dividends, by (ii) the weighted average number of common shares outstanding during the period (the “Basic Shares”).

Diluted earnings per common share is computed by dividing: (i) net earnings, after accounting for the difference between the dividends on the ESOP preference stock and common stock and after making adjustments for the incentive compensation plans, by (ii) Basic Shares plus the additional shares that would be issued assuming that all dilutive stock awards are exercised and the ESOP preference stock is converted into common stock. Options to purchase 41.4 million shares of common stock were outstanding but were not included in the calculation of diluted earnings per share for the second quarter and six months ended June 30, 2009, respectively, because the options’ exercise prices were greater than the average market price of the common shares and, therefore, the effect would be antidilutive. Similarly, options to purchase 13.2 million and 7.3 million shares of common stock were outstanding but were not included in the calculation of diluted earnings per share for the second quarter and six months ended June 28, 2008, respectively.

 

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CVS Caremark Corporation

Notes to Consolidated Condensed Financial Statements

(Unaudited)

 

Following is a reconciliation of basic and diluted earnings per common share for the respective periods:

 

     Second Quarter Ended     Six Months Ended  

(In millions, except per share amounts)

   June 30, 2009     June 28, 2008     June 30, 2009     June 28, 2008  

Numerator for earnings per common share calculation:

        

Earnings from continuing operations

   $ 889.1      $ 823.5      $ 1,632.6      $ 1,572.0   

Preference dividends, net of income tax benefit

     —          (3.6     —          (7.1
                                

Earnings from continuing operations available to common shareholders, basic

     889.1        819.9        1,632.6        1,564.9   
                                

Loss from discontinued operations, net of income tax benefit

     (2.6     (48.7     (7.7     (48.7
                                

Net earnings available to common shareholders, basic

   $ 886.5      $ 771.2      $ 1,624.9      $ 1,516.2   
                                

Earnings from continuing operations

   $ 889.1      $ 823.5      $ 1,632.6      $ 1,572.0   

Dilutive earnings adjustments

     —          (1.0     —          (1.9
                                

Earnings from continuing operations available to common shareholders, diluted

     889.1        822.5        1,632.6        1,570.1   
                                

Loss from discontinued operations, net of income tax benefit

     (2.6     (48.7     (7.7     (48.7
                                

Net earnings available to common shareholders, diluted

   $ 886.5      $ 773.8      $ 1,624.9      $ 1,521.4   
                                

Denominator for earnings per common share calculation:

        

Weighted average common shares, basic

     1,456.9        1,431.8        1,453.4        1,430.8   

Effect of dilutive securities:

        

Restricted stock units

     4.7        4.1        4.7        4.1   

ESOP preference stock

     —          17.2        2.8        17.4   

Stock options

     10.2        15.6        9.0        16.2   
                                

Weighted average common shares, diluted

     1,471.8        1,468.7        1,469.9        1,468.5   
                                

Basic earnings per common share:

        

Earnings from continuing operations

   $ 0.61      $ 0.57      $ 1.123      $ 1.09   

Loss from discontinued operations

     —          (0.03     (0.005     (0.03
                                

Net earnings

   $ 0.61      $ 0.54      $ 1.118      $ 1.06   
                                

Diluted earnings per common share:

        

Earnings from continuing operations

   $ 0.60      $ 0.56      $ 1.110      $ 1.07   

Loss from discontinued operations

     —          (0.03     (0.005     (0.03
                                

Net earnings

   $ 0.60      $ 0.53      $ 1.105      $ 1.04   
                                

 

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Part I    Item 1

 

CVS Caremark Corporation

Notes to Consolidated Condensed Financial Statements

(Unaudited)

 

When computing diluted earnings per common share, the Company assumes that the ESOP preference stock is converted into common stock and all dilutive stock awards are exercised. After the assumed ESOP preference stock conversion, the ESOP trust would hold common stock rather than ESOP preference stock and would receive common stock dividends ($0.25800 annually per share in 2008) rather than ESOP preference stock dividends ($3.90 per share in 2008). Since the ESOP trust uses the dividends it receives to service its debt, the Company would have to increase its contribution to the ESOP trust to compensate it for the lower dividends. This additional contribution would reduce the Company’s net earnings, which in turn, would reduce the amounts that would have to be accrued under the Company’s incentive compensation plans.

Pursuant to the Company’s Amended and Restated Certificate of Incorporation (the “Charter”), the Company informed the trustee of the ESOP trust of its intent to redeem for cash all of the outstanding shares of ESOP preference stock on February 24, 2009 (the “Redemption Date”). Under the Charter, at any time prior to the Redemption Date, the trustee is afforded the right to convert the ESOP preference stock into shares of the Company’s common stock. The conversion rate at the time of the notice was 4.628 shares of common stock for each share of ESOP preference stock. The trustee exercised its right of conversion and all outstanding shares of ESOP preference stock were converted into common stock.

Note 11

Between 1991 and 1997, the Company sold or spun off a number of subsidiaries, including Bob’s Stores, Linens ‘n Things, Marshalls, Kay-Bee Toys, Wilsons, This End Up and Footstar. In many cases, when a former subsidiary leased a store, the Company provided a guarantee of the store’s lease obligations. When the subsidiaries were disposed of, the Company’s guarantees remained in place, although each initial purchaser has indemnified the Company for any lease obligations the Company was required to satisfy. If any of the purchasers or any of the former subsidiaries were to become insolvent and failed to make the required payments under a store lease, the Company could be required to satisfy these obligations.

As of June 30, 2009, the Company guaranteed approximately 95 such store leases (excluding the lease guarantees related to Linens ‘n Things, which are discussed in Note 2 previously in this document), with the maximum remaining lease term extending through 2018. Management believes the ultimate disposition of any of the remaining guarantees will not have a material adverse effect on the Company’s consolidated financial condition, results of operations or future cash flows.

Caremark’s subsidiary Caremark, Inc. (now known as Caremark, L.L.C.) is a defendant in a qui tam lawsuit initially filed by a relator on behalf of various state and federal government agencies in Texas federal court in 1999. The case was unsealed in May 2005. The case seeks money damages and alleges that Caremark’s processing of Medicaid and certain other government claims on behalf of its clients (which allegedly resulted in underpayments from our clients to the applicable government agencies) violates applicable federal or state False Claims Acts and fraud statutes. The United States and the States of Texas, Tennessee, Florida, Arkansas, Louisiana and California intervened in the lawsuit, but Tennessee and Florida withdrew from the lawsuit in August 2006 and May 2007, respectively. The parties previously filed cross motions for partial summary judgment, and in August 2008, the court granted several of Caremark’s motions and denied the motions filed by the plaintiffs. The court’s recent rulings are favorable to Caremark and substantially limit the ability of the plaintiffs to assert False Claims Act allegations or statutory or common law theories of recovery based on Caremark’s processing of Medicaid and other government reimbursement requests. The state plaintiffs and the relator filed motions asking the court to reconsider its rulings, and these motions were recently denied. The

 

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CVS Caremark Corporation

Notes to Consolidated Condensed Financial Statements

(Unaudited)

 

United States is seeking an appeal of the court’s rulings. In April 2009, the State of Texas filed a purported civil enforcement action against Caremark for injunctive relief, damages and civil penalties in Travis County, Texas alleging that Caremark violated the Texas Medicaid Fraud Prevention Act and other state laws based on our processing of Texas Medicaid claims on behalf of PBM clients. The claims and issues raised in this lawsuit are related to the claims and issues pending in the federal qui tam lawsuit described above.

In December 2007, the Company received a document subpoena from the Office of Inspector General, United States Department of Health and Human Services (OIG), requesting information relating to the processing of Medicaid and other government agency claims on an adjudication platform of AdvancePCS (acquired by Caremark in 2004 and now known as CaremarkPCS, L.L.C.). The Company has initiated discussions with the OIG and with the U.S. Department of Justice concerning our government claims processing activities on the two adjudication platforms used by AdvancePCS and one adjudication platform used by PharmaCare. The Company is also cooperating with the requests for information contained in the document subpoena by producing responsive documents on a rolling basis. The Company cannot predict with certainty the timing, outcome or consequence of any review of such information.

Caremark was named in a putative class action lawsuit filed in October 2003 in Alabama state court by John Lauriello, purportedly on behalf of participants in the 1999 settlement of various securities class action and derivative lawsuits against Caremark and others. Other defendants include insurance companies that provided coverage to Caremark with respect to the settled lawsuits. The Lauriello lawsuit seeks approximately $3.2 billion in compensatory damages plus other non-specified damages based on allegations that the amount of insurance coverage available for the settled lawsuits was misrepresented and suppressed. A similar lawsuit was filed in November 2003 by Frank McArthur, also in Alabama state court, naming as defendants Caremark, several insurance companies, attorneys and law firms involved in the 1999 settlement. This lawsuit was stayed as a later-filed class action, but McArthur was subsequently allowed to intervene in the Lauriello action. The attorneys and law firms named as defendants in McArthur’s intervention pleadings have been dismissed from the case, and discovery on class certification and adequacy issues is underway.

Various lawsuits have been filed alleging that Caremark and its subsidiaries Caremark Inc. (now known as Caremark, L.L.C.) and AdvancePCS (now known as CaremarkPCS, L.L.C.) have violated applicable antitrust laws in establishing and maintaining retail pharmacy networks for client health plans. In August 2003, Bellevue Drug Co., Robert Schreiber, Inc. d/b/a Burns Pharmacy and Rehn-Huerbinger Drug Co. d/b/a Parkway Drugs #4, together with Pharmacy Freedom Fund and the National Community Pharmacists Association filed a putative class action against AdvancePCS in Pennsylvania federal court, seeking treble damages and injunctive relief. The claims were initially sent to arbitration based on contract terms between the pharmacies and AdvancePCS.

In October 2003, two independent pharmacies, North Jackson Pharmacy, Inc. and C&C, Inc. d/b/a Big C Discount Drugs, Inc. filed a putative class action complaint in Alabama federal court against Caremark, Caremark Inc., AdvancePCS (acquired by Caremark in March 2004 and now known as CaremarkPCS, L.L.C.) and two PBM competitors, seeking treble damages and injunctive relief. The case against Caremark and Caremark Inc. was transferred to Illinois federal court, and the AdvancePCS case was sent to arbitration based on contract terms between the pharmacies and AdvancePCS. The arbitration was then stayed by the parties pending developments in Caremark’s court case.

In August 2006, the Bellevue case and the North Jackson Pharmacy case were transferred to Pennsylvania federal court by the Judicial Panel on Multidistrict Litigation for coordinated and consolidated proceedings with

 

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CVS Caremark Corporation

Notes to Consolidated Condensed Financial Statements

(Unaudited)

 

other cases before the panel, including cases against other PBMs. Caremark has appealed a decision which vacated the order compelling arbitration and staying the proceedings in the Bellevue case to the Third Circuit Court of Appeals. Motions for class certification in the coordinated cases within the multidistrict litigation, including the North Jackson Pharmacy case, remain pending. The consolidated action is now known as the In Re Pharmacy Benefit Managers Antitrust Litigation.

The Company is also a party to other litigation arising in the normal course of its business, none of which is expected to be material to the Company. The Company can give no assurance, however, that the Company’s operating results and financial condition will not be materially adversely affected, or that the Company will not be required to materially change its business practices, based on: (i) future enactment of new health care or other laws or regulations; (ii) the interpretation or application of existing laws or regulations, as they may relate to the Company’s business or the pharmacy services industry; (iii) pending or future federal or state governmental investigations of the Company’s business or the pharmacy services industry; (iv) institution of government enforcement actions against the Company; (v) adverse developments in any pending qui tam lawsuit against the Company, whether sealed or unsealed, or in any future qui tam lawsuit that may be filed against the Company; or (vi) adverse developments in other pending or future legal proceedings against the Company or affecting the pharmacy services industry.

 

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

CVS Caremark Corporation:

We have reviewed the consolidated condensed balance sheets of CVS Caremark Corporation (the Company) as of June 30, 2009 and June 28, 2008, and the related consolidated condensed statements of operations and cash flows for the three and six fiscal months then ended. These financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the consolidated condensed financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1 to the consolidated condensed financial statements, effective December 30, 2007, CVS Caremark Corporation adopted Emerging Issues Task Force (EITF) No. 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements, and EITF No. 06-10, Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements , and effective January 1, 2009 CVS Caremark Corporation adopted Statement of Financial Accounting Standard No. 141(R), Business Combinations .

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of CVS Caremark Corporation as of December 31, 2008, and the related consolidated statements of operations, shareholders’ equity, and cash flows for the fiscal year then ended not presented herein and in our report dated February 26, 2009, we expressed an unqualified opinion on those consolidated financial statements and included an explanatory paragraph for the adoption of Financial Accounting Standards Board (FASB) Interpretation No. 48 , Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No.109, EITF No. 06-4, and EITF No. 06-10. In our opinion, the information set forth in the accompanying consolidated condensed balance sheet as of December 31, 2008, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Ernst & Young LLP

August 4, 2009

Boston, Massachusetts

 

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview of Our Business

CVS Caremark Corporation (“we”, “our”, the “Company”) is the largest provider of prescriptions in the United States. We fill or manage more than one billion prescriptions annually. As a fully integrated pharmacy services company, we believe we can drive value for our customers by effectively managing pharmaceutical costs and improving health care outcomes through our pharmacy benefit management, mail order and specialty pharmacy division, Caremark Pharmacy Services ® ; our nearly 7,000 CVS/pharmacy ® and Longs Drug ® retail stores; our retail-based health clinic subsidiary, MinuteClinic ® ; and our online pharmacy, CVS.com ® .

We strive to improve clinical outcomes to help employers and health plans control their health care costs. In that regard, we offer disease management, health assessment and wellness services to help plan participants manage and protect against potential health risks and avoid future health costs.

Today’s health care delivery system is rapidly changing. Health care is becoming more consumer-centric as the U.S. health care system struggles to manage growing costs and employers are shifting more of the responsibility for managing those costs to employees. In addition, the aging population, increasing incidences of chronic diseases and increasing utilization of the Medicare drug benefit are fueling the demand for prescriptions and pharmacy services. Further, cost-effective generic drugs are becoming more widely available and new drug therapies are being introduced to treat unmet health care needs and reduce hospital stays. Consumers require medication management programs and better information to help them get the most out of their health care dollars. To assist our consumers with these requirements, we have introduced Proactive Pharmacy Care™, an earlier, easier, more effective approach to engaging plan participants in behaviors that can help lower costs, improve health, and save lives. Examples of Proactive Pharmacy Care programs include: Maintenance Choice™ (a flexible fulfillment option that affords eligible plan participants the convenient choice of picking up their 90-day supply of maintenance medications at any CVS/pharmacy store or obtaining them through mail order in either case at the cost of mail, which is typically lower, for both the plan participant and payor); Bridge Supply; and a new ExtraCare ® Health Card program. As a fully integrated pharmacy services company, we believe we are well positioned to provide solutions to address these trends and improve the pharmacy services experience for consumers.

Our business includes two operating segments: Pharmacy Services and Retail Pharmacy.

Fiscal Year Change

On December 23, 2008, the Board of Directors of the Company approved a change in the Company’s fiscal year end from the Saturday nearest December 31 of each year to December 31 of each year to better reflect the Company’s position in the health care, rather than the retail, industry. The fiscal year change was effective beginning with the fourth quarter of fiscal 2008. The second quarter of 2009 and 2008 both include 91 days and the six months ended June 30, 2009 and June 28, 2008 include 181 days and 182 days, respectively.

Results of Operations

The following discussion explains the material changes in our results of operations for the quarters and six months ended June 30, 2009 and June 28, 2008 and the significant developments affecting our financial condition since December 31, 2008. We strongly recommend that you read our audited consolidated financial statements and footnotes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included as Exhibit 13 to our annual report on Form 10-K for the fiscal year ended December 31, 2008 (the “2008 Form 10-K”) along with this report.

 

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Second Quarter and Six Months Ended June 30, 2009 and June 28, 2008

Summary of the Consolidated Financial Results:

 

     Second Quarter     Six Months Ended  

(In millions, except per share amounts)

   June 30,
2009
    June 28,
2008
    June 30,
2009
    June 28,
2008
 

Net revenues

   $ 24,871.1      $ 21,140.3      $ 48,265.0      $ 42,466.3   

Gross profit

     5,052.2        4,373.2        9,800.2        8,666.2   

Operating expenses

     3,452.4        2,895.1        6,823.2        5,818.0   
                                

Operating profit

     1,599.8        1,478.1        2,977.0        2,848.2   

Interest expense, net

     127.9        114.7        270.0        245.6   
                                

Earnings from continuing operations before income tax provision

     1,471.9        1,363.4        2,707.0        2,602.6   

Income tax provision

     582.8        539.9        1,074.4        1,030.6   
                                

Earnings from continuing operations

     889.1        823.5        1,632.6        1,572.0   

Loss from discontinued operations, net of income tax benefit

     (2.6     (48.7     (7.7     (48.7
                                

Net earnings

     886.5        774.8        1,624.9        1,523.3   
                                

Diluted earnings per common share:

        

Earnings from continuing operations

   $ 0.60      $ 0.56      $ 1.110      $ 1.07   

Loss from discontinued operations

     —          (0.03     (0.005     (0.03
                                

Diluted net earnings per common share

   $ 0.60      $ 0.53      $ 1.105      $ 1.04   
                                

Net revenues increased $3.7 billion and $5.8 billion during the second quarter and six months ended June 30, 2009, respectively. As you review our performance in this area, we believe you should consider the following important information:

 

   

Effective October 20, 2008, we acquired Longs Drug Stores Corporation, which included 529 retail drug stores (the “Longs Drug Stores”), RxAmerica, LLC (“RxAmerica”), which provides pharmacy benefit management services and Medicare Part D benefits, and other related assets (collectively, the “Longs Acquisition”). During the second quarter of 2009 and six months ended June 30, 2009, the Longs Acquisition, net of intersegment eliminations, accounted for approximately $1.9 billion and $3.2 billion, respectively, of net revenue.

 

   

During the six months ended June 30, 2009, one less day in the reporting period decreased net revenues by approximately $382.0 million, compared to the six months ended June 28, 2008.

Please see the Segment Analysis later in this document for additional information about our net revenues.

Gross profit increased $679.0 million and $1.1 billion during the second quarter and six months ended June 30, 2009, respectively. As you review our performance in this area, we believe you should consider the following important information:

 

   

During the second quarter of 2009 and the six months ended June 30, 2009, our gross profit dollars increased as a result of the Longs Acquisition; however our gross profit rate decreased slightly during the six months ended June 30, 2009 as a result of the Longs Acquisition.

 

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Our gross profit continued to benefit from the increased utilization of generic drugs (which normally yield a higher gross profit rate than equivalent brand name drugs) in both the Pharmacy Services and Retail Pharmacy Segments.

 

   

During the six months ended June 30, 2009, one less day in the reporting period decreased gross profit by approximately $92.8 million, compared to the six months ended June 28, 2008.

Please see the Segment Analysis later in this document for additional information about our gross profit.

Operating expenses increased $557.3 million and $1.0 billion during the second quarter and the six months ended June 30, 2009, respectively. As you review our performance in this area, we believe you should consider the following important information:

 

   

During the second quarter of 2009 and the six months ended June 30, 2009, operating expenses increased as a result of the Longs Acquisition, including incremental costs associated with the integration of the Longs Drug Stores and RxAmerica.

 

   

During the six months ended June 30, 2009, one less day in the reporting period decreased operating expenses by approximately $58.8 million, compared to the six months ended June 28, 2008.

Please see the Segment Analysis later in this document for additional information about our operating expenses.

Interest expense, net consisted of the following:

 

     Second Quarter Ended     Six Months Ended  

(In millions)

   June 30, 2009     June 28, 2008     June 30, 2009     June 28, 2008  

Interest expense

   $ 129.1      $ 118.5      $ 273.1      $ 255.7   

Interest income

     (1.2     (3.8     (3.1     (10.1
                                

Interest expense, net

   $ 127.9      $ 114.7      $ 270.0      $ 245.6   
                                

Net interest expense increased $13.2 million and $24.4 million during the second quarter and the six months ended June 30, 2009, respectively. This was primarily the result of an increase in our average debt balance due to increased borrowings to fund the Longs Acquisition.

Income tax provision ~ Our effective income tax rate was 39.6% and 39.7% for the second quarter and six months ended June 30, 2009, respectively, compared to 39.6% for the comparable 2008 periods.

Earnings from continuing operations for the second quarter ended June 30, 2009 increased $65.6 million, or 8.0%, to $889.1 million (or $0.60 per diluted share), compared to $823.5 million (or $0.56 per diluted share), in the comparable 2008 period. Earnings from continuing operations for the six months ended June 30, 2009 increased $60.6 million, or 3.9%, to $1.63 billion (or $1.11 per diluted share), compared to $1.57 billion (or $1.07 per diluted share) in the comparable 2008 period.

Loss from discontinued operations ~ In connection with certain business dispositions completed between 1991 and 1997, the Company continues to guarantee store lease obligations for a number of former subsidiaries, including Linens ‘n Things. The Company’s loss from discontinued operations for the second quarter and six months ended June 30, 2009 included $2.6 million ($4.3 million, net of a $1.7 million income tax benefit) and $7.7 million ($12.6 million, net of a $4.9 million income tax benefit) of lease-related costs (i.e., interest accretion

 

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and legal fees), respectively. This was compared to a loss from discontinued operations for the second quarter and six months ended June 28, 2008 of $48.7 million ($78.8 million, net of a $30.1 million income tax benefit) of lease-related costs. Please see Note 11 to the consolidated financial statements for additional information about our lease guarantees.

Net earnings for the second quarter ended June 30, 2009 increased $111.7 million or 14.4% to $886.5 million (or $0.60 per diluted share), compared to $774.8 million (or $0.53 per diluted share) in the comparable 2008 period. Net earnings for the six months ended June 30, 2009 increased $101.6 million or 6.7% to $1.62 billion (or $1.10 per diluted share), compared to $1.52 billion (or $1.04 per diluted share) in the comparable 2008 period.

Segment Analysis

We evaluate segment performance based on net revenues, gross profit and operating profit before the effect of certain intersegment activities and charges. Following is a reconciliation of the Company’s business segments to the consolidated financial statements:

 

In millions

   Pharmacy Services
Segment (1)
   Retail Pharmacy
Segment
   Intersegment
Eliminations (2)
    Consolidated
Totals

Second Quarter Ended

          

June 30, 2009:

          

Net revenue

   $ 13,007.9    $ 13,797.2    $ (1,934.0   $ 24,871.1

Gross profit

     921.1      4,131.1      —          5,052.2

Operating profit

     637.5      962.3      —          1,599.8

June 28, 2008:

          

Net revenue

   $ 10,656.8    $ 11,770.8    $ (1,287.3   $ 21,140.3

Gross profit

     849.9      3,523.3      —          4,373.2

Operating profit

     614.1      864.0      —          1,478.1

Six Months Ended

          

June 30, 2009:

          

Net revenue

   $ 24,542.7    $ 27,294.1    $ (3,571.8   $ 48,265.0

Gross profit

     1,712.9      8,087.3      —          9,800.2

Operating profit

     1,123.3      1,853.7      —          2,977.0

June 28, 2008:

          

Net revenue

   $ 21,421.5    $ 23,616.4    $ (2,571.6   $ 42,466.3

Gross profit

     1,637.9      7,028.3      —          8,666.2

Operating profit

     1,144.1      1,704.1      —          2,848.2

 

(1) Net revenues of the Pharmacy Services Segment include approximately $1.77 billion and $1.54 billion of Retail Co-payments for the second quarters ended June 30, 2009 and June 28, 2008, respectively. Net revenues of the Pharmacy Services Segment include approximately $3.44 billion and $3.20 billion of Retail Co-payments for the six months ended June 30, 2009 and June 28, 2008, respectively.

 

(2) Intersegment eliminations relate to intersegment revenues that occur when a Pharmacy Services Segment customer uses a Retail Pharmacy Segment store to purchase covered products. When this occurs, both segments record the revenue on a standalone basis.

 

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Pharmacy Services Segment

The following table summarizes our Pharmacy Services Segment’s performance for the respective periods:

 

     Second Quarter Ended     Six Months Ended  

(In millions)

   June 30,
2009
    June 28,
2008
    June 30,
2009
    June 28,
2008
 

Net revenues

   $ 13,007.9      $ 10,656.8      $ 24,542.7      $ 21,421.5   

Gross profit

     921.1        849.9        1,712.9        1,637.9   

Gross profit % of net revenues

     7.1     8.0     7.0     7.6

Operating expenses

     283.6        235.8        589.6        493.8   

Operating expense % of net revenues

     2.2     2.2     2.4     2.3

Operating profit

     637.5        614.1        1,123.3        1,144.1   

Operating profit % of net revenues

     4.9     5.8     4.6     5.3
                                

Net revenues:

        

Mail service

   $ 4,072.7      $ 3,620.8      $ 8,027.7      $ 7,267.9   

Retail network

     8,844.9        6,942.9        16,343.1        13,966.7   

Other

     90.3        93.1        171.9        186.9   

Pharmacy claims processed:

        

Total

     164.1        151.3        327.5        308.1   

Mail service

     15.8        15.0        31.5        30.3   

Retail network

     148.3        136.3        296.0        277.8   

Generic dispensing rate:

        

Total

     67.8     64.5     67.7     64.3

Mail service

     56.3     54.5     55.9     53.6

Retail network

     68.9     65.5     68.9     65.3

Mail order penetration rate (1)

     22.9     23.5     22.9     23.3
                                

 

(1) Excluding the impact of RxAmerica and Maintenance Choice, the mail order penetration rate would have been 26.1% for the second quarter of 2009 and 25.5% for the six months ended June 30, 2009.

Net revenues ~ Net revenues increased $2.4 billion, or 22.1%, to $13.0 billion, and $3.1 billion, or 14.6%, to $24.5 billion in the second quarter and six months ended June 30, 2009, respectively, compared to $10.7 billion and $21.4 billion in the second quarter and six months ended June 28, 2008, respectively. As you review our Pharmacy Services Segment’s revenue performance, we believe you should consider the following important information:

 

   

The Pharmacy Services Segment recognizes revenues for its national retail pharmacy network transactions based on individual contract terms. In accordance with Emerging Issues Task Force Issue (“EITF”) No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent,” Caremark’s contracts are predominantly accounted for using the gross method. Prior to April 2009, RxAmerica’s contracts were accounted for using the net method. Effective April 1, 2009, we converted a number of the RxAmerica retail pharmacy network contracts to the Caremark contract structure, which resulted in those contracts being accounted for using the gross method which increased net revenues during the second quarter and six months ended June 30, 2009.

 

   

During the second quarter and six months ended June 30, 2009, the inclusion of RxAmerica’s results, increased net revenues by approximately $972.1 million and $1.2 billion, respectively, compared to the second quarter and six months ended June 28, 2008, respectively. These increases include the conversion of RxAmerica’s retail pharmacy network contracts to the Caremark contract structure discussed above.

 

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During the six months ended June 30, 2009, one less day in the reporting period decreased net revenues by approximately $158.9 million, compared to the six months ended June 28, 2008.

 

   

Our mail service claims processed increased 5.3% and 4.0% to 15.8 million and 31.5 million claims in the second quarter and six months ended June 30, 2009, respectively, compared to 15.0 million and 30.3 million claims in the second quarter and six months ended June 28, 2008, respectively. This increase was primarily due to net new client starts offset by claims which were filled at a retail pharmacy under the Maintenance Choice program and are reported as retail claims. Maintenance Choice is a flexible fulfillment option that affords eligible plan participants the convenient choice of picking up their 90-day supply of maintenance medications at any CVS/pharmacy store or obtaining them through mail order, in either case, at the cost of mail (which is typically lower) for both the payer and the plan participant.

 

   

During the second quarter and six months ended June 30, 2009, our average revenue per mail service claim increased by 7.0% and 6.1%, respectively, compared to the second quarter and six months ended June 28, 2008. Specialty mail service claims, which have significantly higher average net revenues per claim, were the primary driver of the increase. Average revenue per specialty mail service claim increased primarily due to drug cost inflation and claims mix. These increases were offset, in part, by an increase in the percentage of generic drugs dispensed and changes in client pricing.

 

   

Our mail service generic dispensing rate increased to 56.3% and 55.9% in the second quarter and six months ended June 30, 2009, respectively, compared to 54.5% and 53.6% in the second quarter and six months ended June 28, 2008, respectively. This increase was primarily due to new generic drug introductions and our continued efforts to encourage plan participants to use generic drugs when they are available.

 

   

Our retail network claims processed increased 8.8% and 6.6% to 148.3 million and 296.0 million in the second quarter and six months ended June 30, 2009, respectively, compared to 136.3 million and 277.8 million in the second quarter and six months ended June 28, 2008, respectively. This increase was primarily due to the addition of RxAmerica claims, new client starts and claims which were filled at retail pharmacies under the Maintenance Choice program, offset by a reduction in claims due to the termination of two large health plan clients effective January 1, 2009 and having one less day in the six months ended June 30, 2009, as discussed above.

 

   

During the second quarter and six months ended June 30, 2009, our average revenue per retail network claim processed increased 17.1% and 9.8%, respectively, compared to the second quarter and six months ended June 28, 2008. Our average revenue per retail network claim processed is affected by (i) higher drug costs, which normally result in higher claim revenues, (ii) customer pricing, (iii) changes in the percentage of generic drugs dispensed and (iv) claims mix. In addition, our average revenue per retail network claim was impacted by the inclusion of RxAmerica results, whose retail pharmacy network contracts were accounted for using the net revenue recognition method prior to April 1, 2009, as discussed above.

 

   

Our retail network generic dispensing rate increased to 68.9% in the second quarter and six months ended June 30, 2009, compared to 65.5% and 65.3% in the second quarter and six months ended June 28, 2008, respectively. This increase was primarily due to the impact of new generic drug introductions, our continued efforts to encourage plan participants to use generic drugs when they are available and the impact of RxAmerica claims. RxAmerica retail network claims increased our generic dispensing rate by approximately 110 and 120 basis points during the second quarter and six months ended June 30, 2009 compared to the second quarter and six months ended June 28, 2008.

 

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Gross profit includes net revenues less cost of revenues. Cost of revenues includes (i) the cost of pharmaceuticals dispensed, either directly through our mail service and specialty retail pharmacies or indirectly through our national retail pharmacy network, (ii) shipping and handling costs and (iii) the operating costs of our mail service pharmacies, customer service operations and related information technology support. Gross profit as a percentage of revenues was 7.1% and 7.0% in the second quarter and six months ended June 30, 2009, respectively, compared to 8.0% and 7.6% in the second quarter and six months ended June 28, 2008, respectively.

As you review our Pharmacy Services Segment’s performance in this area, we believe you should consider the following important information:

 

   

Our total generic dispensing rate increased to 67.8% and 67.7% in the second quarter and six months ended June 30, 2009, respectively, compared to 64.5% and 64.3% in the second quarter and six months ended June 28, 2008, respectively. RxAmerica claims increased our total generic dispensing rate by approximately 110 and 120 basis points during the second quarter and six months ended June 30, 2009, respectively, compared to the second quarter and six months ended June 28, 2008.

 

   

Our gross profit dollars and gross profit rates continued to be impacted by our efforts to (i) retain existing customers, (ii) obtain new business, (iii) migrate customers and participants to our Maintenance Choice™ program and (iv) maintain or improve the purchase discounts we received from manufacturers, wholesalers and retail pharmacies. During the 2008 selling season, the Company renewed a number of existing clients and obtained new clients at lower rates, which resulted in gross profit compression in the second quarter and six months ended June 30, 2009.

 

   

Our gross profit as a percentage of revenues was negatively impacted by the inclusion of RxAmerica results in the second quarter and six months ended June 30, 2009.

 

   

In January 2009, the Centers for Medicare and Medicaid Services (“CMS”) issued a regulation requiring that, beginning in 2010, any difference between the drug price charged to Medicare Part D plan sponsors by a PBM and the drug price paid by the PBM to the dispensing provider (commonly called “differential” or “spread”) be reported as an administrative cost rather than a drug cost of the plan sponsor for purposes of calculating certain government subsidy payments and the drug price to be charged to enrollees. These changes impact our ability to offer Medicare Part D plan sponsors pricing for 2010 that includes the use of retail network “differential” or “spread,” and we expect these changes to reduce the profitability of our Medicare Part D business beginning in 2010.

Total operating expenses, which include selling, general and administrative expenses (including integration and other merger-related expenses), depreciation and amortization related to selling, general and administrative activities and retail specialty pharmacy store and administrative payroll, employee benefits and occupancy costs increased $47.8 million to $283.6 million, or 2.2% of net revenues, and $95.8 million to $589.6 million, or 2.4% of net revenues, in the second quarter and six months ended June 30, 2009, respectively, compared to $235.8 million, or 2.2% of net revenues, and $493.8 million, or 2.3% of net revenues, in the second quarter and six months ended June 28, 2008, respectively.

 

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As you review our Pharmacy Services Segment’s performance in this area, we believe you should consider the following important information:

 

   

The dissolution of our joint venture with Universal American Corporation (“UAC”) at the end of fiscal 2008, the income from which was historically an offset to operating expenses, and the inclusion of RxAmerica’s total operating expenses increased our total operating expenses in the second quarter of 2009, compared to the second quarter of 2008.

 

   

The increase in total operating expenses in the six months ended June 30, 2009 is primarily related to (i) litigation reserves; (ii) the dissolution of our joint venture with UAC at the end of fiscal 2008 and (iii) the inclusion of RxAmerica’s total operating expenses in the six months ended June 30, 2009.

Retail Pharmacy Segment

The following table summarizes our Retail Pharmacy Segment’s performance for the respective periods:

 

     Second Quarter     Six Months Ended  

(In millions)

   June 30,
2009
    June 28,
2008
    June 30,
2009
    June 28,
2008
 

Net revenues

   $ 13,797.2      $ 11,770.8      $ 27,294.1      $ 23,616.4   

Gross profit

     4,131.1        3,523.3        8,087.3        7,028.3   

Gross profit % of net revenues

     29.9     29.9     29.6     29.8

Operating expenses

     3,168.8        2,659.3        6,233.6        5,324.2   

Operating expense % of net revenues

     23.0     22.6     22.8     22.5

Operating profit

     962.3        864.0        1,853.7        1,704.1   

Operating profit % of net revenues

     7.0     7.3     6.8     7.2
                                

Net revenue increase:

        

Total

     17.2     4.6     15.6     5.0

Pharmacy

     16.3     4.9     14.7     4.9

Front store

     19.1     4.1     17.4     5.3

Same store sales increase: (1) 

        

Total

     6.1     3.1     4.7     3.5

Pharmacy

     7.5     3.7     6.0     3.7

Front store

     3.0     1.8     1.9     3.1

Generic dispensing rate

     69.6     67.0     69.4     66.8

Pharmacy % of total revenues

     67.3     67.8     67.5     68.0

Third party % of pharmacy revenue

     96.4     95.8     96.5     95.8

Retail prescriptions filled

     153.2        134.6        305.7        274.1   
                                

 

(1) Same store sales increase excludes the Longs Drug Stores, which were acquired effective October 20, 2008. These stores will be included in same store sales beginning in November 2009.

Net revenues ~ As you review our Retail Pharmacy Segment’s performance in this area, we believe you should consider the following important information:

 

   

Front store revenues were positively impacted by a later Easter (April 12th this year versus March 23rd last year), which shifted more holiday sales into the second quarter of 2009. We estimate the Easter shift positively impacted total same store sales by approximately 45 basis points and front store same store sales by approximately 135 basis points during the second quarter of 2009. The Easter shift had no impact on the six months ended June 30, 2009. For the second quarter of 2009, front store revenues were positively impacted by approximately 85 basis points as a result of product cost increases in advance of the federal cigarette excise tax increase.

 

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Net revenues increased $1.1 billion and $2.3 billion during the second quarter and six months ended June 30, 2009, respectively as a result of the inclusion of the Longs Drug Stores results.

 

   

As of June 30, 2009, we operated 6,949 retail stores (483 Longs Drug Stores) compared to 6,308 retail stores on June 28, 2008. Total net revenues from new stores accounted for approximately 160 and 140 basis points of our total net revenue percentage increase for the second quarter and six months ended June 30, 2009 and June 28, 2008, respectively.

 

   

Pharmacy revenue growth continued to benefit from new market expansions, the growth of our Maintenance Choice program, increased penetration in existing markets, the introduction of a prescription drug benefit under Medicare Part D in 2006, the ability to attract and retain managed care customers and favorable industry trends. These trends include an aging American population; many “baby boomers” are now in their fifties and sixties and are consuming a greater number of prescription drugs. In addition, the increased use of pharmaceuticals as the first line of defense for individual healthcare also contributed to the growing demand for pharmacy services. We believe these favorable industry trends will continue.

 

   

Pharmacy revenue dollars continue to be negatively impacted in both periods by the conversion of brand named drugs to equivalent generic drugs, which typically have a lower selling price. In addition, our pharmacy growth has also been adversely affected by a decline in utilization trend as a result of a weakening economy, a decline in the number of significant new brand named drug introductions, higher consumer co-payments and co-insurance arrangements and by an increase in the number of over-the-counter remedies that were historically only available by prescription.

Gross profit includes net revenues less the cost of merchandise sold during the reporting period and the related purchasing costs, warehousing costs, delivery costs and actual and estimated inventory losses. Retail pharmacy gross profit as a percentage of net revenues was 29.9% for the second quarter ended June 30, 2009 and for the second quarter ended June 28, 2008, respectively. Retail Pharmacy gross profit for the six months ended June 30, 2009 was 29.6% of net revenues, compared to 29.8% of net revenues in the comparable 2008 period.

As you review our Retail Pharmacy Segment’s performance in this area, we believe you should consider the following important information:

 

   

Our pharmacy gross profit rate continued to benefit from an increase in generic drug revenues, which normally yield a higher gross profit rate than equivalent brand name drug revenues. However, the increased use of generic drugs has augmented the efforts of third party payors to reduce reimbursement payments to retail pharmacies for generic prescriptions. This trend, which we expect to continue, reduces the benefit we realize from brand to generic product conversions.

 

   

During the second quarter of 2009 and the six months ended June 30, 2009, our gross profit dollars increased as a result of the Longs Drug Stores; however our gross profit rate decreased slightly during the six months ended June 30, 2009 as a result of the inclusion of the Longs Drug Stores results.

 

   

Sales to customers covered by third party insurance programs are a significant component of our retail pharmacy business. On average, our gross profit on third party pharmacy revenues is lower than our gross profit on cash pharmacy revenues. Third party revenues were 96.4% and 96.5% of total pharmacy revenues during the second quarter and six months ended June 30, 2009, respectively, compared to 95.8% of total pharmacy revenues, during the comparable 2008 periods. We expect this trend to continue.

 

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The Federal Government’s Medicare Part D benefit is increasing prescription utilization. However, it is also decreasing our pharmacy gross profit rates as our higher gross profit business (e.g., cash customers) continues to migrate to Part D.

 

   

On February 8, 2006, the Deficit Reduction Act of 2005 (the “DRA”) was signed into law. The DRA seeks to reduce federal spending by altering the Medicaid reimbursement formula for multi-source (i.e., generic) drugs. These changes were originally scheduled to begin to take effect during the first quarter of 2007 and were expected to result in reduced Medicaid reimbursement rates for retail pharmacies. During 2007, the CMS issued a final rule implementing provisions under the DRA regarding prescription drugs under the Medicaid program. Among other things, the rule defines “Average Manufacturer Price” (“AMP”) and “best price,” and specifies the items that must be included and excluded in the calculation of each (the “AMP Rule”). In December 2007, the U.S. District Court for the District of Columbia preliminarily enjoined CMS from implementing the AMP Rule to the extent such action affects Medicaid reimbursement rates for retail pharmacies and from posting online or disclosing any AMP data. In addition, the Medicare Improvements for Patients and Providers Act of 2007 (MIPPA) prohibited the use of the AMP to set federal upper limits (“FULs”) until September 2009 and the publication of AMP data until October 2009, and also permitted CMS to update FULs utilizing the old formula. In October 2008, CMS issued a rule, subject to comment, which modified the definition of multiple source drugs, a component of the AMP calculation, seeking to address one of the legal challenges on which the injunction was issued. Plaintiffs in the litigation responded with an amended complaint asserting that the revised definition continues to be inconsistent with the DRA. As a result of the above, we cannot predict the extent or timing of implementation of the AMP Rule, its effect on Medicaid reimbursement or its impact on the Company.

 

   

Our pharmacy gross profit rates have been adversely affected by the efforts of managed care organizations, pharmacy benefit managers, governmental and other third party payors to reduce their prescription drug costs. In the event this trend continues, we may not be able to sustain our current rate of revenue growth and gross profit dollars could be adversely impacted.

 

   

Front store revenues increased as a percentage of total revenues during the second quarter and six months ended June 30, 2009, compared to the second quarter and six months ended June 28, 2008. On average, our gross profit on front store revenues is higher than our average gross profit on pharmacy revenues. Front store revenues as a percentage of total revenues for the second quarter and six months ended June 30, 2009 were 32.7% and 32.5%, respectively, compared to 32.2% and 32.0% in the comparable 2008 periods, respectively. Pharmacy revenues as a percentage of total revenues for the second quarter and six months ended June 30, 2009 were 67.3% and 67.5%, respectively, compared to 67.8% and 68.0% in the comparable 2008 periods, respectively.

 

   

Our front store gross profit has been impacted by an overall shift of consumer spend towards promotional items.

Total operating expenses, which include store and administrative payroll, employee benefits, store and administrative occupancy costs, selling expenses, advertising expenses, administrative expenses and depreciation and amortization expense increased to 23.0% of net revenues during the second quarter of 2009, compared to 22.6% of net revenues for the second quarter of 2008. Operating expenses for the six months ended June 30, 2009 increased to 22.8%, compared to 22.5% of net revenues for the six months ended June 28, 2008.

 

   

Total operating expenses as a percentage of net revenues increased as a result of declining revenue leverage. The declining revenue leverage is in part due to continued pressure from the sale of generic drugs, which typically have a lower selling price than their brand named equivalents’ selling price, and from MinuteClinic operations, which operate at a higher operating expense ratio than the CVS/pharmacy stores.

 

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During the second quarter and six months ended June 30, 2009, total operating expenses increased as a result of the Longs Acquisition, including incremental costs associated with the integration of the Longs Drug Stores.

Liquidity and Capital Resources

We anticipate that cash flows from operations, supplemented by short-term commercial paper and long-term borrowings, will continue to fund the future growth of our business.

Net cash provided by operating activities decreased to $1.32 billion during the six months ended June 30, 2009, compared to $1.39 billion during the six months ended June 28, 2008. The decrease in net cash provided by operating activities during the six months ended June 30, 2009 was primarily due to increased taxes paid. This was offset by increased cash receipts from revenues due to the Longs Acquisition.

Net cash used in investing activities decreased to $608.0 million during the six months ended June 30, 2009, compared to $862.7 million during the six months ended June 28, 2008. Gross capital expenditures totaled $1.09 billion during the six months ended June 30, 2009, compared to $955.3 million in the comparable period of 2008. The majority of the cash used for capital expenditures in both reporting periods supported the Retail Pharmacy Segment’s real estate development program.

We continue to finance a significant portion of our new store development program through sale-leaseback transactions. Proceeds from sale-leaseback transactions totaled $503.1 million in the six months ended June 30, 2009. This compares to $69.6 million in the six months ended June 28, 2008. Under the transactions, the properties are sold at fair value and the resulting leases qualify and are accounted for as operating leases.

During the six months ended June 30, 2009, we opened 90 new retail pharmacy stores, and closed 64 retail pharmacy stores, 7 specialty pharmacy stores and 1 mail order pharmacy. In addition, the Company relocated 79 retail pharmacy stores and 2 specialty pharmacy stores. For the remainder of 2009, we plan to open 125 – 150 new or relocated retail pharmacy stores.

Net cash used in financing activities was $842.3 million during the six months ended June 30, 2009, compared to net cash used by financing activities of $1.0 billion during the six months ended June 28, 2008. Net cash used in financing activities during 2009 was primarily due to the repayment of $500 million of borrowings outstanding under our bridge credit facility used to finance the Longs Acquisition.

In January 2009, our Board of Directors authorized a 10.5% increase in our quarterly common stock dividend to $0.07625 per share on the Company’s common stock. This increase equates to an annual dividend rate of $0.305 per share.

On July 1, 2009, we resumed the share repurchase program authorized by our Board of Directors in May 2008. We intend to complete the share repurchase program by end of our 2009 fiscal year.

We had $1.3 billion of commercial paper outstanding at a weighted average interest rate of 0.9% as of June 30, 2009. In connection with our commercial paper program, we maintain a $675 million, five-year unsecured back-up credit facility, which expires on June 2, 2010, a $1.4 billion, five-year unsecured back-up credit facility, which expires on May 12, 2011 and a $1.3 billion, five-year unsecured back-up credit facility, which expires on March 12, 2012. These committed credit facilities allow for borrowings at various rates that are dependent in part on our public debt rating. As of June 30, 2009, we had no outstanding borrowings against the credit facilities.

 

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On March 10, 2009, we issued $1.0 billion of 6.60% unsecured senior notes due March 15, 2019 (the “2009 Notes”). The 2009 Notes pay interest semi-annually and may be redeemed, in whole or in part, at a defined redemption price plus accrued interest. The net proceeds from the 2009 Notes were used to repay the bridge credit facility, a portion of our outstanding commercial paper borrowings and for general corporate purposes.

On July 1, 2009, we issued a $300 million unsecured floating rate senior note due January 30, 2011 (the “the 2009 Floating Rate Note”). The 2009 Floating Rate Note pays interest quarterly. The net proceeds from the 2009 Floating Rate Note will be used for general corporate purposes.

Our credit facilities, unsecured senior notes and enhanced capital advantaged preferred securities contain customary restrictive financial and operating covenants. These covenants do not include a requirement for the acceleration of our debt maturities in the event of a downgrade in our credit rating. We do not believe the restrictions contained in these covenants materially affect our financial or operating flexibility.

As of June 30, 2009 our long-term debt was rated “Baa2” by Moody’s and “BBB+” by Standard & Poor’s, and our commercial paper program was rated “P-2” by Moody’s and “A-2” by Standard & Poor’s, with our credit outlook being categorized as positive by Moody’s and stable by Standard & Poor’s. In assessing our credit strength, we believe that both Moody’s and Standard & Poor’s considered, among other things, our capital structure and financial policies as well as our consolidated balance sheet, the Longs Acquisition, the Caremark merger and other financial information. Although we currently believe our long-term debt ratings will remain investment grade, we cannot guarantee the future actions of Moody’s and/or Standard & Poor’s. Our debt ratings have a direct impact on our future borrowing costs, access to capital markets and new store operating lease costs.

Off-Balance Sheet Arrangements

In connection with executing operating leases, we provide a guarantee of the lease payments. We also finance a portion of our new store development through sale-leaseback transactions, which involve selling stores to unrelated parties and then leasing the stores back under leases that qualify and are accounted for as operating leases. We do not have any retained or contingent interests in the stores, and we do not provide any guarantees, other than a guarantee of the lease payments, in connection with the transactions. In accordance with generally accepted accounting principles, our operating leases are not reflected in our consolidated balance sheet.

We refer you to the “Notes to Consolidated Financial Statements” on page 60 of our Annual Report to Stockholders included as Exhibit 13 to our 2008 Form 10-K for a detailed discussion of these guarantees.

Critical Accounting Policies

We prepare our consolidated financial statements in conformity with generally accepted accounting principles, which requires management to make certain estimates and apply judgments. We base our estimates and judgments on historical experience, current trends and other factors that management believes to be important at the time the consolidated condensed financial statements are prepared. On a regular basis, we review our accounting policies and how they are applied and disclosed in our consolidated condensed financial statements.

While we believe that the historical experience, current trends and other factors considered support the preparation of our consolidated condensed financial statements in conformity with generally accepted accounting principles, actual results could differ from our estimates and such differences could be material. Our critical accounting policies are discussed in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our 2008 Form 10-K. There have been no material changes to the critical accounting policies previously disclosed in that report.

 

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Recent Accounting Pronouncements

We adopted Emerging Issues Task Force (“EITF”) Issue No. 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements,” (“EITF 06-4”) during the first quarter of 2008. EITF 06-4 requires the application of the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions” (“SFAS 106”) (if, in substance, a postretirement benefit plan exists), or Accounting Principles Board Opinion No. 12 (if the arrangement is, in substance, an individual deferred compensation contract) to endorsement split-dollar life insurance arrangements. SFAS 106 requires us to recognize a liability for the discounted value of the future premium benefits that we will incur through the death of the underlying insured. The adoption of EITF 06-4 did not have a material impact on our consolidated results of operations, financial position or cash flows.

We adopted EITF No. 06-10, “Accounting for Collateral Assignment Split-Dollar Life Insurance Agreements” (“EITF 06-10”), during the first quarter of 2008. EITF 06-10 provides guidance for determining a liability for the postretirement benefit obligation as well as recognition and measurement of the associated asset on the basis of the terms of the collateral assignment agreement. The adoption of EITF 06-10 did not have a material impact on our consolidated results of operations, financial position or cash flows.

We adopted SFAS No. 141 (revised 2007), Business Combinations (“SFAS 141R”), which replaces SFAS 141, during the first quarter of 2009. SFAS 141R establishes the principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. The Statement also establishes disclosure requirements that will enable users to evaluate the nature and financial effects of business combinations. As of June 30, 2009, we had $167.0 million of unrecognized tax benefits (after considering the federal benefit of state taxes) related to business combinations that would have been treated as an adjustment to the purchase price allocation if they had been recognized under SFAS 141. It is possible that a significant portion of these benefits will be recognized within the 2009 fiscal year and the recognition would affect our effective income tax rate rather than being treated as an adjustment to the purchase price allocation of the acquiree.

We adopted EITF No. 08-3, “Accounting by Lessees for Nonrefundable Maintenance Deposits” (“EITF 08-3”), during the first quarter of 2009. Under EITF 08-3, lessees should account for nonrefundable maintenance deposits as deposit assets if it is probable that maintenance activities will occur and the deposit is therefore realizable. Amounts on deposit that are not probable of being used to fund future maintenance activities should be expensed. The adoption of EITF 08-3 did not have a material effect on our consolidated results of operations, financial position or cash flows.

SFAS No. 157, “Fair Value Measurements” (“SFAS 157”) establishes a framework for measuring fair value and expands disclosures about fair value measurements. This Statement establishes a fair value hierarchy about the assumptions used to measure fair value and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset. The standard was effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued Staff Position No. 157-2 (“FSP 157-2”), “Effective Date of FASB Statement No. 157”. FSP 157-2 delays the effective date of FAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The adoption of FSP 157-2 did not have a material effect on our consolidated results of operations, financial position or cash flows. In October 2008, the FASB issued Staff Position No. 157-3 (“FSP 157-3”), “Determining the Fair Value of a Financial Asset when the Market for That Asset Is Not Active.” FSP 157-3 clarifies the application of FAS 157 in a market that is not active. The adoption of FSP 157-3 did not have a material effect on our consolidated results of operations,

 

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

financial position or cash flows. In April 2009, the FASB issued Staff Position No. 157-4 (“FSP 157-4”), “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” FSP 157-4 provides additional guidance for estimating fair value in accordance with SFAS 157 when the volume and level of activity for the asset or liability have significantly decreased. FSP 157-4 also includes guidance on identifying circumstances that indicate a transaction is not orderly. The adoption of FSP 157-4 did not have a material effect on our consolidated results of operations, financial position or cash flows.

We adopted FASB Staff Position No. FAS 115-2 and 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (“FSP FAS 115-2 and 124-2”), during the second quarter of 2009. FSP FAS 115-2 and 124-2 amends the other-than-temporary impairment guidance for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. FSP FAS 115-2 and 124-2 does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. FSP FAS 115-2 and 124-2 does not require disclosures for earlier periods presented for comparative purposes at initial adoption. In periods after initial adoption, FSP FAS 115-2 and 124-2 requires comparative disclosures only for periods ending

after initial adoption. The adoption of this FSP did not have a material impact on our consolidated results of operations, financial position or cash flows.

We adopted FASB FSP No. 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments (“FSP 107-1”). FSP 107-1 amends SFAS No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments in interim as well as in annual financial statements. FSP 107-1 also amends APB Opinion 28, “Interim Financial Reporting,” to require those disclosures in all interim financial statements. The adoption of this FSP did not have a material impact on our consolidated results of operations, financial position or cash flows.

In April 2009, the FASB issued FASB Staff Position No. FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies” (“FSP 141(R)-1”), to amend SFAS 141 (revised 2007) “Business Combinations.” FSP 141(R)-1 addresses the initial recognition, measurement and subsequent accounting for assets and liabilities arising from contingencies in a business combination, and requires that such assets acquired or liabilities assumed be initially recognized at fair value at the acquisition date if fair value can be determined during the measurement period. If the acquisition-date fair value cannot be determined, the asset acquired or liability assumed arising from a contingency is recognized only if certain criteria are met. This FSP also requires that a systematic and rational basis for subsequently measuring and accounting for the assets or liabilities be developed depending on their nature. We do not anticipate that the adoption of this statement will have a material impact on our consolidated results of operations, financial position or cash flows.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”). SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. SFAS 165 is effective for interim or annual financial periods ending after June 15, 2009. We adopted SFAS 165 during the second quarter of 2009.

In June 2009, the Securities and Exchange Commission Staff issued Staff Accounting Bulletin No. 112 (“SAB 112”). SAB 112 amends or rescinds portions of the SEC staff’s interpretive guidance included in the Staff Accounting Bulletin Series in order to make the relevant interpretive guidance consistent with SFAS 141-R and SFAS 160. We do not anticipate that the adoption of this SAB will have a material impact on our consolidated results of operations, financial position or cash flows.

 

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In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles- a replacement of FASB Statement No. 162 (“SFAS 168”). On the effective date of this Statement, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the Codification will become non-authoritative. SFAS 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. We do not anticipate that the adoption of this SAB will have a material impact on our consolidated results of operations, financial position or cash flows.

Cautionary Statement Concerning Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 (the “Reform Act”) provides a safe harbor for forward-looking statements made by or on behalf of CVS Caremark Corporation. The Company and its representatives may, from time to time, make written or verbal forward-looking statements, including statements contained in the Company’s filings with the Securities and Exchange Commission and in its reports to stockholders. Generally, the inclusion of the words “believe,” “expect,” “intend,” “estimate,” “project,” “anticipate,” “will,” “should” and similar expressions identify statements that constitute forward-looking statements. All statements addressing operating performance of CVS Caremark Corporation or any subsidiary, events or developments that the Company expects or anticipates will occur in the future, including statements relating to revenue growth, earnings or earnings per common share growth, free cash flow, debt ratings, inventory levels, inventory turn and loss rates, store development, relocations and new market entries, as well as statements expressing optimism or pessimism about future operating results or events, are forward-looking statements within the meaning of the Reform Act.

The forward-looking statements are and will be based upon management’s then-current views and assumptions regarding future events and operating performance, and are applicable only as of the dates of such statements. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

By their nature, all forward-looking statements involve risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements for a number of reasons, including, but not limited to:

 

   

Our business is affected by the economy in general including changes in consumer purchasing power, preferences and/or spending patterns. These changes could affect drug utilizations trends, the number of covered lives and the financial health of our PBM clients. Further, interest rate fluctuations and changes in capital market conditions may affect our ability to obtain necessary financing on acceptable terms, our ability to secure suitable store locations under acceptable terms and our ability to execute future sale-leaseback transactions under acceptable terms;

 

   

Our ability to realize fully the incremental revenues and other benefits from the Caremark merger;

 

   

Our ability to successfully integrate the assets acquired in the Longs Acquisition and realize the synergies and other planned benefits in accordance with the expected timing;

 

   

The continued efforts of health maintenance organizations, managed care organizations, pharmacy benefit management companies and other third party payors to reduce prescription drug costs and pharmacy reimbursement rates, particularly with respect to generic pharmaceuticals;

 

   

The possibility of client loss and/or the failure to win new client business;

 

   

The frequency and rate of introduction of successful new prescription drugs as well as generic alternatives to existing brand drugs;

 

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

   

The effect on our Pharmacy Services business of a declining margin environment attributable to increased competition in the pharmacy benefit management industry and increased client demands for lower prices, enhanced service offerings and/or higher service levels;

 

   

Risks related to our inability to earn and retain purchase discounts and/or rebates from pharmaceutical manufacturers at current levels;

 

   

Risks regarding the impact of the Medicare prescription drug benefit on our business;

 

   

Risks related to the change in industry pricing benchmarks that could adversely affect our financial performance;

 

   

Increased competition from other drugstore chains, supermarkets, discount retailers, membership clubs and Internet companies, as well as changes in consumer preferences or loyalties;

 

   

Litigation, legislative and regulatory risks associated with our business or the retail pharmacy business, retail clinic operations and/or pharmacy benefit management industry generally, including risks associated with legislative efforts to reform the health care industry;

 

   

The risks relating to changes in laws and regulations, including changes in accounting standards and taxation requirements (including tax rate changes, new tax laws and revised tax law interpretations);

 

   

The risks relating to adverse developments in the health care or pharmaceutical industry generally, including, but not limited to, developments in any investigation related to the pharmaceutical industry that may be conducted by any governmental authority; and

 

   

Other risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission.

The foregoing list is not exhaustive. There can be no assurance that the Company has correctly identified and appropriately assessed all factors affecting its business. Additional risks and uncertainties not presently known to the Company or that it currently believes to be immaterial also may adversely impact the Company. Should any risks and uncertainties develop into actual events, these developments could have material adverse effects on the Company’s business, financial condition and results of operations. For these reasons, you are cautioned not to place undue reliance on the Company’s forward-looking statements.

 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

As of June 30, 2009, the Company had no derivative financial instruments or derivative commodity instruments in place and believes that its exposure to market risk associated with other financial instruments, principally interest rate risk inherent in its debt portfolio is not material.

 

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures: The Company’s Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (f) and 15d-15(f)) as of June 30, 2009, have concluded that as of such date the Company’s disclosure controls and procedures were adequate and effective and designed to ensure that material information relating to the Company and its subsidiaries would be made known to such officers on a timely basis.

Changes in internal control over financial reporting: There have been no changes in our internal controls over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 that occurred during the second quarter ended June 30, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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Part II    Item 1

 

Legal Proceedings

See Item 3 of Part I to our Annual Report on Form 10-K for the fiscal year ending December 31, 2008 for disclosure relating to material pending legal proceedings. Set forth below is a summary of material developments involving a material pending legal proceeding that occurred subsequent to the filing of our 10-K.

 

  1. Caremark’s subsidiary Caremark, Inc. (now known as Caremark, L.L.C.) is a defendant in a qui tam lawsuit initially filed by a relator on behalf of various state and federal government agencies in Texas federal court in 1999. The case was unsealed in May 2005. The case seeks money damages and alleges that Caremark’s processing of Medicaid and certain other government claims on behalf of its clients (which allegedly resulted in underpayments from our clients to the applicable government agencies) violates applicable federal or state False Claims Acts and fraud statutes. The United States and the States of Texas, Tennessee, Florida, Arkansas, Louisiana and California intervened in the lawsuit, but Tennessee and Florida withdrew from the lawsuit in August 2006 and May 2007, respectively. The parties previously filed cross motions for partial summary judgment, and in August 2008, the court granted several of Caremark’s motions and denied the motions filed by the plaintiffs. The court’s recent rulings are favorable to Caremark and substantially limit the ability of the plaintiffs to assert False Claims Act allegations or statutory or common law theories of recovery based on Caremark’s processing of Medicaid and other government reimbursement requests. The state plaintiffs and the relator filed motions asking the court to reconsider its rulings, and these motions were recently denied. The United States is seeking an appeal of the court’s rulings. In April 2009, the State of Texas filed a purported civil enforcement action against Caremark for injunctive relief, damages and civil penalties in Travis County, Texas alleging that Caremark violated the Texas Medicaid Fraud Prevention Act and other state laws based on our processing of Texas Medicaid claims on behalf of PBM clients. The claims and issues raised in this lawsuit are related to the claims and issues pending in the federal qui tam lawsuit described above.

 

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Part II    Item 2

 

Unregistered Sales of Equity Securities and Use of Proceeds

There were no unregistered sales of equity securities and use of proceeds during the quarter ended June 30, 2009.

 

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Part II    Item 4

 

Submission of Matters to a Vote of Security Holders

The following matters were submitted to a vote of security holders at our Annual Meeting of Stockholders which was held on Wednesday, May 6, 2009 in Woonsocket, Rhode Island.

 

            For    Against    Abstained    Broker
Non-Votes
1.    The election, for one-year terms, of all persons nominated for directors, as set forth in the Company’s proxy statement dated March 24, 2009, was approved by the following votes:            
  

Edwin M. Banks

   1,232,727,887    19,673,728    —      —  
  

C. David Brown II

   1,188,852,378    63,536,078    —      —  
  

David W. Dorman

   1,186,662,663    65,619,203    —      —  
  

Kristen Gibney Williams

   1,232,086,945    20,103,668    —      —  
  

Marian L. Heard

   1,232,275,894    19,784,465    —      —  
  

William H. Joyce

   1,222,371,085    29,695,781    —      —  
  

Jean-Pierre Millon

   1,189,180,264    62,937,074    —      —  
  

Terrence Murray

   1,146,516,972    105,550,133    —      —  
  

C.A. Lance Piccolo

   1,180,196,998    71,896,712    —      —  
  

Sheli Z. Rosenberg

   1,153,362,943    98,297,135    —      —  
  

Thomas M. Ryan

   1,196,833,996    55,425,246    —      —  
  

Richard J. Swift

   1,207,671,769    44,385,109    —      —  
2.    Ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the 2009 fiscal year, was approved by the following vote:    1,242,484,285    9,445,681    1,915,154    —  
3.    Stockholder proposal regarding special shareholder meetings, as set forth in the Company’s proxy statement dated March 24, 2009, was approved by the following vote:    699,475,075    441,387,593    2,801,694    313,731,158
4.    Stockholder proposal regarding independent chairman of the board, as set forth in the Company’s proxy statement dated March 24, 2009, was rejected by the following vote:    517,241,672    621,612,396    4,810,293    313,731,158
5.    Stockholder proposal regarding political contributions and expenditures, as set forth in the Company’s proxy statement dated March 24, 2009, was rejected by the following vote:    373,747,558    571,293,648    198,623,155    313,731,158
6.    Stockholder proposal regarding advisory stockholder vote on executive compensation, as set forth in the Company’s proxy statement dated March 24, 2009, was approved by the following vote:    675,251,872    421,189,826    47,222,664    313,731,158

 

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Part II    Item 6

 

Exhibits

 

Item 6. Exhibits

Exhibits:

Exhibits marked with an asterisk (*) are hereby incorporated by reference to exhibits or appendices previously filed by the Registrant as indicated in brackets following the description of the exhibit.

 

          3.1*    Amended and Restated Certificate of Incorporation of the Registrant [incorporated by reference to Exhibit 3.1 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (Commission File No. 001-01011)].
          3.1A*    Certificate of Amendment to the Amended and Restated Certificate of Incorporation, effective May 13, 1998 [incorporated by reference to Exhibit 4.1A to Registrant’s Registration Statement No. 333-52055 on Form S-3/A dated May 18, 1998].
          3.1B*    Certificate of Amendment to the Amended and Restated Certificate of Incorporation [incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K dated March 22, 2007 (Commission File No. 001-01011)].
          3.1C*    Certificate of Merger dated May 9, 2007 [incorporated by reference to Exhibit 3.1C to Registrant’s Quarterly Report on Form 10-Q dated November 1, 2007 (Commission File No. 001-01011)].
          3.2*    By-laws of the Registrant, as amended and restated [incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K dated January 21, 2009 (Commission File No. 001-01011)].
        10.1    Caremark Rx, Inc. Deferred Compensation Plan amended and restated as of December 31, 2008.
        10.2    CVS Caremark Corporation 2007 Incentive Plan as amended through December 31, 2008.
        10.3    Amendment Number Two to the Caremark Rx, Inc. Special Retirement Plan.
        10.4    CVS Caremark Deferred Stock Compensation Plan.
        10.5    CVS Caremark Deferred Compensation Plan as amended and restated as December 31, 2008.
        10.6    Supplemental Retirement Plan I for Select Senior Management of CVS Caremark Corporation as amended and restated of December 31, 2008.
        10.7    Universal 409A Definition Document.
        10.8    CVS Caremark Corp. 1997 Incentive Compensation Plan as amended through December 31, 2008.
        15.1    Letter re: Unaudited Interim Financial Information.
        31.1    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
        31.2    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
        32.1    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
        32.2    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.

 

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101 The following materials from the CVS Caremark Corporation Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Condensed Statements of Operations, (ii) the Consolidated Condensed Balance Sheets, (iii) the Consolidated Condensed Statements of Cash Flows and (iv) related notes, tagged as blocks of text.

 

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Signatures:

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.

 

CVS Caremark Corporation

(Registrant)

/s/    D AVID B. R ICKARD        

David B. Rickard

Executive Vice President,

Chief Financial Officer and

Chief Administrative Officer

 

August 4, 2009

 

40

Exhibit 10.1

Caremark RX, Inc.

Deferred Compensation Plan

Amended and Restated as of December 31, 2008


Exhibit 10.1

CAREMARK RX, INC.

DEFERRED COMPENSATION PLAN

Table of Contents

 

     Page

ARTICLE 1 – Definitions

   1

ARTICLE 2 – Selection, Enrollment, Eligibility

   6

ARTICLE 3 – Deferral Commitments / Crediting / Taxes

   8

ARTICLE 4 – Scheduled Distribution; Unforeseeable Emergency

   12

ARTICLE 5 – Retirement Benefit

   14

ARTICLE 6 – Termination Benefit

   16

ARTICLE 7 – Disability Benefit

   18

ARTICLE 8 – Death Benefit

   19

ARTICLE 9 – Beneficiary Designation

   20

ARTICLE 10 – Leave of Absence

   21

ARTICLE 11 – Termination of Plan, Amendment or Modification

   22

ARTICLE 12 – Administration

   23

ARTICLE 13 – Other Benefits and Agreements

   24

ARTICLE 14 – Claims Procedures

   25

ARTICLE 15 – Trust

   27

ARTICLE 16 – Miscellaneous

   28


Exhibit 10.1

CAREMARK RX, INC.

DEFERRED COMPENSATION PLAN

Effective April 1, 2005

Purpose

The purpose of this Plan is to provide specified benefits to a select group of management or highly compensated Employees who contribute materially to the continued growth, development and future business success of Caremark Rx, LLC (successor to Caremark, Rx, Inc., a Delaware corporation,) and its subsidiaries, if any, that sponsor this Plan. This Plan shall be unfunded for tax purposes and for purposes of Title I of ERISA. The Plan is effective as of April 1, 2005.

Effective as of March 22, 2007 Caremark Rx, Inc. was acquired by the CVS Corporation. Effective as of September 24, 2008, Caremark Rx, LLC transferred the sponsorship of the Plan to CVS Caremark Corporation.

Effective as of December 31, 2008, the Plan is amended and restated to comply with the provisions of Section 409A of the Internal Revenue Code and guidance issued thereunder, to freeze participation hereunder and, to provide, except as provided below, no further Annual Deferral Amounts may be made by Participants, nor shall they be accepted by the Plan.

Notwithstanding the above paragraph or anything in the Plan to the contrary:

 

1. All irrevocable election made pursuant to the Plan respecting the deferral of all or any portion of the Bonus earned by Participants during the Plan Year ending December 31, 2008 and payable in the first quarter of the Plan Year beginning January 1, 2009 shall be honored and all Annual Deferral Amounts respecting the deferral of such Bonus shall be credited to the Deferral Accounts of Participants who have made such elections.

 

2. All Deferral Accounts shall continue to be maintained under the Plan and shall be distributed in accordance with the applicable, valid Participant election as in effect on December 31, 2008.

 

3. Deferral Accounts shall continue to be credited with gains and losses determined under the applicable Measurement Funds under Section 3.6 of the Plan and Participants may change their elections respecting Measurement Funds pursuant to Section 3.6(b) of the Plan. Participants may also change their Beneficiary designation at any time and from time to time prior to their Benefit Distribution Date.

 

4. Participants may elect to postpone previously elected Scheduled Distributions in accordance with Section 4.2 of the Plan and with the requirements of Section 409A of the Code and regulations or other official guidance issued thereunder.


ARTICLE 1 – DEFINITIONS

For the purpose of this Plan, unless otherwise clearly apparent from the context, the following phrases or terms shall have the indicated meanings:

 

1. Annual Deferral Amount ” shall mean that portion of a Participant’s Base Salary and/or Bonus, that a Participant defers in accordance with Article 3 for any one Plan Year, without regard to whether such amounts are withheld and credited during such Plan Year. In the event of a Participant’s Retirement, Disability, death or Termination of Employment prior to the end of a Plan Year, such year’s Annual Deferral Amount shall be the actual amount withheld prior to such event.

 

2. Annual Installment Method ” shall be an annual installment payment over the number of years selected by the participant in accordance with this Plan, calculated as follows: (i) for the first annual installment, the Participant’s Deferral Account shall be valued as of the close of business on or around the Participant’s Benefit Distribution Date, as determined by the Committee in its sole discretion, and (ii) for remaining annual installments, the Participant’s Deferred Account shall be valued on every anniversary of such calculation date, as applicable. Each annual installment shall be calculated by multiplying this balance by a fraction, the numerator of which is one and the denominator of which is the remaining number of annual payment due the Participant.

 

3. Base Salary ” shall mean the annual cash compensation relating to services performed during any calendar year, including commissions payments, but excluding distributions from nonqualified deferred compensation plans, bonuses, overtime, fringe benefits, stock options, relocation expenses, incentive payments, non-monetary awards, director fees and other fees, and automobile and other allowances paid to a Participant for employment services rendered (whether or not such allowances are included in the Employee’s gross income.) Base Salary shall be calculated before reduction for compensation voluntarily deferred or contributed by the Participant pursuant to all qualified or nonqualified plans of any Employer and shall be calculated to include amounts not otherwise included in the Participant’s gross income under Code Sections 125 or 402(e)(3) pursuant to plans established by any Employer; provided, that all such amounts will be included in compensation only to the extent that had there been no such plan, the amount would have been payable in cash to the Employee.

 

4. Beneficiary ” shall mean one or more persons, trusts, estates or other entities, designated in accordance with Article 9, that are entitled to receive benefits under this Plan upon the death of a Participant.

 

5. Beneficiary Designation Form ” shall mean the form established from time to time by the Committee that a Participant completes, signs, and returns to the Committee to designate one or more Beneficiaries.


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6. Benefit Distribution Date ” shall mean the date that triggers distribution of a Participant’s Deferral Account. A Participant’s Benefit Distribution Date shall be determined upon the occurrence of any one of the following:

 

  a. If the Participant Retires, his or her Benefit Distribution Date shall be (i) the first business day following the last day of the six-month period immediately following the date on which the Participant Retires if the Participant is a Specified Employee, and (ii) for all other Participants, the last business day of the Plan Year in which the Participant Retires; provided, in the event the Participant changes his or her Retirement Benefit election in accordance with Section 5.2(a), his or her Benefit Distribution Date shall be no sooner than the five (5) year anniversary of the otherwise applicable Benefit Distribution Date;

 

  b. If the Participant experiences a Termination of Employment, his or her Benefit Distribution Date shall be (i) the first business day following the last day of the six-month period immediately following the date on which the Participant experiences a Termination of Employment if the Participant is a Specified Employee, and (ii) for all other Participants, the last business day of the Plan Year in which the Participant experiences a Termination of Employment; provided, in the event the Participant changes his or her Termination Benefit election in accordance with Section 6.2(a), his or her Benefit Distribution Date shall be no sooner than the five (5) year anniversary of the otherwise applicable Benefit Distribution Date;

 

  c. The first business date following the date on which the Committee is provided with proof that is satisfactory to the Committee of the Participant’s death, if the Participant dies prior to the complete distribution of his or her Deferral Account; or

 

  d. The date on which the Participant becomes Disabled.

 

7. Board ” shall mean the board of directors of the Company.

 

8. Bonus ” shall mean any compensation earned by a Participant for services rendered with respect to any Plan Year under any Employer’s annual bonus and cash incentive plans.

 

9. Change in Control ” shall mean prior to January 1, 2009, any change in the ownership or effective control of Caremark Rx, Inc that qualified as a “change in control” under the provisions of Section 409A(a)(2)(A)(v) of the Code, as amended. On and after January 1, 2009 Change in Control shall have the meaning set forth in Section 3 of the Universal 409A Definition Document.

 

10. Claimant ” shall have the meaning set forth in Section 14.1.

 

11. Code ” shall mean the Internal Revenue Code of 1986, as amended from time to time.

 

12. Committee ” shall mean the committee described in ARTICLE 12.

 

13. Company ” shall mean CVS Caremark Corporation, a Delaware corporation, and any corporate successor thereto. (Prior to September 24, 2008, “Company” shall mean Caremark Rx, LLC (successor to Caremark Rx, Inc.)


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14. Death Benefit ” shall mean the benefit set forth in Article 8

 

15. Deferral Account ” shall mean (i) the sum of all of a Participant’s Annual Deferral Amounts, plus (ii) amounts credited or debited to the Participant’s Deferral Account in accordance with this Plan, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to his or her Deferral Account. The Deferral Account shall be a bookkeeping entry only and shall be utilized solely as a device for the measurement and determination of the amounts to be paid to a Participant, or his or her designated Beneficiary, pursuant to this Plan. Within each Participant’s Deferral Account, separate subaccounts shall be maintained to the extent necessary for the administration of the Plan. Generally, subaccounts will be set up for each year, for each Annual Deferral Amount the Participant elects.

 

16. “Disability ” or “ Disabled ” shall mean that a Participant is (i) unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or (ii) by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident or health plan covering employees or the Participant’s Employer. Any determination of Disability shall at all times comply with the requirements of Treas. Regs. Section 1.409A -3(i)(4) and subsequent guidance.

 

17. Disability Benefit ” shall mean the benefit set forth in Article 7.

 

18. Effective Date ” means April 1, 2005. The Effective Date of this amendment and restatement means January 1, 2009.

 

19. Election Form ” shall mean the form established from time to time by the Committee that a Participant completes, signs and returns to the Committee to make an election under the Plan.

 

20. Employee ” shall mean a person who is a common law employee of any Employer.

 

21. Employer(s) ” shall mean the Caremark Rx, LLC (successor to Caremark Rx, Inc.) and/or any of its subsidiaries (now in existence or hereafter formed or acquired) that have been selected by the Board to participate in the Plan and have adopted the Plan as a sponsor.

 

22. ERISA ” shall mean the Employee Retirement Income Security Act of 1974, as it may be amended from time to time.

 

23. Participant ” shall mean any Employee (i) who is selected to participate in the Plan, (ii) who submits an executed Plan Agreement, Election Form and Beneficiary Designation Form, which is accepted by the Committee, and (iii) whose Plan Agreement has not terminated.


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24. Plan ” shall mean the Caremark Rx, Inc. Deferred Compensation Plan, which shall be evidenced by this instrument and by each Plan Agreement, as they may be amended from time to time.

 

25. Plan Agreement ” shall mean a written agreement, as may be amended from time to time, which is entered into by and between an Employer and a Participant. Each Plan Agreement executed by a Participant and the Participant’s Employer shall provide for the entire benefit to which such Participant is entitled under the Plan; should there be more than one Plan Agreement, the Plan Agreement bearing the latest date of acceptance by the Employer shall supersede all previous Plan Agreements in their entirety and shall govern such entitlement. The terms of any Plan Agreement may be different for any Participant, and any Plan Agreement may provide additional benefits not set forth in the Plan or limit the benefits otherwise provided under the Plan; provided, that any such additional benefits or benefit limitations must be agreed to by both the Employer and the Participant. Notwithstanding the preceding sentence, or any other provision of the Plan, the Employer shall make such changes and modifications to any Plan Agreement to the extent necessary to cause such agreement to comply with the requirements of Code Section 409A, federal regulations issued thereunder and any other guidance issued by an appropriate federal agency.

 

26. Plan Year ” shall mean a period beginning on January 1 of each calendar year and continuing through December 31 of such calendar year; provided, that the first Plan Year shall consist only of the period beginning on April 1, 2005 and ending on December 31, 2005.

 

27. Retirement ”, “Retire(s)” or “Retired” shall mean, with respect to an Employee, Termination of Employment for any reason other than a leave of absence, death or Disability on or after the earlier of the attainment age sixty-five (65).

 

28. Retirement Benefit ” shall mean the benefit set forth in Article 4.

 

29. Scheduled Distribution ” shall mean the distribution set forth in Section 3.1.

 

30. Specified Employee ” shall mean “Specified Employee” as such term is defined in the 409A Universal Definition Document.

 

31. Terminate the Plan ”, “Termination of the Plan” shall mean a determination by an Employer’s or the Company’s board of directors that (i) all of its Participants no longer shall be eligible to participate in the Plan, (ii) all deferral elections for such Participants shall terminate, and (iii) such Participants no longer shall be eligible to receive company contributions under this Plan.

 

32. Termination Benefit ” shall mean the benefit set forth in Article 5.

 

33. Termination of Employment ” shall mean “termination of employment” as defined in the Universal 409A Definition Document.


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34. Trust ” shall mean one or more trusts established by the Company in accordance with Article 15.

 

35. Unforeseeable Emergency ” shall mean “Unforeseeable Emergency” as such term is defined in the Universal 409A Definition Document. a.


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ARTICLE 2 – SELECTION, ENROLLMENT, ELIGIBILITY

 

2.1 Selection by Committee.

Participation in the Plan shall be limited to a select group of management or highly compensated Employees selected as eligible to participate in the Plan, as determined by the Committee in its sole discretion.

 

2.2 Enrollment and Eligibility Requirements; Commencement of Participation.

 

  a. As a condition to participation, each select Employee who is eligible to participate in the Plan effective as of the first day of a Plan Year shall complete, execute and return to the Committee a Plan Agreement, an Election Form and a Beneficiary Designation Form, prior to the first day of such Plan Year, or such other deadline as may be established by the Committee in its sole discretion as permitted by applicable law. In addition, the Committee shall establish from time to time such other enrollment requirements as it determines, in its sole discretion, are necessary.

 

  b. A selected Employee who first becomes eligible to participate in this Plan after the first day of a Plan Year must complete these requirements within thirty (30) days after he or she first becomes eligible to participate in the Plan, or within such other deadline as may be established by the Committee, in its sole discretion, as permitted by applicable law, in order to participate for that Plan Year. In such event, such person’s participation in this Plan shall not commence earlier than the date determined by the Committee pursuant to this Section 2.2(b) and such person shall not be permitted to defer under this Plan any portion of his or her Base Salary and/or Bonus that are paid with respect to services performed prior to his or her participation commencement date.

 

  c. Each selected Employee who is eligible to participate in the Plan shall commence participation in the Plan on the date that the Committee determines, in its sole discretion, that the Employee has met all enrollment requirements set forth in this Plan and required by the Committee, including returning all required documents to the Committee within the specified time period. Notwithstanding the foregoing, the Committee shall process such Participant’s deferral election as soon as administratively practicable after such deferral election is submitted to and accepted by the Committee.

 

  d. If an Employee fails to meet all requirements contained in this Section 2.2 within the period required, that Employee shall not be eligible to participate in the Plan during such Plan Year.

 

  e. Notwithstanding any Plan provision to the contrary, participation in this Plan is frozen as of December 31, 2008 such that an Employee is not eligible to make deferral elections hereunder with respect to Base Salary earned on and after January 1, 2009. and with respect to any Bonus earned in respect to any performance period beginning on or after January 1, 2009


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2.3 Termination of a Participant’s Eligibility .

If the Committee determines that a Participant no longer qualifies as a member of a select group of management or highly compensated employees, as membership in such group is determined in accordance with Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA, the Committee shall have the right, in its sole discretion, to (i) prevent the Participant from making future deferral elections, and/or (ii) take further action that the Committee deems appropriate. Notwithstanding the foregoing, in the event of a Termination of the Plan in accordance with Section 1.30, the termination of the affected Participant’s eligibility for participation in the Plan shall not be governed by this Section 2.3, but rather shall be governed by Section 1.30 and Section 11.1. In the event that a Participant no longer is eligible to defer compensation under this Plan, the Participant’s Deferral Account shall continue to be governed by the terms of this Plan until such time as the Participant’s Deferral Account is paid in accordance with the terms of this Plan.


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ARTICLE 3 – DEFERRAL COMMITMENTS / CREDITING / TAXES

 

3.1 Deferral Rules.

 

  a. Annual Deferral Amount

For each Plan Year beginning prior to January 1, 2009, a Participant may elect to defer, as his or her Annual Deferral Amount, Base Salary and/or Bonus, provided that the minimum percentage of Base Salary or Bonus that can be deferred in any calendar year shall be five percent (5%). The Committee shall establish procedures that govern deferral elections under the Plan, including the ability to make separate deferral elections for Base Salary, or any portion thereof, and for Bonuses. If the Committee determines, in its sole discretion, prior to the beginning of a Plan Year that a Participant has made an election for less than the stated minimum amounts, or if no election is made, the amount deferred shall be zero. Each Participant may elect to defer a maximum percentage of his or her Base Salary equal to seventy five percent (75%) and a maximum percentage of his or her Bonus equal to one hundred percent (100%). Notwithstanding any provisions of the Plan to the contrary and to the extent consistent with rules of Code Section 409A and the regulations and guidance issued thereunder, no deferrals of Base Salary may be made under the Plan until the Committee takes action to authorize the commencement of such deferrals.

 

  b. Short Plan Year

Notwithstanding the foregoing, and unless the Committee elects to waive this provision, if a Participant first becomes a Participant after the first day of a Plan Year, the minimum Annual Deferral Amount shall be an amount equal to the minimum set forth above, multiplied by a fraction, the numerator of which is the number of complete months remaining in the Plan Year and the denominator of which is 12. In addition, if a Participant first becomes a Participant after the first day of a Plan Year, the maximum Annual Deferral Amount shall be limited to the amount of compensation not yet earned by the Participant as of the date the Participant submits a Plan Agreement and Election Form to the Committee for acceptance.

 

3.2 Election to Defer; Effect of Election Form.

 

  a. First Plan Year:

In connection with a Participant’s commencement of participation in the Plan, the Participant shall make an irrevocable deferral election for the Plan Year in which the Participant commences participation in the Plan, along with such other elections as the Committee deems necessary or desirable under the Plan. For this election to be valid, the Election Form must be completed and signed by the Participant, timely delivered to the Committee (in accordance with Section 2.2 above) and accepted by the Committee.

 

  b. Subsequent Plan Year:

For each succeeding Plan Year, an irrevocable deferral election for that Plan Year, and such other elections as the Committee deems necessary or desirable under the


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Plan, shall be made by timely delivering a new Election Form for the Committee, in accordance with its rules and procedures, before the end of the Plan Year preceding the Plan Year for which the election is made. If no such Election Form is timely delivered for a Plan Year, the Annual Deferral Amount shall be zero for that Plan Year.

 

  c. Performance-Based Compensation

Notwithstanding the foregoing, the Committee may, in its sole discretion, determine that an irrevocable deferral election pertaining to performance-based compensation may be made by timely delivering a new Election Form to the Committee, in accordance with its rules and procedures, no later than six (6) months before the end of the performance service period. “Performance-based compensation” means compensation the amount of which, or the entitlement to which, is contingent on the satisfaction of pre-established organizational or individual performance criteria relating to a performance period of at least 12 consecutive months. Organizational or individual performance criteria are considered pre-established if established in writing by not later than 90 days after the commencement of the period of service to which the criteria relates, provided that the outcome is substantially uncertain at the time the criteria are established. Compensation may be performance-based compensation where the amount will be paid regardless of satisfaction of the performance criteria due to the service provider's death, disability, or a Change in Control. In all cases, the determination of whether any compensation is performance based compensation shall be determined in accordance with Code Section 409A and related guidance.

 

3.3 Withholding and Crediting of Annual Deferral Amounts.

For each Plan Year, the Base Salary portion of the Annual Deferral Amount shall be withheld from each regularly scheduled Base Salary payroll in equal amounts, as adjusted from time to time for increases and decreases in Base Salary. The Bonus portion of the Annual Deferral Amount shall be withheld at the time the Bonus, or is otherwise would be paid to the Participant, whether or not this occurs during the Plan Year itself. Annual Deferral Amounts shall be credited to a Participant’s Deferral Account at the time such amounts otherwise would have been paid to the Participant.

 

3.4 Crediting of Amounts after Benefit Distribution.

Notwithstanding any provision in this Plan to the contrary and to the extent consistent with rules of Code Section 409A and the regulations and guidance issued thereunder, should the complete distribution of a Participant’s Deferral Account occur prior to the date on which any portion of the Annual Deferral Amount that a Participant has elected to defer in accordance with Section 3.2 otherwise would be credited to the Participant’s Deferral Account, such amounts shall not be credited to the Participant’s Deferral Account, such amounts shall not be credited to the Participant’s Deferral Account, but shall be paid to the Participant in a manner determined by the Committee, in its sold discretion.

 

3.5 Vesting.

A Participant shall at all times be 100% vested in his or her Deferral Account.


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3.6 Crediting / Debiting of Deferral Accounts.

In accordance with, and subject to, the rules and procedures that are established from time to time by the Committee, in its sole discretion, amounts shall be crediting or debited to a Participant’s Deferral Account in accordance with the following rules:

 

  a. Measurement Funds.

The Participant may elect one or more of the measurement funds selected by the Committee, in its sole discretion, which are based on certain mutual funds (the “Measurement Funds”), for the purpose of crediting or debiting additional amounts to his or her Deferral Account. As necessary, the Committee may, in its sole discretion, discontinue, substitute or add a Measurement Fund. Each such action will take effect as of the first day of the first calendar quarter that begins at least thirty (30) days after the day on which the Committee gives Participants advance written notice of such change.

 

  b. Election of Measurement Funds.

A Participant, in connection with his or her initial deferral election in accordance with Section 3.2(a) above, shall elect, on the Election Form, one or more Measurement Fund(s) (as described in Section 3.6(a) above) to be used to determine the amounts to be credited or debited to his or her Deferral Account. If a participant does not elect any of the Measurement Funds as described in the previous sentence, the Participant’s Deferral Account automatically shall be allocated into the lowest-risk Measurement Fund, as determined by the Committee, in its sole discretion. The Participant may (but is not required to) elect, by submitting an Election Form to the Committee that is accepted by the Committee, to add or delete one or more Measurement Fund(s) to be used to determine the amounts to be credited or debited to his or her Deferral Account, or to change the portion of his or her Deferral Account allocated to each previously or newly elected Measurement Fund. If an election is made in accordance with the pervious sentence, it shall apply as of the first business day deemed reasonably practicable by the Committee, in its sole discretion, and shall continue thereafter for each subsequent day in which the Participant participates in the Plan, unless changed in accordance with the previous sentence.

 

  c. Proportionate Allocation

In making any election described in Section 3.6(b) above, the Participant shall specify on the Election Form, in increments of one percent (1%), the percentage of his or her Deferral Account or Measurement Fund, as applicable, to be allocated / reallocated.

 

  d. Crediting or Debiting Method

The performance of each Measurement Fund (either positive or negative) will be determined on a daily basis based on the manner in which such Participant’s Deferral Account has been hypothetically allocated among the Measurement Funds by the Participant.


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  e. No Actual Investment

Notwithstanding any other provision of this Plan that may be interpreted to the contrary, the Measurement Funds are to be used for measurement purposes only, and a Participant’s election of any such Measurement Fund, the allocation of his or her Deferral Account thereto, the calculation of additional amount and the crediting or debiting of such amounts to a Participant’s Deferral Account shall not be considered or construed in any manner as an actual investment of his or her Deferral Account in any such Measurement Fund. In the event that the Company or the Trustee (as that term is defined in the Trust), in its own discretion, decides to invest funds in any or all of the investments on which the Measurement Funds are based, no Participant shall have any rights in or to such investment themselves. Without limited the foregoing, a Participant’s Deferral Account shall at all times be a bookkeeping entry only and shall not represent any investment made on his or her behalf by the Company or the Trust; the Participant shall at all times remain an unsecured creditor of the Company.

 

3.7 FICA and Other Taxes.

 

  a. Annual Deferral Amounts

For each Plan Year in which an Annual Deferral Amount is being withheld from a Participant, the Participant’s Employer(s) shall withhold from that portion of the Participant’s Base Salary and/or Bonus that is not being deferred, in a manner determined by the Employer(s), the Participant’s share of FICA and other employment taxes on such Annual Deferral Amount. If necessary, the Committee may reduce the Annual Deferral Amount in order to comply with this Section 3.7.

 

  b. Distributions

The Participant’s Employer(s), or the trustee of the Trust, shall withhold from any payments made to a Participant under this Plan all federal, state and local income, employment and other taxes required to be withheld by the Employer(s), or the trustee of the Trust, in connection with such payments, in amounts and in a manner to be determined in the sole discretion of the Employer(s) and the trustee of the Trust.


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ARTICLE 4 – SCHEDULED DISTRIBUTION; UNFORESEEABLE EMERGENCY

 

4.1 Scheduled Distribution.

In connection with each election to defer an Annual Deferral Amount made prior to January 1, 2009, a Participant may irrevocably elect to receive a Scheduled Distribution, in the form of a lump sum payment, from the Plan with respect to all or a portion of the Annual Deferral Amount. The Scheduled Distribution shall be a lump sum payment in an amount that is equal to the portion of the Annual Deferral Amount the Participant elected to have distributed as a Scheduled Distribution, plus amounts credited or debited in the manner provided in Section 3.6 above on that amount, calculated as of the close of business on or around the date on which the Scheduled Distribution becomes payable, as determined by the Committee in its sole discretion. Subject to the other terms and conditions of this Plan, each Scheduled Distribution elected shall be paid out on the first business day of any Plan Year designed by the Participant. The Plan Year designated by the Participant must be at least three (3) Plan Years after the end of the Plan Year to which the Participant’s deferral election described in Section 3.2 relates.

 

4.2 Postponing Scheduled Distributions.

A Participant may elect to postpone a Scheduled Distribution described in Section 4.1 above, and have such amount paid out on an allowable alternative distribution date designated by the Participant in accordance with this Section 4.2. In order to make this election, the Participant must submit a new Scheduled Distribution Election Form to the Committee in accordance with the following criteria:

 

  a. Such Scheduled Distribution Election Form must be submitted to and accepted by the Committee in its sole discretion at least twelve (12) months prior to the Participant’s previously designated Scheduled Distribution Date;

 

  b. The new Scheduled Distribution Date selected by the Participant must be the first business day of a Plan Year, and must be at least five years after the previously designated Scheduled Distribution Date; and

 

  c. The election of the new Scheduled Distribution Date shall have no effect until at least twelve (12) months after the date on which the election is made.

 

4.3 Other Benefits Take Precedence Over Scheduled Distributions.

Should a Benefit Distribution Date occur that triggers a benefit under Articles 5, 6, 7, or 8, any Annual Deferral Amount that is subject to a Scheduled Distribution election under Section 4.1 shall not be paid in accordance with Section 4.1, but shall be paid in accordance with the other applicable Article. Notwithstanding the foregoing, the Committee shall interpret this Section 4.3 in a manner that is consistent with Code Section 409A and other applicable tax law, including but not limited to guidance issued after the effective date of this Plan.


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4.4 Withdrawal Payout for the Unforeseeable Emergency.

 

  a. If the Participant experiences an Unforeseeable Emergency, the Participant may petition the Committee to suspend deferrals of Base Salary and/or Bonus Amounts to the extent deemed necessary by the Committee to satisfy the Unforeseeable Emergency. If suspension of deferrals is not sufficient to satisfy the Participant’s Unforeseeable Emergency, or if suspension of deferrals is not required or permitted under Code Section 409A and other applicable tax law, the Participant may further petition the Committee to receive a partial or full payout from the Plan. The Participant may further petition the Committee to receive a partial or full payout from the Plan. The Participant shall only receive a payout from the Plan to the extent such payout is deemed necessary by the Committee to satisfy the Participant’s Unforeseeable Emergency, plus amounts reasonably necessary to pay taxes reasonably anticipated as a result of the distribution.

 

  b. The payout shall not exceed the lesser of (i) the Participant’s Deferral Account, valued as of the close of business on or around the date on which the amount becomes payable, as determined by the Committee in its sole discretion, or (ii) the amount necessary to satisfy the Unforeseeable Emergency, plus amounts reasonably necessary to pay taxes reasonably anticipated as a result of the distribution. Notwithstanding the foregoing, a Participant may not receive a payout from the Plan to the extent that the Unforeseeable Emergency is or may be relieved (A) through reimbursement or compensation by insurance or otherwise, (B) by liquidation of the Participant’s assets, to the extent the liquidation of such assets would not itself cause severe financial hardship or (C) by suspension of deferrals under this Plan, if the Committee, in its sole discretion, determines that suspension is required or permitted by Code Section 409A and other applicable tax law.

 

  c. If the Committee, in its sole discretion, approves a Participant’s petition for suspension, the Participant’s deferrals under this Plan shall be suspended as of the date of such approval. If the Committee, in its sole discretion, approves a Participant’s petition for suspension and payout, the Participant’s deferrals under this Plan shall be cancelled as of the date of such approval and the Participant shall receive a payout from the Plan within ninety (90) days of the date of such approval.

 

  d. Notwithstanding the foregoing, the Committee shall interpret all provisions relating to suspension and/or payout under this Section 4.4 in a manner that is consistent with Code Section 409A and other applicable tax law, including but not limited to guidance issued after the effective date of this Plan.


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ARTICLE 5 – RETIREMENT BENEFIT

 

5.1 Retirement Benefit.

A Participant who Retires shall receive, as a Retirement Benefit, his or her Deferral Account, valued as of the close of business on or around the Participant’s Benefit Distribution Date, as determined by the Committee in its sole discretion.

 

5.2 Payment of Retirement Benefit.

 

  a. A Participant, in connection with his or her commencement of participation in the Plan, shall elect on an Election Form to receive the Retirement Benefit in a lump sum or pursuant to an Annual Installment Method of up to fifteen (15) years. The Participant may change this election by submitting an Election Form to the Committee in accordance with the following criteria:

 

  i. Such Election Form must be submitted to and accepted by the Committee in its sole discretion at least twelve (12) months prior to the Participant’s originally scheduled Benefit Distribution Date described in Section 1.6(a); and

 

  ii. The first Retirement Benefit payment is delayed at least five (5) years from the Participant’s originally scheduled Benefit Distribution Date described in Section 1.6(a); and

 

  iii. The election to modify the Retirement Benefit shall have no effect until at least twelve (12) months after the date on which the election is made; and

 

  iv. Notwithstanding the foregoing, the Committee shall interpret all provisions relating to changing the Retirement Benefit election under this Section 5.2 in a manner that is consistent with Code Section 409A and other applicable tax law, including but not limited to guidance issued after the effective date of this Plan. Accordingly, if a Participant’s subsequent Retirement Benefit distribution election would result in the shortening of the length of the Retirement Benefit payment period (e.g., a Participant changes an existing distribution election from annual installments to a lump sum payment; from 15 annual installments to 5 annual installments, etc.), and the Committee determines such election to be inconsistent with Code Section 409A or other applicable tax law, the election shall not be effective.

The Election Form most recently accepted by the Committee shall govern the payout of the Retirement Benefit. If a Participant does not make any election with respect to the form of payment of the Retirement Benefit in connection with his or her commencement of participation in the Plan, then such Participant shall be deemed to have elected to receive the Retirement Benefit in a lump sum.


Page 15

 

  b. The lump sum payment shall be made, or installment payments shall commence, no later than ninety (90) days after the Participant’s Benefit Distribution Date. Remaining installments, if any, shall be paid no later than ninety (90) day after each anniversary of the Participant’s Benefit Distribution Date.


Page 16

 

ARTICLE 6 – TERMINATION BENEFIT

 

6.1 Termination Benefit . A Participant who experiences a Termination of Employment shall receive, as a Termination Benefit, his or her Deferral Account, valued as of the close of business on or around the Participant’s Benefit Distribution Date, as determined by the Committee in its sole discretion.

 

6.2 Payment of Termination Benefit.

 

  a. A Participant, in connection with his or her commencement of participation in the Plan, shall elect on an Election Form to receive the Termination Benefit in a lump sum or pursuant to an Annual Installment Method of up to five (5) years. The Participant may change this election by submitting an Election Form to the Committee in accordance with the following criteria:

 

  i. Such Election Form must be submitted to and accepted by the Committee in its sole discretion at least twelve (12) months prior to the Participant’s originally scheduled Benefit Distribution Date described in Section 1.6(b); and

 

  ii. The first Termination Benefit payment is delayed at least five (5) years from the Participant’s originally scheduled Benefit Distribution Date described in Section 1.6(b); and

 

  iii. The election to modify the Termination Benefit shall have no effect until at least twelve (12) months after the date on which the election is made; and

 

  iv. Notwithstanding the foregoing, the Committee shall interpret all provisions relating to changing the Termination Benefit election under this Section 6.2 in a manner that is consistent with Code Section 409A and other applicable tax law, including but not limited to guidance issued after the effective date of this Plan. Accordingly, if a Participant’s subsequent Termination Benefit distribution election would result in the shortening of the length of the Termination Benefit payment period (e.g., a Participant changes an existing distribution election from annual installments to a lump sum payment; from 5 annual installments to 3 annual installments, etc.), and the Committee determines such election to be inconsistent with Code Section 409A and other applicable tax law, the election shall not be effective.

The Election Form most recently accepted by the Committee shall govern the payout of the Termination Benefit. If a Participant does not make any election with respect to the form of payment of the Termination Benefit in connection with his or her commencement of participation in the Plan, then such Participant shall be deemed to have elected to receive the Termination Benefit in a lump sum.


Page 17

 

  b. The lump sum payment shall be made, or installment payments shall commence, no later than ninety (90) days after the Participant’s Benefit Distribution Date. Remaining installments, if any, shall be paid no later than ninety (90) days after each anniversary of the Participant’s Benefit Distribution Date.

 

6.3 Change in Control . Notwithstanding any provisions of the Plan to the contrary, in the event that the employment of a qualifying Participant, as determined herein, is involuntarily terminated as of any date within six (6) months of a Change in Control event that occurs prior to January 1, 2009, such a Participant shall become entitled to receive, as a Termination Benefit, his or her Deferral Account valued as of the close of business on or around the participant’s Benefit Distribution Date, as determined by the Committee in its sole discretion. Any payment made in accordance with this Section 6.3 shall be made in the form of a lump sum cash payment within ninety (90) days of the date of such termination of employment; provided however, that any payment pursuant to this paragraph payable to a Specified Employee shall not be made prior to the Benefit Distribution Date applicable to Specified Employees. The only Participants who qualify for coverage under this Section 6.3 shall be the president of the Company and the thirty (30) next highest compensated officers of the Company determined as of the date of the Change in Control. This Section 6.3 shall have no effect on and after January 1, 2009.


Page 18

 

ARTICLE 7 – DISABILITY BENEFIT

 

7.1 Disability Benefit. Upon a Participant’s Disability, the Participant shall receive a Disability Benefit, which shall be equal to the Participant’s Deferral Account, calculated as of the close of business on or around the Participant’s Benefit Distribution Date, as selected by the Committee in its sole discretion.

 

7.2 Payment of Disability Benefit . The Disability Benefit shall be paid to the Participant in a lump sum payment no later than ninety (90) days after the Participant’s Benefit Distribution Date.


Page 19

 

ARTICLE 8 – DEATH BENEFIT

 

8.1 Death Benefit . The Participant’s Beneficiary(ies) shall receive a Death Benefit upon the Participant’s death which will be equal to the Participant’s Deferral Account, calculated as of the close of business on or around the Participant’s Benefit Distribution Date, as selected by the Committee in its sole discretion.

 

8.2 Payment of Death Benefit . The Death Benefit Shall be paid to the Participant’s Beneficiary(ies) in a lump sum payment no later than ninety (90) days after the Participant’s Benefit Distribution Date.


Page 20

 

ARTICLE 9 – BENEFICIARY DESIGNATION

 

9.1 Beneficiary. Each Participant shall have the right, at any time, to designate his or her Beneficiary(ies) (both primary as well as contingent) to receive any benefits payable under the Plan to a beneficiary upon the death of a Participant. All such Beneficiary(ies) designations shall be made in accordance with rules and procedures established by the Committee in its sole discretion. The Beneficiary designated under this Plan may be the same as or different from the Beneficiary designation under any other plan of an Employer in which the Participant participates.

 

9.2 Beneficiary Designation; Change; Spousal Consent . A Participant shall designate his or her Beneficiary by completing and signing the Beneficiary Designation Form, and returning it to the Committee or its designated agent. A Participant shall have the right to change a Beneficiary by completing, signing and otherwise complying with the terms of the Beneficiary Designation Form and the Committee’s rules and procedures, as in effect from time to time. If the Participant names someone other than his or her spouse as a Beneficiary, the Committee may, in its sole discretion, determine that spousal consent is required to be provided in a form designated by the Committee, executed by such Participant’s spouse and returned to the Committee. Upon the acceptance by the Committee of a new Beneficiary Designation Form, all Beneficiary designations previously filed shall be canceled. The Committee shall be entitled to rely on the last Beneficiary Designation Form filed by the Participant and accepted by the Committee prior to his or her death.

 

9.3 Acknowledgement. No designation or change in designation of a Beneficiary shall be effective until received and acknowledged in writing by the Committee or its designated agent.

 

9.4 No Beneficiary Designation. If a Participant fails to designate a Beneficiary as provided in Sections 9.1, 9.2 and 9.3 above or, if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant’s benefits, then the Participant’s designated Beneficiary shall be deemed to be his or her surviving spouse. If the Participant has no surviving spouse, the Benefits remaining under the Plan to be paid to a Beneficiary shall be payable to the executor or personal representative of the Participant’s estate.

 

9.5 Doubt as to Beneficiary . If the Committee has any doubt as to the proper Beneficiary to receive payments pursuant to this Plan, the Committee shall have the right, exercisable in its discretion, to cause the Participant’s Employer to withhold such payments until this matter is resolved to the Committee’s satisfaction.

 

9.6 Discharge of Obligations. The payment of benefits under this Plan to a Beneficiary shall fully and completely discharge all Employers and the Committee from all further obligations under this Plan with respect to the Participant, and that Participant’s Plan Agreement shall termination upon such full payment of benefits.


Page 21

 

ARTICLE 10 – LEAVE OF ABSENCE

 

10.1 Paid Leave of Absence . If a Participant is authorized by the Participant’s Employer to take a paid leave of absence from the employment of the Employer, (i) the Participant shall continue to be considered eligible for the benefits provided in Articles 4, 5, 6, 7 or 8 in accordance with the provisions of those Articles during the period of leave prior to his or her Termination of Employment, and (ii) the Annual Deferral Amount elected prior to January 1, 2009 shall continue to be withheld during such paid leave of absence in accordance with Section 3.2.

 

10.2 Unpaid Leave of Absence. If a Participant is authorized by the Participant’s Employer to take an unpaid leave of absence from the employment of the Employer for any reason, such Participant shall continue to be eligible for the benefits provided in Articles 4, 5, 6, 7 or 8 in accordance with the provisions of those Articles during the period of leave prior to his or her Termination of Employment.


Page 22

 

ARTICLE 11 – TERMINATION OF PLAN, AMENDMENT OR MODIFICATION

 

11.1 Termination of Plan . Prior to January 1, 2009, each Employer reserves the right to terminate the Plan (as defined in Section 1.30). Following a Termination of the Plan, Participant Deferral Accounts shall remain in the Plan until the Participant becomes eligible for the benefits provided in Articles 4, 5, 6, 7 or 8 in accordance with the provisions of those Articles. The Termination of the Plan shall not adversely affect any Participant or Beneficiary who has become entitled to the payment of any benefits under the Plan as of the date of termination.

 

11.2 Amendment.

 

  a. The Board ( and prior to January 1, 2009, any Employer) and the Management Planning and Compensation Committee of the Board (the “MPD Committee”) may, at any time, amend or modify the Plan in whole or in part. Notwithstanding the foregoing, no amendment or modification shall be effective to decrease the value of a Participant’s vested Deferral Account in existence at the time the amendment or modification is made.

 

  b. Notwithstanding any provision of the Plan to the contrary, in the event that the Company determines that any provision of the Plan or a Plan Agreement may cause amounts deferred under the Plan to become immediately taxable to any Participant under Code Section 409A, and related guidance, the Board and the MPD Committee may each (i) adopt such amendments to the Plan and appropriate policies and procedures, including amendments and policies with retroactive effect, that it determines necessary or appropriate to preserve the intended tax treatment of the Plan benefits provided by the Plan and/or (ii) take such other actions as the Board or the MPD Committee determines necessary or appropriate to comply with the requirements of Code Section 409A, and related guidance.

 

11.3 Plan Agreement. Despite the provision of Sections 11.1 and 11.2 above, if a Participant’s Plan Agreement contains benefits or limitations that are not in this Plan document, the Employer may only amend or terminate such provisions with the written consent of the Participant.

 

11.4 Effect of Payment. The full payment of the Participant’s Deferral Account under Articles 4, 5, 6, 7 or 8 of the Plan shall completely discharge all obligations to a Participant and his or her designated Beneficiaries under this Plan, and the Participant’s Plan Agreement shall terminate.


Page 23

 

ARTICLE 12 – ADMINISTRATION

 

12.1 Committee Duties . Except as otherwise provided in this Article 12, this Plan shall be administered by a Committee, which shall consist of the Board, or subcommittee of the Board, or such other committee as the Board shall appoint. Members of the Committee may be Participants under this Plan. The Committee also shall have the discretion and authority to (i) make, amend, interpret and enforce all appropriate rules and regulations for the administration of this Plan, and (ii) decide or resolve any and all questions including interpretations of this Plan, as may arise in connection with the Plan. Any individual serving on the Committee who is a Participant shall not vote or act on any matter relating solely to himself or herself. When making a determination or calculation, the Committee shall be entitled to rely on information furnished by a Participant or the Company.

 

12.2 Agents . In the administration of this Plan, the Committee may, from time to time, employ agents and delegate to them such administrative duties as it sees fit (including acting through a duly appointed representative) and may from time to time consult with counsel who may be counsel to the Company or any Employer.

 

12.3 Binding Effect of Decisions . The decision or action of the Administrator with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having any interest in the Plan.

 

12.4 Indemnity of Committee . The Company and all Employers shall indemnify and hold harmless the members of the Committee and any Employee to whom the duties of the Committee may be delegated against any and all claims, losses, damages, expenses or liabilities arising from any action or failure to act with respect to this Plan, except in the case of willful misconduct by the Committee, any of its members or any such Employee.

 

12.5 Employer Information . To enable the Committee to perform its functions, the Company and each Employer shall supply full and timely information to the Committee on all matters relating to the compensation of its Participants, the date and circumstances of the Retirement, Disability, death or Termination of Employment of its Participants, and such other pertinent information as the Committee may reasonable require.


Page 24

 

ARTICLE 13 – OTHER BENEFITS AND AGREEMENTS

The benefits provided for a Participant and Participant’s Beneficiary under the Plan are in addition to any other benefits available to such Participant under any other plan or program for employees of the Participant’s Employer. The Plan shall supplement and shall not supersede, modify or amend any other such plan or program except as may otherwise be expressly provided.


Page 25

 

ARTICLE 14 – CLAIMS PROCEDURES

 

14.1 Presentation of Claim . Any Participant or Beneficiary of a deceased Participant (such Participant or Beneficiary being referred to below as a “Claimant”) may deliver to the Committee a written claim for a determination with respect to the amounts distributable to such Claimant from the Plan. If such a claim relates to the contents of a notice received by the Claimant, the claim must be made within ninety (90) days after such notice was received by the Claimant. All other claims must be made within 180 days of the date on which the event that caused the claim to arise occurred. The claim must state with particularity the determination desired by the Claimant.

 

14.2 Notification of Decision . The Committee shall consider a Claimant’s claim within a reasonable time, but no later than ninety (90) days after receiving the claim. If the Committee determines that special circumstances require an extension of time for processing the claim, written notice of the extension shall be furnished to the Claimant prior to the termination of the initial ninety (90) day period. In no event shall such extension exceed a period of ninety (90) days from the end of the initial period. The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Committee expects to render the benefit determination. The Committee shall notify the Claimant in writing:

 

  a. that the Claimant’s requested determination has been made, and that the claim has been allowed in full; or

 

  b. that the Committee has reached a conclusion contrary, in whole or in part, to the Claimant’s requested determination, and such notice must set forth in a manner calculated to be understood by the Claimant:

 

  i. the specific reason(s) for the denial of the claim, or any part of it;

 

  ii. specific reference(s) to pertinent provisions of the Plan upon which such denial was based;

 

  iii. a description of any additional material or information necessary for the Claimant to perfect the claim, and an explanation of why such material or information is necessary;

 

  iv. an explanation of the claim review procedure set forth in Section 14.3 below; and

 

  v. a statement of the Claimant’s right to bring a civil action under ERISA Section 502(a) following an adverse benefit determination on review.


Page 26

 

14.3 Review of a Denied Claim . On or before sixty (60) days after receiving a notice from the Committee that a claim has been denied, in whole or in part, a Claimant (or the Claimant’s duly authorized representative) may file with the Committee a written request for a review of the denial of the claim. The Claimant (or the Claimant’s duly authorized representative):

 

  c. may, upon request and free of charge, have reasonable access to, and copies of, all documents, records and other information relevant to the claim for benefits;

 

  d. may submit written comments or other documents; and/or

 

  e. may request a hearing, which the Committee, in its sole discretion, may grant.

 

14.4 Decision on Review . The committee designated by the Company to hear such appeals (Appeals Committee) shall render its decision on review promptly, and no later than sixty (60) days after the Appeals Committee receives the Claimant’s written request for a review of the denial of the claim. If the Appeals Committee determines that special circumstances require an extension of time for processing the claim, written notice of the extension shall be furnished to the Claimant prior to the termination of the initial sixty (60) day period. In no event shall such extension exceed a period of sixty (60) days from the end of the initial period. The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Appeals Committee expects to render the benefit determination. In rendering its decision, the Appeals Committee shall take into account all comments, documents, records and other information submitted by the Claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination. The decision must be written in a manner calculated to be understood by the Claimant, and it must contain:

 

  f. a specific reasons for the decision;

 

  g. specific reference(s) to the pertinent Plan provisions upon which the decision was based;

 

  h. a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the Claimant’s claim for benefits; and

 

  i. a statement of the Claimant’s right to bring a civil action under ERISA Section 502(a).

 

14.5 Legal Action . A Claimant’s compliance with the foregoing provisions of this Article 15 is a mandatory prerequisite to a Claimant’s right to commence any legal action with respect to any claim for benefits under this Plan.


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ARTICLE 15 – TRUST

 

15.1 Establishment of the Trust . In order to provide assets from which to fulfill the obligations of the Participants and their beneficiaries under the Plan, the Company may establish a trust by a trust agreement with a third party, the trustee, to which each Employer may, in its discretion, contribute cash or other property, including securities issued by the Company, to provide for the benefit payments under the Plan, (the “Trust”).

 

15.2 Interrelationship of the Plan and the Trust . The provisions of the Plan and the Plan Agreement shall govern the rights of a Participant to receive distributions pursuant to the Plan. The provisions of any Trust shall govern the rights of the Employers, Participants and the creditors of the Employers to the assets transferred to the Trust. Each Employer shall at all times remain liable to carry out its obligations under the Plan.

 

15.3 Distributions From the Trust . Each Employer’s obligations under the Plan may be satisfied with Trust assets distributed pursuant to the terms of any Trust, and any such distribution shall reduce the Employer’s obligations under this Plan.

Notwithstanding the preceding subsections of this Section 15 or any other provisions of the Plan to the contrary, the establishment or existence of, or contributions to any Trust or Trusts shall not confer any right, title or interest on any Participant, Beneficiary, Estate or anyone person claiming through any or all of them to such Trust or Trusts, or any assets or other property thereof. Such assets and/or property shall be subject to the claims of creditors of the Company and the establishment or existence of such Trust or Trusts shall not cause the Plan to be funded for purposes of any provisions of the Code or of ERISA.


Page 28

 

ARTICLE 16 – MISCELLANEOUS

 

16.1 Status of Plan . The Plan is intended to be a plan that is not qualified within the meaning of Code Section 401(a) and that “is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees” within the meaning of ERISA Sections 201(2), 301(a)(3) and 401(a)(1). The Plan is intended to comply with the requirements of Code Section 409A and the provisions hereof shall be interpreted in a manner that satisfies the requirements of Code Section 409A and the regulations thereunder, and the Plan shall be operated accordingly. If any provision of the Plan would otherwise frustrate or conflict with this intent, the provision will be interpreted and deemed amended so as to avoid this conflict.

 

16.2 Unsecured General Creditor . Participants and their Beneficiaries, heirs, successors and assigns shall have no legal or equitable rights, interests or claims in any property or assets of the Company. For purposes of the payment of benefits under this Plan, any and all of a Company’s assets shall be, and remain, the general, unpledged unrestricted assets of the Employer. The Company’s obligation under the Plan shall be merely that of an unfunded and unsecured promise to pay money in the future.

 

16.3 Company’s Liability . The Company’s liability for the payment of benefits shall be defined only by the Plan and the Plan Agreement, as entered into between the Company and a Participant. The Company shall have no obligation to a Participant under the Plan except as expressly provided in the Plan and his or her Plan Agreement.

 

16.4 Nonassignability . Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate, alienate or convey in advance of actual receipt, the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are expressly declared to be, unassignable and non-transferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure, attachment, garnishment or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, be transferable by operation of law in the event of a Participant’s or any other person’s bankruptcy or insolvency or be transferable to a spouse as a result of a property settlement or otherwise.

 

16.5 Not a Contract of Employment . The terms and conditions of this Plan shall not be deemed to constitute a contract of employment between any Employer and the Participant. Such employment is hereby acknowledged to be an “at will” employment relationship that can be terminated at any time for any reason, or no reason, with or without cause, and with or without notice, unless expressly provided in a written employment agreement. Nothing in this Plan shall be deemed to give a Participant the right to be retained in the service of any Employer, or to interfere with the right of any Employer to discipline or discharge the Participant at any time.


Page 29

 

16.6 Terms. Whenever any words are used herein in the masculine, they shall be construed as though they were in the feminine in all cases where they would so apply; and whenever any words are used herein in the singular or in the plural, they shall be construed as though they were used in the plural or the singular, as the case may be, in all cases where they would so apply.

 

16.7 Captions. The captions of the articles, sections and paragraphs of this Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions.

 

16.8 Governing Law. Subject to ERISA, the provisions of this Plan shall be construed and interpreted according to the internal laws of Rhode Island without regard to its conflicts of laws principles.

 

16.9 Compliance . With respect to benefits hereunder subject to Code Section 409A, the Plan is intended to comply with the requirements of Code Section 409A and the provisions hereof shall be interpreted in a manner that satisfies the requirements of Code Section 409A and the regulations thereunder, and the Plan shall be operated accordingly. If any provision of the Plan would otherwise frustrate or conflict with this intent, the provision will be interpreted and deemed amended so as to avoid this conflict.

 

16.10 Notice. Any notice or filing required or permitted to be given to the Committee under this Plan shall be sufficient if in writing and hand-delivered, or sent by registered or certified mail.

Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification.

Any notice or filing required or permitted to be given to a Participant under this Plan shall be sufficient if in writing and hand-delivered, or sent by mail, to the last know address of the Participant.

 

16.11 Successors. The provisions of this Plan shall bind and inure to the benefit of the Participant’s Employer and its successors and assigns and the Participant and the Participant’s designated Beneficiaries.

 

16.12 Validity. In case any provision of this Plan shall be illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal or invalid provision had never been inserted herein.

 

16.13 Incompetent. If the Committee determines in its discretion that a benefit under this Plan is to be paid to a minor, a person declared incompetent or to a person incapable or handling the disposition of that person’s property, the Committee may direct payment of such benefit to the guardian, legal representative or person having the care and custody of such minor, incompetent or incapable person. The Committee may require proof of minority, incompetence, incapacity or guardianship, as it may deem appropriate prior to distribution of the benefit. Any payment of a benefit shall be a payment for the account


Page 30

 

of the Participant and the Participant’s Beneficiary, as the case may be, and shall be a complete discharge of any liability under the Plan for such payment amount.

 

16.14 Court Order. The Committee is authorized to comply with any court order in any action in which the Plan or the Committee has been named as a party, including any action involving a determination of the rights or interests in a Participant’s benefits under the Plan.

 

16.15 Acceleration of or Delay in Payments Notwithstanding any Plan provision to the contrary, the Committee, in its sole and absolute discretion, may elect to accelerate the time or form of payment of a benefit owed to the Participant hereunder, provided such acceleration is permitted under Treas. Reg. Section 1.409A-3(j)(4) and any subsequent guidance. Notwithstanding any Plan provision to the contrary, the Committee may also, in its sole and absolute discretion, delay the time for payment of a benefit owed to the Participant hereunder, to the extent permitted under Treas. Reg. Section 1.409A-2(b)(7) and any subsequent guidance.

Exhibit 10.2

 

 

CVS Caremark Corporation

2007 Incentive Plan

As Amended Through

December 31, 2008

 

 

 

 


         Page
1.  

Purpose

   1
2.  

Definitions

   1
3.  

Administration

   2
  (a)    Authority of the Committee    2
  (b)    Manner of Exercise of Committee Authority    3
  (c)    Limitation of Liability    3
4.  

Eligibility; Per-Person Award Limitations

   3
5.  

Performance and Annual Incentive Awards

   4
  (a)    Performance Conditions    4
  (b)    Performance Awards Granted to Designated Covered Employees    4
  (c)    Annual Incentive Awards Granted to Designated Covered Employees    5
  (d)    Written Determinations    6
  (e)    Status of Section 5(b) and Section 5(c) Awards under Code Section 162(m)    7
6.  

Change in Control

   7
  (a)    Effect of “Change in Control”    7
  (b)    Definition of “Change in Control”    7
7.  

General Provisions

   8
  (a)    Compliance with Legal and Other Requirements    8
  (b)    Limits on Transferability; Beneficiaries    9
  (c)    Adjustments    9
  (d)    Taxes    9
  (e)    Changes to the Plan and Awards    10
  (f)    Limitation on Rights Conferred under Plan    10
  (g)    Unfunded Status of Awards; Creation of Trusts    10
  (h)    Non-exclusivity of the Plan    10
  (i)    Governing Law    11
  (j)    Plan Effective Date and Shareholder Approval; Expiration Date    11

 

i


CVS CAREMARK CORPORATION

2007 Incentive Plan

1. Purpose . The purpose of this 2007 Incentive Plan (the “Plan”) is to assist CVS Caremark Corporation, a Delaware corporation (the “Corporation”), and its subsidiaries in attracting, retaining, and rewarding high-quality executives, employees, and other persons who provide services to the Corporation and/or its subsidiaries, and to qualify certain compensation awarded under the Plan for tax deductibility under Code Section 162(m) (as hereafter defined) to the extent deemed appropriate by the Committee (or any successor committee) of the Board of Directors of the Corporation.

2. Definitions . For purposes of the Plan, the following terms shall be defined as set forth below, in addition to such terms defined in Section 1 hereof:

(a) “Annual Incentive Award” means a conditional right granted to a Participant under Section 5(c) hereof to receive a cash payment after the end of a specified fiscal year.

(b) “Award” means any Performance Award or Annual Incentive Award.

(c) “Beneficiary” means the person, persons, trust or trusts which have been designated by a Participant in his or her most recent written beneficiary designation filed with the Committee to receive the benefits specified under the Plan upon such Participant’s death. If, upon a Participant’s death, there is no designated Beneficiary or surviving designated Beneficiary, then the term Beneficiary means person, persons, trust or trusts entitled by will or the laws of descent and distribution to receive such benefits.

(d) “Beneficial Owner” shall have the meaning ascribed to such term in Rule 13d-3 under the Exchange Act and any successor to such Rule.

(e) “Board” means the Corporation’s Board of Directors.

(f) “Change in Control” means Change in Control as defined with related terms in Section 6 of the Plan.

(g) “Code” means the Internal Revenue Code of 1986, as amended from time to time, including regulations thereunder and successor provisions and regulations thereto.

(h) “Committee” means a committee of two or more directors designated by the Board to administer the Plan; provided, however, that, unless otherwise determined by the Board, the Committee shall consist solely of two or more directors, each of whom shall be an “outside director” as defined under Code Section 162(m), unless administration of the Plan by “outside directors” is not then required in order to qualify for tax deductibility under Code Section 162(m).

 

1


(i) “Covered Employee” means an Eligible Person who is a Covered Employee as specified in Section 5(e) of the Plan.

(j) “Effective Date” means May 9, 2007.

(k) “Eligible Person” means each Executive Officer and other officers and employees of the Corporation or of any subsidiary, including such persons who may also be directors of the Corporation. An employee on leave of absence may be considered as still in the employ of the Corporation or a subsidiary for purposes of eligibility for participation in the Plan.

(l) “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, including rules thereunder and successor provisions and rules thereto.

(m) “Executive Officer” means an executive officer of the Corporation as defined under the Exchange Act.

(n) “Participant” means a person who has been granted an Award under the Plan that remains outstanding, including a person who is no longer an Eligible Person.

(o) “Performance Award” means a right, granted to a Participant under Section 5 hereof, to receive Awards based upon performance criteria specified by the Committee.

(p) “Person” shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, and shall include a “group” as defined in Section 13(d) thereof.

(aa) “Qualified Member” means a member of the Committee who is an “outside director” within the meaning of Regulation 1.162-27 under Code Section 162(m).

(bb) “Stock” means the Corporation’s Common Stock

3. Administration.

(a) Authority of the Committee . The Plan shall be administered by the Committee. The Committee shall have full and final authority, in each case subject to and consistent with the provisions of the Plan, to select Eligible Persons to become Participants, grant Awards, determine the type, number and other terms and conditions of, and all other matters relating to, Awards, prescribe Award agreements (which need not be identical for each Participant) and rules and regulations for the administration of the Plan, construe and interpret the Plan and Award agreements and correct defects, supply omissions or reconcile inconsistencies therein, and to make all other decisions and determinations as the Committee may deem necessary or advisable for the administration of the Plan.

 

2


(b) Manner of Exercise of Committee Authority . At any time that a member of the Committee is not a Qualified Member, any action of the Committee relating to an Award intended by the Committee to qualify as “performance-based compensation” within the meaning of Code Section 162(m) and regulations thereunder, may be taken either (i) by a subcommittee, designated by the Committee, composed solely of two or more Qualified Members, or (ii) by the Committee but with each such member who is not a Qualified Member abstaining or recusing himself or herself from such action; provided, however, that, upon such abstention or recusal, the Committee remains composed solely of two or more Qualified Members. Such action, authorized by such a subcommittee or by the Committee upon the abstention or recusal of such non-Qualified Member(s), shall be the action of the Committee for purposes of the Plan. Any action of the Committee shall be final, conclusive and binding on all persons, including the Corporation, its subsidiaries, Participants, Beneficiaries, or other persons claiming rights from or through a Participant, and shareholders. The express grant of any specific power to the Committee, and the taking of any action by the Committee, shall not be construed as limiting any power or authority of the Committee. To the extent permitted by applicable law, the Committee may delegate to officers or managers of the Corporation or any subsidiary, or committees thereof, the authority, subject to such terms as the Committee shall determine, to perform such functions, including administrative functions, as the Committee may determine, to the extent that such delegation will not cause Awards intended to qualify as “performance-based compensation” under Code Section 162(m) to fail to so qualify. The Committee may appoint agents to assist it in administering the Plan.

(c) Limitation of Liability . The Committee and each member thereof shall be entitled to, in good faith, rely or act upon any report or other information furnished to him or her by any executive officer, other officer or employee of the Corporation or a subsidiary, the Corporation’s independent auditors, consultants or any other agents assisting in the administration of the Plan. Members of the Committee and any officer or employee of the Corporation or a subsidiary acting at the direction or on behalf of the Committee shall not be personally liable for any action or determination taken or made in good faith with respect to the Plan, and shall, to the extent permitted by law, be fully indemnified and protected by the Corporation with respect to any such action or determination.

4. Eligibility ; Per-Person Award Limitations . Awards may be granted under the Plan only to Eligible Persons. In each fiscal year during any part of which the Plan is in effect, the maximum cash amount that may be earned under the Plan as a final Annual Incentive Award or other cash annual Award in respect of any fiscal year by any one Participant shall be $10 million, and the maximum cash amount that may be earned under the Plan as a final Performance Award or other cash Award in respect of a performance period other than an annual period by any one Participant on an annualized basis shall be $5 million.

 

3


5. Performance and Annual Incentive Awards .

(a) Performance Conditions . The right of a Participant to exercise or receive a grant or settlement of any Award, and the timing thereof, may be subject to such performance conditions as may be specified by the Committee. The Committee may use such business criteria and other measures of performance as it may deem appropriate in establishing any performance conditions, and may exercise its discretion to reduce or increase the amounts payable under any Award subject to performance conditions, except as limited under Sections 5(b) and 5(c) hereof in the case of a Performance Award or Annual Incentive Award intended to qualify under Code Section 162(m).

(b) Performance Awards Granted to Designated Covered Employees . If the Committee determines that a Performance Award to be granted to an Eligible Person who is designated by the Committee as likely to be a Covered Employee should qualify as “performance-based compensation” for purposes of Code Section 162(m), the grant, exercise and/or settlement of such Performance Award shall be contingent upon achievement of pre-established performance goals and other terms set forth in this Section 5(b).

(i) Performance Goals Generally . The performance goals for such Performance Awards shall consist of one or more business criteria and a targeted level or levels of performance with respect to each of such criteria, as specified by the Committee consistent with this Section 5(b). Performance goals shall be objective and shall otherwise meet the requirements of Code Section 162(m) and regulations thereunder (including Regulation 1.162-27 and successor regulations thereto), including the requirement that the level or levels of performance targeted by the Committee result in the achievement of performance goals being “substantially uncertain.” The Committee may determine that such Performance Awards shall be granted, exercised and/or settled upon achievement of any one performance goal or that two or more of the performance goals must be achieved as a condition to grant, exercise and/or settlement of such Performance Awards. Performance goals may differ for Performance Awards granted to any one Participant or to different Participants.

(ii) Business Criteria . One or more of the following business criteria for the Corporation, on a consolidated basis, and/or for specified subsidiaries or business units of the Corporation (except with respect to the total shareholder return and earnings per share criteria), shall be used by the Committee in establishing performance goals for such Performance Awards: (1) earnings per share; (2) revenues; (3) cash flow; (4) cash flow return on investment; (5) return on net assets, return on assets, return on investment, return on capital, return on equity; (6) economic value added; (7) operating margin; (8) the Common Knowledge Retail Customer Service Score; (9) net income; pretax earnings; pretax earnings before interest, depreciation and amortization; pretax operating earnings after interest expense and before incentives, service fees, and extraordinary or special items; operating earnings; (10) total shareholder return; and (11) any of the above goals as compared to the performance of a published or special index deemed applicable by the Committee including, but not limited to, the Standard & Poor’s 500 Stock Index or a group of comparator companies. One

 

4


or more of the foregoing business criteria shall also be exclusively used in establishing performance goals for Annual Incentive Awards granted to a Covered Employee under Section 5(c) hereof.

(iii) Performance Period; Timing for Establishing Performance Goals . Achievement of performance goals in respect of such Performance Awards shall be measured over a performance period of up to ten years, as specified by the Committee. Performance goals shall be established not later than 90 days after the beginning of any performance period applicable to such Performance Awards, or at such other date as may be required or permitted for “performance-based compensation” under Code Section 162(m).

(iv) Performance Award Pool . The Committee may establish a Performance Award pool, which shall be an unfunded pool, for purposes of measuring performance of the Corporation in connection with Performance Awards. The amount of such Performance Award pool shall be based upon the achievement of a performance goal or goals based on one or more of the business criteria set forth in Section 5(b)(ii) hereof during the given performance period, as specified by the Committee in accordance with Section 5(b)(iii) hereof. The Committee may specify the amount of the Performance Award pool as a percentage of any of such business criteria, a percentage thereof in excess of a threshold amount, or as another amount that need not bear a strictly mathematical relationship to such business criteria.

(v) Settlement of Performance Awards; Other Terms . Settlement of such Performance Awards shall be in cash, Stock, other Awards or other property, in the discretion of the Committee with any settlement in Stock to be pursuant to the Corporation’s 1997 Incentive Compensation Plan. The Committee may, in its discretion, reduce the amount of a settlement otherwise to be made in connection with such Performance Awards, but may not exercise discretion to increase any such amount payable to a Covered Employee in respect of a Performance Award subject to this Section 5(b). The Committee shall specify the circumstances in which such Performance Awards shall be paid or forfeited in the event of termination of employment by the Participant prior to the end of a performance period or settlement of Performance Awards.

(c) Annual Incentive Awards Granted to Designated Covered Employees . If the Committee determines that an Annual Incentive Award to be granted to an Eligible Person who is designated by the Committee as likely to be a Covered Employee should qualify as “performance-based compensation” for purposes of Code Section 162(m), the grant, exercise and/or settlement of such Annual Incentive Award shall be contingent upon achievement of pre-established performance goals and other terms set forth in this Section 5(c).

(i) Annual Incentive Award Pool . The Committee may establish an Annual Incentive Award pool, which shall be an unfunded pool, for purposes of measuring performance of the Corporation in connection with Annual Incentive Awards. The amount of such Annual Incentive Award pool shall be based upon the achievement of a performance goal or goals based on one or more of the

 

5


business criteria set forth in Section 5(b)(ii) hereof during the given performance period, as specified by the Committee in accordance with Section 5(b)(iii) hereof. The Committee may specify the amount of the Annual Incentive Award pool as a percentage of any of such business criteria, a percentage thereof in excess of a threshold amount, or as another amount that need not bear a strictly mathematical relationship to such business criteria.

(ii) Potential Annual Incentive Awards . Not later than the end of the 90th day of each fiscal year, or at such other date as may be required or permitted in the case of Awards intended to be “performance-based compensation” under Code Section 162(m), the Committee shall determine the Eligible Persons who will potentially receive Annual Incentive Awards, and the amounts potentially payable thereunder, for that fiscal year, either out of an Annual Incentive Award pool established by such date under Section 5(c)(i) hereof or as individual Annual Incentive Awards. In the case of individual Annual Incentive Awards intended to qualify under Code Section 162(m), the amount potentially payable shall be based upon the achievement of a performance goal or goals based on one or more of the business criteria set forth in Section 5(b)(ii) hereof in the given performance year, as specified by the Committee; in other cases, such amount shall be based on such criteria as shall be established by the Committee. In all cases, the maximum Annual Incentive Award of any Participant shall be subject to the limitation set forth in Section 5 hereof.

(iii) Payout of Annual Incentive Awards . After the end of each fiscal year, the Committee shall determine the amount, if any, of (A) the Annual Incentive Award pool, and the maximum amount of potential Annual Incentive Award payable to each Participant in the Annual Incentive Award pool, or (B) the amount of potential Annual Incentive Award otherwise payable to each Participant. The Committee may, in its discretion, determine that the amount payable to any Participant as a final Annual Incentive Award shall be increased or reduced from the amount of his or her potential Annual Incentive Award, including a determination to make no final Award whatsoever, but may not exercise discretion to increase any such amount in the case of an Annual Incentive Award intended to qualify under Code Section 162(m). The Committee shall specify the circumstances in which an Annual Incentive Award shall be paid or forfeited in the event of termination of employment by the Participant prior to the end of a fiscal year or settlement of such Annual Incentive Award.

(d) Written Determinations . All determinations by the Committee as to the establishment of performance goals, the amount of any Performance Award pool or potential individual Performance Awards and as to the achievement of performance goals relating to Performance Awards under Section 5(b), and the amount of any Annual Incentive Award pool or potential individual Annual Incentive Awards and the amount of final Annual Incentive Awards under Section 5(c), shall be made in writing in the case of any Award intended to qualify under Code Section 162(m). The Committee may not delegate any responsibility relating to such Performance Awards or Annual Incentive Awards.

 

6


(e) Status of Section 5(b) and Section 5(c) Awards under Code Section 162(m). It is the intent of the Corporation that Performance Awards and Annual Incentive Awards under Sections 5(b) and 5(c) hereof granted to persons who are designated by the Committee as likely to be Covered Employees within the meaning of Code Section 162(m) and regulations thereunder (including Regulation 1.162-27 and successor regulations thereto) shall, if so designated by the Committee, constitute “performance-based compensation” within the meaning of Code Section 162(m) and regulations thereunder. Accordingly, the terms of Sections 5(b), (c), (d) and (e), including the definitions of Covered Employee and other terms used therein, shall be interpreted in a manner consistent with Code Section 162(m) and regulations thereunder. The foregoing notwithstanding, because the Committee cannot determine with certainty whether a given Participant will be a Covered Employee with respect to a fiscal year that has not yet been completed, the term Covered Employee as used herein shall mean only a person designated by the Committee, at the time of grant of Performance Awards or an Annual Incentive Award, as likely to be a Covered Employee with respect to that fiscal year. If any provision of the Plan as in effect on the date of adoption or any agreements relating to Performance Awards or Annual Incentive Awards that are designated as intended to comply with Code Section 162(m) does not comply or is inconsistent with the requirements of Code Section 162(m) or regulations thereunder, such provision shall be construed or deemed amended to the extent necessary to conform to such requirements.

 

6. Change in Control.

(a) Effect of “Change in Control .” In the event of a “Change in Control,” the following provisions shall apply unless otherwise provided in the Award agreement:

(i) The restrictions, deferral of settlement, and forfeiture conditions applicable to any other Award granted under the Plan shall lapse and such Awards shall be deemed fully vested as of the time of the Change in Control, except to the extent of any waiver by the Participant and subject to applicable restrictions set forth in Section 7(a) hereof; and

(ii) With respect to any outstanding Award subject to achievement of performance goals and conditions under the Plan, such performance goals and other conditions will be deemed to be met if and to the extent so provided by the Committee in the Award agreement relating to such Award.

(b) Definition of “Change in Control .” A “Change in Control” shall be deemed to have occurred if:

(i) any Person (other than (w) the Corporation, (x) any trustee or other fiduciary holding securities under any employee benefit plan of the Corporation, (y) any corporation owned, directly or indirectly, by the stockholders of the Corporation immediately after the occurrence with respect to which the evaluation is being made in substantially the same proportions as their ownership of the common stock of the Corporation immediately prior to such occurrence or (z) any surviving or resulting entity from a merger or consolidation referred to in clause (iii) below that does not constitute a Change of Control under clause (iii) below) becomes the Beneficial Owner (except that a Person shall be deemed to be the Beneficial Owner of all shares that any such Person has

 

7


the right to acquire pursuant to any agreement or arrangement or upon exercise of conversion rights, warrants or options or otherwise, without regard to the sixty day period referred to in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation or of any subsidiary owning directly or indirectly all or substantially all of the consolidated assets of the Corporation (a “Significant Subsidiary”), representing 30% or more of the combined voting power of the Corporation’s or such Significant Subsidiary’s then outstanding securities;

(ii) during any period of twelve (12) consecutive months, individuals who at the beginning of such period constitute the Board, and any new director whose election by the Board or nomination for election by the Corporation’s stockholders was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of the twelve (12) month period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the Board;

(iii) the consummation of a merger or consolidation of the Corporation or any Significant Subsidiary with any other entity, other than a merger or consolidation which would result in the voting securities of the Corporation or a Significant Subsidiary outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving or resulting entity) more than 50% of the combined voting power of the surviving or resulting entity outstanding immediately after such merger or consolidation; or;

(iv) the consummation of a transaction (or series of transactions within a 12 month period) which constitutes the sale or disposition of all or substantially all of the consolidated assets of the Corporation but in no event assets having a gross fair market value of less than 40% of the total gross fair market value of all of the consolidated assets of the Corporation (other than such a sale or disposition immediately after which such assets will be owned directly or indirectly by the stockholders of the Corporation in substantially the same proportions as their ownership of the common stock of the Corporation immediately prior to such sale or disposition).

 

7. General Provisions.

(a) Compliance with Legal and Other Requirements . The Corporation may, to the extent deemed necessary or advisable by the Committee, postpone the issuance or delivery of Stock or payment of other benefits under any Award until completion of such registration or qualification of such Stock or other required action under any federal or state law, rule or regulation, listing or other required action with respect to any stock exchange or automated quotation system upon which the Stock or other securities of the Corporation are listed or quoted, or compliance with any other obligation of the Corporation, as the Committee may consider appropriate, and may require any Participant to make such representations, furnish such information and comply with or be subject to such other conditions as it may consider appropriate in connection with the issuance or delivery of Stock or payment of other benefits in compliance with applicable

 

8


laws, rules, and regulations, listing requirements, or other obligations. The foregoing notwithstanding, in connection with a Change in Control, the Corporation shall take or cause to be taken no action, and shall undertake or permit to arise no legal or contractual obligation, that results or would result in any postponement of the issuance or delivery of Stock or payment of benefits under any Award or the imposition of any other conditions on such issuance, delivery or payment, to the extent that such postponement or other condition would represent a greater burden on a Participant than existed on the 90th day preceding the Change in Control.

(b) Limits on Transferability; Beneficiaries . No Award or other right or interest of a Participant under the Plan shall be pledged, hypothecated or otherwise encumbered or subject to any lien, obligation or liability of such Participant to any party (other than the Corporation or a subsidiary), or assigned or transferred by such Participant otherwise than by will or the laws of descent and distribution or to a Beneficiary upon the death of a Participant, and such Awards or rights that may be exercisable shall be exercised during the lifetime of the Participant only by the Participant or his or her guardian or legal representative.

(c) Adjustments. The Committee is authorized to make adjustments in the terms and conditions of, and the criteria included in, Awards (including Performance Awards and performance goals, and Annual Incentive Awards and any Annual Incentive Award pool or performance goals relating thereto) in recognition of unusual or nonrecurring events (including, without limitation, events described in the preceding sentence, as well as acquisitions and dispositions of businesses and assets) affecting the Corporation, any subsidiary or any business unit, or the financial statements of the Corporation or any subsidiary, or in response to changes in applicable laws, regulations, accounting principles, tax rates and regulations or business conditions or in view of the Committee’s assessment of the business strategy of the Corporation, any subsidiary or business unit thereof, performance of comparable organizations, economic and business conditions, personal performance of a Participant, and any other circumstances deemed relevant; provided that no such adjustment shall be authorized or made if and to the extent that such authority or the making of such adjustment would cause Options, Performance Awards granted under Section 5(b) hereof or Annual Incentive Awards granted under Section 5(c) hereof to Participants designated by the Committee as Covered Employees and intended to qualify as “performance-based compensation” under Code Section 162(m) and regulations thereunder to otherwise fail to qualify as “performance-based compensation” under Code Section 162(m) and regulations thereunder.

(d) Taxes. The Corporation and any subsidiary is authorized to withhold from any Award granted, any payment relating to an Award under the Plan, including from a distribution of Stock, or any payroll or other payment to a Participant, amounts of withholding and other taxes due or potentially payable in connection with any transaction involving an Award, and to take such other action as the Committee may deem advisable to enable the Corporation and Participants to satisfy obligations for the payment of withholding taxes and other tax obligations relating to any Award. This authority shall include authority to withhold or receive Stock or other property and to make cash payments in respect thereof in satisfaction of a Participant’s tax obligations, either on a mandatory or elective basis in the discretion of the Committee.

 

9


(e) Changes to the Plan and Awards . The Board may amend, alter, suspend, discontinue or terminate the Plan or the Committee’s authority to grant Awards under the Plan without the consent of shareholders or Participants, except that any amendment or alteration to the Plan shall be subject to the approval of the Corporation’s shareholders not later than the annual meeting next following such Board action if such shareholder approval is required by any federal or state law or regulation or the rules of any stock exchange or automated quotation system on which the Stock may then be listed or quoted, and the Board otherwise, in its discretion, determines to submit such changes to the Plan to shareholders for approval; provided that, without the consent of an affected Participant, no such Board action may materially and adversely affect the rights of such Participant under any previously granted and outstanding Award. The Committee may waive any conditions or rights under, or amend, alter, suspend, discontinue or terminate any Award theretofore granted and any Award agreement relating thereto, except as otherwise provided in the Plan; provided that, without the consent of an affected Participant, no such Committee action may materially and adversely affect the rights of such Participant under such Award.

(f) Limitation on Rights Conferred under Plan . Neither the Plan nor any action taken hereunder shall be construed as (i) giving any Eligible Person or Participant the right to continue as an Eligible Person or Participant or in the employ or service of the Corporation or a subsidiary, (ii) interfering in any way with the right of the Corporation or a subsidiary to terminate any Eligible Person’s or Participant’s employment or service at any time, (iii) giving an Eligible Person or Participant any claim to be granted any Award under the Plan or to be treated uniformly with other Participants and employees, or (iv) conferring on a Participant any of the rights of a shareholder of the Corporation unless and until the Participant is duly issued or transferred shares of Stock in accordance with the terms of an Award.

(g) Unfunded Status of Awards; Creation of Trusts . The Plan is intended to constitute an “unfunded” plan for incentive and deferred compensation. With respect to any payments not yet made to a Participant or obligation to deliver Stock pursuant to an Award, nothing contained in the Plan or any Award shall give any such Participant any rights that are greater than those of a general creditor of the Corporation; provided that the Committee may authorize the creation of trusts and deposit therein cash, Stock, other Awards or other property, or make other arrangements to meet the Corporation’s obligations under the Plan. Such trusts or other arrangements shall be consistent with the “unfunded” status of the Plan unless the Committee otherwise determines with the consent of each affected Participant. The trustee of such trusts may be authorized to dispose of trust assets and reinvest the proceeds in alternative investments, subject to such terms and conditions as the Committee may specify and in accordance with applicable law.

(h) Non-exclusivity of the Plan . Neither the adoption of the Plan by the Board nor its submission to the shareholders of the Corporation for approval shall be construed as creating any limitations on the power of the Board or a committee thereof to adopt such other incentive arrangements as it may deem desirable including incentive arrangements and awards which do not qualify under Code Section 162(m).

 

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(i) Governing Law . The validity, construction and effect of the Plan, any rules and regulations under the Plan, and any Award agreement shall be determined in accordance with the Delaware General Corporation Law, without giving effect to principles of conflicts of laws, and applicable federal law.

(j) Plan Effective Date and Stockholder Approval; Expiration Date . The Plan has been adopted by the Board on March 7, 2007 and approved by the stockholders of the Corporation on May 9, 2007, and has been amended effective December 31, 2008. Unless an extension is approved by the stockholders of the Corporation, the Plan shall have a term that expires on May 9, 2012, after which no further Awards may be made, provided, however, that the provisions of the Plan shall continue to apply to Awards made prior to such date.

 

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Exhibit 10.3

AMENDMENT NUMBER TWO TO THE CAREMARK RX, INC. SPECIAL

RETIREMENT PLAN

WHEREAS , Caremark Rx, LLC (“Caremark”), a wholly owned subsidiary of CVS Caremark Corporation (the “Company”), has previously established the Caremark Rx, Inc. Special Retirement Plan (the “Plan”); and

WHEREAS , effective as of September 24, 2008 the sponsorship of the Plan was transferred from the Caremark to the Company and the Management Planning and Development Committee of the Board of Directors the “MP&D Committee”) was granted all power and authority to amend, merge and/or terminate the Plan; and

WHEREAS , pursuant to authority granted to the undersigned by Resolutions adopted by the Board of Directors of the Company and the MP&D Committee at meetings on September 24, 2008, which Resolutions granted authority to amend, in the name of and on behalf of the Company, the Plan to comply with provisions of Section 409A of the Internal Revenue Code and to effectuate the resolutions changing the Plan sponsor and delegating authority to the MP&D Committee, the undersigned hereby takes the following action:, the undersigned hereby takes the following action:

NOW, THEREFORE , the Plan is hereby amended, effective as of December 31, 2008, unless otherwise provided below, as provided herein.

 

1. GENERAL

Effective on and after September 24, 2008, the term “Company” shall mean CVS Caremark Corporation

Code Section 409A and its applicable regulations and interpretive authority (‘Section 409A’) applies to benefits accrued and or vested under deferred compensation arrangements on or after January 1, 2005. This Plan was effective as of January 1, 2006. A Change in Control as defined in the Plan occurred as of March 22, 2007. With respect to the period January 1, 2006 through December 31, 2008, the Plan has been administered in good faith compliance with Section 409A of the Code and the guidance issued hereunder.

409A Benefits on or after January 1, 2009 . The Plan be and hereby is amended, effective as of December 31, 2008 with respect to Participants who continue to accrue benefits under the Plan or who have not commenced payment of Plan benefits prior to January 1, 2009, to provide that such Participants’ Plan benefit shall be subject to the provisions set forth in Appendix A, as attached hereto. In addition, the provisions of Appendix A shall also apply to any benefit paid to a Beneficiary on account of the death of a Participant which first becomes payable on or after January 1, 2009.


2. The Plan is amended, effective as of September 24, 2008, by revising Section 1.6 to read as follows:

“Committee – means the Management Planning and Development Committee of the Board of Directors of the Company”

 

3. The Plan is amended, effective as of December 31, 2008, by adding the following Appendix A to the end thereof:

APPENDIX A

This Appendix A constitutes an integral part of the Plan. The provisions of this Appendix A are applicable only to Plan benefits payable to a Participant who has not commenced payment of a Plan benefit prior to January 1, 2009 or to a Participant’s beneficiary who commences payment of a death benefit under the provisions of the Plan on or after January 1, 2009. Section references in this Appendix A correspond to appropriate Sections of the said Plan as set forth on December 31, 2008.

 

  a. ARTICLE I – DEFINITIONS

 

  1.4 Change in Control A Change in Control occurred on March 22, 2007 and the provisions of this Section are no longer applicable.

 

  1.7 Disabled Participant A Participant is considered a “Disabled Participant” if prior to his Termination of Employment such Participant incurs any medically determined physical or mental impairment that meet the requirements set forth under Treasury Regs. Section 1.409A-3(i)(4)(i) or (ii), or any subsequent guidance thereto. . The Participant’s Disability Date shall be the date determined by the Committee on a basis uniformly applicable to all persons similarly situated

 

  1.14 Retirement Date means the first day of the month that coincides with, or immediately following a Participant’s Termination of Employment.

 

  1.15 Specified Employee means “Specified Employee” as such term is defined in the Universal 409A Definition Document.

 

  1.19 Termination of Employment means “termination of employment” as such term is defined in the Universal 409A Definition Document. The terms/phrases “termination of employment”, “terminates”, “employment retirement”, “retires”, or other similar language shall mean “termination of employment” as such term is defined in the Universal 409A Definition Document.

 

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  b. ARTICLES 2, and 4 - PAYMENT OF RETIREMENT BENEFITS, DISABILITY BENEFITS AND CHANGE IN CONTROL BENEFITS

 

     Subject to the provisions below and the provisions of Sections 8.1 and 11.10, the Retirement Benefit (or Change in Control Benefit) payable pursuant to the provisions of the Plan to a Participant due to his or her Termination of Employment for reasons other than death shall commence as of the first day of the month coincident with or next following the Participant’s attainment of age 60 or with respect to a Participant who as of his or her Termination of Employment has attained age 58 and completed at least 15 Years of Service, such Participant’s Retirement Date, if earlier.

 

     Specified Employees - Notwithstanding any Plan provision to the contrary, with respect to a Participant who is a Specified Employee on his Termination of Employment the actual payment of the Participant’s Retirement Benefit, if any, payable under the Plan due to the Participant’s Termination of Employment for reasons other than death or Disability shall not commence prior to the first day of the seventh month following the Participant’s Termination of Employment. Any payment of a 409A Supplemental Plan Benefit due the Participant which he would have otherwise received under the Plan during the six month period immediately following such Participant’s Termination of Employment shall be accumulated without interest and paid in the seventh month following such Participant’s Termination of Employment. For the avoidance of doubt, the provisions of this paragraph shall not apply to a Participant’s Plan Benefit payable under this Plan due to the death of the Participant or due pursuant to the provisions of Article 3 to the Participant’s Disability prior to his Termination of Employment.

 

  c. ARTICLE 3 - PAYMENT OF DISABILITY BENEFITS

 

     Subject to the provisions of Sections 8.1 and 11.10, any Disability Benefit payable pursuant to the provisions of Article 3 of the Plan to a Disabled Participant shall commence as of the first day of the month coincident with or next following the Participant’s attainment of age 60. If an individual who ceases to be a Disabled Participant prior to age 60 resumes employment with Caremark, such reemployment all shave no impact on the timing of payments earned prior to such reemployment. Upon such reemployment such Participant may continue to qualify for future benefits under Article 2 of the Plan.

 

  d. ARTICLE 5 - DEATH PAYMENTS

 

     A death benefit is payable under the provisions of Article 5 in the event a Participant dies prior to his or her Termination of Employment.

 

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  e. ARTICLE 6 - POST-RETIREMENT DEATH BENEFITS

 

     If a Participant dies on or after the date benefits commence under the Plan, all remaining installments due to him or her after his or her date of death will be paid in the month following the month of the Participant’s death to his or her Beneficiary, if any, in a lump sum cash distribution equal to the present value of such remaining installments as of the payment date.

 

  f. ARTICLE 10 - AMENDMENT AND TERMINATION

 

     Only to the extent consistent with the rules relating to plan terminations and liquidations in Treasury Reg. Section 1.409A-3(i)(4)(ix) or otherwise consistent with Code Section 409A, shall a distribution pursuant to the provisions of Section 10.2 shall be made. Unless so distributed in accordance with the preceding sentence, in the event of a Plan termination, a Participant’s Benefit shall continue to be paid in accordance with the foregoing provisions of the Plan.

 

  g. ARTICLE 11 - MISCELLANEOUS

 

     With respect to benefits hereunder subject to Code Section 409A, the Plan is intended to comply with the requirements of Code Section 409A and the provisions hereof shall be interpreted in a manner that satisfies the requirements of Code Section 409A and the regulations thereunder, and the Plan shall be operated accordingly. If any provision of the Plan would otherwise frustrate or conflict with this intent, the provision will be interpreted and deemed amended so as to avoid this conflict.

 

     Notwithstanding any Plan provision to the contrary, the Committee in its sole and absolute discretion, may elect to accelerate the time or form of payment of a benefit owed to the Participant hereunder, provided such acceleration is permitted under Treas. Reg. Section 1.409A-3(j)(4) and any subsequent guidance. Notwithstanding any Plan provision to the contrary, the Committee may also, in its sole and absolute discretion, delay the time for payment of a benefit owed to the Participant hereunder, to the extent permitted under Treas. Reg. Section 1.409A-2(b)(7) and any subsequent guidance.

IN WITNESS WHEREOF, the Company has caused this Amendment Number Two to be executed by its duly authorized officer the              day of December, 2008.

 

By:  

 

Title:  

 

 

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Exhibit 10.4

 

 

CVS CAREMARK CORPORATION

 

 

DEFERRED STOCK COMPENSATION PLAN

 

 


Exhibit 10.4

CVS CAREMARK CORPORATION

 

 

Deferred Stock Compensation Plan

 

 

 

          Page

1.

   Purposes    1

2.

   Definitions    1

3.

   Administration    2

4.

   Participation    3

5.

   Deferrals    3

6.

   Deferral Accounts    4

7.

   Settlement of Deferral Accounts    5

8.

   Provisions Relation to Section 16 of the Exchange Act    6

9.

   Statements    6

10.

   Sources of Stock: Limitation on Amount of Stock-Denominated Deferrals    6

11.

   Amendment/Termination    6

12.

   General Provisions    6

13.

   Effective Date    9


CVS CAREMARK CORPORATION

 

 

Deferred Stock Compensation Plan

 

 

1. Purposes . The purposes of this Deferred Stock Compensation Plan (the “Plan”) are to provide certain highly compensated employees of CVS Caremark Corporation (the “Company”) and its subsidiaries with the opportunity to elect to defer receipt of shares of Stock under certain Stock-based compensation plans or arrangements.

2. Definitions . In addition to the terms defined in Section 1 above, the following terms used in the Plan shall have the meanings set forth below:

(a) “Administrator” shall mean the Deferred Stock Compensation Committee set forth in Section 3(b) to whom the Committee has delegated the authority to take action under the Plan, except as may be otherwise required under Section 8.

(b) “Beneficiary” shall mean any person (which may include trusts and is not limited to one person) who has been designated by the Participant in his or her most recent written beneficiary designation filed with the Company to receive the benefits specified under the Plan in the event of the Participant’s death. If no Beneficiary has been designated who survives the Participant’s death, then Beneficiary means the Participant’s spouse, if any; otherwise, the Participant’s Beneficiary shall be the person named as his beneficiary under the Company’s life insurance program.

(c) “Change in Control” shall have the meaning given to such term in Section 10(c) of the CVS Caremark Corporation 1997 Incentive Compensation Plan.

(d) “Code” shall mean the Internal Revenue Code of 1986, as amended. References to any provision of the Code or regulation (including a proposed regulation) thereunder shall include any successor provisions or regulations.

(e) “Committee” shall mean the Management Planning and Development Committee of the Board of Directors of the Company or any other directors of the Company designated as the Committee. Except as may be otherwise required under Section 8 or by applicable law, any function of the Committee may be delegated to the Administrator.

(f) “Deferral Account” shall mean the account or subaccount established and maintained by the Company for Stock deferrals by a Participant, as described in Section 6. A Deferral Account will be maintained solely as a bookkeeping entry by the Company to evidence unfunded obligation of the Company.

(g) “Deferred Stock” shall mean a right to receive Stock at the end of a specified deferral period.

 

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(h) “Disability” shall have the meaning given to such term in the Company’s Long-Term Disability Plan except that with respect to a Participant’s 409A Amount, Disability shall have the meaning described in the applicable regulations under Section 409A of the Code.

(i) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended. References to any provision of the Exchange Act or rule thereunder shall include any successor provisions or rules.

(j) “409A Amount” shall mean the part of a Participant’s Deferral Account that is subject to Section 409A of the Code.

(k) “Participant” shall mean any employee of the Company or any subsidiary who is designated by the Committee as an eligible Participant in the Plan and who participates or makes an election to participate in the Plan.

(l) “Retirement” shall mean (A) for a Participant’s 409A Amount, a termination of employment on or after (i) age 55 and the completion of 10 or more years of service or, if earlier, (ii) age 60 and the completion of five or more years of service and (B) for the part of a Participant’s Deferral Account which is in excess of such Participant’s 409A Amount, the Participant’s termination of employment (i) at or after attaining age 60 or (ii) at or after attaining age 55, but prior to attaining age 60, if such termination is approved in advance by the Committee.

(m) “Specified Employee” shall mean “Specified Employee” as such term is defined in the Universal 409A Definition Document.

(n) “Stock” shall mean CVS Caremark Corporation Common Stock, or any other equity securities of the Company designated by the Committee.

(o) “Termination of Employment” shall mean “termination of employment” as such term is defined in the Universal 409A Definition Document.

(p) “Trust” shall mean any trust or trusts established or designated by the Company to hold Stock or other assets in connection with the Plan; provided , however , that the assets of such trusts shall remain subject to the claims of the general creditors of the Company.

(q) “Trustee” shall mean the trustee of a Trust.

(r) “Trust Agreement” shall mean the agreement entered into between the Company and the Trustee to carry out the purposes of the Plan, as amended or restated from time to time.

3. Administration

(a) Authority . Both the Committee and the Administrator (subject to the ability of the Committee to restrict the Administrator) shall administer the Plan in accordance with its terms, and shall have all the powers necessary to accomplish such purpose, including the power and authority to construe and interpret the Plan, to define the terms used herein, to prescribe, amend and rescind rules and regulations, agreements, forms, and notices relating to the administration of the Plan, and to make all other determinations necessary or advisable for the

 

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administration of the Plan. Any actions of the Committee or the Administrator with respect to the Plan shall be conclusive and binding upon all persons interested in the Plan, except that any action of the Administrator will not be binding on the Committee. The Committee and Administrator may each appoint agents and delegate thereto powers and duties under the Plan, except as otherwise limited by the Plan.

(b) Administrator . The Deferred Stock Compensation Committee shall consist of such number of members as shall be determined by the Committee, each of whom shall be appointed by, shall remain in office at the will of, and may be removed, with or without cause, by the Committee. Any member of the Deferred Stock Compensation Committee may resign at any time. No member of the Deferred Stock Compensation Committee shall be entitled to act on or decide any matter relating solely to himself or herself or any of his or her rights or benefits under the Plan. The members of the Deferred Stock Compensation Committee shall not receive any special compensation for serving in their capacities as members of the Deferred Stock Compensation Committee but shall be reimbursed for any reasonable expenses incurred in connection therewith. No bond or other security need be required of the Deferred Stock Compensation Committee or any member thereof in any jurisdiction.

(c) Limitation of Liability . Each member of the Committee and the Administrator shall be entitled to, in good faith, rely or act upon any report or other information furnished to him or her by any officer or other employee of the Company or any subsidiary, the Company’s independent certified public accountants, or any executive compensation consultant, legal counsel, or other professional retained by the Company to assist in the administration of the Plan. To the maximum extent permitted by law, no member of the Committee or the Administrator, nor any person to whom ministerial duties have been delegated, shall be liable to any person for any action taken or omitted in connection with interpretation and administration of the Plan.

4. Participation . The administrator will notify each person of his or her participation or eligibility to participate in the Plan not later than 15 days (or such lesser period as may be practicable in the circumstances) prior to any deadline for filing an election form.

5. Deferrals . To the extent authorized by the Committee, a Participant may elect to defer any award or other compensation which is in the form of units denominated in Stock to be received from the Company or a subsidiary, including shares issuable in connection with annual incentive awards or long term awards. In addition to any terms and conditions of deferral set forth under plans, programs or arrangements from which receipt of the Stock-denominated award or other compensation is deferred, the Committee may impose limitations on the amounts permitted to be deferred and other terms and conditions of deferrals under the Plan. Any such limitations, and other terms and conditions of deferral, shall be set forth in the rules relating to the Plan or election forms, other forms, or instructions published by the Committee and/or the Administrator.

(a) Elections . Once an election form, properly completed, is received by the Company, the elections of the Participant shall be irrevocable: provided however , that subject to the requirements of Section 409A of the Code, the Committee and/or Administrator may, in its discretion, permit a Participant to elect a further deferral of amounts credited to a Deferral Account by filing a later election form.

 

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(b) Date of Election . An election to defer Stock-denominated awards or other compensation hereunder must be received by the Administrator prior to the date specified by the Administrator. Under no circumstances may a Participant defer Stock-denominated awards or other compensation to which the Participant has attained, at the time of deferral, a legally enforceable right to current receipt of such Stock-denominated awards or other compensation.

(c) Taxes . The Corporation, and/or any of its subsidiaries, is authorized to withhold any and all amounts necessary to satisfy Social Security, Medicare, and all other payroll taxes (other than Federal, state or local income tax withholding) imposed on the wages of such Participant from the Company and its subsidiaries. The Company may make provisions as it deems appropriate to withhold such payroll taxes, including withholding cash compensation, in connection with a Participant’s deferral or take such other action which in the opinion of the Company is necessary to satisfy all its obligations. The Company may require the Participant to satisfy any relevant tax requirement before authorizing the deferral of any award or other compensation in the form of Stock or units denominated in Stock, as described in Section 5.

6. Deferral Accounts

(a) Establishment; Crediting of Amounts Deferred . One or more Deferral Accounts will be established for each Participant, as determined by the Administrator. The amount of Stock-denominated awards or other compensation deferred with respect to each Deferral Account will be credited to such Account as of the date on which such amounts would have been paid to the Participant but for the Participant’s election to defer receipt hereunder. Unless otherwise determined by the Administrator, shares will be credited to the Participant’s Deferral Account as units of Deferred Stock (as opposed to cash amounts valued by reference to the market price of Stock). With respect to any fractional shares of Stock-denominated awards, the Administrator shall either pay such fractional shares to the Participant in cash, credit the Deferral Account with cash in lieu of depositing fractional shares into the Deferral Account, or credit the Deferral Account with a fraction of a share calculated to at least three decimal places, all as specified at the time of the original deferral.

(b) Deferred Stock As Sole Investment Vehicle . Amounts credited as Deferred Stock to a Participant’s Deferral Account may not be reallocated or deemed reinvested in any other investment vehicle, but shall remain as Deferred Stock until such time as the Deferral Account is settled in accordance with Section 7.

(c) Dividend Equivalents . Except as provided in Section 6(d), dividend equivalents will be credited on Deferred Stock credited to a Participant’s Deferral Account as follows:

(i) Cash and Non-Stock Dividends . If the Company declares and pays a dividend on Stock in the form of cash or property other than shares of Stock, then a number of additional shares of Deferred Stock shall be credited to a Participant’s Deferral Account as of the payment date for such dividend equal to (A) the number of shares of Deferred Stock credited to the Deferral Account as of the record date for such dividend, multiplied by (B) the amount of cash plus the fair market value of any property other than shares actually paid as a dividend on each share at such payment date, divided by (C) the fair market value of a share of Stock at such payment date.

(ii) Stock Dividends and Splits . If the Company declares and pays a dividend on Stock in the form of additional shares of Stock, or there occurs a forward split of

 

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Stock, then a number of additional shares of Deferred Stock shall be credited to the Participant’s Deferral Account as of the payment date for such dividend or forward Stock split equal to (A) the number of shares of Deferred Stock credited to the Deferral Account as of the record date for such dividend or split, multiplied by (B) the number of additional shares actually paid as a dividend or issued in such split in respect of each share of Stock.

(d) Trusts . The Committee may, in its discretion, establish one or more Trusts (including sub-accounts under such Trusts), and deposit therein shares of Stock equal in number to the number of shares of Deferred Stock then credited to a Participant’s Deferral Account (or a specified subaccount). In such case, the provisions of Section 6(c) notwithstanding, the dividend equivalents payable on the Participant’s Deferred Stock shall be equal to the actual dividends paid on the shares deposited in such Trust (which dividends shall be reinvested by the Trustee in additional shares of Stock), and shares may be delivered in settlement of the Participant’s Deferred Stock from the assets in such Trusts. The Participant’s rights with respect to directing the voting of shares held in such Trust or otherwise relating to such shares shall be determined by the Administrator in its discretion.

7. Settlement of Deferral Accounts .

(a) Form of Payment . The Company shall settle a Participant’s Deferral Account, and discharge all of its obligations to pay deferred compensation under the Plan with respect to such Deferral Account, by delivery of shares of Stock, including shares of Stock delivered out of the assets of the Trust.

(b) Forfeited Stock . To the extent that Stock (i) is deposited in a Trust pursuant to Section 6 in connection with a deferral of a Stock-denominated award under another plan, program, employment agreement or other arrangement and (ii) is forfeited pursuant to the terms of such plan, program, agreement or arrangement, the Participant shall not be entitled to the value of such Stock and other property related thereto (including without limitation, dividends thereon) or other award or amount, or proceeds thereof. Any Stock or Stock-denominated awards (and proceeds thereof) forfeited shall be returned to the Company.

(c) Timing of Payments . Payments in settlement of a Deferral Account shall be made at the date or dates (including upon the occurrence of specified events), and in such number of installments, as may be directed by the Participant in his or her election relating to such Deferral Account, or earlier in the following circumstances:

(i) In the event of termination of employment for reasons other than Retirement or Disability, a single lump sum payment in settlement of any Deferral Account (including a Deferral Account with respect to which one or more installment payments have previously been made) shall be made in the month following such termination; or

(ii) In the event of a Change in Control, payments in settlement of any Deferral Account (including a Deferral Account with respect to which one or more installment payments have previously been made) shall be made within fifteen (15) business days following such Change in Control.

 

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(d) Financial Emergency and Other Payments . Other provisions of the Plan (except Section 8) notwithstanding, if, upon the written application of a Participant, the Committee determines that the Participant has a Unforeseeable Emergency, as defined in the Universal 409A Definition Document, the Committee may direct the payment to the Participant of all or a portion of the balance of a Deferral Account, but only to the extent necessary to meet such emergency, including federal, state and local taxes with respect to such payment.

8. Provisions Relating to Section 16 of the Exchange Act.

With respect to a Participant who is then subject to the reporting requirements of Section 16(a) of the Exchange Act, the Committee and Administrator shall implement transactions under the Plan and administer the Plan in a manner that will ensure that each transaction by such a Participant is exempt from or otherwise not subject to liability under Rule 16b-3, except that such a Participant may be permitted to engage in a non-exempt transaction under the Plan if written notice is given to the Participant regarding the non-exempt nature of such transaction.

9 . Statements . The Administrator will furnish statements to each Participant reflecting the amount credited to a Participant’s Deferral Accounts and transactions therein not less frequently than once each calendar year.

10. Sources of Stock : Limitation on Amount of Stock-Denominated Deferrals . If shares of Stock are deposited under the Plan in a Trust pursuant to Section 6 in connection with a deferral of a Stock-denominated award under another plan, program, employment agreement or other arrangement that provides for the issuance of shares, the shares so deposited shall be deemed to have originated, and shall be counted against the number of shares reserved, under such other plan, program or arrangement. Shares of Stock actually delivered in settlement of Deferral Accounts shall be originally issued shares or treasury shares, in the discretion of the Committee.

11. Amendment/Termination . The Committee may, with prospective or retroactive effect, amend, alter, suspend, discontinue the Plan at any time without the consent of Participants, stockholders, or any other person; provided, however , that, without the consent of a Participant, no such action shall materially and adversely affect the rights of such Participant with respect to any rights to payment of amounts credited to such Participant’s Deferral Account. Notwithstanding the foregoing, to the extent consistent with the rules relating to plan terminations and liquidations in Treas. Reg. Section 1.409A-3(j)(4)(ix) or otherwise consistent with Code Section 409A, the Committee may terminate the Plan at any time and in that event the Committee may provide that, without the prior written consent of Participants, the Participants’ Deferral Account shall be distributed in a single payment in shares upon termination of the Plan.

12. General Provisions .

(a) Limits on Transfer of Awards . Other than by will or the laws of descent and distribution, no right, title, or interest of any kind in the Plan shall be transferable or assignable by a Participant or his or her Beneficiary or be subject to alienation, anticipation, encumbrance, garnishment, attachment, levy, execution or other legal or equitable process, nor subject to the debts, contracts, liabilities or engagements, or torts of any Participant or his or her Beneficiary. Any attempt to alienate, sell, transfer, assign, pledge, garnish, attach or take any action subject to legal or equitable process or encumber or dispose of any interest in the Plan shall be void.

 

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(b) Receipt and Release . Payments (in any form) to any Participant or Beneficiary in accordance with the provisions of the Plan shall, to the extent thereof, be in full satisfaction of all claims for the awards or other compensation deferred and relating to the Deferral Account to which the payments relate against the Company or any subsidiary thereof, the Committee, or the Administrator. In the case of any payment under the Plan of less than all amounts then credited to an account in the form of Stock, the amounts paid shall be deemed to relate to the Stock credited to the account at the earliest time.

(c) Unfunded Status of Awards: Creation of Trusts . The Plan is intended to constitute an “unfunded” plan for deferred compensation and Participants shall rely solely on the unsecured promise of the Company for payment hereunder. With respect to any payment not yet made to a Participant under the Plan, nothing contained in the Plan shall give a Participant any rights that are greater than those of a general unsecured creditor of the Company; provided, however , that the Committee may authorize the creation of Trusts, including but not limited to the Trusts referred to in Section 6 hereof, or make other arrangements to meet the Company’s obligations under the Plan, which Trusts or other arrangements shall be consistent with the “unfunded’ status of the Plan unless the Committee otherwise determines with the consent of each affected Participant.

(d) Compliance .

(i) The Company shall impose such restrictions on Stock delivered to a Participant hereunder and any other interest constituting a security as it may deem advisable in order to comply with the Securities Act of 1933, as amended, the requirements of the New York Stock Exchange or any other stock exchange or automated quotation system upon which the Stock is then listed or quoted, any applicable state securities laws, any provision of the Company’s Certificate of Incorporation or Bylaws, or any other law, regulation, or binding contract to which the Company is a party.

(ii) With respect to 409A Amounts, the Plan is intended to comply with the requirements of Code Section 409A and the provisions hereof shall be interpreted in a manner that satisfies the requirements of Code Section 409A and the regulations thereunder, and the Plan shall be operated accordingly. If any provision of the Plan would otherwise frustrate or conflict with this intent, the provision will be interpreted and deemed amended so as to avoid this conflict. With respect to a Participant who is a Specified Employee as of the date of his Termination of Employment for reasons other than death, payment of any portion of his 409A Amount on account of his Termination of Employment will be delayed until the first day of the seventh month following the date such Termination of Employment occurs.

(e) Other Participant Rights . No Participant shall have any of the rights or privileges of a stockholder of the Company under the Plan, including as a result of the crediting of Stock-denominated units or other amounts to a Deferral Account, or the creation of any Trust and deposit of such Stock therein, except at such time as Stock may be actually delivered in settlement of a Deferral Account. No provision of the Plan or transaction hereunder shall confer upon any Participant any right to be employed by the Company or a subsidiary thereof, or to interfere in any way with the right of the Company or a subsidiary to increase or decrease the

 

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amount of compensation payable to such Participant. Subject to the limitations set forth in Section 12(a) hereof, the Plan shall inure to the benefit of, and be binding upon, the parties hereto and their successors and assigns.

(f) Tax Withholding . The Company and any subsidiary shall have the right to deduct from amounts otherwise payable in settlement of a Deferral Account any sums that federal, state, local or foreign tax law requires to be withheld with respect to such payment. Shares may be withheld to satisfy such obligations in any case where taxation would be imposed upon the delivery of shares, except that shares issued or delivered under any plan, program, employment agreement or other arrangement may be withheld only in accordance with the terms of such plan, program, employment agreement or other arrangement and any applicable rules, regulations, or resolutions thereunder.

(g) Governing Law . The validity, construction, and effect of the Plan and any rules and regulations relating to the Plan shall be determined in accordance with the laws of the State of Rhode Island, without giving effect to principles of conflicts of laws, and applicable provisions of federal law.

(h) Limitation . A Participant and his or her Beneficiary shall assume all risk in connection with any decrease in value of the Deferral Account and neither the Company, the Committee nor the Administrator shall be liable or responsible therefor.

(i) Adjustments . In the event that any dividend or other distribution (whether in the form of cash, Stock, or other property), recapitalization, forward or reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase, share exchange, liquidation, dissolution or other similar corporate transaction or event affects the Stock such that an adjustment is determined by the Administrator or the Committee to be appropriate in order to prevent dilution or enlargement of a Participant’s rights under the Plan, then the Administrator or the Committee shall, in such manner as it may deem equitable, adjust any or all of the number and kind of shares of Stock to be issued upon settlement of Deferred Stock then credited to a Deferral Account under the Plan.

(j) Construction . The captions and numbers preceding the sections of the Plan are included solely as a matter of convenience of reference and are not to be taken as limiting or extending the meaning of any of the terms and provisions of the Plan. Whenever appropriate, words used in the singular shall include the plural or the plural may be read as the singular.

(k) Acceleration of or Delay in Payments . The Administrator, in its sole and absolute discretion, may elect to accelerate the time or form of payment of a benefit owed to the Participant hereunder, provided such acceleration is permitted under Treas. Reg. Section 1.409A-3(j)(4) and any subsequent guidance. The Administrator may also, in its sole and absolute discretion, delay the time for payment of a benefit owed to the Participant hereunder, to the extent permitted under Treas. Reg. Section 1.409A-2(b)(7) and any subsequent guidance.

(l) Severability . In the event that any provision of the Plan shall be declared illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining provisions of the Plan but shall be fully severable, and the Plan shall be construed and enforced as if said illegal or invalid provision had never been inserted herein.

 

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(m) Status . The establishment and maintenance of, or allocations and credits to, the Deferral Account of any Participant shall not vest in any Participant any right, title, or interest in and to any Plan or Company assets or benefits except at the time or times and upon the terms and conditions and to the extent expressly set forth in the Plan and in accordance with the terms of the Trust.

13. Effective Date . The Plan shall be effective as of September 10, 1997.

 

9

Exhibit 10.5

 

CVS CAREMARK CORPORATION

Deferred Compensation Plan

as amended and restated as of December 31, 2008


CVS CAREMARK CORPORATION

DEFERRED COMPENSATION PLAN

Table of Contents

 

          Page
ARTICLE I – INTRODUCTION    1
1.01    N AME OF P LAN    1
1.02    P URPOSE OF P LAN    1
1.03    “T OP H AT ” P ENSION B ENEFIT P LAN    1
1.04    F UNDING    1
1.05    E FFECTIVE D ATE    1
1.06    A DMINISTRATION    1
1.07    N UMBER AND G ENDER    2
1.08    H EADINGS    2
ARTICLE II – DEFINITIONS    3
ARTICLE III – ELIGIBILITY AND PARTICIPATION    8
3.01    E LIGIBILITY    8
3.02    C OMMENCEMENT OF P ARTICIPATION    8
3.03    T ERMINATION OF P ARTICIPATION    8
ARTICLE IV – DEFERRALS & COMPANY CONTRIBUTIONS    10
4.01    D EFERRAL A MOUNTS    10
4.02    F ILING R EQUIREMENTS OF D EFERRED C OMPENSATION E LECTIONS    10
4.03    M ODIFICATION OR R EVOCATION OF E LECTION BY P ARTICIPANT    11
4.04    C OMPANY C ONTRIBUTIONS AND O THER D EFERRALS    13
4.05    D EFERRAL AND C ONTRIBUTION T IMING    14
ARTICLE V – ACCOUNTS    16
5.01    E STABLISHMENT OF B OOKKEEPING A CCOUNTS    16
5.02    S UBACCOUNTS    16
5.03    H YPOTHETICAL N ATURE OF A CCOUNTS    16
5.04    V ESTING    16
5.05    D EFERRAL C REDITING O PTIONS    17
5.06    H YPOTHETICAL G AINS OR L OSSES    18
ARTICLE VI – DISTRIBUTION OF ACCOUNT    19
6.01    N ORMAL D ISTRIBUTIONS    19
6.02    F ORM OF P AYMENT    20
6.03    D ISABILITY D ISTRIBUTIONS    21
6.04    D ISTRIBUTIONS IN THE E VENT OF D EATH    21
6.05    D ISTRIBUTIONS U PON T ERMINATION OF E MPLOYMENT O THER T HAN R ETIREMENT , D EATH OR D ISABILITY    22
6.06    C HANGE OF D ISTRIBUTION E LECTION    22
6.07    A CCOUNT V ALUATION U PON A D ISTRIBUTION    24
6.08    D ESIGNATION OF B ENEFICIARY    24
6.09    U NCLAIMED B ENEFITS    25
6.10    H ARDSHIP W ITHDRAWALS    25
6.11    C HANGE IN C ONTROL    25


6.12    D ISTRIBUTION OF G RANDFATHERED D EFERRAL A CCOUNT AND THE G RANDFATHERED C OMPANY A CCOUNT    26
ARTICLE VII – ADMINISTRATION    27
7.01    P LAN C OMMITTEE    27
7.02    G ENERAL P OWERS OF A DMINISTRATION    27
7.03    C OSTS OF A DMINISTRATION    27
7.04    I NDEMNIFICATION OF P LAN C OMMITTEE    28
7.05    C OMPLIANCE    28
ARTICLE VIII – CLAIMS PROCEDURE    29
8.01    C LAIMS    29
8.02    C LAIM D ECISION    29
8.03    R EQUEST FOR R EVIEW    29
8.04    R EVIEW OF D ECISION    30
ARTICLE IX – MISCELLANEOUS    31
9.01    N OT C ONTRACT OF E MPLOYMENT    31
9.02    N ON -A SSIGNABILITY OF B ENEFITS    31
9.03    W ITHHOLDING    31
9.04    A MENDMENT AND T ERMINATION    31
9.05    C OMPLIANCE WITH S ECURITIES AND O THER L AWS    32
9.06    N O T RUST C REATED    32
9.07    U NSECURED G ENERAL C REDITOR S TATUS OF E MPLOYEE    32
9.08    P AYMENT TO M INORS AND I NCOMPETENTS    33
9.09    A CCELERATION OF OR D ELAY IN P AYMENTS    33
9.10    S EVERABILITY    33
9.11    G OVERNING L AWS    34
9.12    B INDING E FFECT    34
APPENDIX A    35


Exhibit 10.5

ARTICLE I – INTRODUCTION

 

1.01 Name of Plan

CVS Caremark Corporation (the “Corporation”) hereby adopts the CVS Caremark Deferred Compensation Plan (the “Plan”) as amended and restated as of December 31, 2008.

 

1.02 Purpose of Plan

The purpose of the Plan is to provide certain eligible employees of the Corporation or an Affiliate authorized to participate in the Plan the opportunity to defer elements of their compensation which might not otherwise be deferrable under other plans maintained by the Corporation or an Affiliate and to receive the benefit of additions to their deferral comparable to those obtainable under the 401(k) and Employee Stock Ownership Plan of CVS Caremark Corporation and Affiliated Companies (“Future Fund”) in the absence of certain restrictions and limitations in the Internal Revenue Code.

 

1.03 “Top Hat” Pension Benefit Plan

The Plan is an “employee pension benefit plan” within the meaning of ERISA. However, the Plan is unfunded and maintained for a select group of management or highly compensated employees and, therefore, it is intended that the Plan will be exempt from Parts 2, 3 and 4 of Title I of ERISA. The Plan is not intended to qualify under Code Section 401(a).

 

1.04 Funding

The Plan is unfunded. All benefits will be paid from the general assets of the Corporation. Participants in the Plan shall have the status of general unsecured creditors of the Corporation.

 

1.05 Effective Date

The Plan is effective as of January 1, 1997, and as amended and restated in its entirety effective as of December 31, 2008, to comply with the provisions of Section 409A of the Internal Revenue Code and regulations promulgated thereunder and to reflect certain design and administrative changes desired by the Corporation.

 

1.06 Administration

The Plan shall be administered by the Plan Committee, as defined in Article VII.

 

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1.07 Number and Gender

Wherever appropriate herein, words used in the singular shall be considered to include the plural and words used in the plural shall be considered to include the singular. The masculine gender, where appearing in the Plan, shall be deemed to include the feminine gender. The feminine gender, where appearing in the Plan, shall be deemed to include the masculine gender.

 

1.08 Headings

The headings of Articles and Sections herein are included solely for convenience, and if there is any conflict between such headings and the text of the Plan, the text shall control.

 

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ARTICLE II – DEFINITIONS

For purposes of the Plan, the following words and phrases shall have the meanings set forth below, unless their context clearly requires a different meaning:

 

2.01 Account means the Company Account, Deferral Account, Grandfathered Company Account, and the Grandfathered Deferral Account maintained by the Corporation on behalf of each Participant pursuant to this Plan.

 

2.02 Affiliate means any entity, that together with the Corporation, would be treated as a single employer under Section 414(b) or (c) of the Code.

 

2.03 Annual Cash Incentive means the amount awarded to a Participant in cash for a Plan Year under a regular (annual or quarterly) incentive plan (other than an exceptional performance award program or a one-time incentive plan or program) maintained by the Corporation or an Affiliate, and any other amount otherwise included in Annual Cash Incentive for purposes of the Plan under rules as are adopted by the Committee.

 

2.04 Annual Cash Incentive Deferral means the amount of a Participant’s Annual Cash Incentive which a Participant elects to have withheld on a pretax basis from his Annual Cash Incentive and credited to his Deferral Account pursuant to this Plan.

 

2.05 Base Salary means the base rate of cash compensation paid by the Corporation or an Affiliate to or for the benefit of a Participant for services rendered or labor performed while a Participant, including base pay a Participant could have received in cash in lieu of:

 

  (a) deferrals pursuant to this Plan; and

 

  (b) any pre-tax contribution made on the Participant’s behalf to any qualified plan maintained by the Corporation or an Affiliate pursuant to a cash or deferred arrangement maintained by the Corporation or an Affiliate (as defined under Section 401(k) of the Code) or under any cafeteria plan (as defined under Section 125 of the Code) or under a qualified transportation fringe (as defined under Section 132(f) of the Code).

 

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Base Salary shall exclude any overtime, premium pay, shift differentials, bonuses, commissions or any other form of supplemental cash compensation, except to the extent otherwise deemed “Base Salary” for purposes of the Plan under rules as are adopted by the Committee.

 

2.06 Base Salary Deferral means the amount of a Participant’s Base Salary which the Participant elects to have withheld on a pretax basis from his Base Salary and credited to his Deferral Account pursuant to this Plan.

 

2.07 Beneficiary means the person or persons designated by the Participant in accordance with the provisions of Section 6.08 to receive the amounts, if any, payable under the Plan upon the death of the Participant.

 

2.08 Board means the Board of Directors of the Corporation.

 

2.09 Change in Control means “Change in Control” as such term is defined in the Universal 409A Definition Document.

 

2.10 Code means the Internal Revenue Code of 1986, as amended.

 

2.11 Commissions mean the amount of a Participant’s sales commissions or other commissions payable under a sales commissions or other commissions plan maintained by the Corporation or an Affiliate. (Sales commissions for purposes of the Plan shall mean sales commissions (as defined in Treas. Reg. Section 1.409A-2(a)(12)(i) and any subsequent guidance) and such sales commissions are considered to be earned in the taxable year of the Participant in which the sale occurs.)

 

2.12 Commissions Deferral means the amount of a Participant’s Commissions which a Participant elects to have withheld on a pre-tax basis from his Commissions and credited to his Deferral Account pursuant to this Plan.

 

2.13 Committee means the Management Planning and Development Committee of the Board.

 

2.14 Company Account means the bookkeeping account (or subaccount(s) thereof) maintained for each Participant to record the amounts of Company Contributions that are either (i) credited on his behalf under Section 4.04 on or after January 1, 2005 or (ii) were credited on his behalf under Section 4.04 prior to January 1, 2005, but become vested on or after January 1, 2005, as adjusted pursuant to Section 5.06.

 

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2.15 Company Contribution means the amount, as determined by the Company on an annual basis based on the provisions of this Plan, which is credited on the Participant’s behalf by the Company to his Company Account pursuant to the provisions of Section 4.04(a) of the Plan.

 

2.16 Corporation means CVS Caremark Corporation. References in the Plan to CVS Caremark Corporation shall be deemed to include successors to CVS Caremark Corporation.

 

2.17 CVS Caremark Retention Payment means the amount granted to an Eligible Executive, as defined in and provided for under the provisions of the employment term sheet agreement entered into between the Corporation or an Affiliate and said eligible executive, as a former employee of Caremark Rx, Inc., in connection with the merger involving Caremark, Rx, Inc. and the Corporation.

 

2.18 Deferrals mean the amount of deferrals credited to a Participant pursuant to Section 4.01.

 

2.19 Deferral Account means the bookkeeping account (or subaccount(s) thereof) maintained for each Participant to record (i) the amount of Base Salary, CVS Caremark Retention Payment and/or Annual Cash Incentive or Commissions the Participant defers pursuant to Section 4.01 or (ii) the amount of LTIP deferrals the Participant elects to defer pursuant to Section 4.04(b), on or after January 1, 2005, as adjusted pursuant to Section 5.06.

 

2.20 Deferred Compensation Election means the written election including any amendments, attachments and appendices thereto as prescribed by the Plan Committee, regardless of how it may be titled, under which the Participant agrees to defer a portion of his Base Salary and/or Annual Cash Incentive or Commissions under the Plan (or any other cash remuneration payable to a Participant that he may elect to defer under the provisions of this Plan, including but not limited to LTIP cash awards). This election is made by the Participant and constitutes the agreement entered into between the Corporation and a Participant for participation in the Plan. The Participants elect the terms of their deferral pursuant to the provisions of this Plan and the administrative procedures established by the Plan Committee.

 

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2.21 Effective Date means January 1, 1997.

 

2.22 Elective Deferrals means Elective Deferrals as defined in Section 3.02 of Future Fund.

 

2.23 Eligible Executive means an Executive who is eligible to participate in the Plan as provided in Section 3.01(a).

 

2.24 Employee means any common-law employee of the Corporation or an Affiliate which has been authorized by the Committee to participate in the Plan.

 

2.25 ERISA means the Employee Retirement Income Security Act of 1974, as amended.

 

2.26 Executive means an Employee whose Base Salary (determined on the basis of a maximum 40- hour work week) equals or exceeds $150,000 (as adjusted from time to time by the Committee).

 

2.27 Future Fund means the 401(k) Plan and the Employee Stock Ownership Plan of CVS Caremark Corporation and Affiliated Companies.

 

2.28 Grandfathered Company Account means the bookkeeping account (or subaccount(s)) maintained for each Participant to record the amount of Company Contributions credited on a Participant’s behalf under Section 4.04 prior to January 1, 2005, which were vested as of December 31, 2004, adjusted as provided in Section 5.06.

 

2.29 Grandfathered Deferral Account means the bookkeeping account (or subaccount(s)) maintained for each Participant to record (i) the amount of Base Salary and/or Annual Cash Incentive or Commissions deferred in accordance with Section 4.01 or (ii) the amount of LTIP deferrals deferred in accordance with Section 4.04, prior to January 1, 2005, adjusted pursuant to Section 5.06.

 

2.30 Lost Matching Contributions means the amounts credited on a Participant’s behalf to his Company Account pursuant to the provisions of Section 4.04(a).

 

2.31 Participant means each Eligible Executive participating in the Plan pursuant to Article III who is credited with an amount under Article IV.

 

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2.32 Plan means the CVS Caremark Deferred Compensation Plan, as amended from time to time.

 

2.33 Plan Committee means the administrative committee appointed pursuant to Section 7.01 to administer the Plan.

 

2.34 Plan Year means each calendar year ending on December 31.

 

2.35 Qualified Future Fund Matching Contribution means the total of all matching contributions made (or that would have been made) by the Corporation or an Affiliate with respect to a Plan Year for the benefit of a Participant under and in accordance with the terms of the Future Fund.

 

2.36 Retirement means Termination of Employment with the Corporation and all Affiliates on or after (i) age 55 and the completion of ten or more Years of Service or, if earlier, (ii) age 60 and the completion of five or more Years of Service.

 

2.37 Specified Employee means “Specified Employee” as such term is defined in the Universal 409A Definition Document.

 

2.38 Specific Future Year means a calendar year in the future voluntarily elected by a Participant to begin distribution of Accounts (or subaccount(s) thereof) pursuant to this Plan.

 

2.39 Termination of Employment means “termination of employment” as such term is defined in the Universal 409A Definition Document.

 

2.40 Valuation Date means each business day on which the New York Stock Exchange is open for business, or such other day as the Plan Committee may determine.

 

2.41 Years of Service means Vesting Service as defined in the Future Fund.

 

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ARTICLE III – ELIGIBILITY AND PARTICIPATION

 

3.01 Eligibility

 

  (a)

An Employee who is an Eligible Executive on October 1 st of a calendar year (or such other date in the calendar year as designated by the Plan Committee) shall be an Eligible Executive with respect to the Plan Year following such calendar year and thereby eligible to participate in this Plan and execute a Deferred Compensation Election authorizing Deferrals under the Plan with respect to a particular Plan Year. The Committee or the Plan Committee, may, in its sole discretion, designate other key employees of the Corporation or an Affiliate which has been authorized by the Committee to participate in the Plan who are members of a select group of management or highly compensated employees as eligible to participate in the Plan.

 

  (b) Notwithstanding any Plan provision to the contrary, Employees must also be subject to the income tax laws of the United States in order to be eligible for participation in the Plan.

 

  (c) Subject to the provisions of Section 3.03 below and Section 4.01, an Eligible Executive shall remain eligible to continue participation in the Plan for each Plan Year following his initial year of participation in the Plan.

 

3.02 Commencement of Participation

An Eligible Executive shall become a Participant effective as of the date the Plan Committee grants eligibility and that Eligible Executive’s first Deferred Compensation Election becomes effective.

As a condition for participation in the Plan, a Participant may also be required by the Plan Committee to provide such other information as the Plan Committee may deem necessary to properly administer the Plan.

 

3.03 Termination of Participation

 

  (a) Participation shall cease when all benefits to which a Participant is entitled to hereunder are distributed to him.

 

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  (b) Subject to the provisions of Section 4.03, a Participant shall only be eligible to have Deferrals credited on his behalf in accordance with Article IV for as long as he remains an Eligible Executive.

 

  (c) If a former Participant who has incurred a Termination of Employment with the Corporation and all Affiliates and whose participation in the Plan ceased under Section 3.03(a) is reemployed as an Eligible Executive, the former Participant may again become a Participant in accordance with the provisions of Section 3.01.

 

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ARTICLE IV – DEFERRALS & COMPANY CONTRIBUTIONS

 

4.01 Deferral Amounts

 

  (a) Subject to the following provisions of this Article IV, an Eligible Executive may defer for any Plan Year, (i) up to 50% of Base Salary otherwise earned and payable in that Plan Year, and/or (ii) up to 100% of Annual Cash Incentive otherwise earned in that Plan Year and payable in that Plan Year or in the first calendar quarter of the following Plan Year or (iii) up to 100% of Commissions otherwise earned in that Plan Year and payable in that Plan Year or in the first calendar quarter of the following Plan Year. The Plan Committee may, as it deems appropriate, establish maximum or minimum limits on the amounts which may be deferred for a Plan Year and/or the times of such Deferred Compensation Elections. An Eligible Executive shall be given advance notice of any such limits.

 

  (b) Deferrals shall be calculated with respect to the gross cash compensation payable to the Participant prior to any deductions or withholdings, but shall be reduced by the Plan Committee as necessary so that Deferrals do not exceed 100% of the cash compensation of the Participant remaining after deduction of all required income and employment taxes, 401(k) and other employee benefit deductions, and other deductions required by law. Changes to payroll withholdings that affect the amount of compensation being deferred to the Plan shall be allowed only to the extent permissible under Code Section 409A.

 

4.02 Filing Requirements of Deferred Compensation Elections

Subject to the following provisions of this Section, prior to the close of an annual enrollment period established by the Plan Committee in any Plan Year, an Eligible Executive described in Section 3.01 may elect, subject to Section 4.01 above, to defer a portion of his Base Salary that is otherwise earned and payable in the next Plan Year and/or all or a portion of his Annual Cash Incentive or Commissions otherwise earned in the next Plan Year and payable in that Plan Year or in the first calendar quarter of the subsequent Plan Year by filing a Deferred Compensation Election with the Plan Committee. If an Executive becomes an Eligible Executive after October 1 (or such later date as prescribed by the Plan Committee) in any calendar year, he may not make a Deferred Compensation Election for Base Salary, Annual Cash Incentive or Commissions earned in the next Plan Year.

 

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A Participant shall submit a Deferred Compensation Election in the manner specified by the Plan Committee and a Deferred Compensation Election that is not timely filed shall be considered void and have no effect. If a Participant does not file a Deferred Compensation Election applicable to his Base Salary, Annual Cash Incentive or Commissions earned in a Plan Year on or before the close of the applicable annual enrollment period (or such later date prescribed by the Plan Committee), the Participant shall be deemed to have elected not to make a Deferred Compensation Election for such Plan Year. The Plan Committee shall establish procedures that govern deferral elections under the Plan, including the ability to make separate elections for Base Salary, Annual Cash Incentive or Commissions, and any other cash remuneration payable to the Participant that the Committee or Plan Committee permits a Participant to defer under this Plan.

Subject to the provisions of this Article, an Eligible Executive must file a new Deferred Compensation Election for each Plan Year that the Eligible Executive is eligible to participate in the Plan.

 

4.03 Modification or Revocation of Election by Participant

 

  (a) A Participant’s Deferred Compensation Election for a Plan Year shall become irrevocable as of the close of business on the date established by the Plan Committee, but not later than the last day of the calendar year preceding the Plan Year in which such Base Salary, Annual Cash Incentive or Commissions applicable to that election is earned. Such Deferred Compensation Election shall become effective as of the first day of the Plan Year in which such Base Salary and/or Annual Cash Incentive or Commissions is earned.

Notwithstanding the foregoing, the Plan Committee may cancel a Participant’s Deferred Compensation Elections for the balance of a Plan Year if the Participant submits evidence of an unforeseeable emergency (as defined in the Universal 409A Definition Document) to the Plan Committee. Any Base Salary, Annual Cash Incentive, Commissions or other cash remuneration which would have been deferred pursuant to that cancelled Deferred Compensation Election shall be paid to the Eligible Executive as if he had not made that election.

 

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A Participant may revoke or change a Deferred Compensation Election anytime prior to the date such election becomes irrevocable. Any such change or revocation shall be made in a form and manner determined by the Plan Committee. Under no circumstances may a Participant’s Deferred Compensation Election be made, modified or revoked retroactively.

 

  (b) If a Participant’s Deferred Compensation Election applicable to his Base Salary and/or Annual Cash Incentive or Commissions is cancelled for a Plan Year, he will not be permitted to elect to make Deferrals again until the next Plan Year.

 

  (c) If a Participant ceases to be an Eligible Executive after the date a Deferred Compensation Election becomes effective but continues to be employed by the Corporation or an Affiliate, he shall continue to be a Participant and his Deferred Compensation Election currently in effect shall remain in force, but such Participant shall not be eligible to make any further Deferred Compensation Elections until such time as he shall once again become an Eligible Executive.

 

  (d) Notwithstanding anything in this Plan to the contrary, if Eligible Executive:

 

  (i) receives a withdrawal of deferred cash contributions on account of hardship from any plan which is maintained by the Corporation or an Affiliate and which meets the requirements of Section 401(k) of the Internal Revenue Code (or any successor thereto); and

 

  (ii) is precluded from making contributions to such 401(k) plan for at least 6 months after receipt of the hardship withdrawal,

the Eligible Executive’s Deferred Compensation Election with respect to Base Salary, Annual Cash Incentative or Commissions in effect at that time shall be cancelled. Any Base Salary, Annual Cash Incentative or Commissions payment which would have been deferred pursuant to that Deferred Compensation Election but for the application of this Section 4.03(b) shall be paid to the Eligible Executive as if he had not made that election.

 

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4.04 Company Contributions and Other Deferrals

 

  (a) Company Contributions – Restoration of Lost Matching Contribution . The amount of Lost Matching Contributions credited under the Plan on a Participant’s behalf each calendar year shall be equal to (i) minus (ii) where:

 

  (i) is the total Qualified Future Fund Matching Contribution that would have been allocated on the Participant’s behalf under Future Fund, without giving effect to any reductions or limitations required by Sections 401(a)(17), 401(k), 402(g) and/or 415 of the Code, for the Plan Year based on the aggregate of the Participant’s Elective Deferrals to Future Fund, his deferrals to any other qualified defined contribution plan maintained by the Corporation or an Affiliate, and his Deferral under Section 4.01 for the Plan Year, disregarding, in all cases, any deferrals made with respect to Base Salary, Annual Cash Incentives and Commissions otherwise payable prior to the first payroll period commencing in the month following date the Participant’s completion of one Year of Service; and

 

  (ii) if the Participant is eligible to contribute to Future Fund during the Plan Year, the actual matching contributions made on the Participant’s behalf to Future Fund or any other qualified defined contribution plan maintained by the Corporation or any Affiliate for that Plan Year. However, if the Participant is not eligible to contribute to Future Fund during the Plan Year but is eligible to contribute to the CareSave 401(k) Retirement Savings Plan for Employees of Caremark Rx, Inc. during that Plan Year, the amount under this clause (ii) shall equal the maximum amount of matching contributions the Participant would have received under the provisions of Future Fund for that Plan Year had he been eligible to contribute to Future Fund during that Plan Year, based on his Base Salary and/or Annual Cash Incentive or Commissions otherwise earned and payable in that Plan Year, and his contributions to the CareSave 401(k) Retirement Savings Plan for Employees of Caremark Rx, Inc. for that Plan Year had been made to Future Fund.

 

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  (b) LTIP Deferrals .

At the sole discretion of the Plan Committee, all or a portion of a Participant’s cash award under a Long-Term Incentive Plan program maintained by the Corporation or an Affiliate may be deferred under this Plan. Such election shall be made in accordance with the procedures established by the Plan Committee. The deferral election applicable to a LTIP cash award shall be made prior to the close of the calendar year preceding the first day of the performance period applicable to that award. Notwithstanding the foregoing, such election shall become irrevocable as of the close of business of the last day of the calendar year preceding the first day of the performance period applicable to that award. However, if such award meets the definition of performance-based compensation (as defined under Treas. Reg. Section 1.409A-1(e) and any subsequent guidance), the Plan Committee may permit such election to be made in accordance with the provisions under Treas. Reg. Section 1.409A-2(a)(8) and subsequent guidance.

 

  (c) Cash Retention Award Deferrals .

At the sole discretion of the Plan Committee and subject to the procedures established by the Plan Committee, an Eligible Executive may elect to defer all or a portion of a cash retention award which may be otherwise paid under a cash retention program maintained by the Corporation or an Affiliate. The deferral election applicable to such cash retention award shall be made in accordance with the provisions of Treasury Regulations Section 1.409A-2(a)(5).

 

4.05 Deferral and Contribution Timing

Base Salary Deferrals will be credited to the Account of each Participant as of the date of the pay check from which the deferral was withheld. A Participant whose employment terminates during a pay period will cease deferral withholding effective as of the first day of the following payroll period.

Annual Cash Incentive Deferrals and Commission Deferrals will be credited to the Account of each Participant as of the day of which such Annual Cash Incentive or Commissions, whichever is applicable, otherwise would have been paid to the Participant in cash.

Company Contributions for the Restoration of Lost Matching Contribution pursuant to Section 4.04(a) above will generally be credited to the Participant’s Company Account at the same time the said Lost Matching Contribution would otherwise have been credited to the Participant’s account under Future Fund.

 

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LTIP deferrals shall be credited to the Account of the Participant at the time designated by the Plan Committee.

Cash Retention Awards Deferrals will be credited to the Account of each Participant as of the day of which such Cash Retention Award otherwise would have been paid to the Participant in cash.

 

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ARTICLE V – ACCOUNTS

 

5.01 Establishment of Bookkeeping Accounts

Separate bookkeeping accounts shall be maintained for each Participant. Said accounts (or subaccount(s) thereof) shall be credited with the deferrals and contributions made by or on behalf of the Participant pursuant to this Plan and credited (or charged, as the case may be) with the hypothetical investment results determined pursuant to this Article of the Plan.

 

5.02 Subaccounts

Within each Participant’s bookkeeping account, separate subaccount(s) shall be maintained to the extent necessary for the administration of the Plan. Generally, subaccount(s) will be set up for each year, for each Deferred Compensation Election the Participant makes, and the Company contribution credited each year on behalf of a Participant.

 

5.03 Hypothetical Nature of Accounts

The accounts established under this Article shall be hypothetical in nature and shall be maintained for bookkeeping purposes only so that hypothetical gains or losses on the deferrals or contributions made to the Plan can be credited (or charged, as the case may be).

Neither the Plan nor any of the accounts, or subaccount(s), established hereunder shall hold any actual funds or assets. The right of any person to receive one or more payments under the Plan shall be an unsecured claim against the general assets of the Corporation. Any liability of the Corporation to any Participant, former Participant, or Beneficiary with respect to a right to payment shall be based solely upon contractual obligations created by the Plan. The Corporation, an Affiliate, the Board, the Committee, or any other person shall not be deemed to be a trustee of any amounts to be paid under the Plan. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship, between the Corporation or an Affiliate and a Participant or any other person.

 

5.04 Vesting

Deferral Account . Participants shall be 100% vested in their Deferral Account and Grandfathered Deferral Account at all times. The Participants shall be 100% vested in the LTIP deferrals credited on his behalf pursuant to Section 4.04(b) and any Cash Retention Award deferrals credited on his behalf pursuant to Section 4.04(c).

 

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Company Account . Participants shall be 100% vested in the portion of their Company Account and Grandfathered Company Account attributable to Company contributions credited on his behalf prior to January 1, 2001. A Participant shall vest in the portion of his Company Account and Grandfathered Company Account attributable to Lost Matching Contributions credited on his behalf on and after January 1, 2001 at the same rate at which such contributions would have vested under the Future Fund had they been contributed thereunder.

 

5.05 Deferral Crediting Options

Deferral Crediting Options are similar to investment choices in a qualified defined contribution plan, except that they are hypothetical in nature and no funds are actually held in the Plan. Deferral Crediting Options determine the hypothetical gain or loss to be reflected in the Participant Accounts.

The Deferral Crediting Options offered to Participants are determined by the Plan Committee at its sole discretion. The Plan Committee specifically retains the right to change the Deferral Crediting Options at any time, in its sole discretion.

In the event the Plan Committee designates more than one Deferral Crediting Options, each Participant shall file a Deferral Crediting Option election with the Plan Committee, which shall be used to measure the investment performance of his Accounts, within such time period and on such form as the Plan Committee may prescribe. The designation of a Deferral Crediting Option shall not require the Corporation to invest or earmark their general assets in any manner. If a Participant fails to make a Deferral Crediting Option, his Accounts shall be deemed invested in a Deferral Crediting Option as determined by the Plan Committee.

A Participant may change his election of Deferral Crediting Options used to measure the future investment performance of his future deferrals and company contributions within such time periods and in such manner prescribed by the Plan Committee. The election shall be effective as soon as administratively practicable after the date on which the notice is timely filed.

A Participant may change his election of a Deferral Crediting Options used to measure the future investment performance of his existing Account balance within such time periods and in such manner prescribed by the Plan Committee. The election shall be effective as soon as administratively practicable after the date on which the notice is timely filed.

 

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Any amounts added to or subtracted from a Participant’s Account on any given Valuation Date will be converted to hypothetical share equivalents (“Hypothetical Shares”) based on the daily closing price on said date (“Share Price”) for any given Deferral Crediting Option.

 

5.06 Hypothetical Gains or Losses

Any hypothetical dividends, capital gains and any other income or share activity will be reflected in the Deferral Crediting Options. The timing of these will be the same as for the funds on which each Deferral Crediting Option is based.

The gain or loss on Participant Accounts will be calculated each Valuation Date. The Share Price shall determine each Deferral Crediting Option’s hypothetical value, based on the number of shares within the Account for any given Deferral Crediting Option. Account balances that are given to Participants on a given day will be based on the closing price of the previous Valuation Date.

 

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ARTICLE VI – DISTRIBUTION OF ACCOUNT

 

6.01 Normal Distributions

 

  (a) Subject to the limitations set forth in this Article VI, each time a Participant makes a Deferred Compensation Election with respect to a Plan Year beginning on or after January 1, 2005, the Participant shall designate on that applicable Deferred Compensation Election that the distribution of such deferrals, as adjusted pursuant to Article V, shall commence, pursuant to Section 6.02, on or after the occurrence of the later of (i) or (ii):

 

  (i) the Participant’s Retirement; or

 

  (ii) a Specific Future Year not later than the Plan Year in which the Participant attains age 71.

A Participant may choose different options with respect to each Deferred Compensation Election.

In the event a Participant elects to have such deferrals commence as of a Specific Future Year pursuant to clause (ii) above, subject to rules established by the Plan Committee, the deferral period must be at least five (5) Plan Years.

A Participant may not change the election made pursuant to the provisions of this Section 6.01, except as otherwise provided in Section 6.06 below.

 

  (b) Notwithstanding the foregoing, any Company Contributions, made with respect to a Plan Year beginning on or after January 1, 2005, adjusted as provided in Article V, shall be distributed pursuant to the Participant’s distribution election made with respect to his Base Salary Deferrals for that Plan Year. In the event a Participant has not made a Base Salary Deferral in that Plan Year, such distribution shall be made pursuant to his distribution election made with respect to Annual Cash Incentive or Commissions Deferral for that Plan Year, if any; otherwise, such distribution shall be made at Retirement.

 

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  (c) The distribution of the portion of a Participant’s Deferral or Company Account (or subaccount(s)) that is deferred to Retirement under paragraph (a)(i) of this Section, adjusted as provided in Article V, shall commence on the first business day in January following his Retirement, pursuant to the provisions of Section 6.02, provided, however, that with respect to a Participant who is a Specified Employee as of the date of his Retirement, payment of any portion of his Deferral or Company Account (or any subaccount(s) thereof) will be delayed until the first day of the seventh month following the date such Retirement occurs.

The distribution of the portion of a Participant’s Deferral or Company Account (or subaccount(s)) that is deferred to a Specific Future Year under paragraph (a)(ii) of this Section, adjusted as provided in Article V, shall commence on the first business day in January of that specific year pursuant to the provisions of Section 6.02.

 

  (d) A Participant shall not change his normal distribution election under this Section 6.01, except as otherwise provided in Section 6.06 below.

 

6.02 Form of Payment

 

  (a) Subject to the limitations set forth in the Article VI, Normal Distributions will be made in annual (or quarterly, if the election was made prior to October 1, 2008) installments, as elected by the Participant, for up to, and including, fifteen (15) years (10 years for an election made after October 1, 2008). The initial installment of an annual or quarterly payment stream will begin as of the first business day in January following the Participant’s date of Retirement or of the Specific Future Year in accordance with the provisions of set forth in Section 6.01. Subsequent annual or quarterly payments will be as of the first business day of each subsequent calendar year of the installment period. Notwithstanding the foregoing, effective as of October 1, 2008, a Participant may not elect either quarterly installments or installments in excess of 10 years.

Each installment will be equal to a fraction of the Account balance (or subaccount(s) thereof) as of the date the installment is paid. The numerator of the fraction being “1” and the denominator being the number of payments remaining in the payment schedule.

Notwithstanding the foregoing provisions of this paragraph (a), if a Participant dies before receiving payment of the entire balance of his Deferral and Company Accounts under the provisions of this Section 6.02(a), the remaining value of such Accounts shall be payable to his Beneficiary in accordance with the provisions of Section 6.04.

 

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  (b) Normal Distributions made pursuant to Section 6.01 will occur when and how a Participant elects to receive payment at the time of his Deferred Compensation Election. A Participant may choose different forms of payment with respect to each Deferred Compensation Election. Any Company Contributions made with respect to a Plan Year beginning on or after January 1, 2005, adjusted pursuant to Article V, shall be distributed pursuant to the Participant’s form of payment election made with respect to his Base Salary Deferral for that year. If the Participant has not made a Base Salary Deferral in that year, the portion of his Company Account attributable to such Company contributions will be distributed in accordance with his form of payment election with respect to his Annual Cash Incentive or Commissions Deferrals for that year, if any; otherwise payment will be made in a lump sum payment. In the absence of an election of the form of payment by a Participant on a Deferred Compensation Election, the portion of the Participant’s Account deferred pursuant to that Deferred Compensation Election, adjusted pursuant to the provisions of Article V, shall be paid in a single lump sum.

 

  (c) A Participant shall not change his form of payment election, except as otherwise provided in Section 6.06 below.

 

6.03 Disability Distributions

Notwithstanding the foregoing, if a Participant, prior to his Termination of Employment, becomes Disabled (as defined under Treas. Regs. Section 1.409A-3(i)(4) and any subsequent guidance thereto), such Participant will receive the balance of his Deferral Account and Company Account paid out in five (5) annual installments with the first payment to be made in the month following the date the Participant is determined to be Disabled by the Plan Committee. Subsequent annual payments will be paid as of the first business day of each subsequent year of the installment period.

 

6.04 Distributions in the Event of Death

Notwithstanding the foregoing, in the event of a Participant’s death, the Participant’s Beneficiary will receive the remaining balance of the Participant’s Deferral Account and Company Account paid in two (2) annual installments with the first payment to be made by the end of the month following the month in which the Participant’s date of death occurs. The second annual payment will be paid as of the first business day in January of the subsequent year.

 

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6.05 Distributions Upon Termination of Employment Other Than Retirement, Death or Disability

Notwithstanding the foregoing, in the event a Participant incurs a Termination of Employment from the Corporation and all Affiliates for any reason other than death or Retirement prior to becoming Disabled (as defined in Section 6.03), said Participant will receive his entire Deferral Account and Company Account balance in a single lump sum payment. Such payment shall be made as of the month following the month in which the Participant’s Termination of Employment occurs; provided, however, that with respect to a Participant who is a Specified Employee as of the date of his Termination of Employment for reasons other than death, payment of any portion of his Deferral or Company Account (or any subaccount(s) thereof) pursuant to the provisions of this Section 6.05 will be delayed until the first day of the seventh month following the date such Termination of Employment occurs.

 

6.06 Change of Distribution Election

 

  (a) In accordance with such procedures as the Plan Committee may prescribe, a Participant may elect to change his Specific Future Year election under Section 6.01(ii) (or an Interium Distribution date election applicable to a portion of his Deferral Account or Company Account made pursuant to the provisions of the Plan as in effect prior to December 31, 2008) to a later Specific Future Year (or, if applicable, a later Interium Distribution date) by duly completing, executing and filing with the Plan Committee a new Specific Future Year election (or Interium Distribution date election) applicable to such deferrals, subject to the following limitations:

 

  (i) such election must be made at least 12 months prior to the Specific Future Year (or Interium Distribution date) then in effect with respect to that portion of his Deferral or Company Account (or subaccount(s) thereof), and such election will not become effective until at least 12 months after the date on which the election is made; and

 

  (ii) the new Specific Future Year (or Interium Distribution date) shall be a calendar year that is not less than five (5) years from the Specific Future Year (or Interium Distribution date) then in effect.

 

22


Notwithstanding the forgoing, a Participant may elect to delay a Specific Future Year to the later of Retirement or a new Specific Future Year that is at least five years from the Specific Future Year then in effect, provided the election is made in accordance with the foregoing provisions of this Section 6.06(a). A Participant may elect to delay a Specific Future Year (or Interium Distribution date) pursuant to this Section 6.06(a) more than once, provided that all such elections comply with the provisions of this Section 6.06(a).

 

  (b) In accordance with such procedures as the Plan Committee may prescribe, a Participant may elect to delay the payment of a portion of his Deferral or Company Account (or any subaccount(s) thereof) scheduled to be paid at his Retirement to his Retirement plus 5 calendar years by duly completing, executing and filing with the Plan Committee a new Retirement election applicable to such deferrals; provided, however such election shall not become effective until at least 12 months after the date on which the election is made.

 

  (c) In accordance with such procedures as the Plan Committee may prescribe, a Participant may elect to change the form of payment election under Section 6.02 applicable to his Normal Distribution under Section 6.01(i) or (ii) by duly completing, executing and filing with the Plan Committee a new form of payment election applicable to such deferrals, subject to the following limitations:

 

  (i) such election must be made at least 12 months prior to the Specific Future Year then in effect with respect to that portion of his Deferral or Company Account (or subaccount(s) thereof), and such election will not become effective until at least 12 months after the date on which the election is made; and

 

  (ii) the Normal Distribution of that portion of his Deferral or Company Account (or subaccount(s) thereof) shall be deferred for five years from the date such amount would otherwise have been paid absence this election.

 

  (d) It is the Corporation’s intent that the provisions of Sections 6.06(a), (b) and (c) comply with the subsequent election provisions in Code Section 409A(a)(4)(C), related regulations and other applicable guidance, and this Section 6.06 shall be interpreted accordingly. The Plan Committee may impose additional restrictions or conditions on a Participant’s ability to make an election pursuant to this Section 6.06(a). For avoidance of doubt, a Participant

 

23


may not elect to alter the distribution of any portion of his Deferral or Company Accounts (or any subaccount(s) thereof) from Retirement to a Specific Future Year or, except as provided in paragraph (a) above, from a Specific Future Year to Retirement.

 

  (e) Transition Rules. Notwithstanding anything in the Plan to the contrary, the Plan Committee may, in its discretion and subject to such terms and conditions as it may from time to time prescribe, allow Participants to change the time of payment or portion of payment of all or a portion of their Deferral or Company Accounts prior to January 1, 2009 in accordance with applicable transition relief provided with respect to Code Section 409A, dated regulations and other applicable guidance.

 

6.07 Account Valuation Upon a Distribution

Before a distribution pursuant to this Article, the balance of a Participant’s Account shall be determined as of the Valuation Date on or immediately preceding the date such payment is processed based on the Share Price in effect for that Valuation Date.

 

6.08 Designation of Beneficiary

Each Participant shall have the right to designate a beneficiary to receive payment of their Account in the event of their death. A beneficiary designation shall be made by executing and filing the beneficiary designation form prescribed by the Plan Committee. Any such designation may be changed at any time by execution of a new designation in accordance with this Section.

If no such designation is on file with the Plan Committee at the time of the death of the Participant, or such designation is not effective for any reason as determined by the Plan Committee, then the beneficiary to receive such benefit shall be the Participant’s surviving spouse, if any; otherwise, Plan Committee shall designate a Beneficiary or Beneficiaries from among the following in the order named (1) Participant’s surviving lineal descendants, per stirpes, in equal parts, (2) the Participant’s surviving parents, in equal parts, (3) the Participant’s estate.

 

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6.09 Unclaimed Benefits

If the Plan Committee is unable to locate a Participant or Beneficiary to whom a benefit is payable, such benefit may be forfeited to the Corporation upon the Plan Committee’s determination. Notwithstanding the foregoing, if subsequent to any such forfeiture, the Participant or Beneficiary to whom such benefit is payable makes a valid claim for such benefit, such forfeited benefit shall be restored to the Plan and paid by the Corporation, with interim interest credited as if the Account were maintained in the plan.

 

6.10 Hardship Withdrawals

A Participant may apply in writing to the Plan Committee for, and the Plan Committee may grant, a hardship withdrawal of all or any part of a Participant’s Deferral or Company Account if the Plan Committee, in its sole discretion, determines that the Participant has incurred an Unforeseeable Emergency, as defined in the Universal 409A Definition Document.

The Plan Committee shall determine whether an event qualifies as a hardship within this Section, in its sole and absolute discretion. Such request shall be made in a time and manner determined by the Plan Committee. The payment made from a Participant’s Deferral or Company Account (or any subaccount(s) thereof) pursuant to the provisions of this Section 6.10 shall not be in excess of the amount necessary to meet such financial hardship of the Participant, including amounts necessary to pay any federal, state or local income taxes with respect to the payment. Payment shall be made in the month following the date the Plan Committee determines that the Participant has incurred an unforeseeable severe financial hardship and grants the right to a withdrawal pursuant to this Section 6.10.

 

6.11 Change in Control

Notwithstanding the foregoing provisions of this Article VI, upon the occurrence of a Change of Control a Participant who has a valid change in control election(s) in effect, shall automatically receive the balance of his Deferral Account and Company Account related to that election, in cash, in a single lump sum payment. Such lump sum payment shall be made in the month following the month in which the Change of Control occurs. If such Participant dies after such Change of Control event occurs, but before receiving such payment, it shall be made to his Beneficiary.

 

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6.12 Distribution of Grandfathered Deferral Account and the Grandfathered Company Account

Notwithstanding the foregoing provisions of this Article VI, the distribution from a Participant’s Grandfathered Deferral Account and Grandfathered Company Account (or subaccount(s)) shall be made pursuant to the provisions of the Plan as set forth on October 3, 2004, without regard to any amendments after October 3, 2004 which would constitute a material modification for Code Section 409A, as modified in Appendix A attached hereto.

 

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ARTICLE VII – ADMINISTRATION

 

7.01 Plan Committee

The Plan shall be administered by the committee appointed by the Board of Directors pursuant to the provisions of Future Fund. The Plan Committee shall be responsible for the general operation and administration of the Plan and for carrying out the provisions thereof. The Plan Committee may delegate to others certain aspects of the management and operations of the Plan including the employment of advisors and the delegation of ministerial duties to qualified individuals, provided that such delegation is in writing. The Plan Committee shall be a “named fiduciary” as that term is defined in Section 402(a)(2) of ERISA.

 

7.02 General Powers of Administration

The Plan Committee shall have the exclusive responsibility and complete discretionary authority to control the operation, management and administration of the Plan, with all powers necessary to enable it properly to carry out such responsibilities, including, but not limited to, the power to interpret the Plan and any related documents, to establish procedures for making any elections called for under the Plan, to make factual determinations regarding any and all matters arising hereunder, including, but not limited to, the right to determine eligibility for benefits, the right to construe the terms of the Plan, the right to remedy possible ambiguities, inequities, inconsistencies or omissions, and the right to resolve all interpretive, equitable or other questions arising under the Plan. The decisions of the Plan Committee or such other party as is authorized under the terms of any grantor trust on all matters shall be final, binding and conclusive on all persons to the extent permitted by law. The Plan Committee shall have all powers necessary or appropriate to enable it to carry out its administrative duties. Not in limitation, but in application of the foregoing, the Plan Committee shall have the duty and power to interpret the Plan and determine all questions that may raise hereunder as to the status and rights of Employees, Participants, Beneficiaries, and any other person. The Plan Committee may exercise the powers hereby granted in its sole and absolute discretion. No member of the Plan Committee shall be personally liable for any actions taken by the Plan Committee unless the member’s action involves gross negligence or willful misconduct.

 

7.03 Costs of Administration

The costs of administering the Plan shall be borne by the Corporation unless and until the Participant receives written notice of the imposition of such administrative costs; with such costs to begin with the next Plan Year and none may be assessed retroactively for prior Plan Years.

 

27


Such costs shall be charged against the Participant’s Account and shall be uniform or proportional for all Plan Participants. Such costs shall not exceed the standard rates for similarly designed nonqualified plans under administration by high quality third party administrators at the time such costs are initially imposed and thereafter.

 

7.04 Indemnification of Plan Committee

The Corporation shall indemnify the members of the Plan Committee or its delegates against any and all claims, losses, damages, expenses, including attorney’s fees, incurred by them, and any liability, including any amounts paid in settlement with their approval, arising from their action or failure to act, except when the same is judicially determined to be attributable to their gross negligence or willful misconduct.

 

7.05 Compliance

With respect to the accounts subject to Code Section 409A, the Plan is intended to comply with the requirements of Code Section 409A and the provisions hereof shall be interpreted in a manner that satisfies the requirements of Code Section 409A and the regulations thereunder, and the Plan shall be operated accordingly. If any provision of the Plan would otherwise frustrate or conflict with this intent, the provision will be interpreted and deemed amended so as to avoid this conflict.

 

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ARTICLE VIII – CLAIMS PROCEDURE

 

8.01 Claims

A person who believes that they are being denied a benefit to which they are entitled to under the Plan (hereinafter referred to as a “Claimant”) may file a written request for such benefit with the Plan Committee, setting forth their claim. The request must be addressed to the Plan Committee at the Corporation’s then principal place of business.

 

8.02 Claim Decision

Upon receipt of a claim, the Plan Committee shall advise the Claimant that a reply will be forthcoming within ninety (90) days and shall, in fact, deliver such reply within such period. If the Plan Committee determines that additional time is needed to review the claim, the Plan Committee will provide the Claimant with a notice of the extension before the end of the initial ninety (90)-day period. The notice of extension will explain the special circumstances that require the extension and the date by which the Plan Committee expects to make a decision.

If the claim is denied in whole or in part, the Plan Committee shall adopt a written opinion using language calculated to be understood by the Claimant, setting forth all of the following:

 

  (a) The specific reason or reasons for such denial;

 

  (b) The specific reference to pertinent provisions of the Plan on which such denial is based;

 

  (c) A description of any additional material or information necessary for the Claimant to perfect their claim and an explanation why such material or such information is necessary;

 

  (d) Appropriate information as to the steps to be taken if the Claimant wishes to submit the claim for review; and

 

  (e) The time limits for requesting a review under this Section.

 

8.03 Request for Review

Within sixty (60) days after the receipt by the Claimant of the written opinion described above, the Claimant may request in writing that the determination of the Plan Committee be reviewed. Such request must be addressed to the Secretary of the Committee, at its then principal place of business. The Claimant or their duly authorized representative may, but need not, review the pertinent documents and submit issues and comments in writing for consideration by the Corporation. If the Claimant does not request a review of the Plan Committee’s determination within such sixty (60)-day period, he shall be barred and stopped from challenging the Plan Committee’s determination.

 

29


8.04 Review of Decision

Within sixty (60) days after the Secretary’s receipt of a request for review, the Committee as designated by the Corporation to hear such appeals (Appeals Committee) will review the Plan Committee’s determination. After considering all materials presented by the Claimant, the Secretary will render a written opinion, written in a manner calculated to be understood by the Claimant, setting forth the specific reasons for the decision and containing specific references to the pertinent provisions of this Plan on which the decision is based. If special circumstances require that the sixty (60)-day time period be extended, the Secretary will so notify the Claimant and will render the decision as soon as possible, but no later than one hundred twenty (120) days after receipt of the request for review.

 

30


ARTICLE IX – MISCELLANEOUS

 

9.01 Not Contract of Employment

The adoption and maintenance of the Plan shall not be deemed to be a contract between the Corporation or an Affiliate and any person and shall not be consideration for the employment of any person. Nothing herein contained shall be deemed to give any person the right to be retained in the employ of the Corporation or an Affiliate or to restrict the right of the Corporation or an Affiliate to discharge any person at any time nor shall the Plan be deemed to give the Corporation or an Affiliate the right to require any person to remain in the employ of the Corporation or an Affiliate or to restrict any person’s right to terminate their employment at any time.

 

9.02 Non-Assignability of Benefits

No Participant, Beneficiary or distributees of benefits under the Plan shall have any power or right to transfer, assign, anticipate, hypothecate or otherwise encumber any part or all of the amounts payable hereunder, which are expressly declared to be unassignable and nontransferable. Any such attempted assignment or transfer shall be void. No amount payable hereunder shall, prior to actual payment thereof, be subject to seizure by any creditor of any such Participant, Beneficiary or other distributees for the payment of any debt judgment or other obligation, by a proceeding at law or in equity, nor transferable by operation of law in the event of the bankruptcy, insolvency or death of such Participant, Beneficiary or other distributes hereunder.

 

9.03 Withholding

All deferrals and payments provided for hereunder shall be subject to applicable withholding and other deductions as shall be required of the Corporation under any applicable local, state or federal law.

 

9.04 Amendment and Termination

The Committee may from time to time, in its discretion, amend, in whole or in part, any or all of the provisions of the Plan; provided, however, that no amendment may be made that would impair the rights of a Participant with respect to amounts already allocated to their Account. To the extent consistent with the rules relating to plan terminations and liquidations in Treas. Reg. Section 1.409A-3(j)(4)(ix) or otherwise consistent with Code Section 409A, the Committee may terminate the Plan and any related Deferred Compensation Agreement at any time and in that

 

31


event the Committee may provide that, without the prior written consent of Participants, the Participants’ Deferral Account and Company Account shall be distributed in a cash lump sum upon termination of the Plan. Unless so distributed in accordance with the preceding sentence, in the event of a Plan termination, the Committee shall continue to maintain the Deferral Account and Company Account until distributed pursuant to the terms of the Plan and Participants shall remain 100% vested in all amounts credited to their Deferal and Company Accounts. In the event of a Plan termination, the distribution of a Participant’s Grandfathered Deferral Account and Grandfathered Company Account shall be made pursuant to the provisions of the Plan as set forth on October 3, 2004, without regard to any amendments after October 3, 2004 which would constitute a material modification for Code Section 409A, as modified in Appendix A attached hereto.

 

9.05 Compliance with Securities and Other Laws

Notwithstanding any Plan provision to the contrary, the Committee may at any time impose such restrictions on the Plan and participation therein, including limiting the amount of any deferral or the timing thereof, as the Committee may deem advisable from time to time in order to comply or preserve compliance with any applicable laws, including any applicable state and federal securities laws and exemptions from registration available thereunder.

 

9.06 No Trust Created

Nothing contained in this Plan and no action taken pursuant to its provisions by the Corporation or any person, shall create, nor be construed to create, a trust of any kind or a fiduciary relationship between the Corporation or an Affiliate and the Participant, Beneficiary, or any other person.

 

9.07 Unsecured General Creditor Status of Employee

The payments to the Participant, Beneficiary or any other distributes hereunder shall be made from assets which shall continue, for all purposes, to be a part of the general, unrestricted assets of the Corporation. No person shall have or acquire any interest in any such assets by virtue of the provisions of this Plan. The Corporation’s obligation hereunder shall be an unfunded and unsecured promise to pay money in the future. To the extent that the Participant, Beneficiary or other distributees acquires a right to receive payments from the Corporation under the provisions hereof, such right shall be no greater than the right of any unsecured general creditor of the Corporation. No such person shall have nor require any legal or equitable right, interest or claim in or to any property or assets of the Corporation.

 

32


In the event that, in its discretion, the Corporation purchases an insurance policy, or policies, insuring the life of the Employee, or any other property, to allow the Corporation to recover the cost of providing the benefits, in whole, or in part, hereunder, neither the Participant, Beneficiary or other distributee shall have or acquire any rights whatsoever therein or in the proceeds therefrom. The Corporation shall be the sole owner and beneficiary of any such policy or policies and, as such, shall possess and, may exercise all incidents of ownership therein. No such policy, policies or other property shall be held in any trust for a Participant, Beneficiary or other distributee or held as collateral security for any obligation of the Corporation hereunder. An Employee’s participation in the underwriting or other steps necessary to acquire such policy or policies may be required by the Corporation and, if required, shall not be a suggestion of any beneficial interest in such policy or policies to a Participant.

 

9.08 Payment to Minors and Incompetents

If any Participant, spouse, or Beneficiary entitled to receive any benefits hereunder is a minor or is deemed by the Plan Committee or is adjudicated to be legally incapable of giving a valid receipt and discharge for such benefits, the benefits will be paid to such person or institution as the Plan Committee may designate or to the duly appointed guardian of such person. Such payment shall, to the extent made, be deemed a complete discharge of any such payment under the Plan.

 

9.09 Acceleration of or Delay in Payments

The Plan Committee, in its sole and absolute discretion, may elect to accelerate the time or form of payment of a benefit owed to the Participant hereunder, provided such acceleration is permitted under Treas. Reg. Section 1.409A-3(j)(4) and any subsequent guidance. The Plan Committee may also, in its sole and absolute discretion, delay the time for payment of a benefit owed to the Participant hereunder, to the extent permitted under Treas. Reg. Section 1.409A-2(b)(7) and any subsequent guidance.

 

9.10 Severability

If any provision of this Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining provisions hereof; instead, each provision shall be fully severable and the Plan shall be construed and enforced as if said illegal or invalid provision had never been included herein.

 

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9.11 Governing Laws

All provisions of the Plan shall be construed in accordance with the laws of Rhode Island, except to the extent preempted by federal law.

 

9.12 Binding Effect

This Plan shall be binding on each Participant and their heirs and legal representatives and on the Corporation and its successors and assigns.

 

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APPENDIX A

PROVISIONS APPLICABLE TO A PARTICIPANT’S

GRANDFATHERED DEFERRAL ACCOUNT AND

GRANDFATHERED COMPANY ACCOUNT

This Appendix A constitutes an integral part of the Plan and is applicable with respect to the Grandfathered Deferral Account and the Grandfathered Company Account of those individuals who were Participants in the Plan on December 31, 2004. The Grandfathered Deferral Account and Grandfathered Company Account are subject to all the terms and conditions of the Plan as set forth on October 3, 2004, without regard to any Plan amendments after October 3, 2004 which would constitute a material modification for Code Section 409A, as modified below. Section references in this Appendix A correspond to appropriate Sections of the Plan as set forth on October 3, 2004.

ARTICLE 1 – DEFINITIONS

Section 2.15 - Company Account means the Participant’s Grandfathered Company Account as set forth in Section 2.28.

Section 2.19 - Deferral Account means the Participant’s Grandfathered Deferral Account as set forth in Section 2.29 of the foregoing provisions of the Plan.

For purposes of a Particpant’s Grandfathered Deferral Account and Grandfathered Company Account, the term Change in Control shall have the meaning set forth in the 1997 Incentive Compensation Plan as in effect on October 3, 2004.

ARTICLE IV – DEFERRALS AND COMPANY CONTRIBUTIONS

The provisions of Section 4.03 shall continue to apply to a Participant’s Grandfathered Deferral Account, Grandfathered Company Account and amounts transferred from the Melville Deferred Compensation Plan that were vested on or earlier than December 31, 2004.

 

35


ARTICLE V – MAINTENANCE OF ACCOUNTS

The provisions of Section V as set forth in the foregoing provisions of the Plan as amended and restated effective as of December 31, 2008 shall be applicable to a Participant’s Grandfathered Deferral Account and Grandfathered Company Account on and after January 1, 2009.

ARTICLE VI – PAYMENT OF BENEFIT

For purposes of this Article VI - Payment of Benefit, the term “termination of employment” or any other similar language means with respect to a Participant the complete cessation of providing service to the Corporation and any Affiliate as an employee.

 

6.02 Form of Payment

Effective on or after October 1, 2008, a Participant shall not elect installments in excess of ten years or quarterly installments.

 

6.03 Disability Distributions

A Participant shall be entitled to distribution under this Section if such Participant become “Disabled” as such term is defined under Section 6.03 in the foregoing provisions of this Plan.

 

6.06 Change of Distribution Election

On and after January 1, 2009, a change in a Specific Future Year distribution date or an Interim distribution date shall be effective only if the new Specific Future Year distribution date or an Interim distribution date is not less than 5 years later then the date in effect prior to the change election.

 

36

Exhibit 10.6

SUPPLEMENTAL RETIREMENT PLAN I

FOR SELECT SENIOR MANAGEMENT

OF CVS CAREMARK CORPORATION

As Amended and Restated as of

December 31, 2008


CVS CAREMARK CORPORATION

SUPPLEMENTAL RETIREMENT PLAN I FOR SELECT SENIOR MANAGEMENT

AS AMENDED AND RESTATED

TABLE OF CONTENTS

 

ARTICLE 1 – DEFINITIONS

   1

ARTICLE 2 – MEMBERSHIP

   6

ARTICLE 3 – AMOUNT AND PAYMENT OF SUPPLEMENTAL BENEFITS

   7

ARTICLE 4 – ADMINISTRATION

   13

ARTICLE 5 – GENERAL PROVISIONS

   15

ARTICLE 6 – AMENDMENT OR TERMINATION

   17

APPENDIX A

   18

APPENDIX B

   19

APPENDIX C

   20

APPENDIX D

   21

SCHEDULE E

   27


The Plan set forth in this document is known as the Supplemental Retirement Plan I for Select Senior Management of CVS Caremark Corporation (the “Plan”). The Plan is amended and restated as of December 31, 2008 to comply with the provisions of Section 409A of the Internal Revenue Code and any regulations promulgated thereunder. Except as otherwise provided herein, the provisions contained herein are applicable to Members who commence payment of benefits on or after January 1, 2009.

The benefits accrued and vested under the provisions of the Plan by a Member who terminated employment with the CVS Caremark Corporation and all its Affiliates prior to January 1, 2005 shall be subject to the provisions of the Plan as in effect on October 3, 2004. In addition, with respect to a Member who was employed by CVS Caremark Corporation or one of its Affiliates on or after January 1, 2005, the portion of his benefit payable under the provisions of this Plan equal to his Grandfathered Annual Benefit (as defined herein) shall be subject to the provisions of the Plan as in effect on October 3, 2004 without regard to any amendments after October 3, 2004 which would constitute a material modification for Code Section 409A purposes. The Plan has been administered in good faith compliance with Section 409A and the guidance issued thereunder from January 1, 2005 through December 31, 2008.

All benefits payable under this Plan, which is intended to constitute both an unfunded excess benefit plan under Section 3(36) of Title I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and a nonqualified, unfunded deferred compensation plan for a select group of management employees under Title I of ERISA, shall be paid out of the general assets of the Corporation. The Corporation may establish and fund a trust in order to aid it in providing benefits due under the Plan.


CVS CAREMARK CORPORATION

SUPPLEMENTAL RETIREMENT PLAN I

FOR SELECT SENIOR MANAGEMENT AS AMENDED AND RESTATED

ARTICLE 1 – DEFINITIONS

 

1.01 “Affiliate” shall mean any entity that together with CVS Caremark Corporation would be treated as a single employer under Section 414(b) or (c) of the Code.

 

1.02 “Annual Benefit” with respect to Class A Member shall mean the amount specified in clause (a) below, and, with respect to a Class D Member, the amount specified in clause (b) below. In addition, the term “Annual Benefit” is defined under Section 3.10 with respect to Members designated in that Section.

 

  (a) The “Annual Benefit” shall mean, with respect to a Class A Member who became or becomes a Class A Retiree after January 1, 2005, the amount equal to the product of (x) 1.6% times (y) the lesser of such Member’s years of Service or 30, unless otherwise provided in an agreement with a Class A Member, times (z) such Class A Member’s Compensation, less the amount set forth in Appendix B, if any.

 

  (b) The “Annual Benefit” shall mean, with respect to a Class D Member, the “Annual Benefit” as defined in Appendix D.

With respect to a Class A Member who became a Class A Retiree after December 4, 1996 and on or prior to January 1, 2005 and a Class B Member “Annual Benefit” shall have the meaning set forth in Plan document as in effect in October 3, 2004.

 

1.03

“Beneficiary” shall mean the person named as such by the Member (i) at the time payments to the Member commence under the Plan or (ii) in the case of benefits payable under Section 3.03, at the time of the Member’s death, by written designation filed with the Retirement Administration Committee in accordance with the Plan (including Section


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3.04, in the case of a Beneficiary named thereunder), to receive payments after the Member’s death. In the absence of a beneficiary designation, the Participant’s Beneficiary for purposes of Section 3.03 shall be his spouse, if any; otherwise, the Participant’s Beneficiary shall be the person named as his beneficiary under the Corporation’s life insurance program, and if none then the Member’s surviving lineal descendants, per stirpes, in equal parts.

 

1.04 “Benefit Commencement Date” shall mean, unless the Plan specifically provides otherwise, the first day of the first period for which an amount is due as an annuity or any other form.

 

1.05 “Board of Directors” or “Board” shall mean the Board of Directors of CVS Caremark Corporation.

 

1.06 Change in Control” shall mean “Change in Control” as such term is defined in the Universal 409A Definition Document.

 

1.07 “Class A Member,” “Class B Member,” “Class C Member,” and “Class D Member” are defined in Article 2 and Section 4.01, and “Class A Retiree,” “Class C Retiree” and “Class D Retiree” are defined in Section 1.17 below.

 

1.08 “Compensation” shall mean, with respect to a Class A Member, the average yearly amount of the Member’s salary and cash bonus paid by the Corporation or an Affiliate (and/or its Predecessor) in the three years (which need not be consecutive) in which the amount of such salary and bonus was highest during the ten-year period preceding and including the year of the Member’s Termination of Service. For purposes of this Section 1.09, salary and cash bonus mean those amounts which constitute salary and bonus for purposes of Item 402(b)(2)(iii)(A) and (B) of Regulation S-K, including the amount of salary and cash bonus amounts deferred pursuant to Instruction 3 thereto on an elective basis but excluding bonus amounts payable in a form other than cash on a mandatory basis. Compensation, with respect to a Class D Member, shall have the meaning set forth in Appendix D.


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1.09 “Corporation” shall mean CVS Caremark Corporation. References in the Plan to CVS Caremark Corporation shall be deemed to include successors to CVS Caremark Corporation.

 

1.10 “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, including rules thereunder and successor provisions and rules thereto.

 

1.11 “Executive Employee” shall mean an employee of the Corporation or an Affiliate who is a senior officer of the Corporation or any Affiliate and who has been listed as a Class A Member in Appendix A or Class D Member in Appendix D, as amended from time to time by the Management Planning and Development Committee (the “MPD Committee”) of the Board of Directors.

 

1.12 “409A Annual Benefit” means the portion of the Member’s Annual Benefit, if any, in excess of his Grandfathered Annual Benefit.

 

1.13. “Grandfathered Annual Benefit” shall mean the portion of a Member’s Annual Benefit, if any, that was accrued and vested before January 1, 2005, determined under the provisions of the Plan without regard to any amendments after October 3, 2004 which would cause a material modification for Code Section 409A purposes, the provisions of Section 409A, the regulations promulgated thereunder and other applicable guidance, adjusted for the passage of time based on actuarial equivalent assumptions and procedures established by the MPD Committee in accordance with Code Section 409A.

 

1.14 “Member” shall mean any person included as a Class A Member, Class B Member, Class C Member or Class D Member under the Plan, as provided in Article 2.


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1.15 “Plan” shall mean the Supplemental Retirement Plan I for Select Senior Management of CVS Caremark Corporation, as described herein or as hereafter amended.

 

1.16 “Predecessor” means Melville Corporation and its subsidiaries with respect to events prior to December 4, 1996.

 

1.17 “Retiree” shall mean a Class A Retiree, as defined in clause (a) below, a Class B Retiree as defined under the provisions of the Plan as in effect on October 3, 2004 and listed on Appendix C, a Class D Retiree, as defined in clause (b) below, or a person designated as a Retiree in Appendix C hereto, under the terms specified in Section 3.10.

 

  (a) A “Class A Retiree” shall mean a Class A Member who terminates employment with the Corporation for any reason, including disability but excluding death, prior to attaining age 55 but after completing five or more years of Service or on or after attaining age 55 regardless of years of Service.

 

  (b) A “Class D Retiree” shall mean a Class D Member who has attained age 55 and completed ten or more years of Service and incurs a Termination of Employment with the Corporation and all Affiliates at or after age 55 for any reason, including disability but excluding death.

 

1.18 “Retirement Administration Committee” shall mean the Benefit Plans Committee appointed by the Board pursuant to the provisions of the 401(k) Plan and the Employee Stock Ownership Plan of CVS Caremark Corporation and Affiliated Companies.

 

1.19 “Retirement Plan” shall mean any defined benefit plan maintained by the Corporation or its Predecessor meeting the requirements of Section 401 of the Internal Revenue Code of 1986, as amended, in which such Member shall be or was a participant.


Page 5

 

1.20 “Service” shall mean with respect to a Member the sum of (a), in the case of an Executive Employee who became a Member prior to July 1, 1995, the period of such Member’s active employment with the Corporation, its Predecessor and its Affiliates, whether or not as an Executive Employee, or, in the case of an Executive Employee who became a Member on or after July 1, 1995, the period of such Member’s active employment with the Corporation, its Predecessor or an Affiliate as an Executive Employee, excluding, in each case, unless otherwise provided by the Retirement Administration Committee, any period during which the Member was engaged as a consultant or received salary continuance or severance payments, and (b) any Service credited under the Plan to such Member by the MPD Committee or by the compensation committee of the board of directors of the Corporation’s Predecessor prior to the assumption of the Plan by the Corporation, pursuant to Article 4. A year of Service is a period of 12 consecutive months, which need not be a calendar year. Notwithstanding the foregoing, with respect to a Member who incurs a Termination of Employment on and after July 1, 2009, such Member’s Service shall cease as of the date he incurs such Termination of Employment.

 

1.21 “Specified Employee” shall mean “Specified Employee” as such term is defined in the Universal 409A Definition Document.

 

1.22 “Termination of Employment” shall mean “termination of employment” as such term is defined in the Universal 409A Definition Document.


Page 6

 

ARTICLE 2 – MEMBERSHIP

 

2.01 Every Executive Employee in the employ of the Corporation or an Affiliate on December 31, 2008 shall continue to be or shall become a Member of the Plan on that date. Such a Member shall be a Class A Member or Class D Member, as specified on Appendix A or Appendix D hereto.

 

2.02 Any other employee of the Corporation who becomes an Executive Employee after January 1, 2009 and who is designated a Member by the MPD Committee shall thereupon become a Class A Member of the Plan, unless otherwise stipulated by the MPD Committee.

 

2.03 Any former employee of the Corporation, its Predecessor, or an Affiliate, who is a Retiree under the Plan on December 31, 2008 and any Member who thereafter becomes a Retiree shall continue to be a Member of the Plan until the payment of all benefits in respect of such Retiree under the Plan. In addition, the former employees designated in Item 2 of Appendix C hereto shall be deemed to be Retirees (and thus Members), under the terms specified in Section 3.09.

 

2.04 The participation and membership under the Plan of an Executive Employee who is not a Retiree shall terminate if his employment with the Corporation and all Affiliates as an Executive Employee terminates, and such person shall cease to be a Member, unless (i) at the time of such termination, he becomes a Retiree, (ii) upon such termination, he continues to be entitled to a benefit hereunder pursuant to Section 3.06, or (iii) he is entitled to a benefit under Section 3.09 or (iv) he is a Class D Member and upon such termination he is entitled to a benefit in accordance with Appendix D.

 

2.05 A Member whose membership in the Plan terminates pursuant to Section 2.03 or Section 2.04 shall be restored to membership in the Plan at such time as he is restored to employment as an Executive Employee of the Corporation or an Affiliate.


Page 7

 

ARTICLE 3 – AMOUNT AND PAYMENT OF SUPPLEMENTAL BENEFITS

 

3.01 Except as provided in Section 3.06 or 3.09 or an Appendix attached hereto, benefits under the Plan shall be payable only with respect to Members who are Retirees or become Retirees or, as provided in Section 3.03, 3.04 or 3.06 to Beneficiaries.

 

3.02 Except as provided in Section 3.06, Section 3.10 or an Appendix attached hereto, and subject to the provisions of Section 3.05 and Section 3.07, a Retiree shall be entitled to commencement of payment of benefits hereunder pursuant to Section 3.04 upon the first day of the month coincident with or next following the later of (i) his Termination of Employment or (ii) his attainment of age 55. Notwithstanding any Plan provision to the contrary a Member may not elect to defer payment of benefits hereunder.

 

3.03

In the event that a Class A Member dies after the earlier of attaining age 55 or completing five years of Service, or Class D Member dies after the attaining age 55 and completing ten years of Service, in either case prior to becoming a Retiree, or dies after becoming a Retiree but prior to commencing to receive payments hereunder pursuant to Section 3.04, his Beneficiary shall be entitled to the immediate commencement of a single life annuity, with an annual payment equal to one-half of the Annual Benefit, if any, computed under Section 1.02 for such Class A Member and computed under Appendix D, Section 1.01 for such Class D Member, as if the Member was a Retiree and had commenced to receive payment of benefits under Section 3.04 immediately prior to his death. Payments under this Section 3.03 shall commence in the month following the month in which the Member’s date of death occurs. In the event the age difference between the Class A Member or Class D Member and his Beneficiary is greater than five years, the benefit payable pursuant to this Section 3.03 shall be actuarially adjusted to reflect the differences in the life expectancy of the Participant and the Beneficiary. Notwithstanding any Plan provisions to the contrary (i) in the event a Member has made an election under Section 3.04 to receive his Grandfathered Annual Benefit in the form of a lump sum, or (ii) in the event the Member did not make an election under Section 3.04 and such Member’s Beneficiary is his estate, the benefit otherwise payable under this Section 3.03


Page 8

 

 

attributable to his Grandfathered Annual Benefit, shall be commuted into a single lump sum amount of actuarial equivalent value, which amount shall be determined by assuming the Beneficiary is a person of the same age as the Member at the Member’s date of death. The amount of such actuarial equivalent value computed under this Section 3.03 shall be determined by the MPD Committee using the actuarial assumptions described below In computing such actuarial equivalence, the actuarial assumptions to be used shall be (A) the 1983 Group Annuity Mortality Table and (B) an interest rate assumption equal to the applicable interest rate (expressed as a percentage) used by the Pension Benefit Guaranty Corporation for valuing lump sum benefits for single employer plans that terminate on the date of such calculation, minus 0.5%.

 

3.04 (a) Except as provided in Section 3.06 or 3.09 or an Appendix attached hereto and subject to the provisions below, the benefit payable under the Plan to a Class A Retiree or a Class D Retiree shall be a single life annuity for the life of the Retiree, with annual payments equal to his Annual Benefit computed under Section 1.02 for such Class A Retiree, or Appendix D, Section 1.01 for such Class D Retiree, at the time of the commencement of payment of benefits under this Section 3.04.

(b) A Member may make an election in accordance with the procedures prescribed by the Retirement Administration Committee to receive his 409A Annual Benefit in a single lump sum payment. An election made under this paragraph (b) on or prior to December 31, 2008 shall become effective on the close of the 12 month period after the date on which the election is made, or January 1, 2009, if earlier, unless such election is made within 30 days of the date the Member first becomes eligible to participate in the Plan or in any plan required to be aggregated with this Plan under the provisions of Code Section 409A in which case the election shall be effective on the close of such 30 day period (the 30 day initial eligibility period). An election made on or after January 1, 2009 or, if later, after the close of the 30 day initial eligibility period shall be subject the provisions of paragraph (d) below.


Page 9

 

(c) Notwithstanding, any Plan provision to the contrary, if a Member does not have a valid election under this Section 3.04 to receive his 409A Annual Benefit in the form of a lump sum in effect, such Member may elect at any time prior to his applicable Benefit Commencement Date to convert his 409A Annual Benefit into a joint and survivor annuity form which provides a reduced benefit payable to the Member during his life, and after his death provides that 100% or 50% of the reduced benefit will continue to be paid during the life of and to his Beneficiary. Any such optional form of benefit or lump sum shall be the actuarial equivalent of such single life annuity using the actuarial assumptions described in Section 3.03. A Member’s election to convert his 409A Annual Benefit into the form of a 50% or 100% joint & survivor annuity shall be effective as of his Benefit Commencement Date, provided the Member makes and submits to the Retirement Administration Committee his election prior to his Benefit Commencement Date. If such Member fails to elect an optional annuity form in a timely manner, his 409A Annual Benefit shall be distributed in the form of a single life annuity.

(d) In accordance with the provisions of Code Section 409A, regulations thereunder and other applicable guidance and the procedures as the Retirement Administration Committee may prescribe, a Member may elect to change the form of payment election under this Section 3.04 applicable to his 409A Annual Benefit from an annuity to a lump sum or from a lump sum to an annuity by duly completing, executing and filing with the Retirement Administration Committee a new form of payment election, subject to the following limitations:

(i) such election will not become effective until at least 12 months after the date on which the election is made; and

(ii) the distribution of such Member’s 409A Annual Benefit shall be deferred for five years from the date such amount would otherwise have been paid absent this election (disregarding any delay under the provisions of Section 3.05.)


Page 10

 

No payment election made under this Section 3.04 may be changed after the Member’s Benefit Commencement Date.

The portion of a Retiree’s Annual Benefit equal to his Grandfathered Annual Benefit shall be paid in accordance with the provisions of the Plan as in effect on October 3, 2004.

 

3.05 Notwithstanding the foregoing, the actual payment of a 409A Annual Benefit to a Retiree who is a Specified Employee on his Termination of Employment for reasons other than death, shall not commence prior to the first day of the seventh month following such Member’s Termination of Employment. Any payment due the Retiree which he would have otherwise received under Section 3.04 during the six month period immediately following his Termination of Employment shall be accumulated, without interest. For the avoidance of doubt, the provisions of this clause (iii) shall not apply to a 409A Annual Benefit payable under Section 3.03 or Section 3.06 due to the death of the Member or to payment of a Member’s Grandfathered Annual Benefit.

 

3.06 Notwithstanding the provisions of Section 3.01 or 3.02, if a Change in Control occurs:

 

  (a) Each Member who, at the time of such Change in Control, is a Retiree and each Beneficiary who at that time is entitled to benefits under Section 3.03 or Section 3.04 shall be entitled to receive an immediate payment in cash, equal to the then present value of the portion of the benefit under Section 3.03 or 3.04 attributable to his 409A Annual Benefit, whichever is applicable, to which the Retiree or his Beneficiary is entitled. Payment under this Section 3.06 shall be made as of the first business day following the date such Change in Control occurs.

 

  (b)

With respect to each Member at the time of such Change in Control who is not a Retiree at that time, (i) such a Member, upon his Termination of Employment within two years of such Change in Control, or (ii) each Beneficiary of such a Member who dies following such Change in Control without having received a benefit under this Section 3.06(b), upon the Member’s death, shall receive an


Page 11

 

 

immediate payment in cash equal to, in the case of the Member, the present value of his 409A Annual Benefit and/or in the case of a Beneficiary, the present value of the benefit, if any payable under Section 3.03 attributable to the Member’s 409A Annual Benefit. The present value of a benefit payable under this Section 3.06 shall be determined on the basis of the (A) the 1983 Group Annuity Mortality Table and (B) an interest rate assumption equal to the applicable interest rate (expressed as a percentage) used by the Pension Benefit Guaranty Corporation for valuing lump sum benefits for single employer plans that terminate on the date of such calculations, minus 0.5%. Subject to the provisions of Section 3.05, payment under this paragraph (b) shall commence as of the first day of the month following the Member’s Termination of Employment.

 

3.07 Notwithstanding any Plan provision to the contrary, the Retirement Administration Committee, in its sole and absolute discretion, may elect to accelerate the time or form of payment of a benefit owed to the Participant hereunder, provided such acceleration is permitted under Treas. Reg. Section 1.409A-3(j)(4) and any subsequent guidance. Notwithstanding any Plan provision to the contrary, the Retirement Administration Committee may also, in its sole and absolute discretion, delay the time for payment of a benefit owed to the Participant hereunder, to the extent permitted under Treas. Reg. Section 1.409A-2(b)(7) and any subsequent guidance.

 

3.08 Any payment under Section 3.06 will be in place of, and in settlement of, the Member’s or Beneficiary’s benefits under Sections 3.03, 3.04 and/or 3.10.

 

3.09 The payment of a Member’s Grandfathered Annual Benefit shall be made in accordance with the provisions of the Plan as in effect on October 3, 2004, except as modified in Schedule E attached hereto and without regard to any amendment after October 3, 2004 which would constitute a material modification for Code Section 409A purposes.


Page 12

 

3.10 Other provisions of the Plan notwithstanding, each person named on Appendix C hereto as a Class C Retiree shall be deemed a Retiree who is entitled to an Annual Benefit payable in the amount, at the times, and under such other terms and conditions as are specified in any separate agreement between the Corporation and such person relating to benefits under the Plan; provided that, in the event of a Change in Control, each such Retiree and each Beneficiary of such a Retiree who is permitted to and who has elected an optional form of benefit making provision for the Beneficiary shall be entitled to receive such Retiree’s and such Beneficiary’s lump sum actuarial equivalent of all future benefits based on the amount and other terms specified in such separate agreement between the Corporation and such Retiree (including taking into account the scheduled starting date if such benefits have not yet commenced to be paid), payable to such Retiree and to such Beneficiary, as the case may be, under this Section 3.10, in full settlement of all of the Retiree’s and Beneficiary’s rights under the Plan. No amount shall be payable to a Beneficiary of such a Retiree under Section 3.03.


Page 13

 

ARTICLE 4 – ADMINISTRATION

 

4.01 The MPD Committee shall select which senior officers of the Corporation and its Affiliates shall be designated as Executive Employees.

 

4.02 The MPD Committee shall have discretion to grant credit for Service to any Executive Employee.

 

4.03 Except with respect to powers specifically reserved to the MPD Committee, the Retirement Administration Committee shall have the exclusive responsibility and complete discretionary authority to control the operation, management and administration of the Plan.

 

4.04 The provisions of the 401(k) Plan and Employee Stock Ownership Plan of CVS Caremark Corporation and Affiliated Companies concerning the Retirement Administration Committee membership, meetings, maintenance of records and the Retirement Administration Committee powers shall apply under the Plan. The expenses of the Retirement Administration Committee incurred in connection with the Plan shall be paid directly by the Corporation.

 

4.05 The Corporation shall indemnify the members of the Retirement Administration Committee or its delegates against any and all claims, losses, damages, expenses, including attorney’s fees, incurred by them and any liability, including any amounts paid in settlement with their approval, arising from their action or failure to act, except when the same is judicially determined to be attributable to their gross negligence or willful misconduct.


Page 14

 

4.06 With respect to beneifts hereunder subject to Code Section 409A, the Plan is intended to comply with the requirements of Code Section 409A and the provisions hereof shall be interpreted in a manner that satisfies the requirements of Code Section 409A and the regulations thereunder, and the Plan shall be operated accordingly. If any provision of the Plan would otherwise frustrate or conflict with this intent, the provision will be interpreted and deemed amended so as to avoid this conflict.


Page 15

 

ARTICLE 5 – GENERAL PROVISIONS

 

5.01 The establishment of the Plan shall not be construed as conferring any legal rights upon any Executive Employee or other person for a continuation of employment, nor shall such actions interfere with the rights of the Corporation to discharge or demote any Executive Employee and to treat him without regard to the effect which such treatment might have upon him as a Member under the Plan.

 

5.02 In the event that the Retirement Administration Committee shall find that a Member is unable to care for his affairs because of illness or accident, the Retirement Administration Committee may direct that any benefit payment due him, unless claim shall have been made therefore by a duly appointed legal representative, be paid to his spouse, a child, a parent or other blood relative, or to a person with whom he resides, and any such payment so made shall be a complete discharge of the liabilities of the Plan therefor.

 

5.03 The Corporation or its Affiliates shall have the right to deduct from each payment to be made under the Plan any required withholding taxes.

 

5.04 Subject to any applicable law, no benefit under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to do so shall be void, or shall any such benefit be in any manner liable for or subject to the debts, contracts, liabilities, engagements or torts of the Member or a Beneficiary.

 

5.05 Notwithstanding any other provision of the Plan to the contrary, in the event that a Member shall at any time be convicted of a crime involving dishonesty or fraud on the part of such Member in his relationship with the Corporation or an Affiliate, all benefits which would otherwise be payable to him under the Plan shall be forfeited.


Page 16

 

5.06 The Corporation’s obligation hereunder shall be an unbounded and unsecured promise to pay money in the future. The rights of any Member or Beneficiary to benefits under the Plan prior to the actual receipt of such benefits shall be limited to those of a general unsecured creditor of the Corporation.

 

5.07 The Plan shall be construed, regulated and administered under the laws of the State of Rhode Island to the extent such laws are not superseded by applicable federal law.

 

5.08 The masculine pronoun shall mean the feminine wherever appropriate.

 

5.09 If any provisions of this Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining provisions hereof, instead, each provision shall be fully severable and the Plan shall be construed and enforced as if said illegal or invalid provision had never been include herein.


Page 17

 

ARTICLE 6 – AMENDMENT OR TERMINATION

The MPD Committee and the Board of Directors each reserves the right to modify or to amend, in whole or in part, or to terminate, this Plan at any time; provided, however, that, without the written consent of the affected Member or affected Beneficiary, no such modification, amendment, or termination shall materially adversely affect the right of any Member (or the Beneficiary of such Member if the Beneficiary is then entitled to receive benefits) to receive the benefits such Member (or the Beneficiary of such Member) should have received under the Plan upon Termination of Employment with the Corporation for any reason, including retirement, death, or disability, had the Plan not been so modified, amended, or terminated, taking into account such Member’s Service and age at the time of such Member’s actual Termination of Employment with the Corporation for any reason. To the extent consistent with the rules relating to plan terminations and liquidations in Treasury Reg. Section 1.409A-3(i)(4)(ix) or otherwise consistent with Code Section 409A, the Corporation may provide that, without the prior written consent of Members (or the Beneficiary of a Member), the Member’s 409A Annual Benefit shall be distributed in a lump sum upon termination of the Plan. Unless so distributed in accordance with the preceding sentence, in the event of a Plan termination, the 409A Annual Benefit shall continue to be paid in accordance with the foregoing provisions of the Plan.


Page 18

 

APPENDIX A

Each of the following is a Class A Member or Class A Retiree as of January 1, 2009:

 

Name

       

Status

Christopher Bodine

      Member

Charles C. Conaway

      Retiree

V. Michael Ferdinandi

      Member

Larry J. Merlo

      Member

Daniel C. Nelson (spouse of)

      Retiree

David Rickard

      Member

Thomas M. Ryan

      Member

Douglas Sgarro

      Member


Page 19

 

APPENDIX B

 

Name

   Annual Amount*

David Rickard

   $ 161,465

Thomas M. Ryan

   $ 100,967

 

*Amount shown above is annual amount payable as a life annuity


Page 20

 

APPENDIX C

 

1. Each of the following is a Class B Retiree:

Francis Rooney

Kenneth Berland

John Riefler

Ira Peterman

Neill Simon

Arthur Richards

Larry McGourty (spouse of)

 

2. Each of the following is, at June 30, 1997, a Class C Retiree entitled to benefits pursuant to Section 3.10 of the Plan as in effect prior to October 4, 2004 and the terms and conditions of a separate agreement between the Corporation and such Retiree (copies of which are attached hereto):

Jerald L. Maurer

Michael Friedheim


Page 21

 

APPENDIX D

Provisions Applicable to a Class D Member

This Appendix D constitutes an integral part of the Plan. The provisions of this Appendix D are applicable only with repect to the Class D Member as defined below. Except as otherwise modified or expanded in this Appendix D, the provsions of this Plan as contained in the text to which this Appendix is attached shall determine the benefits payable to or on behalf of a Member covered under this Appendix.

 

1. The following is a Class D Member:

 

Name

   Applicable Percentage

Nancy Christal

   10.12%

 

2. The Plan Sections referenced below are hereby modified or expanded in accordance with the following special provisions applicable to a Class D Member.

ARTICLE 1. - DEFINITIONS

 

  a. Section 1.01

 

  (i)

“Annual Benefit” shall mean Annual Benefit, with respect to a Class D Member who became or becomes a Retiree after June 30, 1995, the amount by which 35%, or such lesser percentage specified in clause (ii) below, of such Class D Member’s Compensation exceeds the aggregate annualized value of any retirement and deferred profit sharing benefits in respect of such Class D Member (excluding the value of any benefits attributable to pre-tax or after-tax contributions made by or on behalf of the Class D Member) which have previously been received or which such Class D Member or any other person has a vested right to receive at the time of the commencement of payment of such Class D Member’s benefit under Section 3.04 of the Plan, under (A) any arrangement maintained by the Corporation other than the Plan (including any annuity contracts purchased with respect to benefits accrued under the Melville Corporation Retirement Plan), or (B) any arrangement which


Page 22

 

 

constitutes a qualified plan under Section 401(a) of the Internal Revenue Code of 1986, as amended, maintained by any entity other than the Corporation, computed pursuant to clause (iv) below.

 

  (ii)

In the case of any Class D Member whose retirement allowance under Section 3.04 of the Plan commences to be paid on or after his reaching age 55 years but prior to his reaching age 60 years, there shall be substituted for “35%” in clause (i) above that lower percentage which results from subtracting that percentage which is the product of 4 times the number of whole and partial years (treating a partial year as a whole year) until such Class D Member’s 60th birthday so that, for example, the applicable percentage for a Class D Member age 58  1 / 2 years would be 27% (35% - (4 x 2)% = 27%).

 

  (iii) Notwithstanding the foregoing, the Annual Benefit computed under this Section shall not be less than annualized value of a Class D Member’s Accumulated Contribution Amount, as computed at the time such Class D Member becomes a Retiree on the basis of the actuarial assumptions set forth in clause (iv) below.

 

  (iv) The annualized value of a Class D Member’s retirement and deferred profit sharing benefits shall be computed as follows:

 

  (1) with respect to any benefit which such Class D Member is thereupon commencing to receive at the time of such computation in the form of an annuity, the annual payment to which such Class D Member would be entitled under the terms of the plan under which such benefit is to be paid were such benefit to be paid in the form of a single life annuity for the Class D Member’s life, or

 

  (2)

with respect to any other benefit, the annual amount of the actuarial equivalent of such benefit computed as if such benefit were to be paid in


Page 23

 

 

the form of a single life annuity to such Class D Member commencing at the time of such computation. In computing such actuarial equivalents, the actuarial assumptions to be sued shall be (A) the 1983 Group Annuity Mortality Table and (B) an interest rate assumption equal to the applicable interest rate (expressed as a percentage) used by the Pension Benefit Guaranty Corporation for valuing benefits for single employer plans that terminate on the date of such calculation, minus .5%.

 

  b. Section 1.09

Compensation ” shall mean for purposes of this Appendix D, a Class D Member’s annual base pay rate as in effect on such Class D Member’s Compensation Measurement Date plus the Class D Member’s target bonus percentage under the Corporation annual cash incentive program. A Class D Member’s Compensation Measurement Date shall be the date on which such Class D Member incurs a Termination of Employment for any reason, including retirement, death or disability.

 

  c. Accumulated Contribution Account” shall mean the bookkeeping account maintained for a Contribution Account Member to record the amount of company contribution credited on behalf of such Member during the period he is designated as a Contribution Account Member in accordance with Article II of this Appendix D.

 

  d. Contribution Account Member ” shall mean an Eligible Executive listed on Appendix D.

 

3. The following provisions are only applicable to a Class D Member:


Page 24

 

SPECIAL CONTRIBUTIONS

 

(a) (i) A special contribution shall be deemed made to a Class D Member’s Accumulated Contribution Account by the Corporation wit respect to each calendar year prior to the calendar year in which the Class D Member attains age 46 and during which the Class D Member is designated as a Contribution Account Member.

 

  (ii) The special contribution with respect to each calendar year shall be equal to the applicable percentage specified above in this Appendix D of the eligible Member’s Eligible Compensation for the calendar year. For purposes of this Appendix D, Eligible Compensation shall mean the sum of the Contribution Account Member’s annual base rate as in effect for such calendar year, plus the full annual target incentive compensation award under the Annual Incentive Plan of CVS Corporation or the Annual Incentive Plan for the divisions as last in effect immediately prior to the last day of such calendar year.

 

  (iii) The special contribution shall be credited to an eligible Class D Member’s Accumulated Contribution Account no later than the March 31st following the calendar year for which the contribution is deemed made.

 

(b) (i) As of the end of each month, a Class D Member’s Accumulated Contribution Account shall be credited or debited with the amount of earnings or losses which the account would have been credited or debited assuming it had been invested in the Moderate Lifestyle Fund as provided under the 401(k) Plan and Employee Stock Ownership Plan of CVS Caremark Corporation and Affiliated Companies.

 

  (ii)

The Retirement Administration Committee shall maintain, or cause to be maintained on the books of the Corporation, records showing the individual


Page 25

 

 

balance of each eligible Class D Member’s Accumulated Contribution Account. At least once a year, each eligible Class D Member shall be furnished with a statement setting forth the value of his Accumulated Contribution Account.

 

(c) An eligible Class D Member shall be vested in and have a nonforfeitable right to the special contributions credited to this Accumulated Contribution Account (adjusted in accordance with Paragraph b(i) above) in accordance with the following schedule:

 

Completed Years of Vesting Service

   Percentage Vested

1

   10%

2

   20

3

   30

4

   40

5

   50

6

   60

7

   70

8

   80

9

   90

10

   100

A Class D Member shall be credited with one year of Vesting Service for each completed calendar year during which the Class D Member is in the employ of the Corporation and Affiliated Company following the calendar year for which the initial contribution was deemed allocated to his Accumulated Contribution Account pursuant to paragraph (b) above.

 

(d) (i) If a Class D Member incurs a Termination of Employment prior to the attainment of age 55 for any reason, he (or in the event of his death, his Beneficiary) shall be entitled to receive a distribution of the vested portion of his Accumulated Contribution Account determined pursuant to paragraph (c) above. The distribution of such vested portion of a Member’s Accumulated Contribution Account shall be made in a single cash lump sum as soon as practicable following the end of the month coincident with or next following the Class D Member’s Termination of Employment.


Page 26

 

  (ii) Notwithstanding any Plan provision to the contrary, if a Class D Member incurs a Termination of Employment as a Retiree, or dies after attaining age 55 with 10 years of Service but prior to becoming a Retiree, or in the event of a Change in Control, the provisions of this Section of Appendix D shall be inapplicable and Plan benefits payable to or on behalf of the Class D Member’s Termination of Employment shall be determined pursuant to the provisions of Article 3 of the Plan.


Page 27

 

SCHEDULE E

Provisions Applicale to a Member’s Grandfathered Annual Benefit

This Schedule E constitutes an integral part of the Plan and is applicable with respect to the Grandfathered Annual Benefit of those individuals who were Members in the Plan on December 31, 2004 and were actives as of January 1, 2005. The portion of a Member’s Benefit determined under the foregoing provisions of the Plan equal to his Grandfathered Annual Benefit is subject to the provisions of the Plan as in effect on October 3, 2004 without regard to any Plan amendments after October 3, 2004 which would constitute a material modification for Code Section 409A purposes, as otherwise provided in this Schedule E. Section references in this Schedule E correspond to appropriate Sections of said Plan as set forth on October 3, 2004.

For purposes of the Plan, the terms/phrases “termination of employment,” “terminates employment,” “retirement”, “employment is terminated” or other similar language shall mean, with respect to a Member, the complete cessation of providing services to the Corporation.

ARTICLE 1 – DEFINITIONS

 

Section 1.11 The provisionsof Section 1.11 are void as of October 1, 2008 and are eliminated from the Plan as of such date.

 

Section 1.16 The provisions of Section 1.16 are void as of October 1, 2008 and hereby eliminated from the Plan as of such date.

 

Section 3.06 The provisions of Section 3.06 shall apply only to the Member’s Grandfathered Annual Benefit.

Exhibit 10.7

Universal 409A Definition Document

Except as may be specifically agreed to in writing by the CVS Caremark Corporation (the “ Company ”) after December 31, 2008 or as may otherwise be specifically provided in an applicable plan document, for purposes of benefits or amounts covered by Section 409A of the Internal Revenue Code (the “ Code ”):

1. “Specified Employee” shall have the meaning ascribed thereto by Section 409A of the Code and the regulations promulgated thereunder and in determining whether an employee is a Specified Employee, the following rules shall apply:

 

  (a) The compensation of the Employee shall be determined in accordance with the definition of compensation provided under Treas. Reg. Section 1.415(c)-2(d)(3) (wages within the meaning of Section 3401(a) of the Code for purposes of income tax withholding at the source, plus amounts excludible from gross income under Sections 125(a) and 402(e)(3) of the Code).

 

  (b) Notwithstanding anything herein to the contrary, (i) if a different definition of compensation has been designated by the Company with respect to another nonqualified deferred compensation plan in which a key employee participates, the definition of compensation shall be the definition provided in Treas. Reg. Section 1.409A-1(i)(2), and (ii) the Company may, through action that is legally binding with respect to all nonqualified deferred compensation plans maintained by the Company, elect to use a different definition of compensation.

 

  (c) In the event of corporate transactions described in Treas. Reg. Section 1.409A-1(i)(6), the identification of Specified Employees shall be determined in accordance with the default rules described therein, unless the Company elects to utilize the available alternative methodology through designations made within the timeframes specified therein.

 

  (d) Specified Employee Identification Date means December 31, unless the Company has elected a different date through compensation plans maintained by the Employer.

 

  (e) Specified Employee Effective Date means the first day of the fourth month following the Specified Employee Identification Date, unless a different date is selected in writing by the Company for this purpose.


2. Except as provided in an employment agreement with the Company the term “retirement” when used in a plan, arrangement or agreement shall mean with respect to an employee a termination of employment after the earlier of age 55 and 10 years of service and age 60 and 5 years of service; provided, however, that the definition shall not apply for purposes of any Company plan that is qualified under Section 401 of the Internal Revenue Code.

3. Change in Control shall have the meaning described in Section 10(c) of the 1997 Incentive Compensation Plan.

4. “termination of employment”, “employment is terminated” and other similar words shall mean with respect to an employee

 

  (a) “Separation from Service” as such term is defined in the Income Tax Regulations under Section 409A of the Code as modified by the rules described below:

 

  (i) except in the case where the employee is on a bona fide leave of absence pursuant to the Company’s policies as provided below, the employee is deemed to have incurred a Separation from Service on a date if the Company and the employee reasonably anticipate that the level of services to be performed by the employee after such date would be permanently reduced to 20% or less of the average services rendered by the employee during the immediately preceding 36-month period (or the total period of employment, if less than 36 months), disregarding periods during which the employee was on a bona fide leave of absence;

 

  (ii) if the employee is absent from work due to military leave, sick leave, or other bona fide leave of absence pursuant to the Company’s policies, the employee shall incur a Separation from Service on the first date that the rules of (a)(i), above, are satisfied following the later of (i) the 6 month (12 month for a disability leave of absence) anniversary of the commencement of the leave or (ii) the expiration of the employee’s right, if any, to reemployment under statute, contract or to Company policy. For this purpose, a “disability leave of absence” is an absence due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 6 months, where such impairment causes the employee to be unable to perform the duties of his job or a substantially similar job;

 

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  (iii) for purposes of determining whether another organization is an Affiliate of the Company, common ownership of at least 50% shall be determinative;

 

  (iv) the Company specifically reserves the right to determine whether a sale or other disposition of substantial assets to an unrelated party constitutes a Separation from Service with respect to an employee providing services to the seller immediately prior to the transaction and providing services to the buyer after the transaction. Such determination shall be made in accordance with the requirements of Section 409A of the Code; or

 

  (b) for any plan or arrangement that is not subject to the rules of Section 409A of the Code, the complete cessation of providing service to the Company or any Affiliate as an employee.

5. “unforeseeable emergency”, “hardship” and similar words shall mean with respect to an employee or former employee a severe financial hardship to the employee resulting from an illness or accident of the employee, the employee’s spouse, the employee’s beneficiary, or the employee’s dependent (as defined in Code Section 152, without regard to Sections 152(b)(1), (b)(2), and (d)(1)(B)); loss of the employee’s property due to casualty (including the need to rebuild a home following damage to a home not otherwise covered by insurance); or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the employee including, for example, the imminent foreclosure of or eviction from the employee’s primary residence, the need to pay for medical expenses, including non-refundable deductibles, as well as for the costs of prescription drug medication, or other circumstances, all as permitted by Income Tax Regulations Section 1.409A-3(i)(3).

 

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Exhibit 10.8

CVS Caremark Corporation

1997 Incentive Compensation Plan

As Amended Through

December 31, 2008


Table of Contents

 

         Page
1.  

Purpose

   1
2.  

Definitions

   1
3.  

Administration

   4
  (a)    Authority of the Committee    4
  (b)    Manner of Exercise of Committee Authority    4
  (c)    Limitation of Liability    5
4.  

Stock Subject to Plan

   5
  (a)    Overall Number of Shares Available for Delivery    5
  (b)    Application of Limitation to Grants of Awards    5
  (c)    Availability of Shares Not Delivered Under Awards    5
5.  

Eligibility; Per-Person Award Limitations

   6
6.  

Specific Terms of Awards

   6
  (a)    General    6
  (b)    Options    6
  (c)    Stock Appreciation Rights    7
  (d)    Restricted Stock    7
  (e)    Deferred Stock    8
  (f)    Bonus Stock and Awards in Lieu of Obligations    9
  (g)    Dividend Equivalents    9
  (h)    Other Stock-Based Awards    9
7.  

Certain Provisions Applicable to Awards

   10
  (a)    Stand-Alone, Additional, Tandem, and Substitute Awards    10
  (b)    Term of Awards    10
  (c)    Form and Timing of Payment under Awards; Deferrals    10
  (d)    Exemptions from Section 16(b) Liability    11
  (e)    Cancellation and Rescission of Awards    11
  (f)    Limitation on Vesting of Certain Awards    12
8.  

Special Rules for Directors

   12
  (a)    Issuance of Shares to Directors    12
  (b)    Deferral of Shares by Directors    13
  (c)    Settlement    13
  (d)    Equivalents    13
  (e)    Payment; Fractional Shares    13
9.  

Performance and Annual Incentive Awards

   14
  (a)    Performance Conditions    14
  (b)    Performance Awards Granted to Designated Covered Employees    14
  (c)    Annual Incentive Awards Granted to Designated Covered Employees    15
  (d)    Written Determinations    17
  (e)    Status of Section 9(b) and 9(c) Awards under Code Section 162(m)    17

 

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         Page
10.   Change in Control    17
  (a)    Effect of “Change in Control”    17
  (b)    Definition of “Change in Control”    18
  (c)    Definition of “Change in Control”    19
11.  

General Provisions

   20
  (a)    Compliance with Legal and Other Requirements    20
  (b)    Limits on Transferability; Beneficiaries    21
  (c)    Adjustments    21
  (d)    Taxes    22
  (e)    Changes to the Plan and Awards    22
  (f)    Limitation on Rights Conferred under Plan    23
  (g)    Unfunded Status of Awards; Creation of Trusts    23
  (h)    Non-exclusivity of the Plan    23
  (i)    Payments in the Event of Forfeitures; Fractional Shares    23
  (j)    Governing Law    24
  (k)    Awards under Preexisting Plans    24
  (l)    Section 409A of the Code    24
  (m)    Plan Effective Date and Stockholder Approval; Expiration Date    24

 

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CVS CAREMARK CORPORATION

1997 Incentive Compensation Plan

1. Purpose . The purpose of this 1997 Incentive Compensation Plan (the “Plan”) is to assist CVS Caremark Corporation, a Delaware corporation (the “Corporation”), and its subsidiaries in attracting, retaining, and rewarding high-quality executives, employees, and other persons who provide services to the Corporation and/or its subsidiaries, enabling such persons to acquire or increase a proprietary interest in the Corporation in order to strengthen the mutuality of interests between such persons and the Corporation’s stockholders, and providing such persons with annual and long-term performance incentives to expend their maximum efforts in the creation of stockholder value. The Plan is also intended to qualify certain compensation awarded under the Plan for tax deductibility under Code Section 162(m) (as hereafter defined) to the extent deemed appropriate by the Committee (or any successor committee) of the Board of Directors of the Corporation.

2. Definitions . For purposes of the Plan, the following terms shall be defined as set forth below, in addition to such terms defined in Section 1 hereof:

(a) “Annual Incentive Award” means a conditional right granted to a Participant under Section 9(c) hereof to receive a cash payment, Stock or other Award, unless otherwise determined by the Committee, after the end of a specified fiscal year.

(b) “Award” means any Option, Restricted Stock, Deferred Stock, Stock granted as a bonus or in lieu of another award, Stock awarded to a director pursuant to Section 8, Dividend Equivalent, Other Stock-Based Award, Performance Award or Annual Incentive Award, together with any other right or interest granted to a Participant under the Plan.

(c) “Beneficiary” means the person, persons, trust or trusts which have been designated by a Participant in his or her most recent written beneficiary designation filed with the Committee to receive the benefits specified under the Plan upon such Participant’s death or to which Awards or other rights are transferred if and to the extent permitted under Section 11(b) hereof. If, upon a Participant’s death, there is no designated Beneficiary or surviving designated Beneficiary, then the term Beneficiary means person, persons, trust or trusts entitled by will or the laws of descent and distribution to receive such benefits.

(d) “Beneficial Owner” shall have the meaning ascribed to such term in Rule 13d-3 under the Exchange Act and any successor to such Rule.

(e) “Board” means the Corporation’s Board of Directors.

(f) “Change in Control” means Change in Control as defined with related terms in Sections 10(b) and 10(c) of the Plan.

 

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(g) “Code” means the Internal Revenue Code of 1986, as amended from time to time, including regulations thereunder and successor provisions and regulations thereto.

(h) “Committee” means a committee of two or more directors designated by the Board to administer the Plan; provided, however, that, unless otherwise determined by the Board, the Committee shall consist solely of two or more directors, each of whom shall be (i) a “non-employee director” within the meaning of Rule 16b-3 under the Exchange Act, unless administration of the Plan by “non-employee directors” is not then required in order for exemptions under Rule 16b-3 to apply to transactions under the Plan, and (ii) an “outside director” as defined under Code Section 162(m), unless administration of the Plan by “outside directors” is not then required in order to qualify for tax deductibility under Code Section 162(m).

(i) “Covered Employee” means an Eligible Person who is a Covered Employee as specified in Section 9(e) of the Plan.

(j) “Deferred Stock” means a right, granted to a Participant under Section 6(e) hereof, to receive Stock, cash or a combination thereof at the end of a specified deferral period.

(k) “Dividend Equivalent” means a right, granted to a Participant under Section 6(g), to receive cash, Stock, other Awards or other property equal in value to dividends paid with respect to a specified number of shares of Stock, or other periodic payments.

(l) “Effective Date” means January 8, 1997.

(m) “Eligible Person” means each Executive Officer and other officers and employees of the Corporation or of any subsidiary, including such persons who may also be directors of the Corporation, and any Eligible Director. An employee on leave of absence may be considered as still in the employ of the Corporation or a subsidiary for purposes of eligibility for participation in the Plan.

(n) “Eligible Director” means a director of the Corporation who at the relevant time is not, and for the preceding 12 months was not, an employee of the Corporation or its subsidiaries.

(o) “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, including rules thereunder and successor provisions and rules thereto.

(p) “Executive Officer” means an executive officer of the Corporation as defined under the Exchange Act.

(q) “Fair Market Value” means the fair market value of Stock, Awards or other property as determined by the Committee or under procedures established by the Committee. Unless otherwise determined by the Committee, the Fair Market

 

2


Value of Stock shall be the closing price of a share of Stock, as quoted on the composite transactions table on the New York Stock Exchange, on the date on which the determination of fair market value is being made.

(r) “Incentive Stock Option” or “ISO” means any Option intended to be and designated as an incentive stock option within the meaning of Code Section 422 or any successor provision thereto; provided, however, that only an Eligible Person who is an employee within the meaning of Code Section 422 and the regulations thereunder shall be eligible to receive an ISO.

(s) “Limited SAR” means a right granted to a Participant under Section 6(c) hereof.

(t) “Option” means a right, granted to a Participant under Section 6(b) hereof, to purchase Stock or other Awards at a specified price during specified time periods.

(u) “Other Stock Based Awards” means Awards granted to a Participant under Section 6(h) hereof.

(v) “Participant” means a person who has been granted an Award under the Plan that remains outstanding, including a person who is no longer an Eligible Person.

(w) “Performance Award” means a right, granted to a Participant under Section 9 hereof, to receive Awards based upon performance criteria specified by the Committee.

(x) “Person” shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, and shall include a “group” as defined in Section 13(d) thereof.

(y) “Preexisting Plans” mean the CVS Corporation Omnibus Incentive Plan, the CVS Corporation 1987 Stock Option Plan, and the CVS Corporation 1973 Stock Option Plan.

(z) “Qualified Member” means a member of the Committee who is a “Non-Employee Director” within the meaning of Rule 16b-3(b)(3) and an “outside director” within the meaning of Regulation 1.162-27 under Code Section 162(m).

(aa) “Restricted Stock” means Stock granted to a Participant under Section 6(d) hereof, that is subject to certain restrictions and to a risk of forfeiture.

(bb) “Rule 16b-3” means Rule 16b-3, as from time to time in effect and applicable to the Plan and Participants, promulgated by the Securities and Exchange Commission under Section 16 of the Exchange Act.

 

3


(cc) “Stock” means the Corporation’s Common Stock, and such other securities as may be substituted (or resubstituted) for Stock pursuant to Section 11(c) hereof.

(dd) “Stock Appreciation Rights” or “SAR” means a right granted to a Participant under Section 6(c) hereof.

3. Administration.

(a) Authority of the Committee . The Plan shall be administered by the Committee, except to the extent the Board elects to administer the Plan, in which case references herein to the “Committee” shall be deemed to include references to the “Board”. The Committee shall have full and final authority, in each case subject to and consistent with the provisions of the Plan, to select Eligible Persons to become Participants, grant Awards, determine the type, number and other terms and conditions of, and all other matters relating to, Awards, prescribe Award agreements (which need not be identical for each Participant) and rules and regulations for the administration of the Plan, construe and interpret the Plan and Award agreements and correct defects, supply omissions or reconcile inconsistencies therein, and to make all other decisions and determinations as the Committee may deem necessary or advisable for the administration of the Plan.

(b) Manner of Exercise of Committee Authority . At any time that a member of the Committee is not a Qualified Member, any action of the Committee relating to an Award granted or to be granted to a Participant who is then subject to Section 16 of the Exchange Act in respect of the Corporation, or relating to an Award intended by the Committee to qualify as “performance-based compensation” within the meaning of Code Section 162(m) and regulations thereunder, may be taken either (i) by a subcommittee, designated by the Committee, composed solely of two or more Qualified Members, or (ii) by the Committee but with each such member who is not a Qualified Member abstaining or recusing himself or herself from such action; provided, however, that, upon such abstention or recusal, the Committee remains composed solely of two or more Qualified Members. Such action, authorized by such a subcommittee or by the Committee upon the abstention or recusal of such non-Qualified Member(s), shall be the action of the Committee for purposes of the Plan. Any action of the Committee shall be final, conclusive and binding on all persons, including the Corporation, its subsidiaries, Participants, Beneficiaries, transferees under Section 11(b) hereof or other persons claiming rights from or through a Participant, and stockholders. The express grant of any specific power to the Committee, and the taking of any action by the Committee, shall not be construed as limiting any power or authority of the Committee. To the extent permitted by applicable law, the Committee may delegate to officers or managers of the Corporation or any subsidiary, or committees thereof, the authority, subject to such terms as the Committee shall determine, to perform such functions, including administrative functions, as the Committee may determine, to the extent that such delegation will not result in the loss of an exemption under Rule 16b-3(d)(1) for Awards granted to Participants subject to Section 16 of the Exchange Act in respect of the Corporation and will not cause Awards intended to qualify as “performance-based compensation” under Code Section 162(m) to fail to so qualify. The Committee may appoint agents to assist it in administering the Plan.

 

4


(c) Limitation of Liability . The Committee and each member thereof shall be entitled to, in good faith, rely or act upon any report or other information furnished to him or her by any executive officer, other officer or employee of the Corporation or a subsidiary, the Corporation’s independent auditors, consultants or any other agents assisting in the administration of the Plan. Members of the Committee and any officer or employee of the Corporation or a subsidiary acting at the direction or on behalf of the Committee shall not be personally liable for any action or determination taken or made in good faith with respect to the Plan, and shall, to the extent permitted by law, be fully indemnified and protected by the Corporation with respect to any such action or determination.

4. Stock Subject to Plan .

(a) Overall Number of Shares Available for Delivery . Subject to adjustment as provided in Section 11(c) hereof, the total number of shares of Stock reserved and available for delivery in connection with Awards under the Plan shall be (i) 49 million, plus (ii) the number of shares of Stock remaining available under Preexisting Plans immediately prior to the date on which shareholders of the Corporation originally approved the adoption of the Plan, plus (iii) the number of shares of Stock subject to awards under Preexisting Plans which become available in accordance with Section 4(c) hereof after the date on which shareholders of the Corporation originally approved the adoption of the Plan, plus (iv) 9.4% of the number of shares of Stock issued or delivered by the Corporation during the term of the Plan (excluding any issuance or delivery in connection with Awards, or any other compensation or benefit plan of the Corporation); provided, however, that the total number of shares of Stock with respect to which ISOs may be granted shall not exceed 8.0 million and the total number of shares of Restricted Stock, Deferred Stock, Stock awarded as a bonus or in lieu of an obligation, and Other Stock-Based Awards awarded under the Plan shall not exceed 18.0 million. Any shares of Stock delivered under the Plan shall consist of authorized and unissued shares or treasury shares.

(b) Application of Limitation to Grants of Awards . No Award may be granted if the number of shares of Stock to be delivered in connection with such Award or, in the case of an Award relating to shares of Stock but settleable only in cash, the number of shares to which such Award relates, exceeds the number of shares of Stock remaining available under the Plan minus the number of shares of Stock issuable in settlement of or relating to then-outstanding Awards. The Committee may adopt reasonable counting procedures to ensure appropriate counting, avoid double counting (as, for example, in the case of tandem or substitute awards) and make adjustments if the number of shares of Stock actually delivered differs from the number of shares previously counted in connection with an Award.

(c) Availability of Shares Not Delivered Under Awards . Shares of Stock subject to an Award under the Plan or award under a Preexisting Plan that is

 

5


canceled, expired, forfeited, settled in cash or otherwise terminated without a delivery of shares to the Participant, including (i) the number of shares withheld in payment of any exercise or purchase price of an Award or award or taxes relating to Awards or awards, and (ii) the number of shares surrendered in payment of any exercise or purchase price of an Award or awards or taxes relating to any Award or award, will again be available for Awards under the Plan, except that if any such shares could not again be available for Awards to a particular Participant under any applicable law or regulation, such shares shall be available exclusively for Awards to Participants who are not subject to such limitation.

5. Eligibility ; Per-Person Award Limitations . Awards may be granted under the Plan only to Eligible Persons. In each fiscal year during any part of which the Plan is in effect, an Eligible Person may not be granted Awards relating to more than 3.0 million shares of Stock, subject to adjustment as provided in Section 11(c), under each of Sections 6(b), 6(c), 6(d), 6(e), 6(f), 6(g), 6(h), 9(b) and 9(c). In addition, the maximum cash amount that may be earned under the Plan as a final Annual Incentive Award or other cash annual Award in respect of any fiscal year by any one Participant shall be $5 million, and the maximum cash amount that may be earned under the Plan as a final Performance Award or other cash Award in respect of a performance period other than an annual period by any one Participant on an annualized basis shall be $5 million.

6. Specific Terms of Awards .

(a) General . Awards may be granted on the terms and conditions set forth in this Section 6, and with respect to directors of the Corporation, in Section 8. In addition, the Committee may impose on any Award or the exercise thereof, at the date of grant or thereafter (subject to Section 11(e)), such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall determine, including terms requiring forfeiture of Awards in the event of termination of employment by the Participant and terms permitting a Participant to make elections relating to his or her Award. The Committee shall retain full power and discretion to accelerate, waive or modify, at any time, any term or condition of an Award that is not mandatory under the Plan. Except in cases in which the Committee is authorized to require other forms of consideration under the Plan, or to the extent other forms of consideration must by paid to satisfy the requirements of the Delaware General Corporation Law, no consideration other than services may be required for the grant (but not the exercise) of any Award.

(b) Options . The Committee is authorized to grant Options to Participants on the following terms and conditions:

(i) Exercise Price. The exercise price per share of Stock purchasable under an Option shall be determined by the Committee, provided that such exercise price shall be not less than the Fair Market Value of a share of Stock on the date of grant of such Option except as provided under the first sentence of Section 7(a) hereof.

(ii) Time and Method of Exercise . The Committee shall determine the time or times at which or the circumstances under which

 

6


an Option may be exercised in whole or in part (including based on achievement of performance goals and/or future service requirements), the methods by which such exercise price may be paid or deemed to be paid, the form of such payment, including, without limitation, cash, Stock, other Awards or awards granted under other plans of the Corporation or any subsidiary, or other property, and the methods by or forms in which Stock will be delivered or deemed to be delivered to Participants.

(iii) ISOs. The terms of any ISO granted under the Plan shall comply in all respects with the provisions of Code Section 422. Anything in the Plan to the contrary notwithstanding, no term of the Plan relating to ISOs shall be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be exercised, so as to disqualify either the Plan or any ISO under Code Section 422, unless the Participant has first requested the change that will result in such disqualification.

(c) Stock Appreciation Rights . Effective April 18, 2001, the Committee shall not be authorized to grant SARs or Limited SARs to Participants under the Plan.

(d) Restricted Stock. The Committee is authorized to grant Restricted Stock to Participants on the following terms and conditions:

(i) Grant and Restrictions . Restricted Stock shall be subject to such restrictions on transferability, risk of forfeiture and other restrictions, if any, as the Committee may impose, which restrictions may lapse separately or in combination at such times, under such circumstances (including based on achievement of performance goals and/or future service requirements), in such installments or otherwise, as the Committee may determine at the date of grant or thereafter. Except to the extent restricted under the terms of the Plan and any Award agreement relating to the Restricted Stock, a Participant granted Restricted Stock shall have all of the rights of a stockholder, including the right to vote the Restricted Stock and the right to receive dividends thereon (subject to any mandatory reinvestment or other requirement imposed by the Committee). During the restricted period applicable to the Restricted Stock, subject to Section 11(b) below, the Restricted Stock may not be sold, transferred, pledged, hypothecated, margined or otherwise encumbered by the Participant.

(ii) Forfeiture. Except as otherwise determined by the Committee, upon termination of employment during the applicable restriction period, Restricted Stock that is at that time subject to restrictions shall be forfeited and reacquired by the Corporation; provided that the Committee may provide, by rule or regulation or in any Award agreement, or may determine in any individual case, that restrictions or forfeiture conditions relating to Restricted Stock shall be

 

7


waived in whole or in part in the event of terminations resulting from specified causes, and the Committee may in other cases waive in whole or in part the forfeiture of Restricted Stock.

(iii) Certificates for Stock . Restricted Stock granted under the Plan may be evidenced in such manner as the Committee shall determine. If certificates representing Restricted Stock are registered in the name of the Participant, the Committee may require that such certificates bear an appropriate legend referring to the terms, conditions and restrictions applicable to such Restricted Stock, that the Corporation retain physical possession of the certificates, and that the Participant deliver a stock power to the Corporation, endorsed in blank, relating to the Restricted Stock.

(iv) Dividends and Splits . As a condition to the grant of an Award of Restricted Stock, the Committee may require that any cash dividends paid on a share of Restricted Stock be automatically reinvested in additional shares of Restricted Stock or applied to the purchase of additional Awards under the Plan. Unless otherwise determined by the Committee, Stock distributed in connection with a Stock split or Stock dividend, and other property distributed as a dividend, shall be subject to restrictions and a risk of forfeiture to the same extent as the Restricted Stock with respect to which such Stock or other property has been distributed.

(e) Deferred Stock . The Committee is authorized to grant Deferred Stock to Participants, which are rights to receive Stock, cash, or a combination thereof at the end of a specified deferral period, subject to the following terms and conditions:

(i) Award and Restrictions . Satisfaction of an Award of Deferred Stock shall occur upon expiration of the deferral period specified for such Deferred Stock by the Committee (or, if permitted by the Committee, as elected by the Participant). In addition, Deferred Stock shall be subject to such restrictions (which may include a risk of forfeiture) as the Committee may impose, if any, which restrictions may lapse at the expiration of the deferral period or at earlier specified times (including based on achievement of performance goals and/or future service requirements), separately or in combination, in installments or otherwise, as the Committee may determine. Deferred Stock may be satisfied by delivery of Stock, cash equal to the Fair Market Value of the specified number of shares of Stock covered by the Deferred Stock, or a combination thereof, as determined by the Committee at the date of grant or thereafter.

(ii) Forfeiture . Except as otherwise determined by the Committee, upon termination of employment during the applicable deferral period or portion thereof to which forfeiture conditions apply (as provided in the Award agreement evidencing the Deferred Stock),

 

8


all Deferred Stock that is at that time subject to deferral (other than a deferral at the election of the Participant) shall be forfeited; provided that the Committee may provide, by rule or regulation or in any Award agreement, or may determine in any individual case, that restrictions or forfeiture conditions relating to Deferred Stock shall be waived in whole or in part in the event of terminations resulting from specified causes, and the Committee may in other cases waive in whole or in part the forfeiture of Deferred Stock.

(iii) Dividend Equivalents . Unless otherwise determined by the Committee at date of grant, Dividend Equivalents on the specified number of shares of Stock covered by an Award of Deferred Stock shall be either (A) paid with respect to such Deferred Stock at the dividend payment date in cash or in shares of unrestricted Stock having a Fair Market Value equal to the amount of such dividends, or (B) deferred with respect to such Deferred Stock and the amount or value thereof automatically deemed reinvested in additional Deferred Stock, other Awards or other investment vehicles, as the Committee shall determine or permit the Participant to elect.

(f) Bonus Stock and Awards in Lieu of Obligations . The Committee is authorized to grant Stock as a bonus, or to grant Stock or other Awards in lieu of obligations to pay cash or deliver other property under the Plan or under other plans or compensatory arrangements, provided that, in the case of Participants subject to Section 16 of the Exchange Act, the amount of such grants remains within the discretion of the Committee to the extent necessary to ensure that acquisitions of Stock or other Awards are exempt from liability under Section 16(b) of the Exchange Act. Stock or Awards granted hereunder shall be subject to such other terms as shall be determined by the Committee. In the case of any grant of Stock to an officer of the Corporation in lieu of salary or other cash compensation, the number of shares granted in place of such compensation shall be reasonable, as determined by the Committee.

(g) Dividend Equivalents . The Committee is authorized to grant Dividend Equivalents to a Participant, entitling the Participant to receive cash, Stock, other Awards, or other property equal in value to dividends paid with respect to a specified number of shares of Stock, or other periodic payments. Dividend Equivalents may be awarded on a free-standing basis or in connection with another Award. The Committee may provide that Dividend Equivalents shall be paid or distributed when accrued or shall be deemed to have been reinvested in additional Stock, Awards, or other investment vehicles, and subject to such restrictions on transferability and risks of forfeiture, as the Committee may specify.

(h) Other Stock-Based Awards . The Committee is authorized, subject to limitations under applicable law, to grant to Participants such other Awards that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, Stock, as deemed by the Committee to be consistent with the purposes of the Plan, including, without limitation, convertible or exchangeable debt securities, other rights convertible or exchangeable into Stock,

 

9


purchase rights for Stock, Awards with value and payment contingent upon performance of the Corporation or any other factors designated by the Committee, and Awards valued by reference to the book value of Stock or the value of securities of or the performance of specified subsidiaries. The Committee shall determine the terms and conditions of such Awards. Stock delivered pursuant to an Award in the nature of a purchase right granted under this Section 6(h) shall be purchased for such consideration, paid for at such times, by such methods, and in such forms, including, without limitation, cash, Stock, other Awards, or other property, as the Committee shall determine. Cash awards, as an element of or supplement to any other Award under the Plan, may also be granted pursuant to this Section 6(h).

7. Certain Provisions Applicable to Awards.

(a) Stand-Alone, Additional, Tandem, and Substitute Awards . Awards granted under the Plan may, in the discretion of the Committee, be granted at any time, either alone or in addition to, in tandem with, or in substitution or exchange for, any other Award or any award granted under another plan of the Corporation, any subsidiary, or any business entity to be acquired by the Corporation or a subsidiary, or any other right of a Participant to receive payment from the Corporation or any subsidiary, but if an Award is granted in substitution or exchange for another Award or award, the Committee shall require the surrender of such other Award or award in consideration for the grant of the new Award and any shares of Stock issued pursuant to such substitute award shall not count against the limitations of Section 4. In addition, Awards may be granted in lieu of cash compensation, including in lieu of cash amounts payable under other plans of the Corporation or any subsidiary, in which the value of Stock subject to the Award (for example, Deferred Stock or Restricted Stock) is equivalent in value to the cash compensation, provided, however, that any such Award that is an Option shall have an exercise price that is at least 100% of the Fair Market Value of a share of Stock on the date of grant of such Option.

(b) Term of Awards . The term of each Award shall be for such period as may be determined by the Committee; provided that in no event shall the term of any Option exceed a period of ten years (or such shorter term as may be required in respect of an ISO under Code Section 422).

(c) Form and Timing of Payment under Awards; Deferrals . Subject to the terms of the Plan and any applicable Award agreement, payments to be made by the Corporation or a subsidiary upon the exercise of an Option or other Award or settlement of an Award may be made in such forms as the Committee shall determine, including, without limitation, cash, Stock, other Awards or other property, and may be made in a single payment or transfer, in installments, or on a deferred basis. The settlement of any Award may be accelerated, and cash paid in lieu of Stock in connection with such settlement, in the discretion of the Committee or upon occurrence of one or more specified events (in addition to a Change in Control). Installment or deferred payments may be required by the Committee (subject to Section 11(e) of the Plan, including the consent provisions thereof in the case of any deferral of an outstanding Award not provided for in the original Award agreement) or permitted at the election of the Participant on terms and conditions

 

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established by the Committee. Payments may include, without limitation, provisions for the payment or crediting of reasonable interest on installment or deferred payments or the grant or crediting of Dividend Equivalents or other amounts in respect of installment or deferred payments denominated in Stock.

(d) Exemptions from Section 16(b) Liability . It is the intent of the Corporation that the grant of any Awards to or other transaction by a Participant who is subject to Section 16 of the Exchange Act shall be exempt under Rule 16b-3 (except for transactions acknowledged in writing to be non-exempt by such Participant). Accordingly, if any provision of this Plan or any Award agreement does not comply with the requirements of Rule 16b-3 as then applicable to any such transaction, such provision shall be construed or deemed amended to the extent necessary to conform to the applicable requirements of Rule 16b-3 so that such Participant shall avoid liability under Section 16(b).

(e) Cancellation and Rescission of Awards . Unless the Award agreement specifies otherwise, the Committee may cancel any unexpired, unpaid, or deferred Awards at any time, and the Corporation shall have the additional rights set forth in Section 7(e)(iv) below, if the Participant is not in compliance with all applicable provisions of the Award agreement and the Plan including the following conditions:

(i) A Participant shall not render services for any organization or engage directly or indirectly in any business that, in the judgment of the Chief Executive Officer of the Corporation or other senior officer designated by the Committee, is or becomes competitive with the Corporation. For Participants whose employment has terminated, the judgment of the Chief Executive Officer or other senior officer designated by the Committee shall be based on the Participant’s position and responsibilities while employed by the Corporation, the Participant’s post-employment responsibilities and position with the other organization or business, the extent of past, current and potential competition or conflict between the Corporation and the other organization or business, the effect on the Corporation’s stockholders, customers, suppliers and competitors of the Participant assuming the post-employment position and such other considerations as are deemed relevant given the applicable facts and circumstances. A Participant who has terminated employment shall be free, however, to purchase as an investment or otherwise, stock or other securities of such organization or business so long as they are listed upon a recognized securities exchange or traded over-the-counter, and such investment does not represent a greater than five percent equity interest in the organization or business.

(ii) A Participant shall not, without prior written authorization from the Corporation, disclose to anyone outside the Corporation, or use in other than the Corporation’s business, any confidential information or material relating to the business of the Corporation that is acquired by the Participant either during or after employment with the Corporation.

 

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(iii) A Participant shall disclose promptly and assign to the Corporation all right, title, and interest in any invention or idea, patentable or not, made or conceived by the Participant during employment by the Corporation, relating in any manner to the actual or anticipated business, research or development work of the Corporation and shall do anything reasonably necessary to enable the Corporation to secure a patent where appropriate in the United States and in foreign countries.

(iv) Upon exercise, settlement, payment or delivery pursuant to an Award, the Participant shall certify on a form acceptable to the Committee that he or she is in compliance with the terms and conditions of the Plan. Failure to comply with the provisions of this Section 7(e) prior to, or during the six months after, any exercise, payment or delivery pursuant to an Award shall cause such exercise, payment or delivery to be rescinded. The Corporation shall notify the Participant in writing of any such rescission within two years after such exercise, payment or delivery. Within ten days after receiving such a notice from the Corporation, the Participant shall pay to the Corporation the amount of any gain realized or payment received as a result of the rescinded exercise, payment or delivery pursuant to an Award. Such payment shall be made either in cash or by returning to the Corporation the number of shares of Stock that the Participant received in connection with the rescinded exercise, payment or delivery.

(f) Limitation of Vesting of Certain Awards . Restricted Stock, Deferred Stock, and Other Stock-Based Awards, as described in Section 6(d), 6(e) and 6(h) of the Plan, respectively, generally will vest over a minimum period of three years, except in the event of a Participant’s death, disability, or retirement, or in the event of a Change in Control or other special circumstances. The foregoing notwithstanding, (i) Restricted Stock, Deferred Stock, and Other Stock–Based Awards as to which either the grant or the vesting is based on the achievement of one or more performance conditions generally will vest over a minimum period of one year except in the event of a Participant’s death, disability, or retirement, or in the event of a Change in Control or other special circumstances, and (ii) up to 5% of the shares of Stock authorized under the Plan may be granted as Restricted Stock, Deferred Stock, or Other Stock-Based Awards without any minimum vesting requirements. For purposes of this Section 7(f), vesting over a three-year period or one-year period will include periodic vesting over such period if the rate of such vesting is proportional throughout such period.

8. Special Rules for Directors .

(a) Issuance of Shares to Directors . To the extent provided by the Board as part of its determination of the compensation of members of the Board, shares may be issued to an Eligible Director under the Plan as part of such compensation.

 

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(b) Deferral of Shares by Directors . Each Eligible Director may elect to defer the receipt of shares otherwise currently payable to such Eligible Director under Section 8(a) of this Plan until such Eligible Director terminates service as a director or such other date or event as permitted under rules established by the Board and uniformly applied. In that event, such Eligible Director shall be granted an immediate award of share credits equal to the number of shares of Stock elected to be deferred, including fractional share credits to not less than three decimal places.

(c) Settlement . As soon as practicable after an Eligible Director has ceased being a Director of the Corporation or such other date or event elected by an Eligible Director under Section 8(b), all awards shall be paid to the Eligible Director or, in the case of the death of the Eligible Director, the Eligible Director’s designated beneficiary or beneficiaries, or in the absence of a designated beneficiary, to the estate of the Eligible Director, in a single payment or installments as elected by the Eligible Director.

(d) Equivalents .

(i) In addition to the payment provided for in Section 8(c), each Eligible Director (or beneficiary) entitled to payment under this Section 8(d) shall receive at the same time the dividend equivalent amounts calculated under subsection (ii) below.

(ii) The dividend equivalent amount is the number of additional share credits attributable to the number of share credits originally granted plus additional share credits previously calculated hereunder. Such additional share credits shall be determined and credited as of each dividend payment date by dividing the aggregate cash dividends that would have been paid had share credits awarded or credited (but not yet paid) under this Section 8(d), as the case may be, been actual shares of Stock on the record date for such dividend by the market price per share of Stock on the dividend payment date. For this purpose, the market price on any day shall be the average of the highest and lowest sales price of Stock as quoted on the composite transactions table for such day, unless the Board determines that another procedure for determining market price would be more appropriate. Fractional share credits shall be calculated to not less than three decimal places.

(e) Payment; Fractional Shares . Payments pursuant to Sections 8(c) and 8(d) above shall be made in shares of Stock, except that there shall be paid in cash the value of any fractional share.

 

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9. Performance and Annual Incentive Awards.

(a) Performance Conditions . The right of a Participant to exercise or receive a grant or settlement of any Award, and the timing thereof, may be subject to such performance conditions as may be specified by the Committee. The Committee may use such business criteria and other measures of performance as it may deem appropriate in establishing any performance conditions, and may exercise its discretion to reduce or increase the amounts payable under any Award subject to performance conditions, except as limited under Sections 9(b) and 9(c) hereof in the case of a Performance Award or Annual Incentive Award intended to qualify under Code Section 162(m).

(b) Performance Awards Granted to Designated Covered Employees . If the Committee determines that a Performance Award to be granted to an Eligible Person who is designated by the Committee as likely to be a Covered Employee should qualify as “performance-based compensation” for purposes of Code Section 162(m), the grant, exercise and/or settlement of such Performance Award shall be contingent upon achievement of pre-established performance goals and other terms set forth in this Section 9(b).

(i) Performance Goals Generally . The performance goals for such Performance Awards shall consist of one or more business criteria and a targeted level or levels of performance with respect to each of such criteria, as specified by the Committee consistent with this Section 9(b). Performance goals shall be objective and shall otherwise meet the requirements of Code Section 162(m) and regulations thereunder (including Regulation 1.162-27 and successor regulations thereto), including the requirement that the level or levels of performance targeted by the Committee result in the achievement of performance goals being “substantially uncertain.” The Committee may determine that such Performance Awards shall be granted, exercised and/or settled upon achievement of any one performance goal or that two or more of the performance goals must be achieved as a condition to grant, exercise and/or settlement of such Performance Awards. Performance goals may differ for Performance Awards granted to any one Participant or to different Participants.

(ii) Business Criteria . One or more of the following business criteria for the Corporation, on a consolidated basis, and/or for specified subsidiaries or business units of the Corporation (except with respect to the total stockholder return and earnings per share criteria), shall be used by the Committee in establishing performance goals for such Performance Awards: (1) earnings per share; (2) revenues; (3) cash flow; (4) cash flow return on investment; (5) return on net assets, return on assets, return on investment, return on capital, return on equity; (6) economic value added; (7) operating margin; (8) net income; pretax earnings; pretax earnings before interest, depreciation and amortization; pretax operating earnings after interest expense and before incentives, service fees, and extraordinary or special items; operating earnings; (9)

 

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total stockholder return; and (10) any of the above goals as compared to the performance of a published or special index deemed applicable by the Committee including, but not limited to, the Standard & Poor’s 500 Stock Index or a group of comparator companies. One or more of the foregoing business criteria shall also be exclusively used in establishing performance goals for Annual Incentive Awards granted to a Covered Employee under Section 9(c) hereof.

(iii) Performance Period; Timing for Establishing Performance Goals . Achievement of performance goals in respect of such Performance Awards shall be measured over a performance period of up to ten years, as specified by the Committee. Performance goals shall be established not later than 90 days after the beginning of any performance period applicable to such Performance Awards, or at such other date as may be required or permitted for “performance-based compensation” under Code Section 162(m).

(iv) Performance Award Pool . The Committee may establish a Performance Award pool, which shall be an unfunded pool, for purposes of measuring performance of the Corporation in connection with Performance Awards. The amount of such Performance Award pool shall be based upon the achievement of a performance goal or goals based on one or more of the business criteria set forth in Section 9(b)(ii) hereof during the given performance period, as specified by the Committee in accordance with Section 9(b)(iii) hereof. The Committee may specify the amount of the Performance Award pool as a percentage of any of such business criteria, a percentage thereof in excess of a threshold amount, or as another amount that need not bear a strictly mathematical relationship to such business criteria.

(v) Settlement of Performance Awards; Other Terms . Settlement of such Performance Awards shall be in cash, Stock, other Awards or other property, in the discretion of the Committee. The Committee may, in its discretion, reduce the amount of a settlement otherwise to be made in connection with such Performance Awards, but may not exercise discretion to increase any such amount payable to a Covered Employee in respect of a Performance Award subject to this Section 9(b). The Committee shall specify the circumstances in which such Performance Awards shall be paid or forfeited in the event of termination of employment by the Participant prior to the end of a performance period or settlement of Performance Awards.

(c) Annual Incentive Awards Granted to Designated Covered Employees . If the Committee determines that an Annual Incentive Award to be granted to an Eligible Person who is designated by the Committee as likely to be a Covered Employee should qualify as “performance-based compensation” for purposes of Code Section 162(m), the grant, exercise and/or settlement of such Annual Incentive Award shall be contingent upon achievement of pre-established performance goals and other terms set forth in this Section 9(c).

 

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(i) Annual Incentive Award Pool . The Committee may establish an Annual Incentive Award pool, which shall be an unfunded pool, for purposes of measuring performance of the Corporation in connection with Annual Incentive Awards. The amount of such Annual Incentive Award pool shall be based upon the achievement of a performance goal or goals based on one or more of the business criteria set forth in Section 9(b)(ii) hereof during the given performance period, as specified by the Committee in accordance with Section 9(b)(iii) hereof. The Committee may specify the amount of the Annual Incentive Award pool as a percentage of any of such business criteria, a percentage thereof in excess of a threshold amount, or as another amount that need not bear a strictly mathematical relationship to such business criteria.

(ii) Potential Annual Incentive Awards . Not later than the end of the 90th day of each fiscal year, or at such other date as may be required or permitted in the case of Awards intended to be “performance-based compensation” under Code Section 162(m), the Committee shall determine the Eligible Persons who will potentially receive Annual Incentive Awards, and the amounts potentially payable thereunder, for that fiscal year, either out of an Annual Incentive Award pool established by such date under Section 9(c)(i) hereof or as individual Annual Incentive Awards. In the case of individual Annual Incentive Awards intended to qualify under Code Section 162(m), the amount potentially payable shall be based upon the achievement of a performance goal or goals based on one or more of the business criteria set forth in Section 9(b)(ii) hereof in the given performance year, as specified by the Committee; in other cases, such amount shall be based on such criteria as shall be established by the Committee. In all cases, the maximum Annual Incentive Award of any Participant shall be subject to the limitation set forth in Section 5 hereof.

(iii) Payout of Annual Incentive Awards . After the end of each fiscal year, the Committee shall determine the amount, if any, of (A) the Annual Incentive Award pool, and the maximum amount of potential Annual Incentive Award payable to each Participant in the Annual Incentive Award pool, or (B) the amount of potential Annual Incentive Award otherwise payable to each Participant. The Committee may, in its discretion, determine that the amount payable to any Participant as a final Annual Incentive Award shall be increased or reduced from the amount of his or her potential Annual Incentive Award, including a determination to make no final Award whatsoever, but may not exercise discretion to increase any such amount in the case of an Annual Incentive Award intended to qualify under Code Section 162(m). The Committee shall specify the circumstances in which an Annual Incentive Award shall be paid or forfeited in the event of termination of employment by the Participant prior to the end of a fiscal year or settlement of such Annual Incentive Award.

 

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(d) Written Determinations . All determinations by the Committee as to the establishment of performance goals, the amount of any Performance Award pool or potential individual Performance Awards and as to the achievement of performance goals relating to Performance Awards under Section 9(b), and the amount of any Annual Incentive Award pool or potential individual Annual Incentive Awards and the amount of final Annual Incentive Awards under Section 9(c), shall be made in writing in the case of any Award intended to qualify under Code Section 162(m). The Committee may not delegate any responsibility relating to such Performance Awards or Annual Incentive Awards.

(e) Status of Section 9(b) and Section 9(c) Awards under Code Section 162(m) . It is the intent of the Corporation that Performance Awards and Annual Incentive Awards under Sections 9(b) and 9(c) hereof granted to persons who are designated by the Committee as likely to be Covered Employees within the meaning of Code Section 162(m) and regulations thereunder (including Regulation 1.162-27 and successor regulations thereto) shall, if so designated by the Committee, constitute “performance-based compensation” within the meaning of Code Section 162(m) and regulations thereunder. Accordingly, the terms of Sections 9(b), (c), (d) and (e), including the definitions of Covered Employee and other terms used therein, shall be interpreted in a manner consistent with Code Section 162(m) and regulations thereunder. The foregoing notwithstanding, because the Committee cannot determine with certainty whether a given Participant will be a Covered Employee with respect to a fiscal year that has not yet been completed, the term Covered Employee as used herein shall mean only a person designated by the Committee, at the time of grant of Performance Awards or an Annual Incentive Award, as likely to be a Covered Employee with respect to that fiscal year. If any provision of the Plan as in effect on the date of adoption or any agreements relating to Performance Awards or Annual Incentive Awards that are designated as intended to comply with Code Section 162(m) does not comply or is inconsistent with the requirements of Code Section 162(m) or regulations thereunder, such provision shall be construed or deemed amended to the extent necessary to conform to such requirements.

10. Change in Control .

(a) Effect of “Change in Control ”. In the event of a “Change in Control,” the following provisions shall apply unless otherwise provided in the Award agreement:

(i) Any Award carrying a right to exercise that was not previously exercisable and vested shall become fully exercisable and vested as of the time of the Change in Control and shall remain exercisable and vested for the balance of the stated term of such Award without regard to any termination of employment by the Participant, subject only to applicable restrictions set forth in Section 11(a) hereof;

 

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(ii) Any optionee who holds an Option shall be entitled to elect, during the 60 day period immediately following a Change in Control, in lieu of acquiring the shares of Stock covered by such Option, to receive, and the Corporation shall be obligated to pay, in cash the excess of the Change in Control Price over the exercise price of such Option, multiplied by the number of shares of Stock covered by such Option;

(iii) The restrictions, deferral of settlement, and forfeiture conditions applicable to any other Award granted under the Plan shall lapse and such Awards shall be deemed fully vested as of the time of the Change in Control, except to the extent of any waiver by the Participant and subject to applicable restrictions set forth in Section 11(a) hereof; and

(iv) With respect to any outstanding Award subject to achievement of performance goals and conditions under the Plan, such performance goals and other conditions will be deemed to be met if and to the extent so provided by the Committee in the Award agreement relating to such Award.

(b) Definition of “Change in Control” . With respect to all Awards granted prior to December 31, 2008 other than an Award covered by Section 10(c), below, a “Change in Control” shall be deemed to have occurred if:

(i) any Person (other than the Corporation, any trustee or other fiduciary holding securities under any employee benefit plan of the Corporation, or any company owned, directly or indirectly, by the stockholders of the Corporation immediately prior to the occurrence with respect to which the evaluation is being made in substantially the same proportions as their ownership of the common stock of the Corporation) becomes the Beneficial Owner (except that a Person shall be deemed to be the Beneficial Owner of all shares that any such Person has the right to acquire pursuant to any agreement or arrangement or upon exercise of conversion rights, warrants or options or otherwise, without regard to the sixty day period referred to in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation or any Significant Subsidiary (as defined below), representing 25% or more of the combined voting power of the Corporation’s or such Significant Subsidiary’s then outstanding securities;

(ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Corporation to effect a transaction described in clause (i), (iii), or (iv) of this paragraph) whose election by the Board or nomination for election by the Corporation’s stockholders was approved by a vote of at least two-thirds of the directors then still in

 

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office who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved but excluding for this purpose any such new director whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of an individual, corporation, partnership, group, associate or other entity or Person other than the Board, cease for any reason to constitute at least a majority of the Board;

(iii) the consummation of a merger or consolidation of the Corporation or any subsidiary owning directly or indirectly all or substantially all of the consolidated assets of the Corporation (a “Significant Subsidiary”) with any other entity, other than a merger or consolidation which would result in the voting securities of the Corporation or a Significant Subsidiary outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving or resulting entity) more than 50% of the combined voting power of the surviving or resulting entity outstanding immediately after such merger or consolidation; or

(iv) the stockholders of the Corporation approve a plan or agreement for the sale or disposition of all or substantially all of the consolidated assets of the Corporation (other than such a sale or disposition immediately after which such assets will be owned directly or indirectly by the stockholders of the Corporation in substantially the same proportions as their ownership of the common stock of the Corporation immediately prior to such sale or disposition) in which case the Board shall determine the effective date of the Change in Control resulting therefrom; or

(v) any other event occurs which the Board determines, in its discretion, would materially alter the structure of the Corporation or its ownership.

(c) Definition of “Change in Control” . With respect to all Awards granted after December 31, 2008 and all Awards outstanding on December 31, 2008 that are held by a Participant who is a party to an employment agreement or change in control agreement with the Corporation or CVS Pharmacy, Inc., a Change in Control shall be deemed to have occurred if:

(i) any Person (other than (w) the Corporation, (x) any trustee or other fiduciary holding securities under any employee benefit plan of the Corporation, (y) any corporation owned, directly or indirectly, by the stockholders of the Corporation immediately after the occurrence with respect to which the evaluation is being made in substantially the same proportions as their ownership of the common

 

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stock of the Corporation immediately prior to such occurrence or (z) any surviving or resulting entity from a merger or consolidation referred to in clause (iii) below that does not constitute a Change of Control under clause (iii) below) becomes the Beneficial Owner (except that a Person shall be deemed to be the Beneficial Owner of all shares that any such Person has the right to acquire pursuant to any agreement or arrangement or upon exercise of conversion rights, warrants or options or otherwise, without regard to the sixty day period referred to in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation or of any subsidiary owning directly or indirectly all or substantially all of the consolidated assets of the Corporation (a “Significant Subsidiary”), representing 30% or more of the combined voting power of the Corporation’s or such Significant Subsidiary’s then outstanding securities;

(ii) during any period of twelve (12) consecutive months, individuals who at the beginning of such period constitute the Board, and any new director whose election by the Board or nomination for election by the Corporation’s stockholders was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of the twelve (12) month period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the Board;

(iii) the consummation of a merger or consolidation of the Corporation or any Significant Subsidiary with any other entity, other than a merger or consolidation which would result in the voting securities of the Corporation or a Significant Subsidiary outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving or resulting entity) more than 50% of the combined voting power of the surviving or resulting entity outstanding immediately after such merger or consolidation; or

(iv) the consummation of a transaction (or series of transactions within a 12 month period) which constitutes the sale or disposition of all or substantially all of the consolidated assets of the Corporation but in no event assets having a gross fair market value of less than 40% of the total gross fair market value of all of the consolidated assets of the Corporation (other than such a sale or disposition immediately after which such assets will be owned directly or indirectly by the stockholders of the Corporation in substantially the same proportions as their ownership of the common stock of the Corporation immediately prior to such sale or disposition).

11. General Provisions.

(a) Compliance with Legal and Other Requirements . The Corporation may, to the extent deemed necessary or advisable by the Committee, postpone the

 

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issuance or delivery of Stock or payment of other benefits under any Award until completion of such registration or qualification of such Stock or other required action under any federal or state law, rule or regulation, listing or other required action with respect to any stock exchange or automated quotation system upon which the Stock or other securities of the Corporation are listed or quoted, or compliance with any other obligation of the Corporation, as the Committee may consider appropriate, and may require any Participant to make such representations, furnish such information and comply with or be subject to such other conditions as it may consider appropriate in connection with the issuance or delivery of Stock or payment of other benefits in compliance with applicable laws, rules, and regulations, listing requirements, or other obligations. The foregoing notwithstanding, in connection with a Change in Control, the Corporation shall take or cause to be taken no action, and shall undertake or permit to arise no legal or contractual obligation, that results or would result in any postponement of the issuance or delivery of Stock or payment of benefits under any Award or the imposition of any other conditions on such issuance, delivery or payment, to the extent that such postponement or other condition would represent a greater burden on a Participant than existed on the 90th day preceding the Change in Control.

(b) Limits on Transferability; Beneficiaries . No Award or other right or interest of a Participant under the Plan shall be pledged, hypothecated or otherwise encumbered or subject to any lien, obligation or liability of such Participant to any party (other than the Corporation or a subsidiary), or assigned or transferred by such Participant otherwise than by will or the laws of descent and distribution or to a Beneficiary upon the death of a Participant, and such Awards or rights that may be exercisable shall be exercised during the lifetime of the Participant only by the Participant or his or her guardian or legal representative, except that Awards and other rights (other than ISOs in tandem therewith) may be transferred to one or more Beneficiaries or other transferees during the lifetime of the Participant, and may be exercised by such transferees in accordance with the terms of such Award, but only if and to the extent such transfers are permitted by the Committee pursuant to the express terms of an Award agreement (subject to any terms and conditions which the Committee may impose thereon). A Beneficiary, transferee, or other person claiming any rights under the Plan from or through any Participant shall be subject to all terms and conditions of the Plan and any Award agreement applicable to such Participant, except as otherwise determined by the Committee, and to any additional terms and conditions deemed necessary or appropriate by the Committee.

(c) Adjustments. In the event that any dividend or other distribution (whether in the form of cash, Stock, or other property), recapitalization, forward or reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase, share exchange, liquidation, dissolution or other similar corporate transaction or event affects the Stock such that an adjustment is determined by the Committee to be appropriate under the Plan, then the Committee shall, in such manner as it may deem equitable, adjust any or all of (i) the number and kind of shares of Stock which may be delivered in connection with Awards granted thereafter, (ii) the number and kind of shares of Stock by which annual per-person Award limitations are measured under Section 5 hereof, (iii) the number and kind of

 

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shares of Stock subject to or deliverable in respect of outstanding Awards and (iv) the exercise price, grant price or purchase price relating to any Award and/or make provision for payment of cash or other property in respect of any outstanding Award. In addition, the Committee is authorized to make adjustments in the terms and conditions of, and the criteria included in, Awards (including Performance Awards and performance goals, and Annual Incentive Awards and any Annual Incentive Award pool or performance goals relating thereto) in recognition of unusual or nonrecurring events (including, without limitation, events described in the preceding sentence, as well as acquisitions and dispositions of businesses and assets) affecting the Corporation, any subsidiary or any business unit, or the financial statements of the Corporation or any subsidiary, or in response to changes in applicable laws, regulations, accounting principles, tax rates and regulations or business conditions or in view of the Committee’s assessment of the business strategy of the Corporation, any subsidiary or business unit thereof, performance of comparable organizations, economic and business conditions, personal performance of a Participant, and any other circumstances deemed relevant; provided that no such adjustment shall be authorized or made if and to the extent that such authority or the making of such adjustment would cause Options, Performance Awards granted under Section 9(b) hereof or Annual Incentive Awards granted under Section 9(c) hereof to Participants designated by the Committee as Covered Employees and intended to qualify as “performance-based compensation” under Code Section 162(m) and regulations thereunder to otherwise fail to qualify as “performance-based compensation” under Code Section 162(m) and regulations thereunder.

(d) Taxes. The Corporation and any subsidiary is authorized to withhold from any Award granted, any payment relating to an Award under the Plan, including from a distribution of Stock, or any payroll or other payment to a Participant, amounts of withholding and other taxes due or potentially payable in connection with any transaction involving an Award, and to take such other action as the Committee may deem advisable to enable the Corporation and Participants to satisfy obligations for the payment of withholding taxes and other tax obligations relating to any Award. This authority shall include authority to withhold or receive Stock or other property and to make cash payments in respect thereof in satisfaction of a Participant’s tax obligations, either on a mandatory or elective basis in the discretion of the Committee.

(e) Changes to the Plan and Awards . The Board may amend, alter, suspend, discontinue or terminate the Plan or the Committee’s authority to grant Awards under the Plan without the consent of stockholders or Participants, except that any amendment or alteration to the Plan shall be subject to the approval of the Corporation’s stockholders not later than the annual meeting next following such Board action if such stockholder approval is required by any federal or state law or regulation or the rules of any stock exchange or automated quotation system on which the Stock may then be listed or quoted, and the Board otherwise, in its discretion, determines to submit such changes to the Plan to stockholders for approval; provided that, without the consent of an affected Participant, no such Board action may materially and adversely affect the rights of such Participant under any previously granted and outstanding Award. The Committee may waive

 

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any conditions or rights under, or amend, alter, suspend, discontinue or terminate any Award theretofore granted and any Award agreement relating thereto, except as otherwise provided in the Plan; provided that, without the consent of an affected Participant, no such Committee action may materially and adversely affect the rights of such Participant under such Award.

(f) Limitation on Rights Conferred under Plan . Neither the Plan nor any action taken hereunder shall be construed as (i) giving any Eligible Person or Participant the right to continue as an Eligible Person or Participant or in the employ or service of the Corporation or a subsidiary, (ii) interfering in any way with the right of the Corporation or a subsidiary to terminate any Eligible Person’s or Participant’s employment or service at any time, (iii) giving an Eligible Person or Participant any claim to be granted any Award under the Plan or to be treated uniformly with other Participants and employees, or (iv) conferring on a Participant any of the rights of a stockholder of the Corporation unless and until the Participant is duly issued or transferred shares of Stock in accordance with the terms of an Award.

(g) Unfunded Status of Awards; Creation of Trusts . The Plan is intended to constitute an “unfunded” plan for incentive and deferred compensation. With respect to any payments not yet made to a Participant or obligation to deliver Stock pursuant to an Award, nothing contained in the Plan or any Award shall give any such Participant any rights that are greater than those of a general creditor of the Corporation; provided that the Committee may authorize the creation of trusts and deposit therein cash, Stock, other Awards or other property, or make other arrangements to meet the Corporation’s obligations under the Plan. Such trusts or other arrangements shall be consistent with the “unfunded” status of the Plan unless the Committee otherwise determines with the consent of each affected Participant. The trustee of such trusts may be authorized to dispose of trust assets and reinvest the proceeds in alternative investments, subject to such terms and conditions as the Committee may specify and in accordance with applicable law.

(h) Non-exclusivity of the Plan . Neither the adoption of the Plan by the Board nor its submission to the stockholders of the Corporation for approval shall be construed as creating any limitations on the power of the Board or a committee thereof to adopt such other incentive arrangements as it may deem desirable including incentive arrangements and awards which do not qualify under Code Section 162(m).

(i) Payments in the Event of Forfeitures; Fractional Shares . Unless otherwise determined by the Committee, in the event of a forfeiture of an Award with respect to which a Participant paid cash or other consideration, the Participant shall be repaid the amount of such cash or other consideration. No fractional shares of Stock shall be issued or delivered pursuant to the Plan or any Award. The Committee shall determine whether cash, other Awards or other property shall be issued or paid in lieu of such fractional shares or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated.

 

23


(j) Governing Law . The validity, construction and effect of the Plan, any rules and regulations under the Plan, and any Award agreement shall be determined in accordance with the Delaware General Corporation Law, without giving effect to principles of conflicts of laws, and applicable federal law.

(k) Awards under Preexisting Plans . Upon approval of the Plan by stockholders of the Corporation as required under Section 11(l) hereof, no further awards shall be granted under the Preexisting Plans.

(l) Section 409A of the Code . With respect to Awards subject to Code Section 409A, the Plan is intended to comply with the requirements of Code Section 409A, and the provisions hereof shall be interpreted in a manner that satisfies the requirements of Code Section 409A and the related regulations, and the Plan shall be operated accordingly. If any provision of the Plan or any term or condition of any Award would otherwise frustrate or conflict with this intent, the provision, term or condition will be interpreted and deemed amended so as to avoid this conflict. Notwithstanding anything in the Plan to the contrary, if a Participant is determined under rules adopted by the Committee to be a “specified employee” within the meaning of Code Section 409A(a)(2)(B)(i) and as defined in the Corporation’s Universal 409A Definition Document, payment under any Award hereunder shall be delayed to the extent necessary to avoid a violation of Code Section 409A.

(m) Plan Effective Date and Shareholder Approval; Expiration Date . The Plan has been adopted by the Board effective January 8, 1997, subject to approval by the shareholders of the Corporation. The Plan has been amended and restated effective January 14, 1998 and further amended effective April 18, 2001, May 12, 2004, May 8, 2008 and December 31, 2008. Unless an extension is approved by the shareholders of the Corporation, the Plan shall have a term that expires on April 17, 2011, after which no further Awards may be made, provided, however, that the provisions of the Plan shall continue to apply to Awards made prior to such date.

 

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Part II    Exhibit 15.1

 

Letter re: Unaudited Interim Financial Information

August 4, 2009

The Board of Directors and Shareholders:

CVS Caremark Corporation

We are aware of the incorporation by reference in the Registration Statements (Nos. 333-49407, 333-34927, 333-28043, 333-91253, 333-63664, 333-139470 and 333-141481 on Form S-8 and 333-143110 on Form S-3) of CVS Caremark Corporation of our report dated August 4, 2009, relating to the unaudited consolidated condensed interim financial statements of CVS Caremark Corporation that are included in its Form 10-Q for the quarter ended June 30, 2009.

Very truly yours,

/s/ Ernst & Young LLP

Boston, Massachusetts

Part II    Exhibit 31.1

 

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Thomas M. Ryan, Chairman of the Board, President and Chief Executive Officer of CVS Caremark Corporation, certify that:

 

  1. I have reviewed this quarterly report on Form 10-Q of CVS Caremark Corporation;

 

  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

  4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  (a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

  5. The registrant’s other certifying officer and I have disclosed based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 4, 2009

 

By:

 

/s/ Thomas M. Ryan

    Thomas M. Ryan
    Chairman of the Board, President and
Chief Executive Officer
Part II    Exhibit 31.2

 

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, David B. Rickard, Executive Vice President, Chief Financial Officer and Chief Administrative Officer of CVS Caremark Corporation, certify that:

 

  1. I have reviewed this quarterly report on Form 10-Q of CVS Caremark Corporation;

 

  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

  4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  (a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

  5. The registrant’s other certifying officer and I have disclosed based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 4, 2009   By:  

/s/ David B. Rickard

    David B. Rickard
    Executive Vice President, Chief Financial Officer
    and Chief Administrative Officer
Part II    Exhibit 32.1

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The certification set forth below is being submitted in connection with the Quarterly Report of CVS Caremark Corporation (the “Company”) on Form 10-Q for the period ended June 30, 2009 (the “Report”), for the purpose of complying with Rule 13(a)-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code.

I, Thomas M. Ryan, Chairman of the Board, President and Chief Executive Officer of the Company, certify that, to the best of my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

 

Date:  August 4, 2009  

/s/ Thomas M. Ryan

  Thomas M. Ryan
 

Chairman of the Board, President and

Chief Executive Officer

Part II    Exhibit 32.2

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The certification set forth below is being submitted in connection with the Quarterly Report of CVS Caremark Corporation (the “Company”) on Form 10-Q for the period ended June 30, 2009 (the “Report”), for the purpose of complying with Rule 13(a)-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code.

I, David B. Rickard, Executive Vice President, Chief Financial Officer and Chief Administrative Officer of the Company, certify that, to the best of my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

 

Date:  August 4, 2009  

/s/ David B. Rickard

  David B. Rickard
  Executive Vice President, Chief Financial Officer and Chief Administrative Officer