10-K

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the year ended December 31, 2005

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number 1-14200

Caremark Rx, Inc.

(Exact name of registrant as specified in its charter)

Delaware	63-1151076
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
211 Commerce Street Suite 800 Nashville, Tennessee	37201
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (615) 743-6600

Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on which Registered
Common Stock, par value $.001	The New York Stock Exchange

Securities Registered Pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

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  ¨

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

The aggregate market value of the voting stock (common stock, par value $.001) held by non-affiliates of the registrant as of June 30, 2005, was approximately $19.9 billion, based on the closing price of the registrant’s common stock on the New York Stock Exchange on such date.

As of February 28, 2006, the registrant had 448,640,000 shares (including 5,770,939 shares held in trust to be utilized in employee benefit plans) of common stock, par value $.001, issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The information set forth under Part III of this Annual Report on Form 10-K is incorporated by reference from the registrant’s definitive proxy statement for its 2006 Annual Meeting of Stockholders that will be filed no later than April 30, 2006.

FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS

In passing the Private Securities Litigation Reform Act of 1995 (the “Reform Act”), 15 U.S.C.A. Sections 77z-2 and 78u-5 (Supp. 1996), Congress encouraged public companies to make “forward-looking statements” by creating a safe harbor to protect companies from securities law liability in connection with forward-looking statements. Caremark Rx, Inc. (“Caremark Rx”) intends to qualify both its written and oral forward-looking statements for protection under the Reform Act and any other similar safe harbor provisions. Unless the context indicates otherwise, the words “Company,” “we,” “our,” and “us,” whenever used in this Annual Report on Form 10-K, refer collectively to Caremark Rx and its wholly-owned subsidiaries.

“Forward-looking statements” are defined by the Reform Act. Generally, forward-looking statements include expressed expectations of future events and the assumptions on which these expressed expectations are based. All forward-looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events, and they are subject to numerous known and unknown risks and uncertainties which could cause actual events or results to differ materially from those projected. Due to such risks and uncertainties, the investment community is urged not to place undue reliance on our written or oral forward-looking statements. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time.

Forward-looking statements are contained in this document, primarily under the captions: “Business,” “Risk Factors,” “Legal Proceedings,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” referred to as MD&A, and in the “Notes to Condensed Consolidated Financial Statements” appearing under Items 8 and 15(a)(1). Moreover, through our senior management, we may from time to time make forward-looking statements about matters described herein or about other matters concerning us.

There are several factors which could adversely affect our operations and financial results, including, but not limited to, the following:

• Risks relating to identification of, and competition for, growth and expansion opportunities;

• Risks related to our ability to attract new customers and retain existing customers;

• Risks relating to declining reimbursement levels for, or increases in the costs of, products dispensed;

• Risks relating to the timing and launch of generic pharmaceutical products into the marketplace;

• Risks relating to exposure to liabilities in excess of our insurance;

• Risks relating to compliance with, or changes in, government regulation and legislation, including, but not limited to, pharmacy licensing requirements and healthcare reform legislation;

• Risks relating to our participation in the Federal government’s Medicare Part D program, including, but not limited to, financial risks from our SilverScript Insurance Company subsidiary’s participation in the program on a risk-bearing basis, risks of customer losses to other Medicare Part D providers and risks relating to compliance with applicable Medicare regulations and state insurance laws and regulations;

• Risks relating to adverse developments in the healthcare or pharmaceutical industry generally, including, but not limited to, developments in any investigation related to the pharmaceutical industry that may be conducted by governmental authorities;

• Risks relating to adverse resolution of existing or future lawsuits or investigations; and

• Risks relating to the availability of prescription drug products in the marketplace as affected by product recalls and voluntary product withdrawals by manufacturers.

More detailed discussions of certain of these risk factors can be found under the captions:

“Business—Government Regulation,” “Risk Factors” and “Legal Proceedings” and also in MD&A.

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PART I

Item 1. Business

Overview

We are one of the largest pharmaceutical services companies in the United States, with net revenue of approximately $33 billion (including approximately $5.5 billion of retail copayments) in 2005. Our operations are conducted primarily through our Caremark Inc. (“Caremark”) and CaremarkPCS (f/k/a AdvancePCS) (“CaremarkPCS” or “AdvancePCS”) subsidiaries. We acquired AdvancePCS on March 24, 2004, as further described below under the caption “Development of Our Business.”

Our customers are primarily sponsors of health benefit plans (employers, unions, government employee groups, insurance companies and managed care organizations) and individuals located throughout the United States. We dispense pharmaceuticals to eligible participants in benefit plans maintained by our customers and utilize our information systems to perform safety checks, drug interaction screening and generic substitution. We generate substantially all of our net revenue from dispensing prescription drugs to eligible participants in benefit plans maintained by our customers. During the year ended December 31, 2005, we managed over 536 million prescriptions for individuals from over 2,000 organizations, and our largest customer, the Federal Employees Health Benefit Plan, accounted for approximately 16% of our net revenue.

Our pharmaceutical services are generally referred to as pharmacy benefit management (“PBM”) services and involve the design and administration of programs aimed at reducing the costs and improving the safety, effectiveness and convenience of prescription drug use. Our PBM customers generally enter into integrated pharmacy benefit management contracts with us. These integrated contracts provide plan participants the option of having their prescriptions filled at either retail or mail service pharmacies subject to the customers’ benefit plan designs.

We generally do not operate our own retail pharmacies but have contracted with retail pharmacy chains and independent retail pharmacies to form a network comprised of more than 60,000 retail pharmacies at which our customers’ plan participants may have their prescriptions filled. We operate our own mail service pharmacies and have one of the leading mail service pharmacy businesses among independent pharmacy services companies in terms of prescriptions filled in 2005. During the year ended December 31, 2005, we processed approximately 58 million prescriptions through our mail service pharmacies and processed approximately 478 million retail pharmacy claims.

Address and Availability of Information. Our executive offices are located at 211 Commerce Street, Suite 800, Nashville, Tennessee 37201. Our telephone number is (615) 743-6600, and our website address is http://www.caremarkrx.com. We electronically file our annual reports on Form 10-K, our quarterly reports on Form 10-Q and any current reports on Form 8-K with the Securities and Exchange Commission. These filings and any amendments thereto are available, free of charge, through our website as soon as reasonably practicable after they are electronically filed with the Commission.

We have adopted a code of business conduct and ethics for directors, officers (including our Senior Executive and Financial Officers (our principal executive officer, principal financial officer and controller)) and employees, known as the Caremark Code of Conduct. The Caremark Code of Conduct, our corporate governance guidelines and the charters of the audit, compensation and nominating and corporate governance committees of our board of directors are available on our website. We will post any amendments to, or waivers from, a provision of the Caremark Code of Conduct that applies to the principal executive officer, principal financial officer or controller on our website as soon as practicable after adoption or approval. We will mail a free copy of any or all of these items to stockholders who request them by contacting our investor relations department at the address/telephone number above.

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Pharmacy Benefit Management Industry Overview

PBM companies were initially formed to provide cost-effective drug distribution and claims processing for the healthcare industry. In the mid-1980s, they evolved to include pharmacy networks and drug utilization review to address the need to manage the total cost of pharmaceutical services. Through purchase discounts, retail pharmacy networks, mail pharmacy services, preferred drug list administration, claims processing and drug utilization review, PBM companies created an opportunity for health benefit plan sponsors to deliver prescription drugs in a more cost-effective manner while improving compliance with recommended guidelines for safe and effective drug use.

PBM companies have focused on cost management by: (i) negotiating discounted prescription services through retail pharmacy networks; (ii) encouraging the use of generic rather than branded medications under appropriate circumstances; (iii) purchasing discounted products from drug wholesalers and manufacturers; (iv) dispensing maintenance prescriptions by mail; and (v) administering drug utilization review and clinical programs to encourage appropriate drug use and reduce potential risk for complications. Over the last several years, in response to increasing customer demand, PBM companies have also developed sophisticated preferred drug management capabilities and comprehensive, on-line customer decision support tools in an attempt to more efficiently manage the delivery of healthcare and to better control healthcare costs.

Health benefit plan sponsors are also increasingly focused on the quality and efficiency of care, emphasizing disease prevention, or wellness, and care management. This focus has resulted in a rapidly growing demand among customers for comprehensive disease management programs. By effectively managing appropriate prescription use, PBM companies can reduce overall medical costs and improve clinical outcomes.

We believe that the most significant factors which will affect future growth in the PBM industry include, but are not limited to:

• Increased demand for comprehensive pharmacy benefit, medication management and disease management services;

• The aging of the population, as older population segments have historically accounted for a significant concentration of prescription drug users;

• The continued use of direct-to-consumer advertising by pharmaceutical manufacturers;

• The extent to which new competitors enter the PBM industry;

• The extent of consolidation, through mergers and acquisitions, which may occur in the pharmaceutical manufacturer and PBM industries;

• The extent to which customers contract for pharmacy benefit management services separately from other health and welfare benefits;

• The rate at which patents expire on, and generic equivalents become available for, existing branded drugs;

• The extent to which drugs currently requiring a prescription become available on an over-the-counter basis;

• The rate at which manufacturers develop new drugs which receive approval for use from governmental regulatory agencies;

• Clinical review and analysis, including FDA actions, concerning new and existing drugs and their availability in the marketplace to treat specified health conditions;

• Expansion of the availability and use of biotechnology-based and injectable therapies; and

• Future changes in the marketplace that occur as a result of the Federal government’s Medicare Part D program, which became fully effective on January 1, 2006.

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Development of Our Business

Through 2003, we grew our PBM business primarily through the organic growth provided by our sales force, and we did not engage in significant acquisitions of businesses subsequent to the discontinuance of our physician practice management (“PPM”) business in 1998.

On March 24, 2004, we acquired AdvancePCS, which was also a pharmaceutical services/PBM company (the “AdvancePCS Acquisition.”) AdvancePCS had historically focused on a different customer market segment (primarily health plans) than Caremark (primarily employers). We believe that Caremark Rx and AdvancePCS are complementary companies and that their combination resulted in an organization with the increased scale, enhanced financial capacity and diversified customer portfolio necessary to increase stockholder value, enhance customer care and increase cost efficiencies.

Strategy

Our business strategy centers on providing innovative pharmaceutical solutions and quality customer service in order to enhance clinical outcomes for the participants in our customers’ health benefit plans, while assisting our customers in better managing their overall healthcare costs. We intend to increase our market share and extend our leadership in the pharmaceutical services industry through a combination of organic growth (including the addition of new customers) and strategic acquisitions. We believe that our focus on management of our customers’ overall healthcare costs, our mail service, specialty pharmaceutical and disease management expertise and the breadth and quality of our product and service offerings distinguish us from many of our competitors.

Operations

The pharmacy benefit management services we provide for our customers involve the design and administration of programs aimed at reducing the cost and improving the safety, effectiveness and convenience of prescription drug use.

Plan Design and Administration. Our customers sponsor pharmacy benefit plans which facilitate the ability of eligible participants in these plans to receive medications prescribed by their physicians. We assist our customers in designing pharmacy benefit plans that minimize the costs to the customer while prioritizing the welfare and safety of the customer’s participants. We also administer these benefit plans for our customers and assist them in monitoring the effectiveness of these plans through frequent, informal communications as well as through a formal annual customer review.

We make recommendations to our customers encouraging them to design benefit plans promoting the use of the lowest cost, most clinically appropriate drug, including generics when available. We believe that we help our customers control costs by recommending plans that encourage the use of generic equivalents of branded drugs when such equivalents are available. Our customers also have the option, through plan design, to further lower their pharmacy benefit plan costs by setting different participant payment levels for different products on our drug lists.

Formulary Development. We utilize an independent panel of doctors, pharmacists and other medical experts, referred to as our Pharmacy and Therapeutics (“P&T”) Committee, to select drugs that meet the highest standards of safety and efficacy for inclusion on our drug lists. Our drug lists provide recommended products in numerous drug classes to ensure participant access to clinically appropriate alternatives under the customer’s pharmacy benefit plan. To improve clinical outcomes for participants and customers, we conduct ongoing, independent reviews of all drugs, including, but not limited to, those appearing on the drug list and generic equivalent products, as well as of our clinical programs.

Discounted Drug Purchase Arrangements. We negotiate with pharmaceutical manufacturers to obtain discounted acquisition costs for many of the products on our drug lists, and the customers that choose to adopt

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our drug lists receive reduced costs from these negotiated discounts. The discounted drug purchase arrangements we negotiate typically provide for our receiving discounts from established list prices in one, or a combination, of the following forms. These discounts may take the form of a direct discount at the time of purchase, a discount for prompt payment of invoices or, when products are indirectly purchased from a manufacturer (e.g., through a wholesaler or retail pharmacy/chain), a retroactive discount, or rebate. We also receive additional discounts under our wholesale contract if we exceed contractually-defined annual purchase volumes. We record these discounts, regardless of their form, as a reduction of our cost of revenues.

Prescription Management Systems. We dispense prescription drugs both directly, through our own pharmacies, and indirectly, through a network of third-party retail pharmacies. All prescriptions, whether they are filled through one of our mail service pharmacies or through a pharmacy in our retail network, are analyzed, processed and documented by our proprietary prescription management systems. These systems assist staff and network pharmacists in processing prescriptions by automating tests for various items, including, but not limited to, plan eligibility, early refills, duplicate dispensing, appropriateness of dosage, drug interactions or allergies, over-utilization and potential fraud.

Mail Pharmacy Program. We currently operate seven large, automated mail service pharmacies in the continental United States. Our customers or their physicians submit prescriptions, primarily for maintenance medications, to these pharmacies via mail, telephone, fax or the Internet. We also operate a network of 21 smaller mail service pharmacies (“Specialty Pharmacies”) located throughout the United States and used for delivery of advanced medications to individuals with chronic or genetic diseases and disorders. Eighteen of the Specialty Pharmacies are accredited by the Joint Commission on Accreditation of Healthcare Organizations (“JCAHO”). Additionally, we operate a United States Food and Drug Administration (“FDA”) regulated repackaging facility in which we repackage certain drugs into the most common prescription amounts dispensed from our automated mail service pharmacies.

Our staff pharmacists review mail service prescriptions and refill requests with the assistance of our prescription management systems. This review may involve communications with the prescribing physician and, with the physician’s approval, can result in generic substitution, therapeutic interchange or other actions to affect cost or to improve quality of treatment. In these cases, we inform participants about the changes made to their prescriptions.

Retail Pharmacy Program. Our retail pharmacy program typically allows customers to fill prescriptions at more than 60,000 pharmacies nationwide. When a customer fills a prescription in a retail pharmacy, the network pharmacist sends prescription data electronically to us from the point-of-sale. This data interfaces with our proprietary prescription management systems, which verify relevant customer data, including eligibility and participant information, perform drug utilization review to determine clinical appropriateness and safety and confirm that the pharmacy will receive payment for the prescription.

Quality Assurance. We have adopted and implemented clinical quality assurance procedures as well as policies and procedures to help ensure regulatory compliance under our quality assurance programs. Each new mail service prescription undergoes a sequence of safety and accuracy checks and is reviewed and verified by a registered pharmacist before shipment. We also analyze drug-related outcomes to identify opportunities to improve the quality of care.

Disease Management Programs. Our clinical services utilize advanced protocols and offer customers convenience in working with healthcare providers and other third parties. Our CarePatterns^® and Accordant^® disease management programs cover over 20 diseases, including asthma, coronary artery disease, congestive heart failure, diabetes, hemophilia, rheumatoid arthritis and multiple sclerosis. Nineteen of these disease management programs are accredited by the National Committee for Quality Assurance (“NCQA”).

Information Systems. We currently operate three primary information systems platforms to support our PBM operations, which are supplemented by additional information systems to support our pharmacy operations.

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These PBM information systems incorporate integrated architecture that centralizes the data generated from filling mail service prescriptions, adjudicating retail pharmacy claims and fulfilling other customer service contracts. These integrated systems allow access to a single data source containing a complete history of prescription activity for each customer. Various data repositories are populated with the data generated in these systems and are used for analysis of prescription data by our customers and us.

Medicare Part D

In 2005, we were approved by the Centers for Medicare and Medicaid Services (“CMS”) to participate in the drug benefit added to the Medicare program through Part D of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“MMA”). In 2006, we began to participate in the administration of drug benefits under Medicare Part D: (i) through the provision of PBM services to our health plan clients and other clients that have qualified as a Medicare Part D prescription drug plan; (ii) through the offering of Medicare Part D pharmacy benefits by our subsidiary, SilverScript Insurance Company, which has been approved by CMS as a prescription drug plan under Medicare Part D in all 34 regions into which CMS has divided the United States for management of the Medicare Part D benefit; and (iii) by assisting our employer, union and other health plan clients that qualify for the retiree drug subsidy available under Medicare Part D by collecting and submitting eligibility and/or drug cost data to CMS for them as required under Part D in order to obtain the subsidy. Because the Medicare Drug Benefit only recently became effective on January 1, 2006, and because certain aspects of the Medicare Drug Benefit remain subject to further regulatory guidance from CMS, we are not able to fully assess its impact on our business.

Additionally, under regulations established by CMS governing participation in the Medicare Part D program, our prescription drug plan subsidiary, SilverScript Insurance Company, must be a risk-bearing entity regulated under state insurance laws or similar statutes. SilverScript Insurance Company has applied to the Tennessee Department of Commerce and Insurance for licensure as a domestic insurance company under the applicable laws and regulations of the State of Tennessee and has filed expansion applications for licensure as an insurance company in other jurisdictions where it may seek to do business. As of the date of this filing, the Tennessee domestic insurance licensure application and expansion insurance licensure applications were pending, and SilverScript Insurance Company was operating as a Medicare Part D prescription drug plan under a CMS-granted waiver from the requirement to be regulated under state insurance laws. We expect to continue the licensure process for SilverScript Insurance Company in the State of Tennessee as a domestic insurance company, and in other jurisdictions through approval of the expansion applications during 2006.

Competition

We compete with a number of large, national PBM companies, including Medco Health Solutions, Inc. and Express Scripts, Inc. as well as many smaller local or regional PBMs. We also compete with several large health insurers/managed care plans (e.g., Wellpoint, Aetna, CIGNA) and retail pharmacies (primarily Walgreen and CVS) which have their own PBM capabilities, as well as with several other national and regional companies which provide services similar to ours. Some of these competitors are large and may possess greater financial, marketing and other resources than we do. To the extent that competitors are owned by retail pharmacies, they may offer similar services and may have pricing advantages that are unavailable to us and other independent PBM companies.

We believe the primary competitive factors in the PBM industry include: (i) the ability to negotiate favorable discounts from drug manufacturers; (ii) the ability to negotiate favorable discounts from, and access to, retail pharmacy networks; (iii) responsiveness to customers’ demands; (iv) the ability to identify and apply effective cost management programs utilizing clinical strategies; (v) the ability to develop and utilize preferred drug lists; (vi) the ability to market PBM products and services; (vii) the commitment to provide flexible, clinically-oriented services to customers; and (viii) the quality, scope and costs of products and services offered to customers and their participants. We consider our principal competitive advantages to be our commitment to

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providing flexible, clinically-oriented services to our customers; broad service offerings; mail service, specialty pharmaceutical and disease management expertise and high quality of customer service as measured by independent surveys.

Government Regulation

Overview. As a participant in the healthcare industry, our business is subject to federal and state laws and regulations and enforcement by federal and state governmental agencies. Various federal and state laws and regulations govern the purchase, sale and distribution of prescription drugs and related services, including administration and management of prescription drug benefits. Many of our clients, including insurers and managed care organizations (“MCOs”), are themselves subject to extensive regulations that affect the design and implementation of prescription drug benefit plans that they sponsor. We believe that we are in material compliance with existing laws and regulations that are applicable to our business. However, the application of complex standards to the detailed operation of our business always creates areas of uncertainty. Moreover, regulation of the healthcare industry continues to evolve, and there are numerous proposed healthcare laws and regulations at the federal and state levels, many of which could adversely affect our business if they are enacted. We are unable to predict what additional federal or state legislation or regulatory initiatives may be enacted in the future relating to our business or the healthcare industry in general, or what effect any such legislation or regulations might have on us. Any failure or alleged failure to comply with applicable laws and regulations, or any adverse applications of, or changes in, the laws and regulations affecting our business, could have a material adverse effect on our operating results and financial condition.

Among the existing federal and state laws and regulations that affect aspects of our business are the following:

Anti-Remuneration Laws. Federal law prohibits, among other things, an entity from knowingly and willfully offering, paying, soliciting or receiving, subject to certain exceptions and “safe harbors,” any remuneration to induce the referral of individuals or the purchase, lease or order (or the arranging for or recommending of the purchase, lease or order) of items or services for which payment may be made under Medicare, Medicaid or certain other federal healthcare programs. A number of states have similar laws, some of which are not limited to services for which government-funded payment may be made. State laws and exceptions or safe harbors vary and have been infrequently interpreted by courts or regulatory agencies. Sanctions for violating these federal and state anti-remuneration laws may include imprisonment, criminal and civil fines, and exclusion from participation in Medicare, Medicaid and other government sponsored healthcare programs. The federal anti-remuneration law has been interpreted broadly by some courts, the Office of Inspector General (“OIG”) within the United States Department of Health and Human Services (“HHS”) and administrative bodies. Because of the federal statute’s broad scope, HHS established certain safe harbor regulations that specify various payment practices that are protected from criminal or civil liability. Safe harbors exist for certain discounts offered to purchasers, certain personal services arrangements and certain payments made by vendors to group purchasing organizations, as well as for other transactions and relationships. In October 2005, pursuant to the MMA, the OIG proposed an additional safe harbor for certain arrangements involving the provision of certain electronic prescribing technology to prescribers by certain entities, including prescription drug plans and Medicare Advantage organizations under Medicare Part D. While the proposed e-prescribing safe harbor is narrow in scope and application, the OIG has solicited comments for additional safe harbors to protect the provision of multi-functional hardware and to permit additional designated health service providers to supply the e-prescribing technology. Nonetheless, a practice that does not fall within a safe harbor is not necessarily unlawful but may be subject to challenge by HHS.

In April 2003, the OIG issued a Compliance Program Guidance for Pharmaceutical Manufacturers (the “OIG Guidance”). In the OIG Guidance, the OIG identified three major potential risk areas for pharmaceutical manufacturers: (i) integrity of data used by state and federal governments to establish payment; (ii) kickbacks and other illegal remuneration; and (iii) compliance with laws regulating drug samples. The OIG Guidance highlighted a number of practices that the OIG had previously identified as potentially improper under the federal anti-remuneration law, such as certain “product conversion programs” in which benefits are given by drug

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manufacturers to pharmacists or physicians for changing a prescription from one drug to another. The OIG Guidance also discusses a number of traditional relationships between pharmaceutical manufacturers and PBMs, such as discount payments, service offerings and data sales, and recommends that such relationships be structured wherever possible to fit within an applicable safe harbor. This recommendation is consistent with our approach to contracting with pharmaceutical manufacturers.

The federal anti-remuneration law has been cited as a partial basis, along with state consumer protection laws, for investigations and multi-state settlements relating to financial incentives provided by drug manufacturers to retail pharmacies in connection with product conversion programs. Additionally, certain governmental entities have commenced investigations of companies in the pharmaceutical services industry and have identified issues concerning development of preferred drug lists, therapeutic substitution programs, pricing of pharmaceutical products and discounts from prescription drug manufacturers.

Antitrust. Numerous lawsuits have been filed throughout the United States under various state and federal antitrust laws by retail pharmacies against drug manufacturers challenging certain brand drug pricing practices. These suits allege, in part, that the pharmaceutical manufacturers offered, and we and certain other PBMs knowingly accepted, rebates and discounts on purchases of brand-name prescription drugs in violation of the federal Robinson-Patman Act and the federal Sherman Act. The Robinson-Patman Act generally prohibits discriminatory pricing practices. The Sherman Act generally prohibits contracts and combinations that unreasonably restrain trade or facilitate monopolization of any part of interstate commerce. An adverse outcome in any of these lawsuits could require defendant drug manufacturers to provide the same types of discounts on pharmaceuticals to retail pharmacies and buying groups as are provided to PBMs and managed care entities, to the extent that their respective abilities to influence market share are comparable. This practice, if generally followed in the industry, could increase competition from pharmacy chains and buying groups and reduce or eliminate the availability of certain discounts currently received in connection with our drug purchases. In addition, several lawsuits have been filed against us and some of our PBM competitors by certain retail pharmacies and pharmacy-supported interest groups alleging that PBM practices relating to maintaining retail pharmacy networks constitute antitrust violations under the Sherman Act. To the extent that we appear to have actual or potential market power in a relevant market, our business arrangements and practices may be subject to heightened scrutiny from an anti-competitive perspective and possible challenge by state or federal regulators or private parties. See Item 3, “Legal Proceedings” for further information.

Comprehensive PBM Regulation. Legislation seeking to regulate PBM activities in a comprehensive manner has been introduced in a number of states. This legislation varies in scope and often contains provisions that: (i) impose certain fiduciary duties upon PBMs to customers and plan participants; (ii) require PBMs to remit to customers or their plan participants certain rebates, discounts and other amounts received by PBMs related to the sale of drugs; (iii) regulate product substitution and intervention; and/or (iv) impose broad disclosure obligations upon PBMs to customers and their plan participants. The District of Columbia and several states, including Maine, have enacted statutes with similar provisions. The Pharmaceutical Care Management Association (“PCMA”), a national trade association representing PBMs, filed separate actions in Maine and the District of Columbia questioning the validity of their statutes on various grounds. The Maine district court granted summary judgment in favor of Maine and lifted an injunction obtained by PCMA preventing enforcement of the statute. The district court decision was affirmed by the First Circuit Court of Appeals, and PCMA is evaluating whether to seek further review by the United States Supreme Court. The District of Columbia district court preliminarily enjoined enforcement of the District of Columbia statute, and the District of Columbia appealed the decision to the D.C. Court of Appeals. The D.C. Court of Appeals has remanded the case to the district court for reconsideration in light of the First Circuit’s ruling in the Maine case. To the extent states or other government entities enact legislation regulating PBMs that survive legal challenges to their enforceability, such legislation could adversely impact our ability to conduct business on commercially reasonable terms in locations where the legislation is in effect.

Legislative initiatives seeking to regulate PBMs often have the support of associations representing community and independent pharmacists as well as national chain pharmacies. Such legislation, if enacted, could

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adversely impact the services we provide to our customers and the competitive pricing we are able to provide our customers to help them reduce their pharmacy benefit costs. In addition, certain quasi-regulatory organizations, including the National Association of Boards of Pharmacy (“NABP”), an organization of state boards of pharmacy, and the National Association of Insurance Commissioners (“NAIC”), an organization of state insurance regulators, have issued regulations or may propose future regulations concerning PBMs and/or PBM activities, and NCQA, URAC or other credentialing organizations may provide voluntary standards regarding PBM activities. While the actions of these quasi-regulatory organizations would not have the force of law, they may influence states to adopt their requirements or model acts or their recommended standards of practice and influence customers’ requirements of PBM services. Moreover, any standards established by these organizations could also impact our health plan customers and/or the services we provide to them.

In addition to state statutes and regulations, we are also subject to state common laws to the extent applied to PBMs through judicial interpretation or otherwise. Potential common law claims could involve, for example, breach of fiduciary duty, constructive fraud, fraud or unjust enrichment. The application of these common laws to PBMs and/or PBM activities could have an adverse impact on our ability to conduct business on commercially reasonable terms.

Consumer Protection Laws. The federal government and most states have consumer protection laws that have been the basis for investigations, lawsuits and multi-state settlements relating to financial incentives provided by drug manufacturers to pharmacies in connection with therapeutic substitution programs. In 2004, we received Civil Investigative Demands (“CIDs”) from a number of state attorneys general requesting information concerning our business practices pursuant to applicable state consumer protection laws. See Item 3, “Legal Proceedings” for further information concerning these investigations. At least two other PBMs have received similar requests for information, and one of these PBMs reached a settlement with certain states that had issued such requests.

Corporate Integrity Agreement. In September 2005, our subsidiary, AdvancePCS, entered into a settlement agreement with the federal government. The settlement related to an investigation commenced in 1999 by the United States Attorney’s Office for the Eastern District of Pennsylvania of certain business practices of AdvancePCS, which became our subsidiary in March 2004. Under the terms of the settlement, AdvancePCS agreed, among other things, to pay $137.5 million to settle disputed claims, to adhere to certain business practices pursuant to a consent order and to maintain a compliance program in accordance with a corporate integrity agreement (“CIA”). Caremark and all of its subsidiaries and affiliates have agreed, with limited exceptions, to comply with the requirements of the CIA applicable to AdvancePCS. The CIA, which is effective for five years, requires, in part, that we maintain our current compliance program; complete additional training requirements; report and return any overpayments received from federal health care programs; notify the OIG of any new investigations or legal proceedings initiated by a governmental entity involving an allegation of fraud or criminal conduct against us; engage an independent review organization to perform limited annual audits; and submit regular reports to the OIG regarding our compliance with the CIA. Failure to meet our obligations under the CIA could result in stipulated financial penalties. In addition, failure to comply with material terms could lead to exclusion from further participation in federal health care programs. See Item 3, “Legal Proceedings” for more information regarding the OIG investigation.

Customer Audit. From time-to-time, we are subject to customer audits of our services pursuant to certain provisions in our customer contracts that grant audit rights. These contract provisions are customary in our contracts, and the audits are typically conducted by or on behalf of our customers. Because some of our customer contracts are with state or federal governments, audits of these agreements are often regulated by the federal or state agencies responsible for administering federal or state benefits programs maintained by our customers. The audits generally focus on, among other things, compliance with the applicable terms of our customer contract and applicable legal requirements.

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Disease Management Services Regulation. We provide customers with clinical services in the form of disease management programs for certain diseases, including, among others, asthma, diabetes, coronary artery disease and congestive heart failure. We employ nurses and other clinicians, where needed, to develop and implement our disease management programs. All states regulate the practice of medicine and the practice of nursing, and employees engaged in the practice of nursing must satisfy applicable state licensing requirements.

ERISA Regulation. The Employee Retirement Income Security Act of 1974, as amended (“ERISA”), provides for comprehensive federal regulation of certain employee pension and health benefit plans, including self-funded corporate health plans and certain other plans that contract with us to provide prescription benefit goods and services. In general, we assist plan sponsors in the administration of the prescription drug portion of their health benefit plans, in accordance with the plan designs adopted by the plan sponsors. We do not believe that the conduct of our business subjects us to the fiduciary obligations of ERISA, except when we have specifically contracted with a plan sponsor to accept limited fiduciary responsibility for the adjudication of initial prescription drug benefit claims and/or the appeals of denied claims under a plan. We are currently party to several lawsuits alleging that we act as a fiduciary, as such term is defined by ERISA, with respect to health benefit plans and that we have breached certain fiduciary obligations under ERISA. See Item 3, “Legal Proceedings” for further information concerning these lawsuits.

In addition to its fiduciary provisions, ERISA imposes civil and criminal liability on service providers to covered health plans and certain other persons, if certain forms or excessive amounts of remuneration are paid or received. These provisions of ERISA are similar, but not identical, to the healthcare anti-remuneration statutes discussed elsewhere in this Government Regulation section, and they do not contain the statutory and regulatory “safe harbor” exceptions included in other healthcare statutes. These provisions of ERISA are broadly written, and we cannot be certain of the extent to which they could be deemed applicable to the conduct of our business.

State laws discussed in this Government Regulation section that may be applicable to us or to plan sponsors that are our customers may be preempted in whole or in part by ERISA. However, the scope of ERISA preemption is uncertain and is subject to conflicting court rulings.

False Claims and Fraudulent Billing Statutes. A range of federal civil and criminal laws target false claims and fraudulent billing activities. One of the most significant of these laws is the Federal False Claims Act, which prohibits the submission of a false claim or the making of a false record or statement in order to secure reimbursement from a government-sponsored program. Some states have passed substantially similar acts. In recent years, federal and state governments have launched several initiatives aimed at uncovering practices that violate false claims or fraudulent billing laws. Claims under these laws may be brought either by the government or by private individuals on behalf of the government through a qui tam or “whistleblower” action. Such actions, which are discussed in more detail elsewhere in this Government Regulation section, are typically filed under seal pending a government review of the allegations and may remain secret from the named defendant for years.

In addition, federal and state governments have commenced numerous investigations of various pharmaceutical manufacturers, PBMs and healthcare providers in recent years with respect to false claims, fraudulent billing and related matters. The federal government has entered into settlement agreements with several companies in the pharmaceutical services industry following claims by the federal government that such parties violated the Federal False Claims Act by: (i) improperly marketing and pricing drugs; (ii) overstating the average wholesale prices of products; (iii) paying illegal remuneration to induce the purchase of drugs; and/or (iv) failing to accurately report “best price” under the Medicaid program.

FDA Regulation. The FDA generally has authority to regulate drug promotional information and materials that are disseminated by a drug manufacturer or by other persons on behalf of a drug manufacturer. While the FDA is not currently asserting jurisdiction over certain aspects of our PBM business, including the Internet sale of prescription drugs, therapeutic substitution activities or communications with physicians and others concerning our PBM services, there can be no assurance that the FDA will not seek to impose such regulation in the future.

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The FDA also regulates the conduct of clinical trials for drugs, and the interpretation of the laws and regulations relating to the conduct of clinical trials is complex and sometimes subjective. In general, the sponsor of the drug product that is being studied, or the manufacturer that will have the right to market the drug product if it is approved by the FDA, has the responsibility to comply with the laws and regulations that apply to the conduct of the clinical trials. However, in providing certain clinical investigation services related to the conduct of clinical trials, we may assume some or all of the obligations related to the study of the drug. In addition, we operate a FDA-regulated repackaging facility in which we repackage certain drugs into the most common prescription quantities dispensed from our mail service pharmacies. The FDA also may inspect facilities in connection with procedures implemented to effect recalls of prescription drugs.

Formulary Regulation. A number of states have begun to regulate the administration of prescription drug benefits. For example, some states have passed laws mandating coverage for off-label uses of drug products where those uses are recognized in peer-reviewed medical journals or reference compendia. Other states have enacted laws that regulate the development and use of formularies by insurers, MCOs and other third party payors. These laws have included requirements on the development, review and update of formularies, the role and composition of pharmacy and therapeutics committees, the disclosure of formulary information to health plan members, and a process for allowing members to obtain non-preferred drugs without additional cost-sharing when they are medically necessary and are determined to be clinically appropriate. Additionally, the NAIC has developed a model law, the “Health Carriers Prescription Drug Benefit Management Model Act,” that addresses formulary regulation issues for risk-bearing entities regulated by state insurance commissioners. The federal MMA discussed elsewhere in this Government Regulation section also regulates how formularies are developed for, and administered to, beneficiaries of the Medicare Drug Benefit. To the extent that such legislation would be applicable to our business, increasing government regulation of formularies could significantly affect our ability to develop and administer formularies on behalf of our insurer, MCO and other customers.

Managed Care Reform. Proposed legislation has been considered on both the federal and state level, and legislation has been enacted in several states, aimed primarily at providing additional rights and access to drugs to individuals enrolled in managed care plans. This legislation, if enacted, could impact the design and implementation of prescription drug benefit plans sponsored by our health plan customers and/or the services we provide to them. Some of these initiatives would, among other things: (i) require that health plan members have greater access to drugs not included on a plan’s formulary; (ii) give health plan members the right to sue their health plans for malpractice if they have been denied care; and/or (iii) mandate the content of the appeals or grievance process when a health plan member is denied coverage. Both the scope of the managed care reform proposals considered by Congress and state legislatures and reforms enacted by states to date vary greatly, and the scope of future legislation that may be enacted is uncertain.

Medicare Prescription Drug Benefit. The MMA, which was enacted in 2003, created a new, voluntary prescription drug benefit under the Social Security Act (“Medicare Drug Benefit”). Beginning in January 2006, Medicare beneficiaries entitled to Medicare benefits under Part A or enrolled in Medicare Part B are eligible for the Medicare Drug Benefit. Regulations implementing the Medicare Drug Benefit were published beginning in January 2005 and include, without limitation, requirements relating to developing and administering formularies, establishing pharmacy networks, processing and adjudicating claims at point of sale and compliance with electronic prescribing (e-prescribing) standards. The MMA also required that the FTC conduct a study regarding certain competitive aspects of PBM services and make recommendations regarding additional legislation that may be needed concerning the Medicare Drug Benefit. The FTC issued a report in September 2005 relating to ownership of mail order pharmacies by PBMs and the impact of such ownership on pricing of pharmaceuticals.

We participate in the administration of the Medicare Drug Benefit: (i) through the provision of PBM services to our health plan clients and other clients that have qualified as a Medicare Part D prescription drug plan; (ii) through the offering of Medicare Part D pharmacy benefits by our subsidiary, SilverScript Insurance Company, which has been approved by CMS as a prescription drug plan under Medicare Part D in all regions of the country; and (iii) by assisting employer, union and other health plan clients that qualify for the retiree drug

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subsidy available under Medicare Part D by collecting and submitting eligibility and/or drug cost data to CMS for them as required under Part D in order to obtain the subsidy. Because the Medicare Drug Benefit only recently became effective on January 1, 2006, and because certain aspects of the Medicare Drug Benefit remain subject to further regulatory guidance from CMS, we are not able to fully assess its impact on our business.

The MMA also established a voluntary, Medicare-endorsed prescription drug discount card program (“Medicare Card Program”), which took effect in June 2004 and will remain in place until completion of enrollment in the Medicare Drug Benefit in May 2006. We were approved by CMS as a sponsor of Medicare-endorsed discount card programs. With a number of our programs, we work with other organizations that lend their name and logo to the program and participate in marketing the program to Medicare beneficiaries who have established relationships with these organizations. We also provide services to other discount card sponsors.

Network Access Legislation. A majority of states now have some form of legislation affecting the ability to limit access to a pharmacy provider network or remove network providers. Certain “any willing provider” legislation may require us or our customers to admit a non-participating retail pharmacy if such retail pharmacy is willing and able to meet the plan’s price and other applicable terms and conditions for network participation. These laws vary significantly from state to state in regard to scope, requirements and application. ERISA plans and payors have challenged the application of such laws on the basis of ERISA preemption. However, the scope of ERISA preemption is uncertain and is subject to conflicting court rulings. In April 2003, the U.S. Supreme Court ruled that the State of Kentucky’s “any willing provider” law is not preempted by ERISA as it relates to certain activities of MCOs to maintain limited provider networks. The application of this decision to any willing provider laws of other states is uncertain.

In addition, the MMA contains an “any willing provider” requirement for pharmacy participation in the Medicare Drug Benefit, which provides that a Medicare Part D prescription drug plan must, under certain circumstances, allow participation by any pharmacy that meets the terms and conditions for participation that the plan has established. To the extent any state or federal any willing provider laws are determined to apply to us or to certain of our customers or to the retail, mail and/or specialty pharmacy networks our customers have selected, such laws could negatively impact the PBM services and economic benefits achievable through a limited pharmacy provider network.

Some states also have enacted “due process” legislation that may prohibit the removal of a provider from a pharmacy network except in compliance with certain procedures. Other state legislation prohibits days’ supply limitations or copayment differentials between mail service and retail pharmacy providers.

Pharmacy Licensure and Regulation. We are subject to state and federal statutes and regulations governing the operation of pharmacies, repackaging of drug products, wholesale distribution, dispensing of controlled substances and medical waste disposal. Federal statutes and regulations govern the labeling, packaging, advertising and adulteration of prescription drugs and the dispensing of controlled substances. Federal controlled substance laws require us to register our pharmacies and our repackaging facility with the United States Drug Enforcement Administration and to comply with security, recordkeeping, inventory control and labeling standards in order to dispense controlled substances.

State pharmacy laws generally require compliance with state pharmacy licensure, registration or permit standards promulgated by the state pharmacy licensing authority. Such standards often address the qualifications of an applicant’s personnel, the adequacy of its prescription fulfillment and inventory control practices and the adequacy of its facilities. In general, pharmacy licenses are renewed annually. State controlled substance laws may also require licensure or registration with the state pharmacy licensing authority or other regulatory body. Pharmacists employed by each of our pharmacies must also satisfy applicable state licensing requirements. Several states require that we employ a pharmacist licensed in that state. Also, pharmacy technicians must comply with applicable state registration requirements or, in some states, licensure. In addition, our 18 JCAHO-accredited specialty pharmacies must maintain certain quality and other standards to retain this accreditation.

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Most states generally permit the dispensing pharmacy to follow the laws of the state within which the dispensing pharmacy is located, although a few states require that the dispensing pharmacy follow the laws of the states into which prescription drugs are delivered. Many of the states into which we deliver prescription drugs from our pharmacies have laws and regulations that require out-of-state mail service pharmacies to register with, or be licensed by, the board of pharmacy or similar regulatory body in the state. In addition, we have pharmacy resource centers and clinical call centers that provide support to our mail service pharmacies. Depending on the nature of the activities performed, these clinical call centers may require a pharmacy license in the state in which they operate. We believe that we have registered or obtained licenses for our pharmacies with every state and governmental authority requiring such registration or licensure

In some of the states where our dispensing pharmacies are located, state regulations require compliance with standards promulgated by the United States Pharmacopeia (“USP”), a nonprofit organization whose members represent various healthcare professions, industry, government and academia. USP creates standards in the packaging, storage and shipping of pharmaceuticals.

We also are subject to certain federal and state laws affecting on-line pharmacies because we dispense prescription drugs pursuant to refill orders received through our Internet website, among other methods. Several states have proposed new laws to regulate on-line pharmacies, and federal regulation of on-line pharmacies by the FDA or another federal agency has also been proposed.

Other statutes and regulations may affect our mail service operations. For example, the Federal Trade Commission (“FTC”) requires mail service sellers of goods generally to engage in truthful advertising, to stock a reasonable supply of the products to be sold, to fill mail service orders within thirty days and to provide clients with refunds when appropriate. In addition, the United States Postal Service (“USPS”) has statutory authority to restrict the transmission of drugs and medicines through the mail. To date, however, the USPS has not exercised such statutory authority in any manner that adversely affects our mail service operations.

Plan Design Legislation. Some states have enacted legislation that prohibits a health plan sponsor from implementing certain restrictive design features, and many states have introduced legislation to regulate various aspects of managed care plans, including provisions relating to pharmacy benefits. For example, some states have adopted “freedom of choice” legislation, which provides that: (i) members of a plan may not be required to use network providers but must instead be provided with benefits even if they choose to use non-network providers or (ii) a plan participant may sue his or her health plan if care is denied. Various states have enacted, or have considered enacting, legislation regarding plan design mandates, including legislation that prohibits or restricts therapeutic substitution, requires coverage of all drugs approved by the FDA or prohibits denial of coverage for non-FDA approved uses. Some states mandate coverage of certain benefits or conditions. Such legislation does not generally apply to us, but it may apply to certain of our customers (generally, MCOs and health insurers). If such legislation were to become widespread and broad in scope, it could have the effect of limiting the economic benefits achievable by our customers through PBMs. Additionally, in late 2000, the Equal Employment Opportunity Commission issued a decision holding that two ERISA plans discriminated in violation of Title VII of the Civil Rights Act of 1964 by failing to cover oral contraceptives when other preventive medications were covered. As with legislation imposing plan design mandates, this decision may apply to certain of our customers and could have the effect of limiting the economic benefits achievable through pharmacy benefit management if it is applied broadly.

Other states have enacted legislation purporting to prohibit health plans not covered by ERISA from requiring or offering members financial incentives for use of mail service pharmacies. We are not aware of any formal administrative or judicial efforts to enforce such laws.

Privacy and Confidentiality Legislation. Many of our activities involve the receipt, use and disclosure by us of confidential health information, including disclosure of the confidential information to a participant’s health benefit plan, as permitted in accordance with applicable federal and state privacy laws. In addition, we use and disclose de-identified data for analytical and other purposes. The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) privacy rule imposes extensive requirements on the way in which health plans, healthcare providers, healthcare clearinghouses and their business associates use and disclose protected health

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information (“PHI”). This privacy rule gives individuals the right to know how their PHI is used and disclosed, the right to request restrictions on how PHI may be used or disclosed and the right of access to certain other information concerning disclosures of PHI. Covered entities, such as pharmacies, are required to provide a written Notice of Privacy Practices to individuals that describes how the entity uses and discloses PHI, and how individuals may exercise their rights with respect to their PHI. For most uses and disclosures of PHI other than for treatment, payment, healthcare operations or certain public policy purposes, the rule generally requires that covered entities obtain a valid written individual authorization. In most cases, use or disclosure of PHI must be limited to the minimum amount necessary to achieve the purpose of the use or disclosure. Criminal penalties and civil sanctions may be imposed for failing to comply with HIPAA standards.

In addition to the federal health information privacy regulations described above, most states have enacted health care information confidentiality laws, which limit the disclosure of confidential medical information. The HIPAA privacy rule does not preempt state laws regarding health information privacy that are more restrictive than HIPAA.

HHS also issued, pursuant to HIPAA, regulations establishing transaction standards and code sets for the electronic transmission of healthcare information. These regulations impose national, uniform standards that must be used by healthcare providers, healthcare clearinghouses, health plans and their business associates that conduct certain healthcare transactions electronically. The regulations also mandate the use of certain code sets in connection with the standard transactions. In addition, HHS issued regulations pursuant to HIPAA that govern the security of electronic PHI (the “Security Standards”). The Security Standards impose extensive additional administrative, physical, and technical requirements on health plans, most healthcare providers, healthcare clearinghouses and their business associates regarding the availability, confidentiality and integrity of electronic PHI.

In response to concerns about identity theft, many states have passed laws requiring notification to consumers of security breaches involving personal information. These laws generally require an entity conducting business in the state to notify consumers when their personal information has been, or is reasonably believed to have been, acquired by an unauthorized person. In some cases, the law applies only to unencrypted computerized information, but in others it applies to personal information in any form. In addition to requiring notification to the affected individuals without unreasonable delay, many state laws also require notification to government agencies, such as the State Attorney General or consumer protection agencies. In light of the large number of different state laws and standards, Congress is considering several bills on the subject. If a federal security breach law is passed, it could potentially create a single national standard that would make compliance less burdensome for businesses operating in numerous jurisdictions.

Reimbursement. A portion of our net revenue is derived directly from Medicare, Medicaid and other government sponsored healthcare programs, and we are therefore subject to, among other laws and regulations, federal and state anti-remuneration laws, the Stark Law and/or federal and state false claims laws. Sanctions for violating these federal and/or state laws may include, without limitation, criminal and civil penalties and exclusion from participation in Medicare, Medicaid and other government healthcare programs. Also, we provide products and services to managed care entities that provide services to beneficiaries of Medicare, Medicaid and other government-sponsored healthcare programs.

The federal government and numerous state governments have given increased attention to how pharmaceutical manufacturers develop and report pricing information, which, in turn, is used in setting payments under the Medicare and Medicaid programs. One element common to most payment formulas, Average Wholesale Price (“AWP”), has come under criticism for allegedly inaccurately reflecting prices actually charged and paid at the wholesale level. The federal government and state governments are currently investigating the calculation and reporting of AWP for Medicare and Medicaid reimbursement. In the OIG Guidance, the OIG stated that a pharmaceutical manufacturer’s purposeful manipulation of AWP to increase its customers’ profits by increasing the amount that federal healthcare programs reimburse its customers implicates the federal anti-remuneration law. Several states have filed lawsuits against pharmaceutical manufacturers alleging that they

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illegally inflated actual prices for prescription drugs. In addition, class action lawsuits have been brought by consumers against pharmaceutical manufacturers alleging overstatement of AWP. We are not responsible for calculations, reports or payments of AWP; however, there can be no assurance that our ability to negotiate discounts from drug manufacturers will not be materially adversely affected by such investigations or lawsuits in the future.

Under the MMA, the “average sales price,” or ASP, has replaced AWP as the basis for reimbursing physicians, and sometimes pharmacies, for outpatient prescription drugs under Medicare Part B. For single source drugs, the payment will equal 106 percent of the lesser of: (i) the wholesale acquisition cost (“WAC”) of the product; or (ii) the ASP of the product. ASP is the weighted average of a manufacturer’s sales to all purchasers in a given quarter, after certain pricing adjustments such as discounts or rebates and excluding sales to certain government and other purchasers.

In addition, the MMA provides for the establishment of a competitive acquisition program (“CAP”), a voluntary program that offers physicians an option to acquire certain Part B drugs from vendors who are selected in a competitive bidding process as an alternative to physicians directly purchasing the drugs and being reimbursed by Medicare. The CAP vendors will be responsible for billing Medicare and collecting any applicable deductible and coinsurance from beneficiaries for drugs included in the CAP. Physicians who choose to participate in the CAP will continue to be paid for the costs of administering the drugs. The CAP applies only to certain Part B drugs that are administered to a Medicare beneficiary in the physician’s office. The CAP will go into effect July 1, 2006, and the physician’s selection of their CAP vendors is scheduled to begin in April 2006. The CAP does not apply to drugs covered under Medicare Part D. Caremark has filed an application to be considered for selection as a CAP vendor.

Further, the federal Medicaid rebate program requires participating drug manufacturers to provide rebates on all drugs purchased by state Medicaid programs. Manufacturers of brand name products must provide a rebate equivalent to the greater of: (a) 15.1% of the “average manufacturer price” (“AMP”) paid by wholesalers for products distributed to the retail pharmacy class of trade or (b) the difference between AMP and the “best price” available to essentially any customer other than the Medicaid program, with certain exceptions. Investigations have been commenced by certain governmental entities that question whether “best price” was properly calculated, reported and paid by the manufacturers to the Medicaid programs. We are not responsible for calculations, reports or payments of “best price.” There can be no assurance, however, that our ability to negotiate rebates from drug manufacturers will not be materially adversely affected by such investigations in the future.

In addition, certain state Medicaid programs only allow for reimbursement to pharmacies residing in the state or in a border state. While we believe that we can service our current Medicaid customers through our existing pharmacies, there can be no assurance that additional states will not enact in-state dispensing requirements for their Medicaid programs.

Some states have adopted legislation and regulations requiring that a pharmacy participating in the state Medicaid program give the state the “best price” that the pharmacy makes available to any third-party payor. These requirements are sometimes referred to as “most favored nation pricing” payment systems. Other states have enacted “unitary pricing” legislation, which mandates that all wholesale purchasers of drugs within the state be given access to the same discounts and incentives. A number of states have also recently introduced legislation seeking to control drug prices through various statutory limits, rebates or discounts extending to one or more categories of the state’s population.

Changes in the reporting of AWP or in the basis for calculating reimbursement proposed by the federal government and certain states, and other legislative or regulatory adjustments that may be made regarding the reimbursement of payments for drugs by Medicaid and Medicare, could impact our pricing to customers and other payors and could impact our ability to negotiate discounts with manufacturers, wholesalers or retail pharmacies. In some circumstances, such changes could also impact the reimbursement that we receive from

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Medicare or Medicaid programs for drugs covered by such programs and from MCOs that contract with government health programs to provide prescription drug benefits.

Reimportation. The MMA amended the Food, Drug and Cosmetic Act by providing that the FDA should promulgate rules that would permit pharmacists and wholesalers to import prescription drugs from Canada into the United States under certain circumstances. However, the promulgation of such rules is subject to a precondition that the FDA certify to Congress that such re-importation would not pose any additional risk to the public’s health and safety and that it would result in a significant cost reduction. To date, the FDA has not provided such a certification. We have no assurance that the FDA will not change its position and permit the importation of drugs from Canada in the future or that new legislation or regulations will not permit the importation of drugs from the European Union or other countries in the future.

Self-Referral Laws. The federal law commonly known as the “Stark Law” prohibits a physician from referring Medicare or Medicaid beneficiaries for “designated health services” (which include, among other things, outpatient prescription drugs, home health services and durable medical equipment and supplies) to an entity with which the physician or an immediate family member of the physician has a “financial relationship” and prohibits the entity receiving a prohibited referral from presenting a claim to Medicare or Medicaid for the designated health service furnished under the prohibited referral. Possible penalties for violation of the Stark Law include denial of payment, refund of amounts collected in violation of the statute, civil monetary penalties and Medicare and Medicaid program exclusion. The Stark Law contains certain statutory and regulatory exceptions for physician referrals and physician financial relationships, including certain physician consulting arrangements, fair market value purchases by physicians and other transactions and relationships. We do not believe that we receive any referrals from any physician who has (or whose immediate family member has) a financial relationship with us that, under the Stark Law and related regulations, would bar the physician from making referrals to us or bar the presentation of any claim based on such referrals. In October 2005, pursuant to the MMA, CMS proposed an additional Stark exception for certain arrangements involving the provision of electronic prescribing technology to physicians by certain entities, including prescription drug plans and Medicare Advantage organizations under Medicare Part D.

State statutes and regulations also prohibit payments for the referral of individuals by physicians to healthcare providers with whom the physicians have a financial relationship. Some of these state statutes and regulations apply to services reimbursed by governmental as well as private payors. Violation of these laws may result in prohibition of payment for services rendered, loss of pharmacy or healthcare provider licenses, fines and criminal penalties. The laws and exceptions or safe harbors may vary from the federal Stark Law and vary significantly from state to state. The laws are often vague, and, in many cases, have not been interpreted by courts or regulatory agencies.

State Insurance Laws. Fee-for-service prescription drug plans and our PBM service contracts, including those in which we assume certain risk under performance guaranties or similar arrangements, are generally not subject to insurance regulation by the states. However, if a PBM offers to provide prescription drug coverage on a capitated basis or otherwise accepts material financial risk in providing pharmacy benefits, laws and regulations in various states may be applicable. Such laws may require that the party at risk establish reserves or otherwise demonstrate financial viability. Laws that may apply in such cases include insurance laws and laws governing MCOs and limited prepaid health service plans.

To participate as a prescription drug plan under the Medicare Drug Benefit, we formed a subsidiary named SilverScript Insurance Company. Pursuant to the MMA, SilverScript Insurance Company must be licensed as a risk-bearing entity under state laws or have obtained a waiver of the licensing requirement from CMS. SilverScript Insurance Company has applied to the Tennessee Department of Commerce and Insurance for licensure as a domestic insurance company under the applicable laws and regulations of the State of Tennessee and has filed expansion applications for licensure as an insurance company in other jurisdictions where it may seek to do business. Upon becoming a licensed insurance company, SilverScript Insurance Company will become subject to various state insurance regulations that generally require, among other things, maintenance of

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capital and surplus requirements, review of certain material transactions and the filing of various financial and operational reports. Because SilverScript Insurance Company demonstrated to CMS that it filed substantially complete licensure applications in the jurisdictions where it seeks to do business, CMS granted waivers from the licensing requirement. Generally, waivers are effective for up to thirty-six (36) months and are not renewable unless CMS determines that the state in question does not have a licensing process in effect with respect to prescription benefit plans. If SilverScript Insurance Company is unable either to acquire all necessary insurance licenses or to maintain waivers of such licensing requirements, there may be a materially adverse impact on SilverScript Insurance Company’s ability to participate in the Medicare Drug Benefit as a prescription drug plan. Pursuant to the MMA, state insurance licensing, insurance agent/broker licensure and solvency laws and regulations are generally applicable to prescription drug plans, but the application of other state laws to the Medicare Drug Benefit is preempted by Medicare Part D to the extent that Medicare Part D regulates the issue.

Some states have laws that prohibit submitting a false claim or making a false record or statement in order to secure reimbursement from an insurance company. These state laws vary, and violation of them may lead to the imposition of civil or criminal penalties. Additionally, several states have passed legislation governing the prompt payment of claims that requires, among other things, that health plans and payors pay claims within certain prescribed time periods or pay specified interest penalties. These laws vary from state to state in regard to scope, requirements and application, and it is not clear the extent to which they may apply to our customers or to us. Certain health plans and payors may be exempt from such laws on the basis of ERISA preemption, but the scope of ERISA preemption is unclear.

State Prescription Drug Assistance Programs. Many states are also considering establishing or have expanded state drug assistance programs that would increase access to drugs by those currently without coverage. Many states have established or modified their drug assistance programs for the elderly so that they constitute qualified state pharmacy assistance programs (“SPAPs”) that supplement the Medicare Drug Benefit. Payments by qualified SPAPs on behalf of a Medicare Part D enrollee are treated under Medicare Part D as if they were made by the enrollees themselves, thereby counting towards the enrollees’ true out-of-pocket costs and helping them qualify for catastrophic coverage sooner. Prescription drug plans under Medicare Part D are required to coordinate benefits with SPAPs, including allowing SPAPs to subsidize the Medicare Part D premiums of their members and/or their Medicare Part D cost sharing. Some qualified SPAPs have also received permission from CMS to auto-assign their enrollees that do not choose their own Medicare Part D plans into Medicare Part D plans. We have been and continue to be in active discussions with SPAPs to coordinate benefits with our Medicare Drug Benefit offerings and, where applicable, enrollment by SPAP members into our prescription drug plan under Medicare Part D. Since enrollment in prescription drug plans under Medicare Part D has only recently started, we are not able to assess at this time what will be the impact of the qualified SPAPs on our or our clients’ Medicare Drug Benefit offerings.

Third-Party Administration and Other State Licensure Laws. Many states have licensure or registration laws governing certain types of administrative organizations, such as preferred provider organizations, third party administrators and companies that provide utilization review services. Several states also have licensure or registration laws governing the organizations that provide or administer consumer card programs (also known as cash card or discount card programs). The scope of these laws differs significantly from state to state, and the application of such laws to the activities of PBM companies often is unclear. We believe that we have registered or obtained licenses in every state in which such registration or licensure is required.

Whistleblower Statutes. Certain federal and state laws, including the Federal False Claims Act, contain provisions permitting the filing of qui tam or “whistleblower” lawsuits alleging violations of such laws. Whistleblower provisions allow private individuals to bring lawsuits on behalf of the federal or state government alleging that the defendant has defrauded the government, and there is generally no minimum evidentiary or legal threshold required for bringing such a lawsuit. These lawsuits are typically filed under seal with the applicable federal or state enforcement authority, and such authority is required to review the allegations made and to determine whether it will intervene in the lawsuit and take the lead in the litigation. If the government intervenes in the lawsuit and prevails, the whistleblower plaintiff filing the initial complaint may share in any settlement or

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judgment. If the government does not intervene in the lawsuit, the whistleblower plaintiff may pursue the action independently. Because a qui tam lawsuit typically is filed under seal pending a government review of the allegations, the defendant generally may not be aware of the lawsuit until the government determines whether or not it will intervene or until the lawsuit is otherwise unsealed, a process which may take years. We have been named in several qui tam lawsuits that have been unsealed, as discussed in Item 3, “Legal Proceedings.”

We believe that we are in material compliance with existing laws and regulations applicable to our business. We have implemented standard operating procedures, internal controls and a compliance and integrity program designed to ensure such compliance, and we monitor legislative and judicial developments that could impact our business practices in an effort to ensure future compliance.

We can give no assurance, however, that our operating results and financial condition will not be materially adversely affected, or that we will not be required to materially change our business practices, based on: (i) future enactment of new healthcare or other laws or regulations; (ii) the interpretation or application of existing laws or regulations, including the laws and regulations described in this Government Regulation section, as they may relate to our business or the PBM industry; (iii) pending or future federal or state governmental investigations of our business or the PBM industry; (iv) institution of government enforcement actions against us; (v) adverse developments in any pending qui tam lawsuit against us, whether sealed or unsealed, or in any future qui tam lawsuit that may be filed against us; or (vi) adverse developments in other pending or future legal proceedings against us or affecting the PBM industry.

Corporate Liability and Insurance

We maintain professional liability, general liability and other customary insurance on a claims made and modified occurrence basis in amounts deemed appropriate by management based upon historical claims and the nature and risks of our business. Our business may subject us to litigation and liability for damages. We believe that our current insurance protection is adequate for our present business operations, but there can be no assurance that we will be able to maintain our professional and general liability insurance coverage in the future or that such insurance coverage will be available on acceptable terms or adequate to cover any or all potential product or professional liability claims. A successful liability claim in excess of our insurance coverage could have a material adverse effect on us.

Employees

As of December 31, 2005, we employed a total of 13,628 people. None of our employees are represented by a labor union, and we believe that our relations with our employees are good.

Item 1A. Risk Factors

In addition to the other information included and incorporated by reference in this Annual Report on Form 10-K, including the listing of factors that may affect future results presented on page i, “Forward-Looking Statements and Factors That May Affect Future Results,” you should carefully consider the following risks before making an investment decision concerning Caremark Rx, Inc. common stock. You should also read and consider the other information in this Annual Report on Form 10-K and the other documents incorporated by reference in this Annual Report on Form 10-K. See Part I, Item 1, “Business—Address and Availability of Information” on page 1.

The PBM industry is extremely competitive and competition could impair our ability to maintain existing customers and attract new customers, which could harm our business and financial results.

The PBM industry is extremely competitive. Some of our competitors are large, well-established and profitable companies. These competitors include several large health insurers, managed health care plans, retail chain stores and independent PBMs that may possess greater financial, marketing and other resources than we

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do. Some of these competitors may offer services and pricing terms that we, as an independent PBM company, may not be able to offer. This competition may make it more difficult to maintain existing customers and attract new customers and may cause us to face the risk of declining reimbursement levels without achieving corresponding reductions in costs of revenues. In addition, competition may also come from other sources in the future. As a result, we may not continue to remain competitive, and competition could have an adverse effect on our business and financial results.

If we lose relationships with one or more key pharmaceutical manufacturers or if the payments made by pharmaceutical manufacturers decline, our business and financial results could be adversely affected.

We have business relationships with numerous pharmaceutical manufacturers that pay rebates, administrative fees or other discounts based on use of selected drugs by participants in the benefit plans we manage for our customers. We also have contractual arrangements under which we receive fees from pharmaceutical manufacturers for other programs and services that we provide. Our business and financial results could be adversely affected if:

• we were to lose relationships with one or more key pharmaceutical manufacturers;

• rebates or other discounts decline due to changes in utilization of specified pharmaceutical products by health plan sponsors and other clients;

• legal restrictions are imposed on the ability of pharmaceutical manufacturers to offer rebates, administrative fees or other discounts or to purchase our programs or services; or

• pharmaceutical manufacturers choose not to offer rebates, administrative fees or other discounts or to purchase our programs or services.

The launch of generic pharmaceuticals into the marketplace may impact our financial results.

Rebates on drugs on which patents are expected to expire over the next several years currently contribute significantly to our earned rebates. During 2006 and 2007 patents are expected to expire on brand-name drugs representing approximately $20 billion in annual sales in the United States. As these patents expire, the introduction of generic products may substantially reduce the market share of the brand-name drugs and the rebates manufacturers provide to us for their brand-name drugs that are included on the formularies we manage. We also may not be able to negotiate rebates for new brand-name drugs comparable to those rebates we are earning on brand-name drugs on which patents are expected to expire. We generally earn higher margins on generic drugs dispensed by our mail service pharmacies than we earn on brand-name drugs. However, manufacturers of newly-introduced generic drugs sometimes benefit from an exclusive marketing period, generally six months, during which we may be unable to earn these higher margins. The typically higher margins we earn on generic drugs and the rebates we earn by adding newly-approved, brand-name drugs to our formularies may not offset any decline in rebates for brand-name drugs on which patents expire.

We may be subject to liability claims for damages and other expenses that are not covered by insurance.

A successful product or professional liability claim in excess of our insurance coverage could harm our financial condition and results of operations. Various aspects of our business may subject us to litigation and liability for damages, including the performance of PBM services, including formulary management and health improvement and clinical services, and the operation of our pharmacies and websites.

We believe that most of the claims described in Note 14, “Contingencies,” to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K are unlikely to be covered by insurance.

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Existing and new government legislative and regulatory action could adversely affect our business and financial results.

As a participant in the healthcare and PBM industries, our operations are subject to complex and evolving federal and state laws and regulations and enforcement by federal and state governmental agencies. These laws and regulations are described in detail at Part I, Item 1, “Business—Government Regulation.”

Uncertainty regarding the implementation and impact of Medicare Part D may adversely impact our business and financial results.

The MMA created a new, voluntary prescription drug benefit for Medicare beneficiaries entitled to Medicare benefits under Part A or enrolled in Medicare Part B. The Medicare Drug Benefit became effective on January 1, 2006. We participate in the administration of the Medicare Drug Benefit: (i) through the provision of PBM services to our health plan clients and other clients that have qualified as a Medicare Part D prescription drug plan, (ii) through the offering of Medicare Part D pharmacy benefits by our subsidiary, SilverScript Insurance Company, which has been approved by CMS as a prescription drug plan under Medicare Part D in all regions of the country, and (iii) by assisting employer, union and other health plan clients that qualify for the retiree drug subsidy available under Medicare Part D by collecting and submitting eligibility and/or drug cost data to CMS for them in order to obtain the subsidy. Our clients could decide to discontinue providing prescription drug benefits to their Medicare-eligible members. If this occurs, the adverse effects of the Part D benefit may outweigh any opportunities for new business generated by the new benefit. We are not yet able to assess the impact that Medicare Part D will have on our clients’ decisions to continue to offer a prescription drug benefit to their Medicare-eligible members. In addition, if the cost and complexity of the recent changes exceed our expectations or prevent effective program implementation; if the government alters or reduces funding of Medicare programs because of the higher-than-anticipated cost to taxpayers of the MMA or for other reasons; if we fail to design and maintain programs that are attractive to Medicare participants; or if we are not successful in retaining enrollees, or winning contract renewals or new contracts under the MMA’s competitive bidding process, our current Medicare business and our ability to expand our Medicare operations could be materially and adversely affected, and we may not be able to realize any return on our investments in Medicare initiatives.

Efforts to reduce health care costs and alter health care financing practices could adversely affect our business.

During the past several years, the U.S. healthcare industry has been subject to an increase in governmental regulation at both the federal and state levels. Efforts to control healthcare costs, including prescription drug costs, are underway at the federal and state government levels. Changing political, economic and regulatory influences may affect health care financing and reimbursement practices. If the current health care financing and reimbursement system changes significantly, our business could be materially adversely affected. Congress periodically considers proposals to reform the U.S. health care system. These proposals may increase government involvement in health care and regulation of PBM services, or otherwise change the way our clients do business. Health plan sponsors may react to these proposals and the uncertainty surrounding them by reducing or delaying purchases of cost control mechanisms and related services that we provide. We cannot predict what effect, if any, these proposals may have on our business. Other legislative or market-driven changes in the health care system that we cannot anticipate could also materially adversely affect our consolidated results of operations, consolidated financial position and/or consolidated cash flow from operations.

We are the subject of various legal proceedings.

We are parties to legal proceedings challenging certain of their business practices. The material legal proceedings affecting us are described in detail in Item 3, “Legal Proceedings.”

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Prescription volumes may decline, and our net revenues and profitability may be negatively impacted, when products are withdrawn from the market or when increased safety risk profiles of specific drugs result in utilization decreases.

We process significant volumes of pharmacy claims for brand-name and generic drugs from our mail service pharmacies and through our network of retail pharmacies. These volumes are the basis for our net revenues and profitability. When products are withdrawn by manufacturers, or when increased safety risk profiles of specific drugs or classes of drugs result in utilization decreases, physicians may cease writing or reduce the numbers of prescriptions written for these drugs. Additionally, negative media reports regarding drugs with higher safety risk profiles may result in reduced consumer demand for such drugs. In cases where there are no acceptable prescription drug equivalents or alternatives for these prescription drugs, our prescription volumes, net revenues, profitability and cash flows may decline.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

We lease the real property used in our business, with the exception of the owned pharmacies noted below. Our corporate headquarters are located in Nashville, Tennessee, and we have large corporate offices in Scottsdale, Arizona; Northbrook, Illinois and Irving, Texas. Our primary information systems support facilities are located in Scottsdale, Arizona; Bannockburn, Illinois and Richardson, Texas. We conduct our PBM operations from the following primary locations:

Mail Service Pharmacies	Call Centers
Birmingham, Alabama (owned)	Scottsdale, Arizona
Phoenix, Arizona	Mather, California
Miramar, Florida	Lee’s Summit, Missouri
Mount Prospect, Illinois	Knoxville, Tennessee
Wilkes-Barre, Pennsylvania	Nashville, Tennessee
Fort Worth, Texas	Richardson, Texas
San Antonio, Texas (owned)	San Antonio, Texas

Our FDA-regulated repackaging facility is located in Vernon Hills, Illinois. We also have 21 smaller Specialty Pharmacies (one of which is owned) located across the United States to support delivery of certain medications to individuals with chronic or genetic diseases and disorders.

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Item 3. Legal Proceedings

As a participant in the healthcare industry, our business operations are subject to complex federal and state laws and regulations and enforcement by federal and state governmental agencies as described in Item 1, “Business—Government Regulation.” We are subject to various lawsuits and governmental investigations relating to our continuing PBM operations and to various lawsuits relating to our discontinued PPM and contract services operations. Legal actions involving us include, without limitation, business disputes, contract disputes, employment disputes and professional liability claims.

In February 2006, the United States District Court for the Northern District of Illinois unsealed an amended qui tam complaint filed in March 2004 by four relators who were formerly employed by Caremark. These same relators filed the California qui tam lawsuit described below, and two of them filed the Florida qui tam lawsuit described below. The original qui tam complaint, which was unsealed at the same time as the amended complaint, was filed in December of 2003. The federal qui tam lawsuit seeks monetary damages and includes allegations relating to certain business practices of Caremark, including alleged violations of the Federal False Claims Act and various state statutes. The United States, acting through the U.S. Attorney’s Office in Chicago, Illinois, has declined to intervene in the lawsuit. According to recently unsealed court documents, the United States indicated that it conducted an investigation of the qui tam allegations to determine whether the relators’ claims are warranted and whether the allegations have evidentiary support. The unsealed court documents further indicate that agents from the Office of Personnel Management, Postal Service, Federal Bureau of Investigation and the Food and Drug Administration assisted the United States Attorney’s Office in completing the investigation that formed the basis for the federal government’s decision not to intervene. A qui tam lawsuit typically is filed under seal pending a government review of the allegations and a decision by the applicable government authority on whether or not to intervene in the lawsuit. The lawsuit is proceeding as a private action without intervention by the federal government.

In January 2006, a purported shareholder’s derivative lawsuit was filed by the City of Dania Beach Police & Firefighters’ Retirement System, the Washtenaw County Employees Retirement System and Nicholas Weil in the Circuit Court of Davidson County, Tennessee. The lawsuit states that it was filed for the benefit of Caremark Rx, which is a nominal defendant. The defendants are the members of the Company’s board of directors and one former member of the board of directors. The complaint alleges that the individual defendants breached their fiduciary duties by failing to adequately oversee Caremark’s pharmacy benefit management operations. The allegations appear to be based largely on allegations asserted in other pending lawsuits against the Company and in media reports, including allegations contained in the Florida qui tam action described below. The complaint seeks to recover compensatory damages plus costs and attorneys’ fees from the individual defendants. The lawsuit is substantially similar to two separate purported shareholder derivative lawsuits filed in 2005 by the same plaintiffs in the Circuit Court of Leon County, Florida. The two prior actions in Florida were previously consolidated by the court, and the plaintiffs have voluntarily dismissed them without prejudice.

In June 2005, the Superior Court of California, County of Los Angeles, entered an order unsealing a qui tam complaint filed by four relators who were formerly employed by Caremark, including the two relators who filed the Florida qui tam lawsuit described below. The relators have filed the lawsuit purportedly on behalf of the State of California. The California qui tam lawsuit seeks monetary damages and includes allegations relating to certain business practices of Caremark, including alleged violations of the California False Claims Act. The State of California, acting through the Office of the Attorney General, has declined to intervene in the qui tam lawsuit, and the court issued an order confirming the State of California’s election not to intervene on June 22, 2005. The lawsuit is proceeding as a private action without intervention by the state government.

In May 2005, the United States District Court for the Western District of Texas issued an order unsealing a qui tam complaint filed by relator Janaki Ramadoss, a former Caremark employee. The complaint originally was

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filed under seal on August 25, 1999 and includes allegations relating to Caremark’s processing of Medicaid claims and claims of certain other government programs. The lawsuit seeks monetary damages and includes allegations under the federal false claims act and various state fraud and false claims acts. The United States Department of Justice and the states of Texas, Tennessee, Florida and Arkansas have intervened in the lawsuit and filed an amended complaint, and the state of Louisiana also has intervened and filed a complaint. The relator has also filed an amended complaint against Caremark. Caremark has filed motions to dismiss the amended complaints, which are pending before the court.

In December 2004, Caremark filed a complaint in the United States District Court for the Middle District of Tennessee in Nashville for declaratory and injunctive relief against TennCare, the State of Tennessee’s managed healthcare program. TennCare provides healthcare coverage to individuals eligible for Medicaid benefits and other uninsured or uninsurable individuals. The complaint sought a declaration that certain pharmacy benefit plan limitations, including timely filing requirements, pharmacy network limitations and pharmacy benefit card presentation requirements, are enforceable with respect to claims submitted to Caremark by TennCare for reimbursement by pharmacy benefit plans administered by Caremark. In October 2005, the court granted TennCare’s motion for summary judgment and ruled that pharmacy benefit card presentation requirements and timely filing restrictions in a beneficiary’s health insurance plan do not apply to TennCare’s reimbursement claims. In rendering its decision, the court stated that the matter decided was “based on a good faith disagreement about a complex area of the law.” Caremark has filed a notice of appeal to the Sixth Circuit Court of Appeals.

In October 2004, Caremark Rx and Caremark were served with a complaint filed in the United States District Court for the Northern District of Illinois by the Chicago District Council of Carpenters Welfare Fund alleging that Caremark Rx and Caremark each act as a fiduciary as that term is defined in ERISA and that Caremark Rx and Caremark have breached certain purported fiduciary duties under ERISA. In addition, the lawsuit alleges breach of contract and violations of the Illinois Consumer Fraud and Deceptive Business Practices Act. The lawsuit seeks unspecified monetary damages and restitution. In April 2005, the court granted Caremark’s motion to dismiss as to the ERISA claims, and in August 2005, the court granted Caremark’s motion to dismiss the remaining state law claims for lack of jurisdiction. The plaintiff has subsequently appealed the court’s dismissal of the ERISA claims to the United States Court of Appeals for the Seventh Circuit and, in September 2005, re-filed its state law claims in the Circuit Court of Cook County in the State of Illinois.

In July 2004, Caremark Rx and Caremark were served with a putative private class action lawsuit that was filed by Robert Moeckel, purportedly on behalf of the John Morrell Employee Benefits Plan, in the United States District Court for the Middle District of Tennessee alleging that Caremark Rx and Caremark each act as a fiduciary as that term is defined by ERISA and that Caremark Rx and Caremark have breached certain purported fiduciary duties under ERISA. This lawsuit, which is similar to the Bickley and Dolan actions described below and other pending litigation filed against other PBM companies, seeks unspecified monetary damages and injunctive relief. In August 2005, Caremark Rx was dismissed from the action. Caremark has filed a motion seeking to transfer venue for the case, which motion is pending before the court.

In July 2004, the Company received Civil Investigative Demands (“CIDs”) from the Office of the State of Washington Attorney General seeking information, pursuant to consumer protection statutes, relating to the PBM business practices of Caremark Rx, Caremark and AdvancePCS. The companies have received CIDs or similar requests for information from 28 states and the District of Columbia. Caremark Rx, Caremark and AdvancePCS intend to fully cooperate with the requests for information and cannot predict the timing, outcome or consequences of the review of such information or whether such review could lead to the commencement of any legal proceedings affecting the Company.

In January 2003, a sealed qui tam action was filed by relators Michael Fowler and Peppi Fowler, two pharmacists then employed by Caremark, purportedly as private attorneys general acting on behalf of the State of

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Florida, the State employees’ pharmacy benefits plan and plan members. The lawsuit seeks monetary damages and includes allegations relating to certain business practices of Caremark, including alleged violations of the Florida False Claims Act. The State of Florida indicated in July 2003 that it would not intervene in the lawsuit, and the lawsuit was unsealed in November 2003. In March 2004, Caremark filed a lawsuit for damages and attorneys’ fees and costs alleging that the Fowlers had unlawfully misappropriated and disclosed to third parties documents containing confidential patient health information in violation of the privacy protections found in various state and federal laws and seeking a court order directing that they return the misappropriated documents to Caremark. Caremark’s complaint was subsequently amended to include allegations that the Fowlers and at least one other member of their family had fraudulently obtained, and unlawfully filled, refilled, and distributed, prescriptions for pharmaceuticals. In June 2004, the State of Florida filed a Motion to Intervene in the qui tam action, in which motion the State sought to replace the Fowlers in litigating the lawsuit. The Circuit Court of Leon County, Florida, Second Circuit, denied the State’s Motion to Intervene. In November 2005, the court granted Caremark’s Motion for Partial Summary Judgment, which clarifies the types of records or documents that could potentially form the basis of liability for a “false claim” under the Florida False Claims Act. This decision in effect limits the damages potentially recoverable by the plaintiffs in this action. Discovery in the qui tam action is continuing.

In January 2005, the Chicago Tribune reported that the Illinois Attorney General issued a subpoena to the attorney representing the Fowlers for documents and depositions relating to the Florida qui tam lawsuit. The Chicago Tribune reported that the request for documents was related to a qui tam action that has been filed in the State of Illinois. We have not seen a copy of the qui tam complaint allegedly on file in Illinois. We have been providing information requested by the Illinois Attorney General’s office.

In October 2003, Caremark Rx was served with a putative class action lawsuit filed by John Lauriello in the Circuit Court of Jefferson County, Alabama. The lawsuit was filed on behalf of a purported class of persons who were participants in the 1999 settlement of then pending securities class action and derivative lawsuits against Caremark Rx and others. Also named as defendants are several insurance companies that had provided coverage to Caremark Rx up to the time of the settlement. The lawsuit seeks, among other things, to recover approximately $3.2 billion in compensatory damages plus unspecified punitive damages, pre-judgment interest, costs and attorneys’ fees from the defendants for their alleged intentional, reckless and/or negligent misrepresentation and suppression of material facts relating to the amount of insurance coverage that was available to pay any settlement or judgment arising out of the claims that were resolved by the 1999 settlement. Alternatively, the lawsuit seeks to re-open the judgment approving the 1999 settlement. After the court overruled the defendants’ joint motion to dismiss in July 2004, the defendants filed their answers, which, among other things, denied all of the material allegations of the complaint. The parties then filed pleadings setting out their respective positions as to how this case should proceed. In January 2005, the court signed an order on class certification that, among other things, held that this case will proceed as a class action and set out a schedule for challenging the adequacy of John Lauriello to serve as class representative, as well as the appointment of Lauriello’s lawyers to act as class counsel. The defendants have filed papers with the Alabama Supreme Court seeking immediate appellate review of the trial court’s order. The Alabama Supreme Court has consolidated the issues raised by the parties to the appeal in Lauriello with those raised by the parties to the appellate proceedings involving the McArthur plaintiffs, which are discussed in the paragraph below.

In November 2003, a second putative class action lawsuit was filed by Frank McArthur in the Circuit Court of Jefferson County, Alabama arising out of the same 1999 settlement of then pending securities class action and derivative lawsuits against Caremark Rx and others. This lawsuit also was filed on behalf of a purported class of persons who were participants in the 1999 settlement, and named as defendants Caremark Rx, several insurance companies that had provided coverage to Caremark Rx up to the time of the settlement, and a number of lawyers and law firms involved in negotiating and securing the approval of the 1999 settlement. The lawsuit seeks, among other things, to recover approximately $3.2 billion in compensatory damages plus unspecified punitive

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damages, pre-judgment interest, costs and attorneys’ fees from the defendants for their alleged intentional, reckless and/or negligent misrepresentation and suppression of material facts relating to the amount of insurance coverage that was available to pay any settlement or judgment arising out of the claims that were resolved by the 1999 settlement. In December 2003, John Lauriello, the plaintiff in the lawsuit described above, filed a motion to intervene and a motion to dismiss, abate or stay this lawsuit on the grounds that it was a duplicative, later-filed, class action complaint. In January 2004, Caremark Rx and the other defendants filed their own motion to dismiss, abate or stay the lawsuit as a later-filed class action that is substantially similar to the Lauriello lawsuit. The defendants’ motion to stay was granted by the court, and the lawsuit was transferred to an Administrative Docket where it will be reviewed every 90 days. In February 2005, the plaintiffs in the stayed McArthur case filed motions in the Lauriello case seeking to intervene in that litigation and asking for the right to challenge the adequacy of John Lauriello as class representative and his lawyers as class counsel. The court denied the McArthur plaintiffs’ motion to intervene. The McArthur plaintiffs have appealed the trial court’s order, and, as referenced above, the issues raised in that appeal have been consolidated with the issues raised in the Lauriello appeal.

In October 2003, Caremark Rx, Caremark and AdvancePCS were served with a putative class action complaint filed against them and two PBM competitors in the United States District Court for the Northern District of Alabama by North Jackson Pharmacy, Inc. and C&C, Inc. d/b/a Big C Discount Drugs, Inc., two independent pharmacies. The plaintiffs twice amended and restated their class action complaint, most recently asserting two claims under a single count purportedly arising under Section 1 of the Sherman Act. The court granted a motion filed by Caremark Rx and Caremark to transfer venue to the United States District Court for the Northern District of Illinois pursuant to the terms of the pharmacy services agreements between Caremark and the plaintiffs. The court also granted a motion filed by AdvancePCS to compel arbitration of any claims between it and the plaintiffs pursuant to the pharmacy services agreements it has with the plaintiffs. In May 2005, the plaintiffs in this case filed a putative class action arbitration demand with the American Arbitration Association against AdvancePCS that is nearly identical to the complaint pending in the Northern District of Illinois against Caremark. The demand purports to cover direct claims made against AdvancePCS and seeks treble damages and injunctive relief enjoining the alleged antitrust violations. The arbitration proceeding has been stayed by agreement of the parties pending developments in the court case against Caremark Rx and Caremark, which is in discovery. The plaintiffs are seeking three times actual monetary damages and injunctive relief enjoining the alleged antitrust violations.

In August 2003, AdvancePCS was served with a putative class action brought by Bellevue Drug Co., Robert Schreiber, Inc., d/b/a Burns Pharmacy and Rehn-Huerbinger Drug Co., d/b/a Parkway Drugs #4, purportedly on behalf of themselves and all others similarly situated, and the Pharmacy Freedom Fund and the National Community Pharmacists Association, filed in the United States District Court for the Eastern District of Pennsylvania. The plaintiffs allege antitrust violations under Section 1 of the Sherman Act arising from AdvancePCS’s establishment of network rates for retail pharmacies. The plaintiffs seek for themselves and the purported class three times actual monetary damages and injunctive relief enjoining the alleged antitrust violations. The court granted a motion filed by AdvancePCS to compel arbitration of any claims between it and the plaintiffs pursuant to the pharmacy services agreements it has with the plaintiffs. The plaintiffs moved for reconsideration of the court’s decision or to have the decision certified for an immediate appeal, and their motion was denied.

In March and April of 2003, AdvancePCS, and subsequently Caremark Rx and Caremark, were served with a complaint by an individual named Robert Irwin filed against them in the Superior Court of the State of California. The plaintiff filed the action individually and purportedly as a private attorney general on behalf of the general public of the State of California, the non-ERISA health plans who contract with PBM companies and the individuals who are members of those plans. Other PBM companies are also named as defendants in this lawsuit, which alleges violations of the California unfair competition law. Specifically, the lawsuit challenges alleged business practices of PBMs, including practices relating to pricing, rebates, formulary management, data utilization and accounting and administrative processes. The lawsuit seeks injunctive relief,

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restitution and disgorgement of revenues. Irwin has recently amended his complaint and purported to assert a class action on behalf of all California members of non-ERISA health plans and/or all California taxpayers. No motion for class certification has been filed.

In March 2003, AdvancePCS, Caremark Rx and Caremark were served with a putative representative action filed by American Federation of State, County & Municipal Employees (“AFSCME”), a labor union comprised of numerous autonomous local unions and affiliations. Other PBM companies also are named as defendants in this lawsuit. The lawsuit alleges violations of the California unfair competition law. Specifically, the lawsuit challenges alleged business practices of PBMs, including practices relating to rebates, pricing, formulary management and mail order services. The lawsuit seeks injunctive relief, restitution and disgorgement of revenues. This case has been coordinated with the Irwin case described above before a single judge in Los Angeles County. Based on recent changes in applicable law that restrict a party’s ability to bring lawsuits under California’s unfair competition law, AFSCME entered into a stipulation for the entry of judgment subject to the right of appeal, and the court entered judgment on that case in favor of the defendants in March 2005. AFSCME has subsequently appealed the decision to the California Court of Appeal, and the parties have agreed to stay the appeal pending the outcome of similar cases currently pending before the California Supreme Court.

In April 2002, Caremark Rx was served with a putative private class action lawsuit that was filed by Roland Bickley, purportedly on behalf of the Georgia Pacific Corporation Life, Health and Accident Plan, in the United States District Court, Central District of California alleging that Caremark Rx and Caremark each act as a fiduciary as that term is defined in ERISA and that Caremark Rx and Caremark have breached certain purported fiduciary duties under ERISA. In August 2002, this case was ordered transferred to the United States District Court, Northern District of Alabama. Caremark Rx subsequently was served in May 2002 with a virtually identical lawsuit, containing the same types of allegations, which was filed by Mary Dolan, purportedly on behalf of Wells Fargo Health Plan, and also filed in the United States District Court, Central District of California. In December 2002, this case also was ordered transferred to the United States District Court, Northern District of Alabama. Both of these lawsuits were amended to name Caremark as a defendant, and Caremark Rx was dismissed from the second case filed. These lawsuits, which are similar to the Moeckel case described above, the pending Glanton and Mulder litigation filed against AdvancePCS (described below) and similar litigation involving other PBM companies, seek unspecified monetary damages and injunctive relief. Caremark Rx and Caremark, as applicable, filed motions seeking the complete dismissal of both of these actions on various grounds. In December 2004, the court presiding over the Bickley matter entered an order dismissing that case in its entirety with prejudice, finding that the plaintiff lacked standing, had failed to exhaust his administrative remedies and that Caremark was not a fiduciary under ERISA as to the plaintiff. Bickley then filed a Motion to Alter or Amend the court’s order, which was denied by the court in February 2005. Bickley has subsequently appealed the dismissal of his action to the United States Court of Appeals for the Eleventh Circuit, where it is now pending, and the United States Department of Labor has filed an amicus brief. The Dolan matter has been stayed pending the Eleventh Circuit’s decision in Bickley.

In April 2002, AdvancePCS was served with a putative class action filed by Tommie Glanton in the United States District Court of Arizona brought on behalf of the plaintiff’s health plan and a purported class of self-funded health plans. In March 2003, AdvancePCS was served with a complaint filed by Tara Mackner in which the plaintiff, a purported participant in a self-funded health plan customer of AdvancePCS, sought to bring action on behalf of that plan. Each of the lawsuits sought unspecified monetary damages and injunctive relief. Because the previously filed Glanton case purported to be brought as a class action on behalf of self-funded plans, the court consolidated the Mackner case and the Glanton case. In November 2003, the court dismissed and terminated both the Glanton and Mackner cases on the pleadings, finding that the plaintiffs lacked standing to bring the actions under ERISA. The plaintiffs have appealed the District Court’s dismissal of these cases to the United States Court of Appeals for the Ninth Circuit, and the United States Department of Labor filed an amicus brief.

In March 1998, PCS Health Systems, Inc., a subsidiary of PCS Holding Corporation, which was acquired by Advance Paradigm (now known as AdvancePCS) in October 2000, was served with a putative class action lawsuit filed by Ed Mulder in the United States District Court of the District of New Jersey. The lawsuit alleges

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that PCS Health Systems, Inc. acts as a fiduciary, as that term is defined in ERISA, and has breached certain purported fiduciary duties under ERISA. The plaintiff is seeking injunctive relief and monetary damages in an unspecified amount. The plaintiff purported to represent a nationwide class consisting of all members of all ERISA plans for which PCS Health Systems, Inc. provided PBM services during the class period. AdvancePCS opposed certification of this class, and in July 2003 the court entered an order certifying a more limited class comprised only of members of those ERISA plans for which PCS Health Systems, Inc. provided services under its contract with a single MCO for a limited time period. Discovery in this lawsuit is proceeding. In October 2004, AdvancePCS filed a motion for summary judgment. The motion currently is pending before the court.

In November 1999, PCS Health Systems, Inc. received a subpoena from the Office of the Inspector General (OIG), through the United States Attorney’s Office for the Eastern District of Pennsylvania, seeking information concerning certain of its PBM business practices, including information relating to its arrangements with pharmaceutical manufacturers, retail pharmacies and health plans. The OIG requested information relating to the activities of Advance Paradigm prior to its acquisition of PCS Holding Corporation and the activities of AdvancePCS subsequent to such acquisition. AdvancePCS provided documents to the OIG and facilitated interviews of certain former and current employees in response to the subpoena. The government was reviewing whether certain AdvancePCS business practices comply with anti-kickback statutes, false claims statutes and other applicable laws and regulations. In September 2005, AdvancePCS entered into a settlement agreement with the federal government. Under the terms of the settlement, AdvancePCS agreed, among other things, to pay $137.5 million to settle disputed claims, to adhere to certain business practices pursuant to a consent order and to maintain a compliance program in accordance with a corporate integrity agreement. At the time the settlement was approved by the United States District Court for the Eastern District of Pennsylvania, the court ordered the unsealing of two related qui tam complaints filed by individual relators. The complaints originally were filed under seal in December 2002 and September 2003, and include allegations under the federal false claims acts and various state false claims acts and other state statutes. In addition to resolving the allegations made by the federal government, the settlement resolves federal civil monetary claims asserted by the relators in the qui tam actions. The settlement does not, however, resolve state law claims alleged by the relators relating to various state false claims acts and other state statutes. The relators originally named 11 states and the District of Columbia as additional plaintiffs in the qui tam actions. In October 2005, the court dismissed the state law claims without prejudice.

In 1993, independent and retail chain pharmacies separately filed a series of antitrust lawsuits, including a class action lawsuit, against brand name pharmaceutical manufacturers, wholesalers and PBM companies. The cases included claims for purported violations of Section 1 of the Sherman Act as well as the Robinson-Patman Act and sought three times actual money damages and injunctive relief enjoining the alleged antitrust violations. Caremark was named as a defendant in one of the counts contained in a number of the lawsuits brought by certain independent pharmacies in 1994, but was not named in the class action or in the separate actions brought by chain pharmacies and was not a party to any claims under Section 1 of the Sherman Act. The cases with claims against Caremark charged that certain defendant PBM companies, including Caremark, were favored buyers who knowingly induced or received discriminatory prices from pharmaceutical manufacturers in violation of the Robinson-Patman Act. The cases with claims against Caremark were first transferred to the United States District Court for the Northern District of Illinois for pretrial proceedings and were originally stayed in 1995 along with all of the Robinson-Patman Act claims against the pharmaceutical manufacturers and other PBMs, except for certain “test” claims against certain brand name pharmaceutical manufacturers that proceeded through discovery. Following a trial of the class action price fixing claims brought against the pharmaceutical manufacturers under Section 1 of the Sherman Act, the substantial majority of the cases remaining in the multidistrict litigation, including those with claims against Caremark, were subsequently transferred to the United States District Court for the Eastern District of New York for further proceedings while a limited number of cases remained in the United States District Court for the Northern District of Illinois. Numerous settlements among the parties other than Caremark have been reached, and all claims in the litigation under Section 1 of the Sherman Act against other parties have been settled or resolved. The Robinson-Patman Act “test” claims that had proceeded through discovery were among the cases transferred to the United States District Court for the Eastern District of New York and likely will proceed to summary judgment or trial before the stay of proceedings against Caremark and the other brand name pharmaceutical manufacturers and

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PBMs facing Robinson-Patman Act claims is lifted. Caremark cannot anticipate when the stay might be lifted. The cases involving claims against Caremark that had remained in the United States District Court for the Northern District of Illinois have been dismissed.

We believe that our business practices are in material compliance with all applicable laws and regulations and that we have meritorious defenses to the claims of liability or for damages in the actions that have been made against us; however, there can be no assurance that pending lawsuits or investigations will not have a disruptive effect upon our business, that they will not consume the time and attention of our senior management, or that their resolution, individually or in the aggregate, will not have a material adverse effect on our operating results and financial condition or potentially cause us to make material changes to our current business practices. We intend to vigorously defend each of our pending lawsuits and to cooperate with any pending governmental investigations.

Item 4. Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of our stockholders during the fourth quarter of 2005.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is listed on the New York Stock Exchange (the “NYSE”) under the symbol “CMX.” The following table sets forth, for the calendar periods indicated, the range of high and low sales prices for each quarter of the two-year period beginning January 1, 2004.

	High		Low
2005
First Quarter	$	42.30	$	37.00
Second Quarter		46.83		37.23
Third Quarter		50.43		41.02
Fourth Quarter		53.90		47.24
2004
First Quarter	$	34.19	$	23.50
Second Quarter		35.31		30.50
Third Quarter		32.94		27.56
Fourth Quarter		39.95		28.29

On February 28, 2006, the closing sale price of our common stock on the NYSE was $49.75, and there were 14,282 holders of record.

We have never paid a cash dividend on our common stock. Future dividends, if any, will be determined by our Board of Directors in light of circumstances existing from time to time, including growth prospects, profitability, financial condition, results of operations, continued existence of the restrictions contained in our credit facility which limit the payment of cash dividends on our common stock and other factors which our Board of Directors deems relevant.

During the three months ended December 31, 2005, we repurchased shares of our common stock, $0.001 par value per share, as follows:

Period	Total Number of Shares Purchased	Average Price Paid per Share (1)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Since Inception	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2)
Balance at September 30, 2005				27,512,600	$	353,037,779
October 2005	832,700	$	48.53	28,345,300	$	312,628,338
November 2005	754,100	$	49.86	29,099,400	$	775,032,365
December 2005	227,700	$	51.27	29,327,100	$	763,358,867
Total	1,814,500	$	49.42	29,327,100	$	763,358,867

(1) Per share amounts include transaction costs. The total average price paid per share in the table above represents the average price paid per share for repurchases initiated during the three months ended December 31, 2005. The average price paid per share for all repurchases made under the program from its inception through December 31, 2005, was $33.64.

(2) We are authorized to repurchase up to $1.75 billion of our common stock on the open market under our previously announced repurchase program. On July 1, 2002, we announced that we had adopted a program to purchase up to $150 million of our common stock on the open market. On July 20, 2004, we announced that we had raised the authorized repurchases under this program to $750 million. On May 17, 2005, we announced that we had raised the authorized repurchases under this program by $500 million to $1.25 billion, and on November 9, 2005, we announced that we had raised the authorized repurchases under this

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program by $500 million to $1.75 billion. The amounts in the table above include the $500 million increase in authorized repurchases approved on November 9, 2005 in the November 2005 period.

Our stock repurchase program does not have a set expiration date, and repurchases under the program will be made at times and in amounts as our management deems appropriate. Subsequent to December 31, 2005, the Company repurchased an aggregate of 5,670,300 shares of its common stock under this program at an average price per share of approximately $49.92. As of February 28, 2006, approximately $480.3 million of the $1.75 billion authorized under the repurchase program remained available for additional share repurchases.

Item 6. Selected Financial Data

The following table sets forth selected financial data derived from our audited consolidated financial statements. The selected financial data should be read in conjunction with our audited consolidated financial statements and notes thereto listed in the index on page F-1 of this Annual Report on Form 10-K.

	Year Ended December 31,
	2005		2004 (1)		2003		2002 (2)			2001
	(in thousands, except per share amounts)
Statement of Operations data:
Net revenue	$	32,991,251	$	25,801,121	$	9,067,291	$	6,805,348		$	5,614,029
Income from continuing operations	$	932,371	$	600,309	$	290,838	$	828,797		$	190,545
Loss from discontinued operations		—		—		—		(37,503	)		—
Net income		932,371		600,309		290,838		791,294			190,545
Preferred security dividends		—		—		—		(9,913	)		(13,217	)
Net income to common stockholders	$	932,371	$	600,309	$	290,838	$	781,381		$	177,328
Average number of common shares outstanding—basic		446,865		411,175		257,925		234,222			224,740
Average number of common shares outstanding—diluted		455,737		420,296		264,781		263,305			262,237
Earnings per common share—basic:
Income from continuing operations	$	2.09	$	1.46	$	1.13	$	3.50		$	0.79
Loss from discontinued operations	$	—	$	—	$	—	$	(0.16	)	$	—
Net income to common stockholders	$	2.09	$	1.46	$	1.13	$	3.34		$	0.79
Earnings per common share—diluted:
Income from continuing operations	$	2.05	$	1.43	$	1.10	$	3.15		$	0.73
Loss from discontinued operations	$	—	$	—	$	—	$	(0.14	)	$	—
Net income to common stockholders	$	2.05	$	1.43	$	1.10	$	3.01		$	0.73
Balance Sheet data (as of December 31):
Cash and cash equivalents	$	1,268,883	$	1,078,803	$	815,328	$	306,804		$	159,066
Working capital (deficiency) (3)		933,231		455,490		882,616		348,640			(31,403	)
Total assets		12,850,848		12,309,734		2,473,628		1,912,740			873,671
Long-term debt (net of current portion) (3)		386,600		450,000		693,125		695,625			695,625
Convertible preferred securities		—		—		—		—			200,000
Total stockholders’ equity (deficit)		8,180,566		7,539,717		640,638		257,693			(772,467	)

(1) The Statement of Operations data includes the results of operations of AdvancePCS beginning March 24, 2004. Both the Statement of Operations data and the Balance Sheet data were significantly impacted by the AdvancePCS Acquisition.

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(2) The 2002 period includes amounts related to adjustment of our deferred income tax asset valuation allowance. This adjustment resulted in the recognition of: (a) a $520 million deferred tax benefit included in income from continuing operations and related statement of operations line items; (b) a current deferred income tax asset of approximately $202 million included in working capital; (c) a $413 million long-term deferred tax asset included in total assets; and (d) a direct increase to stockholders’ equity of approximately $69.5 million.

(3) The December 31, 2005 working capital and long-term debt (net of current portion) amounts reflect the classification of $386.6 million of our 7.375% senior notes due 2006 as long-term debt due to our intent and ability to refinance this amount on a long-term basis. The amount classified as long-term debt (net of current portion) is limited to the availability under our revolving credit facility, and the remaining $63.4 million of our 7.375% senior notes is classified as a current liability and is included in working capital. The December 31, 2004 working capital and long-term debt (net of current portion) amounts reflect the repayment of our $147 million term loan on February 18, 2005, and the repurchase of the remaining AdvancePCS senior notes at 104.25% of face value on April 1, 2005.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The purpose of the following MD&A is to help facilitate an understanding of the significant factors influencing our historical operating results, financial condition and cash flows and also to convey management’s expectations of the potential impact of known trends, events or uncertainties that may materially impact future results. This MD&A contains “forward-looking statements” as described on page i of this Annual Report on Form 10-K.

Our MD&A should be read in conjunction with the audited consolidated financial statements and notes thereto which appear beginning on page F-1 of this Annual Report on Form 10-K.

Overview

We are one of the largest pharmaceutical services companies in the United States. Our services assist employers, insurance companies, unions, government employee groups, managed care organizations and other sponsors of health benefit plans and individuals throughout the United States in delivering prescription drugs in a cost-effective manner.

Our pharmaceutical services are generally referred to as pharmacy benefit management, or “PBM,” services and involve the design and administration of programs aimed at reducing the costs and improving the safety, effectiveness and convenience of prescription drug use. We generate our net revenue primarily from dispensing prescription drugs, either directly through our mail service pharmacies or indirectly through our network of third-party retail pharmacies, and through providing certain other services, including disease management, health benefits management and data access to our customers, which are primarily employers, unions, government employee groups, insurance companies, managed care organizations and other sponsors of health benefit plans and individuals throughout the United States. Our net revenue represents amounts earned from both our customers and the participants in our customers’ health benefit plans and includes copayments paid by participants both to us, for prescriptions filled from the pharmacies we own, and to the third-party pharmacies in our retail network, for most retail prescriptions. Our net revenues reflect the effects of any discounts provided to our customers. See Note 2, “Summary of Significant Accounting Policies—Revenue Recognition” to our audited consolidated financial statements contained in this Annual Report on Form 10-K for detailed information concerning our revenue recognition policies.

We generate cost savings for our customers primarily by negotiating for the discounted purchase of pharmaceutical products dispensed to their participants. We purchase pharmaceutical products from, and negotiate various forms of discounts from established list prices with, pharmaceutical manufacturers, pharmaceutical wholesalers and retail pharmacies. When we purchase pharmaceutical products directly from their manufacturer, as is typically the case with generic and biotech products, we generally receive any

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negotiated discount at the time of purchase. When we purchase pharmaceutical products indirectly (e.g., through a wholesaler or from a retail pharmacy at the point-of-dispensing), as is typically the case with brand-name, nonbiotech products, we generally receive a discount from the vendor and, in many cases, the product’s manufacturer. In these cases, the vendor discount is received at the time of purchase; however, the manufacturer discount is received after the product is dispensed. Our cost of revenues reflects the effects of these discounts.

The prices we have negotiated with our customers for the pharmaceutical products we dispense to their participants are generally based on contractual discounts from established list prices and may also include additional discounts based on the type (i.e., preferred brand, non-preferred brand, generic, etc.) of prescriptions filled. The prices in our vendor contracts with various parties (manufacturers, wholesalers, retail pharmacies, etc.) for the purchase of these pharmaceuticals are also based on discounts from established list prices plus, in many cases, additional discounts in the form of prompt payment terms and/or rebates. Additionally, both our customer and vendor contracts typically contain clauses which would allow us to renegotiate pricing in the event that legislation or other events limiting or eliminating the various discounting practices in the pharmaceutical industry, including the practice of providing discounts in the form of rebates, were to occur.

We generate our net revenue primarily from dispensing prescription drugs on behalf of our customers. We dispense these prescriptions drugs through our seven large, automated mail service pharmacies, our 21 smaller, regional mail service pharmacies and a nationwide network composed of over 60,000 retail pharmacies with which we have contracted to purchase pharmaceuticals on behalf of our customers for immediate delivery to their participants. One customer, the Federal Employees Health Benefit Plan, accounted for approximately 16% of our net revenue in 2005.

Critical Accounting Policies and Estimates

Income taxes. We previously had a significant deferred tax asset related to federal and state income tax net operating loss (“NOL”) carryforwards that were primarily generated from losses incurred in our discontinued PPM business. The significant majority of these NOLs were utilized to offset taxable income for the year ended December 31, 2005 and prior years. Due to the complexity of our discontinued operations divestiture and the fact that the tax periods in which the NOLs were generated can be audited well beyond a normal three-year statutory audit period, the amount of the NOLs which may ultimately be realized may vary materially from the amount utilized to offset taxable income. We have established an accrual for tax-related contingencies primarily related to issues which may arise from the tax periods when the NOLs were generated. This accrual is based on our estimates of the amount of benefit from the NOLs that we may ultimately be unable to realize. Subsequent revisions to the accrual for tax-related contingencies may cause our provision for income taxes to vary significantly from period to period.

Estimates Concerning Contingencies. Generally accepted accounting principles specify the criteria for disclosing contingent losses and recording any related estimate of the loss amount. These criteria are based on both probability assessments of the eventual outcome of the contingent event and on the availability of information necessary to estimate the amount of the loss. If it is determined that: (i) it is probable a material loss has been incurred and (ii) the amount of the loss can be reliably estimated, the nature of the loss should be disclosed, and an estimate of the loss should be recorded. If it is reasonably possible that a material loss has been incurred, the nature of the possible loss should be disclosed along with an estimate of the amount of the loss if it is available. To the extent that the incurrence of a material loss is judged remote, no disclosure is required.

The most significant contingencies to which we are exposed, other than the tax-related contingencies discussed above, relate to damages sought by claimants under various lawsuits and investigations. The specific cases for which we believe it may be at least reasonably possible that we have incurred a loss are discussed further at Item 3, “Legal Proceedings” and in the notes to our audited consolidated financial statements which appear beginning on page F-1 of this Annual Report on Form 10-K.

Probability estimates related to the anticipated outcomes of lawsuits/investigations and to the amounts of damages which may ultimately be awarded are inherently uncertain. We have made our estimates based on all

31

available facts and circumstances existing as of the date such estimates were made. Although these estimates have been made based on our prior experience with litigation/investigations, our knowledge of the details of each case, and, in many cases, our consultation with external legal counsel, the actual outcome of pending litigation and investigations could differ materially from our estimates.

Accounts Receivable Valuation Allowances. We are exposed to credit losses from accounts receivable that are recorded as assets in our financial statements but may ultimately be uncollectible and to adjustments to accounts receivable based on contractual interpretations and customer audits. We perform detailed analyses of accounts receivable and related data on a monthly basis and have attempted to allow for expected adjustments based on our past experience with similar accounts receivable. We believe our accounts receivable valuation allowances to be adequate; however, it is possible that the accuracy of our estimation process could be materially impacted as the composition of this pool of accounts receivable changes over time. We continually review and refine our estimation processes to make them as reactive to these changes as possible; however, we cannot guarantee that we will be able to accurately estimate the amounts of these accounts receivable that will ultimately be collected.

The above listing is not intended to be a comprehensive list of all of our accounting policies or estimates made in the preparation of our financial statements. In many cases, the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles, with no need for management’s judgment in their application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. See our audited consolidated financial statements and notes thereto which appear beginning on page F-1 of this Annual Report on Form 10-K which contain accounting policies and other disclosures required by generally accepted accounting principles.

Factors That May Affect Future Results

Our future operating results and financial condition are dependent on our ability to market our services profitably, which is, in turn, heavily dependent on our ability to successfully negotiate discounts for pharmaceutical purchases at various points in our supply chain and to successfully increase market share and manage expense growth relative to revenue growth. Our future operating results and financial condition may be affected by a number of additional factors, including, but not limited to: (i) identification of, and competition for, growth and expansion opportunities; (ii) our ability to attract new customers and retain existing customers; (iii) declining reimbursement levels for, or increases in the costs of, products dispensed; (iv) the timing and launch of generic pharmaceutical products into the marketplace; (v) exposure to liabilities in excess of our insurance; (vi) compliance with, or changes in, government regulation and legislation, including, but not limited to, pharmacy licensing requirements and healthcare reform legislation; (vii) our participation in the federal government’s Medicare Part D program; (viii) adverse developments in the healthcare or pharmaceutical industry generally, including, but not limited to, developments in any investigation related to the pharmaceutical industry that may be conducted by governmental authorities; (ix) adverse resolution of existing or future lawsuits or investigations; and (x) the availability of prescription drug products in the marketplace as affected by product recalls and voluntary product withdrawals by manufacturers. Changes in one or more of these factors could have a material adverse effect on our future operating results and financial condition.

There are various legal matters which, if adversely determined, could have a material adverse effect on our operating results and financial condition. See Item 3, “Legal Proceedings” and Note 14 to our audited consolidated financial statements which appear beginning on page F-1 of this Annual Report on Form 10-K.

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Results of Operations

The following table sets forth selected information about our results of operations for the years ended December 31, 2005, 2004 and 2003:

										Percentage Increase/(Decrease)
	Year Ended December 31,									2005 over 2004		2004 over 2003
	2005			2004			2003
	(In millions, except per share amounts)
Net revenue (4)	$	32,991.3		$	25,801.1		$	9,067.3		27.9	%	184.6	%
Cost of revenues (excluding depreciation)(1)(4)		30,888.9			24,192.5			8,299.2		27.7	%	191.5	%
Selling, general and administrative expenses		463.6			411.0			192.3		12.8	%	113.7	%
Depreciation		100.1			86.5			44.6		15.7	%	93.9	%
Amortization of intangible assets		47.3			37.3			0.5		26.8	%	7360.0	%
Stock option expense		10.5			20.0			—		-47.5	%	N/C
Integration and other related expenses		11.1			25.2			3.4		-56.0	%	641.2	%
Interest (income) expense, net		(3.0	)		31.0			42.6		N/C		-27.2	%
Non-operating gain, net		(25.7	)		—			—		N/C		N/C
		31,492.8			24,803.5			8,582.6		27.0	%	189.0	%
Income before provision for income taxes		1,498.5			997.6			484.7		50.2	%	105.8	%
Provision for income taxes		566.1			397.3			193.9		42.5	%	104.9	%
Net income	$	932.4		$	600.3		$	290.8		55.3	%	106.4	%
Net income per common share—diluted	$	2.05		$	1.43		$	1.10		43.4	%	30.0	%
Operating Income (2)	$	1,469.8		$	1,028.6		$	527.3		42.9	%	95.1	%
Operating Margin		4.46	%		3.99	%		5.82	%
EBITDA (3)	$	1,642.9		$	1,152.4		$	572.3		42.6	%	101.4	%
EBITDA Margin		4.98	%		4.47	%		6.31	%
Net cash provided by (used in):
Continuing operations	$	1,305.8		$	1,602.7		$	575.9		-18.5	%	178.3	%
Investing activities	$	(571.0	)	$	(680.2	)	$	(71.9	)	-16.1	%	846.0	%
Financing activities	$	(537.1	)	$	(648.9	)	$	66.9		-17.2	%	N/C
Discontinued operations	$	(7.6	)	$	(10.2	)	$	(62.4	)	-25.5	%	-83.7	%
Revenues:
Mail service	$	11,594.0		$	8,015.3		$	4,487.8		44.6	%	78.6	%
Retail (4)		21,109.3			17,553.5			4,522.1		20.3	%	288.2	%
Other		288.0			232.3			57.4		24.0	%	304.7	%
	$	32,991.3		$	25,801.1		$	9,067.3		27.9	%	184.6	%
Cost of revenues:
Drug ingredient cost (4)	$	29,986.6		$	23,468.9		$	7,961.1		27.8	%	194.8	%
Pharmacy operating costs and other costs of revenues (1)		902.3			723.6			338.1		24.7	%	114.0	%
	$	30,888.9		$	24,192.5		$	8,299.2		27.7	%	191.5	%
Pharmacy claims processed:
Mail		58.3			42.8			24.9		36.2	%	71.9	%
Retail		478.0			441.4			89.9		8.3	%	391.0	%
		536.3			484.2			114.8		10.8	%	321.8	%

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(1) Cost of revenues excludes allocable depreciation of approximately $86 million, $72 million and $39 million for the years ended December 31, 2005, 2004 and 2003, respectively. These amounts are included in total depreciation for each period.

(2) Operating Income equals net revenue less cost of revenue; selling, general and administrative expenses, depreciation, amortization of intangible assets, stock option expense and integration and other related expenses. Operating Income is computed in accordance with SEC rules; however, it is subject to the same limitations as our presentation of EBITDA as described at (3) below.

(3) We believe that EBITDA, which is a non-GAAP financial measure, is a supplemental measurement tool used by analysts and investors to help evaluate a company’s overall operating performance, its ability to incur and service debt and its capacity for making capital expenditures. We use EBITDA, in addition to operating income and cash flows from operating activities, to assess our liquidity and performance and believe that it is important for investors to be able to evaluate our company using the same measures used by our management. EBITDA can be reconciled to net cash provided by continuing operations, which we believe to be the most directly comparable financial measure calculated and presented in accordance with GAAP, as follows (in thousands):

	Year Ended December 31,
	2005			2004			2003
Net income	$	932,371		$	600,309		$	290,838
Depreciation and amortization		147,370			123,818			45,062
Interest (income) expense, net		(2,953	)		31,039			42,541
Provision for income taxes		566,094			397,347			193,893
EBITDA		1,642,882			1,152,513			572,334
Cash interest receipts (payments), net		1,754			(38,091	)		(38,944	)
Cash tax (payments) refunds, net		(30,649	)		19,490			(14,863	)
Non-operating gain, net		(25,688	)		—			—
Other non-cash expenses		12,697			23,863			1,215
Other changes in operating assets and liabilities, net of acquisitions/disposals of businesses		(295,161	)		444,968			56,150
Net cash provided by continuing operations	$	1,305,835		$	1,602,743		$	575,892

EBITDA does not represent funds available for our discretionary use and is not intended to represent or to be used as a substitute for net income or cash flow from operations data as measured under GAAP. The items excluded from EBITDA are significant components of our statement of income and must be considered in performing a comprehensive assessment of our overall financial performance. EBITDA and the associated year-to-year trends should not be considered in isolation. Our calculation of EBITDA may not be consistent with calculations of EBITDA used by other companies.

(4) Includes approximately $5.5 billion, $4.6 billion and $1.2 billion for the years ended December 31, 2005, 2004 and 2003, respectively, of amounts paid by individual participants in our customers’ benefit plans directly to the third-party pharmacies in our retail networks (i.e., retail copayments).

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Pro Forma Operating Results

The following table sets forth selected pro forma information about our results of operations for the years ended December 31, 2005, 2004 and 2003. This pro forma information was prepared as if the AdvancePCS Acquisition had been consummated at the beginning of each respective period. Additional information concerning the pro forma presentation appears in Note 3, “Acquisition of AdvancePCS and Integration Plan,” to our audited consolidated financial statements which appear beginning on page F-1 of this Annual Report on Form 10-K.

								Percentage Increase/(Decrease)
	Pro Forma Year Ended December 31,							2005 over 2004		2004 over 2003
	2005			2004		2003
	(In millions, except per share amounts)
Net revenue	$	32,991.3		$	30,410.9	$	28,099.0	8.5	%	8.2	%
Cost of revenues (excluding depreciation)		30,888.9			28,653.3		26,634.3	7.8	%	7.6	%
Selling, general and administrative expenses		463.6			472.4		460.7	-1.9	%	2.5	%
Depreciation		100.1			96.6		86.7	3.6	%	11.4	%
Amortization of intangible assets		47.3			48.3		48.4	-2.1	%	-0.2	%
Stock option expense		10.5			28.2		28.2	-62.8	%	0.0	%
Interest (income) expense, net		(3.0	)		31.1		57.5	N/C		-45.9	%
Non-operating gain, net		(25.7	)		—		—	N/C		N/C
		31,481.7			29,329.9		27,315.8	7.3	%	7.4	%
Income before provision for income taxes		1,509.6			1,081.0		783.2	39.6	%	38.0	%
Provision for income taxes		570.5			430.3		311.5	32.6	%	38.1	%
Net income	$	939.1		$	650.7	$	471.7	44.3	%	37.9	%
Net income per common share—diluted	$	2.06		$	1.40	$	1.03	47.1	%	35.9	%
Revenues:
Mail service	$	11,594.0		$	8,706.9	$	7,130.1	33.2	%	22.1	%
Retail		21,109.3			21,402.6		20,670.3	-1.4	%	3.5	%
Other		288.0			301.4		298.6	-4.4	%	0.9	%
	$	32,991.3		$	30,410.9	$	28,099.0	8.5	%	8.2	%
Cost of revenues:
Drug ingredient cost	$	29,986.6		$	27,828.0	$	25,850.4	7.8	%	7.7	%
Pharmacy operating costs and other costs of revenues		902.3			825.3		783.9	9.3	%	5.3	%
	$	30,888.9		$	28,653.3	$	26,634.3	7.8	%	7.6	%
Pharmacy claims processed:
Mail		58.3			47.0		41.8	24.0	%	12.4	%
Retail		478.0			544.9		535.9	-12.3	%	1.7	%
		536.3			591.9		577.8	-9.4	%	2.4	%

Results of operations for 2005 compared to 2004

AdvancePCS Operating Results. The results of operations of AdvancePCS are included in our statement of income beginning March 24, 2004. The primary factor influencing the comparison of our results of operations for 2005 compared to 2004 was the AdvancePCS Acquisition.

Net Revenue. Net revenue increased by approximately $7.2 billion to approximately $33.0 billion in the year ended December 31, 2005, from approximately $25.8 billion in 2004. On a pro forma basis, net revenue

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increased by approximately $2.6 billion, or 8.5%, to approximately $33.0 billion in the year ended December 31, 2005, from approximately $30.4 billion in 2004. Pro forma revenue growth primarily reflects increases due to drug cost inflation partially offset by a higher dispensing rate of generic drugs, which have lower prices but result in healthcare cost savings for our customers, that had the effect of reducing revenues. Excluding the impact of higher generic dispensing rates, pro forma revenues for the year ended December 31, 2005, would have increased approximately 13.3% over the pro forma 2004 amount.

On a pro forma basis, revenues from mail service claims increased approximately $2.9 billion, or 33.2%, to approximately $11.6 billion in 2005 from approximately $8.7 billion in 2004. This increase results from an increase in mail service claim volume of approximately 24.0% and an increase in average revenue per mail service claim of approximately 7.4%. The mail service claim volume increases are related to increases from both new customers and the percentage of mail service claims (adjusted for differences in average days’ supply) to total pharmacy claims, referred to as our “mail penetration rate.” The increase in mail service claim volume and the mail penetration rate during 2005 is due primarily to the fact that new customer starts in 2005 were substantially mail order, while several large retail-oriented customers terminated during 2004 and 2005. On a pro forma basis, our mail penetration rate was approximately 26.5% in 2005, compared to a mail penetration rate of 20.2% in 2004. The increase in average revenue per mail service claim reflects increases in the prices of products dispensed offset by the effects of higher generic dispensing rates as described above. On a pro forma basis, our mail service generic dispensing rate was 39.9% in 2005, compared to a mail service generic dispensing rate of 37.9% in 2004.

On a pro forma basis, revenues from retail claims decreased approximately $293.3 million, or 1.4%, to approximately $21.1 billion in 2005 from approximately $21.4 billion in 2004. This decrease is the result of a decrease in retail claim volume of approximately 12.3% offset by an increase in average revenue per retail claim of approximately 2.0%. The increase in average revenue per retail claim reflects increases in the prices of products dispensed offset by the effects of higher generic dispensing rates. On a pro forma basis, our retail generic dispensing rate was 53.2% in 2005, compared to a retail generic dispensing rate of 49.0% in 2004. The retail claim volume decrease is primarily related to the termination of several large retail-oriented accounts as described above.

Cost of Revenues. Cost of revenues increased approximately $6.7 billion to approximately $30.9 billion in the year ended December 31, 2005, from approximately $24.2 billion in 2004. Pro forma cost of revenues for 2005 as a percentage of net revenue decreased by 0.6% compared to 2004 and was favorably impacted by economies of scale resulting from the AdvancePCS Acquisition. Pro forma cost of revenue growth and cost of revenues as a percentage of net revenue were also impacted by a higher dispensing rate of generic drugs which have lower prices but result in healthcare cost savings for our customers.

Pharmacy operating costs and other costs of revenues increased by approximately $77.0 million, or 9.3%, on a pro forma basis to approximately $902.3 million in 2005 from approximately $825.3 million in 2004. This increase relates primarily to additional customer service center and pharmacy costs incurred to service the overall increases in mail service claims in 2005 from levels experienced in 2004. Pharmacy operating costs and other costs of revenues remained flat as a percentage of revenue on a pro forma basis at 2.7% in 2005 and 2004. In addition, during 2005, the company incurred additional expenses to implement the substantial amount of net new business, which was weighted significantly toward mail service.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased on an absolute basis in 2005, due primarily to the AdvancePCS Acquisition. On a pro forma basis, selling, general and administrative expenses decreased by 1.9% on an absolute basis and decreased as a percentage of net revenue, to 1.41% from 1.55% primarily reflecting the impact of elimination of duplicative costs subsequent to the AdvancePCS Acquisition.

Depreciation. Depreciation increased in 2005 due primarily to the AdvancePCS Acquisition. Depreciation increased in 2005 on a pro forma basis, due primarily to the amounts and timing of depreciation related to capital

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expenditures made to increase capacities in our mail service pharmacies and customer service centers. Depreciation expense is expected to total approximately $105 million to $110 million in 2006.

Amortization of Intangible Assets. The amortization of intangible assets recorded in 2005 and 2004 was related entirely to the intangible assets acquired from AdvancePCS on March 24, 2004. Amortization of intangible assets is expected to total approximately $44 million in 2006.

Interest (Income) Expense, Net. The change in net interest (income) expense in 2005 resulted primarily from increased interest income generated by cash on hand and short-term investments and a decrease in interest expense on long-term debt due to principal repayments. Net interest income is expected to total approximately $45 million to $50 million in 2006. This estimate may vary based on interest rates during the year, as well as the amount of cash that we have invested, which can vary based on share repurchase activity and other cash uses.

Stock Option Expense. The stock option expense recorded in 2005 and 2004 relates to the intrinsic value of unvested stock options held by AdvancePCS optionees on the date of the AdvancePCS Acquisition. The amount to be expensed will change from the remaining unvested intrinsic value to the remaining unvested fair value (as determined on the date of the AdvancePCS Acquisition) beginning January 1, 2006, due to our adoption of Statement of Financial Accounting Standards No. 123 (R) (As Amended), Share-Based Payment, (“FAS 123R”). Additionally, the fair value of all other outstanding, unvested stock options will begin to be expensed over the remaining vesting periods of the underlying options upon our adoption of FAS 123R. We expect share-based compensation to total approximately $50 to $55 million in 2006.

Integration and Other Related Expenses. The decrease in integration and other related expenses primarily reflects costs incurred for outside consulting services for integration planning activities in 2004 that were not incurred in 2005. We incurred approximately $11.1 million of integration and other related expenses for the year ended December 31, 2005, primarily for integration activities related to our acquisition of AdvancePCS and involuntary termination/employee retention and related benefits. We incurred approximately $25.2 million of integration and other related expenses for the year ended December 31, 2004, consisting primarily of: (1) approximately $3.9 million for involuntary termination benefits; (2) a writeoff of approximately $2.2 million of deferred loan costs for indebtedness retired in conjunction with the closing of the AdvancePCS Acquisition; (3) approximately $8 million of integration planning activities related to the AdvancePCS Acquisition and (4) approximately $6 million related to retention benefit obligations under the AdvancePCS Retention Plan. The balance of the costs incurred in 2004 relate primarily to payments to outside service vendors used for various integration-related projects. In 2006, we expect integration and other related expenses to be minimal and anticipate that such expense will no longer be presented separately.

Non-Operating Gain, Net. Non-operating gain, net is primarily comprised of a $27.9 million gain on the sale of our remaining investment in a private company that was formerly one of our subsidiaries.

Provision for Income Taxes. Our provision for income taxes was recorded using a 37.8% effective tax rate on book income in 2005 compared to an approximately 39.8% effective tax rate on book income in 2004. The decrease related to a positive adjustment to the provision for income taxes, primarily to reflect resolution of income tax uncertainties from prior periods.

Results of operations for 2004 compared to 2003

AdvancePCS Operating Results. The results of operations of AdvancePCS for the period March 24, 2004 through December 31, 2004, are included in our statement of income for the year ended December 31, 2004. The primary factor influencing the comparison of our results of operations for 2004 compared to 2003 was the AdvancePCS Acquisition.

Net Revenue. Net revenue increased by approximately $16.7 billion to approximately $25.8 billion in the year ended December 31, 2004, from approximately $9.1 billion in 2003. On a pro forma basis, net revenue

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increased by approximately $2.3 billion, or 8.2%, to approximately $30.4 billion in the year ended December 31, 2004, from approximately $28.1 billion in 2003. Pro forma revenues for the year ended December 31, 2004, were reduced by approximately $1.1 billion from amounts recorded in the same period in 2003 due to the previously announced renewal of a large contract and a corresponding change in revenue recognition for this contract from a gross basis to a net basis. This accounting change had no impact on net income. Pro forma revenue growth was also reduced by a higher dispensing rate of generic drugs that have lower prices but result in healthcare cost savings for our customers. Excluding the impact of higher generic dispensing rates, pro forma revenues for the year ended December 31, 2004, would have increased approximately 13.5% over the pro forma 2003 amount, reflecting drug cost inflation and net new business in 2004.

On a pro forma basis, revenues from mail service claims increased approximately $1.6 billion, or 22.1%, to approximately $8.7 billion in 2004 from approximately $7.1 billion in 2003. This increase resulted from an increase in mail service claim volume of approximately 12.4% and an increase in average revenue per mail service claim of approximately 8.6%. The increase in mail service claim volume was related to both increases from new customers and an increase in the mail penetration rate. On a pro forma basis, our mail penetration rate was approximately 20.2% in 2004, compared to a mail penetration rate of 18.7% in 2003. The increase in average revenue per mail service claim reflected increases in the prices of products dispensed as well as a slight change in overall mix towards higher-priced specialty pharmaceutical products offset by the effects of higher generic dispensing rates as described above. On a pro forma basis, our mail service generic dispensing rate was 37.9% in 2004, compared to a mail service generic dispensing rate of 35.3% in 2003.

On a pro forma basis, revenues from retail claims increased approximately $732.3 million, or 3.5%, to approximately $21.4 billion in 2004 from approximately $20.7 billion in 2003. This increase resulted from an increase in retail claim volume of approximately 1.7% and an increase in average revenue per retail claim of approximately 1.8%. The retail claim volume increases were related to increases from new customers offset by the mail penetration rate increase referred to above. The increase in average revenue per retail claim reflected increases in the prices of products dispensed offset by the effects of higher generic dispensing rates and the contract change described above. On a pro forma basis, our retail generic dispensing rate was 49.0% in 2004, compared to a retail generic dispensing rate of 45.3% in 2003.

Cost of Revenues. Cost of revenues increased approximately $15.9 billion to approximately $24.2 billion in the year ended December 31, 2004, from approximately $8.3 billion in 2003. On a pro forma basis, drug ingredient costs increased approximately $1.9 billion, or 7.7%, to approximately $27.8 billion in 2004 from approximately $25.9 billion in 2003. This increase resulted from an increase in total claim volume of approximately 2.4% and an increase in average drug ingredient cost per claim of approximately 5.1%. The total claim volume increases were related primarily to increases from new customers. The increase in average drug ingredient cost per claim reflected increases in the prices of products dispensed as well as a slight change in overall mix towards higher-priced specialty pharmaceutical products offset by the effects of higher generic dispensing rates and the contract change described above. Generic drugs have lower prices but result in healthcare cost savings for our customers and generally a higher gross profit margin for the company. Pro forma cost of revenues for the year ended December 31, 2004, were reduced by approximately $1.1 billion from amounts recorded in the same period in 2003 due to the contract change referred to above. The rate of increase in pro forma drug ingredient costs was also favorably impacted by economies of scale achieved through the combined purchasing efficiency of Caremark and AdvancePCS.

Pharmacy operating costs and other costs of revenues increased by approximately $41.4 million, or 5.3%, on a pro forma basis to approximately $825.3 million in 2004 from approximately $783.9 million in 2003. This increase related primarily to additional customer service center and pharmacy costs incurred to service the overall increases in call volumes and mail service claims in 2004 from levels experienced in 2003. Pharmacy operating costs and other costs of revenues decreased as a percentage of revenue to 2.7% in 2004 from 2.8% in 2003. The decrease in pharmacy operating costs and other costs of revenues in relation to revenues primarily reflected the realization of efficiency increases in our mail service pharmacies and customer service centers

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gained from capacity additions and technological enhancements made through 2004. A significant component of the increase in depreciation expense described below related to capital assets purchased in conjunction with the capacity additions and technological enhancements.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased on an absolute basis in 2004, due primarily to the AdvancePCS Acquisition. On a pro forma basis, selling, general and administrative expenses increased by 2.5% on an absolute basis. However, selling, general and administrative expenses decreased as a percentage of net revenue, to 1.55% from 1.64%, reflecting primarily the impact of the cost reductions achieved to date from the AdvancePCS Acquisition.

Depreciation. Depreciation increased in 2004 due primarily to the AdvancePCS Acquisition. Depreciation increased in 2004 on a pro forma basis due primarily to the amounts and timing of depreciation related to capital expenditures made to increase capacities in our mail service pharmacies.

Amortization of Intangible Assets. The amortization of intangible assets recorded in 2004 was related entirely to the intangible assets acquired from AdvancePCS.

Interest (Income) Expense, Net. The decrease in net interest expense in 2004 resulted primarily from reductions in the amount of outstanding indebtedness under our credit agreements and increased interest income generated by cash on hand and short-term investments.

Stock Option Expense. The stock option expense recorded in 2004 related to the intrinsic value of unvested stock options held by AdvancePCS optionees on the date of the AdvancePCS Acquisition.

Integration and Other Related Expenses. We incurred approximately $25.2 million of integration and other related expenses for the year ended December 31, 2004, as previously described, compared to $3.4 million in 2003. Costs incurred in 2003 consisted primarily of pre-acquisition integration planning activities with respect to the AdvancePCS Acquisition and relocation expenses for moving our corporate headquarters to Nashville, Tennessee.

Provision for Income Taxes. As a result of the AdvancePCS Acquisition, our provision for income taxes was recorded using a 39.8% effective tax rate on book income beginning in the second quarter of 2004 compared to the 40% effective tax rate on book income in 2003 and the first quarter of 2004.

Historical Liquidity and Capital Resources

General. We broadly define liquidity as our ability to generate sufficient operating cash flow to meet our obligations and commitments. In addition, liquidity includes the ability to obtain appropriate financing to meet our business objectives. Therefore, liquidity cannot be considered separately from capital resources that consist of current or potentially available funds for use in achieving business objectives and meeting debt service commitments.

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The following tables set forth selected information concerning our liquidity and capital resources and changes therein at and for the year ended December 31, 2005 (dollars in millions):

Net cash and cash equivalents provided by (used in):
Continuing operations	$	1,305.8
Investing activities		(571.0	)
Financing activities		(537.1	)
Discontinued operations		(7.6	)
Net increase in cash and cash equivalents for the year ended December 31, 2005		190.1
Cash and cash equivalents—December 31, 2004		1,078.8
Cash and cash equivalents—December 31, 2005	$	1,268.9

	December 31, 2005 (2)		December 31, 2004 (3)
Net working capital (1) (2)	$	933.2	$	455.5
Long-term debt:
Fixed-rate debt (2)	$	386.6	$	450.0
Availability under revolving credit facility	$	386.6	$	387.5

(1) Working capital equals total current assets minus total current liabilities.

(2) The December 31, 2005 net working capital and fixed-rate long-term debt amounts reflect the classification of $386.6 million of our 7.375% senior notes due 2006 as long-term debt due to our ability to refinance this amount on a long-term basis. The amount classified as long-term debt is limited to the availability under our revolving credit facility, and the remaining $63.4 million of our 7.375% senior notes due 2006 is classified as a current liability.

The December 31, 2004 net working capital and fixed-rate long-term debt amounts reflect the repayment of the $147 million then outstanding balance of our term loan facility on February 18, 2005 and the repurchase of our remaining outstanding AdvancePCS 8.5% senior notes, at 104.25% of face value, on April 1, 2005.

Cash Flows from Continuing Operations. Our cash flows from continuing operations of $1,305.8 million for the year ended December 31, 2005, significantly exceeded our net income of $932.4 million. The primary reasons for this difference, in addition to ordinary fluctuations in non-cash working capital, are: (i) the $535.5 million difference in the amount of cash taxes paid ($30.6 million) and the amount of tax provision recorded during the period ($566.1 million) offset by (ii) our payment of $137.5 million to settle disputed claims with the federal government as further described in Item 3, “Legal Proceedings.” The amounts of cash taxes we paid through December 31, 2005, have been significantly reduced by our utilization of NOLs as previously described. We expect the amount of cash taxes we pay in future periods to more closely approximate the provision for income taxes that we record in our statements of income than it has in previous periods.

The net increase in non-cash working capital affecting cash flows from continuing operations from December 31, 2004 to December 31, 2005 also includes the effect of the timing of certain payments in 2005 related to transactions that generated cash receipts in 2004, primarily related to the AdvancePCS Acquisition. For many of the customer contracts we assumed in the AdvancePCS Acquisition, discount payments to customers are based on the discounts that we have collected from pharmaceutical manufacturers. Accordingly, during 2005, we made payments to these customers for their portions of manufacturer discounts that were collected in 2004. In addition, cash flow from operations was negatively impacted by approximately $200 million during 2005 due to the termination of certain client contracts which had significant levels of retail claims.

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Cash Flows from Investing Activities. Cash flows used in investing activities for the year ended December 31, 2005 primarily include $469.9 million invested in available-for-sale securities and $138.2 million of capital expenditures, offset by proceeds of $43.2 million from the sale of our retained interest in a previously disposed subsidiary.

Cash Flows from Financing Activities. In February 2005, we repaid the entire $147.0 million balance then outstanding under our term loan facility, and in April 2005, we repaid the $1.7 million remaining outstanding AdvancePCS Senior Notes. We also made payments of approximately $475.7 million to repurchase 11.2 million shares of our common stock during the year ended December 31, 2005. These payments were offset by net proceeds of approximately $87.3 million from issuance of common stock under employee benefit plans, including exercises of stock options.

Credit Facility. We have a credit facility with Bank of America, N.A. as administrative agent that currently consists of a $400 million revolving credit facility which matures on March 23, 2009. We repaid the $147 million then-outstanding balance of the $150 million term loan component of our bank credit facility in February 2005. This repayment had no impact on availability under the revolving credit facility. At December 31, 2005, we had approximately $386.6 million available for borrowing under the revolving credit facility, exclusive of approximately $13.4 million reserved under letters of credit.

The credit facility is guaranteed by our material subsidiaries and contains restrictive covenants. The guarantees and covenants applicable to the credit facility are described in further detail in Note 8, “Long-Term Debt, Derivative Financial Instrument and Interest Rate Risk Management,” to our audited consolidated financial statements which appear beginning on page F-1 of this Annual Report on Form 10-K.

Receivables-backed Credit Facility. We had a $500 million revolving trade receivables sales facility which expired on March 23, 2005. There were no amounts outstanding under this facility in 2005.

Senior Notes. Our senior notes are in an aggregate principal amount of $450 million and bear interest at 7.375% annually, with all principal amounts due in October 2006. The indenture for the senior notes contains, among other things, restrictions on subsidiary indebtedness, sale and leaseback transactions and consolidation, merger and sale of assets. The senior notes are not guaranteed by any subsidiary. The indenture for the senior notes also contains restrictions on indebtedness secured by liens. To comply with this covenant, we have secured the senior notes on an equal and ratable basis with the credit facility.

AdvancePCS Senior Notes. We repurchased the then remaining outstanding AdvancePCS 8.5% senior notes at 104.25% of face value on April 1, 2005.

Outlook

Liquidity and Capital Resources Overview. Currently, our liquidity needs arise primarily from: (i) commitments related to financing obtained through the issuance of long-term debt; (ii) working capital requirements and (iii) capital expenditures. Additionally, we have acquired businesses recently, may continue to acquire additional businesses in the future, and could fund any such acquisition using cash on hand and short-term investments, availability under our revolving credit facility, or a combination thereof. We believe that our cash on hand, short-term investments, cash flows from operations and amounts available under our revolving credit facility will be sufficient to meet our liquidity needs for the foreseeable future.

Stock Repurchase Program. We are authorized to repurchase up to $1.75 billion of our common stock on the open market under our previously announced repurchase program and subsequent amendments. Repurchases under the program will occur at times and in amounts that management deems appropriate, and we have repurchased approximately 35 million shares at an aggregate cost of approximately $1.3 billion under this program through February 28, 2006. Additional details for repurchases under our stock repurchase program appear at Part II—Item 5.

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Derivative Financial Instrument. We plan to issue 10-year fixed rate debt in the second half of 2006 to replace our $450 million principal amount 7.375% senior notes, which mature in October 2006. In June 2005, we entered into a treasury lock agreement for the purpose of eliminating the variability in future interest payments on the planned issuance of 10-year fixed rate debt due to changes in the benchmark interest rate that may occur between the execution date of the agreement and the pricing date of the fixed rate debt. The treasury lock agreement is based on a 10-year U.S. Treasury Note with an aggregate principal balance of $450 million. We have designated the treasury lock agreement as a cash flow hedge, and have recorded the fair value of the agreement in “Prepaid expenses and other current assets” with a corresponding offset to “Accumulated other comprehensive income (loss)” on the accompanying consolidated balance sheet. The fair value of the agreement, which represents both the present value of future cash flows and the amount we would receive if the agreement were terminated, was approximately $9.8 million as of December 31, 2005. The critical terms of the hedging instrument and the hedged forecasted transaction are the same, and we had no ineffectiveness with regard to the agreement. The ultimate effective gain or loss on the agreement will be recognized over the term of the debt as a component of the total interest expense related to interest payments on the debt issuance.

Contractual Obligations and Commercial Commitments—Continuing Operations. We have various contractual obligations and/or commercial commitments arising from both our continuing and discontinued operations. These obligations and commitments are more fully described in this Annual Report on Form 10-K under various headings in MD&A as well as in the notes to our audited consolidated financial statements which appear beginning on page F-1. The following table lists the aggregate maturities of various classes of obligations and expiration amounts of various classes of commitments related to our continuing operations at December 31, 2005 (in millions):

	Payments due under contractual obligations
	Total		2006		2007-2008		2009-2010		After 2010
Long-term debt—letters of credit (1)	$	13.4	$	—	$	—	$	13.4	$	—
Long-term debt—senior notes (2)		450.0		450.0		—		—		—
Operating leases (3)		310.4		47.3		78.7		65.4		119.0
	$	773.8	$	497.3	$	78.7	$	78.8	$	119.0

(1) See “—Historical Liquidity and Capital Resources—Credit Facility” and financial statement Note 8, “Long-Term Debt, Derivative Financial Instrument and Interest Rate Risk Management.”

(2) See “—Historical Liquidity and Capital Resources—Senior Notes” and financial statement Note 8, “Long-Term Debt, Derivative Financial Instrument and Interest Rate Risk Management.”

(3) See financial statement Note 9, “Operating Leases.”

See “—Discontinued Operations, Including Off-Balance Sheet Guarantees” for information about contractual obligations and commercial commitments related to our discontinued operations.

Planned Capital Expenditures. We expect capital expenditures for 2006 to total approximately $150 million. This amount could vary significantly depending on the timing of projects and related expenditures.

Discontinued Operations, Including Off-Balance Sheet Guarantees. Future cash needed to fund the remaining liabilities of discontinued operations and estimated exit costs was estimated to be approximately $23 million, in aggregate, at December 31, 2005, consisting primarily of accruals for real estate leases and legal disputes.

We have various contractual obligations and commercial commitments arising from our discontinued operations. These primarily include obligations under various leases for commercial real estate. These leases had aggregate remaining rental payments, net of amounts to be paid to us under subleases, of approximately $4.9 million at December 31, 2005, due as follows: 2006—$1.5 million; 2007/2008—$1.6 million; 2009/20010—$1.3 million and after 2010—$0.5 million. Additionally, we are named as guarantor or obligor on additional

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discontinued operations real estate leases which we assigned to third-parties. The aggregate amount of these guarantees totaled approximately $42.1 million at December 31, 2005, and expire as follows: 2006—$9.8 million; 2007/2008—$13.4 million; 2009/2010—$10.0 million and after 2010—$8.9 million.

Deferred Income Taxes. We previously had significant federal income tax NOL carryforwards that were primarily generated from losses incurred in our discontinued PPM business. During the year ended December 31, 2005, we generated sufficient taxable income to utilize our remaining federal income tax NOL carryforward, except for a portion of the amount which was acquired through the AdvancePCS Acquisition. As previously described, the amounts of cash taxes we paid through December 31, 2005, have been significantly reduced by our utilization of NOLs. We expect the amount of cash taxes we pay in future periods to more closely approximate the provision for income taxes that we record in our statements of income than it has in previous periods.

Recent Accounting Pronouncement

In December 2004, the Financial Accounting Standards Board issued FAS 123R, a revision of Financial Accounting Standards No. 123, Share-Based Payment (“FAS 123”). FAS 123R requires companies to recognize the grant-date fair value of stock options as an expense in their financial statements, as opposed to the footnote-only pro forma disclosure requirements contained in FAS 123. Companies may continue the FAS 123 pro forma disclosures through the required effective date of adoption of FAS 123R. In April 2005, the Securities and Exchange Commission delayed the effective date of FAS 123R to January 1, 2006, for most public companies, including us.

Under the transition provisions of FAS 123R, options currently being reflected in the FAS 123 pro forma disclosures will be expensed over their remaining vesting periods as of the date of adoption of FAS 123R using the valuation assumptions and methods previously used to prepare the pro forma disclosures. The estimated grant date fair value of any new stock option grants made after FAS 123R is adopted will be expensed over the vesting periods of the underlying stock option.

Additionally, FAS 123R changes the accounting for many equity instruments other than stock options that may be issued to employees under our various benefit plans. A portion of future transactions under our employee stock purchase plan (“ESPP”), as currently structured, would result in compensation expense after adoption of FAS 123R, and instruments such as the restricted stock or stock units which may be issued under our 2004 Stock Incentive Plan would be impacted as well. FAS 123R also changes the statement of cash flows classification of tax benefits received for the amount of income tax deductions taken for option exercises in excess of amounts expensed thereunder. These amounts are currently classified in cash flows from operating activities; however, they will be classified as cash flows from financing activities after adoption of FAS 123R. The payroll taxes we pay related to stock option exercises will remain classified as cash flows from operating activities.

We expect the adoption of FAS 123R on January 1, 2006 to result in additional stock option expense of approximately $24 million during 2006 for the majority of our options outstanding at December 31, 2005, for which we currently record no expense. In addition, our ESPP, as currently structured, is expected to generate expense of approximately $3 million under FAS 123R, and the AdvancePCS replacement options will continue to be expensed over their remaining vesting periods and are expected to generate expense of approximately $6 million in 2006. We expect total expense under FAS 123R to be approximately $33 million in 2006, excluding income tax benefit and the impact of any 2006 stock option grants. Based on our prior stock option grant practices, we would expect to record approximately $17 million to $22 million of expense in 2006 for options granted in 2006. We do not expect the adoption of FAS 123R in 2006 to have a material effect on our financial position or cash flows (excluding the classification impact on the statement of cash flows discussed above).

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Our earnings and the fair value of our fixed-rate debt are subject to change as a result of movements in market interest rates. In addition, changes in interest rates affect the fair value and future cash flows associated with our treasury lock agreement, described below.

We plan to issue 10-year fixed rate debt in the second half of 2006 to replace our $450 million principal amount 7.375% senior notes, which mature in October 2006. In June 2005, we entered into a treasury lock agreement for the purpose of eliminating the variability in future interest payments on the planned issuance of 10-year fixed rate debt due to changes in the benchmark interest rate that may occur between the execution date of the agreement and the pricing date of the fixed rate debt. The treasury lock agreement is based on a 10-year U.S. Treasury Note with an interest rate of approximately 4.12% and an aggregate principal balance of $450 million. The fair value of the agreement, which represents both the present value of future cash flows and the amount we would receive if the agreement were terminated, was approximately $9.8 million as of December 31, 2005. A hypothetical decrease in interest rates of 10%, or approximately 44 basis points, from the rate at December 31, 2005, would result in a decrease in the fair value of the agreement of approximately $15 million as of December 31, 2005. The fair value of the agreement was approximately $14.2 million as of January 31, 2006.

Item 8. Financial Statements and Supplementary Data

Information with respect to this item is contained in our audited consolidated financial statements and financial statement schedules listed in the index on page F-1 of this Annual Report on Form 10-K and is incorporated herein by reference.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Disclosure Controls and Procedures. As of December 31, 2005, our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), have conducted an evaluation of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(b) of the Exchange Act. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report in ensuring that all material information required to be filed in this Annual Report on Form 10-K has been made known to them in a timely manner.

Management’s Annual Report on Internal Control Over Financial Reporting. We have included a report of management’s assessment of the design and effectiveness of our internal controls as part of this Annual Report on Form 10-K for the year ended December 31, 2005. This report appears on page F-3 of this Annual Report on Form 10-K and is hereby incorporated by reference herein.

Attestation Report of the Registered Public Accounting Firm. Our independent registered public accounting firm attested to, and reported on, management’s assessment of the effectiveness of internal control over financial reporting. Their report appears on page F-4 of this Annual Report on Form 10-K and is hereby incorporated by reference herein.

Changes in Internal Control Over Financial Reporting. There has been no change in our internal control over financial reporting during the fourth fiscal quarter ended December 31, 2005, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Item 9B. Other Information

On March 1, 2006, the Board of Directors of Caremark Rx, Inc. (the “Company”) ratified, among other items, the following actions of the Compensation Committee (the “Compensation Committee”) of the Board of Directors:

(a) Amendment to Employment Agreement

The Compensation Committee authorized an amendment to the employment agreement of Rudy Mladenovic, Executive Vice President of Industry Relations. The amendment is expected to be signed during the second quarter of 2006. Pursuant to the amendment, Mr. Mladenovic’s base salary will be increased to $589,950 effective April 1, 2006, and he will be eligible to receive an annual performance bonus with a stated target of up to 100% of his base salary, at the discretion of the Company’s Chief Executive Officer, and subject to periodic review and adjustment. Mr. Mladenovic is expected to be a “named executive officer” for purposes of the Company’s proxy statement for its 2006 Annual Meeting of Stockholders. All of the other terms of Mr. Mladenovic’s employment agreement will remain the same.

(b) 2005 Management Incentive Plan

The Compensation Committee approved annual cash bonuses earned during 2005 for selected corporate management employees, including certain senior executives of the Company, under the Caremark Rx, Inc. 2005 Management Incentive Plan (the “2005 Program”). A copy of the 2005 Program previously was filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed March 7, 2005, and is hereby incorporated by reference herein. The bonus awards under the 2005 Program were based on the Company’s achievement of certain financial goals related to earnings per share as well as the achievement of individual and departmental goals. These awards range from 10% to 75% of 2005 base salaries, unless otherwise specified in an executive employment agreement.

(c) Synergy-Achievement Bonus Plan

In 2004, the Compensation Committee determined that a supplemental cash incentive plan (the “Synergy Program”) was appropriate to reward certain executives for achievement of synergies, earnings per share targets and the successful integration of AdvancePCS and to provide a retention incentive for certain executives to remain with the Company throughout the integration process. A copy of the Synergy Program previously was filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed November 9, 2004, and is hereby incorporated by reference herein. Pursuant to the Synergy Program, the performance targets had to be satisfied by the end of 2005, and the supplemental bonus is scheduled to be paid, subject to certain terms and conditions, 50% in the first quarter of 2006 and the remainder in the first quarter of 2007. The incentive bonus amounts range from one to three times 2004 base salaries for the eligible executives. The Compensation Committee determined that the applicable performance targets had been met and approved payment of the incentive bonuses pursuant to the terms of the Synergy Program. Mr. Crawford is not a participant in the Synergy Program.

(d) 2006 Management Incentive Plan

The Compensation Committee approved the Caremark Rx, Inc. 2006 Management Incentive Plan (the “2006 Program”). Selected corporate management employees, including certain senior executives of the Company, participate in the 2006 Program as determined by the Compensation Committee.

Each participant in the 2006 Program (a “2006 Participant”) has been assigned a target annual cash bonus as a percentage of the 2006 Participant’s annual base salary, with the awards ranging from 10% to 75% of 2006 base salaries, unless otherwise specified in an executive employment agreement. 2006 Participants may earn their bonuses based on quantitative and qualitative factors as stated in the 2006 Program. The quantitative portion of the bonus will be determined by the Company’s achievement of certain financial goals based on established performance targets relating to earnings before interest and taxes, as adjusted for certain items. The qualitative

45

portion of the bonus will be determined by the 2006 Participant’s achievement of individual and departmental goals. After the end of 2006, the 2006 Participant’s supervisor will make a recommendation of the 2006 Participant’s bonus amount based on the 2006 Participant’s achievement of goals. The bonus recommendation can then be reduced or increased at the discretion of the Company’s Chief Executive Officer.

Bonuses under the 2006 Program may be awarded with approval of the Compensation Committee, and bonus amounts paid to 2006 Participants may, with proper approval, exceed the target annual cash bonus amount. Any such bonuses are expected to be paid in cash during the first quarter of 2007. The foregoing description of the 2006 Program is qualified in its entirety by reference to the 2006 Program, a copy of which is filed herewith as Exhibit 10.58 and is hereby incorporated by reference herein.

(e) Directors’ Compensation

The Compensation Committee approved the terms of the compensation to be paid to each non-employee Director in respect of his/her service on the Board of Directors for 2006. A summary describing the elements of such compensation is filed herewith as Exhibit 10.59 and is hereby incorporated by reference herein.

(f) Other Compensation Information

The Company intends to provide additional information regarding the compensation awarded to the named executive officers in respect of and during the year ended December 31, 2005, in the Company’s proxy statement for its 2006 Annual Meeting of Stockholders, which is expected to be filed with the Securities and Exchange Commission in April 2006.

46

PART III

Item 10. Directors and Executive Officers of the Registrant

The information required by this item is incorporated herein by reference to the proxy statement for our 2006 Annual Meeting of Stockholders.

Item 11. Executive Compensation

The information required by this item is incorporated herein by reference to the proxy statement for our 2006 Annual Meeting of Stockholders.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item is incorporated herein by reference to the proxy statement for our 2006 Annual Meeting of Stockholders.

Item 13. Certain Relationships and Related Transactions

The information required by this item is incorporated herein by reference to the proxy statement for our 2006 Annual Meeting of Stockholders.

Item 14. Principal Accountant Fees and Services

The information required by this item is incorporated herein by reference to the proxy statement for our 2006 Annual Meeting of Stockholders.

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PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) Financial Statements, Financial Statement Schedules and Exhibits

1. Financial Statements. Our consolidated financial statements filed as a part of this Annual Report on Form 10-K are listed in the index appearing on page F-1 and are hereby incorporated by reference herein.

2. Financial Statement Schedules. All schedules for which provision is made in the applicable accounting regulations of the SEC, except for Schedule II listed in the index referred to above, have been omitted because they are not required under the related instructions, or are inapplicable, or because the information has been provided in the consolidated financial statements or the notes thereto.

3. Exhibits. The exhibits filed as a part of this Annual Report are listed in Item 15(b) of this Annual Report on Form 10-K, which is hereby incorporated by reference herein.

(b) Exhibits

Exhibit No.
2.1	—	Agreement and Plan of Merger, dated as of September 2, 2003, by and among Caremark Rx, Inc., Cougar Merger Corporation and AdvancePCS, filed as Exhibit 2.1 to Amendment No. 2 to the Company’s Registration Statement on Form S-4 (Registration No. 333-109519), filed with the Securities and Exchange Commission on December 23, 2003, and hereby incorporated by reference herein.
3.1	—	Caremark Rx, Inc. Fourth Restated Certificate of Incorporation filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004, and hereby incorporated by reference herein.
3.2	—	Caremark Rx, Inc. Seventh Amended and Restated Bylaws filed as Exhibit 3.3 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003, and hereby incorporated by reference herein.
4.1	—	Second Amended and Restated Rights Agreement, dated as of March 11, 2002, between Caremark Rx, Inc., and First Union National Bank, including exhibits thereto, filed as Exhibit 4.1 to Amendment No. 1 to the Company’s Registration Statement on Form 8-A, filed with the Securities and Exchange Commission on May 8, 2002, and hereby incorporated by reference herein.
4.2	—	Form of Common Stock Certificate of the Company.
4.3	—	Agreement Regarding Registration Rights between Caremark Rx, Inc., Joseph Littlejohn & Levy Fund III, L.P., and the other persons named on the signature pages thereof, dated as of September 2, 2003, filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K on September 4, 2003, and hereby incorporated by reference herein.
10.1	—	Consulting Agreement, dated as of August 7, 1996, by and among Caremark International, Inc., MedPartners, Inc. and C.A. Lance Piccolo, filed as Exhibit 10.1 to the Company’s Registration Statement on Form S-4 (Registration No. 333-09767), filed with the Securities and Exchange Commission on August 8, 1996, and hereby incorporated by reference herein.
10.2	—	Employment Agreement, dated March 18, 1998, by and between the Company and E. Mac Crawford, filed as Exhibit 10.2 to Amendment No. 2 to the Company’s Registration Statement on Form S-4 (Registration No. 333-109519), filed with the Securities and Exchange Commission on December 23, 2003, and hereby incorporated by reference herein.

48

Exhibit No.
10.3	—	Amendment No. 1 to Employment Agreement, dated August 6, 1998, by and between the Company and E. Mac Crawford, filed as Exhibit 10.3 to Amendment No. 2 to the Company’s Registration Statement on Form S-4 (Registration No. 333-109519), filed with the Securities and Exchange Commission on December 23, 2003, and hereby incorporated by reference herein.
10.4	—	Amendment No. 2 to Employment Agreement, dated December 1, 1998, by and between the Company and E. Mac Crawford, filed as Exhibit 10.4 to Amendment No. 2 to the Company’s Registration Statement on Form S-4 (Registration No. 333-109519), filed with the Securities and Exchange Commission on December 23, 2003, and hereby incorporated by reference herein.
10.5	—	Amendment No. 3 to Employment Agreement, dated March 8, 2000, by and between the Company and E. Mac Crawford, filed as Exhibit 10.5 to Amendment No. 2 to the Company’s Registration Statement on Form S-4 (Registration No. 333-109519), filed with the Securities and Exchange Commission on December 23, 2003, and hereby incorporated by reference herein.
10.6	—	Amendment No. 4 to Employment Agreement, dated August 28, 2001, by and between the Company and E. Mac Crawford, filed as Exhibit 10.6 to Amendment No. 2 to the Company’s Registration Statement on Form S-4 (Registration No. 333-109519), filed with the Securities and Exchange Commission on December 23, 2003, and hereby incorporated by reference herein.
10.7	—	Amendment No. 5 to Employment Agreement, dated November 12, 2002, by and between the Company and E. Mac Crawford, filed as Exhibit 10.7 to Amendment No. 2 to the Company’s Registration Statement on Form S-4 (Registration No. 333-109519), filed with the Securities and Exchange Commission on December 23, 2003, and hereby incorporated by reference herein.
10.8	—	Employment Agreement, dated June 26, 2002, by and between the Company and A.D. Frazier, Jr., filed as Exhibit 10.8 to Amendment No. 2 to the Company’s Registration Statement on Form S-4 (Registration No. 333-109519), filed with the Securities and Exchange Commission on December 23, 2003, and hereby incorporated by reference herein.
10.9	—	Employment Agreement, dated July 1, 1998, by and between the Company and Edward L. Hardin, Jr., originally filed as Exhibit 10.16 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1998, and refiled as Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 pursuant to Item 10(d) of Regulation S-K, and hereby incorporated by reference herein.
10.10	—	Amendment No. 1 to Employment Agreement, dated March 8, 2000, by and between the Company and Edward L. Hardin, Jr., originally filed as Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999, and refiled as Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 pursuant to Item 10(d) of Regulation S-K, and hereby incorporated by reference herein.
10.11	—	Second Amendment to Employment Agreement, dated February 19, 2002, by and between the Company and Edward L. Hardin, Jr., filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2002, and hereby incorporated by reference herein.
10.12	—	Amended and Restated Employment Agreement, dated December 3, 2001, by and between the Company and Howard A. McLure, filed as Exhibit 10.9 to Amendment No. 2 to the Company’s Registration Statement on Form S-4 (Registration No. 333-109519), filed with the Securities and Exchange Commission on December 23, 2003, and hereby incorporated by reference herein.

49

Exhibit No.
10.13	—	Employment Agreement, dated June 1, 2000, by and between the Company and Bradley S. Karro, originally filed as Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2000, and refiled herewith pursuant to Item 10(d) of Regulation S-K.
10.14	—	Employment Agreement, dated April 1, 2004, by and between Caremark Rx, Inc. and Rudy Mladenovic, filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2005, and hereby incorporated by reference herein.
10.15	—	First Amendment to Amended and Restated Employment Agreement, dated April 14, 2003, by and between the Company and Howard A. McLure, filed as Exhibit 10.2 to the Company’s Amended Current Report on Form 8-K/A on August 17, 2005, and hereby incorporated by reference herein.
10.16	—	Second Amendment to Amended and Restated Employment Agreement, effective June 21, 2005, by and between the Company and Howard A. McLure, filed as Exhibit 10.3 to the Company’s Amended Current Report on Form 8-K/A on August 17, 2005, and hereby incorporated by reference herein.
10.17	—	Amended and Restated Incentive Compensation Plan, originally filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2000, and refiled herewith pursuant to Item 10(d) of Regulation S-K.
10.18	—	First Amendment to Amended and Restated Incentive Compensation Plan, dated November 15, 2000, originally filed as Exhibit 10.18 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000, and refiled herewith pursuant to Item 10(d) of Regulation S-K.
10.19	—	Second Amendment to Amended and Restated Incentive Compensation Plan, dated January 12, 2001, originally filed as Exhibit 10.19 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000, and refiled herewith pursuant to Item 10(d) of Regulation S-K.
10.20	—	Caremark Rx, Inc. Management Incentive Plan for Fiscal Year 2005, filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on March 7, 2005, and hereby incorporated by reference herein.
10.21	—	Amended and Restated 1993 Stock Option Plan, originally filed as Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2000, and refiled herewith pursuant to Item 10(d) of Regulation S-K.
10.22	—	First Amendment to Amended and Restated 1993 Stock Option Plan, dated November 15, 2000, originally filed as Exhibit 10.21 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000, and refiled herewith pursuant to Item 10(d) of Regulation S-K.
10.23	—	Second Amendment to Amended and Restated 1993 Stock Option Plan, dated January 12, 2001, originally filed as Exhibit 10.22 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000, and refiled herewith pursuant to Item 10(d) of Regulation S-K.
10.24	—	Amended and Restated 1994 Stock Option Plan, originally filed as Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2000, and refiled herewith pursuant to Item 10(d) of Regulation S-K.
10.25	—	First Amendment to Amended and Restated 1994 Stock Option Plan, dated November 15, 2000, originally filed as Exhibit 10.24 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000, and refiled herewith pursuant to Item 10(d) of Regulation S-K.
10.26	—	Second Amendment to Amended and Restated 1994 Stock Option Plan, dated January 12, 2001, originally filed as Exhibit 10.25 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000, and refiled herewith pursuant to Item 10(d) of Regulation S-K.

50

Exhibit No.
10.27	—	Non-Employee Director Stock Option Plan, filed as Exhibit 4.2 to the Company’s Registration Statement on Form S-8 (Registration No. 333-14163), filed with the Securities and Exchange Commission on October 15, 1996, and hereby incorporated by reference herein.
10.28	—	Amended and Restated 1995 Stock Option Plan, originally filed as Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2000, and refiled herewith pursuant to Item 10(d) of Regulation S-K.
10.29	—	First Amendment to Amended and Restated 1995 Stock Option Plan, dated November 15, 2000, originally filed as Exhibit 10.28 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000, and refiled herewith pursuant to Item 10(d) of Regulation S-K.
10.30	—	Second Amendment to Amended and Restated 1995 Stock Option Plan, dated January 12, 2001, originally filed as Exhibit 10.29 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000, and refiled herewith pursuant to Item 10(d) of Regulation S-K.
10.31	—	Amended and Restated 1997 Long Term Incentive Compensation Plan, originally filed as Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2000, and refiled herewith pursuant to Item 10(d) of Regulation S-K.
10.32	—	First Amendment to 1997 Long Term Incentive Compensation Plan, dated November 15, 2000, originally filed as Exhibit 10.31 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000, and refiled herewith pursuant to Item 10(d) of Regulation S-K.
10.33	—	Second Amendment to 1997 Long Term Incentive Compensation Plan, dated January 12, 2001, originally filed as Exhibit 10.32 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000, and refiled herewith pursuant to Item 10(d) of Regulation S-K.
10.34	—	Amended and Restated 1998 Employee Stock Option Plan, originally filed as Exhibit 10.9 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2000, and refiled herewith pursuant to Item 10(d) of Regulation S-K.
10.35	—	First Amendment to Amended and Restated 1998 Employee Stock Option Plan, dated November 15, 2000, originally filed as Exhibit 10.34 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000, and refiled herewith pursuant to Item 10(d) of Regulation S-K.
10.36	—	Second Amendment to Amended and Restated 1998 Employee Stock Option Plan, dated January 12, 2001, originally filed as Exhibit 10.35 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000, and refiled herewith pursuant to Item 10(d) of Regulation S-K.
10.37	—	Amended and Restated 1998 New Employee Stock Option Plan, originally filed as Exhibit 10.10 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2000, and refiled herewith pursuant to Item 10(d) of Regulation S-K.
10.38	—	First Amendment to Amended and Restated 1998 New Employee Stock Option Plan, dated November 15, 2000, originally filed as Exhibit 10.37 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000, and refiled herewith pursuant to Item 10(d) of Regulation S-K.
10.39	—	Second Amendment to Amended and Restated 1998 New Employee Stock Option Plan, dated January 12, 2001, originally filed as Exhibit 10.38 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000, and refiled herewith pursuant to Item 10(d) of Regulation S-K.

51

Exhibit No.
10.40	—	Pledge and Security Agreement, dated March 15, 2001, for the Company and its material subsidiaries, as Grantors, to LaSalle Bank National Association as Trustee, originally filed as Exhibit 10.67 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000, and refiled herewith pursuant to Item 10(d) of Regulation S-K.
10.41	—	Trust Agreement, dated March 15, 2001, for the Company and its material subsidiaries, as Grantors, to LaSalle Bank National Association as Trustee, originally filed as Exhibit 10.68 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000, and refiled herewith pursuant to Item 10(d) of Regulation S-K.
10.42	—	Non-Employee Director Deferred Compensation Plan, filed as Exhibit 10.49 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002, and hereby incorporated by reference herein.
10.43	—	Amendment Number One to the Caremark Rx, Inc. Director Deferred Compensation Plan, filed as Exhibit 10.43 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004, and hereby incorporated by reference herein.
10.44	—	Caremark Rx, Inc. Deferred Compensation Plan, effective April 1, 2005, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 7, 2005, and hereby incorporated by reference herein.
10.45	—	Supplemental Executive Retirement Plan, filed as Exhibit 10.50 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002, and hereby incorporated by reference herein.
10.46	—	Employee Stock Purchase Plan, filed as Exhibit 10.51 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002, and hereby incorporated by reference herein.
10.47	—	Amendment One to the Employee Stock Purchase Plan, filed as Exhibit 10.52 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002, and hereby incorporated by reference herein.
10.48	—	Amendment Two to the Employee Stock Purchase Plan, filed as Exhibit 10.53 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002, and hereby incorporated by reference herein.
10.49	—	Voting Agreement, dated as of September 2, 2003, among Caremark Rx, Inc. and Joseph Littlejohn & Levy Fund III, L.P., in its capacity as a stockholder of AdvancePCS, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K on September 4, 2003 and hereby incorporated by reference herein.
10.50	—	Amended and Restated Credit Agreement, dated as of March 24, 2004, among the Company, the Initial Lenders, Bank of America, N.A., Wachovia Bank, National Association and UBS Securities LLC, and JPMorgan Chase Bank, Banc of America Securities LLC and Wachovia Capital Markets, LLC d/b/a/ Wachovia Securities, acting in the capacities listed therein, filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K on April 8, 2004, and hereby incorporated by reference herein.
10.51	—	Receivables Sale Agreement, dated as of March 24, 2004, among Caremark Inc., AdvancePCS Health, L.P. and Caremark Receivables LLC in the capacities listed therein, filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K on April 8, 2004, and hereby incorporated by reference herein.
10.52	—	Fourth Supplemental Indenture, dated March 24, 2004, by and among AdvancePCS, AdvancePCS Health Systems, L.L.C., AdvancePCS SpecialtyRx, L.L.C., Dresing-Lierman, Inc., and Theracom, Inc., Consumer Health Interactive Inc., AdvancePCS Puerto Rico, Inc.,

52

Exhibit No.
		AFC Receivables Holding Corporation, Accordant Health Services, Inc., and Accordant Integrated Services, Inc., and The Bank of New York Trust Company, N.A., acting in the capacities listed therein, filed as Exhibit 10.5 to the Company’s Current Report on Form 8-K on April 8, 2004, and hereby incorporated by reference herein.
10.53	—	Survivor Benefit Agreement between the Company and E. Mac Crawford, filed as Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the Quarterly Period ended March 31, 2004, and hereby incorporated by reference herein.
10.54	—	Caremark Rx, Inc. Synergy—Achievement Supplemental Bonus Plan, filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the Quarterly Period ended September 30, 2004, and hereby incorporated by reference herein.
10.55	—	Caremark Rx, Inc. 2004 Incentive Stock Plan, filed as Annex L to Amendment No. 4 to the Company’s Registration Statement on Form S-4 (Registration No. 333-109519), filed with the Securities and Exchange Commission on February 13, 2004, and hereby incorporated by reference herein.
10.56	—	Amendment No. 1 to Credit Agreement, dated November 30, 2004, among the Company, the lenders party thereto, and Bank of America, N.A., acting in the capacities listed therein, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K on December 9, 2004, and hereby incorporated by reference herein.
10.57	—	Employment Agreement, effective June 1, 2005, by and between Caremark Rx, Inc. and William R. Spalding.
10.58	—	Caremark Rx, Inc. Management Incentive Plan for Fiscal Year 2006
10.59	—	Description of Compensation Payable to Non-employee Directors
21	—	Subsidiaries of the Company
23.1	—	Consent of KPMG LLP
31.1	—	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2	—	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1	—	Section 1350 Certification of Chief Executive Officer
32.2	—	Section 1350 Certification of Chief Financial Officer

53

SIGNATURES

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

CAREMARK RX, INC.
By:	/s/    PETER J. CLEMENS IV
	Peter J. Clemens IV Executive Vice President and Chief Financial Officer

Date: March 2, 2006

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/    E. MAC CRAWFORD         E. Mac Crawford	Chairman of the Board, President, Chief Executive Officer and Director (Principal Executive Officer)	March 2, 2006
/s/    HOWARD A. MCLURE         Howard A. McLure	Senior Executive Vice President and Chief Operating Officer	March 2, 2006
/s/    PETER J. CLEMENS IV         Peter J. Clemens IV	Executive Vice President and Chief Financial Officer	March 2, 2006
/s/    EDWARD L. HARDIN, JR.         Edward L. Hardin, Jr.	Executive Vice President, General Counsel and Director	March 2, 2006
/s/    MARK S. WEEKS         Mark S. Weeks	Senior Vice President and Controller (Principal Accounting Officer)	March 2, 2006
/s/    EDWIN M. BANKS         Edwin M. Banks	Director	March 2, 2006
/s/    C. DAVID BROWN II         C. David Brown II	Director	March 2, 2006
/s/    COLLEEN CONWAY-WELCH         Colleen Conway-Welch	Director	March 2, 2006
/s/    HARRIS DIAMOND         Harris Diamond	Director	March 2, 2006
/s/    KRISTEN E. GIBNEY WILLIAMS         Kristen E. Gibney Williams	Director	March 2, 2006
/s/    ROGER L. HEADRICK         Roger L. Headrick	Director	March 2, 2006
/s/    TED H. MCCOURTNEY         Ted H. McCourtney	Director	March 2, 2006
/s/    JEAN-PIERRE MILLON         Jean-Pierre Millon	Director	March 2, 2006
/s/    C. A. LANCE PICCOLO         C. A. Lance Piccolo	Director	March 2, 2006
/s/    MICHAEL C. WARE         Michael C. Ware	Director	March 2, 2006

54

CAREMARK RX, INC. AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

The following audited consolidated financial statements of the registrant and its subsidiaries are submitted herewith in response to Items 8 and 15(a)(1):

	Page
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements	F-2
Management’s Report on Internal Control Over Financial Reporting	F-3
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting	F-4
Consolidated balance sheets as of December 31, 2005 and 2004	F-5
Consolidated statements of income for each of the years in the three year period ended December 31, 2005	F-6
Consolidated statements of changes in stockholders’ equity and comprehensive income for each of the years in the three year period ended December 31, 2005	F-7
Consolidated statements of cash flows for each of the years in the three year period ended December 31, 2005	F-8
Notes to consolidated financial statements	F-9

The following financial statement schedule of the registrant and its subsidiaries is submitted herewith in response to Item 15(a)(2):

	Page
Report of Independent Registered Public Accounting Firm on Financial Statement Schedules	S-1
Schedule II—Valuation and qualifying accounts	S-2

F-1

Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements

The Board of Directors and Stockholders

Caremark Rx, Inc.:

We have audited the accompanying consolidated balance sheets of Caremark Rx, Inc. and subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of income, changes in stockholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2005. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Caremark Rx, Inc. and subsidiaries as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 20, 2006 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

/s/    KPMG LLP

Nashville, Tennessee

February 20, 2006

F-2

Management’s Report on Internal Control Over Financial Reporting

Caremark Rx’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including Caremark Rx’s principal executive officer and principal financial officer, Caremark Rx conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on Caremark Rx’s evaluation under the framework in Internal Control—Integrated Framework, management concluded that internal control over financial reporting was effective as of December 31, 2005. KPMG LLP, the independent registered public accounting firm that audited the financial statements included in this Annual Report on Form 10-K, has issued an attestation report, which is included herein, on management’s assessment of Caremark Rx’s internal control over financial reporting.

CAREMARK RX, INC.

Nashville, Tennessee

February 20, 2006

/s/    E. MAC CRAWFORD	/s/    PETER J. CLEMENS IV
E. Mac Crawford Chairman of the Board, President, Chief Executive Officer and Director (Principal Executive Officer)	Peter J. Clemens IV Executive Vice President and Chief Financial Officer (Principal Financial Officer)

F-3

Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting

The Board of Directors and Stockholders

Caremark Rx, Inc.:

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that Caremark Rx, Inc. maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Caremark Rx, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that Caremark Rx, Inc. maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, Caremark Rx, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Caremark Rx, Inc. and subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of income, changes in stockholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2005, and our report dated February 20, 2006 expressed an unqualified opinion on those consolidated financial statements.

/s/    KPMG LLP

Nashville, Tennessee

February 20, 2006

F-4

CAREMARK RX, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

	December 31,
	2005			2004
ASSETS
Current assets:
Cash and cash equivalents	$	1,268,883		$	1,078,803
Short-term investments		666,040			223,610
Short-term investments—restricted		27,500			—
Accounts receivable, less allowance for doubtful accounts of $50,604 in 2005 and $51,473 in 2004		2,074,586			1,977,557
Inventories		449,199			436,754
Deferred tax asset, net		112,586			402,698
Income taxes receivable		—			64,654
Prepaid expenses and other current assets		46,303			35,550
Total current assets		4,645,097			4,219,626
Property and equipment, net		314,959			285,214
Goodwill, net		7,131,050			6,982,551
Other intangible assets, net		731,300			782,312
Other assets		28,442			40,031
Total assets	$	12,850,848		$	12,309,734
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	849,358		$	678,083
Claims and discounts payable		2,438,813			2,644,426
Other accrued expenses and liabilities		343,158			293,017
Income taxes payable		17,137			—
Current portion of long-term debt		63,400			148,610
Total current liabilities		3,711,866			3,764,136
Long-term debt, net of current portion		386,600			450,000
Deferred tax liability		245,389			220,141
Other long-term liabilities		326,427			335,740
Total liabilities		4,670,282			4,770,017
Commitments and contingencies
Stockholders’ equity:
Common stock, $.001 par value; 700,000 shares authorized; issued and outstanding—481,066 shares in 2005 and 474,578 shares in 2004		481			475
Additional paid-in capital		8,726,624			8,564,031
Unearned stock-based compensation		(7,132	)		(21,783	)
Treasury stock—29,327 shares in 2005 and 18,158 shares in 2004		(986,641	)		(510,978	)
Shares held in trust—5,807 in 2005 and 6,045 in 2004		(93,616	)		(97,452	)
Retained earnings (accumulated deficit)		551,447			(380,924	)
Accumulated other comprehensive income (loss), net		(10,597	)		(13,652	)
Total stockholders’ equity		8,180,566			7,539,717
Total liabilities and stockholders’ equity	$	12,850,848		$	12,309,734

The accompanying Notes to Consolidated Financial Statements are an integral part of these balance sheets

F-5

CAREMARK RX, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

	Year Ended December 31,
	2005			2004		2003
Net revenue (1)	$	32,991,251		$	25,801,121	$	9,067,291
Cost of revenues (1)		30,888,945			24,192,434		8,299,190
Selling, general and administrative expenses		463,558			411,005		192,328
Depreciation		100,112			86,530		45,015
Amortization of intangible assets		47,258			37,288		47
Stock option expense		10,478			19,985		—
Integration and other related expenses		11,076			25,184		3,439
Interest (income) expense, net		(2,953	)		31,039		42,541
Non-operating gain, net		(25,688	)		—		—
		31,492,786			24,803,465		8,582,560
Income before provision for income taxes		1,498,465			997,656		484,731
Provision for income taxes		566,094			397,347		193,893
Net income	$	932,371		$	600,309	$	290,838
Average number of common shares outstanding—basic		446,865			411,175		257,925
Average number of common shares outstanding—diluted		455,737			420,296		264,781
Earnings per common share—basic	$	2.09		$	1.46	$	1.13
Earnings per common share—diluted	$	2.05		$	1.43	$	1.10

(1) Includes $5,535,708; $4,575,624 and $1,244,222 of Retail Copayments for the years ended December 31, 2005, 2004 and 2003, respectively.

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements

F-6

CAREMARK RX, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN

STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

(In thousands)

	Year Ended December 31,
	2005			2004			2003
Common stock:
Balance—beginning of year	$	475		$	269		$	263
Issuances from exercises of stock options and warrants		6			15			6
Common stock issued for AdvancePCS acquisition		—			191			—
Balance—end of year		481			475			269
Additional paid-in capital:
Balance—beginning of year		8,564,031			1,762,477			1,665,155
Exercise of employee stock options		78,679			126,420			76,392
Income tax benefit from exercises of employee stock options		82,295			117,679			22,332
Shares held in trust issued under employee stock purchase plan		4,749			2,110			154
Expense from performance-based restricted stock grant		371			1,183			—
Common stock issued for AdvancePCS acquisition, net of issuance costs		—			6,225,002			—
Fair value of replacement stock options and warrants issued for AdvancePCS Acquisition		—			336,817			—
Cancellation of unvested replacement stock options		(4,173	)		(8,139	)		—
Other		672			482			(1,556	)
Balance—end of year		8,726,624			8,564,031			1,762,477
Unearned stock-based compensation:
Balance—beginning of year		(21,783	)		—			—
Intrinsic value of unvested stock options issued for AdvancePCS Acquisition		—			(49,907	)		—
Stock option expense		10,478			19,985			—
Cancellation of unvested replacement stock options		4,173			8,139			—
Balance—end of year		(7,132	)		(21,783	)		—
Treasury stock:
Balance—beginning of year		(510,978	)		(28,782	)		(22,671	)
Purchases of treasury stock		(475,663	)		(482,196	)		(6,111	)
Balance—end of year		(986,641	)		(510,978	)		(28,782	)
Shares held in trust:
Balance—beginning of year		(97,452	)		(101,103	)		(102,948	)
Stock issued under employee stock purchase plan		3,836			3,651			1,845
Balance—end of year		(93,616	)		(97,452	)		(101,103	)
Retained earnings (accumulated deficit):
Accumulated deficit—beginning of year		(380,924	)		(981,233	)		(1,272,071	)
Net income		932,371			600,309			290,838
Retained earnings (accumulated deficit)—end of year		551,447			(380,924	)		(981,233	)
Accumulated other comprehensive income (loss):
Accumulated other comprehensive income (loss)—beginning of year		(13,652	)		(10,990	)		(10,035	)
Other comprehensive income (loss):
Minimum pension liability accrual, net of income tax benefit of $1,816 in 2005, $1,702 in 2004 and $636 in 2003		(2,841	)		(2,662	)		(955	)
Change in fair value of treasury lock, net of income tax provision of $3,830 in 2005		5,991			—			—
Foreign currency translation adjustment, net of income tax benefit of $61 in 2005		(95	)		—			—
Total other comprehensive income (loss)		3,055			(2,662	)		(955	)
Accumulated other comprehensive income (loss)—end of year		(10,597	)		(13,652	)		(10,990	)
Total stockholders’ equity	$	8,180,566		$	7,539,717		$	640,638
Comprehensive income:
Net income	$	932,371		$	600,309		$	290,838
Other comprehensive income (loss)		3,055			(2,662	)		(955	)
Comprehensive income	$	935,426		$	597,647		$	289,883

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements

F-7

CAREMARK RX, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Year Ended December 31,
	2005			2004			2003
Cash flows from operating activities:
Net income	$	932,371		$	600,309		$	290,838
Adjustments to reconcile net income to net cash provided by continuing operations:
Deferred income taxes		392,746			230,246			152,282
Depreciation and amortization		147,370			123,818			45,062
Provision for doubtful accounts		26,892			23,675			8,909
Stock option expense		10,478			19,985			—
Non-cash interest expense		2,267			3,139			3,607
Write-off of deferred financing costs		686			2,206			—
Performance-based restricted stock expense		371			1,183			—
Other non-cash expenses, net		1,848			489			1,215
Non-operating gain, net		(25,688	)		—			—
Changes in operating assets and liabilities, net of effects of acquisitions and/or disposals of businesses:
Accounts receivable		(157,564	)		260,108			(171,570	)
Inventories		(12,445	)		(29,533	)		(4,527	)
Accounts payable		171,275			158,026			85,484
Claims and discounts payable		(211,601	)		23,829			136,502
Income tax accounts		156,650			178,595			26,743
Other accrued expenses and liabilities		(112,434	)		(7,717	)		4,293
Other operating assets and liabilities		(17,387	)		14,385			(2,946	)
Net cash provided by continuing operations		1,305,835			1,602,743			575,892
Cash flows from investing activities:
Purchase of short-term investments		(965,389	)		(228,587	)		—
Sale of short-term investments		495,459			4,977			—
Acquisitions of and investments in businesses, net of cash acquired		(8,011	)		(392,593	)		(8,610	)
Capital expenditures, net		(138,154	)		(80,500	)		(63,243	)
Proceeds from sale of property and equipment		2,113			6,112			—
Proceeds from sale of investment in business		43,166			10,382			—
Other		(206	)		—			—
Net cash used in investing activities		(571,022	)		(680,209	)		(71,853	)
Cash flows from financing activities:
Net repayments under credit facilities		(147,000	)		(98,625	)		(2,500	)
Repurchase of AdvancePCS senior notes		(1,678	)		(206,810	)		—
Proceeds from stock issued under equity-based compensation plans and retirement of warrant		87,270			145,119			75,626
Purchase of treasury stock		(475,663	)		(482,196	)		(6,111	)
Securities issuance costs		—			(2,527	)		—
Deferred financing costs		—			(3,852	)		(100	)
Net cash (used in) provided by financing activities		(537,071	)		(648,891	)		66,915
Cash used in discontinued operations—operating activities		(7,662	)		(10,168	)		(62,430	)
Net increase in cash and cash equivalents		190,080			263,475			508,524
Cash and cash equivalents—beginning of year		1,078,803			815,328			306,804
Cash and cash equivalents—end of year	$	1,268,883		$	1,078,803		$	815,328

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements

F-8

CAREMARK RX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005

1. Business and Basis of Presentation

Caremark Rx, Inc., a Delaware corporation (the “Company”), is one of the largest pharmaceutical services companies in the United States, with net revenue of approximately $33 billion for 2005. The Company’s operations are conducted primarily through Caremark Inc. (“Caremark”), a wholly-owned, indirect subsidiary of Caremark Rx, and CaremarkPCS (f/k/a AdvancePCS) (“CaremarkPCS” or “AdvancePCS”), a wholly-owned, direct subsidiary of Caremark Rx. Caremark Rx acquired AdvancePCS on March 24, 2004 (the “AdvancePCS Acquisition”), as further described at Note 3, “Acquisition of AdvancePCS and Integration Plan,” below. The Company’s customers are primarily sponsors of health benefit plans (employers, insurance companies, unions, government employee groups, managed care organizations) and individuals located throughout the United States. One customer, the Federal Employees Health Benefit Plan, accounted for approximately 16% of the Company’s net revenue.

The Company’s pharmaceutical services are generally referred to as pharmacy benefit management, or “PBM,” services and involve the design and administration of programs aimed at reducing the costs and improving the safety, effectiveness and convenience of prescription drug use. The Company dispenses prescription drugs to participants in its customers’ benefit plans through its seven large, automated mail service pharmacies and its 21 smaller regional mail service pharmacies. The Company also maintains a nationwide network composed of more than 60,000 independent retail pharmacies with which it has contracted to purchase pharmaceuticals for immediate delivery to its customers’ participants.

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates and assumptions.

Certain prior year amounts have been reclassified to conform to the current year’s presentation. Such reclassifications had no material effect on the Company’s previously reported consolidated financial position, results of operations or cash flows.

2. Summary of Significant Accounting Policies

Cash and Cash Equivalents. The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The carrying amount of cash and cash equivalents approximates fair value.

Short-term Investments. The Company’s short-term investments consist of commercial paper and other debt instruments with initial maturities greater than three months when purchased and therefore not considered to be cash equivalents. These investments, which are classified as available-for-sale, were purchased as part of the Company’s cash management strategy and are carried at historical cost, which approximated fair value at December 31, 2005.

Inventories. Inventories, which are primarily finished goods, consist primarily of prescription drugs, medical equipment and supplies and are stated at the lower of cost (weighted average cost method) or market. In 2005, the Company completed significant consolidation of its inventory systems and changed its costing method from first-in, first-out to weighted average cost. Because of the high rate of inventory turnover applicable to the Company’s inventoried products, this change resulted in no material impact to the Company’s inventory values or cost of goods sold.

F-9

CAREMARK RX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2005

Long-Lived Assets. Goodwill generated in business combinations is not amortized, but is tested for impairment. An impairment loss is recognized if the carrying amount of goodwill exceeds its implied fair value. Impairment of goodwill is evaluated annually, or whenever events or changes in circumstances indicate that the carrying amount should be assessed.

The Company continually evaluates whether events and circumstances have occurred that indicate that its long-lived assets have been impaired. Measurement of any impairment of such long-lived assets is based on those assets’ fair values. None of the Company’s assets were impaired during 2005, 2004 or 2003.

Revenue Recognition. The Company generates its net revenue primarily from dispensing prescription drugs and performing related services. The Company dispenses prescription drugs both directly, through its mail service pharmacies, and indirectly, through its network of third-party retail pharmacies. The Company recognizes revenues from prescription drugs dispensed by its mail service pharmacies, and under retail network contracts where it is the principal, on a gross basis at the prescription prices (ingredient cost plus dispensing fee) negotiated with the Company’s customers. Net revenue includes: (i) the portion of this amount that the customer pays directly to the Company, net of any volume-related or other sales discounts paid back to the customer, as discussed further below at “Drug Discounts,” (ii) the portion of this amount paid to either the Company (“Mail Copayments”) or a third-party pharmacy in its retail network (“Retail Copayments”) by individual participants in customers’ benefit plans and (iii) administrative fees for retail network contracts where it is not the principal obligor as discussed further below. The Company’s net revenue for the years ended December 31, 2005, 2004 and 2003 includes Retail Copayments of approximately $5.5 billion, $4.6 billion and $1.2 billion, respectively, which were made directly by customers to the pharmacies in our independent retail network.

SEC Staff Accounting Bulletin No. 101 (“SAB 101”) provides general criteria for the timing aspect of revenue recognition, including consideration of whether: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the seller’s price to the buyer is fixed or determinable, and (iv) collectibility is reasonably assured. The Company has established the following revenue recognition policies in accordance with SAB 101:

• Revenues generated from dispensing prescription drugs from the Company’s mail service pharmacies are recognized when each prescription is shipped. At the time of shipment, the Company has performed substantially all of its obligations under its customer contracts and also does not experience a significant level of reshipments; and

• Revenues generated from sales of prescription drugs by pharmacies in the Company’s third-party retail network and associated administrative fees are recognized when each claim is adjudicated using the Company’s on-line claims processing system at the point-of-sale.

The Company has determined that it is a principal in the majority of its retail network transactions under the indicators set forth in Emerging Issues Task Force Issue No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent (“EITF 99-19”), due to its: (i) being the primary obligor in the arrangement; (ii) having latitude in establishing price; (iii) changing the product or performing part of the service; (iv) having discretion in supplier selection; (v) involvement in the determination of product or service specifications and (vi) having credit risk. The Company’s obligations under its customer contracts for which revenues are reported using the gross method are separate from its responsibilities to pharmacies under its retail network contracts; therefore, the Company is liable to pay the retail pharmacies in its networks for products dispensed, regardless of whether it is paid by its customers. The Company’s responsibilities under such customer contracts include, among others, validating eligibility and coverage levels, communicating the prescription price and the copayment due to the retail pharmacy, identifying possible adverse drug interactions for the pharmacist to address with the physician

F-10

CAREMARK RX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2005

prior to dispensing, suggesting clinically appropriate generic alternatives where applicable, and approving the prescription for dispensing. Although the Company does not have credit risk with respect to Retail Copayments, management believes that all of the other indicators of gross treatment are present. The Company records retail revenues from certain customers who directly contract with their own retail pharmacy networks using the net method.

The Company also generates revenue from the provision of certain services. These services accounted for less than 1% of total net revenue in all periods presented and include primarily the following services, along with their accompanying revenue recognition policies:

• Disease Management. This source of revenue relates to providing education and monitoring programs to participants for certain chronic diseases. Revenue is recognized on a per capita basis (i.e., per participant per month) as services are performed and collection is reasonably assured.

• Data Access. This source of revenue results from the sale of de-identified pharmaceutical claim data. Revenue is recognized when contractual obligations have been performed and collection is reasonably assured.

• Other. We generate revenues from the provision of other services, including certain formulary management services, clinical services and other items ancillary to our business. Revenues from these services are recognized when the earnings process is complete and collection is reasonably assured.

Cost of Revenues. The Company’s cost of revenues includes the cost of pharmaceuticals dispensed, either directly through the Company’s mail service pharmacies or indirectly through its network of third-party retail pharmacies, and the operating costs of the Company’s mail service pharmacies, customer service operations and related information technology support, excluding depreciation. The cost of pharmaceuticals dispensed component of cost of revenues totaled approximately $30.0 billion, $23.5 billion and $8.0 billion in 2005, 2004 and 2003, respectively, and consists of the following principal components: (i) the cost of products purchased from manufacturers or distributors and shipped to participants in customers’ benefit plans from the Company’s mail service pharmacies, net of any associated volume-related or other purchase discounts, as discussed further below at “Drug Discounts,” and (ii) the cost of products distributed (including Retail Copayments) through the Company’s third-party retail network under contracts where it is the principal, net of any associated volume related or other purchase discounts.

Drug Discounts. The Company deducts from its revenues any discounts paid to its customers as required by Emerging Issues Task Force Issue No. 01-9, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products) (“EITF 01-9”). The discounts that the Company pays to its customers are determined in accordance with customer contracts and are customarily based on either fixed discount amounts per prescription for products dispensed or a percentage of amounts of manufacturer discounts received for specific products dispensed. Any related liability for discounts due to customers is included in the total for “Claims and discounts payable.”

The Company also receives various forms of purchase discounts on its products. The Company’s contractual arrangements with various vendors, including manufacturers, wholesalers and retail pharmacies/chains, typically provide for its receiving discounts from established list prices in one, or a combination of, the following forms: (i) a direct discount at the time of purchase; (ii) a discount for prompt payment of invoices or (iii) when products are indirectly purchased from a manufacturer (e.g. through a wholesaler or retail pharmacy or chain), a discount paid subsequent to dispensing, or rebate. The Company also receives additional discounts under its wholesale contract if it exceeds contractually defined annual purchase volumes. The rebates that the Company receives from manufacturers are recognized on a prescriptions-dispensed basis and are generally calculated on quarterly

F-11

CAREMARK RX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2005

dispensed volumes. Rebates are generally billed to manufacturers within 30 days subsequent to the end of the applicable quarter. Historically, the effect of any adjustments resulting from the reconciliation of rebates recognized and recorded to amounts billed and collected has not been material to the Company’s results of operations, and the Company accounts for any such difference as a change in accounting estimate in the period the reconciliation is completed.

The Company earns purchase discounts at various points in its business cycle (product purchase, vendor payment or at the time of dispensing) for products it dispenses from both its mail service pharmacies and the pharmacies in its third-party retail networks. Purchase discounts that the Company earns are recorded as a reduction of “Cost of revenues” as required by Emerging Issues Task Force Issue No. 02-16, Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor (“EITF 02-16”). In addition, the Company receives fees from pharmaceutical manufacturers for administrative services, which include the aggregated billing of rebates and centralized contracting. These administrative fees are also recorded as a reduction of “Cost of revenues” as required by EITF 02-16.

Stock Options. The Company accounts for options to purchase its common stock under Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (“FAS 123”). When the Company adopted FAS 123, it elected to continue using the intrinsic value method of expense recognition contained in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”) and related interpretations, instead of the fair value method found in FAS 123, to account for employee stock options granted under its stock-based compensation plans. FAS 123 was revised in December 2004 as described further below under the caption, Recent Accounting Pronouncement.

The intrinsic value method requires the Company to recognize compensation expense based on the difference in the market price and the exercise price of options at their grant date. The exercise price of option grants under the Company’s stock-based compensation plans is equal to or greater than the market price of the underlying stock on the grant date; therefore, no compensation expense, other than compensation expense for the replacement stock options issued in connection with the AdvancePCS Acquisition, has been recognized in the accompanying audited consolidated financial statements in 2005 and 2004. The Company recognized approximately $10.5 million and $20.0 million of stock option expense in the years ended December 31, 2005 and 2004, respectively, related to the intrinsic value of unvested stock options issued to AdvancePCS optionees in exchange for their AdvancePCS options upon completion of the Company’s acquisition of AdvancePCS. The total intrinsic value of these unvested options at the acquisition date was approximately $49.9 million, and the Company is expensing the intrinsic value of these options over their vesting periods using the optional pro rata method described in FASB Interpretation No. 28. The actual amount to be expensed will be reduced for any options that are canceled prior to vesting, and approximately $12.3 million of the $49.9 million originally allocated to unearned stock-based compensation had been forfeited as of December 31, 2005, due to cancellation of the underlying stock options.

F-12

CAREMARK RX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2005

FAS 123 requires companies that elected to continue applying the intrinsic value method to disclose pro forma information regarding net income and earnings per share as if the Company had recognized compensation expense for employee stock option grants using the fair value method described therein. The pro forma impact of applying this provision, using the Black-Scholes model (multiple-option method) to compute the fair value of stock option grants, on the Company’s net income and net income per common share is as follows (dollars in millions, except per share amounts):

	Year Ended December 31,
	2005			2004			2003
As reported:
Net income to common stockholders	$	932.4		$	600.3		$	290.8
Stock-based employee compensation cost (1)	$	8.5		$	19.0		$	0.3
Net income per common share—basic	$	2.09		$	1.46		$	1.13
Net income per common share—diluted	$	2.05		$	1.43		$	1.10
Pro forma:
Net income to common stockholders	$	912.0		$	588.6		$	284.8
Stock-based employee compensation cost (2)	$	28.9		$	30.7		$	6.3
Net income per common share—basic	$	2.04		$	1.43		$	1.10
Net income per common share—diluted	$	2.00		$	1.40		$	1.07
Black-Scholes assumptions (3) (weighted average):
Risk-free interest rate		3.81	%		2.41	%		2.01	%
Expected volatility		28	%		37	%		45	%
Expected option lives (years)		4.0			3.1			3.1

(1) Represents the amount of stock-based employee compensation cost (net of benefit from income taxes) included in the determination of net income during the period.

(2) Represents the amount of stock-based employee compensation cost (net of benefit from income taxes) that would have been included in the determination of net income if the fair value based method had been applied to all awards vesting during the period, including the unvested replacement stock options issued to AdvancePCS optionees.

(3) Represents Black-Scholes inputs used to value options granted during the period. The amounts reflected above were influenced by: (i) the inputs used to value the unvested component of the replacement stock options issued to AdvancePCS optionees in connection with the AdvancePCS Acquisition and (ii) a change in the Company’s stock option plans whereby all preexisting plans, under which options became fully vested two years from the grant date, were consolidated into the Company’s 2004 Stock Incentive Plan that was approved by the Company’s stockholders in March 2004. Options granted under the 2004 Stock Incentive Plan become fully vested five years from the date of grant.

See Note 10, “Stockholders’ Equity,” for additional information concerning the Company’s stock option plans.

Recent Accounting Pronouncement. In December 2004, the Financial Accounting Standards Board issued Financial Accounting Standards No. 123 (R) (As Amended), Share-Based Payment (“FAS 123R”), a revision of

F-13

CAREMARK RX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2005

FAS 123. FAS 123R requires companies to recognize the grant-date fair value of stock options as an expense in their financial statements, as opposed to the footnote only pro forma disclosure requirements contained in FAS 123. Companies may continue the FAS 123 pro-forma disclosures through the required effective date of adoption of FAS 123R. In April 2005, the Securities and Exchange Commission delayed the effective date of FAS 123R to January 1, 2006, for most public companies, including the Company.

Under the transition provisions of FAS 123R, options currently being reflected in the FAS 123 pro forma disclosures will be expensed over their remaining vesting periods as of the date of adoption of FAS 123R using the valuation assumptions and methods previously used to prepare the pro forma disclosures. The estimated grant date fair value of any new stock option grants made after FAS 123R is adopted will be expensed over the vesting periods of the underlying stock option.

Additionally, FAS 123R changes the accounting for many equity instruments other than stock options that may be issued to employees under the Company’s various benefit plans. A portion of future transactions under the Company’s employee stock purchase plan (“ESPP”), as currently structured, will result in compensation expense after adoption of FAS 123R, and instruments such as the restricted stock or stock units which may be issued under the Company’s 2004 Stock Incentive Plan will be impacted as well. FAS 123R also changes the statement of cash flows classification of tax benefits received for the amount of income tax deductions taken for option exercises in excess of amounts expensed thereunder. These amounts are currently classified in cash flows from operating activities; however, they will be classified as cash flows from financing activities upon adoption of FAS 123R. The payroll taxes paid by the Company related to stock option exercises will remain classified as cash flows from operating activities.

The Company expects the adoption of FAS 123R as of January 1, 2006 to result in additional stock option expense of approximately $24 million during 2006 for the majority of its options outstanding at December 31, 2005, for which it currently records no expense. In addition, the Company’s ESPP, as currently structured, is expected to generate expense of approximately $3 million under FAS 123R, and the AdvancePCS replacement options will continue to be expensed over their remaining vesting periods and are expected to generate expense of approximately $6 million in 2006. The Company expects total expense under FAS 123R to be approximately $33 million in 2006, excluding income tax benefit and the impact of any 2006 stock option grants. The Company does not expect the adoption of FAS 123R in 2006 to have a material effect on its financial position or cash flows (excluding the classification impact on the statement of cash flows discussed above).

3. Acquisition of Advance PCS and Integration Plan

Acquisition of AdvancePCS. On March 24, 2004, Caremark Rx acquired all of the outstanding capital stock of AdvancePCS, which, like the Company, is a pharmaceutical services company. AdvancePCS had historically focused on a different customer market segment (primarily managed care organizations) than Caremark (primarily employers). The Company’s management believes that Caremark Rx and AdvancePCS are complementary companies and that their combination results in an organization with the increased scale, enhanced financial capacity and diversified customer portfolio necessary to increase stockholder value, enhance customer care and increase cost efficiencies.

F-14

CAREMARK RX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2005

The results of operations of AdvancePCS beginning March 24, 2004, are included in the accompanying consolidated statements of income. The pro forma results of operations of the Company and AdvancePCS, prepared as if the AdvancePCS Acquisition had occurred at the beginning of each period, were as follows (in thousands, except per share amounts):

	Year Ended December 31,
	2005		2004		2003
Net revenue	$	32,991,251	$	30,410,924	$	28,098,963
Net income	$	939,072	$	650,652	$	471,752
Earnings per share—basic	$	2.10	$	1.43	$	1.05
Earnings per share—diluted	$	2.06	$	1.40	$	1.03

The pro forma financial information above is not necessarily indicative of what the Company’s consolidated results of operations actually would have been if the AdvancePCS Acquisition had been completed at the beginning of each period. In addition, the pro forma financial information above does not attempt to project the Company’s future results of operations.

The pro forma revenue amounts presented above include approximately $5.5 billion, $5.6 billion and $5.4 billion of retail copayments for the years ended December 31, 2005, 2004 and 2003, respectively. The pro forma net income amounts exclude integration and other related expenses incurred in connection with the AdvancePCS Acquisition (net of benefit from income taxes) of approximately $6.7 million, $15.2 million and $2.1 million for the years ended December 31, 2005, 2004 and 2003, respectively. In addition, the 2004 and 2003 pro forma financial information reflects the following pro forma adjustments and assumptions:

(a) Inter-company revenue related to Caremark’s historical participation in AdvancePCS’s specialty pharmacy networks was eliminated. This adjustment had no impact on pro forma net income or pro forma earnings per share.

(b) Annual amortization expense of approximately $48.4 million was included in both 2004 and 2003. This amount represents the total intangible asset amortization expense based on the Company’s estimates of the values and lives of acquired intangible assets and also reflects elimination of AdvancePCS’s historical amortization expense for identifiable intangible assets in periods prior to the acquisition.

(c) Total stock option expense of approximately $28 million was included to reflect the accounting treatment of unvested replacement stock options issued to AdvancePCS optionees as discussed in Note 2, “Summary of Significant Accounting Policies—Stock Options.”

(d) Approximately $16 million of annual interest expense was eliminated from AdvancePCS’s standalone results for periods prior to the AdvancePCS Acquisition to reflect the repurchase of the AdvancePCS 8 ¹/2% senior notes due 2008 described further below in Note 8, “Long-Term Debt, Derivative Financial Instrument and Interest Rate Risk Management.”

(e) Incremental shares of common stock were added to the Company’s basic and diluted shares outstanding, respectively, in both periods to reflect the issuance of the Company’s common stock as 90% of the acquisition consideration and the additional common stock equivalents resulting from issuance of the replacement stock options described in Note 2, “Summary of Significant Accounting Policies—Stock Options.”

In March 2005, the Company completed its allocation of the AdvancePCS purchase price to the assets acquired and liabilities assumed from AdvancePCS, with the exception of adjustments that may be made related

F-15

CAREMARK RX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2005

to income tax assets and liabilities discussed below, based on their estimated fair values at the acquisition date. The finalization of the AdvancePCS purchase price allocation, with the exception of additional adjustments related to income tax assets and liabilities discussed below, resulted in a $140.7 million net increase to goodwill from amounts recorded at December 31, 2004, related to revised estimates for a number of items, including legal matters. In addition, goodwill was increased by $7.8 million subsequent to March 31, 2005 and during the year ended December 31, 2005 as a result of adjustments related to income tax assets and liabilities acquired from AdvancePCS. It is possible that additional adjustments related to income tax-related assets and liabilities acquired from AdvancePCS may be made in future periods as open tax periods are finalized with the applicable taxing authorities. Such adjustments, if any, are not expected to be material to the Company’s financial position, results of operations or cash flows.

The following table summarizes the Company’s estimates of the fair values of assets acquired and liabilities assumed in the AdvancePCS Acquisition (in thousands):

	As of March 23, 2004
Current assets	$	2,365,213
Property and equipment		140,868
Goodwill		7,081,879
Identifiable intangible assets		810,281
Other assets		10,493
Total assets acquired		10,408,734
Current liabilities		2,578,358
Long-term debt		208,488
Deferred income taxes		249,726
Other liabilities		92,448
Total liabilities assumed		3,129,020
Net assets acquired	$	7,279,714

The amount of goodwill acquired in the AdvancePCS Acquisition that is deductible for tax purposes is not material.

Integration Plan. The Company has completed the major activities under its integration plan for AdvancePCS with respect to workforce rationalization and continues to complete the process of integrating its systems with those of AdvancePCS.

“Integration and other related expenses” for the year ended December 31, 2005 consists primarily of $7.8 million of involuntary termination/employee retention and related benefits. The balance of the costs incurred in 2005 were for other integration related expenses. “Integration and other related expenses” for the year ended December 31, 2004, consists primarily of: (1) $3.9 million for involuntary termination benefits payable to existing employees of AdvancePCS; (2) a writeoff of approximately $2.2 million of deferred loan costs for indebtedness retired in conjunction with the closing of the AdvancePCS Acquisition; (3) approximately $8 million of integration planning activities related to the AdvancePCS Acquisition and (4) approximately $6 million related to retention benefit obligations under the AdvancePCS Retention Plan. The balance of the costs incurred in 2004 relate primarily to payments to outside service vendors used for various integration-related projects. Remaining accrued liabilities for involuntary termination benefits incurred in connection with the integration plan were not material as of December 31, 2005 and 2004.

F-16

CAREMARK RX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2005

4. Supplemental Cash Flow Information

Supplemental information with respect to the Company’s cash flows for the three years ended December 31, 2005, 2004 and 2003 is as follows (in thousands):

	Year ended December 31,
	2005			2004			2003
Cash paid during the period for:
Interest payments (receipts), net	$	(1,754	)	$	38,091		$	38,944
Income tax payments (refunds), net	$	30,649		$	(19,490	)	$	14,863
Non-cash investing and financing activities:
AdvancePCS Acquisition
Fair value of non-cash net assets acquired	$	—		$	6,915,513		$	—
Issuance of approximately 191 million shares of common stock	$	—		$	6,227,720		$	—
Issuance of replacement stock options for the purchase of approximately 14 million shares of common stock, net of approximately $49.9 million allocated to unearned stock-based compensation		—			271,909			—
Issuance of replacement warrants for the purchase of approximately 902,000 shares of common stock		—			15,000			—
Fair value of non-cash consideration	$	—		$	6,514,629		$	—

The cash tax payments/refunds presented in the table above include the effects of utilization of the Company’s tax net operating loss carryforwards. See Note 11, “Income Taxes,” for further information concerning cash payments of income taxes.

5. Short-term Investments—Restricted

In connection with the Company’s filing an application with the Centers for Medicare and Medicaid Services (“CMS”) to participate as a prescription drug plan sponsor under Part D of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“MMA”), Caremark Rx has formed a wholly-owned, indirect subsidiary named SilverScript Insurance Company. SilverScript Insurance Company will be the Company’s prescription drug plan and, pursuant to the MMA, must be a risk-bearing entity regulated under state insurance laws or similar statutes.

SilverScript Insurance Company has applied to the Tennessee Department of Commerce and Insurance for licensure as a domestic insurance company under the applicable laws and regulations of the State of Tennessee and has filed expansion applications for licensure as an insurance company in other jurisdictions where it may seek to do business. The Tennessee domestic insurance licensure application and expansion insurance licensure applications were pending as of the date of this filing.

At December 31, 2005, the Company has classified $27.5 million of short-term investments held by SilverScript Insurance Company as restricted assets to reflect net worth requirements specified by CMS in conjunction with the prescription drug plan licensure process. Upon SilverScript Insurance Company’s becoming a licensed insurance company, these net worth requirements will be supplanted by the capital and reserve requirements of the various insurance regulatory agencies.

F-17

CAREMARK RX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2005

6. Property and Equipment

Property and equipment are stated at cost. Depreciation of property and equipment is calculated using the straight-line method over the shorter of the estimated useful life of each asset or the term of any underlying lease. Estimated useful lives generally range from 5 to 30 years for buildings, up to 15 years for leasehold improvements and 3 to 11 years for equipment and computer software. The Company capitalizes the cost of internal-use software that has a useful life in excess of one year in accordance with AICPA Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. These costs consist of payments made to third parties and the salaries of employees working on such software development. Subsequent additions, modifications or upgrades to internal-use software are capitalized only to the extent that they allow the software to perform a task it previously did not perform. Software maintenance and training costs are expensed in the period in which they are incurred. Property and equipment consisted of the following at December 31, 2005 and 2004 (in thousands):

	December 31,
	2005			2004
Land	$	2,533		$	2,163
Buildings and leasehold improvements		105,249			95,618
Equipment and computer software		510,406			420,163
In-process construction and software development		40,336			13,792
		658,524			531,736
Less accumulated depreciation		(343,565	)		(246,522	)
	$	314,959		$	285,214

7. Goodwill and Other Intangible Assets

Goodwill consists primarily of amounts attributable to the acquisition of AdvancePCS discussed in Note 3, “Acquisition of AdvancePCS and Integration Plan.”

Other intangible assets consisted of the following at December 31, 2005 and 2004 (in thousands):

	December 31, 2005					December 31, 2004
	Gross Amount		Accumulated Amortization			Gross Amount		Accumulated Amortization
Indefinitely-lived identifiable intangible assets acquired in business combinations (not subject to amortization)	$	2,043				$	2,043
Amortizable identifiable intangible assets acquired in business combinations:
Customer relationships		799,000		(74,890	)		799,000		(32,616	)
Non-compete agreements		10,281		(9,300	)		10,281		(4,517	)
Technology		1,000		(354	)		1,000		(154	)
		810,281		(84,544	)		810,281		(37,287	)
Other amortizable identifiable intangible assets:
Deferred financing costs		18,983		(16,201	)		19,817		(14,081	)
Unrecognized prior service cost for defined benefit plan		738		—			1,539		—
		19,721		(16,201	)		21,356		(14,081	)
	$	832,045	$	(100,745	)	$	833,680	$	(51,368	)

F-18

CAREMARK RX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2005

Customer relationships, non-compete agreements and technology intangible assets are being amortized on a straight-line basis over a weighted average life of 18.9 years, 1.8 years and 5.0 years, respectively. Amortization expense related to identifiable intangible assets acquired in business combinations totaled $47.3 million and $37.3 million for the years ended December 31, 2005 and 2004, respectively. Amortization expense related to deferred financing costs has been classified as interest expense and totaled $2.3 million, $3.1 million and $3.6 million for the years ended December 31, 2005, 2004 and 2003, respectively. Additionally, approximately $0.7 million of deferred financing costs related to the term loan component of the Company’s bank credit facility was written off in February 2005, when the term loan was repaid, and classified as interest expense. Approximately $2.2 million of deferred loan costs related to the Company’s prior credit agreement was written off on March 24, 2004, when this agreement was replaced. This amount is included in “Integration and other related expenses.”

Future amortization expense for intangible assets existing at December 31, 2005, including amounts classified as interest expense, is expected to be as follows: 2006—$45.2 million, 2007—$42.9 million, 2008—$42.9 million, 2009—$42.4 million and 2010—$42.3 million.

8. Long-Term Debt, Derivative Financial Instrument and Interest Rate Risk Management

Information with respect to the Company’s long-term debt at December 31, 2005 and 2004 is as follows (in thousands):

	December 31, 2005			December 31, 2004
Bank Credit Facility:
Term loan facility (1)	$	—		$	147,000
Revolving facility		—			—
		—			147,000
Receivables Facility		N/A			—
7.375% senior notes due 2006 (2)(4)		450,000			450,000
AdvancePCS 8.5% senior notes due 2008 (3)		—			1,610
		450,000			598,610
Less amounts due within one year:
7.375% senior notes due 2006		(63,400	)		—
Bank Credit Facility—term loan (1)		—			(147,000	)
AdvancePCS 8.5% senior notes due 2008 (3)		—			(1,610	)
	$	386,600		$	450,000

(1) Repaid on February 18, 2005.

(2) The fair value of these obligations, based on quoted market prices, was $458.1 million and $476.8 million at December 31, 2005 and 2004, respectively.

(3) Repurchased at 104.25% of face value on April 1, 2005.

(4) The Company intends to replace these notes, as discussed below under “Derivative Financial Instrument and Interest Rate Risk Management.” However, the amount classified as long-term debt is limited to the availability under the Company’s revolving credit facility discussed below under “Bank Credit Facility.”

Bank Credit Facility. On March 24, 2004, the Company entered into a $550 million unsecured bank credit facility (“Bank Credit Facility”) with Bank of America, N.A. as administrative agent, which replaced the Company’s then-existing credit facility. The Bank Credit Facility is guaranteed by the Company’s material subsidiaries, including Caremark and CaremarkPCS.

F-19

CAREMARK RX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2005

The Company’s bank credit facility matures on March 23, 2009, and currently consists of a $400 million revolving credit facility. The Company repaid the $147 million then-outstanding balance of the $150 million term loan component of its bank credit facility in February 2005. This repayment had no impact on availability under the revolving facility. At December 31, 2005, the Company had approximately $386.6 million available for borrowing under the revolving facility, exclusive of approximately $13.4 million reserved under letters of credit.

Borrowings under the Bank Credit Facility may bear interest at variable rates based on the London Inter-bank Offered Rate (“LIBOR”) plus varying margins. Alternatively, at the Company’s option, or upon certain defaults or other events, borrowings under the Bank Credit Facility may instead bear interest based on the prime rate plus varying margins.

The Bank Credit Facility requires the Company to comply with a maximum leverage ratio financial covenant, a minimum interest expense coverage ratio financial covenant and other covenants customarily found in investment-grade debt offerings. The Bank Credit Facility also includes various customary events of default, including cross default provisions and defaults for any material judgment or change in control.

Receivables-backed Credit Facility. On March 24, 2004, the Company entered into a $500 million receivables-backed credit facility (“Receivables Facility”) with Wachovia Bank, N.A., as administrative agent for a group of lenders collectively referred to as the “conduits.” Under the terms of the Receivables Facility, Caremark Receivables LLC, a wholly-owned subsidiary of Caremark Rx, agreed to purchase certain accounts receivable from Caremark and CaremarkPCS and to sell a first priority undivided percentage ownership interest, along with a first priority security interest, in these purchased receivables to the conduits. The Receivables Facility expired on March 23, 2005. No amounts were outstanding under the Receivables Facility during 2005.

Senior Notes. The senior notes have an outstanding principal balance of $450 million, bear interest at 7.375% per annum and mature in October 2006 (the “Senior Notes”). Interest on the Senior Notes is payable semi-annually on April 1 and October 1 of each year. The Senior Notes are not redeemable by the Company prior to maturity and are not entitled to the benefit of any mandatory sinking fund. The Senior Notes rank senior in right of payment to all existing and future subordinated indebtedness of the Company and pari passu in right of payment with all existing and future unsubordinated and unsecured obligations of the Company.

The indenture for the Senior Notes contains, among other things, restrictions on subsidiary indebtedness, sale and leaseback transactions, and consolidation, merger and sale of substantially all assets of the Company. The Senior Notes are not guaranteed by any subsidiary. The indenture for the Senior Notes also contains restrictions on indebtedness secured by liens. To comply with this covenant, the Company has secured the Senior Notes on an equal and ratable basis with the credit facility.

AdvancePCS Senior Notes. In conjunction with the AdvancePCS Acquisition, the Company conducted a consent solicitation and tender offer for the AdvancePCS 8 ¹/2% Senior Notes due 2008 (“AdvancePCS Senior Notes”). The Company successfully tendered for approximately $186.2 million (face amount) of the AdvancePCS Senior Notes in 2004. The aggregate premium paid for the tender offer was approximately $20.6 million. The Company repurchased the remaining $1.6 million (face amount) of the AdvancePCS Senior Notes, pursuant to the terms of the indenture governing the notes, at 104.25% of face value on April 1, 2005.

Other Debt Information. The Company was in compliance with all debt covenants at December 31, 2005. Principal maturities of long-term debt payable under the Senior Notes at December 31, 2005 are $450.0 million in 2006.

Any amounts outstanding under the revolving facility would be due in March 2009.

F-20

CAREMARK RX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2005

Interest expense totaled $39.5 million, $43.8 million and $47.5 million in 2005, 2004 and 2003, respectively. Interest income totaled $42.5 million, $12.8 million and $4.9 million in 2005, 2004 and 2003, respectively.

Derivative Financial Instrument and Interest Rate Risk Management. The Company plans to issue 10-year fixed rate debt in the second half of 2006 to replace its Senior Notes. In June 2005, the Company entered into a treasury lock agreement for the purpose of eliminating the variability in future interest payments on the planned debt issuance due to changes in the benchmark interest rate that may occur between the execution date of the agreement and the pricing date of the fixed rate debt. The treasury lock agreement is based on a 10-year U.S. Treasury Note with an aggregate principal balance of $450 million. The Company has designated the treasury lock agreement as a cash flow hedge, and has recorded the fair value of the agreement in “Prepaid expenses and other current assets” with a corresponding offset to “Accumulated other comprehensive income (loss)” on the accompanying consolidated balance sheet. The fair value of the agreement, which represents both the present value of future cash flows and the amount the Company would receive if the agreement were terminated, was approximately $9.8 million as of December 31, 2005. The critical terms of the hedging instrument and the hedged forecasted transaction are the same, and the Company had no ineffectiveness with regard to the agreement. The ultimate effective gain or loss on the agreement will be recognized over the term of the debt as a component of the total interest expense related to interest payments on the debt issuance. Based on the fair value of the agreement as of December 31, 2005, the Company estimates that the amount of the gain on the agreement that it would reclassify from “Accumulated other comprehensive income (loss)” into earnings during 2006 is immaterial. The Company does not hold or issue derivative financial instruments for trading purposes.

9. Operating Leases

The Company leases the significant majority of the real property used in its continuing operations. These leases are classified as operating leases, generally have five to fifteen year terms with renewal options and may contain customary rent holidays, rent concessions or leasehold improvement incentives. Rent expense is recognized on a straight-line basis over the term of the lease, including, where material, rent holidays, rent concessions and leasehold improvement incentives. Total rent expense for the Company’s continuing operations, consisting primarily of expenses for these leases and for leased equipment, was $56.0 million, $51.1 million and $21.1 million for the years ended December 31, 2005, 2004 and 2003, respectively. Future minimum lease payments under noncancelable operating leases with initial or remaining terms of one year or more at December 31, 2005, are as follows (in thousands):

2006	$	47,323
2007		40,864
2008		37,845
2009		33,820
2010		31,628
Thereafter		118,873
Total	$	310,353

The Company has subleased certain excess space for which it is the primary lessor. The amounts in the table above exclude these subleases, which are not material.

Additionally, the Company retained numerous operating leases, primarily for administrative and office space, related to its discontinued operations. As of December 31, 2005, the cumulative gross rents related to such

F-21

CAREMARK RX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2005

leases were approximately $13.0 million, with sublease arrangements of approximately $8.1 million in place. The Company has estimated the costs to terminate or sublease these facilities and has included the net amount in its accrual for remaining discontinued operations exit costs.

As of December 31, 2005, the Company had assigned to various parties approximately $42.1 million of lease obligations related to its discontinued operations. The Company and/or one or more of its subsidiaries or affiliates remain named as guarantor or obligor on these lease obligations. These guarantees expire as follows: 2006—$9.8 million; 2007/2008—$13.4 million; 2009/2010—$10.0 million and after 2010—$8.9 million.

10. Stockholders’ Equity

Common Stock. The Company’s Fourth Restated Certificate of Incorporation provides that it may issue 700 million shares of common stock, par value $.001. As of December 31, 2005, approximately 481 million shares of common stock were outstanding (including the 29.3 million shares of treasury stock and the 5.8 million shares held in trust described below).

Treasury Stock. The Company is authorized to repurchase up to $1.75 billion of its common stock on the open market under its previously announced repurchase program and subsequent amendments. Repurchases under the program will occur at times and in amounts that management deems appropriate, and the Company has repurchased approximately 29.3 million shares at an aggregate cost of approximately $986.6 million under this program through December 31, 2005.

Shares Held in Trust. The Company maintains grantor trusts which, at December 31, 2005, held approximately 5.8 million shares of its common stock, valued at approximately $16 per share. These shares are excluded from the Company’s computation of basic and diluted shares outstanding and are designated to be issued under the Company’s various employee compensation plans.

Rights Plan. On March 1, 1995, the Company’s Board of Directors declared a dividend, which was subsequently paid, of one preferred share purchase right (an “Original Right”) for each then-outstanding share of the Company’s common stock. Each share of the Company’s common stock which was issued subsequent to the record date for this dividend payment carried with it a right equivalent to an Original Right such that each share of the Company’s outstanding common stock also represented one preferred share purchase right. On February 1, 2000, the Original Rights were amended and restated in their entirety to represent rights (the “Rights”) to purchase from the Company one one-hundredth of a share of Series C Junior Participating Preferred Stock of the Company, par value $.001 per share (the “Preferred Shares”), at a price of $52.00 per one one-hundredth of a Preferred Share, subject to adjustment. These Rights expired by their own terms in February 2005, and none of the Rights had been exercised.

Preferred Stock. The Company’s Third Restated Certificate of Incorporation provides that it may issue 9.5 million shares of Preferred Stock, par value $.001 and 0.5 million shares of Series C Junior Participating Preferred Stock, par value $.001. As of December 31, 2005, there were no shares of preferred stock outstanding.

Stock Options. The Company offers participation in stock option plans to certain employees and individuals. All option grants made by the Company subsequent to March 24, 2004, occur under the Company’s 2004 Stock Incentive Plan and typically vest and become exercisable in incremental annual installments over a period of five years, and expire no later than ten years, from the date of grant. Options granted prior to 2004 under the Company’s previous stock option plans generally became fully vested on the second anniversary of the grant date. As of December 31, 2005, the remaining available number of common shares authorized for distribution under the Company’s 2004 Stock Incentive Plan was approximately 17 million.

F-22

CAREMARK RX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2005

The following table summarizes stock option activity for the three years ended December 31, 2005, 2004 and 2003:

	2005				2004				2003
	Options		Weighted- Average Exercise Price		Options		Weighted- Average Exercise Price		Options		Weighted- Average Exercise Price
	(In thousands)				(In thousands)				(In thousands)
Outstanding:
Beginning of year	21,960		$	15.30	18,999		$	10.02	23,750		$	10.60
Granted at market price	6,016			38.73	4,744			31.71	910			18.10
Issued in AdvancePCS Acquisition	—			—	13,941			10.27	—			—
Exercised	(6,461	)		12.55	(14,286	)		8.86	(5,573	)		13.71
Canceled/expired	(332	)		31.28	(1,438	)		14.79	(88	)		16.42
End of year	21,183		$	22.54	21,960		$	15.30	18,999		$	10.02
Exercisable at end of year	10,599		$	11.50	13,659		$	10.36	17,354		$	9.42
Weighted-average fair value of options granted during the year:
Granted at market price			$	10.75			$	8.06			$	5.69
Issued in AdvancePCS Acquisition							$	23.08

The following table summarizes information about stock options outstanding at December 31, 2005:

	Options Outstanding				Options Exercisable
	Options Outstanding at 12/31/05	Weighted- Average Remaining Contractual Life	Weighted- Average Exercise Price		Options Exercisable at 12/31/05	Weighted- Average Exercise Price
	(In thousands)	(Years)			(In thousands)
Under $4.46	3,808	4.13	$	4.38	3,808	$	4.38
$4.47-$14.57	3,636	5.11		10.30	3,016		9.85
$14.58-$31.96	3,943	6.23		17.73	3,122		17.47
$31.97-$33.85	3,912	8.36		32.03	653		32.03
$33.86-$37.92	5,105	9.16		37.92	—		—
$37.93 and above	779	9.45		44.18	—		—
	21,183	6.88	$	22.54	10,599	$	11.50

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2005

Earnings per share. The following tables reconcile income (numerator) and shares (denominator) used in the Company’s computations of net income per common share (in thousands, except per share amounts):

	Year Ended December 31,
	2005		2004		2003
Numerator
Net Income	$	932,371	$	600,309	$	290,838
Denominator
Average number of common shares outstanding (basic denominator)		446,865		411,175		257,925
Common stock equivalents:
Stock options		8,872		9,121		6,856
Average number of common shares outstanding (diluted denominator)		455,737		420,296		264,781
Income per common share—basic	$	2.09	$	1.46	$	1.13
Income per common share—diluted	$	2.05	$	1.43	$	1.10

Employee Stock Purchase Plan. The Company’s ESPP permits all employees who have been employed for at least sixty consecutive days to purchase common stock of the Company through a payroll deduction plan. Employees may contribute between $5.00 and $885.00 per pay period to the ESPP. The purchase price of the shares under the ESPP is the lesser of 85% of the fair market value on the first or last business day of each month. The ESPP currently results in no compensation expense to the Company; however, the Company’s adoption of FAS 123R in 2006 will result in compensation cost under the ESPP as currently structured. The amounts of compensation cost recognized in 2006 for the ESPP are not expected to be material to the Company’s results of operations.

11. Income Taxes

At December 31, 2005, the Company had a cumulative gross federal income tax net operating loss (“NOL”) carryforward of approximately $12 million available to reduce future amounts of taxable income, all of which was acquired through the AdvancePCS Acquisition. Under Internal Revenue Code Section 382, there is an annual limitation on the use of the NOLs acquired from AdvancePCS. If not utilized to offset future taxable income, all of the cumulative NOL carryforward amount will expire from 2019 through 2021. The Company also had approximately $37 million of tax effected state NOLs and other state income tax benefits, approximately $8 million of which were acquired in the AdvancePCS Acquisition. The Company has placed a valuation allowance of approximately $16 million on these state NOLs and other state tax benefits due to uncertainties as to whether the Company will be able to utilize these benefits in certain states. If not utilized to offset future taxable income, the state NOLs will expire on various dates through 2024, with approximately 54% expiring between 2014 and 2024.

In addition to these NOL carryforwards, the Company had approximately $24 million of future additional income tax deductions related to its discontinued operations.

The Company previously had significant federal income tax NOLs that were primarily generated from losses incurred in its discontinued PPM business. During the year ended December 31, 2005, the Company generated sufficient taxable income to fully utilize its remaining federal income tax NOL, except for a portion of the amount which was acquired through the AdvancePCS Acquisition. As a result, the amount of cash taxes the Company will pay as a percentage of pre-tax income is expected to increase significantly in 2006.

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December 31, 2005

Deferred income taxes reflect the net tax effects of temporary differences between the amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities were as follows (in thousands):

	December 31,
	2005			2004
Deferred tax assets:
Federal NOL carryforward	$	4,225		$	268,096
State NOL carryforward and credits		37,039			55,650
Alternative minimum tax credit carryforward		—			42,252
Minimum pension benefit accrual		7,929			9,532
Discontinued operations		9,355			12,344
Deferred revenue		2,391			3,339
Accounts receivable valuation allowances		33,865			41,464
Accrued employee benefits		48,743			41,362
Other accrued liabilities		62,717			55,010
Gross deferred tax assets		206,264			529,049
Deferred tax liabilities:
Excess tax depreciation		23,917			21,563
Amortization		283,082			294,535
Treasury lock		3,830			—
Prepaids and other		12,279			6,474
Gross deferred tax liabilities		323,108			322,572
Net deferred tax (liability) asset before valuation allowance		(116,844	)		206,477
Valuation allowance		(15,959	)		(23,920	)
Net deferred tax (liability) asset	$	(132,803	)	$	182,557

The Company’s provision for income taxes consists of the following (in thousands):

	Year Ended December 31,
	2005		2004		2003
Current:
Federal (1)	$	107,031	$	115,436	$	23,977
State		66,317		51,665		17,634
		173,348		167,101		41,611
Deferred:
Federal		376,552		220,611		145,680
State		16,194		9,635		6,602
		392,746		230,246		152,282
	$	566,094	$	397,347	$	193,893

(1) Gross of tax benefit for certain stock option exercises which are adjusted directly to additional paid-in capital.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2005

The differences between the Company’s provision for income taxes and the amount computed by applying the statutory federal income tax rate to income before taxes were as follows (in thousands):

	Year Ended December 31,
	2005			2004		2003
Federal income tax at statutory rate	$	524,463		$	349,180	$	169,656
Add (deduct):
State taxes, net of federal income tax benefit		59,549			39,844		22,873
Permanent and other differences in book and taxable income		7,882			8,323		1,364
Resolution of income tax uncertainties from prior periods		(25,800	)		—		—
	$	566,094		$	397,347	$	193,893

Under Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, the Company is required to record a valuation allowance against a deferred tax asset for the future tax benefits of tax loss and tax credit carryforwards, as well as for other temporary differences, if it is more likely than not that the Company will not be able to utilize the deferred tax asset to offset future taxes. The Company had a valuation allowance of approximately $24 million as of December 31, 2004, related to state income taxes. In the fourth quarter of 2005, the Company reduced the state income tax related valuation allowance recorded against its deferred tax asset by $8 million to $16 million as of December 31, 2005.

The significant majority of the Company’s federal and state income tax NOL carryforwards were utilized to offset taxable income for the year ended December 31, 2005 and prior years. Due to the complexity of the Company’s discontinued operations divestiture and the fact that the tax periods in which the NOLs were generated can be audited well beyond a normal three-year statutory audit period, the amount of the NOLs which may ultimately be realized may vary materially from the amount utilized to offset taxable income. The Company has established an accrual for tax-related contingencies, primarily related to issues which may arise from the tax periods when the NOLs were generated. This accrual is based on the Company’s estimates of the amount of benefit from these NOLs that it may ultimately be unable to realize. Subsequent revisions to the accrual for tax-related contingencies may cause the Company’s provision for income taxes to vary significantly from period to period.

12. Employee Benefit Plans

The Company and certain subsidiaries have employee benefit plans to provide retirement, disability and death benefits to substantially all of their employees and affiliates. The plans primarily are defined contribution plans. Effective January 1, 1998, the Board of Directors approved a retirement savings plan for employees and affiliates. The plan is a defined contribution plan in accordance with the provisions of Section 401(k) of the Internal Revenue Code. Effective January 1, 2005, all regular employees are immediately eligible to enroll in the plan. For employees, the Company makes a matching contribution of 100% of the employee’s pre-tax contribution of up to 3% of the employee’s compensation and 50% of the employee’s pre-tax contribution of the next 2% of the employee’s compensation in each calendar year. Prior to January 1, 2005, full-time employees and affiliates were eligible to enroll in the plan in the first quarter following two months of service. Individuals on a part-time and per diem basis were eligible to participate in the quarter following completion of one year of service. For employees, the Company made a matching contribution of 50% of the employee’s pre-tax contribution, up to 6% of the employee’s compensation, in each calendar year. Additionally, after completing the AdvancePCS Acquisition, the Company continued to maintain AdvancePCS’s employee benefit plans, including its 401(k) defined contribution retirement plan, through December 31, 2004. With the exception of an

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December 31, 2005

AdvancePCS defined benefit plan that is frozen as to the entrance of new participants, the Company integrated the AdvancePCS employee benefit plans with those of the Company in 2005.

13. Non-Operating Gain, Net

In 2005, the Company recorded a non-operating gain, net, of approximately $25.7 million, which consists primarily of a $27.9 million gain on the sale of its retained interest in a previously disposed subsidiary.

14. Contingencies

As a participant in the healthcare industry, the Company’s business operations are subject to complex federal and state laws and regulations and enforcement by federal and state governmental agencies as described in Item 1, “Business—Government Regulation.” The Company is subject to various lawsuits and governmental investigations relating to its continuing PBM operations and to various lawsuits relating to its discontinued PPM and contract services operations. Legal actions involving the Company include, without limitation, business disputes, contract disputes, employment disputes and professional liability claims.

In February 2006, the United States District Court for the Northern District of Illinois unsealed an amended qui tam complaint filed in March 2004 by four relators who were formerly employed by Caremark. These same relators filed the California qui tam lawsuit described below, and two of them filed the Florida qui tam lawsuit described below. The original qui tam complaint, which was unsealed at the same time as the amended complaint, was filed in December of 2003. The federal qui tam lawsuit seeks monetary damages and includes allegations relating to certain business practices of Caremark, including alleged violations of the Federal False Claims Act and various state statutes. The United States, acting through the U.S. Attorney’s Office in Chicago, Illinois, has declined to intervene in the lawsuit. According to recently unsealed court documents, the United States indicated that it conducted an investigation of the qui tam allegations to determine whether the relators’ claims are warranted and whether the allegations have evidentiary support. The unsealed court documents further indicate that agents from the Office of Personnel Management, Postal Service, Federal Bureau of Investigation and the Food and Drug Administration assisted the United States Attorney’s Office in completing the investigation that formed the basis for the federal government’s decision not to intervene. A qui tam lawsuit typically is filed under seal pending a government review of the allegations and a decision by the applicable government authority on whether or not to intervene in the lawsuit. The lawsuit is proceeding as a private action without intervention by the federal government.

In January 2006, a purported shareholder’s derivative lawsuit was filed by the City of Dania Beach Police & Firefighters’ Retirement System, the Washtenaw County Employees Retirement System and Nicholas Weil in the Circuit Court of Davidson County, Tennessee. The lawsuit states that it was filed for the benefit of Caremark Rx, which is a nominal defendant. The defendants are the members of the Company’s board of directors and one former member of the board of directors. The complaint alleges that the individual defendants breached their fiduciary duties by failing to adequately oversee Caremark’s pharmacy benefit management operations. The allegations appear to be based largely on allegations asserted in other pending lawsuits against the Company and in media reports, including allegations contained in the Florida qui tam action described below. The complaint seeks to recover compensatory damages plus costs and attorneys’ fees from the individual defendants. The lawsuit is substantially similar to two separate purported shareholder derivative lawsuits filed in 2005 by the same plaintiffs in the Circuit Court of Leon County, Florida. The two prior actions in Florida were previously consolidated by the court, and the plaintiffs have voluntarily dismissed them without prejudice.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2005

In June 2005, the Superior Court of California, County of Los Angeles, entered an order unsealing a qui tam complaint filed by four relators who were formerly employed by Caremark, including the two relators who filed the Florida qui tam lawsuit described below. The relators have filed the lawsuit purportedly on behalf of the State of California. The California qui tam lawsuit seeks monetary damages and includes allegations relating to certain business practices of Caremark, including alleged violations of the California False Claims Act. The State of California, acting through the Office of the Attorney General, has declined to intervene in the qui tam lawsuit, and the court issued an order confirming the State of California’s election not to intervene on June 22, 2005. The lawsuit is proceeding as a private action without intervention by the state government.

In May 2005, the United States District Court for the Western District of Texas issued an order unsealing a qui tam complaint filed by relator Janaki Ramadoss, a former Caremark employee. The complaint originally was filed under seal on August 25, 1999 and includes allegations relating to Caremark’s processing of Medicaid claims and claims of certain other government programs. The lawsuit seeks monetary damages and includes allegations under the federal false claims act and various state fraud and false claims acts. The United States Department of Justice and the states of Texas, Tennessee, Florida and Arkansas have intervened in the lawsuit and filed an amended complaint, and the state of Louisiana also has intervened and filed a complaint. The relator has also filed an amended complaint against Caremark. Caremark has filed motions to dismiss the amended complaints, which are pending before the court.

In December 2004, Caremark filed a complaint in the United States District Court for the Middle District of Tennessee in Nashville for declaratory and injunctive relief against TennCare, the State of Tennessee’s managed healthcare program. TennCare provides healthcare coverage to individuals eligible for Medicaid benefits and other uninsured or uninsurable individuals. The complaint sought a declaration that certain pharmacy benefit plan limitations, including timely filing requirements, pharmacy network limitations and pharmacy benefit card presentation requirements, are enforceable with respect to claims submitted to Caremark by TennCare for reimbursement by pharmacy benefit plans administered by Caremark. In October 2005, the court granted TennCare’s motion for summary judgment and ruled that pharmacy benefit card presentation requirements and timely filing restrictions in a beneficiary’s health insurance plan do not apply to TennCare’s reimbursement claims. In rendering its decision, the court stated that the matter decided was “based on a good faith disagreement about a complex area of the law.” Caremark has filed a notice of appeal to the Sixth Circuit Court of Appeals.

In October 2004, Caremark Rx and Caremark were served with a complaint filed in the United States District Court for the Northern District of Illinois by the Chicago District Council of Carpenters Welfare Fund alleging that Caremark Rx and Caremark each act as a fiduciary as that term is defined in the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and that Caremark Rx and Caremark have breached certain purported fiduciary duties under ERISA. In addition, the lawsuit alleges breach of contract and violations of the Illinois Consumer Fraud and Deceptive Business Practices Act. The lawsuit seeks unspecified monetary damages and restitution. In April 2005, the court granted Caremark’s motion to dismiss as to the ERISA claims, and in August 2005, the court granted Caremark’s motion to dismiss the remaining state law claims for lack of jurisdiction. The plaintiff has subsequently appealed the court’s dismissal of the ERISA claims to the United States Court of Appeals for the Seventh Circuit and, in September 2005, re-filed its state law claims in the Circuit Court of Cook County in the State of Illinois.

In July 2004, Caremark Rx and Caremark were served with a putative private class action lawsuit that was filed by Robert Moeckel, purportedly on behalf of the John Morrell Employee Benefits Plan, in the United States District Court for the Middle District of Tennessee alleging that Caremark Rx and Caremark each act as a

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2005

fiduciary as that term is defined by ERISA and that Caremark Rx and Caremark have breached certain purported fiduciary duties under ERISA. This lawsuit, which is similar to the Bickley and Dolan actions described below and other pending litigation filed against other PBM companies, seeks unspecified monetary damages and injunctive relief. In August 2005, Caremark Rx was dismissed from the action. Caremark has filed a motion seeking to transfer venue for the case, which motion is pending before the court.

In July 2004, the Company received Civil Investigative Demands (“CIDs”) from the Office of the State of Washington Attorney General seeking information, pursuant to consumer protection statutes, relating to the PBM business practices of Caremark Rx, Caremark and AdvancePCS. The companies have received CIDs or similar requests for information from 28 states and the District of Columbia. Caremark Rx, Caremark and AdvancePCS intend to fully cooperate with the requests for information and cannot predict the timing, outcome or consequences of the review of such information or whether such review could lead to the commencement of any legal proceedings affecting the Company.

In January 2003, a sealed qui tam action was filed by relators Michael Fowler and Peppi Fowler, two pharmacists then employed by Caremark, purportedly as private attorneys general acting on behalf of the State of Florida, the State employees’ pharmacy benefits plan and plan members. The lawsuit seeks monetary damages and includes allegations relating to certain business practices of Caremark, including alleged violations of the Florida False Claims Act. The State of Florida indicated in July 2003 that it would not intervene in the lawsuit, and the lawsuit was unsealed in November 2003. In March 2004, Caremark filed a lawsuit for damages and attorneys’ fees and costs alleging that the Fowlers had unlawfully misappropriated and disclosed to third parties documents containing confidential patient health information in violation of the privacy protections found in various state and federal laws and seeking a court order directing that they return the misappropriated documents to Caremark. Caremark’s complaint was subsequently amended to include allegations that the Fowlers and at least one other member of their family had fraudulently obtained, and unlawfully filled, refilled, and distributed, prescriptions for pharmaceuticals. In June 2004, the State of Florida filed a Motion to Intervene in the qui tam action, in which motion the State sought to replace the Fowlers in litigating the lawsuit. The Circuit Court of Leon County, Florida, Second Circuit, denied the State’s Motion to Intervene. In November 2005, the court granted Caremark’s Motion for Partial Summary Judgment, which clarifies the types of records or documents that could potentially form the basis of liability for a “false claim” under the Florida False Claims Act. This decision in effect limits the damages potentially recoverable by the plaintiffs in this action. Discovery in the qui tam action is continuing.

In January 2005, the Chicago Tribune reported that the Illinois Attorney General issued a subpoena to the attorney representing the Fowlers for documents and depositions relating to the Florida qui tam lawsuit. The Chicago Tribune reported that the request for documents was related to a qui tam action that has been filed in the State of Illinois. We have not seen a copy of the qui tam complaint allegedly on file in Illinois. We have been providing information requested by the Illinois Attorney General’s office.

In October 2003, Caremark Rx was served with a putative class action lawsuit filed by John Lauriello in the Circuit Court of Jefferson County, Alabama. The lawsuit was filed on behalf of a purported class of persons who were participants in the 1999 settlement of then pending securities class action and derivative lawsuits against Caremark Rx and others. Also named as defendants are several insurance companies that had provided coverage to Caremark Rx up to the time of the settlement. The lawsuit seeks, among other things, to recover approximately $3.2 billion in compensatory damages plus unspecified punitive damages, pre-judgment interest, costs and attorneys’ fees from the defendants for their alleged intentional, reckless and/or negligent misrepresentation and

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2005

suppression of material facts relating to the amount of insurance coverage that was available to pay any settlement or judgment arising out of the claims that were resolved by the 1999 settlement. Alternatively, the lawsuit seeks to re-open the judgment approving the 1999 settlement. After the court overruled the defendants’ joint motion to dismiss in July 2004, the defendants filed their answers, which, among other things, denied all of the material allegations of the complaint. The parties then filed pleadings setting out their respective positions as to how this case should proceed. In January 2005, the court signed an order on class certification that, among other things, held that this case will proceed as a class action and set out a schedule for challenging the adequacy of John Lauriello to serve as class representative, as well as the appointment of Lauriello’s lawyers to act as class counsel. The defendants have filed papers with the Alabama Supreme Court seeking immediate appellate review of the trial court’s order. The Alabama Supreme Court has consolidated the issues raised by the parties to the appeal in Lauriello with those raised by the parties to the appellate proceedings involving the McArthur plaintiffs, which are discussed in the paragraph below.

In November 2003, a second putative class action lawsuit was filed by Frank McArthur in the Circuit Court of Jefferson County, Alabama arising out of the same 1999 settlement of then pending securities class action and derivative lawsuits against Caremark Rx and others. This lawsuit also was filed on behalf of a purported class of persons who were participants in the 1999 settlement, and named as defendants Caremark Rx, several insurance companies that had provided coverage to Caremark Rx up to the time of the settlement, and a number of lawyers and law firms involved in negotiating and securing the approval of the 1999 settlement. The lawsuit seeks, among other things, to recover approximately $3.2 billion in compensatory damages plus unspecified punitive damages, pre-judgment interest, costs and attorneys’ fees from the defendants for their alleged intentional, reckless and/or negligent misrepresentation and suppression of material facts relating to the amount of insurance coverage that was available to pay any settlement or judgment arising out of the claims that were resolved by the 1999 settlement. In December 2003, John Lauriello, the plaintiff in the lawsuit described above, filed a motion to intervene and a motion to dismiss, abate or stay this lawsuit on the grounds that it was a duplicative, later-filed, class action complaint. In January 2004, Caremark Rx and the other defendants filed their own motion to dismiss, abate or stay the lawsuit as a later-filed class action that is substantially similar to the Lauriello lawsuit. The defendants’ motion to stay was granted by the court, and the lawsuit was transferred to an Administrative Docket where it will be reviewed every 90 days. In February 2005, the plaintiffs in the stayed McArthur case filed motions in the Lauriello case seeking to intervene in that litigation and asking for the right to challenge the adequacy of John Lauriello as class representative and his lawyers as class counsel. The court denied the McArthur plaintiffs’ motion to intervene. The McArthur plaintiffs have appealed the trial court’s order, and, as referenced above, the issues raised in that appeal have been consolidated with the issues raised in the Lauriello appeal.

In October 2003, Caremark Rx, Caremark and AdvancePCS were served with a putative class action complaint filed against them and two PBM competitors in the United States District Court for the Northern District of Alabama by North Jackson Pharmacy, Inc. and C&C, Inc. d/b/a Big C Discount Drugs, Inc., two independent pharmacies. The plaintiffs twice amended and restated their class action complaint, most recently asserting two claims under a single count purportedly arising under Section 1 of the Sherman Act. The court granted a motion filed by Caremark Rx and Caremark to transfer venue to the United States District Court for the Northern District of Illinois pursuant to the terms of the pharmacy services agreements between Caremark and the plaintiffs. The court also granted a motion filed by AdvancePCS to compel arbitration of any claims between it and the plaintiffs pursuant to the pharmacy services agreements it has with the plaintiffs. In May 2005, the plaintiffs in this case filed a putative class action arbitration demand with the American Arbitration Association against AdvancePCS that is nearly identical to the complaint pending in the Northern District of Illinois against Caremark. The demand purports to cover direct claims made against AdvancePCS and seeks treble damages and

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2005

injunctive relief enjoining the alleged antitrust violations. The arbitration proceeding has been stayed by agreement of the parties pending developments in the court case against Caremark Rx and Caremark, which is in discovery. The plaintiffs are seeking three times actual monetary damages and injunctive relief enjoining the alleged antitrust violations.

In August 2003, AdvancePCS was served with a putative class action brought by Bellevue Drug Co., Robert Schreiber, Inc., d/b/a Burns Pharmacy and Rehn-Huerbinger Drug Co., d/b/a Parkway Drugs #4, purportedly on behalf of themselves and all others similarly situated, and the Pharmacy Freedom Fund and the National Community Pharmacists Association, filed in the United States District Court for the Eastern District of Pennsylvania. The plaintiffs allege antitrust violations under Section 1 of the Sherman Act arising from AdvancePCS’s establishment of network rates for retail pharmacies. The plaintiffs seek for themselves and the purported class three times actual monetary damages and injunctive relief enjoining the alleged antitrust violations. The court granted a motion filed by AdvancePCS to compel arbitration of any claims between it and the plaintiffs pursuant to the pharmacy services agreements it has with the plaintiffs. The plaintiffs moved for reconsideration of the court’s decision or to have the decision certified for an immediate appeal, and their motion was denied.

In March and April of 2003, AdvancePCS, and subsequently Caremark Rx and Caremark, were served with a complaint by an individual named Robert Irwin filed against them in the Superior Court of the State of California. The plaintiff filed the action individually and purportedly as a private attorney general on behalf of the general public of the State of California, the non-ERISA health plans who contract with PBM companies and the individuals who are members of those plans. Other PBM companies are also named as defendants in this lawsuit, which alleges violations of the California unfair competition law. Specifically, the lawsuit challenges alleged business practices of PBMs, including practices relating to pricing, rebates, formulary management, data utilization and accounting and administrative processes. The lawsuit seeks injunctive relief, restitution and disgorgement of revenues. Irwin has recently amended his complaint and purported to assert a class action on behalf of all California members of non-ERISA health plans and/or all California taxpayers. No motion for class certification has been filed.

In March 2003, AdvancePCS, Caremark Rx and Caremark were served with a putative representative action filed by American Federation of State, County & Municipal Employees (“AFSCME”), a labor union comprised of numerous autonomous local unions and affiliations. Other PBM companies also are named as defendants in this lawsuit. The lawsuit alleges violations of the California unfair competition law. Specifically, the lawsuit challenges alleged business practices of PBMs, including practices relating to rebates, pricing, formulary management and mail order services. The lawsuit seeks injunctive relief, restitution and disgorgement of revenues. This case has been coordinated with the Irwin case described above before a single judge in Los Angeles County. Based on recent changes in applicable law that restrict a party’s ability to bring lawsuits under California’s unfair competition law, AFSCME entered into a stipulation for the entry of judgment subject to the right of appeal, and the court entered judgment on that case in favor of the defendants in March 2005. AFSCME has subsequently appealed the decision to the California Court of Appeal, and the parties have agreed to stay the appeal pending the outcome of similar cases currently pending before the California Supreme Court.

In April 2002, Caremark Rx was served with a putative private class action lawsuit that was filed by Roland Bickley, purportedly on behalf of the Georgia Pacific Corporation Life, Health and Accident Plan, in the United States District Court, Central District of California alleging that Caremark Rx and Caremark each act as a fiduciary as that term is defined in ERISA and that Caremark Rx and Caremark have breached certain purported fiduciary duties under ERISA. In August 2002, this case was ordered transferred to the United States District Court, Northern District of Alabama. Caremark Rx subsequently was served in May 2002 with a virtually identical lawsuit, containing the same types of allegations, which was filed by Mary Dolan, purportedly on behalf

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2005

of Wells Fargo Health Plan, and also filed in the United States District Court, Central District of California. In December 2002, this case also was ordered transferred to the United States District Court, Northern District of Alabama. Both of these lawsuits were amended to name Caremark as a defendant, and Caremark Rx was dismissed from the second case filed. These lawsuits, which are similar to the Moeckel case described above, the pending Glanton and Mulder litigation filed against AdvancePCS (described below) and similar litigation involving other PBM companies, seek unspecified monetary damages and injunctive relief. Caremark Rx and Caremark, as applicable, filed motions seeking the complete dismissal of both of these actions on various grounds. In December 2004, the court presiding over the Bickley matter entered an order dismissing that case in its entirety with prejudice, finding that the plaintiff lacked standing, had failed to exhaust his administrative remedies and that Caremark was not a fiduciary under ERISA as to the plaintiff. Bickley then filed a Motion to Alter or Amend the court’s order, which was denied by the court in February 2005. Bickley has subsequently appealed the dismissal of his action to the United States Court of Appeals for the Eleventh Circuit, where it is now pending, and the United States Department of Labor has filed an amicus brief. The Dolan matter has been stayed pending the Eleventh Circuit’s decision in Bickley.

In April 2002, AdvancePCS was served with a putative class action filed by Tommie Glanton in the United States District Court of Arizona brought on behalf of the plaintiff’s health plan and a purported class of self-funded health plans. In March 2003, AdvancePCS was served with a complaint filed by Tara Mackner in which the plaintiff, a purported participant in a self-funded health plan customer of AdvancePCS, sought to bring action on behalf of that plan. Each of the lawsuits sought unspecified monetary damages and injunctive relief. Because the previously filed Glanton case purported to be brought as a class action on behalf of self-funded plans, the court consolidated the Mackner case and the Glanton case. In November 2003, the court dismissed and terminated both the Glanton and Mackner cases on the pleadings, finding that the plaintiffs lacked standing to bring the actions under ERISA. The plaintiffs have appealed the District Court’s dismissal of these cases to the United States Court of Appeals for the Ninth Circuit, and the United States Department of Labor filed an amicus brief.

In March 1998, PCS Health Systems, Inc., a subsidiary of PCS Holding Corporation, which was acquired by Advance Paradigm (now known as AdvancePCS) in October 2000, was served with a putative class action lawsuit filed by Ed Mulder in the United States District Court of the District of New Jersey. The lawsuit alleges that PCS Health Systems, Inc. acts as a fiduciary, as that term is defined in ERISA, and has breached certain purported fiduciary duties under ERISA. The plaintiff is seeking injunctive relief and monetary damages in an unspecified amount. The plaintiff purported to represent a nationwide class consisting of all members of all ERISA plans for which PCS Health Systems, Inc. provided PBM services during the class period. AdvancePCS opposed certification of this class, and in July 2003 the court entered an order certifying a more limited class comprised only of members of those ERISA plans for which PCS Health Systems, Inc. provided services under its contract with a single MCO for a limited time period. Discovery in this lawsuit is proceeding. In October 2004, AdvancePCS filed a motion for summary judgment. The motion currently is pending before the court.

In November 1999, PCS Health Systems, Inc. received a subpoena from the Office of the Inspector General (OIG), through the United States Attorney’s Office for the Eastern District of Pennsylvania, seeking information concerning certain of its PBM business practices, including information relating to its arrangements with pharmaceutical manufacturers, retail pharmacies and health plans. The OIG requested information relating to the activities of Advance Paradigm prior to its acquisition of PCS Holding Corporation and the activities of AdvancePCS subsequent to such acquisition. AdvancePCS provided documents to the OIG and facilitated interviews of certain former and current employees in response to the subpoena. The government was reviewing whether certain AdvancePCS business practices comply with anti-kickback statutes, false claims statutes and other applicable laws and regulations. In September 2005, AdvancePCS entered into a settlement agreement with

F-32

CAREMARK RX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2005

the federal government. Under the terms of the settlement, AdvancePCS agreed, among other things, to pay $137.5 million to settle disputed claims, to adhere to certain business practices pursuant to a consent order and to maintain a compliance program in accordance with a corporate integrity agreement. At the time the settlement was approved by the United States District Court for the Eastern District of Pennsylvania, the court ordered the unsealing of two related qui tam complaints filed by individual relators. The complaints originally were filed under seal in December 2002 and September 2003, and include allegations under the federal false claims acts and various state false claims acts and other state statutes. In addition to resolving the allegations made by the federal government, the settlement resolves federal civil monetary claims asserted by the relators in the qui tam actions. The settlement does not, however, resolve state law claims alleged by the relators relating to various state false claims acts and other state statutes. The relators originally named 11 states and the District of Columbia as additional plaintiffs in the qui tam actions. In October 2005, the court dismissed the state law claims without prejudice.

In 1993, independent and retail chain pharmacies separately filed a series of antitrust lawsuits, including a class action lawsuit, against brand name pharmaceutical manufacturers, wholesalers and PBM companies. The cases included claims for purported violations of Section 1 of the Sherman Act as well as the Robinson-Patman Act and sought three times actual money damages and injunctive relief enjoining the alleged antitrust violations. Caremark was named as a defendant in one of the counts contained in a number of the lawsuits brought by certain independent pharmacies in 1994, but was not named in the class action or in the separate actions brought by chain pharmacies and was not a party to any claims under Section 1 of the Sherman Act. The cases with claims against Caremark charged that certain defendant PBM companies, including Caremark, were favored buyers who knowingly induced or received discriminatory prices from pharmaceutical manufacturers in violation of the Robinson-Patman Act. The cases with claims against Caremark were first transferred to the United States District Court for the Northern District of Illinois for pretrial proceedings and were originally stayed in 1995 along with all of the Robinson-Patman Act claims against the pharmaceutical manufacturers and other PBMs, except for certain “test” claims against certain brand name pharmaceutical manufacturers that proceeded through discovery. Following a trial of the class action price fixing claims brought against the pharmaceutical manufacturers under Section 1 of the Sherman Act, the substantial majority of the cases remaining in the multidistrict litigation, including those with claims against Caremark, were subsequently transferred to the United States District Court for the Eastern District of New York for further proceedings while a limited number of cases remained in the United States District Court for the Northern District of Illinois. Numerous settlements among the parties other than Caremark have been reached, and all claims in the litigation under Section 1 of the Sherman Act against other parties have been settled or resolved. The Robinson-Patman Act “test” claims that had proceeded through discovery were among the cases transferred to the United States District Court for the Eastern District of New York and likely will proceed to summary judgment or trial before the stay of proceedings against Caremark and the other brand name pharmaceutical manufacturers and PBMs facing Robinson-Patman Act claims is lifted. Caremark cannot anticipate when the stay might be lifted. The cases involving claims against Caremark that had remained in the United States District Court for the Northern District of Illinois have been dismissed.

The Company believes that its business practices are in material compliance with all applicable laws and regulations and that it has meritorious defenses to the claims of liability or for damages in the actions that have been made against it; however, there can be no assurance that pending lawsuits or investigations will not have a disruptive effect upon the operations of the business, that they will not consume the time and attention of the Company’s senior management, or that their resolution, individually or in the aggregate, will not have a material adverse effect on the operating results and financial condition of the Company or potentially cause the Company to make material changes to its current business practices. Where the Company believes that a loss is both probable and estimable, such amounts have been recorded. In other cases, it is at least reasonably possible that the Company may have incurred a loss related to one or more of the pending lawsuits or investigations disclosed

F-33

CAREMARK RX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2005

in this footnote, but the Company is unable to estimate the range of possible loss which may be ultimately realized, either individually or in the aggregate, upon their resolution. The Company intends to vigorously defend each of its pending lawsuits and to cooperate with any pending governmental investigations.

15. Selected Quarterly Financial Data (Unaudited)

The following tables set forth certain unaudited quarterly financial data for 2005 and 2004. In the opinion of the Company’s management, this unaudited information has been prepared on the same basis as the audited information and includes all adjustments (consisting of normal recurring items) necessary to present fairly the information set forth therein. The results of operations of AdvancePCS and the effects of the AdvancePCS Acquisition on outstanding shares are included beginning March 24, 2004. The operating results for any quarter are not necessarily indicative of results to be expected for any future period.

	Three Months Ended
(In thousands, except per share amounts)	Dec. 31, 2005		Sep. 30, 2005		Jun. 30, 2005		Mar. 31, 2005		Dec. 31, 2004		Sep. 30, 2004		Jun. 30, 2004		Mar. 31, 2004
Net revenue	$	8,367,756	$	8,072,441	$	8,199,167	$	8,351,887	$	8,012,844	$	7,457,892	$	7,304,442	$	3,025,943
Gross profit (1)	$	545,744	$	517,210	$	491,368	$	461,940	$	494,291	$	432,051	$	389,751	$	220,279
Net income	$	290,661	$	231,421	$	212,779	$	197,510	$	205,083	$	171,819	$	139,219	$	84,188
Average number of common shares outstanding Basic		444,700		444,507		447,559		450,783		450,378		456,131		459,817		277,753
Dilutive effect of stock options and warrants		8,913		9,087		8,920		8,570		8,602		8,638		11,110		8,159
Diluted		453,613		453,594		456,479		459,353		458,980		464,769		470,927		285,912
Earnings per common share—basic	$	0.65	$	0.52	$	0.48	$	0.44	$	0.46	$	0.38	$	0.30	$	0.30
Earnings per common share—diluted	$	0.64	$	0.51	$	0.47	$	0.43	$	0.45	$	0.37	$	0.30	$	0.29

(1) Net revenue less cost of revenues and allocated depreciation.

In the fourth quarter of 2005, the Company recorded a positive adjustment to the provision for income taxes of approximately $25.8 million primarily to reflect resolution of income tax uncertainties from prior periods.

In addition, in the fourth quarter of 2005, the Company recorded a non-operating gain, net, of approximately $25.7 million, which consists primarily of a $27.9 million gain on the sale of its retained interest in a previously disposed subsidiary.

F-34

Report of Independent Registered Public Accounting Firm on Financial Statement Schedules

The Board of Directors and Stockholders

Caremark Rx, Inc.:

Under date of February 20, 2006, we reported on the consolidated balance sheets of Caremark Rx, Inc. and subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of income, changes in stockholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2005, which are included in this Form 10-K. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedules included herein. These financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statement schedules based on our audits.

In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

/s/    KPMG LLP

Nashville, Tennesse

February 20, 2006

S-1

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

(In millions)

Year Ended	Balance at Beginning of Period		Additions Charged To					Deductions			Balance at End of Period
			Costs and Expenses		Other
Allowance for Doubtful Accounts
December 31, 2005	$	51.5	$	26.9	$	3.3	(a)	$	30.6	(b)	$	50.6
									0.5	(c)
December 31, 2004	$	24.7	$	23.7	$	5.4	(a)	$	21.8	(b)	$	51.5
						19.5	(c)
December 31, 2003	$	23.2	$	8.9	$	3.4	(a)	$	10.8	(b)	$	24.7
Deferred Income Tax Asset Valuation Allowance
December 31, 2005	$	23.9	$	—	$	—		$	7.9	(d)	$	16.0
December 31, 2004	$	23.9	$	—	$	—		$	—		$	23.9
December 31, 2003	$	23.9	$	—	$	—		$	—		$	23.9

a) Recoveries of amounts previously written off

b) Writeoffs

c) AdvancePCS Acquisition

d) Adjustment for estimated realizable value of deferred tax asset

S-2

EX-4.2

Exhibit 4.2

Exhibit 4.2

CMX 4436

SPECIMEN

COMMON STOCK

CUSIP 141705 10 3

SEE REVERSE FOR CERTAIN DEFINITIONS

CAREMARK

CAREMARK RX, INC.

INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE

THIS CERTIFICATE IS TRANSFERABLE IN CHARLOTTE, NC AND NEW YORK, NY.

THIS IS TO CERTIFY THAT

SPECIMEN

IS THE OWNER OF

FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF

Caremark Rx, Inc., transferable on the books of the Corporation in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate and the shares represented hereby are issued and shall be held subject to all of the provisions of the Certificate of Incorporation of the Corporation, as amended and restated, and its Bylaws, as amended and restated, copies of which are on file with the Transfer Agent, to all provisions of which the holder of this Certificate, by acceptance hereof, assents. This Certificate is not valid until countersigned and registered by the Transfer Agent and Registrar.

Witness the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers.

Dated:

Countersigned and Registered:

WACHOVIA, N.A.

(Charlotte, NC)

Transfer Agent

and Registrar

By

Authorized Signature

CAREMARK RX, INC.

CORPORATE

SEAL

DELAWARE

1995

SECRETARY

CHAIRMAN OF THE BOARD

AND CHIEF EXECUTIVE OFFICER

AMERICAN BANK NOTE COMPANY.

CAREMARK RX, INC.

The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:

TEN COM TEN ENT JT TEN — — — as tenants in common as tenants by the entireties as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT —                            Custodian                                  (Cust)                           (Minor) under Uniform Gifts to Minors Act ___________________________                         (State)

Additional abbreviations may also be used though not in the above list.

For value received                                                                                                                                             hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER

IDENTIFYING NUMBER OF ASSIGNEE

Please print or typewrite name and address including postal zip code of assignee

                                                                                                                                                                                             Shares of the Common Stock represented by the within Certificate, and do hereby irrevocably constitute and appoint

                                                                                                                                                                                         Attorney to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises.

Dated                     

		__________________________________________________________________
	NOTICE:	THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:		__________________________________________________________________ THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.

KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED OR DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE OF A REPLACEMENT CERTIFICATE.

EX-10.13

Exhibit 10.13

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into as of June 1, 2000, by and between Caremark Rx, Inc., a Delaware corporation (“Employer”), and Brad Karro (“Officer”).

RECITALS

WHEREAS, Employer desires to continue to retain the services of Officer and Officer desires to serve Employer in the capacity of Executive Vice President of Corporate Development; and

WHEREAS, Employer and Officer desire to set forth the terms and conditions of Officer’s continued employment with Employer under this Agreement.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing recitals and of the mutual covenants and agreements contained in this Agreement, the parties agree as follows:

1. Term. Employer agrees to employ Officer, and Officer agrees to serve Employer, on an “at will” basis for such period (such period being the “Term”) as Employer desires to employ Officer and Officer agrees to serve Employer. Without limiting the generality of the foregoing sentence, Employer shall have the right to terminate Officer at any time for any reason or no reason without any obligation to Officer other than for Base Salary (as hereinafter defined) earned but unpaid through the date of such termination and for the obligations of Employer pursuant to Section 4(4) of this Agreement.

2. Employment of Officer.

(1) Position; Duties. Employer and Officer agree that, subject to the provisions of this Agreement, Officer will serve as Executive Vice President of Corporate Development of Employer.

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3. Compensation.

(1) Salary. Employer shall pay Officer a salary in the amount of Two Hundred Ninety-Five Thousand Dollars ($295,000.00) per year (pro-rated for any partial year during the Term) (the “Base Salary”) payable in equal Bi-weekly installments, less state and federal tax and other legally required withholdings. The Base Salary shall be subject to review and adjustment from time-to-time consistent with past practice.

(2) Incentive Compensation. During the Term, Officer shall be eligible to receive from Employer incentive compensation in an amount equal to Seventy-Five (75%) percent of Base Salary (pro-rated for any partial calendar year during the Term), less state and federal tax and other legally required and Officer-authorized withholdings. The incentive compensation contemplated by this Section 3(2) shall be payable to Officer solely at the discretion of the Chief Executive Officer of Employer based upon Officer’s performance. The incentive compensation that Officer shall be eligible to earn under this Section 3(2) shall be subject to review and adjustment from time-to-time consistent with past practice.

4. Benefits.

(1) Fringe Benefits. In addition to the compensation and other remuneration provided for in this Agreement, Officer shall be entitled, during the Term, to such other benefits of employment with Employer as are now or may after the date of this Agreement be in effect for employees of Employer at the same level as Officer.

(2) Expenses. During the Term, Employer shall reimburse Officer promptly for all reasonable travel, entertainment, parking, business meeting and similar expenditures in pursuit and furtherance of Employer’s business upon receipt of reasonable supporting documentation as required by Employer’s policies applicable to its officers generally.

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(3) Stock Options. Officer shall participate in the stock options plans of the Company. The opportunity for the grant of such options will be reviewed at least annually.

(4) Termination Benefits. Employer shall provide to Officer the applicable benefits and/or payments set forth below.

(a) Termination by resignation, disability or death. If this Agreement is terminated due to Officer’s voluntary resignation, disability, or his death, then Officer shall be entitled to only those benefits and payments he is entitled to under the Employer’s applicable controlling benefit plans and policies. Officer shall not be entitled to any severance or like payments.

(b) Termination for Cause. If Employer terminates Officer’s employment for cause, then Officer shall be entitled to only those benefits and payments he is entitled to under the applicable controlling benefit plans and policies. Officer shall not be entitled to any severance or like payments. The term “Cause” shall mean Officer (i) materially breaches any material term of this Agreement, (ii) is convicted by a court of competent jurisdiction of a felony, (iii) refuses, fails or neglects to perform his duties under this Agreement in a manner substantially detrimental to the business of Employer, (iv) engages in illegal or other wrongful conduct substantially detrimental to the business or reputation

3

of Employer, or (v) develops or pursues interests substantially adverse to Employer; provided, however, that in the case of clauses (i), (iii), or (v), no such termination shall be effective unless (1) Employer shall have given Officer 30 days’ prior written notice of any conduct or deficiency in performance by Officer that Employer believes could, if not discontinued or corrected, lead to Officer’s termination under this Section 4(3) to provide Officer an opportunity to cure such non-compliant conduct or performance, and (2) Officer shall not have cured such non-compliant conduct or performance during such notice period.

(c) Termination without Cause. If Employer terminates this Agreement without cause, it shall provide Officer with the following termination benefits: (i.) 30 days written notice of Employer’s intention to terminate Officer’s Agreement without cause; (ii.) A lump sum payment equivalent to one (1) year of Officer’s current base salary; (iii.) A lump sum payment equivalent to one (1) year of Officer’s current annual incentive bonus; (iv.) Continued coverage under Employer’s standard and Executive benefit plans for one (1) year in accordance with the terms of the applicable plans, provided, if the terms of the applicable plan does not permit continued coverage, then Employer shall pay to Officer the value of the applicable benefits in lump sum upon termination of employment; and (v.) The applicable Stock

4

Option Plan shall control the treatment of Officer’s unexercised stock options. As a condition precedent to receiving the payments and benefits described in this paragraph 4 (3) (c), Officer shall be required to execute a full release of all claims for the benefit of Employer in a form provided exclusively by Employer. Upon execution of this release, Employer shall provide the payments and benefits described in this section 4 (3) (c), within 10 days.

(d) Termination following a Change in Control. During the first six months following a change in control, Officer may provide the Successor Employer with written notice requesting the Successor Employer to reconfirm in writing that it intends to continue all of the terms and conditions of this Employment Agreement. If Successor Employer fails to respond to Officer within Sixty (60) days of receipt of Officer’s written notice, or if Successor Employer declines to continue all of the terms and conditions of Officer’s Employment Agreement, then Officer shall be deemed to be terminated following a change in control. If a successor Employer terminates this Agreement at any time following a change in control, it shall provide Officer with the following termination benefits: (i.) 30 days written notice of its intention to terminate this Agreement; (ii.) A lump sum payment equivalent to two (2) year’s of Officer’s current base salary; (iii.) A lump sum payment equivalent to two (2)

5

year’s of Officer’s current annual incentive bonus; (iv.) Continued coverage under Employer’s standard and Executive benefit plans for two (2) year’s in accordance with the terms of the applicable plans, provided, if the terms of the applicable plan does not permit continued coverage, then Employer shall pay to Officer the value of the applicable benefits in lump sum upon termination of employment; and (v.) The applicable Stock Option Plan shall control the treatment of Officer’s unexercised stock options. As a condition precedent to receiving the payments and benefits described in this paragraph 4 (3) (d), Officer shall be required to execute a full release of all claims for the benefit of Employer in a form provided exclusively by Employer. Upon execution of this release, Employer shall provide the payments and benefits described in this section 4 (3) (d), within 10 days. For purposes of this Agreement, the term “Change in Control” shall mirror the definition of a “Change in Control” contained in the MedPartners’ 1998 Stock Option Plan.

5. Trade Secrets and Confidentiality

(1) Trade Secrets. Officer agrees and covenants that, both during the Term and after termination of his employment, Officer will hold in a fiduciary capacity for the benefit of Employer, and shall not directly or indirectly use or disclose, except as Employer authorizes in connection with the performance of Officer’s duties, any Trade Secret, as defined below, that Officer may have or acquire during the Term for so long as the such information remains a Trade Secret. The term “Trade Secret” as used in this Agreement shall

6

mean information including, but not limited to, technical or non-technical data, a formula, a pattern, a compilation, a program, a device, a method, a technique, a drawing, a process, financial data, financial plans, product plans, or a list of actual or potential customers or suppliers, including without limitation, information received by Employer or Officer from any client or potential client of Employer, which:

a. Derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and

b. Is the subject of reasonable efforts by Employer or the client from which the information was received to maintain its secrecy.

(2) Confidentiality. In addition to the covenants set forth in Section 5(1), Officer agrees that, during the Term and for a period of five (5) years after termination of his employment, Officer will hold in a fiduciary capacity for the benefit of Employer and shall not directly or indirectly use or disclose, except as Employer authorizes in connection with the performance of Officer’s duties, any Confidential or Proprietary Information, as defined below, that Officer may have or acquire (whether or not developed or compiled by Officer and whether or not Officer has been authorized to have access to such Confidential or Proprietary Information) during the Term. The term “Confidential or Proprietary Information” as used in this Agreement means any secret, confidential or proprietary information of Employer, including information received by Employer or Officer from any client or potential client of Employer, not otherwise included in the definition of “Trade Secret” in Section 5(1) above. The term “Confidential or Proprietary Information” does not include information that has become generally available to the public by the act of one who has the right to disclose such information without violating any right of the client to which such information pertains.

(3) Restrictions Supplemental to State Law. The restrictions set forth in Sections 5(1) and (2) are in addition to and not in

7

lieu of protections afforded to trade secrets and confidential information under applicable state law. Nothing in this Agreement is intended to or shall be interpreted as diminishing or otherwise limiting Employer’s right under applicable state law to protect its trade secrets and confidential information.

6. Restrictive Covenants. As a material inducement for Employer to enter into this Agreement, Officer agrees to the following restrictive covenants.

(1) Non-competition. During the term of this Agreement and for a period of 3 years after the termination of this Agreement, directly or indirectly, establish, engage, own, manage, operate, join or control, or participate in the establishment, ownership, management, operation or control or be a director, officer, employee, salesman, agent or representative of, or be a consultant to, any person or entity in any business in competition with the Caremark or its subsidiaries in any state where the they now conduct, or during such 3 year period, begin conducting, any material business.

(2) Non-solicitation. During the term of this Agreement and for a period of 3 years after the termination of this Agreement, you shall not, except with the Caremark’s express prior written consent, directly or indirectly, in any capacity, for the benefit of any person or entity: Solicit, interfere with, or divert, any person who is a customer, patient, supplier, employee, salesman, agent or representative of Caremark or its subsidiaries, in connection with any business in competition with Caremark or its subsidiaries.

(3) Modification of covenants. If any provision contained in subparagraphs (1) or (2) above is later adjudicated to exceed the time, geographic, scope, or other limitations permitted by governing law, then such provisions will be reformed in such jurisdiction to the maximum permissible time, geographic, or scope limitations.

7. Miscellaneous.

(1) Succession. This Agreement shall inure to the benefit of and shall be binding upon Employer, its successors and assigns. The obligations and duties of Officer under this Agreement shall be personal and not assignable.

8

(2) Notices. Any notice, request, instruction or other document to be given under this Agreement by any party to the others shall be in writing and delivered in person or by courier, telegraphed, telexed or sent by facsimile transmission or mailed by certified mail, postage prepaid, return receipt requested (such mailed notice to be effective on the date of such receipt is acknowledged), as follows:

If to Officer:

Brad Karro

Caremark Rx, Inc.

3000 Galleria Tower

Suite 1000

Birmingham, Alabama 35244

If to Employer:

Caremark Rx, Inc.

3000 Galleria Tower

Suite 1000

Birmingham, Alabama 35244

Attn.: Chief Executive Officer

or to such other place as either party may designate as to itself by written notice to the other.

(3) Waiver; Amendment. No provision of this Agreement may be waived except by a written agreement signed by the waiving party. The waiver of any term or of any condition of this Agreement shall not be deemed to constitute the waiver of any other term or condition. This Agreement may be amended only by a written agreement signed by the parties.

(4) Governing Law. This Agreement shall be construed under and governed by the internal laws of the State of Alabama, without regard to Alabama’s choice of law rules.

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(5) Arbitration. Any disputes or controversies arising under this Agreement shall be settled by arbitration in Birmingham, Alabama in accordance with the rules of the American Arbitration Association relating to the arbitration of commercial disputes. The determination and findings of such arbitrators shall be final and binding on all parties and may be enforced, if necessary, in the courts of the State of Alabama.

(6) Captions. Captions have been inserted solely for the convenience of reference and in no way define, limit or describe the scope or substance of any provisions of this Agreement.

(7) Prior Agreements. This Agreement shall supersede and void any prior existing agreements between Employer and Officer regarding payments upon termination or due to change in control. Notwithstanding this section, nothing in this section 6(7) isintended to have any affect upon Officer’s Stock Option Awards or the terms of Employer’s Stock Option Plans, or the terms of any benefit plans.

(8) Severability. If this Agreement shall for any reason be or become unenforceable by any party, this Agreement shall thereupon terminate and become unenforceable by the other party as well. In all other respects, if any provision of this Agreement is held invalid or unenforceable, the remainder of this Agreement shall nevertheless remain in full force and effect and, if any provision is held invalid or unenforceable with respect to particular circumstances, it shall nevertheless remain in full force and effect in all other circumstances.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

CAREMARK RX, INC.
/s/ E. Mac Crawford	/s/ Brad Karro
E. Mac Crawford	Brad Karro
Chairman and CEO

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EX-10.17

Exhibit 10.17

AMENDED AND RESTATED

CAREMARK RX, INC. INCENTIVE COMPENSATION PLAN

The Amended and Restated Caremark Rx, Inc. Incentive Compensation Plan (the “Incentive Compensation Plan”) is the result of the assumption and adoption by Caremark Rx, Inc., a Delaware corporation, of the Caremark International Inc. 1992 Incentive Compensation Plan (the “Caremark Plan”), pursuant to the provisions of that certain Plan and Agreement of Merger, dated as of May 13, 1996, by and among Caremark Rx, Inc., PPM Merger Corporation and Caremark International Inc.

1. PURPOSE

The purpose of this Incentive Compensation Plan is to increase stockholder value and to advance the interests of Caremark Rx, Inc. and its subsidiaries (collectively, “Caremark Rx” or the “Company”) by awarding equity and performance based incentives designed to attract, retain and motivate employees. As used in this Incentive Compensation Plan, the term “subsidiary” means any business, whether or not incorporated, in which Caremark Rx has an ownership interest.

2. ADMINISTRATION

2.1 Administration by the Committee.

The Incentive Compensation Plan shall be administered by the Compensation Committee of the Board of Directors of Caremark Rx or by any other committee appointed by the Board of Directors of Caremark Rx (the “Committee”), which Committee shall consist solely of two or more Non- Employee Directors (“Non-Employee Directors”) as such are defined in Rule 16b-3 promulgated pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or any successor provision.

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2.2 Authority.

Subject to the provisions of this Incentive Compensation Plan, the Committee shall have the authority to:

(a) manage and control the operation of this Incentive Compensation Plan;

(b) interpret and construe any provision of this Incentive Compensation Plan and any Award Agreement granted under it;

(c) prescribe, amend and rescind rules and regulations relating to this Incentive Compensation Plan;

(d) make awards under this Incentive Compensation Plan, in such forms and amounts and subject to such restrictions, limitations and conditions as it deems appropriate, including, without limitation, awards which are made in combination with or in tandem with other awards (whether or not contemporaneously granted) or compensation in lieu of current or deferred compensation;

(e) modify the terms of, cancel and reissue, or repurchase outstanding awards;

(f) prescribe the form of agreement, certificate, or other instrument evidencing any award under this Incentive Compensation Plan (an “Award Agreement”), provided that any such Award Agreement shall incorporate by reference all of the terms and provisions of this Incentive Compensation Plan as in effect at the time of grant and shall include such other terms and provisions not contrary to the Incentive Compensation Plan as shall be approved and adopted by the Committee;

(g) correct any defect or omission and reconcile any inconsistency in this Incentive Compensation Plan or in any award hereunder; and

(h) make all other determinations and take all other actions as it deems necessary or desirable for the implementation and administration of this Incentive Compensation Plan.

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The determination of the Committee on matters within its authority shall be conclusive and binding on Caremark Rx and all other persons.

3. PARTICIPATION

Subject to the terms and conditions of this Incentive Compensation Plan, the Committee shall determine and designate from time to time the employees, directors and consultants of Caremark Rx who shall receive awards under this Incentive Compensation Plan (“Participants”).

4. SHARES SUBJECT TO THE INCENTIVE COMPENSATION PLAN

4.1 Number of Shares Reserved.

Shares of common stock, $.001 par value per share, of Caremark Rx (“Common Stock”) shall be available for awards under this Incentive Compensation Plan. To the extent provided by resolution of the Committee, such shares may be uncertificated. Subject to adjustment in accordance with Sections 4.2 and 4.3, the aggregate number of shares of Common Stock available for awards under this Incentive Compensation Plan shall be 13,771,964 shares.

4.2 Reusage of Shares.

(a) In the event of the exercise or termination (by reason of forfeiture, expiration, cancellation, surrender or otherwise) of any award under this Incentive Compensation Plan, that number of shares of Common Stock that was subject to the award but not delivered to the Participant shall again be available for awards under this Incentive Compensation Plan.

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(b) In the event that shares of Common Stock are delivered under this Incentive Compensation Plan as Restricted Stock, as described in Section 6 hereof, or pursuant to a stock award and are thereafter forfeited or reacquired by the Company pursuant to rights reserved upon the award thereof, such forfeited or reacquired shares shall again be available for awards under this Incentive Compensation Plan.

(c) Notwithstanding the provisions of paragraphs (a) or (b) of this Section 4.2, the following shares shall not be available for reissuance under this Incentive Compensation Plan: (i) shares with respect to which the Participant has received the benefits of ownership (other than voting rights), either in the form of dividends or otherwise; (ii) shares which are withheld from any award or payment under this Incentive Compensation Plan to satisfy tax withholding obligations (as described in Section 7.5(e)); (iii) shares which are surrendered to fulfill tax obligations (as described in Section 7.5(e)); and (iv) shares which are surrendered in payment of the Option Price (as defined in Section 5.2) upon the exercise of a Stock Option, as described in Section 5 hereof.

4.3 Adjustments to Shares Reserved.

In the event of any merger, consolidation, reorganization, recapitalization, spin-off, stock dividend, stock split, reverse stock split, exchange or other distribution with respect to shares of Common Stock or other change in the corporate structure or capitalization affecting the Common Stock, the type and number of shares of stock which are or may be subject to awards under this Incentive Compensation Plan and the terms of any outstanding awards (including the price at which shares of stock may be issued pursuant to an outstanding award) shall be equitably adjusted by the Committee, in its sole discretion, to preserve the value of benefits awarded or to be awarded to Participants under this Incentive Compensation Plan.

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5. STOCK OPTIONS

5.1 Awards.

Subject to the terms and conditions of this Incentive Compensation Plan, the Committee shall designate the employees to whom options to purchase shares of Common Stock (“Stock Options”) are to be awarded under this Incentive Compensation Plan and shall determine the number, type and terms of the Stock Options to be awarded to each of them; provided, however, that each Stock Option designated as an “Incentive Stock Option” (as defined below) shall expire on the earlier of the date provided by the option terms or the date which is ten years after the date of grant. In addition, each Stock Option awarded to any person who owns, directly or indirectly (or is treated as owning by reason of attribution rules, currently set forth in Section 424 of the Internal Revenue Code of 1986, as amended (the “Code”)), stock of the Company constituting more than 10% of the total combined voting power of the Company’s outstanding stock, or the stock of any of its corporate subsidiaries, shall expire on the earlier of the date provided by the option terms or the date which is five years after the date of the grant. Each Stock Option awarded under this Incentive Compensation Plan shall be a “nonqualified stock option” for tax purposes, unless the Stock Option satisfies all of the requirements of Section 422 of the Code and the Committee designates such Stock Option as an “Incentive Stock Option”.

5.2 Manner of Exercise.

A Stock Option may be exercised, in whole or in part, by giving proper notification to the Corporate Secretary of Caremark Rx prior to the date on which the Stock Option expires; provided, however, that a Stock Option may only be exercised with respect to whole shares of Common Stock. Such notice shall specify the number of shares of Common Stock to be purchased and shall be accompanied by payment of the Option Price for such shares (the “Option Price”). The Option Price of a Stock Option shall be determined in accordance with the applicable provisions of the Code and shall in no event be less than the Fair Market Value (as defined in Section 7.12) of the stock covered by the Stock Option at the date of the grant; provided, however, that the Option Price of a Stock Option granted to any person who owns, directly or indirectly (or is treated as owning by reason of attribution rules, currently set forth in Section 424 of the Code), stock of the Company constituting more than 10% of the total combined voting power of all classes of outstanding stock of the Company or of any affiliate of the Company, shall in no event be less than 110% of such Fair Market Value.

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5.3 Payment of Option Price.

No shares of Common Stock shall be issued on the exercise of an Option unless paid for in full at the time of exercise. Payment shall be made in cash, which may be paid by check or other instrument acceptable to the Company. In addition, subject to compliance with applicable laws and regulations and such conditions as the Committee may impose, the Committee may elect to accept payment in shares of Common Stock of the Company which are already owned by the optionee, valued at the Fair Market Value thereof on the date of exercise. The Committee may also allow an optionee to exercise an Option by use of proceeds to be received from the sale of Common Stock issuable pursuant to the Option being exercised.

5.4 Vesting of Stock Options.

Except as provided by the Committee in the applicable Award Agreement, Stock Options shall vest and become exercisable as follows:

(a) 34% of the Stock Options granted shall vest on the Stock Option grant date;

(b) 33% of the Stock Options granted shall vest on each of the first anniversary and second anniversary of the Stock Option grant date; provided, however, that if during the first year after the Stock Option grant date, the stock price of the Common Stock closes at or above $12.00 (or such other price as determined by the Committee and set forth in the applicable Award Agreement) for any twenty (20) out of thirty (30) consecutive trading days, the 33% of the Stock Options due to vest on the first anniversary of the Stock Option grant date shall vest immediately at the end of such 20th day, and provided, however, that if during the second year after the Stock Option grant date, the stock price of the Common Stock closes at or above $18.00 (or such other price as determined by the Committee and set forth in the applicable Award Agreement) for any twenty (20) out of thirty (30) consecutive trading days, the 33% of the Stock Options due to vest on the second anniversary of the Stock Option grant date shall vest immediately at the end of such 20th day.

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6. RESTRICTED STOCK

6.1 Awards.

Subject to the terms and conditions of this Incentive Compensation Plan, the Committee shall designate the Participants to whom shares of “Restricted Stock” shall be awarded under this Incentive Compensation Plan and determine the number of shares and the terms and conditions of each such award; provided, however, that newly issued shares shall be issued as Restricted Stock only to the extent that the Committee determines that past services of the Participant constitute adequate consideration for at least the par value thereof. Each Restricted Stock award shall entitle the Participant to receive shares of Common Stock upon the terms and conditions specified by the Committee and subject to the following provisions of this Section 6.

6.2 Restrictions.

All shares of Restricted Stock transferred or sold hereunder shall be subject to such restrictions as the Committee may determine, including, without limitation, any or all of the following:

(a) a required period of employment with the Company, as determined by the Committee, prior to the vesting of the shares of Restricted Stock;

(b) a prohibition against the sale, assignment, transfer, pledge, hypothecation or other encumbrance of the shares of Restricted Stock for a specified period as determined by the Committee;

(c) a requirement that the holder of shares of Restricted Stock forfeit (or in the case of shares sold to a Participant, resell back to the Company at his cost) all or a part of such shares in the event of termination of his employment during any period in which such shares are subject to restrictions; and

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(d) a prohibition against employment of the holder of such Restricted Stock by any competitor of the Company or against such holder’s dissemination of any secret or confidential information belonging to the Company.

All restrictions on shares of Restricted Stock awarded pursuant to this Incentive Compensation Plan shall expire at such time or times as the Committee shall specify.

6.3 Registration of Shares.

Shares of Restricted Stock awarded pursuant to this Incentive Compensation Plan shall be registered in the name of the Participant and, if such shares are certificated, at the discretion of the Committee, may be deposited in a bank designated by the Committee or with Caremark Rx. The Committee may require a stock power endorsed in blank with respect to shares of Restricted Stock whether or not certificated.

6.4 Stockholder Rights.

Subject to the terms and conditions of this Incentive Compensation Plan, during any period in which shares of Restricted Stock are subject to forfeiture or restrictions on transfer, each Participant who has been awarded shares of Restricted Stock shall have such rights of a stockholder with respect to such shares as the Committee may designate at the time of the award, including the right to vote such shares and the right to receive all dividends paid on such shares. Unless otherwise provided by the Committee, stock dividends or dividends in kind and, except as otherwise provided by Section 7.10, any other securities distributed with respect to Restricted Stock shall be restricted to the same extent and subject to the same terms and conditions as the Restricted Stock to which they are attributable.

6.5 Lapse of Restrictions.

Subject to the terms and conditions of this Incentive Compensation Plan, at the end of any time period during which the shares of

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Restricted Stock are subject to forfeiture or restrictions on transfer, such shares will be delivered free of all restrictions to the Participant (or to the Participant’s legal representative, beneficiary or heir).

6.6 Substitution of Cash.

The Committee may, in its sole discretion, substitute cash equal to the Fair Market Value (as described in Section 7.11) (determined as of the date of the distribution) of shares of Common Stock otherwise required to be distributed to a Participant in accordance with this Section 6.

7. GENERAL

7.1 Effective Date.

This Incentive Compensation Plan became effective the date that the Caremark Plan was adopted by the Board of Directors of the former parent corporation of Caremark International Inc.

7.2 Duration.

This Incentive Compensation Plan shall remain in force and effect until all awards made under this Incentive Compensation Plan have either been satisfied by the issuance of shares of Common Stock or the payment of cash or been terminated in accordance with the terms of this Incentive Compensation Plan or the award and until all restrictions imposed on shares of Common Stock issued under this Incentive Compensation Plan have lapsed. No Incentive Stock Option award may be made under this Incentive Compensation Plan after the tenth anniversary of the date that the Caremark Plan was adopted by the Board of Directors of the former parent corporation of Caremark International Inc.

7.3 Non-Transferability of Incentives.

(a) No share of Restricted Stock under this Incentive Compensation Plan may be transferred, pledged or assigned by the holder thereof (except, in the event of the holder’s death, by will or the laws of descent and distribution), and the Company shall not be

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required to recognize any attempted assignment of such rights by any Participant. During a Participant’s lifetime, awards may be exercised only by him or by his guardian or legal representative.

(b) (1) Incentive Stock Options. No incentive stock option granted under the Incentive Compensation Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, all incentive stock options granted to a Participant under the Incentive Compensation Plan shall be exercisable during his or her lifetime only by such Participant.

(2) Nonqualified Stock Options. No nonqualified stock option granted under the Incentive Compensation Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Notwithstanding the foregoing, to the extent not prohibited by any statute, rule or regulation applicable to the Incentive Compensation Plan, the nonqualified stock options or the registration with the Securities and Exchange Commission of the Common Stock to be issued upon exercise of the nonqualified stock options, the Committee may, in its discretion, authorize all or a portion of nonqualified stock options granted to a Participant to be on terms which permit transfer by such Participant to (i) the spouse, children or grandchildren of the Participant (“Immediate Family Members”), (ii) a trust or trusts for the exclusive benefit of such Immediate Family Members, or (iii) a partnership in which such Immediate Family Members are the only partners, provided that (x) there may be no consideration for any such transfer, (y) the Award Agreement pursuant to which such nonqualified stock options are granted must be approved by the Committee, and must expressly provide for transferability in a manner consistent with this Section, and (z) subsequent transfers of transferred nonqualified stock options shall be prohibited except those by will or the laws of descent and distribution. Following transfer, any such nonqualified stock options shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, provided that for purposes of this Incentive Compensation Plan, the term “Participant” shall be deemed to refer to the transferee. The events of termination of employment shall continue to be applied with respect to the original Participant, following which the nonqualified stock

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options shall be exercisable by the transferee only to the extent, and for the periods specified in Section 7.4. Notwithstanding the foregoing, should the Committee provide that nonqualified stock options granted be transferable, the Company by such action incurs no obligation to notify or otherwise provide notice to a transferee of early termination of the nonqualified stock option. In the event of a transfer, as set forth above, the original Participant is and will remain subject to and responsible for any applicable withholding taxes upon the exercise of such nonqualified stock options.

7.4 Effect of Termination of Employment or Death.

(a) Except as otherwise provided in an Award Agreement or as provided in paragraphs (b) and (c) below, each Stock Option, to the extent it has not been previously exercised, shall terminate upon the earliest to occur of: (a) the expiration of the period set forth in the Award Agreement; (b) the expiration of 12 months following the Participant’s death or permanent disability; (c) immediately upon the date the Participant ceases to be an employee, officer, consultant or director or otherwise affiliated with the Company for cause; or (d) the expiration of 90 days following the date the Participant ceases to be an employee, officer, consultant or director or otherwise affiliated with the Company for any reason other than cause, death or permanent disability.

(b) Except as otherwise provided in an Award Agreement, any Stock Option granted after September 21, 1998 (a “Secondary Option”), to the extent it has not been previously exercised, shall terminate upon the earliest to occur of: (a) the expiration of the Secondary Option period set forth in the Award Agreement; (b) the expiration of 12 months following the Participant’s death or permanent disability; (c) immediately upon termination for Cause (as defined below); or (d) the expiration of 90 days following the Participant’s termination of employment for any reason other than Cause (as defined below), Change in Control (as defined in Section 7.10), death or permanent disability.

For purposes of the preceding sentence only, Cause

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means the Company, subsidiary or an affiliate having cause to terminate a Participant’s status as an employee, officer, consultant or director or other affiliation with the Company under any existing employment agreement between the Participant and the Company, a subsidiary or an affiliate or, in the absence of such an employment agreement, upon (i) the determination by the Committee that the Participant has ceased to perform his duties to the Company, a subsidiary or an affiliate (other than as a result of his incapacity due to physical or mental illness or injury), which failure amounts to an intentional and extended neglect of his duties to such party, (ii) the Committee’s determination that the Participant has engaged or is about to engage in conduct materially injurious to the Company, a subsidiary or an affiliate, or (iii) the Participant having been convicted of a felony.

(c) Notwithstanding the foregoing, any Secondary Option, to the extent it has not been previously exercised prior to a Change in Control (as defined in Section 7.10) shall remain exercisable for its full original term upon and following such Change in Control.

7.5 Compliance with Applicable Law and Withholding.

(a) Notwithstanding any other provision of this Incentive Compensation Plan, Caremark Rx shall have no obligation to issue any shares of Common Stock under this Incentive Compensation Plan if such issuance would violate any applicable law or any applicable regulation or requirement of any securities exchange or similar entity.

(b) Prior to the issuance of any shares of Common Stock under this Incentive Compensation Plan, Caremark Rx or the Company may require a written statement that the recipient is acquiring the shares for investment and not for the purpose or with the intention of distributing the shares and will not dispose of them in violation of the registration requirements of the Securities Act of 1933.

(c) With respect to any person who is subject to Section 16(a) of the Exchange Act, the Committee may, at any time, add such

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conditions and limitations to any award under this Incentive Compensation Plan that it deems necessary or desirable to comply with the requirements of Rule 16b-3.

(d) If, at any time, Caremark Rx, in its sole discretion, determines that the listing, registration or qualification (or any updating of any such document) of any type of award, or the shares of Common Stock issuable pursuant thereto, is necessary on any securities exchange or under any federal or state securities or blue sky law, or that the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, any award, the issuance of shares of Common Stock pursuant to any award, or the removal of any restrictions imposed on shares subject to an award, such award shall not be made and the shares of Common Stock shall not be issued or such restrictions shall not be removed, as the case may be, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to Caremark Rx.

(e) All awards and payments under this Incentive Compensation Plan are subject to withholding of all applicable taxes and the Company shall have the right to withhold from any award under this Incentive Compensation Plan or to collect as a condition of any payment under this Incentive Compensation Plan, as applicable, any taxes required by law to be withheld. To the extent provided by the Committee, a Participant may elect to have any distribution otherwise required to be made under this Incentive Compensation Plan to be withheld or to surrender to the Company shares of Common Stock already owned by the Participant to fulfill any tax withholding obligation.

7.6 No Continued Employment.

The Incentive Compensation Plan does not constitute a contract of employment or continued service, and participation in this Incentive Compensation Plan will not give any employee or Participant the right to be retained in the employ of the Company or the right to continue as a director of

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the Company or any right or claim to any benefit under this Incentive Compensation Plan unless such right or claim has specifically accrued under the terms of this Incentive Compensation Plan or the terms of any award under this Incentive Compensation Plan.

7.7 Treatment as a Stockholder.

Any award to a Participant under this Incentive Compensation Plan shall not create any rights in such Participant as a stockholder of Caremark Rx until shares of Common Stock are registered in the name of the Participant.

7.8 Deferral Permitted.

Payment of cash to a Participant or distribution of any shares of Common Stock to which a Participant is entitled under any award shall be made as provided in the terms of the award. Payment may be deferred at the option of the Participant to the extent provided in the award.

7.9 Amendment of the Incentive Compensation Plan.

The Committee may, at any time and in any manner, amend, suspend, or terminate this Incentive Compensation Plan or any award outstanding under this Incentive Compensation Plan; provided, however, that no such amendment or discontinuance shall:

(a) be made without stockholder approval: (1) to the extent such approval is required by law, agreement or the rules of any exchange or automated quotation system upon which the Common Stock is listed or quoted or (2) to the extent that any outstanding Stock Option is canceled and regranted or repriced;

(b) adversely alter or impair the rights of Participants with respect to awards previously made under this Incentive Compensation Plan without the consent of the holder thereof; or

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(c) make any change that would disqualify any provision of this Incentive Compensation Plan, intended to be so qualified, from the exemption provided by Rule 16b-3.

7.10 Immediate Acceleration of Incentives.

(a) Notwithstanding any provision in this Incentive Compensation Plan to the contrary or the normal terms of vesting under any award, (i) the restrictions on all shares of Restricted Stock awarded shall lapse immediately and (ii) all outstanding Stock Options will become exercisable immediately, if a Change in Control (as defined below) occurs. For purposes of this Incentive Compensation Plan, a “Change in Control” shall have occurred as of the first day that any one or more of the following conditions shall have been satisfied:

(1) The acquisition by any Person of Beneficial Ownership of 20% or more of either (i) the then outstanding shares of Common Stock of the Company, or (ii) the combined voting power of the outstanding voting securities of the Company entitled to vote generally in the selection of Directors; provided, however, that for purposes of this subsection, the following transactions shall not constitute a Change of Control: (A) any acquisition directly from the Company through a public offering of shares of Common Stock of the Company, (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (D) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (3) below;

(2) The cessation, for any reason, of the individuals who constitute the Company’s Board of Directors as of the date hereof (“Incumbent Board”) to constitute at least a majority of the Company’s Board of Directors; provided, however, that any individual becoming a Director following the date hereof whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the Directors then comprising the Incumbent Board shall be considered as though such individual was a member of the Incumbent Board, but excluding, for this purpose, any such individual whose

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initial assumption of office occurs because of an actual or threatened election contest with respect to the election or removal of Directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Company’s Board of Directors;

(3) The consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (“Business Combination”) unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the Beneficial Owners, respectively, of the outstanding shares of Common Stock of the Company and the outstanding voting securities of the Company immediately before such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of Common Stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of Directors, as the case may be, of the Company resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately before such Business Combination of the outstanding shares of Common Stock and the outstanding voting securities of the Company, as the case may be; (ii) no party (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed before the Business Combination; and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Company’s Board of Directors at the time of the execution of the initial agreement, or of the action of the Company’s Board of Directors, providing for such Business Combination; or

(4) The approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.

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(5) Any other condition or event (i) that the Committee determines to be a “Change in Control” within the meaning of this Section 7.10 and (ii) that is set forth as a supplement to this Section 7.10 in the Option Agreement.

The term “Beneficial Owner” or “Beneficial Ownership”, as used in this Section 7.10, has the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act. The term “Person”, as used in this Section 7.10, 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, including a “group” as defined in Section 13(d) thereof.

(b) Notwithstanding any other provision of this Incentive Compensation Plan or any Award Agreement provision, the provisions of this Section 7.10 may not be terminated, amended, or modified on or after the date of a Change in Control to affect adversely any award theretofore granted under the Incentive Compensation Plan without the prior written consent of the Participant with respect to said Participant’s outstanding awards.

7.11 Sale of Business Unit of Company.

The Committee, in connection with the sale of any subsidiary, affiliate, division or other business unit of the Company, may within the Committee’s sole and absolute discretion (1) cause any or all Stock Options granted hereunder to Participants whose Stock Options or rights under Stock Options will be adversely affected by such transaction (a) to become immediately exercisable, or (b) to remain exercisable after such transaction for such period as the Committee deems appropriate under the circumstances, or both (a) and (b), or (2) cause the restrictions on any or all shares of Restricted Stock awarded hereunder to Participants whose Restricted Stock will be adversely affected by such transaction to lapse immediately. The provision of this Section 7.11 and the actions of the Committee taken pursuant to this Section 7.11 shall be effective upon action of the Committee alone without amendment to any Award Agreement or the consent of any Participant.

7.12 Definition of Fair Market Value.

Except as otherwise determined by the Committee, the “Fair

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Market Value” of a share of Common Stock as of any date shall be equal to the closing sale price of a share of Common Stock as reported on The National Association of Securities Dealers’ New York Stock Exchange Composite Reporting Tape (or if the Common Stock is not traded on The New York Stock Exchange, the closing sale price on the exchange on which it is traded or as reported by an applicable automated quotation system) (the “Composite Tape”), on the applicable date or, if no sales of Common Stock are reported on such date, the closing sale price of a share of Common Stock on the date the Common Stock was last reported on the Composite Tape (or such other exchange or automated quotation system, if applicable).

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EX-10.18

Exhibit 10.18

AMENDMENT TO

AMENDED AND RESTATED INCENTIVE COMPENSATION PLAN

EFFECTIVE NOVEMBER 15, 2000

The Caremark Rx, Inc. Amended and Restated Incentive Compensation Plan (the “Plan”) is hereby amended as follows:

1. Amendment Regarding Transferability of Nonqualified Stock Options. Section 7.3(b)(2) of the Plan is hereby amended by deleting Section 7.3(b)(2) in its entirety and substituting the following new Section 7.3(b)(2) therefor:

(b) Nonqualified Stock Options. No nonqualified stock option granted under the Incentive Compensation Plan may be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Notwithstanding the foregoing, to the extent not prohibited by any statute, rule or regulation applicable to the Incentive Compensation Plan, the nonqualified stock options, or the registration with the Securities and Exchange Commission of the Shares to be issued upon exercise of the nonqualified stock options, the Committee may, in its discretion, authorize all or a portion of nonqualified stock options granted to a Participant to be on terms which permit transfer by such Participant to (i) the spouse, children or grandchildren of the Participant (“Immediate Family Members”), (ii) a trust or trusts for the exclusive benefit of such Immediate Family Members, or (iii) a partnership in which such Immediate Family Members are the only partners, provided that (A) the Award Agreement pursuant to which such nonqualified stock options are granted must be approved by the Committee, and must expressly provide for transferability in a manner consistent with this Section, and (B) subsequent transfers of transferred nonqualified stock options shall be prohibited except those by will or the laws of descent and distribution. Following transfer, any such nonqualified stock options shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, provided that for purposes of this Incentive Compensation Plan, the term “Participant”

1

shall be deemed to refer to the transferee. The events of termination of employment shall continue to be applied with respect to the original Participant, following which the nonqualified stock options shall be exercisable by the transferee only to the extent, and for the periods specified in Section 7.4. Notwithstanding the foregoing, should the Committee provide that nonqualified stock options granted be transferable, the Company by such action incurs no obligation to notify or otherwise provide notice to a transferee of early termination of the nonqualified stock option. In the event of a transfer, as set forth above, the original Participant is and will remain subject to and responsible for any applicable withholding taxes upon the exercise of such nonqualified stock options.

2. Effective Date. The effective date of this Amendment shall be November 15, 2000.

3. Miscellaneous.

(a) Capitalized terms not otherwise defined herein shall have the meanings given them in the Plan.

(b) Except as specifically amended hereby, the Plan shall remain in full force and effect.

IN WITNESS WHEREOF, the Company has caused this Amendment to the Caremark Rx, Inc. Amended and Restated Incentive Compensation Plan to be executed as of the Effective Date.

CAREMARK RX, INC.

Sara J. Finley, Corporate Secretary

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EX-10.19

Exhibit 10.19

SECOND AMENDMENT

TO THE

CAREMARK RX, INC. 1992 STOCK INCENTIVE PLAN

(FORMERLY THE AMENDED & RESTATED

MEDPARTNERS, INC. INCENTIVE COMPENSATION PLAN)

This Second Amendment to the Caremark Rx, Inc. 1992 Stock Incentive Plan (formerly the Amended & Restated Medpartners, Inc. Incentive Compensation Plan) (the “Plan”) to be effective as of January 12, 2001.

WITNESSETH:

WHEREAS, Caremark Rx, Inc. (the “Company”) currently sponsors and maintains the Caremark Rx, Inc. 1992 Stock Incentive Plan (formerly the Amended & Restated Medpartners, Inc. Incentive Compensation Plan) (the “Plan”); and

WHEREAS, Section 7.9 of the Plan grants the Compensation Committee of the Board the power at any time to amend the Plan, and the Compensation Committee now wishes to amend the Plan to modify the vesting provisions for options granted under the Plan on and after January 12, 2001;

RESOLVED, the Plan is hereby amended as indicated below:

1.

Section 5.4 of the Plan is amended effective as of January 12, 2001, to read as follows:

5.4 Vesting of Stock Options.

Except as provided by the Committee in the applicable Award Agreement, Stock Options shall vest and become exercisable as follows:

(a) 34% of the Stock Options granted shall vest on the Stock Option grant date;

Second Amendment to the

Caremark Rx, Inc. 1992 Stock Incentive Plan

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(b) 33% of the Stock Options granted shall vest on each of the first anniversary and second anniversary of the Stock Option grant date; provided, however, that for Stock Options granted prior to January 12, 2001, if during the first year after the Stock Option grant date, the stock price of the Common Stock closes at or above $12.00 (or such other price as determined by the Committee and set forth in the applicable Award Agreement) for any twenty (20) out of thirty (30) consecutive trading days, the 33% of the Stock Options due to vest on the first anniversary of the Stock Option grant date shall vest immediately at the end of such 20th day, and provided, however, that for Stock Options granted prior to January 12, 2001, if during the second year after the Stock Option grant date, the stock price of the Common Stock closes at or above $18.00 (or such other price as determined by the Committee and set forth in the applicable Award Agreement) for any twenty (20) out of thirty (30) consecutive trading days, the 33% of the Stock Options due to vest on the second anniversary of the Stock Option grant date shall vest immediately at the end of such 20th day.

2.

The name of the Plan is changed effective as of January 12, 2001 from the Amended & Restated Medpartners, Inc. Incentive Compensation Plan to the Caremark Rx, Inc. 1992 Stock Incentive Plan. All references in any Company documents to the Amended & Restated Medpartners, Inc. Incentive Compensation Plan shall, after January 12, 2001, be a reference to the Caremark Rx, Inc. 1992 Stock Incentive Plan.

3.

All other provisions of the Plan not inconsistent herewith are hereby confirmed and ratified.

Approved by the Board of Directors by resolutions on January 12, 2001.

Second Amendment to the

Caremark Rx, Inc. 1992 Stock Incentive Plan

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EX-10.21

Exhibit 10.21

AMENDED AND RESTATED

CAREMARK RX, INC.

1993 STOCK OPTION PLAN

1. PURPOSE OF THE PLAN

The purposes of this Amended and Restated Caremark Rx, Inc. (“Caremark Rx” or the “Company”) 1993 Stock Option Plan (the “Plan”) are to:

1.1. furnish incentives to individuals or entities chosen to receive options because they are considered capable of responding by improving operations and increasing profits;

1.2. encourage selected employees to accept or continue employment with the Company or its Affiliates; and

1.3. increase the interest of selected employees, officers, directors and consultants in the Company’s welfare through their participation in the growth in value of the common stock, $.001 par value, of the Company (“Common Stock”).

To accomplish the foregoing objectives, this Plan provides a means whereby individuals and entities may receive options to purchase Common Stock. Options granted under this Plan (“Options”) will be either nonqualified options (“NQOs”) or incentive stock options (“ISOs”).

2. ELIGIBLE PERSONS

2.1. General. Every person who at the date on which an Option granted to such person becomes effective (the “Grant Date”) is a full-time employee, officer, director or consultant of the Company or of any Affiliate or any individual or entity subject to an acquisition or management agreement with the Company is eligible to receive Options under this Plan.

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2.2. Definition of Affiliate. The term “Affiliate,” as used in this Plan, means a “parent corporation” or “subsidiary corporation,” as defined in Section 424 of the Internal Revenue Code of 1986 (as amended, the “Code”). The term “employee” shall have the meaning ascribed for purposes of Section 3401(c) of the Code and the Treasury Regulations promulgated thereunder and shall include an officer or a director who is also an employee.

3. STOCK SUBJECT TO THIS PLAN

The total number of shares of stock reserved for issuance upon the exercise of Options is 1,555,000 shares of Common Stock, divided into 500,000 shares of Common Stock reserved for issuance upon the exercise of options that may be granted in connection with the acquisition of the assets of or management of physician practices (hereinafter referred to as “Acquisition Options”) and 1,055,000 shares of Common Stock reserved for issuance upon the exercise of options granted to employees, officers, consultants and members of the Board of Directors of the Company (hereinafter referred to as “Management Options”). The shares covered by the portion of any grant that expires unexercised under this Plan shall become available again for grants under this Plan; provided, however, that no Management Options may be granted as Acquisition Options and vice versa. The number of shares reserved for issuance under this Plan is subject to adjustment in accordance with the provisions for adjustment in this Plan.

4. ADMINISTRATION

4.1. General. This Plan shall be administered by the Compensation Committee of the Board of Directors or by any other committee appointed by the Board of Directors (the “Committee”), which Committee shall consist solely of two or more Non-Employee Directors (“Non-Employee Directors”) as such are defined in Rule 16b-3 promulgated pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or any successor provision. The Committee shall have the authority to select the persons to receive Options under this Plan, to fix the number of shares that each optionee may purchase, to set the terms and conditions of each Option, and to determine all other matters relating to this Plan. Any act approved in writing by a majority of the members of the Committee shall be a valid act of the Committee.

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All questions of interpretation, construction, implementation and application of this Plan and any Option Agreement awarded under it shall be determined by the Committee. Such determinations shall be final and binding on all persons. No member of the Board of Directors or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Option granted under the Plan.

5. GRANTING OF RIGHTS

5.1. Ten Year Limitation on Grants of ISOs. No ISOs shall be granted under this Plan after ten years from the date the Board of Directors first adopts the Plan.

5.2. Written Agreement; Effect. Each Option shall be evidenced by a written agreement (the “Option Agreement”), in form satisfactory to the Committee, executed by the Company and by the person to whom such Option is granted. Each such Option Agreement shall incorporate by reference all of the terms and conditions of the Plan as in effect at the time of its execution and may contain such other terms and provisions not contrary to the Plan as shall be approved and adopted by the Committee. The Option Agreement shall specify whether each Option it evidences is a NQO or an ISO. Failure of the grantee to execute an Option Agreement shall not void or invalidate the grant of an Option; the Option may not be exercised, however, until the Option Agreement is executed.

5.3. Annual $100,000 Limitation on ISOs. To the extent required by Section 422(d) of the Code, the aggregate fair market value of shares of the Common Stock with respect to which incentive stock options are exercisable for the first time by any individual during any calendar year shall not exceed $100,000. For this purpose, fair market value shall be the fair market value of the shares covered by the ISOs when the ISOs were granted. If by their terms, such ISOs taken together would first become exercisable at a faster rate, this $100,000 limitation shall be applied by deferring the exercisability of those ISOs or portions of ISOs which have the highest per share exercise prices. The ISOs or portions of ISOs, the exercisability of which are so deferred, shall become exercisable on the first day of the first subsequent calendar year during which they may be exercised, as determined by applying these same principles of this Section and all other provisions of this Section and all other provisions of this Plan, including those relating to the expiration and termination of ISOs.

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5.4. Advance Approvals. The Committee may approve the grant of Options to persons who are expected to become employees, consultants or members of the Board of Directors, of the Company, but are not employees, consultants or members of the Board of Directors at the date of approval. In such cases, the Option shall be deemed granted, without further approval, on the date the grantee becomes an employee, and must satisfy all requirements of this Plan for Options granted on that date.

6. TERMS AND CONDITIONS OF OPTIONS

Each Option shall be designated as an ISO or a NQO and shall be subject to the terms and conditions set forth in Section 6.1. NQOs shall also be subject to the terms and conditions set forth in Section 6.2, but not those set forth in Section 6.3. ISOs shall also be subject to the terms and conditions set forth in Section 6.3, but not those set forth in Section 6.2.

6.1. Terms and Conditions to Which All Options Are Subject. All Options shall be subject to the following terms and conditions:

(a) Changes in Capital Structure. Subject to Section 6.1(b), if the stock of the Company is changed by reason of a stock split, reverse stock split, stock dividend, or recapitalization, or converted into or exchanged for other securities as a result of a merger, consolidation, or reorganization, appropriate adjustments shall be made in (1) the number and class of shares of stock subject to this Plan and each outstanding Option, and (2) the exercise price of each outstanding Option; provided, however, that the Company shall not be required to issue fractional shares as a result of any such adjustment. Each such adjustment shall be determined by the Committee in its sole discretion, which determination shall be final and binding on all persons.

(b) Corporate Transactions. New option rights may be substituted for Options granted, or the Company’s obligations as to

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outstanding Options may be assumed, by an employer corporation other than the Company, or an Affiliate thereof, in connection with any merger, consolidation, acquisition, separation, reorganization, dissolution, liquidation, sale, or like occurrence in which the Company is involved and which the Committee determines, in its absolute discretion, would materially alter the structure. Substitution shall be done in such manner that the then outstanding Options which are ISOs will continue to be “incentive stock options” within the meaning of Section 422 of the Code to the full extent permitted thereby. Notwithstanding the foregoing or the provisions of Section 6.1(a), if such an event occurs and if such employer corporation, or an Affiliate thereof, does not substitute new option rights for, and substantially equivalent to, the outstanding Options granted hereunder, or assume the outstanding Options granted hereunder, or if there is no employer corporation, or if the Committee determines, in its sole discretion, that outstanding Options should not then continue to be outstanding, the Committee may upon ten days’ prior written notice to optionees in its absolute discretion (1) shorten the period during which Options are exercisable (provided they remain exercisable, to the extent otherwise exercisable, for at least ten days after the date the notice is given), or (2) cancel Options upon payment to the optionee in cash, with respect to each Option to the extent then exercisable, of an amount which, in the absolute discretion of the Committee, is determined to be equivalent to any excess of the fair market value (at the effective time of the dissolution, liquidation, merger, consolidation, acquisition, separation, reorganization, sale or other event) of the consideration that the optionee would have received if the Option had been exercised before the effective time, over the exercise price of the Option; provided, however, if there is a successor corporation and replacement options are not granted by the successor corporation, all outstanding Options shall become exercisable prior to the consummation of the transaction such that the optionees shall have not less than ten days to exercise their Options and become stockholders of record entitled to receive the consideration paid to the other stockholders of the Company. If an optionee fails to exercise his Option within any exercise period described in this paragraph and the dissolution, liquidation, merger, consolidation, sale or other event is consummated,

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his Option shall no longer be exercisable. Any unexercised Option shall be canceled and terminated. Notwithstanding anything herein to the contrary, nothing shall extend an optionee’s right to exercise an ISO after the expiration of ten years from the date it is granted. The actions described in this Section may be taken without regard to any resulting tax consequences to the optionee.

(c) Option Grant Date. Each Option Agreement shall specify the date as of which it shall be effective, which date shall be the Grant Date (determined pursuant to Section 5.4 in the case of advance approvals).

(d) Fair Market Value. Except as otherwise determined by the Committee, the “Fair Market Value” of a share of Common Stock as of any date shall be equal to the closing sale price of a share of Common Stock as reported on The National Association of Securities Dealers’ New York Stock Exchange Composite Reporting Tape (or if the Common Stock is not traded on The New York Stock Exchange, the closing sale price on the exchange on which it is traded or as reported by an applicable automated quotation system) (the “Composite Tape”), on the applicable date or, if no sales of Common Stock are reported on such date, the closing sale price of a share of Common Stock on the date the Common Stock was last reported on the Composite Tape (or such other exchange or automated quotation system, if applicable).

(e) Transfer of Option Rights.

(1) Incentive Stock Options. No ISO granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, all ISOs granted to an optionee under the Plan shall be exercisable during his or her lifetime only by such optionee.

(2) Nonqualified Stock Options. No NQO granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by

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the laws of descent and distribution. Notwithstanding the foregoing, to the extent not prohibited by any statute, rule or regulation applicable to the Plan, the Options or the registration with the Securities and Exchange Commission of the Common Stock to be issued upon exercise of the Options, the Committee may, in its discretion, authorize all or a portion of NQOs granted to an optionee to be on terms which permit transfer by such optionee to (i) the spouse, children or grandchildren of the optionee (“Immediate Family Members”), (ii) a trust or trusts for the exclusive benefit of such Immediate Family Members, or (iii) a partnership in which such Immediate Family Members are the only partners, provided that (x) there may be no consideration for any such transfer, (y) the Option Agreement pursuant to which such NQOs are granted must be approved by the Committee, and must expressly provide for transferability in a manner consistent with this Section, and (z) subsequent transfers of transferred NQOs shall be prohibited except those by will or the laws of descent and distribution. Following transfer, any such NQOs shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, provided that for purposes of this Plan, the term “optionee” shall be deemed to refer to the transferee. The events of termination of employment shall continue to be applied with respect to the original optionee, following which the NQOs shall be exercisable by the transferee only to the extent, and for the periods specified in Section 6.1(g). Notwithstanding the foregoing, should the Committee provide that NQOs granted be transferable, the Company by such action incurs no obligation to notify or otherwise provide notice to a transferee of early termination of the NQO. In the event of a transfer, as set forth above, the original optionee is and will remain subject to and responsible for any applicable withholding taxes upon the exercise of such NQOs.

(f) Payment. No shares of Common Stock shall be issued on the exercise of an Option unless paid for in full at the time of

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exercise. Payment shall be made in cash, which may be paid by check or other instrument acceptable to the Company. In addition, subject to compliance with applicable laws and regulations and such conditions as the Committee may impose, the Committee may elect to accept payment in shares of Common Stock of the Company which are already owned by the optionee, valued at the Fair Market Value thereof on the date of exercise. The Committee may also allow an optionee to exercise an option by use of proceeds to be received from the sale of Common Stock issuable pursuant to the Option being exercised.

(g) Termination. Except as otherwise provided in an Option Agreement or as provided in paragraphs (h) and (i) below, each Option to the extent it has not been previously exercised, shall terminate upon the earliest to occur of: (a) the expiration of the term of the Option set forth in the Option Agreement; (b) immediately upon the date the optionee ceases to be an employee, officer, consultant or member of the Board of Directors or otherwise affiliated with the Company (a “Termination”) on account of cause; (c) the expiration of 90 days following the date of a Termination of the optionee for any reason other than cause, death or permanent disability or (d) the expiration of 12 months following a Termination of the optionee on account of death or permanent disability. A leave of absence duly authorized by the Company shall not be deemed a Termination or a break in continuous employment, service or affiliation with the Company.

(h) Except as otherwise provided in an Option Agreement, any Option granted after September 21, 1998 (a “Secondary Option”), to the extent it has not been previously exercised, shall terminate upon the earliest to occur of: (a) the expiration of the Secondary Option period set forth in the Option Agreement; (b) the expiration of 12 months following the optionee’s death or permanent disability; (c) immediately upon Termination for Cause (as defined below); or (d) the expiration of 90 days following the optionee’s Termination for any reason other than Cause (as defined below), Change in Control (as defined in Section 7 heretofore), death or permanent disability.

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For purposes of the preceding sentence only, Cause means the Company or an Affiliate having cause to terminate an optionee’s status as an employee, officer, consultant or director or other affiliation with the Company under any existing employment agreement between the optionee and the Company or an Affiliate or, in the absence of such an employment agreement, upon (i) the determination by the Committee that the optionee has ceased to perform his duties to the Company or an Affiliate (other than as a result of his incapacity due to physical or mental illness or injury), which failure amounts to an intentional and extended neglect of his duties to such party, (ii) the Committee’s determination that the optionee has engaged or is about to engage in conduct materially injurious to the Company or an Affiliate, or (iii) the optionee having been convicted of a felony.

(i) Notwithstanding the foregoing, any Secondary Option, to the extent it has not been previously exercised prior to a Change in Control (as defined in Article 7 heretofore) shall remain exercisable for its full original term upon and following such Change in Control.

(j) Other Provisions. Each Option Agreement may contain such other terms, provisions, and conditions not inconsistent with this Plan, including rights of repurchase, as may be determined by the Committee, and each ISO granted under this Plan shall include such provisions and conditions as are necessary to qualify such option as an “incentive stock option” within the meaning of Section 422 of the Code.

(k) Withholding and Employment Taxes. At the time of exercise of an Option, the optionee shall remit to the Company in cash all applicable federal and state withholding and employment taxes. If and to the extent authorized and approved by the Committee in its sole discretion, an optionee may elect, by means of a form of election to be prescribed by the Committee, to have shares which are acquired upon exercise of an Option withheld by the Company or tender other shares of Common Stock or other securities of the Company owned by the optionee to the Company at the time the amount of such taxes is determined in order to pay the amount of such tax obligations, subject to the following limitations:

(1) such election shall be irrevocable; and

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(2) such election shall be subject to the disapproval of the Committee at any time.

Any Common Stock or other securities so withheld or tendered will be valued by the Company as of the date they are withheld or tendered. Unless the Committee otherwise determines, the optionee shall pay to the Company in cash, promptly when the amount of such obligations become determinable, all applicable federal and state withholding taxes resulting from the lapse of restrictions imposed on exercise of an Option, from a transfer or other disposition of shares acquired upon exercise of an Option or otherwise related to the Option or the shares acquired upon exercise of the Option.

6.2. Terms and Conditions to Which Only NQOs Are Subject. Options granted under this Plan which are designated as NQOs shall be subject to the following terms and conditions:

(a) Option Term. Unless a different expiration date is specified by the Committee at the Grant Date in the Option Agreement, each NQO shall expire ten years from its Grant Date.

6.3. Terms and Conditions to Which Only ISOs Are Subject. Options granted under this Plan which are designated as ISOs shall be subject to the following terms and conditions:

(a) Exercise Price. The exercise price of an ISO shall be determined in accordance with the applicable provisions of the Code and shall in no event be less than the fair market value of the stock covered by the ISO at the Grant Date; provided, however, that the exercise price of an ISO granted to any person who owns, directly or indirectly (or is treated as owning by reason of attribution rules, currently set forth in Section 424 of the Code), stock of the Company constituting more than 10% of the total combined voting power of all classes of outstanding stock of the Company or of any Affiliate of the Company, shall in no event be less than 110% of such fair market value.

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(b) Option Term. Unless an earlier expiration date is specified by the Committee at the Grant Date in the Option Agreement, each ISO shall expire ten years from its Grant Date; except that an ISO granted to any person who owns, directly or indirectly (or is treated as owning by reason of applicable attribution rules currently set forth in Section 424 of the Code) stock of the Company constituting more than 10% of the total combined voting power of the Company’s outstanding stock, or the stock of any Affiliate of the Company, shall expire five years from its Grant Date.

(c) Disqualifying Dispositions. If stock acquired by exercise of an ISO is disposed of within two years from the Grant Date or within one year after the transfer of the stock to the optionee, the holder of the stock immediately prior to the disposition shall promptly notify the Company in writing of the date and terms of the disposition and shall provide such other information regarding the disposition as the Company may reasonably require. Such holder shall pay to the Company any withholding and employment taxes which the Company in its sole discretion deems applicable. The Company may instruct its stock transfer agent by appropriate means, including placement of legends on stock certificates, not to transfer stock acquired by exercise of an ISO unless it has been advised by the Company that the requirements of this Section have been satisfied.

6.4. Vesting of Options. Except as set forth by the Committee in the applicable Option Agreement, Options shall vest and become exercisable as follows:

(a) 34% of the Options shall vest on the Grant Date;

(b) 33% of the Options granted shall vest on each of the first anniversary and second anniversary of the Grant Date; provided, however, that if during the first year after the Grant Date, the stock price of the Common Stock closes at or above $12.00 (or such other price determined by the Committee and set forth in the applicable Option Agreement) for any twenty (20) out of thirty (30) consecutive trading days, the 33% of the Options due to vest on the first

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anniversary of the Grant Date shall vest immediately at the end of such 20th day, and provided, however, that if during the second year after the Grant Date, the stock price of the Common Stock closes at or above $18.00 (or such other price determined by the Committee and set forth in the applicable Option Agreement) for any twenty (20) out of thirty (30) consecutive trading days, the 33% of the Options due to vest on the second anniversary of the Grant Date shall vest immediately at the end of such 20th day.

7. CHANGE IN CONTROL

(a) Treatment of Outstanding Options. Unless otherwise specifically prohibited under applicable laws, or by the rules and regulations of any governing governmental agencies or national securities exchanges, upon the occurrence of a Change in Control, any and all Secondary Options granted hereunder shall become immediately exercisable.

(b) Termination, Modification or Amendment of Change in Control Provisions. Notwithstanding any other provision of this Plan or any Option Agreement provision, the provisions of this Article 7 may not be terminated, amended, or modified on or after the date of a Change in Control to affect adversely any Option theretofore granted under the Plan without the prior written consent of the optionee with respect to said optionee’s outstanding Options.

(c) Definition of Change in Control. A Change in Control of the Company shall be deemed to have occurred as of the first day that any one or more of the following conditions shall have been satisfied:

(1) The acquisition by any Person of Beneficial Ownership of 20% or more of either (i) the then outstanding shares of Common Stock of the Company, or (ii) the combined voting power of the outstanding voting securities of the Company entitled to vote generally in the selection of Directors; provided, however, that for purposes of this

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subsection, the following transactions shall not constitute a Change of Control: (A) any acquisition directly from the Company through a public offering of shares of Common Stock of the Company, (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (D) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (3) below;

(2) The cessation, for any reason, of the individuals who constitute the Company’s Board of Directors as of the date hereof (“Incumbent Board”) to constitute at least a majority of the Company’s Board of Directors; provided, however, that any individual becoming a Director following the date hereof whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the Directors then comprising the Incumbent Board shall be considered as though such individual was a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs because of an actual or threatened election contest with respect to the election or removal of Directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Company’s Board of Directors;

(3) The consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (“Business Combination”) unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the Beneficial Owners, respectively, of the outstanding shares of Common Stock of the Company and the outstanding voting securities of the Company immediately before such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of Common Stock and the combined voting power of the then

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outstanding voting securities entitled to vote generally in the election of Directors, as the case may be, of the Company resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately before such Business Combination of the outstanding shares of Common Stock and the outstanding voting securities of the Company, as the case may be; (ii) no party (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed before the Business Combination; and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Company’s Board of Directors at the time of the execution of the initial agreement, or of the action of the Company’s Board of Directors, providing for such Business Combination; or

(4) The approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.

(5) Any other condition or event (i) that the Committee determines to be a “Change in Control” within the meaning of this Article 7 and (ii) that is set forth as a supplement to this Article 7 in the Option Agreement.

The term “Beneficial Owner” or “Beneficial Ownership”, as used in this Article 7, has the meaning ascribed to such term in Rule 13d-3 of the

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General Rules and Regulations under the Exchange Act. The term “Person”, as used in this Article 7, 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, including a “group” as defined in Section 13(d) thereof.

8. SALE OF BUSINESS UNIT OF COMPANY

The Committee, in connection with the sale of any subsidiary, Affiliate, division or other business unit of the Company, may within the Committee’s sole and absolute discretion cause any or all Options granted hereunder to optionees whose Options or rights under Options will be adversely affected by such transaction (a) to become immediately exercisable, or (b) to remain exercisable after such transaction for such period as the Committee deems appropriate under the circumstances, or both (a) and (b). The provision of this Article 8 and the actions of the Committee taken pursuant to this Article 8 shall be effective upon action of the Committee alone without amendment to any option agreement or the consent of any optionee.

9. MANNER OF EXERCISE

An optionee wishing to exercise an Option shall give proper notification to the Company at its principal executive office, to the attention of the Corporate Secretary, accompanied by a notice of exercise in form and substance satisfactory to the Company, by payment of the exercise price for such shares in a form and manner as the Committee may from time to time approve and by such other documents as the Committee may request. The date the Company receives proper notification of an exercise hereunder accompanied by payment of the exercise price and all such other documents will be considered the date the Option was exercised. Promptly after receipt of proper notification of exercise of an Option, the Company shall, without stock issue or transfer taxes to the optionee or any other person entitled to exercise the Option, deliver to the optionee or such other person a certificate or certificates for the requisite number of shares of stock. An optionee or transferee of an Option shall not have any privileges as stockholder with respect to any stock covered by the Option until the date of issuance of a stock certificate.

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10. RELATIONSHIP WITH THE COMPANY

Nothing in this Plan or any Option granted hereunder shall interfere with or limit in any way the right of the Company to terminate any optionee’s employment, affiliation or other relationship with the Company at any time, nor confer upon any optionee any right to continue in the employ of, as a consultant to, as a director of, or otherwise affiliated in any way with, the Company.

11. AMENDMENT, SUSPENSION OR TERMINATION OF THIS PLAN

The Committee may, at any time and in any manner, amend, suspend, or termination this Plan or any award outstanding under this Plan; provided, however, that no such amendment or discontinuance shall:

(a) be made without stockholder approval: (1) to the extent such approval is required by law, agreement or the rules of any exchange or automated quotation system upon which the Common Stock is listed or quoted or (2) to the extent that any outstanding Option is canceled and regranted or repriced;

(b) adversely alter or impair the rights of optionees with respect to awards previously made under this Plan without the consent of the holder thereof; or

(c) make any change that would disqualify any provision of this Plan intended to be so qualified, from the exemption provided by Rule 16b-3.

12. LIABILITY AND INDEMNIFICATION OF COMMITTEE

No member of the Committee shall be liable for any act or omission on such member’s own part, including, but not limited to, the exercise of any power or discretion given to such member under this Plan, except for those acts or omissions resulting from such member’s own gross negligence or willful misconduct. The Company shall indemnify each present and future member of the Committee against, and each member of the Committee shall be entitled without further act on his or her part to indemnity from the Company for, all

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expenses (including attorneys’ fees and the amount of judgments and the amount of approved settlements made with a view to the curtailment of costs of litigation, other than amounts paid to the Company itself) reasonably incurred by such person in connection with or arising out of any action, suit, or proceeding to which the Committee or any member of the Committee may be a party by reason of any action taken or failure to act under or in connection with the Plan or any option granted or not granted under the Plan to the full extent permitted by law and by the Certificate of Incorporation and Bylaws of the Company, as amended. The right of indemnity described in this Article 12 shall be in addition to such other rights of indemnification as the members of the Committee shall otherwise be entitled because of their serving on the Board of Directors of the Company or as an employee of the Company.

13. EFFECTIVE DATE OF THIS PLAN

This Plan first became effective upon adoption by the Board of Directors on December 16, 1993 and was amended and restated on May 12, 1997. This Amended and Restated Caremark Rx, Inc. 1993 Stock Option Plan is an amendment and restatement of that Plan and was adopted by the Committee on January     , 1999

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EX-10.22

Exhibit 10.22

AMENDMENT

TO

AMENDED AND RESTATED CAREMARK RX, INC. 1993 STOCK OPTION PLAN

EFFECTIVE NOVEMBER 15, 2000

The Amended and Restated Caremark Rx, Inc. 1993 Stock Option Plan (the “Plan”) is hereby amended as follows:

1. Amendment Regarding Transferability of Nonqualified Stock Options. Section 6.1(e)(2) of the Plan is hereby amended by deleting Section 6.1(e)(2) in its entirety and substituting the following new Section 6.1(e)(2) therefor:

(2) Nonqualified Stock Options. No NQO granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Notwithstanding the foregoing, to the extent not prohibited by any statute, rule or regulation applicable to the Plan, the Options or the registration with the Securities and Exchange Commission of the Common stock to be issued upon exercise of the Option, the Committee may, in its discretion, authorize all or a portion of NQOs granted to an optionee to be on terms which permit transfer by such optionee to (i) the spouse, children or grandchildren of the optionee (“Immediate Family Members”), (ii) a trust or trusts for the exclusive benefit of such Immediate Family Members, or (iii) a partnership in which such Immediate Family Members are the only partners, provided that (y) the Option Agreement pursuant to which such NQOs are granted must be approved by the Committee, and must expressly provide for transferability in a manner consistent with this Section, and (z) subsequent transfers of transferred NQOs shall be prohibited except those by will or the laws of descent and distribution. Following transfer, any such NQOs shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, provided that for purposes of this Plan, the term “optionee” shall be deemed to refer to the transferee. The events of termination of employment shall continue to be applied with respect to the original

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optionee, following which the NQOs shall be exercised by the transferee only to the extent, and for the periods specified in Section 6.1(g). Notwithstanding the foregoing, should the Committee provide that NQOs granted be transferable, the Company by such action incurs no obligation to notify or otherwise provide notice to a transferee of early termination of the NQO. In the event of a transfer, as set forth above, the original optionee is and will remain subject to an responsible for any applicable withholding taxes upon the exercise of such NQOs.

2. Effective Date. The effective date of this Amendment shall be November 15, 2000.

3. Miscellaneous.

(a) Capitalized terms not otherwise defined herein shall have the meanings given them in the Plan.

(b) Except as specifically amended hereby, the Plan shall remain in full force and effect.

IN WITNESS WHEREOF, the Company has caused this Amendment to the Amended and Restated Caremark Rx, Inc. 1993 Stock Option Plan to be executed as of the Effective Date.

CAREMARK RX, INC.

Sara J. Finley, Corporate Secretary

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EX-10.23

Exhibit 10.23

SECOND AMENDMENT

TO THE CAREMARK RX, INC. 1993 STOCK OPTION PLAN

(FORMERLY THE AMENDED & RESTATED MEDPARTNERS, INC.

1993 STOCK OPTION PLAN)

This Second Amendment to the Caremark Rx, Inc. 1993 Stock Option Plan (formerly the Amended & Restated Medpartners, Inc. 1993 Stock Option Plan) (the “Plan”) to be effective as of January 12, 2001.

WITNESSETH:

WHEREAS, Caremark Rx, Inc. (the “Company”) currently sponsors and maintains the Caremark Rx, Inc. 1993 Stock Option Plan (formerly the Amended & Restated Medpartners, Inc. 1993 Stock Option Plan) (the “Plan”); and

WHEREAS, Section 11 of the Plan grants the Compensation Committee of the Board the power at any time to amend the Plan, and the Compensation Committee now wishes to amend the Plan to modify the vesting provisions for options granted under the Plan on and after January 12, 2001;

NOW, THEREFORE, the Plan is hereby amended as indicated below:

1.

Section 6.4 of the Plan is amended effective as of January 12, 2001, to read as follows:

6.4 Vesting of Options. Except as set forth by the Committee in the applicable Option Agreement, Options shall vest and become exercisable as follows:

(a) 34% of the Options shall vest on the Grant Date;

(b) 33% of the Options granted shall vest on each of the first anniversary and second anniversary of the Grant Date; provided, however, that for Options granted prior to January 12, 2001, if during

Second Amendment to the

Caremark Rx, Inc. 1993 Stock Option Plan

Page 1

the first year after the Grant Date, the stock price of the Common Stock closes at or above $12.00 (or such other price as determined by the Committee and set forth in the applicable Option Agreement) for any twenty (20) out of thirty (30) consecutive trading days, the 33% of the Options due to vest on the first anniversary of the Grant Date shall vest immediately at the end of such 20th day, and provided, however, that for Options granted prior to January 12, 2001, if during the second year after the Grant Date, the stock price of the Common Stock closes at or above $18.00 (or such other price as determined by the Committee and set forth in the applicable Option Agreement) for any twenty (20) out of thirty (30) consecutive trading days, the 33% of the Options due to vest on the second anniversary of the Grant Date shall vest immediately at the end of such 20th day.

2.

The name of the Plan is changed effective as of January 12, 2001 from the Amended & Restated Medpartners, Inc. 1993 Stock Option Plan to the Caremark Rx, Inc. 1993 Stock Option Plan. All references in any Company documents to the Amended & Restated Medpartners, Inc. 1993 Stock Option Plan shall, after January 12, 2001, be a reference to the Caremark Rx, Inc. 1993 Stock Option Plan.

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All other provisions of the Plan not inconsistent herewith are hereby confirmed and ratified.

Approved by the Board of Directors by resolutions on January 12, 2001.

Second Amendment to the

Caremark Rx, Inc. 1993 Stock Option Plan

Page 2

EX-10.24

Exhibit 10.24

CAREMARK RX, INC.

1994 STOCK INCENTIVE PLAN

The Caremark Rx, Inc. 1994 Stock Incentive Plan is the result of the assumption and adoption by Caremark Rx, Inc., a Delaware corporation, of the 1994 Stock Incentive Plan of InPhyNet Medical Management Inc., pursuant to the provisions of that certain Plan and Agreement of Merger, dated as of June 26, 1997, by and among Caremark Rx Inc. and InPhyNet Medical Management Inc.

1. PURPOSE.

The purpose of the Caremark Rx, Inc. 1994 Stock Incentive Plan (the “Plan”) is to provide a means through which the Company and its Subsidiaries and Affiliates may attract able persons to enter and remain in the employ of the Company and its Subsidiaries and Affiliates, and to provide a means whereby those key persons upon whom the responsibilities of the successful administration and management of the Company rest, and whose present and potential contributions to the welfare of the Company are of importance, can acquire and maintain stock ownership, thereby strengthening their commitment to the welfare of the Company and promoting an identity of interest between stockholders and these key persons.

A further purpose of the Plan is to provide such key persons with additional incentive and reward opportunities designed to enhance the profitable growth of the Company. So that the appropriate incentive can be provided, the Plan provides for granting Incentive Stock Options, Nonqualified Stock Options, Restricted Stock Awards, or any combination of the foregoing.

2. DEFINITIONS.

The following definitions shall be applicable throughout the Plan.

“Affiliate” means any affiliate of the Company within the meaning of 17 CFR ss. 230.405.

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“Award” means, individually or collectively, any Incentive Stock Option, Nonqualified Stock Option or Restricted Stock Award.

“Beneficial Owner” or “Beneficial Ownership” shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act.

“Board” means the Board of Directors of the Company.

“Cause” means the Company, a Subsidiary or an Affiliate having cause to terminate a Participant’s employment under any existing employment agreement between the Participant and the Company, a Subsidiary or an Affiliate or, in the absence of such an employment agreement, upon (i) the determination by the Committee that the Participant has ceased to perform his duties to the Company, or a Subsidiary or an Affiliate (other than as a result of his incapacity due to physical or mental illness or injury), which failure amounts to an intentional and extended neglect of his duties to such party, (ii) the Committee’s determination that the Participant has engaged or is about to engage in conduct materially injurious to the Company, or a Subsidiary or an Affiliate, or (iii) the Participant having been convicted of a felony.

“Change in Control” a Change in Control of the Company shall be deemed to have occurred as of the first day that any one or more of the following conditions shall have been satisfied:

(a) The acquisition by any Person of Beneficial Ownership of 20% or more of either (i) the then outstanding shares of Common Stock of the Company, or (ii) the combined voting power of the outstanding voting securities of the Company entitled to vote generally in the selection of Directors; provided, however, that for purposes of this subsection, the following transactions shall not constitute a Change of Control: (A) any acquisition directly from the Company through a public offering of shares of Common Stock of the Company, (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (D) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) below;

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(b) The cessation, for any reason, of the individuals who constitute the Company’s Board of Directors as of the date hereof (“Incumbent Board”) to constitute at least a majority of the Company’s Board of Directors; provided, however, that any individual becoming a Director following the date hereof whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the Directors then comprising the Incumbent Board shall be considered as though such individual was a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs because of an actual or threatened election contest with respect to the election or removal of Directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Company’s Board of Directors;

(c) The consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (“Business Combination”) unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the Beneficial Owners, respectively, of the outstanding shares of Common Stock of the Company and the outstanding voting securities of the Company immediately before such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of Common Stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of Directors, as the case may be, of the Company resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately before such Business Combination of the outstanding shares of Common Stock and the outstanding voting

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securities of the Company, as the case may be; (ii) no party (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed before the Business Combination; and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Company’s Board of Directors at the time of the execution of the initial agreement, or of the action of the Company’s Board of Directors, providing for such Business Combination;

(d) The approval by the stockholders of the Company of a complete liquidation or dissolution of the Company; or

(e) Any other condition or event (i) that the Committee determines to be a “Change in Control” within the meaning of this Section 2 and (ii) that is set forth as a supplement to this Section 2 in the Stock Option Agreement.

“Code” means the Internal Revenue Code of 1986, as amended. Reference in the Plan to any section of the Code shall be deemed to include any amendments or successor provisions to such section and any regulations under such section.

“Committee” means the Compensation Committee of the Board or such other committee as the Board may appoint to administer the Plan.

“Common Stock” means the common stock, par value $.001 per share, of the Company.

“Company” means Caremark Rx, Inc.

“Date of Grant” means the date on which the granting of an Award is authorized or such other date as may be specified in such authorization.

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“Disability” means the complete and permanent inability by reason of illness or accident to perform the duties of the occupation at which a Participant was employed when such disability commenced or, if the Participant was retired when such disability commenced, the inability to engage in any substantial gainful activity, as determined by the Committee based upon medical evidence acceptable to it.

“Eligible Employee” means any person regularly employed by the Company or a Subsidiary or Affiliate on a full-time salaried basis, and any independent contractor of the Company or a Subsidiary or Affiliate, who satisfies all of the requirements of Section 6.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Fair Market Value” means, except as otherwise determined by the Committee, an amount equal to the closing sale price of a share of Common Stock as reported on The National Association of Securities Dealers’ New York Stock Exchange Composite Reporting Tape (or if the Common Stock is not traded on The New York Stock Exchange, the closing sale price on the exchange on which it is traded or as reported by an applicable automated quotation system) (the “Composite Tape”), on the applicable date or, if no sales of Common Stock are reported on such date, the closing sale price of a share of Common Stock on the date the Common Stock was last reported on the Composite Tape (or such other exchange or automated quotation system, if applicable).

“Holder” means a Participant who has been granted an Option or a Restricted Stock Award.

“Incentive Stock Option” means an Option granted by the Committee to a Participant under the Plan which is designated by the Committee as an Incentive Stock Option pursuant to Section 422 of the Code.

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“Non-Employee Director” means a Director of the Company who (i) is not currently an officer or employee of the Company or any Subsidiary of the Company; (ii) does not directly or indirectly receive any compensation from the Company or any Subsidiary for services rendered as a consultant or in any other non-director capacity that would exceed the $60,000 threshold for which disclosure would be required under Item 404(a) of Regulation S-K; (iii) does not possess an interest in any other transaction for which disclosure would be required under Item 404(a) of Regulation S-K; and (iv) is not engaged in a business relationship with the Company which would be disclosable under Item 404(b) of Regulation S-K.

“Nonqualified Stock Option” means an Option granted by the Committee to a Participant under the Plan which is not designated by the Committee as an Incentive Stock Option.

“Normal Termination” means termination:

(i) with respect to the Company or a Subsidiary, at retirement (excluding early retirement) pursuant to the Company retirement plan then in effect;

(ii) with respect to an Affiliate, at retirement (excluding early retirement) pursuant to the retirement plan of such Affiliate then in effect or, if the Affiliate has no such plan, at retirement upon or after the attainment of age 65;

(iii) on account of Disability;

(iv) with the written approval of the Committee; or

(v) by the Company, a Subsidiary or Affiliate without Cause

(vi) voluntarily by the Holder for any reason other than Cause or death.

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“Option” means an Award granted under Section 7 of the Plan.

“Option Period” means the period described in Section 7(c).

“Participant” means an Eligible Employee who has been selected to participate in the Plan and to receive an Award pursuant to Section 6.

“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, including a “group” as defined in Section 13(d) thereof.

“Plan” means the Caremark Rx, Inc. 1994 Stock Incentive Plan.

“Reporting Company” means the Company.

“Restricted Period” means, with respect to any share of Restricted Stock, the period of time determined by the Committee during which such share of Restricted Stock is subject to the restrictions set forth in Section 8.

“Restricted Stock” means shares of Common Stock issued or transferred to a Participant subject to the restrictions set forth in Section 8 and any new, additional or different securities a Participant may become entitled to receive as a result of adjustments made pursuant to Section 10.

“Restricted Stock Award” means an Award granted under Section 8 of the Plan.

“Securities Act” means the Securities Act of 1933, as amended.

“Stock” means the Common Stock or such other authorized shares of stock of the Company as the Committee may from time to time authorize for use under the Plan.

“Subsidiary” means any subsidiary of the Company as defined in Section 424(f) of the Code.

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3. EFFECTIVE DATE, DURATION AND STOCKHOLDER APPROVAL.

The Plan became effective on May 7, 1994, and no further Awards may be made after May 7, 2004.

The Plan shall continue in effect until all matters relating to the payment of Awards and administration of the Plan have been settled.

4. ADMINISTRATION.

The Committee shall administer the Plan. Each member of the Committee shall, at the time he takes any action with respect to an Award under the Plan, be a Non-Employee Director. The acts of a majority of the members present at any meeting at which a quorum is present or acts approved in writing by a majority of the Committee shall be deemed the acts of the Committee.

Subject to the provisions of the Plan, the Committee shall have exclusive power to:

(a) Select the Eligible Employees to participate in the Plan;

(b) Determine the nature and extent of the Awards to be made to each Participant;

(c) Determine the time or times when Awards will be made;

(d) Determine the conditions to which the payment of Awards may be subject;

(e) Prescribe the form or forms evidencing Awards;

(f) Interpret and construe the terms and provisions of the Plan and any form or forms evidencing Awards granted under the Plan; and

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(g) Cause records to be established in which there shall be entered, from time to time, as Awards are made to Participants, the date of each Award, the number of Incentive Stock Options, Nonqualified Stock Options, and shares of Restricted Stock awarded by the Committee to each Participant, the expiration date, and the duration of any applicable Restricted Period.

The Committee shall have the authority, subject to the provisions of the Plan, to establish, adopt, or revise such rules and regulations and to make all such determinations relating to the Plan as it may deem necessary or advisable for the administration of the Plan. The Committee’s interpretation of the Plan or any form or forms evidencing Awards granted pursuant thereto and all decisions and determinations by the Committee with respect to the Plan shall be final, binding, and conclusive on all parties unless otherwise determined by the Board.

5. GRANT OF OPTIONS AND RESTRICTED STOCK AWARDS; SHARES SUBJECT TO THE PLAN.

The Committee may, from time to time, grant Awards of Options and/or Restricted Stock to one or more Participants; provided, however, that:

(a) Subject to Section 10, the aggregate number of shares of Stock made subject to Awards may not exceed 2,950,000;

(b) Such shares shall be deemed to have been used in payment of Awards whether they are actually delivered or the Fair Market Value equivalent of such shares is paid in cash. In the event any Option or Restricted Stock shall be surrendered, terminate, expire, or be forfeited, the number of shares of Stock no longer subject thereto shall thereupon be released and shall thereafter be available for new Awards under the Plan to the fullest extent permitted by Rule 16b-3 under the Exchange Act (if applicable at the time); and

(c) Stock delivered by the Company in settlement

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of Awards under the Plan may be authorized and unissued Stock or Stock held in the treasury of the Company or may be purchased on the open market or by private purchase at prices no higher than the Fair Market Value at the time of purchase.

6. ELIGIBILITY.

Participants shall be limited to officers, key employees and independent contractors of the Company and its Subsidiaries and Affiliates who have received written notification from the Committee or from a person designated by the Committee, that they have been selected to participate in the Plan.

7. STOCK OPTIONS.

One or more Incentive Stock Options or Nonqualified Stock Options may be granted to any Participant; provided, however, that Incentive Stock Options may be granted only to employees of the Company or a Subsidiary. Each Option so granted shall be subject to the following conditions:

(a) Option Price. The Option Price (“Option Price”) per share of Common Stock shall be set by the Committee at the time of grant but shall not be less than (i) in the case of an Incentive Stock Option, the Fair Market Value of a share of Stock at the Date of Grant, and (ii) in the case of a Nonqualified Stock Option, the par value per share of Stock.

(b) Manner of Exercise and Form of Payment. Options which have become exercisable may be exercised by delivery of proper notification of exercise to the Committee. No shares of Common Stock shall be issued on the exercise of an Option unless the Option Price is paid in full at the time of the exercise. Payment shall be made in cash, which may be paid by check or other instrument acceptable to the Company. In addition, subject to compliance with applicable laws and regulations and such conditions as the Committee may impose, the Committee may elect to accept payment of the Option Price in shares of Common Stock of the Company which are already owned

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by the Holder, valued at the Fair Market Value thereof on the date of exercise. The Committee may also allow a Holder to exercise an Option by the use of proceeds to be received from the sale of Common Stock issuable pursuant to the Option being exercised.

(c) Other Terms and Conditions. If the Holder has not died or terminated, the Option shall become exercisable in such manner and within such period or periods (“Option Period”), not to exceed 10 years from its Date of Grant, as set forth in the vesting schedule set forth in Section 7(i) hereof, or as otherwise set forth in the Stock Option Agreement to be entered into in connection therewith.

(d) Termination.

(i) Except as otherwise provided in a Stock Option Agreement or as provided in paragraphs (ii) and (iii) below, each Option to the extent it has not been previously exercised, shall terminate upon the earliest to occur of: (a) the expiration of the term of the Option set forth in the Stock Option Agreement; (b) the expiration of 12 months following the Holder’s death (if the Holder dies within the Option Period or within 3 months after a Normal Termination (or such other period as may have been established by the Committee)); (c) immediately upon the Holder ceasing to be an employee, officer or consultant or otherwise affiliated with the Company for Cause; or (d) 90 days following a Normal Termination.

(ii) Except as otherwise provided in a Stock Option Agreement, any Option granted after September 21, 1998 (a “Secondary Option”), to the extent it has not been previously exercised, shall terminate upon the earliest to occur of: (a) the expiration of the Secondary Option period set forth in the Stock Option Agreement (as defined in paragraph (e) heretofore); (b) the expiration of 12 months following the Holder’s death or Disability; (c) immediately upon termination for Cause; or (d) the expiration of 90 days

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following the Holder’s termination of employment for any reason other than Cause, Change in Control, death or Disability.

(iii) Notwithstanding the foregoing, any Secondary Option, to the extent it has not been previously exercised prior to a Change in Control shall remain exercisable for its full original term upon and following such Change in Control.

(e) Stock Option Agreement. Each Option granted under the Plan shall be evidenced by a “Stock Option Agreement” between the Company and the Holder of the Option. Each Stock Option Agreement shall incorporate by reference the terms and provisions of the Plan as in effect at the time of its execution and may contain such other provisions not contrary to the Plan as may be determined by the Committee, subject to the following terms and conditions:

(i) Each Option or portion thereof that is exercisable shall be exercisable for the full amount or for any part thereof, except as otherwise determined by the terms of the Stock Option Agreement.

(ii) Each share of Stock purchased through the exercise of an Option shall be paid for in full at the time of the exercise. Each Option shall cease to be exercisable, as to any share of Stock, when the Holder purchases the share or when the Option lapses.

(iii) Options shall not be transferable by the Holder except by will or the laws of descent and distribution and shall be exercisable during the Holder’s lifetime only by him.

(iv) Each Option shall become exercisable by the Holder in accordance with the vesting schedule set forth in Section 7(i) hereof, or as otherwise established by the Committee for the Award.

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(v) Each Stock Option Agreement may contain an agreement that, upon demand by the Committee for such a representation, the Holder shall deliver to the Committee at the time of any exercise of an Option a written representation that the shares to be acquired upon such exercise are to be acquired for investment and not for resale or with a view to the distribution thereof.

Upon such demand, delivery of such representation prior to the delivery of any shares issued upon exercise of an Option shall be a condition precedent to the right of the Holder or such other person to purchase any shares. In the event certificates for Stock are delivered under the Plan with respect to which such investment representation has been obtained, the Committee may cause a legend or legends to be placed on such certificates to make appropriate reference to such representation and to restrict transfers in the absence of compliance with applicable federal or state securities laws.

(f) Grants to 10% Holders of Company Voting Stock. Notwithstanding Section 7(a), if an Incentive Stock Option is granted to a Holder who owns stock representing more than 10% of the voting power of all classes of stock of the Company or of the Company and its Subsidiaries, the period specified in the Stock Option Agreement for which the Option thereunder is granted and at the end of which such Option shall expire shall not exceed five years from the Date of Grant of such Option and the Option Price shall be at least 110% of the Fair Market Value (on the Date of Grant) of the Stock subject to the Option.

(g) Limitation. To the extent the aggregate Fair Market Value (as determined as of the Date of Grant) of Stock for which Incentive Stock Options are exercisable for the first time by any Participant during any calendar year (under all plans of the Company and its Subsidiaries) exceeds $100,000, such excess Incentive Stock Options shall be treated as Nonqualified Stock Options.

(h) Order of Exercise. Options granted under the Plan may be exercised in any order, regardless of the Date of Grant or the existence of any other outstanding Option.

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(i) Vesting of Options. Except as otherwise provided by the Committee in the applicable Stock Option Agreement, Options granted under the Plan shall vest and become exercisable as follows:

(i) 34% of the Options granted shall vest on the Date of Grant;

(ii) 33% of the Options granted shall vest on each of the first anniversary and second anniversary of the Date of Grant; provided, however, that if during the first year after the Date of Grant, the stock price of the Common Stock closes at or above $12.00 (or such other price as determined by the Committee and set forth in the applicable Stock Option agreement) for any twenty (20) out of thirty (30) consecutive trading days, the 33% of the Options due to vest on the first anniversary of the Date of Grant shall vest immediately at the end of such 20th day, and provided, however, that if during the second year after the Date of Grant, the stock price of the Common Stock closes at or above $18.00 (or such other price as determined by the Committee and set forth in the applicable Stock Option agreement) for any twenty (20) out of thirty (30) consecutive trading days, the 33% of the Options due to vest on the second anniversary of the Date of Grant shall vest immediately at the end of such 20th day.

8. RESTRICTED STOCK AWARDS.

(a) Award of Restricted Stock.

(i) The Committee shall have the authority (1) to grant Restricted Stock, (2) to issue or transfer Restricted Stock to Participants, and (3) to establish terms, conditions

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and restrictions applicable to such Restricted Stock, including the Restricted Period, which may differ with respect to each grantee, the time or times at which Restricted Stock shall be granted or become vested and the number of shares or units to be covered by each grant.

(ii) The Holder of a Restricted Stock Award shall execute and deliver to the Corporate Secretary of the Company an agreement with respect to Restricted Stock and escrow agreement satisfactory to the Committee and the appropriate blank stock powers with respect to the Restricted Stock covered by such agreements. If a Participant shall fail to execute the agreement, escrow agreement and stock powers within such period, the Award shall be null and void. Subject to the restrictions set forth in Section 8(b), the Holder shall generally have the rights and privileges of a stockholder as to such Restricted Stock, including the right to vote such Restricted Stock. At the discretion of the Committee, cash and stock dividends with respect to the Restricted Stock may be either currently paid or withheld by the Company for the Holder’s account, and interest may be paid on the amount of cash dividends withheld at a rate and subject to such terms as determined by the Committee. Cash or stock dividends so withheld by the Committee shall not be subject to forfeiture.

(iii) In the case of a Restricted Stock Award, the Committee shall then cause stock certificates registered in the name of the Holder to be issued and deposited together with the stock powers with an escrow agent to be designated by the Committee. The Committee shall cause the escrow agent to issue to the Holder a receipt evidencing any stock certificate held by it registered in the name of the Holder.

(b) Restrictions.

(i) Restricted Stock awarded to a Participant

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shall be subject to the following restrictions until the expiration of the Restricted Period: (1) the Holder shall not be entitled to delivery of the stock certificate; (2) the shares shall be subject to the restrictions on transferability set forth in the grant; (3) the shares shall be subject to forfeiture to the extent provided in subparagraph (d) and, to the extent such shares are forfeited, the stock certificates shall be returned to the Company, and all rights of the Holder to such shares and as a stockholder shall terminate without further obligation on the part of the Company.

(ii) The Committee shall have the authority to remove any or all of the restrictions on the Restricted Stock whenever it may determine that, by reasons of changes in applicable law or other changes in circumstances arising after the date of the Restricted Stock Award such action is appropriate.

(c) Restricted Period. The Restricted Period of Restricted Stock shall commence on the Date of Grant and shall expire from time to time as to that part of the Restricted Stock indicated in a schedule established by the Committee in the Award agreement.

(d) Forfeiture Provisions. In the event a Holder terminates employment during a Restricted Period, that portion of the Award with respect to which restrictions have not expired (“Non-Vested Portion”) shall be treated as follows:

(i) Resignation or discharge: The Non-Vested Portion of the Award shall be completely forfeited.

(ii) Normal Termination: The Non-Vested Portion of the Award shall be prorated for service during the Restricted Period and shall be received as soon as practicable following termination.

(iii) Death: The Non-Vested Portion of the Award

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shall be prorated for service during the Restricted Period and paid to the Participant’s beneficiary as soon as practicable following death.

(e) Delivery of Restricted Stock. Upon the expiration of the Restricted Period with respect to any shares of Stock covered by a Restricted Stock Award, a stock certificate evidencing the shares of Restricted Stock which have not then been forfeited and with respect to which the Restricted Period has expired (to the nearest full share) shall be delivered without charge to the Holder, or his beneficiary, free of all restrictions under the Plan.

(f) SEC Restrictions. Each certificate representing Restricted Stock awarded under the Plan shall bear the following legend:

“Transfer of this certificate and the shares represented hereby is restricted pursuant to the terms of a Restricted Stock Agreement, dated as of             , between Caremark Rx, Inc. and             . A copy of such Agreement is on file at the offices of the Company in Birmingham, Alabama.”

Stop transfer orders shall be entered with the Company’s transfer agent and registrar against the transfer of legend securities except in compliance with the Securities Act.

9. GENERAL.

(a) Additional Provisions of an Award. The award of any benefit under the Plan may also be subject to such other provisions (whether or not applicable to the benefit awarded to any other Participant) as the Committee determines appropriate.

(b) Privileges of Stock Ownership. Except as otherwise specifically provided in the Plan, no person shall be entitled to the privileges of stock ownership in respect of shares of

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Stock which are subject to Options or Restricted Stock Awards, hereunder until such shares have been issued to that person upon exercise of an Option according to its terms or upon sale or grant of those shares in accordance with a Restricted Stock Award.

(c) Government and Other Regulations. The obligation of the Company to make payment of Awards or otherwise shall be subject to all applicable laws, rules, and regulations, and to such approvals by governmental agencies as may be required. The Company shall be under no obligation to register under the Securities Act any of the shares of Stock paid under the Plan. If the shares paid under the Plan may in certain circumstances be exempt from registration under the Securities Act, the Company may restrict the transfer of such shares in such manner as it deems advisable to ensure the availability of any such exemption.

(d) Withholding and Employment Taxes. At the time of exercise of an Option, the optionee shall remit to the Company in cash all applicable federal and state withholding and employment taxes. If and to the extent authorized and approved by the Committee in its sole discretion, an optionee may elect, by means of a form of election to be prescribed by the Committee, to have shares which are acquired upon exercise of an Option withheld by the Company or tender other shares of Common Stock or other securities of the Company owned by the optionee to the Company at the time the amount of such taxes is determined in order to pay the amount of such tax obligations, subject to the following limitations:

(1) each election shall be irrevocable; and

(2) such election shall be subject to the disapproval of the Committee at any time;

Any Common Stock or other securities so withheld or tendered will be valued by the Company as of the date they are withheld or tendered. Unless the Committee otherwise determines, the optionee shall pay to the Company in cash, promptly when the amount of such obligations become determinable, all

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applicable federal and state withholding taxes resulting from the lapse of restrictions imposed on exercise of an Option, from a transfer or other disposition of shares acquired upon exercise of an Option or otherwise related to the Option or the shares acquired upon exercise of the Option.

(e) Claim to Awards and Employment Rights. No employee or other person shall have any claim or right to be granted an Award under the Plan nor, having been selected for the grant of an Award, to be selected for a grant of any other Award. Neither this Plan nor any action taken hereunder shall be construed as giving any Participant any right to be retained in the employ of the Company or a Subsidiary or Affiliate.

(f) Designation and Change of Beneficiary. Each Participant shall file with the Committee a written designation of one or more persons as the beneficiary who shall be entitled to receive the amounts payable with respect to an Award of Restricted Stock, if any, due under the Plan upon his death. A Participant may, from time to time, revoke or change his beneficiary designation without the consent of any prior beneficiary by filing a new designation with the Committee. The last such designation received by the Committee shall be controlling; provided, however, that no designation, or change or revocation thereof, shall be effective unless received by the Committee prior to the Participant’s death, and in no event shall it be effective as of a date prior to such receipt.

(g) Payments to Persons Other Than Participants. If the Committee shall find that any person to whom any amount is payable under the Plan is unable to care for his affairs because of illness or accident, or is a minor, or has died, then any payment due to such person or his estate (unless a prior claim therefor has been made by a duly appointed legal representative), may, if the Committee so directs the Company, be paid to his spouse, child, relative, an institution maintaining or having custody of such person, or any other person deemed by the Committee to be a proper recipient on behalf of such person otherwise entitled to payment. Any such payment shall be a complete discharge of the liability of the Committee and the Company therefor.

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(h) No Liability of Committee Members. No member of the Committee shall be personally liable by reason of any contract or other instrument executed by such member or on his behalf in his capacity as a member of the Committee nor for any mistake of judgment made in good faith, and the Company shall indemnify and hold harmless each member of the Committee and each other employee, officer or director of the Company to whom any duty or power relating to the administration or interpretation of the Plan may be allocated or delegated, against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim) arising out of any act or omission to act in connection with the Plan unless arising out of such person’s own fraud or bad faith; provided, however, that approval of the Board shall be required for the payment of any amount in settlement of a claim against any such person. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company’s Certificate of Incorporation or ByLaws, as amended, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.

(i) Governing Law. The Plan shall be governed by and construed in accordance with the internal laws of the State of Delaware without reference to the principles of conflicts of law thereof.

(j) Funding. Except as provided under Section 8, no provision of the Plan shall require the Company, for the purpose of satisfying any obligations under the Plan, to purchase assets or place any assets in a trust or other entity to which contributions are made or otherwise to segregate any assets, nor shall the Company maintain separate bank accounts, books, records or other evidence of the existence of a segregated or separately maintained or administered fund for such purposes. Holders shall have no rights under the Plan other than as unsecured general creditors of the Company, except that insofar as they may become entitled to payment of additional compensation by performance of services, they shall have the same rights as other employees under general law.

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(k) Transferability.

(1) Incentive Stock Options. No Incentive Stock Option granted under the Plan may be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, all Incentive Stock Options granted to an Eligible Employee under the Plan shall be exercisable during his or her lifetime only by such Eligible Employee.

(2) Nonqualified Stock Options. No Nonqualified Stock Option granted under the Plan may be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Notwithstanding the foregoing, to the extent not prohibited by any statute, rule or regulation applicable to the Plan, the Nonqualified Stock Options or the registration with the Securities and Exchange Commission of the Common Stock to be issued upon exercise of the Nonqualified Stock Options, the Committee may, in its discretion, authorize all or a portion of Nonqualified Stock Options granted to an Eligible Employee to be on terms which permit transfer by such Eligible Employee to (i) the spouse, children or grandchildren of the Eligible Employee (“Immediate Family Members”), (ii) a trust or trusts for the exclusive benefit of such Immediate Family Members, or (iii) a partnership in which such Immediate Family Members are the only partners, provided that (x) there may be no consideration for any such transfer, (y) the Stock Option Agreement pursuant to which such Nonqualified Stock Options are granted must be approved by the Committee, and must expressly provide for transferability in a manner consistent with this Section, and (z) subsequent transfers of transferred Nonqualified Stock Options shall be prohibited except those by will or the laws of descent and distribution. Following transfer, any such Nonqualified Stock Options shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, provided that for purposes of this Plan, the term “Eligible Employee” shall be deemed to refer to the transferee. The events of termination of employment shall continue to be applied with respect to the original Eligible Employee following which the Nonqualified Stock Options shall be exercisable by the transferee only to the extent, and for the periods

21

specified in Section 7(c). Notwithstanding the foregoing, should the Committee provide that Options granted be transferable, the Company by such action incurs no obligation to notify or otherwise provide notice to a transferee of early termination of the Option. In the event of a transfer, as set forth above, the original Eligible Employee is and will remain subject to and responsible for any applicable withholding taxes upon the exercise of such Options.

(l) Reliance on Reports. Each member of the Committee and each member of the Board shall be fully justified in relying, acting or failing to act, and shall not be liable for having so relied, acted or failed to act in good faith, upon any report made by the independent public accountant of the Company and its Subsidiaries or Affiliates and upon any other information furnished in connection with the Plan by any person or persons other than himself.

(m) Relationship to Other Benefits. No payment under the Plan shall be taken into account in determining any benefits under any pension, retirement, profit sharing, group insurance or other benefit plan of the Company or any Subsidiary or Affiliate except as otherwise specifically provided.

(n) Expenses. The expenses of administering the Plan shall be borne by the Company and its Subsidiaries and Affiliates.

(o) Pronouns. Masculine pronouns and other words of masculine gender shall refer to both men and women.

(p) Titles and Headings. The titles and headings of the sections in the Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings shall control.

10. CHANGES IN CAPITAL STRUCTURE.

Options and Restricted Stock Awards and any agreements evidencing such Awards shall be subject to adjustment or substitution, as determined by the Committee in its sole discretion, as to the number, price or

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kind of a share of Stock or other consideration subject to such Awards or as otherwise determined by the Committee to be equitable (i) in the event of changes in the outstanding Stock or in the capital structure of the Company by reason of stock dividends, stock splits, recapitalizations, reorganizations, mergers, consolidations, combinations, exchanges, or other relevant changes in capitalization occurring after the Date of Grant of any such Award or (ii) in the event of any change in applicable laws or any change in circumstances which results in or would result in any substantial dilution or enlargement of the rights granted to, or available for, Participants in the Plan, or which otherwise warrants equitable adjustment because it interferes with the intended operation of the Plan. In addition, in the event of any such adjustments or substitution, the aggregate number of shares of Stock available under the Plan shall be appropriately adjusted by the Committee, whose determination shall be conclusive. Any adjustment in Incentive Stock Options under this Section 10 shall be made only to the extent not constituting a “modification” within the meaning of Section 424(h)(3) of the Code, and any adjustments under this Section 10 shall be made in a manner which does not adversely affect the exemption provided pursuant to Rule 16b-3 under the Exchange Act. The Company shall give each Participant notice of an adjustment hereunder and, upon notice, such adjustment shall be conclusive and binding for all purposes.

11. EFFECT OF CHANGE IN CONTROL.

(a) In the event of a Change in Control, notwithstanding any vesting schedule provided for hereunder or by the Committee with respect to an Award of Options or Restricted Stock, such Option shall become immediately exercisable with respect to 100% of the shares subject to such Option and the Restricted Period shall expire immediately with respect to 100% of the Restricted Stock subject to Restrictions; provided, however, to the extent that so accelerating the time an Incentive Stock Option may first be exercised would cause the limitation provided in Section 7(g) to be exceeded, such Options shall instead first become exercisable in so many of the next following years as is necessary to comply with such limitation.

(b) The obligations of the Company under the Plan shall

23

be binding upon any successor corporation or organization resulting from the merger, consolidation or other reorganization of the Company, or upon any successor corporation or organization succeeding to substantially all of the assets and business of the Company. The Company agrees that it will make appropriate provisions for the preservation of Participant’s rights under the Plan in any agreement or plan which it may enter into or adopt to effect any such merger, consolidation, reorganization or transfer of assets.

12. SALE OF BUSINESS UNIT OF COMPANY

The Committee, in connection with the sale of any Subsidiary, Affiliate, division or other business unit of the Company, may within the Committee’s sole and absolute discretion (1) cause any or all Options granted hereunder to Participants whose Options or rights under Options will be adversely affected by such transaction (a) to become immediately exercisable, or (b) to remain exercisable after such transaction for such period as the Committee deems appropriate under the circumstances, or both (a) and (b), or (2) cause the restrictions on any or all shares of Restricted Stock awarded hereunder to Participants whose Restricted Stock will be adversely affected by such transaction to lapse immediately. The provisions of this Section 12 and the actions of the Committee taken pursuant to this Section 12 shall be effective upon action of the Committee alone without amendment to any Award agreement or the consent of any Participant.

13. NONEXCLUSIVITY OF THE PLAN.

Neither the adoption of this Plan by the Board nor the submission of this Plan to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options otherwise than under this Plan, and such arrangements may be either applicable generally or only in specific cases.

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14. AMENDMENTS AND TERMINATION.

The Committee may at any time terminate the Plan. With the express written consent of an individual Participant, the Board may cancel or reduce or otherwise alter the outstanding Awards thereunder if, in its judgment, the tax, accounting, or other effects of the Plan or potential payouts thereunder would not be in the best interest of the Company. The Committee may, at any time, or from time to time, amend or suspend and, if suspended, reinstate, the Plan in whole or in part; provided, however, that without further stockholder approval, the Committee shall not:

(a) Increase the maximum number of shares of Stock which may be issued on exercise of Options or pursuant to Restricted Stock Awards, except as provided in Section 10;

(b) Change the maximum Option Price;

(c) Extend the maximum Option term;

(d) Extend the termination date of the Plan;

(e) Cancel and regrant or reprice any outstanding Option, except as provided in Section 10; or

(f) Change the class of persons eligible to receive Awards under the Plan.

* * *

As originally adopted, as amended, by the Committee as of June 27, 1997 and as amended and restated as of August 17, 2000.

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EX-10.25

Exhibit 10.25

AMENDMENT

TO

CAREMARK RX, INC. 1994 STOCK INCENTIVE PLAN

EFFECTIVE NOVEMBER 15, 2000

The Caremark Rx, Inc. 1994 Stock Incentive Plan (the “Plan”) is hereby amended as follows:

1. Amendments Regarding Transferability of Options. Section 7(e)(iii) of the Plan is hereby deleted in its entirety.

Section 9(k)(2) of the Plan is hereby amended by deleting Section 9(k)(2) in its entirety and substituting the following new Section 9(k)(2) therefor:

(2) Nonqualified Stock Options. No Nonqualified Stock Option granted under the Plan may be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Notwithstanding the foregoing, to the extent not prohibited by any statute, rule or regulation applicable to the Plan, the Nonqualified Stock Options or the registration with the Securities and Exchange Commission of the Common Stock to be issued upon exercise of the Nonqualified Stock Options, the Committee may, in its discretion, authorize all or a portion of Nonqualified Stock Options granted to an Eligible Employee to be on terms which permit transfer by such Eligible Employee to (i) the spouse, children or grandchildren of the Eligible Employee (“Immediate Family Members”), (ii) a trust or trusts for the exclusive benefit of such Immediate Family Members, or (iii) a partnership in which such Immediate Family Members are the only partners, provided that (x) the Stock Option Agreement pursuant to which such Nonqualified Stock Options are granted must be approved by the Committee, and must expressly provide for transferability in a manner consistent with this Section; and (y) subsequent transfers of transferred Nonqualified Stock Options shall be prohibited except those by will or the laws of descent and distribution. Following transfer, any such Nonqualified Stock Options

1

shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, provided that for purposes of this Plan, the term “Eligible Employee” shall be deemed to refer to the transferee. The events of termination of employment shall continue to be applied with respect to the original Eligible Employee following which the Nonqualified Stock Options shall be exercisable by the transferee only to the extent, and for the periods specified in Section 7(c). Notwithstanding the foregoing, should the Committee provide that Options granted be transferable, the Company by such action incurs no obligation to notify or otherwise provide notice to a transferee of early termination of the Option. In the event of a transfer, as set forth above, the original Eligible Employee is and will remain subject to and responsible for any applicable withholding taxes upon the exercise of such Options.

2. Effective Date. The effective date of this Amendment shall be November 15, 2000.

3. Miscellaneous.

(a) Capitalized terms not otherwise defined herein shall have the meanings given them in the Plan.

(b) Except as specifically amended hereby, the Plan shall remain in full force and effect.

IN WITNESS WHEREOF, the Company has caused this Amendment to the Caremark Rx, Inc. 1994 Stock Incentive Plan to be executed as of the Effective Date.

CAREMARK RX, INC.

Sara J. Finley, Corporate Secretary

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EX-10.26

Exhibit 10.26

SECOND AMENDMENT

TO THE

CAREMARK RX, INC. 1994 STOCK INCENTIVE PLAN

(FORMERLY THE MEDPARTNERS, INC.

1994 STOCK INCENTIVE PLAN)

This Second Amendment to the Caremark Rx, Inc. 1994 Stock Incentive Plan (formerly the Medpartners, Inc. 1994 Stock Incentive Plan) (the “Plan”) to be effective as of January 12, 2001.

WITNESSETH:

WHEREAS, Caremark Rx, Inc. (the “Company”) currently sponsors and maintains the Caremark Rx, Inc. 1994 Stock Incentive Plan (formerly the Medpartners, Inc. 1994 Stock Incentive Plan) (the “Plan”); and

WHEREAS, Section 14 of the Plan grants the Compensation Committee of the Board the power at any time to amend the Plan, and the Compensation Committee now wishes to amend the Plan to modify the vesting provisions for options granted under the Plan on and after January 12, 2001;

NOW, THEREFORE, the Plan is hereby amended as indicated below:

1.

Section 7(i) of the Plan is amended effective as of January 12, 2001, to read as follows:

(i) Vesting of Options. Except as set forth by the Committee in the applicable Stock Option Agreement, Options granted under the Plan shall vest and become exercisable as follows:

(i) 34% of the Options shall vest on the Date of Grant;

(ii) 33% of the Options granted shall vest on each of the first anniversary and second anniversary of the

Second Amendment to the

Caremark Rx, Inc. 1994 Stock Incentive Plan

Page 1

Date of Grant; provided, however, that for Options granted prior to January 12, 2001, if during the first year after the Date of Grant, the stock price of the Common Stock closes at or above $12.00 (or such other price as determined by the Committee and set forth in the applicable Stock Option Agreement) for any twenty (20) out of thirty (30) consecutive trading days, the 33% of the Options due to vest on the first anniversary of the Date of Grant shall vest immediately at the end of such 20th day, and provided, however, that for Options granted prior to January 12, 2001, if during the second year after the Date of Grant, the stock price of the Common Stock closes at or above $18.00 (or such other price as determined by the Committee and set forth in the applicable Stock Option Agreement) for any twenty (20) out of thirty (30) consecutive trading days, the 33% of the Options due to vest on the second anniversary of the Date of Grant shall vest immediately at the end of such 20th day.

2.

The name of the Plan is changed effective as of January 12, 2001 from the Medpartners, Inc. 1994 Stock Incentive Plan to the Caremark Rx, Inc. 1994 Stock Incentive Plan. All references in any Company documents to the Medpartners, Inc. 1994 Stock Incentive Plan shall, after January 12, 2001, be a reference to the Caremark Rx, Inc. 1994 Stock Incentive Plan.

3.

All other provisions of the Plan not inconsistent herewith are hereby confirmed and ratified.

Approved by the Board of Directors by resolutions on January 12, 2001.

Second Amendment to the

Caremark Rx, Inc. 1994 Stock Incentive Plan

Page 2

EX-10.28

Exhibit 10.28

AMENDED AND RESTATED

CAREMARK RX, INC.

1995 STOCK OPTION PLAN

1. PURPOSE OF THE PLAN

The purposes of this Amended and Restated Caremark Rx, Inc. (“Caremark Rx” or the “Company”) 1995 Stock Option Plan (the “Plan”) are to:

1.1. furnish incentives to individuals or entities chosen to receive options because they are considered capable of responding by improving operations and increasing profits;

1.2. encourage selected employees to accept or continue employment with the Company or its Affiliates; and

1.3. increase the interest of selected employees, officers, directors and consultants in the Company’s welfare through their participation in the growth in value of the common stock, $.001 par value, of the Company (“Common Stock”).

To accomplish the foregoing objectives, this Plan provides a means whereby individuals and entities may receive options to purchase Common Stock. Options granted under this Plan (“Options”) will be either nonqualified options (“NQOs”) or incentive stock options (“ISOs”).

2. ELIGIBLE PERSONS

2.1. General. Every person who at the date on which an Option granted to such person becomes effective (the “Grant Date”) is a full-time employee, officer, director or consultant of the Company or of any Affiliate or any individual or entity subject to an acquisition or management agreement with the Company is eligible to receive Options under this Plan.

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2.2. Definition of Affiliate. The term “Affiliate,” as used in this Plan, means a “parent corporation” or “subsidiary corporation,” as defined in Section 424 of the Internal Revenue Code of 1986 (as amended, the “Code”). The term “employee” shall have the meaning ascribed for purposes of Section 3401(c) of the Code and the Treasury Regulations promulgated thereunder and shall include an officer or a director who is also an employee.

3. STOCK SUBJECT TO THIS PLAN

The total number of shares of stock reserved for issuance upon the exercise of Options as of December 31, 1997 is 8,687,941 shares of Common Stock. The shares covered by the portion of any grant that expires unexercised under this Plan shall become available again for grants under this Plan. The number of shares reserved for issuance under this Plan is subject to adjustment in accordance with the provisions for adjustment in this Plan.

4. ADMINISTRATION

4.1. General. This Plan shall be administered by the Compensation Committee of the Board of Directors or by any other committee appointed by the Board of Directors (the “Committee”), which Committee shall consist solely of two or more Non-Employee Directors (“Non-Employee Directors”) as such are defined in Rule 16b-3 promulgated pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or any successor provision. The Committee shall have the authority to select the persons to receive Options under this Plan, to fix the number of shares that each optionee may purchase, to set the terms and conditions of each Option, and to determine all other matters relating to this Plan; provided, however, that any Options granted to management of the Company, the Board of Directors or other insiders shall comply with Rule 16b-3 of the Exchange Act. Any act approved in writing by a majority of the members of the Committee shall be a valid act of the Committee. All questions of interpretation, construction, implementation and application of this Plan shall be determined by the Committee, including, without limitation, the interpretation and construction of any provision of the Plan or any Option Agreement. Such determinations shall be final and binding on all persons. No member of the Board of Directors or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any option granted under the Plan.

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5. GRANTING OF RIGHTS

5.1. Ten Year Limitation on Grants of ISOs. No ISOs shall be granted under this Plan after ten years from the date the Board of Directors first adopts the Plan.

5.2. Written Agreement; Effect. Each Option shall be evidenced by a written agreement (the “Option Agreement”), in form satisfactory to the Committee, executed by the Company and by the person to whom such Option is granted. Each such Option Agreement shall incorporate by reference all of the terms and provisions of the Plan as in effect at the time of grant and may include such other terms and provisions not contrary to the Plan as shall be approved and adopted by the Committee. The Option Agreement shall specify whether each Option it evidences is a NQO or an ISO. Failure of the grantee to execute an Option Agreement shall not void or invalidate the grant of an Option; the Option may not be exercised, however, until the Option Agreement is executed.

5.3. Annual $100,000 Limitation on ISOs. To the extent required by Section 422(d) of the Code, the aggregate fair market value of shares of the Common Stock with respect to which incentive stock options are exercisable for the first time by any individual during any calendar year shall not exceed $100,000. For this purpose, fair market value shall be the fair market value of the shares covered by the ISOs when the ISOs were granted. If by their terms, such ISOs taken together would first become exercisable at a faster rate, this $100,000 limitation shall be applied by deferring the exercisability of those ISOs or portions of ISOs which have the highest per share exercise prices. The ISOs or portions of ISOs, the exercisability of which are so deferred, shall become exercisable on the first day of the first subsequent calendar year during which they may be exercised, as determined by applying these same principles of this Section and all other provisions of this Section and all other provisions of this Plan, including those relating to the expiration and termination of ISOs.

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5.4. Advance Approvals. The Committee may approve the grant of Options to persons who are expected to become employees, consultants or members of the Board of Directors, of the Company, but are not employees, consultants or members of the Board of Directors at the date of approval. In such cases, the Option shall be deemed granted, without further approval, on the date the grantee becomes an employee, and must satisfy all requirements of this Plan for Options granted on that date.

6. TERMS AND CONDITIONS OF OPTIONS

Each Option shall be designated as an ISO or a NQO and shall be subject to the terms and conditions set forth in Section 6.1. NQOs shall also be subject to the terms and conditions set forth in Section 6.2, but not those set forth in Section 6.3. ISOs shall also be subject to the terms and conditions set forth in Section 6.3, but not those set forth in Section 6.2.

6.1. Terms and Conditions to Which All Options Are Subject. All Options shall be subject to the following terms and conditions:

(a) Changes in Capital Structure. Subject to Section 6.1(b), if the stock of the Company is changed by reason of a stock split, reverse stock split, stock dividend, or recapitalization, or converted into or exchanged for other securities as a result of a merger, consolidation, or reorganization, appropriate adjustments shall be made in (1) the number and class of shares of stock subject to this Plan and each outstanding Option, and (2) the exercise price of each outstanding Option; provided, however, that the Company shall not be required to issue fractional shares as a result of any such adjustment. Each such adjustment shall be determined by the Committee in its sole discretion, which determination shall be final and binding on all persons.

(b) Corporate Transactions. New option rights may be substituted for Options granted, or the Company’s obligations as to outstanding Options may be assumed, by an employer corporation other than the Company, or an Affiliate thereof, in connection with any merger, consolidation, acquisition, separation, reorganization,

4

dissolution, liquidation, sale, or like occurrence in which the Company is involved and which the Committee determines, in its absolute discretion, would materially alter the structure. Substitution shall be done in such manner that the then outstanding Options which are ISOs will continue to be “incentive stock options” within the meaning of Section 422 of the Code to the full extent permitted thereby. Notwithstanding he foregoing or the provisions of Section 6.1(a), if such an event occurs and if such employer corporation, or an Affiliate thereof, does not substitute new option rights for, and substantially equivalent to, the outstanding Options granted hereunder, or assume the outstanding Options granted hereunder, or if there is no employer corporation, or if the Committee determines, in its sole discretion, that outstanding Options should not then continue to be outstanding, the Committee may upon ten days’ prior written notice to optionees in its absolute discretion (1) shorten the period during which Options are exercisable (provided they remain exercisable, to the extent otherwise exercisable, for at least ten days after the date the notice is given), or (2) cancel Options upon payment to the optionee in cash, with respect to each Option to the extent then exercisable, of an amount which, in the absolute discretion of the Committee, is determined to be equivalent to any excess of the fair market value (at the effective time of the dissolution, liquidation, merger, consolidation, acquisition, separation, reorganization, sale or other event) of the consideration that the optionee would have received if the Option had been exercised before the effective time, over the exercise price of the Option; provided, however, if there is a successor corporation and replacement options are not granted by the successor corporation, all outstanding Options shall become exercisable prior to the consummation of the transaction such that the optionees shall have not less than ten days to exercise their Options and become stockholders of record entitled to receive the consideration paid to the other stockholders of the Company. If an optionee fails to exercise his Option within any exercise period described in this paragraph and the dissolution, liquidation, merger, consolidation, sale or other event is consummated, his Option shall no longer be exercisable. Any unexercised Option shall be canceled and terminated. Notwithstanding anything herein to the contrary, nothing shall extend an optionee’s right to exercise an ISO after the expiration of ten years from the date it is granted. The actions described in this Section may be taken without regard to any resulting tax consequences to the optionee.

5

(c) Option Grant Date. Each Option Agreement shall specify the date as of which it shall be effective, which date shall be the Grant Date (determined pursuant to Section 5.4 in the case of advance approvals).

(d) Fair Market Value. Except as otherwise determined by the Committee, the “Fair Market Value” of a share of Common Stock as of any date shall be equal to the closing sale price of a share of Common Stock as reported on The National Association of Securities Dealers’ New York Stock Exchange Composite Reporting Tape (or if the Common Stock is not traded on The New York Stock Exchange, the closing sale price on the exchange on which it is traded or as reported by an applicable automated quotation system) (the “Composite Tape”), on the applicable date or, if no sales of Common Stock are reported on such date, the closing sale price of a share of Common Stock on the date the Common Stock was last reported on the Composite Tape (or such other exchange or automated quotation system, if applicable).

(e) Transfer of Option Rights.

(1) Incentive Stock Options. No ISO granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, all ISOs granted to an optionee under the Plan shall be exercisable during his or her lifetime only by such optionee.

(2) Nonqualified Stock Options. No NQO granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Notwithstanding the foregoing, to the extent not prohibited by any statute, rule or regulation applicable to the Plan, the Options or the registration with the Securities and Exchange Commission of

6

the Common stock to be issued upon exercise of the Option, the Committee may, in its discretion, authorize all or a portion of NQOs granted to an optionee to be on terms which permit transfer by such optionee to (i) the spouse, children or grandchildren of the optionee (“Immediate Family Members”), (ii) a trust or trusts for the exclusive benefit of such Immediate Family Members, or (iii) a partnership in which such Immediate Family Members are the only partners, provided that (x) there may be no consideration for any such transfer, (y) the Option Agreement pursuant to which such NQOs are granted must be approved by the Committee, and must expressly provide for transferability in a manner consistent with this Section, and (z) subsequent transfers of transferred NQOs shall be prohibited except those by will or the laws of descent and distribution. Following transfer, any such NQOs shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, provided that for purposes of this Plan, the term “optionee” shall be deemed to refer to the transferee. The events of termination of employment shall continue to be applied with respect to the original optionee, following which the NQOs shall be exercisable by the transferee only to the extent, and for the periods specified in Section 6.1(g). Notwithstanding the foregoing, should the Committee provide that NQOs granted be transferable, the Company by such action incurs no obligation to notify or otherwise provide notice to a transferee of early termination of the NQO. In the event of a transfer, as set forth above, the original optionee is and will remain subject to and responsible for any applicable withholding taxes upon the exercise of such NQOs.

(f) Payment. No shares of Common Stock shall be issued on the exercise of an Option unless paid for in full at the time of exercise. Payment shall be made in cash, which may be paid by check or other instrument acceptable to the Company. In addition, subject to compliance with applicable laws and regulations and such conditions as the Committee may impose, the Committee may elect to accept payment in

7

shares of Common Stock of the Company which are already owned by the optionee, valued at the Fair Market Value thereof on the date of exercise. The Committee may also allow an optionee to exercise an Option by use of proceeds to be received from the sale of Common Stock issuable pursuant to the Option being exercised.

(g) Termination.

(1) Except as otherwise provided in an Option Agreement or as provided in paragraphs (2) and (3) below, each Option to the extent it has not been previously exercised, shall terminate upon the earliest to occur of: (a) the expiration of the term of the Option set forth in the Option Agreement; (b) immediately upon the date the optionee ceases to be an employee, officer, consultant or member of the Board of Directors or otherwise affiliated with the Company (a “Termination”) on account of cause; (c) the expiration of 90 days following the date of a Termination of the optionee for any reason other than cause, death or permanent disability; or (d) the expiration of 12 months following a Termination of the optionee on account of death or permanent disability. A leave of absence duly authorized by the Company shall not be deemed a Termination or a break in continuous employment, service or affiliation with the Company.

(2) Except as otherwise provided in an Option Agreement, any Option granted after September 21, 1998 (a “Secondary Option”), to the extent it has not been previously exercised, shall terminate upon the earliest to occur of: (a) the expiration of the Secondary Option period set forth in the Option Agreement; (b) the expiration of 12 months following the optionee’s death or permanent disability; (c) immediately upon Termination for Cause (as defined below); or (d) the expiration of 90 days following the optionee’s Termination for any reason other than Cause (as defined below), Change in Control (as defined in Section 7 heretofore), death or permanent disability.

8

For purposes of the preceding sentence only, Cause means the Company or an Affiliate having cause to terminate an optionee’s status as an employee, officer, consultant or director or other affiliation with the Company under any existing employment agreement between the optionee and the Company or an Affiliate or, in the absence of such an employment agreement, upon (i) the determination by the Committee that the optionee has ceased to perform his duties to the Company or an Affiliate (other than as a result of his incapacity due to physical or mental illness or injury), which failure amounts to an intentional and extended neglect of his duties to such party, (ii) the Committee’s determination that the optionee has engaged or is about to engage in conduct materially injurious to the Company or an Affiliate, or (iii) the optionee having been convicted of a felony.

(3) Notwithstanding the foregoing, any Secondary Option, to the extent it has not been previously exercised prior to a Change in Control (as defined in Article 7 heretofore) shall remain exercisable for its full original term upon and following such Change in Control.

(h) Other Provisions. Each Option Agreement may contain such other terms, provisions, and conditions not inconsistent with this Plan, including rights of repurchase, as may be determined by the Committee, and each ISO granted under this Plan shall include such provisions and conditions as are necessary to qualify such option as an “incentive stock option” within the meaning of Section 422 of the Code.

(i) Withholding and Employment Taxes. At the time of exercise of an Option, the optionee shall remit to the Company in cash all applicable federal and state withholding and employment taxes. If and to the extent authorized and approved by the Committee in its sole discretion, an optionee may elect, by means of a form of election to be prescribed by the Committee, to have shares which are acquired upon exercise of an Option withheld by the Company or tender other shares of

9

Common Stock or other securities of the Company owned by the optionee to the Company at the time the amount of such taxes is determined in order to pay the amount of such tax obligations, subject to the following limitations:

(1) such election shall be irrevocable; and

(2) such election shall be subject to the disapproval of the Committee at any time.

Any Common Stock or other securities so withheld or tendered will be valued by the Company as of the date they are withheld or tendered. Unless the Committee otherwise determines, the optionee shall pay to the Company in cash, promptly when the amount of such obligations become determinable, all applicable federal and state withholding taxes resulting from the lapse of restrictions imposed on exercise of an Option, from a transfer or other disposition of shares acquired upon exercise of an Option or otherwise related to the Option or the shares acquired upon exercise of the Option.

6.2. Terms and Conditions to Which Only NQOs Are Subject. Options granted under this Plan which are designated as NQOs shall be subject to the following terms and conditions:

(a) Option Term. Unless a different expiration date is specified by the Committee at the Grant Date in the Option Agreement, each NQO shall expire ten years from its Grant Date.

6.3. Terms and Conditions to Which Only ISOs Are Subject. Options granted under this Plan which are designated as ISOs shall be subject to the following terms and conditions:

(a) Exercise Price. The exercise price of an ISO shall be determined in accordance with the applicable provisions of the Code and shall in no event be less than the fair market value of the stock covered by the ISO at the Grant Date; provided, however, that the exercise price of an ISO granted to any person who owns, directly or indirectly (or is treated as owning by reason of attribution rules,

10

currently set forth in Section 424 of the Code), stock of the Company constituting more than 10% of the total combined voting power of all classes of outstanding stock of the Company or of any Affiliate of the Company, shall in no event be less than 110% of such fair market value.

(b) Option Term. Unless an earlier expiration date is specified by the Committee at the Grant Date in the Option Agreement, each ISO shall expire ten years from its Grant Date; except that an ISO granted to any person who owns, directly or indirectly (or is treated as owning by reason of applicable attribution rules currently set forth in Section 424 of the Code) stock of the Company constituting more than 10% of the total combined voting power of the Company’s outstanding stock, or the stock of any Affiliate of the Company, shall expire five years from its Grant Date.

(c) Disqualifying Dispositions. If stock acquired by exercise of an ISO is disposed of within two years from the Grant Date or within one year after the transfer of the stock to the optionee, the holder of the stock immediately prior to the disposition shall promptly notify the Company in writing of the date and terms of the disposition and shall provide such other information regarding the disposition as the Company may reasonably require. Such holder shall pay to the Company any withholding and employment taxes which the Company in its sole discretion deems applicable. The Company may instruct its stock transfer agent by appropriate means, including placement of legends on stock certificates, not to transfer stock acquired by exercise of an ISO unless it has been advised by the Company that the requirements of this Section have been satisfied.

6.4. Vesting of Options. Unless otherwise provided by the Committee in the applicable Option Agreement, Options granted pursuant to the Plan shall vest as follows:

(a) 34% of the Options shall vest on the Grant Date;

(b) 33% of the Options granted shall vest on each of the first anniversary and second anniversary of the Grant Date; provided,

11

however, that if during the first year after the Grant Date, the stock price of the Common Stock closes at or above $12.00 (or other price determined by the Committee and set forth in the applicable Option Agreement) for any twenty (20) out of thirty (30) consecutive trading days, the 33% of the Options due to vest on the first anniversary of the Grant Date shall vest immediately at the end of such 20th day, and provided, however, that if during the second year after the Grant Date, the stock price of the Common Stock closes at or above $18.00 (or other price determined by the Committee and set forth in the applicable Option Agreement) for any twenty (20) out of thirty (30) consecutive trading days, the 33% of the Options due to vest on the second anniversary of the Grant Date shall vest immediately at the end of such 20th day.

7. CHANGE IN CONTROL

(a) Treatment of Outstanding Options. Unless otherwise specifically prohibited under applicable laws, or by the rules and regulations of any governing governmental agencies or national securities exchanges, upon the occurrence of a Change in Control, any and all Secondary Options granted hereunder shall become immediately exercisable.

(b) Termination, Modification or Amendment of Change in Control Provisions. Notwithstanding any other provision of this Plan or any Option Agreement provision, the provisions of this Article 7 may not be terminated, amended, or modified on or after the date of a Change in Control to affect adversely any Secondary Option theretofore granted under the Plan without the prior written consent of the optionee with respect to said optionee’s outstanding Secondary Options.

(c) Definition of Change in Control. A Change in Control of the Company shall be deemed to have occurred as of the first day that any one or more of the following conditions shall have been satisfied:

(1) The acquisition by any Person of Beneficial Ownership of 20% or more of either (i) the then outstanding

12

shares of Common Stock of the Company, or (ii) the combined voting power of the outstanding voting securities of the Company entitled to vote generally in the selection of Directors; provided, however, that for purposes of this subsection, the following transactions shall not constitute a Change of Control: (A) any acquisition directly from the Company through a public offering of shares of Common Stock of the Company, (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (D) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (3) below;

(2) The cessation, for any reason, of the individuals who constitute the Company’s Board of Directors as of the date hereof (“Incumbent Board”) to constitute at least a majority of the Company’s Board of Directors; provided, however, that any individual becoming a Director following the date hereof whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the Directors then comprising the Incumbent Board shall be considered as though such individual was a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs because of an actual or threatened election contest with respect to the election or removal of Directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Company’s Board of Directors;

(3) The consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (“Business Combination”) unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the Beneficial Owners, respectively, of the outstanding shares of Common Stock of the Company and the outstanding

13

voting securities of the Company immediately before such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of Common Stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of Directors, as the case may be, of the Company resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately before such Business Combination of the outstanding shares of Common Stock and the outstanding voting securities of the Company, as the case may be; (ii) no party (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed before the Business Combination; and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Company’s Board of Directors at the time of the execution of the initial agreement, or of the action of the Company’s Board of Directors, providing for such Business Combination; or

(4) The approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.

(5) Any other condition or event (i) that the Committee determines to be a “Change in Control” within the meaning of this Article 7 and (ii) that is set forth as a supplement to this Article 7 in the Option Agreement.

14

The term “Beneficial Owner” or “Beneficial Ownership”, as used in this Article 7, has the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act. The term “Person”, as used in this Article 7, 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, including a “group” as defined in Section 13(d) thereof.

8. SALE OF BUSINESS UNIT OF COMPANY

The Committee, in connection with the sale of any subsidiary, Affiliate, division or other business unit of the Company, may within the Committee’s sole and absolute discretion cause any or all Options granted hereunder to optionees whose Options or rights under Options will be adversely affected by such transaction (a) to become immediately exercisable, or (b) to remain exercisable after such transaction for such period as the Committee deems appropriate under the circumstances, or both (a) and (b). The provision of this Article 8 and the actions of the Committee taken pursuant to this Article 8 shall be effective upon action of the Committee alone without amendment to any option agreement or the consent of any optionee.

9. MANNER OF EXERCISE

An optionee wishing to exercise an Option shall give proper notification to the Company at its principal executive office, to the attention of the Corporate Secretary, accompanied by a notice of exercise in form and substance satisfactory to the Company, by payment of the exercise price for such shares in a form and manner as the Committee may from time to time approve and by such other documents as the Committee may request. The date the Company receives proper notification of an exercise hereunder accompanied by payment of the exercise price and all such other documents will be considered the date the Option was exercised. Promptly after receipt of proper notification of exercise of an Option, the Company shall, without stock issue or transfer taxes to the optionee or any other person entitled to exercise the Option, deliver to the optionee or such other person a certificate or certificates for the requisite number of shares of stock. An optionee or transferee of an Option shall not have any privileges as stockholder with respect to any stock covered by the Option until the date of issuance of a stock certificate.

15

10. RELATIONSHIP WITH THE COMPANY

Nothing in this Plan or any Option granted hereunder shall interfere with or limit in any way the right of the Company to terminate any optionee’s employment, affiliation or other relationship with the Company at any time, nor confer upon any optionee any right to continue in the employ of, as a consultant to, as a director of, or otherwise affiliated in any way with, the Company.

11. AMENDMENT, SUSPENSION OR TERMINATION OF THIS PLAN

The Committee may, at any time and in any manner, amend, suspend, or terminate this Plan or any award outstanding under this Plan; provided, however, that no such amendment or discontinuance shall:

(a) be made without stockholder approval; (1) to the extent such approval is required by law, agreement or the rules of any exchange or automated quotation system upon which the Common Stock is listed or quoted or (2) to the extent that any outstanding Option is canceled and regranted or repriced;

(b) adversely alter or impair the rights of optionees with respect to awards previously made under this Plan without the consent of the holder thereof; or

(c) make any change that would disqualify any provision of this Plan intended to be so qualified, from the exemption provided by Rule 16b-3.

12. LIABILITY AND INDEMNIFICATION OF COMMITTEE

No member of the Committee shall be liable for any act or omission on such member’s own part, including, but not limited to, the exercise of any power or discretion given to such member under this Plan, except for

16

those acts or omissions resulting from such member’s own gross negligence or willful misconduct. The Company shall indemnify each present and future member of the Committee against, and each member of the Committee shall be entitled without further act on his or her part to indemnity from the Company for, all expenses (including attorneys’ fees and the amount of judgments and the amount of approved settlements made with a view to the curtailment of costs of litigation, other than amounts paid to the Company itself) reasonably incurred by such person in connection with or arising out of any action, suit, or proceeding to which the Committee or any member of the Committee may be a party by reason of any action taken or failure to act under or in connection with the Plan or any option granted or not granted under the Plan to the full extent permitted by law and by the Certificate of Incorporation and Bylaws of the Company, as amended. The right of indemnity described in this Article 12 shall be in addition to such other rights of indemnification as the members of the Committee shall otherwise be entitled because of their serving on the Board of Directors of the Company or as an employee of the Company.

13. EFFECTIVE DATE OF THIS PLAN

This Plan first became effective upon adoption by the Board of Directors on February 1, 1995 and was amended on May 12, 1995. This Amended and Restated Caremark Rx, Inc. 1995 Stock Option Plan is an amendment and restatement of that Plan and was adopted by the Committee on August 17, 2000.

17

EX-10.29

Exhibit 10.29

AMENDMENT

TO

AMENDED AND RESTATED CAREMARK RX, INC. 1995 STOCK OPTION PLAN

EFFECTIVE NOVEMBER 15, 2000

The Amended and Restated Caremark Rx, Inc. 1995 Stock Option Plan (the “Plan”) is hereby amended as follows:

1. Amendment Regarding Transferability of Nonqualified Stock Options. Section 6.1(e)(2) of the Plan is hereby amended by deleting Section 6.1(e)(2) in its entirety and substituting the following new Section 6.1(e)(2) therefor:

(2) Nonqualified Stock Options. No NQO granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Notwithstanding the foregoing, to the extent not prohibited by any statute, rule or regulation applicable to the Plan, the Options or the registration with the Securities and Exchange Commission of the Common stock to be issued upon exercise of the Option, the Committee may, in its discretion, authorize all or a portion of NQOs granted to an optionee to be on terms which permit transfer by such optionee to (i) the spouse, children or grandchildren of the optionee (“Immediate Family Members”), (ii) a trust or trusts for the exclusive benefit of such Immediate Family Members, or (iii) a partnership in which such Immediate Family Members are the only partners, provided that (y) the Option Agreement pursuant to which such NQOs are granted must be approved by the Committee, and must expressly provide for transferability in a manner consistent with this Section, and (z) subsequent transfers of transferred NQOs shall be prohibited except those by will or the laws of descent and distribution. Following transfer, any such NQOs shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, provided that for purposes of this Plan, the term “optionee” shall be deemed to refer to the transferee. The events of termination of employment shall continue to be applied with respect to the original

1

optionee, following which the NQOs shall be exercised by the transferee only to the extent, and for the periods specified in Section 6.1(g). Notwithstanding the foregoing, should the Committee provide that NQOs granted be transferable, the Company by such action incurs no obligation to notify or otherwise provide notice to a transferee of early termination of the NQO. In the event of a transfer, as set forth above, the original optionee is and will remain subject to an responsible for any applicable withholding taxes upon the exercise of such NQOs.

2. Effective Date. The effective date of this Amendment shall be November 15, 2000.

3. Miscellaneous.

(a) Capitalized terms not otherwise defined herein shall have the meanings given them in the Plan.

(b) Except as specifically amended hereby, the Plan shall remain in full force and effect.

IN WITNESS WHEREOF, the Company has caused this Amendment to the Amended and Restated Caremark Rx, Inc. 1995 Stock Option Plan to be executed as of the Effective Date.

CAREMARK RX, INC.

Sara J. Finley, Corporate Secretary

2

EX-10.30

Exhibit 10.30

SECOND AMENDMENT

TO THE

CAREMARK RX, INC. 1995 STOCK OPTION PLAN

(FORMERLY THE AMENDED & RESTATED MEDPARTNERS, INC.

1995 STOCK OPTION PLAN)

This Second Amendment to the Caremark Rx, Inc. 1995 Stock Option Plan (formerly the Amended & Restated Medpartners, Inc. 1995 Stock Option Plan) (the “Plan”) to be effective as of January 12, 2001.

WITNESSETH:

WHEREAS, Caremark Rx, Inc. (the “Company”) currently sponsors and maintains the Caremark Rx, Inc. 1995 Stock Option Plan (formerly the Amended & Restated Medpartners, Inc. 1995 Stock Option Plan) (the “Plan”); and

WHEREAS, Section 11 of the Plan grants the Compensation Committee of the Board the power at any time to amend the Plan, and the Compensation Committee now wishes to amend the Plan to modify the vesting provisions for options granted under the Plan on and after January 12, 2001;

NOW, THEREFORE, the Plan is hereby amended as indicated below:

1.

Section 6.4 of the Plan is amended effective as of January 12, 2001, to read as follows:

6.4 Vesting of Options. Except as set forth by the Committee in the applicable Option Agreement, Options granted pursuant to the Plan shall vest as follows:

(a) 34% of the Options shall vest on the Grant Date;

(b) 33% of the Options granted shall vest on each of the first anniversary and second anniversary of the Grant Date; provided, however, that for Options granted prior to January 12, 2001, if during

Second Amendment to the

Caremark Rx, Inc. 1995 Stock Option Plan

Page 1

the first year after the Grant Date, the stock price of the Common Stock closes at or above $12.00 (or such other price as determined by the Committee and set forth in the applicable Option Agreement) for any twenty (20) out of thirty (30) consecutive trading days, the 33% of the Options due to vest on the first anniversary of the Grant Date shall vest immediately at the end of such 20th day, and provided, however, that for Options granted prior to January 12, 2001, if during the second year after the Grant Date, the stock price of the Common Stock closes at or above $18.00 (or such other price as determined by the Committee and set forth in the applicable Option Agreement) for any twenty (20) out of thirty (30) consecutive trading days, the 33% of the Options due to vest on the second anniversary of the Grant Date shall vest immediately at the end of such 20th day.

2.

The name of the Plan is changed effective as of January 12, 2001 from the Amended & Restated Medpartners, Inc. 1995 Stock Option Plan to the Caremark Rx, Inc. 1995 Stock Option Plan. All references in any Company documents to the Amended & Restated Medpartners, Inc. 1995 Stock Option Plan shall, after January 12, 2001, be a reference to the Caremark Rx, Inc. 1995 Stock Option Plan.

3.

All other provisions of the Plan not inconsistent herewith are hereby confirmed and ratified.

Approved by the Board of Directors

by resolutions on January 12, 2001.

Second Amendment to the

Caremark Rx, Inc. 1995 Stock Option Plan

Page 2

EX-10.31

Exhibit 10.31

CAREMARK RX, INC.

1997 LONG TERM INCENTIVE COMPENSATION PLAN

CONTENTS

ARTICLE 1 ESTABLISHMENT, OBJECTIVES AND DURATION	1
1.1 ESTABLISHMENT OF THE PLAN	1
1.2 OBJECTIVES OF THE PLAN	1
1.3 DURATION OF THE PLAN	1
ARTICLE 2 DEFINITIONS	2
2.1 “AFFILIATE”	2
2.2 “AWARD”	2
2.3 “AWARD AGREEMENT”	2
2.4 “BENEFICIAL OWNER” or “BENEFICIAL OWNERSHIP”	2
2.5 “BOARD” or “BOARD OF DIRECTORS”	2
2.6 “CAUSE”	3
2.7 “CHANGE IN CONTROL”	5
2.8 “CODE”	5
2.9 “COMMITTEE”	5
2.10 “COMPANY”	5
2.11 “DIRECTOR”	5
2.12 “DISABILITY”	5
2.13 “EFFECTIVE DATE”	5
2.14 “ELIGIBLE PERSON”	5
2.15 “EMPLOYEE”	6
2.16 “EXCHANGE ACT”	6
2.17 “FAIR MARKET VALUE”	6
2.18 “IMMEDIATE FAMILY MEMBERS”	6
2.19 “INCENTIVE STOCK OPTION” or “ISO”	6
2.20 “INSIDER”	6

i

2.21 “NONEMPLOYEE DIRECTOR”	6
2.22 “NONQUALIFIED STOCK OPTION” or “NQSO”	6
2.23 “OPTION”	7
2.24 “OPTION PRICE”	7
2.25 “PARTICIPANT”	7
2.26 “PERIOD OF RESTRICTION”	7
2.27 “PERSON”	7
2.28 “PLAN”	7
2.29 “RESTRICTED STOCK”	7
2.30 “RETIREMENT”	7
2.31 “SHARES”	8
2.32 “SUBSIDIARY”	8
ARTICLE 3 ADMINISTRATION	8
3.1 THE COMMITTEE	8
3.2 AUTHORITY OF THE COMMITTEE	8
3.3 DECISIONS BINDING	8
3.4 COSTS OF PLAN	9
ARTICLE 4 SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS	9
4.1 NUMBER OF SHARES AVAILABLE FOR GRANTS	9
4.2 ADJUSTMENTS IN AUTHORIZED SHARES	10
ARTICLE 5 ELIGIBILITY AND PARTICIPATION	10
5.1 ELIGIBILITY	10
5.2 ACTUAL PARTICIPATION	10
ARTICLE 6 STOCK OPTIONS	10
6.1 GRANT OF OPTIONS	10
6.2 AWARD AGREEMENT	10
6.3 OPTION PRICE	11
6.4 VESTING OF OPTIONS	11

ii

6.5 DURATION OF OPTIONS		12
6.6 EXERCISE OF OPTIONS		12
6.7 PAYMENT		12
6.8 RESTRICTIONS ON SHARE TRANSFERABILITY		13
6.9 TERMINATION OF EMPLOYMENT		13
6.10 NONTRANSFERABILITY OF OPTIONS		14
	(a)    INCENTIVE STOCK OPTIONS	14
	(b)    NONQUALIFIED STOCK OPTIONS	14
ARTICLE 7 RESTRICTED STOCK		15
7.1 GRANT OF RESTRICTED STOCK		15
7.2 RESTRICTED STOCK AGREEMENT		16
7.3 TRANSFERABILITY		16
7.4 OTHER RESTRICTIONS		16
7.5 VOTING RIGHTS		16
7.6 DIVIDENDS AND OTHER DISTRIBUTIONS		17
7.7 TERMINATION OF EMPLOYMENT		17
ARTICLE 8 BENEFICIARY DESIGNATION		18
ARTICLE 9 DEFERRALS		18
ARTICLE 10 RIGHTS OF EMPLOYEES		18
10.1 EMPLOYMENT		18
10.2 PARTICIPATION		18
ARTICLE 11 CHANGE IN CONTROL		19
11.1 TREATMENT OF OUTSTANDING AWARDS		19
11.2 TERMINATION, AMENDMENT, AND MODIFICATIONS OF CHANGE-IN-CONTROL PROVISIONS		19
ARTICLE 12 SALE OF BUSINESS UNIT OF COMPANY		19
ARTICLE 13 AMENDMENT, MODIFICATION, AND TERMINATION		20
13.1 AMENDMENT, MODIFICATION, AND TERMINATION		20
13.2 ADJUSTMENT OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL OR NONRECURRING EVENTS		20
13.3 AWARDS PREVIOUSLY GRANTED		20

iii

ARTICLE 14 WITHHOLDING	21
14.1 TAX WITHHOLDING	21
14.2 SHARE WITHHOLDING	21
ARTICLE 15 INDEMNIFICATION	21
ARTICLE 16 SUCCESSORS	22
ARTICLE 17 LEGAL CONSTRUCTION	22
17.1 GENDER AND NUMBER	22
17.2 SEVERABILITY	22
17.3 REQUIREMENTS OF LAW	22
17.4 SECURITIES LAW COMPLIANCE	22
17.5 GOVERNING LAW	23

iv

CAREMARK RX, INC.

1997 LONG TERM INCENTIVE COMPENSATION PLAN

ARTICLE 1

ESTABLISHMENT, OBJECTIVES AND DURATION

1.1 ESTABLISHMENT OF THE PLAN. Caremark Rx, Inc., a Delaware corporation (hereinafter referred to as the “Company”), hereby establishes an incentive compensation plan to be known as the “Caremark Rx, Inc. 1997 Long Term Incentive Compensation Plan” (hereinafter referred to as the “Plan”), as set forth in this document. The Plan permits the grant of Incentive Stock Options, Nonqualified Stock Options and Restricted Stock.

The Plan shall become effective as of February 25, 1997 (the “Effective Date”) and shall remain in effect as provided in Section 1.3 hereof.

1.2 OBJECTIVES OF THE PLAN. The objectives of the Plan are to optimize the profitability and growth of the Company through the use of incentives which are consistent with the Company’s objectives and which link the interests of Participants to those of the Company’s stockholders; to provide Participants with an incentive for excellence in individual performance; and to promote teamwork among Participants.

The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of Participants who make significant contributions to the Company’s success and to allow Participants to share in the success of the Company.

1.3 DURATION OF THE PLAN. The Plan shall commence on the Effective Date, as described in Section 1.1 hereof, and shall remain in effect, subject to the right of the Board of Directors or the Committee to amend or terminate the Plan at any time pursuant to Article 12 hereof, until all Shares subject to it shall have been purchased or acquired according to the Plan’s provisions. However, in no event may an Incentive Stock Option be granted under the Plan on or after February 25, 2007.

1

ARTICLE 2

DEFINITIONS

Whenever used in the Plan, the following terms shall have the meanings set forth below, and when the meaning is intended, the initial letter of the word shall be capitalized:

2.1 “AFFILIATE” means a “parent corporation” or “subsidiary corporation” as defined in Section 424 of the Code.

2.2 “AWARD” means, individually or collectively, a grant under this Plan of Incentive Stock Options, Nonqualified Stock Options or Restricted Stock.

2.3 “AWARD AGREEMENT” means an agreement entered into by the Company and each Participant setting forth the terms and provisions applicable to Awards granted under this Plan.

2.4 “BENEFICIAL OWNER” or “BENEFICIAL OWNERSHIP” shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act.

2.5 “BOARD” or “BOARD OF DIRECTORS” means the Board of Directors of the Company.

2.6 “CAUSE” shall be determined by the Committee, exercising good faith and reasonable judgment, and shall mean the occurrence of any one or more of the following:

(a) The willful and continued failure by the Participant to substantially perform his duties (other than any such failure resulting from the Participant’s Disability) after a written demand for substantial performance is delivered by the Committee to the Participant that specifically identifies the

2

manner in which the Committee believes that the Participant has not substantially performed his duties, and the Participant has failed to remedy the situation within 30 calendar days of receiving such notice; or

(b) The Participant’s conviction for committing an act of fraud, embezzlement, theft or another act constituting a felony; or

(c) The willful engaging by the Participant in gross misconduct materially and demonstrably injurious to the Company, as determined by the Committee. However, no act or failure to act on the Participant’s part shall be considered “willful” unless done, or omitted to be done, by the Participant not in good faith and without reasonable belief that his action or omission was in the best interest of the Company.

2.7 “CHANGE IN CONTROL” of the Company shall be deemed to have occurred as of the first day that any one or more of the following conditions shall have been satisfied:

(a) The acquisition by any Person of Beneficial Ownership of 20% or more of either (i) the then outstanding Shares, or (ii) the combined voting power of the outstanding voting securities of the Company entitled to vote generally in the selection of Directors; provided, however, that for purposes of this subsection, the following transactions shall not constitute a Change of Control: (A) any acquisition directly from the Company through a public offering of Shares, (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (D) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) below;

(b) The cessation, for any reason, of the individuals who constitute the Company’s Board of Directors as of the date hereof (“Incumbent Board”) to constitute at least a majority of the Company’s Board of Directors; provided, however, that any individual becoming a Director following the date hereof whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the Directors then comprising the Incumbent Board shall be considered as though such individual was a member of the Incumbent Board, but

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excluding, for this purpose, any such individual whose initial assumption of office occurs because of an actual or threatened election contest with respect to the election or removal of Directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Company’s Board of Directors;

(c) The consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (“Business Combination”) unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the Beneficial Owners, respectively, of the outstanding Shares and the outstanding voting securities of the Company immediately before such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding Shares and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of Directors, as the case may be, of the Company resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately before such Business Combination of the outstanding Shares and the outstanding voting securities of the Company, as the case may be; (ii) no party (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed before the Business Combination; and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Company’s Board of Directors at the time of the execution of the initial agreement, or of the action of the Company’s Board of Directors, providing for such Business Combination; or

(a) The approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.

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(b) Any other condition or event (i) that the Committee determines to be a “Change in Control” within the meaning of this Section 2.7 and (ii) that is set forth as a supplement to this Section 2.7 in the Award Agreement.

2.8 “CODE” means the Internal Revenue Code of 1986, as amended from time to time.

2.9 “COMMITTEE” means the Compensation Committee of the Board, as specified in Article 3 herein, or such other Committee appointed by the Board to administer the Plan with respect to grants of Awards.

2.10 “COMPANY” means Caremark Rx, Inc., and also means any corporation of which a majority of the voting capital stock is owned directly or indirectly by Caremark Rx, Inc. or by any of its Subsidiaries, and any other corporation designated by the Committee as being a Company hereunder (but only during the period of such ownership or designation).

2.11 “DIRECTOR” means any individual who is a member of the Board of Directors of the Company.

2.12 “DISABILITY”, as applied to a Participant, means that the Participant (a) has established to the satisfaction of the Committee that the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to last for a continuous period of not less than 12 months (all within the meaning of Section 22(e)(3) of the Code), and (b) has satisfied any requirement imposed by the Committee in regard to evidence of such disability.

2.13 “EFFECTIVE DATE” shall have the meaning ascribed to such term in Section 1.1 hereof.

2.14 “ELIGIBLE PERSON” shall mean all Employees, Directors or consultants of the Company or any Affiliate; provided, however, that no Award may be granted to anyone who is not an “employee” as that term is defined in General Instruction A.(1)(a) of Form S-8, as such definition may be amended from time to time, without first receiving advice and guidance from the Company’s outside counsel as to the effect of such grant.

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2.15 “EMPLOYEE” means any officer or employee of the Company.

2.16 “EXCHANGE ACT” means the Securities Exchange Act of 1934, as amended from time to time, or any successor act thereto.

2.17 “FAIR MARKET VALUE” Except as otherwise determined by the Committee, the “Fair Market Value” of a Share as of any date shall be equal to the closing sale price of a Share as reported on The National Association of Securities Dealers’ New York Stock Exchange Composite Reporting Tape (or if the Shares are not traded on The New York Stock Exchange, the closing sale price on the exchange on which it is traded or as reported by an applicable automated quotation system) (the “Composite Tape”), on the applicable date or, if no sales of Shares are reported on such date, the closing sale price of a Share on the date the Shares was last reported on the Composite Tape (or such other exchange or automated quotation system, if applicable).

2.18 “IMMEDIATE FAMILY MEMBERS” means the spouse, children and grandchildren of a Participant.

2.19 “INCENTIVE STOCK OPTION” or “ISO” means an option to purchase Shares granted under Article 6 herein and which is designated as an Incentive Stock Option and which is intended to meet the requirements of Code Section 422.

2.20 “INSIDER” shall mean an individual who is, on the relevant date, a Director, a 10% Beneficial Owner of any class of the Company’s equity securities that is registered pursuant to Section 12 of the Exchange Act or an officer of the Company, as defined under Section 16 of the Exchange Act and as determined by the Board of Directors from time to time.

2.21 “NONEMPLOYEE DIRECTOR” means an individual who is a member of the Board of Directors of the Company but who is not an Employee of the Company.

2.22 “NONQUALIFIED STOCK OPTION” or “NQSO” means an option to purchase Shares granted under Article 6 herein and which is not intended to meet the requirements of Code Section 422.

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2.23 “OPTION” means an Incentive Stock Option or a Nonqualified Stock Option, as described in Article 6 herein.

2.24 “OPTION PRICE” means the price at which a Share may be purchased by a Participant pursuant to an Option.

2.25 “PARTICIPANT” means an Eligible Person who has outstanding an Award granted under the Plan.

2.26 “PERIOD OF RESTRICTION” means the period during which the transfer of Shares of Restricted Stock is limited in some way (based on the passage of time, the achievement of performance objectives, or upon the occurrence of other events as determined by the Committee, at its discretion), and the Shares of Restricted Stock are subject to a substantial risk of forfeiture, as provided in Article 7 herein.

2.27 “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, including a “group” as defined in Section 13(d) thereof.

2.28 “PLAN” means the Caremark Rx, Inc. 1997 Long Term Incentive Compensation Plan.

2.29 “RESTRICTED STOCK”means an Award granted to a Participant pursuant to Article 7 herein.

2.30 “RETIREMENT” as applied to a Participant, means the Participant’s termination of employment in a manner which qualifies the Participant to receive immediately payable retirement benefits under the applicable retirement plan maintained by the Company (the “Retirement Plan”), under the successor or replacement of such Retirement Plan if it is then no longer in effect, or under any other retirement plan maintained or adopted by the Company which is determined by the Committee to be the functional equivalent of such Retirement Plan; or, with respect to a Participant who may not or has not participated in a retirement plan maintained by the Company or an Affiliate, “Retirement” shall have the meaning determined by the Committee from time to time.

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2.31 “SHARES” means Common Stock of Caremark Rx, Inc., par value $.001 per share.

2.32 “SUBSIDIARY” means any corporation, partnership, joint venture or other entity in which the Company has a majority voting interest.

ARTICLE 3

ADMINISTRATION

3.1 THE COMMITTEE. The Plan shall be administered by the Committee, or by any other committee appointed by the Board, which Committee shall consist solely of two or more “Nonemployee Directors” within the meaning of Rule 16b-3 under the Exchange Act, or any successor provision. The members of the Committee shall be appointed from time to time by, and shall serve at the discretion of, the Board of Directors.

3.2 AUTHORITY OF THE COMMITTEE. Except as limited by law or by the Certificate of Incorporation or Bylaws of the Company, and subject to the provisions herein, the Committee shall have full power to select Employees who shall participate in the Plan; determine the sizes and types of Awards; determine the terms and conditions of Awards in a manner not inconsistent with the Plan; construe and interpret the Plan and any Award Agreement or other instrument entered into under the Plan as they apply to Participants; establish, amend, or waive rules and regulations for the Plan’s administration as they apply to Participants; alter, amend, suspend or terminate the Plan in whole or in part; and (subject to the provisions of Article 13 herein) amend the terms and conditions of any outstanding Award to the extent such terms and conditions are within the discretion of the Committee as provided in the Plan. Further, the Committee shall make all other determinations which may be necessary or advisable for the administration of the Plan, as the Plan applies to Participants. As permitted by law, the Committee may delegate its authority as identified herein.

3.3 DECISIONS BINDING. All determinations and decisions made by the Committee pursuant to the provisions of the Plan and all related orders and

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resolutions of the Board shall be final, conclusive and binding on all persons, including the Company, its stockholders, Employees, Participants and their estates and beneficiaries.

3.4 COSTS OF PLAN. The costs and expenses incurred in the operation and administration of the Plan shall be borne by the Company.

ARTICLE 4

SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS

4.1 NUMBER OF SHARES AVAILABLE FOR GRANTS. Subject to adjustment as provided in Section 4.2 herein, the number of Shares hereby reserved for issuance to Participants under the Plan shall be 6,725,000.

The number of Shares reserved for issuance under the Plan shall automatically increase on the first day of each calendar year during the term of this Plan, beginning with the 1998 calendar year, by an amount equal to 1% of the Shares outstanding on December 31 of the immediately preceding year. However, such additional Shares shall not be available for grants of Incentive Stock Options, unless and until the increase in the number of Shares provided for herein is subsequently approved by the stockholders of the Company in accordance with Section 422 of the Code.

Shares issued upon exercise of Options or Awards of Restricted Stock under the Plan may be either authorized but unissued Shares or Shares re-acquired by the Company. If, on or prior to the termination of the Plan, an Award granted thereunder expires or is terminated for any reason without having been exercised or vested in full, the unpurchased or unvested Shares covered thereby will again become available for the grant of Awards under the Plan. Shares covered by Options surrendered in connection with the exercise of other Options shall not be deemed to have been exercised and shall again become available for the grant of awards under the Plan.

Notwithstanding the foregoing, the maximum number of Shares of Restricted Stock granted pursuant to Article 7 herein shall be an amount equal to one-fifth of the total number of Shares reserved for issuance under the Plan.

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4.2 ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any change in corporate capitalization, such as a stock split, or a corporate transaction, such as any merger, consolidation, separation, including a spin-off, or other distribution of stock or property (excluding cash dividends) of the Company, any reorganization (whether or not such reorganization comes within the definition of such term in Code Section 368) or any partial or complete liquidation of the Company, such adjustment shall be made in the number and class of Shares which may be delivered under Section 4.1, in the number and class of and/or price of Shares subject to outstanding Awards granted under the Plan, and in the Award limits set forth in Section 4.1, as may be determined to be appropriate and equitable by the Committee, in its sole discretion, to prevent dilution or enlargement of rights; provided, however, that the number of Shares subject to any Award shall always be a whole number.

ARTICLE 5

ELIGIBILITY AND PARTICIPATION

5.1 ELIGIBILITY. All Eligible Persons are eligible to participate in this Plan.

5.2 ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the Committee may, from time to time, select from all Eligible Persons, those to whom Awards shall be granted and shall determine the nature and amount of each Award.

ARTICLE 6

STOCK OPTIONS

6.1 GRANT OF OPTIONS. Subject to the terms and provisions of the Plan, Options may be granted to Participants in such number, and upon such terms, and at any time and from time to time as shall be determined by the Committee.

6.2 AWARD AGREEMENT. Each Option grant shall be evidenced by an

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Award Agreement that shall specify the Option Price, the duration of the Option, the number of Shares to which the Option pertains, and such other provisions as the Committee shall determine. Each such Award Agreement shall incorporate by reference the terms and provisions of the Plan as in effect at the time of its execution and may contain such other terms and provisions not contrary to the Plan as shall be approved and adopted by the Committee. The Award Agreement also shall specify whether the Option is intended to be an ISO within the meaning of Code Section 422, or an NQSO whose grant is intended not to fall under the provisions of Code Section 422.

6.3 OPTION PRICE. The Option Price for each grant of an Option under this Plan shall be at least equal to 100% of the Fair Market Value of a Share on the date the Option is granted; provided, however, that the exercise price of an ISO granted to any person who owns, directly or indirectly, (or is treated as owning by reason of attribution rules, currently set forth in Code Section 424), stock of the Company constituting more than 10% of the total combined voting power of the Company’s outstanding stock, or the stock of any of its corporate subsidiaries, shall in no event be less than 110% of the Fair Market Value of such Shares.

6.4 VESTING OF OPTIONS. Except as provided by the Committee in the applicable Award Agreement, Options will vest and become exercisable as follows:

(a) 34% of the Options shall vest on the date such options are granted;

(b) 33% of the Options granted shall vest on each of the first anniversary and second anniversary of the date such Options are granted; provided, however, that if during the first year after the date such Secondary Options are granted, the stock price of the Shares closes at or above $12.00 (or such other price determined by the Committee and set forth in the applicable Award Agreement) for any twenty (20) out of thirty (30) consecutive trading days, the 33% of the Options due to vest on the first anniversary of the date such Secondary Options are granted shall vest immediately at the end of such 20th day, and provided, however, that if during the second year after the date such Options are granted, the stock price of the Shares closes at or above $18.00 (or such other price determined by the

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Committee and set forth in the applicable Award Agreement) for any twenty (20) out of thirty (30) consecutive trading days, the 33% of the Options due to vest on the second anniversary of the date such Options are granted shall vest immediately at the end of such 20th day.

6.5 DURATION OF OPTIONS. Each Option granted to a Participant shall expire at such time as the Committee shall determine at the time of grant; provided, however, that no Incentive Stock Option shall be exercisable later than the tenth anniversary date of its grant. Furthermore, each Stock Option granted to any person who owns, directly or indirectly (or is treated as owning by reason of attribution rules, currently set forth in Internal Revenue Code Section 424), stock of the Company constituting more than 10% of the total combined voting power of the Company’s outstanding stock, or the stock of any of its corporate subsidiaries, is not exercisable after the expiration of five years from the date such Option is granted.

6.6 EXERCISE OF OPTIONS. Options granted under this Article 6 shall be exercisable at such times as set forth in the vesting schedule in Section 6.4 hereof, unless otherwise set forth in the Award Agreement, and be subject to such restrictions and conditions as the Committee shall in each instance approve, which need not be the same for each grant or for each Participant. Notwithstanding any contrary provisions contained in this Plan, the aggregate Fair Market Value (determined as of the time each ISO is granted) of the Shares with respect to which ISO’s issued to any one person thereunder are exercisable for the first time during any calendar year shall not exceed $100,000.

6.7 PAYMENT. Options granted under this Article 6 shall be exercised by the delivery of a proper notice of exercise to the Company, setting forth the number of Shares with respect to which the Option is to be exercised.

No shares of Common Stock shall be issued on the exercise of an Option unless the Option Price is paid for in full at the time of exercise. Payment shall be made in cash, which may be paid by check or other instrument acceptable to the Company. In addition, subject to compliance with applicable laws and regulations and such conditions as the Committee may impose, the Committee may elect to accept payment in shares of Common Stock of the Company which are

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already owned by the Participant, valued at the Fair Market Value thereof on the date of exercise. The Committee may also allow a Participant to exercise an Option by use of proceeds to be received from the sale of Common Stock issuable pursuant to the Option being exercised.

As soon as practicable after receipt of proper notification of exercise and full payment, the Company shall deliver to the Participant, in the Participant’s name, Share certificates in an appropriate amount based upon the number of Shares purchased under the Option(s).

6.8 RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose such restrictions on any Shares acquired pursuant to the exercise of an Option granted under this Article 6 as it may deem advisable, including, without limitation, restrictions under applicable federal securities laws, under the requirements of any stock exchange or market upon which such Shares are then listed and/or traded, and under any blue sky or state securities laws applicable to such Shares.

6.9 TERMINATION OF EMPLOYMENT.

(a) Except as otherwise provided in an Award Agreement or as provided in paragraphs (b) and (c) below and except as otherwise specifically provided in the Award Agreement, each Option, to the extent it has not been previously exercised, shall terminate upon the earliest to occur of: (a) the expiration of the Option period set forth in the Option Award Agreement; (b) for ISOs, the expiration of three months following the Participant’s Retirement (following the Participant’s Retirement, NQSOs shall terminate upon the expiration of the Option period set forth in the Option Award Agreement); (c) the expiration of 12 months following the Participant’s death or Disability; (d) immediately upon the Participant ceasing to be an employee, officer, consultant, director or otherwise affiliated with the Company for Cause; or (e) the expiration of 90 days following the Participant ceasing to be an employee, officer, consultant, director or otherwise affiliated with the Company for any reason other than Cause, death, Disability, or Retirement.

(b) Except as otherwise provided in an Award Agreement, any Option granted after September 21, 1998 (a “Secondary Option”), to the extent it has

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not been previously exercised, shall terminate upon the earliest to occur of: (a) the expiration of the Secondary Option period set forth in the Award Agreement; (b) the expiration of 12 months following the Participant’s death or Disability; (c) immediately upon termination for Cause (as defined below); or (d) the expiration of 90 days following the Participant’s termination of employment for any reason other than Cause (as defined below), Change in Control, death or Disability.

For purposes of the preceding sentence only, Cause means the Company, Subsidiary or an Affiliate having cause to terminate a Participant’s status as an employee, officer, consultant, or director or other affiliation with the Company under any existing employment agreement between the Participant and the Company, a Subsidiary or an Affiliate or, in the absence of such an employment agreement, upon (i) the determination by the Committee that the Participant has ceased to perform his duties to the Company, a Subsidiary or an Affiliate (other than as a result of his incapacity due to physical or mental illness or injury), which failure amounts to an intentional and extended neglect of his duties to such party, (ii) the Committee’s determination that the Participant has engaged or is about to engage in conduct materially injurious to the Company, a Subsidiary or an Affiliate, or (iii) the Participant having been convicted of a felony.

(c) Notwithstanding the foregoing, any Secondary Option, to the extent it has not been previously exercised prior to a Change in Control shall remain exercisable for its full original term upon and following such Change in Control.

6.10 NONTRANSFERABILITY OF OPTIONS.

(a) INCENTIVE STOCK OPTIONS. No ISO granted under the Plan may be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, all ISOs granted to a Participant under the Plan shall be exercisable during his or her lifetime only by such Participant.

(b) NONQUALIFIED STOCK OPTIONS. No NSO granted under the Plan may be sold, transferred, pledged, assigned or otherwise alienated or hypothecated,

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other than by will or by the laws of descent and distribution. Notwithstanding the foregoing, to the extent not prohibited by any statute, rule or regulation applicable to the Plan, the Options, or the registration with the Securities and Exchange Commission of the Shares to be issued upon exercise of the Options, the Committee may, in its discretion, authorize all or a portion of NQSOs granted to a Participant to be on terms which permit transfer by such Participant to (i) Immediate Family Members, (ii) a trust or trusts for the exclusive benefit of such Immediate Family Members, or (iii) a partnership in which such Immediate Family Members are the only partners, provided that (A) there may be no consideration for any such transfer, (B) the Award Agreement pursuant to which such Options are granted must be approved by the Committee, and must expressly provide for transferability in a manner consistent with this Section, and (C) subsequent transfers of transferred Options shall be prohibited except those by will or the laws of descent and distribution. Following transfer, any such Options shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, provided that for purposes of this Plan, the term “Participant” shall be deemed to refer to the transferee. The events of termination of employment shall continue to be applied with respect to the original Participant, following which the Options shall be exercisable by the transferee only to the extent, and for the periods specified in this Section 6.9. Notwithstanding the foregoing, should the Committee provide that Options granted be transferable, the Company by such action incurs no obligation to notify or otherwise provide notice to a transferee of early termination of the Option. In the event of a transfer, as set forth above, the original Participant is and will remain subject to and responsible for any applicable withholding taxes upon the exercise of such Options.

ARTICLE 7

RESTRICTED STOCK

7.1 GRANT OF RESTRICTED STOCK. Subject to the terms and provisions of the Plan, the Committee, at any time and from time to time, may grant Shares of Restricted Stock to Participants in such amounts as the Committee shall determine. Without limiting the generality of the foregoing, Restricted Shares may be granted in connection with payouts under other compensation programs of the Company.

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7.2 RESTRICTED STOCK AGREEMENT. Each Restricted Stock grant shall be evidenced by a Restricted Stock Award Agreement that shall specify the Period(s) of Restriction, the number of Shares of Restricted Stock granted, and such other provisions as the Committee shall determine.

7.3 TRANSFERABILITY. Except as provided in this Article 7, the Shares of Restricted Stock granted herein may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated until the end of the applicable Period of Restriction established by the Committee and specified in the Restricted Stock Award Agreement, or upon earlier satisfaction of any other conditions, as specified by the Committee in its sole discretion and set forth in the Restricted Stock Award Agreement. All rights with respect to the Restricted Stock granted to a Participant under the Plan shall be available during his or her lifetime only to such Participant.

7.4 OTHER RESTRICTIONS. Subject to Article 8 herein, the Committee shall impose such other conditions and/or restrictions on any Shares of Restricted Stock granted pursuant to the Plan as it may deem advisable including, without limitation, a requirement that Participants pay a stipulated purchase price for each Share of Restricted Stock, restrictions based upon the achievement of specific performance objectives (Company-wide, business unit, and/or individual), time-based restrictions on vesting following the attainment of the performance objectives, and/or restrictions under applicable federal or state securities laws.

At the discretion of the Committee, the Company may retain the certificates representing Shares of Restricted Stock in the Company’s possession until such time as all conditions and/or restrictions applicable to such Shares have been satisfied.

Except as otherwise provided in this Article 7, Shares of Restricted Stock covered by each Restricted Stock grant made under the Plan shall become freely transferable by the Participant after the last day of the applicable Period of Restriction.

7.5 VOTING RIGHTS. During the Period of Restriction, Participants holding Shares of Restricted Stock granted hereunder may exercise full voting rights with respect to those Shares.

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7.6 DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of Restriction, Participants holding Shares of Restricted Stock granted hereunder may be credited with regular cash dividends paid with respect to the underlying Shares while they are so held. Such dividends may be paid currently, accrued as contingent cash obligations, or converted into additional shares of Restricted Stock, upon such terms as the Committee establishes.

The Committee may apply any restrictions to the dividends that the Committee deems appropriate.

In the event that any dividend constitutes a “derivative security” or an “equity security” pursuant to Rule 16(a) under the Exchange Act, such dividend shall be subject to a vesting period equal to the remaining vesting period of the Shares of Restricted Stock with respect to which the dividend is paid.

7.7 TERMINATION OF EMPLOYMENT. Upon a Participant’s death, Disability, or Retirement, all Restricted Shares shall vest immediately. Each Restricted Stock Award Agreement shall set forth the extent to which the Participant shall have the right to retain unvested Restricted Shares following the date the Participant ceases to be an employee, officer, consultant, director or otherwise affiliated with the Company in all other circumstances. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with each Participant, need not be uniform among all Shares of Restricted Stock issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination of employment.

ARTICLE 8

BENEFICIARY DESIGNATION

A Participant under the Plan may make written designation of a beneficiary on forms prescribed by and filed with the Corporate Secretary of the Company. Such beneficiary, or if no such designation of any beneficiary has been

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made, the legal representative of such Participant or such other person entitled thereto as determined by a court of competent jurisdiction, may exercise, in accordance with and subject to the provisions of Article 6, any unterminated and unexpired Option granted to such Participant to the same extent that the Participant himself could have exercised such Option were he alive or able; provided, however, that no Option granted under the Plan shall be exercisable for more Shares than the Participant could have purchased thereunder on the date his employment by, or other relationship with, the Company and its Subsidiaries was terminated.

ARTICLE 9

DEFERRALS

The Committee may permit or require a Participant to defer such Participant’s receipt of the payment of cash or the delivery of Shares that would otherwise be due to such Participant by virtue of the exercise of an Option, the lapse or waiver of restrictions with respect to Restricted Stock, or the satisfaction of any requirements or objectives with respect to performance measures, if any. If any such deferral election is required or permitted, the Committee shall, in its sole discretion, establish rules and procedures for such payment deferrals.

ARTICLE 10

RIGHTS OF EMPLOYEES

10.1 EMPLOYMENT. Nothing in the Plan shall interfere with or limit in any way the right of the Company to terminate any Participant’s employment at any time, nor confer upon any Participant any right to continue in the employ of the Company.

10.2 PARTICIPATION. No Employee shall have the right to be selected to receive an Award under this Plan, or, having been so selected, to be selected to receive a future Award.

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ARTICLE 11

CHANGE IN CONTROL

11.1 TREATMENT OF OUTSTANDING AWARDS. Upon the occurrence of a Change in Control, unless otherwise specifically prohibited under applicable laws, or by the rules and regulations of any governing governmental agencies or national securities exchanges,:

(a) Any and all Options granted hereunder shall become immediately vested and exercisable and shall remain exercisable throughout their entire term; and

(b) Any restriction periods and restrictions imposed on Shares of Restricted Stock shall lapse; provided, however, that the degree of vesting associated with Restricted Stock which has been conditioned upon the achievement of performance conditions pursuant to Section 7.4 herein shall be determined in the manner set forth in Section 7.4 herein.

11.2 TERMINATION, AMENDMENT, AND MODIFICATIONS OF CHANGE-IN-CONTROL PROVISIONS. Notwithstanding any other provision of this Plan or any Award Agreement provision, the provisions of this Article 11 may not be terminated, amended, or modified on or after the date of a Change in Control to affect adversely any Award theretofore granted under the Plan without the prior written consent of the Participant with respect to said Participant’s outstanding Awards.

ARTICLE 12

SALE OF BUSINESS UNIT OF COMPANY

The Committee, in connection with the sale of any Subsidiary, Affiliate, division or other business unit of the Company, may within the Committee’s sole and absolute discretion (1) cause any or all Options granted hereunder to Participants whose Options or rights under Options will be adversely affected by such transaction (a) to become immediately exercisable, or

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(b) to remain exercisable after such transaction for such period as the Committee deems appropriate under the circumstances, or both (a) and (b), or (2) cause the restrictions on any or all Shares of Restricted Stock awarded hereunder to Participants whose Restricted Stock will be adversely affected by such transaction to lapse immediately. The provision of this Article 12 and the actions of the Committee taken pursuant to this Article 12 shall be effective upon action of the Committee alone without amendment to any Award Agreement or the consent of any Participant.

ARTICLE 13

AMENDMENT, MODIFICATION, AND TERMINATION

13.1 AMENDMENT, MODIFICATION, AND TERMINATION. Subject to Section 11.2 herein, the Board or the Committee may at any time and from time to time, alter, amend, suspend or terminate the Plan in whole or in part, except that, without approval of the stockholders of the Company, no such revision or amendment shall increase the number of shares available for grants of ISOs under the Plan or alter the class of participants in the Plan.

Notwithstanding the foregoing, and subject to Section 11.2 herein, neither the Company nor the Board or Committee on its behalf may cancel outstanding Awards and issue substitute Awards in replacement thereof or reduce the exercise price of any outstanding Options without stockholder approval.

13.2 ADJUSTMENT OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL OR NONRECURRING EVENTS. The Committee may make adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events (including, without limitation, the events described in Section 4.2 hereof) affecting the Company or the financial statements of the Company or of changes in applicable laws, regulations, or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan.

13.3 AWARDS PREVIOUSLY GRANTED. No termination, amendment, or

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modification of the Plan shall adversely affect in any material way any Award previously granted under the Plan, without the written consent of the Participant holding such Award.

ARTICLE 14

WITHHOLDING

14.1 TAX WITHHOLDING. The Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy federal, state, and local taxes, domestic or foreign, required by law or regulation to be withheld with respect to any taxable event arising as a result of this Plan.

14.2 SHARE WITHHOLDING. To the extent provided by the Committee, a Participant may elect to have any distribution to be made under this Plan to be withheld or to surrender to the Company Shares already owned by the Participant to fulfill any tax withholding obligation.

ARTICLE 15

INDEMNIFICATION

Each person who is or shall have been a member of the Committee, or of the Board, shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by him or her in settlement thereof, with the Company’s approval, or paid by him or her in satisfaction of any judgment in any such action, suit, or proceeding against him or her, provided he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons

21

may be entitled under the Company’s Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.

ARTICLE 16

SUCCESSORS

All obligations of the Company under the Plan with respect to Awards granted hereunder shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, of all or substantially all of the business and/or assets of the Company, or a merger, consolidation or otherwise.

ARTICLE 17

LEGAL CONSTRUCTION

17.1 GENDER AND NUMBER. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular; and, the singular shall include the plural.

17.2 SEVERABILITY. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.

17.3 REQUIREMENTS OF LAW. The granting of Awards and the issuance of Shares under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.

17.4 SECURITIES LAW COMPLIANCE. With respect to Insiders, transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee.

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17.5 GOVERNING LAW. To the extent not preempted by federal law, the Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the state of Delaware.

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EX-10.32

Exhibit 10.32

AMENDMENT

TO

AMENDED AND RESTATED 1997 LONG TERM INCENTIVE COMPENSATION PLAN

EFFECTIVE NOVEMBER 15, 2000

The Caremark Rx, Inc. Amended and Restated 1997 Long Term Incentive Compensation Plan (the “Plan”) is hereby amended as follows:

1. Amendment Regarding Transferability of Nonqualified Stock Options. Section 6.10(b) of the Plan is hereby amended by deleting Section 6.10(b) in its entirety and substituting the following new Section 6.10(b) therefor:

(b) NONQUALIFIED STOCK OPTIONS. No NQSO granted under the Plan may be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Notwithstanding the foregoing, to the extent not prohibited by any statute, rule or regulation applicable to the Plan, the Options, or the registration with the Securities and Exchange Commission of the Shares to be issued upon exercise of the Options, the Committee may, in its discretion, authorize all or a portion of NQSOs granted to a Participant to be on terms which permit transfer by such Participant to (i) Immediate Family Members, (ii) a trust or trusts for the exclusive benefit of such Immediate Family Members, or (iii) a partnership in which such Immediate Family Members are the only partners, provided that (A) the Award Agreement pursuant to which such Options are granted must be approved by the Committee, and must expressly provide for transferability in a manner consistent with this Section, and (B) subsequent transfers of transferred Options shall be prohibited except those by will or the laws of descent and distribution. Following transfer, any such Options shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, provided that for purposes of this Plan, the term “Participant” shall be deemed to refer to the transferee. The events of termination of employment shall continue to be applied with respect to the original Participant, following which the Options shall be

1

exercisable by the transferee only to the extent, and for the periods specified in this Section 6.10. Notwithstanding the foregoing, should the Committee provide that Options granted be transferable, the Company by such action incurs no obligation to notify or otherwise provide notice to a transferee of early termination of the Option. In the event of a transfer, as set forth above, the original Participant is and will remain subject to and responsible for any applicable withholding taxes upon the exercise of such Options.

2. Effective Date. The effective date of this Amendment shall be November 15, 2000.

3. Miscellaneous.

(a) Capitalized terms not otherwise defined herein shall have the meanings given them in the Plan.

(b) Except as specifically amended hereby, the Plan shall remain in full force and effect.

IN WITNESS WHEREOF, the Company has caused this Amendment to the Caremark Rx, Inc. Amended and Restated 1997 Long Term Incentive Compensation Plan to be executed as of the Effective Date.

CAREMARK RX, INC.

Sara J. Finley, Corporate Secretary

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EX-10.33

Exhibit 10.33

SECOND AMENDMENT

TO THE

CAREMARK RX, INC. 1997 STOCK INCENTIVE PLAN

(FORMERLY THE AMENDED & RESTATED MEDPARTNERS, INC.

1997 LONG TERM INCENTIVE COMPENSATION PLAN)

This Second Amendment to the Caremark Rx, Inc. 1997 Stock Incentive Plan (formerly the Amended & Restated Medpartners, Inc. 1997 Long Term Incentive Compensation Plan) (the “Plan”) to be effective as of January 12, 2001.

WITNESSETH:

WHEREAS, Caremark Rx, Inc. (the “Company”) currently sponsors and maintains the Caremark Rx, Inc. 1997 Stock Incentive Plan (formerly the Amended & Restated Medpartners, Inc. 1997 Long Term Incentive Compensation Plan) (the “Plan”); and

WHEREAS, Section 13.1 of the Plan grants the Compensation Committee of the Board the power at any time to amend the Plan, and the Compensation Committee now wishes to amend the Plan to modify the vesting provisions for options granted under the Plan on and after January 12, 2001;

NOW, THEREFORE, the Plan is hereby amended as indicated below:

1.

Section 6.4 of the Plan is amended effective as of January 12, 2001, to read as follows:

6.4 VESTING OF OPTIONS. Except as provided by the Committee in the applicable Award Agreement, Options shall vest and become exercisable as follows:

(a) 34% of the Options shall vest on the date such options are granted;

(b) 33% of the Options granted shall vest on each of the

Second Amendment to the

Caremark Rx, Inc. 1997 Stock Incentive Plan

Page 1

first anniversary and second anniversary of the date such Options are granted; provided, however, that for Options granted prior to January 12, 2001, if during the first year after the date such Options are granted, the stock price of the Shares closes at or above $12.00 (or such other price as determined by the Committee and set forth in the applicable Award Agreement) for any twenty (20) out of thirty (30) consecutive trading days, the 33% of the Options due to vest on the first anniversary of the date such Options are granted shall vest immediately at the end of such 20th day, and provided, however, that for Stock Options granted prior to January 12, 2001, if during the second year after the date such Options are granted, the stock price of the Shares closes at or above $18.00 (or such other price as determined by the Committee and set forth in the applicable Award Agreement) for any twenty (20) out of thirty (30) consecutive trading days, the 33% of the Options due to vest on the second anniversary of the date such Options are granted shall vest immediately at the end of such 20th day.

2.

The name of the Plan is changed effective as of January 12, 2001 from the Amended & Restated Medpartners, Inc. 1997 Long Term Incentive Compensation Plan to the Caremark Rx, Inc. 1997 Stock Incentive Plan. All references in any Company documents to the Amended & Restated Medpartners, Inc. 1997 Long Term Incentive Compensation Plan shall, after January 12, 2001, be a reference to the Caremark Rx, Inc. 1997 Stock Incentive Plan.

3.

All other provisions of the Plan not inconsistent herewith are hereby confirmed and ratified.

Approved by the Board of Directors by resolutions on January 12, 2001.

Second Amendment to the

Caremark Rx, Inc. 1997 Stock Incentive Plan

Page 2

EX-10.34

Exhibit 10.34

CAREMARK RX, INC.

1998 EMPLOYEE STOCK OPTION PLAN

ARTICLE 1. ESTABLISHMENT, OBJECTIVES AND DURATION

1.1 ESTABLISHMENT OF THE PLAN. Caremark Rx, Inc., a Delaware corporation (hereinafter referred to as the “Company”), hereby establishes a compensation plan to be known as the “Caremark Rx, Inc. 1998 Employee Stock Option Plan” (hereinafter referred to as the “Plan”), as set forth in this document. The Plan permits the grant of Options and is intended to fit within the exception to the New York Stock Exchange’s shareholder approval requirement for broadly-based stock option plans set forth in section 312.03(a)(2) of the New York Stock Exchange Listed Company Manual as of the date hereof.

The Plan shall become effective as of August 6, 1998 (the “Effective Date”) and shall remain in effect as provided in Section 1.3 hereof.

1.2 OBJECTIVES OF THE PLAN. The objectives of the Plan are to optimize the profitability and growth of the Company through the use of stock options, which are consistent with the Company’s objectives and which link the interests of Participants to those of the Company’s stockholders; to provide Participants with an inducement for excellence in individual performance; and to promote teamwork among Participants.

The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of Participants who make significant contributions to the Company’s success and to allow Participants to share in the success of the Company.

1.3 DURATION OF THE PLAN. The Plan shall commence on the Effective Date, as described in Section 1.1 hereof, and shall remain in effect, subject to the right of the Board of Directors or the Committee to amend or terminate the Plan at any time pursuant to Article 11 hereof, until all Shares subject to it shall have been purchased or acquired according to the Plan’s provisions.

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ARTICLE 2. DEFINITIONS

Whenever used in the Plan, the following terms shall have the meanings set forth below, and when the meaning is intended, the initial letter of the word shall be capitalized:

2.1 “AFFILIATE” means a “parent corporation” or “subsidiary corporation” as defined in Section 424 of the Code.

2.2 “AWARD” means, individually or collectively, a grant under this Plan of Options.

2.3 “AWARD AGREEMENT” means either (i) an agreement entered into by the Company and each Participant setting forth the terms and provisions applicable to Awards granted under this Plan or (ii) a certificate executed by the Company and delivered to the Participant evidencing and setting forth the terms and provisions applicable to Awards granted under this Plan.

2.4 “BENEFICIAL OWNER” OR “BENEFICIAL OWNERSHIP” shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act.

2.5 “BOARD” OR “BOARD OF DIRECTORS” means the Board of Directors of the Company.

2.6 “CAUSE” shall be determined by the Committee, exercising good faith and reasonable judgment, and shall mean the occurrence of any one or more of the following:

(a) The willful and continued failure by the Participant to substantially perform his duties (other than any such failure resulting from the Participant’s Disability) after a written demand for substantial performance is delivered by the Committee to the Participant that specifically identifies the manner in which the Committee believes that the Participant has not substantially performed his duties, and the Participant has failed to remedy the situation within 30 calendar days of receiving such notice; or

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(b) The Participant’s conviction for committing an act of fraud, embezzlement, theft or another act constituting a felony; or

(c) The willful engaging by the Participant in gross misconduct materially and demonstrably injurious to the Company, as determined by the Committee. However, no act or failure to act on the Participant’s part shall be considered “willful” unless done, or omitted to be done, by the Participant not in good faith and without reasonable belief that his action or omission was in the best interest of the Company.

2.7 “CHANGE IN CONTROL” of the Company shall be deemed to have occurred as of the first day that any one or more of the following conditions shall have been satisfied:

(a) The acquisition by any Person of Beneficial Ownership of 20% or more of either (i) the then outstanding shares of Common Stock of the Company, or (ii) the combined voting power of the outstanding voting securities of the Company entitled to vote generally in the selection of Directors; provided, however, that for purposes of this subsection, the following transactions shall not constitute a Change of Control: (A) any acquisition directly from the Company through a public offering of shares of Common Stock of the Company, (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (D) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) below;

(b) The cessation, for any reason, of the individuals who constitute the Company’s Board of Directors as of the date hereof (“Incumbent Board”) to constitute at least a majority of the Company’s Board of Directors; provided, however, that any individual becoming a Director following the date hereof whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the Directors then comprising the Incumbent Board shall be considered as though such individual was a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs because of an actual or threatened election contest with respect to the election or removal of Directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Company’s Board of Directors;

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(c) The consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (“Business Combination”) unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the Beneficial Owners, respectively, of the outstanding shares of Common Stock of the Company and the outstanding voting securities of the Company immediately before such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of Common Stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of Directors, as the case may be, of the Company resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately before such Business Combination of the outstanding shares of Common Stock and the outstanding voting securities of the Company, as the case may be; (ii) no party (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed before the Business Combination; and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Company’s Board of Directors at the time of the execution of the initial agreement, or of the action of the Company’s Board of Directors, providing for such Business Combination;

(d) The approval by the stockholders of the Company of a complete liquidation or dissolution of the Company; or

(e) Any other condition or event (i) that the Committee determines to be a “Change in Control” within the meaning of this Section 2.7 and (ii) that is set forth as a supplement to this Section 2.7 in the Award Agreement.

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2.8 “CODE” means the Internal Revenue Code of 1986, as amended from time to time.

2.9 “COMMITTEE” means the Compensation Committee of the Board, as specified in Article 3 herein, or such other Committee appointed by the Board to administer the Plan with respect to grants of Awards.

2.10 “COMMON STOCK” means Caremark Rx, Inc. common stock, $.001 par value.

2.11 “COMPANY” means Caremark Rx, Inc., and also means any corporation of which a majority of the voting capital stock is owned directly or indirectly by Caremark Rx, Inc. or by any of its Subsidiaries, and any other corporation designated by the Committee as being a Company hereunder (but only during the period of such ownership or designation).

2.12 “DIRECTOR” means any individual who is a member of the Board of Directors of Caremark Rx, Inc.

2.13 “DISABILITY”, as applied to a Participant, means that the Participant (a) has established to the satisfaction of the Committee that the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to last for a continuous period of not less than 12 months (all within the meaning of Section 22(e)(3) of the Code), and (b) has satisfied any requirement imposed by the Committee in regard to evidence of such disability.

2.14 “EFFECTIVE DATE” shall have the meaning ascribed to such term in Section 1.1 hereof.

2.15 “ELIGIBLE PERSON” shall mean all Employees, Directors or officers of the Company or any affiliate, the majority of whom are neither officers nor Directors of the Company.

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2.16 “EMPLOYEE” means any officer or employee of the Company.

2.17 “EXCHANGE ACT” means the Securities Exchange Act of 1934, as amended from time to time, or any successor act thereto.

2.18 “FAIR MARKET VALUE” Except as otherwise determined by the Committee, the “Fair Market Value” of a share of Common Stock as of any date shall be equal to the closing sale price of a share of Common Stock as reported on The National Association of Securities Dealers’ New York Stock Exchange Composite Reporting Tape (or if the Common Stock is not traded on the New York Stock Exchange, the closing sale price on the exchange on which it is traded or as reported by an applicable automated quotation system) (the “Composite Tape”), on the applicable date or, if no sales of Common Stock are reported on such date, the closing sale price of a share of Common Stock on the date the Common Stock was last reported on the Composite Tape (or such other exchange or automated quotation system, if applicable).

2.19 “IMMEDIATE FAMILY MEMBERS” means the spouse, children and grandchildren of a Participant.

2.20 “INSIDER” shall mean an individual who is, on the relevant date, a Director, a 10% Beneficial Owner of any class of the Company’s equity securities that is registered pursuant to Section 12 of the Exchange Act or an officer of the Company, as defined under Section 16 of the Exchange Act and as determined by the Board of Directors from time to time.

2.21 “NONEMPLOYEE DIRECTOR” means an individual who is a member of the Board of Directors of the Company but who is not an Employee of the Company.

2.22 “OPTION” means an option to purchase Shares granted under Article 6 herein and which is not intended to meet the requirements of Code Section 422.

2.23 “OPTION PRICE” means the price at which a Share may be purchased by a Participant pursuant to an Option.

2.24 “PARTICIPANT” means an Eligible Person who has outstanding an Award granted under the Plan.

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2.25 “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, including a “group” as defined in Section 13(d) thereof.

2.26 “PLAN” means the Caremark Rx, Inc. 1998 Employee Stock Option Plan.

2.27 “SHARES” means Common Stock of Caremark Rx, Inc., par value $.001 per share.

2.28 “SUBSIDIARY” means any corporation, partnership, joint venture or other entity in which the Company has a majority voting interest.

ARTICLE 3. ADMINISTRATION

3.1 THE COMMITTEE. The Plan shall be administered by the Committee, or by any other committee appointed by the Board, which Committee shall consist solely of two or more “Nonemployee Directors” within the meaning of Rule 16b-3 under the Exchange Act, or any successor provision. The members of the Committee shall be appointed from time to time by, and shall serve at the discretion of, the Board of Directors.

3.2 AUTHORITY OF THE COMMITTEE. Except as limited by law or by the Certificate of Incorporation or Bylaws of the Company, and subject to the provisions herein, the Committee shall have full power to select Participants who shall participate in the Plan; determine the sizes and types of Awards; determine the terms and conditions of Awards in a manner not inconsistent with the Plan; construe and interpret the Plan and any agreement or instrument entered into under the Plan as they apply to Participants; establish, amend or waive rules and regulations for the Plan’s administration as they apply to Participants; alter, amend, suspend or terminate the Plan in whole or in part; and (subject to the provisions of Article 11 herein) amend the terms and conditions of any outstanding Award to the extent such terms and conditions are within the discretion of the Committee as provided in the Plan. As permitted by law, the Committee may delegate its authority as identified herein.

3.3 DECISIONS BINDING. All determinations and decisions made by the

7

Committee pursuant to the provisions of the Plan and all related orders and resolutions of the Board shall be final, conclusive and binding on all persons, including the Company, its stockholders, Employees, Participants and their estates and beneficiaries.

3.4 COSTS OF PLAN. The costs and expenses incurred in the operation and administration of the Plan shall be borne by the Company.

ARTICLE 4. SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS

4.1 NUMBER OF SHARES AVAILABLE FOR GRANTS. Subject to adjustment as provided in Section 4.2 herein, the number of Shares hereby reserved for issuance to Participants under the Plan shall be Seven Million (7,000,000).

Shares issued upon exercise of Options under the Plan may be either authorized but unissued Shares or Shares reacquired by the Company. If, on or prior to the termination of the Plan, an Award granted thereunder expires or is terminated for any reason without having been exercised or vested in full, the unpurchased or unvested Shares covered thereby will again become available for the grant of Awards under the Plan. Shares covered by Options surrendered in connection with the exercise of other Options shall not be deemed to have been exercised and shall again become available for the grant of awards under the Plan.

4.2 ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any change in corporate capitalization, such as a stock split, or a corporate transaction, such as any merger, consolidation, separation, including a spin-off, or other distribution of stock or property (excluding cash dividends) of the Company, any reorganization (whether or not such reorganization comes within the definition of such term in Code Section 368) or any partial or complete liquidation of the Company, an adjustment shall be made in the number and class of Shares which may be delivered under Section 4.1, in the number and class of and/or price of Shares subject to outstanding Awards granted under the Plan, and in the Award limits set forth in Section 4.1, as may be determined to be appropriate and equitable by the Committee, in its sole discretion, to prevent dilution or enlargement of rights; provided, however, that the number of Shares subject to any Award shall always be a whole number.

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ARTICLE 5. ELIGIBILITY AND PARTICIPATION

5.1 ELIGIBILITY. All Eligible Persons are eligible to participate in this Plan.

5.2 ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the Committee may, from time to time, select from all Eligible Persons, those to whom Awards shall be granted and shall determine the nature and amount of each Award.

ARTICLE 6. STOCK OPTIONS

6.1 GRANT OF OPTIONS. Subject to the terms and provisions of the Plan, Options may be granted to Eligible Persons in such number, and upon such terms, and at any time and from time to time as shall be determined by the Committee.

6.2 AWARD AGREEMENT. Each Option grant shall be evidenced by an Award Agreement that shall specify the Option Price, the duration of the Option, the number of Shares to which the Option pertains, and such other provisions as the Committee shall determine. The Award Agreement also shall specify that the Option is intended to be a nonqualified stock option whose grant is intended not to fall under the provisions of Code Section 422.

6.3 OPTION PRICE. The Option Price for each grant of an Option under this Plan shall be at least equal to 100% of the Fair Market Value of a Share on the date the Option is granted.

6.4 VESTING OF OPTIONS. Unless otherwise designated by the Compensation Committee, each Option granted pursuant to the Plan shall vest as follows:

(a) 34% of the Options granted shall vest on the Option grant date;

(b) 33% of the Options granted shall vest on each of the first anniversary and second anniversary of the Option grant date; provided, however, that if during the first year after the Option grant date, the stock price of the Company’s common stock closes at or above $12.00 for any twenty (20) out of

9

thirty (30) consecutive trading days, the 33% of the Options due to vest on the first anniversary of the Option grant date shall vest immediately at the end of such 20th day; and, provided further, that if during the second year after the Option grant date, the stock price of the Company’s common stock closes at or above $18.00 for any twenty (20) out of thirty (30) consecutive trading days, the 33% of Options due to vest on the second anniversary of the Option grant date shall vest immediately at the end of such 20th day.

6.5 DURATION OF OPTIONS. Each Option granted to an Employee shall expire at such time as the Committee shall determine at the time of grant; provided, however, that no Option shall be exercisable later than the tenth anniversary date of its grant.

6.6 EXERCISE OF OPTIONS. Options granted under this Article 6 shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall in each instance approve, which need not be the same for each grant or for each Participant.

6.7 PAYMENT. Options granted under this Article 6 shall be exercised in accordance with rules and procedures established by the Committee or, in the absence of such rules and procedures, (i) in accordance with the Award Agreement or (ii) by the delivery of a proper notice of exercise to the Company, setting forth the number of Shares with respect to which the Option is to be exercised.

No shares of Common Stock shall be issued on the exercise of an Option unless the Option Price is paid for in full at the time of exercise. Payment shall be made in cash, check in a form acceptable to the Company or other instrument acceptable to the Company. In addition, subject to compliance with applicable laws and regulations and such conditions as the Committee may impose, the Committee may elect to accept payment in shares of Common Stock of the Company which are already owned by the Participant, valued at the Fair Market Value thereof on the date of exercise. The Committee may also allow a Participant to exercise an Option by use of proceeds to be received from the sale of Common Stock issuable pursuant to the Option being exercised. Moreover, the Committee, acting in its absolute discretion, may authorize payment in any combination of the foregoing payment options, and the Committee, acting in its absolute

10

discretion, may, subject to the applicable provisions of Delaware law, elect to accept payment in the form of a note acceptable to the Committee or in the form of any other property acceptable to the Committee.

As soon as practicable after receipt of proper notification of exercise and full payment, the Company, if requested by the Participant, shall deliver to the Participant, in the Participant’s name, Share certificates in an appropriate amount based upon the number of Shares purchased under the Option(s).

6.8 RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose such restrictions on any Shares acquired pursuant to the exercise of an Option granted under this Article 6 as it may deem advisable, including, without limitation, restrictions under applicable federal securities laws, under the requirements of any stock exchange or market upon which such Shares are then listed and/or traded, and under any blue sky or state securities laws applicable to such Shares.

6.9 TERMINATION OF EMPLOYMENT. Except as otherwise provided in an Award Agreement, any Option, to the extent it has not been previously exercised, shall terminate upon the earliest to occur of: (a) the expiration of the Option period set forth in the Option Award Agreement; (b) the expiration of 12 months following the Participant’s death or Disability; (c) immediately upon termination for Cause; or (d) the expiration of 90 days following the Participant’s termination of employment for any reason other than Cause, Change in Control, death, Disability.

6.10 TRANSFERABILITY OF OPTIONS. To the extent not prohibited by any statute, rule or regulation applicable to the Plan, the Options or the registration with the Securities and Exchange Commission of the Common Stock to be issued upon exercise of the Options, the Committee may, in its discretion, authorize all or a portion of Options granted to a Participant to be on terms which permit transfer by such Participant to (i) Immediate Family Members, (ii) a trust or trusts for the exclusive benefit of such Immediate Family Members, or (iii) a partnership in which such Immediate Family Members are the only partners, provided that (A) there may be no consideration for any such transfer, (B) the Award Agreement pursuant to which such Options are granted must be approved by the Committee, and must expressly provide for transferability in a

11

manner consistent with this Section, and (C) subsequent transfers of transferred Options shall be prohibited except those by will or the laws of descent and distribution. Following transfer, any such Options shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, provided that for purposes of this Plan, the term “Participant” shall be deemed to refer to the transferee. The events of termination of employment shall continue to be applied with respect to the original Participant, following which the Options shall be exercisable by the transferee only to the extent, and for the periods specified in this Section 6.9. Notwithstanding the foregoing, should the Committee provide that Options granted be transferable, the Company by such action incurs no obligation to notify or otherwise provide notice to a transferee of early termination of the Option. In the event of a transfer, as set forth above, the original Participant is and will remain subject to and responsible for any applicable withholding taxes upon the exercise of such Options.

ARTICLE 7. BENEFICIARY DESIGNATION

A Participant under the Plan may make written designation of a beneficiary on forms prescribed by and filed with the Corporate Secretary of the Company. Such beneficiary or, if no such designation of any beneficiary has been made, the legal representative of such Participant or such other person entitled thereto as determined by a court of competent jurisdiction, may exercise, in accordance with and subject to the provisions of Article 6, any unterminated and unexpired Option granted to such Participant to the same extent that the Participant himself could have exercised such Option were he alive or able; provided, however, that no Option granted under the Plan shall be exercisable for more Shares than the Participant could have purchased thereunder on the date his employment by, or other relationship with, the Company and its Subsidiaries was terminated.

ARTICLE 8. RIGHTS OF EMPLOYEES

8.1 EMPLOYMENT. Nothing in the Plan shall interfere with or limit in any way the right of the Company to terminate any Participant’s employment at any time, nor confer upon any Participant any right to continue in the employ of the Company.

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8.2 PARTICIPATION. No Employee shall have the right to be selected to receive an Award under this Plan or, having been so selected, to be selected to receive a future Award.

ARTICLE 9. CHANGE IN CONTROL

9.1 TREATMENT OF OUTSTANDING AWARDS. Except as may otherwise be provided in the applicable Award Agreement and unless otherwise specifically prohibited under applicable laws, or by the rules and regulations of any governing governmental agencies or national securities exchanges, upon the occurrence of a Change in Control, any Option granted hereunder shall become immediately exercisable, and shall remain exercisable throughout its term.

9.2 TERMINATION, AMENDMENT, AND MODIFICATIONS OF CHANGE IN CONTROL PROVISIONS. Notwithstanding any other provision of this Plan or any Award Agreement provision, the provisions of this Article 9 may not be terminated, amended or modified on or after the date of a Change in Control to affect adversely any Award theretofore granted under the Plan without the prior written consent of the Participant with respect to said Participant’s outstanding Awards.

ARTICLE 10. SALE OF BUSINESS UNIT OF COMPANY

The Committee, in connection with the sale of any Subsidiary, Affiliate, division or other business unit of the Company, may within the Committee’s sole and absolute discretion cause any or all Options granted hereunder to Participants whose Options or rights under Options will be adversely affected by such transaction (a) to become immediately exercisable, or (b) to remain exercisable after such transaction for such period as the Committee deems appropriate under the circumstances, or both (a) and (b). The provisions of this Article 10 and the actions of the Committee taken pursuant to this Article 10 shall be effective upon action of the Committee alone without amendment to any Award Agreement or the consent of any Participant.

ARTICLE 11. AMENDMENT, MODIFICATION, AND TERMINATION

11.1 AMENDMENT, MODIFICATION AND TERMINATION. Subject to Section 9.2 of this Plan, the Board or the Committee may at any time and from time to time, alter, amend, suspend or terminate the Plan in whole or in part.

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Notwithstanding the foregoing, neither the Company nor the Board or Committee on its behalf may cancel outstanding Awards and issue substitute Awards in replacement thereof, reduce the exercise price of any outstanding Options or alter the class of participants in the Plan without stockholder approval.

11.2 ADJUSTMENT OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL OR NONRECURRING EVENTS. Subject to Section 9.2 of this Plan, the Committee may make adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events (including, without limitation, the events described in Section 4.2 hereof) affecting the Company or the financial statements of the Company or of changes in applicable laws, regulations or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan.

11.3 AWARDS PREVIOUSLY GRANTED. No termination, amendment or modification of the Plan shall adversely affect in any material way any Award previously granted under the Plan, without the written consent of the Participant holding such Award.

ARTICLE 12. WITHHOLDING

12.1 TAX WITHHOLDING. The Company shall have the power and the right to deduct or withhold or require a Participant to remit to the Company, an amount sufficient to satisfy federal, state, and local taxes, domestic or foreign, required by law or regulation to be withheld with respect to any taxable event arising as a result of this Plan.

12.2 SHARE WITHHOLDING. To the extent provided by the Committee, a Participant may elect to have any distribution to be made under this Plan to be withheld or to surrender to the Company shares of Common Stock already owned by the Participant to fulfill any tax withholding obligation.

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ARTICLE 13. INDEMNIFICATION

Each person who is or shall have been a member of the Committee, or of the Board, shall be indemnified and held harmless by the Company against and from any loss, cost, liability or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by him or her in settlement thereof, with the Company’s approval, or paid by him or her in satisfaction of any judgment in any such action, suit or proceeding against him or her, provided he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company’s Certificate of Incorporation or Bylaws, as a matter of law or otherwise, or any power that the Company may have to indemnify them or hold them harmless.

ARTICLE 14. SUCCESSORS

All obligations of the Company under the Plan with respect to Awards granted hereunder shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, of all or substantially all of the business and/or assets of the Company, or a merger, consolidation or otherwise.

ARTICLE 15. LEGAL CONSTRUCTION

15.1 GENDER AND NUMBER. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular; and, the singular shall include the plural.

15.2 SEVERABILITY. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.

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15.3 REQUIREMENTS OF LAW. The granting of Awards and the issuance of Shares under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.

15.4 SECURITIES LAW COMPLIANCE. With respect to Insiders, transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee.

15.5 GOVERNING LAW. To the extent not preempted by federal law, the Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the state of Delaware.

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EX-10.35

Exhibit 10.35

AMENDMENT

TO

CAREMARK RX, INC. 1998 EMPLOYEE STOCK OPTION PLAN

EFFECTIVE NOVEMBER 15, 2000

The Caremark Rx, Inc. 1998 Employee Stock Option Plan (the “Plan”) is hereby amended as follows:

1. Amendment Regarding Transferability of Options. Section 6.10 of the Plan is hereby amended by deleting Section 6.10 in its entirety and substituting the following new Section 6.10 therefor:

6.10 TRANSFERABILITY OF OPTIONS. To the extent not prohibited by any statute, rule or regulation applicable to the Plan, the Options or the registration with the Securities and Exchange Commission of the Common Stock to be issued upon exercise of the Options, the Committee may, in its discretion, authorize all or a portion of Options granted to a Participant to be on terms which permit transfer by such Participant to (i) Immediate Family Members, (ii) a trust or trusts for the exclusive benefit of such Immediate Family Members, or (iii) a partnership in which such Immediate Family Members are the only partners, provided that (A) the Award Agreement pursuant to which such Options are granted must be approved by the Committee, and must expressly provide for transferability in a manner consistent with this Section, and (B) subsequent transfers of transferred Options shall be prohibited except those by will or the laws of descent and distribution. Following transfer, any such Options shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, provided that for purposes of this Plan, the term “Participant” shall be deemed to refer to the transferee. The events of termination of employment shall continue to be applied with respect to the original Participant, following which the Options shall be exercisable by the transferee only to the extent, and for the periods specified in this Section 6.10. Notwithstanding the foregoing, should the Committee provide that Options granted be transferable, the Company by such actions incurs no obligation to notify o otherwise provide

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notice to a transferee of early termination of the Option. In the event of a transfer, as set forth above, the original Participant is and will remain subject to and responsible for any applicable withholding taxes upon the exercise of such Options.

2. Effective Date. The effective date of this Amendment shall be November 15, 2000.

3. Miscellaneous.

(a) Capitalized terms not otherwise defined herein shall have the meanings given them in the Plan.

(b) Except as specifically amended hereby, the Plan shall remain in full force and effect.

IN WITNESS WHEREOF, the Company has caused this Amendment to the Caremark Rx, Inc. 1998 Employee Stock Option Plan to be executed as of the Effective Date.

CAREMARK RX, INC.

Sara J. Finley, Corporate Secretary

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EX-10.36

Exhibit 10.36

SECOND AMENDMENT

TO THE

CAREMARK RX, INC. 1998 STOCK OPTION PLAN

(FORMERLY THE MEDPARTNERS, INC.

1998 EMPLOYEE STOCK OPTION PLAN)

This Second Amendment to the Caremark Rx, Inc. 1998 Stock Option Plan (formerly the Medpartners, Inc. 1998 Employee Stock Option Plan) (the “Plan”) to be effective as of January 12, 2001.

WITNESSETH:

WHEREAS, Caremark Rx, Inc. (the “Company”) currently sponsors and maintains the Caremark Rx, Inc. 1998 Stock Option Plan (formerly the Medpartners, Inc. 1998 Employee Stock Option Plan) (the “Plan”); and

WHEREAS, Section 11.1 of the Plan grants the Compensation Committee of the Board the power at any time to amend the Plan, and the Compensation Committee now wishes to amend the Plan to modify the vesting provisions for options granted under the Plan on and after January 12, 2001;

NOW, THEREFORE, the Plan is hereby amended as indicated below:

1.

Section 6.4 of the Plan is amended effective as of January 12, 2001, to read as follows:

6.4 VESTING OF OPTIONS. Unless otherwise designated by the Compensation, each Option granted pursuant to this Plan shall vest as follows:

(a) 34% of the Options granted shall vest on the Option grant date;

(b) 33% of the Options granted shall vest on each of the first anniversary and second anniversary of the Option grant date;

Second Amendment to the

Caremark Rx, Inc. 1998 Stock Option Plan

Page 1

provided, however, that for Options granted prior to January 12, 2001, if during the first year after the Option grant date, the stock price of the Shares closes at or above $12.00 for any twenty (20) out of thirty (30) consecutive trading days, the 33% of the Options due to vest on the first anniversary of the Option grant date shall vest immediately at the end of such 20th day, and provided, however, that for Options granted prior to January 12, 2001, if during the second year after the Option grant date, the stock price of the Shares closes at or above $18.00 for any twenty (20) out of thirty (30) consecutive trading days, the 33% of the Options due to vest on the second anniversary of the Option grant date shall vest immediately at the end of such 20th day.

2.

The name of the Plan is changed effective as of January 12, 2001 from the Medpartners, Inc. 1998 Employee Stock Option Plan to the Caremark Rx, Inc. 1998 Stock Option Plan. All references in any Company documents to the Medpartners, Inc. 1998 Employee Stock Option Plan shall, after January 12, 2001, be a reference to the Caremark Rx, Inc. 1998 Stock Option Plan.

3.

All other provisions of the Plan not inconsistent herewith are hereby confirmed and ratified.

Approved by the Board of Directors by resolutions on January 12, 2001.

Second Amendment to the

Caremark Rx, Inc. 1998 Stock Option Plan

Page 2

EX-10.37

Exhibit 10.37

1998 NEW EMPLOYEE STOCK OPTION PLAN

ARTICLE 1. ESTABLISHMENT, OBJECTIVES AND DURATION

1.1 ESTABLISHMENT OF THE PLAN. Caremark Rx, Inc., a Delaware corporation (hereinafter referred to as the “Company”), hereby establishes a compensation plan to be known as the “Caremark Rx, Inc. 1998 New Employee Stock Option Plan” (hereinafter referred to as the “Plan”), as set forth in this document. The Plan permits the grant of Options and is intended to fit within the exception to the New York Stock Exchange’s shareholder approval requirement for options issued as a material inducement to entering into an employment contract with the Company set forth in section 312.03(a)(3) of the New York Stock Exchange Listed Company Manual as of the date hereof.

The Plan shall become effective as of August 6, 1998 (the “Effective Date”) and shall remain in effect as provided in Section 1.3 hereof.

1.2 OBJECTIVES OF THE PLAN. The objectives of the Plan are to optimize the profitability and growth of the Company through the use of stock options, which are consistent with the Company’s objectives and which link the interests of Participants to those of the Company’s stockholders; to provide Participants with an inducement for excellence in individual performance; to promote teamwork among Participants; and to induce individuals to join the Company and execute employment agreements with the Company.

The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of Participants who make significant contributions to the Company’s success and to allow Participants to share in the success of the Company.

1.3 DURATION OF THE PLAN. The Plan shall commence on the Effective Date, as described in Section 1.1 hereof, and shall remain in effect, subject to the right of the Board of Directors or the Committee to amend or terminate the Plan at any time pursuant to Article 11 hereof, until all Shares subject to it shall have been purchased or acquired according to the Plan’s provisions.

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ARTICLE 2. DEFINITIONS

Whenever used in the Plan, the following terms shall have the meanings set forth below, and when the meaning is intended, the initial letter of the word shall be capitalized:

2.1 “AFFILIATE” means a “parent corporation” or “subsidiary corporation” as defined in Section 424 of the Code.

2.2 “AWARD” means, individually or collectively, a grant under this Plan of Options.

2.3 “AWARD AGREEMENT” means either (i) an agreement entered into by the Company and each Participant setting forth the terms and provisions applicable to Awards granted under this Plan or (ii) a certificate executed by the Company and delivered to the Participant evidencing and setting forth the terms and provisions applicable to Awards granted under this Plan.

2.4 “BENEFICIAL OWNER” OR “BENEFICIAL OWNERSHIP” shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act.

2.5 “BOARD” OR “BOARD OF DIRECTORS” means the Board of Directors of the Company.

2.6 “CAUSE” shall be determined by the Committee, exercising good faith and reasonable judgment, and shall mean the occurrence of any one or more of the following:

(a) The willful and continued failure by the Participant to substantially perform his duties (other than any such failure resulting from the Participant’s Disability) after a written demand for substantial performance is delivered by the Committee to the Participant that specifically identifies the manner in which the Committee believes that the Participant has not substantially performed his duties, and the Participant has failed to remedy the situation within 30 calendar days of receiving such notice; or

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(b) The Participant’s conviction for committing an act of fraud, embezzlement, theft or another act constituting a felony; or

(c) The willful engaging by the Participant in gross misconduct materially and demonstrably injurious to the Company, as determined by the Committee. However, no act or failure to act on the Participant’s part shall be considered “willful” unless done, or omitted to be done, by the Participant not in good faith and without reasonable belief that his action or omission was in the best interest of the Company.

2.7 “CHANGE IN CONTROL” of the Company shall be deemed to have occurred as of the first day that any one or more of the following conditions shall have been satisfied:

(a) The acquisition by any Person of Beneficial Ownership of 20% or more of either (i) the then outstanding shares of Common Stock of the Company, or (ii) the combined voting power of the outstanding voting securities of the Company entitled to vote generally in the selection of Directors; provided, however, that for purposes of this subsection, the following transactions shall not constitute a Change of Control: (A) any acquisition directly from the Company through a public offering of shares of Common Stock of the Company, (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (D) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) below;

(b) The cessation, for any reason, of the individuals who constitute the Company’s Board of Directors as of the date hereof (“Incumbent Board”) to constitute at least a majority of the Company’s Board of Directors; provided, however, that any individual becoming a Director following the date hereof whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the Directors then comprising the Incumbent Board shall be considered as though such individual was a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs because of an actual or threatened election contest with respect to the election or removal of Directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Company’s Board of Directors;

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(c) The consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (“Business Combination”) unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the Beneficial Owners, respectively, of the outstanding shares of Common Stock of the Company and the outstanding voting securities of the Company immediately before such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of Common Stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of Directors, as the case may be, of the Company resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately before such Business Combination of the outstanding shares of Common Stock and the outstanding voting securities of the Company, as the case may be; (ii) no party (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed before the Business Combination; and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Company’s Board of Directors at the time of the execution of the initial agreement, or of the action of the Company’s Board of Directors, providing for such Business Combination;

(d) The approval by the stockholders of the Company of a complete liquidation or dissolution of the Company; or

(e) Any other condition or event (i) that the Committee determines to be a “Change in Control” within the meaning of this Section 2.7 and (ii) that is set forth as a supplement to this Section 2.7 in the Award Agreement.

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2.8 “CODE” means the Internal Revenue Code of 1986, as amended from time to time.

2.9 “COMMITTEE” means the Compensation Committee of the Board, as specified in Article 3 herein, or such other Committee appointed by the Board to administer the Plan with respect to grants of Awards.

2.10 “COMMON STOCK” means Caremark Rx, Inc. common stock, $.001 par value.

2.11 “COMPANY” means Caremark Rx, Inc., and also means any corporation of which a majority of the voting capital stock is owned directly or indirectly by Caremark Rx, Inc. or by any of its Subsidiaries, and any other corporation designated by the Committee as being a Company hereunder (but only during the period of such ownership or designation).

2.12 “DIRECTOR” means any individual who is a member of the Board of Directors of Caremark Rx, Inc.

2.13 “DISABILITY”, as applied to a Participant, means that the Participant (a) has established to the satisfaction of the Committee that the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to last for a continuous period of not less than 12 months (all within the meaning of Section 22(e)(3) of the Code), and (b) has satisfied any requirement imposed by the Committee in regard to evidence of such disability.

2.14 “EFFECTIVE DATE” shall have the meaning ascribed to such term in Section 1.1 hereof.

2.15 “ELIGIBLE PERSON” shall mean a person not previously employed by the Company, whose grant of an Award is a material inducement to his/her entering into an employment contract with the Company.

2.16 “EMPLOYEE” means any officer or employee of the Company.

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2.17 “EXCHANGE ACT” means the Securities Exchange Act of 1934, as amended from time to time, or any successor act thereto.

2.18 “FAIR MARKET VALUE” Except as otherwise determined by the Committee, the “Fair Market Value” of a share of Common Stock as of any date shall be equal to the closing sale price of a share of Common Stock as reported on The National Association of Securities Dealers’ New York Stock Exchange Composite Reporting Tape (or if the Common Stock is not traded on the New York Stock Exchange, the closing sale price on the exchange on which it is traded or as reported by an applicable automated quotation system) (the “Composite Tape”), on the applicable date or, if no sales of Common Stock are reported on such date, the closing sale price of a share of Common Stock on the date the Common Stock was last reported on the Composite Tape (or such other exchange or automated quotation system, if applicable).

2.19 “IMMEDIATE FAMILY MEMBERS” means the spouse, children and grandchildren of a Participant.

2.20 “INSIDER” shall mean an individual who is, on the relevant date, a Director, a 10% Beneficial Owner of any class of the Company’s equity securities that is registered pursuant to Section 12 of the Exchange Act or an officer of the Company, as defined under Section 16 of the Exchange Act and as determined by the Board of Directors from time to time.

2.21 “NONEMPLOYEE DIRECTOR” means an individual who is a member of the Board of Directors of the Company but who is not an Employee of the Company.

2.22 “OPTION” means an option to purchase Shares granted under Article 6 herein and which is not intended to meet the requirements of Code Section 422.

2.23 “OPTION PRICE” means the price at which a Share may be purchased by a Participant pursuant to an Option.

2.24 “PARTICIPANT” means an Eligible Person who has outstanding an Award granted under the Plan.

2.25 “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, including a “group” as defined in Section 13(d) thereof.

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2.26 “PLAN” means the Caremark Rx, Inc. 1998 New Employee Stock Option Plan.

2.27 “SHARES” means Common Stock of Caremark Rx, Inc., par value $.001 per share.

2.28 “SUBSIDIARY” means any corporation, partnership, joint venture or other entity in which the Company has a majority voting interest.

ARTICLE 3. ADMINISTRATION

3.1 THE COMMITTEE. The Plan shall be administered by the Committee, or by any other committee appointed by the Board, which Committee shall consist solely of two or more “Nonemployee Directors” within the meaning of Rule 16b-3 under the Exchange Act, or any successor provision. The members of the Committee shall be appointed from time to time by, and shall serve at the discretion of, the Board of Directors.

3.2 AUTHORITY OF THE COMMITTEE. Except as limited by law or by the Certificate of Incorporation or Bylaws of the Company, and subject to the provisions herein, the Committee shall have full power to select Participants who shall participate in the Plan; determine the sizes and types of Awards; determine the terms and conditions of Awards in a manner not inconsistent with the Plan; construe and interpret the Plan and any agreement or instrument entered into under the Plan as they apply to Participants; establish, amend or waive rules and regulations for the Plan’s administration as they apply to Participants; alter, amend, suspend or terminate the Plan in whole or in part; and (subject to the provisions of Article 11 herein) amend the terms and conditions of any outstanding Award to the extent such terms and conditions are within the discretion of the Committee as provided in the Plan. Further, the Committee shall make all other determinations which may be necessary or advisable for the administration of the Plan, as the Plan applies to Employees. As permitted by law, the Committee may delegate its authority as identified herein.

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3.3 DECISIONS BINDING. All determinations and decisions made by the Committee pursuant to the provisions of the Plan and all related orders and resolutions of the Board shall be final, conclusive and binding on all persons, including the Company, its stockholders, Employees, Participants and their estates and beneficiaries.

3.4 COSTS OF PLAN. The costs and expenses incurred in the operation and administration of the Plan shall be borne by the Company.

ARTICLE 4. SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS

4.1 NUMBER OF SHARES AVAILABLE FOR GRANTS. Subject to adjustment as provided in Section 4.2 herein, the number of Shares hereby reserved for issuance to Participants under the Plan shall be Four Million (4,000,000).

Shares issued upon exercise of Options under the Plan may be either authorized but unissued Shares or Shares reacquired by the Company. If, on or prior to the termination of the Plan, an Award granted thereunder expires or is terminated for any reason without having been exercised or vested in full, the unpurchased or unvested Shares covered thereby will again become available for the grant of Awards under the Plan. Shares covered by Options surrendered in connection with the exercise of other Options shall not be deemed to have been exercised and shall again become available for the grant of awards under the Plan.

4.2 ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any change in corporate capitalization, such as a stock split, or a corporate transaction, such as any merger, consolidation, separation, including a spin-off, or other distribution of stock or property (excluding cash dividends) of the Company, any reorganization (whether or not such reorganization comes within the definition of such term in Code Section 368) or any partial or complete liquidation of the Company, an adjustment shall be made in the number and class of Shares which may be delivered under Section 4.1, in the number and class of and/or price of Shares subject to outstanding Awards granted under the Plan, and in the Award limits set forth in Section 4.1, as may be determined to be appropriate and equitable by the Committee, in its sole discretion, to prevent dilution or enlargement of rights; provided, however, that the number of Shares subject to any Award shall always be a whole number.

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ARTICLE 5. ELIGIBILITY AND PARTICIPATION

5.1 ELIGIBILITY. All Eligible Persons are eligible to participate in this Plan.

5.2 ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the Committee may, from time to time, select from all Eligible Persons, those to whom Awards shall be granted and shall determine the nature and amount of each Award.

ARTICLE 6. STOCK OPTIONS

6.1 GRANT OF OPTIONS. Subject to the terms and provisions of the Plan, Options may be granted to Eligible Persons in such number, and upon such terms, and at any time and from time to time as shall be determined by the Committee.

6.2 AWARD AGREEMENT. Each Option grant shall be evidenced by an Award Agreement that shall specify the Option Price, the duration of the Option, the number of Shares to which the Option pertains, and such other provisions as the Committee shall determine. The Award Agreement also shall specify that the Option is intended to be a nonqualified stock option whose grant is intended not to fall under the provisions of Code Section 422.

6.3 OPTION PRICE. The Option Price for each grant of an Option under this Plan shall be at least equal to 100% of the Fair Market Value of a Share on the date the Option is granted.

6.4 VESTING OF OPTIONS. Unless otherwise designated by the Committee, each Option granted pursuant to the Plan shall vest as follows:

(a) 34% of the Options granted shall vest on the Option grant date;

(b) 33% of the Options granted shall vest on each of the first anniversary and second anniversary of the Option grant date; provided, however, that if during the first year after the Option grant date, the stock price of

9

the Company’s common stock closes at or above $12.00 for any twenty (20) out of thirty (30) consecutive trading days, the 33% of the Options due to vest on the first anniversary of the Option grant date shall vest immediately at the end of such 20th day; and, provided further, that if during the second year after the Option grant date, the stock price of the Company’s common stock closes at or above $18.00 for any twenty (20) out of thirty (30) consecutive trading days, the 33% of Options due to vest on the second anniversary of the Option grant date shall vest immediately at the end of such 20th day.

6.5 DURATION OF OPTIONS. Each Option granted to an Employee shall expire at such time as the Committee shall determine at the time of grant; provided, however, that no Option shall be exercisable later than the tenth anniversary date of its grant.

6.6 EXERCISE OF OPTIONS. Options granted under this Article 6 shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall in each instance approve, which need not be the same for each grant or for each Participant.

6.7 PAYMENT. Options granted under this Article 6 shall be exercised in accordance with rules and procedures established by the Committee or, in the absence of such rules and procedures, (i) in accordance with the Award Agreement or (ii) by the delivery of a proper notice of exercise to the Company, setting forth the number of Shares with respect to which the Option is to be exercised.

No shares of Common Stock shall be issued on the exercise of an Option unless the Option Price is paid for in full at the time of exercise. Payment shall be made in cash, check in a form acceptable to the Company or other instrument acceptable to the Company. In addition, subject to compliance with applicable laws and regulations and such conditions as the Committee may impose, the Committee may elect to accept payment in shares of Common Stock of the Company which are already owned by the Participant, valued at the Fair Market Value thereof on the date of exercise. The Committee may also allow a Participant to exercise an Option by use of proceeds to be received from the sale of Common Stock issuable pursuant to the Option being exercised. Moreover, the Committee, acting in its absolute discretion, may authorize payment in any combination of the foregoing payment options, and the Committee, acting in its absolute

10

discretion, may, subject to the applicable provisions of Delaware law, elect to accept payment in the form of a note acceptable to the Committee or in the form of any other property acceptable to the Committee.

As soon as practicable after receipt of proper notification of exercise and full payment, the Company, if requested by the Participant shall deliver to the Participant, in the Participant’s name, Share certificates in an appropriate amount based upon the number of Shares purchased under the Option(s).

6.8 RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose such restrictions on any Shares acquired pursuant to the exercise of an Option granted under this Article 6 as it may deem advisable, including, without limitation, restrictions under applicable federal securities laws, under the requirements of any stock exchange or market upon which such Shares are then listed and/or traded, and under any blue sky or state securities laws applicable to such Shares.

6.9 TERMINATION OF EMPLOYMENT. Except as otherwise provided in an Award Agreement, any Option, to the extent it has not been previously exercised, shall terminate upon the earliest to occur of: (a) the expiration of the Option period set forth in the Option Award Agreement; (b) the expiration of 12 months following the Participant’s death or Disability; (c) immediately upon termination for Cause; or (d) the expiration of 90 days following the Participant’s termination of employment for any reason other than Cause, Change in Control, death, or Disability.

6.10 TRANSFERABILITY OF OPTIONS. To the extent not prohibited by any statute, rule or regulation applicable to the Plan, the Options, or the registration with the Securities and Exchange Commission of the Common Stock to be issued upon exercise of the Options, the Committee may, in its discretion, authorize all or a portion of Options granted to a Participant to be on terms which permit transfer by such Participant to (i) Immediate Family Members, (ii) a trust or trusts for the exclusive benefit of such Immediate Family Members, or (iii) a partnership in which such Immediate Family Members are the only partners, provided that (A) there may be no consideration for any such transfer, (B) the Award Agreement pursuant to which such Options are granted must be approved by the Committee, and must expressly provide for transferability in a

11

manner consistent with this Section, and (C) subsequent transfers of transferred Options shall be prohibited except those by will or the laws of descent and distribution. Following transfer, any such Options shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, provided that for purposes of this Plan, the term “Participant” shall be deemed to refer to the transferee. The events of termination of employment shall continue to be applied with respect to the original Participant, following which the Options shall be exercisable by the transferee only to the extent, and for the periods specified in this Section 6.9. Notwithstanding the foregoing, should the Committee provide that Options granted be transferable, the Company by such action incurs no obligation to notify or otherwise provide notice to a transferee of early termination of the Option. In the event of a transfer, as set forth above, the original Participant is and will remain subject to and responsible for any applicable withholding taxes upon the exercise of such Options.

ARTICLE 7. BENEFICIARY DESIGNATION

A Participant under the Plan may make written designation of a beneficiary on forms prescribed by and filed with the Corporate Secretary of the Company. Such beneficiary or, if no such designation of any beneficiary has been made, the legal representative of such Participant or such other person entitled thereto as determined by a court of competent jurisdiction, may exercise, in accordance with and subject to the provisions of Article 6, any unterminated and unexpired Option granted to such Participant to the same extent that the Participant himself could have exercised such Option were he alive or able; provided, however, that no Option granted under the Plan shall be exercisable for more Shares than the Participant could have purchased thereunder on the date his employment by, or other relationship with, the Company and its Subsidiaries was terminated.

ARTICLE 8. RIGHTS OF EMPLOYEES

8.1 EMPLOYMENT. Nothing in the Plan shall interfere with or limit in any way the right of the Company to terminate any Participant’s employment at any time, nor confer upon any Participant any right to continue in the employ of the Company.

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8.2 PARTICIPATION. No Employee shall have the right to be selected to receive an Award under this Plan or, having been so selected, to be selected to receive a future Award.

ARTICLE 9. CHANGE IN CONTROL

9.1 TREATMENT OF OUTSTANDING AWARDS. Except as may otherwise be provided in the applicable Award Agreement and unless otherwise specifically prohibited under applicable laws, or by the rules and regulations of any governing governmental agencies or national securities exchanges, upon the occurrence of a Change in Control, any Option granted hereunder shall become immediately exercisable, and shall remain exercisable throughout its term.

9.2 TERMINATION, AMENDMENT, AND MODIFICATIONS OF CHANGE IN CONTROL PROVISIONS. Notwithstanding any other provision of this Plan or any Award Agreement provision, the provisions of this Article 9 may not be terminated, amended or modified on or after the date of a Change in Control to affect adversely any Award theretofore granted under the Plan without the prior written consent of the Participant with respect to said Participant’s outstanding Awards.

ARTICLE 10. SALE OF BUSINESS UNIT OF COMPANY

The Committee, in connection with the sale of any Subsidiary, Affiliate, division or other business unit of the Company, may, within the Committee’s sole and absolute discretion, cause any or all Options granted hereunder to Participants whose Options or rights under Options will be adversely affected by such transaction (a) to become immediately exercisable, or (b) to remain exercisable after such transaction for such period as the Committee deems appropriate under the circumstances, or both (a) and (b). The provisions of this Article 10 and the actions of the Committee taken pursuant to this Article 10 shall be effective upon action of the Committee alone, without amendment to any Award Agreement or the consent of any Participant.

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ARTICLE 11. AMENDMENT, MODIFICATION AND TERMINATION

11.1 AMENDMENT, MODIFICATION AND TERMINATION. Subject to Section 9.2 of this Plan, the Board or the Committee may at any time and from time to time, alter, amend, suspend or terminate the Plan in whole or in part.

Notwithstanding the foregoing, neither the Company nor the Board or Committee on its behalf may cancel outstanding Awards and issue substitute Awards in replacement thereof, reduce the exercise price of any outstanding Options or alter the class of participants in the Plan without stockholder approval.

11.2 ADJUSTMENT OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL OR NONRECURRING EVENTS. Subject to Section 9.2 of this Plan, the Committee may make adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events (including, without limitation, the events described in Section 4.2 hereof) affecting the Company or the financial statements of the Company or of changes in applicable laws, regulations or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan.

11.3 AWARDS PREVIOUSLY GRANTED. No termination, amendment or modification of the Plan shall adversely affect in any material way any Award previously granted under the Plan, without the written consent of the Participant holding such Award.

ARTICLE 12. WITHHOLDING

12.1 TAX WITHHOLDING. The Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy federal, state, and local taxes, domestic or foreign, required by law or regulation to be withheld with respect to any taxable event arising as a result of this Plan.

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12.2 SHARE WITHHOLDING. To the extent provided by the Committee, a Participant may elect to have any distribution to be made under this Plan to be withheld or to surrender to the Company shares of Common Stock already owned by the Participant to fulfill any tax withholding obligation.

ARTICLE 13. INDEMNIFICATION

Each person who is or shall have been a member of the Committee, or of the Board, shall be indemnified and held harmless by the Company against and from any loss, cost, liability or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by him or her in settlement thereof, with the Company’s approval or paid by him or her in satisfaction of any judgment in any such action, suit or proceeding against him or her, provided he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company’s Certificate of Incorporation or Bylaws, as a matter of law or otherwise, or any power that the Company may have to indemnify them or hold them harmless.

ARTICLE 14. SUCCESSORS

All obligations of the Company under the Plan with respect to Awards granted hereunder shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, of all or substantially all of the business and/or assets of the Company, or a merger, consolidation or otherwise.

ARTICLE 15. LEGAL CONSTRUCTION

15.1 GENDER AND NUMBER. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular; and, the singular shall include the plural.

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15.2 SEVERABILITY. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.

15.3 REQUIREMENTS OF LAW. The granting of Awards and the issuance of Shares under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.

15.4 SECURITIES LAW COMPLIANCE. With respect to Insiders, transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee.

15.5 GOVERNING LAW. To the extent not preempted by federal law, the Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the state of Delaware.

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EX-10.38

Exhibit 10.38

AMENDMENT

TO

CAREMARK RX, INC. 1998 NEW EMPLOYEE STOCK OPTION PLAN

EFFECTIVE NOVEMBER 15, 2000

The Caremark Rx, Inc. 1998 New Employee Stock Option Plan (the “Plan”) is hereby amended as follows:

1. Amendment Regarding Transferability of Options. Section 6.10 of the Plan is hereby amended by deleting Section 6.10 in its entirety and substituting the following new Section 6.10 therefor:

6.10 TRANSFERABILITY OF OPTIONS. To the extent not prohibited by any statute, rule or regulation applicable to the Plan, the Options or the registration with the Securities and Exchange Commission of the Common Stock to be issued upon exercise of the Options, the Committee may, in its discretion, authorize all or a portion of Options granted to a Participant to be on terms which permit transfer by such Participant to (i) Immediate Family Members, (ii) a trust or trusts for the exclusive benefit of such Immediate Family Members, or (iii) a partnership in which such Immediate Family Members are the only partners, provided that (A) the Award Agreement pursuant to which such Options are granted must be approved by the Committee, and must expressly provide for transferability in a manner consistent with this Section, and (B) subsequent transfers of transferred Options shall be prohibited except those by will or the laws of descent and distribution. Following transfer, any such Options shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, provided that for purposes of this Plan, the term “Participant” shall be deemed to refer to the transferee. The events of termination of employment shall continue to be applied with respect to the original Participant, following which the Options shall be exercisable by the transferee only to the extent, and for the periods specified in this Section 6.10. Notwithstanding the foregoing, should the Committee provide that Options granted be transferable, the Company by such actions incurs no obligation to notify o otherwise provide

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notice to a transferee of early termination of the Option. In the event of a transfer, as set forth above, the original Participant is and will remain subject to and responsible for any applicable withholding taxes upon the exercise of such Options.

2. Effective Date. The effective date of this Amendment shall be November 15, 2000.

3. Miscellaneous.

(a) Capitalized terms not otherwise defined herein shall have the meanings given them in the Plan.

(b) Except as specifically amended hereby, the Plan shall remain in full force and effect.

IN WITNESS WHEREOF, the Company has caused this Amendment to the Caremark Rx, Inc. 1998 New Employee Stock Option Plan to be executed as of the Effective Date.

CAREMARK RX, INC.

Sara J. Finley, Corporate Secretary

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EX-10.39

Exhibit 10.39

SECOND AMENDMENT

TO THE

CAREMARK RX, INC. 1998 NEW EMPLOYEE STOCK OPTION PLAN

(FORMERLY THE MEDPARTNERS, INC.

1998 NEW EMPLOYEE STOCK OPTION PLAN)

This Second Amendment to the Caremark Rx, Inc. 1998 New Employee Stock Option Plan (formerly the Medpartners, Inc. 1998 New Employee Stock Option Plan) (the “Plan”) to be effective as of January 12, 2001.

W I T N E S S E T H:

WHEREAS, Caremark Rx, Inc. (the “Company”) currently sponsors and maintains the Caremark Rx, Inc. 1998 New Employee Stock Option Plan (formerly the Medpartners, Inc. 1998 New Employee Stock Option Plan) (the “Plan”); and

WHEREAS, Section 11.1 of the Plan grants the Compensation Committee of the Board the power at any time to amend the Plan, and the Compensation Committee now wishes to amend the Plan to modify the vesting provisions for options granted under the Plan on and after January 12, 2001;

NOW, THEREFORE, the Plan is hereby amended as indicated below:

1.

Section 6.4 of the Plan is amended effective as of January 12, 2001, to read as follows:

6.4 VESTING OF OPTIONS. Unless otherwise designated by the Compensation, each Option granted pursuant to this Plan shall vest as follows:

(a) 34% of the Options granted shall vest on the Option grant date;

(b) 33% of the Options granted shall vest on each of the first anniversary and second anniversary of the Option grant date;

Second Amendment to the

Caremark Rx, Inc. 1998 New Employee Stock Option Plan

Page 1

provided, however, that for Options granted prior to January 12, 2001, if during the first year after the Option grant date, the stock price of the Shares closes at or above $12.00 for any twenty (20) out of thirty (30) consecutive trading days, the 33% of the Options due to vest on the first anniversary of the Option grant date shall vest immediately at the end of such 20th day, and provided, however, that for Options granted prior to January 12, 2001, if during the second year after the Option grant date, the stock price of the Shares closes at or above $18.00 for any twenty (20) out of thirty (30) consecutive trading days, the 33% of the Options due to vest on the second anniversary of the Option grant date shall vest immediately at the end of such 20th day.

2.

The name of the Plan is changed effective as of January 12, 2001 from the Medpartners, Inc. 1998 New Employee Stock Option Plan to the Caremark Rx, Inc. 1998 New Employee Stock Option Plan. All references in any Company documents to the Medpartners, Inc. 1998 New Employee Stock Option Plan shall, after January 12, 2001, be a reference to the Caremark Rx, Inc. 1998 New Employee Stock Option Plan.

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All other provisions of the Plan not inconsistent herewith are hereby confirmed and ratified.

Approved by the Board of Directors by resolutions on January 12, 2001.

Second Amendment to the

Caremark Rx, Inc. 1998 New Employee Stock Option Plan

Page 2

EX-10.40

Exhibit 10.40

PLEDGE AND SECURITY AGREEMENT

PLEDGE AND SECURITY AGREEMENT dated as of March 15, 2001 (this “Agreement”) made by CAREMARK RX, INC., a Delaware corporation (the “COMPANY”), the SUBSIDIARIES of the Company listed on the signature pages hereof (the “SUBSIDIARIES”) and the ADDITIONAL GRANTORS (as defined in Section 19) (the Company, the Subsidiaries and the Additional Grantors being, collectively, the “GRANTORS”), to LASALLE BANK NATIONAL ASSOCIATION, as trustee (“TRUSTEE”) for holders of the Secured Obligations (as defined below) under the Trust Agreement (as defined below).

PRELIMINARY STATEMENTS.

(1) The Company entered into a $1,000,000,000 Amended and Restated Credit Agreement dated as of June 9, 1998, as amended (the “EXISTING CREDIT AGREEMENT”) with the financial institutions party thereto as lenders, swing line banks and issuing banks, Credit Lyonnais New York Branch, The First National Bank of Chicago and Morgan Guaranty Trust Company of New York, as syndication agents, Banc of America Securities LLC (formerly known as NationsBanc Montgomery Securities LLC), as arranger and Bank of America, N.A. (formerly known as NationsBank, N.A.) as administrative agent.

(2) The Company has issued $450,000,000 of its 7 3/8% Senior Notes due 2006 (the “SENIOR PUBLIC NOTES”) pursuant to an Indenture dated as of October 8, 1996 (as supplemented from time to time, the “INDENTURE”) among the Company, as issuer and U.S. Bank National Association, as successor trustee for the holders of the Senior Public Notes.

(3) To replace the Existing Credit Agreement, the Company concurrently herewith is entering into a Credit Agreement dated as of March 15, 2001 (as hereafter amended, restated, supplemented or otherwise modified from time to time, the “CREDIT AGREEMENT” and, together with the Indenture, the “DEBT INSTRUMENTS”) with the financial institutions party thereto from time to time as lenders, swing line banks, and issuing banks and as agents thereunder, including Bank of America, N.A., as administrative agent (the “ADMINISTRATIVE AGENT”) (such lenders, swing line banks, issuing banks and agents, collectively, the “PRIVATE LENDERS” and in connection therewith, the Subsidiaries have entered into a Guarantee dated the date hereof (as hereafter restated, amended, supplemented or otherwise modified from time to time the, “GUARANTEE”) pursuant to which the Subsidiaries guaranteed the obligations of the Company under the Credit Agreement.

(4) The Company, the Subsidiaries and the Trustee have entered into a Trust Agreement dated as of the date hereof (as hereafter restated, amended, supplemented or otherwise modified from time to time the, “TRUST AGREEMENT”).

(5) The Company from time to time may enter into interest rate hedge agreements (the “HEDGE AGREEMENTS”) with financial institutions (the “HEDGE BANKS”) party to the Credit Agreement to the extent permitted therein, and the obligations of the Company thereunder will be guaranteed by the Subsidiaries pursuant to the Guarantee.

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(6) Pursuant to the Credit Agreement and the Indenture, the Grantors are entering into this Agreement in order to grant to the Trustee, for the equal and ratable benefit of the Private Lenders, the holders of the Senior Public Notes and the Hedge Banks (the “SECURED PARTIES”), a security interest in the personal property and fixtures of the Grantors as provided herein now owned or hereafter acquired to secure, subject to the terms and conditions of this Agreement and the Trust Agreement, the payment of all of the Company’s obligations owing under the Credit Agreement and the documents delivered in connection therewith, the Subsidiaries’ and Additional Grantors’ obligations owing under the Guarantee and the payment of all of the Company’s obligations owing under the Senior Public Notes.

(7) Pursuant to the Trust Agreement, the Grantors have opened a trust account (the “TRUST ACCOUNT”), which may consist from time to time of one or more sub-accounts (as provided in the Trust Agreement) with the Trustee at its office at Chicago, Illinois, Account No. 60-8373-00-7, in the name of “CAREMARK RX, INC. TRUST ACCOUNT” and a L/C Cash Collateral Account (the “L/C CASH COLLATERAL ACCOUNT”) with the Trustee at its office at Chicago, Illinois, Account No. 60-8373-01-5, in the name of “Caremark Rx, Inc. Cash Collateral Account,” but in each case under the sole control and dominion of the Trustee and subject to the terms of this Agreement.

(8) Unless otherwise defined in this Agreement or in the Trust Agreement, terms defined in Article 8 or 9 of the Uniform Commercial Code in effect in the State of New York (“N.Y. UNIFORM COMMERCIAL CODE”) are used herein as so defined.

NOW, THEREFORE, in consideration of the premises and in order to fulfill their obligations under the Debt Instruments, each Grantor hereby agrees with the Trustee for the equal and ratable benefit of the Secured Parties as follows:

Section 1. Grant of Security.

Each Grantor hereby assigns and pledges to the Trustee for its benefit and the equal and ratable benefit of the Secured Parties, and hereby grants to the Trustee for its benefit and the equal and ratable benefit of the Secured Parties a security interest in, such Grantor’s right, title and interest in and to the following, in each case, as to each type of property described below, whether now owned (except in respect of Pledged Debt as provided for below) or hereafter acquired by such Grantor, wherever located, and whether now or hereafter existing or arising (collectively, the “COLLATERAL”):

(a) all equipment in all of its forms, all fixtures (except to the extent that a grant of a security interest in any such fixtures located on leased premises would not be permitted by the respective lease) and all parts thereof and all accessions thereto (any and all such equipment, fixtures, parts and accessions being the “EQUIPMENT”);

(b) all inventory in all of its forms, and including, without limitation (i) raw materials and work in process therefor, finished goods thereof and materials used or consumed in the manufacture, production, preparation or shipping thereof, (ii) goods in which such Grantor has an interest in mass or a joint or other interest or right of any kind (including, without limitation, goods in which

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such Grantor has an interest or right as consignee) and (iii) goods that are returned to or repossessed or stopped in transit by such Grantor, and all accessions thereto and products thereof and documents therefor (any and all such inventory, accessions, products and documents being the “INVENTORY”);

(c) all accounts, chattel paper, instruments, deposit accounts, general intangibles, contract rights and other obligations of any kind, whether or not arising out of or in connection with the sale or lease of goods or the rendering of services and whether or not earned by performance, and all rights now or hereafter existing in and to all security agreements, leases and other contracts securing or otherwise relating to any such accounts, chattel paper, instruments, deposit accounts, general intangibles, contract rights or obligations (any and all such accounts, chattel paper, instruments, deposit accounts, general intangibles, contract rights and obligations, to the extent not referred to in clause (d), (e) or (f) below, being the “RECEIVABLES”, and any and all such security agreements, leases and other contracts being the “RELATED CONTRACTS”);

(d) the following (the “SECURITY COLLATERAL”):

(i) the shares set forth opposite such Grantor’s name on and as otherwise described in Part I of Schedule I hereto (the “INITIAL PLEDGED SHARES”) and the certificates, if any, representing the Initial Pledged Shares, and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Initial Pledged Shares;

(ii) all additional shares of stock from time to time acquired by such Grantor in any manner (such shares, together with the Initial Pledged Shares, being the “PLEDGED SHARES”), and the certificates, if any, representing such additional shares, and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares;

(iii) all indebtedness from time to time hereafter incurred by a single obligor, maker or payee and payable to such Grantor in a principal amount in excess of $1,000,000 (such indebtedness being the “PLEDGED DEBT”) and the instruments, if any, evidencing such indebtedness, and all interest, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such indebtedness;

(iv) all other investment property (including any notes or securities issued by any entity) in which such Grantor has now, or acquires from time to time hereafter, any right, title or interest in any manner, and the certificates or instruments, if any, representing or evidencing such investment property, and all dividends, interest, distributions, value, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such investment property, and all letter of credit rights;

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(e) the following (collectively, the “ACCOUNT COLLATERAL”):

(i) the Trust Account and the L/C Cash Collateral Account, all funds held therein and all certificates and instruments, if any, from time to time representing or evidencing the Trust Account;

(ii) all Collateral Investments (as hereinafter defined) from time to time and all certificates and instruments, if any, from time to time representing or evidencing the Collateral Investments;

(iii) all notes, certificates of deposit, deposit accounts, checks and other instruments from time to time hereafter delivered to or otherwise possessed by the Trustee for or on behalf of the Grantor in substitution for or in addition to any or all of the then existing Account Collateral; and

(iv) all interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the then existing Account Collateral; and

(v) all deposit accounts of such Grantor from time to time, all funds held therein and all certificates and instruments, if any, from time to time representing or evidencing such deposit accounts.

(f) the following (collectively, the “INTELLECTUAL PROPERTY COLLATERAL”):

(i) all United States, international and foreign patents, patent applications and statutory invention registrations, including, without limitation, the patents and patent applications set forth in Schedule IV hereto (as such Schedule IV may be supplemented from time to time by supplements to this Agreement, each such supplement being in substantially the form of Exhibit C hereto (an “IP SECURITY AGREEMENT SUPPLEMENT”), executed and delivered by such Grantor to the Trustee from time to time), together with all reissues, divisions, continuations, continuations-in-part, extensions and reexaminations thereof, all inventions therein, all rights therein provided by international treaties or conventions and all improvements thereto, and all other rights of any kind whatsoever of such Grantor accruing thereunder or pertaining thereto (the “PATENTS”);

(ii) all trademarks (including, without limitation, service marks), certification marks, collective marks, trade dress, logos, domain names, product configurations, trade names, business names, corporate names and other source identifiers, whether or not registered, whether currently in use or not, including, without limitation, all common law rights and registrations and applications for registration thereof, including, without limitation, the trademark registrations and trademark applications set forth in Schedule IV hereto (as such Schedule IV may be supplemented from time to time by IP Security Agreement Supplements executed and delivered by such Grantor to the Trustee from time to time), and all other marks registered in the U.S. Patent and Trademark Office or in any office or

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agency of any State or Territory of the United States or any foreign country (but excluding any United States intent-to-use trademark application prior to the filing and acceptance of a Statement of Use or an Amendment to allege use in connection therewith to the extent that a valid security interest may not be taken in such an intent-to-use trademark application under applicable law), and all rights therein provided by international treaties or conventions, all reissues, extensions and renewals of any of the foregoing, together in each case with the goodwill of the business connected therewith and symbolized thereby, and all rights corresponding thereto throughout the world and all other rights of any kind whatsoever of such Grantor accruing thereunder or pertaining thereto (the “TRADEMARKS”);

(iii) all copyrights, copyright applications, copyright registrations and like protections in each work of authorship, whether statutory or common law, whether published or unpublished, any renewals or extensions thereof, all copyrights of works based on, incorporated in, derived from, or relating to works covered by such copyrights, including, without limitation, the copyright registrations and copyright applications set forth in Schedule IV hereto (as such Schedule IV may be supplemented from time to time by IP Security Agreement Supplements executed and delivered by such Grantor to the Trustee from time to time), together with all rights corresponding thereto throughout the world and all other rights of any kind whatsoever of such Grantor accruing thereunder or pertaining thereto (the “COPYRIGHTS”);

(iv) all confidential and proprietary information, including, without limitation, know-how, trade secrets, manufacturing and production processes and techniques, inventions, research and development information, technical data, financial, marketing and business data, pricing and cost information, business and marketing plans and customer and supplier lists and information (the “TRADE SECRETS”);

(v) all computer software programs and databases (including, without limitation, source code, object code and all related applications and data files), firmware, and documentation and materials relating thereto, and all rights with respect to the foregoing, together with any and all options, warranties, service contracts, program services, test rights, maintenance rights, improvement rights, renewal rights and indemnifications and any substitutions, replacements, additions or model conversions of any of the foregoing, but excluding any of the foregoing that is the subject of an agreement incurred in the ordinary course of business containing customary terms which prohibit the assignment thereof or the granting of a security interest therein (such non-excluded property, the “COMPUTER SOFTWARE”);

(vi) all license agreements, permits, authorizations and franchises, whether with respect to the Patents, Trademarks, Copyrights, Trade Secrets or Computer Software, or with respect to the patents, trademarks, copyrights, trade secrets, computer software or other proprietary right of any other Person,

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including, without limitation, the license agreements set forth in Schedule IV (excluding shrink wrap, click wrap and license agreements governing licenses of commercial off the shelf software, shareware, or freeware, as such Schedule IV may be supplemented from time to time by IP Security Agreement Supplements executed and delivered by such Grantor to the Trustee from time to time or otherwise), and all income, royalties and other payments now or hereafter due and/or payable with respect thereto, subject, in each case, to the terms of such license agreements, permits, authorizations and franchises, but excluding any of the foregoing that is the subject of an agreement incurred in the ordinary course of business containing customary terms which prohibit such Grantor from assigning its rights thereto or granting a security interest therein, (such non-excluded property, the “LICENSES”); and

(vii) any and all claims for damages for past, present and future infringement, misappropriation or breach with respect to the Patents, Trademarks, Copyrights, Trade Secrets, Computer Software or Licenses, with the right, but not the obligation, to sue for and collect, or otherwise recover, such damages; and

(g) all proceeds of any and all of the Collateral (including, without limitation, proceeds that constitute property of the types described in clauses (a) through (f) of this Section 1 and this clause (g)) and, to the extent not otherwise included, all (i) payments under insurance (whether or not the Trustee is the loss payee thereof), or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Collateral and (ii) cash;

provided, however, that none of the collateral described and none of the terms defined in clauses (a) - (g) above shall include any rights, assets or property assigned, sold or transferred, or in which a security interest is granted, by Caremark Inc. in connection with a Caremark Receivables Securitization as defined in the Credit Agreement.

Section 2. Security for Obligations.

This Agreement secures, in the case of the Company, the payment of all obligations of the Company now or hereafter existing under the Debt Instruments and under any Hedge Agreement with a Hedge Bank permitted under the Credit Agreement, and, in the case of each other Grantor, the payment of all obligations of the Company now or hereafter existing under the Indenture and the payment of all obligations of such Grantor now or hereafter existing under the Guarantee, whether direct or indirect, absolute or contingent, and whether for principal, reimbursement obligations, interest, fees, premiums, penalties, indemnifications, contract causes of action, costs, expenses or otherwise (all such obligations being the “SECURED OBLIGATIONS”).

Section 3. Grantors Remain Liable.

Anything herein to the contrary notwithstanding, (a) each Grantor shall remain liable under the contracts and agreements included in such Grantor’s Collateral to the extent set forth therein to perform all of its duties and obligations thereunder to the same extent as if this

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Agreement had not been executed, (b) the exercise by the Trustee of any of the rights hereunder shall not release any Grantor from any of its duties or obligations under the contracts and agreements included in the Collateral and (c) no Secured Party shall have any obligation or liability under the contracts and agreements included in the Collateral by reason of this Agreement or any other Debt Instrument, nor shall any Secured Party be obligated to perform any of the obligations or duties of any Grantor thereunder or to take any action to collect or enforce any claim for payment.

Section 4. Delivery and Control of Security Collateral.

(a) All certificates or instruments representing or evidencing Security Collateral or Account Collateral shall be delivered to and held by or on behalf of the Trustee pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Trustee. For the better perfection of the Trustee’s rights in and to the Security Collateral and the Account Collateral, each Grantor shall forthwith, upon the pledge of any Security Collateral or Account Collateral hereunder (other than deposit accounts), cause such Security Collateral or Account Collateral to be registered in the name of the Trustee or such of its nominees as the Trustee shall direct, subject only to the revocable rights specified in Section 14(a). In addition, the Trustee shall have the right at any time to exchange certificates or instruments representing or evidencing Security Collateral or Account Collateral for certificates or instruments of smaller or larger denominations.

(b) With respect to any Security Collateral that constitutes a security and is not represented or evidenced by a certificate or an instrument, each Grantor, at the request of the Trustee, shall cause the issuer thereof either (i) to register the Trustee as the registered owner of such security or (ii) to agree in writing with such Grantor and the Trustee that such issuer will comply with instructions with respect to such security originated by the Trustee without further consent of such Grantor, such agreement to be in form and substance satisfactory to the Trustee.

(c) With respect to any Security Collateral that constitutes a security entitlement, each Grantor, at the request of the Trustee, shall cause the securities intermediary with respect to such security entitlement either (i) to identify in its records the Trustee as having such security entitlement against such securities intermediary or (ii) to agree in writing with such Grantor and the Trustee that such securities intermediary will comply with entitlement orders (that is, notifications communicated to such securities intermediary directing transfer or redemption of the financial asset to which such Grantor has a security entitlement) originated by the Trustee without further consent of such Grantor, such agreement to be in form and substance satisfactory to the Trustee.

(d) With respect to any Security Collateral that constitutes a securities account, each Grantor, at the request of the Trustee, will, in the case of a securities account, comply with subsection (c) of this Section 4 with respect to all security entitlements carried in such securities account.

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Section 5. Maintaining the Trust Account.

Until the release of the collateral granted herein as provided in Section 6.1 of the Trust Agreement:

(a) The Grantors will maintain the Trust Account with the Trustee.

(b) It shall be a term and condition of the Trust Account, notwithstanding any term or condition to the contrary in any other agreement relating to the Trust Account (except the Trust Agreement), and except as otherwise provided by the provisions of Section 17, that no amount (including interest or dividends on Collateral Investments) shall be paid or released to or for the account of, or withdrawn by or for the account of, any Grantor or any other Person from the Trust Account.

The Trust Account shall be subject to such applicable laws and such applicable regulations of the Board of Governors of the Federal Reserve System and of any other appropriate banking or governmental authority, as may now or hereafter be in effect.

Section 6. Maintaining the L/C Cash Collateral Account.

Until the release of the collateral granted herein as provided in Section 6.1 of the Trust Agreement:

(a) The Company will maintain the L/C Cash Collateral Account with the Trustee.

(b) It shall be a term and condition of the L/C Cash Collateral Account, notwithstanding any term or condition to the contrary in any other agreement relating to the L/C Cash Collateral Account (except the Trust Agreement), and except as otherwise provided by the provisions of Section 17, that no amount (including interest or dividends on Collateral Investments) shall be paid or released to or for the account of, or withdrawn by or for the account of, any Grantor or any other Person from the L/C Cash Collateral Account.

The L/C Cash Collateral Account shall be subject to such applicable laws and such applicable regulations of the Board of Governors of the Federal Reserve System and of any other appropriate banking or governmental authority, as may now or hereafter be in effect.

Section 7. Investing of Amounts in the Trust Account and the L/C Cash Collateral Account.

The Trustee will, subject to the provisions of Section 17 hereof, from time to time invest amounts on deposit in the Trust Account and the L/C Cash Collateral Account as permitted by Section 3.3 of the Trust Agreement (such investments being the “COLLATERAL INVESTMENTS”). Interest and proceeds thereof that are not invested or reinvested in Collateral Investments as provided above shall be deposited and held in the Trust Account or L/C Cash Collateral Account, as the case may be.

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Section 8. Representations and Warranties.

Each Grantor represents and warrants as follows:

(a) All of the Equipment and Inventory of such Grantor are located at the places specified therefor in Schedule II hereto. The jurisdiction of formation of such Grantor is as set forth in Schedule III hereto. The chief executive office of such Grantor is located at the address specified therefor in Schedule III hereto. Such Grantor’s federal tax identification number is set forth opposite such Grantor’s name in Schedule III hereto. All Security Collateral consisting of certificated securities and instruments have been delivered to the Trustee. None of the Receivables is evidenced by a promissory note or other instrument under the Credit Agreement is required to be delivered to the Trustee and that has not been delivered to the Trustee.

(b) Such Grantor is the legal and beneficial owner of the Collateral of such Grantor free and clear of any Lien, claim, option or right of others, except for the security interest created under this Agreement and Permitted Liens (as defined in the Credit Agreement). No effective financing statement or other instrument similar in effect covering all or any part of such Collateral or listing such Grantor or any trade name of such Grantor as debtor is on file in any recording office, except such as may have been filed in favor of the Trustee relating to this Agreement. Such Grantor has no trade names.

(c) Such Grantor has exclusive possession and control of the Equipment and Inventory.

(d) The Pledged Shares pledged by such Grantor hereunder have been duly authorized and validly issued and are fully paid and non-assessable.

(e) The Initial Pledged Shares constitute the percentage of the issued and outstanding shares of stock of the issuers thereof indicated on Schedule I hereto as of the date hereof.

(f) All of the investment property owned by such Grantor as of the date hereof is listed on Schedule I hereto.

(g) (1) The possession by the Trustee of the certificates representing the Pledged Shares, together with undated stock powers executed in blank, and of the instruments representing Pledged Debt duly indorsed or accompanied by duly executed instruments of transfer or assignment, creates a valid and perfected first priority security interest in such Pledged Shares and Pledged Debt, respectively, and (2) the pledge of the Security Collateral pursuant to this Agreement, the pledge and assignment of the Account Collateral pursuant hereto, and the filing of financing statements in respect of the Collateral in favor of the Trustee with the appropriate filing offices of the appropriate jurisdictions, create a valid and perfected first priority security interest in the Collateral to the extent such security interest can be perfected only by the filling of a financing statement, in each case securing the payment of the Secured Obligations.

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(h) No authorization or approval or other action by, and no notice to or filing with, any United States, federal, state or local governmental authority or regulatory body is required for (i) the grant by such Grantor of the assignment, pledge and security interest granted hereunder or for the execution, delivery or performance of this Agreement by such Grantor, (ii) the perfection or maintenance of the assignment, pledge and security interest created hereunder (including the first priority nature of such assignment, pledge or security interest), except for the filing of financing and continuation statements under the Uniform Commercial Code, which financing statements have been or will be duly filed, the recordation of the Intellectual Property Security Agreements referred to in Section 13(f) with the U.S. Patent and Trademark Office and the U.S. Copyright Office, which Agreements have been or will be duly recorded and the actions described in Section 4 with respect to Security Collateral, which actions will be taken and the filing or recording of fixture filings, or (iii) for the exercise by the Trustee of its voting or other rights provided for in this Agreement or the remedies in respect of the Collateral pursuant to this Agreement, except as may be required in connection with the disposition of any portion of the Security Collateral by laws affecting the offering and sale of securities generally.

(i) The Inventory that has been produced or distributed by such Grantor has been produced in compliance with all requirements of applicable law, including, without limitation, the Fair Labor Standards Act.

(j) As to itself and its Intellectual Property Collateral:

(i) To such Grantor’s knowledge, the rights of such Grantor in or to the Intellectual Property Collateral do not conflict with, misappropriate or infringe upon the intellectual property rights of any third party, and no claim has been asserted that the use of such Intellectual Property Collateral does or may infringe upon the intellectual property rights of any third party.

(ii) Such Grantor is the exclusive owner of the entire and unencumbered right, title and interest in and to the Intellectual Property Collateral and is entitled to use all such Intellectual Property Collateral without limitation, subject only to the license terms of the Licenses.

(iii) The Intellectual Property Collateral set forth on Schedule IV hereto includes all of the patents, patent applications, trademark registrations and applications, copyright registrations and applications and Licenses owned by such Grantor.

(iv) The Intellectual Property Collateral is subsisting and has not been adjudged invalid or unenforceable, in whole or part, and to the best of such Grantor’s knowledge, is valid and enforceable. Such Grantor is not aware of any uses of any item of Intellectual Property Collateral that could be expected to lead to such item becoming invalid or unenforceable.

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(v) To such Grantor’s knowledge, such Grantor has made or performed all filings, recordings and other acts and has paid all required fees and taxes to maintain and protect its interest in each and every item of Intellectual Property Collateral in full force and effect in the United States, and to protect and maintain its interest therein including, without limitation, recordations of any of its interests in the Patents and Trademarks with the U.S. Patent and Trademark Office and recordation of any of its interests in the Copyrights with the U.S. Copyright Office. Such Grantor has used proper statutory notice in connection with its use in the United States of each patent, trademark and copyright of the Intellectual Property Collateral.

(vi) Except as set forth on Schedule IV hereto, no action, suit, investigation, litigation or proceeding is pending or, to the knowledge of such Grantor, overtly threatened against such Grantor (i) based upon or challenging or seeking to deny or restrict the use of any of the Intellectual Property Collateral, or (ii) alleging that any services provided by, processes used by, or products manufactured or sold by, such Grantor infringe upon or misappropriate any patent, trademark, copyright or any other proprietary right of any third party. To the best of such Grantor’s knowledge except as set forth on Schedule IV hereto, no Person is engaging in any activity that infringes upon or misappropriates the Intellectual Property Collateral or upon the rights of such Grantor therein. Except as set forth on Schedule IV hereto, such Grantor has not granted any license, release, covenant not to sue, non-assertion assurance, or other right to any Person with respect to any part of the Intellectual Property Collateral other than in the ordinary course of business. The consummation of the transactions contemplated by the Transaction Documents will not result in the termination or impairment of any of the Intellectual Property Collateral.

(vii) To such Grantor’s knowledge, with respect to each License: (A) such License will not cease to be valid and binding and in full force as a result of the rights and interest granted herein, nor will the grant of such rights and interest constitute a breach or default under such License or otherwise give the licensor or licensee a right to terminate such License; (B) such Grantor has not received any notice of termination or cancellation under such License; (C) such Grantor has not received any notice of a breach or default under such License, which breach or default has not been cured; and (D) such Grantor has enforced quality control over the licenses of its Trademarks under the applicable Licenses.

(viii) To the best of such Grantor’s acknowledge, none of the Trade Secrets of such Grantor has been used, divulged, disclosed or appropriated to the detriment of such Grantor for the benefit of any other Person other than such Grantor and its Affiliates (as defined in the Credit Agreement) and (B) no employee, independent contractor or agent of such Grantor is in default or breach of any term of any employment agreement, non-disclosure agreement, assignment of inventions agreement or similar agreement or contract relating in any way to the protection, ownership, development, use or transfer of such Grantor’s Intellectual Property Collateral.

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Section 9. Further Assurances.

(a) Each Grantor agrees that from time to time, at the expense of the each Grantor, each Grantor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Trustee, the Administrative Agent or the Public Trustee may reasonably request, in order to perfect and protect any pledge, assignment or security interest granted or purported to be granted hereby or to enable the Trustee to exercise and enforce its rights and remedies hereunder with respect to any Collateral, including the filing of any Uniform Commercial Code or fixture financing statements; provided, however, that no Grantor shall be required to file or record any fixture financing statement where such filing or recording would result in a filing or recording tax or fee (other than nominal fees). Without limiting the generality of the foregoing, each Grantor will: (i) if any Collateral shall be evidenced by a promissory note or other instrument, deliver and pledge to the Trustee hereunder such note or instrument duly indorsed or accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to the Trustee; and (ii) execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as the Trustee may request, in order to perfect and preserve the pledge, assignment and security interest granted or purported to be granted hereby.

(b) Each Grantor hereby authorizes the Trustee to file one or more financing or continuation statements, and amendments thereto, relating to all or any part of the Collateral without the signature of each Grantor where permitted by law. A photocopy or other reproduction of this Agreement or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law.

(c) Each Grantor will furnish to the Trustee from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Trustee may reasonably request, all in reasonable detail.

(d) Each Grantor shall provide the Trustee not less than 30 days’ written notice prior to the effective date of the transfer of such Grantor’s jurisdiction of formation so that all action required by this Section 9 shall have been taken prior thereto (and upon the taking of such action in such jurisdiction, Schedule III shall be automatically amended as appropriate).

Section 10. As to Equipment and Inventory. Each Grantor will keep the Equipment and Inventory of such Grantor (other than Inventory sold in the ordinary course of business) at the places therefor specified in Section 8(a) or, upon 30 days’ prior written notice to the Trustee, at such other places in a jurisdiction where all action required by Section 9 shall have been taken with respect to such Equipment and Inventory (and, upon the taking of such action in such jurisdiction, Schedule II hereto shall be automatically amended to include such other places).

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Section 11. Insurance.

(a) Each Grantor will, at its own expense, maintain insurance with respect to the Equipment and Inventory of such Grantor in such amounts, against such risks, in such form and with such insurers, as shall be required under the Indenture and the Credit Agreement. Except during the continuance of an Actionable Default, each policy of each Grantor for liability insurance and property damage insurance shall provide for all losses to be paid on behalf of such Grantor or to be paid directly to such Grantor, respectively. Each such policy shall in addition (i) name such Grantor and the Trustee as insured parties thereunder (without any representation or warranty by or obligation upon the Trustee) as their interests may appear, (ii) contain the agreement by the insurer that any loss thereunder shall be payable to the Trustee notwithstanding any action, inaction or breach of representation or warranty by such Grantor, (iii) provide that there shall be no recourse against the Trustee for payment of premiums or other amounts with respect thereto and (iv) provide that at least 10 days’ prior written notice of cancellation or of lapse shall be given to the Trustee by the insurer. Each Grantor will, if so requested by the Trustee, deliver to the Trustee original or duplicate policies of such insurance and, as often as the Trustee may reasonably request, a report of a reputable insurance broker with respect to such insurance.

(b) Reimbursement under any liability insurance maintained by any Grantor pursuant to this Section 11 may be paid directly to the Person who shall have incurred liability covered by such insurance. In case of any loss involving damage to Equipment or Inventory when subsection (c) of this Section 11 is not applicable, the applicable Grantor will make or cause to be made the necessary repairs to or replacements of such Equipment or Inventory, and any proceeds of insurance properly received by or released to such Grantor shall be used by such Grantor, except as otherwise required hereunder or by the Credit Agreement, to pay or as reimbursement for the costs of such repairs or replacements.

(c) So long as no Actionable Default shall have occurred and be continuing, all insurance payments received by the Trustee in connection with any loss, damage or destruction of any Inventory or Equipment will be released by the Trustee to the applicable Grantor and to the extent required under the Credit Agreement or the Indenture, such Grantor shall use such insurance payments for the repair, replacement or restoration thereof. Upon the occurrence and during the continuance of any Actionable Default, all insurance payments in respect of such Equipment or Inventory shall be paid to the Trustee and shall, in the Trustee’s sole discretion, (i) be released to the applicable Grantor to be applied as set forth in the first sentence of this subsection (c) or (ii) be held as additional Collateral hereunder or applied as specified in Section 17(b).

Section 12. Place of Perfection; Records; Collection of Receivables.

(a) Each Grantor will keep its chief executive office, the office where it keeps its records concerning the Collateral and Related Contracts to which such Grantor is a party and all originals of all chattel paper that evidence Receivables of such Grantor, at the location therefor specified in Section 8(a) or, upon 30 days’ prior written notice to the Trustee, the Administrative Agent and the Public Trustee at such other locations in a jurisdiction where all actions required by Section 9 shall have been taken with respect to

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the Collateral of such Grantor (and, upon the taking of such action in such jurisdiction, Schedule III hereto shall be automatically amended to include such other location). Each Grantor will hold and preserve its records relating to the Collateral, the Related Contracts and chattel paper and will permit representatives of the Trustee, the Administrative Agent and the Public Trustee at any time during normal business hours to inspect and make abstracts from such records and other documents.

(b) Except as otherwise provided in this subsection (b), each Grantor will continue to collect, at its own expense, all amounts due or to become due such Grantor under the Receivables and the Related Contracts. In connection with such collections, such Grantor may take (and, at the direction of the Trustee, the Administrative Agent or the Public Trustee upon the occurrence and during the continuance of an Actionable Default, will take) such action as such Grantor or the Trustee may deem necessary or advisable to enforce collection of the Receivables and the Related Contracts; provided, however, that the Trustee shall have the right, upon the occurrence and during the continuance of an Actionable Default and upon written notice to such Grantor of its intention to do so, to notify the obligors under any Receivables or Related Contracts of the assignment of such Receivables or Related Contracts to the Trustee and to direct such obligors to make payment of all amounts due or to become due to such Grantor thereunder directly to the Trustee and, upon such notification and at the expense of such Grantor, to enforce collection of any such Receivables or Related Contracts, and to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as such Grantor might have done. After receipt by any Grantor of the notice from the Trustee referred to in the proviso to the preceding sentence, (i) all amounts and proceeds (including instruments) received by such Grantor in respect of the Receivables and the Related Contracts of such Grantor shall be received in trust for the benefit of the Trustee hereunder, shall be segregated from other funds of such Grantor and shall be forthwith paid over to the Trustee in the same form as so received (with any necessary indorsement) to be deposited in the Trust Account and either (A) released to such Grantor on such terms as provided in the Trust Agreement so long as no Actionable Default shall have occurred and be continuing or (B) if any Actionable Default shall have occurred and be continuing, applied as provided in Section 17(b), (ii) such Grantor will not adjust, settle or compromise the amount or payment of any Receivable, release wholly or partly any obligor thereof, or allow any credit or discount thereon and (iii) such Grantor will not permit or consent to the subordination of its right to payment under any of the Receivables or the Related Contracts to any other indebtedness or obligations of the obligor thereof.

Section 13. As to Intellectual Property Collateral.

(a) With respect to each item of its Intellectual Property Collateral, each Grantor agrees to take, at its expense, all necessary steps, including, without limitation, in the U.S. Patent and Trademark Office, the U.S. Copyright Office and any other governmental authority, to (i) maintain the validity and enforceability of each such item of Intellectual Property Collateral and maintain each such item of Intellectual Property Collateral in full force and effect, and (ii) pursue the registration and maintenance of each patent, trademark, or copyright registration or application, now or hereafter included in

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the Intellectual Property Collateral of such Grantor, including, without limitation, the payment of required fees and taxes, the filing of responses to office actions issued by the U.S. Patent and Trademark Office, the U.S. Copyright Office or other governmental authorities, the filing of applications for renewal or extension, the filing of affidavits under Sections 8 and 15 of the U.S. Trademark Act, the filing of divisional, continuation, continuation-in-part, reissue and renewal applications or extensions, the payment of maintenance fees and the participation in interference, reexamination, opposition, cancellation, infringement and misappropriation proceedings, except in each case to the extent such Grantor has determined that such action is not appropriate or cost effective in light of costs associated with such action or the value of the related Intellectual Property Collateral. No Grantor shall, without the written consent of the Trustee, discontinue use of or otherwise abandon any Intellectual Property Collateral, or abandon any right to file an application for letters patent, trademark, or copyright, unless such Grantor shall have previously determined that such use or the pursuit or maintenance of such Intellectual Property Collateral is no longer desirable in the conduct of such Grantor’s business and that the loss thereof would not be reasonably likely to have a Material Adverse Effect.

(b) Each Grantor shall take all steps which it or the Trustee, Administrative Agent or Public Trustee deems reasonable and appropriate under the circumstances and in the case of any of the Trustee, Administrative Agent or Public Trustee, which it reasonably requests to preserve and protect each item of its Intellectual Property Collateral, including, without limitation, maintaining the quality of any and all products or services used or provided in connection with any of the Trademarks, consistent with the quality of the products and services as of the date hereof, and taking all reasonable steps to ensure that all licensed users of any of the Trademarks use such consistent standards of quality.

(c) With respect to its Intellectual Property Collateral, each Grantor agrees to execute an agreement, in substantially the form set forth in Exhibit B hereto (an “INTELLECTUAL PROPERTY SECURITY AGREEMENT”), for recording the security interest granted hereunder to the Trustee in such Intellectual Property Collateral with the U.S. Patent and Trademark Office, the U.S. Copyright Office and any other governmental authorities necessary to perfect the security interest hereunder in such Intellectual Property Collateral.

(d) Each Grantor agrees that, should it obtain an ownership interest in any item of the type set forth in Section 1(g) which is not on the date hereof a part of the Intellectual Property Collateral consisting of United States registered patents, trademarks and copyrights (the “AFTER-ACQUIRED INTELLECTUAL PROPERTY”), (i) the provisions of Section 1 shall automatically apply thereto, (ii) any such After-Acquired Intellectual Property and, in the case of trademarks, the goodwill of the business connected therewith or symbolized thereby, shall automatically become part of the Intellectual Property Collateral subject to the terms and conditions of this Agreement with respect thereto, (iii) such Grantor shall give written notice to the Trustee in accordance herewith of any such After-Acquired Intellectual Property within 30 days following the calendar quarter in which such ownership interest was obtained and (iv) such Grantor shall execute and deliver to the Trustee an IP Security Agreement Supplement in substantially the form of

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Exhibit C hereto covering such After-Acquired Intellectual Property as “Additional Collateral” thereunder and as defined therein, and shall record such IP Security Agreement Supplement with the U.S. Patent and Trademark Office, the U.S. Copyright Office and any other United States Federal governmental authorities necessary to perfect the security interest hereunder in such After-Acquired Intellectual Property.

Section 14. Voting Rights; Dividends; Etc.

(a) So long as no Actionable Default shall have occurred and be continuing:

(i) each Grantor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Security Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement or the other Debt Instruments.

(ii) each Grantor shall be entitled to receive and retain any and all dividends, interest and other distributions paid in respect of the Security Collateral; provided, however, that any and all

(A) dividends, interest and other distributions paid or payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any Security Collateral,

(B) dividends and other distributions paid or payable in cash in respect of any Security Collateral in connection with a partial or total liquidation or dissolution, and

(C) cash paid, payable or otherwise distributed in exchange for any Security Collateral

shall be, and shall be forthwith delivered to the Trustee to hold as, Security Collateral and shall, if received by each Grantor, be received in trust for the benefit of the Trustee, be segregated from the other property or funds of each Grantor and be forthwith delivered to the Trustee as Security Collateral in the same form as so received (with any necessary indorsement).

(iii) The Trustee shall execute and deliver (or cause to be executed and delivered) to each Grantor all such proxies and other instruments as each Grantor may reasonably request for the purpose of enabling each Grantor to exercise the voting and other rights that it is entitled to exercise pursuant to paragraph (i) above and to receive the dividends or interest payments that it is authorized to receive and retain pursuant to paragraph (ii) above.

(b) Upon the occurrence and during the continuance of an Actionable Default:

(i) All rights of each Grantor (x) to exercise or refrain from exercising the voting and other consensual rights that it would otherwise be entitled to exercise pursuant to Section 14(a)(i) shall, upon notice to each Grantor

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by the Trustee, cease and (y) to receive the dividends and other distributions that it would otherwise be authorized to receive and retain pursuant to Section 14(a)(ii) shall automatically cease, and all such rights shall thereupon become vested in the Trustee, which shall thereupon have the sole right to exercise or refrain from exercising such voting and other consensual rights and to receive and hold as Security Collateral such dividends and other distributions.

(ii) All dividends and other distributions that are received by each Grantor contrary to the provisions of paragraph (i) of this Section 14(b) shall be received in trust for the benefit of the Trustee, shall be segregated from other funds of each Grantor and shall be forthwith paid over to the Trustee as Security Collateral in the same form as so received (with any necessary indorsement).

Section 15. Transfers and Other Liens; Additional Shares.

(a) Each Grantor agrees that it will not (i) sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, any of the Collateral, other than sales, assignments and other dispositions of Collateral, and options relating to Collateral, permitted under the terms of the Debt Instruments, or (ii) create or suffer to exist any Lien upon or with respect to any of the Collateral of such Grantor except for the pledge, assignment and security interest created under this Agreement and Permitted Liens (as defined in the Credit Agreement).

(b) Each Grantor agrees that it will (i) cause each issuer of the Pledged Shares pledged by such Grantor not to issue any stock or other securities in addition to or in substitution for the Pledged Shares issued by such issuer, except to such Grantor, and (ii) pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, any and all additional shares of stock or other securities.

Section 16. Trustee May Perform.

If any Grantor fails to perform any agreement contained herein, the Trustee may, as the Trustee deems necessary to protect the security interest granted hereunder in the Collateral or to protect the value thereof, but without any obligation to do so (and upon the occurrence and during the continuation of an Actionable Default without notice), itself perform, or cause performance of, such agreement, and the reasonable expenses of the Trustee incurred in connection therewith shall be payable by such Grantor as provided in the Trust Agreement.

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(a) The Trustee’s Duties.

Without limiting the protections provided the Trustee under Section 5 of the Trust Agreement (which are hereby incorporated herein by reference), the powers conferred on the Trustee hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the safe custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Trustee shall have no duty as to any Collateral, as to ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Collateral, whether or not any Secured Party has or is deemed to have knowledge of such matters, or as to the taking of any necessary steps to preserve rights against any parties or any other rights pertaining to any Collateral. The Trustee shall be deemed to have exercised reasonable care in the custody and preservation of any Collateral in its possession if such Collateral is accorded treatment substantially equal to that which it accords its own property.

Section 17. Remedies.

If any Actionable Default shall have occurred and be continuing:

(a) The Trustee may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party upon default under the N.Y. Uniform Commercial Code (whether or not the N.Y. Uniform Commercial Code applies to the affected Collateral) and also may (i) require each Grantor to, and each Grantor hereby agrees that it will at its expense and upon request of the Trustee forthwith, assemble all or part of the Collateral as directed by the Trustee and make it available to the Trustee at a place to be designated by the Trustee that is reasonably convenient to both parties, (ii) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Trustee’s offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Trustee may deem commercially reasonable, (iii) occupy any premises owned or leased by any of the Grantors where the Collateral or any part thereof is assembled or located for a reasonable period in order to effectuate its rights and remedies hereunder or under law, without obligation to such Grantor in respect of such occupation; and (iv) exercise any and all rights and remedies of any of the Grantors under or in connection with the Agreements, the Receivables and the Related Contracts or otherwise in respect of the Collateral, including, without limitation, any and all rights of such Grantor to demand or otherwise require payment of any amount under, or performance of any provision of, the Agreements, the Receivables and the Related Contracts. Each Grantor agrees that, to the extent notice of sale shall be required by law, at least ten days’ notice to each Grantor of the time and place of any public sale or of the time after which any private sale is to be made shall constitute reasonable notification. The Trustee shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Trustee may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned.

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(b) All cash proceeds received by the Trustee in respect of any sale of, collection from, or other realization upon all or any part of the Collateral shall be deposited into the Trust Account and may, in the discretion of the Trustee, be held by the Trustee as collateral for, and/or then or at any time thereafter applied in whole or in part by the Trustee against the Secured Obligations as provided in Section 3.4 of the Trust Agreement.

(c) The Trustee may exercise any and all rights and remedies of each Grantor in respect of the Collateral.

(d) All payments received by each Grantor in respect of the Collateral shall be received in trust for the benefit of the Trustee, shall be segregated from other funds of each Grantor and shall be forthwith paid over to the Trustee in the same form as so received (with any necessary indorsement).

(e) The Trustee may, without notice to each Grantor except as required by law and at any time or from time to time, charge, set-off and otherwise apply all or any part of the Secured Obligations against the Trust Account, the L/C Cash Collateral Account or any part thereof.

Section 18. Registration Rights.

If the Trustee shall determine to exercise its right to sell all or any of the Security Collateral pursuant to Section 17, the Company agrees that, upon request of the Trustee, the Company will, at its own expense:

(a) execute and deliver, and cause Caremark, Inc. and the directors and officers of such issuer to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts and things, as may be necessary or, in the opinion of the Trustee, advisable to register the shares thereof pledged hereunder under the provisions of the Securities Act of 1933, as from time to time amended (the “SECURITIES ACT”), to cause the registration statement relating thereto to become effective and to remain effective for such period as prospectuses are required by law to be furnished and to make all amendments and supplements thereto and to the related prospectus that, in the opinion of the Trustee, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto;

(b) use its best efforts to qualify such shares under the state securities or “Blue Sky” laws and to obtain all necessary governmental approvals for the sale of such shares, as requested by the Trustee;

(c) cause such issuer to make available, as soon as practicable, an earnings statement that will satisfy the provisions of Section 11(a) of the Securities Act;

(d) provide the Trustee with such other information and projections as may be necessary or, in the opinion of the Trustee, advisable to enable the Trustee to effect the sale of such shares; and

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(e) do or cause to be done all such other acts and things as may be necessary to make such sale of such shares or any part thereof valid and binding and in compliance with applicable law.

The Trustee is authorized, in connection with any sale of such shares pursuant to Section 17, to deliver or otherwise disclose to any prospective purchaser of such shares (i) any registration statement or prospectus, and all supplements and amendments thereto, prepared pursuant to clause (a) above, (ii) any information and projections provided to it pursuant to clause (d) above and (iii) any other information in its possession relating to such shares.

Section 19. Amendments; Waivers; Additional Grantors; Etc.

(a) No amendment or waiver of any provision of this Agreement, and no consent to any departure by any Grantor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Trustee with the written consent of the Administrative Agent and the Public Trustee, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No failure on the part of the Trustee or any other Secured Party to exercise, and no delay in exercising any right hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right.

(b) Upon the execution and delivery by any Person of a security agreement supplement in substantially the form of Exhibit A hereto (each a “SECURITY AGREEMENT SUPPLEMENT”), (i) such Person shall be referred to as an “Additional GRANTOR” and shall be and become a Grantor hereunder and each reference in this Agreement to “Grantor” shall also mean and be a reference to such Additional Grantor, and (ii) the supplemental schedules I, II, III, and IV attached to each Security Agreement Supplement shall be incorporated into and become a part of and supplement Schedules I, II, III, and IV, respectively, hereto, and the Trustee may attach such supplemental schedules to such Schedules; and each reference to such Schedules shall mean and be a reference to such Schedules as supplemented pursuant to each Security Agreement Supplement.

Section 20. Notices; Etc.

All notices and other communications provided for hereunder shall be in writing (including telecopier communication) and mailed, telecopied, or delivered to, in the case of a Grantor or the Trustee, addressed to it at its address specified in the Trust Agreement and, in the case of each Additional Grantor, addressed to it at its address set forth opposite such Additional Grantor’s name on the signature page to the Security Agreement Supplement pursuant to which it became a party hereto; or, as to any party, at such other address as shall be designated by such party in a written notice to the other parties. All such notices and other communications shall, when mailed or telecopied, be effective when deposited in the mails or telecopied, respectively, addressed as aforesaid; provided, however, that any notices and other communications to the Trustee shall not be effective until received by the Trustee. Delivery by telecopier of an executed counterpart of any amendment or waiver of any provision of this Agreement or of any

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Security Agreement Supplement or Schedule hereto shall be effective as delivery of an original executed counterpart thereof.

Section 21. Continuing Security Interest.

This Agreement shall create a continuing security interest in the Collateral and shall (a) remain in full force and effect until the release of all Collateral as provided in Section 6.1 of the Trust Agreement, (b) be binding upon each Grantor, its successors and assigns and (c) inure, together with the rights and remedies of the Trustee hereunder, to the benefit of the Trustee, the Secured Parties and their respective successors, transferees and assigns.

Section 22. Execution in Counterparts.

This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of an original executed counterpart of this Agreement.

Section 23. Governing Law.

This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.

IN WITNESS WHEREOF, each Grantor has caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written.

CAREMARK RX, INC.
By:	/s/ Peter J. Clemens
Title:	SVP & Treasurer

Address for Notices:	CAREMARK INTERNATIONAL INC.
3000 Galleria Tower
Suite 1000	By:	/s/ Peter J. Clemens
Birmingham, AL 35244		Peter J. Clemens
Telecopier No. (205) 733-9780	Title:	VP
Attention: Peter J. Clemens IV

CAREMARK INC.
By:	/s/ Peter J. Clemens
	Peter J. Clemens
Title:	VP

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EX-10.41

Exhibit 10.41

CAREMARK RX, INC. TRUST AGREEMENT

DATED AS OF MARCH 15, 2001

BY AND AMONG

CAREMARK RX, INC.,

CAREMARK INTERNATIONAL INC.

CAREMARK INC.

AND

LASALLE BANK NATIONAL ASSOCIATION,

AS TRUSTEE

TABLE OF CONTENTS

SECTION 1    Definitions and Other Matters		3
SECTION 2    Actionable Default; Remedies		5
2.1	Notice of Default; Written Instructions	5
2.2	Remedies	5
2.3	Right to Initiate Judicial Proceedings, etc	6
2.4	Appointment of a Receiver	6
2.5	Exercise of Powers	6
2.6	Control by Holders	6
2.7	Remedies Not Exclusive	7
2.8	Waiver of Certain Rights	7
2.9	Limitation on Trustee’s Duties in Respect of Collateral	8
2.10	Limitation by Law	8
2.11	Absolute Rights of Holders; Equal and Ratable Security	8
SECTION 3    Trust Account, L/C Cash Collateral Account, Application Of Moneys		9
3.1	The Trust Account; L/C Cash Collateral Account	9
3.2	Control of Trust Account and L/C Cash Collateral Account	9
3.3	Investment of Funds Deposited in Trust Account and L/C Cash Collateral Account	9
3.4	Application of Moneys in Trust Account and L/C Cash Collateral Account	10
3.5	Application of Moneys Distributable to Holders of Senior Public Notes	12
SECTION 4    Agreements With The Trustee		12
4.1	Delivery of Debt Instruments	12
4.2	Information as to Holders	12
4.3	Compensation and Expenses	13
4.4	Stamp and Other Similar Taxes	13

4.5	Filing Fees, Excise Taxes, etc	13
4.6	Indemnification	13
4.7	Further Assurances; Notation on Financial Statements	14
SECTION 5    The Trustee		14
5.1	Acceptance of Trust	14
5.2	Exculpatory Provisions	14
5.3	Delegation of Duties	15
5.4	Reliance by Trustee	15
5.5	Limitations on Duties of Trustee	16
5.6	Moneys to be Held in Trust	16
5.7	Resignation and Removal of the Trustee	16
5.8	Status of Successors to the Trustee	17
5.9	Merger of the Trustee	18
5.10	Co-Trustee, Separate Trustee	18
SECTION 6    Release of Collateral		19
6.1	Conditions to Release; Release Procedure	19
SECTION 7    Miscellaneous		20
7.1	Amendments, Supplements and Waivers	20
7.2	Notices	21
7.3	Headings	22
7.4	Severability	22
7.5	Treatment of Payee or Indorsee by Trustee	22
7.6	Dealings with the Trustors	22
7.7	Claims Against the Trustee	23
7.8	Binding Effect	23

7.9	Governing Law	23
7.10	Counterparts	24

CAREMARK RX, INC. TRUST AGREEMENT

CAREMARK RX, INC. TRUST AGREEMENT (this “AGREEMENT”) dated as of March 15, 2001, by and among Caremark Rx, Inc., a Delaware corporation (the “COMPANY”), the subsidiaries of the Company listed in the signature pages hereto (the “SUBSIDIARIES”), the ADDITIONAL TRUSTORS (as defined in Section 4.7, and together with the Company and the Subsidiaries, the “TRUSTORS”), and LaSalle Bank National Association, a national banking association (the “TRUSTEE”), as Trustee hereunder for the holders of the Secured Debt (as defined below).

PRELIMINARY STATEMENTS:

(1) The Company has issued $450,000,000 of its 7  ³/8% Senior Notes due 2006 (the “SENIOR PUBLIC NOTES”) pursuant to an Indenture dated as of October 8, 1996 (as supplemented from time to time, the “INDENTURE”) among the Company and U.S. Bank National Association (as successor to The First National Bank of Chicago), as Trustee, (the “PUBLIC TRUSTEE”).

(2) The Company entered into a $1,000,000,000 Amended and Restated Credit Agreement dated as of June 9, 1998, as amended (the “EXISTING CREDIT AGREEMENT”) with the financial institutions party thereto as lenders, swing line banks and issuing banks, Credit Lyonnais New York Branch, The First National Bank of Chicago and Morgan Guaranty Trust Company of New York, as syndication agents, Banc of America Securities LLC (formerly known as NationsBanc Montgomery Securities LLC), as arranger and Bank of America, N.A. (formerly known as NationsBank, N.A.) as administrative agent.

(3) To replace the Existing Credit Agreement, the Company has entered into a Credit Agreement dated as of March 15, 2001 (as hereafter amended, supplemented, restated or otherwise modified from time to time, the “CREDIT AGREEMENT” and, together with the Indenture, the “DEBT INSTRUMENTS”) among the banks, financial institutions and other institutional lenders from time to time party thereto (the “PRIVATE LENDERS” or “HOLDERS OF BANK DEBT”), J.P. Morgan Chase & Co., as syndication agent, First Union National Bank, as documentation agent, Banc of America Securities LLC, as lead arranger and book manager and Bank of America, N.A. as the initial issuing bank, swing line bank and administrative agent (the “ADMINISTRATIVE AGENT”), and, in connection therewith, the Subsidiaries guaranteed the Obligations of the Company thereunder pursuant to a Guarantee dated the date hereof (as hereafter amended, restated, supplemented or otherwise modified from time to time, the “GUARANTEE”).

(4) The Company from time to time may enter into interest rate hedge agreements (the “HEDGE AGREEMENTS”) with financial institutions (the “HEDGE BANKS”) party to the Credit Agreement to the extent permitted therein, and the obligations of the Company thereunder will be guaranteed by the Subsidiaries pursuant to the Guarantee.

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(5) It is a condition precedent to the Private Lenders entering into the Credit Agreement that the Company, the Subsidiaries and the Trustee enter into this Trust Agreement and a Pledge and Security Agreement dated as of the date hereof (as hereafter amended, restated, supplemented or otherwise modified from time to time, the “SECURITY AGREEMENT”) in order to equally and ratably secure the payment of all of the Company’s obligations owing under the Credit Agreement and the documents delivered in connection therewith and the Hedge Agreements and the obligations of the Subsidiaries and the Additional Trustors under the Guarantee (the “BANK DEBT”) and the payment of all of the Company’s obligations owing under the Senior Public Notes (the Bank Debt and the Senior Public Notes being, collectively, the “SECURED DEBT”).

DECLARATION OF TRUST:

NOW THEREFORE, in order to secure the Secured Debt and in consideration of the premises and the mutual agreements set forth herein, the Trustee hereby declares that it holds as trustee in trust under this Agreement all of its right, title and interest in, to and under all the following (and the Company and the Subsidiaries do hereby consent thereto):

(A) the Security Agreement (together with all supplements, documents and filings related thereto collectively, the “SECURITY DOCUMENTS”) and the collateral granted to the Trustee thereunder (the “PLEDGED COLLATERAL”); and

(B) each agreement entered into and delivered pursuant to Section 4.7 or Section 7.1(b) and the collateral granted to the Trustee thereunder (the “SUPPLEMENTAL COLLATERAL”; and, together with the Pledged Collateral, the “COLLATERAL”).

TO HAVE AND TO HOLD, the foregoing Pledged Collateral and the entire Collateral (the right, title and interest of the Trustee in the Security Documents and the Collateral being hereinafter referred to as the “TRUST ESTATE”) unto the Trustee and its successors in trust under this Agreement and its assigns and the assigns of its successors in trust forever;

IN TRUST NEVERTHELESS, under and subject to the terms and conditions herein set forth and for the benefit of the holders of the Secured Debt and for the enforcement of the payment of all of the Secured Debt, and for the performance of and compliance with the covenants and conditions of this Agreement, the Debt Instruments and the Security Documents.

PROVIDED, HOWEVER, that these presents are upon the condition that if the Company, the Subsidiaries, and the Additional Trustors, if any, and their successors or assigns, shall satisfy all of the conditions set forth in Section 6, then this Agreement, and the estates and rights assigned in the Security Documents, shall cease, terminate and be void; otherwise they shall remain and be in full force and effect.

IT IS HEREBY FURTHER COVENANTED AND DECLARED, that the Trust Estate is to be held and applied by the Trustee, subject to the further covenants, conditions and trusts hereinafter set forth.

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SECTION 1

Definitions and Other Matters

(a) The words “hereof”, “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement and section references are to this Agreement unless otherwise specified.

(b) In each case herein where “Holders” are entitled to vote on any matter or to instruct the Trustee, the Public Trustee shall so vote or instruct the Trustee on behalf of the holders of the Senior Public Notes. In each case herein where any payment or distribution is to be made or notice is to be given to “Holders,” such payments, distributions and notices in respect of the Senior Public Notes shall be made to the Public Trustee for the benefit of the holders thereof pursuant to the terms of the Indenture.

(c) As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and the plural forms of the terms defined:

“ACTIONABLE DEFAULT” means (a) so long as any amount is owing under the Indenture or any commitment is outstanding under the Credit Agreement, (i) the acceleration pursuant to Section 6.01 of the Credit Agreement of the maturity of the Bank Debt or the non-payment thereof at the scheduled maturity thereof or, (ii) the non-payment at scheduled final maturity of the Senior Public Notes or the declaration prior to their stated maturity that all of the Senior Public Notes are due and payable pursuant to Section 502 of the Indenture and (b) at any time thereafter, the acceleration of all amounts due under a Hedge Agreement; provided that upon delivery of a Notice of Actionable Default, the Trustee may assume that an Actionable Default shall be deemed to be continuing unless the Notice of Actionable Default delivered with respect thereto shall have been withdrawn in a writing delivered to the Trustee by or on behalf of the Holder or Holders from or on behalf of which such Notice of Actionable Default was delivered, prior to the first date on which the Trustee commences the exercise of any remedy with respect to the Collateral following the receipt of such Notice of Actionable Default.

“BANKRUPTCY PROCEEDING” means that the Company or any of the Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Company or any of the Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, administrator or other similar official for it or for any substantial part of its property and assets and, in the case of any such proceeding instituted against it (but not instituted by it) that is being diligently contested by it in good faith, either such

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proceeding shall remain undismissed or unstayed for a period of at least 60 consecutive days or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or any substantial part of its property and assets) shall occur; or any event or action analogous to or having a substantially similar effect to any of the events or actions set forth above in this definition (other than a solvent reorganization) shall occur under the law of any jurisdiction applicable to the Company or any of the Subsidiaries; or the Company or any of the Subsidiaries shall take any corporate, partnership, limited liability company or other similar action to authorize any of the actions set forth above in this definition.

“DISTRIBUTION DATES” means the dates fixed by the Trustee (the first of which shall occur within 90 days after receipt of a Notice of Actionable Default that has not theretofore been withdrawn and the balance of which shall be monthly thereafter) for the distribution of all moneys held by the Trustee in the Trust Account.

“HOLDERS” means the registered holders of the Senior Public Notes, the holders of the Bank Debt and the Hedge Banks.

“MAJORITY HOLDERS” means, as of any date (A) so long as any amount is owing under the Indenture or any commitment is outstanding under the Credit Agreement, Holders holding Secured Debt representing more than 50% of each of (i) the aggregate unpaid principal amount of the Senior Public Notes then outstanding under the Indenture and (ii) the aggregate unpaid principal amount of the Bank Debt under the Credit Agreement plus the aggregate obligations available under outstanding letters of credit thereunder and (B) at any time thereafter, the Hedge Banks holding more than 50% of the aggregate unpaid amount under the Hedge Agreements based on a mark to market calculation as of the date of determination.

“NOTICE OF ACTIONABLE DEFAULT” means (A) so long as any amount is owing under the Indenture or any commitment is outstanding under the Credit Agreement, a written notice to the Trustee from the Administrative Agent in respect of an Actionable Default relating to the Credit Agreement or from the Public Trustee in respect of an Actionable Default relating to the Indenture and (B) at any time thereafter, a written notice to the Trustee from any Hedge Bank in respect of an Actionable Default relating to a Hedge Agreement.

“RESPONSIBLE OFFICER” means the chief executive officer, the president, the chief financial officer, the principal accounting officer or the treasurer (or the equivalent of any of the foregoing) of the Company or any of the Subsidiaries or any other officer, partner or member (or person performing similar functions) of the Company or any of the Subsidiaries responsible for overseeing the administration of, or reviewing compliance with, all or any portion of this Agreement or any of the Security Documents.

“TRUSTEE’S FEES” means all fees, costs and expenses of the Trustee of the type described in Sections 4.3, 4.4, 4.5 and 4.6 of this Agreement.

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SECTION 2

Actionable Default; Remedies.

2.1 Notice of Default; Written Instructions.

(a) Upon receipt of a Notice of Actionable Default, the Trustee shall, within five days thereafter, notify the Public Trustee, the Administrative Agent and each Hedge Bank that an Actionable Default exists.

(b) Upon receipt of any written directions pursuant to Section 2.6(a), the Trustee shall, within five days thereafter, send a copy thereof to the Administrative Agent, the Public Trustee and each Hedge Bank.

2.2 Remedies.

(a) If and only if the Trustee shall have received a Notice of Actionable Default and such Notice of Actionable Default shall not have been withdrawn in accordance with the provisions hereof, the Trustee shall exercise the rights and remedies provided in this Agreement and in the Security Documents.

(b) The Trustors hereby waive presentment, demand, protest or any notice (to the extent permitted by applicable law) of any kind in connection with this Agreement, any Collateral or any Security Document.

(c) The Trustors hereby irrevocably constitute and appoint the Trustee and any officer or agent thereof, with full power of substitution, as their true and lawful attorney-in-fact with full power and authority in the name of the Company or any of the Subsidiaries, as applicable, or in its own name, from time to time in the Trustee’s discretion, upon the occurrence and during the continuance of an Actionable Default, for the purpose of carrying out the terms of this Agreement and the Security Documents, to take any and all appropriate action and to execute any and all documents and instruments that may be necessary or desirable to accomplish the purposes hereof and thereof and, without limiting the generality of the foregoing, hereby gives the Trustee the power and right on behalf of the Trustors, without notice to or assent by any Trustor, to do the following:

(i) to ask for, demand, sue for, collect, receive, recover, compromise and give acquittance and receipts for any and all moneys due or to become due upon or by virtue hereof and thereof,

(ii) to receive, take, endorse, assign and deliver any and all checks, notes, drafts, acceptances, documents and other negotiable and non-negotiable instruments and chattel paper taken or received by the Trustee in connection herewith and therewith,

(iii) to commence, file, institute, prosecute, defend, settle, compromise or adjust any claim, suit, action or proceeding with respect hereto and thereto or in connection herewith and therewith,

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(iv) to sell, transfer, assign or otherwise deal in or with the Collateral or any part thereof as fully and effectually as if the Trustee were the absolute owner thereof, and

(v) to do, at its option and at the expense and for the account of the Trustors, at any time or from time to time, all acts and things that the Trustee deems necessary to protect or preserve the Collateral or the Trust Estate and to realize upon the Collateral.

2.3 Right to Initiate Judicial Proceedings, etc.

If and only if the Trustee shall have received a Notice of Actionable Default and such Notice of Actionable Default shall not have been withdrawn in accordance with the provisions hereof:

(i) the Trustee shall have the right and power to institute and maintain such suits and proceedings as it may deem appropriate to protect and enforce the rights vested in it by this Agreement and each Security Document, and

(ii) the Trustee may, either after entry or without entry, proceed by suit or suits at law or in equity to enforce such rights and to foreclose upon the Collateral and to sell all or, from time to time, any of the Trust Estate under the judgment or decree of a court of competent jurisdiction.

2.4 Appointment of a Receiver.

If a receiver of the Trust Estate shall be appointed in judicial proceedings, the Trustee may be appointed as such receiver. Notwithstanding the appointment of a receiver, the Trustee shall be entitled to retain possession and control of all cash held by or deposited with it or its agents pursuant to any provision of this Agreement or any Security Document.

2.5 Exercise of Powers.

All of the powers, remedies and rights of the Trustee as set forth in this Agreement may be exercised by the Trustee in respect of any Security Document as though set forth at length therein and all the powers, remedies and rights of the Trustee and the Holders as set forth in any Security Document may be exercised from time to time as herein and therein provided.

2.6 Control by Holders.

(a) Subject to Section 2.6(b), if an Actionable Default shall have occurred and be continuing and the Trustee shall have received a Notice of Actionable Default with respect thereto, the Majority Holders shall have the right, by an instrument in writing executed and delivered to the Trustee, to direct the time, method and place of conducting any proceeding for any right or remedy available to the Trustee, or of exercising any trust or power conferred on the Trustee, or for the appointment of a receiver, or for the taking of any action authorized by Section 2.

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(b) The Trustee shall not follow any written directions received pursuant to Section 2.6(a) to the extent such written directions are known by the Trustee to be in conflict with any provisions of law or if the Trustee shall have received from independent counsel an unqualified opinion to the effect that following such written directions would result in a breach of a provision or covenant contained in the Indenture providing for the securing of the indebtedness outstanding thereunder equally and ratably with other indebtedness or obligations of the Company or any of its subsidiaries.

(c) Nothing in this Section 2.6 shall impair the right of the Trustee in its discretion to take or omit to take any action deemed proper by the Trustee and which action or omission is not inconsistent with the direction of the Holders entitled to direct the Trustee pursuant to this Section 2.6; provided, however, that the Trustee shall not be under any obligation to take any action that is discretionary with the Trustee under the provisions hereof or under any Security Document.

2.7 Remedies Not Exclusive.

(a) No remedy conferred upon or reserved to the Trustee herein or in any Security Document is intended to be exclusive of any other remedy or remedies, but every such remedy shall be cumulative and shall be in addition to every other remedy conferred herein or in any Security Document or now or hereafter existing at law or in equity or by statute.

(b) No delay or omission of the Trustee to exercise any right, remedy or power accruing upon any Actionable Default shall impair any such right, remedy or power or shall be construed to be a waiver of any such Actionable Default or an acquiescence therein; and every right, power and remedy given by this Agreement or any Security Document to the Trustee may be exercised from time to time and as often as may be deemed expedient by the Trustee.

(c) In case the Trustee shall have proceeded to enforce any right, remedy or power under this Agreement or any Security Document and the proceeding for the enforcement thereof shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Trustee, then and in every such case the Trustors, the Trustee and the Holders shall, subject to any determination in such proceeding, severally and respectively be restored to their former positions and rights hereunder and under such Security Document with respect to the Trust Estate and in all other respects, and thereafter all rights, remedies and powers of the Trustee shall continue as though no such proceeding had been taken.

(d) All rights of action and rights to assert claims upon or under this Agreement and the Security Documents may be enforced by the Trustee without the possession of any Debt Instrument or the production thereof in any trial or other proceeding relative thereto, and any such suit or proceeding instituted by the Trustee shall be brought in its name as Trustee and any recovery of judgment shall be held as part of the Trust Estate.

2.8 Waiver of Certain Rights.

The Trustors, to the extent they may lawfully do so, on behalf of themselves and all who may claim through or under them, including, without limitation, any and all subsequent creditors, vendees, assignees and lienors, expressly waive and release any, every and all rights to

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demand or to have any marshaling of the Trust Estate upon any sale, whether made under any power of sale herein granted or pursuant to judicial proceedings or upon any foreclosure or any enforcement of this Agreement and consents and agrees that all the Trust Estate may at any such sale be offered and sold as an entirety.

2.9 Limitation on Trustee’s Duties in Respect of Collateral.

Beyond its duties set forth in this Agreement as to the custody thereof and the accounting to the Trustors and the Holders for moneys received by it hereunder, the Trustee shall not have any duty to the Trustors and the Holders as to any Collateral in its possession or control or in the possession or control of any agent or nominee of it or any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto. To the extent, however, that the Trustee or any agent or nominee thereof maintains possession or control of any of the Collateral, the Trustee shall, and shall instruct such agent or nominee to, grant the Trustors access to such Collateral that the Trustors require for the normal conduct of their business, consistent with their current practice so long as the Trustee shall not have received a Notice of Actionable Default.

2.10 Limitation by Law.

All rights, remedies and powers provided by this Section 2 may be exercised only to the extent that the exercise thereof does not violate any applicable provision of law in the premises, and all the provisions of this Section 2 are intended to be subject to all applicable mandatory provisions of law that may be controlling in the premises and to be limited to the extent necessary so that they will not render this Agreement invalid, unenforceable in whole or in part or not entitled to be recorded, registered, or filed under the provisions of any applicable law.

2.11 Absolute Rights of Holders; Equal and Ratable Security.

Notwithstanding any other provision of this Agreement or any provision of any Security Document, the right of each Holder, which is absolute and unconditional, to receive payments of the Secured Debt held by such Holder on or after the due date thereof as therein expressed, to seek adequate protection in respect of its interest in this Agreement and the Collateral, to institute suit for the enforcement of such payment on or after such due date, or to assert its position and views as a secured creditor in a Bankruptcy Proceeding, or the obligation of the Trustors, which is also absolute and unconditional, to pay the Secured Debt to the Holders at the time and place expressed therein shall not be impaired or affected without the consent of such Holder.

This Agreement and the Security Documents are intended to secure the unpaid principal of and accrued interest and premium, if any, on the Senior Public Notes equally and ratably with all indebtedness and other obligations of the Trustors under the Credit Agreement, this Agreement and the Security Documents to the extent required by the Indenture, and shall be construed and enforced to give effect to such intention.

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SECTION 3

Trust Account, L/C Cash Collateral Account, Application Of Moneys.

3.1 The Trust Account; L/C Cash Collateral Account.

(a) On the date hereof there shall be established and, at all times thereafter until the trusts created by this Agreement shall have terminated, there shall be maintained, with the Trustee an account that shall be entitled the “Caremark Rx, Inc. Trust Account” (the “TRUST ACCOUNT”). The Trust Account shall be established and maintained by the Trustee at the office of its corporate trust services division. All moneys that are received by the Trustee after the occurrence of an Actionable Default in respect of the Collateral shall be deposited in the Trust Account and thereafter shall be held and applied by the Trustee in accordance with the terms of this Agreement. To the extent necessary, appropriate or desirable, the Trustee from time to time may establish sub-accounts as part of the Trust Account for the purpose of better identifying and maintaining proceeds of Collateral, all of which sub-accounts shall be treated as and be deemed equivalent to, the “Trust Account” for all purposes hereof.

(b) On the date hereof there shall be established and, at all times thereafter until the trusts created by this Agreement shall have terminated, there shall be maintained, with the Trustee an account that shall be entitled the “Caremark Rx, Inc. L/C Cash Collateral Account” (the “L/C CASH COLLATERAL ACCOUNT”). The L/C Cash Collateral Account shall be established and maintained by the Trustee at the office of its corporate services division. All moneys that are received by the Trustee pursuant to the Credit Agreement to be deposited in the L/C Cash Collateral Account shall be held and applied by the Trustee in accordance with the terms of this Agreement.

3.2 Control of Trust Account and L/C Cash Collateral Account.

All right, title and interest in and to the Trust Account and L/C Cash Collateral Account shall vest in the Trustee, and funds on deposit in the Trust Account and L/C Cash Collateral Account shall constitute part of the Trust Estate. The Trust Account and L/C Cash Collateral Account shall be subject to the exclusive dominion and control of the Trustee.

3.3 Investment of Funds Deposited in Trust Account and L/C Cash Collateral Account.

The Trustee pursuant to the written direction of the Administrative Agent shall invest and reinvest moneys on deposit in the Trust Account and L/C Cash Collateral Account at any time in money market funds investing in:

(i) marketable obligations of the United States having a maturity of not more than one year from the date of acquisition;

(ii) marketable obligations directly and fully guaranteed by the United States having a maturity of not more than one year from the date of acquisition; or

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(iii) repurchase obligations with a term of not more than thirty days for underlying securities of the types described in clauses (i) and (ii) entered into with either (A) the Trustee or (B) any nationally recognized investment banking firm.

All such investments and the interest and income received thereon and therefrom and the net proceeds realized on the sale thereof shall be held in the Trust Account and L/C Cash Collateral Account, as applicable, as part of the Trust Estate.

3.4 Application of Moneys in Trust Account and L/C Cash Collateral Account.

(a) Trust Account: Subject to Section 3.5, all moneys held by the Trustee in the Trust Account shall, to the extent available for distribution, be distributed (or deposited in a separate account for the benefit of the Public Trustee pursuant to Section 3.5) by the Trustee as follows:

FIRST: To the Trustee in an amount equal to the Trustee’s Fees that are unpaid as of the relevant Distribution Date and to any Holder that has theretofore advanced or paid any such Trustee’s Fees in an amount equal to the amount thereof so advanced or paid by such Holder prior to such Distribution Date;

SECOND: To the Holders in an amount equal to the aggregate unpaid principal amounts due under or in respect of and unpaid interest on the Secured Debt in the case of a holder of the Bank Debt and a holder of the Senior Public Notes, and all unpaid obligations under the Hedge Agreements, in the case of a Hedge Bank, in each case whether or not then due and payable, and, in case such moneys shall be insufficient to pay in full such amounts, then to the payment thereof ratably (without priority of any one over any other) to each Holder in the same proportion that the aggregate unpaid principal amount of and unpaid interest on the Secured Debt under the Credit Agreement or the Senior Public Notes in the case of a holder of the Bank Debt or a holder of the Senior Public Notes or all obligations under its Hedge Agreement on a mark to market calculation as of the Distribution Date in the case of a Hedge Bank bears to the aggregate unpaid principal amount of and unpaid interest on the Secured Debt under the Credit Agreement and all Senior Public Notes and the unpaid obligations under all Hedge Agreements based on such calculation on the relevant Distribution Date; and

THIRD: To the Holders in an amount equal to all other unpaid Secured Debt whether or not due and payable, and, in case such moneys shall be insufficient to pay in full such amount, then to the payment thereof ratably (without priority of any one over any other) to each Holder in the same proportion that such other unpaid Secured Debt of such Holder bears to all such other unpaid Secured Debt of all Holders on the relevant Distribution Date; and

FOURTH: Any surplus then remaining shall be paid to the respective Trustor, its successors or assigns, or to whomsoever may be lawfully entitled to receive the same, or as a court of competent jurisdiction may direct.

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(b) L/C Cash Collateral Account: Subject to Section 3.5, all moneys held by the Trustee in the L/C Cash Collateral Account shall, to the extent available for distribution, during the continuance of an Actionable Event of Default, be distributed (or deposited in a separate account for the benefit of the Public Trustee pursuant to Section 3.5) by the Trustee as follows:

FIRST: To the Trustee in an amount equal to the Trustee’s Fees that are unpaid as of the relevant Distribution Date and to any Holder that has theretofore advanced or paid any such Trustee’s Fees in an amount equal to the amount thereof so advanced or paid by such Holder prior to such Distribution Date;

SECOND: To the Holders in an amount equal to the aggregate unpaid principal amounts due under or in respect of and unpaid interest on the Secured Debt whether or not then due and payable, and, in case such moneys shall be insufficient to pay in full such amounts, then to the payment thereof ratably (without priority of any one over any other) to each Holder in the same proportion that the aggregate unpaid principal amount of an unpaid interest on the Secured Debt under the Secured Credit Agreement or the Senior Public Notes in the case of a holder of the Bank Debt held by such Holder or a holder of the Senior Public Notes or all obligations under its Hedge Agreement on a mark to market calculation as of the Distribution Date in the case of each Hedge Bank bears to the aggregate unpaid principal amount of and unpaid interest on the Secured Debt under the Credit Agreement and all Senior Public Notes and the unpaid interest amounts under all Hedge Agreements based on the Secured Debt held by all Holders such calculation on the relevant Distribution Date; and

THIRD: To the Holders in an amount equal to all other unpaid Secured Debt whether or not due and payable, and, in case such moneys shall be insufficient to pay in full such amount, then to the payment thereof ratably (without priority of any one over any other) to each Holder in the same proportion that such other unpaid Secured Debt of such Holder bears to all such other unpaid Secured Debt of all Holders on the relevant Distribution Date; and

FOURTH: Any surplus then remaining shall be paid to the respective Trustor, its successors or assigns, or to whomsoever may be lawfully entitled to receive the same, or as a court of competent jurisdiction may direct.

Except during the continuance of an Actionable Event of Default, the Trustee, upon the request of the Administrative Agent from time to time, shall release to the Administrative Agent all or such portion of the amounts in the L/C Cash Collateral Account as specified in such request and shall release to the Company all amount in the L/C Cash Collateral Account in respect of the undrawn portion of letters of credit which have been cancelled or otherwise have been terminated, as specified in such request.

(c) The term “unpaid” as used in this Section 3.4 shall mean all amounts of Trustee’s Fees and the Secured Debt outstanding as of a Distribution Date as to which prior distributions (whether actually distributed or set aside pursuant to Section 3.5) have not been made, or if made, have subsequently been recovered from the recipient thereof.

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3.5 Application of Moneys Distributable to Holders of Senior Public Notes.

If at any time any moneys collected or received by the Trustee pursuant to this Agreement or any Security Document are distributable pursuant to Section 3.4(a) or (b) to the Public Trustee, and if the Public Trustee shall notify the Trustee that no provision is made under the Indenture (i) for the application by the Public Trustee of such amounts so distributable (whether by virtue of the Secured Debt issued under the Indenture not having become due and payable or otherwise) or (ii) for the receipt and the holding by the Public Trustee of such amounts pending the application thereof, then the Trustee shall invest such amounts in obligations of the kinds referred to in Section 3.3, and shall hold all such amounts so distributable, and all such investments and the proceeds thereof, in trust solely for the Public Trustee and for no other purpose until such time as the Public Trustee shall request the delivery thereof by the Trustee to the Public Trustee for application by it pursuant to the Indenture.

SECTION 4

Agreements With The Trustee.

4.1 Delivery of Debt Instruments.

Within 10 days after the date hereof, the Company will deliver to the Trustee a true and complete copy of each of the Debt Instruments and any Hedge Agreement as in effect on the date hereof. The Company agrees that, promptly upon the execution thereof, the Company will deliver to the Trustee a true and complete copy of any and all Hedge Agreements and any and all amendments, modifications or supplements entered into subsequent to the date hereof to any Debt Instrument or Hedge Agreements entered into subsequent to the date hereof.

4.2 Information as to Holders.

The Company agrees that it shall deliver to the Trustee from time to time upon request of the Trustee, a list setting forth, by each Debt Instrument and Hedge Agreement:

(i) the aggregate principal amount outstanding thereunder, (ii) the interest rates then in effect thereunder; and

(ii) to the extent known to the Company, the names of the Holders of the Secured Debt outstanding thereunder and the unpaid principal amount thereof owing to each Private Lender, the Public Trustee and each Hedge Bank. The Company will furnish to the Trustee within 30 days after the date hereof a list setting forth the name and address of each party to whom notices must be sent under the Debt Instruments and Hedge Agreements.

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4.3 Compensation and Expenses.

The Trustors, jointly and severally, agree to pay to the Trustee, from time to time upon demand:

(i) reasonable compensation (which shall not be limited by any provision of law in regard to compensation of a trustee of an express trust) for their services hereunder and under the Security Documents and for administering the Trust Estate; and

(ii) all of the fees, costs and expenses of the Trustee (including, without limitation, the reasonable fees and disbursements of their counsel and such special counsel as the Trustee elect to retain) (A) arising in connection with the preparation, execution, delivery, modification and termination of this Agreement and each Security Document or the enforcement of any of the provisions hereof or thereof or (B) incurred or required to be advanced in connection with the administration of the Trust Estate, the sale or other disposition of Collateral pursuant to any Security Document and the preservation, protection or defense of the Trustee’s rights under this Agreement and in and to the Collateral and the Trust Estate.

4.4 Stamp and Other Similar Taxes.

The Trustors, jointly and severally, agree to indemnify and hold harmless the Trustee and each Holder from any present or future claim for liability for any stamp or other similar tax and any penalties or interest with respect thereto that may be assessed, levied or collected by any jurisdiction in connection with this Agreement, any Security Document, the Trust Estate or any Collateral. The obligations of the Trustors under this Section 4.4 shall survive the termination of the other provisions of this Agreement.

4.5 Filing Fees, Excise Taxes, etc.

The Trustors, jointly and severally, agree to pay or to reimburse the Trustee for any and all amounts in respect of all search, filing, recording and registration fees, taxes, excise taxes and other similar imposts that may be payable or determined to be payable in respect of the execution, delivery, performance and enforcement of this Agreement and each Security Document. The obligations of the Trustors under this Section 4.5 shall survive the termination of the other provisions of this Agreement.

4.6 Indemnification.

The Trustors, jointly and severally, agree to pay, indemnify, and hold the Trustee and each of its agents harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement and the Security Documents (including, but not limited to, actions by the Trustee to enforce its rights with respect to the Collateral), unless arising from the gross negligence or willful misconduct (in either case, as determined by a final judgment of a court of competent jurisdiction) of the Trustee or such of the agents as are seeking indemnification. The foregoing indemnities in this Section 4.6 shall survive the resignation or removal of the Trustee or the termination of this Agreement.

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4.7 Further Assurances; Notation on Financial Statements.

(a) At any time and from time to time, upon the written request of the Trustee, and, at the sole expense of the Trustors, the Trustors will promptly execute and deliver any and all such further instruments and documents and take such further action as the Trustee reasonably deems necessary or desirable in obtaining the full benefits of this Agreement and the Security Documents and of the rights and powers herein and therein granted. To the extent required by law, the Trustors shall, in all of their financial statements, indicate by footnote or otherwise that the Secured Debt is secured pursuant to this Agreement and the Security Documents.

(b) Pursuant to the Credit Agreement, from time to time additional subsidiaries of the Company are required to become parties to the Guarantee and to the Security Agreement. In connection with a subsidiary becoming party to the Security Agreement, such subsidiary (an “ADDITIONAL TRUSTOR”) shall execute a Supplement to Trust Agreement in the form of Exhibit A hereto and upon such execution shall become a Trustor hereunder with all applicable rights and responsibilities.

SECTION 5

The Trustee.

5.1 Acceptance of Trust.

The Trustee, for itself and its successors, hereby accepts the trusts created by this Agreement upon the terms and conditions hereof, including those contained in this Section 5.

5.2 Exculpatory Provisions.

(a) The Trustee shall not be responsible in any manner whatsoever for the correctness of any recitals, statements, representations or warranties’ contained herein or in any Security Document, all of which are made solely by the Trustors. The Trustee makes no representations as to the value or condition of the Trust Estate or any part thereof, or as to the title of the Trustors thereto or as to the security afforded by any Security Document or this Agreement, or as to the validity, execution (except its own execution), enforceability, legality or sufficiency of this Agreement, any Security Document or the Secured Debt secured hereby and thereby, and the Trustee shall incur no liability or responsibility in respect of any such matters. The Trustee shall not be responsible for insuring the Trust Estate or for the payment of taxes, charges, assessments or liens upon the Trust Estate or otherwise as to the maintenance of the Trust Estate, except that in the event the Trustee enters into possession of a part or all of the Trust Estate, the Trustee shall preserve the part in its possession.

(b) The Trustee shall not be required to ascertain or inquire as to the performance by the Trustors of any of the covenants or agreements contained herein, in any Security Document or in any Debt Instrument. Whenever it is necessary, or in the opinion of the Trustee advisable, for the Trustee to ascertain the amount of Secured Debt then held by a Holder, the Trustee may rely on a certificate of such Holder or its representative as to such amount, and if any such Holder or representative shall not give such information to the Trustee, such Holder shall not be entitled to receive distributions hereunder (in which case such distributions shall be held in trust for such Holder) until it has given such information to the Trustee.

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(c) The Trustee shall not be personally liable for any action taken or omitted to be taken by them in accordance with this Agreement or any Security Document except for its own gross negligence or willful misconduct.

(d) Aside from filing continuation statements with respect to the uniform commercial code financing statements filed by the Trustors on or about the date hereof naming the Trustee as secured party, the Trustee shall have no responsibility for the preparation, filing or recording of any instrument, document or financing statement or for the maintenance of any security interest intended to be perfected thereby.

5.3 Delegation of Duties.

The Trustee may execute any of the trusts or powers hereof and perform any duty hereunder either directly or by or through agents or attorneys-in-fact, which may include officers and employees of the Trustors. The Trustee shall be entitled to advice of counsel concerning all matters pertaining to such trusts, powers and duties. The Trustee shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it without gross negligence or willful misconduct.

5.4 Reliance by Trustee.

(a) Whenever in the administration of the trusts of this Agreement the Trustee shall deem it necessary or desirable that a matter be proved or established in connection with the taking, suffering or omitting any action hereunder by the Trustee, such matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively provided or established by a certificate of a Responsible Officer of any Trustor delivered to the Trustee, and such certificate shall be full warranty to the Trustee for any action taken, suffered or omitted in reliance thereon, subject, however, to the provisions of Section 5.5.

(b) The Trustee may consult with counsel, and any opinion of such counsel who is not employees of the Trustee shall be full and complete authorization and protection in respect of any action taken or suffered by it hereunder in accordance therewith. The Trustee shall have the right at any time to seek instructions concerning the administration of the Trust Estate from any court of competent jurisdiction.

(c) The Trustee may rely, and shall be fully protected in acting, upon any resolution, statement, certificate, instrument, opinion, report, notice, request, consent, order, bond or other paper or document that it has no reason to believe to be other than genuine and to have been signed or presented by the proper party or parties or, in the case of cables, telecopies and telexes, to have been sent by the proper party or parties. In the absence of its gross negligence or willful misconduct, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Trustee and conforming to the requirements of this Agreement or any Security Document.

(d) The Trustee shall not be under any obligation to exercise any of the rights or powers vested in the Trustee by this Agreement at the request or direction of the Majority Holders pursuant to this Agreement or any Security Document unless the Trustee shall have been

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provided adequate security and indemnity against the costs, expenses and liabilities that may be incurred by it in compliance with such request or direction, including such reasonable advances as may be requested by the Trustee.

5.5 Limitations on Duties of Trustee.

(a) Prior to the occurrence of an Actionable Default, the Trustee shall be obliged to perform such duties and only such duties as are specifically set forth in this Agreement or in any Security Document, and no implied covenants or obligations shall be read into this Agreement or any Security Document against the Trustee. The Trustee shall, during the existence of any Actionable Default, exercise the rights and powers vested in it by this Agreement or by any Security Document, and the Trustee shall not be liable with respect to any action taken or omitted by it in accordance with the direction of the Holders pursuant to Section 2.6.

(b) Except as herein otherwise expressly provided, the Trustee shall not be under any obligation to take any action that is discretionary with the Trustee under the provisions hereof or under any Security Document except upon the written request of the Holders pursuant to Section 2.6. The Trustee shall make available for inspection and copying by the Administrative Agent and the Public Trustee each certificate or other paper furnished to the Trustee by the Company under or in respect of this Agreement, any Security Document or any of the Trust Estate.

5.6 Moneys to be Held in Trust.

All moneys received by the Trustee under or pursuant to any provision of this Agreement or any Security Document shall be held in trust for the purposes for which they were paid or are held.

5.7 Resignation and Removal of the Trustee.

(a) The Trustee may at any time, by giving 30 days’ prior written notice to the Company and the Holders, resign and be discharged of the responsibilities hereby created, such resignation to become effective upon the earlier of: (i) 30 days from the date of such notice; and (ii) (the appointment of a successor trustee or trustees by the Company, the acceptance of such appointment by such successor trustee or trustees, and the approval of such successor trustee or trustees by the Majority Holders. The Trustee may be removed at any time and a successor trustee or trustees appointed by the affirmative vote of the Majority Holders; provided that the Trustee shall be entitled to its fees and expenses to the date of removal. If no successor trustee or trustees shall be appointed and approved within 30 days from the date of the giving of the aforesaid notice of resignation or within 30 days from the date of such removal, the Trustee (notwithstanding the termination of all of its duties and obligations hereunder by reason of such resignation) shall, or any Holder may, apply to any court of competent jurisdiction to appoint a successor trustee or trustees (which may be an individual or individuals) to act until such time, if any, as a successor trustee or trustees shall have been appointed as above provided. Any successor trustee or trustees so appointed by such court shall immediately and without further act be superseded by any successor trustee or trustees approved by the Majority Holders as above provided.

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(b) If at any time the Trustee shall resign or be removed or otherwise become incapable of acting, or if at any time, a vacancy shall occur in the office of the Trustee for any other cause, a successor trustee or trustees may be appointed by the Majority Holders, and the powers, duties, authority and title of the predecessor trustee or trustees terminated and canceled without procuring the resignation of such predecessor trustee or trustees, and without any other formality (except as may be required by applicable law) than appointment and designation of a successor trustee or trustees in writing, duly acknowledged, delivered to the predecessor trustee or trustees and the Company, and filed for record in each public office, if any, in which this Agreement is required to be filed.

(c) The appointment and designation referred to in Section 5.7(b) shall, after any required filing, be full evidence of the right and authority to make the same and of all the facts therein recited, and this Agreement shall vest in such successor trustee or trustees, without any further act, deed or conveyance, all of the estate and title of its predecessor, and upon such filing for record the successor trustee or trustees shall become fully vested with all the estates, properties, rights, powers, trusts, duties, authority and title of its predecessor; but such predecessor shall, nevertheless, on the written request of the Majority Holders, the Company or the successor trustee or trustees, execute and deliver an instrument transferring to such successor or successors all the estates, properties, rights, powers, trusts, duties, authority and title of such predecessor or predecessors hereunder and shall deliver all securities and moneys held by it to such successor trustee or trustees. Should any deed, conveyance or other instrument in writing from any Trustor be required by any successor trustee or trustees for more fully and certainly vesting in such successor trustee or trustees the estates, properties, rights, powers, trusts, duties, authority and title vested or intended to be vested in the predecessor trustee or trustees, any and all such deeds, conveyances and other instruments in writing shall, on request of such successor trustee or trustees, be executed, acknowledged and delivered by such Trustor.

(d) Any required filing for record of the instrument appointing a successor trustee or trustees as hereinabove provided shall be at the expense of the Trustors. The resignation of any trustee or trustees and the instrument or instruments removing any trustee or trustees, together with all other instruments, deeds and conveyances provided for in this Section 5 shall, if permitted by law, be forthwith recorded, registered and filed by and at the expense of the Trustors, wherever this Agreement is recorded, registered and filed.

5.8 Status of Successors to the Trustee.

Except as permitted by Section 5.7, every successor to the Trustee appointed pursuant to Section 5.7 shall be a bank or trust company in good standing and having power so to act, incorporated under the laws of the United States or any State thereof or the District of Columbia, and having its principal corporate trust office within the 48 contiguous States, and shall also have capital, surplus and undivided profits of not less than $100,000,000, if there be such an institution with such capital, surplus and undivided profits willing, qualified and able to accept the trust upon reasonable or customary terms.

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5.9 Merger of the Trustee.

Any corporation into which the Trustee may be merged, or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Trustee shall be a party, shall be Trustee under this Agreement without the execution or filing of any paper or any further act on the part of the parties hereto.

5.10 Co-Trustee, Separate Trustee.

(a) If at any time or times it shall be necessary or prudent in order to conform to any law of any jurisdiction in which any of the Collateral shall be located, or the Trustee shall be advised by counsel, satisfactory to it, that it is so necessary or prudent in the interest of the Holders, or the Majority Holders shall in writing so request the Trustee and the Trustors, or the Trustee shall deem it desirable for its own protection in the performance of its duties hereunder, the Trustee and the Trustors shall execute and deliver all instruments and agreements necessary or proper to constitute another bank or trust company, or one or more persons approved by the Trustee and the Trustors, either to act as co-trustee or co-trustees of all or any of the Collateral, jointly with the Trustee originally named herein or any successor or successors, or to act as separate trustee or trustees of any such property. In the event the Trustors shall not have joined in the execution of such instruments and agreements within 30 days after the receipt of a written request from the Trustee so to do, or in case an Actionable Default shall have occurred and be continuing, the Trustee may act under the foregoing provisions of this Section 5.10 without the concurrence of the Trustors, and the Trustors hereby appoint the Trustee as its agent and attorney to act for it under the foregoing provisions of this Section 5.10 in either of such contingencies.

(b) Every separate trustee and every co-trustee, other than any trustee that may be appointed as successor to the Trustee, shall, to the extent permitted by law, be appointed and act and be such, subject to the following provisions and conditions, namely:

(i) all rights, powers, duties and obligations conferred upon the Trustee in respect of the custody, control and management of moneys, papers or securities shall be exercised solely by the Trustee, or its successors as Trustee hereunder;

(ii) all rights, powers, duties and obligations conferred or imposed upon the Trustee hereunder shall be conferred or imposed and exercised or performed by the Trustee and such separate trustee or separate trustees or co-trustee or co-trustees, jointly, as shall be provided in the instrument appointing such separate trustee or separate trustees or co-trustee or co-trustees, except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed the Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations shall be exercised and performed by such separate trustee or separate trustees or co-trustee or co-trustees;

(iii) no power given hereby to, or that it is provided hereby may be exercised by, any such co-trustee or co-trustees or separate trustee or separate trustees, shall be exercised hereunder by such co-trustee or co-trustees or separate trustee or

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separate trustees, except jointly with, or with the consent in writing of, the Trustee, anything herein contained to the contrary notwithstanding;

(iv) no trustee hereunder shall be personally liable by reason of any act or omission of any other trustee hereunder; and

(v) the Trustors and the Trustee, at any time by an instrument in writing, executed by them, may accept the resignation of or remove any such separate trustee or co-trustee, and in that case, by an instrument in writing executed by the Trustors and the Trustee jointly, may appoint a successor to such separate trustee or co-trustee, as the case may be, anything herein contained to the contrary notwithstanding. In the event that the Trustors shall not have joined in the execution of any such instrument within ten days after the receipt of a written request from the Trustee so to do, or in case an Actionable Default shall have occurred and be continuing, the Trustee shall have the power to accept the resignation of or remove any such separate trustee or co-trustee and to appoint a successor without the concurrence of the Trustors, the Trustors hereby appointing the Trustee its agent and attorney to act for it in such connection in either of such contingencies. In the event that the Trustee shall have appointed a separate trustee or separate trustees or co-trustee or co-trustees as above provided, it may at any time, by an instrument in writing, accept the resignation of or remove any such separate trustee or co-trustee, the successor to any such separate trustee or co-trustee to be appointed by the Trustors and the Trustee, or by the Trustee alone, as provided in this Section 5.10.

SECTION 6

Release of Collateral.

6.1 Conditions to Release; Release Procedure.

(a) Subject to Section 6.1(b) and 6.1(c), the Collateral shall be released on the earliest of the dates listed below:

(i) the date on which the Trustee and the Public Trustee shall have received written notice from the Administrative Agent that (A) no Advances (as defined in the Credit Agreement) or any of the other Obligations (as defined in the Credit Agreement) of a Loan Party (as defined in the Credit Agreement) under or in respect of the Loan Documents (as defined in the Credit Agreement) shall remain unpaid, (B) no Letter of Credit (as defined in the Credit Agreement) shall remain outstanding and (C) no Lender Party (as defined in the Credit Agreement) shall have any Commitment (as defined in the Credit Agreement) under the Credit Agreement; or

(ii) the date on which the Trustee shall have received written directions from the Administrative Agent directing the Trustee to release the Collateral (with a copy of such directions to be sent contemporaneously to the Public Trustee).

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(b) All of the Collateral shall not be released unless and until all Trustees’ Fees shall have been paid in full.

(c) From time to time during the term of this Agreement, portions of Collateral shall be released on the date on which the Trustee shall have received written directions from the Administrative Agent directly the Trustee to release such portion of the Collateral.

(d) Upon the release of the Collateral, or any portion thereof, all right, title and interest of the Trustee in, to and under the Trust Estate in respect of the Collateral or portion thereof so released, and the Security Documents in respect of such Collateral, shall terminate and shall revert to the respective Trustors, their successors and assigns, and the estate, right, title and interest of the Trustee therein shall thereupon cease, determine and become void; and in such case, upon the written request of the respective Trustors, their successors or assigns, and at the cost and expense of the Trustors, their successors or assigns, the Trustee shall execute in respect of the Collateral so released, a satisfaction of the Security Documents and such instruments as are necessary or desirable to terminate and remove of record any documents constituting public notice of the Security Documents and the security interests and assignments granted thereunder and shall assign and transfer, or cause to be assigned and transferred, and shall deliver or cause to be delivered to the Trustors, in respect of the Collateral so released, all property, including all moneys, instruments and securities, of the Trustors then held by the Trustee. The cancellation and satisfaction of the Security Documents shall be without prejudice to the rights of the Trustee or any successor trustee to charge and be reimbursed for any expenditures that it may thereafter incur in connection therewith.

SECTION 7

Miscellaneous.

7.1 Amendments, Supplements and Waivers.

(a) With the written consent of the Administrative Agent and the Public Trustee, the Trustee and the Trustors may, from time to time, enter into written agreements supplemental hereto for the purpose of adding to or waiving any provision of this Agreement or any Security Document or changing in any manner the rights of the Trustee, the Holders or the Trustors hereunder or thereunder; provided, however, that no such supplemental agreement shall:

(i) amend, modify or waive any provision of this Section 7.1 without the written consent of each Holder,

(ii) reduce the percentage specified in the definition of Majority Holders without the written consent of all the Holders,

(iii) amend, modify or waive any provision of Section 3.4, 3.5 or 6.1 or the definition of the term “Secured Debt” without the written consent of any Holder whose rights would be adversely affected thereby,

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(iv) amend, modify or waive any provision of Section 5 or alter the duties or obligations of the Trustee hereunder without the written consent of the Trustee.

Any such supplemental agreement shall be binding upon the Trustors, the Holders and the Trustee and their respective successors. The Trustee shall not enter into any such supplemental agreement unless it shall have received a certificate of a Responsible Officer of the Trustors to the effect that such supplemental agreement will not result in a breach of any provision or covenant contained in the Indenture.

(b) Without the consent of any Holders, the Trustee and the Trustors, at any time and from time to time, may enter into additional pledge or security agreements or one or more agreements supplemental hereto or to any Security Document, in form satisfactory to the Trustee,

(i) to add to the covenants of the Trustors, for the benefit of the Holders, or to surrender any right or power herein conferred upon the Trustors;

(ii) to mortgage, pledge or grant a security interest in any property or assets that are required to be mortgaged or pledged, or in which a security interest is required to be granted, to the Trustee pursuant to any Debt Instrument or any Security Document; and

(iii) to cure any ambiguity in, to correct or to supplement any provision herein or in any Security Document that may be defective or inconsistent with any other provision herein or therein, or to make any other provisions with respect to matters or questions arising hereunder or under any Security Document that shall not be inconsistent with any provision hereof or of any Security Document.

7.2 Notices.

All notices, requests, demands and other communications provided for or permitted hereunder shall be in writing (including telecopy communications) and shall be sent by mail, telecopier or hand delivery:

(a) If to any Trustor, to it at the address of the Company at: 3000 Galleria Tower, Suite 1000, Birmingham, Alabama 35244, Telecopier No. (205) 733-9780 or at such other address as shall be designated by it in a written notice to the Trustee.

(b) If to the Trustee, to it at its address at: 135 South LaSalle Street, Suite 1960, Chicago, Illinois 60603, Attention: Corporate Trust Services Division, Telecopier No: (312) 904-2236 or at such other address as shall be designated by it in a written notice to the Company.

(c) If to the Public Trustee, to it at its address at 180 East Fifth Street—2nd Floor, St. Paul, Minnesota 55101, Attention: Mr. Timothy J. Sandell, Telecopier No. (651) 244-5847, or at such other address as shall be designated by it in writing to the Trustee.

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(d) If to the Administrative Agent, to it at its address at Independence Center, 101 North Tryon Street, 15th Floor, Charlotte, North Carolina 28255, Attention: Corporate Credit Services, Telecopier No. (704) 386-9923 or at such other address as shall be designated by it in writing to the Trustee.

(e) If to any of the Hedge Banks, to it at its address set forth in the respective Hedge Agreement to which it is a party (a copy of which Hedge Agreement shall have been provided to the Trustee).

(f) Any notice given to any Holder shall also be given to the Public Trustee and the Administrative Agent.

All such notices, requests, demands and communications shall be deemed to have been duly given or made, when delivered by hand or five Business Days after being deposited in the mail, postage prepaid, or when telecopied, receipt acknowledged; provided, however, that any notice, request, demand or other communication to the Trustee shall not be effective until received.

7.3 Headings.

Section, subsection and other headings used in this Agreement are for convenience only and shall not affect the construction of this Agreement.

7.4 Severability.

Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall not invalidate the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

7.5 Treatment of Payee or Indorsee by Trustee.

(a) The Trustee may treat the registered holder of any registered note, and the payee or indorsee of any note or debenture that is not registered, as the absolute owner thereof for all purposes hereunder and shall not be affected by any notice to the contrary, whether such promissory note or debenture shall be past due or not.

(b) Any person, firm, corporation or other entity that shall be designated as the duly authorized representative of one or more Holders of Secured Debt to act as such in connection with any matters pertaining to this Agreement or any Security Document or the Collateral shall present to the Trustee such documents, including, without limitation, opinions of counsel, as the Trustee may reasonably require, in order to demonstrate to the Trustee the authority of such person, firm, corporation or other entity to act as the representative of such Holders.

7.6 Dealings with the Trustors.

(a) Upon any application or demand by any Trustor to the Trustee to take or permit any action under any of the provisions of this Agreement, such Trustor shall furnish to the

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Trustee a certificate of a Responsible Officer stating that all conditions precedent, if any, provided for in this Agreement relating to the proposed action have been complied with, except that in the case of any such application or demand as to which the furnishing of such documents is specifically required by any provision of this Agreement relating to such particular application or demand, no additional certificate or opinion need be furnished.

(b) Any opinion of counsel may be based, insofar as it relates to factual matters, upon a certificate of a Responsible Officer filed with the Trustee.

7.7 Claims Against the Trustee.

Any claims or causes of action that the Administrative Agent, the Private Lenders, the Public Trustee or any Trustor shall have against the Trustee shall survive the termination of this Agreement and the release of the Collateral hereunder.

7.8 Binding Effect.

This Agreement shall be binding upon and inure to the benefit of each of the parties hereto, the Holders, and their respective successors and assigns, and nothing herein or in any Security Document is intended or shall be construed to give any other person any right, remedy or claim under, to or in respect of this Agreement, any Security Document, the Collateral or the Trust Estate.

7.9 Governing Law.

This Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the State of Illinois and any action alleging any breach by the Trustee of its duties hereunder, whether by act or omission or anticipatory, shall be prosecuted only in the courts of the State of Illinois.

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7.10 Counterparts.

This Agreement may be executed in separate counterparts, each of which shall be an original and all of which taken together shall constitute one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused this Agreement to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written.

LASALLE BANK NATIONAL ASSOCIATION,                             AS TRUSTEE
By:	/s/ John W. Porter
Title:	Assistant VP
CAREMARK RX, INC.
By:	/s/ Peter J. Clemens
	Peter J. Clemens
Title:	SVP & Treasurer
CAREMARK INTERNATIONAL INC.
By:	/s/ Peter J. Clemens
	Peter J. Clemens
Title:	VP
CAREMARK INC.
By:	/s/ Peter J. Clemens
	Peter J. Clemens
Title:	VP

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EX-10.57

Exhibit 10.57

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into on August 16, 2005 by and between Caremark Rx, Inc., a Delaware corporation (“Employer”), and William R. Spalding (“Officer”).

Recitals

WHEREAS, Employer wishes to retain the services of Officer, and Officer wishes to serve Employer in the capacity of Executive Vice President/Strategic Development; and

WHEREAS, Employer and Officer have agreed to set forth the terms and conditions of Officer’s employment with Employer in this Agreement.

Agreement

NOW, THEREFORE, in consideration of the foregoing recitals and of the mutual covenants and agreements contained in this Agreement, the parties agree as follows:

1. Term. Employer agrees to employ Officer as of June 1, 2005, and Officer agrees to serve Employer, on an “at will” basis for such period (such period being the “Term”) as Employer desires to employ Officer and Officer agrees to serve Employer. Without limiting the generality of the foregoing sentence, Employer shall have the right to terminate Officer at any time for any reason or no reason without any obligation to Officer other than for Base Salary (as hereinafter defined) earned but unpaid through the date of such termination and for the obligations of Employer pursuant to Section 5 of this Agreement.

2. Employment of Officer.

(a) Position. Employer and Officer agree that, subject to the provisions of this Agreement, Officer will serve as Executive Vice President/Strategic Development.

(b) Duties. Officer will have general responsibility to assist the Employer’s Chief Executive Officer in the ongoing development of Employer’s strategic business plan and to direct merger, acquisition, and divestiture activities for Employer and its subsidiaries, affiliates (including entities Employer may acquire) as well as such other duties Employer’s Chief Executive Officer or his designee may assign. Officer shall devote substantially all of his time and energies during business hours, faithfully and to the best of his ability, to the supervision and conduct of the business and affairs of such duties.

3. Compensation.

(a) Salary. Employer shall pay Officer a base salary in the amount of $700,000.00 per year (pro-rated for any partial year during the Term) (the “Base Salary”) payable in equal bi-weekly installments, less state and federal tax and other legally required or authorized withholdings. The Base Salary shall be subject to review and adjustment from time to time at the discretion of Employer’s Chief Executive Officer or his designee.

(b) Incentive Compensation. During the Term, Officer shall be eligible to receive from Employer incentive compensation in an amount equal to 100% of Base Salary (which will not be pro-rated for the 2005 Plan year), less state and federal tax and other legally required or authorized withholdings. The incentive compensation contemplated by this Section 3(b) shall be payable to Officer and subject to review and adjustment at the discretion of the Chief Executive Officer of Employer or his designee.

(c) Signing Bonus. Employer shall pay Officer a one time signing bonus of $500,000, less appropriate payroll tax withholdings following commencement of employment. Officer agrees he will be required to repay the signing bonus on a prorated basis if he leaves his employment before May 31, 2008. Further, Officer specifically authorizes Employer to deduct any amount owed from his final paycheck(s).

4. Employment Benefits.

(a) Fringe Benefits. In addition to the compensation and other remuneration provided for in this Agreement, Officer shall be entitled, during the Term, to such other benefits of employment with Employer as are now or may after the date of this Agreement be offered pursuant to Employer’s standard benefits plans.

(b) Executive Benefits. Officer shall receive the benefits set forth in Employer’s Executive Flexible Benefit Plan at the tier 1 level that is now in effect or may after the date of this Agreement be offered to Employer’s executives who have comparable levels of responsibility as Officer.

(c) Expenses. During the Term, Employer shall reimburse Officer promptly for all reasonable travel, entertainment, parking, business meeting and similar expenditures in pursuit and furtherance of Employer’s business upon receipt of reasonable supporting documentation as required by Employer’s policies applicable to its officers generally.

(d) Stock Equity Award. Officer shall receive an initial stock equity award of 500,000 stock options priced at close of market on the grant date, which shall be June 1, 2005. Officer shall be eligible for additional equity awards from time to time commensurate with his level of responsibility at the discretion of the Chief Executive Officer and Board of Directors.

(e) Stock Trading Policy. Officer acknowledges that he will be subject to the trading restrictions applicable to “Designated Individuals” under Employer’s Stock Trading Policy.

(f) Retirement Benefit. Officer shall be eligible for a retirement benefit to compensate him for the retirement program he has left at his previous employer.

(g) Relocation Expenses. Officer shall receive the reimbursements and benefits set forth in Employer’s Relocation Policy for Senior Vice Presidents and above currently employed, including, but not limited to, Employer’s purchase of Officer’s current residence in the greater Atlanta, Georgia area.

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5. Termination Benefits. Employer shall provide to Officer the applicable termination benefits and/or payments set forth below.

(a) Termination by Resignation, Disability or Death. This Agreement shall terminate upon Officer’s voluntary resignation, disability or death, and Officer shall be entitled to only Base Salary payable through the date of termination and those benefits and payments he is entitled to receive under Employer’s applicable controlling benefit plans and policies. Officer shall not be entitled to any severance or like payments.

(b) Termination for Cause. If Employer terminates Officer’s employment for Cause, then Officer shall be entitled to only Base Salary payable through the date of termination and those benefits and payments he is entitled to receive under the applicable controlling benefit plans and policies. Officer shall not be entitled to any severance or like payments. The term “Cause” shall mean Officer (i) breaches Section 6 of this Agreement or any other material term of this Agreement; (ii) is convicted by a court of competent jurisdiction of a felony; (iii) refuses, fails or neglects to perform his duties under this Agreement in a manner that is materially detrimental to the business or reputation of Employer; (iv) engages in illegal, unethical or other wrongful conduct that is materially detrimental to the business or reputation of Employer; or (v) develops or pursues interests materially adverse to Employer; provided, however, that in the case of clauses (i), (iii), or (v), no such termination shall be effective unless (A) Employer shall have given Officer 30 days prior written notice of and opportunity to cure any conduct or deficiency in Officer’s performance that Employer believes justifies Officer’s termination under this Section 5(b); and (B) Officer shall not have cured such non-compliant conduct or performance during such notice period. Employer shall not be obligated to satisfy the foregoing requirement of 30 days notice and opportunity to cure in the case of termination under clauses (i), (iii) or (v) above if the Employer reasonably determines that such non-compliant conduct or performance cannot be satisfactorily cured.

(c) Termination without Cause. If Employer terminates this Agreement without Cause, it shall provide Officer with the following termination benefits: (i) 30 days prior written notice of Employer’s intention to terminate this Agreement without Cause; (ii) a lump sum payment equal to one (1) year of Officer’s Base Salary then in effect; (iii) a lump sum payment equal to any portion of any bonus accrued for Officer on Employer’s books through the date of termination; (iv) continued coverage under Employer’s standard and executive benefit plans for one (1) year in accordance with the terms of the applicable plans; provided, if the terms of the applicable plan do not permit continued coverage, then Employer shall pay to Officer the value of the applicable benefits in lump sum upon termination of employment; and (v) the applicable stock option plan shall control the treatment of Officer’s unexercised stock options, if any. As a condition precedent to receiving the payments and benefits described in this Section 5(c), Officer shall be required to execute a full release of all claims for the benefit of Employer in a form Employer shall provide. Upon execution of this release, Employer shall provide the payments and benefits described in this Section 5(c) within 10 business days.

(d) Termination Following a Change in Control.

(i) Definitions. For purposes of this Agreement, the term “Change in Control” shall have the same definition of “Change in Control” contained in the Caremark Rx, Inc. 2004 Incentive Stock Plan, as amended from time to time. The term “Successor Employer” shall refer to the surviving corporation or entity following a Change in Control of Employer.

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(ii) Change in Control. During the first 6 months following a Change in Control, Officer may provide Successor Employer with a written request that Successor Employer acknowledge and confirm in writing that it has assumed all of Employer’s obligations under this Agreement. If Successor Employer fails to timely provide such written confirmation within 60 days of receipt of Officer’s written request, then Officer shall be deemed to be terminated by Successor Employer at the end of such 60-day period.

(iii) By Successor Employer. Successor Employer may terminate this Agreement following a Change in Control by giving 30 days prior written notice to Officer.

(iv) Benefits. Upon any termination of this Agreement following a Change in Control under (ii) or (iii) above, Officer shall receive the following termination benefits: (A) a lump sum payment equal to two (2) years of Officer’s current base salary; (B) a lump sum payment equal to two (2) years of Officer’s current annual incentive bonus; (C) continued coverage under Employer’s standard and executive benefit plans for two (2) years in accordance with the terms of the applicable plans; provided, if the terms of the applicable plan do not permit continued coverage, then Successor Employer shall pay to Officer the value of the applicable benefits in lump sum upon termination of employment; and (D) the applicable stock option plan shall control the treatment of Officer’s unexercised stock options, if any. As a condition precedent to receiving the payments and benefits described in this Section 5(d), Officer shall be required to execute a full release of all claims for the benefit of Successor Employer in a form Successor Employer shall provide. Upon execution of this release, Successor Employer shall provide the payments and benefits described in this Section 5(d) within 10 business days.

6. Restrictive Covenants.

(a) Definitions. The following terms shall have the meanings set forth below:

(i) “Caremark Parties” means Employer and its subsidiaries and affiliates.

(ii) “Confidential Information” means any data or information that is valuable to any of the Caremark Parties (or, if owned by someone else, is valuable to that third party) and not generally known to the public or to competitors in the pharmaceutical services industry, including, but not limited to, any non-public information (regardless of whether in writing or retained as personal knowledge) pertaining to research and development; product costs

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and processes; shareholder information; pricing, costs or profit factors; quality programs; strategic planning; business operations; financial condition; annual budget and long-range business plans; marketing plans and methods; contracts and bids; and personnel. The term “Confidential Information” does not include information that (A) has become generally available to the public by the act of one who has the right to disclose such information without violating any right of the party to which such information pertains, or (B) is obtained by Officer on a non-confidential basis from a third party and which Officer is not prohibited from disclosing by a legal, contractual or fiduciary duty owed to any of the Caremark Parties.

(iii) “Restricted Business” means the business of providing (A) pharmaceutical services (including, without limitation, prescription benefit management services, specialty distribution services and disease management services) to employers, insurance companies, unions, government employee groups, governmental entities, government program beneficiaries, managed care organizations, coalitions, other sponsors of health benefit plans, individuals and/or pharmaceutical companies, and/or (B) audit, review, advisory or other services relating to any business relationship between any third party and any Caremark Party. Notwithstanding the foregoing language, the term Restricted Business shall not preclude Officer from returning to the practice of law with a law firm, provided, Officer does not represent or advise an entity that does fall within the definition of a Restricted Business during the Restricted Period.

(iv) “Restricted Period” means during the Term and for a period of 2 years after the end of the Term of this Agreement for purposes of Sections 6(d), (e) and (f) and for a period of 5 years after the end of the Term of this Agreement for purposes of Sections 6(b) and (c).

(v) “Territory” means the United States and Puerto Rico, or such lesser territory in which the Caremark Parties are actually conducting business at the time of enforcement.

(vi) “Trade Secret” means information including, but not limited to, any technical or nontechnical data, formula, pattern, compilation, program, device, method, technique, drawing, process (including, without limitation, any process relating to customer bids or requests for proposal), financial data, financial plan, product plan, list of actual or potential customers or suppliers or other information similar to any of the foregoing, which (A) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can derive economic value from its disclosure or use and (B) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

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(b) Trade Secrets. Officer hereby covenants and agrees that he will hold in confidence all Trade Secrets of the Caremark Parties and will not disclose, publish or make use of any such Trade Secrets at any time after the date of this Agreement, except as is necessary to perform duties assigned him or as specifically authorized in writing by Employer’s Chief Executive Officer or his designee, for as long as the information remains a Trade Secret.

(c) Confidential Information. Officer hereby covenants and agrees that, during the Restricted Period, he will hold in confidence all Confidential Information of the Caremark Parties and will not disclose, publish or make use of any such Confidential Information at any time after the date of this Agreement, except as is necessary to perform duties assigned to him or as specifically authorized in writing by Employer’s Chief Executive Officer or his designee.

(d) Nonsolicitation of Employees. Officer hereby covenants and agrees that he will not, during the Restricted Period, either directly or indirectly, on his own behalf or on behalf of others, solicit or divert or attempt to solicit or divert for employment or other engagement to provide services, any person who, as of the date of this Agreement or at any time during the Term, is or was employed by or otherwise engaged to provide services for any of the Caremark Parties.

(e) Nonsolicitation of Customers and Suppliers. Officer hereby covenants and agrees that he will not, within the Territory and during the Restricted Period, solicit or attempt to solicit on his own behalf or on behalf of any business engaged in the Restricted Business, any person or entity who, as of the date of this Agreement or at any time during the Term, is or was a customer or supplier to any of the Caremark Parties or is an actively sought prospective customer or supplier of any of the Caremark Parties.

(f) Noncompetition. Officer hereby covenants and agrees that he will not, within the Territory and during the Restricted Period, either directly or indirectly, on his own behalf or in the service or on behalf of others, engage in, establish, have any equity or profit interest in, make any loan to or for the benefit of, or render services (of any product development or design, financial, operations, advertising, marketing, sales, administrative, logistics, supervisory, strategic planning, management or consulting nature) to any business, entity or individual engaged in the Restricted Business.

Notwithstanding anything in this Section 6 to the contrary, nothing herein shall prohibit Officer, in the aggregate, from owning or acquiring a passive investment of one percent (1%) or less of the issued and outstanding capital stock of a publicly-held corporation or organization engaged in the Restricted Business in the Territory, provided that Officer does not, directly or indirectly, participate in the management or operation of such publicly-held corporation or organization.

(g) State Law. The restrictions set forth in Sections 6(a) and (b) are in addition to and not in lieu of protections afforded to trade secrets and confidential information under applicable state law. This Agreement shall not be interpreted as diminishing or otherwise limiting Employer’s right under applicable state law to protect its trade secrets and confidential information.

7. Return of Materials. Upon termination of this Agreement, Officer will deliver to Employer all memoranda, notes, records, manuals or other documents (including, but not limited

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to, written instruments, voice or data recordings, computer tapes, disks or files of any nature), including all copies of such materials and all documentation prepared or produced in connection therewith, pertaining to the businesses of the Caremark Parties or containing Trade Secrets or Confidential Information, whether made or compiled by Officer or otherwise made available to Officer.

8. Reasonable and Necessary Restrictions. Officer acknowledges that the restrictions, prohibitions and other provisions in Section 6, including the definitions of Restricted Business, Restricted Period and Territory, are reasonable, fair and equitable in scope, terms and duration, are necessary to protect the legitimate business interests of Employer, and are a material inducement to Employer to enter into this Agreement. Officer covenants that he will not challenge the enforceability of this Agreement nor will he raise any equitable defense to its enforcement.

9. Specific Performance. Officer acknowledges that the obligations undertaken by him pursuant to this Agreement are unique and that Employer will likely have no adequate remedy at law if he fails to perform any of those obligations. Officer therefore confirms that Employer has the right to specific performance of the terms of this Agreement and that this right is essential to protect the rights and interests of Employer and to protect the benefit of Employer’s bargain with Officer. Accordingly, in addition to any other remedies that Employer may have at law or in equity, Employer shall have the right to have all obligations, covenants, agreements and other provisions of this Agreement specifically performed by Officer and the right to obtain preliminary and permanent injunctive relief to secure specific performance and to prevent a breach or contemplated breach of this Agreement by Officer.

10. Survival. All rights and obligations of Employer and Officer under this Agreement shall cease upon termination of this Agreement, except the obligations of the parties set forth in Sections 5, 6, 7, 8, 9 and 10 hereof shall survive termination of this Agreement.

11. Miscellaneous.

(a) Succession. This Agreement shall inure to the benefit of and shall be binding upon Employer, its successors and assigns. The obligations and duties of Officer under this Agreement are personal and not assignable.

(b) Notices. Any notice, request, instruction or other document to be given under this Agreement by any party to the others shall be in writing and delivered in person or by courier, telegraphed, telexed or sent by facsimile transmission or mailed by certified mail, postage prepaid, return receipt requested (such mailed notice to be effective on the date such receipt is acknowledged), as follows:

If to Officer:

Mr. William R. Spalding, Esq.

Caremark Rx, Inc.

211 Commerce Street

Suite 800

Nashville, TN 37201

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If to Employer:

Caremark Rx, Inc.

211 Commerce Street

Suite 800

Nashville, Tennessee 37201

Attn.: Chief Executive Officer

with a copy to General Counsel

or to such other place as either party may designate as to itself by written notice to the other.

(c) Waiver; Amendment. No provision of this Agreement may be waived except by a written agreement signed by the waiving party. The waiver of any term or of any condition of this Agreement shall not be deemed to constitute the waiver of any other term or condition. This Agreement may be amended only by a written agreement signed by the parties.

(d) Governing Law. This Agreement shall be construed under and governed by the internal laws of the State of Tennessee, without regard to Tennessee’s choice of law rules.

(e) Arbitration. Any disputes or controversies arising under this Agreement shall be settled by arbitration in Nashville, Tennessee in accordance with the rules of the American Arbitration Association relating to the arbitration of commercial disputes. The determination and findings of such arbitrators shall be final and binding on all parties and may be enforced, if necessary, in the courts of the State of Tennessee.

(f) Captions. Captions have been inserted solely for the convenience of reference and in no way define, limit or describe the scope or substance of any provisions of this Agreement.

(g) Entire Agreement. This Agreement, and the other documents and agreements referenced herein, represent the entire agreement of the parties relating to the subject matter hereof.

(h) Severability. If this Agreement shall for any reason be or become unenforceable by any party, this Agreement shall thereupon terminate and become unenforceable by the other party as well. In all other respects, if any provision of this Agreement is held invalid or unenforceable, the remainder of this Agreement shall nevertheless remain in full force and effect and, if any provision is held invalid or unenforceable with respect to particular circumstances, it shall nevertheless remain in full force and effect in all other circumstances.

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

CAREMARK RX, INC.

/s/ E. Mac Crawford	/s/ William R. Spalding
E. Mac Crawford	William R. Spalding
Chairman, President and CEO

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EX-10.58

Exhibit 10.58

Caremark Rx, Inc.

Management Incentive Plan (MIP)

Fiscal Year 2006

PURPOSE

The Caremark Rx, Inc. 2006 Management Incentive Plan’s (the “Plan”) purpose is to provide an incentive to management level employees of Caremark Rx, Inc. and its participating subsidiaries (“the Company”) who contribute to the success of the enterprise. The Plan offers eligible employees an opportunity to earn compensation in addition to their salaries, based upon performance of the Company and accomplishment of their Individual/Departmental Goals.

PLAN ADMINISTRATION

The Compensation Committee of the Board of Directors, in consultation with the Chief Executive Officer of Caremark Rx, Inc. (CEO), will approve the Plan and the EVP of Administration and Services will administer the Plan. The EVP, Administration and Services will oversee and interpret (including the amount payable to any individual participant) any and all aspects of the Plan. The CEO of Caremark Rx, Inc. will have final executive approval of both the amount and the timing of any bonus payments. The Compensation Committee of the Board of Directors shall review and approve the CEO’s final executive approval.

PARTICIPANT ELIGIBILITY

Generally, eligible participants would include regular full-time and regular part-time classified as manager or advisor level and above employees.

An employee must be employed or must meet the eligibility criteria above on or before September 30, 2006, to be eligible to participate in the Plan. If a person otherwise eligible for participation in the Plan becomes an employee of Caremark Rx, Inc. or its participating subsidiaries during the fiscal year, the employee will be eligible to receive a prorated portion of the annual bonus. Generally, ineligible participants would include:

• Temporary employees, independent contractors, and consultants.

• Anyone eligible to participate in a Sales Incentive Plan.

• Anyone eligible to participate in the Quarterly Incentive Plan.

• Employees of discontinued operations.

• Employees who have not signed at least one of the following documents: Caremark Employment Agreement, Caremark Employee Non-Competition, Nondisclosure and Development Agreement, Caremark Employment and Confidentiality Agreement, or an Employment Contract.

• Anyone not actively employed on the date the bonuses are distributed.

• Any other employee that does not meet the eligibility criteria above.

An employee must be an active employee of the Company on the day the bonuses are distributed to employees to be eligible to receive any payment under the Plan.

PLAN YEAR

The Plan will be effective from January 1, 2006 through December 31, 2006.

BONUS POTENTIAL

The target bonus potential is calculated as a percentage of the employee’s actual fiscal year base earnings. The guidelines for determining target bonus potential are set forth on Exhibit A attached hereto. These guidelines, however, may be adjusted to reflect the significance, scope, and level of accountability for a given position title. Adjustments (increases or reductions) to the target levels set forth on Exhibit A may be made at the discretion of the CEO of Caremark Rx, Inc. Additionally, certain executive bonuses are set forth in written employment agreements that the Board of Directors has approved. As such, these written agreements shall be controlling.

PLAN COMPONENTS

The funding and payment of bonuses is based upon two separate plan components. The two components are Caremark Rx, Inc. Performance Targets and Individual/Departmental Goals.

The plan components work together. The corporation must officially declare the payment of bonuses before any types of payment under this Plan can or will be paid. If, and when, bonuses are declared, then calculations will be made using the two (2) components to determine individual amounts to be paid.

• Caremark Rx Performance Targets

Payments are contingent upon Caremark Rx, Inc. achieving the performance targets set forth on Exhibit B attached hereto, which are subject to possible adjustments also as set forth on Exhibit B.

The Chairman/CEO of Caremark Rx, Inc. will establish the performance targets in consultation with the Compensation Committee of the Board of Directors.

• Individual/Departmental Goals

The achievement of Individual and/or Department goals (based on Company objectives) is a very important component of the Plan. Once the Company has achieved its performance goals, individual bonus potential can be greatly impacted by the level of achievement of Individual and/or Department Goals. The following are examples of measurements that could be utilized:

•      Budget Management

•      Cost of Service

•      Quality & Service Levels

•      Product Line Achievement

•      Leadership/Team Player

These measurements are examples only and are not an exclusive list of criteria to measure performance.

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Managers will review each of their MIP eligible employees and will make a recommendation of 100% to 0% of the bonus amount based on the achievement of Individual and/or Department Goals. Managers cannot distribute or recommend more the 100% of an individual employee’s target amount. However, the bonus recommendation can be reduced or increased at the discretion of the CEO of Caremark Rx, Inc.

TRANSFER/PROMOTION/DEMOTION

If an employee is transferred to a new role during the Plan Year, the employee will be eligible to participate in the incentive plan that applies to the new role. If the MIP target percentage changes due to movement to a new role, the bonus payout for that fiscal year will be calculated based on the actual base earnings the employee received during the fiscal year in each role at the applicable target percentage(s) for each role. However, if an employee eligible for participation in the Quarterly Incentive Plan is promoted to a position eligible for participation in the Management Incentive Plan after September 30^th of the Plan Year, the employee will remain on the Quarterly Incentive Plan through the end of the Plan Year. The employee will not be eligible to participate in the Management Incentive Plan until January 1^st of the following year.

If the employee becomes ineligible for this incentive plan due to a transfer, demotion, or promotion, the employee will be eligible to receive a prorated award based on the period of participation in the Plan. The prorated award will be paid at the same time as awards under the Plan.

PAYOUT AND TAXATION

The distribution of bonuses shall be made on or before 03/15/2007, after completion of audited financial statements for the 2006 fiscal year, and final executive and Board approval. Specific provisions regarding distribution are outlined under the Conditions for Receiving Payment section of the Plan.

Payroll taxes will be withheld from the bonus award as required by law. Bonus awards that employees receive are counted as income in the year in which they are paid. Therefore, the bonus payment for the year ending December 31, 2006, paid in 2007, is part of an employee’s total income for the 2007 tax year.

INTEGRATION WITH BENEFIT PROGRAMS

Any bonus award that an employee receives is not considered compensation for purposes of life insurance, 401(k), disability, or other benefit plans unless specified by the plan document.

CONDITIONS FOR RECEIVING PAYMENT

No bonus award will be paid to any employee if employment is terminated, whether voluntary or involuntary, prior to the actual payment distribution date. However, the Company retains the authority to make exceptions to the foregoing policy in unusual or meritorious cases including, but not limited to, the death of an employee during the fiscal year, termination of employment due to total or partial disability, call to active military service, or retirement with the written consent of the Company.

LIMITATIONS AND/OR ADJUSTMENTS

Bonus compensation under the Plan is not an integral part of an employee’s compensation package. An employee’s base salary compensates the employee for the expected results of any given job. Payment of

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the bonus compensation is at the discretion of the Company. The Company reserves the right to review, amend, suspend, and/or terminate the Plan, the incentive calculation formulas, and all other aspects of the MIP at any time. Plan changes will be based on a determination of the Company’s business needs, however, do not require prior notification or explanation to eligible employees.

An employee’s participation in the Plan shall not be construed as an employment contract or as a promise of continuing employment between Caremark and the employee. Employment with Caremark is terminable at will. Either the employee or Caremark may terminate the relationship without cause or for any reason at any time.

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EX-10.59

Exhibit 10.59

DESCRIPTION OF COMPENSATION PAYABLE TO NON-EMPLOYEE DIRECTORS

For 2006, the Board of Directors, upon the recommendation of the Compensation Committee, approved the following compensation program for non-employee directors:

Annual Retainer:

• All non-employee directors receive an annual retainer of $60,000

• The Audit Committee Chairman receives an additional annual retainer of $25,000

• Other directors who serve on the Audit Committee receive an additional annual retainer of $10,000

• Directors who serve on the Nominating and Corporate Governance Committee receive an additional annual retainer of $5,000

• Directors who serve on the Compensation Committee receive an additional annual retainer of $5,000

Stock Options:

18,000 shares of the Company’s common stock, which will vest ratably over five years, with a grant date of March 1, 2006 and an exercise price of $50.84 per share.

Pharmacy Benefits Program:

Each non-employee director may choose to participate in the pharmacy benefits program made available to the Company’s employees.

Director Deferred Compensation Plan:

Pursuant to the plan, non-employee directors may elect to accept stock units rather than cash for all or a portion of their annual retainer. As of the month in which accruals related to any deferred compensation are made, each director is credited with a number of stock units determined by dividing the retainer amount deferred, plus a fifteen percent premium, by the average closing price of the Company’s common stock over the first ten trading days of such month. Accumulated stock units are converted into shares of the Company’s common stock on a deferred basis upon the earlier to occur of a “Change in Control,” as defined in the plan, the cessation of the participant’s status as a non-employee director or four years after the compensation is deferred.

EX-21

EXHIBIT 21

SIGNIFICANT SUBSIDIARIES OF CAREMARK RX, INC. (1)

Legal Name	State or Jurisdiction of Incorporation or Organization	Also Doing Business As
Caremark International Inc.	Delaware	N/A
Caremark Inc.	California	Caremark Prescription Services Caremark Therapeutic Services
CaremarkPCS	Delaware	AdvancePCS Caremark
AdvancePCS Holding Corporation	Delaware	N/A
CaremarkPCS Health Systems, L.L.C.	Delaware	N/A
ADVP Consolidation, L.L.C.	Delaware	N/A
CaremarkPCS Health, L.P.	Delaware	Caremark

(1) Certain subsidiaries of Caremark Rx, Inc. have been omitted from the above listing pursuant to Item 601(b)(21)(ii) of Regulation S-K. These subsidiaries would, if considered in the aggregate as a single subsidiary, not constitute a “significant subsidiary” as this term is defined by the SEC.

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors

Caremark Rx, Inc.:

We consent to the incorporation by reference in the registration statements listed below of Caremark Rx, Inc. of our reports dated February 20, 2006, with respect to the consolidated balance sheets of Caremark Rx, Inc. as of December 31, 2005 and 2004 and the related consolidated statements of income, changes in stockholders’ equity and comprehensive income and cash flows for each of the years in the three-year period ended December 31, 2005 and all related financial statement schedules, management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2005, and the effectiveness of internal control over financial reporting as of December 31, 2005, which reports appear in the December 31, 2005 Annual Report on Form 10-K of Caremark Rx, Inc.

• Form S-8 333-114100 pertaining to the 2004 Incentive Stock Plan;

• Form S-4 333-109519 pertaining to Caremark’s merger with AdvancePCS;

• Form S-8 33-86806 pertaining to the 1993 Stock Option Plan;

• Form S-8 333-11875 pertaining to MedPartners’ Incentive Compensation Plan;

• Form S-8 333-11127 pertaining to the 1995 Stock Option Plan;

• Form S-8 333-05703 pertaining to MedPartners’ Employee Savings Plan;

• Form S-8 333-14159 pertaining to Caremark’s Employee Savings Plan;

• Form S-8 333-14163 pertaining to Caremark’s Non-Employee Director Stock Option Plan and Caremark’s Stock Purchase Plan;

• Form S-8 333-38835 pertaining to MedPartners’ 1997 Long Term Incentive Compensation Plan;

• Form S-8 333-16863 pertaining to MedPartners’ Employee Stock Purchase Plan;

• Form S-8 333-17339 pertaining to the resale of common stock by certain selling shareholders;

• Form S-8 333-30145 pertaining to the MedPartners’ 1994 Non-Employee Director Stock Option Plan and 1994 Incentive Plan;

• Form S-8 333-42967 pertaining to the Amended and Restated 1995 Stock Option Plan;

• Form S-8 333-50849 pertaining to MedPartners’ 1997 Long Term Incentive Compensation Plan;

• Form S-3 333-53761 pertaining to the resale of common stock by certain selling shareholders;

• Form S-8 333-64371 pertaining to MedPartners’ 1998 Employee Stock Option Plan;

• Form S-8 333-68709 pertaining to the Non-Qualified Stock Option Agreement Dated August 6, 1998 between MedPartners and Edwin M. Crawford; and

• Form S-8 333-68707 pertaining to MedPartners’ 1998 New Employee Stock Option Plan.

/s/    KPMG LLP

Nashville, Tennessee

February 24, 2006

EX-31.1

EXHIBIT 31.1

RULE 13a-14(a)/15d-14(a) CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, E. Mac Crawford, certify that:

1. I have reviewed this Annual Report on Form 10-K of Caremark Rx, Inc.;

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 (the registrant’s fourth fiscal quarter in the case of an annual report) 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 (or persons performing the equivalent functions):

(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: March 2, 2006

/s/    E. Mac Crawford

E. Mac Crawford

Chief Executive Officer

EX-31.2

EXHIBIT 31.2

RULE 13a-14(a)/15d-14(a) CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Peter J. Clemens IV, certify that:

1. I have reviewed this Annual Report on Form 10-K of Caremark Rx, Inc.;

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 (the registrant’s fourth fiscal quarter in the case of an annual report) 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 (or persons performing the equivalent functions):

(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: March 2, 2006

/s/    Peter J. Clemens IV

Peter J. Clemens IV

Executive Vice President and Chief Financial Officer

EX-32.1

EXHIBIT 32.1

SECTION 1350 CERTIFICATION OF CHIEF EXECUTIVE OFFICER

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in connection with the Annual Report on Form 10-K of Caremark Rx, Inc. (the “Corporation”) for the period ended December 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, the Chief Executive Officer of the Corporation, certifies that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

Date: March 2, 2006

/s/    E. Mac Crawford

E. Mac Crawford

Chief Executive Officer

EX-32.2

EXHIBIT 32.2

SECTION 1350 CERTIFICATION OF CHIEF FINANCIAL OFFICER

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in connection with the Annual Report on Form 10-K of Caremark Rx, Inc. (the “Corporation”) for the period ended December 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, the Chief Financial Officer of the Corporation, certifies that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

Date: March 2, 2006

/s/    Peter J. Clemens IV

Peter J. Clemens IV

Executive Vice President and Chief Financial Officer