CAREMARK RX INC, DEF 14A, 2000-04-12

CAREMARK RX INC
DEF 14A, 2000-04-12
SPECIALTY OUTPATIENT FACILITIES, NEC

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<PAGE> 1

SCHEDULE 14A
(RULE 14A-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>

CAREMARK RX, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

(1) Title of each class of securities to which transaction applies:

------------------------------------------------------------------------

(2) Aggregate number of securities to which transaction applies:

------------------------------------------------------------------------

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):

------------------------------------------------------------------------

(4) Proposed maximum aggregate value of transaction:

------------------------------------------------------------------------

(5) Total fee paid:

------------------------------------------------------------------------

[ ] Fee paid previously with preliminary materials:

----------------------------------------------------------------------------

[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

------------------------------------------------------------------------

(2) Form, Schedule or Registration Statement No.:

------------------------------------------------------------------------

(3) Filing Party:

------------------------------------------------------------------------

(4) Date Filed:

------------------------------------------------------------------------
<PAGE> 2

CAREMARK RX, INC.

3000 GALLERIA TOWER, SUITE 1000
BIRMINGHAM, ALABAMA 35244

APRIL 14, 2000

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD WEDNESDAY, MAY 31, 2000
---------------------

The 2000 annual meeting of stockholders of Caremark Rx, Inc. will be held
at The Wynfrey Hotel, 1000 Riverchase Galleria, Birmingham, Alabama, on
Wednesday, May 31, 2000, at 2:00 p.m. Central Time, for the following purposes:

1. Election of one director to serve for a term of one year; election of
one director to serve for a term of two years; and election of four
directors, each to serve for a term of three years.

2. Any other matters that properly come before the meeting.

Stockholders of record at the close of business on April 3, 2000 are
entitled to vote at the meeting or any postponement or adjournment thereof.

PLEASE REVIEW THE VOTING OPTIONS ON THE ATTACHED PROXY CARD AND SUBMIT YOUR
VOTE PROMPTLY. IF YOU ATTEND THE ANNUAL MEETING, YOU MAY REVOKE YOUR PROXY AND
VOTE IN PERSON IF YOU DESIRE TO DO SO, BUT ATTENDANCE AT THE ANNUAL MEETING DOES
NOT ITSELF SERVE TO REVOKE YOUR PROXY.

By Order of the Board of Directors,

/s/ Sara J. Finley
Sara J. Finley
Corporate Secretary
<PAGE> 3

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
About the Meeting........................................... 1
Principal Stockholders of the Company....................... 2
Stock Ownership of Management............................... 3
Election of Directors....................................... 4
Directors Continuing in Office.............................. 5
Executive Officers.......................................... 6
Executive Compensation Summary.............................. 8
Option Grants for Fiscal 1999............................... 9
Option Values on December 31, 1999.......................... 9
The Board of Directors and Board Committees................. 10
The Compensation Committee's Report on Executive
Compensation.............................................. 11
Certain Transactions........................................ 16
Stock Price Performance Graph............................... 17
Relationship With Independent Public Accountants............ 18
Other Matters............................................... 18
Additional Information...................................... 18
</TABLE>

i
<PAGE> 4

CAREMARK RX, INC.
---------------------

PROXY STATEMENT
---------------------

This Proxy Statement contains information related to the annual meeting of
stockholders of Caremark Rx, Inc. ("Caremark Rx" or the "Company") to be held on
Wednesday, May 31, 2000, beginning at 2:00 p.m. Central Time, at The Wynfrey
Hotel, 1000 Riverchase Galleria, Birmingham, Alabama, and at any postponements
or adjournments thereof. This Proxy Statement is being mailed to the Company's
stockholders on or about April 14, 2000.

ABOUT THE MEETING

WHAT IS THE PURPOSE OF THE ANNUAL MEETING?

At the Company's annual meeting, stockholders will act upon the matters
outlined in the accompanying notice of meeting, including the election of
directors. In addition, the Company's management will report on the performance
of the Company during fiscal 1999 and respond to questions from stockholders.

WHO IS ENTITLED TO VOTE?

Only stockholders of record at the close of business on the record date,
April 3, 2000, are entitled to receive notice of the annual meeting and to vote
the shares of common stock that they held on that date at the meeting, or any
postponement or adjournment of the meeting. Each outstanding share entitles its
holder to cast one vote on each matter to be voted upon.

WHO CAN ATTEND THE MEETING?

All stockholders as of the record date, or their duly appointed proxies,
may attend the meeting. Each stockholder may be asked to present valid picture
identification, such as a driver's license or passport. Cameras, recording
devices and other electronic devices will not be permitted at the meeting.

WHAT CONSTITUTES A QUORUM?

The presence at the meeting, in person or by proxy, of the holders of a
majority of the shares of common stock outstanding on the record date will
constitute a quorum. On April 3, 2000, there were 199,654,111 shares of common
stock of the Company outstanding and entitled to vote at the meeting.

WHAT IS REQUIRED TO ELECT A DIRECTOR?

The affirmative vote of a plurality of the votes cast at the meeting is
required for the election of a director. A properly executed proxy marked
"WITHHOLD AUTHORITY" with respect to the election of one or more directors will
not be voted, although it will be counted for purposes of determining whether
there is a quorum. Abstentions and broker non-votes will have no effect on the
election of directors.

HOW DO I VOTE?

If you complete and properly sign the accompanying proxy card and return it
to the Company, it will be voted as you direct. If you are a registered
stockholder (that is, if you hold your stock in your own name) and attend the
meeting, you may deliver your completed proxy card in person.

CAN I VOTE BY TELEPHONE OR ELECTRONICALLY?

If you are a registered stockholder, you may vote by telephone, or
electronically through the Internet, by following the instructions included with
your proxy card.
<PAGE> 5

If your shares are held in "street name," you will need to contact your
broker or other nominee to determine whether you may vote by telephone or
electronically.

CAN I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?

Yes. Even after you have submitted your proxy, you may change your vote at
any time before the proxy is exercised by filing, with the Corporate Secretary
of the Company, either a notice of revocation or a duly executed proxy bearing a
later date. The powers of the proxy holders will be suspended if you attend the
meeting in person and so request, although attendance at the meeting will not by
itself revoke a previously granted proxy.

WHAT ARE THE BOARD'S RECOMMENDATIONS?

The Board recommends a vote FOR election of the nominated slate of
directors (see pages 4-5). Unless you give other instructions on your proxy
card, the persons named as proxy holders on the proxy card will vote in
accordance with the recommendations of the Board of Directors.

PRINCIPAL STOCKHOLDERS OF THE COMPANY

The following table shows the amount of Common Stock of the Company
beneficially owned by those persons known by the Company to be the beneficial
owners of more than 5% of the Company's Common Stock. Except as indicated, all
information is as of December 31, 1999.

<TABLE>
<CAPTION>
AGGREGATE PERCENT OF
NUMBER OF SHARES SHARES
NAME BENEFICIALLY OWNED OUTSTANDING(1)
- ---- ------------------ --------------
<S> <C> <C>
FMR Corp.
82 Devonshire Street
Boston, Massachusetts 02109............................... 29,238,524 14.6%
Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116............................... 22,161,849 11.1
Wachovia Bank and Trust Co.(2)
Trust Services
301 Main Street
Winston-Salem, North Carolina 27150....................... 8,398,872 4.2
</TABLE>

- ---------------

(1) Based on 199,660,273 shares outstanding on December 31, 1999.
(2) Shares held as Trustee for Caremark Rx, Inc. Employee Compensation Trust.

2
<PAGE> 6

STOCK OWNERSHIP OF MANAGEMENT

The following table shows the amount of common stock of the Company
beneficially owned (unless otherwise indicated) by the Company's directors,
certain executive officers, and the directors and executive officers of the
Company as a group. Except as otherwise indicated, all information is as of
December 31, 1999. Shares of the Company's common stock subject to options held
by the directors and executive officers that are exercisable within 60 days of
April 3, 2000, are deemed outstanding for the purpose of computing their
beneficial ownership individually and as a group. The Chief Executive Officer
and the four other most highly compensated executive officers as of December 31,
1999, are included in this table. These individuals may be referred to
collectively as the "Named Executive Officers".

<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
OF CAREMARK RX SHARES
NAME POSITION HELD COMMON STOCK(1) OUTSTANDING
---- ------------- ---------------- -----------
<S> <C> <C> <C>
Edwin M. Crawford................... Chairman of the Board, President 3,800,670 1.9
and Chief Executive Officer
John J. Arlotta..................... President -- Pharmaceutical 333,990 *
Services
James H. Dickerson.................. Director, Executive Vice 492,670 *
President and Chief Financial
Officer
Edward L. Hardin, Jr................ Executive Vice President and 596,161 *
General Counsel
Bradley S. Karro.................... Executive Vice President -- 124,460 *
Corporate Development
Rosalio J. Lopez.................... Former Chief Medical Officer and 182,069 *
Former Director
Kristen E. Gibney................... Director 32,250 *
Roger L. Headrick................... Director 149,250 *
Michael D. Martin................... Director 485,000 *
Ted H. McCourtney................... Director 126,841 *
John S. McDonald, J.D. ............. Director 390,281 *
Charles W. Newhall III.............. Director 72,580 *
C.A. Lance Piccolo.................. Director 774,041 *
Richard M. Scrushy.................. Director 3,913,500 1.9
Edwin M. Banks...................... Nominee for Director 16,000 *
All executive officers and directors
as a group (22 persons)........... 12,531,221 6.0
</TABLE>

* Less than one percent.
- ---------------

(1) The number of shares shown includes shares that are individually or jointly
owned, as well as shares over which the individual has either sole or shared
investment or voting authority. Certain of the Company's directors and named
executive officers may disclaim beneficial ownership of certain shares
included in the table and certain of the shares included in the table
represent options to purchase shares, described as follows:

- - Mr. Crawford -- includes options to purchase 3,750,670 shares;

- - Mr. Arlotta -- includes options to purchase 325,871 shares and includes 730
shares held by his son who does not reside in the same household for the
majority of the year. Mr. Arlotta disclaims beneficial ownership of the shares
held by his son;

3
<PAGE> 7

- Mr. Dickerson -- includes options to purchase 467,670 shares;

- Mr. Hardin -- includes options to purchase 519,170 shares;

- Mr. Karro -- includes options to purchase 118,170 shares;

- Dr. Lopez -- includes options to purchase 83,000 shares and 81,293 shares
held in trust for the benefit of Dr. Lopez and members of his family;

- Ms. Gibney -- includes options to purchase 25,250 shares;

- Mr. Headrick -- includes options to purchase 112,000 shares and 1,250
shares held by his wife;

- Mr. Martin -- includes options to purchase 448,000 shares;

- Mr. McCourtney -- includes options to purchase 72,000 shares;

- Mr. McDonald -- includes options to purchase 72,000 shares and 318,281
shares held by certain trusts for his benefit;

- Mr. Newhall -- includes options to purchase 72,000 shares and 144 shares
held by members of his household;

- Mr. Piccolo -- includes options to purchase 542,000 shares; and

- Mr. Scrushy -- includes options to purchase 1,597,000 shares, 250,000
shares held in trust for minor children and 1,098,500 shares held by
HEALTHSOUTH Corporation ("HEALTHSOUTH"). Mr. Scrushy is Chairman of the
Board and Chief Executive Officer of HEALTHSOUTH. Mr. Scrushy disclaims
beneficial ownership of the shares held by HEALTHSOUTH.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Based upon a review of filings with the Securities and Exchange Commission
and written representations that no other reports were required, the Company
believes that all of the Company's directors and executive officers complied
during fiscal year 1999 with the reporting requirements of Section 16(a) of the
Securities Exchange Act of 1934, with the exception that Bradley S. Karro failed
to file a Form 3 within ten days of his election as an executive officer and
John J. Arlotta failed to file a Form 4 to timely report a transaction by his
son. These forms have been filed with the Securities and Exchange Commission.
These late filings resulted from administrative oversights at the Company.

ELECTION OF DIRECTORS

The Board of Directors is currently divided into three classes, each having
a three-year term. The terms expire in successive years.

CLASS I DIRECTOR NOMINEE

The current term of office of directors in Class I expires at the 2001
annual meeting of stockholders. The Board of Directors proposes that the nominee
described below be elected for the term previously described and until his
successor is duly elected and qualified.

Edwin M. Banks, 37, has been the Portfolio Manager for W.R. Huff Asset
Management Company since June 1988. He is also a director of e.spire
Communications and Arch Communications Group.

CLASS II DIRECTOR NOMINEE

The current term of office of directors in Class II expires at the 2002
annual meeting of stockholders. The Board of Directors proposes that the nominee
described below be elected for the term previously described and until his
successor is duly elected and qualified.

4
<PAGE> 8

Edward L. Hardin, Jr., 60, has been Executive Vice President and General
Counsel of the Company since June 1998. From September 1965 until June 1998, Mr.
Hardin was engaged in the private practice of law in Birmingham, Alabama, where
he was senior principal in the law firm of Hardin & Hawkins. Mr. Hardin is a
member of the American Bar Association and the Alabama Bar Association. He has
been selected as a member of the American Board of Trial Advocates and is a
member of the Alabama Trial Lawyers Association, having served as its President
in 1975-1976. Mr. Hardin is also a founding member of the Board of Directors of
the American Sports Medicine Institute. After graduation from Birmingham
Southern College in 1962, Mr. Hardin received a Juris Doctor degree from the
University of Alabama School of Law, where he served on the Editorial Board of
the Law Review.

CLASS III DIRECTOR NOMINEES

The current three-year term of office of directors in Class III expires at
the 2000 annual meeting of the stockholders. The Board of Directors proposes
that the nominees described below be elected to Class III for a term of three
years and until their successors are duly elected and qualified.

C.A. Lance Piccolo, 59, has been Vice Chairman of the Company's Board of
Directors since September 1996. He has been the President and CEO of HealthPic
Consultants, Inc. since September 1996. From August 1992 until September 1996,
he was Chairman of the Board of Directors and Chief Executive Officer of
Caremark International Inc. ("CII"). From 1987 until November 1992, Mr. Piccolo
was an Executive Vice President of Baxter International, Inc. ("Baxter") and
from 1988 until November 1992, he served as a director of Baxter. Mr. Piccolo
also serves as a director of Crompton and Knowles Corporation and Physician
Dynamics, Inc.

Ted H. McCourtney, 61, has been a member of the Company's Board of
Directors since August 1993. He has been a general partner of Venrock
Associates, a venture capital firm, since 1970. Mr. McCourtney is a member of
the Board of Directors of NTL, Inc., Core Comm, Ltd. and Visual Networks, Inc.,
each of which is publicly-traded.

Richard M. Scrushy, 47, has been a member of the Company's Board of
Directors since January 1993. On January 16, 1998, Mr. Scrushy was elected
Chairman of the Board and Acting Chief Executive Officer of the Company. He
relinquished the Acting Chief Executive Officer position on March 16, 1998 upon
the election of Mr. Crawford as President and Chief Executive Officer and
relinquished the Chairman of the Board position in December 1998. Since 1984,
Mr. Scrushy has been Chairman of the Board and Chief Executive Officer of
HEALTHSOUTH, a publicly-traded healthcare company.

Harris Diamond, 47, has been Chief Executive Officer of BSMG Worldwide
since October 1995. Mr. Diamond has also been Chairman of True North Diversified
Companies, a division of True North Communications, since June 1999. He was
Chief Operating Officer of BSMG Worldwide prior to his appointment as Chief
Executive Officer.

DIRECTORS CONTINUING IN OFFICE

CLASS I DIRECTORS

The terms of the following directors will expire at the 2001 annual meeting
of the stockholders. Mr. McDonald, however, due to personal reasons, has
tendered his resignation from the Board of Directors effective at the 2000
Annual Meeting of Stockholders to be held on May 31, 2000. The Company does not
plan at this time to fill the vacancy created by Mr. McDonald's resignation.

Roger L. Headrick, 63, has been a member of the Company's Board of
Directors since September 1996. He is Managing General Partner of HMCH Ventures,
a private venture capital investment partnership. He is also President and Chief
Executive Officer of New Biotics, Inc., a research company developing drugs to
treat human cancer and infectious disease. He was the President and Chief
Executive Officer of the Minnesota Vikings Football Club from January 1991 until
August 1998. Additionally, since June 1989, Mr. Headrick has been President and
Chief Executive Officer of ProtaTek International, Inc., a bioprocess and
biotechnology
5
<PAGE> 9

company that develops and manufactures animal vaccines. Prior to 1989, he was
Executive Vice President and Chief Financial Officer of The Pillsbury Company, a
food manufacturing and processing company. Mr. Headrick also serves as a
director of CK Witco Corporation, a publicly-traded company.

Michael D. Martin, 39, became a member of the Company's Board of Directors
on January 16, 1998. In February 2000, Mr. Martin was named Executive Vice
President -- HEALTHSOUTH Investments, a division of HEALTHSOUTH focused on
strategic venture investments in early-stage healthcare and healthcare
technology companies. Mr. Martin was previously the Chief Financial Officer and
a director of HEALTHSOUTH. From 1983 through September 1989, Mr. Martin
specialized in healthcare lending with AmSouth Bank N.A., Birmingham, Alabama,
where he was a Vice President immediately prior to joining HEALTHSOUTH.

Charles W. Newhall III, 55, has been a member of the Company's Board of
Directors since September 1993. He has been a general partner of New Enterprise
Associates, a venture capital firm, since 1978. Mr. Newhall is a member of the
Board of Directors of HEALTHSOUTH. He is founder and Chairman Emeritus of the
Mid-Atlantic Venture Association, which was organized in 1988.

John S. McDonald, J.D., 67, has been a member of the Company's Board of
Directors since November 1995. Mr. McDonald was the Chief Executive Officer of
the general partner of Mullikin Medical Enterprises, L.P. ("MME") from March
1994 to November 1995, and he was an executive of Pioneer Hospital and related
entities since 1967. Mr. McDonald was also a director, the Corporate Secretary
and a shareholder of MME's general partner until November 1995. Mr. McDonald is
a past president of the Unified Medical Group Association.

CLASS II DIRECTORS

The terms of the following directors will expire at the 2002 annual meeting
of the stockholders.

Edwin M. Crawford, 51, was named Chairman of the Board of the Company in
December 1998. He has served as President and Chief Executive Officer and as a
director of the Company since March 1998. From 1990 until March 1998, Mr.
Crawford was with Magellan Health Services, Inc., a publicly-held specialty
managed healthcare company, where he served as Chairman of the Board, President
and Chief Executive Officer from 1993 until March 1998, and as President and
Chief Operating Officer from 1992 until 1993.

James H. Dickerson, Jr., 53, has been a member of the Board of Directors
since February 1999. He joined the Company as Executive Vice President and Chief
Financial Officer in May 1998. Prior to joining the Company, he was Senior Vice
President and Chief Financial Officer of Aetna U.S. Healthcare from March 1994
until January 1998.

Kristen E. Gibney, 51, has been a member of the Board of Directors since
February 1999. From January 1994 until January 1997, she was the Corporate Vice
President responsible for the prescription benefit management business of CII, a
subsidiary of the Company.

EXECUTIVE OFFICERS

The following individuals are non-director executive officers of the
Company. Mr. Crawford serves as Chairman of the Board of Directors and also
serves as an executive officer. Mr. Dickerson, a director of the Company, and
Mr. Hardin, a nominee for director of the Company, also serve as executive
officers.

John J. Arlotta, 50, has been President-Pharmaceutical Services of the
Company's Caremark Pharmaceutical Group, which includes the prescription benefit
management and therapeutic pharmaceutical services businesses, since May 1998.
From September 1997 until May 1998, he was Chief Operating Officer of Caremark
Pharmaceutical Group. Mr. Arlotta joined the Company in 1996 as president of the
therapeutic pharmaceutical services business. From April 1986 until November
1996, Mr. Arlotta owned a durable medical equipment and consumable supplies
business. From January 1972 until April 1986, Mr. Arlotta was employed in a
number of sales, marketing and general management positions by Baxter, a
publicly-traded healthcare company.
6
<PAGE> 10

Charles C. Clark, 50, has been Executive Vice President-Corporate
Strategies since May 1998. From January 1997, when he joined the Company, until
May 1998, he was Senior Vice President and Chief Tax Officer. Prior to joining
the Company, Mr. Clark was with KPMG Peat Marwick for 21 years, having served as
Tax Partner in charge of the Birmingham, Alabama office and leader of tax
services for the Health Care & Life Sciences practice in the Southeast. Mr.
Clark is a Certified Public Accountant holding memberships in the American
Institute of Certified Public Accountants and the Alabama and Mississippi
Societies of Certified Public Accountants.

Bradley S. Karro, 38, has been Executive Vice President-Corporate
Development of the Company since October 1999. From May 1998 through September
1999, he served as the President & Chief Operating Officer-California
responsible for all physician practice management operations in that state. Mr.
Karro served as the Chief Operating Officer and as a director of MedPartners
Provider Network, Inc. ("MPN"), a wholly-owned subsidiary of the Company, from
July 1998 through March 1999. In March 1999, the Department of Corporations of
the State of California (the "State") appointed a conservator and assumed
control of the business operations of MPN. The conservator, purportedly on
behalf of MPN, filed a voluntary petition under Chapter 11 of the United States
Bankruptcy Code. The Company, MPN, and representatives of the State reached an
agreement in principle to settle the disputes relating to MPN. Mr. Karro has
served as the President, Chief Executive Officer and a director of MPN since May
1999. From February 1996 through May 1998, Mr. Karro served as the President,
Chief Executive Officer and director of Maternicare, Inc., a physician practice
management company. Prior to Maternicare, he served for three years as the
President, Chief Operating Officer and director of Beech Street Corporation, a
national managed care company. He received his Honors Degree in Business
Administration from the University of Western Ontario in 1984.

Edward J. Novinski, 40, has been Executive Vice President of Managed Care
for the Company since September 1996. Prior to joining the Company, Mr. Novinski
was most recently Vice President of Network Management for United HealthCare
Corporation in its corporate office and held various other positions with United
HealthCare from August 1986 to August 1996. Mr. Novinski was responsible for
United HealthCare's network strategies for physician and hospital relationships,
which supported United HealthCare's diverse managed care product line. From 1977
to 1986, Mr. Novinski was with Lutheran General Health System in managerial and
administrative positions including Director of Physician Practice Management for
a large multi-specialty group.

C. Clark Wingfield, Jr., 49, has been Executive Vice President and Chief
Administrative Officer of the Company since September 1998. From October 1996 to
September 1998, he served as Senior Vice President of Human Resources for the
Company. For the ten years immediately prior to joining the Company, he was
Senior Vice President of Human Resources at Magellan Health Services, Inc.

Peter J. Clemens IV, 35, has been Senior Vice President of Finance and
Treasurer of the Company since May 1998. From 1995 until May 1998, he was Vice
President of Finance and Treasurer of the Company. From 1991 to 1995, Mr.
Clemens worked in Corporate Banking with Wachovia Bank of Georgia, N.A. Mr.
Clemens was with AmSouth Bank, N.A. from 1987 to 1989. He received a Masters
Degree in Business Administration from Vanderbilt University in 1991.

Sara J. Finley, 40, has been Senior Vice President, Assistant General
Counsel and Corporate Secretary since August 1998. She joined the Company in
November 1995 and previously served as Assistant General Counsel and as Vice
President-Legal Services. She was Director of Legal Affairs at Flexel, Inc. in
Atlanta (November 1993 to November 1995), a partner and associate at the Kutak
Rock law firm in Atlanta (April 1987 to November 1993) and an associate with
Maynard Cooper and Gale, P.C. in Birmingham, Alabama (October 1985 to April
1987). She is admitted to the Alabama State Bar and the State Bar of Georgia.
Ms. Finley attended the University of Alabama (B.A., 1982) and Vanderbilt
University School of Law (J.D., 1985).

Howard A. McLure, 43, has been Senior Vice President and Chief Accounting
Officer of the Company since June 1998. From 1995 to 1998, Mr. McLure was Senior
Vice President and Controller at Magellan Health Services, Inc.

7
<PAGE> 11

Mark S. Weeks, 37, has been Vice President of Finance and Controller of the
Company since June 1994. From 1985 to 1994, Mr. Weeks was with Ernst & Young
LLP, most recently as Senior Manager. Mr. Weeks is a Certified Public Accountant
and a member of the American Institute of Certified Public Accountants.

EXECUTIVE COMPENSATION SUMMARY

The following table sets forth information concerning total compensation
earned or paid for services rendered to the Company during each of the last
three fiscal years to the Chief Executive Officer and the other Named Executive
Officers.

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------- -------------
NUMBER OF ALL OTHER
FISCAL OTHER STOCK OPTIONS COMPENSATION
NAME YEAR SALARY BONUS COMPENSATION GRANTED (4)
- ---- ------ ---------- ---------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Edwin M. Crawford........... 1999 $1,000,008 $2,000,000 298,096(1) 500,000 239,296
Chairman of the Board, 1998 788,466 3,000,000 (3) 6,501,000 232,781
President and Chief
Executive 1997 -- -- -- -- --
Officer
John J. Arlotta............. 1999 436,058 500,000 (3) 300,000 69,016
President - 1998 370,674 431,696 (3) 261,001 80,665
Pharmaceutical Services 1997 248,303 32,685 (3) 150,000 2,659
James H. Dickerson, Jr...... 1999 400,008 400,000 (3) 100,000 152,044
Executive Vice President, 1998 250,005 500,000 68,995 401,000 33,356
Chief Financial Officer
and 1997 -- -- -- -- --
Director
Edward L. Hardin, Jr........ 1999 450,000 400,000 (3) 175,000 84,375
Executive Vice President 1998 243,750 400,000 (3) 401,000 142,529
and General Counsel 1997 -- -- -- 10,000 --
Bradley S. Karro............ 1999 274,992 206,244 111,194(2) 50,000 51,412
Executive Vice President - 1998 168,873 68,750 (3) 151,000 40,370
Corporate Development 1997 -- -- -- -- --
Rosalio J. Lopez............ 1999 436,171 389,584 (3) -- 69,511
Former Chief Medical
Officer 1998 438,486 212,500 (3) 62,500 84,022
and Former Director 1997 384,881 -- (3) 120,000 1,734
</TABLE>

- ---------------

(1) The other annual compensation shown for Mr. Crawford includes $166,155 for
relocation expenses and $77,579 for taxable compensation for life insurance.
(2) The other annual compensation shown for Mr. Karro includes $97,754 for
relocation expenses.
(3) Dollar value of perquisites and other personal benefits was less than the
lesser of $50,000 or 10% of the total annual salary and bonus reported for
the listed officer.
(4) The following amounts were paid for split dollar life insurance premiums:
Mr. Crawford -- $120,782; Mr. Arlotta -- $39,860; Mr. Dickerson -- $71,388;
Mr. Hardin -- $6,474; Mr. Karro -- $26,142; and Dr. Lopez -- $41,555. The
following amounts were imputed income received for insurance premiums: Mr.
Crawford -- $4,056; Mr. Arlotta -- $4,156; Mr. Dickerson -- $1,491; Mr.
Hardin -- $2,901; Mr. Karro -- $270 in 1999; and Dr. Lopez -- $2,956. The
following payments were made under the Executive Flexible Benefit Plan: Mr.
Crawford -- $87,500; Mr. Arlotta -- $25,000; Mr. Dickerson -- $79,165; Mr.
Hardin -- $75,000; Mr. Karro -- $25,000; and Dr. Lopez -- $25,000. Long-term
disability coverage was paid for Mr. Crawford -- $14,749. Term life
insurance coverage was paid for Mr. Crawford -- $12,209.

8
<PAGE> 12

OPTION GRANTS FOR FISCAL 1999

The following table sets forth information with respect to option grants to
the Named Executive Officers during fiscal 1999 and the potential realizable
value of such stock option grants.

The potential realizable value is calculated based on the term of the
option at its time of grant (10 years). It is calculated by assuming that the
stock price on the date of grant appreciates at the indicated annual rate
compounded annually for the entire term of the option and that the option is
exercised and sold on the last day of its term for the appreciated stock price.

<TABLE>
<CAPTION>
% OF TOTAL POTENTIAL
NUMBER OF OPTIONS GRANTED EXERCISE REALIZABLE GAIN
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED FISCAL YEAR ($ /SHARE) DATE 5%($) 10%($)
- ---- --------- --------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Edwin M. Crawford(1)....... 500,000 19.5% $5.4375 1/27/09 $1,709,807 $4,332,987
John J. Arlotta............ 100,000 3.9 4.1875 4/8/09 263,349 667,379
200,000 7.8 5.0625 10/13/09 636,755 1,613,664
James H. Dickerson, Jr. ... 100,000 3.9 4.1875 4/8/09 263,349 667,379
Edward L. Hardin, Jr....... 100,000 3.9 4.1875 4/8/09 263,349 667,379
75,000 2.9 5.1875 12/8/09 244,679 620,065
Bradley S. Karro........... 50,000 1.9 5.0625 10/13/09 159,188 403,416
</TABLE>

- ---------------

(1) Mr. Crawford's 500,000 options vested 100% upon the change in control, as
defined in Section 8(b) of his employment agreement, which occurred on March
12, 1999 due to the sale, transfer or other disposition in a transaction or
series of related transactions of the majority of the assets of one of the
Company's three major lines of business.

All other options granted to Named Executive Officers in 1999 contain the
following accelerated vesting feature: if during the first year anniversary
of the option grant date, the stock price of the Company's common stock
closes at or above $12.00 for any twenty out of thirty 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,
if during the second year after the option grant date, the stock closes at
or above $18.00 for any twenty out of thirty 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. With the
exception of Mr. Crawford's special vesting arrangement and the accelerated
vesting feature described above, all option grants vested 34% on date of
the grant and will vest 33% on each anniversary of the date of grant in
2000 and 2001.

OPTION VALUES ON DECEMBER 31, 1999

<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS 12/31/99 12/31/99(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Edwin M. Crawford............................... 3,750,670 330 $5,892,006 $ 680
John J. Arlotta................................. 288,871 292,130 390,421 235,393
James H. Dickerson, Jr. ........................ 434,670 66,330 756,131 58,430
Edward L. Hardin, Jr. .......................... 484,170 121,830 756,131 58,430
Bradley S. Karro................................ 118,170 82,830 183,538 90,399
Rosalio J. Lopez................................ 83,000 0 128,906 0
</TABLE>

- ---------------

(1) In accordance with Securities and Exchange Commission rules, values are
calculated by subtracting the exercise price from the fair market value of
the underlying common stock. For purposes of this table, fair market value
is deemed to be $5.062, the closing price reported on the New York Stock
Exchange on December 31, 1999.

9
<PAGE> 13

None of the Named Executive Officers exercised any stock options in 1999.

THE BOARD OF DIRECTORS AND BOARD COMMITTEES

HOW ARE DIRECTORS COMPENSATED?

Directors who are employees of the Company are not compensated for their
additional services as directors. Each non-employee director receives $3,000 for
each board meeting attended in person, and $1,000 for each board meeting
attended by telephone. Board members who serve on the Audit and Compensation
Committees receive $1,000 for each committee meeting attended in person.
Non-employee directors also receive an annual stock option grant for 25,000
shares of the Company's common stock. Because this grant was not made in 1998,
the 1999 grant to each director serving in 1998 and 1999 was for 50,000 shares.

HOW OFTEN DID THE BOARD MEET DURING 1999?

The Board of Directors met in person or by telephone 14 times during 1999.
Each director attended more than 75% of the total number of meetings of the
Board and Board Committees on which they served, with the exception of John
McDonald, who attended 10 of 14 Board meetings.

WHAT COMMITTEES HAS THE BOARD ESTABLISHED AND WHAT ARE THEIR RESPONSIBILITIES?

The Board of Directors has established the Audit, Strategic Planning,
Compensation and Nominating Committees.

Audit Committee. Mr. McCourtney is the Chairman of the Audit Committee,
and Mr. Martin and Mr. Piccolo serve as members. The Audit Committee met five
times in 1999. Its duties include:

- Making recommendations to the Board of Directors with respect to the
Company's financial statements and the appointment of independent
auditors;

- Reviewing significant audit and accounting policies and practices;

- Meeting with the Company's independent accountants on matters such as the
scope of audits and reports; and

- Reviewing the performance of overall accounting and financial controls of
the Company.

Strategic Planning Committee. The Strategic Planning Committee was formed
in August 1998. Mr. Crawford is the Chairman of the Strategic Planning
Committee, and Mr. Headrick, Mr. Martin, Mr. Piccolo, and Mr. Scrushy serve as
members. The Strategic Planning Committee met three times in 1999. Its duties
include:

- Consulting with outside advisors as appropriate to facilitate informed
judgments concerning the strategic direction of the Company;

- Evaluating analyses and recommendations from outside advisors concerning
the strategic direction of the Company;

- Making recommendations to the Board of Directors concerning the Company's
future business plans and objectives, including possible divestiture and
acquisition plans;

- Advising the Board of Directors with respect to efforts to maximize
shareholder value; and

- Monitoring the progress of the Company's divestiture of its PPM
operations previously recommended by the Strategic Planning Committee.

10
<PAGE> 14

Compensation Committee. Mr. Newhall is the Chairman of the Compensation
Committee, and Mr. McDonald and Mr. Headrick serve as members. The Compensation
Committee met five times in 1999. Its duties include:

- Recommending compensation and benefit programs for the Company to the
Board of Directors;

- Administering the Company's stock option plans;

- Reviewing the performance of the officers of the Company;

- Setting executive compensation levels; and

- Reporting to the stockholders about executive compensation.

Nominating Committee. The Nominating Committee was formed in March 1999.
Mr. Crawford is the Chairman, and Mr. Martin and Mr. Headrick serve as members.
The duty of the Nominating Committee is to select a slate of nominees for the
Board of Directors, to be voted on at the 2000 annual meeting. The Nominating
Committee may consider shareholder nominees for the Board of Directors if
submitted in accordance with the Company's bylaws. See "Additional
Information -- How can I make a proposal for the 2001 annual meeting?" below.

THE COMPENSATION COMMITTEE'S REPORT ON EXECUTIVE COMPENSATION

WHO DETERMINES EXECUTIVE COMPENSATION?

The Compensation Committee determines each executive officer's compensation
subject to the approval of the Board of Directors. The Compensation Committee
makes recommendations to the Board of Directors about appropriate levels of
compensation for specific individuals and compensation and benefit programs for
the Company as a whole. These recommendations are based on several factors,
including:

- Enabling the Company to compete effectively for the services of qualified
officers and key employees;

- Giving such officers and employees appropriate incentives to pursue the
maximization of long-term stockholder value; and

- Recognizing the success of such officers and employees in achieving both
qualitative and quantitative goals for the benefit of the Company and its
stockholders.

WHAT IS THE COMPANY'S COMPENSATION PHILOSOPHY?

The Company's executive compensation program is structured and administered
to support the Company's business mission. Historically, that mission focused on
the efficient and effective delivery of physician practice management services,
prescription benefit management and therapeutic pharmaceutical services and
other related healthcare services, generating favorable returns for its
stockholders in the process. The basic principles of the philosophy are designed
to provide three types of compensation:

- Base salaries that represent competitive compensation for the Company's
executive officers;

- Cash incentive compensation, or bonuses; and

- Equity-based incentive compensation, or stock options.

These compensation components are described in detail below:

Base Salary. Each executive officer's annual base salary, including the
base salary of the Chief Executive Officer, is based primarily upon the
competitive market for the executive officer's services. It is the Compensation
Committee's goal that the Company pay market level compensation for market level
performance. The Compensation Committee therefore considers the levels of
compensation paid by other companies in determining appropriate levels of
compensation for the Company's executives. Base salary decisions, however, are
not targeted to specific levels of compensation paid by other companies.

11
<PAGE> 15

The Compensation Committee also evaluates certain qualitative factors
relating to the executive officer's performance during the preceding year,
including:

- Experience;

- Responsibilities assumed;

- Demonstrated leadership ability;

- Overall effectiveness;

- The level of an executive's compensation in relation to other executives
in the Company with the same, more or less responsibilities; and

- The performance of the executive's division or group in relation to
established operating budgets.

Compensation arrangements for executive officers are often set forth in
employment contracts with specified terms if such proposed arrangements are
reviewed and approved by the Board of Directors. See "How are the employment
agreements between the Company and the Named Executive Officers structured?"
below.

Bonuses. In addition to base salary, the Compensation Committee recommends
cash bonuses for executives of the Company, based upon the performance of the
Company and the success of each executive in meeting qualitative and
quantitative performance goals on an annual basis. Individual cash incentive
bonuses are not determined according to a set formula, but are determined on a
basis that takes into account each executive's success in achieving standards of
performance established by the Board of Directors and such executive's
superiors. These standards may or may not be quantitative. Bonus determinations
are made on a case-by-case basis, and, except as specified in Mr. Crawford's
employment agreement, there is no fixed relationship between any particular
performance factor and the amount of a given executive's bonus. In addition to
the annual bonus review, the Compensation Committee also believes that
exceptional performance by an executive related to specific projects or goals
set by the Board of Directors and senior management should be rewarded with
special cash bonuses that are awarded from time to time, as circumstances
indicate.

Stock Options. The Company has, since inception, used stock option award
grants as a tool to encourage its executives to work to meet the Company's
operational goals and maximize long-term stockholder value. Because the value of
stock options granted to an executive is directly related to the Company's
success in enhancing its market value over time, the Compensation Committee
feels that such grants align the interests of management and stockholders. Under
the Company's various stock option plans, specific grants are determined by
taking into account:

- An executive's current responsibilities;

- His or her historical performance;

- The desirability of his or her long-term services; and

- His or her perceived contributions to the Company's results of operations
and growth.

Stock option award grants are also used to provide an incentive to newly
promoted officers at the time that they are asked to assume greater
responsibilities. In determining whether to make a grant, the Compensation
Committee considers prior grants of stock options and shares of the Company's
common stock currently held, as well as the recipient's success in meeting
operational goals and the recipient's level of responsibility. However, no fixed
formula is used to determine particular grants. The Compensation Committee
believes that the opportunity to acquire a significant equity interest in the
Company is a strong motivation for the Company's executives to pursue the
long-term interests of the Company and its stockholders, and promotes longevity
and retention of key executives.

12
<PAGE> 16

HOW ARE THE EMPLOYMENT AGREEMENTS BETWEEN THE COMPANY AND THE NAMED EXECUTIVE
OFFICERS STRUCTURED?

Mr. Arlotta. Mr. Arlotta's employment agreement, which became effective on
September 20, 1997, provides that he will serve as Chief Operating Officer of
Caremark Pharmaceutical Group until December 31, 2000. He has since been
promoted to President-Pharmaceutical Services. The term will automatically be
extended for an additional year on that date and on each subsequent anniversary,
unless either Mr. Arlotta or the Company gives at least sixty days written
notice of its intent to terminate the agreement. The agreement provides for an
annual base salary, $436,058 in 1999, to be reviewed annually by the President
of the Company. In addition, Mr. Arlotta is eligible to receive an annual
performance bonus, with a stated target of up to 75% of his base salary.

Mr. Dickerson. Mr. Dickerson's employment agreement, which became
effective on May 7, 1998, provides that he will serve as Executive Vice
President and Chief Financial Officer of the Company for a three-year term. The
agreement provides for an annual base salary of $400,000, subject to periodic
review by the Board of Directors or a Committee of the Board. As an inducement
to enter into the agreement, Mr. Dickerson received a signing bonus of $100,000
and a grant of 400,000 stock options. Mr. Dickerson is eligible to receive a
bonus of up to 100% of his annual base salary, based on his performance, at the
discretion of the Chief Executive Officer.

Mr. Hardin. Mr. Hardin's employment agreement, which became effective on
June 16, 1998, provides that he will serve as Executive Vice President and
General Counsel of the Company until June 30, 2001. The agreement provides for
an annual base salary of $450,000, subject to periodic review by the Board of
Directors or a Committee of the Board. As an inducement to enter into the
agreement, Mr. Hardin received a grant of 400,000 stock options. Mr. Hardin was
eligible to receive a bonus of up to $400,000 for services rendered during 1998,
at the discretion of the Chief Executive Officer. Mr. Hardin's employment
agreement was amended on March 8, 2000 to eliminate ambiguity as to his
incentive compensation arrangement, and to confirm that he is eligible to
receive, in years subsequent to 1998, a bonus of up to 100% of his base salary,
based on his performance, at the discretion of the Chief Executive Officer.

Mr. Karro. Mr. Karro's employment agreement, which became effective on
August 7, 1998, provides that he will serve as President and Chief Operating
Officer - California. He was subsequently promoted to Executive Vice President -
Corporate Development. The agreement provides for an annual base salary of
$275,000, subject to periodic review by the Board of Directors or a Committee of
the Board. As an inducement to enter into the agreement, Mr. Karro received a
grant of 150,000 stock options. In addition, Mr. Karro is eligible to receive an
annual performance bonus, with a stated target of up to 50% of his base salary.

Dr. Lopez. Dr. Lopez entered into an employment agreement with the Company
on March 15, 1998. The agreement provided that Dr. Lopez would serve as the
Chief Medical Officer of the Company and hold similar offices with the Company's
subsidiaries and affiliates. The agreement provided for an annual base salary of
$425,000, to be reviewed annually by the Chief Executive Officer. Dr. Lopez was
also eligible to receive an annual performance bonus, with a stated target of up
to 50% of his base salary. Dr. Lopez left the Company in October 1999. Under his
employment agreement, Dr. Lopez will continue to receive his base salary, target
performance bonuses and benefits for three years following termination. All of
Dr. Lopez' stock options vested upon his termination, and he will have a period
of three years following termination to exercise his options.

Each of Mr. Arlotta, Mr. Dickerson, Mr. Hardin, and Mr. Karro is also
eligible for other benefits customary for employees and officers. The agreements
between the Company and Mr. Arlotta, Mr. Dickerson, and Mr. Hardin further
provide that any payment by the Company to these officers which is subject to
the excise tax imposed by Section 4999 of the Internal Revenue Code shall be
"grossed up" so that the officer retains an amount of the "gross up" payment
equal to the excise tax imposed on the original payment. The agreements also
contain provisions regarding pay and benefits upon certain termination events
which are normally found in executive employment agreements. The chart below
describes the various provisions for each officer depending on the reason for
termination. The terms "Cause," "Change in Control," "Disability," and "Good
Reason" are all used as defined in the respective employment agreements.
13
<PAGE> 17

<TABLE>
<CAPTION>
TERMINATION DUE
TERMINATION FOR TO DEATH, TERMINATION NOT
CAUSE OR WITH DISABILITY, OR FOR CAUSE OR WITHOUT TERMINATION DUE TO A
NAMED EXECUTIVE OFFICER GOOD REASON RETIREMENT GOOD REASON CHANGE IN CONTROL
- ----------------------- ----------------- ----------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C>
Mr. Arlotta............ All rights under All rights under Continued payment of Immediate vesting of
the agreement the agreement salary and bonuses all stock options.
terminated. terminated. for two years;
continued benefits
for the remainder of
the term; immediate
vesting of all stock
options.
Mr. Dickerson.......... All rights under Salary and Salary and bonuses Salary and bonuses
the agreement bonuses for the for the remainder of for the remainder of
terminated. remainder of the the term in a lump the term in a lump
term in a lump sum; continued sum; continued
sum. benefits for the benefits for the
remainder of the remainder of the
term. term.
Mr. Hardin............. All rights under Salary and Salary and bonuses Salary and bonuses
the agreement bonuses for the for the remainder of for the remainder of
terminated. remainder of the the term in a lump the term in a lump
term in a lump sum; continued sum; continued
sum. benefits for the benefits for the
remainder of the remainder of the
term. term.
Mr. Karro.............. All rights under All rights under Salary for one year All rights under the
the agreement the agreement in a lump sum. agreement
terminated. terminated. terminated.
</TABLE>

The employment agreement between the Company and Mr. Crawford is described
below in "How is the Chief Executive Officer compensated?"

WHAT COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION DOES THE
COMPANY HAVE?

In connection with the acquisition of MME, the Company entered into a
Termination Agreement and a Consulting Agreement with Mr. McDonald pursuant to
which Mr. McDonald is entitled to receive certain payments. These agreements are
discussed below in "Certain Transactions -- MME Acquisition Agreements."

HOW IS THE COMPANY ADDRESSING INTERNAL REVENUE CODE LIMITS ON DEDUCTIBILITY OF
COMPENSATION?

Section 162(m) of the Code generally disallows a tax deduction to
publicly-held corporations for compensation in excess of $1,000,000 in any
taxable year that is paid to a corporation's chief executive officer or to the
four most highly compensated executive officers. Compensation in excess of
$1,000,000 continues to be deductible if that compensation is "performance
based" within the meaning of Section 162(m) of the Code. Various criteria must
be satisfied to meet the "performance based" standard including, among others,
requirements to determine whether members of the Compensation Committee are
"outside" directors and

14
<PAGE> 18

limitations regarding the maximum number of shares subject to options that can
be awarded under any option plan to an executive during a specified time.

The Compensation Committee of the Board of Directors has decided, in
certain cases, to award compensation that does not meet the requirements for
deductibility under Section 162(m). The Compensation Committee believes it is
sometimes necessary to award compensation based on performance and competitive
factors rather than tax or legislative policy. A portion of the compensation
awarded to certain named executive officers in 1999 does not meet the
deductibility requirements of Section 162(m). The Board and the Compensation
Committee reserve the authority to award non-deductible compensation in
circumstances they deem appropriate.

HOW IS THE CHIEF EXECUTIVE OFFICER COMPENSATED?

Mr. Crawford's employment agreement provides that he will be employed as
the Company's President and Chief Executive Officer for a five-year term
beginning March 18, 1998. The term will be automatically extended for an
additional year on each anniversary unless the Company gives Mr. Crawford
written notice of non-extension at least 30 days prior to March 18. The
agreement provides for an annual base salary of not less than $1,000,000,
subject to increase at the discretion of the Compensation Committee.

As an inducement to join the Company, Mr. Crawford received a sign-on bonus
of $1,000,000. Mr. Crawford also received a stock option grant of 3,250,000
shares priced at $10 per share. In order to provide additional incentive to Mr.
Crawford and to assist in retention of his management talents and expertise,
this grant was cancelled and regranted at a price of $3.25 per share in August
1998 pursuant to an amendment to his employment agreement. On March 18, 1998,
1,250,000 of Mr. Crawford's options vested, and the remaining shares vested upon
the completion of the sale of the Company's contract services business on March
12, 1999.

As discussed above in "What is the Company's Compensation Philosophy?", the
Compensation Committee has determined that equity-based incentive compensation
will motivate the Company's executive officers to achieve strategic business
objectives over the long-term, thereby aligning the interests of the Company's
executives with those of the stockholders. In light of that philosophy, Mr.
Crawford was entitled to receive 500,000 stock options when the Company's 1998
target performance goals were met. In addition, Mr. Crawford is eligible to
receive an annual cash incentive bonus of up to two times his base salary,
subject to increase at the discretion of the Board of Directors. The payment of
this bonus is dependent upon the Company's achievement of certain target
performance goals for each year.

Consistent with the Compensation Committee's policy of equity-based
compensation, the Company and Mr. Crawford have reached an understanding wherein
Mr. Crawford has agreed to waive his cash bonus for fiscal year 2000 and for
each following fiscal year during the term of his employment agreement in
exchange for a one time grant of an option to purchase 3,875,000 shares of the
Company's common stock at an exercise price of 115% of the stock's market price
on March 8, 2000, the date of grant. Thirty-four percent of the option will be
immediately vested and the remainder will vest in two equal amounts on the first
and second anniversary of the option. The option will be granted under the
Company's 1997 Long-Term Incentive Compensation Plan.

Under his employment agreement, Mr. Crawford is eligible for other benefits
customarily found in executive employment agreements. His employment agreement
also contains provisions regarding pay and benefits upon certain termination
events. If the agreement is terminated for Cause or without Good Reason, as
defined in the agreement, all rights under the agreement terminate upon such
termination. If Mr. Crawford is terminated for reason other than Cause or if he
terminates for Good Reason, he is entitled to a lump-sum payment equal to base
salary and bonuses for the longer of the remainder of the term of his agreement
or three years, and immediate vesting of all stock options. In the case of
disability, all of Mr. Crawford's stock options will immediately vest. In the
case of death, Mr. Crawford's estate is entitled to a lump-sum payment equal to
15
<PAGE> 19

his base salary and bonuses for the longer of the remainder of the term of his
agreement or three years, and immediate vesting of all stock options.

COMPENSATION COMMITTEE

Charles W. Newhall III
John S. McDonald, J.D.
Roger L. Headrick

CERTAIN TRANSACTIONS

MME ACQUISITION AGREEMENT

Termination Agreement. In connection with the MME Acquisition in November
1995, the Company and Mr. McDonald entered into a Termination Agreement that
terminated his previous employment agreement with MME, in exchange for certain
payments and other benefits. These payments and benefits included a lump sum
payment of $796,000, continuation of certain fringe benefits and perquisites for
36 months, certain other payments from the Company, a trust set up by the
Company to fund the remainder of MME's pension obligations to Mr. McDonald, and
payment of all health and medical care (including prescriptions) for Mr.
McDonald for the remainder of his life through a Company-sponsored health
insurance plan. The amount received by Mr. McDonald under this agreement in 1999
was $220,178.

Consulting Agreement. In November 1995, the Company entered into a
five-year Consulting Agreement with Mr. McDonald. Mr. McDonald is entitled to
receive consulting fees of $2,230,000 to be paid over the term of the agreement,
with an initial payment of $669,000 made on November 29, 1995 and equal payments
of $390,250 made on each anniversary thereof. Mr. McDonald will also be provided
access to an office and support staff and certain other benefits. Pursuant to
this agreement, Mr. McDonald received $390,250 in 1999.

CII ACQUISITION AGREEMENT

Termination Agreement. In connection with the CII acquisition in September
1996, the employment of Mr. Piccolo, now a director of the Company, was
terminated, entitling him to severance payments of $2,805,426 and certain other
benefits provided in his severance agreement.

Consulting Agreement. In September 1996, the Company and Mr. Piccolo
entered into a consulting agreement (the "Piccolo Agreement"). The term of the
Piccolo Agreement is ten years, unless terminated sooner. Over the course of
such ten-year period, Mr. Piccolo will be paid consulting fees totaling
approximately $5.4 million. The "gross up" provisions of his severance agreement
also apply to payments made pursuant to the Piccolo Agreement in the event such
consulting payments are determined to be "excess parachute" payments. Mr.
Piccolo or his spouse will be eligible to participate in all health and medical
employee benefit plans and programs available, from time to time, to employees
of the Company until he reaches the age of 65. After age 65, Mr. Piccolo and his
spouse will be provided with a prescription drug program comparable to that
provided to the Company's employees through the Company's prescription drug
benefit program. Mr. Piccolo will be provided with an adequate office and
secretarial support, as well as reimbursement of reasonable expenses, and will
be subject to certain non-compete and confidentiality restrictions.

16
<PAGE> 20

STOCK PRICE PERFORMANCE GRAPH

The graph below reflects the cumulative stockholder return on the Company's
common stock compared to the return of the Standard & Poor's 500 Stock Index and
the Company's peer group indices for the periods indicated. The graph reflects
the investment of $100 on February 28, 1995 in the Company's common stock, the
S&P 500 and the Company's peer group indices. The Company's pharmacy benefit
management peer group consists of the following companies: MIM Corporation (1),
Advance Paradigm, Inc. (2), Express Scripts, Inc. and Caremark Rx, Inc. The
Company's therapeutic pharmaceutical services peer group consists of the
following companies: Priority Healthcare Corporation (3), Accredo Health, Inc.
(4) and Caremark Rx, Inc.
- ---------------

(1) MIM Corporation began trading on August 15, 1996. It is included in the
graph at $12.50 per share, its initial public offering price, for dates
prior to its initial public offering.
(2) Advance Paradigm, Inc. began trading on October 9, 1996. It is included in
the graph at $9.00 per share, its initial public offering price, for dates
prior to its initial public offering.
(3) Priority Healthcare Corporation began trading on October 14, 1997. It is
included in the graph at $11.50 per share, its initial public offering
price, for dates prior to its initial public offering.
(4) Accredo Health, Inc. began trading on April 16, 1999. It is included in the
graph at $11.50 per share, its initial public offering price, for dates
prior to its initial public offering.

The stock price performance graph shall not be deemed incorporated by
reference pursuant to any general statement incorporating this proxy statement
by reference into any filing under the Securities Act of 1933, as amended, or
under the Securities Exchange Act of 1934, as amended (together, the "Acts"),
and shall not otherwise be deemed filed under such Acts. The stock price
performance graph has been incorporated by reference in the Company's Annual
Report to Stockholders filed on Form 10-K for the year ended December 31, 1999,
and may be specifically incorporated by reference by the Company in other
filings under the Acts.

17
<PAGE> 21

RELATIONSHIP WITH
INDEPENDENT PUBLIC ACCOUNTANTS

Ernst & Young LLP, Birmingham, Alabama, has been engaged by the Board of
Directors of the Company as independent public accountant for the Company and
its subsidiaries for the fiscal year 1999 and is currently expected to serve in
such capacity for 2000. Management expects that a representative of Ernst &
Young LLP will be present at the annual meeting to make a statement if he or she
desires to do so and to be available to answer appropriate questions posed by
stockholders.

OTHER MATTERS

As of the date of this proxy statement, the Company knows of no business
that will be presented for consideration at the annual meeting other than the
items referred to above. If any other matter is properly brought before the
meeting for action by the stockholders, proxies in the enclosed forms returned
to the Company will be voted in accordance with the recommendation of the Board
of Directors or, in the absence of such a recommendation, in accordance with the
judgment of the proxy holder.

ADDITIONAL INFORMATION

HOW CAN I MAKE A PROPOSAL FOR THE 2001 ANNUAL MEETING?

Stockholders interested in presenting a proposal for inclusion in the
Company's proxy statement and proxy card relating to the Company's annual
meeting of the stockholders in 2001 may do so by following the procedures
prescribed in Rule 14a-8 under the Securities Exchange Act of 1934 and the
Company's bylaws. To be eligible for inclusion in next year's proxy statement,
stockholder proposals must be received by the Company's Corporate Secretary no
later than December 15, 2000. In general, any stockholder proposal to be
considered at next year's annual meeting but not included in the proxy statement
must be submitted in writing to the principal executive offices of the Company,
not less than sixty days nor more than ninety days prior to the 2001 annual
meeting. However, if the Company sends out notice or publicly discloses the date
of the 2001 annual meeting of the stockholders within seventy days prior to such
meeting, then a stockholder will be able to submit a proposal for consideration
within ten days of the notice or public announcement of such meeting. Any
notification to bring any proposal before the 2001 annual meeting of the
stockholders must comply with the requirements of the Company's bylaws. You may
obtain a copy of the relevant bylaw provisions by contacting the Company's
Corporate Secretary.

WHAT IS THE COMPANY SPENDING ON PROXY SOLICITATION COSTS?

The accompanying proxy is solicited by the Board of Directors for use at
the annual meeting of stockholders. The cost of soliciting proxies in the
enclosed form will be borne by the Company. The Company has retained ChaseMellon
Shareholder Services, L.L.C., 450 West 33rd Street, 14th Floor, New York, New
York 10001, to aid in solicitation. For these services the Company will pay
ChaseMellon Shareholder Services, L.L.C. a fee of $10,500 and reimburse it for
certain out-of-pocket expenses. Additional solicitation may be made by further
mailing or personal conversations, or by telephone, telex, facsimile or
electronic means by the officers or regular employees of the Company, who will
receive no additional compensation. The Company expects to reimburse brokerage
firms, custodians, nominees and fiduciaries for reasonable out-of-pocket
expenses in forwarding solicitation material to the beneficial owners of stock.

18
<PAGE> 22

ANNUAL REPORT ON FORM 10-K

The Company has previously provided to each stockholder as of the Record
Date a copy of the Company's Annual Report on Form 10-K, as filed with the
Securities and Exchange Commission, including the financial statements and
financial statement schedules but excluding exhibits thereto. The Company will
provide copies of the exhibits upon request of eligible stockholders, and the
Company may impose a reasonable fee for providing such exhibits. Requests for
copies of such exhibits should be mailed to Caremark Rx, Inc., 3000 Galleria
Tower, Suite 1000, Birmingham, Alabama 35244, Attention: Corporate Secretary.

By Order of the Board of Directors:

/s/ Sara J. Finley
Sara J. Finley
Corporate Secretary

April 14, 2000

19
<PAGE> 23
PROXY

CAREMARK RX, INC.

PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF
STOCKHOLDERS ON MAY 31, 2000.

The undersigned hereby appoints Edwin M. Crawford and Sara J. Finley,
and each of them, proxies, with full power of substitution and resubstitution,
for and in the name of the undersigned, to vote all shares of stock of Caremark
Rx, Inc. (the "Company"), held of record by the undersigned or which the
undersigned is entitled to vote at The Annual Meeting of Stockholders to be held
on Wednesday, May 31, 2000, 2:00 p.m., Central Time, at The Wynfrey Hotel, 1000
Riverchase Galleria, Birmingham, Alabama, and at any adjournment thereof, upon
the matters described in the accompanying Notice of Annual Meeting of
Stockholders and Proxy Statement, receipt of which is hereby acknowledged, and
upon any other business that may properly come before the meeting or any
adjournment thereof. Said proxies are directed to vote on the matters described
in the Notice of Annual Meeting and Proxy Statement, as follows, and otherwise
in their discretion upon such other business as may properly come before the
meeting or any adjournment thereof.

THIS PROXY WILL BE VOTED AS SPECIFIED BY THE UNDERSIGNED. IF NO CHOICE
IS SPECIFIED, THE PROXY WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES FOR
DIRECTOR LISTED ON THE REVERSE SIDE AND ACCORDING TO THE DISCRETION OF THE PROXY
HOLDERS ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING OR ANY
POSTPONEMENT OR ADJOURNMENT THEREOF.

<TABLE>
<S> <C>
Please date, sign exactly as your name appears on the form Change of Address:
and mail the proxy promptly. When signing as an attorney,
executor, administrator, trustee or guardian, please give your full ----------------------------------------
title as such. If shares are held jointly, both owners must sign. ----------------------------------------
----------------------------------------

(continued and to be dated and signed on the other side) SEE REVERSE
SIDE

- ------------------------------------------------------------------------------------------------------------------------------------
FOLD AND DETACH HERE
</TABLE>

<PAGE> 24

PLEASE MARK YOUR |
[X] VOTES AS IN THIS | 8945
EXAMPLE. |____

<TABLE>
<CAPTION>
THE BOARD RECOMMENDS A VOTE FOR ELECTION OF THE FOLLOWING DIRECTORS.
<S> <C> <C> <C> <C> <C> <C>
FOR WITHHELD
1. Election of [ ] [ ] 01. C.A. Lance Piccolo 04. Edward L. Hardin, Jr.
Directors 02. Ted H. McCourtney 05. Harris Diamond DISCONTINUE ANNUAL WILL ATTEND
03. Richard M. Scrushy 06. Edwin M. Banks REPORT MAILING FOR ANNUAL
THIS ACCOUNT MEETING
TO WITHHOLD AUTHORITY TO VOTE, MARK "FOR" AND WRITE THE NOMINEE'S NUMBER ON THE LINE BELOW. [ ] [ ]

______________________________________
</TABLE>

Change of Address [ ]
Complete section on
reverse side
Please sign exactly and as fully as your name appears
on your stock certificate. If shares are held jointly, each
stockholder must sign.

___________________________________________________________

___________________________________________________________
SIGNATURE(S) DATE

- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -

CAREMARK RX, INC.
ANNUAL MEETING OF STOCKHOLDERS
May 31, 2000
2:00 P.M.
The Wynfrey Hotel
1000 Riverchase Galleria
Birmingham, Alabama
VOTE BY TELEPHONE OR INTERNET
QUICK - EASY - IMMEDIATE

Caremark Rx, Inc. encourages you to take advantage of two new cost-effective
and convenient ways to vote your shares.

You may now vote your proxy 24 hours a day, 7 days a week, using either a
touch-tone telephone or through the Internet. Your telephone or Internet vote
must be received by 12:00 MIDNIGHT EASTERN STANDARD TIME ON MAY 30, 2000.

Your telephone or Internet vote authorizes the proxies named on the proxy card
below to vote your shares in the same manner as if you marked, signed and
returned your proxy card.

VOTE BY PHONE ON A TOUCH-TONE TELEPHONE DIAL 1-877-PRX-VOTE
(1-877-779-8683) FROM THE U.S. AND CANADA OR DIAL
1-201-536-8073 FROM OTHER COUNTRIES, THERE IS NO CHARGE FOR
THIS CALL.

You will be asked to enter the Voter Control Number located
in the box just below the perforation on the proxy card.
Then follow the instructions.

VOTE BY INTERNET POINT YOUR BROWSER TO THE WEB ADDRESS:
http://www.eproxyvote.com/cmx
Click on the "Proceed" button. You will be asked to enter
the Voter Control Number located in the box just below the
perforation on the proxy card, then follow the
instructions. If you would like to receive Caremark Rx,
Inc. annual meeting materials online in the future, please
access the Consent Site from the web address above, or go
to the Consent Site directly at http://www.econsent.com/cmx.

VOTE BY MAIL MARK, SIGN AND DATE YOUR PROXY CARD AND RETURN IT IN THE
POSTAGE-PAID ENVELOPE. IF YOU ARE VOTING BY TELEPHONE OR
THE INTERNET, PLEASE DO NOT MAIL YOUR PROXY.