<PAGE>
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:
/ / 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 Section 240.14a-11(c) or Section
240.14a-12
CVS Corporation
- --------------------------------------------------------------------------------
(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:
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(5) Total fee paid:
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/ / 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:
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(4) Date Filed:
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<PAGE>
CVS
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
APRIL 19, 2000
10:00 A.M.
CVS Corporation
One CVS Drive
Woonsocket, Rhode Island 02895
------------------
To our stockholders:
We are pleased to invite you to attend our 2000 annual meeting of
stockholders to:
|X| Elect 11 directors;
|X| Ratify the appointment of KPMG LLP as independent auditors for 2000;
and
|X| Conduct other business properly brought before the meeting.
Stockholders of record at the close of business on February 24, 2000 may
vote at the meeting.
Your vote is important. Whether or not you plan to attend the meeting,
please sign, date and return the enclosed proxy card in the envelope provided.
Instructions are included on your proxy card. You may change your vote by
sending in a signed proxy card with a later date or by attending the meeting and
voting in person.
By Order of the Board of Directors,
Thomas M. Ryan
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
<PAGE>
PROXY STATEMENT TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Information about the Annual Meeting and Voting.............................1
ITEM 1: Election of Directors.............................................4
Biographies of our Board nominees.................................4
Committees of the Board of CVS....................................6
Director Compensation.............................................7
Directors and Officers Liability Insurance........................7
Compensation Committee Interlocks and Insider Participation.......8
Share Ownership of Directors and Certain Executive Officers.......8
Share ownership of Principal Stockholders.........................9
Compensation Committee Report on Executive Compensation..........10
Summary Compensation Table.......................................14
Stock Options....................................................16
Stock Performance Graph..........................................17
Certain Executive Arrangements...................................18
Transactions with Directors and Officers.........................20
ITEM 2: Ratification of Appointment of Independent Auditors..............22
ITEM 3: Other Matters....................................................22
Audit Committee Report...........................................22
Section 16(a) Beneficial Ownership Reporting Compliance..........23
Proxy Solicitation...............................................23
Stockholder Proposals for Annual Meeting in 2001.................23
Exhibit A - Audit Committee Charter
</TABLE>
i
<PAGE>
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
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The Board of Directors of CVS Corporation is soliciting your proxy to vote at
our 2000 annual meeting of stockholders (or at any adjournment of the meeting).
This proxy statement summarizes the information you need to know to vote at the
meeting.
We began mailing this proxy statement and the enclosed proxy card on or about
March 9, 2000 to all stockholders entitled to vote. The CVS 1999 Annual Report,
which includes our financial statements, is being sent with this proxy
statement.
DATE, TIME AND PLACE OF MEETING
Date: April 19, 2000
Time: 10:00 a.m.
Place: One CVS Drive
Woonsocket, Rhode Island
SHARES ENTITLED TO VOTE
Stockholders entitled to vote are those who owned CVS common stock or
Series One ESOP convertible preference stock (referred to throughout this
proxy statement as the "ESOP preference stock") at the close of business
on the record date, February 24, 2000. As of the record date, there were
approximately 402.9 million shares of common stock and approximately 5.1
million shares of ESOP preference stock outstanding. All ESOP preference
stock is held by The Bank of New York, as Trustee under the CVS
Corporation and Subsidiaries Employee Stock Ownership Plan (the "ESOP").
Each share of CVS common stock that you own entitles you to one vote.
Each share of ESOP preference stock is entitled to the number of votes
equal to the number of shares of common stock into which the share of ESOP
preference stock could be converted on the record date, rounded up to the
next tenth of a share (currently 2.3 votes). The ESOP preference stock is
entitled to vote on all matters submitted to a vote of holders of common
stock, voting with the common stock as a single class. Each participant in
the ESOP instructs the Trustee of the ESOP how to vote his or her shares.
As to unallocated shares and shares with respect to which the Trustee
receives no timely voting instructions, the Trustee, pursuant to the ESOP
Trust Agreement, votes these shares in the same proportion as it votes all
the shares as to which it has received timely voting instructions.
VOTING YOUR PROXY
Whether or not you plan to attend the annual meeting, we urge you to
complete, sign and date the enclosed proxy card and return it promptly in
the envelope provided. Returning the proxy card will not affect your right
to attend the meeting and vote.
The enclosed proxy card indicates the number of shares that you own.
<PAGE>
Voting instructions are included on your proxy card. If you properly
fill in your proxy card and send it to us in time to vote, one of the
individuals named on your proxy card (your "proxy") will vote your shares
as you have directed. If you sign the proxy card but do not make specific
choices, your proxy will follow the Board's recommendations and vote your
shares:
|X| "FOR" the election of all 11 nominees for director (as
described on page 4); and
|X| "FOR" the ratification of the appointment of KPMG LLP as the
Company's independent auditors for fiscal 2000 (as described
on page 22).
If any other matter is presented at the meeting, your proxy will
vote in accordance with his or her best judgment. At the time this
proxy statement went to press, we knew of no other matters to be acted
on at the meeting.
REVOKING YOUR PROXY
You may revoke your proxy by:
|X| sending in another signed proxy card with a later date;
|X| notifying our Secretary in writing before the meeting that
you have revoked your proxy; or
|X| voting in person at the meeting.
VOTING IN PERSON
If you plan to attend the meeting and vote in person, we will give
you a ballot when you arrive. However, if your shares are held in the name
of your broker, bank or other nominee, you must bring an account statement
or letter from the nominee indicating that you were the beneficial owner
of the shares on February 24, 2000, the record date for voting.
APPOINTING YOUR OWN PROXY
If you want to give your proxy to someone other than the individuals
named as proxies on the proxy card, you may cross out the names of those
individuals and insert the name of the individual you are authorizing to
vote. Either you or that authorized individual must present the proxy card
at the meeting.
QUORUM REQUIREMENT
A quorum of stockholders is necessary to hold a valid meeting. The
presence in person or by proxy at the meeting of holders of shares
representing a majority of the votes of the common stock and the ESOP
preference stock entitled to vote constitutes a quorum. Abstentions and
broker "non-votes" are counted as present for establishing a quorum. A
broker non-vote occurs on an item when a broker is not permitted to vote
on that item absent instruction from the beneficial owner of the shares
and no instruction is given.
2
<PAGE>
VOTE NECESSARY TO APPROVE PROPOSALS
Item Vote Necessary*
Item 1: Election of directors Directors are elected by a plurality of
the votes represented by the shares of
common stock and ESOP preference stock
present at the meeting in person or by
proxy, voting as a single class.
This means that the director nominee with
the most affirmative votes for a
particular slot is elected for that slot.
Only the number of votes "for" and
"against" affect the outcome. Withheld
votes and abstentions have no effect on
the vote.
Item 2 Ratification of appointment Approval is by affirmative vote of a
of independent auditors majority of the votes represented by the
common stock and the ESOP preference
stock present at the meeting in person or
by proxy, voting as a single class.
Abstentions are counted and have the
effect of a vote against.
- --------------
* Under New York Stock Exchange rules, if your broker holds your shares in
its name, your broker is permitted to vote your shares on Items 1 and 2
even if it does not receive voting instructions from you.
3
<PAGE>
ITEM 1: ELECTION OF DIRECTORS
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Our Board of Directors has nominated 11 directors for election at the
annual meeting. Each nominee is currently serving as one of our directors.
If you re-elect them, they will hold office until the next annual meeting
or until their successors have been elected and qualified. Allan J.
Bloostein, a current member of our Board of Directors, is retiring from
the Board effective at the time of this year's annual meeting.
Your proxy will vote for each of the nominees unless you specifically
withhold authority to vote for a particular nominee. If any nominee is
unable to serve, your proxy may vote for another nominee proposed by the
Board or the Board may reduce the number of directors to be elected.
During 1999, there were six meetings of the Board of Directors of
CVS. Each director attended at least 75% of the meetings of the Board and
the committees of which he or she was a member.
The Board of Directors recommends the ELECTION of all nominees.
BIOGRAPHIES OF OUR BOARD NOMINEES
Eugene Applebaum DIRECTOR SINCE 1998 AGE 62
Mr. Applebaum has been President of Arbor Investments Group, L.L.C., a
consulting firm, since April 1998. From 1963 to March 1998, he was President of
Arbor Drugs, Inc. ("Arbor") and its predecessors, and from 1985 until Arbor was
acquired by CVS in March 1998, he was Arbor's Chairman of the Board and Chief
Executive Officer. Mr. Applebaum was first elected to CVS' Board of Directors
pursuant to an agreement to elect him undertaken in the CVS/Arbor merger
agreement.
W. Don Cornwell DIRECTOR SINCE 1994 AGE 52
Mr. Cornwell has been Chairman of the Board and Chief Executive Officer of
Granite Broadcasting Corporation, a group broadcasting company, since February
1988. Mr. Cornwell is a director of Pfizer, Inc., Hershey Trust Company and
Milton Hershey School.
Thomas P. Gerrity DIRECTOR SINCE 1995 AGE 58
Mr. Gerrity has been Professor of Management at The Wharton School of the
University of Pennsylvania ("The Wharton School") since 1990 and Director of The
E-Commerce Forum at The Wharton School since July 1999. From 1990 to June 1999,
he also served as Dean of The Wharton School. Mr. Gerrity is a director of
Fannie Mae, Reliance Group Holdings, Inc., Purchasing Solutions, Inc., Sunoco,
Inc., Knight-Ridder, Inc., and Internet Capital Group, Inc., and is a trustee of
the MAS Funds.
Stanley P. Goldstein DIRECTOR SINCE 1984 AGE 65
Mr. Goldstein is a retired founder of CVS. From January 1987 to April 1999,
Mr. Goldstein was Chairman of the Board of the Company, and from January 1987
to May 1998, he was Chief Executive Officer of the Company. Mr. Goldstein is
a director of Bell Atlantic Corporation, Linens 'n Things, Inc. and
Footstar, Inc.
4
<PAGE>
Marian L. Heard DIRECTOR SINCE 1999 AGE 59
Ms. Heard has been President and Chief Executive Officer of the United Way of
Massachusetts Bay and Chief Executive Officer of United Ways of New England,
each a social service agency, since February 1992. Ms. Heard is a director of
Blue Cross & Blue Shield, FleetBoston Financial Corporation, Liberty Mutual
Insurance Company and The New England Aquarium, and is a trustee of the
Dana-Farber Cancer Institute.
William H. Joyce DIRECTOR SINCE 1994 AGE 64
Mr. Joyce has been Chairman of the Board and Chief Executive Officer of Union
Carbide Corporation, a leading producer of chemicals and polymers, since
January 1996. From January 1993 to January 1996, he was President, Chief
Operating Officer and director of Union Carbide Corporation. Mr. Joyce is a
director of Reynolds Metals Company.
Terry R. Lautenbach DIRECTOR SINCE 1991 AGE 61
Mr. Lautenbach is retired. From 1988 to 1992, he served as Senior Vice President
of IBM Corporation, a multinational advanced information technology company,
where he was responsible for worldwide manufacturing and product development and
North American marketing and services. Mr. Lautenbach is a director of Air
Products and Chemicals Inc., Varian Associates, Inc. and Footstar, Inc., and is
a trustee of Loomis-Sayles Mutual Funds.
Terrence Murray DIRECTOR SINCE 1996 AGE 60
Mr. Murray has been Chairman and Chief Executive Officer of FleetBoston
Financial Corporation since May 1982. Mr. Murray is a director of A.T. Cross
Company, Allmerica Financial Corporation, The Federal Reserve Bank of Boston and
Partners Healthcare Systems, Inc., a trustee of Brigham and Women's Hospital and
the Museum of Fine Arts, Boston, a trustee emeritus of Brown University and an
honorary trustee of The Rhode Island School of Design.
Sheli Z. Rosenberg DIRECTOR SINCE 1997 AGE 58
Ms. Rosenberg has been Vice Chairman of Equity Group Investments, L.L.C., a real
estate investment firm, since January 2000. From 1994 to January 2000, Ms.
Rosenberg served as President, Chief Executive Officer and a director of Equity
Group Investments. From 1980 to 1997, she was also a principal of the law firm
Rosenberg & Liebentritt, P.C. Ms. Rosenberg is a director of Anixter
International, Inc., Capital Trust, Inc., Dynergy, Inc., Manufactured Home
Communities, Inc. and Danka Business Systems PLC, and a trustee of Equity
Residential Properties Trust and Equity Office Properties Trust.
Thomas M. Ryan DIRECTOR SINCE 1996 AGE 47
Mr. Ryan has been Chairman of CVS Corporation since April 1999 and Chief
Executive Officer of CVS Corporation since May 1998. He has also been Chairman
of CVS Pharmacy, Inc. since April 1999 and Chief Executive Officer of CVS
Pharmacy, Inc. since April 1994. From May 1998 to April 1999, Mr. Ryan served as
President of CVS Corporation, and from October 1996 to May 1998, he was Vice
Chairman of the Board and Chief Operating Officer of CVS Corporation. From
January 1994 to April 1999 he also served as President of CVS Pharmacy, Inc. Mr.
Ryan is a director of FleetBoston Financial Corporation and Reebok International
Ltd.
5
<PAGE>
Ivan G. Seidenberg DIRECTOR SINCE 1993 AGE 53
Mr. Seidenberg has been Chairman and Chief Executive Officer of Bell Atlantic
Corporation ("Bell Atlantic"), a worldwide communications company, since
December 1998. From June 1998 to December 1998, he was Vice Chairman and
Chief Executive Officer of Bell Atlantic; from August 1997 to June 1998, he
was Vice Chairman, President and Chief Operating Officer of Bell Atlantic;
from April 1995 to August 1997, he was Chairman and Chief Executive Officer
of NYNEX Corporation ("NYNEX"); and from January 1995 to April 1995, he was
President, Chief Executive Officer and a director of NYNEX. Mr. Seidenberg is
a director of American Home Products Corporation, Boston Properties, Inc.,
Honeywell International, Inc. and Viacom Inc.
COMMITTEES OF THE BOARD OF CVS
AUDIT COMMITTEE
William H. Joyce, Chair
W. Don Cornwell
Thomas P. Gerrity
Marian L. Heard
The Audit Committee met three times during 1999. Each member of the
Audit Committee is "independent" as defined in the listing standards of
the New York Stock Exchange, on which CVS' common stock is listed. The
Board of Directors has approved a written charter for the Audit Committee,
a copy of which is included as Exhibit A to this Proxy Statement. The
Audit Committee: (i) oversees the financial reporting process and internal
control systems; (ii) oversees the internal and independent audit
function; (iii) oversees that the annual consolidated financial statements
and quarterly financial statements are prepared in accordance with
generally accepted accounting principals; (iv) oversees and supervises
special investigations; (v) recommends to the Board the appointment of
independent auditors and annually evaluates the auditors' independence;
(vi) reviews compliance with the corporate code of conduct; (vii) approves
CVS' internal audit plan; and (viii) will annually review and assess the
adequacy of its Charter, and may amend the Charter as appropriate with
Board approval.
NOMINATING COMMITTEE
Ivan G. Seidenberg, Chair
Eugene Applebaum
Allan J. Bloostein
William H. Joyce
Terry R. Lautenbach
Sheli Z. Rosenberg
The Nominating Committee met twice during 1999. It, together with the
Chairman of the Board, nominates directors for election by the Board.
While there are no formal procedures for stockholder recommendations, the
Nominating Committee will consider nominees recommended by stockholders.
6
<PAGE>
COMPENSATION COMMITTEE
Terry R. Lautenbach, Chair
Allan J. Bloostein
Terrence Murray
Sheli Z. Rosenberg
The Compensation Committee met four times during 1999. The
Compensation Committee: (i) reviews and approves the salary, bonus and
other compensation of all officers of CVS and of each executive of CVS or
its subsidiaries whose annual base salary is greater than $200,000; (ii)
administers the 1997 Incentive Compensation Plan and any outstanding
awards under any other stock option plans of the Company and its
subsidiaries, subject to the terms of such plans; and (iii) administers
any profit incentive plans for the benefit of CVS.
DIRECTOR COMPENSATION
We provide the following compensation to our non-employee directors
for their services as directors:
ANNUAL FEES
|X| Each non-employee director receives an annual retainer of $30,000
and attendance fees of $1,500 for each Board meeting attended,
$1,000 for each telephonic Board meeting attended and $1,000 for
each committee meeting attended.
|X| Each non-employee director who chairs a committee of the Board
receives an additional annual retainer of $2,500 for each
committee he or she chairs.
DIRECTOR STOCK PLAN; DIRECTOR FEES PAYABLE IN STOCK
Under the 1996 Directors Stock Plan, non-employee directors receive
an annual award of 700 shares of common stock for their service during the
preceding year (pro rated for partial year service). Effective with the
award to be granted in 2001, for Board service in 2000, the Plan has been
amended to increase the annual award from 700 to 1,500 shares.
Additionally, one half of the annual non-employee director retainer fee is
paid in CVS common stock. Directors may choose to receive all retainer and
attendance fees in common stock. A director may also choose to defer
receipt of such shares. Deferred shares are credited annually with
dividend equivalents.
As of January 1, 2000, our directors had deferred receipt of shares
of common stock as follows: Mr. Applebaum, 2,694 shares; Mr. Bloostein,
12,078 shares; Mr. Cornwell, 6,275 shares; Mr. Gerrity, 3,272 shares; Mr.
Goldstein, 848 shares; Mr. Joyce, 8,684 shares; Mr. Lautenbach, 8,872
shares; Mr. Murray, 4,857 shares; Ms. Rosenberg, 4,106 shares; and Mr.
Seidenberg, 8,367 shares.
DIRECTORS AND OFFICERS LIABILITY INSURANCE
We have purchased directors and officers liability insurance with a
limit of $100,000,000 and pension trust liability insurance with a limit
of $50,000,000. The pension trust liability insurance covers the actions
of directors and officers as well as other employees with fiduciary
responsibilities under ERISA. All of these insurance policies expire on
June 30, 2001. The aggregate premium for the directors and officers
liability coverage is $1,187,500 and for the pension trust liability
coverage is $166,092. We expect to renew or replace the liability
insurance coverage when the policies expire.
7
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Terrence Murray, Chairman and Chief Executive Officer of
FleetBoston Financial Corporation ("Fleet") and a director of CVS, serves
on CVS' Compensation Committee. Mr. Thomas Ryan, Chairman and Chief
Executive Officer and a director of CVS, serves on the Board of Directors
of Fleet, but does not serve on Fleet's Compensation Committee.
SHARE OWNERSHIP OF DIRECTORS AND CERTAIN EXECUTIVE OFFICERS
The following table shows the share ownership, as of January 24,
2000, of each director, each executive officer named in the Summary
Compensation Table appearing on page 14, and all directors and executive
officers as a group, based on information provided by these individuals.
Each individual (except Mr. Applebaum, if shares relating to a forward
purchase contract are included in the calculation) beneficially owns less
than 1% of our common stock and, except as described in the footnotes to
the table, each person has sole investment and voting power over the
shares.
<TABLE>
<CAPTION>
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Ownership of Common Stock(1)
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Name Number Percent
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<S> <C> <C>
Eugene Applebaum 7,323,530 (1)(6)(9) 1.82%
Allan J. Bloostein 13,244 (1)(6) *
Charles C. Conaway 663,368 (1)(2)(3)(4)(5) *
W. Don Cornwell 7,329 (1)(6) *
Thomas P. Gerrity 39,254 (1)(6) *
Stanley P. Goldstein 1,702,403 (1)(3)(4)(6)(7) *
Marian L. Heard 564 *
William H. Joyce 8,943 (1)(6) *
Terry R. Lautenbach 41,605 (1)(6) *
Larry J. Merlo 259,394 (1)(2)(3)(4)(5) *
Terrence Murray 6,028 (6)(8) *
Daniel C. Nelson 565,231 (1)(2)(3)(4) *
David B. Rickard 14,024 (2) *
Sheli Z. Rosenberg 14,207 (6) *
Thomas M. Ryan 1,149,655 (1)(2)(3)(4) *
Ivan G. Seidenberg 9,240 (1)(6) *
All directors and executive officers 11,947,808 (1)(2)(3)(4)(5) 2.94%
(as a group 20 persons) (6)(7)(8)(9)
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</TABLE>
* Less than 1%.
(1) Includes shares of common stock not currently owned, but subject to options
which were outstanding on January 24, 2000 and were exercisable within 60
days thereafter: Mr. Applebaum, 50,000; Mr. Bloostein, 11,550; Mr. Conaway,
559,733; Mr. Cornwell, 6,930; Mr. Gerrity, 4,620; Mr. Goldstein, 1,371,980;
Mr. Joyce, 6,930; Mr. Lautenbach, 13,860; Mr. Merlo, 213,484; Mr. Nelson,
509,714; Mr. Ryan, 946,004; Mr. Seidenberg, 9,240; and directors and
executive officers as a group, 3,797,276.
(2) Includes shares of common stock granted under the Company's Omnibus Stock
Incentive Plan or its 1997 Incentive Compensation Plan which remain subject
to certain restrictions as to continued employment and transfer as provided
in such plans: Mr. Ryan, 156,012; Mr. Conaway, 103,036: Mr. Nelson, 47,629;
Mr. Merlo, 39,107; Mr. Rickard, 10,796; and executive officers as a group,
392,842.
8
<PAGE>
(3) Does not include shares of common stock receivable upon the lapse of
restrictions on restricted stock or the exercise of options but deferred
pursuant to the Company's Deferred Stock Compensation Plan: Mr. Ryan 65,296
shares; Mr. Goldstein, 44,510; Mr. Conaway 35,135 shares; Mr. Nelson,
28,263 shares; Mr. Merlo, 11,005 shares; all directors and executive
officers as a group, 184,209.
(4) Does not include 5,155,041 shares of ESOP preference stock held as of
January 24, 2000 by the ESOP, which was established in 1989. As of
December 31, 1999, the last date on which an allocation was made, shares
had been allocated as follows: Mr. Goldstein, 1,044 shares; Mr. Ryan,
1,013 shares; Mr. Conaway, 383 shares; Mr. Nelson, 318 shares; Mr. Merlo,
682 shares; and executive officers as a group, 3,805 shares.
(5) Includes 208,163 shares of Employee Stock Purchase Plan ("ESPP") common
stock held as of January 24, 2000 by the ESPP, which was established in
1999. As of December 31, 1999, the last date on which a purchase was made,
shares had been purchased as follows: Mr. Conaway, 599 shares; Mr. Merlo,
469 shares; and executive officers as a group, 1,592 shares.
(6) Does not include the following shares of common stock constituting deferred
non-employee director compensation: Mr. Applebaum, 2,694 shares; Mr.
Bloostein, 12,078 shares; Mr. Cornwell, 6,275 shares; Mr. Gerrity, 3,272
shares; Mr. Goldstein, 848 shares; Mr. Joyce, 8,684 shares; Mr. Lautenbach,
8,872 shares; Mr. Murray, 4,857 shares; Ms. Rosenberg, 4,106 shares; Mr.
Seidenberg, 8,367 shares; and non-employee directors as a group, 60,053.
(7) Includes 40,000 shares held by Mr. Goldstein's wife and 10,000 shares held
by a limited partnership, the general partner of which is a corporation
owned by Mr. Goldstein and his wife, and the limited partners of which are
the Goldsteins' adult sons. Mr. Goldstein disclaims beneficial ownership of
these shares.
(8) Includes 1,670 shares held by a charitable foundation and 740 shares held
by a limited liability company of which Mr. Murray holds a membership
interest. Mr. Murray disclaims beneficial ownership of these shares.
(9) Includes 7,273,530 shares beneficially owned by Mr. Applebaum as Trustee
for the Eugene Applebaum Revocable Living Trust (the "Trust") and pledged
as security relating to a forward purchase contract obligating the Trust to
deliver cash or up to that number of shares on or about May 15, 2001.
SHARE OWNERSHIP OF PRINCIPAL STOCKHOLDERS
We have been notified by the persons in the following table that they
were the beneficial owners (as defined by the rules of the SEC) of more
than five percent of our voting securities as of January 24, 2000.
According to the most recent Schedule 13G filed by the owner (other than
the ESOP) with the SEC, these shares were acquired in the ordinary course
of business, and were not acquired for the purpose of, and do not have the
effect of, changing or influencing control over us.
<TABLE>
<CAPTION>
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Name and Address of No. of shares Percent of
Title of Class Beneficial Owner beneficially owned class owned (1)
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common stock FMR Corp.(2) 51,708,028 12.83%
82 Devonshire Street
Boston, MA 02109
Series One ESOP CVS Corporation and Subsidiaries 5,155,041 100%
convertible Employee Stock Ownership Plan Trust
preference stock c/o Bank of New York, as Trustee
48 Wall Street
New York, NY 10005
-----------------------------------------------------------------------------------------------------
</TABLE>
(1) This calculation is based on all outstanding shares of common stock and
ESOP preference stock as of January 24, 2000. FMR Corp. and the ESOP own
approximately 12.47% and 2.86%, respectively, of the total votes
represented by CVS' voting securities.
(2) Information based on Schedule 13G dated February 14, 2000. FMR Corp., a
parent holding company, and/or its subsidiaries have sole voting power with
respect to 1,709,741 of such shares and sole dispositive power over all of
these shares.
9
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (for purposes of
this report, the "Committee") is composed of four directors, none of whom
is an officer or employee of CVS or its subsidiaries. The Committee is
responsible for the establishment of policies governing, and for the
implementation, administration and interpretation of, all aspects of
executive officer compensation. The Committee has prepared the following
report on the executive compensation program in which executive officers,
including those named in the Summary Compensation Table on page 14,
participate.
COMPENSATION POLICIES
The Committee reviews the compensation of executive officers on an
ongoing basis, developing and implementing plans to serve the following
objectives:
|X| Support, communicate and drive achievement of CVS' business strategies
and goals;
|X| Attract and retain the highest caliber executive officers by providing
compensation opportunities comparable to those offered by other
companies with which CVS competes for business and talent;
|X| Motivate high performance among executive officers in an
entrepreneurial incentive-driven culture;
|X| Closely align the interests of executive officers with stockholders'
interests; and
|X| Reward results achieved short-term and, in the long-term, stockholder
value creation.
The Committee intends that executive officer compensation be
determined and administered on the basis of total compensation, rather
than on separate free-standing components. The Committee has sought to
create an integrated total compensation program structured to balance
appropriately CVS' short- and long-term business and financial strategic
goals. A significant amount of total pay for executive officers is
comprised of at-risk pay to align executive interests with stockholder
interests and directly tie compensation value to performance.
In 1999, the Committee engaged a compensation consulting firm to
assist it in the ongoing administration of an executive compensation
program for the key CVS management group. The consulting firm analyzed
market data and best practices for the key management group, including our
Chief Executive Officer and the other executive officers named in the
Summary Compensation Table. Their salaries and other compensation awards
were compared to a core peer group, as well as industry standards, in
order to recommend compensation programs and policies that would reflect
and enhance CVS' high-growth strategy. This comparison included
compensation levels reported for senior executives of 21 consumer goods
companies, including 11 retailers (two of which are drug chains) with
sales ranging from approximately $7 billion to $38 billion. Eleven of the
companies in this survey group are included in the S&P Retail Stores
Composite Index used in the Stock Performance Graph on page 17. The 1999
compensation program for CVS' executive officers named in the Summary
Compensation Table resulted from the Committee's review of this
information.
For 1999, executive officer compensation consisted of base salaries,
cash bonuses based on annual performance, long-term performance shares and
stock options. Total compensation levels for 1999 generally were targeted
at the 75th percentile of compensation paid by comparable companies in the
survey group. In any one year or period of years, however, actual total
compensation levels of executive
10
<PAGE>
officers may range well below or above a targeted level based on
performance against annual and long-term business objectives and total
return to stockholders.
BASE SALARIES
The Committee periodically reviews base salaries and considers
increases based on corporate profitability, competitive salaries, position
responsibility levels and individual qualifications and performance. In
1999, as part of the overall review of the CVS compensation program,
salaries of most of the executive officers were increased in light of
market data, as well as to provide merit increases and to reflect
promotions and increased responsibilities. The Committee generally sought,
through these increases, to place such salaries in the range between the
50th and 75th percentile of base salaries in the survey group. Effective
April 1, 1999, salaries for Messrs. Ryan, Conaway, Merlo and Nelson were
$975,000, $650,000, $470,000 and $470,000, respectively. Mr. Rickard was
hired in September 1999 at an annual salary of $575,000.
ANNUAL INCENTIVE AWARDS
CVS maintains an annual incentive plan that rewards corporate
employees based on performance relative to predetermined objectives
established for the year. The annual incentive paid to each participant
under this program for 100% performance relative to annual objectives is
known as the "Normal Award." In 1999, Normal Awards payable in cash
(subject to elective deferral) were 115% of base salary for the Chairman
and Chief Executive Officer, 100% of base salary for the President and
Chief Operating Officer and up to 90% of base salary for the other named
executive officers. The annual incentive plan provides for larger awards
if performance exceeds predetermined objectives, and smaller or no awards
if performance falls below such objectives.
For 1999, the Committee determined the Chairman and Chief Executive
Officer's incentive awards based on pre-established objectives for CVS'
consolidated earnings before federal income taxes ("EBIT") and return on
net assets ("RONA"). Based on such returns, and the Committee's conclusion
that the objectives relating to such strategic goals were met, the
Chairman and Chief Executive Officer's annual incentive was payable at
153% of his Normal Award for 1999. In addition to his regular cash
incentive determined based on the above EBIT and RONA objectives, the
Committee also made an incremental cash award to the Chief Executive
Officer in recognition for his contribution to CVS' 1999 earnings per
share performance. Consequently, the Chairman and Chief Executive
Officer's annual cash incentive was payable at approximately 165% of his
normal award for 1999. This amount is reflected in the bonus column of the
Summary Compensation Table.
Annual incentive awards for 1999 payable to other named executive
officers were based on the same EBIT and RONA objectives. Accordingly,
annual incentives were generally payable at a rate of 153% of the Normal
Award for 1999. These amounts are reflected in the bonus column of the
Summary Compensation Table for each of the other executive officers, other
than Mr. Merlo. For Mr. Merlo, in addition to his regular cash incentive
determined based on the above EBIT and RONA objectives, the Committee made
an incremental cash award in recognition of his outstanding contribution
to the profitability of store operations. Consequently, Mr. Merlo's annual
cash incentive was payable at approximately 171% of his normal award for
1999. This amount is reflected in the bonus column of the Summary
Compensation Table.
11
<PAGE>
STOCK OPTIONS
The Committee believes strongly in the use of equity-based
compensation to help reinforce executives' focus on the importance of
returns to stockholders. Therefore, the Committee has incorporated
equity-based incentives into the executive compensation program in several
ways. A key element of this program is stock options. In 1999, the
Committee continued its general policy of making annual stock option
grants to executives and key employees. Stock option grants to the
Chairman and Chief Executive Officer and the other named executive
officers are shown in the Summary Compensation Table on page 14 and the
Stock Option Grant Table on page 16. The stock options awarded in 1999
generally become exercisable 50% on the second anniversary of the grant
date and 25% on each of the third and fourth anniversaries of the grant
date. In 1999, the Committee granted options to 671 key employees below
the executive officer level. The Committee expects to continue to make
annual option grants. Additionally, in 1999 the Committee approved a new
stock option award program for full-time pharmacists and store managers.
The first award distribution for this program was in January 2000, with
subsequent distributions expected to occur approximately every other year.
LONG-TERM PERFORMANCE SHARE PLAN
In 1999, CVS implemented a Long-Term Performance Share Plan. This
Plan, which is a sub-plan of the Company's 1997 Incentive Compensation
Plan, is intended to encourage executives to balance short-term goals, as
reflected in the annual incentive plan, with long-term profit growth. It
uses both an internal measure of success - earnings per share ("EPS")
compound annual growth rate - as well as an external validation of success
- CVS stock price.
The Plan consists of three-year performance cycles, with a new cycle
commencing each year. At the beginning of each cycle, participants are
awarded an opportunity to earn a target number of shares of CVS stock. At
the end of each cycle, the actual number of shares awarded may be higher
or lower than the target number, depending upon performance relative to a
predetermined goal of growth in EPS. Final awards will be paid 50% in
shares of CVS stock and 50% in cash (based upon the value of the shares
earned at the end of the performance cycle).
The first full performance cycle is from 1999 through 2001. The cycle
provides for target awards of 21,175 shares for the Chairman and Chief
Executive Officer, 10,500 shares for the President and Chief Operating
Officer and 6,000 shares for other executive officers of CVS.
To introduce the Plan and provide competitive total compensation
opportunities, a transitional ("bridge") cycle was implemented, covering
the calendar year 1999 payable the first quarter of 2000. Based on EPS
growth relative to the goal established at the beginning of 1999, actual
awards for this first cycle, which were stated as a dollar value versus
number of shares, were equal to 150% of target. Payments were made 50% in
CVS shares and 50% in cash. These amounts are reflected in the "All Other
Compensation" column of the Summary Compensation Table.
PARTNERSHIP EQUITY PROGRAM
The Partnership Equity Program was implemented for key management in
1997 as a major element in CVS' executive compensation program. The
Program is designed to ensure that those executives with significant
impact on the future success of CVS have a substantial "at risk" personal
equity investment in CVS common stock. The Committee believes that the
Program, along with stock ownership guidelines for officers, will strongly
link the economic interests of key managers with each
12
<PAGE>
other and with CVS stockholders, provide future long-term compensation
opportunities that are competitive in the external marketplace and that
reflect internal responsibility levels, and assure key management
stability, retention, motivation and long-term focus on corporate
strategy.
Under the Program, more than 50 key managers of CVS, including its
executive officers, were given the opportunity in 1997 and 1998 to invest
in common stock based on their position, responsibilities and potential
impact on the creation of long-term stockholder value. The purchase price
of shares (set at fair market value at the purchase date) was payable from
each participant's personal funds, without loans or guarantees by CVS,
including by application of certain payouts from other compensation
programs. For each share purchased (up to certain individual dollar
limits), the Committee made a matching grant of one deferred share; such
deferred shares vest (become non-forfeitable) at the end of five years if
the participant both retains the purchased share for that period and
continues to be employed by CVS, subject to accelerated vesting in certain
events. Furthermore, the Committee granted stock options at a rate of up
to 15 shares subject to option for each share purchased under the Program.
The options have an exercise price equal to fair market value on the date
of grant and vest in equal installments at the end of years three, four
and five following the grant date, again based on continued employment and
retention of the purchased shares, subject to accelerated vesting in
certain events.
In 1999, the program continued for newly hired key employees or newly
promoted senior executives. Participants from 1997 and 1998 continued to
have awards vest under the program, but no additional personal
contributions or awards were made.
The Committee does not consider stock holdings, prior option or
restricted stock grants, or the appreciation on those holdings or grants
when making option, restricted stock, Partnership Equity Program or
Long-Term Performance Share Plan award determinations.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Code generally disallows a tax deduction to
public companies for compensation over $1 million paid to a company's
chief executive officer and the other four most highly compensated
individuals who are executive officers as of the end of the year.
Qualifying performance-based compensation will not be subject to the
deduction limit if certain requirements are met.
The Committee's policy is to preserve corporate tax deductions by
qualifying compensation paid over $1 million to named executive officers
as performance based compensation. To this end, in 1997 the Board adopted
and stockholders approved the 1997 Incentive Compensation Plan, which
permits annual incentive awards and stock options (and certain other
awards) to qualify as performance based compensation not subject to the
limitation on deductibility. The Committee believes that stock options
granted under prior plans also qualify as performance based compensation
under Section 162(m), and other steps, such as deferral arrangements, can
be used to avoid or minimize any loss of deductibility. Nevertheless,
maintaining tax deductibility is but one consideration among many - and is
not the most important consideration - in the design of the compensation
program for senior executives. The Committee may, from time to time,
conclude that compensation arrangements are in the best interests of CVS
and is stockholders despite the fact that such arrangements might not, in
whole or in part, qualify for tax deductibility.
Terry R. Lautenbach, Chair Terrence Murray
Allan J. Bloostein Sheli Z. Rosenberg
13
<PAGE>
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table shows information about the
compensation received by CVS' Chief Executive Officer and each of the four
other most highly compensated executive officers of CVS during the 1999
fiscal year for services rendered to the Company in all capacities during
the three fiscal years ended January 1, 2000.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Long Term Compensation
----------------------
Awards
------
Annual Compensation
Restricted Securities All Other
Stock Awards Underlying Compensa-
Name and Principal Position(s) Year Salary($) Bonus($) ($)(1) Options(#)(2) tion ($)(3)
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Thomas M. Ryan (4) 1999 956,250 1,850,000 -- 150,000 1,510,483
Chairman of the Board and 1998 900,000 1,103,250 3,485,438 795,660 12,148
Chief Executive Officer 1997 700,000 1,052,950 1,710,000 391,320 7,072
Charles C. Conaway (4) 1999 637,500 995,345 -- 85,000 909,298
President and 1998 600,000 664,100 2,199,500 352,190 11,210
Chief Operating Officer 1997 500,000 670,310 1,146,900 304,360 7,050
David B. Rickard (5) 1999 191,667 792,448 -- 125,760 450,000
Executive Vice President and
Chief Financial Officer
Daniel C. Nelson (6) 1999 470,000 647,740 -- 25,000 459,748
Executive Vice President-- 1998 470,000 335,580 473,720 108,690 25,994
Marketing 1997 425,000 603,280 902,200 217,400 7,094
Larry J. Merlo 1999 465,000 725,000 -- 25,000 459,862
Executive Vice President-- 1998 450,000 321,200 737,325 165,220 11,887
Stores 1997 350,000 391,020 495,500 130,460 7,027
----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Recipients of restricted stock grants forfeit such stock if they cease to
be employees of CVS within five years from the date of grant, subject to
accelerated vesting in certain events. All disclosed restricted stock
awards currently outstanding are either (i) performance-based restricted
stock which is contingent upon meeting one year performance objectives and
subject to a three-year holding period from the date of grant, (ii)
restricted stock that vests over either a three or four year-period based
on continuing employment, or (iii) matching restricted stock units that
vest on the fifth anniversary of the date of the grant based on continuing
employment. Based on the number of shares of restricted stock earned at the
end of a period, dividends are paid at the same rate as paid to all
stockholders from the date of the award. On December 31, 1999, the last
trading day of CVS' fiscal 1999, the following persons had the right to
receive restricted stock with the specified market value based on the
average of the high and low sale prices of the common stock as reported by
the New York Stock Exchange on such date: Mr. Ryan, 156,012 restricted
shares having a market value of $6,133,222; Mr. Conaway, 103,036 restricted
shares having a market value of $4,050,603; Mr. Rickard, 10,796 restricted
shares having a market value of $424,418; Mr. Nelson, 47,629 restricted
shares having a market value of $1,872,415; and Mr. Merlo, 39,107
restricted shares having a market value of $1,537,394.
(2) Options outstanding have been adjusted to account for (i) the spin-off of
Footstar, Inc. on October 12, 1996 and (ii) CVS' two-for-one stock split on
June 15, 1998. Options granted in 1999 to Messrs. Ryan, Conaway, Nelson and
Merlo will become exercisable in three installments beginning on the second
anniversary of the grant; options granted in 1999 to Mr. Rickard will
become exercisable in three annual installments beginning on the third
anniversary of the grant date; options granted in 1998 to Messrs.
14
<PAGE>
Ryan and Merlo will become exercisable in three annual installments
beginning on the third anniversary of the grant; options granted in 1998 to
Mr. Conaway will become exercisable in two annual installments on the third
and fifth anniversaries of the grant. Options granted in 1997 become
exercisable in three annual installments beginning on the third anniversary
of the date of grant.
(3) For 1999, includes $3,334, $2,857, $2,400, $3,200 contributed under CVS'
401(k) match to the 401(k) Profit Sharing Plan for Messrs. Ryan, Conaway,
Nelson and Merlo; an estimated 31.483 ESOP shares based on a value of
$39.3125 per share (total value $2,864) contributed under the ESOP for each
of the named executives; an estimated 25.996 ESOP shares based on a market
value of $39.3125 per share (total value $2,365) attributable to the Profit
Sharing allocation made to the ESOP for each of the named executives; and
$1,920, $1,212, $2,119 and $1,432 paid in life insurance premiums for
Messrs. Ryan, Conaway, Nelson and Merlo, respectively. For 1999 also
includes 1999 Long-Term Performance Share Plan "bridge" period values of
$1,500,000, $900,000, $450,000, $450,000 and $450,000 for Messrs. Ryan,
Conaway, Rickard, Nelson and Merlo, respectively.
(4) In April 1999, Mr. Ryan succeeded the retiring Stanley Goldstein as
Chairman of the Board of CVS, and Mr. Conaway, formerly Executive Vice
President and Chief Financial Officer of CVS, became President and Chief
Operating Officer of CVS.
(5) Mr. Rickard joined CVS in September 1999.
(6) Mr. Nelson resigned from his position with the Company in February 2000.
15
<PAGE>
STOCK OPTIONS
OPTION GRANTS IN FISCAL YEAR ENDING JANUARY 1, 2000
The following table shows the stock options awarded to the named executive
officers in fiscal 1999.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Individual Grants(1)
---------------------------------------------------------------
No. of Percentage of Present
Securities Total Options Value on
Underlying Granted to Date of
Options Granted Employees in Exercise Grant(3)
Name (#) Fiscal Year(2) Price($) Expiration Date $
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Thomas M. Ryan 150,000 7.02% 50.00 3/10/2009 2,490,000
Charles C. Conaway 85,000 3.98% 50.00 3/10/2009 1,411,000
David B. Rickard 125,760(4) 5.88% 41.75 9/01/2009 2,087,616
Daniel C. Nelson 25,000 1.17% 50.00 3/10/2009 415,000
Larry J. Merlo 25,000 1.17% 50.00 3/10/2009 415,000
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) Except as otherwise indicated, these options become exercisable as follows:
50% on second anniversary of the grant date; 25% on third and fourth
anniversaries of the date of grant.
(2) Based on options to purchase 2,135,850 shares granted to all employees
during 1999.
(3) The hypothetical present values on grant date are calculated under the
modified Black-Scholes Model, which is a mathematical formula used to value
options traded on stock exchanges. The formula considers a number of
factors in hypothesizing an option's present value. Factors used to value
options granted which expire on 3/10/2009 include the stock's expected
volatility rate of 25.6%, a projected dividend yield of 0.52% and a
risk-free rate of return of 5.33%. Both grants assume a projected time of
exercise of 7 years and a projected risk of forfeiture rate for vesting
period of 5% per annum. There is no assurance that the hypothetical present
value of the stock options reflected in this table will be realized.
(4) Options granted to Mr. Rickard become exercisable in three annual
installments beginning on the third anniversary of the grant date.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR ENDING JANUARY 1, 2000 AND YEAR-END
OPTION VALUES
The following table shows, for the named executive officers, the
stock options exercised during fiscal 1999 and the values of unexercised options
as of January 1, 2000.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options at In-the-Money Options
Acquired Value Fiscal Year-End(#)(1) at Fiscal Year-End($)(2)
Name On Exercise(#) Realized($) Exercisable/Unexercisable Exercisable/Unexercisable
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Thomas M. Ryan 4,388 86,196 815,564/1,452,468 18,394,718/10,704,386
Charles C. Conaway 21,376 553,113 458,280/818,542 10,379,010/7,502,449
David B. Rickard 0 0 0/125,760 0/0
Daniel C. Nelson 11,000 406,383 437,248/428,082 9,905,820/5,570,066
Larry J. Merlo 0 0 169,998/349,552 3,825,259/3,151,047
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Adjusted to account for the spin-off of Footstar on October 12, 1996 and
CVS' two-for-one stock split on June 15, 1998.
(2) The value of unexercised in-the-money options at fiscal year-end assumes a
fair market value of the common stock of $39.3125, the average of the high
and low sale prices of the common stock as reported by the New York Stock
Exchange on December 31, 1999. The actual amount, if any, realized upon
exercise will depend upon the market price of the common stock at the time
of exercise. There is no assurance that the value of unexercised
in-the-money stock options will be as shown above.
16
<PAGE>
STOCK PERFORMANCE GRAPH
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL STOCKHOLDERS' RETURN AMONG CVS, S&P
RETAIL COMPOSITE AND S&P 500
The following graph shows changes over the past five-year period in
the value of $100 invested in: (1) our common stock; (2) Standard & Poor's
500 Index; and (3) Standard & Poor's Retail Composite Index (which
includes 37 retail companies).
CVS CORPORATION
COMPARISON OF CUMULATIVE TOTAL RETURN TO STOCKHOLDERS
DECEMBER 31, 1994 THROUGH DECEMBER 31, 1999
(GRAPH OMITTED)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Year End
--------------------------------------------------
1994 1995 1996 1997 1998 1999 Compound Annual
Return Rate
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CVS Corporation $100.0 $104 $164 $257 $443 $323 26.4%
S&P 500* 100.0 138 169 226 290 351 28.5%
S&P Retail Stores Composite* 100.0 112 132 191 308 373 30.1%
---------------------------------------------------------------------------------------------------------
</TABLE>
* Index includes CVS.
The year-end values of each investment shown in the preceding graph
are based on share price appreciation plus dividends, with the dividends
reinvested as of the last business day of the month during which such
dividends were ex-dividend. The calculations exclude trading commissions
and taxes. Total stockholder returns from each investment, whether
measured in dollars or percentages, can be calculated from the year-end
investment values shown beneath the graph.
17
<PAGE>
CERTAIN EXECUTIVE ARRANGEMENTS
CHANGE IN CONTROL POLICY
The Change in Control Policy for Select Senior Executives of CVS
provides that in the event of a change of control (as defined in the
Policy) and subsequent termination of employment by CVS other than for
cause, or by the executive with good reason (as defined in the Policy)
within 24 months of a change in control, the executive officers listed in
the Summary Compensation Table on page 14 will be entitled to receive from
CVS a single sum payment equal to three times the sum of the annual base
salary, plus their full normal annual incentive compensation immediately
prior to such termination of employment. In addition, upon such a
termination of employment, each covered executive will be entitled to
remain a participant in all employee welfare benefit plans maintained by
CVS at the time of such termination for a period of 24 months after such
termination (or if participation is not possible under the terms of any
such plan, each executive shall be provided with benefits comparable to
the coverage provided by such plan). The Policy also provides that in the
event of a change in control, each covered executive shall be fully vested
in all shares previously awarded to the executive under the Company's
incentive stock plans, without regard to any restrictions previously
imposed under the terms of such plans and will be entitled to exercise any
options on common stock (whether or not otherwise exercisable). Upon such
termination of employment each outstanding option shall remain exercisable
until the earlier of six months after termination, provided such exercise
does not violate terms of the plan under which the option was granted, or
the expiration of the option period specified in the plan. The Change in
Control Policy also provides that if payments under such Policy or the
Supplemental Executive Retirement Plan described below are subject to the
"golden parachute" excise tax under Section 4999 of the Code (which deals
with certain payments contingent on a change in control), CVS will make an
additional payment to the covered executive in respect of such tax.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
CVS maintains a Supplemental Executive Retirement Plan for Select
Senior Management of the Company (the "Supplemental Retirement Plan"). The
Supplemental Executive Retirement Plan is designed to increase the
retirement benefits of selected executive employees. In connection with
the Company's restructuring during 1996, the Supplemental Retirement Plan
was amended to create a new benefit formula (the "New Benefit Formula").
Under the New Benefit Formula, executives selected for participation
(including Messrs. Ryan, Conaway, Nelson, Merlo and certain other
executives) will receive an annual benefit commencing on the later of age
55 or retirement, equal to 1.6% of a three-year average of final
compensation (as defined in the Supplemental Retirement Plan) for each
year of service (including credited years of service under the
Supplemental Retirement Plan prior to amendment) up to 30 years, or a
maximum benefit of 48% of final compensation, with no offset for any
amounts provided by CVS' qualified plans, social security or other
retirement benefits. Except in the event of death or a change in control
(as defined) or as provided in the employment agreements referred to
below, no benefits are payable to an eligible executive until he or she
terminates employment. After termination of employment, benefits will be
payable (i) immediately, if the executive is age 55 or older at the time
of termination, regardless of years of service, or (ii) upon reaching age
55, if the executive is younger than 55 at the time of termination and
five or more years of Company service were completed prior to termination.
18
<PAGE>
The following table shows the approximate amounts of annual retirement
income that would be payable under the New Benefit Formula to executives
covered by it based on various assumptions as to compensation and years of
service, assuming benefits are computed under a straight life annuity
formula and retirement after attaining age 55 and meeting the service
requirements.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
ESTIMATED AMOUNT OF RETIREMENT BENEFITS BASED ON SERVICE
-----------------------------------------------------------------------------
COMPENSATION 5 YEARS 10 YEARS 15 YEARS 20 YEARS 30 YEARS
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 600,000 $ 48,000 $ 96,000 $144,000 $192,000 $ 288,000
-------------------------------------------------------------------------------------------------
$ 800,000 $ 64,000 $128,000 $192,000 $256,000 $ 384,000
-------------------------------------------------------------------------------------------------
$1,000,000 $ 80,000 $160,000 $240,000 $320,000 $ 480,000
-------------------------------------------------------------------------------------------------
$1,300,000 $104,000 $208,000 $312,000 $416,000 $ 624,000
-------------------------------------------------------------------------------------------------
$1,600,000 $128,000 $256,000 $384,000 $512,000 $ 768,000
-------------------------------------------------------------------------------------------------
$1,900,000 $152,000 $304,000 $456,000 $608,000 $ 912,000
-------------------------------------------------------------------------------------------------
$2,200,000 $176,000 $352,000 $528,000 $704,000 $1,056,000
-------------------------------------------------------------------------------------------------
</TABLE>
Final compensation for purposes of the New Benefit Formula is the
average of the executive's three highest years of annual salary and bonus
out of the last ten years of service. For this purpose, salary and bonus
are the amounts shown in the salary and bonus columns of the Summary
Compensation Table. The estimated credited years of benefit service for
Messrs. Ryan, Conaway, Nelson and Merlo as of December 31, 1999 were 24,
7, 6, and 21 years, respectively. Enhanced benefits are payable in a lump
sum upon termination of employment following a change in control.
The benefit formula in place prior to amendment of the Supplemental
Retirement Plan (the "Prior Benefit Formula") continues to apply to
certain other executives who have terminated employment with a vested
benefit. The Prior Benefit Formula provides that an executive officers
with at least 10 years of credited service will receive upon retirement at
or after age 60 an annual benefit equal to 50% of final compensation less
any amounts provided by other retirement programs of CVS or programs of
other companies (but without deduction for social security). In the case
of retirement at or after age 55 but before age 60, a reduced benefit is
provided. Except in the event of a change in control (as defined in the
Supplemental Retirement Plan) or as provided in the employment agreements
referred to below, no benefits are payable to an eligible executive who
terminates employment prior to age 55 or prior to completing 10 years of
credited service.
Under the Prior Benefit Formula, Mr. Goldstein was entitled to retire
with an annual benefit of approximately $777,590, computed under a
straight life annuity formula. Final compensation for purposes of the
Prior Benefit Formula is the final year of salary plus targeted annual
incentive bonus for his final year. In the event of a change in control,
benefits would be payable under the Prior Benefit Formula upon subsequent
termination of employment on a lump sum basis. In October 1998, Mr.
Goldstein elected to waive his rights to his accrued SERP benefit. In lieu
of the SERP benefit, CVS purchased split dollar life policies on the lives
of Mr. and Mrs. Goldstein and agreed to pay the premiums over the next 7
years with a guarantee of premium refund to CVS after 15 years.
Benefits under the New Benefit Formula and the Prior Benefit Formula
are generally payable in annual installments for the life of the
executive, but joint and survivors forms of payment of equivalent
actuarial value may be elected.
19
<PAGE>
EMPLOYMENT AGREEMENTS WITH NAMED EXECUTIVE OFFICERS
CVS has entered into employment agreements with Messrs. Ryan, Conaway,
Rickard, Nelson and Merlo. These employment agreements supersede the
Change in Control Policy, described above, as it relates to such
executives.
The employment agreements provide for an initial employment term of
three years, automatically renewed for a one-year term at the end of the
initial term and each one-year renewal term unless either party gives
notice of non-renewal at least 180 days prior to expiration of the then
current term. The employment agreements generally provide for payment of
an annual base salary, subject to review for increase at the discretion of
the Compensation Committee. Base salaries are, as of year end 1999,
$975,000, $650,000, $575,000, $470,000 and 470,000 for Messrs. Ryan,
Conaway, Rickard, Nelson and Merlo, respectively. The employment
agreements also generally provide for (i) continued payment of base
salary, target cash bonuses, and other benefits for 36 months in the case
of Mr. Ryan and for 24 months in the case of other named executive
officers (or a lump sum equal to three times salary plus target bonuses in
the case of a change in control) in the event the executive's employment
is terminated by CVS without "cause" or voluntarily by the executive due
to a "constructive termination without cause"; (ii) non-competition for a
period of 18 months subsequent to a voluntary termination of employment if
CVS elects to continue paying 50% of the executive's base salary during
such period; (iii) other restrictive covenants including nondisclosure,
non-solicitation of employees and availability for litigation support;
(iv) participation in certain benefit plans and programs (including life
insurance and medical benefits); (v) annual and long term incentive
compensation opportunities; and (vi) deferred compensation arrangements.
The employment agreements of the named executives also provide minimum
guidelines for target annual incentive opportunity as a percent of their
base salaries.
A "change in control" is defined to include a variety of events,
including significant changes in the stock ownership of CVS or a
significant subsidiary, changes in CVS' board of directors, certain
mergers and consolidations of CVS or a significant subsidiary, and the
sale or disposition of all or substantially all the consolidated assets of
CVS. "Constructive termination without cause" is defined generally as
demotion, reduction in compensation, unapproved relocation in the case of
Mr. Ryan (or, in the case of other named executive officers, following a
change in control), material breach of the employment agreement by CVS,
or, in the case of Mr. Ryan, failure to extend the term of the employment
agreement to his 60th birthday. "Cause" is defined generally as a breach
of the restrictive covenants, felony convictions, or willful gross neglect
or gross misconduct resulting in material harm to CVS.
If payments under the employment agreements following a change in
control are subject to the "golden parachute" excise tax, CVS will make a
"gross-up" payment sufficient to ensure that the net after-tax amount
retained by the executive (taking into account all taxes, including those
on the gross-up payment) is the same as if such excise tax had not
applied. CVS will indemnify the executives to the fullest extent permitted
by law, including advancing expenses, and will reimburse an executive for
expenses incurred in seeking enforcement of the employment agreement if he
prevails or, after a change in control, if the executive's assertion of
rights is in good faith and not frivolous.
The employment agreement with Mr. Ryan relates to his employment as an
executive officer of CVS Corporation and CVS Pharmacy, Inc., and his
agreement to serve as a director of CVS Corporation. The employment
agreements with Messrs. Conaway, Rickard, Nelson and Merlo relate to their
employment as executive officers of CVS Corporation.
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TRANSACTIONS WITH DIRECTORS AND OFFICERS
In connection with the CVS/Arbor merger, in March 1998 CVS entered
into a five year consulting agreement with Mr. Eugene Applebaum, the
former Chairman and Chief Executive Officer of Arbor and a present
director of CVS. Under the consulting agreement, Mr. Applebaum provides
consulting services to CVS with respect to certain real estate matters and
other mutually agreeable matters. For his services, Mr. Applebaum receives
consulting fees of $450,000 per year. Mr. Applebaum also receives a
payment of $25,000 upon the opening, relocation or acquisition of each
store in Michigan or the Toledo metropolitan area during the term of the
agreement. Additionally, during the term of the agreement, CVS provides
office space, secretarial and support services, and a U.S. automobile
comparable to those provided by Arbor to Mr. Applebaum at the time of the
merger. CVS also reimburses Mr. Applebaum for all reasonable business
expenses incurred by him in connection with carrying out CVS' business.
Pursuant to the consulting agreement, CVS has paid for health insurance
benefits available to Mr. Applebaum and his spouse under his Arbor change
in control agreement for two years after the CVS/Arbor merger (through
March 31, 2000). Thereafter, CVS will continue to provide such health
insurance benefits to Mr. Applebaum and his spouse until their deaths, but
Mr. Applebaum and his spouse will be responsible for the costs of
maintaining such coverage. CVS has agreed to indemnify and hold Mr.
Applebaum harmless against all cost, expense, liability and loss relating
to his consulting services, to the same extent as CVS indemnifies its
other directors and senior executive officers.
Upon completion of the CVS/Arbor merger, CVS succeeded to Arbor's
interests in three drugstores that leased space from a general partnership
of which Mr. Applebaum is the majority partner. During 1999, CVS lease
payments to this partnership were approximately $305,000. In September
1999, the partnership sold two of these properties to CVS for an aggregate
purchase price of $3,300,000, and sold the third property to an entity
unaffiliated with CVS or Mr. Applebaum. Also as a result of the merger,
CVS succeeded to Arbor's interest in a fourth drugstore that leased space
from a partnership of which Mr. Applebaum is a limited partner. During
1999, CVS lease payments to this partnership amounted to approximately
$58,500. In November 1999, CVS paid the partnership $125,000 to terminate
this lease in connection with the relocation of the drugstore. Finally, as
a result of the merger, CVS succeeded to Arbor's interest in a fifth
drugstore that leases space from a limited liability company in which Mr.
Applebaum's son-in-law owns a minority interest. During 1999, payments to
the limited liability company amounted to approximately $16,000 (occupancy
commenced in November 1999 at an annual rent of $179,700).
In addition, Messrs. Eugene and Lawrence Goldstein, the sons of
Stanley Goldstein, a director of the Company, each own minority interests
in entities involved in the lease or development of five CVS drugstores.
These interests are described more fully in the paragraph below.
CVS has entered into a single store lease with a limited liability
company of which Messrs. Eugene and Lawrence Goldstein each own 30%.
During 1999 CVS lease payments to this limited liability company amounted
to approximately $103,000 (occupancy commenced in June 1999 at an annual
rent of $179,550). In 1999 CVS also entered into a single-store lease with
a company of which Messrs. Eugene and Lawrence Goldstein together own a
20% interest. CVS estimates that annual rent under this lease will be
approximately $501,000 and will commence in early- to mid-2000. In
addition, three companies in which Messrs. Eugene and Lawrence Goldstein
own minority interests have each agreed to develop a CVS store project for
a fixed fee. The companies will not retain an ownership interest in these
store projects. The aggregate fees paid by CVS to these companies in 1999
were $300,000 plus expenses. An additional $325,000 is expected to be paid
to these companies in 2000 or 2001. All of the transactions described in
this paragraph were approved in the ordinary course of business by the
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CVS real estate committee and were reviewed by our Audit Committee.
Consequently, CVS believes that the terms of these transactions were
determined in an arms-length manner.
ITEM 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
We have appointed KPMG LLP, independent public accountants, to audit
the financial statements of the Company for the year ending December 30,
2000. We are submitting this selection to you for your approval. KPMG
audited the Company's financial statements for the fiscal year ended
January 1, 2000. Representatives of KPMG will be at the Annual Meeting to
answer your questions.
If you do not ratify the appointment of KPMG LLP, the Board of
Directors will reconsider its appointment.
The Board of Directors recommends a vote FOR this proposal.
ITEM 3: OTHER MATTERS
- --------------------------------------------------------------------------------
We do not know of any matters to be acted upon at the meeting other
than those discussed in this proxy statement. If any other matter is
presented, your proxy will vote on the matter in his or her best judgment.
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors (for purposes of this
report, the "Committee") is composed of four independent outside
directors. The Committee has prepared the following report on its
activities with respect to the Company's audited financial statements for
the fiscal year ended January 1, 2000 (the "audited financial
statements").
|X| The Committee has reviewed and discussed the audited financial
statements with management;
|X| The Committee has discussed with KPMG LLP, the Company's
independent auditors, the matters required to be discussed by
Statements on Auditing Standards No. 61;
|X| The Committee has received the written disclosures and the letter
from KPMG required by Independence Standards Board Standard No.
1, and has discussed with KPMG its independence from the Company;
and
|X| Based on the review and discussions referred to above and relying
thereon, the Committee has recommended to the Board of Directors
that the audited financial statements be included in the
Company's Annual Report on Form 10-K for the fiscal year ended
January 1, 2000, for filing with the U.S. Securities and Exchange
Commission.
William H. Joyce, Chair
W. Don Cornwell
Thomas P. Gerrity
Marian L. Heard
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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the 1934 Act requires our executive officers and
directors and any persons who own more than 10 percent of our common stock
("reporting persons") to file reports of ownership and changes in
ownership on Forms 3, 4 and 5 with the SEC and the New York Stock Exchange
("NYSE"). These reporting persons are required by SEC regulation to
furnish us with copies of all Forms 3, 4 and 5 that they file with the SEC
and NYSE.
Mr. Murray filed a Form 4 two business days late in December 1999,
and amended the same Form 4 in February 2000. The Form 4 reported
November 1999 acquisitions of CVS stock by Mr. Murray and two related
entities.
PROXY SOLICITATION
We are soliciting this proxy on behalf of our Board of Directors and
will bear the solicitation expenses. We are making this solicitation by
mail but we may also solicit by telephone, telegraph or in person. We have
hired Morrow & Co. Inc. for a customary fee, plus out-of-pocket expenses,
to assist in the solicitation. We will reimburse banks, brokerage houses
and other institutions, nominees and fiduciaries, if they request, for
their expenses in forwarding proxy materials to beneficial owners.
STOCKHOLDERPROPOSALS FOR OUR ANNUAL MEETING IN 2001
If you want to submit a proposal for possible inclusion in our proxy
statement for the 2001 annual meeting of stockholders, you must ensure
your proposal is received by us on or before November 10, 2000.
Thomas M. Ryan
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
March 9, 2000
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EXHIBIT A
CVS Audit Committee Charter
<PAGE>
CVS AUDIT COMMITTEE CHARTER
I. STATEMENT OF POLICY
A. The Board of Directors (the "Board") of CVS Corporation ("CVS"
or the "Corporation") has oversight responsibilities with
respect to the Corporation's maintenance of an adequate system
of internal control and financial reporting. Through this
charter, the Board delegates certain duties and
responsibilities to its Audit Committee (the "Committee") to
assist it in fulfilling these responsibilities.
B. The Board recognizes that an informed and vigilant Audit
Committee represents an effective influence for ensuring
adequate internal controls and accurate and complete financial
reporting. The members of the Committee are expected to
discharge their duties with the same good faith, diligence,
care and skill exercised in performing their duties as
Directors of the Corporation.
II. ORGANIZATION AND GENERAL
A. The Committee will consist of at least three independent
directors of the Corporation. To be considered independent, a
member must be a non-management director, free from any
relationship that, in the opinion of the Board, would
interfere with the exercise of independent judgment as a
Committee member. As a minimum, members of the Committee:
1. Must not be, or have been, employed by CVS or its
affiliates for any of the past six (6) years.
2. Must be compensated only for Board services and or
benefit under a tax qualified retirement plan.
3. Must not be an immediate family member of an
individual who is, or who has been, an executive
officer of CVS or its affiliates in any of the last
five years.
4. Must not be a partner in, or a controlling shareholder
or an executive officer of, any organization which has
a business relationship with CVS or has had a business
relationship in any of the last three (3) years.
5. Must not be an executive of another company where any
of CVS' executives serve on that company's
compensation committee.
B. Members will be, or shortly will become, financially literate.
Financial literacy will be defined by the Board.
C. At least one member will have accounting or related financial
management expertise, as defined by the Board.
D. The Committee shall have a Chairman, appointed by the Board. A
record of the Committee's proceedings will be kept.
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E. The Committee shall meet sufficiently often to review the
annual and quarterly financial statements, the activities and
reports of the internal auditor and the independent auditor,
and other matters requiring consideration by the Committee.
The Committee's Chairman may call other meetings during the
year as necessary.
F. The Committee shall have the power to adopt its own operating
rules and procedures and to call upon assistance from officers
and employees of the Corporation. The Committee shall report
its activities to the full Board following each meeting of the
Committee to keep the Board informed of Committee activities
and findings on a current basis.
III. OBJECTIVES
A. The primary responsibilities of the Committee are to:
1. Oversee the financial reporting process and internal
control systems.
2. Oversee the audit function, both independent and
internal.
3. Oversee the annual consolidated financial statements
and quarterly financial statements are prepared in
accordance with GAAP.
4. Oversee and supervise special investigations.
5. Recommend to the Board the appointment of independent
auditors and annually evaluate their independence.
6. Review compliance with the Corporate Code of Conduct.
7. Approve audit plan of internal audit group.
8. Annually review and assess the adequacy of this
charter, amend it as appropriate, and seek and receive
Board approval of the proposed changes.
IV. AUTHORITY
A. To discharge its oversight responsibilities effectively, the
Committee will maintain open lines of communication with the
Chief Financial Officer, chief internal auditor, and with the
Corporation's independent auditors, each of whom will have
free and direct access to the Committee. The Committee has the
authority to institute, at its discretion, investigations of
suspected improprieties; including the standing authority to
retain special counsel or experts.
V. DUTIES AND RESPONSIBILITIES
A. Oversight of Internal Controls
The Committee shall provide supervisory oversight for and
review the adequacy of the development and maintenance of the
system of internal controls. These controls should be designed
to assure that assets are safeguarded, transactions are
authorized, and that transactions are properly recorded.
Senior management, the chief internal auditor, or the
independent auditors may be called on to discuss the control
systems and changes thereto as may be needed.
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B. Review of Internal Audit
1. The Committee shall review the annual internal audit
plan with the chief internal auditor. The review shall
focus on the scope and effectiveness of internal audit
activities and the department's capability to fulfill
its objectives. The Committee shall insure the extent
to which the planned audit scope can be reasonably
relied upon to detect weaknesses in internal controls.
2. Significant findings by the internal audit staff and
management's responses should be reviewed.
3. The Committee shall review instances of remedial
action not being taken by management within
appropriate timeframes.
4. The Committee shall periodically meet privately with
the chief internal auditor and with the independent
auditor as considered appropriate.
C. Independent Auditors
1. Management shall recommend to the Committee the
selection, retention, or change in the Corporation's
independent auditor. The Committee shall, after due
consideration of management's recommendations, make
its recommendation to the Board concerning the
selection, retention, or change of the independent
auditor. The independent auditor is accountable to the
Board and the Committee. The Board and the Committee
are authorized and responsible for selecting,
evaluating, and where appropriate, replacing the
outside auditor.
2. The independence and objectivity of the independent
auditor shall be reviewed annually with management
and with the independent auditor. To assist the
Committee, management shall inform the Committee of
all plans to engage the independent auditor to
perform management advisory services or other
non-audit services for the Corporation, when the
annual costs of such services exceed or can
reasonably be expected to exceed the limits
established by the Committee.
3. The Committee shall meet with the independent auditor
prior to the audit examination to discuss the audit
plan, including the scope, staffing and timing of the
audit, extent of coordination with internal audit, and
discussion of prior audit issues and consideration of
other issues that may be expected during the upcoming
audit.
4. The Committee shall meet with the independent auditors
subsequent to each audit to review any significant
auditing or accounting issues encountered during the
audit, and the level of support provided by the
Corporation's accounting and internal audit staffs.
The independent auditor will also review with the
Committee any audit findings concerning the adequacy
of the system of internal controls and compliance
therewith, including the responses provided by
management of any such findings.
5. The Committee shall obtain from management a
description of issues and responses whenever a second
opinion is sought from another independent public
accountant.
6. The Committee will obtain an annual written statement
from the independent auditor delineating all
relationships between the auditor and the Corporation.
The Committee will also discuss any relationships that
may impair the auditor's
A-3
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independence and take such actions, or make
recommendations to the Board regarding actions to be
taken to remedy such impairment.
D. Oversight of Financial Reporting
1. The annual audited financial statements and quarterly
financial reports of the Corporation shall be reviewed
by the Committee. The purposes of the review shall be
to evaluate the financial reporting process to
reasonably assure that the financial statements fairly
present the financial position and results of
operations of the corporation in accordance with
generally accepted accounting principles, consistently
applied. The Committee shall inquire as to the
following:
a) Significant variations in financial information
between reporting periods.
b) Changes in accounting standards or rules promulgated
by the Financial Accounting Standards Board or the
U.S. Securities and Exchange Commission that have an
impact on the financial statements.
c) Estimates made by management having a material impact
on the financial statements.
d) Changes in accounting principles adopted by the
Corporation which have a significant impact on the
financial statements.
E. Other
1. The Committee will comply with all regulations of the
U.S. Securities and Exchange Commission and the New
York Stock Exchange as they relate to disclosures and
corporate governance.
2. The Committee shall review annually management's plan
for determining compliance with the Corporate Code of
Conduct.
3. Review significant cases of employee conflict of
interest, misconduct, or fraud.
4. Review the annual report from the internal auditors
covering their review of the officers' travel and
entertainment expenses.
5. Where appropriate and indispensable to protect the
assets of the Corporation and the interests of the
stockholders, the Committee shall have the authority
to engage adequate resources and have standing
authority to initiate investigations, including the
authority to retain counsel or other outside experts.
6. Where appropriate the Corporation's general counsel
and outside counsel will be asked to meet with the
Committee. Matters that may have a significant impact
on the financial statements will be reviewed.
7. Periodically review fees paid for external audit
services and other consulting fees.
Approved by the Board of Directors
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<PAGE>
CVS CORPORATION
ANNUAL MEETING OF STOCKHOLDERS OF CVS CORPORATION,
WEDNESDAY, APRIL 19, 2000 AT 10:00 A.M. EST
CVS HEADQUARTERS, ONE CVS DRIVE, WOONSOCKET, RHODE ISLAND,
THIS PROXY IS BEING SOLICITED BY THE CVS BOARD OF DIRECTORS
The undersigned hereby appoints each of Thomas M. Ryan and Ivan G.
Seidenberg as the undersigned's proxies, each with full power to act
without the other and with full power of substitution, to vote, as
indicated on all matters referred to on the reverse side of this card
and described in the proxy statement, all shares of common stock of CVS
which the undersigned would be entitled to vote if present at the
Annual Meeting and at any adjournments or postponements thereof.
ADDITIONAL VOTING INSTRUCTIONS FOR CERTAIN CVS EMPLOYEES: To the extent
the undersigned is a participant in the CVS Corporation and
Subsidiaries Employee Stock Ownership Plan (the "ESOP") and/or the CVS
Corporation and Subsidiaries 401(k) Profit Sharing Plan, (the "Profit
Sharing Plan"), the undersigned hereby instructs The Bank of New York:
(i) as trustee under the ESOP, to vote, as indicated on the reverse
side, all shares of Series One Convertible ESOP Preference Stock of CVS
held in the ESOP, and (ii) as administrator of the Profit Sharing Plan,
to vote, as indicated on the reverse side, all shares of CVS common
stock held in the Profit Sharing Plan, in each case as to which the
undersigned would be entitled to give voting instructions if present at
the Meeting.
The undersigned hereby ratifies and confirms all that each of the
proxies and/or The Bank of New York may lawfully do in the premises,
and hereby revokes all proxies (or voting instructions in the case of
Plan shares) previously given by the undersigned to vote at the Meeting
and at any adjournments or postponements thereof. The undersigned
acknowledges receipt of the notice of and the proxy statement for the
Meeting.
THE BOARD RECOMMENDS A VOTE "FOR" ITEMS 1 AND 2 DESCRIBED ON THE
REVERSE SIDE OF THIS CARD.
TO VOTE IN ACCORDANCE WITH THE BOARD'S RECOMMENDATIONS, JUST SIGN ON
THE REVERSE SIDE; NO BOXES NEED TO BE MARKED. IF THIS PROXY (OR VOTING
INSTRUCTIONS, IN THE CASE OF PLAN SHARES) IS EXECUTED BUT NO
INSTRUCTIONS ARE GIVEN AS TO ANY ITEMS SET FORTH IN THIS PROXY, THIS
PROXY WILL BE VOTED FOR ITEMS 1 AND 2 DESCRIBED ON THE REVERSE SIDE OF
THIS CARD.
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED ON THE REVERSE SIDE)
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1 AND 2. TO VOTE IN
ACCORDANCE WITH THE BOARD'S RECOMMENDATIONS, JUST SIGN BELOW; NO BOXES
NEED TO BE CHECKED.
Item 1. Election of 11 directors
FOR / / WITHHOLD / / EXCEPTIONS / /
Nominees: Eugene Applebaum, W. Don Cornwell, Thomas P. Gerrity, Stanley
P. Goldstein, Marian L. Heard, William H. Joyce, Terry R. Lautenbach,
Terrence Murray, Sheli Z. Rosenberg, Thomas M. Ryan, Ivan G.
Seidenberg.
(INSTRUCTIONS: TO WITHHOLD AUTHORITY FOR ANY INDIVIDUAL NOMINEE, MARK
THE "EXCEPTIONS" BOX AND WRITE THAT NOMINEE'S NAME IN THE SPACE
PROVIDED BELOW.)
-------------------------------------------------------------
/ / FOR all nominees, except as noted above.
Item 2. Proposal to ratify the appointment of KPMG LLP as CVS'
independent auditors for the year ending December 30, 2000.
FOR / / AGAINST / / ABSTAIN / /
Other Matters. In their discretion, Messrs. Ryan and Seidenberg, as
proxies, and/or The Bank of New York, as trustee or administrator, are
authorized to vote in accordance with their judgment upon such other
business as may properly come before the Meeting.
THIS PROXY (OR VOTING INSTRUCTIONS, IN THE CASE OF PLAN SHARES) WHEN
PROPERLY EXECUTED AND RETURNED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). This Proxy is solicited on
behalf of the Board of Directors. Please mark, sign, date and return
this proxy card using the enclosed prepaid envelope. This Proxy must be
returned for your shares to be voted at the Meeting in accordance with
your instructions if you do not plan to attend the Meeting and vote in
person. Please indicate any change in address.
Please sign exactly as the name appears on this proxy card. Joint
owners should each sign. When signing as an attorney, executor,
administrator, trustee or guardian, please give your full title.
Date____________________________________, 2000
Signature:_____________________________________
Votes must be indicated (x) in black or blue ink.
