Employment Agreement for Douglas A. Sgarro

EMPLOYMENT AGREEMENT

AGREEMENT, made and entered into as of the 10th day of October, 1997 by and between CVS Corporation, a Delaware corporation (together with its successors and assigns, the “Company”), and Douglas A. Sgarro (the “Executive”).

W I T N E S S E T H:

WHEREAS, the Company desires to employ the Executive pursuant to an agreement embodying the terms of such employment (this “Agreement”) and the Executive desires to enter into this Agreement and to accept such employment, subject to the terms and provisions of this Agreement;

NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the receipt of which is mutually acknowledged, the Company and the Executive (individually a “Party” and together the “Parties”) agree as follows:

1 .                                     Definitions .

(a)                                   “Approved Early Retirement” shall have the meaning set forth in Section 10(f) below.

(b)                                  “Base Salary” shall have the meaning set forth in Section 4 below.

(c)                                   “Board” shall have the meaning set forth in Section 3(a) below.

(d)                                  “Cause” shall have the meaning set forth in Section 10(b) below.

(e)                                   “Change in Control” shall have the meaning set forth in Section 10(c) below.

(f)                                     “Committee” shall have the meaning set forth in Section 4 below.

(g)                                  “Confidential Information” shall have the meaning set forth in Section 11(c) below.

(h)                                  “Constructive Termination Without Cause” shall have the meaning set forth in Section 10(c) below.

(i)                                      “Effective Date” shall have the meaning set forth in Section 2(a) below.

(j)                                      “Normal Retirement” shall have the meaning set forth in Section 10(f) below.

(k)                                   “Original Term of Employment” shall have the meaning set forth in Section  2(a) below.

(l)                                      “Renewal Term” shall have the meaning set forth in Section 2(a) below.

(m)                                “Restriction Period” shall have the meaning set forth in Section 12(b) below.

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(n)                                  “Severance Period” shall have the meaning set forth in Section 10(c)(ii) below, except as provided otherwise in Section 10(e) below.

(o)                                  “Subsidiary” shall have the meaning set forth in Section 11(d) below.

(p)                                  “Term of Employment” shall have the meaning set forth in Section 2(a) below.

(q)                                  “Termination Without Cause” shall have the meaning set forth in Section 10(c) below.

2.             Term of Employment .

(a)           The term of the Executive’s employment under this Agreement shall commence on the date of this Agreement (the “Effective Date”) and end on the third anniversary of such date (the “Original Term of Employment”), unless terminated earlier in accordance herewith.  The Original Term of Employment shall be automatically renewed for successive one-year terms (the “Renewal Terms”) unless at least 180 days prior to the expiration of the Original Term of Employment or any Renewal Term, either Party notifies the other Party in writing that he or it is electing to terminate this Agreement at the expiration of the then current Term of Employment.  “Term of Employment” shall mean the Original Term of Employment and all Renewal Terms.  If a Change in Control shall have occurred during the Term of Employment, notwithstanding any other provision of this Section 2(a), the Term of Employment shall not expire earlier than two years after such Change in Control.

(b)           Notwithstanding anything in this Agreement to the contrary, at least one year prior to the expiration of the Original Term of Employment, upon the written request of the Company or the Executive, the Parties shall meet to discuss this Agreement and may agree in writing to modify any of the terms of this Agreement.

3.             Position, Duties and Responsibilities .

(a)           Generally .  Executive shall serve as a senior officer of the Company.  Executive shall have and perform such duties, responsibilities, and authorities as shall be specified by the Company from time to time and as are customary for a senior officer of a publicly held corporation of the size, type, and nature of the Company as they may exist from time to time and as are consistent with such position and status.  Executive shall devote substantially all of his business time and attention (except for periods of vacation or absence due to illness), and his best efforts, abilities, experience, and talent to his position and the businesses of the Company.

(b)           Other Activities .  Anything herein to the contrary notwithstanding, nothing in this Agreement shall preclude the Executive from (i) serving on the boards of directors of a reasonable number of other corporations or the boards of a reasonable number of trade associations and/or charitable organizations, (ii) engaging in charitable activities and community affairs, and (iii) managing his personal investments and affairs, provided that such activities do not materially interfere with the proper performance of his duties and responsibilities under this Agreement.

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(c)           Place of Employment.   Executive’s principal place of employment shall be the corporate offices of the Company.

4.             Base Salary .

The Executive shall be paid an annualized salary (“Base Salary”), payable in accordance with the regular payroll practices of the Company, of not less than $315,000, subject to review for increase at the discretion of the Compensation Committee (the “Committee”) of the Company’s Board of Directors (the “Board”).

5.             Annual Incentive Awards .

The Executive shall participate in the Company’s annual incentive compensation plan with a target annual incentive award opportunity of no less than 50% of Base Salary.  Payment of annual incentive awards shall be made at the same time that other senior-level executives receive their incentive awards.

6.             Long-Term Incentive Programs .

The Executive shall be eligible to participate in the Company’s long-term incentive compensation programs (including stock options and stock grants).

7.             Employee Benefit Programs .

(a)           General Benefits.   During the Term of Employment, the Executive shall be entitled to participate in such employee pension and welfare benefit plans and programs of the Company as are made available to the Company’s senior-level executives or to its employees generally, as such plans or programs may be in effect from time to time, including, without limitation, health, medical, dental, long-term disability, travel accident and life insurance plans.

(b)           Deferral of Compensation .  The Company shall implement deferral arrangements, reasonably acceptable to Executive and the Company, permitting Executive to elect to defer receipt, pursuant to written deferral election terms and forms (the “Deferral Election Forms”), of all or a specified portion of (i) his annual Base Salary and annual incentive compensation under Sections 4 and 5, (ii) long term incentive compensation under Section 6 and (iii) shares acquired upon exercise of options to purchase Company common stock that are acquired in an exercise in which Executive pays the exercise price by the surrender of previously acquired shares, to the extent of the net additional shares otherwise issuable to Executive in such exercise; provided , however, that such deferrals shall not reduce Executive’s total cash compensation in any calendar year below the sum of (i) the FICA maximum taxable wage base plus (ii) the amount needed, on an after-tax basis, to enable Executive to pay the 1.45% Medicare tax imposed on his wages in excess of such FICA maximum taxable wage base.

In accordance with such duly executed Deferral Election Forms, the Company shall credit to a bookkeeping account (the “Deferred Compensation Account”) maintained for Executive on the respective payment date or dates, amounts equal to the compensation subject to deferral, such credits to be denominated in cash if the compensation would have been paid in cash but for the deferral or in shares if the compensation would have been paid in shares but for the deferral.  An amount of cash equal in value to all cash-denominated amounts credited to Executive’s account and a number of shares of Company common stock equal to the number of shares credited to

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Executive’s account pursuant to this Section 7(b) shall be transferred as soon as practicable following such crediting by the Company to, and shall be held and invested by, an independent trustee selected by the Company and reasonably acceptable to Executive (a “Trustee”) pursuant to a “rabbi trust” established by the Company in connection with such deferral arrangement and as to which the Trustee shall make investments based on Executive’s investment objectives (including possible investment in publicly traded stocks and bonds, mutual funds, and insurance vehicles).  Thereafter, Executive’s deferral accounts will be valued by reference to the value of the assets of the “rabbi trust”.  The Company shall pay all costs of administration or maintenance of the deferral arrangement, without deduction or reimbursement from the assets of the “rabbi trust.”

Except as otherwise provided under Section 10, in the event of Executive’s termination of employment with the Company or as otherwise determined by the Committee in the event of hardship on the part of Executive, upon such date(s) or event(s) set forth in the Deferral Election Forms (including forms filed after deferral but before settlement in which Executive may elect to further defer settlement), the Company shall promptly pay to Executive cash equal to the value of the assets then credited to Executive’s deferral accounts, less applicable withholding taxes, and such distribution shall be deemed to fully settle such accounts; provided, however , that the Company may instead settle such accounts by directing the Trustee to distribute Company common stock and/or other assets of the “rabbi trust.” The Company and Executive agree that compensation deferred pursuant to this Section 7(b) shall be fully vested and nonforfeitable; however , Executive acknowledges that his rights to the deferred compensation provided for in this Section 7(b) shall be no greater than those of a general unsecured creditor of the Company, and that such rights may not be pledged, collateralized, encumbered, hypothecated, or liable for or subject to any lien, obligation, or liability of Executive, or be assignable or transferable by Executive, otherwise than by will or the laws of descent and distribution, provided that Executive may designate one or more beneficiaries to receive any payment of such amounts in the event of his death.

8.             Disability .

(a)           During the Term of Employment, as well as during the Severance Period, the Executive shall be entitled to disability coverage as described in this Section 8(a).  In the event the Executive becomes disabled, as that term is defined under the Company’s Long-Term Disability Plan, the Executive shall be entitled to receive pursuant to the Company’s Long-Term Disability Plan or otherwise, and in place of his Base Salary, an amount equal to 60% of his Base Salary, at the annual rate in effect on the commencement date of his eligibility for the Company’s long-term disability benefits (“Commencement Date”) for a period beginning on the Commencement Date and ending with the earlier to occur of (A) the Executive’s attainment of age 65 or (B) the Executive’s commencement of retirement benefits from the Company in accordance with Section 10(f) below.  If (i) the Executive ceases to be disabled during the Term of Employment (as determined in accordance with the terms of the Long-Term Disability Plan), (ii) his position or another senior executive position is then vacant and (iii) the Company requests in writing that he resume such position, he may elect to resume such position by written notice to the Company within 15 days after the Company delivers its request.  If he resumes such position, he shall thereafter be entitled to his Base Salary at the annual rate in effect on the Commencement Date and, for the year he resumes his position, a pro rata annual incentive award.  If he ceases to be disabled during the Term of Employment and does not resume his position in accordance with the preceding sentence, he shall be treated as if he voluntarily terminated his employment pursuant to Section 10(d) as of the date the Executive ceases to be disabled.  If the Executive is not offered his position or another senior executive position after he ceases to be disabled during the Term of Employment, he shall

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be treated as if his employment was terminated Without Cause pursuant to Section 10(c) as of the date the Executive ceases to be disabled ; provided , however , that if a Change in Control shall have occurred during the period of the Executive’s disability, he shall be treated as if his employment was terminated Without Cause following a Change in Control pursuant to Section 10(e) as of the date the Executive ceases to be disabled.

(b)           The Executive shall be entitled to a pro rata annual incentive award for the year in which the Commencement Date occurs based on 50% of Base Salary paid to him during such year prior to the Commencement Date, payable in a lump sum not later than 15 days after the Commencement Date.  The Executive shall not be entitled to any annual incentive award with respect to the period following the Commencement Date.  If the Executive recommences his position in accordance with Section 8(a), he shall be entitled to a pro rata annual incentive award for the year he resumes such position and shall thereafter be entitled to annual incentive awards in accordance with Section 5 thereof.

(c)           During the period the Executive is receiving disability benefits pursuant to Section 8(a) above, he shall continue to be treated as an employee for purposes of all employee benefits and entitlements in which he was participating on the Commencement Date, including without limitation, the benefits and entitlements referred to in Sections 6 and 7 above, except that the Executive shall not be entitled to receive any annual salary increases or any new long-term incentive plan grants following the Commencement Date.

9.             Reimbursement of Business and Other Expenses .

The Executive is authorized to incur reasonable expenses in carrying out his duties and responsibilities under this Agreement, and the Company shall promptly reimburse him for all business expenses incurred in connection therewith, subject to documentation in accordance with the Company’s policy.  During the Term of Employment, the Company shall reimburse the Executive, upon demand, for out-of-pocket expenses incurred in connection with personal financial and tax planning up to a maximum of $15,000 per annum.  The Company shall pay or reimburse the Executive for the expenses (including, without limitation, reasonable attorneys’ fees and expenses) incurred by him in conjunction with preparation and negotiation of this Agreement and any related documents up to a maximum of $10,000.

10.           Termination of Employment .

(a)           Termination Due to Death.   In the event the Executive’s employment with the Company is terminated due to his death, his estate or his beneficiaries, as the case may be, shall be entitled to and their sole remedies under this Agreement shall be:

(i)                                      Base Salary through the date of death, which shall be paid in a cash lump sum not later than 15 days following the Executive’s death;

(ii)                                   pro rata annual incentive award for the year in which the Executive’s death occurs assuming that the Executive would have received an award equal to 50% of Base Salary for such year, which shall be payable in a cash lump sum promptly (but in no event later than 15 days) after his death;

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(iii)                                elimination of all restrictions on any restricted or deferred stock awards outstanding at the time of his death (other than awards under the Company’s Partnership Equity Program, which shall be governed by the terms of such awards);

(iv)                               immediate vesting of all outstanding stock options and the right to exercise such stock options for a period of one year following death  or for the remainder of the exercise period, if less (other than awards under the Company’s Partnership Equity Program, which shall be governed by the terms of such awards);

(v)                                  the balance of any incentive awards earned as of December 31 of the prior year (but not yet paid), which shall be paid in a cash lump sum not later than 15 days following the Executive’s death;

(vi)                               settlement of all deferred compensation arrangements in accordance with any then applicable deferred compensation plan or election form; and

(vii)                            other or additional benefits then due or earned in accordance with applicable plans and programs of the Company.

(b)           Termination by the Company for Cause .

(i)                                      “Cause” shall mean:

(A)                               the Executive’s willful and material breach of Sections 11, 12 or 13 of this Agreement;

(B)                                 the Executive is convicted of a felony involving moral turpitude; or

(C)                                 the Executive engages in conduct that constitutes willful gross neglect or willful gross misconduct in carrying out his duties under this Agreement, resulting, in either case, in material harm to the financial condition or reputation of the Company.

For purposes of this Agreement, an act or failure to act on Executive’s part shall be considered “willful” if it was done or omitted to be done by him not in good faith, and shall not include any act or failure to act resulting from any incapacity of Executive.

(ii)                                   A termination for Cause shall not take effect unless the provisions of this paragraph (ii) are complied with.  The Executive shall be given written notice by the Company of its intention to terminate him for Cause, such notice (A) to state in detail the particular act or acts or failure or failures to act that constitute the grounds on which the proposed termination for Cause is based and (B) to be given within 90 days of the Company’s learning of such act or acts or failure or failures to act.  The Executive shall have 20 days after the date that

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such written notice has been given to him in which to cure such conduct, to the extent such cure is possible.  If he fails to cure such conduct, the Executive shall then be entitled to a hearing before the Committee of the Board at which the Executive is entitled to appear.  Such hearing shall be held within 25 days of such notice to the Executive, provided he requests such hearing within 10 days of the written notice from the Company of the intention to terminate him for Cause.  If, within five days following such hearing, the Executive is furnished written notice by the Board confirming that, in its judgment, grounds for Cause on the basis of the original notice exist, he shall thereupon be terminated for Cause.

(iii)                                In the event the Company terminates the Executive’s employment for Cause, he shall be entitled to and his sole remedies under this Agreement shall be:

(A)                               Base Salary through the date of the termination of his employment for Cause, which shall be paid in a cash lump sum not later than 15 days following the Executive’s termination of employment;

(B)                                 any incentive awards earned as of December 31 of the prior year (but not yet paid), which shall be paid in a cash lump sum not later than 15 days following the Executive’s termination of employment;

(C)                                 settlement of all deferred compensation arrangements in accordance with  any then applicable deferred compensation plan or election form; and

(D)                                other or additional benefits then due or earned in accordance with applicable plans or programs of the Company.

(c)           Termination Without Cause or Constructive Termination Without Cause Prior to Change in Control .  In the event the Executive’s employment with the Company is terminated without Cause (which termination shall be effective as of the date specified by the Company in a written notice to the Executive), other than due to death, or in the event there is a Constructive Termination Without Cause (as defined below), in either case prior to a Change in Control (as defined below) the Executive shall be entitled to and his sole remedies under this Agreement shall be:

(i)                                      Base Salary through the date of termination of the Executive’s employment, which shall be paid in a cash lump sum not later than 15 days following the Executive’s termination of employment;

(ii)                                   Base Salary, at the annualized rate in effect on the date of termination of the Executive’s employment (or in the event a reduction in Base Salary is a basis for a Constructive Termination Without Cause, then the Base Salary in effect immediately prior to such reduction), for a period of 24 months (the “Severance Period”);

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(iii)                                pro rata annual incentive award for the year in which termination occurs equal to 50% of Base Salary (determined in accordance with Section 10(c)(ii) above) for such year, payable in a cash lump sum promptly (but in no event later than 15 days) following termination;

(iv)                               an amount equal to 50% of Base Salary (determined in accordance with Section 10(c)(ii) above) multiplied by two, payable in equal monthly payments over the Severance Period;

(v)                                  elimination of all restrictions on any restricted or deferred stock awards outstanding at the time of termination of employment (other than awards under the Company’s Partnership Equity Program, which shall be governed by the terms of such awards);

(vi)                               any outstanding stock options which are unvested shall vest and the Executive shall have the right to exercise any vested stock options during the Severance Period or for the remainder of the exercise period, if less (other than awards under the Company’s Partnership Equity Program, which shall be governed by the terms of such awards);

(vii)                            the balance of any incentive awards earned as of December 31 of the prior year (but not yet paid), which shall be paid in a cash lump sum not later than 15 days following the Executive’s termination of employment;

(viii)                         settlement of all deferred compensation arrangements in accordance with any then applicable deferred compensation plan or election form;

(ix)                                 continued participation in all medical, health and life insurance plans at the same benefit level at which he was participating on the date of the termination of his employment until the earlier of:

(A)                               the end of the Severance Period; or

(B)                                 the date, or dates, he receives equivalent coverage and benefits under the plans and programs of a subsequent employer (such coverage and benefits to be determined on a coverage-by-coverage, or benefit-by-benefit, basis); provided that (1) if the Executive is precluded from continuing his participation in any employee benefit plan or program as provided in this clause (ix) of this Section 10(c), he shall receive cash payments equal on an after-tax basis to the cost to him of obtaining the benefits provided under the plan or program in which he is unable to participate for the period specified in this clause (ix) of this Section 10(c), (2) such cost shall be deemed to be the lowest reasonable cost that would be incurred by the Executive in obtaining such benefit himself

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on an individual basis, and (3) payment of such amounts shall be made quarterly in advance; and

(x)                                    other or additional benefits then due or earned in accordance with applicable plans and programs of the Company.

“Termination Without Cause” shall mean the Executive’s employment is terminated by the Company for any reason other than Cause (as defined in Section 10(b)) or due to death.

                                “Constructive Termination Without Cause” shall mean a termination of the Executive’s employment at his initiative as provided in this Section 10(c) following the occurrence, without the Executive’s written consent, of one or more of the following events (except as a result of a prior termination):

(A)                               an assignment of any duties to Executive which are inconsistent with his status as a senior officer of the Company;

(B)                                 a decrease in Executive’s annual Base Salary or target annual incentive award opportunity below 50% of Base Salary;

(C)                                 any other failure by the Company to perform any material obligation under, or breach by the Company of any material provision of, this Agreement that is not cured within 30 days; or

(D)                                any failure to secure the agreement of any successor corporation or other entity to the Company to fully assume the Company’s obligations under this Agreement.

In addition, following a Change in Control, “Constructive Termination Without Cause” shall also mean a termination of the Executive’s employment at his initiative as provided in this Section 10(c) following the occurrence, without the Executive’s written consent, of (i) a relocation of his principal place of employment outside a 35-mile radius of his principal place of employment as in effect immediately prior to such Change in Control or (ii) a material diminution or change, adverse to Executive, in Executive’s positions, titles, offices, status, rank, nature of responsibility, or authority within the Company, as in effect immediately prior to such Change in Control, or a removal of Executive from or any failure to elect or re-elect, or as the case may be, nominate Executive to any such positions or offices.

A “Change in Control” shall be deemed to have occurred if:

(i)                                      any Person (other than the Company, any trustee or other fiduciary holding securities under any employee benefit plan of the Company, or any company owned, directly or indirectly, by the stockholders of the Company immediately prior to the occurrence with respect to which the evaluation is being made in substantially the same proportions as their ownership of the common stock of the Company) becomes the Beneficial Owner (except that a

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Person shall be deemed to be the Beneficial Owner of all shares that any such Person has the right to acquire pursuant to any agreement or arrangement or upon exercise of conversion rights, warrants or options or otherwise, without regard to the sixty day period referred to in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company or any Significant Subsidiary (as defined below), representing 25% or more of the combined voting power of the Company’s or