<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
WALGREEN CO.
- --------------------------------------------------------------------------------
(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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
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<PAGE>
[WALGREENS DRUG STORES LOGO]
200 WILMOT ROAD
DEERFIELD, ILLINOIS 60015
November 24, 1997
Dear Walgreens Shareholder:
You are cordially invited to our Annual Shareholders' Meeting on Wednesday,
January 14, 1998, at 2:00 p.m., Central Standard Time. The meeting will be
held in the Arthur Rubloff Auditorium of the Art Institute of Chicago,
Michigan Avenue and Adams Street. Please use the Columbus Drive entrance,
located at the rear of the building.
We will again offer a sign language interpreter for the hearing-impaired. If
you would like to take advantage of this service, please watch for a sign
directing you to a special area the day of the meeting.
We hope to see you January 14. Whether or not you plan to attend, it is
important that you sign the enclosed proxy and return it to us as soon as
possible so your shares will be represented.
Our best wishes for a happy holiday season!
Sincerely,
[SIGNATURE C. R. WALGREEN III LOGO] [SIGNATURE L. DANIEL JORNDT LOGO]
C. R. WALGREEN III L. DANIEL JORNDT
Chairman President
We especially hope you will join us this year to celebrate Charles R.
Walgreen III's 45-year career with our company. As most of you know, Mr.
Walgreen is retiring in January as Chief Executive Officer. While he will
continue to preside over quarterly board meetings, he is pulling away from
day-to-day business activities. L. Daniel Jorndt, President and Chief
Operating Officer since 1990, will assume the position of Chief Executive
Officer.
<PAGE>
[WALGREEN CO. LOGO]
200 WILMOT ROAD
DEERFIELD, ILLINOIS 60015
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD WEDNESDAY, JANUARY 14, 1998
To the Shareholders of Walgreen Co.:
The Annual Meeting of Shareholders of WALGREEN CO., an Illinois corporation,
will be held at the Arthur Rubloff Auditorium of the Art Institute of Chicago,
Michigan Avenue and Adams Street, Chicago, Illinois, on Wednesday, January 14,
1998, at 2:00 P.M. Central Standard Time. The Annual Meeting is for the
following purposes:
(1) To elect nine directors to hold office until the next Annual Meeting of
Shareholders or until their successors are elected and qualified;
(2) To ratify the appointment of Arthur Andersen LLP as auditors; and
(3) To transact such other business as may properly come before the
meeting, or any adjournment thereof.
Only shareholders of record at the close of business on November 17, 1997,
are entitled to vote at the meeting.
Shareholders are cordially invited to attend the Annual Meeting. If
attending, you should bring the admission ticket attached to the enclosed
proxy. Please sign, date and return the proxy in the envelope provided whether
or not you plan to attend the Annual Meeting in person. The proxy may be
revoked at any time before it is voted. If you are present at the meeting, you
may vote your shares in person and the proxy will not be used.
For further information concerning individuals nominated as directors, the
appointment of Arthur Andersen LLP as auditors and the use of the proxy, you
are respectfully urged to read the proxy statement on the following pages.
The Company's Annual Report to shareholders for 1997 is enclosed with this
proxy statement.
By order of the Board of Directors.
[SIGNATURE JULIAN A. OETTINGER LOGO]
Julian A. Oettinger
Secretary
November 24, 1997
<PAGE>
[WALGREEN CO. LOGO]
200 WILMOT ROAD
DEERFIELD, ILLINOIS 60015
November 24, 1997
PROXY STATEMENT
This proxy statement is being sent on November 24, 1997, in connection with
the solicitation of proxies to be voted at the Annual Meeting of Shareholders
of Walgreen Co. to be held on January 14, 1998, and further to inform the
shareholders concerning the use of the proxy and the business to be transacted
at the meeting.
The enclosed proxy is solicited by the Board of Directors of the Company.
The proxy may be revoked at any time before it is voted, provided that written
notice thereof has been given to the Secretary of the Company. The items
enumerated herein constitute the only business which the Board of Directors
intends to present or is informed that others will present at the meeting. The
proxy does, however, confer discretionary authority upon the persons named
therein, or their substitutes, with respect to any other business which may
properly come before the meeting. Shareholders are entitled to one vote for
each share. Only shareholders of record at the close of business on November
17, 1997, are entitled to notice of, and to vote at, the meeting.
The expenses in connection with the solicitation of proxies will be borne by
the Company. Solicitation will be made by mail, but may in some cases also be
made by telephone or personal call by officers, directors or regular employees
of the Company who will not be specially compensated for such solicitation.
The Company may request brokerage houses and other nominees or fiduciaries to
forward copies of the Company's proxy material and Annual Report to beneficial
owners of stock held in their names, and the Company may reimburse them for
reasonable out-of-pocket expenses incurred in so doing. The Company may also
elect to retain professional solicitors to assist in the solicitation of
proxies. Any professional solicitors will be paid by the Company.
ELECTION OF DIRECTORS
There are nine nominees for election to the Board of Directors. All of the
incumbent directors have been nominated for re-election.
In the election of the Board of Directors, shareholders have the right to
vote the number of shares owned by them for each of the nine nominees, or they
may cumulate their votes and give nine votes to one nominee for each share
owned, or they may distribute their votes on the same principal among as many
nominees as they choose. Directors are elected by the votes of a majority of
the shares represented in person or by proxy at the meeting. Withheld votes
have the effect of votes against the election of directors. As of the close of
business on November 17, 1997, the Company had outstanding 494,748,256 shares
of Common Stock.
Proxy votes will be cast for the election of the nominees named below to hold
office for one year or until their successors are elected and qualified, but
should any of such individuals unexpectedly become unavailable for election,
the proxies reserve the right to nominate and vote for such other person as
they shall designate.
<PAGE>
The following tabulation sets forth the names, ages, principal occupations
and other information respecting the director nominees:
<TABLE>
<CAPTION>
NAMES AND AGES OF DIRECTOR NOMINEES, PERIOD OF SERVICE
THEIR PRINCIPAL OCCUPATIONS AS DIRECTOR BEGAN
AND OTHER INFORMATION IN
------------------------------------ -----------------
<S> <C>
Charles R. Walgreen III, 62--Chairman of the Board and Chief 1963
Executive Officer. In January 1998, Mr. Walgreen will
retire as Chief Executive Officer.
William C. Foote, 46--Chairman of the Board and Chief 1997
Executive Officer of USG Corporation (since August 1997).
Until August 1997, Mr. Foote was also President of USG
Corporation. From January 1996 through March 1996, Mr.
Foote was Chief Executive Officer and President of USG
Corporation. Mr. Foote was Chief Operating Officer and
President of USG Corporation from January 1994 through
December 1995; Chief Executive Officer and President of USG
Interiors, Inc. from January 1993 through December 1993;
and Chief Executive Officer and President of L&W Supply
Corporation from September 1991 through December 1992. USG
Corporation emerged from bankruptcy in May 1993, having
filed a voluntary petition for reorganization in March
1993.
Mr. Foote is also a director of USG Corporation and GATX
Corporation.
James J. Howard, 62--Chairman of the Board, Chief Executive 1986
Officer and President of Northern States Power Company.
Mr. Howard is also a director of Northern States Power
Company, Honeywell Inc., Ecolab, Inc., ReliaStar Financial
Corp. (formerly NWNL Companies, Inc.) and the Federal
Reserve Bank of Minneapolis.
Charles D. Hunter, 67--Retired Vice Chairman and Chief 1974
Financial Officer.
L. Daniel Jorndt, 56--President and Chief Operating Officer. 1990
Effective January 1998, Mr. Jorndt will also be Chief
Executive Officer.
Cordell Reed, 59--Former Senior Vice President of 1994
Commonwealth Edison Co. (retired 1997).
Mr. Reed is also a director of LaSalle National Corporation,
LaSalle National Bank and LaSalle Bank F.S.B.
John B. Schwemm, 63--Former Chairman and Chief Executive 1985
Officer of
R.R. Donnelley & Sons Company.
Mr. Schwemm is also a director of USG Corporation and
William Blair Mutual Funds, Inc.
William H. Springer, 68--Former Vice Chairman of Ameritech 1988
Corporation.
Mr. Springer is also a director of The Benchmark Funds,
Goldman Sachs Investment Funds and Baker, Fentress and
Company.
Marilou M. von Ferstel, 59--Former Executive Vice President 1987
and General Manager of Ogilvy Adams & Rinehart (retired
1997).
Ms. von Ferstel is also a director of Illinova Corporation.
</TABLE>
INFORMATION CONCERNING THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors met four times and there were 18 meetings of Board
Committees during the 1997 fiscal year. All directors attended more than 75% of
the aggregate of the meetings of the Board of Directors and the meetings of the
Board Committees on which he or she served.
2
<PAGE>
COMPENSATION OF DIRECTORS
Full-time employees of the Company who serve as Directors receive only
reimbursement of expenses incurred in attending meetings. During fiscal year
1997, Directors who were not employees received a quarterly retainer of $6,375
for Board service, a fee of $1,200 for each Board of Directors and Board
Committee meeting attended, and reimbursement for expenses incurred in
connection with such meetings.
Mr. Hunter did not receive Director's fees; however, he received $146,667 in
consulting fees from the Company during fiscal 1997 pursuant to a Consulting
Agreement entered into prior to his retirement as an officer of the Company.
The Consulting Agreement provides Mr. Hunter with one year's base salary over a
three-year term for consulting services and continues until June 7, 1998.
Messrs. Howard, Schwemm, Springer and Ms. von Ferstel participated in
unfunded deferred compensation plans that permitted Directors to defer a
portion of his or her retainer fees. During fiscal 1997, payments were made to
Directors under such plans as follows: Mr. Howard, $48,494; Mr. Schwemm,
$48,494; Mr. Springer, $19,894; and Ms. von Ferstel, $43,305.
Effective November 1996, the Company established the Walgreen Co. Nonemployee
Director Stock Plan pursuant to which each nonemployee Director of the Company
will receive an annual equity grant of 1,400 shares beginning November 1, 1997.
During the term of the Plan, each Director will also receive fifty percent of
his or her quarterly retainer in the form of shares, which may be deferred into
stock units. In addition, a Director may elect to receive all or a portion of
the cash component of his or her quarterly retainer and meeting fees in the
form of deferred stock units or to have such amounts placed in a deferred cash
compensation account. This Plan is a replacement for certain compensation
arrangements for nonemployee Directors in effect prior to November 1996, under
the Walgreen Co. Retirement Plan for Outside Directors. The Walgreen Co.
Retirement Plan for Outside Directors will continue to apply in the future only
with respect to compensation earned by nonemployee Directors for periods of
service prior to November 1, 1996. Under the terms of the Walgreen Co.
Retirement Plan for Outside Directors, the annual benefits payable to a
Director for the shorter of (i) the number of years the Director served as a
non-employee member of the Board, or (ii) ten years, were equal to the sum of
80% of the annual Board retainer in effect on the date of retirement, plus 4%
of the Director's final annual retainer for each year of service as a non-
employee Director in excess of ten years. In no case could the annual benefit
payment exceed 100% of the annual retainer in effect and payable to the
Director on the date of his or her retirement from the Board of Directors.
COMMITTEES
The Board of Directors had standing Executive, Audit, Compensation, Finance
and Nominating and Governance Committees during fiscal 1997, each of which is
described below.
The Executive Committee met five times during the fiscal year. The Committee
is composed of Charles R. Walgreen III, Chairman; Charles D. Hunter; L. Daniel
Jorndt; John B. Schwemm and William H. Springer. During intervals between
meetings of the Board of Directors, the Executive Committee possesses such
powers of the Board of Directors in the management of the business and affairs
of the Company as may be delegated by the Board of Directors, subject to such
limitations as may be imposed by law and the By-Laws of the Company.
The Audit Committee met four times during the fiscal year. The Committee is
composed of John B. Schwemm, Chairman; William C. Foote; and Marilou M. von
Ferstel. The Committee's responsibilities include evaluation of significant
matters relating to the audit and internal controls of the Company and review
of the scope and results of audits by the independent auditors.
3
<PAGE>
The Compensation Committee met four times during the fiscal year. The
Committee is composed of William H. Springer, Chairman; James J. Howard; and
John B. Schwemm. The Committee reviews the Company's remuneration policies and
practices, including executive salaries, compensation and other employee
benefits; and administers the Company's Restricted Performance Share Plan, the
1982 Employees Stock Purchase Plan, the Executive Stock Option Plan, the 1986,
1988, 1992 and 1997 Executive Deferred Compensation/Capital Accumulation
Plans, the Walgreen Co. Section 162(m) Deferred Compensation Plan and the
Walgreen Co. Nonemployee Director Stock Plan.
The Finance Committee met four times during the fiscal year. The Committee
is composed of Charles D. Hunter, Chairman; L. Daniel Jorndt; Cordell Reed;
and Charles R. Walgreen III. The Finance Committee reviews the financial
requirements and practices of the Company and makes recommendations to the
Board of Directors concerning such matters.
The Nominating and Governance Committee met one time during the fiscal year.
The Committee is composed of John B. Schwemm, Chairman; James J. Howard; and
Marilou M. von Ferstel. The Nominating and Governance Committee considers
matters related to corporate governance, develops general criteria regarding
the qualifications and selection of board members and recommends candidates
for election to the Board of Directors. The Nominating and Governance
Committee will consider persons recommended by shareholders for inclusion as
nominees for election to the Board of Directors, if the names of such persons
are submitted in writing in a timely manner to the Secretary of the Company.
All recommendations should be accompanied by a complete statement of such
person's qualifications and an indication of the person's willingness to
serve.
SECURITIES OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following tabulation sets forth information as of November 17, 1997,
concerning the ownership of Common Stock by each Director, each of the
executive officers named in the Summary Compensation Table included in this
Proxy Statement, and all Directors and executive officers as a group. Except
as otherwise noted, the individual named possessed sole voting and investment
power over such shares.
<TABLE>
<CAPTION>
AMOUNT OF SHARES PERCENT OF
NAME OF INDIVIDUAL BENEFICIALLY OWNED CLASS
- ------------------ ---------------------- ----------
<S> <C> <C>
Charles R. Walgreen, III..................... 2,988,896(1)(2)(3)(8) .6027
Vernon A. Brunner............................ 469,470(3)(8) .0948
William C. Foote............................. 2,541 .0005
James J. Howard.............................. 15,549 .0031
Charles D. Hunter............................ 3,977,259(1)(6)(8) .8032
L. Daniel Jorndt............................. 928,987(3)(4)(8) .1875
Glenn S. Kraiss.............................. 305,900(3)(5)(8) .0618
Cordell Reed................................. 6,757 .0014
John A. Rubino............................... 214,085(3)(7)(8) .0433
John B. Schwemm.............................. 17,957(9) .0036
William H. Springer.......................... 17,957 .0036
Marilou M. von Ferstel....................... 11,957(10) .0024
All Directors and executive officers as a
group (23 individuals)...................... 10,947,436(3)(8)(11) 2.1939
</TABLE>
- --------
(1) Included in the table for Mr. Hunter are 159,688 shares owned by four
trusts for which he serves as a co-trustee. Mr. Hunter possesses shared
voting power and investment power with others with respect to all of the
shares held by such trusts. These shares are listed pursuant to the
requirements of Section 13(d) of the Securities Exchange Act of 1934 and
the definition of beneficial ownership therein. Mr. Hunter disclaims any
beneficial interest in these shares. Mr. Walgreen III has shared
beneficial interest in 36,136 shares owned by one of the trusts; these
4
<PAGE>
shares are also included in the table for Mr. Walgreen III. In addition, the
table for Mr. Hunter contains 3,199,766 shares owned by twenty other trusts
for which he serves as co-trustee. These shares are also listed pursuant to
the requirements of Section 13(d) of the Securities Exchange Act of 1934.
Mr. Hunter disclaims any beneficial interest in these shares.
(2) Does not include 6,281 shares owned by Mr. Walgreen III's wife, 66,536
shares held in trust for her benefit, and 147,532 shares owned by his son
and other family members. These shares are noted pursuant to the
requirements of Section 13(d) of the Securities Exchange Act of 1934 and
the definition of beneficial ownership therein. Mr. Walgreen III disclaims
any beneficial interest in these shares.
(3) Includes shares granted pursuant to the Walgreen Restricted Performance
Share Plan as follows: Mr. Walgreen III, 47,850 shares; Mr. Brunner,
17,284 shares; Mr. Jorndt, 35,021 shares; Mr. Kraiss, 17,284 shares; Mr.
Rubino, 11,659 shares; all Directors and executive officers as a group,
217,413 shares. Each individual possesses sole voting power with respect
to these shares.
(4) Does not include 58,812 shares owned by Mr. Jorndt's wife. Mr. Jorndt has
no voting or investment power with respect to such shares and disclaims
any beneficial interest in them.
(5) Does not include 636 shares owned by Mr. Kraiss' wife. Mr. Kraiss
disclaims any beneficial interest in such shares.
(6) Does not include 280,946 shares held in trust for the benefit of Mr.
Hunter's wife. Mr. Hunter serves as a co-trustee for such trust and
disclaims any beneficial interest in such shares.
(7) Does not include 17,108 shares owned by Mr. Rubino's wife and 920 shares
owned by Mr. Rubino's child living at home. Mr. Rubino disclaims any
beneficial interest in such shares.
(8) Includes shares of stock which may be acquired within 60 days after
November 17, 1997, by exercise of stock options as follows: Mr. Walgreen
III, 1,155,856 shares; Mr. Brunner, 288,616 shares; Mr. Hunter, 455,992
shares; Mr. Jorndt, 683,840 shares; Mr. Kraiss, 288,616 shares; Mr.
Rubino, 178,388 shares; all Directors and executive officers as a group,
4,250,564 shares.
(9) Does not include 2,400 shares owned by Mr. Schwemm's wife. Mr. Schwemm
disclaims any beneficial interest in these shares.
(10) Does not include 2,000 shares owned by Ms. von Ferstel's husband. Ms. von
Ferstel disclaims any beneficial interest in these shares.
(11) Includes 171,132 shares held by family members of executive officers, the
beneficial ownership of which has been disclaimed by such officers in
reports filed with the Securities and Exchange Commission.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who beneficially own more than
ten percent (10%) of the Company's Common Stock, to file initial reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Based on a review of the copies of such forms furnished to the Company and
written representations from the Company's executive officers and directors,
the Company believes that all forms were filed in a timely manner during fiscal
1997.
5
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation of the Company's Chairman and
Chief Executive Officer, as well as the next four most highly compensated
executive officers for the last three fiscal years. All numbers have been
adjusted to reflect a two-for-one stock split on July 22, 1997.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------ ------------------------------------
AWARDS PAYOUTS
------------------------- ----------
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING ALL OTHER
NAME AND PRINCIPAL COMPEN- STOCK OPTIONS LTIP COMPENSATION
POSITION YEAR SALARY ($)(1) BONUS ($)(1) SATION($) AWARD(S)($)(2) (#) PAYOUTS($) ($)(3)
- ------------------------ ---- ------------- ------------ --------- -------------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles R. Walgreen III 1997 924,667 603,487 226,815 273,900 0 0 589,882
Chairman of the Board
and 1996 869,667 490,565 129,821 240,174 0 0 515,785
Chief Executive Officer 1995 826,833 492,613 102,518 245,992 523,056 0 526,342
L. Daniel Jorndt 1997 678,333 438,591 92,825 200,987 0 0 377,328
President and Chief 1996 636,667 355,588 12,237 175,739 0 0 349,839
Operating Officer 1995 605,000 356,674 70,420 179,998 382,724 0 336,446
Vernon A. Brunner 1997 376,667 236,656 75,314 98,538 0 0 209,579
Executive Vice Presi-
dent 1996 356,667 193,385 39,407 86,608 0 0 198,484
1995 338,750 193,516 13,313 89,096 157,872 0 191,519
Glenn S. Kraiss 1997 376,667 236,656 72,439 98,538 0 0 231,101
Executive Vice Presi-
dent 1996 356,667 193,385 44,197 86,608 0 0 217,750
1995 338,750 193,516 17,049 89,096 157,872 0 224,991
John A. Rubino 1997 279,500 171,612 42,607 66,479 0 0 143,347
Senior Vice President 1996 264,500 139,992 22,154 58,457 0 0 135,701
1995 252,000 140,356 1,355 59,993 79,732 0 134,171
</TABLE>
- --------
(1) Includes amounts earned in fiscal year, whether or not deferred.
(2) All restricted shares reflected in this column were granted as a result of
the attainment of performance goals under the Restricted Performance Share
Plan (a description of the Plan and the performance measures are provided
in the Compensation Committee Report on Executive Compensation). Fifty
percent of the award earned in 1997 is payable in cash (reflected in the
All Other Compensation column), and the remaining fifty percent is payable
in restricted shares. Both the cash and stock awards vest in equal amounts
over a four-year period. The total number of restricted shares and their
aggregate market value at August 31, 1997: Mr. Walgreen III held 47,850
shares valued at $1,288,959; Mr. Jorndt held 35,021 shares valued at
$943,378; Mr. Brunner held 17,284 shares valued at $465,588; Mr. Kraiss
held 17,284 shares valued at $465,588; and Mr. Rubino held 11,659 shares
valued at $314,064. The aggregate market value is based on the fair market
value of Common Stock as of August 31, 1997 of $26.9375. Dividends are paid
on the restricted shares in the same amount and at the same time as
dividends paid to all other owners of Common Stock.
(3) Detail of the amounts reported in the "All Other Compensation" column for
1997 is provided in the table below. Split-dollar life insurance represents
the actuarial value of the benefit to the executive of the current year's
insurance premium paid by the Company in excess of that required to fund
the death benefit under the policy. Cumulative net life insurance premiums
paid are recovered by the Company at the later of retirement or 11 years.
<TABLE>
<CAPTION>
MR. MR. MR. MR. MR.
ITEM WALGREEN III JORNDT BRUNNER KRAISS RUBINO
---- ------------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Split-Dollar Life Insur-
ance...................... $ 71,223 $ 34,544 $ 19,480 $ 35,864 $ 14,704
Above-Market Interest
Earned on Deferred Compen-
sation.................... 66,936 18,771 18,028 27,189 11,686
Profit-Sharing Retirement
Plan...................... 6,333 6,333 6,333 6,333 6,333
Profit-Sharing Restoration
Plan...................... 171,490 116,666 67,176 63,153 44,142
Restricted Performance
Share Plan Cash Award..... 273,900 201,014 98,562 98,562 66,482
-------- -------- -------- -------- --------
Total.................. $589,882 $377,328 $209,579 $231,101 $143,347
======== ======== ======== ======== ========
</TABLE>
6
<PAGE>
Aggregated Option Exercises in Last Fiscal Year
AND FISCAL YEAR-END OPTION VALUES
The following table provides information regarding stock option exercises by
the named executive officers during fiscal 1997, as well as the assumed value
at August 31, 1997, of unexercised options held by such officers.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED IN-THE-MONEY
UNEXERCISED OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR-END (#) FISCAL YEAR-END($)(1)
ACQUIRED ON VALUE ------------------------------------ -------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ------------------ ---------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles R. Walgreen III. 342,856 8,625,243 1,155,856 0 21,196,013 0
L. Daniel Jorndt........ 126,240 2,358,929 683,840 0 12,196,044 0
Vernon A. Brunner....... 0 0 328,408 0 6,001,539 0
Glenn S. Kraiss......... 105,656 1,844,691 288,616 0 5,169,637 0
John A. Rubino.......... 73,136 1,752,979 178,388 0 3,271,953 0
</TABLE>
- --------
(1) Based on the fair market value of Company stock as of August 31, 1997, of
$26.9375. All numbers have been adjusted to reflect a two-for-one stock
split on July 22, 1997.
EMPLOYMENT AGREEMENTS
The Company has employment agreements (the "Agreements") with the persons
named in the Summary Compensation Table and other key employees of the Company
that become effective only upon a Change of Control (as defined in the
Agreements).
In the event that an employee is dismissed without Cause or resigns for Good
Reason (as such terms are defined in the Agreements), he will be entitled to
all accrued but unpaid compensation and benefits and a lump sum cash payment
consisting of the employee's base salary through his date of termination, a
proportionate bonus based upon the employee's annual bonus pursuant to the
Management Incentive Plan for the last three fiscal years, the sum of the base
salary plus bonus that the employee would be entitled to for the remainder of
the employment period under the Agreement, unpaid deferred compensation and
vacation pay, and the difference between the actuarial equivalent of the
retirement benefit the employee would receive if the employee remained employed
for the employment period and the actuarial equivalent of the employee's actual
retirement benefits. In addition, for the remainder of the employment period,
the employee is entitled to continued employee welfare benefits. The
termination of employment of any of these individuals during the thirty-day
period following the first anniversary of the effective date shall be deemed to
be for Good Reason.
The Agreements between the Company and Messrs. Walgreen III and Jorndt also
provide that, in addition to the three-year term of employment described
therein, upon termination of their employment, the Company will enter into
consulting agreements, consistent with the Company's past practice, providing
each of these individuals with one year's base salary over a three-year term
for consulting services.
The Compensation Committee Report on Executive Compensation and the
performance graph that follow shall not be deemed to be incorporated by
reference into any filing made by the Company under the Securities Act of 1933
or the Securities Exchange Act of 1934, notwithstanding any general statement
contained in any such filing incorporating this proxy statement by reference,
except to the extent the Company incorporates such Report and graph by specific
reference.
7
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This report describes the Company's executive compensation program and the
basis on which fiscal year 1997 compensation determinations were made by the
Committee with respect to the executive officers of the Company, including the
Chief Executive Officer and the other executive officers named in the
compensation tables in this proxy statement. The Committee establishes all
components of executive pay and recommends or reports its decisions to the
Board of Directors for approval.
To ensure the program is administered in an objective manner, the Committee
is comprised entirely of independent directors. Further, Committee members have
no "interlocking" relationships as defined by the Securities and Exchange
Commission.
The duties of the Committee include recommending to the Board of Directors
the base salary levels for all executive officers as well as the design of
awards in connection with all other elements of the executive pay program. The
Committee further evaluates executive performance and addresses other matters
related to executive compensation.
COMPENSATION POLICY AND OVERALL OBJECTIVES
In developing recommendations regarding the amount and composition of
executive compensation, the Committee's goal is to provide a compensation
package that will enable the Company to attract and retain talented executives,
reward outstanding performance and link the interests of the Company's
executives to the interests of the Company's shareholders. In determining
actual compensation levels, the Committee considers all elements of the program
in total rather than any one element in isolation.
The Committee members believe that each element of the compensation program
should target compensation levels at rates that take into account current
market practices. Offering market-comparable pay opportunities allows the
Company to maintain a stable, successful management team.
Competitive market data is provided by an outside compensation consultant.
The data provided compares the Company's compensation practices to those of a
group of comparator companies. The Company's market for compensation comparison
purposes is comprised of a group of companies that have business operations in
the retail drug industry, as well as companies having operations within broader
retail and wholesale industries. In addition, the Committee considers companies
which have similar sales volumes, market capitalizations and employment levels.
In establishing a comparator group for compensation purposes, the Committee
neither bases its decisions on quantitative relative weights of various
factors, nor follows mathematical formulae. Rather, the Committee exercises its
discretion and makes its judgment after considering the factors described
above.
The companies chosen for the comparator group used for compensation purposes
are not the same companies which comprise the peer group index in the
Performance Graph included in this proxy statement. The Committee believes that
the Company's most direct competitors for executive talent are not necessarily
the companies that would be included in a peer group established for comparing
shareholder returns.
The key elements of the Company's executive compensation are base salary,
annual bonuses, and long-term incentives. Each of these is addressed separately
below. In determining compensation, the Committee considers all elements of an
executive's total compensation package, including severance plans, insurance,
and other benefits.
8
<PAGE>
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to public companies for compensation over $1 million
paid to a company's Chief Executive Officer and its four other most highly
compensated executive officers. Qualifying performance-based compensation will
not be subject to the deduction limit if certain requirements are met. It is
the Committee's objective to maximize deductibility under Section 162(m) with
minimal sacrifices in flexibility and corporate objectives. Accordingly, with
respect to compensation payable to an applicable executive officer which would
otherwise be nondeductible, it is the Company's policy that such amounts be
deferred until the limitation on deductibility no longer applies with respect
to such person.
BASE SALARIES
The Committee regularly reviews each executive's base salary. The base salary
ranges of the Company's executives are targeted at approximately the 50th
percentile of the base pay ranges of similarly positioned executives in the
group of comparator companies selected for compensation comparison purposes.
Base salaries for executives are initially determined by evaluating
executives' levels of responsibility, prior experience, breadth of knowledge,
internal equity issues, and external pay practices. Increases to base salaries
are driven primarily by performance, evaluated based on sustained levels of
contribution to the Company.
The factors impacting base salary levels are not independently assigned
specific weights. Rather, the Committee reviews all of the factors, and makes
base pay recommendations which reflect the Committee's analysis of the
aggregate impact of these factors. Overall, executive salaries were increased
at rates comparable to the increases provided at other similarly situated
companies and are near or at market levels.
As reflected in the Summary Compensation Table, Mr. Walgreen's salary was
increased in 1997 by $55,000 (6.32%). In determining Mr. Walgreen's base salary
for 1997, the Committee considered the Company's financial performance for the
prior year and over an extended period of time, Mr. Walgreen's individual
performance, and his long-term contributions to the success of the Company. The
Committee also compared Mr. Walgreen's base salary and total compensation to
the base salaries and total compensation of chief executive officers at
comparator companies.
ANNUAL BONUSES
The Walgreen Management Incentive Plan (the "Annual Plan") promotes the
Company's pay-for-performance philosophy by providing executives and other
employees with direct financial incentives in the form of annual cash bonuses
to achieve performance goals tied to return on invested capital.
Annual bonus opportunities allow the Company to communicate specific goals
that are of primary importance during the coming year and motivate executives
to achieve these goals. The Annual Plan emphasizes team performance by
establishing a bonus pool covering all plan participants and by maintaining
terms which are consistent for all participants.
Each year, the Committee establishes specific goals, the achievement of which
will determine the funding of the bonus pool. In turn, the size of the bonus
pool will determine the amount of the relative awards to participants.
Accordingly, executives' opportunities to earn bonuses correspond to the degree
to which the preestablished goals are achieved.
9
<PAGE>
Target bonus awards for the named executive officers are established at
levels approximating the 50th percentile of marketplace practices for executive
positions. Actual payouts can rise above or fall below the targeted levels,
depending upon performance relative to the preestablished performance
objectives. In 1997, Mr. Walgreen's bonus represented 65.26% of his salary.
This resulted in a bonus award under the Annual Plan of $603,487.
LONG-TERM INCENTIVES
Long-term incentives are provided pursuant to the Restricted Performance
Share Plan and the Executive Stock Option Plan.
In keeping with the Company's commitment to provide a total compensation
package which includes at-risk components of pay, the Committee makes annual
decisions regarding appropriate long-term incentive grants for each executive.
When determining these awards, the Committee considers the Company's financial
performance in the prior year, executives' levels of responsibility, prior
experience, historical award data, and compensation practices at comparator
companies. In determining award sizes, the Committee does not assign specific
weights to these factors. Rather, the factors are evaluated on an aggregate
basis.
RESTRICTED PERFORMANCE SHARE PLAN: The Plan provides for contingent grants of
restricted Common Stock and restricted cash at the beginning of one-year
performance periods. The participants, the amounts of the grants to each, the
performance requirements for each period, and the restrictions, are determined
by the Compensation Committee.
The performance requirements are annual FIFO earnings goals, subject to a
minimum return on invested capital. The degree to which the goals are met
determines the amount of the contingent grant that is earned, if any. The
restricted Common Stock and restricted cash awards earned for the performance
period ended August 31 of each fiscal year are restricted for a period of four
years, with the restrictions lapsing at the rate of 25% per year.
Based on the achievement of results which exceeded the annual FIFO earnings
goals and met the Company's return on invested capital standard, Mr. Walgreen
was granted 16,600 restricted performance shares (adjusted to reflect a two-
for-one stock split on July 22, 1997) and $273,900 restricted cash for fiscal
1997. This grant reflected performance exceeding the target performance levels.
The target grant level as well as grant levels in the case of performance
exceeding target performance are established in furtherance of the overall
objectives detailed above and by comparison to similar grants to chief
executive officers at comparator companies.
EXECUTIVE STOCK OPTION PLAN: Stock options are granted periodically, at the
discretion of the Committee, to the Company's executives, to enhance the link
between shareholder value creation and executive pay. Grant levels are
coordinated with those under the Restricted Performance Share Plan, in order to
maintain competitive levels of long-term incentive pay under the Company's
long-term compensation programs. No stock options were granted to the named
executive officers in fiscal 1997.
William H. Springer, Chairman
James J. Howard
John B. Schwemm
10
<PAGE>
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
The following graph compares the five-year cumulative total return of the
Company's Common Stock with the Value Line Drug Store Industry Peer Group and
the S&P 500 Stock Index. The graph assumes a $100 investment made September 1,
1992, and the reinvestment of all dividends.
LOGO
<TABLE>
<CAPTION>
DOLLAR VALUE OF INVESTMENT AT AUGUST 31
-----------------------------------------
1992 1993 1994 1995 1996 1997
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Walgreen Co. Common................... $100 $103 $101 $ 134 $182 $302
Peer Group............................ $100 $ 98 $ 94 $ 111 $143 $229
S & P 500............................. $100 $115 $122 $ 148 $175 $246
</TABLE>
APPOINTMENT OF INDEPENDENT AUDITORS
Arthur Andersen LLP has been appointed to serve as the independent auditors
for the Company and its subsidiary corporations for the fiscal year ending
August 31, 1998. The appointment is being submitted to the shareholders for
ratification. This firm has served as the independent auditors for the Company
since 1924. Representatives of the firm are expected to be present at the
Annual Meeting to respond to shareholders' questions and to have the
opportunity to make any statements they consider appropriate. In the event the
shareholders do not ratify the appointment of Arthur Andersen LLP, the
selection of an independent auditor will be determined by the Audit Committee
and the Board of Directors after careful consideration of any information
submitted by the shareholders.
During fiscal year 1997, the Audit Committee reviewed and approved in advance
or ratified the scope of all of Arthur Andersen LLP's professional services
rendered to the Company and related entities.
11
<PAGE>
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Shareholders may submit proposals appropriate for shareholder action at the
Company's Annual Meeting consistent with the regulations of the Securities and
Exchange Commission. For proposals to be considered for inclusion in the Proxy
Statement for the 1999 Annual Meeting they must be received by the Company no
later than July 28, 1998. Such proposals should be directed to Walgreen Co.,
Attention: Secretary, 200 Wilmot Road, Deerfield, Illinois 60015.
By order of the Board of Directors.
LOGO Julian A. Oettinger
Secretary
THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS
SOLICITED, AND TO EACH PERSON REPRESENTING THAT AS OF THE RECORD DATE FOR THE
MEETING HE OR SHE WAS A BENEFICIAL OWNER OF SHARES ENTITLED TO BE VOTED AT THE
MEETING, ON WRITTEN REQUEST, A COPY OF THE COMPANY'S 1997 ANNUAL REPORT ON FORM
10-K TO THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE FINANCIAL
STATEMENTS AND SCHEDULES THERETO. SUCH WRITTEN REQUEST SHOULD BE DIRECTED TO
WALGREEN CO., ATTENTION: MR. JEFFREY A. REIN, TREASURER, 200 WILMOT ROAD,
DEERFIELD, ILLINOIS 60015.
12
<PAGE>
--- ---
PROXY PROXY
[WALGREEN CO. LOGO]
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints CHARLES R. WALGREEN III, L. DANIEL JORNDT and
CHARLES D. HUNTER, or any of them, with full power of substitution, as
attorneys and proxies to vote all shares of common stock which the undersigned
is entitled to vote, with all powers which the undersigned would possess if
personally present, at the Annual Meeting of Shareholders of WALGREEN CO. (and
any adjournment thereof) to be held at the Arthur Rubloff Auditorium of the
Art Institute of Chicago, Michigan Avenue and Adams Street, Chicago, Illinois,
on Wednesday, January 14, 1998, upon the matters referred to on the reverse
side and, in their discretion, upon such other matters as may properly come
before the meeting.
NOMINEES:
Charles R. Walgreen III, William C. Foote, James J. Howard, Charles D. Hunter,
L. Daniel Jorndt, Cordell Reed, John B. Schwemm, William H. Springer, Marilou
M. von Ferstel.
This proxy when properly executed will be voted as directed. If no direction
is specified this proxy will be voted FOR election of directors and FOR
ratification of Arthur Andersen LLP as auditors.
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
(Continued and to be signed on reverse side.)
--- ---
- --------------------------------------------------------------------------------
. DETACH PROXY CARD .
ADMISSION TICKET
[WALGREENS LOGO]
ANNUAL MEETING OF SHAREHOLDERS
Wednesday, January 14, 1998
2:00 P.M. Central Standard Time
Arthur Rubloff Auditorium of the Art Institute of Chicago
Michigan Avenue & Adams Street
Chicago, Illinois
Please use the Columbus Drive entrance located at the rear of the building.
Please present this original for admission. Photocopies will not be accepted.
You may be asked for identification at the time of admission.
-- --
<PAGE>
WALGREEN CO.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [X]
--------------------
1. Election of Directors
Nominees: Charles R. Walgreen III, William C. Foote, James J. Howard,
Charles D. Hunter, L. Daniel Jorndt, Cordell Reed, John B. Schwemm, William
H. Springer, Marilou M. von Ferstel.
-----------------------------------
*(Except nominee(s) written above.)
For Withheld For All
All All Except*
[_] [_] [_]
2. Ratification of the appointment of Arthur Andersen LLP as auditors.
For Against Abstain
[_] [_] [_]
3. In their discretion, the Proxies are authorized to vote on such other
matters as may properly come before the meeting.
Will you be attending the Annual Meeting of Shareholders?
Yes No
[_] [_]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS (1) AND (2).
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS
SPECIFIED THIS PROXY WILL BE VOTED FOR ELECTION OF DIRECTORS, AND FOR
RATIFICATION OF ARTHUR ANDERSEN LLP AS AUDITORS.
The signatory hereby acknowledges receipt
of the accompanying Notice of Annual
Meeting of Shareholders and Proxy
Statement.
Dated: _______________________
Signature(s)____________________________
________________________________________
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS.
JOINT OWNERS SHOULD EACH SIGN. WHERE
APPLICABLE, INDICATE YOUR OFFICIAL
POSITION OR REPRESENTATION CAPACITY.
- --------------------------------------------------------------------------------
PLEASE SIGN AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED ENVELOPE.
----
[PROXY CARD ARROW LOGO]
To Our Shareholders:
Whether or not you are able to attend the
Annual Meeting of Shareholders, it is
important that your shares be represented.
Accordingly, please complete and sign the
proxy card printed above, tear at the
perforation, and mail the card in the
enclosed postage paid envelope addressed to
Walgreen Co. c/o Harris Trust and Savings
Bank.
[ARTWORK OF MAP TO ANNUAL MEETING]
