<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)(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:
<PAGE>
[LOGO]
CVS CORPORATION
ONE CVS DRIVE
WOONSOCKET, RHODE ISLAND 02895
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
WEDNESDAY, MAY 13, 1998
------------------------
To Our Stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Annual
Meeting") of CVS Corporation, a Delaware corporation (the "Company"), will be
held at the Company's headquarters at One CVS Drive, Woonsocket, Rhode Island on
Wednesday, May 13, 1998 at 10:00 a.m. local time, for the following purposes:
1. To elect to the Board of Directors the nominees named in the
enclosed proxy statement, to hold office until the next annual meeting of
stockholders and until their successors are duly elected and qualified.
2. To consider and act upon a proposal to amend the Company's Amended
and Restated Certificate of Incorporation to increase the number of
authorized shares of the Company's common stock from 300 million shares to
one billion shares.
3. To consider and act upon a proposal to ratify the appointment of
KPMG Peat Marwick LLP as the Company's independent auditors for the year
ending December 31, 1998.
4. To transact such other business as may be properly brought before
the Annual Meeting and any adjournments thereof.
The Board of Directors has fixed the close of business on March 24, 1998 as
the record date for the determination of stockholders entitled to notice of, and
to vote at, the Annual Meeting or at any adjournment or adjournments thereof.
By Order of the Board of Directors,
Stanley P. Goldstein
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE
OFFICER
Woonsocket, Rhode Island
April 2, 1998
- --------------------------------------------------------------------------------
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, PLEASE SIGN,
DATE AND RETURN THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE. A PRE-ADDRESSED,
POSTAGE PREPAID RETURN ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
- --------------------------------------------------------------------------------
<PAGE>
CVS CORPORATION
ONE CVS DRIVE
WOONSOCKET, RHODE ISLAND 02895
(401) 765-1500
------------------------
PROXY STATEMENT
------------------
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of CVS Corporation ("CVS" or the "Company"), a Delaware
corporation, of proxies in the accompanying form, to be used at the annual
meeting of stockholders to be held on Wednesday, May 13, 1998 at 10:00 a.m. at
the Company's headquarters at One CVS Drive, Woonsocket, Rhode Island, and any
adjournment or adjournments thereof (the "Meeting").
The shares represented by each properly executed proxy solicited by the
Board of Directors and received by the Company will be voted as specified by the
stockholder on the proxy. If no such specification is made, the shares will be
voted: (i) FOR the election of the nominees for director named herein; (ii) FOR
the proposal to amend the Company's Amended and Restated Certificate of
Incorporation (the "Charter") to increase the number of authorized shares of the
Company's common stock from 300 million to one billion (the "Charter Amendment
Proposal"); (iii) FOR the ratification of the appointment of KPMG Peat Marwick
LLP as the Company's independent auditors for the year ending December 31, 1998;
and (iv) in accordance with the judgment of the person or persons voting such
proxies with respect to such other matters, if any, as may properly come before
the Meeting. Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its exercise by delivering a written notice
of revocation to the Secretary of the Company, by submitting a duly executed
proxy bearing a later date or by voting in person at the Meeting (after having
notified the Secretary at any time prior to the voting of the proxy). Attendance
at the Meeting will not in itself constitute the revocation of a proxy. Shares
represented by valid proxies in the form enclosed, received in time for use at
the Meeting and not revoked at or prior to the Meeting, will be voted at the
Meeting.
The close of business on March 24, 1998 has been fixed as the record date
(the "Record Date") for determining the stockholders entitled to notice of and
to vote at the Meeting. On the Record Date, according to the records of the
Company's transfer agent, there were approximately 173.1 million shares of
Common Stock (as defined below) outstanding and entitled to vote at the Meeting,
held by approximately 10,000 stockholders of record. On the Record Date, there
were approximately 5.3 million shares of ESOP Preference Stock (as defined
below) outstanding and entitled to vote at the Meeting, all held of record by
the Trustee under the CVS Corporation and Subsidiaries Employee Stock Ownership
Plan (the "ESOP").
The only outstanding voting securities of the Company are shares of common
stock, $.01 par value per share ("Common Stock"), and Series One ESOP
Convertible Preference Stock, $1.00 par value per share ("ESOP Preference
Stock"). Only holders of record of the shares of Common Stock and ESOP
Preference Stock on the Record Date are entitled to notice of and to vote at the
Meeting. Under Delaware law and the Company's Charter, each share of Common
Stock is entitled to one vote on all matters submitted to stockholders. Under
the Company's Charter, the holders of ESOP Preference Stock are entitled to vote
on all matters submitted to a vote of holders of Common Stock, voting together
with the Common Stock as a single class. Each share of ESOP Preference Stock is
entitled to the number of votes equal to the number of shares of Common Stock
into which such share of ESOP Preference Stock could be converted on the record
date for the applicable meeting (which is currently 1.2 votes, subject to
adjustment in the case of certain dilutive events). 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 of the shares with
respect to which it has received timely voting instructions.
<PAGE>
The affirmative vote of 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 (whether or not a quorum exists), is required
to approve the election of directors. The affirmative vote of a majority of the
aggregate votes represented by the outstanding shares of Common Stock and ESOP
Preference Stock, voting as a single class, is required to approve the Charter
Amendment Proposal. The affirmative vote of a majority of the votes represented
by the shares of Common Stock and ESOP Preference Stock present at the Meeting,
in person or by proxy, and entitled to vote, voting as a single class (so long
as such shares so present represent a quorum), is required to approve the
proposal to ratify the appointment of the Company's auditors. The presence in
person or by proxy of the holders of shares of Common Stock and ESOP Preference
Stock entitled to cast a majority of the total votes of all such outstanding
shares constitutes a quorum.
The directors and executive officers of CVS as of February 18, 1998
beneficially own approximately 1.1% of the outstanding Common Stock. For
additional information on ownership of Common Stock by directors and executive
officers, see "Share Ownership of Directors and Named Executive Officers" below.
With respect to the election of directors, votes may be cast in favor or
withheld; votes that are withheld will be excluded entirely from the vote and
will have no effect.
Abstentions may be specified on all proposals (except the election of
directors). A properly executed proxy marked "ABSTAIN" with respect to any
proposal will be counted as present for purposes of determining whether there is
a quorum and for purposes of determining the aggregate voting power and number
of shares represented and entitled to vote at the Meeting with respect to the
indicated proposal. Accordingly, since the affirmative votes described above are
required for approval of the proposals (except the election of directors), a
proxy marked "ABSTAIN" with respect to any such proposal will have the effect of
a vote against such proposal.
Under NYSE rules, brokers who hold shares in street name for customers have
the authority to vote on certain "routine" proposals, such as the election of
directors and ratification of auditors, when they have not received instructions
from beneficial owners. Under NYSE rules, such brokers are precluded from
exercising their voting discretion with respect to the approval and adoption of
non-routine matters such as the Charter Amendment Proposal and thus, absent
specific instructions from the beneficial owner of such shares, brokers are not
empowered to vote such shares with respect to the approval and adoption of the
Charter Amendment Proposal (i.e., "broker non-votes"). Broker non-votes will be
treated as not voted and therefore, given the approval requirement described
above, will have the effect of a vote against the Charter Amendment Proposal.
The cost of solicitation of proxies will be paid by the Company. In addition
to solicitation by mail, arrangements will be made with brokerage houses and
other custodians, nominees and fiduciaries to send the proxy materials to
beneficial owners; and the Company will, upon request, reimburse such brokerage
houses and custodians for their reasonable expenses in so doing. The Company has
retained Morrow & Co., Inc. to aid in the solicitation of proxies and to verify
certain records related to the solicitations. Morrow & Co. will receive
customary fees, and expense reimbursement, for such services. In addition,
solicitations may be made by mail, telephone, telegraph and personal interview,
by the directors, officers and regularly engaged employees of the Company,
without extra compensation. To the extent necessary in order to ensure
sufficient representation at the Meeting, the Company may request by telephone
or telegram the return of proxy cards. The extent to which this will be
necessary depends entirely upon how promptly proxy cards are returned.
Stockholders are urged to send in their proxies without delay.
This Proxy Statement, the attached Notice of Annual Meeting of Stockholders
and the enclosed proxy are being mailed on or about April 2, 1998 to all
stockholders entitled to notice of and to vote at the Meeting.
The Annual Report to Stockholders for the year ended December 31, 1997 is
being mailed to the stockholders with this Proxy Statement, but does not
constitute a part hereof.
2
<PAGE>
MANAGEMENT
DIRECTORS
The Company's Charter provides for the Company's business to be managed by
or under the direction of the Board of Directors. Under the Charter, the number
of directors is such number between three and eighteen as may be fixed from time
to time by the Board of Directors, and directors serve in office until the next
annual meeting of stockholders and until their successors have been elected and
qualified.
AGREEMENT TO ELECT ONE ARBOR DESIGNEE FOLLOWING CONSUMMATION OF ARBOR
ACQUISITION
As previously announced on February 9, 1998, the Company has entered into an
Agreement and Plan of Merger with Arbor Drugs, Inc. ("Arbor") providing for the
merger of Arbor with a wholly owned subsidiary of the Company, on the terms and
conditions of such merger agreement.
The Company has agreed in the merger agreement to elect one Arbor designee,
Mr. Eugene Applebaum, Arbor's Chairman and Chief Executive Officer, to the
Company's Board of Directors on the day following consummation of the merger. In
the event the merger is consummated, the Board will elect Mr. Applebaum as a
director on the day following such consummation by filling a Board vacancy
(after expanding the size of the Board by one, if necessary). Subject to
satisfaction of the closing conditions to the Arbor merger, at the time of
printing this proxy statement management expected to consummate the merger on or
about March 31, 1998.
If the Arbor merger is consummated prior to the Meeting, Mr. Applebaum will
have already become a director as described in the preceding paragraph and will
be a nominee for director at the Meeting. If the Meeting occurs prior to
consummation of the merger, Mr. Applebaum will not be a nominee for director at
the Meeting. In this latter case, Mr. Applebaum would become a director only
upon his election by the Board following consummation of the merger, as
described in the preceding paragraph.
BOARD SIZE
The number of directors is presently fixed at thirteen. Current directors
who are not standing for re-election at the Meeting are Ms. Patricia Carry
Stewart and Mr. M. Cabell Woodward, Jr., who have informed the Company that they
will retire at the time of the Meeting. If the Arbor merger is consummated prior
to the Meeting, Mr. Applebaum will be a director prior to the Meeting and the
Board size will be fourteen at that time. In that case, there will be twelve
nominees (including Mr. Applebaum) at the Meeting. If the Meeting occurs prior
to consummation of the Arbor merger, there will be eleven nominees at the
Meeting. The Board size will be reduced to twelve following consummation of the
Arbor merger (or eleven if the Arbor merger fails to be consummated).
NOMINEES
The eleven individuals first named below are nominees for election as
directors at the Meeting. In addition, Mr. Applebaum will be a nominee if the
Arbor merger is consummated prior to the Meeting. Each individual's age is
indicated in parentheses alongside such individual's name. Except for Mr.
Applebaum, each of the following individuals is a director of the Company on the
date of printing.
ALLAN J. BLOOSTEIN (68), a director since 1989, is the President of Allan J.
Bloostein Associates, a consulting firm; retired Vice Chairman and director of
May Department Stores; director of Taubman Centers Inc.; trustee or director of
various Smith Barney investment portfolios.
W. DON CORNWELL (50), a director since 1994, is the Chairman of the Board
and Chief Executive Officer of Granite Broadcasting Corporation, a group
broadcasting company; director of Pfizer, Inc.
3
<PAGE>
THOMAS P. GERRITY (56), a director since 1995, is the Dean of The Wharton
School of the University of Pennsylvania; director of Digital Equipment
Corporation, Fannie Mae, Reliance Group Holdings, Inc. and Sun Company, Inc.;
trustee of the MAS Funds.
STANLEY P. GOLDSTEIN (63), a director since 1984, has been Chairman of the
Board and Chief Executive Officer since January 1987; director of Bell Atlantic
Corporation, Linens 'n Things, Inc. and Footstar. Additionally, the Company
recently announced that Mr. Goldstein will step down as Chief Executive Officer
effective May 13, 1998, at the time of the Meeting. He will be succeeded as
Chief Executive Officer by Thomas M. Ryan (see below). Mr. Goldstein will remain
Chairman of the Board.
WILLIAM H. JOYCE (62), a director since 1994, is the Chairman of the Board
and Chief Executive Officer of Union Carbide Corporation, a leading producer of
chemicals and polymers; from January 1993 to January 1996, President, Chief
Operating Officer and director of Union Carbide Corporation; from December 1991
to January 1993, Executive Vice President of Union Carbide Corporation; director
of Reynolds Metals Company.
TERRY R. LAUTENBACH (59), a director since 1991, is a retired Senior Vice
President of IBM Corporation, a multinational advanced information technology
company; director of Air Products and Chemicals Inc., Varian Associates, Inc.
and Footstar; trustee of Loomis-Sayles Mutual Funds.
TERRENCE MURRAY (58), a director since 1996, is the Chairman and Chief
Executive Officer of Fleet Financial Group; director of A.T. Cross Company and
Allmerica Financial Corporation; trustee of Brown University and honorary
trustee of The Rhode Island School of Design.
SHELI Z. ROSENBERG (56), a director since 1997, is the President and Chief
Executive Officer of Equity Group Investments, Inc. and its subsidiary Equity
Financial and Management Company, both real estate investment firms; principal
of the law firm Rosenberg & Liebentritt, P.C.; from 1980 to 1994, Ms. Rosenberg
was General Counsel to Equity Group Investments, Inc.; director of American
Classic Voyages, Inc., Anixter International, Inc., Illinova Corporation, Jacor
Communications, Inc., Manufactured Home Communities, Inc., and Quality Food
Centers, Inc.; trustee of Equity Residential Properties Trust and Equity Office
Properties Trust. Mrs. Rosenberg was a vice president of First Capital Benefit
Administrators, Inc., which filed a petition under the federal bankruptcy laws
on January 3, 1995, and was liquidated on November 15, 1995.
THOMAS M. RYAN (45), a director since 1996; Vice Chairman of the Board and
Chief Operating Officer of CVS since October 1996; President and Chief Executive
Officer of CVS Pharmacy, Inc. since January 1994; from January 1990 to January
1994, Executive Vice President Stores of CVS Pharmacy, Inc.; director of Fleet
Financial Group and Reebok International Ltd. Additionally, the Company recently
announced that Mr. Ryan has been elected President and Chief Executive Officer
of CVS Corporation effective May 13, 1998, at the time of the Meeting.
IVAN G. SEIDENBERG (51), a director since 1993, is the Vice Chairman,
President and Chief Operating Officer of Bell Atlantic Corporation, a worldwide
communications company; from April 1995 to August 1997, Chairman and Chief
Executive Officer of NYNEX Corporation; from January 1995 to April 1995,
President, Chief Executive Officer and director of NYNEX Corporation; from
February 1994 to January 1995, President, Chief Operating Officer and Vice
Chairman of NYNEX Corporation; from April 1991 to February 1994, Vice Chairman,
Telecommunications Group, NYNEX Corporation; director of Allied Signal Inc.,
American Home Products Corporation, Boston Properties, Inc. and Viacom Inc.
THOMAS O. THORSEN (66), a director since 1997, is a retired Vice Chairman of
The Travelers Corporation and a retired Senior Vice President of Finance of
General Electric Company; director of Iowa Select Farms, Inc. and PGA Golf
Properties, Inc. In May 1994, The Travelers Corporation ("Travelers") and
certain executive officers of Travelers, including Mr. Thorsen, its former chief
financial officer, consented, without a hearing and without admitting or denying
the matters set forth therein, to the issuance of an administrative cease and
desist order (the "Order") of the Securities and Exchange
4
<PAGE>
Commission (the "SEC"). The Order pertained to the allegedly improper
implementation of a new FASB standard, which implementation was made by
Travelers after extensive consultation with, and concurrence by, its independent
public accountants. No willful or knowing violations of the securities laws were
alleged, and no monetary fines were imposed or other disciplinary actions taken
by the SEC.
EUGENE APPLEBAUM (60), will be a nominee only in the event of the
consummation of the Arbor merger prior to the Meeting, as discussed above. Mr.
Applebaum has been president of Arbor and its predecessors since 1963; from 1985
to the present, he has also served as Arbor's Chairman of the Board and Chief
Executive Officer.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the year ended December 31, 1997 there were eight meetings of the
Board of Directors. CVS maintains standing Audit, Nominating and Compensation
Committees of the Board of Directors. No director attended fewer than 75% of the
total number of meetings of the Board and of committees of the Board on which he
or she served during fiscal 1997.
The Audit Committee held three meetings during the 1997 fiscal year. The
duties of the Audit Committee are (i) to consider the adequacy of the accounting
and internal control systems, (ii) to oversee the audit function, both
independent and internal, (iii) to review annual consolidated financial
statements, (iv) to direct and supervise special investigations, (v) to
recommend to the Board of Directors the appointment of independent auditors,
(vi) to review non-audit services provided by the independent auditors, (vii) to
review conflict of interest policy and compliance procedures and (viii) to
report to the Board of Directors from time to time and make such recommendations
and observations as it sees fit.
The current members of the Audit Committee are Patricia Carry Stewart
(Chairman), W. Don Cornwell, Thomas P. Gerrity, William H. Joyce and Thomas O.
Thorsen.
The Nominating Committee held one meeting during the 1997 fiscal year. The
duties of the Nominating Committee are to nominate, in concert with the Chairman
of the Board of Directors, any new director for election by the Board of
Directors. The Nominating Committee will consider nominees recommended by the
stockholders; the Committee, however, does not have any formal procedure to be
followed by stockholders in submitting such recommendations.
The current members of the Nominating Committee are Terry R. Lautenbach
(Chairman), Allan J. Bloostein, William H. Joyce and M. Cabell Woodward, Jr.
The Compensation Committee held five meetings during the 1997 fiscal year.
The duties of the Compensation Committee are (i) to review and approve the
salaries, bonuses and other compensation of all officers and directors of the
Company and its subsidiaries and of each executive of the Company and its
subsidiaries whose base salary is greater than $200,000 per annum, (ii) to
administer the 1997 Incentive Compensation Plan and any outstanding awards under
the Omnibus Stock Incentive Plan and the 1973 and 1987 Stock Option Plans
subject to the terms of such plans and (iii) to administer any profit incentive
plans for the benefit of the Company.
The current members of the Compensation Committee are M. Cabell Woodward,
Jr. (Chairman), Allan J. Bloostein, Terry R. Lautenbach, Sheli Z. Rosenberg,
Ivan G. Seidenberg and Terrence Murray.
COMPENSATION OF DIRECTORS
Summarized below are each of the components of directors compensation in
effect for the fiscal year ended December 31, 1997.
ANNUAL RETAINER AND STOCK GRANT. Each director who is not an employee of
the Company receives a retainer of $30,000 per year and a fee of $1,500 for each
Board meeting, $1,000 for each telephonic Board meeting and $1,000 for each
committee meeting that he or she attends. In addition, each director who is
5
<PAGE>
not an employee of the Company receives an annual retainer of $2,500 for each
committee he or she chairs. One-half of the annual retainer is paid in Common
Stock. At a director's election, all retainers and meeting fees may be paid in
Common Stock. In accordance with the 1996 Directors Stock Plan, each non-
employee director receives an annual grant of 350 shares of Common Stock,
subject to proration for any partial year of service. Receipt of shares of
Common Stock may be deferred at the director's election.
As of December 31, 1997, the Company's directors had deferred receipt of
shares of Common Stock as follows: Mr. Bloostein, 4,510 shares; Mr. Cornwell,
1,819 shares; Mr. Gerrity, 185 shares; Mr. Joyce, 2,467 shares, Mr. Lautenbach,
2,893 shares; Mr. Murray, 903 shares; Ms. Rosenberg, 1,003 shares; Mr.
Seidenberg, 2,311 shares; Ms. Stewart, 4,390 shares; and Mr. Woodward, 6,606
shares.
DIRECTORS RETIREMENT PLAN. The Board of Directors determined to cease
further accruals under the Directors Retirement Plan and to permit each director
who is entitled to a benefit under the Directors Retirement Plan to elect to
receive the present value of such benefit in the form of shares of Common Stock.
Each of the entitled directors elected to do so.
DIRECTORS AND OFFICERS LIABILITY INSURANCE. The Company has 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. This insurance
was purchased in layers from National Union Fire Insurance Company of
Pittsburgh, Pennsylvania; Federal Insurance Company of Warren, New Jersey;
Continental Casualty Company of Chicago, Illinois, St. Paul Surplus Lines
Company of St. Paul, Minnesota; Reliance Insurance Company of Philadelphia,
Pennsylvania; and Royal Indemnity Company of Charlotte, North Carolina. The
pension trust liability insurance covers actions of directors and officers as
well as other employees with fiduciary responsibilities under ERISA. All of the
insurance policies expire on June 30, 1998. The aggregate premium for these
insurance policies is $791,445 for the directors and officers liability coverage
and $110,753 for the pension trust liability coverage. It is expected that the
above liability insurance coverage will be renewed or replaced upon expiration
of the above policies.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Ivan Seidenberg, the Vice Chairman, President and Chief Operating
Officer of Bell Atlantic Corporation, who is one of the directors standing for
re-election, serves on CVS' Compensation Committee. Mr. Stanley Goldstein, the
Chairman and Chief Executive Officer of CVS, serves on the Board of Directors of
Bell Atlantic, but does not serve on Bell Atlantic's Compensation Committee.
Mr. Terrence Murray, the Chairman and Chief Executive Officer of Fleet
Financial Group, who is one of the directors standing for re-election, serves on
CVS' Compensation Committee. Mr. Thomas Ryan, the Vice Chairman and Chief
Operating Officer of CVS, serves on the Board of Directors of Fleet Financial
Group, but does not serve on Fleet's Compensation Committee.
6
<PAGE>
SHARE OWNERSHIP OF DIRECTORS AND NAMED EXECUTIVE OFFICERS
Share ownership information for each member of the Board of Directors, each
nominee for election to the Board of Directors, each executive officer named in
the Summary Compensation Table on page 12 hereof, and all current directors and
executive officers as a group is set forth below. Ms. Stewart and Mr. Woodward
are current directors who are not standing for re-election at the Meeting.
<TABLE>
<CAPTION>
OWNERSHIP OF COMMON STOCK(1)
---------------------------------------
<S> <C> <C>
NAME NUMBER PERCENT
---------------------------------------- ------------------------------ -------
Allan J. Bloostein...................... 10,087(2)(6) *
Charles Conaway......................... 197,027(2)(3)(4)(5) *
W. Don Cornwell......................... 3,565(2)(6) *
Thomas P. Gerrity....................... 4,625(2)(6) *
Stanley P. Goldstein.................... 940,303(2)(4)(5)(7) *
William H. Joyce........................ 4,466(2)(6) *
Terry R. Lautenbach..................... 10,730(2)(6) *
Larry J. Merlo.......................... 69,712(2)(3)(4)(5) *
Terrence Murray......................... 1,309(6)(7) *
Daniel C. Nelson........................ 177,074(2)(3)(4)(5) *
Sheli Z. Rosenberg...................... 3,713(6) *
Thomas M. Ryan.......................... 357,686(2)(3)(4)(5) *
Ivan G. Seidenberg...................... 4,620(2)(6) *
Patricia Carry Stewart.................. 11,740(2)(6) *
Thomas O. Thorsen....................... 4,000 *
M. Cabell Woodward, Jr.................. 13,240(2)(6) *
Eugene Applebaum........................ 0(8) *
All directors and executive officers as
a group
(19 persons, excluding Mr.
Applebaum)............................ 1,919,824(2)(3)(4)(5)(6)(7)(8) 1.1%
</TABLE>
- ------------------------
* Less than 1%.
(1) Unless otherwise indicated, ownership means sole voting and investment
power. The number of shares and other information indicated in this table
are as of February 18, 1998.
(2) The following shares of Common Stock included above for the indicated
persons and group are not presently owned, but are subject to options which
were outstanding on February 18, 1998 and were exercisable within 60 days
thereafter: Mr. Goldstein, 787,618; each of Messrs. Bloostein, Woodward and
Ms. Stewart, 9,240; Mr. Lautenbach, 6,930; Mr. Gerrity, 2,310; Mr.
Seidenberg, 4,620; Messrs. Joyce and Cornwell, 3,465; Mr. Ryan, 297,262; Mr.
Conaway, 162,837; Mr. Nelson, 147,133; Mr. Merlo, 56,127; directors and
executive officers as a group, 1,593,927.
(3) The following shares of Common Stock included above for the indicated
persons and group were granted under the Company's Omnibus Stock Incentive
Plan or its Incentive Compensation Plan and, although no longer subject to
performance standards required for certain of the awards since the one year
performance period for the awards has expired, all are subject to certain
restrictions as to continued employment and transfer of such shares as
provided in the plans: Mr. Ryan, 48,231; Mr. Conaway, 32,816; Mr. Nelson,
28,435; Mr. Merlo, 12,043; executive officers as a group, 128,012.
(4) The following shares of Common Stock were receivable upon the lapse of
restrictions on restricted stock or the exercise of options, but receipt of
such shares has been deferred pursuant to the Company's Deferred Stock
Compensation Plan: Mr. Goldstein, 22,022; Mr. Ryan, 3,385 shares; each of
Messrs. Conaway and Nelson, 1,666 shares; Mr. Merlo, 1,108 shares; all
directors and executive officers as a group, 29,847. These amounts have not
been included in the above table.
(5) The ESOP, established in 1989, held as of February 18, 1998, 5,324,444
shares of ESOP Preference Stock. The Bank of New York, the trustee of the
ESOP, will vote shares held by the ESOP in proportion to instructions
received from plan participants. As of December 31, 1996, the last date on
which an allocation was made, Mr. Goldstein has been allocated 893.158
shares; Mr. Ryan has been allocated 864.663 shares; Mr. Conaway has been
allocated 278.216 shares; Mr. Nelson has been allocated 217.757 shares; Mr.
Merlo has been allocated 556.438 shares; and all executive officers as a
group have been allocated 2,944.302 shares. These amounts have not been
included in the above table.
7
<PAGE>
(6) The following shares of Common Stock were receivable as non-employee
director compensation, but receipt of such shares has been deferred pursuant
to the Company's 1996 Directors Stock Plan: Mr. Bloostein, 4,518 shares; Mr.
Cornwell, 1,823 shares; Mr. Gerrity, 185 shares; Mr. Joyce, 2,495 shares;
Mr. Lautenbach, 2,898 shares; Mr. Murray, 905 shares; Ms. Rosenberg, 1,028
shares; Mr. Seidenberg, 2,339 shares; Ms. Stewart, 4,397 shares; Mr.
Woodward, 6,617 shares; all non-employee directors as a group, 27,205. These
amounts have not been included in the above table.
(7) Of the shares shown opposite Mr. Goldstein's name, 20,000 shares are held by
Mr. Goldstein's wife. Mr. Goldstein disclaims beneficial ownership of such
shares. Of the shares shown opposite Mr. Murray's name, 500 shares are held
by a charitable foundation. Mr. Murray disclaims beneficial ownership of
such shares.
(8) Mr. Applebaum will become a director and a nominee only following
consummation of the Arbor merger. See "Directors-- Agreement to Elect One
Arbor Designee Following Consummation of Arbor Acquisition", above. As of
the Record Date, Mr. Applebaum did not beneficially own any shares of the
Company's Common Stock. Based on the exchange ratio of 0.3182, upon
consummation of the Arbor merger, Mr. Applebaum will beneficially own
approximately 4.5 million shares of Common Stock, approximately 1.1 million
shares of Common Stock which are subject to options exercisable within 60
days of February 18, 1998, and options to purchase 25,000 shares of Common
Stock which will be granted to Mr. Applebaum upon consummation of the merger
and will be immediately exercisable. Such ownership interests of Mr.
Applebaum are not included in the aggregate beneficial ownership of all
directors and executive officers as a group.
SHARE OWNERSHIP INFORMATION OF CERTAIN PRINCIPAL STOCKHOLDERS
The Company is not aware of any person who owned beneficially more than 5%
of its outstanding voting securities as of February 18, 1998, except as shown in
the following table:
<TABLE>
<CAPTION>
NO. OF PERCENT
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER SHARES OF CLASS*
- ------------------------------------- ------------------------------------------------ ------------ -----------
<S> <C> <C> <C>
Common Stock......................... FMR Corp.(1)
82 Devonshire Street
Boston, MA 02109 24,002,349 13.9%
Common Stock......................... Putnam Investments, Inc.(2)
One Post Office Square
Boston, MA 02109 12,651,112 7.3%
Series One ESOP Convertible CVS Corporation and Subsidiaries
Preference Stock................... Employee Stock Ownership Plan Trust(3)
c/o Bank of New York, as Trustee
48 Wall Street
New York, NY 10005 5,324,444 100%
</TABLE>
- ------------------------
* This calculation is based on all outstanding shares of Common Stock and
ESOP Preference Stock as of February 18, 1998. The percent of voting
securities owned by FMR Corp., Putnam Investments, Inc. and the ESOP are
approximately 13.4%, 7.1% and 3.0%, respectively.
(1) FMR Corp. ("FMR") filed a statement with the SEC on Schedule 13G under the
Securities Exchange Act of 1934 dated December 30, 1997, as a parent holding
company in accordance with Rule 13d-1(b)(ii)(G) of such Act, disclosing
beneficial ownership of greater than 5% of the Common Stock (24,002,349
shares). According to the statement, FMR and/or subsidiaries have sole
voting power with respect to 1,286,618 of such shares and sole dispositive
power over all of these shares, and FMR has certified that all of these
shares were acquired in the ordinary course of business, and not for the
purpose of changing or influencing the control of CVS.
(2) Putnam Investments, Inc. ("Putnam") filed two statements with the SEC on
Schedule 13G under the Securities Exchange Act of 1934 dated January 16,
1998, as a parent holding company in accordance with Rule 13d-1(b)(ii)(G) of
such Act, disclosing beneficial ownership of greater than 5% of the Common
Stock (an aggregate of 12,651,112 shares). According to the statements,
Putnam and/or subsidiaries have sole voting power and sole dispositive power
with respect to none of such shares, and Putnam has certified that all of
these shares were acquired in the ordinary course of business, and not for
the purpose of changing or influencing the control of CVS.
(3) 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 of the shares with respect to which it has received timely
8
<PAGE>
voting instructions. Currently, each share of ESOP Preference Stock is
entitled to 1.2 votes per share on all matters submitted to a vote of the
holders of Common Stock, voting together with the holders of Common Stock as
a single class.
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (for purposes of this
report, the "Committee") is composed of six independent outside 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 below, participate.
COMPENSATION POLICIES. The Committee reviews the compensation of executive
officers on an ongoing basis, developing and implementing plans to serve the
following objectives:
- Support, communicate and drive achievement of CVS' business
strategies and goals;
- Attract and retain the highest caliber executive officers by
providing compensation opportunities comparable to those offered
by other firms with whom CVS competes for business and talent;
- Motivate high performance among executive officers in an
entrepreneurial incentive-driven culture;
- Closely align the interests of executive officers with
stockholders' interests; and
- Reward results achieved short term and in the long term creation
of stockholder value.
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 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 1997, the Committee engaged a compensation consulting firm to assist it
in the design of a new executive compensation program for the key CVS management
group. The consulting firm was engaged to research and advise CVS regarding
market data and best practices for the key management group, including the Chief
Executive Officer and the other executive officers named in the Summary
Compensation Table, to compare their salaries and other compensation awards to
industry standards and 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 nine specific retailers
(including four drug chains) with sales ranging from approximately $3.3 billion
to $11.8 billion. Five of the companies in this survey group are included in the
S&P Retail Composite Index used in the stock performance graph on page 14. The
compensation program for CVS' executive officers named in the Summary
Compensation Table in 1997 resulted from the Committee's review of this
information.
For 1997, executive officer compensation consisted of base salaries, cash
bonuses based on annual performance and, in the case of senior executives other
than the Chief Executive Officer, deferred stock and stock options under the
long-term Partnership Equity Program. Total compensation levels for 1997
generally were targeted at the 50th to 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 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. In addition, as
discussed below, the Partnership
9
<PAGE>
Equity Program requires an investment by each participant, which may provide
compensation above the targeted levels during the life of the program based in
part on the return on such investment, together with compensatory elements of
the program.
BASE SALARIES. The Committee reviews base salaries annually and considers
increases based on corporate profitability, competitive salaries, position
responsibility levels and individual qualifications and performance. In 1997, as
part of the overall review of the CVS compensation program, salaries of the
executive officers, other than the Chief Executive Officer, 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 comparable companies group. The
Chief Executive Officer's base salary has not been increased since 1993.
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." Normal Awards payable in cash
(subject to elective deferral) range up to 65% of base salary for the Chief
Executive Officer and the President, and range up to 60% of base salary for the
other executive officers. Certain senior executive officers, other than the
Chief Executive Officer, are also eligible for restricted stock awards based on
performance relative to predetermined objectives established for the year. These
performance-based restricted stock awards generally vest after three years of
continued future employment. Normal stock awards range up to 50% of base salary
for the President, and range up to 40% of base salary for the other executive
officers. The annual incentive plan provides for larger awards if performance
exceeds predetermined objectives, and smaller or no awards (both cash and
performance-based restricted stock) if performance falls below such objectives.
For 1997, the Committee determined the Chief Executive Officer's award based
on pre-established objectives for CVS' consolidated earnings before federal
income taxes ("EBIT") and return on net assets ("RONA"), as well as objectives
relating to the acquisition of Revco and the integration of former Revco
operations with the preexisting CVS operations. Based on such returns, and the
Committee's conclusion that the objectives relating to integration of Revco
operations were substantially exceeded, the Chief Executive Officer's annual
incentive was payable in cash at 224% of his Normal Award for 1997. This amount
is reflected in the bonus column of the Summary Compensation Table.
Annual incentive awards for 1997 payable to other executive officers were
based on the same EBIT and RONA objectives and objectives relating to
integration of Revco operations. Accordingly, annual incentives were generally
payable in a combination of cash and CVS stock at a rate of 224% of the Normal
Award for 1997, which amounts are reflected in the bonus column and restricted
stock column of the Summary Compensation Table.
STOCK OPTIONS. To date, the Compensation Committee has established a
general policy of making regular stock option grants to executives every other
year. The Committee may make exceptions to this policy in certain circumstances.
For example, although the regular option grants would have been made to
executives in 1997 in accordance with this policy, in view of the awards under
the Partnership Equity Program, discussed below, the regular option grant for
1997 was omitted. The Committee did, however, grant options to approximately 150
key employees below the officer level.
PARTNERSHIP EQUITY PROGRAM. As a major element in CVS' new executive
compensation program, in 1997 the Committee implemented the Partnership Equity
Program for key management of CVS. 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 the Company's Common Stock.
The Committee believes that the Program will strongly link the economic
interests of key managers with each other and with CVS stockholders; provide
future long-term compensation opportunities that are competitive in the
10
<PAGE>
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, approximately 40 key managers of the Company, including
its executive officers other than the Chief Executive Officer, were given the
opportunity 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 $46.00 per share (fair market value at the
purchase date), was payable from each participant's personal funds, without
loans or guarantees by the Company, 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 share will 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 has granted stock options at a rate of ten
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 three, four and five years following the
grant date, again based on continued employment and retention of the purchased
shares, subject to accelerated vesting in certain events.
The Committee believes that the participation in the Partnership Equity
Program evidences a strong personal commitment by key management--both
financially and through continued future employment-- to the growth of CVS and
creation of long-term stockholder value. Such a commitment, in the Committee's
view, enhances the long-term outlook for growth in stockholder value, and the
Program will provide commensurate long-term rewards and compensation to
participants if such growth materializes and can be sustained. The Committee
does not consider stock holdings, prior option or restricted stock grants, or
the appreciation thereon when making option, restricted stock and Partnership
Equity Program 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, except for amounts not in excess of $1 million in a given
year. To this end, in 1997 the Board adopted and stockholders approved the 1997
Incentive Compensation Plan, which permits annual incentive awards and stock
options (and certain other awards) to qualify as performance based compensation
not subject to the limitation on deductibility. The Committee believes that
stock options granted under prior plans also qualify as performance based
compensation under Section 162(m), and other steps, such as deferral
arrangements, can be used to avoid or minimize any loss of deductibility.
Nevertheless, maintaining tax deductibility is but one consideration among
many--and is not the most important consideration--in the design of the
compensation program for senior executives. The Committee may, from time to
time, conclude that compensation arrangements are in the best interests of CVS
and its stockholders despite the fact that such arrangements might not, in whole
or in part, qualify for tax deductibility.
Compensation Committee Members are M. Cabell Woodward, Jr., Chairman, Allan
J. Bloostein, Terry R. Lautenbach, Terrence Murray, Sheli Z. Rosenberg and Ivan
G. Seidenberg.
11
<PAGE>
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth summary information as
to compensation received by the Company's Chief Executive Officer and each of
the four other most highly compensated persons who were serving as executive
officers of the Company as of December 31, 1997 (collectively, the "named
executive officers") for services rendered to the Company in all capacities
during the three fiscal years ended December 31, 1997.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AWARDS PAYOUTS
--------------------------- -------------
ANNUAL COMPENSATION RESTRICTED SECURITIES ALL OTHER
----------------------- STOCK AWARDS UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION(S) YEAR SALARY($) BONUS($)(1) ($)(2) OPTIONS(#)(3) ($)(4)
- ---------------------------------------------- --------- ---------- ----------- ------------ ------------- -------------
Stanley P. Goldstein.......................... 1997 1,050,000 1,524,960 -- -- 7,578
Chairman of the Board, Chief 1996 1,050,000 1,000,000 -- -- 20,040
Executive Officer and Director of 1995 1,050,000 -- -- 519,690 3,750
CVS
Thomas M. Ryan................................ 1997 700,000 1,052,950 1,710,000 195,660 7,072
Vice Chairman, Chief Operating 1996 587,599 2,558,000 300,000 346,460 9,167
Officer and Director of CVS; 1995 525,000 862,000 870,000 86,615 10,580
President and Chief Executive Officer
of CVS Pharmacy, Inc.
Charles C. Conaway............................ 1997 500,000 670,310 1,146,900 152,180 7,050
Executive Vice President and 1996 387,500 2,037,000 230,000 230,974 9,167
Chief Financial Officer of CVS;
Executive Vice President and
Chief Financial Officer of CVS
Pharmacy, Inc.
Daniel C. Nelson.............................. 1997 425,000 603,280 902,200 108,700 7,094
Vice President of CVS; 1996 337,575 537,000 230,000 230,974 8,375
Executive Vice President--
Marketing of CVS Pharmacy, Inc.
Larry J. Merlo................................ 1997 350,000 391,020 495,500 65,230 7,027
Vice President of CVS; 1996 266,250 358,000 153,000 86,615 9,000
Senior Vice President--Stores of
CVS Pharmacy, Inc.
</TABLE>
- ------------------------
(1) Amount of bonus in 1996 includes a deferred bonus in the amount of
$1,500,000 payable to each of Messrs. Ryan and Conaway in 1999 in
recognition of their work in successfully implementing the Company's
strategic restructuring program.
(2) Restricted stock granted in 1997 is forfeitable if the recipient ceases to
be employed by the Company during the five year restriction period, subject
to accelerated vesting in certain events. All restricted stock disclosed in
this table and currently outstanding reflect awards of 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, 1997,
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 had a right
to receive, in the aggregate, 50,405 restricted shares having a market value
of $3,238,521; Mr. Conaway had a right to receive, in the aggregate, 34,482
restricted shares having a market value of $2,215,469; Mr. Nelson had a
right to receive, in the aggregate, 30,101 restricted shares having a market
value of $1,933,989; and Mr. Merlo had a right to receive, in the aggregate,
13,151 restricted shares having a market value of $844,952.
12
<PAGE>
(3) Options outstanding have been adjusted to account for the spin-off of
Footstar on October 12, 1996. Options granted in 1997 become exercisable in
three annual installments beginning on the third anniversary of the grant
date. Options granted in 1996 become exercisable as follows: one-half of the
grant becomes exercisable in three annual installments beginning on the
second anniversary of the grant date; the remaining one-half of the grant
became exercisable in 1997 due to accelerated vesting following achievement
of certain target trading values of the Company's Common Stock.
(4) For 1997, includes $3,750 contributed under the Company's 401(k) Profit
Sharing Plan for each of the named executive officers; 59.869 ESOP shares
based on an assumed market value of $53.45 per share (total value of $3,200)
contributed under the ESOP for each of the named executives; and $628, $141,
$100, $144 and $77 paid in life insurance premiums for Messrs. Goldstein,
Ryan, Conaway, Nelson and Merlo, respectively.
OPTION GRANTS IN FISCAL YEAR ENDING DECEMBER 31, 1997
The following table summarizes activity relating to stock options awarded to
the named executive officers in the last fiscal year.
<TABLE>
<CAPTION>
NO. OF PERCENTAGE OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO GRANT DATE
OPTIONS GRANTED EMPLOYEES IN EXERCISE EXPIRATION PRESENT
NAME (#) FISCAL YEAR (1) PRICE ($) DATE VALUE ($)(2)
- ------------------------------------------- ---------------- --------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Stanley P. Goldstein....................... 0 0.00% -- -- --
Thomas M. Ryan............................. 195,660 14.80% 46.00 2/18/07 2,486,839
Charles C. Conaway......................... 152,180 11.51% 46.00 2/18/07 1,934,208
Daniel C. Nelson........................... 108,700 8.22% 46.00 2/18/07 1,381,577
Larry J. Merlo............................. 65,230 4.93% 46.00 2/18/07 829,073
</TABLE>
- ------------------------
(1) Based on options to purchase 1,321,945 shares granted to all employees
during 1997.
(2) The hypothetical present values on the grant date are calculated under the
modified Black-Scholes Model, which is a mathematical formula used to value
options traded on stock exchanges. This formula considers a number of
factors in hypothesizing an option's present value. Factors used to value
options granted which expire 2/18/2007 include the stock's expected
volatility rate (20.22%), risk free rate of return (6.15%), projected
dividend yield (0.96%), projected time of exercise (7 years) and projected
risk of forfeiture rate for vesting period (5% per annum). There is no
assurance that the hypothetical present value of the stock options reflected
in this table will be as shown in the table.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR ENDING DECEMBER 31, 1997 AND
YEAR-END OPTION VALUES
The following table summarizes stock option exercise activity for the named
executive officers during the last fiscal year and the fiscal year-end values of
unexercised options.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES VALUE OPTIONS AT AT FISCAL
ACQUIRED REALIZED FISCAL YEAR-END(#)(1) YEAR-END($)(2)
NAME ON EXERCISE (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- -------------------------------- --------------- ----------- ----------------------- -----------------------
<S> <C> <C> <C> <C>
Stanley P. Goldstein............ 46,195 1,242,692 614,388/173,230 18,101,710/5,523,941
Thomas M. Ryan.................. 2,541 68,355 268,390/397,762 8,188,491/9,827,899
Charles C. Conaway.............. 0 0 151,288/279,216 4,587,878/6,703,193
Daniel C. Nelson................ 20,323 381,057 135,584/235,736 4,198,485/5,909,683
Larry J. Merlo.................. 0 0 56,217/108,538 1,713,990/2,524,572
</TABLE>
- ------------------------
(1) Options outstanding have been adjusted to account for the spin-off of
Footstar on October 12, 1996.
(2) The value of unexercised in-the-money options at fiscal year-end assumes a
fair market value of Common Stock of $64.25, the average of the high and low
sale prices of the Common Stock as reported by the New York Stock Exchange
on December 31, 1997. The actual before-tax amount, if any, realized upon
the exercise of a stock option will depend upon the market price of the
Common Stock at the time the stock option is exercised. There is no
assurance that the value of unexercised in-the-money stock options reflected
in this table will be as shown in the table.
13
<PAGE>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL STOCKHOLDERS' RETURN AMONG CVS, S&P
RETAIL COMPOSITE AND S&P 500
The following graph compares the annual percentage change in the Company's
cumulative total stockholder return on its Common Stock during a period
commencing on December 31, 1992 and ending on December 31, 1997 (as measured by
dividing (i) the sum of (A) the cumulative amount of dividends for the
measurement period, assuming dividend reinvestment and (B) the difference
between the Company's share price at the end and the beginning of the
measurement period; by (ii) the share price at the beginning of the measurement
period) with the cumulative total return of the S&P Retail Composite and the S&P
500 during such period. The stock price performance on the graph below is not
necessarily indicative of future price performance.
CVS CORPORATION
- --------------------------------------------------------------------------------
Comparison of Cumulative Total Return to Shareholders
December 31, 1992 to December 31, 1997
- --------------------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CVS CORPORATION S&P RETAIL COMPOSITE* S&P 500
<S> <C> <C> <C>
1992 $100.00 $100.00 $100.00
1993 $79.00 $93.40 $110.00
1994 $62.60 $85.70 $111.50
1995 $65.20 $95.30 $153.30
1996 $102.70 $112.10 $188.50
1997 $160.30 $162.30 $202.90
</TABLE>
<TABLE>
<CAPTION>
Year End
----------------------------------------------------------------
1992 1993 1994 1995 1996 1997
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
CVS Corporation $ 100.0 $ 79.0 $ 62.6 $ 65.2 $ 102.7 $ 160.3
S&P Retail Composite* 100.0 93.4 85.7 95.3 112.1 162.3
S&P 500 100.0 110.0 111.5 153.3 188.5 202.9
</TABLE>
- ------------------------------
* Index includes 36 retail companies, including CVS.
INCOME CONTINUATION POLICY
In January 1987, the Board of Directors adopted, and in May 1988 amended,
the Income Continuation Policy for Select Senior Executives of the Company (the
"Income Continuation Policy"), which provides that in the event of a change in
control, as defined in the Income Continuation Policy, and subsequent
termination of employment by CVS other than for cause, or by the executive with
good reason (as defined in the Income Continuation Policy), within 24 months of
a change in control, the Chief Executive Officer and other current named
executive officers in the Summary Compensation Table will be entitled to receive
from the Company a single sum payment equal to three times the sum of annual
base pay plus their full normal annual incentive compensation award 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 the Company at the time of
14
<PAGE>
such termination of employment for a period of 24 months after such termination
of employment (or if such participation is not possible under the terms of any
such plan, each such executive shall be provided with benefits which are
comparable to the coverage provided by such plan). The Income Continuation
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 Omnibus Stock Incentive Plan and any successor
plan thereto without regard to any restrictions previously imposed under the
terms of such plan and entitled to exercise any stock options on Common Stock
(whether or not otherwise exercisable). In addition, upon termination of
employment each outstanding option shall remain exercisable until the earlier of
six months after such termination, provided such exercise does not violate the
terms of the plan under which such option was granted, or the expiration of the
option period specified in such plan. The Income Continuation 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), the Company will make an additional payment to the covered
executive in respect of such tax.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Company maintains a Supplemental Executive Retirement Plan for Select
Senior Management of the Company (the "Supplemental Retirement Plan"). The
Supplemental 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
and Merlo) 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) 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
the Company's qualified plans, social security or other retirement benefits.
Except in the event of a change in control (as defined in the plan) or as
provided in the employment agreements referred to below, no benefits are payable
to an eligible executive unless he or she terminates employment after attaining
age 55 or after five years of credited service under the plan. 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 or with five years of service:
<TABLE>
<CAPTION>
ESTIMATED ANNUAL RETIREMENT BENEFITS BASED ON SERVICE OF
------------------------------------------------------------
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 column of the Summary Compensation Table. The estimated
credited years of benefit service for Messrs. Ryan, Conaway, Nelson and Merlo as
of December 31, 1997 were 22, 5, 4 and 19 years, respectively. Enhanced benefits
are payable in a lump sum upon termination of employment following a change in
control.
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<PAGE>
The benefit formula in place prior to amendment of the Supplemental
Retirement Plan (the "Prior Benefit Formula") continues to apply to Mr.
Goldstein and certain other executives who have terminated employment with a
vested benefit. The Prior Benefit Formula provides that 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 the Company or programs of other
companies (but without deduction for social security). In the case of retirement
on 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 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 is currently entitled to
retire with an annual benefit of approximately $773,000, computed under a
straight life annuity formula. Final compensation for purposes of the Prior
Benefit Formula is the executive's final year of salary plus targeted annual
incentive bonus for his or her final year. In the event of a change in control,
benefits will be payable under the Prior Benefit Formula upon subsequent
termination of employment on a lump sum basis.
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 survivor forms of payment of equivalent actuarial value may be
elected.
EMPLOYMENT AGREEMENTS WITH NAMED EXECUTIVE OFFICERS
The Company has entered into employment agreements (each referred to below
as an "Employment Agreement" and collectively as the "Employment Agreements")
with Messrs. Ryan, Conaway, Nelson and Merlo relating to their employment with
the Company. The Employment Agreements supersede the Income Continuation Policy
(referred to above) as it relates to such executives.
The period of employment under the Employment Agreements extends initially
for three years, subject to automatic one-year extensions at the end of the
initial term unless either party gives notice of non-renewal at least 180 days
prior to expiration of the 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 currently $725,000,
$500,000, $450,000 and $350,000 for Messrs. Ryan, Conaway, 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 the Company 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. Mr. Ryan's Employment Agreement provides that his
target annual incentive opportunity may not be less than 65% of his base salary,
and the Employment Agreements for Messrs. Conaway, Nelson and Merlo provide that
their target annual incentive opportunities may not be less than 60%, 60% and
50%, respectively, 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
16
<PAGE>
named executive officers, following a change in control), material breach of the
Employment Agreement by the Company, 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 the
Company.
If payments under the Employment Agreements following a change in control
are subject to the "golden parachute" excise tax, the Company will make an
additional "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 would have been the case had such excise tax
not applied. The Employment Agreements obligate the Company to indemnify the
executives to the fullest extent permitted by law, including the advancement of
expenses, and provide that the Company generally 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 Vice
Chairman and Chief Operating Officer of CVS Corporation, President and Chief
Executive Officer of CVS Pharmacy Inc., and his agreement to serve as a member
of the Board of Directors of CVS Corporation. The Employment Agreements with
Messrs. Conaway, Nelson and Merlo relate to their employment as executive
officers of CVS Corporation.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the Company's merger agreement with Arbor, the Company
entered into (or, upon consummation of such merger, would enter into) the
following agreements and arrangements with Mr. Eugene Applebaum, Arbor's
Chairman and Chief Executive Officer.
(i) The Company and Mr. Applebaum have entered into an Option and Voting
Agreement providing for, among other things, (a) Mr. Applebaum's agreement
to vote Arbor shares beneficially owned by him and certain of his family
members (approximately 24% of the outstanding Arbor voting stock) in favor
of the merger and (b) the grant by Mr. Applebaum to CVS of an option to
purchase such Arbor shares in the event of termination of the merger
agreement under certain circumstances.
(ii) In connection with consummation of the Arbor merger, the parties to
such Option and Voting Agreement would enter into a registration rights
agreement pursuant to which CVS would agree to certain registration rights
under the Securities Act of 1933 with respect to the shares of CVS Common
Stock issued in the merger to Mr. Applebaum and such family members.
(iii) CVS has entered into a Consulting Agreement with Mr. Applebaum,
that will be effective upon consummation of the Arbor merger, relating to
certain transitional and real estate-related services to be provided to CVS
by Mr. Applebaum following such consummation.
The foregoing agreements and arrangements with Mr. Applebaum are more fully
described in CVS' Registration Statement on Form S-4 filed under the Securities
Act of 1933 in connection with the Arbor merger and such descriptions are
incorporated herein by reference. The aforementioned agreements are filed as
exhibits to such Registration Statement.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and officers, and persons who own more than 10% of the Company's
Common Stock, to file with the Securities and Exchange Commission (the "SEC")
initial reports of beneficial ownership and reports of changes in beneficial
ownership of the Common Stock and other equity securities of the Company.
Officers, directors and greater than 10% beneficial owners are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
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<PAGE>
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the year ended December 31, 1997 all Section 16(a)
filing requirements applicable to its officers, directors and greater than 10%
beneficial owners were satisfied.
ELECTION OF DIRECTORS
(NOTICE ITEM 1)
The nominees described above in "Directors--Nominees" are to be elected at
the Meeting, to hold office until the next annual meeting of stockholders and
until their respective successors are duly elected and qualified. Current
directors who not standing for re-election at the Meeting are Patricia Carry
Stewart and M. Cabell Woodward, Jr., who have informed the Company that they
will retire at the time of the Meeting.
The persons named as proxies in the enclosed proxy have advised the Company
that the shares represented are to be voted at the Meeting in accordance with
the proxy for the nominees for election as directors, unless a stockholder
indicates otherwise on the proxy. The persons named as proxies have also advised
the Company that it is their present intention, if any of said nominees shall
unexpectedly become unavailable or unwilling to serve, to vote for the election
of any person substituted by management for any of said nominees. The Board of
Directors has no reason to believe that any nominee will be unable or unwilling
to serve; HOWEVER, Mr. Applebaum's nomination is conditioned upon the
consummation of the Arbor merger prior to the Meeting. If the Arbor merger is
not consummated prior to the Meeting, Mr. Applebaum will be withdrawn as a
nominee and only eleven directors will be elected at the Meeting. Management
does not intend to substitute another nominee for Mr. Applebaum.
The affirmative vote of 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 (whether or not a quorum exists), is required
to approve the election of directors.
THE BOARD OF DIRECTORS RECOMMENDS THE ELECTION OF ALL NOMINEES, AND PROXIES
SOLICITED BY THE BOARD WILL BE VOTED IN FAVOR THEREOF UNLESS A STOCKHOLDER HAS
INDICATED OTHERWISE ON THE PROXY.
AMENDMENT OF THE COMPANY'S CHARTER TO INCREASE
THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
FROM 300 MILLION TO ONE BILLION SHARES
(NOTICE ITEM 2)
Article Fourth of the Company's Charter currently provides for an authorized
capitalization of 300 million shares of Common Stock, 120,619 shares of
cumulative preferred stock, par value $.01 per share ("Preferred Stock"), and 50
million shares of preference stock, par value $1.00 per share ("Preference
Stock).
The Company's Board of Directors proposes to amend Article Fourth of the
Charter to increase the number of authorized shares of Common Stock from 300
million to one billion. Authorized shares of Preferred Stock and Preference
Stock would remain unchanged under the proposed amendment.
REASONS FOR THE BOARD'S RECOMMENDATION OF APPROVAL OF THE CHARTER AMENDMENT
PROPOSAL; CERTAIN OTHER CONSIDERATIONS
Of the 300 million shares authorized for issuance under the Charter, there
are approximately 173.1 million shares issued and outstanding according to the
records of the Company's transfer agent and
18
<PAGE>
approximately 9.9 million reserved for issuance under employee benefit plans. In
addition, based on the exchange ratio of 0.3182, upon consummation of the Arbor
merger the Company expects to issue approximately 18.9 million shares of Common
Stock and will reserve approximately 2.6 million shares of Common Stock for
issuance upon exercise of converted Arbor stock options.
The proposed amendment would increase the number of authorized shares of
Common Stock by 700 million shares. The additional shares, if issued, would have
the same rights as the shares of Common Stock now outstanding. The Board has no
present plans, agreements, commitments or understandings for the issuance or use
of these proposed additional authorized shares.
The Board of Directors believes that the proposed increase is in the best
interests of CVS and its stockholders for the following reasons. It is important
for the Board to have the flexibility to act promptly to meet future business
needs as they arise. Sufficient shares should be readily available to maintain
the Company's financing and capital raising flexibility, for stock splits and
stock dividends, acquisitions and mergers, employee benefit plans and other
proper business purposes.
By having additional shares readily available for issuance, the Board would
be able to act expeditiously, without spending the time and incurring the
expense of soliciting proxies and holding special meetings of stockholders. For
example, today, if the Board determined that a stock split were advisable to
enhance stockholder liquidity or to achieve a more attractive market price for a
broader spectrum of investors, the Board would not have sufficient authorized
shares available to effect a two-for-one split.
The Board, however, may issue additional shares of common stock without
action on your part only if the action is permissible under Delaware law and the
rules of the stock exchange on which the Common Stock is listed. For example,
today, if the Board were to make a stock acquisition which resulted in an
increase of 20% or more in the number of shares of Common Stock outstanding, New
York Stock Exchange rules would require that the Company obtain stockholder
approval.
You should note, however, that if the Board were to issue additional shares,
it could have a dilutive effect on the Company's per share earnings and on each
stockholder's voting power in the Company (unless the stockholder were to
purchase additional shares to keep the same level of ownership). There are no
preemptive rights available to stockholders in connection with the issuance of
any shares.
CERTAIN STATUTORY AND CHARTER PROVISIONS
Because an increase in the number of authorized shares could be viewed as
having an anti-takeover effect, SEC rules require management to disclose all
Charter, bylaw and other provisions that could be viewed as having an
anti-takeover effect. Certain provisions of the Company's Charter and bylaws
summarized in the following paragraphs may be deemed to have an anti-takeover
effect and may delay, deter or prevent a tender offer or takeover attempt that a
stockholder might consider in its best interest, including those attempts that
might result in a premium over the market price for the shares held by
stockholders. The following is a summary of certain of these provisions. The
Charter and bylaws are exhibits to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997, and the following summary is qualified
in its entirety by reference to such documents.
(i) STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS. The Charter
provides that any action required or permitted to be taken at an annual or
special meeting of stockholders may be taken without a meeting upon the
written consent of all stockholders entitled to vote thereon. The Charter
also provides that special meetings of the Company's stockholders may only
be called by the Board, the Chairman of the Board or the President (or the
Vice Chairman in the absence of a President) and may not be called by any
other person (subject to the rights of a class or series of Preferred Stock
to call special meetings of such class or series). These provisions may make
it more difficult for stockholders to take action opposed by the Board.
19
<PAGE>
(ii) PREFERRED STOCK. Under the Charter, the Board has the authority,
without further stockholder approval but subject to certain limitations set
forth in the Charter, to create one or more series of preferred stock, to
issue shares of preferred stock in such series up to the maximum number of
shares of the relevant class of such stock authorized, and to determine the
preferences, rights, privileges and restrictions of any series, including
the dividend rights, voting rights, rights and terms of redemption,
liquidating preferences, the number of shares constituting any such series
and the designation of such series. Pursuant to this authority, the Board
could create and issue a series of preferred stock with rights, privileges
or restrictions, and adopt a stockholder rights plan, having the effect of
discriminating against an existing or prospective holder of such securities
as a result of such security holder beneficially owning or commencing a
tender offer for a substantial amount of Common Stock. One of the effects of
authorized but unissued and unreserved shares of capital stock may be to
render more difficult or discourage an attempt by a potential acquiror to
obtain control of the Company by means of a merger, tender offer, proxy
contest or otherwise, and thereby protect the continuity of the Company's
management. The issuance of such shares of capital stock may have the effect
of delaying, deferring or preventing a change in control of CVS without any
further action by the Company's stockholders.
(iii) CERTAIN PROVISIONS RELATING TO BUSINESS COMBINATIONS. Article Fifth
of the Charter ("Article Fifth") provides that any "Business Combination"
with a "Related Person" requires, in addition to any vote required by law,
the affirmative approval of at least 66 2/3% of the outstanding shares of
Voting Stock (as defined in Article Fifth), voting together as a single
class, held by stockholders other than a Related Person, unless, among other
things, (i) the Continuing Directors (as defined in Article Fifth), by at
least 66 2/3% vote of such Continuing Directors, have expressly approved
such Business Combination either in advance of or subsequent to such Related
Person's having become a Related Person or (ii) certain fair price criteria
and disclosure obligations are satisfied. The term "Related Person" is
defined to mean (a) any Person (other than CVS or any wholly owned
subsidiary) that, alone or together with any Affiliates and Associates, is
or becomes the Beneficial Owner of an aggregate of 10% or more of the
outstanding Voting Stock, and (b) any Affiliate or Associate of any such
Person, provided, however, that the term "Related Person" shall not include
(x) a Person whose acquisition of such aggregate percentage of Voting Stock
was approved in advance by at least 66 2/3% of the Continuing Directors or
(y) any pension, profit sharing, employee stock ownership or other employee
benefit plan of CVS or any subsidiary, all of the capital stock of or equity
interest in which subsidiary is owned by CVS and one or more subsidiaries or
CVS, or any trustee or fiduciary when acting in such capacity with respect
to any such plan. The term "Business Combination" is defined to mean (a) any
merger or consolidation of CVS or a subsidiary with or into a Related
Person, (b) any sale, lease, exchange, transfer or other disposition,
including without limitation by way of a mortgage or any other security
device, of any Substantial Amount (as defined in Article Fifth) of the
assets of CVS, one or more subsidiaries or CVS and one or more subsidiaries
to a Related Person, (c) the adoption of any plan or proposal for the
liquidation or dissolution of CVS proposed by or on behalf of any Related
Person, (d) any sale, lease, exchange, transfer or other disposition,
including without limitation by way of a mortgage or any other security
device, of any substantial amount of the assets of a Related Person to CVS,
one or more subsidiaries, or CVS and one or more subsidiaries, (e) the
issuance of any securities of CVS, one or more subsidiaries or CVS and one
or more subsidiaries to a Related Person or to a Person that giving effect
thereto, would be a Related Person other than the issuance on a pro rata
basis to all holders of stock of the same class pursuant to a stock split or
stock dividend, (f) any reclassification of securities, recapitalization of
CVS, or any merger or consolidation of CVS with or into one or more
subsidiaries or any other transaction that would have the effect, directly
or indirectly, of increasing the voting power or other equity interest of a
Related Person in CVS, (g) any loan, advance, guaranty, pledge or other
financial assistance by CVS, one or more subsidiaries or CVS and one or more
subsidiaries to or for the benefit, directly or indirectly (except
proportionately as a stockholder), of a Related Person, (h) any agreement,
contract or other
20
<PAGE>
arrangement providing for any Business Combination and (i) any series of
transactions that a majority of Continuing Directors determines are related
and that, taken together, would constitute a Business Combination.
(iv) DELAWARE TAKEOVER STATUTE. The Company is subject to Section 203 of
the Delaware General Corporation Law ("Section 203"). In general, Section
203 prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of
three years following the date that such stockholder became an interested
stockholder, unless (i) prior to such date either the business combination
or the transaction which resulted in the stockholder becoming an interested
stockholder is approved by the board of directors of the corporation, (ii)
upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owns at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding for purposes of determining the number of
shares outstanding, shares owned by (A) persons who are both directors and
officers and (B) employee stock plans in certain circumstances), or (iii) on
or after such date the business combination is approved by the board and
authorized at an annual or special meeting of stockholders, and not by
written consent, by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the interested stockholder. A
"business combination" includes a merger, consolidation, asset sale, or
other transaction resulting in a financial benefit to the interested
stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years, did own) 15% or more
of the corporation's voting stock. The restrictions imposed by Section 203
will not apply to a corporation if, among other things, (i) the
corporation's original certificate of incorporation contains a provision
expressly electing not to be governed by Section 203 or (ii) 12 months have
passed after the corporation, by action of its stockholders holding a
majority of the outstanding stock, adopts an amendment to its certificate of
incorporation or bylaws expressly electing not to be governed by Section
203. The Company has not elected out of Section 203 and, therefore, the
restrictions imposed by Section 203 will apply to the Company.
The affirmative vote of a majority of the aggregate votes represented by the
outstanding shares of Common Stock and ESOP Preference Stock, voting as a single
class, is required to approve the Charter Amendment Proposal.
THE BOARD OF DIRECTORS RECOMMENDS APPROVAL OF THE CHARTER AMENDMENT PROPOSAL,
AND PROXIES SOLICITED BY THE BOARD WILL BE VOTED IN FAVOR OF SUCH PROPOSAL
UNLESS A STOCKHOLDER HAS INDICATED A VOTE AGAINST OR AN ABSTENTION ON THE PROXY.
INDEPENDENT AUDITORS
(NOTICE ITEM 3)
The Board of Directors has appointed KPMG Peat Marwick LLP, independent
public accountants, to audit the financial statements of the Company for the
year ending December 31, 1998. The Board proposes that the stockholders ratify
this appointment. KPMG Peat Marwick audited the Company's financial statements
for the year ended December 31, 1997. The Company expects that representatives
of KPMG Peat Marwick will be present at the Meeting, with the opportunity to
make a statement if they so desire, and will be available to respond to
appropriate questions.
In the event that ratification of the appointment of KPMG Peat Marwick as
the independent auditors for the Company is not obtained at the Meeting, the
Board of Directors will reconsider its appointment.
21
<PAGE>
The affirmative vote of a majority of the votes represented by the shares of
Common Stock and ESOP Preference Stock present at the Meeting, in person or by
proxy, and entitled to vote, voting as a single class (so long as such shares so
present represent a quorum), is required to ratify the appointment of the
independent auditors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO APPROVE THE RATIFICATION OF THE
APPOINTMENT OF KPMG PEAT MARWICK AS INDEPENDENT AUDITORS, AND PROXIES SOLICITED
BY THE BOARD WILL BE VOTED IN FAVOR THEREOF UNLESS A STOCKHOLDER HAS INDICATED A
VOTE AGAINST OR AN ABSTENTION ON THE PROXY.
OTHER MATTERS
The Board of Directors knows of no other business which will be presented to
the Meeting. If any other business is properly brought before the Meeting, it is
intended that proxies in the enclosed form will be voted in respect thereof in
accordance with the judgment of the persons voting the proxies.
STOCKHOLDER PROPOSALS
To be considered for presentation at the Annual Meeting of Stockholders to
be held in 1999, stockholder proposals must be received, marked for the
attention of: Secretary, CVS Corporation, One CVS Drive, Woonsocket, Rhode
Island 02895, not later than December 3, 1998.
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE MEETING, YOU ARE URGED TO FILL
OUT, SIGN, DATE AND RETURN THE ENCLOSED PROXY AT YOUR EARLIEST CONVENIENCE.
By Order of the Board of Directors,
Stanley P. Goldstein
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
Woonsocket, Rhode Island
April 2, 1998
22
<PAGE>
CVS CORPORATION ("CVS")
THIS PROXY IS BEING SOLICITED BY THE CVS BOARD OF DIRECTORS
The undersigned hereby appoints Stanley P. Goldstein and Thomas M. Ryan, and
each of them, the undersigned's true and lawful proxies, agents and
attorneys, each with full power to act without the other and with full power
of substitution and revocation, for and on behalf of the undersigned, to vote
all shares of common stock of CVS which the undersigned would be entitled to
vote if present at the Annual Meeting of Stockholders of CVS, to be held at
10:00 a.m., local time, on Wednesday, May 13, 1998, at the offices of CVS,
One CVS Drive, Woonsocket, Rhode Island 02895, and at any adjournments or
postponements thereof (the "Meeting").
The undersigned hereby ratifies and confirms all that said proxies may
lawfully do in the premises, and hereby revokes all proxies heretofore given
by the undersigned to vote at said Meeting and at any adjournments or
postponements thereof. The undersigned acknowledges receipt of the notice of
and the proxy statement for said Meeting.
THE BOARD RECOMMENDS A VOTE "FOR" THE PROPOSALS DESCRIBED BELOW ON THE
REVERSE SIDE OF THIS PROXY.
TO VOTE IN ACCORDANCE WITH THE BOARD'S RECOMMENDATIONS, JUST SIGN ON THE
REVERSE SIDE; NO BOXES NEED TO BE MARKED. IF THIS PROXY IS EXECUTED BUT NO
INSTRUCTIONS ARE GIVEN AS TO ANY ITEMS SET FORTH IN THIS PROXY, THIS PROXY
WILL BE VOTED FOR THE PROPOSALS DESCRIBED ON THE REVERSE SIDE.
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED ON THE REVERSE SIDE)
<PAGE>
/X/ Please mark your votes as in this example.
The Board of Directors recommends a vote FOR all Proposals. To vote in
accordance with the Board's recommendations, just sign below; no boxes need
to be checked.
1. Election of Directors. FOR all nominees listed to the right (except
as marked to the contrary) / / WITHHOLD AUTHORITY to vote for all
nominees listed to the right / /
Nominees: Eugene Applebaum*, Allan J. Bloostein, W. Don Cornwell,
Thomas P. Gerrity, Stanley P. Goldstein, William H. Joyce,
Terry R. Lautenbach, Terrence Murray, Sheli Z. Rosenberg, Thomas M. Ryan,
Ivan G. Seidenberg and Thomas O. Thorsen.
* Provided, that if the Arbor Drugs merger described in the
accompanying proxy statement is not consummated prior to the Meeting, Mr.
Applebaum will be withdrawn as a nominee and no substitution will be made.
(Instruction: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.)
__________________________________________________________________________
2. Proposal to amend the Company's Amended and Restated Certificate of
Incorporation to increase the number of authorized shares of the Company's
common stock from 300 million shares to one billion shares.
/ / FOR / / AGAINST / / ABSTAIN
3. Proposal to ratify the appointment of KPMG Peat Marwick LLP as the Company's
independent auditors for the year ending December 31, 1998.
/ / FOR / / AGAINST / / ABSTAIN
4. In their discretion, the proxies and each of them, are authorized to vote in
accordance with their judgment upon such other business as may properly come
before the Meeting.
THIS PROXY 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 name(s) appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.
Signature:____________________________ Date ________________________________
<PAGE>
CVS CORPORATION ("CVS")
THIS PROXY IS BEING SOLICITED BY THE CVS BOARD OF DIRECTORS
The undersigned hereby instructs The Bank of New York: (i) as trustee* under
the CVS and Subsidiaries Employee Stock Ownership Plan, to vote all of the
shares of Series One Convertible ESOP Preference Stock of CVS held in such
Plan and (ii) as administrator* of the CVS 401(K) Profit Sharing Plan, to
vote all of the shares of CVS common stock held in such Plan, in each case
which the undersigned would be entitled to vote if present at the Annual
Meeting of Stockholders of CVS, to be held at 10:00 a.m., local time, on
Wednesday, May 13, 1998, at the offices of CVS, One CVS Drive, Woonsocket,
Rhode Island 02895, and at any adjournments or postponements thereof (the
"Meeting").
The undersigned hereby ratifies and confirms all that said proxy may lawfully
do in the premises, and hereby revokes all proxies heretofore given by the
undersigned to vote at said Meeting and at any adjournments or postponements
thereof. The undersigned acknowledges receipt of the notice of and the proxy
statement for said Meeting.
THE BOARD RECOMMENDS A VOTE "FOR" THE PROPOSALS DESCRIBED ON THE REVERSE SIDE.
TO VOTE IN ACCORDANCE WITH THE BOARD'S RECOMMENDATIONS, JUST SIGN ON THE
REVERSE SIDE; NO BOXES NEED TO BE MARKED. IF THIS PROXY IS EXECUTED BUT NO
INSTRUCTIONS ARE GIVEN AS TO ANY ITEMS SET FORTH IN THIS PROXY, THIS PROXY
WILL BE VOTED FOR THE PROPOSALS DESCRIBED BELOW.
*THE BANK OF NEW YORK, AS TRUSTEE OR ADMINISTRATOR, HAS APPOINTED CHASEMELLON
SHAREHOLDER SERVICES, L.L.C. AS AGENT TO TALLY THE VOTES.
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED ON THE REVERSE SIDE)
<PAGE>
/X/ Please mark your votes as in this example.
The Board of Directors recommends a vote FOR all Proposals. To vote in
accordance with the Board's recommendations, just sign below; no boxes need
to be checked.
1. Election of Directors. FOR all nominees listed to the right (except
as marked to the contrary) / / WITHHOLD AUTHORITY to vote for all
nominees listed to the right / /
Nominees: Eugene Applebaum, Allan J. Bloostein, W. Don Cornwell,
Thomas P. Gerrity, Stanley P. Goldstein, William H. Joyce,
Terry R. Lautenbach, Terrence Murray, Sheli Z. Rosenberg, Thomas M. Ryan,
Ivan G. Seidenberg and Thomas O. Thorsen.
* Provided, that if the Arbor Drugs merger described in the
accompanying proxy statement is not consummated prior to the Meeting, Mr.
Applebaum will be withdrawn as a nominee and no substitution will be made.
(Instruction: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.)
__________________________________________________________________________
2. Proposal to amend the Company's Amended and Restated Certificate of
Incorporation to increase the number of authorized shares of the Company's
common stock from 300 million shares to one billion shares.
/ / FOR / / AGAINST / / ABSTAIN
3. Proposal to ratify the appointment of KPMG Peat Marwick LLP as the Company's
independent auditors for the year ending December 31, 1998.
/ / FOR / / AGAINST / / ABSTAIN
4. In its discretion, the Bank of New York, as trustee or administrator, is
authorized to vote in accordance with its judgment upon such other business
as may properly come before the Meeting.
THIS PROXY 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.
Signature: __________________________ Date __________________________
Please sign exactly as name(s) appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.
