Item 5.02 Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers;
Compensatory Arrangements of Certain Officers.
Larry J. Merlo's Retirement as President and Chief Executive Officer and as a
Director
On November 6, 2020, CVS Health Corporation ("CVS Health") announced that Larry
J. Merlo, currently the President and Chief Executive Officer and a member of
the Board of Directors of CVS Health (the "Board"), notified CVS Health on
November 5, 2020 of his intention to retire effective May 31, 2021 and, in
connection therewith, step down from the offices of President and Chief
Executive Officer effective February 1, 2021. Thereafter, Mr. Merlo will
continue to be employed at CVS Health to assist the new President and Chief
Executive Officer on transition matters until his retirement from CVS Health on
May 31, 2021. Mr. Merlo has also informed CVS Health that he will not seek
re-election to the Board at CVS Health's 2021 annual meeting of stockholders. In
connection with this transition, Mr. Merlo has agreed to waive any and all
rights that he may have to terminate his employment with CVS Health under the
terms of his Amended and Restated Employment Agreement, dated as of December 22,
2008 and amended as of December 21, 2012, in connection with the planned
transition effective February 1, 2021. Mr. Merlo's decision to retire and not to
seek re-election to the Board is not the result of any dispute or disagreement
with CVS Health. Mr. Merlo's retirement comes after a 40-year career with CVS
Health, including serving as Chief Executive Officer since March 2011 and as
President and a member of the Board since May 2010.
Appointment of Karen S. Lynch as President and Chief Executive Officer and
Director
On November 5, 2020, the Board appointed Karen S. Lynch to serve as President
and Chief Executive Officer of CVS Health, and as a Director, both effective
February 1, 2021. Upon the effectiveness of her appointment to the Board, Ms.
Lynch will join the Executive Committee of the Board.
In connection with Ms. Lynch's appointment as a Director, the Board also
approved an increase in the size of the Board from 13 directors to 14 directors
effective on the date of her appointment.
Ms. Lynch, age 57, is currently Executive Vice President, CVS Health and
President, Aetna. Ms. Lynch has held this position since 2018 following CVS
Health's acquisition of Aetna Inc. ("Aetna") and has been President of Aetna
since 2015. Prior to that, Ms. Lynch was Executive Vice President, Local and
Regional Businesses of Aetna from February 2013 through December 2014. Ms. Lynch
is also a member of the board of directors of U.S. Bancorp, a banking and
financial services company. Ms. Lynch is a graduate of Boston College and The
Questrom School of Business at Boston University.
In connection with Ms. Lynch's appointment to President and Chief Executive
Officer of CVS Health, CVS Health entered into an amended and restated
employment agreement with Ms. Lynch, to become effective February 1, 2021 (the
"Lynch Agreement"). The Lynch Agreement sets forth, among other things, the
terms of her employment as President and Chief Executive Officer of CVS Health.
The Lynch Agreement has no specified term and provides that Ms. Lynch's
employment with CVS Health will be on an at-will basis. Further, pursuant to the
Lynch Agreement, Ms. Lynch will receive an annualized base salary of $1.45
million and will be eligible to participate in CVS Health's annual bonus plan
with a target annual cash bonus opportunity of 200% of her base salary,
effective February 1, 2021. In addition, Ms. Lynch's target annual equity award
compensation for 2021 will be $11,000,000, which will be comprised of 75%
performance stock units and 25% stock options. For any equity awards granted on
or following the effectiveness of the Lynch Agreement, Ms. Lynch will be treated
as "retirement" eligible under the vesting and exercise terms of the applicable
award agreements relating to CVS Health awards generally applicable to
senior-level executives of CVS Health. Upon a qualifying termination of
employment, Ms. Lynch would be entitled to a cash severance payment equal to
two-times (which is increased to two-and-a-half times if the qualifying
termination of employment occurs within two years following a change in control)
the sum of her highest base salary in effect during the six-month period
immediately prior to the date of her termination of employment and her target
annual bonus opportunity for the year of her termination of employment. Ms.
Lynch would also be entitled to a prorated annual bonus for the year of her
termination of employment and up to 18 months of continued health and benefit
plan participation at the same benefit and cost sharing level at which Ms. Lynch
and her eligible dependents were participating on the date of her termination of
employment.
The Lynch Agreement also provides for a Section 280G "best net" provision, which
would reduce the value of any change in control payments or benefits that Ms.
Lynch would be eligible to receive to the extent necessary to avoid the adverse
tax consequences of Sections 280G and 4999 of the Internal Revenue Code of 1986,
as amended (to the extent that the reduction would put Ms. Lynch in a better
after-tax position).
Pursuant to the Lynch Agreement, Ms. Lynch also entered into a new CVS Health
restrictive covenant agreement to, among other things, increase her
post-employment non-competition and non-solicitation periods to 24 months
following her employment with CVS Health.
There are no family relationships, as defined in Item 401 of Regulation S-K,
between Ms. Lynch and any of CVS Health's executive officers or directors or
persons nominated or chosen to become a director or executive officer. Ms. Lynch
has not engaged in any transaction with CVS Health during the last fiscal year,
and she does not propose to engage in any transaction, that would be reportable
under Item 404(a) of Regulation S-K.
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