<PAGE>
[LOGO] RITE AID CORPORATION
P.O. BOX 3165
HARRISBURG, PENNSYLVANIA 17105
Notice of Annual Meeting of Stockholders
The 1994 ANNUAL MEETING of the stockholders of Rite Aid Corporation will be
held at the Harrisburg Hilton and Towers, One N. Second Street, Harrisburg,
Pennsylvania, on July 7, 1994 at 11:00 o'clock a.m. for the following purposes:
1. To elect three directors to hold office until the 1997 Annual Meeting of
Stockholders and until their successors are duly elected and qualified.
2. To amend the Company's 1990 Omnibus Stock Incentive Plan.
3. To approve the 1994 Company's Performance-Based Bonus Plan.
4. To consider a stockholder proposal to redeem preferred stock purchase rights
issued in 1989 unless issuance is approved by the stockholders.
5. To transact such other business as may properly come before the meeting.
The Board of Directors has fixed the close of business on May 11, 1994 as the
record date for the meeting. Only stockholders of record as of that date are
entitled to notice of and to vote at the meeting and any adjournment and
postponement thereof.
The accompanying form of proxy is solicited by the Board of Directors of the
Company. Reference is made to the attached Proxy Statement for further
information with respect to the business to be transacted at the meeting.
By order of the Board of Directors,
Charles J. Slane,
Vice President and Secretary
Camp Hill, Pennsylvania
June 3, 1994
Please Complete and Return Your Signed Proxy Card
Please complete and promptly return your proxy in the envelope
provided. This will not prevent you from voting in person at the
meeting. It will, however, help to assure a quorum and to avoid
added proxy solicitation costs.
<PAGE>
RITE AID CORPORATION PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
GENERAL INFORMATION
This proxy statement is being furnished in connection with the solicitation of
proxies by the Board of Directors of Rite Aid Corporation, a Delaware
corporation (the 'Company'), for use at the Company's 1994 Annual Meeting of
Stockholders (the 'Meeting') to be held at the Harrisburg Hilton and Towers,
One N. Second Street, Harrisburg, Pennsylvania, on July 7, 1994 at 11:00
o'clock a.m. or any adjournment or postponement thereof for the purposes set
forth in the foregoing notice. This proxy statement, the foregoing notice and
the enclosed proxy are being mailed to stockholders on or about June 3, 1994.
Only stockholders of record at the close of business on May 11, 1994 shall be
entitled to notice of and to vote at the Meeting.
If the enclosed proxy is properly executed and returned prior to voting at the
Meeting, the shares represented thereby will be voted in accordance with the
instructions marked thereon. In the absence of instructions, the shares will be
voted FOR the nominees of the Board of Directors in the election of directors,
FOR amendments to the Company's 1990 Omnibus Stock Incentive Plan, FOR approval
of the Company's 1994 Performance-Based Bonus Plan and AGAINST the stockholder
proposal to redeem the preferred stock purchase rights issued by the Company in
1989. Management does not intend to bring any matter before the Meeting other
than as indicated in the notice and does not know of anyone else who intends to
do so. If any other matters properly come before the Meeting, however, the
persons named in the enclosed proxy, or their duly constituted substitutes
acting at the Meeting, will be deemed authorized to vote or otherwise act
thereon in accordance with their judgment on such matters.
Any proxy may be revoked at any time prior to its exercise by notifying the
Secretary in writing, by delivering a duly executed proxy bearing a later date
or by attending the Meeting and voting in person.
On May 11, 1994, the Company had outstanding and entitled to vote 85,620,688
shares of Common Stock. There must be present at the Meeting in person or by
proxy holders of 42,810,345 shares to constitute a quorum for the Meeting.
Proxies marked 'Abstain' are included in determining a quorum, but broker
proxies which have not voted on a particular proposal are not included in
determining a quorum with respect to that proposal. Each holder of Common Stock
is entitled to one vote per share of Common Stock held of record by him on the
record date. There is no cumulative voting in the election of directors.
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Directors will be elected by a plurality of votes cast. Abstentions and broker
non-votes are not treated as votes cast in the election of directors, and thus
are not the equivalent of votes against. The affirmative vote of the holders of
a majority of the Company's Common Stock present at the meeting in person or by
proxy and entitled to vote is required to approve other matters. An abstention
will be counted as present at the meeting and is the equivalent of a vote
against (i.e., to take affirmative action, the number of affirmative votes must
exceed the combined number of 'no' votes and abstentions). Broker non-votes on
any matter other than the election of directors will not be counted as shares
present at the meeting, nor will they affect the vote with respect to that
matter.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of May 11, 1994, certain information
concerning the beneficial shareholdings of each director, each nominee for
director, each executive officer and by all directors and executive officers as
a group. Each of the persons named below has sole voting power and sole
investment power with respect to the shares set forth opposite his name, except
as otherwise noted. No person was known by the Company to own benificially more
than five percent (5%) of the Company's outstanding Common Stock.
<TABLE>
<CAPTION>
Number of Shares
of Common Stock Percent of
Beneficial Owners Beneficially Owned Class
- - - - ------------------------------------------------------------------ -------------------- ---------------
<S> <C> <C>
Alex Grass ....................................................... 2,049,159(1) 2.4%
4025 Crooked Hill Road
Harrisburg, Pennsylvania
Franklin Brown.................................................... 187,413(2) *
Martin Grass...................................................... 1,209,509(3) 1.4%
Philip Neivert.................................................... 1,075,364(4) 1.3%
Leonard Stern..................................................... 2,000 *
Henry Taub........................................................ 2,000 *
Preston Robert Tisch.............................................. 2,000 *
Gerald Tsai, Jr................................................... 1,000 *
Timothy Noonan.................................................... 81,376(5) *
Alex Schamroth.................................................... 4,000(6) *
All executive officers and directors
as a group including those named
above (19 persons)............................................ 4,089,778(7) 4.8%
</TABLE>
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- - - - ------------------
* Percentage of shares owned does not exceed 1% of class.
(1) Includes options, exercisable within 60 days, to purchase 20,000 shares of
Common Stock under the Company's employee stock option plans. Includes
677,650 shares of Common Stock held in trust for the benefit of Mr. Grass'
children and of which Mr. Grass is a trustee, and includes 68,952 shares of
Common Stock owned by the Grass Family Foundation of which Mr. Grass is a
director. Also includes 385,284 shares of Common Stock held in trust for
the benefit of Lois Grass and of which Mr. Grass is an alternate trustee,
and 400,000 shares owned by Grass Family Partnership, Ltd. of which
partnership Mr. Grass is a limited partner. Mr. Grass disclaims any
beneficial interest in the following shares referred to in this note, which
shares are not included in the 2,049,159 shares beneficially owned by Mr.
Grass: 366,530 shares of Common Stock owned by trusts for the benefit of
Mr. Grass' children of which he is not trustee; 685,292 shares owned by Mr.
Grass' children; and 119,476 shares owned by Mr. Grass' wife.
(2) Includes options, exercisable within 60 days, to purchase 12,250 shares of
Common Stock under the Company's employee stock option plans. Also includes
175,163 shares owned by Mr. Brown's wife as to which Brown disclaims any
beneficial interest. All options and stock-based awards held by Mr. Brown
have been assigned to his wife and children and he disclaims any beneficial
interest in those shares.
(3) Includes options, exercisable within 60 days, to purchase 50,000 shares of
Common Stock under the Company's employee stock option plans. Includes
84,574 shares held in trusts for his benefit and of which Mr. Grass is a
co-trustee. Includes 400,000 shares owned by Grass Family Partnership, Ltd.
of which partnership Mr. Grass is a general partner. Also includes 385,284
shares held in trust for the benefit of Lois Grass of which trust Mr. Grass
is a co-trustee. In addition, Mr. Grass is the beneficiary of a trust which
holds 129,774 shares of Common Stock of Rite Aid; these shares are not
included in the total.
(4) Includes 720,000 shares held in trust as to which Mr. Neivert is both a
co-trustee and a co-beneficiary. Mr. Neivert's wife owns 402,849 shares.
Mr. Neivert disclaims any beneficial interest in those shares owned by his
wife.
(5) Includes options, exercisable within 60 days, to purchase 28,000 shares of
Common Stock under the Company's employee stock option plans.
(6) Represents options, exercisable within 60 days, to purchase 4,000 shares of
Common Stock under the Company's employee stock option plans.
(7) Includes options, exercisable within 60 days, to purchase 289,950 shares of
Common Stock under the Company's employee stock option plans.
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ELECTION OF DIRECTORS
The Company's By-laws provide that the Board of Directors may be comprised of
up to a maximum of fifteen members. Traditionally, the Board has operated with
fewer directors. The Board is divided into three classes serving staggered
three-year terms, the term of one class of directors to expire each year. The
three directors to be elected at this Meeting will hold office until the 1997
Annual Meeting of Stockholders. The remaining directors will be elected at the
1995 and 1996 Annual Meetings of Stockholders. Although there are fewer nominees
for election than the number allowed pursuant to the By-Laws of the Company,
proxies cannot be voted for a greater number of persons than the three nominees
named above. All of the present nominees for director to be elected at this
Meeting, Franklin Brown, Martin Grass and Preston Robert Tisch, currently serve
as directors of the Company. As stated above, the enclosed proxy will be voted
FOR the election as directors of Messrs. Brown, Grass and Tisch unless a
contrary instruction is given.
Management believes that all of its nominees are willing and able to serve the
Company as directors. If any nominee at the time of election is unable or
unwilling to serve or is otherwise unavailable for election, and as a
consequence thereof, other nominees are designated, the persons named in the
proxy or their substitutes will have the discretion and authority to vote or to
refrain from voting for other nominees in accordance with their judgment. The
Board of Directors does not have a nominating committee.
The following is a brief description of the nominees for election as directors
and of the other directors of the Company.
Nominees for Director
Term to Expire 1997
FRANKLIN BROWN is Executive Vice President and Chief Legal Counsel of the
Company. Prior to his appointment as Executive Vice President in April 1993,
Mr. Brown served the Company for 13 years as Senior Vice President and General
Counsel. Mr. Brown has been a member of the Board of Directors of the Company
since 1981. Age 66.
MARTIN GRASS is President and Chief Operating Officer of the Company. Prior to
his appointment as Chief Operating Officer in April 1989, he had been Executive
Vice President for three years and prior thereto, Senior Vice President. He has
served the Company in various capacities since 1978. Mr. Grass has been a
member of the Board of Directors of the Company since 1982. Mr. Grass is Vice
Chairman of the Board and Treasurer of Super Rite Corporation. He is the son of
Alex Grass. Age 40.
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PRESTON ROBERT TISCH has been President and Co-Chief Executive Officer of Loews
Corporation since March 1988. In addition, since March 1991 he has been
Chairman of the Board of the N.Y. Football GIANTS, Inc. From August 1986 to
March 1988, he was Postmaster General of the United States. Prior thereto, he
had been President and Chief Operating Officer of Loews Corporation. Mr. Tisch
has been a member of the Board of Directors of the Company since 1988. Mr.
Tisch is also a director of Loews Corporation, CNA Financial Corporation,
Bulova Watch Co., and Hasbro, Inc. Age 68.
Directors Continuing in Office
Term to Expire 1995
ALEX GRASS is Founder, Chairman of the Board and Chief Executive Officer of the
Company. Mr. Grass has been a member of the Board of Directors of the Company
since 1968. He is also a director of Hasbro, Inc. and is Chairman of the Board
of Directors of Super Rite Corporation. Mr. Grass is the father of Martin
Grass. Age 66.
PHILIP NEIVERT is a private investor whose operations are based in Rochester,
New York. Mr. Neivert has been a member of the Board of Directors of the
Company since 1969. Age 68.
GERALD TSAI, JR. is Chairman, President and Chief Executive Officer of Delta
Life Corporation, a position he has held since February 1993. He had been
Chairman of the Executive Committee of the Board of Directors of Primerica
Corporation (formerly American Can Company) from December 1988 until April
1991. For the years 1987 and 1988, Mr. Tsai had been Chairman and Chief
Executive Officer of Primerica. Prior thereto he had been Vice Chairman and
Chief Executive Officer. Mr. Tsai is also a director of NAC Re Corporation,
Sequa Corporation and Zenith National Insurance Corp., and a trustee of
Meditrust. Mr. Tsai has been a member of the Board of Directors of the Company
since 1987. Age 65.
Directors Continuing in Office
Term to Expire 1996
LEONARD STERN is Chairman of the Board of The Hartz Group, Inc. and affiliated
companies, a position he has held since 1979. Mr. Stern has been a member of
the Board of Directors of the Company since 1986. Age 56.
HENRY TAUB became Honorary Chairman of the Board of Automatic Data Processing,
Inc. in 1986. He had been Chairman of the Board of A.D.P., Inc. since 1983. Mr.
Taub has been a member of the Board of Directors of the Company since 1984. He
is also a director of Hasbro, Inc. Age 66.
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Committees of the Board of Directors
The Board's Audit Committee, which held one meeting during the last fiscal
year, reviewed the scope and results of the audit by the Company's independent
auditors. The Committee examined the accounting practices and methods of
control and the manner of reporting financial results. These reviews and
examinations included meetings with independent auditors, staff accountants and
representatives of management. The results of the Committee's examinations and
the choice of the Company's independent auditors are reported to the full
Board. The Audit Committee includes no officers or employees of the Company.
Members of the Audit Committee during the last fiscal year were Philip Neivert
and Henry Taub and, for a portion of the year, another director who has
resigned.
The Board's Compensation Committee met twice during the last fiscal year for
the purpose of evaluating key officers' salaries and bonuses. Members of the
Compensation Committee during the last fiscal year were Philip Neivert, Leonard
Stern and Gerald Tsai, Jr. See 'Report of the Compensation Committee on
Executive Compensation.'
Directors' Attendance at Meetings
The Board of Directors meets regularly four times each year. The Board also is
available for interim meetings. Each incumbent director of the Company attended
at least 75% of the meetings of the Board of Directors and meetings held by all
committees on which such director served.
Directors' Fees
Each director who is not also an officer and full-time employee of the Company
received an annual director fee in the amount of $16,000. Directors who are
officers and full-time employees of the Company receive no separate
compensation for service as a director or committee member. Members of the
Audit Committee and the Compensation Committee are each paid $750 for
attendance at each formal meeting. The Chairman of the Audit Committee is paid
$1,000 for attendance at each formal meeting. Additionally, Board members are
reimbursed for travel and lodging expenses associated with attending Board and
Committee meetings.
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COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation Table
The following table shows, for the fiscal years ending February 26, 1994,
February 27, 1993 and February 29, 1992, the annual and long-term compensation
paid or accrued by the Company and its subsidiaries to the Company's Chief
Executive Officer and to the four most highly compensated executive officers
whose total annual salary and bonus exceeded $100,000.
EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
Annual Compensation
----------------------------------- Long-Term Compensation
Other ------------------------------------- All
Annual Restricted Long-Term Other
Name and Fiscal Salary Bonus Compensation Stock Options/ Compensation Compensation
Principal Position Year ($) ($) (1) ($) (2) Awards ($) SARs (#) Payouts ($) ($) (3)
- - - - ------------------------- ----- --------- --------- ------------- ----------- --------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alex Grass............... 1994 1,163,077 -- -- -- -- -- 2,000
Chairman and Chief 1993 1,125,000 -- -- -- 400,000 -- 2,000
Executive Officer 1992 975,000 180,000 -- -- -- -- 2,000
Martin Grass............. 1994 900,000 -- -- -- -- -- 2,000
President and Chief 1993 900,000 -- -- -- 500,000 -- 2,000
Operating Officer 1992 700,000 90,000 -- -- -- -- 2,000
Franklin Brown........... 1994 400,925 -- -- -- -- -- 2,000
Executive 1993 380,769 -- -- -- 137,500 -- 2,000
Vice President 1992 353,072 36,000 -- -- -- -- 2,000
Timothy Noonan........... 1994 288,554 -- -- -- -- -- 2,000
Executive 1993 280,000 -- -- -- 137,500 -- 2,000
Vice President 1992 278,840 45,000 -- -- -- -- 2,000
Alex Schamroth........... 1994 290,720 -- -- -- -- -- 2,000
Executive 1993 280,000 -- -- -- 137,500 -- 2,000
Vice President 1992 278,840 45,000 -- -- -- -- 2,000
</TABLE>
- - - - ------------------
(1) Represents annual performance bonuses determined by the Board of Directors.
See 'Report of the Compensation Committee on Executive Compensation.'
Bonuses are paid in the fiscal year following the fiscal year in which they
are earned.
(2) Did not exceed, for each named officer, the lesser of $50,000 or ten
percent of such officer's total annual salary and bonus for such year.
(3) Represents amounts paid by the Company on behalf of the named persons in
connection with the Company's Profit Sharing Plan.
7
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Stock Option Holdings
The following table sets forth certain information concerning unexercised stock
options and stock options in tandem with stock appreciation rights ('SARs')
held by the persons named in the Summary Compensation Table above at the end of
fiscal year 1994. No options or SARs were either granted to or exercised by
such persons during fiscal year 1994.
OPTION EXERCISES IN FISCAL YEAR 1994
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs at
at Fiscal Fiscal
Shares Year-End (#) Year-End ($) (2)
Acquired on -------------- ----------------
Exercise Value Exercisable/ Exercisable/
Name (1) (#) Realized ($) Unexercisable Unexercisable
- - - - ------------------------------------------ ----------- ------------- -------------- ----------------
<S> <C> <C> <C> <C>
Alex Grass................................ -- -- 20,000/540,000 30,000/2,860,000
Martin Grass.............................. -- -- 20,000/540,000 75,000/2,150,000
Franklin Brown............................ -- -- 7,500/187,500 11,250/1,018,750
Timothy Noonan............................ -- -- 15,000/177,500 22,500/828,250
Alex Schamroth............................ -- -- 4,000/177,500 6,000/828,250
</TABLE>
- - - - ------------------
(1) See Summary Compensation Table for titles of the persons named above.
(2) Calculated by subtracting the exercise price from the fair market value of
the underlying shares at February 26, 1994.
Option Repricing Schedule
In connection with the consummation by the Company of its 'dutch auction' self
tender offer, in which the Company repurchased from its stockholders an
aggregate of 2,077,271 shares of its Common Stock at a purchase price of $18.50
per share, the Company on February 7, 1994 repriced outstanding stock options
to purchase an aggregate of 2,157,250 shares of its Common Stock. These options
were the only options of the Company repriced during the ten year period ending
February 26, 1994. On the date of repricing, the closing sale price of the
Company's Common Stock as reported on the New York Stock Exchange was $18.50.
The following table sets forth information relating to the repricing of options
held by the Company's executive officers:
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<TABLE>
<CAPTION>
Length of
Original
Option
Term
Market Price Exercise Remaining
Number of of Stock at Price at at Date of
Options Time of Time of New Repricing
Repriced or Repricing or Repricing or Exercise or
Name (1) Date Amended (#) Amendment ($) Amendment ($) Price Amendment
- - - - --------------------------------------- --------- ----------- ------------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Alex Grass............................. 2/7/94 400,000 18.50 20.50 $ 18.50 9 years
Martin Grass........................... 2/7/94 500,000 18.50 20.50 $ 18.50 9 years
Franklin Brown......................... 2/7/94 137,500 18.50 20.50 $ 18.50 9 years
Timothy Noonan......................... 2/7/94 137,500 18.50 20.50 $ 18.50 9 years
Alex Schamroth......................... 2/7/94 137,500 18.50 20.50 $ 18.50 9 years
</TABLE>
- - - - ------------------
(1) See Summary Compensation Table for titles of the persons named above.
Supplemental Executive Retirement Program
Each of Messrs. Alex Grass, Martin Grass, Brown, Noonan and Schamroth has
entered into contracts with the Company which provide upon retirement or death
for compensation for fifteen years in the amount of 40% of such person's last
twelve months of salary reduced by Social Security and Individual Retirement
Account benefits received.
RELATED PARTY TRANSACTIONS
The Company rents 74,200 square feet of storage space at a warehouse owned by
Realm R.R. Avenue Partnership, of which both Alex Grass and Martin Grass are
general partners. Annual rental paid to the Partnership by Rite Aid during
fiscal year 1994, which included a pro rata portion of common area charges,
real estate taxes and insurance, amounted to $233,991. The current lease term
expires in August 1997.
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the 'Committee'),
composed of outside directors of the Board of Directors of the Company, reviews
the performance of the Company's executive personnel and develops and makes
recommendations to the Board with respect to executive compensation policies.
The Compensation Committee is empowered by the Board to award appropriate
bonuses and to recommend to the Board those executive officers to whom stock
options and stock appreciation rights ('SARs')
9
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should be granted and the number of shares of common stock to which such
options and SARs should be subject.
The Committee has access to independent compensation data and is authorized, if
determined appropriate in any particular case, to engage outside compensation
consultants.
The objectives of the Committee are to support the achievement of desired
Company performance, to provide compensation and benefits that will attract and
retain superior talent and reward performance and to fix a portion of
compensation to the outcome of corporate performance.
The executive compensation program is generally comprised of base salary,
discretionary performance bonuses and long term incentives in the form of stock
options, SARs and restricted stock awards. The compensation program also
includes various benefits, including a supplemental executive retirement
program described elsewhere herein, health insurance plans and programs and
pension and profit sharing and retirement plans in which substantially all of
the Company's employees participate.
Base salary levels for the Company's executive officers are competitively set
relative to salaries of officers of companies comparable in business and size,
including three companies in the NACDS Index reproduced below as well as other
publicly owned retail companies similar in size to the Company. In each
instance, base salary takes into account individual experience and performance
specific to the Company. The Committee generally attempts to provide
compensation approximating the median of comparable companies. Because earnings
targets for fiscal 1993 were not met, base salaries for fiscal 1994 for all
executive officers, including the Chief Executive Officer, did not reflect any
increases based on performance but were limited to increases approximating 3%
to reflect the effects of inflation.
The Committee is aware that a recent amendment to the Internal Revenue Code of
1986 treats certain elements of executive compensation in excess of $1 million
a year as an expense not deductible by the Company for federal income tax
purposes. The Committee is aware that Mr. Alex Grass' base salary exceeds the
cap on deductibility and therefore a portion of his compensation will not be
deductible. The Committee notes that Mr. Grass' base salary exceeded $1 million
before the cap on deductible expenses was established. It believes that, in
view of his role as founder and Chief Executive Officer of the Company as well
as his role as a leader in our industry, the established level of his
compensation is appropriate, and it would not be appropriate for the Company to
change his compensation as a result of tax law changes on deductibility.
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The Compensation Committee is empowered to recommend for full Board approval the
payment of cash performance bonuses to employees, including executive officers,
of the Company. The Committee established the 1994 Performance-Based Bonus Plan
for this purpose, subject to approval by the stockholders. Performance bonuses
are paid based upon the degree of achievement of a specified earnings goal
relating to the Company's pre-tax income. The Board of Directors determines
annually both the targeted earnings goal and the maximum performance bonus to
be paid to each employee. The amount of the target bonus is determined by each
employee's level of responsibility and material contributions to the success of
the Company. For fiscal year 1993, the earnings goals set by the Board were not
achieved and, consequently, no bonuses were paid nor were any options, SAR's or
other stock based awards granted to the executive officers.
The Committee believes that employee equity ownership provides significant
additional motivation to executive officers to maximize value for the Company's
stockholders and, therefore, periodically grants of stock options to the
Company's employees, including executive officers. Stock options are granted
typically at prevailing market price and, therefore, will only have value if
the Company's stock price increases over the exercise price. The Committee
believes that the grant of stock options provides a long term incentive to such
persons to contribute to the growth of the Company and establishes a direct link
between compensation and stockholder return, measured by the same index used by
stockholders to measure Company performance. The terms of options granted by
the Board of Directors, including vesting, exerciseability and option term, are
determined by the Committee, based upon relative position and responsibilities
of each executive officer, historical and expected contributions of each
officer to the Company, previous option grants to executive officers and a
review of competitive equity compensation for executive officers of similar
rank in companies that are comparable to the Company's industry and size.
In connection with the consummation by the Company of its 'dutch auction' self
tender offer, in which the Company repurchased from its stockholders an
aggregate of 2,077,271 shares of its Common Stock at a purchase price of $18.50
per share, the Company on February 7, 1994 repriced outstanding stock options
held by 40 optionees to purchase an aggregate of 2,157,250 shares of its Common
Stock. Prior to the repricing, all outstanding options had been exercisable at
prices well above the trading price of the Company's Common Stock and therefore
such options were not serving their intended purpose as an incentive. The
Committee believed that the morale of the management level employees would be
improved by repricing the options at the price established by the dutch auction,
which was itself above the trading price for the Company's Common Stock during
the six months preceding the repricing.
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<PAGE>
For information regarding these and other options held by the Company's
executive officers, reference is made to the tables set forth in the Proxy
Statement under the caption 'Compensation of Executive Officers.'
Compensation Committee
Philip Neivert
Leonard Stern
Gerald Tsai, Jr.
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STOCK PERFORMANCE GRAPH
The graph below compares the yearly percentage change in the cumulative total
stockholder return on the Common Stock of the Company for the last five fiscal
years with the cumulative total return on the S&P 500 Index and NACDS Peer
Group Index over the same period (assuming the investment of $100 in the
Company's Common Stock and such indices on March 4, 1989 and reinvestment of
dividends).
The NACDS Peer Group Index is compiled by the National Association of Chain
Drug Stores and includes: Arbor Drugs, Inc.; Big G, Inc.; Drug Emporium, Inc.;
F&M Distributors; Fays Incorporated; Genovese Drug Stores; Hook Superx, Inc.;
Perry Drug Stores; Revco D.S., Inc.; Rite Aid Corporation; and Walgreen Co.
[INSERT STOCK PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994
<S> <C> <C> <C> <C> <C> <C>
NACDS $ 100.00 $ 108.53 $ 146.36 $ 166.07 $ 172.28 $ 183.90
S&P 500 $ 100.00 $ 118.90 $ 136.34 $ 158.14 $ 174.98 $ 189.57
RITE AID $ 100.00 $ 94.96 $ 125.65 $ 130.32 $ 126.53 $ 126.76
</TABLE>
- - - - ------------------
* The Company's fiscal year ends on the Saturday closest to February 29 or
March 1.
13
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AMENDMENTS TO 1990 OMNIBUS INCENTIVE PLAN
The Board of Directors and the stockholders adopted the Rite Aid Corporation
1990 Omnibus Stock Incentive Plan (the 'Omnibus Plan') in 1990. The
Compensation Committee has established and the Board of Directors has adopted,
subject to stockholder approval at the Annual Meeting, an amendment to the
Omnibus Plan, which will increase the aggregate maximum number of shares for
which Awards may be granted under the Omnibus Plan from 3,000,000 (which number
reflects an adjustment for a two-for-one stock split after the Omnibus Plan was
adopted) to 6,000,000. Prior to the amendment, there were only 397,750 shares
remaining available for further Awards under the Omnibus Plan which were neither
issued nor reserved for issuance on the exercise of outstanding options.
In addition, in order to comply with an exemption to certain recently enacted
provisions of the Internal Revenue Code of 1986, as amended (the 'Code') that
might otherwise limit the deductibility of compensation attributable to stock
options or stock appreciation rights granted to certain executives of the
Company, the Omnibus Plan has also been amended to limit the maximum number of
shares for which options or stock appreciation rights may be granted under the
Plan to any employee during any calendar year to 300,000. The amendment also
permits certain Awards to be transferred to immediate family members or
pursuant to a qualified domestic relations order as defined in the Code.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE APPROVAL OF
THE OMNIBUS PLAN, AS DESCRIBED ABOVE.
The following summary of the Omnibus Plan, as amended, does not purport to be
complete and is subject to, and qualified in its entirety by reference to the
text of the amended Omnibus Plan.
The Board of Directors believes that in order to attract and retain personnel
of the highest caliber, provide increased incentive for officers and key
employees and continue to promote the well-being of the Company, it is in the
interest of the Company and its shareholders to provide to officers and key
employees, through the granting of stock incentive awards, the opportunity to
participate in the value and/or appreciation in value of the Company's Common
Stock. The Board of Directors believes that because the Omnibus Plan permits the
Company to grant stock appreciation rights and other stock-based awards, as
described below, in addition to restricted stock and stock options (all such
options, awards and rights collectively referred to as 'Incentive Awards'), it
gives the Company more flexibility in achieving the goals of the earlier stock
option programs.
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Summary of the Plan
The Omnibus Plan authorizes the granting of Incentive Awards for up to
6,000,000 shares of Common Stock subject to adjustment as described below. The
shares available for Incentive Awards will be made available from either
authorized and unissued shares, treasury shares or shares to be purchased or
acquired by the Company. Unless sooner terminated, the Omnibus Plan will expire
at the close of business on July 9, 2000. Officers and key employees of the
Company and its subsidiaries, will be eligible to receive Incentive Awards.
Directors who are not employees of the Company or of a subsidiary thereof are
not eligible to participate in the Omnibus Plan.
The Omnibus Plan will be administered by the Compensation Committee, which will
determine the employees to whom awards will be granted, the number of awards to
be granted to each employee, the combination of awards to be granted and the
specific terms of each grant, subject to the provisions of the Omnibus Plan. No
member of the Compensation Committee shall be eligible to receive Incentive
Awards under the Omnibus Plan.
Incentive and Non-Qualified Options
The Omnibus Plan provides both for 'incentive stock options' ('Incentive
Options') specifically tailored to the provisions of the Code and for options
not qualifying as Incentive Options ('Non-Qualified Options'), both of which
may be granted with or without stock appreciation rights, restricted stock
awards and or other stock-based awards.
Pursuant to the Omnibus Plan, the Compensation Committee shall determine the
exercise price for each share issued in connection with an Incentive Option
(within the meaning of Section 422 of the Code) or a Non-Qualified Option
(collectively referred to as 'Options'), but the exercise price per option
shall in all cases not be less than 100% of the fair market value of the Common
Stock on the date the Option is granted. The exercise price must be paid in
full, either in cash at the time of exercise, or, subject to any limitations as
the Compensation Committee may impose, in securities of the Company.
The Compensation Committee shall determine when Options may be exercised, which
in no event shall be more than ten years from the date of grant, and the manner
in which each Option will become exercisable. Other than as set forth herein,
the rules relating to the terms of Options apply to both Incentive Options and
Non-Qualified Options.
15
<PAGE>
Stock Appreciation Rights
A stock appreciation right ('SAR') is defined in the Omnibus Plan as the right
to receive an amount, in cash and/or securities, up to the excess of the fair
market value of a share of Common Stock on the date the SAR is exercised over
the fair market value of a share of Common Stock on the date the SAR was
granted. An SAR may be granted in connection with an Option, either at the time
of grant or at any time thereafter during the term of the Option, or the SAR
may be granted independently of an Option.
An SAR which relates to an Option is exercisable only to the extent that the
Option to which it is attached is exercisable. If an SAR is exercised, the
number of shares of stock remaining subject to the related Option is reduced
accordingly; such shares are not available for subsequent Option grants under
the Omnibus Plan. Conversely, upon exercise of a related Option the number of
shares of stock subject to the SAR shall be reduced to the extent necessary so
that the number of remaining shares of stock subject to the SAR does not exceed
the number of remaining shares of stock subject to the related Option. If the
SAR is granted independently of any Option, it is exercisable as determined by
the Compensation Committee.
The Compensation Committee may place a limitation on the amount payable upon
exercise of an SAR. If any such limitation is placed on an SAR, it must be
determined as of the date of grant and the limitation must be noted on the
instrument evidencing the participant's SAR.
Payment of the amount due to the participant upon exercise of an SAR may be
made solely in whole shares of stock of the Company valued at the fair market
value on the date of exercise of the SAR or, alternatively, in the sole
discretion of the Compensation Committee, solely in cash or a combination of
cash and shares of stock.
The Omnibus Plan provides that so long as required by federal securities laws,
no SAR's granted to an employee subject to Section 16 of the Securities
Exchange Act of 1934, as amended (the 'Exchange Act'), may be exercised before
six months after the date of grant unless the employee dies or becomes disabled
before the expiration of the six-month period. To the extent required by Rule
16b-3 promulgated under Section 16(b) of the Exchange Act, an exercise of an
SAR for cash may be made only during the period beginning on the third business
day following the date of release for publication of the Company's regular
quarterly or annual summary statement of revenues and income and ending on the
twelfth business day following such date.
The Compensation Committee may impose additional conditions or limitations on
the exercise of SAR's as it may deem necessary or desirable to secure for
holders of SAR's the
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<PAGE>
benefits of Rule 16b-3 of the Exchange Act or otherwise, or any successor
provision in effect at the time of grant or exercise of an SAR.
Annual Limitations on Options and Stock Appreciation Rights
The Omnibus Plan provides that no employee may be granted Options or SARs
which, in the aggregate, relate to more than 300,000 shares of Common Stock in
any calendar year.
Restricted Stock Awards
The Compensation Committee may award shares of restricted stock ('Restricted
Stock Awards') to any person who is a full-time key employee of the Company.
All Restricted Stock Awards granted under the Omnibus Plan will be subject to
certain restrictions as to the continued employment of the grantee and the
transfer of the shares, as more fully described below. Shares awarded and later
reacquired by the Company, pursuant to the forfeiture provisions of the Omnibus
Plan, shall again become available for awards under the Omnibus Plan.
At the time of an award, there shall be established for each grantee, upon the
determination of the Compensation Committee, a 'Restriction Period', for all
shares awards to the grantee, or if the total of such shares is divided into
separate parts, for each part of the total shares awarded. Prior to the
termination of the Restriction Period, a grantee may elect subject to the
approval of the Compensation Committee, to extend such Restriction Period for a
period of not less than two years. All Restricted Stock awarded under the
Omnibus Plan may not be sold, exchanged, assigned, transferred, pledged,
encumbered or otherwise disposed of other than to the Company during the
applicable Restriction Period. Except for the foregoing restrictions, the
grantee shall, even during the Restriction Period, have all of the rights of a
shareholder, including the right to receive all dividends declared on, and the
right to vote, such shares.
If a grantee of an award ceases to be an employee of the Company prior to the
expiration of the Restriction Period applicable to all or any part of the
shares awarded to such grantee, then, except in the case of termination due to
death, retirement, permanent disability (as determined by the Compensation
Committee), or, at the discretion of the Compensation Committee, any other
termination other than for cause, all shares of stock theretofore awarded to
the grantee which are still subject to such restrictions shall, upon such
termination of employment, be forfeited and returned to the Company. If the
grantee of an award ceases to be an employee of the Company prior to the
expiration of the Restriction Period applicable to all or any part of the
shares awarded to such grantee, by reason of
17
<PAGE>
death, retirement, permanent disability (as determined by the Compensation
Committee), or, at the discretion of the Compensation Committee, for any reason
other than for cause, the Restriction Period shall thereupon terminate and the
restrictions referred to above shall lapse.
In order to enforce the foregoing restrictions, the Omnibus Plan requires that
all shares awarded to the grantee remain in the physical custody of the Company
or its designee, as escrow holder, until the restrictions on such shares have
terminated.
Stock-Based Awards
The Compensation Committee may grant shares of stock, share units or cash
payments valued with reference to the fair market value of a share of the
Company's stock, including, but not limited to, performance shares, performance
share units and tax-offset payments (collectively, 'Stock-Based Awards').
Subject to the terms of the Omnibus Plan, the Compensation Committee has
complete discretion to determine the terms and conditions applicable to
Stock-Based Awards. Such terms and conditions may require, among other things,
continued employment and/or the attainment of specified performance objectives.
The Compensation Committee will determine whether Stock-Based Awards will be
settled in cash, shares of stock or a combination of cash and shares of stock.
Other Terms and Conditions
Agreements; Transferability. Options, SAR's, Restricted Stock and Stock-Based
Awards granted under the Omnibus Plan will be evidenced by agreements
consistent with the Omnibus Plan in such form as the Compensation Committee may
prescribe. Neither the Omnibus Plan nor agreements thereunder confer any right
to continued employment upon any holder of an Option, SAR, Restricted Stock or
Stock-Based Award. Further, all agreements will provide that the right to
exercise Options, SAR's or receive Restricted Stock after the expiration of the
'Restricted Period' or to receive payment under Stock-Based Awards, cannot be
transferred except (1) to members of the Award holders immediate family (as
defined in the amended plan), (2) pursuant to a qualified domestic relations
order as defined in the Internal Revenue Code of 1986, or (3) by will or the
laws of descent and distribution.
Death or Termination of Employment. In the event of the termination of
employment of a participant, Options or other rights are exercisable (to the
extent otherwise exercisable) by the participant within 90 days after such
termination of employment or such other period determined by the Compensation
Committee. In the event of the death of a participant while employed, and
unless determined otherwise by the Compensation Committee, Options or other
rights granted to the participant may be exercised (to the extent otherwise
exercisable)
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<PAGE>
within one year of the date of death by the person to whom such participant's
rights are transferred by will or the laws of descent and distribution, but not
beyond the original expiration date of the Option or other right. At the
discretion of the Compensation Committee, any Option or other right theretofore
not exercised may be cancelled upon termination of employment. The effect of
death or termination of employment on a holder of Restricted Stock is discussed
above under 'Restricted Stock Awards'.
Modification, Amendment and Termination. Adjustments in the number and kind of
shares issuable pursuant to awards under the Omnibus Plan and in any awards
outstanding, may be made in order to preserve the benefits or potential
benefits intended to be made available to participants, in the event of merger,
consolidation, reorganization, the sale of all or substantially all the
property of the Company, recapitalization, reclassification, stock split, stock
dividend or similar events involving the Company. The Compensation Committee's
determination as to what adjustments will be made and the extent thereof will
be final, binding and conclusive.
The Board of Directors may at any time terminate the Omnibus Plan or amend it
except with respect to certain matters which require approval of the Company's
shareholders. No Option, SAR, Restricted Stock or Stock-Based Award may be
granted during any suspension of the Omnibus Plan or after its termination.
Privileges of Stock Ownership. The holder of an Option, SAR, Restricted Stock
or Stock-Based Award will have no rights as a shareholder with respect to any
shares of stock covered by his or her Option, SAR, Restricted Stock or
Stock-Based Award until the date of issuance of a stock certificate evidencing
the shares purchased or awarded. Restricted Stock shall be 'issued', and the
privileges of stock ownership shall exist, even if such stock certificate is
being held in custody by or on behalf of the Company during the Restriction
Period.
Tax Withholding. The Company may make such provisions as it deems appropriate
to withhold any taxes the Company determines it is required to withhold in
connection with any award. The Company may require the participant to satisfy
any relevant tax requirements before authorizing any issuance of shares of
stock to a participant.
Restrictions and Resale. The Omnibus Plan provides that no shares of stock
will be issued or transferred pursuant to an award under the Omnibus Plan
unless and until all applicable requirements imposed by federal and state
securities and other laws, rules and regulations and by any regulatory agencies
having jurisdiction, and by any stock exchanges upon which shares of stock may
be listed, have been fully met. As condition precedent to the issuance of
shares pursuant to the grant or exercise of an Incentive Award under the
Omnibus Plan, the
19
<PAGE>
Company may require the participant to take any reasonable action to meet such
requirements.
Federal Tax Consequences of the Omnibus Plan
The following is a brief summary of the principal United States federal income
tax consequences under current federal income tax laws related to awards under
the Omnibus Plan. This summary is not intended to be exhaustive and, among
other things, does not describe state or local tax consequences.
Non-Qualified Options. In general, (a) an optionee will not be subject to tax
at the time a Non-Qualified Option is granted; (b) unless the optionee is a
person subject to Section 16(b) of the Exchange Act whose Option exercise does
not qualify for exemption under Securities Exchange Act Rule 16b-3 and who has
not made the election described in the next paragraph, he or she will include
in ordinary income in the taxable year in which he or she exercises a
Non-Qualified Option an amount equal to the difference between the exercise
price and the fair market value of the shares acquired on the date of exercise;
(c) the Company will be entitled to deduct such amount for federal income tax
purposes in its taxable year in which or with which ends the taxable year of
the optionee in which such optionee includes such amount in income; and (d)
upon disposition of shares acquired upon exercise, appreciation (or
depreciation) after the date of exercise will be treated as either short-term
or long-term capital gain (or loss) depending on whether the shares have been
held for the required holding period.
Notwithstanding the foregoing, a person subject to Section 16(b) of the
Exchange Act whose Option exercise does not qualify for exemption under
Securities Exchange Act Rule 16b-3 and who does not make the Section 83(b)
election described below and who exercises a Non-Qualified Option will
generally not be taxed upon exercise but will include in income six months
thereafter an amount equal to the excess of the fair market value at that later
time over his or her exercise price, and his or her holding period for capital
gains purposes will commence at such time. An optionee subject to Section 16(b)
of the Exchange Act may elect under Section 83(b) of the Internal Revenue Code,
within 30 days after exercise, to be taxed upon exercise as described in the
preceding paragraph.
If the optionee pays the exercise price, in full or in part, with previously
acquired shares, the exchange will not effect the tax treatment of the
exercise. Upon such exchange, no gain or loss is recognized upon delivery of
the previously acquired shares to the Company, and the shares received by the
optionee, equal in number to the previously acquired shares exchanged therefor,
will have the same basis and holding period for long-term and short-term
capital gain purposes as the previously acquired shares. Shares received by the
20
<PAGE>
optionee in excess of the number of previously acquired shares will have a
basis equal to the fair market value of such additional shares as of the date
ordinary income equal to such fair market value is realized and a holding
period which commences as of such date.
Incentive Options. In general, an optionee will not be subject to tax at the
time an Incentive Option is granted or exercised. However, the excess of the
fair market value of the shares received upon exercise of the Incentive Option
over the exercise price is potentially subject to the alternative minimum tax.
Upon disposition of the shares acquired upon exercise of an Incentive Option,
long-term capital gain or loss will be recognized in an amount equal to the
difference between the sales price and the exercise price, provided that the
optionee has not disposed of the shares within two years of the date of grant
or within one year from the date of exercise. If the optionee disposes of the
shares without satisfying both holding period requirements (a 'Disqualifying
Disposition'), the optionee will recognize ordinary income at the time of such
Disqualifying Disposition to the extent of the difference between the exercise
price and the lesser of the fair market value of the shares on the date the
Incentive Option is exercised or the amount realized on such Disqualifying
Disposition. Any remaining gain or loss is treated as a short-term or long-term
capital gain or loss, depending upon how long the shares have been held. The
Company is not entitled to a tax deduction upon either the exercise of an
Incentive Option or upon disposition of the shares acquired pursuant to such
exercise, except to the extent that the optionee recognizes ordinary income in
a Disqualifying Disposition.
If the Optionee pays the exercise price, in full or in part, with previously
acquired shares, the exchange will not affect the tax treatment of the
exercise. Upon such exchange, and except for Disqualifying Dispositions, no
gain or loss is recognized upon the delivery of the previously acquired shares
to the Company, and the shares received by the optionee, equal in number to the
previously acquired shares exchanged therefor, will have the same basis and
holding period for long-term capital gain or loss, depending upon how long the
shares have been held. Shares received by the optionee in excess of the number
of previously acquired shares will have a basis of zero and a holding period
which commences as of the date the shares are issued to the optionee upon
exercise of the Incentive Option. If such an exercise is effected using shares
previously acquired through the exercise of an Incentive Option, the exchange
of the previously acquired shares will be considered a disposition of such
shares for the purpose of determining whether a Disqualifying Disposition has
occurred. The Company is not entitled to a tax deduction upon either the
exercise of an Incentive Option or upon disposition of the shares acquired
pursuant to each exercise, except to the extent that the optionee recognized
ordinary income in a Disqualifying Disposition.
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<PAGE>
Stock Appreciation Rights. No amount will be includable in a participant's
income in connection with the grant of an SAR, whether or not granted in
connection with an Option. However, when the participant exercises the SAR, the
participant generally must include in ordinary income the amount of cash and
the fair market value at that time of any shares received. (In the case of a
person subject to Section 16(b) of the Exchange Act, the value of any shares
received may instead be taxed six months after exercise based on the value at
that time). The amount of ordinary income recognized by the participant is
deductible by the Company. The participant's basis in any shares acquired is
equal to the amount of ordinary income recognized with respect to such shares,
and, upon subsequent dispositon, any further gain or loss is taxable either as
short-term or long-term capital gain or loss, depending on how long the shares
are held. The holding period for such shares commences as the date the ordinary
income is recognized.
If a SAR is granted, the exercise of which is not related to an Option, income
will be realized by the holder of the SAR as of the earlier of the time when
cash or shares are paid or made available to the holder pursuant to the
exercise of the SAR or as of the date on which the SAR is exercisable and the
maximum appreciation specified, if any, in the SAR agreement has been attained.
The Company would realize a deduction for federal income tax purposes in an
amount equal to the income realized by the holder of the SAR.
Restricted Stock Awards. It is intended that shares of stock granted under the
terms of the Omnibus Plan which continue to be subject to the restrictions
under the Omnibus Plan will be property which is substantially non-vested
within the meaning of Section 83 of the Internal Revenue Code and the
regulations thereunder. Accordingly, no income will be recognized by a grantee
upon receipt of an award of shares subject to such restrictions, unless the
grantee elects to recognize such income in the manner discussed below. However,
at the time such restrictions cease to apply or otherwise lapse, the grantee
will recognize ordinary income in the nature of compensation equal to the fair
market value of the shares at that time. In addition, any dividends received
with respect to such shares prior to the time the restrictions cease to apply
or otherwise lapse will be ordinary income to the grantee in the nature of
compensation.
Absent the election discussed below, a grantee's tax basis and holding period
for purposes of determining the nature and amount of gain or loss on the
subsequent disposition of his shares will be determined with respect to the
date the restrictions on such shares cease to apply or otherwise lapse such
that his basis will equal the fair market value of the shares on that date and
the holding period will begin to run on the day after that date. Any dividends
received after that date will be taxed as ordinary dividends.
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<PAGE>
Pursuant to Section 83(b) of the Internal Revenue Code and the regulations
thereunder, a grantee may elect, within thirty days after the award date, to
recognize income in the nature of compensation with respect to the shares
awarded. If such an election is made, the grantee will recognize ordinary
income equal to the fair market value of the shares (determined without regard
to any restrictions which continue to exist under the Plan) on the award date.
Any dividends received with respect to such shares after the grantee has made
such an election will be taxed as ordinary dividends.
If a grantee makes such an election, he or she will not recognize any income at
the time the restrictions applicable to such shares cease to apply or otherwise
lapse. The grantee's basis and holding period for purposes of determining the
nature and amount of gain or loss on the subsequent disposition of such shares
will be determined with respect to the award date such that his or her basis
will equal the fair market value of such shares (determined without regard to
any restrictions which continue to exist under the Omnibus Plan) on that date
and the holding period will begin to run on the day after that date. In the
event of forfeiture of such shares under the Omnibus Plan, the grantee will not
be entitled to any loss deduction with respect to the forfeited shares
regardless of any income which was previously recognized by him or her.
When a grantee subsequently disposes of his or her shares, any amount received
in excess of his or her basis will be treated as long or short-term capital
gain, depending on the holding period of shares. If the amount received on the
subsequent disposition is less than the grantee's basis, the loss will be
treated as long or short-term capital loss, depending on the holding period of
the shares, provided the sale is not made to a related person.
It is anticipated that the Company will be entitled to a deduction for federal
income tax purposes equal to the amount of compensation income recognized by a
grantee. Such deduction will be allowed for the Company's taxable year in which
or with which ends the taxable year of the grantee in which such compensation
income was recognized.
Stock-Based Awards. In general, a participant will include in his or her
income the fair market value of a Stock-Based Award (less any amount paid by
the participant for such award) when the participant's rights in such award
first become transferable or are no longer subject to a substantial risk of
forfeiture. In certain instances, the participant may be able to elect to
recognize income at the time the award is granted. The amount of ordinary income
recognized by the participant is deductible by the Company. The participant's
basis in any shares acquired under an award will be equal to the amount of
ordinary income recognized (plus the amount, if any, paid by a participant for
such award) with respect to such shares, and, upon disposition, any further
gain or loss is taxable either as short-term or long-term capital gain or loss,
depending on how long the shares are held. The holding period for such
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shares commences when such shares first become transferable or are no longer
subject to a substantial risk of forfeiture (unless the participant elected to
recognize income at the time of grant, in which case the holding period
commences on the date of the award).
APPROVAL OF THE COMPANY'S 1994 PERFORMANCE-BASED BONUS PLAN
The Compensation Committee of the Board of Directors established the Company's
1994 Performance-Based Bonus Plan (the 'Bonus Plan') subject to approval of the
Bonus Plan by the stockholders. It is expected that the Bonus Plan will be the
principal vehicle for awarding cash bonuses to the Company's officers. Set
forth below are the terms of the Bonus Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF THE
BONUS PLAN, AS DESCRIBED ABOVE.
Purpose
The purpose of the Bonus Plan is to provide an incentive for officers of the
Company and to reward them in relation to the degree to which specified
earnings goals are achieved, as measured by year-to-year growth in pre-tax
income from continuing operations ('Pre-Tax Continuing Income').
Eligibility
Only officers of the Company are eligible to participate under the Bonus Plan.
As of the date hereof, 16 persons are eligible to participate.
Target and Maximum Bonuses
The maximum bonus for any fiscal year will be $400,000 with respect to any of
the five most highly compensated executive officers, and for all other
participants, the maximum bonus for any fiscal year will be $100,000, both
subject to upward adjustment in amounts to reflect changes in the Consumer
Price Index for all Urban Consumers (1967=100) as published by the Department
of Labor, Bureau of Labor Statistics or in the absence of such publication the
most comparable index published subsequent to February 1994.
Bonuses may be earned under the Bonus Plan based upon year-to-year percentage
increases in Continuing Pre-Tax Income. In its discretion, the Compensation
Committee may establish a target bonus for a participant in the Bonus Plan
subject to the maximum bonus limitations described above, and the target bonus,
if any, need not be a uniform percentage
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<PAGE>
of each participant's base salary. The Compensation Committee may consider a
variety of factors, including past performance and expectations for the future,
in setting individual target bonuses. The full target bonus may be earned by
any participant if Continuing Pre-Tax Income for the fiscal year covered by the
bonus increases by 10% over the preceding fiscal year, in accordance with the
following formula:
<TABLE>
<CAPTION>
If Pre-Tax Continuing
Income Increases
- - - - ------------------------------- The Bonus as a
To Not Percent of the
From More Than Target Bonus Will Be
- - - - -------------- --------------- -----------------------
<S> <C> <C>
0% 8% 0%
8% 9% 80%
9% 10% 90%
10% 11% 100%
11% 12% 110%
12% 13% 120%
13% 14% 130%
14% 15% 140%
More Than
15% 150%
</TABLE>
The amount of the target bonus, if any, for each officer who is eligible to
participate in the Bonus Plan will be established by the Compensation Committee
prior to the commencement of the employee's service for the fiscal year for
which the bonus will be paid. Notwithstanding the establishment of the target,
however, the Compensation Committee will have the discretion to evaluate each
participant's performance during each year, and the bonus for the year paid
under the Bonus Plan for any participant may be less than the amount that would
have been payable under the preceding formula.
The Compensation Committee will certify in writing the degree of achievement of
the earnings goals after the year is ended, and no amounts will be paid to
participants under the Bonus Plan until such certification by the Compensation
Committee has been completed.
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STOCKHOLDER PROPOSAL
Proposed Redemption of Preferred Stock Purchase Rights:
Amalgamated Bank of New York, 11-15 Union Square, New York, NY 10003, which is a
stockholder of record of 4,300 shares, has advised that it intends to introduce
the following resolution at the meeting:
'RESOLVED: That the stockholders of Rite Aid Corporation request the
Board of Directors to redeem preferred stock purchase rights issued
in 1989 unless such issuance is approved by the affirmative vote of a
majority of the outstanding shares at a meeting of the stockholders
to be held as soon as may be practicable.'
The reasons given by such stockholders in support of such resolution are as
follows:
'On April 5, 1989, the Board of Directors of Rite Aid declared, without
stockholder approval, a dividend of preferred stock purchase rights. We
strongly believe that such rights are a type of anti-takeover device,
commonly known as a poison pill, which injures stockholders by reducing
management accountability and adversely affecting stockholder value.
'The stockholders of the Company believe that the terms of the rights are
designed to discourage or thwart an unwanted takeover of the Company.
While management and the Board of Directors should have appropriate tools
to ensure that all stockholders benefit from any proposal to acquire the
Company, the stockholders do not believe that the future possibility of a
takeover justifies the unilateral implementation of such a poison pill.
'Rather, we believe the stockholders should have the right to vote on the
necessity of such a powerful tool which could be used to entrench existing
management. Rights plans like the Company's have become increasingly
unpopular in recent years.
'The negative effects of poison pill rights plans on the trading value of
companies' stock have been the subject of extensive research. A 1986 study
(covering 245 companies adopting poison pills between 1983 and July 1986)
by the Office of the Chief Economist of the U.S. Securities and Exchange
Commission on the effect of poison pills on the wealth of target
shareholders states that 'empirical tests, taken together, show that
poison pills are harmful to target shareholders, on net.' Another, more
recent study by Professor Michael Ryngaert published in 1988 (covering 380
companies adopting poison pills in the period 1982-1986) singled out
rights plans such as the Company's for their negative effect on
stockholder value.
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'We believe that the Company's performance is unsatisfactory. According to
the Company's proxy statement for its 1993 Annual Meeting of Stockholders,
Rite Aid has been increasingly and significantly underperforming its
designated industry peer group since 1989 based on a comparison of
cumulative total returns. In addition, out of 1,000 companies studied by
the United Shareholders of America in 1993 (evaluating companies on the
basis of long and short-term returns to stockholders, stockholder rights
policies and linkage of executive compensation to stock performance), Rite
Aid was rated in the lower half at number 515.
'We believe that in light of what can at best be described as the
debatable economic benefit of the Company's rights plan and the undeniably
undemocratic way in which it was adopted by the Company, the rights should
either be redeemed or voted on by stockholders.'
THE BOARD OF DIRECTORS AND MANAGEMENT RECOMMEND A VOTE AGAINST THIS RESOLUTION
FOR THE FOLLOWING REASONS:
The Stockholder Proposal is intended to encourage the Company's Board of
Directors to redeem the Preferred Stock Purchase Rights that all stockholders
possess under the Company's Stockholder Rights Plan (the 'Rights Plan'). The
Board believes redemption of the Rights at this time would remove valuable
protections for stockholders and eliminate an important tool designed to
protect your interests and could deprive you of substantial economic benefits
in the future.
What Rights Plans Do
Stockholder rights plans were developed in the 1980's to counter a wide range
of coercive tactics which had become common in hostile takeovers. A key
function of a rights plan is to encourage bidders to negotiate with the board
of the target company, resulting in better offers for all stockholders. Rights
plans give boards time to evaluate offers, investigate alternatives, and take
steps necessary to maximize value for all stockholders.
A consensus has gradually emerged among many major United States corporations
that rights plans help inhibit abusive conduct and assist directors in
fulfilling their fiduciary duty to all stockholders. A substantial number of
companies of all sizes have found adoption of a rights plan to be a prudent
step to take to protect stockholder interests even though they were not the
subject of current takeover bids.
Rights plans do not preclude corporate takeovers. Many corporations which
adopted rights plans were later acquired by others. The Company's Rights Plan
encourages any individual or group seeking to acquire at least 15% of the
Company's stock (representing more than a
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$250 million investment at current market prices) to negotiate with the Company
to obtain its approval of the acquisition. This permits the Board of Directors
to ensure that the acquisition is fair and in the best interests of all other
stockholders.
Responsibility and Accountability
The Board of Directors, elected by and answerable to the stockholders, is
charged with the responsibility of protecting your interests. You have the
right, with your fellow stockholders, to elect the directors you want to manage
your investment in the Company.
The law requires your directors to exercise their independent judgment in
directing the Company's management. In deciding to adopt the Rights Plan in
1989, your directors sought, received and carefully weighed information and
advice from experienced, independent legal and financial advisors. The Board
also drew on its collective experience with many other corporations and
situations and its intimate knowledge of the Company's own business, prospects
and circumstances.
The Board of Directors believes the Rights Plan is serving its purpose to
protect against abusive tactics and increase the Board's ability to ensure that
stockholders receive maximum value for their Company stock.
PROPOSALS OF SECURITY HOLDERS
All proposals of any stockholder of the Company which the holder desires be
presented at the next Annual Meeting of Stockholders and be included in the
proxy statement and form of proxy prepared for that meeting must be received by
the Company at its principal executive offices no later than January 7, 1995.
All such proposals must be submitted in writing to the Secretary of the Company
at the address appearing on the notice accompanying this proxy statement.
INDEPENDENT AUDITORS
KPMG Peat Marwick performed the customary auditing services for the fiscal year
ended February 26, 1994, and has been selected to perform these services for
the next fiscal year. A representative of KPMG Peat Marwick is expected to be
present at the Meeting and will be available to respond to questions from the
floor and will be afforded an opportunity to make any statement which he may
deem appropriate.
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SOLICITATION OF PROXIES
The cost of the solicitation of proxies will be borne by the Company. In
addition to the use of the mails, solicitations may be made by telephone and
personal interviews by officers, directors and regularly engaged employees of
the Company. It is not anticipated that anyone will be specifically engaged by
the Company or by any other person to solicit proxies. Brokerage houses,
custodians, nominees and fiduciaries will be requested to forward this proxy
statement to the beneficial owners of the stock held of record by such persons,
and the Company will reimburse them for their charges and expenses in this
connection.
ANNUAL REPORT ON FORM 10-K
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON SOLICITED BY THIS PROXY
STATEMENT, AT THE WRITTEN REQUEST OF ANY SUCH PERSON, A COPY OF THE COMPANY'S
ANNUAL REPORT ON FORM 10-K (INCLUDING THE FINANCIAL STATEMENTS AND THE
SCHEDULES THERETO) AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FOR ITS
MOST RECENT FISCAL YEAR. SUCH WRITTEN REQUESTS SHOULD BE DIRECTED TO THOMAS
COOGAN, AT THE ADDRESS OF THE COMPANY APPEARING ON THE FIRST PAGE OF THIS PROXY
STATEMENT.
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RITE AID CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
JULY 7, 1994
THIS PROXY IS SOLICITED ON BEHALF
OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Alex Grass and Martin Grass
or either one of them, as proxies, with full power of substitution, to vote all
shares of stock of Rite Aid Corporation (the 'Company') which the undersigned
would be entitled to vote if personally present at the Annual Meeting of
stockholders of the Company to be held at the Harrisburg Hilton and Towers, One
N. Second Street, Harrisburg, Pennsylvania at 11:00 o'clock a.m., on July 7,
1994, or at any adjournments or postponements thereof:
(continued on reverse side)
<PAGE>
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY
<TABLE>
<S> <C> <C> <C>
FOR ALL NOMINEES WITHHOLD
EXCEPT NOMINEE(S) AUTHORITY
WRITTEN IN THE TO VOTE FOR
SPACE BELOW ALL NOMINEES
(1) Election of Directors. Franklin Brown, Martin Grass, Preston Robert Tisch
_________________________________________________________________________ [ ] [ ] [ ]
(2) To amend the Company's 1990 Omnibus Stock Incentive Plan For Against Abstain
[ ] [ ] [ ]
(3) To approve the Company's 1994 Performance-Based Bonus Plan For Against Abstain
[ ] [ ] [ ]
(4) To consider a stockholder proposal to redeem preferred For Against Abstain
Stock purchase rights issued in 1989 unless issuance is
approved by the stockholders [ ] [ ] [ ]
</TABLE>
<TABLE>
<S> <C>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS SPECIFIED, OR IF NO
SPECIFICATIONS ARE MADE, WILL BE VOTED FOR THE ELECTION OF THE ABOVE NOMINEES
FOR DIRECTOR, FOR THE AMENDMENT TO THE COMPANY'S 1990 STOCK INCENTIVE PLAN,
FOR THE APPROVAL OF THE COMPANY'S 1994 PERFORMANCE-BASED BONUS PLAN AND
AGAINST THE STOCKHOLDER PROPOSAL AND THE NAMED PROXIES WILL USE THEIR
DISCRETION TO VOTE ON ANY OTHER MATTER AS MAY PROPERLY COME BEFORE THE
MEETING.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF MEETING AND
PROXY STATEMENT FURNISHED HEREWITH, AND HEREBY CONFIRMS THAT THIS PROXY
SHALL BE VALID AND MAY BE VOTED WHETHER OR NOT THE STOCKHOLDER'S NAME IS SET
FORTH BELOW OR A SEAL IS AFFIXED OR THE DESCRIPTION, AUTHORITY OR CAPACITY
OF THE PERSON SIGNING IS GIVEN OR OTHER DEFECT OF SIGNATURE EXISTS.
Signature of Stockholder_____________________________________________________
Dated: _______________________________________________________________ , 1994
Note: When signing as attorney-in-fact, executor, administrator, trustee or
guardian, please add your title as such, and if signer is a corporation,
please sign with full corporate name by duly authorized officer or officers
and affix the corporate seal. Where stock is issued in the name of two or
more persons, all such persons should sign.
</TABLE>
