<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
[X] Definitive Proxy Statement RULE 14C-5(D)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
RITE AID CORPORATION
------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
RITE AID CORPORATION
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] 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:
Notes:
<PAGE>
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[LOGO OF RITE AID CORPORATION
RITE AID P.O. BOX 3165
APPEARS HERE] HARRISBURG, PENNSYLVANIA 17105
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The 1995 ANNUAL MEETING of the stockholders of Rite Aid Corporation
will be held at the Theater of the Hershey Lodge and Convention
Center, West Chocolate Avenue and University Drive, Hershey,
Pennsylvania, on July 11, 1995 at 11:00 a.m. for the following
purposes:
1. To elect three directors to hold office until the 1998 Annual
Meeting of Stockholders and until their successors are duly elected
and qualified.
2. To approve the Annual Performance-Based Incentive Program.
3. To approve an increase in the number of shares of Common Stock
which may be issued under the 1990 Omnibus Stock Incentive Plan by
1,000,000 shares.
4. To consider a stockholder proposal regarding an equal employment
opportunity/affirmative action report.
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 18,
1995 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,
I. Lawrence Gelman,
Assistant Vice President and
Secretary
Camp Hill, Pennsylvania
June 7, 1995
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 1995 Annual Meeting of
Stockholders (the "Meeting") to be held at the Theater of the Hershey Lodge
and Convention Center, West Chocolate Avenue and University Drive, Hershey,
Pennsylvania, on July 11, 1995 at 11:00 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 7, 1995. Only stockholders of record at the
close of business on May 18, 1995 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 the other proposals of the Board of Directors, and AGAINST the
stockholder proposal as indicated in the accompanying notice. 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 other than
the aforementioned stockholder proposal. 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 18, 1995, the Company had outstanding and entitled to vote 83,757,967
shares of Common Stock. There must be present at the Meeting in person or by
proxy holders of 41,878,984 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.
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 cast against a nominee. The affirmative vote
of the holders of a majority of the Company's
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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 18, 1995, certain information
concerning the beneficial shareholdings of each director, each nominee for
director, each executive officer named in the Summary Compensation Table
appearing elsewhere herein 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
beneficially more than five percent (5%) of the Company's outstanding Common
Stock.
<TABLE>
<CAPTION>
Number of
Common Shares
Beneficial Owners Beneficially Owned(1) Percent of Class
----------------- --------------------- ----------------
<S> <C> <C>
Alex Grass............................... 2,029,159(1) 2.4%
Franklin Brown........................... 175,163(2) *
Martin Grass............................. 1,159,509(3) 1.4%
Philip Neivert........................... 1,075,364(4) 1.3%
Leonard Stern............................ 3,000(5) *
Henry Taub............................... 3,000(5) *
Preston Robert Tisch..................... 3,000(5) *
Gerald Tsai, Jr.......................... 2,000(5) *
Timothy Noonan........................... 53,376 *
Alex Schamroth(6)........................ -- *
All executive officers and directors
as a group including those named
above (19 persons).................... 3,799,828 4.5%
</TABLE>
- --------------
* Percentage less than 1% of class.
2
<PAGE>
(1) 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 2,029,159 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 175,163 shares owned by Mr. Brown's wife as to which Mr. 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 84,574 shares held in trusts for Mr. Grass' 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; 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 382,749 shares.
Mr. Neivert disclaims any beneficial interest in those shares owned by his
wife.
(5) Includes 1,000 shares of Common Stock which are subject to certain
restrictions on sale or transfer. See "Election of Directors--Directors'
Fees."
(6) On March 4, 1995, Mr. Schamroth resigned as Executive Vice President in
connection with his retirement from the Company.
ELECTION OF DIRECTORS
The Company's By-Laws provide that the Board of Directors may be composed 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 1998
Annual Meeting of Stockholders. The remaining directors will be elected at the
1996 and 1997 Annual Meetings of Stockholders. Although there are fewer
nominees for election than the number allowed pursuant to the By-Laws of the
Company,
3
<PAGE>
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, Alex Grass, Philip Neivert and Gerald Tsai, Jr., currently
serve as directors of the Company. As stated above, the enclosed proxy will be
voted FOR the election as directors of Messrs. Grass, Neivert and Tsai 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 1998
ALEX GRASS, Founder of the Company, has been Honorary Chairman of the Board of
Directors and Chairman of the Board's Executive Committee since March 4, 1995
when he retired as Chairman of the Board and Chief Executive Officer,
positions he held since the founding of the Company. He is also 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 67.
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 69.
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 66.
4
<PAGE>
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 57.
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 director of Hasbro, Inc. Age 67.
TIMOTHY NOONAN was appointed a Director of the Company on March 4, 1995
concurrently with his election as President and Chief Operating Officer. Prior
to March 4, 1995, and for more than five years, Mr. Noonan was Executive Vice
President of the Company.
DIRECTORS CONTINUING IN OFFICE
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 67.
MARTIN GRASS has been Chairman of the Board and Chief Executive Officer of the
Company since March 4, 1995. Previously, Mr. Grass was President and Chief
Operating Officer since April 1989, had been Executive Vice President for
three years and prior thereto, had served as 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 41.
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 69.
5
<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS
The Board's Audit Committee, which held two meetings 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.
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. In fiscal year 1995, each of the Company's non-employee
directors was granted a restricted stock award of 1,000 shares of Common
Stock. Pursuant to the award, the recipients are entitled to vote the shares
and enjoy all other incidents of ownership, except that the shares may not be
sold or transferred until the earlier of the third anniversary of the grant
date and the date when the non-employee director retires from the Board of
Directors. Further, in recognition of the substantial additional
responsibilities undertaken and time devoted by each of the Company's non-
employee directors during
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<PAGE>
fiscal year 1995 in connection with the Company's divestiture of four of its
business segments, including direct negotiations with purchasers and numerous
meetings with investment bankers, each of the Company's non-employee directors
was paid a one-time $50,000 cash bonus.
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table shows, for the fiscal years ended March 4, 1995, February
26, 1994 and February 27, 1993, 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 $100,000.
EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
------------------------------------------------ ------------------
Other All
Annual Restricted Securities Other
Name and Compen- Stock Underlying LTIP Compen-
Principal Fiscal sation Awards Options/ Payouts sation
Position Year Salary($) Bonus($)(1) ($)(2) ($) SARs(#) ($) ($)(3)
- --------- ------ --------- ----------- ------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Alex Grass(4)........... 1995 $1,205,100 $330,000 -- -- 160,000 $35,000 $2,000
Honorary Chairman 1994 $1,163,077 -- -- -- -- -- $2,000
1993 $1,125,000 -- -- -- 400,000 -- $2,000
Martin Grass(4)......... 1995 $ 927,000 $165,000 -- -- 200,000 $87,500 $2,000
Chairman and Chief 1994 $ 900,000 -- -- -- -- -- $2,000
Executive Officer 1993 $ 900,000 -- -- -- 500,000 -- $2,000
Franklin Brown.......... 1995 $ 417,846 $ 82,500 -- -- 55,000 $13,125 $2,000
Executive Vice 1994 $ 400,925 -- -- -- -- -- $2,000
President 1993 $ 380,769 -- -- -- 137,500 -- $2,000
Timothy Noonan.......... 1995 $ 299,854 $ 82,500 -- -- 55,000 $26,250 $2,000
President and Chief 1994 $ 288,554 -- -- -- -- -- $2,000
Operating Officer(4) 1993 $ 280,000 -- -- -- 137,500 -- $2,000
Alex Schamroth.......... 1995 $ 299,854 $ 82,500 -- -- -- $ 6,500 $2,000
Executive Vice 1994 $ 290,720 -- -- -- -- -- $2,000
President(5) 1993 $ 280,000 -- -- -- 137,500 -- $2,000
</TABLE>
- --------------
Footnotes on following page.
7
<PAGE>
(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 $50,000 or ten
percent of such officer's total annual salary and bonus for such year.
(3) Represents amounts paid by the Company on behalf of the named persons in
connection with the Company's Profit Sharing Plan.
(4) On March 4, 1995 Alex Grass resigned as Chairman of the Board and Chief
Executive Officer of the Company and Martin Grass was appointed Chairman
and Chief Executive Officer of the Company. On that same date, Timothy
Noonan was appointed President and Chief Operating Officer.
(5) On March 4, 1995, Mr. Schamroth resigned as Executive Vice President in
connection with his retirement from the Company.
STOCK OPTION HOLDINGS
The following tables set forth certain information concerning stock options
and stock options in tandem with stock appreciation rights ("SARs") granted to
and exercised by the persons named in the Summary Compensation Table above
during fiscal year 1995 and unexercised stock options held by such persons at
the end of fiscal year 1995.
OPTION GRANTS DURING FISCAL YEAR 1995
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Percentage of Annual Rates of Stock
Number of Total Price Appreciation
Securities Options/SARs Exercise or for Option Term(4)
Underlying Granted Base Price Expiration ------------------------
Name(1) Options(2) in Fiscal 1995 ($/Share)(3) Date 5%($) 10%($)
- ------- ---------- -------------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Alex Grass.............. 160,000 26.5% 19.425 1/06/03 2,901,440 5,547,520
Martin Grass............ 200,000 33.1% 19.425 1/06/03 3,626,800 6,934,400
Franklin Brown.......... 55,000 9.1% 19.425 1/06/03 997,370 1,906,960
Timothy Noonan.......... 55,000 9.1% 19.425 1/06/03 997,370 1,906,960
Alex Schamroth.......... -- -- -- -- -- --
All Optionees........... 604,400 100.0% 19.425 1/06/03 10,960,190(5) 20,955,757(5)
</TABLE>
- --------------
Footnotes on following page.
8
<PAGE>
(1) See Summary Compensation Table for titles of the persons named above.
(2) The options listed in the table were issued as the result of the
attainment of certain performance objectives as determined by the
Compensation Committee of the Board of Directors when the 1993
Accelerating Vesting Options were granted. Options listed in the table do
not vest until the fourth anniversary of the grant date except in the
event the Company attains certain performance objectives as determined by
the Compensation Committee of the Board of Directors, in which event the
options may be subject to accelerated vesting prior to the fourth
anniversary.
(3) All options were granted at fair market value at date of grant.
(4) Gains are reported net of option exercise price but before taxes
associated with exercise. These amounts represent assumed rates of
appreciation only. Actual gains, if any, on the options are dependent upon
future performance of the Common Stock, and the amounts reflected on the
table may not necessarily be achieved. The Company did not use an
alternative formula for a grant date valuation insofar as the Company is
not aware of any formula which would determine with reasonable accuracy a
present value based on future unknown or volatile factors.
(5) No gain is possible without appreciation in the market price of the Common
Stock, which will benefit all stockholders of the Company commensurably.
OPTION EXERCISES IN FISCAL 1995 AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal In The Money Options
Value Year End(#) at Fiscal Year End ($)(3)
Shares Acquired Realized ------------------------- -------------------------
Name(1) on Exercise $(2) Exercisable/Unexercisable Exercisable/Unexercisable
------- --------------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Alex Grass.............. 20,000 35,000 0/700,000 0/7,429,500
Martin Grass............ 50,000 87,500 0/800,000 0/7,365,000
Franklin Brown.......... 7,500 13,125 0/242,500 0/2,601,938
Timothy Noonan.......... 15,000 26,250 0/232,500 0/2,345,688
Alex Schamroth.......... 4,000 6,500 0/177,500 0/2,004,688
</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 on the exercise date. May be paid as appreciation
rights at the option of the Compensation Committee.
(3) Calculated by subtracting the exercise price from the fair market value of
the underlying shares at March 4, 1995.
9
<PAGE>
SUPPLEMENTAL EXECUTIVE RETIREMENT PROGRAM
Each of Alex Grass, Martin Grass and Messrs Brown, Noonan and Schamroth has
entered into a contract with the Company which provides 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 1995, which included a pro rata portion of common area charges,
real estate taxes and insurance, amounted to $233,439. The current least 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") 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 corporation performance.
The executive compensation program is generally composed of base salary,
discretionary performance bonuses and long term incentives in the form of
stock options, SARs, stock-based awards and restricted stock warrants. The
compensation program also includes
10
<PAGE>
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 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. Except for
increases associated with promotions or increased responsibility, increases in
base salaries for executive officers of the Company from year to year are
limited to adjustments to reflect increases in the rate of inflation.
The Committee is aware that a recent amendment to the Internal Revenue Code of
1986, as amended (the "Code"), 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, until March 4, 1995, 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.
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 initially established the 1994
Performance-Based Bonus Plan for this purpose. Performance bonuses under that
Plan were payable 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 1995, earnings
goals set by the Board were achieved and, consequently, certain bonuses were
paid to the executive officers. See "Compensation of Executive Officers--
Summary Compensation Table." The Board terminated the 1994 Performance-Based
Bonus Plan at the end of fiscal year 1995 and has
11
<PAGE>
adopted, subject to stockholder approval being sought herein, the Annual
Performance-Based Incentive Program. See "Approval of the Annual Performance-
Based Incentive Program."
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 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, exercisability 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 of 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.
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.
12
<PAGE>
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 2, 1990 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, .;
F&M Distributors; Fays Incorporated; Genovese Drug Stores; Longs Drug Stores;
Perry Drug Stores; Revco D.S., Inc.; Rite Aid Corporation; and Walgreen Co.
(MAC CHART)
[GRAPH APPEARS HERE]
COMPARISON OF FIVE YEAR CUMULATIVE RETURN AMONG
NACDS PEER GROUP INDEX, S&P 500 INDEX AND RITE AID
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NACDS $100.00 $134.85 $153.01 $159.21 $170.62 $199.94
- ----------------------------------------------------------------------------
S&P 500 $100.00 $114.67 $133.00 $147.17 $159.44 $171.18
- ----------------------------------------------------------------------------
RITE AID $100.00 $132.32 $137.24 $133.25 $133.49 $177.68
- ----------------------------------------------------------------------------
</TABLE>
13
<PAGE>
APPROVAL OF THE ANNUAL PERFORMANCE-BASED INCENTIVE PROGRAM
The Compensation Committee of the Board of Directors established the Annual
Performance-Based Incentive Program (the "Annual Incentive Plan") subject to
approval of the Annual Incentive Plan by the stockholders. The Annual
Incentive Plan is intended to focus executive compensation on Company
performance and is expected to be the principal vehicle for awarding cash
bonuses to the Company's executives. The Annual Incentive Plan replaces the
1994 Performance-Based Bonus Plan. Set forth below are the terms of the Annual
Incentive Plan.
PURPOSE
The purpose of the Annual Incentive Plan is to provide an incentive for
executives 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 earnings per share.
ELIGIBILITY
Only officers of the Company are eligible to participate under the Annual
Incentive Plan. As of the date hereof, 34 persons are eligible to participate.
TARGET AND MAXIMUM INCENTIVE AWARD
Each fiscal year the Compensation Committee will determine a range of growth
in earnings per share over the previous fiscal year. Additionally, a target
incentive as a percentage of salary will also be determined each year by the
Compensation Committee ranging from a maximum of 50% for the Chief Executive
Officer to 15% depending on executive position. Depending upon the actual
growth in earnings per share during such year, participants will be entitled
to a percentage, ranging from 0% to 200%, of the targeted incentive award
fixed by the Compensation Committee.
The Compensation Committee may consider a variety of factors, including past
performance and expectations for the future, in setting an individual target
incentive. Notwithstanding the establishment of the target, however, the
Compensation Committee will have the discretion to evaluate each participant's
performance during each year. Thus, the incentive for the year paid under the
Annual Incentive Plan for any participant may be less than the originally
determined target incentive amount that would otherwise have been payable.
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<PAGE>
Under the Annual Incentive Plan, no incentive payment to any single
participant may exceed 200% of the target incentive or 100% of such
participant's base salary. Additionally, in no event may the incentive payment
to any one individual exceed $1,200,000.
The Compensation Committee will certify in writing the degree of achievement
of the earnings per share goals after the fiscal year is ended, and no amounts
will be paid to the participants under the Annual Incentive Plan until such
certification by the Compensation Committee has been completed.
For fiscal year 1996, the Compensation Committee has set an increase of 12.5%
in earnings per share over fiscal year 1995, or $1.879 per share, as the range
required to achieve 100% of the target incentive. No percentage of the
incentive will be achieved if earnings per share increase by less than 10%,
and if earnings per share increase 15% or more, the formula will yield a
maximum payment of 150% of target incentive.
The following table sets forth the target incentive, as a percentage of base
salary, which has been fixed by the Compensation Committee for fiscal year
1996, for each of the persons named in the Summary Compensation Table
appearing elsewhere herein who would be eligible to participate in the Annual
Incentive Plan:
ANNUAL INCENTIVE PLAN
<TABLE>
<CAPTION>
Name and Position Target Incentive Plan
----------------- ---------------------
<S> <C>
Martin Grass, Chairman and Chief Executive Officer........ 50%
Timothy Noonan, President and Chief Operating Officer..... 50%
Franklin Brown, Executive Vice President.................. 45%
</TABLE>
The Board of Directors recommends that stockholders vote FOR approval of the
Annual Incentive Plan.
AMENDMENT TO 1990 OMNIBUS STOCK 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
15
<PAGE>
from 6,000,000 (which number reflects an adjustment for a two-for-one stock
split after the Omnibus Plan was adopted) to 7,000,000. Prior to the
amendment, there were 3,531,000 shares remaining available for further Awards
under the Omnibus Plan which were neither issued nor reserved for issuance on
the exercise of outstanding options.
The Board of Directors recommends that stockholders vote FOR the approval of
the amendment to 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 stockholders 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.
SUMMARY OF THE PLAN
The Omnibus Plan currently authorizes the granting of Incentive Awards for up
to 6,000,000 shares of Common Stock subject to adjustment as described below.
If the proposed amendment is approved at the Meeting, the number of shares
will be increased from 6,000,000 shares to 7,000,000 shares. Furthermore, if
the amendment is approved, the Company intends to utilize existing treasury
shares with respect to the increase in the number of shares authorized under
the Plan. 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 are 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.
16
<PAGE>
The Omnibus Plan is administered by the Compensation Committee, which
determines 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 is 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, 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.
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
17
<PAGE>
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 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 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 SAR's
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.
18
<PAGE>
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 awarded 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 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,
19
<PAGE>
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, SARs, 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 member of the Award holder's
immediate family (as defined in the amended plan), (2) pursuant to a qualified
domestic relations order as defined in the Code, 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 exercisable)
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
20
<PAGE>
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 is required to be withheld 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 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.
21
<PAGE>
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
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 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 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
22
<PAGE>
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 acquires 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 recognizes
ordinary income in a Disqualifying Disposition.
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
23
<PAGE>
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 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 shares commences as of the date the ordinary
income is recognized.
If an 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 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.
Pursuant to Section 83(b) of the 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 Omnibus 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.
24
<PAGE>
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 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 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).
STOCKHOLDER PROPOSAL
The Company has been notified that the following stockholders intend to
introduce and support the following proposal at the Meeting: Evangelical
Lutheran Church of America,
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122 "C" Street, N.W., Suite 725, Washington, D.C., 20001, purported owners of
3,200 shares of Common Stock of the Company; General Board of Pension and
Health Benefits of the United Methodist Church, 120 Davis Street, Evanston,
Illinois, 60201, purported owners of 9,000 shares of Common Stock of the
Company; and Congregation of the Sisters of Charity of the Incarnate Word, P.
O. Box 230969, 6510 Lawndale, Houston, Texas, 77223-0969, purported owners of
13,200 shares of the Company's Common Stock.
"RESOLVED, the shareholders request our Company prepare a report at
reasonable cost available to shareholders and employees reporting on
the following issues. This report, which may omit confidential
information, shall be available by September, 1995.
1. A chart identifying employees according to their sex and race in
each of the nine major Equal Employment Opportunity Commission
defined job categories for 1992, 1993, 1994 listing either numbers or
percentages in each category.
2. A summary description of any Affirmative Action policies and
programs to improve performances, including job categories where
women and minorities are underutilized.
3. A description of any policies oriented specifically toward
increasing the number of managers, who are qualified females and/or
belong to ethnic minorities.
4. A description of how our Company publicizes our Company's
affirmative action policies and programs to merchandise suppliers and
service providers.
5. A description of any policies and programs directing the purchase
of goods and services to minority and/or female-owned business
enterprises."
STOCKHOLDERS' SUPPORTING STATEMENT
The following statement was submitted in support of such resolution:
"We believe there is a strong need for corporate commitment to equal
employment opportunity. We also believe a clear policy opposing all forms of
discrimination is a sign of a socially-responsible corporation. Since a
substandard equal employment opportunity record leaves a company open to
expensive legal action, poor employee morale and even the loss of certain
types of business, we believe it is in the Company's and shareholder's
interests to have information on our Company's equal employment record
available.
26
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One of the country's largest institutional investors the California Public
Employees' Retirement System includes workplace performance guidelines as part
of their corporate performance criteria. The Department of Labor's Glass
Ceiling Commission has for the last four years conducted studies with the help
of a number of corporations and in 1994 held public hearings to ascertain the
status of equality and diversity in Corporate America. In 1995 the Commission
will report to the President their recommendations.
As a major employer we are in a position to take the lead in ensuring that
employees receive fair employment opportunities and promotions. We believe a
report containing the basic information requested in this resolution keeps the
issue high on top management's and the Board of Directors' agenda and
reaffirms our public commitment to equal employment opportunity and programs
responsive to the concerns of all employees. Publicizing our standards is
helpful to our investors and the companies with whom we do business.
We are requesting that EEO information already gathered for the purpose of
complying with government regulations be made available to company
shareholders on request. The format of the report requested is not the central
question. Many corporations openly release their EEO-1 information in annual
reports or public interest booklets.
Different companies use different styles in telling their story to
shareholders. Capital Cities/American Broadcasting Company, Bristol-Myers-
Squibb and Travellers produced a substantial magazine style report. Campbell
Soup produced a straightforward four page document. We feel this request is
fair and reasonable."
THE BOARD OF DIRECTORS FAVORS A VOTE AGAINST
THE ADOPTION OF THIS PROPOSAL FOR THE FOLLOWING REASONS:
Rite Aid firmly supports, and believes it is in full compliance with, federal
and state equal employment opportunity laws and regulations. The Board of
Directors supports management's policy of recruiting, hiring, training and
promoting the most qualified individuals available at each job level without
regard to race, color, religion, sex, national origin, age, handicap or
veteran's status. Rite Aid has long-established policies promoting equality of
employment and prohibiting discrimination in employment. Its practices and
procedures to ensure equal employment opportunity are an integral part of
management. In addition, the Company has developed affirmative action plans to
ensure employment opportunities for all qualified individuals and will
continue to give these plans appropriate support and attention.
27
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Rite Aid compiles and files federally mandated statistical reports regarding
employment practices at significant time and expense to the Company. The
information in these reports in fact illustrates Rite Aid's commitment to
equal opportunity and fair employment practices. These EEO 1 Reports are filed
annually with the Equal Employment Opportunity Commission. They can be
obtained by any interested person from the EEOC or directly from Rite Aid's
Human Resources Department. The Company is confident that anyone reviewing
this information would conclude that Rite Aid has an excellent level of
performance and Rite Aid is proud of its record of minority and female
achievement within its organization. The Board believes that the compilation
and dissemination of an additional report as suggested by the proponents would
do nothing to promote this commitment, but rather, would only increase the
Company's expenditures and create an additional burden on management in the
preparing of the report, neither of which the Board believes is in the
stockholders' best interests. This position is taken even though the Company
may be in full agreement with the ultimate objectives of the stockholder
proponents.
Rite Aid strives to respond meaningfully to all legitimate stockholder
concerns. The open communication of information about relevant Company
policies and procedures between senior executives and concerned stockholders
will continue to be a Company objective.
Approval of the proposal requires the affirmative votes of a majority of the
stockholders of the Company's Common Stock voting in person or by proxy at the
meeting.
The Board of Directors favor a vote AGAINST the stockholder proposal, and
proxies solicited by the Board of Directors will be so voted unless
stockholders specify a different choice.
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,
1996. 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.
28
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INDEPENDENT AUDITORS
KPMG Peat Marwick performed the customary auditing services for the fiscal
year ended March 4, 1995, 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.
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.
29
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- --------------------------------------------------------------------------------
[LOGO OF RITE AID APPEARS HERE]
- --------------------------------------------------------------------------------
<PAGE>
RITE AID CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
JULY 11, 1995
THIS PROXY IS SOLICITED ON BEHALF
OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Martin Grass and Franklin Brown
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 Theater of the Hershey Lodge and
Convention Center, West Chocolate Avenue and University Drive, Hershey,
Pennsylvania, at 11:00 o'clock a.m., on July 11, 1995, 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. /X/
--
1. Election of Directors, Alex Grass, FOR ALL NOMINEES WITHHOLD
Philip Neivert, Gerald Tsai, Jr. EXCEPT NOMINEE AUTHORITY TO
WRITTEN IN THE VOTE FOR ALL
- ---------------------------------------- SPACE BELOW NOMINEES
For Against Abstain
2. To approve the Company's Annual -- -- --
Performance Based Incentive Program / / / / / /
-- -- --
For Against Abstain
3. To amend the Company's 1990 -- -- --
Omnibus Stock Incentive Plan / / / / / /
-- -- --
For Against Abstain
4. To consider a stockholder proposal -- -- --
regarding an equal employment / / / / / /
opportunity/ affirmative action report -- -- --
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 APPROVAL OF THE COMPANY'S ANNUAL PERFORMANCE BASED
INCENTIVE PROGRAM, FOR THE AMENDMENT TO THE COMPANY'S 1990 OMNIBUS STOCK
INCENTIVE 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: __________________________________________________________________ , 1995
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.
