SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): January 29, 1999
Rite Aid Corporation
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(Exact Name of Registrant as Specified in Charter)
Delaware 1-5742 23-1614034
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
30 Hunter Lane, Camp Hill, Pennsylvania 17011
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (717) 761-2633
N/A
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(Former Name or Former Address, if Changed Since Last Report)
ITEM 5. OTHER EVENTS
In response to a press report, on January 29, 1999, the company issued
a press release, a copy of which is filed herewith as Exhibit 99.1.
Following the appearance of the press report, the company commenced an
internal review of related party transactions. The review was requested by
Martin Grass, the company's Chairman and CEO, and authorized by the
chairmen of its audit and finance committees. The review concluded that
Martin Grass has no previously undisclosed business relationships with the
company. In the review, all executive officers of the company were
interviewed, the company's records were reviewed and counsel made
inquiries of Alex Grass, a director of the company, and those of his
children who are not associated with Rite Aid. Described below are 1) all
matters which were learned by the company in the course of the review, and
2) real estate transactions related to Martin Grass, all of which were
previously disclosed by the company.
MATTERS LEARNED IN THE REVIEW
o On February 7, 1999, in the course of the review, the company
learned that in 1995, after he retired as an officer of the
company, Alex Grass, through a trust, acquired a 30% interest and
that both of his daughters acquired options to purchase 5%
interests in LNK International, a manufacturer of private label
over-the-counter medications. The company purchased $6.7 million,
$8.8 million, and $9.2 million of product from LNK in fiscal 1997,
1998 and for the first 11 months of fiscal 1999, respectively. The
company believes that the price, quality and service that it has
received from LNK are at least as favorable as those available from
other third parties.
o The company for more than 25 years has leased 43,920 square feet of
storage space in a warehouse in Camp Hill, Pennsylvania, from a
partnership in which Alex Grass has a 50% interest. The rent is
$3.50 per square foot ($153,720) per year.
o In approximately 1989, in connection with his efforts to assist in
the development of commerce between Israel and the United States,
and at the request of the president of a major Israeli university,
Alex Grass aided in the formation of I.C. Imports, an importer of
toothbrushes and candy manufactured in Israel. Alex Grass and
Martin Grass each had a 12.5% interest in I.C. Imports. In 1992,
those interests were returned to I.C. Imports for no payment. The
company's purchases from I.C. Imports during the period 1990-1992
were less than one million dollars per year and consisted only of
products manufactured in Israel.
o Rite Aid learned on Thursday, February 4, 1999, in the course of
the review, that in 1992, the interests which were returned to I.C.
Imports were issued to Alex Grass' daughters at his direction. His
daughters have never had any role in the operation or management of
this importer. Sales of merchandise by I.C. Imports to Rite Aid
never exceeded $1.6 million in each of fiscal 1993 through 1996.
In fiscal 1997 and 1998 and in the first 11 months of fiscal 1999
the company made aggregate purchases of $1.6 million, $2.1 million
and $1.8 million, respectively, from I.C. Imports. The company
believes that the price, quality and service that it has received
from I.C. Imports are at least as favorable as those available from
other third parties.
o In the course of the review, the company learned that in 1995,
William Mann, the brother of Kevin Mann, former executive vice
president of purchasing, whose employment was terminated by the
company in June 1998, together with the operating principal of I.C.
Imports, created The Crestpointe Corporation, and that in
connection with their ownership of I.C. Imports, Alex Grass'
daughters who have never had any role in the operation or
management of Crestpointe were each given a 12.5% interest in that
company.
Crestpointe acted as a manufacturer's representative for a line of
domestically produced candies and other products. No amounts have
ever been paid by Rite Aid to Crestpointe or William Mann. As
manufacturers' representatives, they were paid by the vendors they
represented and the company is not aware of those arrangements. In
the review, the company learned that Crestpointe has gone out of
business.
Effective January 1, 1999, in accordance with a policy first announced
in the summer of 1998, the company ceased making purchases from vendors
who employ manufacturers' representatives and since January 1, 1999,
has dealt only directly with vendors.
PREVIOUSLY DISCLOSED REAL ESTATE TRANSACTIONS INVOLVING MARTIN GRASS:
o In February 1992, the company opened an 8,000 square-foot store in
a newly-developed 60,000 square-foot shopping center anchored by a
Giant Food store. The rent paid by the company was $12.00 per
square foot ($96,000) per year. Martin Grass is a 50% partner in
the partnership that owns that shopping center.
Part of the company's real estate strategy is to relocate
undersized stores to larger, freestanding sites, which has resulted
in 300 stores being relocated in fiscal 1999. In furtherance of its
strategy, the New Cumberland store was relocated on February 5,
1999, from the Giant Food shopping center to a new, 11,000
square-foot, freestanding site owned by an unrelated entity. The
shopping center lease was cancelled and Rite Aid was released from
its obligation to pay over $300,000 in remaining rent, without the
payment of any consideration.
o In January 1996, the company purchased a chain of 14 drug stores.
That chain had since January 1982 leased an approximately 5,000
square-foot store in Mt. Carmel, Pennsylvania, from a partnership
in which Martin Grass was a partner. The rent is $7.80 per square
foot ($39,000) per year, which was the rent provided for in the
lease when it was signed in 1982. The current partners are Martin
Grass and his brother-in-law, who is a full-time real estate
developer, each of whom has a 37.5% interest, and one of his
sisters, who has a 25% interest. In accordance with the company's
real estate strategy, the company is seeking to relocate this
store.
o On January 8, 1999, the company relocated an undersized 6,000
square foot shopping center store directly across the street to a
freestanding 10,750 square-foot store in Sinking Springs,
Pennsylvania, which it leases from Martin Grass' brother-in-law,
who is a full-time real estate developer, at a rent of $17.50 per
square foot ($188,125) per year. Martin Grass has no interest in
this store.
o Martin Grass did not and does not participate in the approval of
real estate proposals submitted and recommended by the company's
real estate professionals in instances in which a related party or
any person with whom he has business relationships is involved.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
INFORMATION AND EXHIBITS
(c) Exhibits The following exhibit is filed herewith:
99.1 Press release, dated January 29, 1999, issued by Rite Aid
Corporation.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
February 9, 1999
RITE AID CORPORATION
By: /s/Elliot S. Gerson
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Elliot S. Gerson
Executive Vice President
& General Counsel
Exhibit Index
99.1 Press release, dated January 29, 1999, issued by Rite Aid
Corporation.
PRESS RELEASE
For Further Information Contact:
INVESTORS: MEDIA:
Frank Bergonzi Suzanne Mead
(717) 975-5750 (717) 975-5887
STATEMENT OF RITE AID CORPORATION
Camp Hill, PA (January 29, 1999) - A press report apparently derived from
sources related to the plaintiff's attorneys in a lawsuit by a terminated
employee have attempted to imply that Martin Grass, chairman and chief
executive officer of Rite Aid Corporation, has not publicly disclosed
certain matters. The company issued the following statement:
Even though the story cites "No Allegation of Impropriety", an attempt was
made to create an environment of negative publicity. Mr. Grass has a stake
in Rite Aid worth in excess of $200 million, which is tied to the
performance of the company.
The full extent of Martin Grass' interest in any Rite Aid store location is
as follows:
o He is a minority partner in a building in downtown Mt. Carmel,
Pennsylvania, which was a part of a small chain that Rite Aid acquired
in 1996.
o He is also a partner in a Giant Food shopping center in New Cumberland,
Pennsylvania, in which the Rite Aid lease has been cancelled effective
February 5, 1999, in conjunction with the store's relocation to a new,
free-standing site.
o The combined rent attributable to Martin Grass' interest in these two
stores is $57,000 in fiscal 1999.
Mr. Grass has no interest in the Sinking Springs Rite Aid store, which
opened in January 8, 1999, or in any other Rite Aid store location.
It is unfortunate that plaintiff's attorneys have become skilled in recent
years at using the national media regardless of the merits of their cases.
Appropriate disclosures will continue to be publicly made.
Rite Aid has over 3,800 stores and has worked hard to provide enhanced
shareholder value.
