<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
RITE AID CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
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RITE AID CORPORATION
P.O. BOX 3165
HARRISBURG, PENNSYLVANIA 17105
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The 1999 ANNUAL MEETING of the stockholders of Rite Aid
Corporation will be held at the Four Points Sheraton Hotel, 980
Hospitality Way, Aberdeen, Maryland 21001, on June 30, 1999 at
10:00 a.m. for the following purposes:
1. To elect three directors to hold office until the 2002
Annual Meeting of Stockholders and until their respective
successors are duly elected and qualified;
2. To consider a stockholder proposal set forth in the
accompanying materials; and
3. To transact such other business as may properly come before
the meeting.
The Board of Directors has fixed the close of business on May 10, 1999 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
Elliot S. Gerson,
Executive Vice President, General
Counsel and Secretary
Camp Hill, Pennsylvania
June 4, 1999
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. This year, many stockholders will have a choice of
voting by telephone, over the Internet or by using a
traditional proxy or instruction card. Check your card or
other information forwarded by your broker, bank or other
holder of record to see which options are available to
you.
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<PAGE>
RITE AID CORPORATION PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
This proxy statement is being furnished in connection with the solicitation of
proxies by the Board of Directors ("Board") of Rite Aid Corporation, a
Delaware corporation (the "Company"), for use at the Company's 1999 Annual
Meeting of Stockholders (the "Meeting") to be held at the Four Points Sheraton
Hotel, 980 Hospitality Way, Aberdeen, Maryland 21001, on June 30, 1999 at
10:00 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 4, 1999.
Only stockholders of record at the close of business on May 10, 1999 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 in the election of directors and
AGAINST the stockholder proposal. 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 10, 1999, the Company had outstanding and entitled to vote 258,883,816
shares of common stock par value $1.00 per share ("Common Stock"). There must
be present at the Meeting in person or by proxy holders of 129,441,909 shares
of Common Stock 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 ("Broker Non-Votes") 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
or her on the record date. There is no cumulative voting in the election of
directors.
Directors are elected by a plurality of the votes cast at the meeting.
"Plurality" means that the nominees who receive the highest number of votes
cast are elected as directors up to the maximum number of directors to be
chosen at the Meeting. Consequently, any shares not voted (whether by
abstention, broker non-vote or otherwise) have no impact in the election of
directors except to the extent the failure to vote for a nominee results in
another nominee receiving a larger number of votes. The approval of the
stockholder proposal requires the affirmative vote of such number of shares as
shall be entitled to cast a majority of the votes represented in person or by
proxy at the Meeting. Abstentions will be counted as shares present at the
Meeting and will thus increase the minimum number of affirmative votes
necessary to approve the stockholder proposal. Broker non-votes will be
counted as shares present at the Meeting and will not affect the vote with
respect to the stockholder proposal.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 23, 1999, 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, each holder of more than five percent of the
Common Stock and all directors and executive officers as a group (based on
258,883,816 shares
1
<PAGE>
of Common Stock outstanding as of such date). Each of the persons named below
has sole voting power and sole investment power with respect to the shares set
forth opposite his or her name, except as otherwise noted.
<TABLE>
<CAPTION>
Number of
Common Shares
Beneficial Owners Beneficially Owned (1) Percent of Class
----------------- ---------------------- ----------------
<S> <C> <C>
Alex Grass............................ 2,717,001(2) 1.0%
William J. Bratton.................... 3,500 *
Franklin C. Brown..................... 395,094(3) *
Leonard I. Green...................... 994,000(4) *
Martin L. Grass....................... 4,124,209(5) 1.6%
Nancy A. Lieberman.................... 7,000 *
Philip Neivert........................ 2,869,506(6) 1.1%
Leonard Stern......................... 30,000 *
Preston Robert Tisch.................. 10,000 *
Gerald Tsai, Jr....................... 4,000 *
Timothy J. Noonan..................... 1,255,329(7) *
Frank M. Bergonzi..................... 603,260(8) *
Beth J. Kaplan........................ 307,207(9) *
Massachusetts Financial Services
Company.............................. 24,853,788(10) 9.6%
American Express Company.............. 16,365,320(11) 6.3%
Putnam Investments, Inc............... 13,451,001(12) 5.2%
The Equitable Companies/AXA........... 15,675,739(13) 6.1%
All executive officers and directors
(27 persons)......................... 14,289,973(14) 5.4%
</TABLE>
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* Percentage less than 1% of class.
(1) Beneficial ownership has been determined in accordance with Rule 13d-3
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), thereby including options exercisable within 60 days of April 23,
1999.
(2) Includes 137,904 shares of Common Stock owned by the Grass Family
Foundation, of which Alex Grass, is a director. Also includes 90,982
shares of Common Stock held in trust for the benefit of Martin L. Grass
and of which trust Alex Grass is a trustee, and 280,000 shares of Common
Stock held in trust for the benefit of Lois Grass and of which trust
Alex Grass is an alternate trustee. Also includes 1,540,000 shares
issuable within 60 days of April 23, 1999 upon the exercise of options.
(3) Includes 383,360 shares owned by Mr. Brown's wife, as to which Mr. Brown
disclaims beneficial ownership. All options and stock-based awards held
by Mr. Brown have been assigned to his children and he disclaims any
beneficial ownership of the shares issuable upon exercise of such
options or underlying such awards.
(4) Includes 990,000 shares of Common Stock owned by the Verdi Group, Inc.,
over which Mr. Green has beneficial ownership.
(5) Includes 371,918 shares held in trust for the benefit of Lois Grass of
which trust Martin Grass is a co-trustee. Also includes 2,975,000 shares
issuable within 60 days of April 23, 1999 upon the exercise of options.
(6) Includes 712,778 shares owned by Mr. Neivert's wife. Mr. Neivert
disclaims beneficial ownership of these shares.
(7) Includes 13,552 shares owned by Mr. Noonan's wife and daughter. Mr.
Noonan disclaims beneficial ownership of these shares. Also includes
1,164,375 shares issuable within 60 days of April 23, 1999 upon the
exercise of options.
(8) Includes 603,000 shares issuable within 60 days of April 23, 1999 upon
the exercise of options.
2
<PAGE>
(9) Includes 307,000 shares issuable within 60 days of April 23, 1999 upon
the exercise of options.
(10) Massachusetts Financial Services Company beneficially owns 24,853,788
shares, of which it has sole dispositive power over all of the shares and
sole voting power over 24,512,158 of the shares. This information is
derived from a Schedule 13G filed by Massachusetts Financial Services
Company with the Securities and Exchange Commission. The address of
Massachusetts Financial Services Company is 500 Boylston Street, Boston,
MA 02116.
(11) American Express Company, through its wholly-owned subsidiary American
Express Financial Corporation, a registered investment advisor, is deemed
to beneficially own 16,365,320 shares, as to which it has shared
dispositive power over all of the shares and shared voting power over
8,448,760 of the shares. This information is derived from a Schedule 13G
filed by American Express Company and American Express Financial
Corporation with the Securities and Exchange Commission. The address of
American Express Company is American Express Tower, 200 Vesey Street, New
York, NY 10285.
(12) Putnam Investment Management, Inc. and The Putnam Advisory Company, Inc.,
both registered investment advisers which are wholly-owned subsidiaries of
Putnam Investments, Inc., which in turn is a wholly-owned subsidiary of
Marsh & McLennan Companies, Inc., together beneficially own 13,451,001
shares, of which Putnam Investment Management, Inc. beneficially owns
12,249,175 shares and The Putnam Advisory Company beneficially owns
1,201,825 shares. Both subsidiaries have shared dispositive power over the
shares each beneficially owns as investment managers, but each of the
mutual fund's trustees have voting power over the shares held by each fund,
and The Putnam Advisory Company, Inc. has shared voting power over the
shares held by the institutional clients (740,200 shares). This information
is derived from a Schedule 13G filed with the Securities and Exchange
Commission. The address of Putnam Investments, Inc. is One Post Office
Square, Boston, MA 02109.
(13) The Equitable Companies Incorporated is the parent holding company for
several investment advisors. The several Equitable Companies are majority-
controlled by AXA, which in turn is majority-controlled by the Mutuelles
AXA. With respect to the 15,675,739 shares beneficially owned by them,
these parties have in the aggregate sole voting power over 9,444,199
shares, shared voting over 2,115,685 shares, sole dispositive power over
15,665,080 shares and shared dispositive power over 3,459 shares. This
information is derived from a Schedule 13G filed with the Securities and
Exchange Commission. The address of the Equitable Companies Incorporated is
1290 Avenue of the Americas, New York, New York 10104 and of AXA is 9 Place
Vendome, 75001 Paris, France.
(14) Includes 7,741,375 shares issuable within 60 days of April 23, 1999 upon
the exercise of options.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
During the fiscal year ended February 27, 1999 ("fiscal 1999"), no directors
or officers submitted late filings under Section 16(a) of the Exchange Act.
ELECTION OF DIRECTORS
The Company's By-Laws provide that the Board may be composed of up to a
maximum of 15 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 2002. The
remaining directors will be elected at the 2000 and 2001 Annual Meetings of
Stockholders. All of the nominees for director to be elected at this Meeting
currently serve as directors of the Company. Although there are fewer
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<PAGE>
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 below. 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, then 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 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 2002
TIMOTHY J. 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. Age 57.
NANCY A. LIEBERMAN has been a partner for more than five years in the law firm
of Skadden, Arps, Slate, Meagher & Flom, LLP, which from time to time has
provided legal services to the Company during fiscal 1999. Ms. Lieberman has
been a member of the Board since 1996. Age 42.
LEONARD N. STERN is Chairman of the Board of The Hartz Group, Inc. and
affiliated companies, a position he has held since 1979. These companies are
engaged in the businesses of the manufacture and sale of pet supplies, real
estate development and publishing. The Company purchased pet supplies from
Hartz Mountain, Inc. during fiscal 1999. Mr. Stern has been a member of the
Board since 1986. Age 61.
DIRECTORS CONTINUING IN OFFICE
TERM TO EXPIRE 2001
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 in 1968. He is also a
director of Hasbro, Inc. Mr. Grass is the father of Martin Grass. Age 71.
PHILIP NEIVERT is a private investor whose operations are based in Rochester,
New York. Mr. Neivert has been a member of the Board since 1969. Age 73.
GERALD TSAI, JR., a private investor, was Chairman, President and Chief
Executive Officer of Delta Life Corporation, a position he held from February
1993 to October 1997. 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
Saks Incorporated, Triarc Companies, Sequa Corporation, Zenith National
Insurance Corp., the Meditrust Companies and United Rentals, Inc. Mr. Tsai has
been a member of the Board since 1987. Age 70.
DIRECTORS CONTINUING IN OFFICE
TERM TO EXPIRE 2000
WILLIAM J. BRATTON is and since January 1998 has been President and Chief
Operating Officer of Carco Group, Inc., St. James, New York, a provider of
employment background screening services. From April 1996 through 1997 he was
Vice Chairman of First Security Services Corporation, Boston,
4
<PAGE>
Massachusetts, and President of its subsidiary, First Security Consulting,
Inc., New York, New York. Prior thereto, he was Police Commissioner of the
City of New York from 1994 through April 1996, Police Commissioner of the City
of Boston from 1993 to 1994, and Superintendent and Chief of the Boston Police
Department from 1992 to 1993. Mr. Bratton is a director of Firearms Training
Systems Company and First Security Services Corporation. Mr. Bratton has been
a member of the Board since 1997. Age 51.
FRANKLIN C. BROWN is Vice Chairman of the Company. Prior to his appointment as
Vice Chairman in July 1997, Mr. Brown served the Company as Executive Vice
President and Chief Legal Counsel since April 1993. Prior thereto, Mr. Brown
served the Company for 13 years as Senior Vice President and Chief Legal
Counsel. Mr. Brown has been a member of the Board since 1981. Age 71.
MARTIN L. 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 since 1982. He is the son of Alex Grass. Age 45.
PRESTON ROBERT TISCH has been Co-Chairman of Loews Corporation since January
1, 1999. Loews Corporation is a holding company with interests through its
subsidiaries in selling insurance products, producing and selling cigarettes,
operating hotels, drilling for offshore oil and gas and distributing watches
and clocks. He was previously Co-Chairman and Co-Chief Executive Officer of
Loews Corporation since October 18, 1994. He was President and Co-Chief
Executive Officer of Loews Corporation from March 1988 to October 1994. 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. The Company purchased tobacco products
from Lorillard Tobacco Company, an indirect wholly-owned subsidiary of Loews
Corporation, during fiscal 1999. Mr. Tisch is also a director of Loews
Corporation, CNA Financial Corporation, Bulova Corporation and Hasbro, Inc.
Mr. Tisch has been a member of the Board since 1988. Age 73.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board's Audit Committee, which held two meetings during fiscal 1999,
oversees management's fulfillment of its financial reporting and disclosure
responsibilities and its maintenance of appropriate internal control systems.
It recommends appointment of the Company's independent public accountants and
oversees the activities of the Company's internal audit function. To ensure
independence, the independent public accountants and internal auditors meet
with the Audit Committee with and without the presence of management
representatives. Its current members are Preston Robert Tisch (Chairman),
Nancy A. Lieberman and William J. Bratton.
The Board's Compensation Committee met once during fiscal 1999 for the purpose
of evaluating key officers' salaries and bonuses. Members of the Compensation
Committee during fiscal 1999 were Gerald Tsai, Jr. (Chairman), Philip Neivert
and William J. Bratton. See "Report of the Compensation Committee on Executive
Compensation."
The Company established a Finance Committee during fiscal 1999, which held one
meeting during the fiscal year. The Finance Committee reviews the financial
requirements and practices of the Company and makes recommendations to the
Board concerning such matters. Members of the Finance Committee during fiscal
1999 were Leonard N. Stern (Chairman), Leonard I. Green and Gerald Tsai, Jr.
5
<PAGE>
DIRECTORS' ATTENDANCE AT MEETINGS
The Board meets regularly four times each year. The Board also held three
special meetings during fiscal 1999. Each incumbent director of the Company
attended at least 75% of the meetings of the Board and meetings held by all
committees on which such director served, except for Mr. Green (63%
attendance).
DIRECTORS' FEES
In fiscal 1999, each of the Company's non-employee directors was granted a
restricted stock award of 2,000 shares of Common Stock. The award lapses if
the director fails to complete the term for which he or she was elected for
any reason other than death or disability. Directors who are officers and
full-time employees of the Company receive no separate compensation for
service as directors or committee members. Board members are also reimbursed
for travel and lodging expenses associated with attending Board and committee
meetings. In addition, Alex Grass, Honorary Chairman and a director of the
Company, provided consulting services to the Company during fiscal 1999, for
which he was paid $400,000.
6
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation Table
The following table shows, for the fiscal years ended February 27, 1999,
February 28, 1998, and March 1, 1997, 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 $100,000 for fiscal 1999.
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
--------------------------- -----------------------------
Other
Annual Securities All Other
Compen- Restricted Underlying LTIP Compen-
Name and Fiscal Bonus sation Stock Options Payouts sation
Principal Position Year Salary ($) ($)(1) ($)(2) Awards($) SARs (#) ($) ($)(3)
- ------------------ ------ ---------- -------- ------- ---------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Martin L. Grass......... 1999 $1,000,000 $ -- -- -- 1,000,000 -- $ --
Chairman and Chief 1998 $1,000,000 $898,000 -- -- 0 -- $2,000
Executive Officer 1997 $1,000,000 $900,000 -- -- 1,300,000 -- $2,000
Timothy J. Noonan....... 1999 $ 700,000 $ -- -- -- 650,000 -- $ --
President and Chief 1998 $ 700,000 $628,600 -- -- 0 -- $2,000
Operating Officer 1997 $ 700,000 $630,000 -- -- 725,000 -- $2,000
Franklin C. Brown....... 1999 $ 500,000 $ -- -- -- 300,000 -- $ --
Vice Chairman 1998 $ 500,000 $336,825 -- -- 0 -- $2,000
1997 $ 500,000 $337,500 -- -- 370,000 -- $2,000
Frank M. Bergonzi....... 1999 $ 445,000 $ -- -- -- 300,000 -- $ --
Senior Executive Vice 1998 $ 445,000 $299,774 -- -- 0 -- $2,000
President and Chief 1997 $ 403,000 $266,625 -- -- 347,000 -- $2,000
Financial Officer
Beth J. Kaplan.......... 1999 $ 400,000 $151,600 -- -- 300,000 -- $ --
Senior Executive Vice 1998 $ 400,000 $269,460 -- -- 0 -- $ --
President, Marketing 1997 $ 184,617 $202,500 -- -- 339,000 -- $ --
</TABLE>
- ------------
(1) Represents annual performance bonuses determined by the Compensation
Committee of the Board under the Annual Performance-Based Incentive
Program. 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 $50,000 or ten
percent of such officer's total annual salary and bonus for such year.
(3) Represents amounts paid by the Company on behalf of the named persons in
connection with the Company's Profit Sharing Plan.
7
<PAGE>
Option Grants in Fiscal 1999
The following table sets forth certain information regarding options granted
during fiscal 1999 to the persons named in the Summary Compensation Table.
<TABLE>
<CAPTION>
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or Grant Date
Options/SARs Employees in Base Price Expiration Present
Name Granted (#) Fiscal 1999 (1) ($/Sh)(2) Date Value ($)(3)
---- ------------ --------------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Martin L. Grass......... 1,000,000 24.7% $30.75 5/12/2008 $11,948,450
Timothy J. Noonan....... 650,000 16.0% $30.75 5/12/2008 $ 7,766,493
Franklin C. Brown....... 300,000 7.4% $30.75 5/12/2008 $ 3,584,535
Frank M. Bergonzi....... 300,000 7.4% $30.75 5/12/2008 $ 3,584,535
Beth J. Kaplan.......... 300,000 7.4% $30.75 5/12/2008 $ 3,584,535
</TABLE>
- ------------
(1) Based on 4,054,000 options granted to all employees during fiscal 1999.
(2) Fair market value on the date of grant. Fifty percent of the options vest
on October 12, 2000 and fifty percent of the options vest on October 12,
2002, unless the average trading price of the Company's Common Stock is at
least $60.00 per share for one consecutive calendar month prior to October
12, 2000, in which case all options vest as of October 12, 2000.
(3) The hypothetical present values on the grant date are calculated under the
Black-Scholes option pricing model, which is a mathematical formula used
to value options traded on stock exchanges. The formula considers a number
of assumptions in hypothesizing an option's present value. Assumptions
used to value options include the stock's expected volatility rate of
30.7%, a projected dividend yield of 1.0%, a risk-free rate of return of
5.7% and assumes a projected time of exercise of 7 years. The ultimate
realizable value of an option will depend on the market value of the
Company's Common Stock on the date of exercise as compared to the exercise
price of the option. Consequently, there is no assurance that the
hypothetical present value of the stock options reflected in this table
will be realized.
Option Exercises in Fiscal 1999 and Fiscal Year End Option Values
The following table summarizes the value at February 27, 1999 of all shares
subject to options granted to the persons named in the Summary Compensation
Table to the extent not then exercised, and information concerning option
exercises, if any, during fiscal 1999.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs Options/SARs
Value at Fiscal Year End (#) at Fiscal Year End ($)(3)
Shares Acquired Realized ------------------------- -------------------------
Name (1) on Exercise (#) ($)(2) Exercisable Unexercisable Exercisable Unexercisable
-------- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Martin L. Grass......... -- -- 2,900,000 1,200,000 $83,233,750 $11,043,750
Timothy J. Noonan....... -- -- 1,143,750 726,250 $31,406,547 $ 8,971,484
Franklin C. Brown....... -- -- 803,750 361,250 $23,058,422 $ 4,846,797
Frank M. Bergonzi....... -- -- 591,000 344,000 $16,452,463 $ 4,379,250
Beth J. Kaplan.......... -- -- 307,000 332,000 $ 7,520,313 $ 3,987,500
</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 market price at
February 27, 1999.
8
<PAGE>
Deferred Compensation Program
The Company has established a Deferred Compensation Program (the "Program"),
in which employees of the Company with the position of Vice President or
higher are entitled to participate. Under the Program, eligible participants
generally are entitled, upon retirement at age 65 or upon death, to receive an
annual benefit payable over 15 years, equal to a percentage (ranging from 40%
to 60% depending upon the participant's position with the Company) of the
average of the three highest base annual salaries received by the participant
during the ten-year period prior to the year in which the event giving rise to
the payment of deferred compensation occurs. The percentage of the average
annual compensation payable under the Program to each of the persons named in
the Summary Compensation Table above (which, for this purpose, includes annual
bonuses paid to such persons) is 60%.
RELATED PARTY TRANSACTIONS
The Company leased 74,200 square feet of storage space at a warehouse owned by
Realm R.R. Avenue Partnership, of which both Alex Grass and Martin L. Grass
are general partners. Rent paid by the Company during fiscal 1999 was
$262,644, which included a pro rata portion of common area charges, real
estate taxes and insurance. This lease expired on May 31, 1999 and the Company
has vacated the premises.
The Company leases 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.
Rent paid by the Company during fiscal 1999 was $153,720 plus taxes, water and
sewer.
During part of fiscal 1999, the Company leased an 8,000 square-foot store in a
New Cumberland, Pennsylvania, shopping center. A partnership in which Martin
L. Grass is a 50% partner owns the shopping center in which the store was
located. Rent paid by the Company during fiscal 1999 was $108,561 which
included a pro rata portion of common area charges, real estate taxes,
utilities and insurance. In February 1999, as part of the Company's real
estate strategy to relocate undersized stores to larger, freestanding sites,
the New Cumberland store was relocated to a freestanding site owned by an
unrelated entity. The shopping center lease was canceled and the Company was
released from its obligation to pay over $300,000 in remaining rent, without
the payment of any consideration.
The Company leases an approximately 5,000 square-foot store in Mt. Carmel,
Pennsylvania, from a partnership in which Martin L. Grass had a 37.5%
interest. The other partners of the partnership are his brother-in-law, Mr.
Tim Harrison (37.5% interest), who is a full-time real estate developer, and
one of Martin L. Grass's sisters, who has a 25% interest. Rent paid by the
Company during fiscal 1999 was $47,751, which included real estate taxes and
insurance. In accordance with the Company's real estate strategy, the Company
is seeking to relocate this store. Martin Grass donated his interest in this
partnership to a public charity in February, 1999.
Commencing on January 8, 1999, the Company leased a 10,750 square-foot store
in Sinking Springs, Pennsylvania, from Martin L. Grass's brother-in-law. Rent
paid by the Company during fiscal 1999 was $28,052.
Martin L. 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.
The Company purchased $10,086,915 of products from LNK International ("LNK"),
a manufacturer of private label over-the-counter medications, during fiscal
1999. Alex Grass, through a trust, owned a 30% interest in LNK, and each of
Alex Grass's daughters, Linda Shapiro and Elizabeth Weese, owned options to
acquire 5% of LNK. Alex Grass and his daughters have disposed of those
interests. The
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Company believes that the price, quality and service that it has received from
LNK are at least as favorable as those available from unrelated third parties.
The Company made aggregate purchases of $1,796,633 from I.C. Imports, an
importer of toothbrushes and candy manufactured in Israel, during fiscal 1999.
Alex Grass's daughters each owned a 12.5% interest in I.C. Imports. Alex
Grass's daughters have disposed of their interests in 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 unrelated third
parties.
William Mann, the brother of Kevin Mann, a former executive vice president of
purchasing, has an ownership interest in The Crestpointe Corporation
("Crestpointe"). In addition, Alex Grass's two daughters each have a 12.5%
interest in Crestpointe. Crestpointe acted as a manufacturer's representative
for a line of domestically produced candies and other products sold to the
Company. No amounts have ever been paid by the Company to Crestpointe or
William Mann. As manufacturers' representatives, such parties were paid by the
vendors they represented and the Company is not aware of those arrangements.
During fiscal 1999, the Company made no purchases through Crestepointe as a
manufacturer's representative. Crestpointe has gone out of business.
Martin L. Grass pays 51% of the lease cost of a helicopter leased by the
Company. In consideration for this payment, Mr. Grass is able to use the
helicopter for unlimited personal use.
On August 28, 1996, the Company loaned the principal sum of $1,900,000 to Beth
J. Kaplan, who is currently Senior Executive Vice President, Marketing. The
loan, which bears interest at the prime rate as established by Morgan Guaranty
Bank, is payable in full, together with all accrued interest, on August 14,
2000. The loan is secured by a pledge of shares of Common Stock to which Ms.
Kaplan becomes entitled in connection with any Incentive Awards granted to her
under the Company's 1990 Omnibus Stock Incentive Plan. At February 27, 1999,
the principal amount outstanding, plus accrued interest, under the loan was
$2,327,262.
On December 14, 1997, the Company loaned the principal sum of $300,000 to
Charles R. Kibler, Senior Vice President--Store Operations. The loan, which
bears interest at the prime rate as established by the Morgan Guaranty Bank,
is payable in full, together with all interest thereon, on demand. The loan is
secured by a pledge of all amounts due or to become due from the Company to
Mr. Kibler (except salary or bonus) and the Company has a right of set-off
with respect to such amounts. At February 27, 1999, the principal amount
outstanding, plus accrued interest, under the loan was $329,967.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
Messrs. Tsai, Neivert and Bratton served as members of the Compensation
Committee during fiscal 1999.
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board (the "Committee"), composed of outside
directors of the Board, reviews the performance of the Company's executive
personnel and develops and makes recommendations to the Board with respect to
executive compensation policies. The Committee is empowered by the Board to
award to executive officers appropriate bonuses, stock options, stock
appreciation rights ("SARs") and stock-based awards.
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The Committee has access to independent compensation data and from time to
time engages 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 the Company's 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 various benefits, including a deferred
compensation program described elsewhere herein, and health insurance plans
and programs and pension and profit sharing and retirement plans in which
substantially all of the Company's full-time employees participate.
Base salaries for the Company's Chief Executive Officer and for other
executive officers are competitively set relative to salaries of officers of
companies comparable in business and size included in the Standard & Poor's
Retail Stores Composite Index. 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 the Internal Revenue Code of 1986, as amended,
treats certain elements of executive compensation in excess of $1,000,000 a
year as an expense not deductible by the Company for federal income tax
purposes. For fiscal 1999, no executive officer's compensation exceeded the
cap on deductibility. To the extent compensation to an executive officer
exceeds the cap in the future, the Committee will consider the facts and
circumstances at that time to reach a determination regarding the impact of
the cap on such compensation.
The Committee is empowered to approve the payment of cash performance bonuses
to employees, including executive officers, of the Company. During fiscal year
1995, the Committee established the Annual Performance-Based Incentive Program
(the "Annual Incentive Plan"). 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 and earnings per share. Each year, the
Committee determines a range of growth and earnings per share over the
previous year. Additionally, a targeted incentive as a percentage of salary is
determined each year by the Committee, ranging from a maximum of 50% for the
Chief Executive Officer to 15% for other executives depending on the
executive's position. Depending upon the actual worth and earnings per share
during such year, participants are entitled to a percentage, ranging from 0%
to 200%, of the targeted incentive award fixed by the Committee.
Alternatively, certain executive officers are assigned individual performance
goals relating to their areas of responsibility and may receive bonuses
ranging from 0% to 100% of their base salaries depending upon the percentage
of the goal achieved. For fiscal 1999, the earnings goals as set by the
Committee were not achieved. However, certain bonuses were paid in fiscal year
2000 to the executive officers who met individual performance goals during
fiscal 1999.
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 the 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 and stock-based awards
provides a long-term incentive to such persons to contribute to the growth of
the
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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, 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, 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:
Gerald Tsai, Jr. (Chairman)
Philip Neivert
William J. Bratton
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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 for the last five fiscal years with the
cumulative total return on the S&P 500 Index and the S&P Retail Stores
Composite Index over the same period (assuming the investment of $100 in the
Common Stock and such indices on February 26, 1994 and reinvestment of
dividends).
For comparison of cumulative total return, the Company has elected to use the
S&P Retail Stores Composite Index, consisting of 35 companies including the
six largest drugstore chains. This allows comparison of the Company to the
peer group of similar sized companies used by the Committee in its evaluation
and determination of executive compensation.
[STOCK PERFORMANCE GRAPH APPEARS HERE]
.
1994 1995 1996 1997 1998 1999
Rite Aid Corp. $100 $133.10 $173.74 $237.77 $370.99 $479.41
S&P Retail $100 $ 91.47 $100.92 $124.14 $189.91 $278.91
S&P 500 Index $100 $107.35 $144.56 $182.36 $246.17 $294.77
.
*The Company's fiscal year ends on the Saturday closest to February 29 or
March 1.
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STOCKHOLDER PROPOSAL
The General Board of Pension and Health Benefits of the United Methodist
Church, 1201 Davis Street, Evanston, Illinois 60201, the owner of 293,400
shares of Common Stock, and the Congregation of the Mission, 312 West
Cortland, San Antonio, Texas 78212, the owner of 8,000 shares of Common Stock,
have notified the Company that they intend to present the following proposal
at the Meeting:
RESOLVED: Stockholders request our Company prepare a report at reasonable
cost, which should exclude confidential information. This report shall be
made available to stockholders and employees four months from the date of
the annual meeting and shall include:
1. A chart identifying employees by sex and race in each of the nine major
EEOC defined job categories for 1996, 1997 and 1998, listing actual
numbers and percentages in each category.
2. A summary description of any Affirmative Action policies and programs to
improve performance, including job categories where women and persons of
color are underutilized. This description should include any policies
and programs specifically oriented toward increasing the number of
managers who are qualified females and/or belonging to ethnic minority
groups, summarizing the current numbers of persons by race and gender in
management.
3. A general description of how our Company publicizes its affirmative
actions policies and programs to merchandise suppliers and service
providers.
4. A description of any policies and programs directing the purchase of
goods and services to minority and/or female owned business enterprises.
5. A report on any material litigation in which the Company is involved
concerning race, gender or the physically challenged.
STOCKHOLDERS' SUPPORTING STATEMENT
Equal employment is a key issue for stockholders. The bipartisan Glass Ceiling
Commission Study released in 1995 explains that a positive diversity record
has a positive impact on the bottom line. This study is important for
stockholders because it shows how many corporations in the United States
select for advancement from less than 50 percent of the total talent available
in our work force.
. Women and minorities comprise 57 percent of the work force, yet represent
only 3 percent of executive management positions.
. Women who were awarded more than half of all master degrees represent
less than 5 percent of senior-level management positions.
These statistics show the limits placed on selecting the most talented people
for top management positions.
Workplace discrimination has created a significant burden for stockholders.
Recently, companies including Shoney's Incorporated, Denny's and Hughes
Aircraft have posted multi-million dollar losses as a result of settling
various discrimination lawsuits. In 1996 Texaco settled the largest racial
discrimination lawsuit in U.S. history, costing a reported $170 million to
that company and its stockholders. Texaco's public image was tarnished and
that company faced a consumer boycott. In 1998 Smith Barney agreed to spend
$15 million on diversity programs to settle a case brought by plaintiffs
charging sexual harassment. The high cost of litigation, potential loss of
government contracts, and the financial consequences of a damaged corporate
image resulting from discrimination allegations make this issue a high
priority for stockholders.
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More than 150 major employers publicly report on work force diversity to their
shareholders. Primary examples are Disney/ABC Commitment Report, USAir
Affirming Workplace Diversity Report, Intel Diversity Report, Monsanto
Diversity Report, and Texaco Diversity Report. These companies and many others
regularly provide reports describing diversity progress and challenges. Often
companies will also include this information in their annual reports.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL FOR THE
FOLLOWING REASONS:
The Company is committed to complying with all applicable equal employment
opportunity laws and affirmative action regulations. It is the Company's
policy not to discriminate against any employee or applicant because of race,
color, religion, sex, national origin, age or disability. The Company also
maintains appropriate affirmative action plans. The Company already complies
with federal, state and local governmental reporting requirements regarding
compliance with equal employment opportunity laws and affirmative actions
plans. The preparation and distribution of an additional report will not
enhance the Company's commitment to the worthy goal of equal employment
opportunity and affirmative action. Moreover, the Board believes that
requiring preparation and distribution of another report would not be a
beneficial use of Company resources.
For these reasons, the Board believes that the adoption of this proposal would
not be in the best interest of stockholders and recommends that stockholders
vote AGAINST this proposal.
The affirmative vote of such number of shares as shall be entitled to cast a
majority of the votes represented in person or by proxy at the Annual Meeting
is required for approval of this proposal.
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 February 3,
2000; however, if next year's Annual Meeting of Stockholders is held on a date
more than 30 days before or after the corresponding date of the 1999 Annual
Meeting, the Company will advise stockholders of any change in the date for
the submission of stockholder proposals as early as practicable by means of a
notice as required by applicable rules of the Commission. 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 LLP performed the customary auditing services for fiscal 1999. A
representative of KPMG LLP is expected to be present at the Meeting and will
be available to respond to appropriate questions from the floor and will be
afforded an opportunity to make a statement.
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.
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<PAGE>
RITE AID CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
JUNE 30, 1999
THIS PROXY IS SOLICITED ON BEHALF
OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Martin L. Grass and
Franklin C. 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 Four
Points Sheraton Hotel, 980 Hospitality Way, Aberdeen, Maryland 21001, at 10:00
a.m., on June 30, 1999, and at any adjournments or postponements thereof as
follows:
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
IN THE ENCLOSED POSTAGE PAID ENVELOPE.
(continued on reverse side)
<PAGE>
RITE AID CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
Withheld For All
1. Election of Directors, For All From All Except
Timothy J. Noonan,
Nancy A. Lieberman, Leonard N. Stern [_] [_] [_]
---------------------------------------
(Except nominee[s] written above.)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL OF THE NOMINEES.
For Against
2. Stockholder Proposal Concerning Diversity Report [_] [_]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE STOCKHOLDER PROPOSAL.
Signature of Stockholder:
------------------------------
-------------------------------------------------------
Dated: , 1999
---------------- ---
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.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS SPECIFIED, OR, IF NO
SPECIFICATIONS ARE MADE, WILL BE VOTED (i) FOR THE ELECTION OF THE ABOVE
NOMINEES FOR DIRECTOR, (ii) AGAINST THE STOCKHOLDER PROPOSAL, AND (iii) IN THE
NAMED PROXIES' DISCRETION ON ANY OTHER MATTERS 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.
