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SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
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Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (As Permitted(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-1
Under Rule 14a-12
RITE AID CORPORATION
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[_] Check box if any part of the fee is offset as provided by Exchange
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RITE AID CORPORATION
P.O. BOX 3165
HARRISBURG, PENNSYLVANIA 17105
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Notice of Annual Meeting of Stockholders
To Be Held on June 26, 2002
25, 2003
To Our Stockholders:
What: Our Annual Meeting of Stockholders for Fiscal Year 2002
When: June 26, 2002 at 10:00 a.m., local time
Where: Harrisburg East Holiday Inn
4751 Lindle Road
Harrisburg, Pennsylvania 17111
Why: At this Annual Meeting, we plan to:
1. Elect two directors to hold office until the 2005 Annual Meeting of
Stockholders and until their respective successors are duly elected
and qualified;
2. Consider a stockholder proposal, if properly presented at the meeting,
requesting the Board of Directors to establish a policy that it will
make its best efforts to appoint only independent directors to serve on
its Audit, Compensation and Nominating Committees; and
3. Transact such other business as may properly come before the Annual
Meeting of Stockholders or any adjournments or postponements thereof.
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| What: | Our Annual Meeting of Stockholders for Fiscal Year 2003 |
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| When: | June 25, 2003 at 10:00 a.m., local time |
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| Where: | InterContinental The Barclay New York 111 East 48th Street New York, New York 10017 |
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| Why: | At this Annual Meeting, we plan to: |
| 1. | Elect two directors to hold office until the 2006 Annual Meeting of Stockholders and until their respective successors are duly elected and qualified; |
| 2. | Consider and vote upon a stockholder proposal, if properly presented, requesting Rite Aid Corporation's management to prepare and make public an employment diversity report; and |
| 3. | Transact such other business as may properly come before the Annual Meeting of Stockholders or any adjournments or postponements thereof. |
Only Stockholders of record at the close of business on May 20, 200212, 2003 will receive notice of, and be eligible to vote at, the Annual Meeting and any adjournment or postponement thereof. The foregoing items of business are more fully described in the Proxy Statement accompanying this notice.
Your vote is important. Please read the Proxy Statement and the voting instructions on the enclosed proxy and then, whether or not you intendplan to attend the Annual Meeting in person, and no matter how many shares you own, 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. If you are a Stockholder of record, you may also authorize the individuals named on the enclosed proxy to vote your shares by calling a specially designated telephone number (TOLL FREE (800) 213-3668)877-785-2637) or via the Internet at http://www.computershare.com/us/proxy. These telephone and Internet voting procedures are designed to authenticate your vote and to confirm that your voting instructions are followed. Specific instructions for Stockholders of record who wish to use telephone or Internet voting procedures are set forth on the enclosed proxy. You may revoke your proxy at any time before the vote is taken by (a) delivering to the Secretary of Rite Aid a written revocation or a proxy with a later date (including a proxy by telephone or via the Internet) or (b) voting your shares in person at the Annual Meeting.
By order of the Board of Directors
/s/
Robert B. Sari
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Robert B. Sari
Secretary
Camp Hill, Pennsylvania
May 23, 2002
27, 2003
RITE AID CORPORATION
P.O. BOX 3165
HARRISBURG, PENNSYLVANIA 17105
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PROXY STATEMENT
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FOR ANNUAL MEETING OF STOCKHOLDERS
To Be Held on June 26, 2002
25, 2003
The Board of Directors of Rite Aid Corporation, a Delaware corporation ("Rite Aid" or the "Company"), seeks your proxy for use in voting at our 20022003 Annual Meeting of Stockholders to be held at the HarrisburgInterContinental The Barclay New York, 111 East Holiday Inn,
4751 Lindle Road, Harrisburg, Pennsylvania 17111,48th Street, New York, New York 10017, on June 26, 200225, 2003 at 10:00 a.m., local time, or any adjournment or postponement thereof (the "Meeting"). This proxy statement, the foregoing notice and the enclosed proxy are first being mailed on or about May 23, 200227, 2003 to all holders of our common stock, par value $1.00 per share ("Common Stock") and 8% Series D Cumulative Convertible Pay-in-Kind Preferred Stock ("Series D Preferred Stock") (collectively, the "Stockholders") entitled to vote at the Meeting.
Purpose of the Meeting
At the Meeting, the Stockholders will be asked to vote on the following proposals:
Proposal No. 1:
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| Proposal No. 1: | To elect two directors to hold office until the 2006 Annual Meeting of Stockholders and until their respective successors are duly elected and qualified; and |
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| Proposal No. 2: | To consider and vote upon a stockholder proposal, if properly presented, requesting Rite Aid Corporation's management to prepare and make public an employment diversity report. |
In addition, the holders of the Series D Preferred Stock, voting separately as a class, will vote to elect one director (the "Series D Preferred Director") to hold office until the 20052006 Annual Meeting of Stockholders and until their respective
successors arehis successor is duly elected and qualified; and
Proposal No. 2: To consider and vote upon a stockholder proposal, if
properly presented at a meeting, requesting the Board of
Directors to establish a policy that it will make its
best efforts to appoint only independent directors to
serve on its Audit, Compensation and Nominating
Committees.
qualified.
Record Date
Only Stockholders of record at the close of business on May 20, 200212, 2003 (the "Record Date") will receive notice of, and be entitled to vote at, the Meeting. At the close of business on the Record Date, the Company had outstanding and entitled to vote 515,113,894515,371,306 shares of Common Stock and 3,637,228.64543,937,053.2591 shares of Series D Preferred Stock (each of which is entitled to approximately 18.18 votes per share, or an aggregate of approximately 66,124,81671,575,628 votes).
Quorum and Voting
The presence at the Meeting, in person or by proxy, of the holders of 290,619,355293,473,467 shares (a majority of the aggregate number of shares of Common Stock and Series D Preferred Stock (on an as-if-converted basis) issued and outstanding and entitled to vote as of the Record Date) is necessary to constitute a quorum to transact business. Proxies marked "Abstain" and broker proxies that have not voted on a particular proposal ("Broker Non-Votes"), if any, will be counted in determining the presence of a
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quorum. In deciding all matters that come before the Meeting, each holder of Common Stock as of the Record Date is entitled to one vote per share of Common Stock and each holder of Series D Preferred Stock as of the Record Date is entitled to approximately 18.18 votes per share of Series D Preferred Stock (one vote per share of Common Stock issuable upon conversion of the Series D Preferred Stock). As of the Record Date, the Series D Preferred Stock was convertible into an aggregate of approximately 66,124,81671,575,628.25 shares of Common Stock. The holders of the Common Stock and Series D Preferred Stock vote together as a single class.
class, except that the holders of the Series D Preferred Stock, voting separately as a class, will vote to elect the Series D Preferred Director.
Required Votes
Election of the director nominees named in Proposal No. 1 requires the affirmative vote of a plurality of the total number of votes voted at the Meeting by the holders of shares of Common Stock and Series D
Proposal No. 2 requires the affirmative vote of a majority of the total number of votes of the Common Stock and the Series D Preferred Stock represented and entitled to vote at the meeting, voting together as a single class. In determining whether Proposal No. 2 has received the requisite number of affirmative votes, abstentions will be counted and will have the same effect as votes against the proposal, and Broker Non-Votes, if any, will have no effect on the votes for this proposal.
Voting Procedures
Stockholders of record can choose one of the following three ways to vote:
1. By mail: Sign, date and return the proxy in the enclosed pre-paid
envelope.
2. By telephone: Call (TOLL FREE (800) 213-3668) and follow the
instructions.
3. Via the Internet: Access "http://www.computershare.com/us/proxy" and
follow the instructions.
| 1. | By mail: Sign, date and return the proxy in the enclosed pre-paid envelope. |
| 2. | By telephone: Call (TOLL FREE 877-785-2637) and follow the instructions. |
| 3. | Via the Internet: Access "http://www.computershare.com/us/proxy" and follow the instructions. |
By casting your vote in any of the three ways listed above, you are authorizing the individuals listed on the proxy to vote your shares in accordance with your instructions. If you want to vote in person at the Meeting and you hold Common Stock in street name, you must obtain a proxy from your broker and bring that proxy to the meeting.
Proxies
If the enclosed proxy card is properly signed and returned prior to voting at the Meeting, the shares represented thereby will be voted at the Meeting in accordance with the instructions specified thereon. If the proxy card is signed and returned without instructions, the shares will be voted as follows:
Proposal No. 1: FOR the nominees of the Board in the election of directors; and
Proposal No. 2: 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.
You may revoke your proxy by doing any of the following:
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Any written notice of revocation, or later dated proxy, should be delivered to:
Rite Aid Corporation
30 Hunter Lane
Camp Hill, Pennsylvania 17011
Attention: Robert B. Sari, Secretary
Alternatively, you may hand deliver a written revocation notice, or a later dated proxy, to our Secretary at the Meeting before we begin voting.
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PROPOSAL NO. 1
ELECTION OF DIRECTORS
General
Rite Aid's Board of Directors is divided into three classes, with each class to be composed as equally as possible. The Board of Directors currently consists of three directors whose terms expire this year, three directors whose terms expire in 20032004 and threetwo directors whose terms expire in 2004.2005. The term of one class of directors expires at each annual meeting of Stockholders and each class serves a three-year term. Although the Board of Directors has a nominating committee, the nominees for directors were nominated by the entire Board.
Board and the nominee for the Series D Preferred Director was nominated by the holder of the Series D Preferred Stock.
The Company's By-Laws provide that the Board of Directors may be composed of up to 15 members, with the number to be fixed from time to time by the Board of Directors. The Board of Directors has fixed the number of directors for the year commencing at the Meeting at nine.
eight.
Director Nominees
The Board of Directors has nominated Robert G. MillerColin V. Reed and AlfredStuart M. GleasonSloan to be elected directors at the Meeting. Each of the nominees for director to be elected at the Meeting currently serves as a director of the Company. Both
directorsEach director elected at the Meeting will hold office until 2005.2006. The holder of the Series D Preferred Stock has informed the Company that it will elect Jonathan D. Sokoloff as the Series D Preferred Director to hold office until 2006. The other directors will remain in office for the remainder of their respective terms, as indicated below.
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.
Nancy Lieberman, whose term as director expires this year, has decided not
to stand for re-election as a director of the Company. At this time the Board
of Directors has not completed its search for an appropriate candidate for
nomination to the Board of Directors in place of Ms. Lieberman. As a result,
one vacancy on the Board of Directors will remain after the Annual Meeting.
Pursuant to the terms of the Company's Bylaws, the Board of Directors may fill
this vacancy by a majority vote, and the director chosen to fill the vacancy
will hold office until the next annual election at which the term of the
directors of the class to which such director is elected expires, which in
this case would be 2005.
The following table sets forth certain information with respect to the Company's directors and the director nominees as of the Record Date:
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| Name | | Age | | Position with Rite Aid | | Year First Became Director | | Term as Director will Expire (1) | ||||||||||
| Robert G. Miller | | 59 | | Chairman and Chief Executive Officer | | 1999 | | 2005 | ||||||||||
| Mary F. Sammons | | 56 | | Director, President and Chief Operating Officer | | 1999 | | 2004 | ||||||||||
| John G. Danhakl | | 47 | | Director | | 2003 | | 2004 | ||||||||||
| Alfred M. Gleason | | 73 | | Director | | 2000 | | 2005 | ||||||||||
| George G. Golleher | | 55 | | Director | | 2002 | | 2004 | ||||||||||
| Colin V. Reed | | 55 | | Director | | 2003 | | 2003 | ||||||||||
| Stuart M. Sloan | | 59 | | Director | | 2000 | | 2003 | ||||||||||
| Jonathan D. Sokoloff | | 45 | | Director | | 1999 | | 2003 | ||||||||||
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| (1) | Directors' terms of office are scheduled to expire at the annual meeting of stockholders to be held in the year indicated. |
Robert G. Miller.Miller. Mr. Miller has been Chairman and Chief Executive Officer since December 5, 1999. Effective as of June 25, 2003, Mr. Miller will only retain the position of Chairman of the Board of the Company. Previously, Mr. Miller served as Vice Chairman and Chief Operating Officer of The Kroger
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Company, a retail food company. Mr. Miller joined Kroger in March 1999, when The Kroger Company acquired Fred Meyer, Inc., a food, drug and general merchandise chain. From 1991 until the acquisition, he served as Chief Executive Officer of Fred Meyer, Inc. Mr. Miller also serves as a director of Harrah's Entertainment, Inc., and PathMark Stores, Inc. and AdvancePCS.
William J. Bratton. Prior to August 2000, when Mr. Bratton became President
of Bratton Group LLC, which provides criminal justice consulting services, he
was a self-employed criminal justice consultant. From January 1998 to March
2000, Mr. Bratton was President and Chief Operating Officer of Carco Group,
Inc., a provider of employment background screening services. From April 1996
through 1997, he was Vice Chairman of First Security Services Corporation and
President of its subsidiary, First Security Consulting, Inc. Mr. Bratton was
Police Commissioner of the City of New York from 1994 through April 1996.
Mr. Bratton serves as a director of Firearms Training Systems, Inc.
Alfred M. Gleason. Mr. Gleason is currently a self-employed consultant.
Mr. Gleason served as the President of the Port of Portland Commission in
Portland, Oregon, from 1996 until June 1999. From 1985 until 1995, Mr. Gleason
held several positions with PacifiCorp, including Chief Executive Officer,
President and Director. PacifiCorp is the parent company of Pacific Power &
Light, Utah Power & Light and Pacific Telecom, Inc.
George G. Golleher. Mr. Golleher is currently a business consultant and a
private equity investor. Mr. Golleher was formerly president, chief operating
officer and director of Fred Meyer, Inc. from March 1998 to May 1999. Prior to
joining Fred Meyer, Inc., Mr. Golleher served as chief executive officer of
Ralphs Grocery Company, where he was employed in various capacities from 1983
to 1998. Mr. Golleher is also chairman of the board of directors of American
Restaurant Group and a director of Simon Worldwide Inc.
Leonard I. Green. Mr. Green has been an executive officer of Leonard Green &
Partners, L.P., an affiliate of Green Equity Investors III, L.P., since its
formation in 1994. Mr. Green has also been, individually or through a
corporation, a partner in a merchant banking firm affiliated with Leonard
Green & Partners, L.P., since its inception in 1989. Mr. Green is also a
director of Communications & Power Industries, Inc., Liberty Group Publishing,
Inc. and Dollar Financial Group, Inc. Mr. Green was elected as a director
pursuant to the October 1999 agreement of Green Equity Investors III, L.P. to
purchase 3,000,000 shares of preferred stock of Rite Aid.
Nancy A. Lieberman. Ms. Lieberman has been a partner in the law firm of
Skadden, Arps, Slate, Meagher & Flom LLP since 1987. Skadden, Arps, Slate,
Meagher & Flom LLP provides legal services to Rite Aid.
Mary F. Sammons.Sammons. Ms. Sammons has been President and Chief Operating Officer and a member of Rite Aid's Board of Directors since December 5, 1999. Ms. Sammons was appointed President and Chief Executive Officer, to be effective as of June 25, 2003. From April 1999 to December 1999, Ms. Sammons served as President and Chief Executive Officer of Fred Meyer Stores, Inc., a subsidiary of The Kroger Company. From January 1998 to April 1999, Ms. Sammons served as President and Chief Executive Officer of Fred Meyer Stores, Inc., a subsidiary of Fred Meyer, Inc. From 1985 through 1997, Ms. Sammons held several senior level positions with Fred Meyer Stores, Inc., the last being that of Executive Vice President. Ms. Sammons also serves as Chairman of the Board of the National Association of Chain Drugstores.
John G. Danhakl. Mr. Danhakl has been a Managing Partner of Leonard Green & Partners, L.P. since 1995. Leonard Green & Partners, L.P. is an affiliate of Green Equity Investors III, L.P. and is a private equity firm based in Los Angeles, California. Prior to that, he served as a Managing Director in the Los Angeles office of Donaldson, Lufkin & Jenrette, which he joined in 1990. He presently serves on the Board of Directors of Big 5 Sporting Goods Corporation; MEMC Electronic Materials Inc.; Petco Animal Supplies, Inc.; Twinlab Corporation; VCA Antech, Inc.; Arden Group, Inc. and several private companies. Mr. Danhakl was elected as a director pursuant to director nomination rights granted to Green Equity Investors III, L.P. under an October 27, 1999 agreement between Rite Aid and Green Equity Investors with respect to the purchase of 3,000,000 shares of Rite Aid preferred stock.
Alfred M. Gleason. Mr. Gleason is currently a self-employed consultant. Mr. Gleason served as the President of the Port of Portland Commission in Portland, Oregon, from 1996 until June 1999. From 1985 until 1995, Mr. Gleason held several positions with PacifiCorp, including Chief Executive Officer, President and Director. PacifiCorp is the parent company of Pacific Power & Light, Utah Power & Light and Pacific Telecom, Inc.
George G. Golleher. Mr. Golleher is currently a business consultant and a private equity investor following his retirement after 28 years of experience in the Southern California food industry. From March 1998 to May 1999, Mr. Golleher served as President, Chief Operating Officer and director of Fred Meyer, Inc. Prior to joining Fred Meyer, Inc., Mr. Golleher served for 15 years with Ralphs Grocery Company and was Chief Executive Officer when Ralphs merged with Fred Meyer, Inc. in March 1998. Mr. Golleher is also Chairman of the Board of Directors of American Restaurant Group, Inc., which operates Black Angus Restaurants, and is a director of Simon Worldwide Inc., a promotional marketing firm.
Colin V. Reed. Mr. Reed has been President, Chief Executive Officer and a director of Gaylord Entertainment Company, a diversified entertainment corporation headquartered in Nashville, Tennessee, since April 2001. The company includes among its businesses Gaylord Hotels, the Grand Ole Opry, The Ryman Auditorium and WSM Radio. Before joining Gaylord, Mr. Reed was Chief Financial Officer of Harrah's Entertainment, Inc. from April 1997 until 2001, a member of the three-executive Office of the President of Harrah's from May 1999 until 2001 and a director of Harrah's from 1998 to 2001. Joining Harrah's in 1977, he served in various executive capacities including Senior Vice President of Development where he oversaw the growth of Harrah's Casinos and was named Executive Vice President and Chief Financial Officer in 1997. He also served in various management positions for Holiday Corporation, former parent company of Harrah's, including Executive Assistant to the Chairman and Chief Financial Officer for Holiday Inn for the Europe, Middle East and Africa division. Mr. Reed serves on the Board of Directors of Bass Pro, Inc. and is a fellow in the British Association of Hotel Accountants.
Stuart M. Sloan.Sloan. Mr. Sloan has been a principal of Sloan Capital Companies, a private investment company, since 1984. Mr. Sloan was also the Chairman of the Board from 1986 to 1998 and the Chief Executive Officer from 1991 to 1996 of Quality Food Centers, Inc., a supermarket chain. He currently serves on the board of directors of Anixter International Corporation and Offit Hall Capital
Management, LLC.
Corporation.
Jonathan D. Sokoloff.Sokoloff. Mr. Sokoloff has been an executive officera Managing Partner of Leonard Green & Partners, L.P., since 1994. Leonard Green & Partners, L.P. is an affiliate of Green Equity Investors III, L.P. since
its formationand is
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a private equity firm based in 1994.Los Angeles, California. Since 1990, Mr. Sokoloff has also been a partner in a merchant banking firm affiliated with Leonard Green & Partners, L.P. Mr. Sokoloff is also a director of Twinlab Corporation, Diamond Triumph Auto Glass, Inc., Dollar Financial Group, Inc. and Gart Sports Company. Mr. Sokoloff was elected as a director pursuant to thean October 27, 1999 agreement ofbetween Rite Aid and Green Equity Investors III, L.P. with respect to the purchase of 3,000,000 shares of Rite Aid preferred stockstock.
Corporate Governance
The Board of Rite Aid.
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Directors' Attendance at Meetings
The Board of Directors held fourseven regular meetings and fourone special meetingsmeeting during fiscal year 2002.2003. Each incumbent director of the Company attended at least 75% of the aggregate of the meetings of the Board of Directors and meetings held by all committees on which such director served, after appointment toduring the period for which such committees,
except that William J. Bratton attended 50% of the Board meetings and 71% of
the Audit Committee meetings and Leonard I. Green attended 60% of the
Compensation Committee meetings.
director served.
Committees of the Board of Directors
Executive Committee.Committee. The Executive Committee met two timesdid not meet during fiscal year 2002.2003. However, on three occasions in fiscal year 2003, the Executive Committee acted by unanimous written consent. The Executive Committee, except as limited by Delaware law, is empowered to exercise all of the powers of the Board of Directors. The members of the Executive Committee are Robert G. Miller (Chairman), Alfred M. Gleason and Stuart M. Sloan. Leonard I. Green Stuart M. Sloan and Alfred M. Gleason.
served as a member of the Executive Committee until his death in October 2002.
Audit Committee.Committee. The Audit Committee, which held seven meetings during fiscal year 2002,2003, currently consists of Alfred M. Gleason (Chairman), William
J. BrattonGeorge G. Golleher and Stuart M. Sloan. The Audit Committee:
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The independent public accountantsauditors and internal auditors meet with the Audit Committee with and without the presence of management representatives. For additional information, see "Audit Committee Report."
Compensation Committee.Committee. The Compensation Committee, which met five times during fiscal year 2002,2003, currently consists of Stuart M. Sloan (Chairman), and Jonathan D. Sokoloff. Leonard I. Green Jonathan D. Sokoloff and Nancy A. Lieberman (until her termserved as a director expires).member of the Compensation Committee until his death in October 2002. The Compensation Committee administers the Company's stock option and other equity incentive plans and reviews and recommends to the Board of Directors senior officers' salaries and bonuses. SeeFor additional information, see "Report of the Compensation Committee on Executive Compensation."
Nominating Committee.Committee. The Nominating Committee did not meet during fiscal year 2002.2003. Current members of the Nominating Committee are Leonard I. Green
(Chairman), Jonathan D. Sokoloff and Nancy A. Lieberman (until her termStuart M. Sloan. Leonard I. Green served as a
director expires).Chairman of the Nominating Committee until his death in October 2002. The Nominating Committee may develop general criteria regarding the qualifications and selection of board members and
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may recommend candidates for election to the Board of Directors. The Nominating Committee will consider persons recommended by stockholders for inclusion as nominees for election to the Board of Directors if the names of such persons are submitted in writing in a timely manner to the Secretary of the Company. All recommendations should be accompanied by a complete statement of such person's qualifications and an indication of the person's willingness to serve.
Directors' Compensation
Under the director compensation plan, all non-employee directors who are not affiliated with entities that provide services to the Company receive an annual payment of $50,000 in cash, payable quarterly in arrears. Directors who are officers and full-time employees of the Company or who are affiliated with entities that provide services to the Company receive no separate compensation for service as directors or committee members. Directors are reimbursed for travel and lodging expenses associated with attending Board of Directors' meetings.
In fiscal year 2002,2003, Rite Aid's non-employee directors also received $1,000 for each Board of Directors and committee meeting attended or $1,500 for each meeting attended at which such non-employee director served as the chairman of a committee, except that Leonard I. Green (a director until his death in October 2002), Jonathan D. Sokoloff and Nancy A.
LiebermanJohn G. Danhakl received no compensation. In fiscal year
On December 11, 2002, the same non-employee
directors received 5,655 restricted shares of Common Stock which represented
the number of shares having a value of $50,000, based on the average trading
price of the Common Stock on the five trading days preceding July 31, 2002. A
new compensation plan for directors was approved earlier this year,Messrs. Gleason, Golleher and pursuant to that new plan, on January 30, 2002, the same non-employee
directors, other than Mr. Golleher,Sloan each received non-qualified stock options to purchase 50,000 shares of Common Stock under the Rite Aid Omnibus Equity Plan, with an exercise price of $2.26$2.10 per share. On the date Mr. GolleherReed was appointed to the Board of Directors, he received non-qualified stock options to purchase 100,000 shares of Common Stock with an exercise price of $2.26$2.58 per share, in accordance with provisions of a new Board of Directors compensation plan applicable to non-employee directors who are not affiliated with entities that provide services to the Company first elected or appointed after January 1, 2002.
All of the options received by the directors vest ratably over a three-year period beginning on the first anniversary of the date they were granted. None of such options vests
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Under the new
director compensation plan put in place earlier this year, all non-employee
directors who are not affiliated with entities that provide services to the
Company will continue to receive the meeting fees and the annual stock option
grant discussed above, and, beginning on June 26, 2002, will receive an annual
payment of $50,000 in cash, payable quarterly in arrears, but will no longer
receive the Common Stock issuance noted above. Directors who are officers and
full-time employees of the Company or who are affiliated with entities that
provide services to the Company receive no separate compensation for service
as directors or committee members. Directors are reimbursed for travel and
lodging expenses associated with attending Board of Directors meetings.
RECOMMENDATION
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF EACH OF THE NOMINEES LISTED ABOVE
PROPOSAL NO. 2
STOCKHOLDER PROPOSAL -- APPOINT ONLY INDEPENDENT DIRECTORS ON
AUDIT, COMPENSATION AND NOMINATING COMMITTEES
– EMPLOYMENT DIVERSITY REPORT
The Massachusetts State CarpentersGeneral Board of Pension Fund,and Health Benefits of the United Methodist Church, 1201 Davis Street, Evanston, Illinois 60201, the owner of 5,885104,200 shares of Common Stock (based on information provided to us by The General Board of Pension and Health Benefits of the United Methodist Church), has notified the Company through the Carpenters Combined
Benefits Funds of Massachusetts, 350 Fordham Road, Wilmington, Massachusetts
01887, that it intends to present the following proposal at the Annual Meeting:
Independent Committees Proposal
Resolved,
WHEREAS: Equal employment is a key issue for shareholders. The bipartisan Glass Ceiling Commission Study released in 1995 explains that a positive diversity record also has a positive impact on the bottom line. This study is important for shareholders of Rite Aid Corporation ("Company") request
thatbecause it shows how many corporations in the Company's Board of Directors establish a policy that it will make its
best efforts to appoint only independent directors to serve on its key
committees (Audit Committee, Compensation Committee, and Nominating
Committee). In the event that this Proposal is implemented, the Board and its
Nominating Committee should endeavor to nominate a sufficient number of
independent directors so that adequate independent directors will be available
to serve on these committees should shareholders vote to elect management-
sponsored nominees to the Board.
Statement of Support: The board of directors must operate independentlyUnited States select for advancement from less than 50 percent of the corporation's chief executive officertotal talent available in our work force.
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These statistics show the Company;
o Paid bylimits placed on selecting the Company pursuantmost talented people for top management positions.
Not attending to any personal services contract withdiversity impacts the Company;
o Serving in an executive capacity or as a directorbottom line because of the real costs of discrimination cases, the potential loss of government contracts and the financial ramifications of a corporationdamaged corporate image.
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| a) | In 1996 Texaco settled the largest racial discrimination lawsuit in U.S. history, costing a reported $170 million to the company and stockholders. Texaco's public image was tarnished and the company faced a consumer boycott. |
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| b) | In 1996 the Wall Street Journal reported that Shoney's earnings for fiscal year 1992 posted a direct loss of $16.6 million as a result of settling a racial discrimination suit for $134.5 million. |
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| c) | In 1997 Denny's reported it was still trying to win back its minority customers, dating back to the 1992 discrimination complaints against Denny's. |
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| d) | In 1998 Smith Barney agreed to spend $15 million on diversity programs to settle a case brought by plaintiffs charging sexual harassment. |
More than 150 major employers publicly report on which the Company's chairman or chief executive officer iswork 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.
RESOLVED: The shareholders request our company prepare a board
member; or
o Related to a member of management of the Company.
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In our opinion none of the Company's key committees currently is comprised
only of independent directors. The Company's most recent proxy statement
disclosedreport at reasonable cost that during fiscal year 2001 the Company paid Leonard Green &
Partners, L.P. $5.5 million in fees. Leonard Green and Jonathan D. Sokoloff,
members of Rite Aid's Board of Directors, are equity owners in Leonard Green &
Partners, L.P. Messrs. Green and Sokoloff servemay omit confidential information on the Compensation and
Nominating Committees.
The Hartz Mountain Corporation, which was owned by Leonard N. Stern, sold
merchandise to the Company and its subsidiaries in the approximate amount of
$5,000,000 during the year ended December 31, 2000. Mr. Stern sold his
interest in The Hartz Mountain Corporation on December 29, 2000. Mr. Stern
serves on the Audit Committee.
The law firm of Skadden, Arps, Slate, Meagher & Flom LLP provides legal
services to Rite Aid. Nancy Lieberman, a director of Rite Aid, is a partner of
that law firm. Ms. Lieberman serves on the Compensation and Nominating
Committees.
issues described below.
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| 1) | An updated Diversity Report to be available to shareholders four months from the date of the annual meeting, that includes: |
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| a. | the EEO-1 Report in standard federal government categories according to gender and race in each of the nine major EEOC-defined categories for the previous three years; |
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| b. | a description of any policies and programs oriented specifically toward increasing the number of managers who are qualified females and/or ethnic minorities; |
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| c. | a description of the company's efforts to increase its business with female and minority suppliers and service-providers; and |
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| d. | any federal audit, corporate management review, and letter of compliance with corrective measures enacted to protect any government contracts. |
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| 2) | A report on any material litigation in which the company is involved concerning race, gender and the physically challenged. |
THE BOARD OF DIRECTORS' STATEMENT IN OPPOSITION:
The Board of Directors recommends a vote "against" Proposal No. 2.
The Board of Directors has consideredurges a vote against this stockholder proposal. This stockholder proposal is substantially the same as the proposals that were submitted by this same stockholder to the Company for consideration at the Company's 1999 and 2000 annual meetings of stockholders. At each meeting, the proposal was overwhelmingly rejected by stockholders, with 89.4% of the votes cast against the proposal and 4.0% abstentions at the 1999 annual meeting, and 90.3% of the votes cast against the proposal and 3.0% abstentions at the 2000 annual meeting. The Board of Directors' view, reiterated here, is essentially unchanged from that included in the proxy statement for the Company's 2000 annual meeting.
The Company is fully committed to providing equal employment opportunity and complying with all applicable equal employment opportunity laws and regulations. It is the Company's policy not to
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discriminate against any employee or applicant because of race, color, religion, sex, national origin, age or disability. The Company also maintains appropriate diversity plans. The Company already complies with federal, state and local governmental reporting requirements regarding compliance with equal employment opportunity laws. The preparation and distribution of an additional report will not enhance the Company's commitment to the worthy goal of equal employment opportunity. Moreover, the Board of Directors believes that itrequiring preparation and distribution of another report would not be a beneficial use of Company resources.
The proposal seeks publication of a report that the Company prepares and files on a confidential basis with governmental authorities. While these reports in fact illustrate the Company's commitment to equal opportunity, the Board of Directors does not believe that public dissemination of these reports will promote the goal of equal employment opportunity in any meaningful way. Furthermore, in order to obtain consistent statistical information across all categories of employers, the government requires the Company to report the information in categories that may not accurately reflect the practices of the Company. As a result, the information in the reports is potentially susceptible to misinterpretation. Accordingly, disclosure of this sensitive information, which is protected by federal law, would not be in the interests of stockholders of the Company.
In addition, the proposal requests disclosure of material employment-related litigation. The Company already is obligated under SEC rules to make disclosure of material litigation of all kinds. Employment-related litigation is not excluded from this disclosure and already is subject to reporting as required. For this reason, the Board of Directors believes that the proposal is duplicative and unnecessary.
The goal of equal employment opportunity is worthy and is also one to which the Company has always been committed. In the Board of Directors' judgment, however, providing reports is not the appropriate approach and would not enhance the Company's efforts to provide equal opportunity. The Board of Directors strongly believes that the proposal is unnecessary in most respects and, in other respects, is potentially harmful to the Company and not in the best interestsinterest of the stockholders of the Company.
We benefit greatly by having highly qualified directors, with diverse skills
and backgrounds, serving on our Board and on its committees. In some cases, as
the proposal notes, members or former members of our committees have
relationships with Rite Aid in addition to Board and committee memberships.
However, the Board views such relationships as advantageous to Rite Aid
because, as a result of such relationships, those individuals have a better
understanding of Rite Aid's business and can contribute more effectively to
informed decision-making by the Board and its committees.
Rite Aid is already subject to, or otherwise favors, some restrictions on
Audit, Compensation and Nominating Committee membership. The members of our
Audit Committee must be "independent" directors as that term is defined by the
listing standards of the New York Stock Exchange, and the current members of
our Compensation Committee and Nominating Committee all are non-employee
directors. In addition, relationships between the Company and any of its
directors are disclosed in this Proxy Statement to the extent required by the
proxy rules of the Securities and Exchange Commission.
The Board is a strong proponent of board and committee independence, but
believes that a formal independence policy would make it more difficult for
Rite Aid to select directors (and potential members of the Audit, Compensation
and Nominating Committees) based on their experience, judgment and knowledge.
stockholders.
We urge you to vote against Proposal No. 2.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
"AGAINST"
"AGAINST" THE STOCKHOLDER PROPOSAL
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EXECUTIVE OFFICERS
Officers are appointed annually by the Board of Directors and serve at the discretion of the Board of Directors. Set forth below is information regarding the current executive officers of Rite Aid.
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| Name | | Age | | Position with Rite Aid | ||||||
| Robert G. Miller* | | 59 | | Chairman and Chief Executive Officer | ||||||
| Mary F. Sammons* | | 56 | | Director, President and Chief Operating Officer | ||||||
| James P. Mastrian | | 60 | | Senior Executive Vice President, Marketing, Logistics and Pharmacy Services | ||||||
| Mark C. Panzer | | 46 | | Senior Executive Vice President, Store Operations | ||||||
| John T. Standley | | 40 | | Senior Executive Vice President and Chief Administrative Officer | ||||||
| Christopher S. | | 38 | | Executive Vice President and Chief Financial Officer | ||||||
| Robert B. Sari | | 47 | | Senior Vice President, | ||||||
| Kevin Twomey | | 52 | | Senior Vice President and Chief Accounting Officer | ||||||
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| * Mr. Miller's and Ms. Sammons' biographical information is provided above in the section identifying the director nominees. |
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James P. Mastrian. Mr. Miller'sMastrian was appointed Senior Executive Vice President, Marketing, Logistics and Ms. Sammons' biographical information is provided above as
a director.
David R. Jessick.Pharmacy Services in November 2002. He had been Senior Executive Vice President, Marketing and Logistics of Rite Aid from October 2000 until November 2002, and was Executive Vice President, Marketing from November 1999 to October 2000. Mr. JessickMastrian was also Executive Vice President, Category Management of Rite Aid from July 1998 to November 1999. Mr. Mastrian was Senior Executive Vice President, Merchandising and Marketing of OfficeMax, Inc. from June 1997 to July 1998 and Executive Vice President, Marketing of Revco D.S., Inc. from July 1994 to June 1997.
Mark C. Panzer. Mr. Panzer has been Senior Executive Vice President, and
Chief Administrative OfficerStore Operations since December 5, 1999. From 1997 to July 1999,
Mr. Jessick served asJune 2002. He had been Executive Vice President, of Finance and Investor
Relations of Fred Meyer, Inc. From 1979Store Operations since June 2001. Prior to 1997, Mr. Jessick held several
senior management positions at Thrifty PayLess Holdings, Inc., a west coast-
based drugstore chain that, had annual sales of $5.0 billion before being
acquired by Rite Aid in 1996. Mr. Jessick was Executive Vice President and
Chief Financial Officer of Thrifty PayLess Holdings, Inc. before Thrifty
PayLess was acquired by Rite Aid. Mr. Jessick serves as a Director of
AdvancePCS.
Elliot S. Gerson. Mr. Gerson is Senior Executive Vice President and General
Counsel of Rite Aid. He has held those positions since October 1999 and July
1997, respectively. Mr. Gerson alsohe served as Secretary from July 1997 to May
2000. Mr. Gerson joined Rite Aid in November 1995 as Senior Vice President, Marketing & Sales, General Merchandise at Albertson's, Inc. from 1998 to 2001, when Albertson's, Inc. merged with his former employer American Stores Company. From 1989 to 1998, Mr. Panzer held several senior positions at American Stores Company including District Manger, Director of Sales and Assistant Chief Legal Counsel.
Marketing, Vice President of Sales, Marketing & Advertising and Senior Vice President of Marketing & Formats.
John T. Standley.Standley. Mr. Standley was appointed Senior Executive Vice President and Chief FinancialAdministrative Officer of Rite Aid in September 2000.June 2002. He had been Senior Executive Vice President and Chief Financial Officer since September 2000 and Executive Vice President and Chief Financial Officer since December 5, 1999. Previously, he was Executive Vice President and Chief Financial Officer of Fleming Companies, Inc., a food marketing and distribution company from May 1999 to December 1999. Between July 1998 and May 1999, Mr. Standley was Senior Vice President and Chief Financial Officer of Fred Meyer, Inc. Mr. Standley served as Senior Vice President and Chief Financial Officer of Ralphs Grocery Company between January 1997 and July 1998. Mr. Standley also served as Senior Vice President of Administration at Smith's Food & Drug Stores, Inc. from May 1996 to February of 1997 and as Chief Financial Officer of Smitty's Supervalue, Inc. from December 1994 to May 1996.
James P. Mastrian.
Christopher S. Hall. Mr. Mastrian was appointed Senior Executive Vice
President, Marketing and Logistics of Rite Aid in October 2000. He hadHall has been Executive Vice President Marketingand Chief Financial Officer since November 15, 1999. Mr. Mastrian was
also Executive Vice President, Category Management of Rite Aid from July 1998
to November 1999. Mr. Mastrian was Senior Executive Vice President,
Merchandising and Marketing of OfficeMax from June 1997 to July 1998 and
Executive Vice President, Marketing of Revco D.S., Inc. from July 1994 to June
1997.
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Christopher Hall. Mr. Hall has2002. He had been Executive Vice President, Finance and Accounting since January 10, 2001. Prior to that, he served as Senior Vice President and Chief Accounting Officer since January 25, 2000, when he joined the Company. From April 1999 to January 2000, Mr. Hall was Executive Vice President and Chief Financial Officer at Golden State Foods.Foods Corp. Between July 1998 and March 1999, Mr. Hall served as Senior Vice President of Finance at Ralphs Grocery Company. Mr. Hall joined Ralphs Grocery as Vice President of Accounting in June 1995.
Mark C. Panzer.
Robert B. Sari. Mr. PanzerSari has been Executive Vice President, Store
Operations since June 28, 2001. Prior to that, he served as Senior Vice President, Marketing & Sales, General Merchandise at Albertson's, Inc.Counsel and Secretary since 1998, when Albertson's, Inc. merged with his former employer American Stores
Company. From 1989 to 1998, Mr. Panzer held several senior positions at
American Stores Company including District Manger, Director of Sales and
Marketing, Vice President of Sales, Marketing & Advertising and Senior Vice
President of Marketing & Formats.
Eric S. Sorkin. Mr. Sorkin has been Executive Vice President, Pharmacy
Services since February 2001. From December 1999 to February 2001 he served as
Senior Vice President, Pharmacy, and from May 1997 to December 1999 he served
as Vice President, Pharmacy Purchasing of Rite Aid. From 1991 to 1997,
Mr. Sorkin served in senior positions at Express Scripts, Pathmark, Thrifty
Drugs and Pharmacy Direct Network, and as President of Sorkin Consulting.
Prior to 1991, Mr. Sorkin held various executive positions at Rite Aid in
operations, personnel, third party, information systems and pharmacy services.
Robert B. Sari. Mr. Sari hasJune 2002. He had been Senior Vice President, Deputy General Counsel and Secretary since October 2000. From May 2000 to October 2000, he served as Vice President, Law and Secretary. Mr. Sari also served as Vice President, Law from May 2000
to October 2000 and as Associate General Counsel from May 1997 to May 2000. Prior to May 1997, Mr. Sari was Vice President, Legal Affairs for Thrifty PayLess, Inc.
Kevin Twomey.Twomey. Mr. Twomey has been Senior Vice President and Chief Accounting Officer since December 2000. From September 1989 to November 2000, Mr. Twomey held several accounting and finance management positions at Fleming Companies, Inc., a food marketing and distribution company. He was Senior Vice President - --– Finance and Control at Fleming, a position he held from October 1999 to November 2000, when he left.left Fleming. Prior to joining Fleming, he was an audit partner at Deloitte & Touche.
Executive Officer Compensation
The following table provides a summary of compensation paid during the last three fiscal years to Rite Aid's current chief executive officerChief Executive Officer and the four other most highly compensated executive officers who were serving as executive officers at the end of fiscal year 2002.2003. As used herein, the term "Named Executive Officers" means all persons identified in the Summary Compensation Table.
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10
SUMMARY COMPENSATION TABLE
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| Name and Principal Position | | Annual Compensation | | Long-Term Compensation | | All Other Compensation | ||||||||||||||||||||||||||||
| Fiscal Year | | Salary(1) | | Bonus(2) | | Other Annual Compensation (3) | | Restricted Stock Awards (4) | | Securities Underlying Option Grants/ SARs | | LTIP Payouts | | |||||||||||||||||||||
| Robert G. Miller | | 2003 | | $ | 1,240,000 | | $ | 2,000,000 | | $ | 126,712 | | — | | 500,000 | | — | | $ | 4,902 | (5) | |||||||||||||
| Chairman & Chief | | 2002 | | 1,240,000 | | 500,000 | | — | | — | | 431,762 | | — | | 6,764,149 | (6) | |||||||||||||||||
| Executive Officer | | 2001 | | 1,398,654 | | 1,268,991 | | 121,621 | | $ | 6,248,438 | (7) | | 8,700,000 | (8) | | — | | 5,562 | (5) | ||||||||||||||
| Mary F. Sammons | | 2003 | | 1,232,308 | | 2,000,000 | | 51,412 | | — | | 500,000 | | — | | 4,743 | (9) | |||||||||||||||||
| Director, President & | | 2002 | | 1,080,000 | | 337,500 | | — | | — | | 497,216 | | — | | 2,061,612 | (10) | |||||||||||||||||
| Chief Operating Officer | | 2001 | | 1,013,654 | | 768,930 | | — | | 5,092,186 | (11) | | 6,550,000 | (12) | | — | | 1,447 | (9) | |||||||||||||||
| James P. Mastrian | | 2003 | | 598,077 | | 720,000 | | — | | — | | 300,000 | | — | | 88,295 | (13) | |||||||||||||||||
| Senior Executive Vice | | 2002 | | 575,000 | | 172,500 | | — | | — | | 168,750 | | — | | 112,341 | (14) | |||||||||||||||||
| President, Marketing, | | 2001 | | 551,442 | | 232,126 | | — | | 128,125 | (15) | | 1,333,546 | (16) | | — | | 2,024 | (17) | |||||||||||||||
| Logistics and Pharmacy | | | ||||||||||||||||||||||||||||||||
| Services | | | ||||||||||||||||||||||||||||||||
| Mark C. Panzer | | 2003 | | 447,692 | | 546,250 | | 72,369 | | — | | 600,000 | | — | | 84,577 | (18) | |||||||||||||||||
| Senior Executive Vice | | 2002 | | 259,615 | | 64,688 | | — | | 556,400 | (19) | | 600,000 | | — | | 49,335 | (20) | ||||||||||||||||
| President, Store | | 2001 | | — | | — | | — | | — | | — | | — | | — | ||||||||||||||||||
| Operations | | | ||||||||||||||||||||||||||||||||
| John T. Standley | | 2003 | | 803,077 | | 750,000 | | — | | — | | 300,000 | | — | | 626 | (21) | |||||||||||||||||
| Senior Executive Vice | | 2002 | | 720,000 | | 150,000 | | — | | — | | 303,296 | | — | | 56,162 | (22) | |||||||||||||||||
| President & Chief | | 2001 | | 675,769 | | 528,317 | | 115,843 | | 2,734,946 | (23) | | 4,205,000 | (24) | | — | | 91 | (21) | |||||||||||||||
| Administrative Officer | | | ||||||||||||||||||||||||||||||||
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| (1) | Mr. Miller, Ms. Sammons and Mr. Standley commenced employment with the Company on December 5, 1999. Salary amounts for Mr. Miller, Ms. Sammons and Mr. Standley include amounts contributed by Rite Aid to each such executive officer's account under the deferred compensation plan in which they participate. |
| (2) | Bonus amounts represent amounts earned in each respective fiscal year, not necessarily paid in each year. |
| (3) | Pursuant to Item 402(b)(2)(iii)(C) of Regulation S-K, perquisites and other personal benefits, securities or property paid or provided to a Named Executive Officer for any fiscal year are not included in this column unless the aggregate amount of such compensation is the lesser of either $50,000 or 10% of the total of annual salary and bonus reported for the Named Executive Officer for that fiscal year. In cases where the aggregate amount of such compensation equals or exceeds this threshold and thus requires disclosure, only those perquisites or other personal benefits exceeding 25% of the total perquisites and other personal benefits reported for such Named Executive Officer are separately identified by type and amount in this footnote, as permitted by Item 402(b)(2)(iii)(C). "Other Annual |
| (4) | Each Named Executive Officer has the right to vote the shares of restricted stock and to receive any dividends paid on such shares. |
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| (5) | Fiscal year 2003 and fiscal year 2001 amounts for Mr. Miller represent supplemental life insurance premiums paid by the Company. |
| (6) | "All Other Compensation" for fiscal year 2002 for Mr. Miller includes: $5,971,321 pursuant to his agreement with the Company relating to his severance dispute with the Kroger Company (Mr. Miller is required to repay to the Company any amount that is paid to him by the Kroger Company related to the severance dispute, net of any excess taxes payable by him on account of the repayment and any legal expenses not reimbursed by the Company under his employment agreement); $789,434 resulting from the surrender of restricted stock to repay a loan from the Company to Mr. Miller for the payment of taxes due as a result of vesting of restricted stock, plus the intrinsic value of such restricted stock and the tax gross up paid as compensation for the tax consequences of the loan forgiveness; and $3,394 in supplemental life insurance premiums paid by the Company. |
| (7) | On June 15, 2000, Mr. Miller was awarded 600,000 shares of restricted Common Stock; restrictions on 240,000 shares lapsed on June 15, 2001 (and these 240,000 shares were subsequently surrendered to repay a Company loan), restrictions on 120,000 shares lapsed on January 15, 2002, and restrictions on 120,000 shares lapsed on each of July 15, 2002 and January 15, 2003. On November 29, 2000, Mr. Miller was awarded 75,000 shares of restricted Common Stock; restrictions on 9,375 shares lapsed ratably on a quarterly basis from March 3, 2001 through September 1, 2001 (and these 28,125 shares were subsequently surrendered to repay a Company loan), and restrictions on 9,375 shares lapsed on each of January 15, 2002, May 15, 2002, July 15, 2002, October 15, 2002 and January 15, 2003. On January 10, 2001, Mr. Miller was awarded 409,091 shares of restricted Common Stock, restrictions on 163,637 shares lapsed on June 15, 2001 (and these shares were subsequently surrendered to repay a Company loan), restrictions on 81,818 shares lapsed on January 15, 2002, and restrictions on 81,818 shares lapsed on each of July 15, 2002 and January 15, 2003. At the end of fiscal year 2003, Mr. Miller held 1,252,329 shares of restricted Common Stock with an aggregate market value of $3,005,589. |
| (8) | 4,200,000 of these options replaced options that were cancelled on November 20, 2000. |
| (9) | Fiscal year 2003 and fiscal year 2001 amounts for Ms. Sammons represent supplemental life insurance premiums paid by the Company. |
| (10) | "All Other |
| (11) | On June 15, 2000, Ms. Sammons was awarded 600,000 shares of restricted Common Stock; restrictions on 240,000 shares lapsed on June 15, 2001 (and these shares were subsequently surrendered to repay a Company loan), restrictions on 120,000 shares lapsed on January 15, 2002, and restrictions on 120,000 shares lapsed on each of July 15, 2002 and January 15, 2003. On November 29, 2000, Ms. Sammons was awarded 75,000 shares of restricted Common Stock; restrictions on 9,375 shares of Common Stock |
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| lapsed on each of July 15, 2002 and January 15, 2003. At the end of fiscal year 2003, Ms. Sammons held 650,511 shares of restricted Common Stock with an aggregate market value of $1,561,226. |
| (12) | 3,050,000 of these options replaced options that were cancelled on November 20, 2000. |
| (13) | "All Other Compensation" for fiscal year 2003 for Mr. Mastrian includes: $84,000 for a deferred compensation plan and $4,295 in supplemental life insurance premiums paid by the Company. |
| (14) | "All Other Compensation" for fiscal year 2002 for Mr. Mastrian includes: $84,000 for a deferred compensation plan; $25,428 resulting from the surrender of restricted stock to repay a loan from the Company to Mr. Mastrian for the payment of taxes due as a result of vesting of restricted stock, plus the intrinsic value of such restricted stock and the tax gross up paid as compensation for the tax consequences of the loan forgiveness; and $2,913 in supplemental life insurance premiums paid by the Company. |
| (15) | On November 29, 2000, |
| (16) | 300,000 of these options replaced options that were cancelled on November 20, 2000. |
| (17) | Fiscal year 2001 |
| (18) | "All Other Compensation" for fiscal year 2003 for Mr. Panzer includes: $84,000 for a deferred compensation plan and $577 in supplemental life insurance premiums paid by the Company. |
| (19) | On June 27, 2001, Mr. Panzer was awarded 65,000 shares of restricted Common Stock; restrictions on 21,666 of these shares lapsed June 27, 2002 and restrictions on 21,667 will lapse on each of June 27, 2003 and June 27, 2004. At the end of fiscal year 2003, Mr. Panzer was vested in 12,166 shares of restricted Common Stock with an aggregate market value of $29,198. |
| (20) | "All Other Compensation" for fiscal year 2002 for Mr. Panzer includes: $49,000 for a deferred compensation plan and $335 in supplemental life insurance premiums paid by the Company. |
| (21) | Fiscal years 2003 and 2001 amounts for Mr. Standley represent supplemental life insurance premiums paid by the Company. |
| (22) | "All Other Compensation" for fiscal year 2002 for Mr. Standley includes: $55,545 resulting from the surrender of restricted stock to repay a loan from the Company to Mr. Standley for the payment of taxes due as a result of vesting of restricted stock, plus the intrinsic value of such restricted stock and the tax gross up paid as compensation for the tax consequences of loan forgiveness and $617 in supplemental life insurance premiums paid by the Company. |
| (23) | On June 15, 2000, |
| (24) | 1,575,000 of these options replaced options that were cancelled on November 20, 2000. |
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Option Grants in the Fiscal Year
The following table sets forth certain information regarding options granted during fiscal year 20022003 to the Named Executive Officers.
| | | | | | | | | | | | | | | | | | | | | | |
| Name | | Number of Securities Underlying Options Granted (#)(1) | | Percent of Total Options Granted To Employees in Fiscal Year | | Exercise Price ($/Sh)(2) | | Expiration Date | | Grant Date Present Value ($)(3) | ||||||||||||
| Robert G. Miller | | 500,000 | | 4.98 | % | | $ | 2.10 | | 12/11/12 | | $ | 620,000 | |||||||||
| Mary F. Sammons | | 500,000 | | 4.98 | % | | 2.10 | | 12/11/12 | | 620,000 | |||||||||||
| James P. Mastrian | | 300,000 | | 2.99 | % | | 2.10 | | 12/11/12 | | 372,000 | |||||||||||
| Mark C. Panzer | | 300,000 | | 2.99 | % | | 2.55 | | 6/26/12 | | 453,000 | |||||||||||
| 300,000 | | 2.99 | % | | 2.10 | | 12/11/12 | | 372,000 | ||||||||||||
| John T. Standley | | 300,000 | | 2.99 | % | | 2.10 | | 12/11/12 | | 372,000 | |||||||||||
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| (1) | Options vest ratably over a four-year period beginning on the first anniversary of |
| (2) | All options have an exercise price equal to the fair market value on the date of grant. |
| (3) | The hypothetical present values on the grant date were 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 |
Option Exercises and Fiscal Year-End Value Table
Values
The following table summarizes the aggregate value at March 2, 2002 of all shares
subject tostock options granted toheld as of March 1, 2003 by the Named Executive Officers. No options were exercised during fiscal year 2002.
2003.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name | | Shares Acquired on Exercise (#) | | Value Realized ($) | | Number of Securities Underlying Unexercised Options at Fiscal Year-End (#) | | Value of Unexercised In-the-Money Options At Fiscal Year-End ($) (1) | ||||||||||||||||||
| Exercisable | | Unexercisable | | Exercisable | | Unexercisable | | |||||||||||||||||||
| Robert G. Miller | | 0 | | $ | 0 | | 7,631,762 | | 2,000,000 | | $ | 60,447 | | $ | 150,000 | |||||||||||
| Mary F. Sammons | | 0 | | 0 | | 5,730,550 | | 1,816,666 | | 48,610 | | 171,000 | ||||||||||||||
| James P. Mastrian | | 0 | | 0 | | 1,360,419 | | 1,008,331 | | 7,875 | | 105,750 | ||||||||||||||
| Mark C. Panzer | | 0 | | 0 | | 150,000 | | 1,050,000 | | 3,500 | | 100,500 | ||||||||||||||
| John T. Standley | | 0 | | 0 | | 3,382,463 | | 1,245,833 | | 26,711 | | 105,750 | ||||||||||||||
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| (1) | "In-the-Money" options are options with an exercise price less than the market price of |
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EMPLOYMENT AND EMPLOYMENT-RELATED AGREEMENTS
AND TERMINATION OF EMPLOYMENT
Executive Employment Agreements
On December 5, 1999, Rite Aid entered into employment agreements with Robert G. Miller, Mary F. Sammons David R. Jessick and John T. Standley, and,Standley; on November 18, 2000, Rite Aid entered into an employment agreement, effective as of September 27, 2000, with James P. Mastrian (theMastrian; and on June 27, 2001, Rite Aid entered into an employment agreement with Mark C. Panzer (collectively, the "Executives"). In April 2003, Rite Aid entered into a new employment agreement with Mr. Miller, which is effective as of June 25, 2003. This employment agreement is summarized in the section below entitled "New Employment Agreement with Mr. Miller."
Pursuant to their above-referenced individual employment agreements:
o agreements, each as amended:
Term. The term of each Executive's employment agreement commenced on the date of his or her employment agreement and, unless terminated earlier, will terminate on the third anniversary (the "Employment Period"), but will automatically renew for an additional year on each anniversary of the effective date of the agreement (a "Renewal Date") unless either the Executive or Rite Aid provides the other with notice of non-renewal at least 180 days prior to a Renewal Date.
Salary and Incentive Bonus.Bonus. The respective agreements provide each Executive with a base salary and incentive compensation including,(which may be reviewed periodically for increase by the Compensation Committee) that includes, with respect to fiscal year 2002:
o 2003:
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| $720,000 for fiscal year 2003 pursuant to his employment agreement, and in the future may, if Rite Aid's performance meets certain targets, receive an annual bonus that, if awarded, will equal or exceed 75% of his annual base salary then in effect. |
Other Benefits.Benefits. Pursuant to their employment agreements, each of the Executives is also entitled to participate in Rite Aid's fringe benefit and perquisite programs and savings plans.
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Restricted Stock and Options.Options. Pursuant to their employment agreements and individual stock option agreements, in December 1999, Mr. Miller, Ms. Sammons Mr. Jessick and Mr. Standley, alsoand in June 2001, Mr. Panzer, received awards of restricted Rite Aid Common Stock and were granted options to purchase additional Rite Aid Common Stock as follows:
o
Mr. Mastrian did not receive any grants of options to purchase shares of Common Stock under his employment agreement.
All of the options granted and restricted Common Stock awarded to each of suchthe Executives listed above vest in thirty-six equal monthly installments
commencing January 5, 2000.
Other Provisions. Eachhave fully vested except that, as of the Record Date, Mr. Panzer's option to purchase 375,000 shares of Common Stock, and 43,333 shares of Mr. Miller's andPanzer's restricted Common Stock, have not yet vested.
Other Provisions. Mr. Jessick'sMiller's employment agreement provides for him to be based in Portland, Oregon and that he be provided, for the convenience of Rite Aid, with an apartment in the vicinity of Rite Aid's corporate headquarters in the Harrisburg, Pennsylvania area.
Pursuant to his employment agreement, Mr. Miller is entitled to recommend to the Board of Directors two persons to serve on the Board of Directors of Rite Aid.Board. Mr. Miller has made two Board of Directors recommendations to date and as a result, Alfred M. Gleason and Stuart M. Sloan were appointed to the Board of Directors in January 2000 and June 2000, respectively.
Termination of Employment.Employment. Upon written notice, the employment agreement of each of the Executives is terminable by either Rite Aid or the individual Executive seeking termination.
If Mr. Miller, Ms. Sammons Mr. Jessick or Mr. Standley is terminated by Rite Aid "without cause" (as defined in the employment agreementsagreement of such Executives)Executive) or if such Executive's employment is terminated by anthe Executive for "good reason" (as defined in the employment agreementsagreement of such Executives)Executive), then then:
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If Mr. Mastrian or Mr. Panzer is terminated by Rite Aid "without cause" or if such Executive's employment is terminated by himthe Executive for "good reason" (as such terms are defined in his employment agreement), then he shall be entitled to receive:
o
If Rite Aid terminates any of the Executives "for cause" (as defined in the employment agreements), :
The employment agreement of each Executive prohibits the Executive from competing with Rite Aid during his or her Employment Period and for a period of one year, or with respect to Mr. Mastrian and Mr. Panzer, two years, thereafter.
Pursuant to amendments to the employment agreements with Mr. Miller and Ms. Sammons dated May 7, 2001, the Company agreed to pay them, as an additional incentive bonus, the difference between certain amounts called for under their severance agreements with their prior employer and the amount they actually receive from that employer, plus interest at the rate of 9% per annum from December 5, 1999. Mr. Miller and Ms. Sammons were to receive $5,022,685 and $1,624,000, respectively, under those severance agreements, and they each retain control over their claims against their former employer. A summary judgment order has been filed in Mr. Miller's favor by the Court hearing his case, and this order has been appealed. Pursuant to the amendments to the employment agreements, the Company paid such bonuses, plus interest, in January, 2002, which amounted to $5,971,321 for Mr. Miller and $1,930,736 for Ms. Sammons.
Pursuant to the terms of the amendments, the Executive must repay to the Company any amount that is paid to him or her by the former employer, net of any excess taxes payable by the Executive on account of the repayment and any legal expenses not reimbursed by the Company under the employment agreement. Neither Executive is obligated to reimburse the Company more than the amount of the bonus paid to him or her. If
Change-in-Control Arrangements. Under Mr. Miller's, Ms. Sammons's and Mr. Standley's employment is terminated by
him without good reason oragreements, any termination of employment by the CompanyExecutive within the six month period commencing on the date of a "change in control" of Rite Aid will be treated as a termination of employment by the Executive for cause between January 1, 2002"good reason." Under each of Mr. Mastrian's and Mr. Panzer's employment agreements, upon a "change in control" of Rite Aid, all of his stock options will immediately
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vest and be exercisable and any restrictions on restricted stock will immediately lapse. Each employment agreement provides that the Executive will receive an additional payment to reimburse the Executive for any excise taxes imposed pursuant to Section 4999 of the Internal Revenue Code, together with reimbursement for any additional taxes incurred by reason of such payments.
New Employment Agreement with Mr. Miller
On April 9, 2003, Rite Aid entered into a new employment agreement with Robert G. Miller pursuant to which, effective as of June 25, 2003, Mr. Miller will continue serving solely as Chairman of the Board through June 30, 2005, or the date of Rite Aid's 2005 annual meeting of stockholders, whichever is earlier. Additional terms of this agreement are as follows:
Term. Mr. Miller's December 5, 2002, there has not been a change1999 employment agreement will continue in controlfull force and effect until June 25, 2003, the date of Rite Aid's 2003 annual meeting of stockholders. Following June 25, 2003, the December 5, 1999 employment agreement will be amended and restated as provided in the April 9, 2003 employment agreement. Mr. Miller will serve as Chairman during the period commencing on June 25, 2003 and ending on the date of Rite Aid's 2005 annual shareholders meeting (the "Employment Period"). The April 9, 2003 employment agreement expires on the date of the Company,2005 annual meeting of stockholders, subject to the other terms and conditions of the agreement.
Salary and Incentive Bonus. From June 25, 2003, for the balance of the Company's 2004 fiscal year (i.e.,through February 28, 2004) (the "Initial Term"), the terms of Mr. Miller's December 5, 1999 employment agreement with respect to base salary, incentive compensation, other benefits, deferred compensation and service credit will continue to apply in their entirety.
Commencing after the Initial Term through the date of Rite Aid's 2005 annual meeting of shareholders, Mr. Miller no longer serveswill receive an annual base salary of $350,000 and be entitled to continued benefits, in their entirety, as a Director (by reason of a voluntary
resignationprovided under the December 5, 1999 employment agreement; however, he will not be entitled to participate in any incentive compensation or a removal simultaneous with an employment termination for
cause),bonus plans.
Restricted Stock and Options.
During the Employment Period, Mr. Miller will be entitledeligible to retain only a portionreceive option and restricted stock awards in accordance with Rite Aid's policy for members of the bonus that
is proratedBoard of Directors as in effect from time to time. Mr. Miller's existing stock options and shares of restricted stock will continue to vest and be fully exercisable for the numberremainder of days betweentheir stated terms.
Termination of Employment and Change-in-Control Arrangements.
The termination provisions of the April 9, 2003 employment agreement became effective immediately and remain in effect until the agreement expires. The termination provisions and change in control arrangements are substantially similar to those in the December 5, 1999 and the date of
termination.
employment agreement.
Deferred Compensation Plans
Plan
In addition to the base salary and bonus provisions of the Executives' employment agreements, Rite Aid established a new Deferred Compensation Plan
(the "New Plan") for the benefit of Mr. Miller, Ms. Sammons Mr. Jessick and Mr. Standley. Under the NewDeferred Compensation Plan, Rite Aid creditsfunds a specific sum to individual accounts established for each of Mr. Miller, Ms. Sammons Mr. Jessick and Mr. Standley. The sums are creditedfunded on the first day of each month during the term of the Executives' Employment Period with Rite Aid. Each of Mr. Miller, Ms. Sammons Mr. Jessick and Mr. Standley is fully vested, at all times, in his or her account balance; although, generallybalance. Generally, however, they may not receive payments from their accounts until three years after an election to receive a payment. Each month, $20,000 is creditedfunded to Mr. Miller's account (and such amount will continue to be creditedfunded as long as he is an officer or the Chairman of the Board of Directors of the Company), $15,000$20,000 is credited to
Ms. Sammons' account and $10,000 is credited to each of Mr. Jessick's
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and Mr. Standley's account. Beginning in fiscal year 2003, $20,000 will be
creditedfunded to Ms. Sammons' account and $15,000 is funded to Mr. Standley's account in
connection with amendments to the New Plan.account. Under the NewDeferred Compensation Plan, the Executives are able to direct the investment of the amounts creditedfunded to their individual accounts by selecting one or more investment vehicles from a group of deemed investments offered pursuant to the NewDeferred Compensation Plan.
Supplemental Executive Retirement Plan
Mr. Mastrian receivesand Mr. Panzer receive benefits under a separate deferred compensation plan from the one noted above. The Company has established aan unfunded Supplemental Executive Retirement Plan (the
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(the "SERP"), which was effective March 1, 2001, pursuant to which Rite Aid credits a specific sum to an individual account established for Mr.Messrs. Mastrian and Panzer, and other participating executive officers, on a monthly basis. The amount credited is equal to 2% of the Executive's annual base compensation, up to a maximum of $7,000 per month. The Executives participating in the SERP are able to select among a choice of earnings indexes, and their accounts are credited with earnings which mirror the investment results of such indexes. Executives participating in the SERP vest in their accounts at the rate of 20% per year for each full year of participation in the SERP at a five-year rolling rate, with the period from
March 1, 2001 through December 31, 2001 counting as a full calendar year of
participation.rate. Participants will receive their vested account balance upon the earlier to occur of: (i) their retirement at age 60 or greater, with at least five years of participation in the SERP; (ii) termination of employment with the Company (including due to death or disability); (iii) change in control of the Company; (iv) a hardship withdrawal pursuant to the terms of the SERP; and (v) a withdrawal election pursuant to the terms of the SERP.
The
Officer Retirement Plan
Rite Aid has established the Non-Qualified Executive Retirement Plan (the
"Plan") to provide retirement benefits to certain long-term employees who hold a position of vice president or higher and to select executives who may, pursuant to their employment agreements, be deemed to be long term employees. Participants generally are entitled to receive benefits upon retirement after age 65 if they have or are credited with 20 years or more of service or upon death, in which case any length of service requirement is disregarded.
Generally, eligible participants receive an annual benefit, payable monthly over 15 years, equal to a percentage, ranging from 40% to 50%, of the highest base salaries and highest bonus paid or accrued for each participant within the 10 fiscal years prior to the date of the event giving rise to payment of the benefit.
The Non-Qualified Executive Retirement Plan provides that benefits will not be paid to employees whose employment is terminated for any reason other than retirement, disability or death. Additionally, if, during the time a benefit is being paid to a former employee, it is determined that the former employee committed an act that could have resulted in a good cause discharge, the Company will cease paying benefits to the former employee.
In fiscal year 2002, Mr. Miller, Ms. Sammons Mr. Jessick and Mr. Standley agreed to give up their rights to receive benefits in the future under the Plan. Mr. Mastrian is not entitledNon-Qualified Executive Retirement Plan in order to receive benefits under the Deferred Compensation Plan. Messrs. Mastrian and Panzer are not eligible for any benefits under the Non-Qualified Executive Retirement Plan. Accordingly, no estimate of the annual benefits payable under the Non-Qualified Executive Retirement Plan at normal retirement age is provided for any of the Named Executive Officers.
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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, reviews the performance of the Company's seniorexecutive personnel and develops and makes recommendations to the Board of Directors with respect to seniorexecutive compensation policies. The Compensation Committee is empowered by the Board of Directors to award to seniorexecutive officers appropriate bonuses, stock options, stock appreciation rights ("SARs") and stock-based awards. The Compensation Committee met five times during fiscal 2002.
year 2003.
The Compensation Committee has access to independent compensation data and from time to time engages outside compensation consultants. In fiscal year 2002,2003, the Compensation Committee considered the report of outside compensation consultants with respect to the issuance of stock options for the seniorexecutive officers in fiscal year 2002. 2003.
The objectives of the Compensation 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 seniorexecutive 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
19
restricted stock awards. The compensation program also includes various benefits, including the deferred
compensation plans,Deferred Compensation Program, 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 executive officers of the Company are generally competitively set relative to salaries of officers of companies comparable in business and size included in the Standard & Poor's Retail Stores Composite Index. The base salary and other compensation arrangements for Mr. Miller,
Ms. Sammons, Mr. Jessick and Mr. Standleythe Named Executive Officers were individually negotiated with theeach executive in connection with their hiring and are reviewed periodically by the Compensation Committee for a possible increase. In each instance, base salary takes into account individual experience and performance specific to the Company. The Compensation 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 generally limited to adjustments to reflect increases in the rate of inflation. Under his employment agreement, Mr. Miller, the Company's Chief Executive Officer, is entitled to receive a base salary of not less than $1,250,000. However, Mr. Miller voluntarily accepted a lower base salary of $1,000,000 for fiscal year 2003.
The Compensation Committee is aware that the Internal Revenue Code of 1986, as amended (the "Code"), 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. To the extent compensation to an executive
officer exceeds the cap, the Compensation Committee considers the facts and
circumstances in each instance to reach a determination regarding the impact
of the cap on such compensation.
The Compensation Committee is empowered to approve the payment of cash performance bonuses to employees, including executive officers, of the Company. During fiscal year 2002,2003, the Compensation 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 a specified goals relating to the Company's earningsadjusted EBITDA is achieved. Adjusted EBITDA represents income from continuing operations before extraordinary items and also primarily excludes income taxes, interest taxes,expense, depreciation and amortization, LIFO adjustments, charges for store closing and noncashimpairment, closed store liquidation expense, stock-based compensation expense, share of loss from equity investments, loss on debt and nonrecurring items ("EBITDA") are achieved.lease conversions and modifications, litigation proceeds, litigation expense, expenses related to prior management's business practices and certain non-recurring income and expense. Each year, the Compensation Committee determines an adjusted EBITDA goal and a targeted incentive as a percentage of salary. Depending upon the adjusted EBITDA achieved during such year, participants are entitled to a percentage ranging from 0% to 150%,
of the targeted incentive award fixed by the Compensation Committee. ForThe Company's adjusted EBITDA for fiscal year 2002,2003 entitled the EBITDA goals establishedexecutive officers to receive the maximum bonus under the Annual Incentive Plan
were not achieved. However, on the recommendation of the Compensation
Committee and at the direction of the Board of Directors, bonuses of 50% of
the targeted incentive were paid in fiscal year 2003 with respect to fiscal
year 2002 to all participants in the Annual Incentive Plan, including the
Named Executive Officers.
Plan.
The Compensation 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 typically are 18
typically at the prevailing market price and, therefore, will only have value if the Company's stock price increases over the exercise price. The Compensation Committee believes that the grant of stock options and stock-
basedstock-based awards 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 Compensation Committee, including vesting, exercisability and option term, are determined by the Compensation 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.
Stuart M. Sloan, Compensation Committee Chairman
Leonard I. Green, Compensation Committee Member
Jonathan D. Sokoloff, Compensation Committee Member
Nancy A. Lieberman,
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COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
During fiscal year 2003, no executive officer of Rite Aid served as a director or as a member of the compensation committee of another company who had an executive officer that served as a member of the Compensation Committee Member
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AUDIT COMMITTEE REPORT
The Board of Directors maintains an Audit Committee comprised of three of the Company'sour outside directors. The Board of Directors and the Audit Committee believe that the Audit Committee's current member composition satisfies the rule of the New York Stock Exchange ("NYSE") that governs audit committee composition, including the requirement that audit committee members all be "independent directors" as that term is defined by Sections 303.02(B)(2)(a) and (3) of the NYSE's listing standards.
The Board has adopted a written charter of the Audit Committee which further describes the role of the Audit Committee and which was filed as an appendix to the Proxy Statement for our fiscal 2001 Annual Meeting. The Audit Committee, among other things, appoints and engages our independent auditors and oversees the Company'sour financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for theour financial statements, our accounting principles, our systems of internal control and our financial reporting process. Our independent auditors are responsible for auditing our financial statements and expressing an opinion as to their conformity with accounting principles generally accepted in the reporting process including the systems of
internal controls. United States.
In fulfilling its oversight responsibilities, the Audit Committee reviewedheld seven meetings during fiscal year 2003.
During those meetings the Audit Committee:
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| | | | | | | | | | | ||||
| Year Ended | |||||||||||||
| Description of Fees | | March 1, 2003 | | March 2, 2002 | ||||||||||
| (Amounts in Millions) | | ||||||||||||
| Audit fees, including reviews of interim financial statements, registration statement filings and comfort letters related to various refinancing activities | | $ | 3.7 | | $ | 5.5 | ||||||||
| | |||||||||||||
| Audit related fees, primarily audits of employee benefit plans' financial statements | | 0.4 | | 2.2 | ||||||||||
| | |||||||||||||
| Tax fees, primarily assistance in amending prior years' income tax returns | | 0.7 | | 0.1 | ||||||||||
| | |||||||||||||
| Other fees: | | | ||||||||||||
| Assistance in evaluating expense reduction opportunities | | 0.5 | | — | ||||||||||
| Other | | 0.1 | | 0.1 | ||||||||||
| Total other fees | | 0.6 | | 0.1 | ||||||||||
| ||||||||||||||
In reliance on the reviewsmeetings and discussions referred to above, the Audit Committee recommended to the Board of Directors (and the Board has approved) that the audited financial statements be included in the Company'sour Annual Report on Form 10-K for the fiscal year ended March 2, 20021, 2003 for filing with the Securities and Exchange Commission.
Alfred M. Gleason, Audit Committee Chairman
William J. Bratton,
George G. Golleher, Audit Committee Member
Stuart M. Sloan, Audit Committee Member
20
22
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 (i) the Russell 1000 Consumer Staples Index, and (ii) the Russell 1000 Index, over the same period (assuming the investment of $100.00 in the Common Stock and such indexes on February 28,
199727, 1998 and reinvestment of dividends).
For comparison of cumulative total return, the Company has elected to use the Russell 1000 Consumer Staples Index, consisting of 88 companies including the three largest drugstore chains, and the Russell 1000 Index. This allows comparison of the Company to a peer group of similar sized companies. We are one of the companies included in Russell 1000 Consumer Staples Index and the Russell 1000 Index. The Russell 1000 Consumer Staples Index is a capitalization-weighted index of companies that provide products directly to consumers that are typically considered nondiscretionary items based on consumer purchasing habits. The Russell 1000 Index consists of the largest 1000 companies in the Russell 3000 Index and represents the universe of large capitalization stocks from which many active money managers typically select.
Comparison of 5 Year Cumulative Total Return
Assumes Initial Investment of $100
February 2002
[PERFORMANCE CHART]
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 1998 | | 1999 | | 2000 | | 2001 | | 2002 | | 2003 | |||||||||||||||
| Rite Aid Corporation | | $ | 100.00 | | $ | 129.22 | | $ | 23.60 | | $ | 19.47 | | $ | 9.66 | | $ | 7.67 | ||||||||
| Russell 1000 Index | | $ | 100.00 | | $ | 118.03 | | $ | 136.11 | | $ | 122.87 | | $ | 111.13 | | $ | 86.44 | ||||||||
| Russell 1000 Consumer Staples Index | | $ | 100.00 | | $ | 105.88 | | $ | 80.57 | | $ | 110.04 | | $ | 115.05 | | $ | 97.31 | ||||||||
| ||||||||||||||||||||||||||
| |
| |
|
| * | The Company's fiscal year ends on the Saturday closest to February 29 or March 1. Fiscal year 2003 included 52 weeks and ended on March 1, 2003. |
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") requires Rite Aid's executive officers, directors and persons who own more than 10% of the Common Stock to file reports of ownership and changes in ownership with the Securities and Exchange Commission (the "SEC") and the NYSE. Such persons are required by SEC regulations to furnish Rite Aid with copies of all Section 16(a) forms they file. Based solely on a review of the copies of such forms furnished to Rite Aid, the Company has determined that during fiscal year 20022003 no persons subject to Section 16(a) reporting submitted late filings under Section 16(a) of the Exchange Act.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the Record Date, certain information concerning the beneficial shareholdings of (a) each director, (b) each nominee for director, (c) each executive officer named in the Summary Compensation Table appearing elsewhere herein, (d) each holder of more than five percent of the Common Stock and (e) all directors and executive officers as a group (based on 581,238,710586,946,934 shares of Common Stock outstanding as of such date,the Record Date, which includes the number of shares of Common Stock into which the outstanding shares of Series D Preferred Stock are convertible). 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.
| | | | | | | | | | |
| Beneficial Owners | | Number of Common Shares Beneficially Owned (1) | | Percentage of Class | ||||||
| Named Executive Officers and Directors: | | |||||||||
| John G. Danhakl | | 71,642,279 | (2) | | 12.2 | % | ||||
| Alfred M. | | 261,634 | (3) | | * | |||||
| George G. | | 83,334 | (4) | | * | |||||
| James P. | | 1,492,817 | (5) | | * | |||||
| Robert G. | | 9,244,541 | (6) | | 1.8 | % | ||||
| Mark C. Panzer | | 430,499 | (7) | | * | |||||
| Colin V. Reed | | 0 | | * | ||||||
| Mary F. | | 6,531,061 | (8) | | 1.3 | % | ||||
| Stuart M. | | 99,978 | (9) | | * | |||||
| Jonathan D. | | 72,281,064 | (10) | | 12.3 | % | ||||
| John T. | | 3,714,581 | (11) | | * | |||||
| All | | 95,833,857 | | 15.7 | % | |||||
| 5% Stockholders: | | |||||||||
| Green Equity Investors III, L.P. | | 71,575,628 | (12) | | 12.2 | %(13) | ||||
| 11111 Santa Monica Blvd. Suite 2000 Los Angeles, CA 90025 | | |||||||||
| Putnam Investments, LLC. | | 31,730,492 | (14) | | 6.2 | % | ||||
| One Post Office Space Boston, MA 02109 | | |||||||||
| Putnam Investment Management, LLC | | 28,564,545 | (15) | | 5.5 | % | ||||
| One Post Office Space Boston, MA 02109 | | |||||||||
| ||||||||||
| |
| |
|
| * | Percentage less than 1% of class. |
| (1) | Beneficial ownership has been determined in accordance with Rule 13d-3 under Exchange Act, thereby including options exercisable within 60 days of the Record Date. |
| (2) | This amount includes 71,575,628 shares beneficially owned by Green Equity Investors III, L.P., which is affiliated with Leonard Green & Partners, L.P., of which Mr. Danhakl is a managing director and equity owner. |
| (3) | This amount includes 71,500 shares owned by Mr. Gleason's spouse and 83,334 shares which may be acquired by exercising stock options. |
| (4) | This amount includes 33,334 shares which may be acquired by exercising stock options and 50,000 common shares. |
| (5) | This amount includes 1,472,919 shares which may be acquired by exercising stock options and 19,898 restricted shares. |
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| (6) | This amount includes 7,631,762 shares which may be acquired by exercising stock options and 1,152,329 restricted shares. |
| (7) | This amount includes 375,000 shares which may be acquired by exercising stock options and also includes 55,499 restricted shares, of which 12,166 of such restricted shares have vested as of the Record Date. |
| (8) | This amount includes 5,730,550 shares which may be acquired by exercising stock options and 650,511 restricted shares. |
| (9) | This amount includes 83,334 shares which may be acquired by exercising stock options. |
| (10) | This amount includes 705,436 shares owned jointly by Mr. Sokoloff and his spouse, and 71,575,628 shares beneficially owned by Green Equity Investors III, L.P., which is affiliated with Leonard Green & Partners, L.P., of which Mr. Sokoloff is a managing partner and equity owner. |
| (11) | This amount includes 3,382,463 shares which may be acquired by exercising stock options and 300,118 restricted shares. |
| (12) | Green Equity Investors III, L.P. |
| (13) | Based upon the number of shares outstanding as of the record date and assuming conversion of all Series D Preferred Stock by Green Equity Investors III, L.P. |
| (14) | Putnam Investments, LLC |
| (15) | This amount, which is disclosed in a report on Schedule 13G/A filed on February 14, 2003, includes 28,564,545 shares in respect of which PIM and Putnam share dispositive power. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In fiscal year 2002,2003, Rite Aid paid to J.P. MorganJPMorgan Chase & Co. ("J.P.
Morgan"JPMorgan Chase"), one or its affiliates, fees and other amounts in connection with our financing activities of Rite Aid's lenders and$2,890,275. JPMorgan Chase was a beneficial owner of more than 5% of Common Stock, feesour common stock during fiscal year 2002 and other amounts in connection with the Company's
financing activitiesceased to be a beneficial owner of $15.5 million.
During fiscal 2002,more than 5% of Rite Aid paidcommon stock in fiscal year 2003. JPMorgan Chase is the parent company of J.P. Morgan Securities Inc., an initial purchaser in Rite Aid's February 2003 offering of $300 million aggregate principal amount of 9½% Senior Secured Notes due 2011. JPMorgan Chase Bank is one of Rite Aid's lenders.
Rite Aid has entered into a two-year agreement with Leonard Green & Partners L.P. an annual
fee of $1.5 million and a $2.5 million fee for advisory services in connection
with the financial restructuring transactions that were completed during
fiscal 2002. Leonard Green and Jonathan D. Sokoloff, members of, effective January 1, 2003, whereby Rite Aid's
Board of Directors, are equity owners ofAid has agreed to pay Leonard Green & Partners L.P. a fee of $1,000,000 per year for its consulting services. The consulting agreement also provides for the reimbursement of out-of-pocket expenses incurred by Leonard Green & Partners, L.P. In fiscal 2002,This agreement is an extension of Rite Aid's existing consulting agreement with Leonard Green & Partners, L.P. Pursuant to the Series
B Preferred Stock held by Green Equity Investors III, L.P. was exchanged for
an equal amount of Series D Preferred Stock. The Series D Preferred Stock has
all of the same voting powers, preferences, rights, qualifications, and
limitations as the Series B Preferred Stock, except that the consent of the
holders of the Series D Preferred Stock is not required in order forconsulting agreement, Rite Aid may engage Leonard Green & Partners, L.P. to issue shares of its capital stockprovide financial advisory and investment banking services in connection with major financial transactions that are on parity withit undertakes in the Series D
Preferred Stock with respect to dividends and distributions upon the
liquidation, distribution or winding up of the Company.future. During fiscal year 2003, Rite Aid has agreed to
register the Common Stock issuable upon conversionpaid Leonard Green & Partners, L.P. a consulting fee of the Series D Preferred
Stock$1,166,666. Both John G. Danhakl and to pay all expenses and fees (other than underwriting discounts and
commission) related to any registration.
The law firm of Skadden, Arps, Slate, Meagher & Flom LLP provides legal
services to Rite Aid. Nancy Lieberman,Jonathan D. Sokoloff, each a director of Rite Aid, isare equity
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owners of Leonard Green & Partners, L.P. Leonard I. Green, a partnerdirector of
that law firm. Fees paid by Rite Aid from 1999 until his death in October 2002, was also an equity owner of Leonard Green & Partners, L.P.
On October 11, 2002, Rite Aid entered into a three-year agreement with InfoAcess.net whereby Rite Aid will be providing point of sale data to Skadden, Arps, Slate, Meagher & Flom
LLP did not exceed five percentInfoAccess.net, which customizes reports that it sells to Rite Aid vendors. Rite Aid paid InfoAccess.net an initial set-up fee of $125,000. Shawn Mastrian, the law firm's gross revenues for its last
fiscal year.
On June 15, 2001 and September 1, 2001, executive officers Elliot S. Gerson,
Christopher Hall, David R. Jessick,son of James P. Mastrian, Robert G. Miller, Mary
F. SammonsRite Aid's Senior Executive Vice President, Marketing, Logistics and John T. Standley received loans from the Company aggregating
$72,152, $172,127, $751,126, $72,152, $2,130,182, $1,283,723 and $659,902,
respectively,Pharmacy Services is a Vice President, Strategic Alliances with the largest aggregate principal and interest amountInfoAccess.net. As of such
indebtedness for each executive officer, outstanding at any time during the
loan period, equal to $73,428, $175,555, $766,521, $73,428, $2,173,222,
$1,310,136 and $673,427, respectively. The interest rate on the loans was set
at 4.25% (for loans issued on June 15, 2001) and 3.82% (for loans issued
SeptemberJanuary 1, 2001). The loans were non-recourse loans which were secured
solely by the restricted stock held by the executive officers. The purpose of
the loans was to2003, InfoAccess.net will pay for the income tax consequences arising from the June 15,
2001 and September 1, 2001 vesting of restricted stock held by them. On
December 10, 2001, with the approval of the Executive Committee, the executive
officers surrendered all restricted shares issued to them on June 15, 2001 and
September 1, 2001 in satisfaction of the loans. The value of all the
restricted shares pledged by the executive officers on June 15, 2001 and
September 1, 2001 was roughly equivalent in value to the loans satisfied. The
Executive Committee also approved the payment to David R. Jessick, Robert G.
Miller, Mary F. Sammons and John T. Standley of $96,734, $285,523, $22,926 and
$10,011 respectively, to compensate them for the income tax consequences to
them arising from the surrender of the restricted shares.
Rite Aid a monthly fee based upon a revenue sharing agreement.
STOCKHOLDER PROPOSALS
Proposals received from stockholders are given careful consideration by the Company in accordance with Rules 14a-8 under the Exchange Act. Any Stockholder desiring to present a proposal for inclusion in the Company's Proxy Statement for the 20032004 Annual Meeting of Stockholders of the Company must present the proposal to the Company not later than January 23, 2003.28, 2004. Only those proposals that comply with the requirements of Rule 14a-8 promulgated under the Exchange Act will be included in the Company's Proxy Statement for the 20032004 Annual Meeting. Written notice of stockholder proposals submitted outside the process of Rule 14a-8 for consideration at the 20032004 Annual Meeting of Stockholders (but not included in the Company's Proxy Statement) must be received by the Company by April 8, 200312, 2004 in order to be considered timely, subject to any provisions of the Company's bylaws.By-Laws. The chairmanChairman of the meeting may determine that any proposal for which the Company did not receive timely notice shall not be considered at the meeting. If in the discretion of the Chairman any such proposal is to be considered at the meeting, the persons designated 24
INCORPORATION BY REFERENCE
In accordance with SEC rules, notwithstanding anything to the contrary set forth in any of the Company's previous or future filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate this Proxy Statement or future filings made by the Company under those statutes, the information included under the captions "Report of the Compensation Committee on Executive Compensation," "Audit Committee Report" and "Stock Performance Graph" shall not be deemed filed with the SEC and shall not be deemed incorporated by reference into any of those prior filings or into any future filings made by the Company under those statutes, except to the extent that the Company specifically incorporates these items by reference.
OTHER MATTERS
The Board of Directors knows of no other matters that have been submitted for consideration at this Meeting. If any other matters come before the Stockholders at this Meeting, the persons named on the enclosed proxy intend to vote the shares they represent in accordance with their best judgment.
INDEPENDENT AUDITORS
Deloitte & Touche served as the Company's independent auditors for fiscal year 2003 and the Company's Audit Committee is in the process of negotiating with Deloitte & Touche the terms of an arrangement to audit the consolidated financial statements of the Company and its subsidiaries for fiscal year 2004. A representative of Deloitte & Touche is expected to be present at the meeting, and the representative will have the opportunity to make a statement and will be available to respond to appropriate questions.
SOLICITATION OF PROXIES
The entire 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, internet and personal interviews by officers, directors and regularly engaged employees of the Company. The Company has retained W.F. Doring & Co., Inc.
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to assist in the solicitation of proxies for approximately $5,000, plus out-of-
pocketout-of-pocket expenses. Brokerage houses, custodians, nominees and fiduciaries that receive the solicitation materials 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.
IMPORTANT NOTICE REGARDING DELIVERY
OF STOCKHOLDER DOCUMENTS
The SEC has adopted rules that permit companies and intermediaries such as brokers to satisfy proxy material delivery requirements with respect to two or more stockholders sharing the same address by delivering a single proxy statement and annual report addressed to those stockholders. This process, which is referred to as "householding," potentially provides extra convenience for stockholders and reduces printing and postage costs for companies.
Rite Aid and some brokers utilize the householding process for proxy materials. In accordance with a notice sent to certain Stockholders who share a single address, only one copy of this Proxy Statement and the Company's 2003 Annual Report is being sent to that address, unless we received contrary instructions from any Stockholder at that address. Stockholders who participate in householding will continue to receive separate proxy cards. Householding will continue until you are notified otherwise or until one or more Stockholders at your address revokes consent. If you revoke consent, you will be removed from the householding program within 30 days of receipt of the revocation. If you hold your Rite Aid stock in "street name," additional information regarding householding of proxy materials should be forwarded to you by your broker.
However, if you wish to receive a separate copy of this Proxy Statement or the Company's 2003 Annual Report, or would like to receive separate proxy statements and annual reports in the future, or if you are receiving multiple copies of annual reports and proxy statements at an address shared with another Stockholder and would like to participate in householding, please notify your broker if your shares are held in a brokerage account or us if you hold registered shares. You can notify us by sending a written request to Rite Aid Corporation, 30 Hunter Lane, Camp Hill, Pennsylvania 17011, Attention: Robert B. Sari, Secretary, or by calling the Secretary at (717) 761-2633.
ANNUAL REPORT
A copy of Rite Aid's Annual Report on Form 10-K for fiscal year 20022003 is being mailed to Stockholders together with this Proxy Statement to all Stockholders entitled to notice of and to vote at the Meeting.
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