SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
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Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (As Permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-1
RITE AID CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Notes:
[LOGO OF RITE AID]
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 27, 2001
To Our Stockholders:
What: Our Annual Meeting of Stockholders for Fiscal Year 2001
When: June 27, 2001 at 10:00 a.m., local time
Where: Radisson Penn Harris Hotel & Convention Center
1150 Camp Hill Bypass
Camp Hill, Pennsylvania 17011
Why: At this Annual Meeting, we plan to:
1. Elect two directors to hold office until the 2004 Annual
Meeting of Stockholders and until their respective
successors are duly elected and qualified;
2. Approve an amendment to our Amended Certificate of
Incorporation to increase the number of authorized shares of
common stock from 600,000,000 to 1,000,000,000;
3. Ratify the appointment of Deloitte & Touche LLP as our
independent auditors; and
4. Transact such other business as may properly come before the
Annual Meeting of Stockhold ers or any adjournments or
postponements thereof.
Only stockholders of record at the close of business on May 14, 2001
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
intend 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) 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
Robert B. Sari
Secretary
Camp Hill, Pennsylvania
May , 2001
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 27, 2001
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 2001 Annual Meeting of Stockholders to be held at the
Radisson Penn Harris Hotel & Convention Center, 1150 Camp Hill Bypass, Camp
Hill, Pennsylva nia 17011, on June 27, 2001 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 , 2001 to all holders of our common stock, par value
$1.00 per share ("Common Stock"), and all holders of our 8% Series B
Cumulative Pay-in-Kind Preferred Stock ("Series B Preferred Stock")
(collectively, "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: To elect two directors to hold office until the
2004 Annual Meeting of Stock holders and until
their respective successors are duly elected
and qualified;
Proposal No. 2: To amend our Amended Certificate of
Incorporation to increase the number of
authorized shares of Common Stock from
600,000,000 to 1,000,000,000; and
Proposal No. 3: To ratify the appointment of Deloitte & Touche
LLP as our independent auditors.
In addition, the holders of the Series B Preferred Stock, voting
separately as a class, will vote to elect one director (the "Series B
Preferred Director") to hold office until the 2004 Annual Meeting of
Stockholders and until his successor is duly elected and qualified.
RECORD DATE
Only Stockholders of record at the close of business on May 14,
2001 (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 394,341,787 shares of Common Stock and
3,360,237 shares of Series B Preferred Stock (each of which is entitled to
approximately 18.18 votes per share, or an aggregate of 61,095,218 votes).
QUORUM AND VOTING
The presence at the Meeting, in person or by proxy, of the holders
of 227,718,503 shares (a majority of the aggregate number of shares of
Common Stock and Series B 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. The holders of a
majority of outstanding Series B Preferred Stock as of the Record Date is
necessary to constitute a quorum to elect the Series B Preferred Director.
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 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 B
Preferred Stock as of the Record Date is entitled to approximately 18.18
votes per share (one vote per share of Common Stock issuable upon
conversion of the Series B Preferred Stock). As of the Record Date, the
Series B Preferred Stock was convertible into an aggregate of 61,095,218
shares of Common Stock. The holders of the Common Stock and the Series B
Preferred Stock vote together as a single class, except that the holders of
the Series B Preferred Stock, voting separately as a class, will vote to
elect the Series B 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 B Preferred
Stock, voting together as a single class. Votes may be cast in favor of or
withheld with respect to all of the director nominees, or any of them.
Abstentions and Broker Non-Votes, if any, will not be counted as having
been voted and will have no effect on the outcome on the vote on the
election of directors except to the extent the failure to vote for a
nominee results in another nominee receiving a larger number of votes.
Stockholders may not cumulate votes in the election of directors.
Proposal No. 2 requires the affirmative vote of 227,718,503 shares
(a majority of the total number of votes which the holders of all
outstanding shares of Common Stock and Series B Preferred Stock are
entitled to cast at the Meeting), voting together as a single class.
Proposal No. 3 requires the affirmative vote of a majority of the total
number of votes of the Common Stock and the Series B Preferred Stock
represented and entitled to vote at the meeting.
In determining whether Proposal Nos. 2 and 3 have received the
requisite number of affirmative votes, abstentions and Broker Non-Votes
will be counted and will have the same effect as votes against the
proposals.
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
instruc tions.
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;
Proposal No. 2: FOR the amendment to the Amended Certificate of
Incorporation to increase the number of
authorized shares of Common Stock from
600,000,000 to 1,000,000,000; and
Proposal No. 3: FOR the appointment of Deloitte & Touche LLP as
our independent auditors.
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:
o Delivering a written notice of revocation to the Secretary
of Rite Aid, dated later than the proxy, before the vote is
taken at the Meeting;
o Delivering a duly executed proxy bearing a later date
(including proxy by telephone or via the Internet) before
the vote is taken at the Meeting; or
o Voting in person at the Meeting (your attendance at the
Meeting, in and of itself, will not revoke the proxy).
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.
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, four
directors whose terms expire in 2002 and three directors whose terms expire
in 2003. 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 and the nominee for the Series B
Preferred Director was nominated by the holder of the Series B 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.
DIRECTOR NOMINEES
The Board of Directors has nominated Mary F. Sammons and Leonard N.
Stern 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. Each director elected at the Meeting will hold office until 2004.
As a result of a decision by Mr. Tsai, whose term expires at the Meeting,
not to stand for re-election, effective upon the closing of this Meeting,
and in order to make the number of directors in each class equal, the Board
of Directors asked director Leonard N. Stern, whose term as a director was
due to expire in 2002, to stand for election at this Meeting. The holder of
the Series B Preferred Stock has informed the Company that it will elect
Leonard I. Green as the Series B Preferred Director to hold office until
2004. 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.
The following table sets forth certain information with respect to
the Company's directors and the director nominees as of the Record Date:
Term as
Year First Director
became will
Name Age Position with Rite Aid Director Expire (1)
- ----- --- ---------------------- -------- ----------
Robert G. Miller........................ 57 Chairman and Chief Executive 1999 2002
Officer and Director
William J. Bratton...................... 53 Director 1997 2003
Alfred M. Gleason....................... 71 Director 2000 2002
Leonard I. Green........................ 67 Director 1999 2001
Nancy A. Lieberman...................... 44 Director 1996 2002
Mary F. Sammons......................... 54 President and Chief 1999 2001
Operating Officer and Director
Stuart M. Sloan......................... 57 Director 2000 2003
Jonathan D. Sokoloff.................... 43 Director 1999 2003
Leonard N. Stern........................ 63 Director 1986 2002
Gerald Tsai, Jr......................... 72 Director 1987 2001
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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. If Mr. Stern is elected at the Annual Meeting, his term will expire
in 2004 instead of 2002.
Robert G. Miller. Mr. Miller has been Chairman and Chief Executive
Officer since December 5, 1999. Previously, Mr. Miller served as Vice
Chairman and Chief Operating Officer of The Kroger Company, a retail food
company. Mr. Miller joined Kroger in May 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 Entertainment,
Inc., PathMark Stores, Inc., ScottishPower 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, 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 October 1995 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. Mr. Gleason serves as a Director of Comdial, Inc. and
Tektronix, Inc. and served as a Director of Fred Meyer, Inc. until June
1999.
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. Ms. Sammons has been President and Chief Operating
Officer and a member of Rite Aid's Board of Directors since December 5,
1999. 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 Inc., the last being that of
Executive Vice President. Ms. Sammons is also a director of drugstore.com
and of the National Association of Chain Drug Stores.
Stuart M. 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.
Jonathan D. Sokoloff. Mr. Sokoloff 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. 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 the
October 1999 agreement of Green Equity Investors III, L.P. to purchase
3,000,000 shares of preferred stock of Rite Aid.
Leonard N. Stern. Mr. Stern is Chairman of the Board and Chief
Executive Officer of The Hartz Group, Inc. and affiliated companies, a
position he has held since 1970. These companies are engaged in the
businesses of the manufacture and sale of pet supplies, ownership and
operation of hotels, real estate development and investing. Rite Aid
purchases pet supplies from The Hartz Mountain Corporation, Inc., which was
owned by the Hartz Group, Inc. until December 31, 2000. Mr. Stern is also a
director of Homes for the Homeless, a nonprofit organization.
Gerald Tsai, Jr. Mr. Tsai is a private investor. He is currently
the chairman of Satmark Media Group, an ATM advertising company. From
February 1993 to October 1997, Mr. Tsai was Chairman and Chief Executive
Officer of Delta Life Corporation. Mr. Tsai is also a director of Saks
Incorporated, Triarc Companies, Sequa Corporation, Zenith National
Insurance Corp., IP*Network and United Rentals, Inc.
DIRECTORS' ATTENDANCE AT MEETINGS
The Board of Directors held five regular meetings and four special
meetings during fiscal year 2001. Each incumbent director of the Company
attended at least 75% of the meetings of the Board of Directors and
meetings held by all committees on which such director served, except that
Leonard I. Green attended 25% of the Executive Committee Meetings.
COMMITTEES OF THE BOARD OF DIRECTORS
Executive Committee. The Executive Committee met four times during
fiscal year 2001. The Executive Committee, except as limited by Delaware
law, is empowered to exercise all of the powers of the Board of Directors.
From December 6, 2000, the date of last annual meeting of stockholders, to
January 10, 2001, the members of the Executive Committee were Robert G.
Miller, Leonard I. Green, Nancy A. Lieberman, Leonard N. Stern and Gerald
Tsai, Jr. After January 10, 2001, the members of the Executive Committee
were Robert G. Miller (Chairman), Leonard I. Green, Leonard N. Stern,
Stuart M. Sloan and Alfred M. Gleason.
Audit Committee. The Audit Committee, which held nine meetings
during fiscal year 2001, currently consists of Leonard N. Stern (Chairman),
William J. Bratton, Alfred M. Gleason and Gerald Tsai, Jr. The Audit
Committee:
o oversees management's fulfillment of its financial reporting
and disclosure responsibili ties and its maintenance of
appropriate internal control systems,
o recommends appointment of the Company's independent public
accountants, and
o oversees the activities of the Company's internal audit
function.
The independent public accountants and internal auditors meet with the
Audit Committee with and without the presence of management
representatives.
Compensation Committee. The Compensation Committee, which met one
time during fiscal year 2001, currently consists of Stuart Sloan
(Chairman), Leonard I. Green, Jonathan D. Sokoloff and Nancy A. Lieberman.
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. See "Report of the Compensation
Committee on Executive Compensation."
Nominating Committee. The Nominating Committee did not meet during
fiscal year 2001. Current members of the Nominating Committee are Leonard
I. Green (Chairman), Gerald Tsai, Jr., Jonathan D. Sokoloff and Nancy A.
Lieberman.
DIRECTORS' COMPENSATION
In fiscal year 2001, Rite Aid's non-employee directors received
$1,000 for each 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, Jonathan D. Sokoloff and Nancy A. Lieberman
received no compensation. In fiscal year 2001, each non-employee director,
other than Mr. Green, Mr. Sokoloff and Ms. Lieberman, received 10,989
restricted shares of Common Stock, which had a value of approximately
$50,000 based on the average per share price of the Common Stock over a
three-day period in July of 2000. On January 10, 2001, the same
non-employee directors each received non-qualified stock options to
purchase 100,000 shares of Common Stock under the Rite Aid Omnibus Equity
Plan, with an exercise price of $3.4375. Such options vest ratably over a
three-year period beginning on the first anniversary of the date they were
granted. None of such options vests after the non-employee director ceases
to be a director. 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
AMENDMENT OF RITE AID AMENDED CERTIFICATE OF INCORPORATION TO
INCREASE THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK
Introduction
We are asking Stockholders to approve Proposal No. 2 in connection
with our proposed refinancing of indebtedness which is described below (the
"Refinancing"). Our Board of Directors believes that this Refinancing is in
the best interests of Rite Aid and its Stockholders. In order to complete
the Refinancing as described below, we are required to sell additional
equity, a portion of which we have already sold or committed to sell. We
are asking Stockholders to approve Proposal No. 2 to ensure that we will
have sufficient shares of our authorized Common Stock to raise the
additional equity we are required to obtain. If Proposal No. 2 is not
approved, we believe it will be more difficult to complete a refinancing on
terms we believe are favorable to Rite Aid.
Once the proposed Refinancing is completed, our remaining debt due
before March 2005 will be $152.0 million of our 5.25% convertible
subordinated notes due 2002, $107.8 million of our 6.0% dealer remarketable
securities due 2003, $259.2 million of our 10.5% senior secured notes due
2002 (the "10.5% Notes") and normal amortization of our new credit facility
and other debt. We expect to either issue new debt within the limits
permitted under our new senior credit facility, effect additional exchanges
of equity for our debt and/or use internally generated funds to retire both
the 5.25% notes and the dealer remarketable securities at maturity. We
expect to meet the amortization payments under the new credit facility
using internally generated funds. Funds to repay the 10.5% Notes at
maturity are included in the new credit facility.
Proposed New Senior Credit Facility
On May 15, 2001, Rite Aid received a financing commitment (the
"Refinancing Letter") from Salomon Smith Barney Inc., Citicorp North
America, Inc., The Chase Manhattan Bank, J.P. Morgan Securities Inc.,
Credit Suisse First Boston, Fleet Retail Finance Inc., and Fleet
Securities, Inc. (the "Banks"). The following section summarizes important
terms of the Refinancing Letter.
The Refinancing Letter provides a commitment from the Banks to
provide a new senior secured credit facility (the "Senior Facility") to the
Company in the aggregate principal amount of $1.9 billion, subject to the
terms and conditions described in the Refinancing Letter. The commitments
of the Banks under the Refinancing Letter are conditioned on, among other
things, Rite Aid raising not less than $1.05 billion of gross proceeds from
a combination of additional financings (the "Additional Financings") as
follows:
o gross proceeds of at least $400 million in cash from equity
financings (other than debt for equity swaps) (the
"Additional Equity Financing"); and
o the balance from a combination of debt for equity swaps or
public or private sales of debt securities and/or real
estate financings (the "Additional Debt Financing"),
provided that at least $300 million of such balance consists
of debt for equity swaps (including those effected since
March 3, 2001, other than those effected through the public
exchange offer by Rite Aid in respect of its $156,000,000
5.25% Convertible Subordinated Notes due 2002 and
$110,000,000 6.00% Dealer Remarketable Securities due 2003)
or other equity financings.
The Refinancing Letter provides for Rite Aid to pay costs and
expenses, including commitment fees, in connection with the foregoing
transactions (the "Transactions") in an amount up to approximately $94
million. The commitments in the Refinancing Letter will terminate on August
31, 2001 if definitive agreements for the Senior Facility reasonably
satisfactory to the Banks have not been entered into by that time. The
agent Banks (the "Agents") may terminate the commitments if any event
occurs that, in their reasonable judgment, results or is likely to result
in the failure to satisfy any condition set forth in the Refinancing
Letter, unless, in the judgement of the Agents, such event or condition is
capable of being cured and Rite Aid is working diligently to the
satisfaction of the Agents to effect such a cure.
The Refinancing Letter contemplates (i) a new senior secured
tranche A term loan facility (the "Tranche A Term Facility") in the amount
of $1.4 billion, less the aggregate principal amount outstanding of the
10.5% Notes, after giving effect to a contemplated tender offer by the
Company for such Notes, (ii) a senior secured delayed draw tranche B term
loan facility (the "Tranche B Facility" and, together with the Tranche A
Term Facility, the "Term Facilities") in the amount equal to the aggregate
principal amount outstanding of the 10.5% Notes, after giving effect to our
contemplated tender offer, and (iii) a senior secured revolving credit
facility (the "Revolving Facility") in the amount of $500 million. The
commit ments under the Tranche B Facility will be reduced on a
dollar-for-dollar basis to the extent the outstanding principal amount of
the 10.5% Notes is reduced after the closing of the Refinancing.
Availability under the Senior Facility will be subject to a borrowing base
calculated as percentages of certain receivables and inventory pledged as
collateral. The Refinancing Letter provides for the Senior Facility to be
guaranteed by substantially all of the Company's subsidiaries, and the
lenders under the Senior Facility (the "Senior Lenders") to have a security
interest in substantially all of those subsidiaries' accounts receivable,
prescription files, inventory, intellectual property and certain real
property (including owned fixtures, furnishings and equipments) and other
assets to be agreed.
The Refinancing Letter provides for the interest rate on Term
Facilities and the Revolving Facility to be LIBOR plus a spread of 3.50% or
the highest of (a) Citibank, N.A.'s base rate, (b) the Federal Funds
Effective Rate plus 1/2 of 1% and (c) the Base CD Rate plus 1/2 of 1% (the
"Base Rate") plus a spread of 2.50%. The Company may choose LIBOR or Base
Rate pricing and may elect interest periods of 7 days or 1, 1 1/2, 2, 3 or
6 months for LIBOR borrowings, except that all swing line loans will have
Base Rate pricing.
The Refinancing Letter provides for the Term Facilities and the
Revolving Facility to mature (and all lending commitments under the
Revolving Facility to terminate) on the fourth anniversary of the date on
which definitive documentation for the Senior Facility is executed and
delivered; provided, that to the extent more than $20 million of our
$200,000,000 7.625% Senior Notes due April 15, 2005 remain outstanding on
December 31, 2004, the Term Facilities and the Revolving Facility will
mature (and all lending commitments under the Revolving Facility will
terminate) on March 15, 2005. The Term Facilities will amortize on
schedules to be determined. The Company plans to use funds drawn from the
Senior Facility, the Additional Equity Financings and the Additional Debt
Financings (i) to repay indebtedness, and (ii) to finance working capital
requirements and capital expenditures and for other permitted general
corporate purposes.
The Refinancing Letter provides that the Senior Facility will
contain covenants that are customary for facilities and transactions of
this type and others appropriate to the transaction to be reasonably
specified by the Agents (including exceptions and materiality standards),
which will place restrictions on, among other things, the increase of debt,
the payment of distributions in respect of capital stock, the prepayment of
debt, investments, capital expenditures, mergers, liens, sale-leaseback
transactions and the granting of negative pledges to other creditors, and
will require the Company to meet various financial ratios.
The Refinancing Letter provides that the definitive agreements for
the Senior Facility will contain representations and warranties that are
customary for facilities and transactions of this type and others
appropriate to the transaction to be reasonably specified by the Agents
(including customary exceptions and materiality thresholds).
The Refinancing Letter provides that the Senior Facility will be
subject to mandatory prepayment with the net cash proceeds of sales of
specified assets and sales of capital stock of any subsidiary of Rite Aid
owning any specified assets (other than sales in the ordinary course of
business and other limited exceptions to be agreed upon) and the net cash
proceeds of certain permitted capital markets transactions. In the case of
a mandatory prepayment with proceeds of a capital markets transaction, the
Refinancing Letter provides that, so long as Rite Aid is in compliance with
the borrowing base requirements of the Senior Facility, Rite Aid may use up
to $300 million of proceeds to repay certain outstanding debt and use the
balance of such $300 million for general corporate purposes. Any remaining
proceeds will be split 75% for prepayment of the Term Facilities and 25%
for general corporate purposes. The Refinanc ing Letter contemplates that
the Senior Facility will permit the issuance of certain capital markets
debt, the proceeds of which will not be required to be applied to the
mandatory prepayment, as follows: (a) up to $200 million aggregate
principal amount of secured debt, subordinated only to the Senior Facility
and any remaining 10.5% Notes, with terms and conditions satisfactory to
Senior Lenders holding more than 66 2/3% of the aggregate amount of the
loans and commitments under the Senior Facility and (b) an aggregate
principal amount of debt (which, among other things, has a maturity date
after January 1, 2006 and is limited to a passive second priority lien on
the Senior Facility collateral or to liens on certain real estate) in an
amount not in excess of (x) $300 million plus (y) an amount not in excess
of $140 million, by which the equity financing component (including debt
for equity swaps) of the Additional Financings effected on or prior to the
closing of the Senior Facility exceeds $700 million, provided that not less
than $260 million of the proceeds of such debt are used to refinance
outstanding indebtedness of Rite Aid.
The Refinancing Letter provides that the definitive agreements for
the Senior Facility will contain events of default provisions that are
customary for facilities and transactions of this type and others
appropriate to the transaction to be reasonably specified by the Agents,
including, without limitation:
o failure to pay principal when due and interest or any other
amount within five days of when due;
o representations or warranties materially incorrect when
given;
o failure to comply with covenants (with notice and cure
periods as applicable);
o cross-default to payment defaults on principal aggregating
$25 million, or default or event of default if the effect is
to accelerate or permit acceleration;
o unsatisfied judgment or order in excess of $25 million
individually or of $25 million in the aggregate;
o bankruptcy or insolvency;
o ERISA events;
o change of control or ownership;
o actual invalidity, or invalidity asserted by Rite Aid or any
of its subsidiaries, of any loan document; and
o invalidity, non-perfection or loss of priority of any
material lien (with cure periods as applicable).
The commitments of the Banks are subject to:
o the Agents completing satisfactory due diligence;
o the execution and delivery of definitive documentation with
respect to the Senior Facility on or before August 31, 2001;
o there not having occurred any material adverse change in the
business, assets, operations, properties, condition
(financial or otherwise), contingent liabilities, prospects
or material agreements of Rite Aid and its subsidiaries,
taken as a whole, since March 3, 2001;
o there not having occurred any disruption of or change in
loan syndication, financial, banking or capital market
conditions that, in the reasonable judgment of the Agents,
could materially impair the syndication of the Senior
Facility;
o the accuracy and completeness of all representations that
Rite Aid and its affiliates make to the Agents and all
information that Rite Aid and its affiliates furnish to the
Agents;
o the payment in full of all fees, expenses and other amounts
payable under the Refinanc ing Letter;
o the Agents' reasonable satisfaction with (i) the structure
of the Transactions and all related tax, legal and
accounting matters, (ii) the material terms of the
Transactions and of all agreements and instruments to be
entered into in connection with the Transactions and (iii)
the capitalization, structure and equity ownership of Rite
Aid and its subsidiaries after giving effect to the
Transactions;
o the Agents' satisfaction that Rite Aid is not subject to
material contractual or other material restrictions that
would be violated by the Transactions, including the
granting of perfected first priority security interests and
guarantees and the payment of dividends by subsidiaries;
o the completion of the Additional Financings on substantially
similar terms and conditions as those described in the
Refinancing Letter;
o there not having been any material changes to the five-year
business plan of Rite Aid which has been previously
delivered to the Agents;
o the Agents' receipt of valuations and appraisals of the
collateral by independent appraisal firms satisfactory to
the Agents which valuations and appraisals shall be
satisfactory to the Agents; and
o completion of a field examination of the collateral, the
results of which shall be satisfac tory to the Agents.
Additionally, the Refinancing Letter provides that the initial
borrowing under the Senior Facility will be subject to the following
conditions:
o the completion of the Additional Financings on substantially
similar terms and conditions as those described in the
Refinancing Letter;
o the documentation for the Senior Facility shall have been
executed and delivered and the holders of the remaining
10.5% Notes and the second priority indebtedness shall have
entered into intercreditor agreements, in each case
reasonably satisfactory to the Agents and the Senior
Lenders;
o all specified assets of the Company's subsidiaries shall be
owned by the subsidiaries and the Senior Lenders shall have
a perfected first priority security interest in the
collateral;
o there shall not have been any material changes to the
five-year business plan of the Company which has previously
been delivered to the Agents;
o the borrowing base shall be sufficient to support the
initial borrowings under the Senior Facility and the
administrative agent for the Senior Lenders shall have
received such valuations and appraisals of the borrowing
base by independent appraisal firms as it shall reasonably
request and completed of a field examination of the
collateral, the results of which shall be satisfactory to
the Senior Lenders;
o the Agents and the Senior Lenders shall (i) be reasonably
satisfied as to the amount and nature of any environmental
liabilities and exposures relating to the properties to be
mortgaged, and any employee health and safety liabilities
and exposures to which the Company and its subsidiaries may
be subject and with the plans of the Company with respect
thereto and (ii) have received such information as may
reasonably be requested from an environmental consulting
firm satisfactory to the Agents;
o there shall be no litigation which would (i) have a material
adverse effect on the Com pany and its subsidiaries, taken
as a whole, (ii) affect the legality, validity and
enforceability of the loan documents or (iii) impair the
Company's or its subsidiaries' ability to perform its or
their obligations under the loan documents;
o the Agents shall be reasonably satisfied with the
sufficiency of amounts available under the Senior Facility,
and immediately following the consummation of the
Transactions, actual borrowing availability under the
Revolving Facility will be at least $200 million;
o the consummation of the Transactions, including the Senior
Facility, shall not (a) violate any applicable law, statute,
rule or regulation or (b) conflict with, or result in a
default or event of default or an acceleration of any rights
or benefits under, any material agreement of the Company or
any of its subsidiaries, and the Agents and the Senior
Lenders shall have received one or more legal opinions to
such effect, satisfactory to the Agents, from counsel to the
Company;
o all requisite material governmental authorities and third
parties shall have approved or consented to the transactions
contemplated hereby to the extent required, all applicable
appeal periods shall have expired and there shall be no
governmental or judicial action, actual or threatened, that
could reasonably be expected to restrain, prevent or impose
burdensome conditions on the transactions contemplated by
the Refinancing Letter;
o the absence of any material adverse change in the business,
assets, operations, properties, condition (financial or
otherwise), contingent liabilities, prospects or material
agreements of Rite Aid and its subsidiaries, taken as a
whole, since March 3, 2001;
o the Senior Lenders' satisfaction that the Company and its
subsidiaries are not subject to material contractual or
other restrictions that would be violated by the
contemplated transactions, including the granting of
security interests and guarantees by subsidiaries;
o receipt of mortgage and lien searches with respect to the
real estate collateral reasonably satisfactory to the
Agents;
o the 10.5% Notes shall have been redeemed or defeased or a
tender offer for them shall have been consummated by the
Company on an any or all basis, on terms reasonably
satisfactory to the Agents; and
o other customary closing conditions, including delivery of
satisfactory legal opinions of the Company's and the Agents'
counsel, other financial information; accuracy of
representations and warranties; absence of defaults,
prepayment events or creation of liens under debt
instruments or other agreements as a result of the
contemplated transac tions; evidence of authority;
compliance with applicable laws and regulations; payment of
fees and expenses; and obtaining of satisfactory insurance.
Equity Commitments and Debt Exchanges
Equity for RCF Bank Debt Exchange Agreement
On April 12, 2001, the Company entered into an Equity for Bank Debt
Exchange Agreement with four affiliated institutional investors, which was
amended on April 30, 2001 (as amended, the "Exchange Agreement"). The
following section summarizes important terms of the Exchange Agreement.
Exchange of Bank Debt for Common Stock. The Exchange Agreement
provides for the institu tional investors to exchange in the aggregate
approximately $132.6 million aggregate principal amount of indebtedness
(the "Bank Debt") under the Company's RCF Credit Facility due August 15,
2002 (the "RCF Facility") for 21,216,772 shares of Common Stock (the
"Shares"), which is the number of shares of Common Stock equal to 100% of
the principal amount of the Bank Debt being exchanged divided by 96% of the
Average Price (as defined below) of the Common Stock during the 19
consecutive trading days on the New York Stock Exchange (the "NYSE"),
beginning on April 9 and ending on May 4, 2001 (the "Pricing Period"). For
purposes of the Exchange Agreement, "Average Price" means the sum of the
volume weighted average price (as calculated for the period beginning at
9:30 a.m. New York City time and concluding at 4:00 p.m. New York City
time) per share of Common Stock on the NYSE for each day of the Pricing
Period as reported by Bloomberg Financial LP (using the AQR function)
divided by 19.
Issuance of Series C Preferred Stock if Common Stock not
Registered. The Company has agreed to use its best efforts to file a
registration statement to cover resales of the Shares pursuant to the
Securities Act of 1933, as amended (the "Securities Act"). Pursuant to the
Exchange Agreement, the exchange date (the "Exchange Date") will be deemed
to be the earlier of (x) the date upon which the Shares are registered (the
"Registration Date") for resale under the Securities Act (the "Registration
Exchange Date") and (y) the date upon which the aggregate principal amount
of the RCF Facility is repaid in full (the "Refinancing Exchange Date"). If
the Exchange Date occurs on or before August 20, 2001 and the Exchange Date
is the Registration Exchange Date, the institutional investors will receive
the Shares in the exchange. If the Exchange Date occurs on or before August
20, 2001 and the Exchange Date is the Refinancing Exchange Date, the
institutional investors will instead receive such number of shares of a new
series of preferred stock of the Company titled Series C Convertible
Preferred Stock of the Company (the "Series C Preferred Stock") that will
be convertible into the Shares. If the Exchange Date is the Registration
Date, the Company will not create the Series C Preferred Stock. The Bank
Debt will be held in escrow until the Exchange Date.
Interest Payments on the Bank Debt. On the Exchange Date, whether
such Exchange Date is the Registration Exchange Date or the Refinancing
Exchange Date, the Company will pay the institutional investors the accrued
and unpaid interest on the Bank Debt pursuant to the RCF Facility.
Liquidated Damages. The Exchange Agreement provides that if both
the Exchange Date and the Registration Date occur between August 21, 2001
and November 21, 2001, the Company will pay the institutional investors, as
liquidated damages for the Company's failure to cause the registration
statement covering the Shares to be declared effective by August 21, 2001,
an amount equal to 12% per annum of the Bank Debt minus the Interest Rate
(as defined below) (the "Liquidated Damages Rate") for each day from August
21, 2001 until the Registration Date. If both the Exchange Date and the
Registration Date do not occur by November 21, 2001, then the Liquidated
Damages Rate shall increase to 18% per annum minus the Interest Rate for
each day from November 22, 2001 until both the Exchange Date and the
Registration Date have occurred. For purposes of the Exchange Agreement,
"Interest Rate" means the interest rate payable to holders of Euro-Dollar
Loans pursuant to the RCF Facility except that if the RCF Facility has been
repaid, it means the last interest rate payable prior to the date of
redemption of the RCF Facility.
Terms of the Series C Preferred Stock. The following section
summarizes important terms of the Series C Preferred Stock.
Rank. The Series C Preferred Stock would rank, with respect to
dividend rights and distributions upon the liquidation, winding-up or
dissolution of the Company, (i) senior to all classes of Common Stock of
the Company and to each other class of capital stock that by its terms does
not expressly rank senior to or on a parity with the Series C Preferred
Stock; (ii) on a parity with any additional shares of Series C Preferred
Stock issued by the Company in the future and any other class of capital
stock that by its terms expressly ranks on a parity with the Series C
Preferred Stock; and (iii) junior to the Series B Preferred Stock and any
other class of capital stock that by its terms expressly ranks senior to
the Series C Preferred Stock.
Liquidation Preference. The Certificate of Designations for the
Series C Preferred Stock provides for the Series C Preferred Stock to have
an aggregate liquidation preference of $132.6 million (the "Liquidation
Preference").
Dividends. If the Series C Preferred Stock is issued, the Exchange
Agreement provides that the holders of the Series C Preferred Stock will be
entitled to receive cumulative dividends at the Dividend Rate (as defined
below) on the Liquidation Preference out of funds legally available
therefor, payable quarterly in arrears on each March 31, June 30, September
30 and December 31 or, if any such date is not a business day, on the next
succeeding business day, to the holders of record as of the next preceding
March 15, June 15, September 15 and December 15. "Dividend Rate" means the
last interest rate payable to holders of Euro Dollar Loans pursuant to the
RCF Facility prior to the date of redemption of the RCF Facility, payable
on the same date such holders would have received payments under the RCF
Facility.
Conversion. Each share of Series C Preferred Stock will
automatically convert into ten shares of Common Stock, subject to
adjustment, upon (i) the effectiveness of a registration statement
registering the Shares for resale and (ii) the Company's merger or
consolidation where the Company is not the surviving corporation, or any
sale of all or substantially all of the Company's property, assets or
business.
Voting. Except as otherwise required by law, the holder of each
share of Series C Preferred Stock would be entitled to the number of votes
as is equal to the number of whole shares of Common Stock into which such
holder's shares of Series C Preferred Stock would be converted, at the
record date for determination of the stockholders entitled to vote on such
matters, and would have voting rights and powers equal to the voting rights
and powers of the Common Stock, such votes to be counted together with all
other shares of stock of the Company having general voting power and not
separately as a class.
Event of Default on RCF Facility. If an event of default, as such
term is defined in the RCF Facility, occurs prior to the Exchange Date, the
institutional investors have the option not to consummate the exchange.
Indemnification. The Exchange Agreement provides that the each of
Company and the institutional investor will indemnify the other for damages
resulting from breaches of its representations, warranties or covenants or
arising out of any untrue or allegedly untrue statement of fact contained
in any registration statement or other document incident to the
registration of the Shares.
Stock Purchase Agreement
On May 17, 2001, the Company entered into a Stock Purchase
Agreement (the "Stock Purchase Agreement") with an institutional investor
and certain of its affiliates, which memorialize a prior oral agreement
between the parties. The following section summarizes important terms of
the Stock Purchase Agreement.
Purchase of Common Stock. The Stock Purchase Agreement provides for
the Company to sell the institutional investor and other of its internal
funds who execute a counterpart to the Stock Purchase Agreement (the
"Common Stock Purchasers"), the number of shares of Common Stock that
equals $125 million (the "Investment") divided by the purchase price per
share (the "Purchase Price") equal to 95% of the average of the volume
weighted average price (based on a trading day from 9:30 a.m. to 4:00 p.m.
New York City time) on the NYSE as reported by Bloomberg Financial LP
(using the AQR function) for the Common Stock for each of the 30
consecutive trading days ending on and including the third trading day
prior to the closing date of the Investment (the "Closing Date"), provided
that in no event will the Purchase Price be greater than $5.50. The Common
Stock Purchasers will purchase from the Company an additional $25 million
of Common Stock at $6.50 per share (the "Additional Purchase Price"). If
the Company enters into any agreement with a third party whereby the
Company agrees to sell for cash, and solely for cash, from the date the
Stock Purchase Agreement was executed to the Closing Date, Common Stock or
any security convertible or exchangeable into Common Stock, and such sale
is contingent upon the consummation of the Specified Refinancings (as
defined below), then the Purchase Price shall be adjusted, but only if such
adjustment would result in a lower Purchase Price to the Common Stock
Purchasers, to equal the effective purchase price per share of Common Stock
paid by such third party. No adjustment will be made to the Optional
Purchase Price.
For purposes of the Stock Purchase Agreement, "Specified
Refinancings" means the Company shall have (i) increased the aggregate
principal amount of borrowings available under its existing senior credit
agreement dated as of June 12, 2000 by at least $800 million, or entered
into a new senior credit agreement having aggregate principal amount of
borrowings available under it equal to at least $1.9 billion, and (ii)
extended the maturity of the existing senior credit agreement to, or
entered into a new senior credit agreement with, a maturity date no earlier
than January 1, 2005, or any combination thereof, and, as a result of
which, the Company shall have no more than $400 million of indebtedness for
borrowed money outstanding, which shall not include any such balance that
constitutes an accrued expense or trade payable or the 10.5% Notes, having
a final maturity date earlier than January 1, 2005, on terms and conditions
not materially less favorable to the Company than the terms and conditions
in the Refinancing Letter.
Representations and Warranties. The Stock Purchase Agreement
contains representations and warranties by Rite Aid with respect to, among
other things:
o authorization and enforceability
o capitalization
o legal standing
o financial statements
o SEC filings made on or after October 11, 2000
o undisclosed liabilities
o absence of certain changes
o litigation
o intellectual property
o employee relations
o compliance with laws
o benefit plans
o properties
o contracts and
o environmental matters
These representations and warranties would survive the closing for 180
days.
Conditions to Closing. The obligation of the Common Stock
Purchasers to purchase the Common Stock is conditioned on, among other
things:
o accuracy of Rite Aid's representation and warranties and
compliance by Rite Aid with its covenants in the Stock
Purchase Agreement
o execution of the registration rights agreement
o absence of litigation and legal restraints relating to the
transaction
o receipt of all necessary governmental and third-party
consents and approvals
o no material adverse change relating to Rite Aid since the
execution of the Stock Purchase Agreement and
o completion of the Specified Refinancings on terms not
materially less favorable to the Company terms in the
Refinancing Letter
Registration Rights. Concurrently with the closing, the Company and
the Common Stock Purchasers will enter into a registration rights agreement
providing the Common Stock Purchasers customary piggyback registration
rights and obligating the Company to file a shelf registration statement
within 30 days of the Closing Date and to use its best efforts to have such
registration statement declared effective within 120 days of the Closing
Date.
Exchange of 10.5 % Notes for 12.5% Notes and Warrants
On May 16, the Company entered into an agreement with a holder of
our 10.5% Notes to exchange approximately $152 million aggregate principal
amount of the 10.5% Notes for $152 million aggregate principal amount of a
new issue of Rite Aid 12.5% Senior Secured Notes due September 15, 2006
(the "12.5% Notes"). In connection with the exchange, the holder will
receive 5-year warrants to purchase 3 million shares of Common Stock at an
exercise price of $6.00 per share.
Guarantee and Rank. The 12.5% Notes will have second priority
guarantee by unrestricted subsidiaries, substantially similar to the
guarantee securing the 10.5% Notes, and will rank equally with second
priority debt, substantially similar to the current ranking of 10.5% Notes.
Registration Rights. In the event the holder receives freely
transferable 12.5% Notes, such holder will not be entitled to registration
rights with respect to the 12.5% Notes. In the event the holder receives
restricted 12.5% Notes, the Company will use its best efforts to file
within 120 days after the date of the indenture governing the 12.5% Notes,
a registration statement in order to consummate an exchange offer of
publicly-registered, freely tradeable 12.5% Senior Secured Notes, on terms
substantially identical to the 12.5% Notes, for the 12.5% Notes ("A/B
Exchange Offer"), or a shelf registration if such A/B Exchange Offer is
unavailable. The holder will have customary demand and piggyback
registration rights with respect to the shares underlying the warrants.
Exchange of 10.5% Notes for Common Stock
On April 11, 2001, as amended on May 16, 2001, the Company entered
into an agreement with another holder of 10.5% Notes to exchange $40
million aggregate principal amount of the 10.5% Notes for shares of Common
Stock, which is the number of shares of Common Stock equal to 100% of the
principal amount of the 10.5% Notes being exchanged divided by 95% of the
Average Price (as defined below) of the Common Stock for the 30 consecutive
trading days beginning April 25, 2001 and ending on May 25, 2001. For
purposes of such agreement, "Average Price" means the sum of the average
closing bid price per share of Common Stock on the NYSE for each day
beginning April 25, 2001 and ending on May 25, 2001 divided by 30.
The Company has agreed to use its best efforts to file a
registration statement to cover resales of these shares prior to August 15,
2001.
Liquidated Damages. If the shares of Common Stock are not
registered by August 15, 2001, the Company will pay the holder, as
liquidated damages for the Company's failure to cause the registration
statement covering the shares to be declared effective by August 15, 2001,
an amount in cash equal to .25% of the aggregate principal amount of the
10.5% Notes to be exchanged per month. If the registra tion date does not
occur by November 15, 2001, then the liquidated damages rate shall increase
to .50% per month and shall increase by an additional .25% every third
month, up to a maximum of 2.0%, until the registration statement is
declared effective.
Additional Exchange of RCF Debt for Common Stock
In April and May 2001, other holders of our RCF Credit Facility
agreed to exchange approximately $20.0 million principal amount of
indebtedness under the RCF Credit Facility, and holders of our PCS Credit
Facility agreed to exchange approximately $5.0 million principal amount of
indebtedness under the PCS credit facility, for an aggregate of 3,588,747
shares of our common stock.
Other Issuances of Common Stock
In addition, the Company may from time to time issue additional
shares of Common Stock or issue preferred stock convertible into Common
Stock or warrants exercisable for Common Stock in private placements in
connection with and required by the Refinancing, or otherwise, at prices
and on terms to be determined by the Board of Directors.
How does Proposal No. 2 relate to the Refinancing, and why is stockholder
approval required?
As described above, approval of Proposal No. 2 would increase our
authorized Common Stock and would permit us to issue all of the shares that
we expect we will need to issue, or be authorized to issue, in order to
complete the Refinancing. In addition, the Board of Directors believes that
an increase in the number of authorized shares of Common Stock is desirable
in order to assure that, following any Refinancing, there will be
sufficient authorized shares for a variety of corporate purposes, including
without limitation, in connection with additional financing transactions
and for stock options and other employee benefit plans. Each additional
share of authorized Common Stock would have the same rights and privileges
as each share of currently authorized Common Stock. Delaware law requires
us to obtain stockholder approval of this proposal. Current stockholders do
not have preemptive rights to purchase any shares of our authorized capital
stock. If Proposal No. 2 is approved, the amendment to the Amended
Certificate of Incorporation will be filed with the Secretary of State of
the State of Delaware as soon as practicable after the Meeting.
What are the positive effects of the approval of the proposal?
Positive Effect on Refinancing. If Proposal No. 2 is approved, it
will give us greater flexibility in meeting the requirement to sell
additional equity contained in the Refinancing Letter. In addition, it will
allow us to continue to take advantage of opportunities, as they arise, to
further reduce our debt by exchanging our Common Stock for debt.
What are the negative effects of the approval of the proposal?
Dilution. If Proposal No. 2 is approved, the additional authorized
shares of Common Stock may be issued at such times, to such persons and for
such consideration as the Board of Directors may determine to be in the
Company's best interests without further stockholder approval, except as
otherwise required by statute or stock exchange rules. These issuances
would cause dilution of the equity interests and voting power of our Common
Stockholders.
Anti-takeover Implications. One of the effects of approving an
increase in our authorized Common Stock may be to enable our Board of
Directors to render more difficult or discourage an attempt to obtain
control of Rite Aid, since the additional shares could be issued to
purchasers who support our Board of Directors and are opposed to a
takeover. In addition, by issuing additional shares, we could dilute the
stock ownership of persons seeking to obtain control or otherwise increase
the cost of obtaining control of Rite Aid.
What are the terms of the proposed charter amendment under Proposal No. 2?
If Proposal No. 2 is approved, the first paragraph of Article FOURTH of our
Amended Certificate of Incorporation will read as follows:
FOURTH: the total number of shares of stock which the
corporation shall have authority to issue shall be one billion
twenty million (1,020,000,000) shares of which one billion
(1,000,000,000) shares shall be Common Stock of the par value of
$1.00 per share, and twenty million (20,000,000) shares shall be
preferred stock of the par value $1.00 per share.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE "FOR" PROPOSAL NO. 2
PROPOSAL NO. 3
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT
PUBLIC ACCOUNTANTS
The accounting firm of Deloitte & Touche LLP ("Deloitte & Touche")
has been selected as the independent public accountants for the Company for
the fiscal year ending March 2, 2002. Although the selection of accountants
does not require ratification, the Board of Directors has directed that the
appointment of Deloitte & Touche be submitted to the stockholders for
ratification due to the significance of their appointment by the Company.
If the stockholders do not ratify the appointment of Deloitte & Touche, the
Board of Directors will consider the appointment of other certified public
accountants. A representative of Deloitte & Touche is expected to be
present at the Meeting and will have the opportu nity to make a statement
and will be available to respond to appropriate questions.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
"FOR" THE RATIFICATION OF DELOITTE & TOUCHE LLP AS
THE COMPANY'S INDEPENDENT ACCOUNTANTS FOR 2002
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.
Name Age Position with Rite Aid
- ---- --- ------------------------------------
Robert G. Miller*...................... 57 Chairman and Chief Executive Officer
Mary F. Sammons*....................... 54 Director, President and Chief Operating Officer
David R. Jessick....................... 47 Senior Executive Vice President and Chief Administrative Officer
Elliot S. Gerson....................... 59 Senior Executive Vice President and General Counsel
John T. Standley....................... 39 Senior Executive Vice President and Chief Financial Officer
James P. Mastrian...................... 58 Senior Executive Vice President -- Marketing and Logistics
Christopher Hall....................... 36 Executive Vice President Finance and Accounting
Eric Sorkin............................ 52 Executive Vice President Pharmacy Services
Kevin Twomey........................... 50 Senior Vice President and Chief Accounting Officer
Robert B. Sari......................... 45 Senior Vice President, Deputy General Counsel and Secretary
- ----------------
* Mr. Miller's and Ms. Sammons' biographical information is provided above as a director.
David R. Jessick. Mr. Jessick has been Senior Executive Vice
President and Chief Administrative Officer since December 5, 1999. From
1997 to July 1999, Mr. Jessick served as Executive Vice President of
Finance and Investor Relations of Fred Meyer, Inc. From 1979 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 also served as Secretary from July
1997 to May 2000. Mr. Gerson joined Rite Aid in November 1995 as Senior
Vice President and Assistant Chief Legal Counsel. Prior to joining Rite
Aid, Mr. Gerson was a partner in the law firm of Bolger, Picker, Hankin &
Tannenbaum from May 1993 to November 1995.
John T. Standley. Mr. Standley was appointed Senior Executive Vice
President and Chief Financial Officer of Rite Aid in September 2000. He had
been 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 Chief Financial Officer of Ralphs
Grocery Company between January 1997 and July 1998 and of Food 4 Less
between January 1997 to July 1998. Mr. Standley also served in an executive
position at Smith's Food & Drug 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. Mr. Mastrian was appointed Senior Executive Vice
President, Marketing and Logistics of Rite Aid in October 2000. He had been
Executive Vice President, Marketing 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
September 1990 to June 1997.
Christopher Hall. Mr. Hall has 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.
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.
Eric Sorkin. Mr. Sorkin has been Executive Vice President, Pharmacy
Services since February 2001. From February 2000 to February 2001 he served
as Senior Vice President, Pharmacy, and from May 1997 to February 2000 he
served as Vice President, Pharmacy Purchasing of Rite Aid. Prior to
rejoining Rite Aid in 1997, Mr. Sorkin served in senior positions at
Express Scripts, Pathmark, Thrifty Drugs and Pharmacy Direct Network, and
as President of Sorkin Consulting. In his first 19 years with Rite Aid, he
held executive positions in operations, personnel, third party, information
systems and pharmacy services. Mr. Sorkin has served on pharmacy benefit
management, H.M.O. and pharmaceuti cal manufacturer advisory panels, and on
national and state healthcare and government affairs commit tees.
Kevin 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 wholesaler and grocery store chain. He
was Senior Vice President and Chief Accounting Officer at Fleming when he
left. Prior to joining Fleming, he was an audit partner at Deloitte &
Touche.
Robert B. Sari. Mr. Sari has been Senior Vice President, Deputy
General Counsel and Secretary since October 2000. From May 2000 to October
2000, he served as Deputy General Counsel 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.
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 officer
and the four most highly compensated executive officers who were serving as
executive officers at the end of fiscal year 2001. As used herein, the term
"Named Executive Officers" means all persons identified in the Summary
Compensation Table.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
------------------------------------------ -------------------------------------
Securities
Underlying
Other Annual Restricted Option LTIP All Other
Name and Fiscal Compensa- Stock Grants/ Pay- Compensa-
Principal Position Year Salary (1) Bonus tion Awards (2) SARs outs tion (3)
- ------------------------------ ----- ------------ --------- -------------- ------------ --------- ------ ----------
Robert G. Miller . . . . . . 2001 $1,576,539 $1,268,991 111,100(4) $6,248,438(5) 8,700,000(14) $-- $--
Chairman & Chief
Executive Officer 2000 328,462 -- -- 4,950,000(6) 3,000,000(15) -- 600,000(21)
Mary F. Sammons............... 2001 1,108,846 768,930 -- 5,092,186(7) 6,550,000(16) -- 1,447
Director, President &
Chief Operating Officer 2000 203,076 -- -- 1,650,000(8) 2,000,000(15) -- 200,000(22)
David R. Jessick.............. 2001 812,308 575,192 -- 2,734,946(9) 4,025,000(17) -- 609
Senior Executive Vice
President & Chief Admin-
istrative Officer 2000 158,461 -- -- 825,000(10) 1,000,000(15) -- 150,000(23)
Elliot S. Gerson.............. 2001 576,923 341,106 -- 128,125(11) 491,278(18) - 2,245
Senior Executive Vice
President & General
Counsel 2000 408,393 100,000 -- -- 535,000(19) -- --
1999 375,000 -- -- -- 75,000 -- --
John T. Standley.............. 2001 739,231 528,317 -- 2,734,946(12) 4,025,000(20) -- 85,708
Senior Executive Vice
President and Chief
Financial Officer 2000 135,385 -- -- 825,000(13) 1,000,000(15) -- 150,000(24)
- ---------------------------
(1) Mr. Miller, Ms. Sammons, Mr. Jessick and Mr. Standley commenced
employment with the Company on December 5, 1999. Salary amounts for
Mr. Miller, Ms. Sammons, Mr. Jessick and Mr. Standley include
amounts contributed by Rite Aid to each such executive officer's
account under the Special Deferred Compensation Plan.
(2) Each Named Executive Officer has the right to vote the shares of
restricted stock and to receive any dividends paid on such shares.
(3) "All Other Compensation" includes the following for 2001: For Ms.
Sammons, $1,447 in supplemental life insurance premiums paid by
the Company. For Mr. Jessick, $609 in supplemental life insurance
premiums paid by the Company. For Mr. Gerson, $2,245 in
supplemental life insurance premiums paid by the Company. For Mr.
Standley, $85,617 in moving expenses and $91 in supplemental life
insurance premiums paid by the Company.
(4) Includes $100,424 Mr. Miller received as gross up to cover taxes on
restricted stock granted to him in December 1999 when he commenced
employment.
(5) On June 15, 2000, Mr. Miller was awarded 600,000 shares of
restricted Common Stock; restrictions on 240,000 shares lapse on
June 15, 2001, and restrictions on 120,000 shares lapse on each of
December 15, 2001, June 15, 2002 and December 15, 2002. On November
29, 2000, Mr. Miller was awarded 75,000 shares of restricted Common
Stock; restrictions on 9,375 shares lapse ratably on a quarterly
basis from March 3, 2001 through June 1, 2002, and restrictions on
9,375 shares lapse on each of August 31, 2002 and November 30,
2002. On January 10, 2001, Mr. Miller was awarded 409,091 shares of
restricted Common Stock; restrictions on 163,637 shares will lapse
on June 15, 2001, and restrictions on 81,818 shares will lapse on
each of December 15, 2001, June 15, 2002 and December 15, 2002. At
the end of fiscal year 2001, Mr. Miller held 1,441,383 restricted
shares with an aggregate market value of $8,778,022.
(6) On December 5, 1999, pursuant to his employment agreement with the
Company, Mr. Miller was awarded 600,000 shares of restricted Common
Stock. The restrictions on those shares lapse in thirty- six equal
monthly installments commencing January 7, 2000, unless accelerated
upon a change of control of the Company.
(7) On June 15, 2000, Ms. Sammons was awarded 600,000 shares of
restricted Common Stock; restric tions on 240,000 shares lapse on
June 15, 2001, and restrictions on 120,000 shares lapse on each of
December 15, 2001, June 15, 2002 and December 15, 2002. On November
29, 2000, Ms. Sammons was awarded 75,000 shares of restricted
Common Stock; restrictions on 9,375 shares of Common Stock lapse
ratably on a quarterly basis from March 3, 2001 through June 1,
2002 and restrictions on 9,375 shares lapse on each of August 31,
2002 and November 30, 2002. On January 10, 2001, Ms. Sammons was
awarded 72,727 shares of restricted Common Stock; restrictions on
29,091 shares lapse on June 15, 2001, restrictions on 14,546 shares
lapse on December 15, 2001 and restrictions on 14,545 shares lapse
on each of June 15, 2002 and December 15, 2002. At the end of
fiscal year 2001, Ms. Sammons held 860,574 restricted shares with
an aggregate market value of $5,240,896.
(8) On December 5, 1999, pursuant to her employment agreement with the
Company, Ms. Sammons was awarded 200,000 shares of restricted
Common Stock. The restrictions on those shares lapse in thirty-six
equal monthly installments commencing January 7, 2000, unless
accelerated upon a change of control of the Company.
(9) On June 15, 2000, Mr. Jessick was awarded 336,364 shares of
restricted Common Stock; restrictions on 134,546 shares lapse on
June 15, 2001, and restrictions on 67,273 shares lapse on each of
December 15, 2001, June 15, 2002 and December 15, 2002. On November
29, 2000, Mr. Jessick was awarded 50,000 shares of restricted
Common Stock; restrictions on 6,250 shares of Common Stock lapse
ratably on a quarterly basis from March 3, 2001 through June 1,
2002 and restrictions on 6,250 shares lapse on each of August 31,
2002 and November 30, 2002. At the end of fiscal year 2001, Mr.
Jessick held 441,225 restricted shares with an aggregate market
value of $2,687,060.
(10) On December 5, 1999, pursuant to his employment agreement with the
Company, Mr. Jessick was awarded 100,000 shares of restricted
Common Stock. The restrictions on those shares lapse in thirty-six
equal monthly installments January 7, 2000, unless accelerated upon
a change of control of the Company.
(11) On November 29, 2000, Mr. Gerson was awarded 50,000 shares of
restricted Common Stock; restrictions on 6,250 shares of Common
Stock lapse ratably on a quarterly basis from March 3, 2001 through
June 1, 2002 and restrictions on 6,250 shares lapse on each of
August 31, 2002 and November 30, 2002. At the end of fiscal year
2001, Mr. Gerson held 43,750 restricted shares with an aggregate
market value of $266,437.
(12) On June 15, 2000, Mr. Standley was awarded 336,364 shares of
restricted Common Stock; restrictions on 134,546 shares lapse on
June 15, 2001, and restrictions on 67,273 shares lapse on each of
December 15, 2001, June 15, 2002 and December 15, 2002. On November
29, 2000, Mr. Standley was awarded 50,000 shares of restricted
Common Stock; restrictions on 6,250 shares of Common Stock lapse
ratably on a quarterly basis from March 3, 2001 through June 1,
2002 and restrictions on 6,250 shares lapse on each of August 31,
2002 and November 30, 2002. At the end of fiscal year 2001, Mr.
Standley held 441,225 restricted shares with an aggregate market
value of $2,687,060.
(13) On December 5, 1999, pursuant to his employment agreement with the
Company, Mr. Standley was awarded 100,000 shares of restricted
Common Stock. The restrictions on those shares lapse in thirty- six
equal monthly installments commencing January 7, 2000, unless
accelerated upon a change of control of the Company.
(14) 4,200,000 of these options replace options that were cancelled on
November 20, 2000. For more information, refer to the Option Grants
in Last Fiscal Year and 10-Year Option/SAR Repricing tables on
pages and , respectively.
(15) These options were cancelled on November 20, 2000.
(16) 3,050,000 of these options replace options that were cancelled on
November 20, 2000. For more information, refer to the Option Grants
in Last Fiscal Year and 10-Year Option/SAR Repricing tables on
pages and , respectively.
(17) 1,575,000 of these options replace options that were cancelled on
November 20, 2000. For more information, refer to the Option Grants
in Last Fiscal Year and 10-Year Option/SAR Repricing tables on
pages and , respectively.
(18) 241,278 of these options replace options that were cancelled on
November 20, 2000. For more information, refer to the Option Grants
in Last Fiscal Year and 10-Year Option/SAR Repricing tables on
pages and , respectively.
(19) 241,278 of these options were cancelled on November 20, 2000.
(20) 1,575,000 of these options replace options that were cancelled on
November 20, 2000. For more information, refer to the Option Grants
in Last Fiscal Year and 10-Year Option/SAR Repricing tables on
pages and , respectively.
(21) Represents a guaranteed bonus in the amount of $600,000 paid in
April 2000 in respect of calendar year 1999 to compensate Mr.
Miller for lost bonus opportunities with his prior employer.
(22) Represents a guaranteed bonus in the amount of $200,000 paid in
April 2000 in respect of calendar year 1999 to compensate Ms.
Sammons for lost bonus opportunities with her prior employer.
(23) Represents a guaranteed bonus in the amount of $150,000 paid in
April 2000 in respect of calendar year 1999.
(24) Represents a guaranteed bonus in the amount of $150,000 paid in
April 2000 in respect of calendar year 1999.
OPTION GRANTS IN THE FISCAL YEAR
The following table sets forth certain information regarding
options granted during fiscal year 2001 to the Named Executive Officers,
including options that were granted and cancelled during the fiscal year in
connection with the repricing of such options on November 20, 2000. See
"Ten-Year Option/SAR Repricings" table below.
Number of % of Total
Securities Options Granted Total
Underlying Options to Employees in Exercise Expiration Grant Date
Name Granted Fiscal Year Price (1) Date Present Value (2)
- ------- ------------------- ----------------- ------------ ------------- -----------------
Robert G. Miller.......... 1,200,000(3) 2.5% $6.50 6/29/10 $3,568,948
1,200,000 2.5% $2.75 6/29/10 775,672
3,000,000(4) 6.3% $2.75 12/05/09 1,406,500
4,500,000 9.4% $4.05 2/13/11 8,825,100
Mary F. Sammons........... 2,000,000(4) 4.2% $2.75 12/05/09 937,666
1,050,000(3) 2.2% $6.50 6/29/10 3,122,831
1,050,000 2.2% $2.75 6/29/10 678,712
3,500,000 7.3% $4.05 2/13/11 6,863,966
David R. Jessick.......... 525,000(3) 1.1% $6.50 6/29/10 1,561,416
525,000 1.1% $2.75 6/29/10 339,356
1,000,000(4) 2.1% $2.75 12/05/09 468,833
2,500,000 5.2% $4.05 2/13/11 4,902,833
Elliot S. Gerson.......... 26,278(3) 0.1 % $8.00 1/17/10 111,899
26,278 0.1 % $2.75 1/17/10 14,420
215,000(3) 0.4% $6.50 6/29/10 133,542
215,000 0.4% $2.75 6/29/10 722,195
250,000 0.5% $4.50 2/13/11 490,283
John T. Standley.......... 525,000(3) 1.1% $6.50 6/29/10 1,561,415
525,000 1.1% $2.75 6/29/10 339,356
1,000,000(4) 2.1% $2.75 12/05/09 468,833
2,500,000 5.2% $4.05 2/13/11 4,902,833
- -----------------
(1) All options have an exercise price equal to the fair market value
on the date of grant. Mr. Miller's option for 3,000,000 shares, Ms.
Sammons' option for 2,000,000 shares, Mr. Jessick's option for
1,000,000 shares and Mr. Standley's option for 1,000,000 shares
vest in monthly installments over a 36-month period beginning on
January 5, 2000. Mr. Miller's option for 1,200,000 shares, Ms.
Sammons' option for 1,050,000 shares, Mr. Jessick's option for
525,000 shares and Mr. Standley's option for 525,000 shares vest in
monthly installments over a 29-month period beginning on June 29,
2000. Mr. Miller's option for 4,500,000 shares, Ms. Sammons' option
for 3,500,000 shares, Mr. Jessick's option for 2,500,000 shares,
Mr. Gerson's option for 250,000 shares and Mr. Standley's option
for 2,500,000 shares vest ratably over a three-year period
beginning on the first anniversary of the date the option was
granted. Mr. Gerson's options for 215,000 shares and 26,278 shares
vest ratably over a four-year period beginning on the first
anniversary of the date such options were granted.
(2) 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
hypothesizing an option's present value. Assumptions used to value
the options include the stock's expected volatility rate of 67.17%,
projected dividend yield of 0%, a risk-free rate of return of 6.25%
and projected time of exercise being one year after vesting. The
ultimate realizable value of an option will depend on the actual
market value of the Common Stock on the date of exercise as
compared to the exercise price of the option. Consequently, there
is no assurance that the hypothetical present value of the stock
options reflected in this table will be realized.
(3) These options were cancelled in connection with the repricing of
such options on November 20, 2000 and were replaced with a grant
for the same number of shares as set forth in the next entry on the
table.
(4) These options replace options that were granted on December 5, 1999
with an exercise price of $7.35 that were cancelled in connection
with the repricing of such options on November 20, 2000.
OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table summarizes the value at March 3, 2001 of all
shares subject to options granted to the Named Executive Officers. No
options were exercised during fiscal year 2001.
Number of Securities Value of
Underlying Unexercised In-the-Money Options
Options at Year-End (#) at Year-End ($) (1)
----------------------- -------------------
Shares Value
Acquired on Realized
Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------- ----
Robert G. Miller............. 0 $0 1,497,701 7,202,299 $5,002,321 $18,205,678
Mary F. Sammons.............. 0 0 1,067,433 5,482,567 3,565,226 13,761,773
David R. Jessick............. 0 0 533,716 3,491,284 1,782,615 8,410,885
Elliot S. Gerson............. 0 0 556,252 678,748 273,754 1,405,851
John T. Standley............. 0 0 533,716 3,491,284 1,782,615 8,410,885
- -------------
(1) "In-the-Money" options are options with a base (or exercise) price
less than the market price of the Common Stock on March 3, 2001.
The value of such options is calculated using a stock price of
$6.09, which was the closing price of the Common Stock on the NYSE
on March 2, 2001.
10-YEAR OPTION/SAR REPRICINGS
The following table sets forth, for all executive officers of the
Company, all option repricings during the period March 3, 1991 through
March 3, 2001. During such period, there was one repricing of options with
respect to the options set forth below. See "Report of the Compensation
Committee on Executive Compensation."
Exercise Length of
Number of Market Price Price At Original
Securities of Stock At Time of New Option Term
Underlying Time of Repricing Exer- Remaining At
Options/SARs Repricing Or or Amend- cise Date of
Repriced or Amendment ment Price Repricing Or
Name(1) Date Amended (#) ($) ($) ($) Amendment
Robert G. Miller 11/20/00 3,000,000 $2.75 $7.35 $2.75 9 years
11/20/00 1,200,000 $2.75 $6.50 $2.75 9 years, 7 months
Mary F. Sammons 11/20/00 2,000,000 $2.75 $7.35 $2.75 9 years
11/20/00 1,050,000 $2.75 $6.50 $2.75 9 years, 7 months
David R. Jessick 11/20/00 1,000,000 $2.75 $7.35 $2.75 9 years
11/20/00 525,000 $2.75 $6.50 $2.75 9 years, 7 months
Elliot S. Gerson 11/20/00 215,000 $2.75 $6.50 $2.75 9 years, 7 months
11/20/00 26,278 $2.75 $8.00 $2.75 9 years, 2 months
John T. Standley 11/20/00 1,000,000 $2.75 $7.35 $2.75 9 years
11/20/00 525,000 $2.75 $6.50 $2.75 9 years, 7 months
James P. Mastrain 11/20/00 33,546 $2.75 $7.935 $2.75 9 years, 2 months
11/20/00 300,000 $2.75 $6.50 $2.75 9 years, 7 months
Christopher Hall 11/20/00 350,000 $2.75 $7.00 $2.75 9 years, 2 months
11/20/00 250,000 $2.75 $6.50 $2.75 9 years, 7 months
Eric Sorkin 11/20/00 75,000 $2.75 $5.625 $2.75 9 years, 4 months
11/20/00 235,000 $2.75 $6.50 $2.75 9 years, 7 months
Robert B. Sari 11/20/00 100,000 $2.75 $7.00 $2.75 9 years, 6 months
11/20/00 50,000 $2.75 $6.50 $2.75 9 years, 7 months
Alex Grass(2) 2/7/94 400,000 $18.50 $20.50 $18.50 9 years
Martin Grass(2) 2/7/94 500,000 $18.50 $20.50 $18.50 9 years
Franklin Brown(2) 2/7/94 137,500 $18.50 $20.50 $18.50 9 years
Timothy Noonan(2) 2/7/94 137,500 $18.50 $20.50 $18.50 9 years
Alex Schamroth(2) 2/7/94 137,500 $18.50 $20.50 $18.50 9 years
1 See Executive Officers for titles of the current executive officers.
2 In connection with the consummation by the Company of its "dutch auction"
self tender offer, in which the Company repurchased from its stockholders
an aggregate of 2,077,271 shares of its Common Stock at a purchase price of
$18.50 per share, the Company on February 7, 1994 repriced outstanding
stock options to purchase an aggregate of 2,157,250 shares of its Common
Stock. On the date of such repricing, the closing sale price of the
Company's Common Stock as reported on the NYSE was $18.50. At such time,
Alex Grass was the Chairman and Chief Executive Officer; Martin Grass was
President and Chief Operating Officer; Franklin Brown was Executive Vice
President; Timothy Noonan was Executive Vice President and Alex Schamroth
was Executive Vice President.
THE EXECUTIVE RETIREMENT PLAN
Rite Aid has established the Non-Qualified Executive Retirement
Plan (the "Plan") to provide retirement benefits to long-term employees who
hold a position of executive vice president or higher and to select
executives who may, pursuant to their employment agreements, be deemed to
be long term employ ees. Participants generally are entitled to receive
benefits upon retirement after age 65 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 60%, 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 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.
Mr. Miller, Ms. Sammons, Mr. Jessick and Mr. Standley were credited
with 15 years of service under the Plan effective in December 1999 pursuant
to their employment agreements.
Because it is not possible to determine what the individual annual
base salary and annual bonus of the Named Executive Officers will be
assuming retirement at normal retirement age, we cannot estimate the annual
benefits payable at normal retirement age for each of the Named Executive
Officers. However, by way of example, if each were to have attained normal
retirement age and 20 or more years of credited service under the Plan,
based upon last year's annual salary and annual bonus, it is estimated that
Mr. Miller would be entitled to receive $1,361,395, Ms. Sammons would be
entitled to receive $1,001,034, Mr. Jessick would be entitled to receive
$705,115, Mr. Standley would be entitled to receive $676,990 and Mr. Gerson
would be entitled to receive $504,664 as annual benefits payable upon
retirement.
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, on November 16, 2000, Rite Aid entered into an employment
agreement with Elliot S. Gerson (the "Executives"). Pursuant to their
individual employment agreements:
o Mr. Miller was appointed Chief Executive Officer and elected
as Chairman of the Board of Directors of Rite Aid;
o Ms. Sammons was appointed President and Chief Operating
Officer of Rite Aid and was appointed to Rite Aid's Board of
Directors;
o Mr. Jessick was appointed Senior Executive Vice President
and Chief Administrative Officer;
o Mr. Gerson was appointed Senior Executive Vice President and
General Counsel; and
o Mr. Standley was appointed Executive Vice President and
Chief Financial Officer and is now Senior Executive Vice
President and Chief Financial Officer.
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 second 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. The respective agreements provide each
Executive with a base salary and incentive compensation, including, with
respect to fiscal year 2001:
o Mr. Miller was entitled to receive an annual base salary of
not less than $1,250,000, however, Mr. Miller volunteered to
receive a base salary of not less than $1,000,000. Mr.
Miller received a bonus of $868,991and a special bonus of
$400,000 in recognition of his efforts in connection with
the Company's refinancing efforts in fiscal year 2001, and
he has the opportunity to receive future annual bonuses that
shall equal or exceed his annual base salary then in effect
if Rite Aid's performance meets certain annual target goals
based on the business plan developed by the Executives and
the Board of Directors (the "targets").
o Ms. Sammons was entitled to receive an annual base salary of
not less than $900,000. She received a bonus of $468,390
pursuant to her employment agreement and a special bonus of
$300,000 in connection with the refinancing and in the
future may, if Rite Aid's perfor mance meets the targets,
receive an annual bonus that, if paid, will equal or exceed
75% of her annual base salary then in effect.
o Mr. Jessick's was entitled to receive an annual base salary
of not less than $600,000. He was awarded a bonus of
$275,192 pursuant to his employment agreement and a special
bonus of $300,000 in connection with the refinancing. If
Rite Aid's performance meets the targets, Mr. Jessick will
be paid an annual bonus that will equal or exceed 60% of his
annual base salary then in effect.
o Mr. Gerson's was entitled to receive an annual base salary
of not less than $500,000. He was awarded a bonus of
$191,106 pursuant to his employment agreement and a special
bonus of $150,000 in connection with the refinancing. If
Rite Aid's performance meets the targets, Mr. Gerson will be
paid an annual bonus that will equal or exceed 50% of his
annual base salary then in effect.
o Mr. Standley's was entitled to receive an annual base salary
of not less than $600,000. He was awarded a bonus of
$228,317 pursuant to his employment agreement and a special
bonus of $300,000 in connection with the refinancing. If
Rite Aid's performance meets the targets, Mr. Standley will
be paid an annual bonus that will equal or exceed 50% of his
annual base salary then in effect.
Other 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.
Restricted Stock and Options. Pursuant to their employment
agreements and individual stock option agreements, in December 1999, Mr.
Miller, Ms. Sammons,, Mr. Jessick and Mr. Standley also received awards of
restricted Rite Aid Common Stock and were granted options to purchase
additional Rite Aid Common Stock as follows:
o Mr. Miller was granted an option to purchase 3,000,000
shares of Common Stock and was awarded 600,000 shares of
restricted Common Stock.
o Ms. Sammons was granted an option to purchase 2,000,000
shares of Common Stock and was awarded 200,000 shares of
restricted Common Stock.
o Mr. Jessick was granted an option to purchase 1,000,000
shares of Common Stock and was awarded 100,000 shares of
restricted Common Stock.
o Mr. Standley was granted an option to purchase 1,000,000
shares of Common Stock and was awarded 100,000 shares of
restricted Common Stock.
All of the options granted and restricted Common Stock awarded to each of
such Executives listed above vest in thirty-six equal monthly installments
commencing January 5, 2000.
Other Provisions. Each of Mr. Miller's and Mr. Jessick'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 two persons to serve on the Board of Directors of Rite Aid. Mr.
Miller has made two Board of Directors recommendations to date and as a
result, Alfred Gleason and Stuart Sloan were appointed to the Board of
Directors in January 2000 and June 2000, respectively.
Termination of 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
agreements of such Executives) or by an Executive for "good reason" (as
defined in the employment agreements of such Executives), then the
terminated Executive shall be entitled to receive:
o an amount equal to three times the sum of the individual
Executive's annual base salary and target bonus plus any
accrued but unpaid salary and bonus, with the maximum bonus
that the Executive is eligible to earn being pro-rated
through the date of termination;
o the deferred compensation amounts that would otherwise have
been credited to the Execu tive pursuant to the New Plan (as
defined below) had the Executive continued employment with
Rite Aid through the end of the then-remaining Employment
Period and certain medical benefits; and
o all of the Executive's stock options will immediately vest
and be exercisable for the remainder of their stated terms,
the restrictions on the restricted Common Stock will
immediately lapse and any performance or other conditions
applicable to any other equity incentive awards will be
considered to have been satisfied.
If Mr. Gerson is terminated by Rite Aid "without cause" or by him
for "good reason" (as such terms are defined in his employment agreement),
then he shall be entitled to receive:
o an amount equal to two times the sum of his annual base
salary and target bonus plus any accrued but unpaid salary
and bonus, with the maximum bonus that the Executive is
eligible to earn being pro-rated through the date of
termination; and
o all of his stock options will immediately vest and be
exercisable, generally, for a period of 90 days following
the termination of employment and the restrictions on the
restricted Common Stock will immediately lapse to the extent
his options would have vested and restrictions would have
lapsed had he remained employed by Rite Aid for two years
following the termination.
If Rite Aid terminates any of the Executives "for cause" (as
defined in the employment agreements),
o Rite Aid shall pay him or her all accrued benefits,
o any portion of any then-outstanding stock option grant that
was not exercised prior to the date of termination shall
immediately terminate, and
o any portion of any restricted stock award, or other equity
incentive award, as to which the restrictions have not
lapsed or as to which any other conditions were not
satisfied prior to the date of termination shall be
forfeited.
Under Mr. Miller's, Ms. Sammons's, Mr. Jessick's and Mr. Standley's
employment agreements, any termination of employment by the Executive
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 "good reason." Under Mr. Gerson's employment agreement, upon a "change
in control" of Rite Aid, all of his stock options will immediately vest and
be exercisable and any restrictions on the 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.
Each employment agreement also provides for certain benefits upon
termination of the Executive by reason of death or disability, by Rite Aid
"for cause" or by the Executive other than for "good reason." 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. Gerson, two years, thereafter.
Pursuant to amendments to the employment agreements with Mr. Miller
and Ms. Sammons dated May 7, 2001, the Company has agreed to pay them, as
an additional incentive bonus, the difference between the amount 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. The amendments to the employment agreements provide generally
that the Company will pay such bonuses within five days after January 1,
2002 if the Executive is still employed (or, in Mr. Miller's case, a member
of the Board of Directors) on that date. However, the bonuses will be paid
within five days after an earlier termination of employment (i) by reason
of death or disability, by the Company without "cause" or by the Executive
for "good reason," or (ii) for any reason upon or following a "change in
control" (all as defined in the execu tive's employment agreement).
Finally, in the case of Mr. Miller, the payment will be made before January
1, 2002 within five days after the date he ceases to be both an employee
and a Director (provided he does not cease to be a Director by reason of
either a voluntary resignation or simultaneously with or following his
termination of employment for cause). No bonus payment will be made if the
Executive's employment is terminated for cause before January 1, 2002 and
before a change in control.
If either Executive is paid any of the bonus prior to the final
determination of his or her claim against the prior employer, 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 Mr. Miller's employment is terminated by him without good reason or by
the Company for cause between January 1, 2002 and December 5, 2002, there
has not been a change in control of the Company, and Mr. Miller no longer
serves as a Director (by reason of a voluntary resignation or a removal
simultaneous with an employment termination for cause), Mr. Miller will be
entitled to retain only a portion of the bonus that is prorated for the
number of days between December 5, 1999 and the date of termination.
SPECIAL DEFERRED COMPENSATION PLAN
In addition to the base salary and bonus provisions of the
Executives' employment agreements, Rite Aid established the Special
Deferred Compensation Plan (the "New Plan") for the benefit of select
members of its management team, including Mr. Miller, Ms. Sammons, Mr.
Jessick and Mr. Standley. Under the New Plan, Rite Aid credits a specific
sum to individual accounts established for each of Mr. Miller, Ms. Sammons,
Mr. Jessick and Mr. Standley. The sums are credited 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, generally
they may not receive payments from their accounts until three years after
an election to receive a payment. Each month, $20,000 is credited to Mr.
Miller's account, $15,000 is credited to Ms. Sammons' account and $10,000
is credited to each of Mr. Jessick's and Mr. Standley's account.
Under the New Plan, the Executives are able to direct the
investment of the amounts credited to their individual accounts by
selecting one or more investment vehicles from a group of deemed
investments offered pursuant to the New Plan.
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 executive personnel and develops
and makes recommendations to the Board of Directors with respect to
executive compensation policies. The Compensation Committee is empowered by
the Board of Directors to award to executive officers appropriate bonuses,
stock options, stock appreciation rights ("SARs") and stock-based awards.
The Compensation Committee met one time during fiscal 2001.
The Compensation Committee has access to independent compensation
data and from time to time engages outside compensation consultants. In
fiscal year 2001, the Compensation Committee considered the report of
outside compensation consultants with respect to the issuance of shares of
restricted stock, stock options and bonus arrangements for the executive
officers in fiscal year 2001.
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 executive compensation program is generally composed of base
salary, discretionary performance bonuses and long-term incentives in the
form of stock options, SARs, stock-based awards and restricted stock
awards. The compensation program also includes various benefits, including
the Deferred Compensa tion 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. Standley were individually
negotiated with the 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.
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. In fiscal year 2001,
the Board of Directors amended the Company's 2000 Omnibus Equity Plan to
eliminate the limitation on the number of awards which may be made to an
individual in a single year.
In fiscal year 2001, Mr. Miller was approached by another company
to join such company as its chief executive officer and to bring with him
any other members of Rite Aid's management team he desired. The Board of
Directors considered the impact of the loss of Mr. Miller (and other
executive officers) on, among other things, the Company's relationship with
its vendors, lenders and employees and ability to refinance its outstanding
indebtedness and believed that this management team was best fit to lead
the Company to achieving its goals. In February 2000, the Compensation
Committee developed an economic incentive package for Mr. Miller, Ms.
Sammons, Mr. Jessick, Mr. Gerson and Mr. Standley and other executive
officers as incentive to keep the Company's executive management team in
place. In determining the economic packages, the Compensation Committee
considered the implications of the loss of the deductibility of certain
elements of executive compensation, including, among other things, awards
under the 2000 Omnibus Equity Plan, as amended, and determined that the
Company's current needs and circumstances were more important the future
benefit of the deductibility of such compensation under Section 162(m) of
the Code.
The Compensation Committee is empowered to approve the payment of
cash performance bonuses to employees, including executive officers, of the
Company. During fiscal year 2001, 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 specified goals relating to the Company's earnings before
interest, taxes, depreciation and amortization ("EBITDA") are achieved.
Each year, the Compensation Committee determines an EBITDA goal and a
targeted incentive as a percentage of salary. Depending upon the 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. For fiscal year 2001, the EBITDA goals established
under the Annual Incentive Plan were not achieved. However, at the
direction of the Board of Directors bonuses of 75% of the targeted
incentive were paid in fiscal year 2002 with respect to fiscal year 2001 to
all participants in the Annual Incentive Plan, including the Named
Executive Officers. In addition, the Board of Directors, at the
recommendation of the CEO and review by the outside compensation
consultant, paid a special bonus in fiscal year 2001 to members of senior
management in recognition of their special and extraordinary efforts in
connection with the refinancing of the Company's debt obligations.
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 are granted typically at the prevailing market
price and, therefore, will only have value if the Company's stock price
increases over the exercise price. The Compensation Committee believes that
the grant of stock options and stock-based awards provides a long-term
incentive to such persons to contribute to the growth of the 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. In 2000,
the price of the Company's stock began to decline so that by late 2000 many
of the outstanding options held by the executive officers were out of the
money and consequently provided significantly less value as an incentive.
In November 2000, the Board of Directors, with the unanimous consent of the
Compensation Committee determined that it would be in the Company's
interest to restore the incentive by granting certain new options to the
Named Executive Officers and other members of senior management at the
then current market price and cancelling the same number of options that
had been granted previously to such officers. The vesting schedule of such
options was not changed.
Stuart M. Sloan, Compensation Committee Chairman
Leonard I. Green, Compensation Committee Member
Jonathan D. Sokoloff, Compensation Committee Member
Nancy A. Lieberman, Compensation Committee Member
AUDIT COMMITTEE REPORT
The Board of Directors maintains an Audit Committee comprised of
four of the Company's 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 Audit Committee oversees the Company's financial process on
behalf of the Board of Directors. Management has the primary responsibility
for the financial statements and the reporting process including the
systems of internal controls. In fulfilling its oversight responsibilities,
the Audit Committee reviewed the audited financial statements in the Annual
Report with management including a discussion of the quality, not just the
acceptability, of the accounting principles, the reasonableness of
significant judgments, and the clarity of disclosures in the financial
statements. The Board has adopted a written charter of the Audit Committee,
a copy of which is attached as an Annex A hereto.
The Audit Committee reviewed with the independent auditors, who are
responsible for expressing an opinion on the conformity of the Company's
audited financial statements with generally accepted accounting principles,
their judgments as to the quality, not just the acceptability, of the
Company's accounting principles and such other matters as are required to
be discussed with the Audit Committee under generally accepted auditing
standards, including Statement on Auditing Standards No. 61. In addition,
the Audit Committee has discussed with the independent auditors the
auditors' independence from management and the Company including the
matters in the written disclosures and the letter from the independent
auditors required by the Independence Standards Board, Standard No. 1.
The Audit Committee discussed with the Company's independent
auditors the overall scope and plans for their audit. The Audit Committee
meets with the independent auditors, with and without management present,
to discuss the results of their audit, their evaluation of the Company's
internal controls, and the overall quality of the Company's financial
reporting. The Audit Committee held nine meetings during fiscal year 2001.
The Company incurred the following fees, including expenses billed to the
Company for the fiscal year ended March 3, 2001 by the Company's principal
accounting firm, Deloitte & Touche LLP, member firms of Deloitte Touche
Tohmatsu and their respective affiliates (collectively, "Deloitte &
Touche"):
Audit Fees
Fees for the fiscal year 2001 audit and the reviews of interim
financial statements included in Forms 10-Q were $10.4 million.
Financial Information Systems Design and Implementation Fees
No fees for services were paid related to financial information
systems design and implementation for the fiscal year ended March 3, 2001.
All Other Fees
Aggregate fees billed for all other services rendered by
Deloitte & Touche for the fiscal year ended March 3, 2001 were $10.2 million,
which includes fees for forensic services rendered in connection with the
independent investigation conducted by the Audit Committee, management
consulting services and tax consulting services.
The Audit Committee has considered whether the level of
non-audit services provided by Deloitte & Touche is consistent with
maintaining Deloitte & Touche's independence.
In reliance on the reviews 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's Annual Report on Form 10-K for the fiscal year ended March 3,
2001 for filing with the Securities and Exchange Commission. The Audit
Committee and the Board have also recommended the selection of Deloitte &
Touche as the Company's independent auditors for fiscal year 2002.
Leonard N. Stern, Audit Committee Chairman
William J. Bratton, Audit Committee Member
Alfred M. Gleason, Audit Committee Member
Gerald Tsai,, Jr. Audit Committee Member
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
None of our executive officers, directors or Compensation
Committee members currently serve, or have in the past served, on the
compensation committee of any other company whose directors and executive
officers have served on Rite Aid's Compensation Committee.
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, (ii) the Russell 1000 Index, (iii) the S&P Retail
Stores Composite Index and (iv) the Standard & Poor's 500 Index (the "S&P
500 Index") over the same period (assuming the investment of $100.00 in the
Common Stock and such indexes on March 3, 1996 and reinvestment of
dividends). We discuss in the following paragraph the reasons that we have
determined to change the indexes used in the performance graph.
For comparison of cumulative total return, the Company has
elected to use the Russell 1000 Consumer Staples Index, consisting of 41
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.
In the preceding fiscal year we used the S&P 500 Index and
the S&P Retail Stores Composite Index because Rite Aid was included in
those indexes. Rite Aid is no longer included in those indexes. We will
discontinue showing the performance of the S&P 500 Index and the S&P Retail
Stores Composite Index in the future.
[STOCK PERFORMANCE GRAPH APPEARS HERE]
1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ----
Rite Aid Corporation.......................... $100.00 136.85 213.53 275.94 46.94 41.58
Russell 1000 Consumer Staples Index........... $100.00 132.73 162.24 171.05 129.94 171.54
Russell 1000 Index............................ $100.00 123.65 166.62 196.31 226.35 203.63
S&P Retail Stores Composite Index............. $100.00 120.48 184.30 270.66 260.08 265.56
S&P 500 Index................................. $100.00 125.53 169.45 202.90 226.70 207.18
-------------------------
*The Company's fiscal year ends on the Saturday closest to February 28.
Fiscal year 2001 included 53 weeks and ended on March 3, 2001.
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 2001 no
persons subject to Section 16(a) reporting submitted late filings under
Section 16(a) of the Exchange Act.
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 394,341,787 shares of Common
Stock outstanding as of such date). Each of the persons named below has
sole voting power and sole investment power with respect to the shares set
forth opposite his or her name, except as otherwise noted.
Number of Common
Beneficial Owners Shares Beneficially Percentage
Owned (1) of Class
Executive Officers and Directors:
William J. Bratton................................ 14,889 (2) *
Elliot S. Gerson.................................. 665,004 (3) *
Alfred M. Gleason................................. 106,189 (4) *
Leonard I. Green.................................. 62,089,218 (5) 15.7%
David R. Jessick.................................. 1,243,513 (6) *
Nancy A. Lieberman................................ 7,000 *
Robert G. Miller.................................. 3,773,976 (7) *
Mary F. Sammons................................... 2,437,765 (8) *
Stuart M. Sloan................................... 10,989 *
Jonathan D. Sokoloff.............................. 61,600,654 (9) 15.6%
John T. Standley................................. 1,231,383 (10) *
Leonard N. Stern.................................. 50,989 (11) *
Gerald Tsai, Jr................................... 60,989 (12) *
All executive officers and directors
(18 persons)...................................... 73,415,990 18.3%
*
5% Stockholders:
Green Equity Investors III, L.P....................... 61,095,218 (13) 13.4% (14)
11111 Santa Monica Blvd.
Suite 2000
Los Angeles, CA 90025
J.P. Morgan Chase & Co................................ 38,923,836 (15) 9.8%
60 Wall Street
New York, NY 10260
---------------
* 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 400 shares owned by Mr. Bratton's
wife.
(3) This amount includes 610,002 shares which may be
acquired within 60 days by exercising stock options,
1,002 shares in Mr. Gerson's 401(k) account and 43,750
restricted shares.
(4) This amount includes 16,000 shares owned by Mr.
Gleason's wife.
(5) This amount includes 61,095,218 shares beneficially
owned by Green Equity Investors III, L.P., which is
affiliated with Leonard Green & Partners, L.P., of which
Mr. Green is an executive officer and equity owner,
990,000 shares owned by Verdi Group, Inc., over which
Mr. Green has beneficial ownership. (6) This amount
includes 745,019 shares which may be acquired within 60
days by exercising stock options and 432,892 restricted
shares.
(7) This amount includes 2,079,885 shares which may be
acquired within 60 days by exercising stock options and
1,441,383 restricted shares.
(8) This amount includes 1,490,038 shares which may be
acquired within 60 days by exercising stock options and
843,907 restricted shares.
(9) This amount consists of 61,095,218 shares beneficially
owned by Green Equity Investors III, L.P., which is
affiliated with Leonard Green & Partners, L.P., of which
Mr. Sokoloff is an executive officer and equity owner.
(10) This amount includes 745,019 shares which may be
acquired within 60 days by exercising stock options and
432,892 restricted shares.
(11) This amount includes 2,000 restricted shares.
(12) This amount includes 2,000 restricted shares.
(13) Green Equity Investors III, L.P. beneficially owns
61,095,218 shares of Common Stock. This number
represents the number of shares issuable within 60 days
of the Record Date upon the conversion of convertible
preferred stock.
(14) Based upon the number of shares outstanding as of the
Record Date and assuming conversion of all Class B
Preferred Stock by Green Equity Investors III, L.P.
(15) This amount, as reflected in a report on Schedule 13G/A
dated February 14, 2001and Forms 4 filed on March 12,
March 13 and April 10, 2001 filed by J.P. Morgan Chase &
Co., consists of 38,923,836 shares of Common Stock,
including 2,500,000 shares where there is a right to
acquire, of which the reporting person claims sole
voting and dispositive power over 38,923,836 shares.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In fiscal year 2001, Rite Aid paid to J.P. Morgan Chase & Co.
("J.P. Morgan"), one of Rite Aid's lenders and a beneficial owner of more
than 5% of Common Stock, fees and other amounts in connection with the
Company's financing activities, including the refinancing in June 2000, of
$20.5 million. Rite Aid anticipates paying J. P. Morgan additional fees and
other amounts for services in connection with financing activities
described under "Refinancing Commitment" under Proposal No. 2 and related
transactions in the aggregate of $15.7 million and may pay it additional
compensation for services in connection therewith in amounts to be
determined.
In June 2000, J.P. Morgan and another financial institution
participated in the refinancing of certain Rite Aid debt by agreeing to
purchase $93.2 million of 10.5% senior secured notes due September 2002
when the 5.5% notes matured in December 2000.
In June 2000, certain lenders, including J.P. Morgan Ventures
Corporation, an affiliate of J.P. Morgan, exchanged an aggregate of $284.8
million of their loans outstanding under the PCS credit facility, the RCF
credit facility and a $300.0 million demand note into an aggregate of
51,785,434 shares of our common stock at an exchange rate of $5.50 per
share.
During fiscal year 2001, Rite Aid paid Leonard Green & Partners,
L.P. a $3,000,000 fee for services provided in connection with the
financial restructuring transactions which Rite Aid completed in June 2000
and reimbursed its out-of-pocket expenses. Leonard Green and Jonathan D.
Sokoloff, members of Rite Aid's Board of Directors, are equity owners of
Leonard Green & Partners, L.P. In October 1999, Rite Aid agreed to pay
Leonard Green & Partners, L.P. an annual fee of $1 million for its
consulting services. This fee was increased to $1.5 million at the time of
the June 2000 restructuring transactions. The consulting agreement also
provides for the reimbursement of out-of-pocket expenses incurred by
Leonard Green & Partners, L.P. Rite Aid has agreed to register the Common
Stock issuable upon conversion of the Series B Preferred Stock and to pay
all expenses and fees (other than underwriting discounts and commission)
related to any registration.
The Hartz Mountain Corporation, which was owned and controlled by
Leonard N. Stern, sold merchandise in the ordinary course of business 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.
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. Fees paid by Rite Aid to Skadden, Arps, Slate,
Meagher & Flom LLP did not exceed five percent of the law firm's gross
revenues for its last fiscal year.
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 2002 Annual Meeting of
Stockholders of the Company must present the proposal to the Company not
later than January 29, 2002. 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 2002 Annual Meeting.
Written notice of stockholder proposals submitted outside the process of
Rule 14a-8 for consideration at the 2002 Annual Meeting of Stockholders
(but not included in the Company's Proxy Statement) must be received by the
Company by April 14, 2002 in order to be considered timely, subject to any
provisions of the Company's bylaws. The chairman 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 in the Company's Proxy Statement shall be granted discretionary
authority with respect to the untimely stockholder proposal.
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
During fiscal year 2000, the firm of KPMG LLP ("KPMG") resigned as
independent auditors of the Company because they were unable to continue to
rely on management's representations. The Company then engaged Deloitte &
Touche to replace KPMG as its independent auditors. Attached to this Proxy
Statement as Annex B is a copy of the Form 8-K filed by the Company on
November 11, 1999 and of the Form 8-K/A filed by the Company on December 6,
1999, which were filed with the SEC in connection with the change in the
Company's independent auditors and include letters delivered by KPMG
regarding its disagreement with the Company (the text of the Forms 8-K and
8-K/A and their exhibits is incorporated herein by reference). Since the
filing of the Form 8-K/A on December 6, 1999, the Company has reviewed its
accounting practices and is developing and implementing new internal
accounting systems and controls as its seeks to develop reliable and
adequate systems.
A representative of Deloitte & Touche is expected to be present at
the meeting and will be available to respond to appropriate questions from
the floor and will be afforded an opportunity to make a statement.
SOLICITATION OF PROXIES
The 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. to assist in the solicitation of proxies for
approximately $5,000, plus out-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.
ANNUAL REPORT
A copy of Rite Aid's Annual Report for fiscal year 2001 is being
mailed to Stockholders together with this Proxy Statement to all
Stockholders entitled to notice of and to vote at the Meeting. The
Securities and Exchange Commission allows us to "incorporate by reference"
the information we file with it, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this proxy statement,
and information that we file later with the Securities and Exchange
Commission will automatically update and supersede previously filed
information, including information contained in this document.
We incorporate by reference the documents listed below and any
future filings we will make with the SEC under Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act:
o The following sections of our Annual Report on Form 10-K for
the fiscal year ended March 3, 2001as filed with the SEC on
May , 2001:
--Item 6 "Selected Consolidated Financial Data" beginning on
page __;
--Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations" beginning on page __; and
--Item 8 "Financial Statements" on pages F-1 through F-__.
(The Rest of this Page Intentionally Left Blank)
RITE AID CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. ( )
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSALS
1, 2 AND 3.
1. Election of Directors - - For Withhold For All
Nominees: 01-Mary F. Sammons, 02-Leonard N. Stern All All Except
( ) ( ) ( )
----------------------------------
(Except nominee(s) written above.)
2. Approval of the amendment to our Amended For Against Abstain
Certificate of Incorporation.
( ) ( ) ( )
3. Approval of the appointment of For Against Abstain
Deloitte & Touche LLP
as independent auditors. ( ) ( ) ( )
Dated: , 2001
----------------------------------
-----------------------------------------
Signature of Stockholder
-----------------------------------------
NOTE: When signing as attorney-in-fact,
executor, administrator, trustee or
guardian, please add your title as such,
and if signer is a corporation, please sign
with full corporate name by duly
authorized officer or officers and affix
the corporate seal. Where stock is
issued in the name of two or more
persons, all such persons should sign.
- ----------------------------------------------------------------------------
(triangle) FOLD AND DETACH HERE (triangle)
CONTROL NUMBER
YOU CAN VOTE BY TELEPHONE OR INTERNET!
AVAILABLE 24 HOURS A DAYo 7 DAYS A WEEK
Instead of mailing your proxy, you may choose one of the two voting methods
outlined below to vote your proxy. Have this proxy card in hand when you
vote.
TO VOTE BY PHONE
----------------
(within the U. S. and Canada only)
o Call toll free 1-800-213-3668 from a touch tone telephone. There is
NO CHARGE for this call.
o Enter the six-digit Control Number located above.
Option 1: If you choose to vote as the Board of Directors
recommends on ALL proposals, press 1. When asked,
please confirm your vote by pressing 1 again.
Option 2: If you choose to vote on EACH proposal SEPARATELY,
press 0 and follow the recorded instructions. Your
vote selections will be repeated and you will have an
opportunity to confirm them.
TO VOTE ON THE INTERNET
o Go to the following website: http://www.computershare.com/us/proxy
-------------------------------------
o Enter the information requested on your computer screen, including your
six-digit Control Number located above, then follow the voting
instructions on the screen.
If you vote by telephone or the Internet, DO NOT mail back
this proxy card.
Proxies submitted by telephone or the Internet must be received by 12:00
midnight, Central Daylight Time, June 26, 2001.
THANK YOU FOR VOTING!
PROXY RITE AID CORPORATION PROXY
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS - - JUNE 27, 2001
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Robert G. Miller,
David R. Jessick, Elliot S. Gerson and Robert B. Sari, or any one of them,
as proxies, with full power of substitution, to vote all shares of stock of
Rite Aid Corporation (the "Company") that the undersigned would be entitled
to vote if personally present at the Annual Meeting of Stockholders of the
Company to be held at the Radisson Penn Harris Hotel & Convention Center,
1150 Camp Hill Bypass, Camp Hill, Pennsylvania 17011, at 10:00 a.m., on
June 27, 2001, and at any adjournments or postponements thereof as set
forth below. If applicable, this proxy shall also govern the voting of
stock held for the account of the undersigned in the Company's Investment
Opportunity Plan.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS SPECIFIED, OR,
IF NO SPECIFICATIONS ARE MADE, WILL BE VOTED (I) FOR THE ELECTION OF ALL
THE NOMINEES FOR DIRECTOR, (II) FOR THE APPROVAL OF THE AMENDMENT TO THE
AMENDED CERTIFICATE OF INCORPORATION, (III) FOR THE APPROVAL OF THE
APPOINTMENT OF DELOITTE & TOUCHE LLC AS THE INDEPENDENT AUDITORS, AND (IV)
IN THE NAMED PROXIES' DISCRETION ON ANY OTHER MATTERS AS MAY PROPERLY COME
BEFORE THE MEETING.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF
MEETING AND PROXY STATEMENT FURNISHED HEREWITH, AND HEREBY CONFIRMS THAT
THIS PROXY SHALL BE VALID AND MAY BE VOTED WHETHER OR NOT THE STOCKHOLDER'S
NAME IS SET FORTH BELOW OR A SEAL IS AFFIXED OR THE DESCRIPTION, AUTHORITY
OR CAPACITY OF THE PERSON SIGNING IS GIVEN OR OTHER DEFECT OF SIGNATURE
EXISTS.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY
CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID
ENVELOPE.
(Continued on reverse side.)
- ----------------------------------------------------------------------------
ANNEX A
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS OF RITE AID CORPORATION
1. Purpose. The Audit Committee's purpose is to provide assistance to
the Board of Directors in fulfilling its legal and fiduciary
obligations with respect to matters involving the accounting,
auditing, financial reporting and internal control functions of the
Corporation and its subsidiaries.
2. Composition. The Audit Committee shall be comprised of three or
more directors as determined from time to time by resolution of the
Board of Directors. The Chairman of the Audit Committee shall be
designated by the Board of Directors, provided that if the Board of
Directors does not so designate a Chairman, the members of the
Audit Committee, by majority vote, may designate a Chairman. Each
member of the Audit Committee shall be qualified to serve on the
Audit Committee pursuant to the requirements of the NYSE.
3. Meetings. The Audit Committee shall meet with such frequency and at
such intervals as it shall determine is necessary to carry out its
duties and responsibilities. The Audit Committee, in its
discretion, may ask members of management or others to attend its
meetings (or portions thereof) and to provide pertinent information
as necessary. The Audit Committee shall maintain minutes of its
meetings and records relating to those meetings and provide copies
of such minutes to the Board of Directors.
4. Duties and Responsibilities. In carrying out its duties and
responsibilities, the Audit Committee's policies and procedures
should remain flexible, so that it may be in a position to best
react or respond to changing circumstances or conditions. While
there is no "blueprint" to be followed by the Audit Committee in
carrying out its duties and responsibilities, the following should
be considered within the authority of the Audit Committee:
(a) Make recommendations to the Board of Directors as to the
selection of the firm of independent public accountants to
audit the books and accounts of the Corporation and its
subsidiaries for each fiscal year;
(b) Review and approve the Corporation's independent auditors'
annual engage ment letter, including the proposed fees
contained therein;
(c) Review the performance of the Corporation's independent
auditors and make recommendations to the Board of Directors
regarding the replacement or termination of the independent
auditors when circumstances warrant;
(d) Oversee the independence of the Corporation's independent
auditors by, among other things:
(i) requiring the independent auditors to deliver to the
Audit Committee on a periodic basis a formal written
statement delineating all relation ships between the
independent auditors and the Corporation; and
(ii) actively engaging in a dialogue with the independent
auditors with respect to any disclosed relationships
or services that may impact the objectivity and
independence of the independent auditors and recom
mending that the Board of Directors take appropriate
action to satisfy itself of the auditors'
independence;
(e) Instruct the Corporation's independent auditors that they
are ultimately accountable to the Audit Committee and the
Board of Directors, and that the Audit Committee and the
Board of Directors are responsible for the selection,
evaluation and termination of the Corporation's independent
auditors;
(f) Review and accept, if appropriate, the annual audit plan of
the Corporation's independent auditors, including the scope
of audit activities, and monitor such plan's progress and
results during the year;
(g) Review the results of the year-end audit of the Corporation,
including any comments or recommendations of the
Corporation's independent auditors;
(h) Review with management and the Corporation's independent
auditors such accounting policies (and changes therein) of
the Corporation, including any financial reporting issues
which could have a material impact on the Corpora tion's
financial statements, as are deemed appropriate for review
by the Audit Committee prior to any interim or year-end
filings with the SEC or other regulatory body;
(i) Meet or confer with the independent auditors and management
quarterly to review, prior to filing with the SEC, the
Corporation's interim financial statements to be included in
Quarterly Reports on Form 10-Q and confirm that such
financial statements have been reviewed by the Corporation's
independent auditors;
(j) Review the adequacy and effectiveness of the Corporation's
accounting and internal control policies and procedures
through inquiry and discussions with the Corporation's
independent auditors and management of the Corporation;
(k) Review with management the Corporation's administrative,
operational and accounting internal controls, and evaluate
whether the Corporation is operat ing in accordance with its
prescribed policies, procedures and codes of conduct;
(l) Receive periodic reports from the Corporation's independent
auditors and management of the Corporation to assess the
impact on the Corporation of significant accounting or
financial reporting developments that may have a bearing on
the Corporation;
(m) Establish and maintain free and open means of communication
between and among the Board of Directors, the Audit
Committee, the Corporation's independent auditors, the
Corporation's internal auditing department and management,
including providing such parties with appropriate
opportunities to meet privately with the Audit Committee;
(n) Review and reassess annually the adequacy of the Audit
Committee's charter;
(o) Meet annually with the general counsel, and outside counsel
when appropri ate, to review legal and regulatory matters,
including any matters that may have a material impact on the
financial statements of the Corporation;
(p) Prepare the report required by the rules of the SEC to be
included in the Corporation's annual proxy statement;
(q) Review the Corporation's policies relating to the avoidance
of conflicts of interest and review past or proposed
transactions between the Corporation and members of
management as well as policies and procedures with respect
to officers' expense accounts and perquisites, including the
use of corporate assets. The Audit Committee shall consider
the results of any review of these policies and procedures
by the Corporation's independent auditors;
(r) Obtain from the Corporation's independent auditors any
information pursuant to Section 10A of the Securities
Exchange Act of 1934;
(s) Secure independent expert advice, including retaining
independent counsel, accountants, consultants or others, to
assist the Audit Committee in fulfilling its duties and
responsibilities;
(t) Report regularly to the Board of Directors on its
activities, as appropriate; and
(u) Perform such additional activities, and consider such other
matters, within the scope of its responsibilities, as the
Audit Committee or the Board of Directors deems necessary or
appropriate.
While the Audit Committee has the duties and responsibilities
set forth in this charter, the Audit Committee is not responsible for
planning or conducting the audit or for determining whether the
Corporation's financial statements are complete and accurate and are in
accordance with generally accepted accounting principles. Similarly, it is
not the responsibility of the Audit Committee to resolve disagreements, if
any, between management and the independent auditors or to ensure that the
Corporation complies with all laws and regulations.
ANNEX B
FORM 8-K AND FORM 8-K/A
- ----------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 11, 1999
RITE AID CORPORATION
- ----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-5742 23-1614034
- ----------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
30 Hunter Lane, Camp Hill, Pennsylvania 17011
- ----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (717) 761-2633
- ----------------------------------------------------------------------------
ITEM 4. Changes in Registrant's Certifying Accountant.
On November 11, 1999, the firm of KPMG LLP ("KPMG") orally notified
a member of the Audit Committee and the Registrant of their resignation as
auditors of the Registrant because they were unable to continue to rely on
management's representations.
By letter dated November 11, 1999, KPMG advised the Registrant
that, in light of the Registrant's announcement on October 18, 1999 that
the Registrant is planning to restate its consolidated balance sheets as of
February 27, 1999 and February 28, 1998 and the related consolidated
statements of income, stockholders' equity and cash flows for each of the
years in the three-year period ended February 27, 1999, KPMG's auditors'
report thereon dated May 28, 1999 "should no longer be relied upon." In
addition, KPMG requested that the Registrant advise those persons who have
received a copy of KPMG's report and those persons that the Registrant
believes are relying or are likely to rely on the financial statements to
be restated and the related report "of [KPMG's] notification to [the
Registrant] that the Financial Statements and the Report should no longer
be relied upon." (A copy of this letter is attached as Exhibit 99.1
hereto.) The withdrawn report and KPMG's report on the Registrant's
consolidated financial statements for the fiscal year ended February 28,
1998 did not contain an adverse opinion or a disclaimer of opinion and were
not qualified or modified as to uncertainty, audit scope, or accounting
principles.
On November 2, 1999, the Registrant filed its Quarterly Report on
Form 10-Q for the thirteen and twenty-six weeks ended August 28, 1999,
which included certain restated financial information. KPMG did not audit,
review, or otherwise report on the financial statements included in the
Form 10-Q. In view of KPMG's resignation on November 11, 1999, the
Registrant was not able to resolve to KPMG's satisfaction, prior to their
resignation, the amounts and causes of the restatement adjustments
identified in the Registrant's most recently filed Form 10-Q and the
additional restatement adjustments which may be required with respect to
prior periods not included in that Form 10-Q. KPMG discussed certain of
these matters with members of the Audit Commit tee. The Registrant is
continuing to review its accounting practices for the past several years.
In connection with the audits of the Registrant's consolidated
financial statements for the fiscal years ended February 27, 1999 and
February 28, 1998, and during the subsequent unaudited interim periods
since the most recently ended fiscal year, there were no disagreements with
KPMG on matters of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which, if not resolved to the
satisfaction of KPMG, would have caused KPMG to make reference to the
matter in their report other than as follows:
In connection with the audit of the Registrant's consolidated
financial statements for the fiscal year ended February 27, 1999, KPMG
reported to the Registrant's Audit Committee the following three
disagreements between KPMG and the Registrant:
(1) KPMG disagreed with the Registrant's view that certain
amounts could be reflected as income based upon estimates of
recoveries from vendors.
(2) KPMG disagreed with the Registrant's accounting for certain
deferred costs.
(3) KPMG disagreed with the Registrant's accounting for certain
expenses charged against its acquisition accruals.
With respect to these matters, the Registrant adjusted its
financial statements to record its estimates of the appropriate amounts.
The Registrant has authorized KPMG to respond fully to any
successor independent accounting firm regarding KPMG's audit of the
Registrant's financial statements, the disagreements with the Registrant in
connection therewith, the Reportable Events and KPMG's resignation as
auditors of the Registrant.
At an Audit Committee meeting on June 30, 1999, KPMG delivered a
letter to the Audit Committee dated June 24, 1999 describing the following
material weakness in the Regis trant's internal controls. The letter stated
that the Registrant's internal controls were insufficient to allow the
Registrant's management "to accumulate and reconcile information necessary
to properly record and analyze transactions on a timely basis." The letter
suggested the following actions to "significantly enhance the quality of
[the Registrant's] financial accounting and reporting function": "(a)
adding sufficient qualified accounting personnel, (b) improving the
financial accounting systems, which produce the necessary data, (c)
analyzing the data on a timely basis, and (d) significantly improving
documentation supporting transactions, journal entries, and business
decisions on a timely basis." KPMG has asserted that it informed the
Registrant on June 23, 1999 and the Audit Committee at the June 30, 1999
meeting that, as a result of the issuance of the material weakness letter,
KPMG would not be in a position to issue quarterly review reports until the
matters referred to above were addressed and resolved. In addition, KPMG
has asserted that they informed the Registrant on June 23, 1999 and the
Audit Committee at the June 30, 1999 meeting that KPMG was no longer
willing to rely on representations made by the then serving Chief Financial
Officer. Each member of the Audit Committee and another member of the
Registrant's Board of Directors who attended the June 30, 1999 Audit
Committee meeting deny that any such statements were made at that meeting
or at any other time. The Chief Financial Officer was replaced on July 14,
1999. Subsequent to June 24, 1999, the Registrant has created new positions
in the financial accounting and reporting department and has filled and is
seeking to fill those positions with qualified personnel. The Registrant is
evaluating system needs in order to improve its financial accounting
systems. The Registrant has restructured its accounting and financial
reporting function to strengthen communication and accountability and is
revising its processes and procedures with respect to transactions, journal
entries and approvals to improve the timeliness with which it is able to
document and analyze financial data.
Simultaneously with their resignation on November 11, 1999, KPMG
also advised the member of the Audit Committee and the Registrant that KPMG
had concerns about the amounts the Registrant charged certain vendors
relating to damaged or outdated products. In June 1999, the Registrant
engaged a third party to handle all damaged or outdated products, including
obtaining appropriate refunds, and accordingly, the Registrant is no longer
involved in processing damaged or outdated products. In view of KPMG's
resignation on November 11, 1999, there was no opportu nity for the
Registrant to resolve this matter to KPMG's satisfaction prior to their
resignation.
The Registrant is in the process of engaging new independent
accountants to audit and report on the Registrant's restated consolidated
balance sheets as of February 27, 1999 and February 28, 1998 and the
related restated consolidated statements of income, stockholders' equity
and cash flows for each of the years in the three-year period ended
February 27, 1999. The new independent accountants will also audit the
Registrant's consolidated financial statements for the fiscal year ending
February 26, 2000.
ITEM 5. Other Events
The Registrant has been advised that the Securities and Exchange
Commission has commenced a formal investigation of the Registrant.
ITEM 7. Financial Statements and Exhibits
(c) The following exhibits are filed with this report:
Exhibit Number Description
16.1 Letter of KPMG LLP dated November , 1999*
99.1 Letter of KPMG LLP dated November 11, 1999
- -----------
* To be filed by amendment.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
RITE AID CORPORATION
Date: November 18, 1999 By: /s/ Elliot T. Gerson
----------------------------
Name: Elliot T. Gerson
Title: Senior Executive Vice President,
Secretary and General Counsel
EXHIBIT INDEX
Exhibit Number Description
99.1 Letter of KPMG LLP dated November 11, 1999
Exhibit 99.1
[LETTERHEAD OF KPMG]
BY HAND DELIVERY
November 11, 1999
Board of Directors
Rite Aid Corporation
30 Hunter Lane
Camp Hill, Pennsylvania 17011
Board of Directors:
We have examined the consolidated balance sheets of Rite Aid
Corporation and subsidiaries (the "Company") as of February 27, 1999 and
February 28, 1998 and the related consolidated statements of income,
stockholders' equity and cash flows for each of the years in the three-year
period ended February 27, 1999 (the "Financial Statements") and issued our
auditors' report thereon dated May 28, 1999 (the "Report").
In light of the Company's announcement in its press release dated
October 18, 1999, to the effect that the Company is "planning to restate
its quarterly and annual financial statements for each of its 1999, 1998,
and 1997 fiscal years and for prior years," we cannot continue to be
associated with the Financial Statements. Accordingly, KPMG LLP hereby
advises you that our Report on the Company's Financial Statements should no
longer be relied upon.
We request that to the extent you have not already done so, you
promptly advise those persons who have received a copy of the Report, and
whom you believe are relying on the Financial Statements and the related
Report, or who are likely to rely upon the Financial Statements and the
related Report, of our notification to you that the Financial Statements
and the Report should no longer be relied upon. Further, we ask you to
determine, together with your legal counsel, the disclosure(s) which the
Company should make to the United States Securities and Exchange Commission
and any other regulatory body having jurisdiction over the Company. We
request that you promptly supply us with copies of any notifications you
make pursuant to the request set forth in this paragraph.
Very truly yours,
/s/ KPMG LLP
- ----------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 11, 1999
RITE AID CORPORATION
- ----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-5742 23-1614034
- ----------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
30 Hunter Lane, Camp Hill, Pennsylvania 17011
- ----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (717) 761-2633
- -----------------------------------------------------------------------------
ITEM 7. Financial Statements and Exhibits
(c) The following exhibits are filed with this report:
Exhibit Number Description
16.1 Letter of KPMG LLP dated December 2, 1999
99.1 Letter of KPMG LLP dated November 11, 1999*
- --------------
* Previously filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
RITE AID CORPORATION
Date: December 2, 1999 By: /s/ Elliot T. Gerson
-----------------------
Name: Elliot T. Gerson
Title: Senior Executive Vice President,
Secretary and General Counsel
EXHIBIT 16.1
[LETTERHEAD KPMG]
December 2, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
KPMG LLP ("KPMG") was previously the principal accountants for
Rite Aid Corporation ("Rite Aid" or the "Company") and, under the date of
May 28, 1999, we reported on the consoli dated balance sheets of the
Company and its subsidiaries as of February 27,1999 and February 28, 1998
and the related consolidated statements of income, stockholders' equity and
cash flows for each of the years in the three-year period ended February
27, 1999. On November 11, 1999, we resigned as the Company's principal
accountants. We have read the Company's statements included in Item 4 of
its Form 8-K dated November 18, 1999 ("Item 4"), and we agree with such
statements, except as follows:
KPMG is not in a position to agree or disagree with the
Company's statement in the last sentence of the third paragraph of Item 4.
KPMG disagrees with the Company's statements in the fourth and
fifth sentences of the seventh paragraph of Item 4 to the extent they imply
that KPMG did not communicate the information described in those sentences
to the Company's management. Based on the recollections of the KPMG
personnel who attended the meeting with members of the Company's management
on June 23, 1999, KPMG believes it communicated the information described
in the fourth and fifth sentences to the Company on June 23, 1999.
KPMG is not in a position to agree or disagree with the
statements made by the Company in the sixth sentence of the seventh
paragraph of Item 4, because KPMG is not in a position to know the
recollections of the members of the Company's Audit Committee and the other
member of the Company's Board of Directors who attended the June 30, 1999
Audit Committee meeting. However, the statements made by the Company in the
sixth sentence are inconsistent with the recollections of KPMG personnel
who attended that Audit Committee meeting.
KPMG is not in a position to agree or disagree with the
Company's statements in the eighth, ninth, and tenth sentences of the
seventh paragraph of Item 4, to the effect that the Company is seeking to
fill new positions in its financial accounting and reporting department
with qualified personnel, that the Company is evaluating system needs in
order to improve its financial accounting systems, and that the Company has
restructured its accounting and financial reporting function to strengthen
communication and accountability and is revising its processes and
procedures with respect to transactions, journal entries and approvals to
improve the timeliness with which it is able to document and analyze
financial data.
KPMG is aware that the Company has entered into an agreement
with a third party concerning the third party's handling of damaged and
outdated products, but KPMG is not in a position to agree or disagree with
the Company's statements in the second sentence of the eighth paragraph of
Item 4, to the effect that the third party engaged by the Company will
handle all damaged or outdated products, including obtaining appropriate
refunds, and therefore, the Company will no longer be involved in
processing damaged or outdated products.
KPMG is not in a position to agree or disagree with the
Company's statements in the ninth paragraph of Item 4.
Very truly yours,
/s/ KPMG LLP
Date: December 6, 1999