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Table of ContentsUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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Preliminary Proxy Statement
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Definitive Proxy Statement
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Soliciting Material under §240.14a-12
RITE AID CORPORATION
(Name of Registrant as Specified In Its Charter)
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| | Filed by the RegistrantýRite Aid Corporation
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Filed by a Party other than the Registranto30 Hunter Lane |
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oCamp Hill, Pennsylvania 17011 |
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material under §240.14a-12
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RITE AID CORPORATION |
(Name of Registrant as Specified In Its Charter) |
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ý | LETTER FROM OUR CHAIR
AND CHIEF EXECUTIVE OFFICER |
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| | (1) | | Title of each class of securities to which transaction applies:
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| | (3) | | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
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DEAR FELLOW STOCKHOLDERS:
As we consider the past year, three words consistently rise to the top: Determination, progress and resilience.
We, and the entire Rite Aid Board of Directors, are immensely proud of the more than 50,000 associates that worked through pandemic-related challenges to keep their communities healthy and thriving. Our collective determination to help customers manage through the pandemic, while also transforming our organization, actually accelerated our work to be a demonstrably different company in just one year. Our associates have shown resilience in every aspect of our business, from pivoting daily on COVID-19 testing and vaccines to positioning new brands and merchandise, and keeping stores, distribution centers, mail order facilities and call centers open, all without missing a beat. This determination has been a differentiator for the organization. And so, in a year like no other, we have made significant progress in creating a whole new Rite Aid and setting the foundation for enhanced stockholder value.
We are also pleased to report on our progress aligned with our purpose. We demonstrated that we can deliver on our core mission of keeping our communities healthy and thriving, and at the same time position ourselves for a successful future. Despite the challenges posed by COVID-19, our teams are clear on what needs to be done in Fiscal Year 2022: win today and in the future by creating real health care value, improving consumer engagement, and transforming our work to improve financial performance.
As we move into the second year of implementing our strategic plan, we are focused on:
•
Accelerating our RxEvolution plan:
Our initiatives are focused on three primary areas: 1) Managing Elixir client costs via seamless member engagement and better health outcomes; 2) Unlocking the value of our pharmacists; and 3) Transforming our retail and digital experience. We begin Fiscal Year 2022 with a newly branded and integrated pharmacy benefit manager (PBM) poised to expand its large and growing addressable market, a new retail brand, enhanced store footprint and merchandise assortment, more than 6,400 pharmacists who are whole health advisors serving their communities, and an incredible and energized team. More than ever, we are able to deliver on growth opportunities in retail and pharmacy service segments.
•
Defining Rite Aid as a health care company:
The pandemic validates our conviction that pharmacists are indeed the last mile connectors between the health care system and consumers. Although many may think of Rite Aid as a retailer, we are at our core a health care company, serving more than a million customers every day through our more than 2,500 retail stores, our pharmacy services call center, our mail order and specialty pharmacies, and through clinical and analytical services powered by our subsidiary, Health Dialog. Our personal connection to our customers through our trusted pharmacists is an important part of the future of health care in America. We are committed to fundamentally changing our role in health care and becoming the industry leader in whole health.
LETTER FROM OUR CHAIR AND CHIEF EXECUTIVE OFFICERTable •
Becoming a more efficient operator:In Fiscal Year 2021, we extended all but $91 million of Contentsour calendar 2023 bond maturities to calendar 2025 and 2026, and ended the year with $1.7 billion in liquidity, which gives us ample flexibility to execute our strategic initiatives. As we executed our strategic plan, we increased revenues in both the retail pharmacy and pharmacy services segment, and grew market share
June 7, 2019 in both retail and pharmacy in a highly competitive environment. Additionally, the Company implemented LEAN initiatives both to reduce working capital tied to inventory and improve our retail pharmacists’ productivity. We also reduced back office costs through consolidating administrative functions in our retail and pharmacy services lines of business into a more efficient structure.
•Dear Fellow Stockholders: Enhancing our ESG practices:
We continue to make progress in our ESG efforts, including fleet fuel reduction, decreased energy usage, and our continued progress in eliminating chemicals of concern. In addition, we performed an enterprise climate risk assessment, responded to CDP’s climate change questionnaire, and invested in our associates through numerous program enhancements to keep them engaged. We are proud of the racial, ethnic, and gender diversity of our Board of Directors (88% of whom are racially diverse or female) and our executive leadership team (50% of whom are racially diverse or female), and are expanding our Diversity, Equity and Inclusion efforts in Fiscal Year 2022.
On behalf of the Board of Directors, (the "Board") of Rite Aid Corporation ("Rite Aid" or the "Company"), I want to take this opportunitywe would like to invite you to attend our 2019virtual 2021 Annual Meeting of Stockholders. The meeting will be held at 8:30 a.m., local time, on Wednesday, July 17, 2019, atStockholders, where we plan to share with you the office of Skadden, Arps, Slate Meagher & Flom LLP, Four Times Square, New York, NY 10036. Atprogress we are making toward our vision and strategy for the Company.
Instructions for joining the meeting stockholders will vote on the proposals set forthare contained in the Noticesection of the Proxy Statement titled “Information About the Annual Meeting and the accompanying proxy statement. At Rite Aid, we remain focused on taking actions to best position the Company to create long-term value for stockholders. These include actions to use our unique capabilities to help payors deliver a high level of care to patients, to re-imagine our front end to offer the selection of products and services that meet the needs of our target customers and to transform our processes and procedures to ensure strong cost discipline and achieve peak operational efficiency.
Our actions to create long-term value for stockholders include our efforts to enhance the quality of our Board by bringing in fresh perspectives and valuable expertise and experience. A majority of Rite Aid directors have joined the Board in the past eight months, with Bob Knowling, Lou Miramontes and Arun Nayar joining in October 2018 and Busy Burr and Kate Quinn joining in April 2019. In addition to their wealth of knowledge and experience, these changes to our Board bring a diversity of thought, as well as enhance our Board's gender, racial, and ethnic diversity.
As we have said previously, one of the Board's most important tasks is choosing the Company's Chief Executive Officer. In March, we announced a leadership transition and organizational restructuring to better align the structure and leadership of Rite Aid with its present scale. As part of this transition, we are currently in the process of searching for a new CEO. The Board recognizes the significance of this task and is conducting its process in a thoughtful and deliberate manner.
Both before and since the 2018 Annual Meeting, we have increased our efforts to engage with many of our larger stockholders and we value the input they have provided. In response to votes held at the 2018 Annual Meeting and engagement thereafter, we have enhanced our corporate governance structures by requiring the separation of the Chairman of the Board and CEO positions and by providing stockholders with the right to call special meetings.
With respect to executive compensation, we took steps to further align pay and performance, including increasing the emphasis on performance-based (rather than time-based) long-term incentives for fiscal 2019 and refining our peer group for fiscal 2020 to, among other things, remove industry peers that are no longer appropriate data points given their significantly larger scope of operations.
We continue our efforts to ensure that Rite Aid's business is operated in a sustainable and socially responsible manner. In addition to moving forward on the sustainability and opioid-related reports that stockholders voted for at the 2018 Annual Meeting, in April 2019, we announced enhanced efforts to promote responsible access to tobacco products by increasing the age to purchase tobacco products to 21 and removing e-cigarettes and vaping products chain-wide. We are also continuing to enforce our chain-wide "ID All" policy that requires identification to purchase age-restricted items, including tobacco products. The Board continues to receive reports from management on sustainability and opioid-related matters.
Voting.”
Table of Contents As referenced above and described further in the accompanying proxy statement, we at Rite Aid have taken or are in the process of taking the actions that we said we would take—refreshing our Board, reinvigorating our corporate governance practices and policies, assessing management's performance, aligning pay for performance, overseeing the development of strategic initiatives, and being responsive to issues raised by our stockholders. We look forward to continuing to engageour work with you.
Your vote is important to us. Please vote as soon as possible even if you plan to attend the Annual Meeting. We appreciate your continued ownership ofoutstanding Rite Aid sharesteam to support the needs of our customers and drive growth, improved performance, and stockholder value. Thank you for your support.
investment in Rite Aid.
| | Sincerely, | | | Sincerely, | |
| | | Sincerely, | | | |
|
| BRUCE G. BODAKEN
 |
|
|
Bruce G. Bodaken
ChairmanChair of the Board | | | HEYWARD DONIGAN
President, Chief Executive Officer and Director | |
May 20, 2021
Refer to the section titled
"Cautionary“Cautionary Statement Regarding Forward-Looking
Statements"Statements” for a discussion of risks and uncertainties that could cause actual results to differ materially from those projected.
Growth in market share was measured by IRI, a leading provider of
Contents
RITE AID CORPORATION
P.O. BOX 3165
HARRISBURG, PENNSYLVANIA 17105
market data and analytics, in areas where Rite Aid operates and excludes tobacco, cigarettes, greeting cards, and online sales.
NOTICE
TABLE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on July 17, 2019To Our Stockholders:
CONTENTS
| | | | | | | | Rite Aid Corporation
30 Hunter Lane
Camp Hill, Pennsylvania 17011 | |
| | | | | | NOTICE OF ANNUAL MEETING OF STOCKHOLDERS | | |
| | ![[MISSING IMAGE: tm217739d1-icon_calendarpn.jpg]](https://capedge.com/proxy/DEF 14A/0001104659-21-069882/tm217739d1-icon_calendarpn.jpg) WHEN | | | VIRTUAL MEETING | | | ![[MISSING IMAGE: tm217739d1_ic-pencilpn.jpg]](https://capedge.com/proxy/DEF 14A/0001104659-21-069882/tm217739d1_ic-pencilpn.jpg) RECORD DATE | |
What:
| | Our 2019 Annual Meeting of Stockholders |
When:
| | July 17, 2019 at 8:7, 2021
11:30 a.m., local timeEastern
Daylight Time | | | www.virtualshareholdermeeting.com/RAD2021 | | | Close of business on
May 10, 2021 | |
| | Proposal | | | Board Recommendation | |
Where:
| 1 | Office
| | Election of Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, NY 10036 |
Why:
| | At this Annual Meeting, stockholders will be asked to:
|
| | | | 1.
| | Elect eightnine directors to hold office until the 20202022 Annual Meeting of Stockholders and until their respective successors are duly elected and qualified;
| | | | | | FOR all nominees | |
| | 2 | | | 2. | | RatifyRatification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm;firm | | | | | | FOR | |
| | 3 | | | 3. | | Approve, on an advisory basis,Advisory vote to approve the compensation of our named executive officers as presented in the proxy statement; | | | | | | FOR | |
| | 4 | | | 4. | | Consider and vote on a stockholder proposal, if properly presented at the Annual Meeting; and |
| | | | 5. | | Transact such other business as may properly come before the Annual Meeting or any adjournment or postponementApproval of the Annual Meeting.Rite Aid Corporation Amended and Restated 2020 Omnibus Equity Incentive Plan | | | | | | FOR | |
The close
In addition, we will transact any business properly presented at the meeting, including any adjournment or postponement by or at the direction of business on June 6, 2019 has been fixed as the record date for determining those Rite AidBoard of Directors. For information regarding how to access the list of stockholders entitled to vote at the meeting, see “Information About the Annual Meeting and Voting—Is there a list of stockholders entitled to vote at the Annual Meeting. Accordingly, only stockholders of record at the close of business on that date will receive this notice of, and be eligible to vote at, the Annual Meeting and any adjournment or postponement of the Annual Meeting. The above items of business for the Annual Meeting are more fully describedMeeting?” in the proxy statement accompanying this notice.Proxy Statement.
Your vote is important.VOTING
Please read the proxy statement and the instructions on the enclosed proxy card and then, whether or not you plan to attend the Annual Meeting in person, and no matter how many shares you own, please submitHave your proxy promptly by telephone or via the Internet in accordance with the instructions on the enclosed proxy card or by completing, datingvoting instruction form in hand, with your individual control number, and returning your proxy card infollow the envelope provided. This will not prevent you from voting in person at the Annual Meeting. It will, however, help to assure a quorum and to avoid added proxy solicitation costs.instructions. You may revoke your proxy at any time before the vote is taken by 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 by voting your shares in person at the Annual Meeting, in which case your prior proxy would be disregarded.
| | PHONE | | | INTERNET | | | ![[MISSING IMAGE: tm217739d1_icon-qrreaderpn.jpg]](https://capedge.com/proxy/DEF 14A/0001104659-21-069882/tm217739d1_icon-qrreaderpn.jpg) MOBILE DEVICE | | | ![[MISSING IMAGE: tm217739d1_ic-mailpn.jpg]](https://capedge.com/proxy/DEF 14A/0001104659-21-069882/tm217739d1_ic-mailpn.jpg) MAIL | | | ![[MISSING IMAGE: tm217739d1_ic-chatpn.jpg]](https://capedge.com/proxy/DEF 14A/0001104659-21-069882/tm217739d1_ic-chatpn.jpg) VIRTUAL MEETING | |
| | Call
1-800-690-6903
(toll-free), 24/7 | | | Visit
www.proxyvote.com,
24/7 | | | Scan the
QR code | | | | | | Mark, sign and
date your proxy
card or voting
instruction form
and return it in
the postage-paid
envelope | | | During the virtual
meeting, go to
www.virtualshareholder
meeting.com/RAD2021 | |
| | | IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
STOCKHOLDER MEETING TO BE HELD ON JULY 7, 2021 | | |
| | | | | |
| | | Your vote is important. Please read the Proxy Statement carefully and submit your vote as soon as possible. The Notice of Availability is being mailed and the proxy materials made available on or about May 20, 2021. The proxy statement and annual report, as well as the Company’s proxy card, are available at www.proxyvote.com. | | |
| | | | | | PROXY STATEMENT SUMMARY | | |
This Proxy Statement Summary highlights information contained elsewhere in this Proxy Statement. This summary does not contain all of
Contents
RITE AID CORPORATION
P.O. BOX 3165
HARRISBURG, PENNSYLVANIA 17105
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
To Be Held on July 17, 2019
Important Notice Regarding the Availability ofinformation you should consider, so please read the entire Proxy Materials forStatement carefully before voting. References to “Rite Aid,” “Rite Aid Corporation,” the
Stockholder Meeting to be Held on July 17, 2019:
The “Company,” “we,” “us,” or “our” in this proxy statement and annual report, as well as the Company's proxy card,accompanying notice and letters to stockholders refer to Rite Aid Corporation and/or its affiliates. Rite Aid Corporation, a Delaware corporation, owns multiple subsidiary companies which operate Rite Aid stores and pharmacies and other affiliated companies. The term “affiliates” means direct and indirect subsidiaries of Rite Aid Corporation and partnerships and joint ventures in which such subsidiaries are available at
partners. References herein to “associates” refer to employees of our affiliates.
www.proxyvote.com.
This proxy statement is being furnished to you by the Board of Directors (the "Board"“Board” or "Board“Board of Directors"Directors”) of Rite Aid Corporation (the "Company" or "Rite Aid") to solicit your proxy to vote your shares at our 20192021 Annual Meeting of Stockholders (the "Annual Meeting"“Annual Meeting”). The Annual Meeting will be held on July 17, 20197, 2021 at 8:11:30 a.m., local time,Eastern Daylight Time, by live audio webcast at www.virtualshareholdermeeting.com/RAD2021.
The following proposals will be on the officeagenda for the Annual Meeting:
| | Proposal | | | Board Recommendation | | | See Page | |
| | 1 | | | Election of nine directors to hold office until the 2022 Annual Meeting of Stockholder | | | | | | FOR all nominees | | | | |
| | 2 | | | Ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm | | | | | | FOR | | | | |
| | 3 | | | Advisory vote to approve the compensation of our named executive officers | | | | | | FOR | | | | |
| | 4 | | | Approval of the Rite Aid Corporation Amended and Restated 2020 Omnibus Equity Incentive Plan | | | | | | FOR | | | | |
BUSINESS STRATEGY AND PERFORMANCE IN FY 2021
Rite Aid’s RxEvolution strategy was originally announced on March 16, 2020. Rite Aid strives to fundamentally change our role in health care and become the industry leader in WHOLE HEALTH. Our goal is to engage customers to get beyond healthy and get thriving.
Our strategy is composed of
Skadden, Arps, Slate, Meagher & Flom LLP, Four Times Square, New York, NY 10036. This proxy statement,three main pillars:
RITE AID CORPORATION 2021 Proxy Statement | 1
Rite Aid seeks to deliver a fresh, differentiated experience across all channels by targeting our growth customer—women between the foregoing noticeages of 25 to 49 who take care of themselves, their children, aging parents, and even pets. During the accompanying proxy card are first being mailedpast year, the Company has been building the foundation for an elevated customer experience. Rite Aid has been:
•
establishing supplier relationships focusing on or about June 7, 2019enhancing our assortment of “on-trend” and better for you merchandising;
•
resetting over 75% of front-end sales categories according to our new merchandising standards;
•
delivering new and enhanced product training, tools, and work processes to all holdersin-store associates;
| | | | | |
| | | Customers are taking notice as the look and feel of our stores are refreshed, our merchandising mix evolves to an assortment that best supports whole health, and perhaps most importantly, our trusted neighborhood pharmacists are empowered and qualified to consult not simply on traditional medicines, but alternative remedies as well. We’re seeking to redefine an industry, and aspire to get each one of our customers to thrive.” | | |
| | | —JIM PETERS, Chief Operating Officer | | |
•
leveraging the LEAN methodology to free up pharmacists’ time to consult with our customers on their whole health;
•
modernizing our e-commerce infrastructure and online experience; and
•
physically refreshing the exterior of our common stock, par value $1.00 per share, entitled to votefleet of stores.
This comprehensive approach is aimed at helping customers achieve a level of well-being that goes beyond traditional perceptions of healthy.
Elixir, our pharmacy benefits and services company (PBM), represents a significant growth opportunity for Rite Aid. In the Annual Meeting. Atpast year, we have rebranded the business, built a stronger, integrated offering, and created operational alignment and synergies, positioning the organization for strong growth and improved profitability. We are establishing a clearly differentiated market leader through compelling health care services offerings and outstanding digital engagement, through the connection of over 2,500 Rite Aid retail stores, and over 60 Bartell Drugs retail stores, which Rite Aid acquired in Fiscal Year 2021. Elixir’s primary market differentiator is that it is the only payor-agnostic PBM with a retail pharmacy footprint and a health care analytics and engagement company, Health Dialog.
As a health care company with a retail footprint that operates in many communities throughout the country and engages over one million customers per day through our various lines of business, we believe we are uniquely positioned to continue making a meaningful difference in the lives of our customers, associates, and neighbors.
Keeping Our Communities Safe During the COVID-19 Pandemic
In the face of the unprecedented COVID-19 pandemic, Rite Aid has been on the front lines of health care delivery in many of the hardest-hit cities across America. Our response to this proxy statement, we referglobal crisis is closely tied to our employees as associates.
corporate social responsibility efforts. We were proud to join the QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
White House COVID-19 Response Working Group
Who is entitled in March 2020 and help significantly expand the nation’s self-swab testing capacity. As of April 15, 2021, we had over 1,200 COVID-19 drive-thru testing locations where we offer free COVID-19 testing to vote at the Annual Meeting?anyone over age 4, regardless of symptomatic status.
Holders of
In February 2021, Rite Aid common stock asjoined the Federal Retail Pharmacy Program to provide coronavirus vaccines. At the outset, Rite Aid received federal allocations of the closePfizer and Moderna vaccines in seven jurisdictions. As of business on the record date, June 6, 2019, will receive notice of, and be eligible to vote at, the Annual Meeting and any adjournment or postponement of the Annual Meeting. At the close of business on the record date,April 15, 2021, Rite Aid had outstandingadministered approximately 2.5 million COVID-19 vaccines across 19 jurisdictions in nearly half of our stores and entitled to vote 53,828,701 shares of common stock. No other shares of in nearly 700 clinics, including clinics for vulnerable or underserved populations.
Rite Aid capital stock are entitledalso has undertaken efforts to noticeeducate our communities about COVID-19 testing, vaccine eligibility and availability, vaccine safety, and measures we take to keep our associates, customers, and communities safe through a COVID-19 information resource on our website, at www.riteaid.com/covid-19. Except as stated otherwise, information on our website is not considered part of and to votethis Proxy Statement.
2 | RITE AID CORPORATION 2021 Proxy Statement
Rite Aid associates have been at the Annual Meeting.What matters will be voted on at the Annual Meeting?
There are four proposals that are scheduled to be considered and voted on at the Annual Meeting:
•Proposal No. 1: Elect eight directors to hold office until the 2020 Annual Meeting of Stockholders and until their respective successors are duly elected and qualified;
•Proposal No. 2: Ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm;
•Proposal No. 3: Conduct an advisory vote to approve the compensationheart of our named executive officers as presented in this proxy statement;response to the pandemic, providing communities with the medications, essential supplies, and COVID-19 related information they need.
| | | We have taken numerous steps to ensure that Rite Aid can continue providing these vital services, including: | | |
| | | Serving Associates By: •
Implementing Hero Pay and Hero Bonus programs to show appreciation for the exceptional commitment of Rite Aid associates on the front lines. •
Instituting a temporary administrative leave program for associates who are 65+, at increased risk for severe illness from COVID-19, or not comfortable coming to work. ���
Instituting a temporary Pandemic Pay program that ensures associates are compensated if diagnosed with the virus or quarantined because of exposure. •
Implementing specific internal protocols to keep associates safe and ready to serve customers, including the installation of clear plastic barriers at pharmacy and front-end counters to provide additional protection. •
Providing associates with disposable masks, cloth face coverings, gloves, and face shields to protect them while at work. | | | Serving Customers By: •
Launching Rite Aid Virtual Care, telehealth powered by RediClinic to better serve patient needs. •
Designating a senior shopping hour to limit exposure for older customers or those at increased risk for severe illness. •
Establishing social distancing procedures that include marking floor areas in front of the pharmacy and front-end counters to show six feet of separation. •
Waiving delivery fees for eligible prescriptions. •
Following enhanced cleaning and sanitization protocols designed specifically to prevent the spread of a wide spectrum of viruses, including COVID-19 and influenza. •
Making complimentary masks available to customers. •
Making hand sanitizer and wipes available to customers and associates. | | |
Keeping Our Communities Safe From Opioid Abuse
On September 30, 2019, the Company released a dedicated report describing the Company’s leadership approach to ensuring the appropriate governance and oversight of opioid dispensing, treatment assistance and disposal, which is available on our website at
www.riteaid.com•Proposal No. 4: Consider a stockholder proposal seeking a By-Law amendment for a 10% ownership threshold for stockholders to call special meetings.
Table of Contents
Stockholders will also be asked to consider and vote at under the Annual Meetingheadings “Corporate—Governance—Our Policies—Board Report on any other matter that may properly come before the Annual Meeting or any adjournment or postponement of the Annual Meeting. At this time, the Board of Directors is unaware of any matters, other than those set forth above, that may properly come before the Annual Meeting.
What are the Board's voting recommendations?
Opioids Oversight.” The Board recommendsis committed to ensuring that you vote "FOR" the nomineesCompany is developing solutions to curb prescription opioid abuse through the development and expansion of education, safe prescription drug disposal, and industry leading pharmacy safeguards.
![[MISSING IMAGE: tm217739d2-icon_hlthpn.jpg]](https://capedge.com/proxy/DEF 14A/0001104659-21-069882/tm217739d2-icon_hlthpn.jpg)
Improving the Board Health and Wellbeing of Our Communities
| | | | | | | | | | | | | | | |
| | 77,000+ Naloxone Rx | | | | #3 Ranking | | | | 93,000 DisposeRx Packets | | | | 630+ Safe Disposal Kiosks | |
| | prescriptions dispensed to help address the opioid crisis | | | | in large chain overall performance for Medication Therapy Management Services by OutcomesMTM | | | | given out in Rite Aid stores | | | | installed in law enforcement facilities in our communities through support of The Rite Aid Foundation | |
RITE AID CORPORATION 2021 Proxy Statement | 3
Fiscal Year 2021 Performance and Operational Highlights2
| | | | | | | | | | | | | | | |
| | $24.0B Total Revenue | | | | $437.7M Adjusted EBITDA | | | | $1.7B Total Liquidity | | | | 9.6% Total Revenue Growth | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 450K Average Daily
Prescriptions | | | | 6,400 Pharmacists Serving
Our Communities | | | | 2,500 Retail Pharmacy Locations across 17 States | | | | 3.3M Elixir Members | |
STOCKHOLDER ENGAGEMENT EFFORTS
We regularly seek the election of directors, "FOR" the ratification of Deloitte & Touche LLP as the Company's independent registered public accounting firm, "FOR" the approval, on an advisory basis, of the compensationperspectives of our named executive officers as presented in this proxy statement, and "AGAINST" the stockholder proposal.What is the difference between holding shares as a stockholder of record and as a beneficial owner?
If your shares are registered directly in your name with our transfer agent, Broadridge Corporate Issuer Services, you are considered the "stockholder of record" with respect to those shares.
If your shares are held in a stock brokerage account or by a bank or other nominee, those shares are held in "street name" and you are considered the "beneficial owner" of the shares. As the beneficial owner of those shares, you have the right to direct your broker, bank, or nominee how to vote your shares, and you will receive separate instructions from your broker, bank, or other holder of record describing how to vote your shares.
How can I vote my shares before the Annual Meeting?
If you hold your shares in your own name, you may submit a proxy by telephone, via the Internet, or by mail.
•Submitting a Proxy by Telephone: You can submit a proxy for your shares by telephone until 11:59 p.m. Eastern Daylight Time on July 16, 2019, by calling the toll-free telephone number on the enclosed proxy card, 1-800-690-6903. Telephone proxy submission is available 24 hours a day. Easy-to-follow voice prompts allow you to submit a proxy for your shares and confirm that your instructions have been properly recorded. Our telephone proxy submission procedures are designed to authenticate stockholders' identities by using individual control numbers.
•Submitting a Proxy via the Internet: You can submit a proxy for your shares via the Internet until 11:59 p.m. Eastern Daylight Time on July 16, 2019, by accessing the website listed on the enclosed proxy card,www.proxyvote.com, and following the instructions you will find on the website. Internet proxy submission is available 24 hours a day. As with telephone proxy submission, you will be given the opportunity to confirm that your instructions have been properly recorded.
•Submitting a Proxy by Mail: If you choose to submit a proxy for your shares by mail, simply mark the enclosed proxy card, date and sign it, and return it in the postage paid envelope provided.
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. You may also attend the Annual Meeting and vote in person.
If your shares are held in the name of a bank, broker, or other nominee, you will receive instructions from the holder of record that you must follow for your shares to be voted. The availability of telephonic or Internet voting will depend on the bank's, broker's, or other nominee's voting process. Please check with your bank, broker, or other nominee and follow the voting procedures your bank, broker, or other nominee provides to vote your shares. Also, please note that if the holder of record of
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your shares is a bank, broker, or other nominee and you wish to vote in person at the Annual Meeting, you must request a legal proxy from your bank, broker, or other nominee that holds your shares and present that proxy and proof of identification at the Annual Meeting; otherwise, you will not be able to vote in person at the Annual Meeting.
If I am the beneficial owner of shares held in "street name" by my broker, will my broker automatically vote my shares for me?
New York Stock Exchange ("NYSE") rules applicable to brokers grant your broker discretionary authority to vote your shares without receiving your instructions on certain matters. Your broker has discretionary voting authority under NYSE rules to vote your shares on the ratification of Deloitte & Touche LLP as our independent registered public accounting firm. However, unless you provide voting instructions to your broker, your broker does not have discretionary authority to vote on the election of directors, the advisory vote on the compensation of our named executive officers, and the vote on the stockholder proposal.Accordingly, it is particularly important that beneficial owners instruct their brokers how they wish to vote their shares.
How will my shares be voted if I give my proxy but do not specify how my shares should be voted?
If you provide specific voting instructions, your shares will be voted at the Annual Meeting in accordance with your instructions. If you hold shares in your name and sign and return a proxy card without giving specific voting instructions, your shares will be voted "FOR" the nominees of the Board in the election of directors, "FOR" the ratification of Deloitte & Touche LLP as the Company's independent registered public accounting firm, "FOR" the approval, on an advisory basis, of the compensation of our named executive officers, and "AGAINST" the stockholder proposal.
Could other matters be decided at the Annual Meeting?
At this time, we are unaware of any matters, other than those set forth above, that may properly come before the Annual Meeting. If any other matters properly come before the Annual Meeting, the persons named in the enclosed proxy, or their duly constituted substitutes acting at the Annual Meeting or any adjournment or postponement of the Annual Meeting, will be deemed authorized to vote or otherwise act on such matters in accordance with their judgment.
Who may attend the Annual Meeting?
All stockholders are invited to attend the Annual Meeting. Persons who are not stockholders may attend only if invited by the Board of Directors. If you are the beneficial owner of shares held in the name of your broker, bank, or other nominee, you must bring proof of ownership (e.g., a current broker's statement) in order to be admitted to the meeting. You can obtain directions to the Annual Meeting by contacting our Investor Relations Department at (717) 975-3710.
Can I vote in person at the Annual Meeting?
Yes. If you hold shares in your own name as a stockholder of record, you may come to the Annual Meeting and cast your vote at the meeting by properly completing and submitting a ballot. If you are the beneficial owner of shares held in the name of your broker, bank, or other nominee, you must first obtain a legal proxy from your broker, bank, or other nominee giving you the right to vote those shares and submit that proxy along with a properly completed ballot at the meeting; otherwise, you will not be able to vote in person at the Annual Meeting.
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How can I change my vote?
You may revoke your proxy at any time before it is exercised by:
•Delivering to the Secretary a written notice of revocation, dated later than the proxy, before the vote is taken at the Annual Meeting;
•Delivering to the Secretary an executed proxy bearing a later date, before the vote is taken at the Annual Meeting;
•Submitting a proxy on a later date by telephone or via the Internet (only your last telephone or Internet proxy will be counted), before 11:59 p.m. Eastern Daylight Time on July 16, 2019; or
•Attending the Annual Meeting and voting in person (your attendance at the Annual 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: James J. Comitale, Secretary
Alternatively, you may hand deliver a written revocation notice, or a later dated proxy, to the Secretary at the Annual Meeting before we begin voting.
If your shares of Rite Aid common stock are held by a bank, broker, or other nominee, you must follow the instructions provided by the bank, broker, or other nominee if you wish to change your vote.
What is an "abstention" and how would it affect the vote?
An "abstention" occurs when a stockholder sends in a proxy with explicit instructions to decline to vote regarding a particular matter. Abstentions are counted as present for purposes of determining a quorum. An abstention with respect to the election of directors is neither a vote cast "for" a nominee nor a vote cast "against" the nominee and, therefore, will have no effect on the outcome of the vote. Abstentions with respect to the ratification of Deloitte & Touche LLP as our independent registered public accounting firm, the advisory vote on compensation of our named executive officers, and the vote on the stockholder proposal will have the same effect as voting "against" the proposal.
What is a broker "non-vote" and how would it affect the vote?
A broker non-vote occurs when a broker or other nominee who holds shares for the beneficial owner is unable to vote those shares for the beneficial owner because the broker or other nominee does not have discretionary voting power for the proposal and has not received voting instructions from the beneficial owner of the shares. Brokers will have discretionary voting power to vote shares for which no voting instructions have been provided by the beneficial owner only with respect to the ratification of Deloitte & Touche LLP as our independent registered public accounting firm. Brokers will not have such discretionary voting power to vote shares with respect to the election of directors, the advisory vote on the compensation of our named executive officers, and the vote on the stockholder proposal. Shares that are the subject of a broker non-vote are included for quorum purposes, but a broker non-vote with respect to a proposal will not be counted as a vote cast and will not be counted as a vote represented at the meeting and entitled to vote and, consequently, will have no effect on the outcome of the vote. Accordingly, it is particularly important that beneficial owners of Rite Aid shares instruct their brokers how to vote their shares.
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What are the quorum and voting requirements for the proposals?
In deciding the proposals that are scheduled for a vote at the Annual Meeting, each holder of common stock as of the record date is entitled to one vote per share of common stock. In order to take action on the proposals, a quorum, consisting of the holders of 26,914,351 shares (a majority of the aggregate number of shares of Rite Aid common stock) issued and outstanding and entitled to vote as of the record date for the Annual Meeting, must be present in person or by proxy. This is referred to as a "quorum." Proxies marked "Abstain" and broker non-votes will be treated as shares that are present for purposes of determining the presence of a quorum.
The affirmative vote of a majority of the total number of votes cast is required for the election of each director nominee named in Proposal No. 1. This means that the votes cast "for" that nominee must exceed the votes cast "against" that nominee. Any shares not voted (whether by abstention, broker non-vote or otherwise) will not be counted as votes cast and will have no effect on the outcome of the vote. For more information on the operation of our majority voting standard, see the section entitled "Board of Directors—Corporate Governance—Majority Voting Standard and Policy."
The affirmative vote of a majority of the shares represented at the meeting and entitled to vote is required for the ratification of Deloitte & Touche LLP as our independent registered public accounting firm in Proposal No. 2. Any shares represented and entitled to vote at the meeting and not voted (whether by abstention or otherwise) will have the same effect as a vote "against" the proposal.
The affirmative vote of a majority of the shares represented at the meeting and entitled to vote is required for the approval of the advisory vote on the compensation of our named executive officers in Proposal No. 3. Any shares represented and entitled to vote at the meeting and not voted (whether by abstention or otherwise) will have the same effect as a vote "against" the proposal. Any broker non-votes with respect to the advisory vote on the compensation of our named executive officers will not be counted as shares represented at the meeting and entitled to vote and, consequently, will have no effect on the outcome of the vote.
The affirmative vote of a majority of the shares represented at the meeting and entitled to vote is required for the approval of the stockholder proposal in Proposal No. 4. Any shares represented and entitled to vote at the meeting and not voted (whether by abstention or otherwise) will have the same effect as a vote "against" the stockholder proposal. Any broker non-votes with respect to the stockholder proposal will not be counted as shares represented at the meeting and entitled to vote and, consequently, will have no effect on the outcome of the vote.
What happens if a quorum is not present at the Annual Meeting?
If the shares present in person or represented by proxy at the Annual Meeting are not sufficient to constitute a quorum, the stockholders by a vote of the holders of a majority of votes present in person or represented by proxy (which may be voted by the proxyholders) may, without further notice to any stockholder (unless a new record date is set), adjourn the meeting to a different time and place to permit further solicitations of proxies sufficient to constitute a quorum.
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Who will count the votes?
Representatives of Broadridge Financial Solutions, Inc. will tabulate the votes and act as inspectors of election.
Who will conduct the proxy solicitation and how much will it cost?
We are soliciting proxies from stockholders on behalf ofissues important to them. Through our quarterly financial performance webcasts, analyst conferences, investor meetings and calls, we obtain, process and share stockholder feedback with our Board and will pay for all costs incurred by it in connection with the solicitation. In addition to solicitation by mail, the directors, officerscommittees. Our Compensation Committee considers investor perspectives when making decisions on executive compensation, and associates of Rite Aid and its subsidiaries may solicit proxies from stockholders of Rite Aid in person or by telephone, facsimile, or email without additional compensation other than reimbursement for their actual expenses.
We have retained Morrow Sodali, LLC, a proxy solicitation firm, to assist us in the solicitation of proxies for the Annual Meeting. Rite Aid will pay Morrow Sodali a fee of approximately $20,000, plus reasonable out-of-pocket expenses.
Arrangements also will be made with brokerage firms and other custodians, nominees, and fiduciaries for the forwarding of solicitation material to the beneficial owners of stock held of record by such persons, and we will reimburse such custodians, nominees, and fiduciaries for their reasonable out-of-pocket expenses in connection with the forwarding of solicitation materials to the beneficial owners of our stock.
If you have any questions about voting your shares or attending the Annual Meeting, please call our Investor Relations Department at (717) 975-3710.
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STOCKHOLDER ENGAGEMENT, MANAGEMENT TRANSITION, AND BOARD REFRESHMENT
Since the termination of the Albertsons transaction in August 2018 and following the 2018 Annual Meeting, we have engaged in enhanced stockholder outreach efforts. These efforts provided an opportunity for independent directors to hear from stockholders directly regarding their perspectives and concerns. In addition, management has communicated with many retail stockholders and received their feedback. We greatly value the insightful input about the Company that our stockholders have provided in these and other exchanges over the past ten months. The feedback from these efforts has been summarized, shared, and considered by the Nominating and Governance Committee and the full Board.
Investors raised a number of concerns and the Board has taken significant steps to address these items. Specifically, the principal issues raised by our stockholders related to: (1) Board refreshment, (2) an evaluation of management, (3) corporate governance matters, and (4) the Company's sustainability efforts.
New Board Leadership and Composition
In the course of our stockholder engagement meetings over the past ten months, stockholders expressed concerns regarding the lack of Board refreshment in recent years, as well as concerns regarding our Board governance. The Board reviewed its structure in light of the Company's current operating and governance environment and, effective at the 2018 Annual Meeting, Mr. Standley was succeeded as Chairman of the Board by Bruce G. Bodaken. Subsequently, in December 2018, the Board amended the Company's By-Laws to provide that the Chairman of the Board shall be a director who is independent under the NYSE listing standards and the Company's Corporate Governance Guidelines.
The Board has significantly accelerated its efforts to change the composition of the Board. As part of this process, at the 2018 Annual Meeting, three of the eight independent directors did not stand for reelection and the Board nominated three new independent directors. As a continuation of this process, two new directors were appointed by the Board following the resignation of two of our directors in April 2019. The five directors who have joined the Board over the past eight months will continue to bring fresh perspectives to the Board. In addition, Mr. Standley has not been nominated for reelection at the Annual Meeting.
As a result of these changes in the Board's composition, the average tenure of our independent directors has decreased from approximately eight years prior to the 2018 Annual Meeting to approximately four years, with a relatively even distribution among new directors and directors of longer tenure. Through the Board refreshment process, the Board has increased the racial and ethnic diversity on the Board, with half of the Board being racially and ethnically diverse following the Annual Meeting. The Board also made gender diversity a priority as part of its most recent phase of its refreshment, resulting in more than one-third of our Board being women following the Annual Meeting.
Management Transition
One of the Board's most important tasks is choosing the Company's Chief Executive Officer. Following the 2018 Annual Meeting, the Board continued to engage in rigorous and thoughtful evaluation and discussion regarding the Chief Executive Officer and other management positions. In March 2019, the Company announced a leadership transition and organizational restructuring to better align its structure with the Company's operations and to reduce costs. As part of the leadership transition, the Company announced that the Board would be commencing a search process for a new Chief Executive Officer. Mr. Standley will continue to serve as Chief Executive Officer of the Company until the appointment of his successor but has not been nominated for reelection to the Board at the
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Annual Meeting. The Company also announced additional management changes, which were effective in March 2019, and consolidated additional senior leadership roles that resulted in the elimination of certain positions.
Additional Corporate Governance Changes
Since the 2018 Annual Meeting, the Board has considered and taken action with respect to certain corporate governance practices. In discussions with stockholders, some stockholders expressed a desire for Rite Aid stockholders to have the right to call a special meeting. In addition, our Nominating and Governance Committee has been monitoring trendsconsiders investor views regarding Board composition and developments relatingcorporate governance matters. Due to special meeting rights. feedback we received in fiscal year 2021, we increased our efforts to engage with stockholders as follows:
| | | | | | | | | | | |
| | WHO WE CONTACTED | | | | HOW WE ENGAGED | | | | WHAT WE DISCUSSED | |
| | During fiscal year 2021 we reached out to holders representing over 50% of our outstanding stock. Holders representing over 25% of our outstanding stock participated in meetings. We also engaged with leading proxy advisors to discuss executive compensation matters. | | | | We annually invite our largest 20+ stockholders
to individual meetings (or videoconferences) to discuss items of importance to them, such as executive compensation and Board and corporate governance matters. The Chair of the Compensation Committee and senior management participated. | | | | •
Executive Compensation design elements and alignment with stockholders •
The importance of environmental, social and governance (ESG) initiatives, particularly related to carbon emissions reductions and renewable energy strategies •
Issuing a climate related financial disclosure report using the Task Force on Climate-related Financial Disclosures (TCFD) framework •
Board level oversight over ESG and energy and emissions reduction goals •
Board level oversight of diversity, equity and inclusion (DEI) strategy •
Strategy and efforts around hiring, training and retaining a diverse workforce | |
| | | | | OUR RESPONSES | |
| | •
Committed to more ESG transparency, including issuing a report in 2021 using TCFD standards, amended the Board’s nominating and governance committee charter to expand its oversight role to include ESG matters, created a cross-functional management steering committee on sustainability, and strengthened governance of climate risk through the Enterprise Risk Management program. •
Demonstrated the commitment to DEI by amending our Board’s compensation committee charter to include oversight of diversity, equity, and inclusion matters, hired a Vice President of DEI to develop and execute our DEI strategy, issued a CEO statement of intolerance of discrimination and injustice, and supported the Rite Aid Foundation and other nonprofit organizations’ advocacy for racial equity, awareness, and progress in the United States. | |
2
As of February 27, 2021.
4 | RITE AID CORPORATION 2021 Proxy Statement
We have added 7 new directors to our Board since 2018, all of whom are either women or racially or ethnically diverse.
RITE AID CORPORATION 2021 Proxy Statement | 5
| | | | | | | | Committees | |
| | Director and Principal Occupation | | | Age | | | Director
Since | | | Independent | | | Audit | | | Compensation | | | Nominating and
Governance | |
| | | | | BRUCE G. BODAKEN Former Chairman and Chief Executive
Officer, Blue Shield of California | | | 69 | | | 2013; since
2018 | | | | | | | | | | | | | |
| | | | | ELIZABETH “BUSY” BURR President and Chief Commercial
Officer, Carrot Inc. | | | 59 | | | 2019 | | | | | | | | | | | | | |
| | | | | HEYWARD DONIGAN President and Chief Executive Officer,
Rite Aid Corporation | | | 60 | | | 2019 | | | | | | | | | | | | | |
| | | | | BARI HARLAM Co-Founder, Trouble LLC; and former
EVP, Chief Marketing Officer North
America, Hudson’s Bay Company | | | 59 | | | 2020 | | | | | | | | | | | | | |
| | | | | ROBERT E. KNOWLING, JR. Chairman, Eagles Landing Partners | | | 65 | | | 2018 | | | | | | | | | | | | | |
| | | | | KEVIN E. LOFTON Former Chief Executive Officer,
CommonSpirit Health | | | 66 | | | 2013 | | | | | | | | | | | | | |
| | | | | LOUIS P. MIRAMONTES Former Managing Partner of the
San Francisco office and Senior Partner
for Latin America, KPMG LLP | | | 66 | | | 2018 | | | | | | | | | | | | | | | | |
| | | | | ARUN NAYAR Former Executive Vice President
and Chief Financial Officer,
Tyco International | | | 70 | | | 2018 | | | | | | | | | | | | | | | | |
| | | | | KATE B. QUINN Vice Chairman and Chief
Administrative Officer, U.S. Bancorp | | | 56 | | | 2019 | | | | | | | | | | | | | |
| | | | | Committee Chair | | | | | | Committee Member | | | | | | Chair of the Board | | | | | | Audit Committee Financial Expert | |
BOARD AND GOVERNANCE HIGHLIGHTS
| | | |
| | All Board members are independent except the President and Chief Executive Officer Diverse chairs for Audit, Compensation and Nominating and Governance Committees Independent Chair of the Board All directors elected annually Majority voting for directors in uncontested elections Proxy access provisions in bylaws | | | Holders of 10% of outstanding stock may call a special meeting of stockholders Mandatory director retirement age of 72 Meaningful stock ownership requirements for the Board and executive officers Anti-hedging and anti-pledging policy for the Board and all associates Annual evaluation of the Board and committees | |
6 | RITE AID CORPORATION 2021 Proxy Statement
EXECUTIVE COMPENSATION OVERVIEW
Philosophy and Objectives
Our executive compensation program is based on a resultpay-for-performance philosophy and is designed to accomplish the following goals:
![[MISSING IMAGE: tm217739d2-tbl_philosopypn.jpg]](https://capedge.com/proxy/DEF 14A/0001104659-21-069882/tm217739d2-tbl_philosopypn.jpg)
| | ![[MISSING IMAGE: tm217739d1_ic-checkpn.jpg]](https://capedge.com/proxy/DEF 14A/0001104659-21-069882/tm217739d1_ic-checkpn.jpg) WHAT WE DO | | | | | | ![[MISSING IMAGE: tm217739d2_ic-xk.jpg]](https://capedge.com/proxy/DEF 14A/0001104659-21-069882/tm217739d2_ic-xk.jpg) WHAT WE DON’T DO | |
| | Conduct annual stockholder advisory vote on the compensation of our named executive officers Maintain dialogue with stockholders on various topics, including executive pay practices Retain an independent executive compensation consultant to the Compensation Committee Ensure that a significant portion of executive officer total target remuneration is at risk Provide annual and long-term incentive plans with performance targets aligned to business goals | | | Require a designated level of stock ownership for all named executive officers Require equity awards to have a double trigger (qualifying termination of employment and change in control) Complete an annual incentive compensation risk assessment Maintain a formal clawback policy for executive officers | | | | | | Provide gross-up payments to cover personal income taxes or excise taxes related to executive severance benefits Permit executives to engage in hedging or pledging of Rite Aid securities Reward executives for imprudent, inappropriate, or unnecessary risk-taking Allow the repricing of equity awards without stockholder approval | |
RITE AID CORPORATION 2021 Proxy Statement | 7
Total Target Compensation
HUMAN CAPITAL MANAGEMENT EFFORTS
We are proud to employ over 50,000 associates across the United States, including Puerto Rico. Our associates are key to the success of these discussionsour transformation as they are at the center of supporting the whole health of our customers and trends,communities. We are optimizing our workforce through enhanced communication and engagement through the following measures:
•
annual and periodic pulse surveys in April 2019,which more than 70% of our associates have participated;
•
increased personal and professional associate development opportunities, including training on leadership, safety, compliance, and other critical business skills;
•
discounted tuition and reimbursement programs for associates to pursue degrees at select colleges or universities;
•
certification as an Accredited Provider of Continuing Pharmacy Education, which allows us to offer courses that count toward the Board amendedcontinuing education licensing requirements of our pharmacists;
•
offering an accredited pharmacy technician certification program;
•
compensation and benefit programs to support, recognize and reward performance of our associates (including annual bonuses, 401(k) plans, health care benefits, paid time off, life and disability coverage, merchandise discounts, and many other services and programs);
•
associate wellness programs and tools for whole health in areas such as mental health, disease management, and financial wellness; and
•
an associate recognition program that incorporates financial incentives to celebrate the Company's By-Lawsachievements of our teams and create a community experience for our workforce.
DIVERSITY, EQUITY AND INCLUSION EFFORTS
Just as we are transforming our business, we are also transforming our approach to permit special meetings of the stockholders of the CompanyDiversity, Equity & Inclusion (DEI). We are being more intentional to ensure that we have not only a diverse workforce but an environment in which our talent can thrive. We are proud to be called by stockholders holding at least 20%a part of diverse communities and to have a workforce that reflects the Company's common stock. Atdiversity of our customers and the 2018 Annual Meeting, stockholders approvedcommunities in which we operate. As such, we believe that an inclusive and welcoming culture is essential, and our commitment to diversity comes from the top. We are proud to have a proposal requestingBoard with 89% overall diversity, which is composed of 44% gender diversity and 44% ethnic/
racial diversity. We are focused on strengthening our DEI infrastructure, which includes the development of a DEI team (a Center of Excellence) and a DEI integrated strategy that will address talent processes such as talent acquisition, talent development and talent management. A key focus will be to develop solutions that seek to enhance the work environment so our associates can perform to their best potential and provide an optimum customer experience. Our experienced Vice President of Diversity, Equity & Inclusion focuses on developing and executing our DEI strategy.
As of December 31, 2020, 67% of associates self-reported as female. In addition, associates self-reported their race/ethnicity as: White 56%; Hispanic 15%; Black 13%; Asian 11%; and Other 5%.
8 | RITE AID CORPORATION 2021 Proxy Statement
ENVIRONMENTAL, SOCIAL & GOVERNANCE EFFORTS
As discussed in more detail in the section on Corporate Governance and Board Matters below, Rite Aid prepareis committed to integrating Environmental, Social, and Governance (ESG) initiatives into our operations, not only to create value for our stockholders, customers, and associates, but also because we are deeply invested in our communities, and our customers want to support a sustainability report describing the Company'scompany that supports their safety and our environment.
In fiscal year 2021, we made a concerted effort to enhance our strategy and overall approach to sustainability. The strategy was influenced by reporting frameworks, conversations with stockholders, stakeholder expectations, and emerging trends. We identified several key areas of opportunity to expand our environmental, social and governance ("ESG") riskscommitments, most notably around diversity, equity and opportunities. The Company anticipatesinclusion, human capital management, climate change and board oversight of ESG matters.
We also recognize that a report describing the Company's ESGclimate risk is investment risk, and transparency regarding climate-related risks and opportunities is crucial to maintaining the trust of our stakeholders. This also allows our investors to better understand the implications of climate change on our business. In fiscal year 2021, we took a comprehensive look at how we understand and manage the risks and opportunities associated with climate change and began incorporating this into our long term strategy. Some of our fiscal year 2021 highlights include:
Energy Management, Energy Production & Waste Reduction
| | | | | | | | | | | | | | | |
| | ![[MISSING IMAGE: tm217739d1-icon_arrowdnpn.jpg]](https://capedge.com/proxy/DEF 14A/0001104659-21-069882/tm217739d1-icon_arrowdnpn.jpg) 63%Waste Reduction | | | | 35% Of Our Stores | | | | 50% Renewable Power | | | | 50,000+ Tons | |
| | related to decreased pharmaceutical hazardous waste generation | | | | | | | | now have LED lighting,
8% year-over-year increase | | | | provided at 49 California Rite Aid locations | | | | of recyclable materials from our operating locations diverted from landfills last year | |
GHG Emissions & Fuel Reduction
| | | | | | | | | | | | | | | |
| | 2,638 Metric Tons | | | | 300,000 Gallons | | | | 12% Passenger Fleet
Reduction | | | | 62,000 Gallons | |
| | reduction in emissions last year by eliminating passenger fleet vehicles | | | | of fuel saved by reducing passenger fleet vehicles | | | | by eliminating passenger vehicles | | | | of fuel saved last year, by implementing use of distribution software, resulting in 8.3% fewer miles driven | |
RITE AID CORPORATION 2021 Proxy Statement | 9
Managing Chemicals of Concern
As we position Rite Aid as a whole health destination that elevates mind, body and spirit, one of our core tenets remains providing our customers with the best products, services and advice to meet their unique needs. Our customers want to feel confident about what is in the products they are using for themselves and their families.
In 2016, Rite Aid committed to eliminate eight chemicals of high concern (the “Evil 8”) from its private brand formulated products by 2020. In 2018, we adopted our Chemical Policy and corresponding restricted substance list (RSL), which outlines our commitment to the ongoing management of toxic chemicals and safety of the products on our shelves.
| | | In 2021, Rite Aid was ranked 7th
out of 50 of the largest retailers
in North America for its
management of toxic chemicals
by the annual Who’s Minding
the Store? Retailer Report Card. | | |
| | | View the retailer report card at
retailerreportcard.com/grades | | |
| | | Website content is not incorporated into this proxy statement. | | |
In 2020, our primary focus was to meet our goal of eliminating Evil 8 chemicals from the primary formulations of private brand products. As of March 2021, only 13 formulas (1% of our assortment) contained Evil 8 chemicals. We are actively transitioning out of or working with supplier partners to reformulate these last few items with safer alternatives.
We are proud of the progress we’ve made in reducing the presence of chemicals of concern, which is essential to the future success of our own brands. To that end, we’ve embarked on an ambitious, multi-year initiative to re-architect our own brands program where “clean ingredients” will not only be celebrated, but will be released prior to the Annual Meeting. Additional details regarding the Company's considerationa core component of sustainability mattersour positioning across brands and the related business initiatives the Company has undertaken in recent years are described in the section entitled "Board of Directors—Sustainability." At the 2018 Annual Meeting, stockholders approved a proposal requesting that Rite Aid prepare a report describing the corporate governance changes the Company has implemented since 2012 to more effectively monitorcategories, including health, beauty, personal care, consumables, household and manage financial and reputational risks related to the opioid crisis. The Company anticipates that a report describing the Company's approach to oversight of opioid matters will be released by October 1, 2019. Additional details regarding the Company's oversight of opioid matters and the related business initiatives the Company has undertaken in recent years are described in the section entitled "Board of Directors—Opioid Matter Oversight."
more. | | | | For more information, please see Rite Aid’s 2020 CSR Report at https://www.riteaid.com/content/dam/riteaid-web/corporate/rite-aid-corporate-social-responsibility-report-2020.pdf Website content is not incorporated into this proxy statement. | | |
10 | RITE AID CORPORATION 2021 Proxy Statement
| | | | | | PROPOSAL 1—ELECTION OF DIRECTORS | | |
PROPOSAL NO. 1
ELECTION OF DIRECTORS
General
Our 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. The Board has fixed the number of directors at eight effective as of the Annual Meeting,nine, and there are eightnine nominees for director at our Annual Meeting.
All directors are elected annually.
Director NomineesThe Board of Directors, based on the recommendation of the Nominating and Governance Committee, has nominated Bruce G. Bodaken, Elizabeth 'Busy' Burr, Robert E. Knowling, Jr., Kevin E. Lofton, Louis P. Miramontes, Arun Nayar, Katherine Quinn, and Marcy Symsthe following individuals to be elected directors at the Annual Meeting. Meeting:
| | •
Bruce G. Bodaken | | | •
Bari Harlam | | | •
Louis P. Miramontes | |
| | •
Elizabeth “Busy” Burr | | | •
Robert E. Knowling, Jr. | | | •
Arun Nayar | |
| | •
Heyward Donigan | | | •
Kevin E. Lofton | | | •
Kate B. Quinn | |
Each of the nominees for director to be elected at the Annual Meeting currently serves as a director of the Company. Mr. Standley will continue to serve as Chief Executive Officer of the Company until the appointment of his successor but has not been nominated for reelection at the Annual Meeting.Each director elected at the Annual Meeting will hold office until the 20202022 Annual Meeting of Stockholders. Each director elected at the Annual MeetingStockholders and will serve until his or her successor is duly elected and qualified.
If any nominee at the time of election is unable or unwilling tocannot serve or is otherwise unavailable for election, and as a consequence thereof other nominees areanother nominee is designated, then the persons named in the proxyproxies or their substitutes will have the discretion and authority to vote or to refrain from voting for such other nomineesnominee in accordance with their judgment.judgment, or the Board may reduce the size of the Board.
| | | | | | The Board of Directors unanimously recommends that you vote FOR the election of each of the nominees listed above. | | |
RECOMMENDATION
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF EACH OF THE NOMINEES LISTED ABOVE.
BOARD OF DIRECTORS
The following table sets forth certain information as of May 31, 201920, 2021 with respect to our director nominees. If elected, the term of each of the following persons will expire at the 2020 Annual Meeting of Stockholders.
| | Name | | | Age | | | Position with Rite Aid | | | Year First
Became Director | |
| | Heyward Donigan | | | 60 | | | President, Chief Executive Officer and Director | | | 2019 | |
| | Bruce G. Bodaken | | | 69 | | | Chair | | | 2013 | |
| | Elizabeth “Busy” Burr | | | 59 | | | Director | | | 2019 | |
| | Bari Harlam | | | 59 | | | Director | | | 2020 | |
| | Robert E. Knowling, Jr. | | | 65 | | | Director | | | 2018 | |
| | Kevin E. Lofton | | | 66 | | | Director | | | 2013 | |
| | Louis P. Miramontes | | | 66 | | | Director | | | 2018 | |
| | Arun Nayar | | | 70 | | | Director | | | 2018 | |
| | Kate B. Quinn | | | 56 | | | Director | | | 2019 | |
| | | | | | | | | |
Name | | Age | | Position with Rite Aid | | Year First
Became
Director | |
|---|
| Bruce G. Bodaken | | | 67 | | Chairman | | | 2013 | |
| Elizabeth 'Busy' Burr | | | 57 | | Director | | | 2019 | |
| Robert E. Knowling, Jr. | | | 63 | | Director | | | 2018 | |
| Kevin E. Lofton | | | 64 | | Director | | | 2013 | |
| Louis P. Miramontes | | | 64 | | Director | | | 2018 | |
| Arun Nayar | | | 68 | | Director | | | 2018 | |
| Katherine Quinn | | | 54 | | Director | | | 2019 | |
| Marcy Syms | | | 68 | | Director | | | 2005 | |
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Board Composition
The Board is committed to ensuring that it is composed of a highly capable and diverse group of directors who are well-equipped to oversee the success of the business and effectively represent the interests of stockholders. In addition, the Board believes that having directors with both longer and shorter tenures on the Board helps transition the knowledge of the more experienced directors while providing a broad, fresh set of perspectives and a Board with a diversity of experiences and viewpoints. As discussed in the section entitled "Stockholder Engagement, Management Transition, and Board Refreshment" above, theThe Board has significantly accelerated its efforts to change the composition of the Board over the past eight months.three years. As a result, approximately forty-four percent of the director nominees are racially or ethnically diverse and approximately forty-four percent of the director nominees are women. In addition to enhancing the Board’s racial, ethnic and gender diversity, these changes bring a diversity of thought and experience to the Board. All of the nominees of the Board, other than Ms. Donigan, are independent directors.
As a result of these changes in the Board's composition, the average tenure of our independent directors has decreased from approximately eight years prior to the 2018 Annual Meeting to approximately four years, with a relatively even distribution among
RITE AID CORPORATION 2021 Proxy Statement | 11
PROPOSAL 1—ELECTION OF DIRECTORS
We have added 7 new directors and directors of longer tenure. In addition, half of the Board will be racially and ethnically diverse following the Annual Meeting. The Board also made gender diversity a priority as part of its most recent phase of its refreshment, resulting in more than one-third ofto our Board being women following the Annual Meeting.since 2018, including one in 2020.
| | |
Director Tenure* | | Board Racial and Ethnic Diversity* |
 |
|
 |
Board Gender Diversity* |
|
Board Attributes
*The compositions depicted include calculations effective following the Annual Meeting.
![[MISSING IMAGE: tm217739d2-pc_boardpn.jpg]](https://capedge.com/proxy/DEF 14A/0001104659-21-069882/tm217739d2-pc_boardpn.jpg)
In assessing Board composition and selecting and recruiting director candidates, the Board seeks to maintain an engaged, independent Board with broad experience and judgment that is committed to representing the long-term interests of our stockholders. The Nominating and Governance Committee considers a wide range of factors, including the size of the Board, the experience and expertise of existing Board members, other positions the director candidate has held or holds (including other
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board memberships), and the candidate'scandidate’s independence. In addition, the Nominating and Governance Committee takes into account a candidate'scandidate’s ability to contribute to the diversity of background and experience represented on the Board, and it reviews its effectiveness in balancing these considerations when assessing the composition of the Board. The
12 | RITE AID CORPORATION 2021 Proxy Statement
PROPOSAL 1—ELECTION OF DIRECTORS
Board
Skills and
Nominating and Governance Committee will continue to evaluate the composition of the Board as a whole as part of its ongoing refreshment in the coming year. Since the 2018 Annual Meeting, the Nominating and Governance Committee sought to continue the process of recruiting additional Board members whose qualifications align with the Company's refreshment process and long-term strategy. After considering a number of candidates and comprehensively reviewing these candidates' abilities and qualifications in sourcing candidates to fill the vacancies on the Board due to Joseph B. Anderson's and Michael N. Regan's resignations, the Nominating and Governance Committee recommended Busy Burr and Katherine Quinn for appointment to the Board. The Board appointed both candidates as directors in April 2019.
Experiences
The chart below summarizes the qualifications, attributes, skills and skillsexperiences for each of our director nominees. The fact that we do not list a particular experience or qualification for a director nominee does not mean that nominee does not possess that particular experience or qualification.| | | | | Skills and Experiences | |
| | Director | | | Board and
Corporate
Governance | | | Current or
Former CEO | | | Finance and
Accounting | | | Healthcare
Industry | | | Management
and
Business
Operations | | | Retail
Industry | |
| | Bruce G. Bodaken ![[MISSING IMAGE: tm217739d1_ic-stark.jpg]](https://capedge.com/proxy/DEF 14A/0001104659-21-069882/tm217739d1_ic-stark.jpg) | | | | | | | | | | | | | | | | | | | |
| | Elizabeth “Busy” Burr | | | | | | | | | | | | | | | | | | | |
| | Heyward Donigan | | | | | | | | | | | | | | | | | | | |
| | Bari Harlam | | | | | | | | | | | | | | | | | | | |
| | Robert E. Knowling, Jr. | | | | | | | | | | | | | | | | | | | |
| | Kevin E. Lofton | | | | | | | | | | | | | | | | | | | |
| | Louis P. Miramontes | | | | | | | | | | | | | | | | | | | |
| | Arun Nayar | | | | | | | | | | | | | | | | | | | |
| | Kate B. Quinn | | | | | | | | | | | | | | | | | | | |
| | Total of 9 Directors | | | 9 | | | 5 | | | 3 | | | 5 | | | 9 | | | 4 | |
| | 100% | | | 56% | | | 33% | | | 56% | | | 100% | | | 44% | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Skills and Experience
| | Bodaken | | Burr | | Knowling | | Lofton | | Miramontes | | Nayar | | Quinn | | Syms | |
|---|
Current/Former CEO
| | | X | | | | | | X | | | X | | | | | | | | | | | | X | |
Management/Business Operations
| | | X | | | X | | | X | | | X | | | X | | | X | | | X | | | X | |
Retail Industry
| | | | | | X | | | | | | | | | | | | | | | X | | | X | |
Healthcare Industry
| | | X | | | X | | | | | | X | | | | | | | | | X | | | | |
Finance/Accounting
| | | | | | X | | | | | | | | | X | | | X | | | | | | | |
Board/Corporate Governance
| | | X | | | X | | | X | | | X | | | X | | | X | | | X | | | X | |
Director Biographies
Following are the biographies for our director nominees, including information concerning the particular experience, qualifications, attributes, or skills that led the Nominating and Governance Committee and the Board to conclude that such person should serve on the Board:
| | BRUCE G. BODAKEN | | | Mr. Bodaken shares in-depth knowledge of the health insurance and managed care industries with the Board of Directors, serving in executive leadership positions for over 20 years. Experience •
Chairman and Chief Executive Officer of Blue Shield of California from 2000 through 2012. •
President and Chief Operating Officer of Blue Shield of California from 1995 to 2000, and as Executive Vice President and Chief Operating Officer from 1994 to 1995. •
Senior Vice President and Associate Chief Operating Officer of F.H.P., Inc., a managed care provider, from 1990 to 1994 and held various positions at F.H.P. from 1980 to 1990. •
Visiting Lecturer at the University of California School of Public Health from 2013 to 2016 teaching graduate courses on health care reforms. •
Visiting Scholar at the Brookings Institute from 2013 to 2015 focused on value-based care design. •
Director and member of the compensation committee of iRhythm Technologies, Inc. and formerly a member of the board of directors of WageWorks, Inc. | |
| | Age 69 Director since 2013 Chair since 2018 Committees •
Executive (Chair) •
Nominating and Governance | |
RITE AID CORPORATION Bruce G. Bodaken. 2021 Proxy Statement Mr. Bodaken| 13
PROPOSAL 1—ELECTION OF DIRECTORS
| | ELIZABETH “BUSY” BURR | | | Ms. Burr brings to the Board of Directors extensive experience in the health industry, innovation, business strategy, and brand management. Experience •
President and Chief Commercial Officer at Carrot Inc., a digital health care company with solutions that combine behavioral science, clinical expertise, and proprietary technology, since 2019. •
Chief Innovation Officer and Vice President of Healthcare Trend and Innovation at Humana from 2015 to 2018, where she led the design, build, and adoption of new product platforms in digital health, provider experience, and telemedicine. Founder of Humana’ Health Ventures, Humana’s strategic venture investing practice. •
Former Managing Director of Citi Ventures, Citigroup’s global venture group, from 2011 – 2015. Prior to Citigroup, she spent seven years in investment banking at Morgan Stanley and Credit Suisse First Boston. •
Former Vice President of Global Brand Management at Gap, Inc., where she was responsible for aligning the product, store, online, advertising, and merchandising efforts for the four Gap brands around the world. •
Member of the boards of directors of Mr. Cooper Group Inc., a company that provides mortgage servicing, origination, and transaction-based services, and Satellite Healthcare, a nonprofit provider of kidney dialysis services. | |
| | Age 59 Director since 2019 Committees •
Audit | |
| | | |
| | HEYWARD DONIGAN | | | Ms. Donigan brings to the Board strong senior executive experience, proven leadership capabilities, and a consistent track record of driving profitable growth, as well as broad health care knowledge and digital technology expertise. Experience •
President and Chief Executive Officer of the Company since February 2020 and Chief Executive Officer since August 2019. •
President and Chief Executive Officer of Sapphire Digital, which designs and develops omni-channel platforms that help consumers choose their best fit health care providers, from 2015 to 2019. In that role, Ms. Donigan led Sapphire Digital’s strategy and operations to record growth and consumer engagement. •
President and Chief Executive Officer of ValueOptions, Inc., then the nation’s largest independent behavioral health improvement company, from 2010 to 2015, where she drove innovation through disciplined execution and grew company revenues to over $1 billion. •
Executive Vice President and Chief Marketing Officer at Premera Blue Cross, where she was responsible for driving profitable growth across the individual, small group, mid-market, and national account businesses and helped the company achieve record growth and profits. •
Previously served as Senior Vice President of all operations at Cigna Healthcare and held executive roles at General Electric, Empire BCBS, and U.S. Healthcare. •
In the last five years, served as Chairman and Chief Executive Officer of Blue Shield of California from 2000 through 2012. Previously, Mr. Bodaken served as President and Chief Operating Officer of Blue Shield of California from 1995 to 2000, and as Executive Vice President and Chief Operating Officer from 1994 to 1995. Prior to joining Blue Shield of California, Mr. Bodaken served as Senior Vice President and Associate Chief Operating Officer of F.H.P., Inc., a managed care provider, from 1990 to 1994 and held various positions at F.H.P. from 1980 to 1990. Currently, Mr. Bodaken sits on the board of directors of Kindred Healthcare and NxStage Medical, Inc. | |
| | Age 60 Director since 2019 Committees •
Executive | |
| | | |
| | | |
| | | |
14 | RITE AID CORPORATION 2021 Proxy Statement
PROPOSAL 1—ELECTION OF DIRECTORS
| | BARI HARLAM | | | Ms. Harlam is a former C-suite business leader, marketer, educator, and author, and a pioneer in customer loyalty who provides the Board of Directors with her experience in digital marketing and data analytics. Experience •
Co-founder of Trouble LLC, a pro-social, experience brand. •
Executive Vice President, Chief Marketing Officer North America at Hudson’s Bay Company from 2018 to 2020. •
Executive Vice President, Membership, Marketing and Analytics at BJ’s Wholesale Club from 2012 to 2016. •
Chief Marketing Officer at Swipely, now Upserve, from 2011 to 2012. •
Senior Vice President, Member Engagement at CVS Health from 2000 to 2011. •
Early in her career, was a Professor at Columbia University and the University of Rhode Island, and Adjunct Professor at the Wharton School, University of Pennsylvania. •
Member of the Board of Directors of Eastern Bankshares, Inc., Mohawk Group and OneWater Marine Inc. | |
| | Age 59 Director since 2020 Committees •
Nominating and Governance | |
| | ROBERT E. KNOWLING, JR. | | | Mr. Knowling brings to the Board extensive experience in executive management and leadership roles, including experience leading companies through periods of high growth and organizational turnaround. In addition, his service on a number of other public company boards of directors enables Mr. Knowling to share insights with the Board regarding corporate governance best practices. Experience •
Chairman of Eagles Landing Partners, which specializes in helping senior management formulate strategy, lead organizational transformations, and re-engineer businesses, and also serves as an advisor-coach to chief executive officers. •
Chief Executive Officer of Telwares, a provider of telecommunications expense management solutions, from 2005 to 2009. •
Chief Executive Officer of the New York City Leadership Academy, an independent nonprofit corporation created by Chancellor Joel I. Klein and Mayor Michael R. Bloomberg that is chartered with developing the next generation of principals in the New York City public school system, from 2001 to 2005. •
Chairman and Chief Executive Officer of SimDesk Technologies, a computer software company, from 2001 to 2003. •
Previously was Chairman, President and Chief Executive Officer of Covad Communications, a Warburg Pincus private equity-backed start-up company. •
Serves on the board of directors of Citrix, STRAND, and Stream Technologies. In the last five years, he served on the board of directors of Roper Technologies Inc. and Convergys. | |
| | Age 65 Director since 2018 Committees •
Compensation (Chair) | |
| | | |
| | | |
| | | |
RITE AID CORPORATION 2021 Proxy Statement | 15
PROPOSAL 1—ELECTION OF DIRECTORS
| | KEVIN E. LOFTON | | | Mr. Lofton brings to the Board of Directors significant leadership experience in the health care industry, including serving as chief executive officer of health care systems and hospitals. He is recognized for his leadership promoting diversity and inclusion, in eliminating health disparities, and creating healthy communities. Experience •
Retired as Chief Executive Officer of Chicago-based CommonSpirit Health (“CSH”) in June 2020. CSH was formed in February 2019 following the merger between Catholic Health Initiatives (“CHI”) and Dignity Health. Mr. Lofton joined CHI in 1998 and served as Chief Executive Officer from 2003 through 2019. •
Previously served as Chief Executive Officer of UAB Hospital and Howard University Hospital. •
Lead Independent Director at Gilead Sciences, Inc. and a member of the board of directors of Medtronic. He previously served as chairman of the board of the American Hospital Association. | |
| | Age 66 Director since 2013 Committees •
Executive •
Nominating and
Governance (Chair) | |
| | LOUIS P. MIRAMONTES | | | Mr. Miramontes brings to the Board of Directors extensive experience in accounting, financial reporting, and corporate governance. His experience as an audit partner provides useful insights into financial and regulatory matters relevant to the Company’s business. Experience •
Independent financial advisor since 2014. •
Worked at KPMG LLP from 1976 to 2014, where he served as Managing Partner of the San Francisco office and Senior Partner for KPMG’s Latin American region. He served as an audit partner for public and private companies. •
Lead Independent Director at Lithia Motors, Inc., one of the largest providers of personal transportation solutions in the U.S., and a member of the board of directors of Oportun Financial Corporation, a financial services company. | |
| | Age 66 Director since 2018 Committees •
Audit (Chair) •
Compensation | |
16 | RITE AID CORPORATION 2021 Proxy Statement
PROPOSAL 1—ELECTION OF DIRECTORS
| | ARUN NAYAR | | | Mr. Nayar brings over 35 years of financial management experience to the Board of Directors. His experience as a chief financial officer provides useful insights into operational and financial metrics relevant to the Company’s business. Experience •
Retired in 2015 as executive vice President and Chief Financial Officer of Tyco International, a $10+ billion fire protection and security company, where he was responsible for managing the company’s financial risks and overseeing its global finance functions, including its tax, treasury, mergers and acquisitions, audit, and investor relations teams. Mr. Nayar joined Tyco as senior vice president and treasurer in 2008, and was also Chief Financial Officer of Tyco’s ADT Worldwide. From 2010 until 2012, Mr. Nayar was senior vice president, Financial Planning & Analysis, Investor Relations, and treasurer. •
Previously was in leadership positions with PepsiCo, Inc., most recently as Chief Financial Officer of Global Operations and, before that, as vice president and assistant treasurer—Corporate Finance. •
Senior Advisor to McKinsey & Company and a Senior Advisor to a private equity firm, BC Partners, from 2016 to 2020. •
A member of the board of directors of Amcor Plc, a manufacturer of responsible packaging products, and GFL Environmental Inc., a leading North American environmental services company. He previously served on the board of TFI International. | |
| | Age 70 Director since 2018 Committees •
Audit •
Executive | |
| | | |
| | | |
| | KATE B. QUINN | | | Ms. Quinn brings to the Board of Directors extensive experience in business strategy, marketing, customer experience, retail operations, and health benefits. Experience •
Vice Chair and Chief Administrative Officer of U.S. Bancorp since 2017, responsible for leading strategy, reputation and digital transformation, Ms. Quinn joined U.S. Bancorp in 2013 as executive vice president and Chief Strategy and Reputation Officer. •
Former senior vice president and Chief Marketing Officer at Anthem, a health benefits company, where she directed the company’s marketing, customer communications, digital, customer experience, and retail strategies. She previously served as Anthem’s vice president of corporate marketing. •
Earlier in her career, Ms. Quinn served as Chief Marketing and Strategy Officer at a division of The Hartford, following leadership roles in strategy and product development at CIGNA and PacifiCare Health Systems, respectively. •
Member of the board of directors of Ontrak, Inc., an AI and technology-enabled health care company and member of the Board of Trustees of United Way U.S.A. and Fastbreak Foundation. | |
| | Age 56 Director since 2019 Committees •
Compensation •
Nominating and Governance | |
RITE AID CORPORATION 2021 Proxy Statement | 17
| | | | | | CORPORATE GOVERNANCE AND BOARD MATTERS | | |
BOARD LEADERSHIP STRUCTURE
| | | |
| | The Board has determined that Mr. Bodaken will continue to serve as Chair of the Board. As Chair, Mr. Bodaken’s responsibilities include: •
presiding at all meetings of the Board, including executive sessions of the non-management directors •
the authority to call meetings of the Board and of the non-management directors •
serving as liaison between the Chief Executive Officer and independent directors and facilitating communications between other members of the Board and the Chief Executive Officer (any director is free to communicate directly with the Chief Executive Officer; the Chair’s role is to attempt to improve such communications if they are not entirely satisfactory) •
working with the Chief Executive Officer in the preparation of and approving Board meeting agendas and schedules, and the information to be provided to the Board •
chairing the annual review of the performance of the Chief Executive Officer •
otherwise consulting with the Chief Executive Officer on matters relating to corporate governance and Board performance, and •
if requested by major stockholders, ensuring that he is available, when appropriate, for consultation and direct communication | |
Company By-Laws provide that the board of WageWorks, Inc., and is a member of its audit committee. He is also a director and member of the Compensation Committee of iRhythm Technologies, Inc. Mr. Bodaken brings to the Board in-depth knowledge of the health insurance and managed care industries and more than 20 years of executive leadership skills.
Busy Burr. Ms. Burr most recently served as the chief innovation officer and vice president of healthcare trend and innovation at Humana where she was responsible for driving the design, build and adoption of new product platforms in digital health, provider experience, and telemedicine to improve health outcomes, create superior member experiences, and improve health care costs. She also founded Humana's strategic investing practice, Humana Health Ventures. Prior to joining Humana in 2015, Ms. Burr was managing director of Citi Ventures and led large-scale business transformation efforts as the global head of Citi's Business Incubation Function-DesignWorks. Earlier in her career, Ms. Burr spent seven years in investment banking at Morgan Stanley and Credit Suisse First Boston and previously served as vice president of global brand management at Gap, Inc. Ms. Burr holds an MBA
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from Stanford University and a bachelor's degree in Economics from Smith College. Ms. Burr serves on the Boards of Mr. Cooper Group and Satellite Healthcare and is a member of the Smith College Business Network Advisory Board.
Ms. Burr brings to the Board extensive experience in the health industry, innovation, business strategy and brand management. Her experience and insights in these areas are directly relevant to the Company's business.
Robert E. Knowling, Jr. Mr. Knowling is currently Chairman of Eagles Landing Partners, which specializes in helping senior management formulate strategy, lead organizational transformations, and re-engineer businesses. Mr. Knowling also serves as an advisor-coach to chief executive officers. Mr. Knowling previously served as Chief Executive Officer of Telwares, a JP Morgan Chase/One Equity Partners Private Equity-owned company from 2005 to 2009. From 2001 to 2005, Mr. Knowling was Chief Executive Officer of the New York City Leadership Academy, an independent nonprofit corporation created by Chancellor Joel I. Klein and Mayor Michael R. Bloomberg that is chartered with developing the next generation of principals in the New York City public school system. From 2001 to 2003, Mr. Knowling was Chairman and Chief Executive Officer of SimDesk Technologies, Inc. Prior to this, Mr. Knowling was Chairman, President and Chief Executive Officer of Covad Communications, a Warburg Pincus Private Equity-backed start-up company. Mr. Knowling currently serves on the board of directors of K12 Inc. and Roper Technologies Inc. Mr. Knowling previously served as a director of Convergys Corporation until 2018, Ariba, Inc. until 2012, Heidrick & Struggles International, Inc. until 2015, Hewlett-Packard Company until 2005, and The Immune Response Corporation until 2005.
Mr. Knowling brings to the Board extensive experience in executive management and leadership roles, including experience leading companies through periods of high growth and organizational turnaround. In addition, his service on other boards of directors of a number of publicly-traded companies enables Mr. Knowling to share insights with the Board regarding corporate governance best practices.
Kevin E. Lofton. Mr. Lofton was named Chief Executive Officer of Chicago-based CommonSpirit Health ("CSH"), effective February 1, 2019. CSH is the result of a merger between Catholic Health Initiatives ("CHI") and Dignity Health. With $29 billion in revenues, CSH is one of the largest health delivery systems in the United States. Mr. Lofton joined CHI in 1998 and served as CEO from 2003 until January 2019. Mr. Lofton previously served as Chief Executive Officer of the UAB Hospital in Birmingham and Howard University Hospital in Washington, D.C. Mr. Lofton is also a director and member of the audit and compensation committees of Gilead Sciences, Inc.
Mr. Lofton brings to the Board an in-depth knowledge and understanding of the healthcare industry and valuable executive leadership skills from senior management and leadership roles in healthcare systems and hospitals.
Louis P. Miramontes. Mr. Miramontes worked at KPMG LLP from 1976 to 2014, where he served in many leadership roles, including Managing Partner of the San Francisco office and Senior Partner for KPMG's Latin American region. Mr. Miramontes was also an audit partner directly involved with providing audit services to public and private companies, which included working with client boards of directors and audit committees regarding financial reporting, auditing matters, SEC compliance, and Sarbanes-Oxley regulations. Mr. Miramontes currently serves on the board of directors of Lithia Motors, Inc., one of the largest providers of personal transportation solutions in the U.S., and Oportun, Inc., a mission-driven financial services company.
Mr. Miramontes brings to the Board extensive experience in accounting, financial reporting, and corporate governance. His experience as an audit partner provides useful insights into financial and regulatory matters relevant to the Company's business.
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Arun Nayar. Mr. Nayar retired in December 2015 as Executive Vice President and Chief Financial Officer of Tyco International, a $10+ billion fire protection and security company, where he was responsible for managing the company's financial risks and overseeing its global finance functions, including its tax, treasury, mergers and acquisitions, audit, and investor relations teams. Mr. Nayar joined Tyco as Senior Vice President and Treasurer in 2008 and was also Chief Financial Officer of Tyco's ADT Worldwide. From 2010 until 2012, Mr. Nayar was Senior Vice President, Financial Planning & Analysis, Investor Relations, and Treasurer. Prior to joining Tyco, Mr. Nayar spent six years at PepsiCo, Inc., most recently as Chief Financial Officer of Global Operations and, before that, as Vice President and Assistant Treasurer—Corporate Finance. Mr. Nayar currently serves on the Board of Directors of Bemis Company, Inc., a manufacturer of packaging products, and TFI International Inc., a leader in the transportation and logistics industry. Bemis Company, Inc. has announced a combination with Amcor Limited and has announced that Mr. Nayar will be a member of the board of the combined company, Amcor plc, upon consummation of the transaction. Mr. Nayar is also a Senior Advisor to McKinsey & Company and to a private equity firm, BC Partners. He also serves as a board member of privately-held GFL Environmental, a BC Partners portfolio company.
Mr. Nayar brings over 35 years of financial experience to the Board. His experience as a chief financial officer provides useful insights into operational and financial metrics relevant to the Company's business.
Katherine Quinn. Ms. Quinn has served as vice chairman and chief administrative officer of U.S. Bancorp since April 2017 and is responsible for leading human resources, strategy, and corporate affairs at the company. Ms. Quinn joined U.S. Bancorp in 2013 as executive vice president and chief strategy and reputation officer. Prior to joining U.S. Bancorp, Ms. Quinn most recently served as senior vice president and chief marketing officer at Anthem, a health benefits company, where she directed the company's marketing, customer communications, digital, customer experience, and retail strategies. She previously served as Anthem's vice president of corporate marketing. Earlier in her career, Ms. Quinn served as chief marketing and strategy officer at a division of The Hartford, following leadership roles in strategy and product development at CIGNA and PacifiCare Health Systems, respectively. Ms. Quinn earned an MBA from University of Phoenix and a bachelor's degree from Hunter College. In addition to her role at U.S. Bancorp, Ms. Quinn presently serves as a memberChair of the Board of Directors of Taylor Corporation and the Board of Trustees for both United Way U.S.A. and Fraser, a non-profit organization serving children and adults with special needs. She previously served as a member of the Board of Trustees for Minnesota Public Radio until May 2019.
Ms. Quinn brings to the Board extensive experience in business strategy, marketing, customer experience, and health benefits. Her experience and insights in these areas are directly relevant to the Company's business.
Marcy Syms. Ms. Syms served as a director of Syms Corp, a chain of retail clothing stores, from 1983, when she was named President and COO, until 2012. Ms. Syms became CEO of Syms Corp in 1998 and was named Chair in 2010. In November 2011, Syms Corp and its subsidiaries filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code and ceased all retail operations. Ms. Syms is also a founding member of the board of directors of the Syms School of Business at Yeshiva University. Currently, Ms. Syms serves as President of the Sy Syms Foundation. Ms. Syms served as Founder and President of the TPD Group LLC, a multi-generational succession planning company, from 2013 to 2018. Ms. Syms is also a member of the board of directors of Benco Dental.
Ms. Syms brings to the Board over 18 years of experience as a chief executive officer of a chain of retail stores, including an array of skills in strategic planning, marketing, and human resources matters similar to those faced by the Company.
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Board Leadership
Mr. Bodaken became Chairman of the Board effective at the 2018 Annual Meeting. The Board has determined that Mr. Bodaken will continue to serve as Chairman of the Board.
In December 2018, the Board amended the Company's By-Laws to provide that the Chairman of the Board shallmust be a director who is independent under the NYSE listing standards and the Company'sCompany’s Corporate Governance Guidelines. The Board believes that separation of the Chairmanpositions of Chair of the Board and Chief Executive Officer positions best serves the needs of the Company and its stockholders. The Board believes that Mr. Bodaken will continue to provide excellent independent leadership of the Board in his role as Chairman.
As Chairman, Mr. Bodaken's responsibilities subsumeChair.
For a director to be considered independent under the responsibilitiesNYSE corporate governance listing standards, the Board of Directors must determine that the director does not have any direct or indirect material relationship with the Company, including any of the Lead Independent Directorrelationships identified in the NYSE independence standards. The Board considers all relevant facts and include:•- circumstances in making its independence determinations.
presiding at all meetingsAs a result of this review, the Board affirmatively determined that the following directors, including each director serving on the Audit Committee, the Compensation Committee, and the Nominating and Governance Committee, satisfy the independence requirements of the NYSE listing standards:
| | •
Bruce G. Bodaken | | | •
Robert E. Knowling, Jr. | | | •
Arun Nayar | |
| | •
Elizabeth “Busy” Burr | | | •
Kevin E. Lofton | | | •
Kate B. Quinn | |
| | •
Bari Harlam | | | •
Louis P. Miramontes | | | | |
The Board including executive sessionsalso previously determined that Marcy Syms, who served as a director until the 2020 annual meeting of stockholders, satisfied the independence requirements of the non-management directors;NYSE listing standards.
•the authority to call meetings ofIn addition, the Board and ofdetermined that the non-management directors;
•serving as a liaison between the Chief Executive Officer and independent directors and facilitating communications between other members of the BoardAudit Committee satisfy the additional independence requirements for audit committee members and that the Chief Executive Officer (any director is free to communicate directly with the Chief Executive Officer; the Chair's role is to attempt to improve such communications if they are not entirely satisfactory);
•working with the Chief Executive Officer in the preparation of and approving Board meeting agendas and schedules, and the information to be provided to the Board;
•chairing the periodic reviewmembers of the performanceCompensation Committee satisfy the additional independence requirements for compensation committee members.As an employee of the Chief Executive Officer;Company, Ms. Donigan is not an independent director.
18 | RITE AID CORPORATION 2021 Proxy Statement
CORPORATE GOVERNANCE AND BOARD MATTERS
•otherwise consulting withThere is no family relationship between any of the Chief Executive Officer on matters relating to corporate governancenominees and Board performance; andexecutive officers of Rite Aid.
CORPORATE GOVERNANCE PRACTICES•if requested by major stockholders, ensuring that he is available, when appropriate, for consultation and direct communication.Corporate GovernanceWe recognize that good corporate governance is an important means of protectingpromoting the long-term interests of our stockholders, associates, customers, suppliers, and the community. The Board of Directors, including through the Nominating and Governance Committee, monitors corporate governance developments and proposed legislative, regulatory, and stock exchange corporate governance reforms. In April 2019,
Majority Voting Standard and Policy
Under the Company’s By-Laws, a nominee for director in uncontested elections of directors (as is the case for this Annual Meeting) will be elected to the Board enhanced our corporate governanceif the votes cast “for” such nominee’s election exceed the votes cast “against” such nominee’s election. In contested elections, directors will be elected by amendinga plurality of votes cast.
Under the Company's By-Laws to permit special meetings of stockholders of the Company to be called by stockholders holding at least 20% of the Company's common stock. Website Access to Corporate Governance Materials. Our corporate governance information and materials, including ourCompany’s Corporate Governance Guidelines, current chartersa director who fails to receive the required number of votes for eachreelection in accordance with the By-Laws will, within five days following certification of the Audit Committee, Compensation Committee, Nominating and Governance Committee, and Executive Committee, our Codestockholder vote, tender his or her written resignation to the Chair of Ethicsthe Board for consideration by the CEO and Senior Financial Officers, our Code of Ethics and Business Conduct, our Stock Ownership Guidelines, and our Related Person Transaction Policy are posted on our website atwww.riteaid.com underBoard, subject to the headings "Corporate Info—Governance" and are availableprocedures set forth in print upon request to Rite Aid Corporation, 30 Hunter Lane, Camp Hill, Pennsylvania 17011, Attention: Secretary. The information on our website is not, and shall not be deemed, a part of this proxy statement. The Board regularly reviews corporate governance developments and will modify these materials and practices from time to time as warranted.the guidelines.
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Codes of Ethics.Ethics
The Board has adopted a Code of Ethics that is applicable to our Chief Executive Officer and senior financial officers. The Board has also adopted a Code of Ethics and Business Conduct that applies to all of our officers, directors, and associates. Any amendment to either code or any waiver of either code for executive officers or directors will be disclosed promptly on our website atwww.riteaid.com under the headings "Corporate Info—Governance—Code of Ethics.". Anti-Hedging and Anti-Pledging Policies
Director Independence. ForThe Company’s directors, officers and other associates are prohibited from engaging in hedging or monetization transactions, such as zero-cost collars, equity swaps, exchange funds and forward sale contracts, with respect to our securities. Because hedging transactions might allow a director, officer or other associate to be considered independent undercontinue to own our securities, whether obtained through our equity compensation plans or otherwise, without the NYSE corporate governance listing standards, the Boardfull risks and rewards of ownership, such hedging transactions are prohibited. Directors, must affirmatively determine that the director does not have any directofficers and other associates are also prohibited from holding in a margin account, or indirect material relationship with theotherwise pledging, Company including any of the relationships specifically proscribed by the NYSE independence standards. The Board considers all relevant facts and circumstances in making its independence determinations. Only independent directors may serve on our Audit Committee, Compensation Committee, and Nominating and Governance Committee. Assecurities as collateral for a result of this review, the Board affirmatively determined that the following directors, including each director serving on the Audit Committee, the Compensation Committee, and the Nominating and Governance Committee, satisfy the independence requirements of the NYSE listing standards: Bruce G. Bodaken, Busy Burr, Robert E. Knowling, Jr., Kevin E. Lofton, Louis P. Miramontes, Arun Nayar, Katherine Quinn, and Marcy Syms. The Board also determined that Joseph B. Anderson and Michael N. Regan, who served as directors until April 2019, and David R. Jessick, Myrtle Potter, and Frank A. Savage, who served as directors until October 30, 2018, also satisfied the independence requirements of the NYSE listing standards. The Board also determined that the members of the Audit Committee satisfy the additional independence requirements of Rule 10A-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the additional NYSE independence requirements for audit committee members. In addition, the Board has determined that the members of the Compensation Committee satisfy the additional NYSE independence requirements for compensation committee members.
There is no family relationship between any of the nominees and executive officers of Rite Aid.
loan.
Majority Voting Standard and Policy.BOARD OVERSIGHT OF RISK MANAGEMENT
Under the Company's By-Laws, a nominee for director in uncontested elections of directors (as is the case for this Annual Meeting) will be elected to the Board if the votes cast "for" such nominee's election exceed the votes cast "against" such nominee's election. In contested elections, directors will be elected by a plurality of votes cast. For this purpose, a contested election means any meeting of stockholders for which (i) the Secretary of the Company receives a notice that a stockholder (or group of stockholders) has nominated a person for election to the Board in compliance with the advance notice requirements for stockholder nominees for director or the proxy access requirements, in each case as set forth in the By-Laws and (ii) such nomination has not been withdrawn by such stockholder (or group of stockholders) on or prior to the 14th day preceding the date the Company first mails its notice of meeting for such meeting to the stockholders. Under the Company's Corporate Governance Guidelines, a director who fails to receive the required number of votes for reelection in accordance with the By-Laws will, within five days following certification of the stockholder vote, tender his or her written resignation to the Chairman of the Board for consideration by the Board, subject to the procedures set forth in the guidelines.
Board Oversight of Risk Management
The Board of Directors, as a whole and through the various committees of the Board, oversees the Company'sCompany’s management of risk, focusing primarily on five areas of risk: operational,
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The Board considers and discusses risks in connection with operating, financial performance, financial reporting, legal and regulatory, and strategic plans, specific approval matters, and reputational.special risk topics such as responses to the COVID-19 pandemic and prescription opioid abuse. The Board may delegate responsibility for oversight of selected risks to the appropriate Board committee as described below.
Management of the Company is responsible for developing and implementing the
Company'sCompany’s plans and processes for risk management. The Board believes that its leadership structure, described above,
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supports the risk oversight function of the Board. The Board of Directors, at least annually, reviews with management its
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CORPORATE GOVERNANCE AND BOARD MATTERS
plans and processes for managing risk. The Board also receives periodic updates from the Company'sCompany’s compliance and internal assurance services departments with regard to the overall effectiveness of the Company's risk management programCompany’s compliance and internal audit programs and significant areas of risk to the Company, focusing on the five primary areas of risk set forth above as well as other areas of risk identified from time to time by either the Board, a Board committee, or management. In addition,
The Board delegated to the Audit Committee oversight of the Company’s compliance program, and therefore the Committee has the primary oversight role with respect to many of the risks related to the opioid crisis. Through the Audit Committee, the Board is committed to ensuring that the Company is developing solutions to curb prescription opioid abuse through the development and expansion of education, safe prescription drug disposal and pharmacy safeguards.
The Board and the Audit Committee also receive periodic updates from the Company'sCompany’s Chief Financial Officer, Chief Information Officer, or Chief Information Security Officer on cybersecurity matters, including information services security and security controls over credit card, customer, associate, and patient data. These updates also include information regarding the Rite Aid Information Security Program, managed by Rite Aid'sAid’s Chief Information Security Officer, which is designed to protect information and critical resources from a wide range of threats in order to ensure business continuity, minimize business risk, and maximize return on investments and business opportunities. The objective in the development and implementation of the Information Security Program is to create effective administrative, technical, and physical safeguards in order to protect the data of Rite Aid and its subsidiaries and the data of any customers and clients of these entities. In addition, other Board committees consider risks within their respective areas of responsibility and advise the Board of any significant risks. For example, the Compensation Committee considers risks relating to the Company's compensation programs and policies and the Audit Committee focuses on assessing and mitigating financial reporting risks, including risks related to internal control over financial reporting andas well as legal and regulatory compliance, risks.
cyber risk and enterprise risk management.
Compensation-Related Risk AssessmentThe Compensation Committee considers risks relating to the Company’s compensation programs and policies, reviews all incentive plans relative to established criteria and conducts an assessment to ensure that none of our incentive plans encourage excessive risk-taking by our executives or associates. Together with executive management, the Compensation Committee has considered the risks arising from the Company's compensation programs for its executives and associates and has concluded that the compensation policies are not reasonably likely to have a material adverse effect on the Company.
The Compensation Committee reviews the risk profile and the relationship between the Company'sCompany’s compensation programs to the overall risk profile of the Company. Some of the features of our compensation incentive programs that limit risk include:
•
Delivery of compensation through an appropriate mix of base salary, short-term cash incentive bonuses,awards, long-term awards, and benefits.
•
•Use of a mix of long-term incentive vehicles that reward both stock price appreciation and financial operating performance and have different risk profiles.
•
•Incorporation of measures in the performance awards to assess how efficientlyour ability to drive stock performance through profitability, leverage reduction and effectively we deploy our assets (return on net assets)growth, and to compare our stock performance against the Russell 3000 Index (total stockholder return).
•
•StockMeaningful stock ownership guidelinesrequirements for executives.
The Compensation Committee has considered the risks arising from the Company’s compensation policies and practices for its executives and associates and has concluded that
promote executive stock ownership.Committees of the Board of Directorscompensation policies and practices are not reasonably likely to have a material adverse effect on the Company.
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CORPORATE GOVERNANCE AND BOARD MATTERS
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has four standing committees: the Audit Committee, the Compensation Committee, the Nominating and Governance Committee, and the Executive Committee. Current copies of the charters for each of these committees are available on our website at
| | | | Current copies of the charters for each of these committees are available on our website at www.riteaid.com under the headings “Corporate—Governance—Corporate Governance Committees—Committee Charters.” | | |
www.riteaid.com under the headings "Corporate Info—Governance—Corporate Governance Committees—Committee Charters."
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The current members of the committees are identified in the following table.
| | | | | | | | Committees | |
| | Director | | | Independent | | | Audit | | | Compensation | | | Executive | | | Nominating and
Governance | |
| | Bruce G. Bodaken | | | | | | | | | | | | | | | | | | | |
| | Elizabeth “Busy” Burr | | | | | | | | | | | | | | | | |
| | Heyward Donigan | | | | | | | | | | | | | | | | | | | |
| | Bari Harlam | | | | | | | | | | | | | | | | | | | |
| | Robert E. Knowling, Jr. | | | | | | | | | | | | | | | | | | | |
| | Kevin E. Lofton | | | | | | | | | | | | | | | | | | | |
| | Louis P. Miramontes | | | | | | | | | | | | | | | | | | | |
| | Arun Nayar | | | | | | | | | | | | | | | | | | | |
| | Kate B. Quinn | | | | | | | | | | | | | | | | | | | |
| | Number of Meetings
in Fiscal 2021 | | | | | | 6 | | | 6 | | | 0 | | | 2 | |
| | | | | Committee Chair | | | | | | Committee Member | | | | | | Chair of the Board | | | | | | Audit Committee Financial Expert | |
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| | | AUDIT COMMITTEE | | | Meetings in Fiscal 2021: 6 | | |
| | |
Director
| | Audit | | Compensation | | Nominating and
Governance | | Executive |
|---|
Bruce G. BodakenMembers | | | | | | X | | Chair |
Busy | •
Louis P. Miramontes, Chair | | | •
Elizabeth “Busy” Burr | | X | •
Arun Nayar | |
| | The Board has determined that each member of the Audit Committee is an independent director under the NYSE listing standards and satisfies the additional independence requirements for audit committee members. See the section entitled “Corporate Governance—Director Independence” above. The Board has determined that each of these individuals is also “financially literate” under the applicable NYSE listing standards. The Board has determined that each of Louis P. Miramontes and Arun Nayar qualifies as an “audit committee financial expert” as that term is defined under applicable SEC rules. | |
| | Principal Responsibilities | | | Charter | | |
| | The functions of the Audit Committee include the following: •
Appointing, compensating, and overseeing our independent registered public accounting firm (“independent auditors”); •
Overseeing management’s fulfillment of its responsibilities for financial reporting and internal control over financial reporting; •
Overseeing the activities of the Company’s internal audit function; and •
Reviewing the Company’s cybersecurity, information security and technology risks | | | For additional information, see the Audit Committee’s charter on our website at www.riteaid.com, under the headings “Corporate—Governance—Our Policies—Corporate Governance Committees—Audit Committee Charter.” Audit Committee Report The Audit Committee Report is located in “Proposal 2—Ratification of the Appointment of Independent Registered Public Accounting Firm” under the caption “Audit Committee Report.” | | | | |
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| | | COMPENSATION COMMITTEE | | | Meetings in Fiscal 2021: 6 | | |
| | Members | | | |
| | •
Robert E. Knowling, Jr., Chair | | | | Chair | | | | |
Kevin E. Lofton | | | | | | Chair | | |
•
Louis P. Miramontes | | Chair | •
Kate B. Quinn | X | | | | |
Arun Nayar | | X | | | | | | X |
Katherine Quinn | | | | X | | | | |
John T. Standley | | | | | | | | X |
Marcy Syms | | | | | | X | | |
Audit Committee. The Audit Committee, which held nine meetings during fiscal year 2019, currently consists of Louis P. Miramontes (Chair), Busy Burr, and Arun Nayar. The Board has determined that each of these individuals is an independent director under the NYSE listing standards and satisfies the additional independence requirements of Rule 10A-3 under the Exchange Act and the additional requirements of the NYSE listing standards for audit committee members. See the section entitled "Corporate Governance—Director Independence" above. The Board has determined that each of these individuals is also "financially literate" under the applicable NYSE listing standards. The Board has determined that both Louis P. Miramontes and Arun Nayar qualify as an "audit committee financial expert" as that term is defined under applicable SEC rules.
The functions of the Audit Committee include the following:
•Appointing, compensating, and overseeing our independent registered public accounting firm ("independent auditors");
•Overseeing management's fulfillment of its responsibilities for financial reporting and internal control over financial reporting; and
•Overseeing the activities of the Company's internal audit function.
The independent auditors and internal auditors meet with the Audit Committee with and without the presence of management representatives. For additional information, see the section entitled "Audit Committee Report," as well as the Audit Committee's charter, which is posted on our website atwww.riteaid.com under the headings "Corporate Info—Governance—Corporate Governance Committees—Committee Charters."
Compensation Committee.| | The Board has determined that each member of the Compensation Committee is an independent director under the NYSE listing standards and satisfies the additional independence requirements for compensation committee members. See the section entitled “Corporate Governance—Director Independence” above. | |
| | Principal Responsibilities The functions of the Compensation Committee include the following: •
Administering Rite Aid’s equity incentive plans; •
Reviewing and approving the base salaries of executive officers and reviewing and recommending to the Board the base salary of the CEO (along with other compensation elements as deemed necessary); •
Reviewing and approving goals and objectives relevant to the incentive-based compensation of executive officers, evaluating the performance of executive officers, and determining and approving the incentive-based compensation of executive officers; •
Setting corporate performance targets under all annual bonus and long-term incentive compensation plans and determining annually the individual bonus award opportunities for executive officers; •
Reviewing and approving executive officers’ employment agreements and severance arrangements; and •
Reviewing and making recommendations to the Board on employee engagement and diversity and inclusion initiatives, objectives and progress. | | | Independent Compensation Consultant As provided in its charter, the Compensation Committee has the authority to engage an external compensation consultant and to determine the scope of any services provided. The Compensation Committee may terminate the engagement at any time. The external compensation consultant reports to the Compensation Committee Chair. Charter For additional information, see the Compensation Committee’s charter on our website at www.riteaid.com, under the headings “Corporate—Governance—Our Policies—Corporate Governance Committees—Compensation Committee Charter.” Compensation Committee Report The Compensation Committee Report is located at the end of the “Compensation Discussion and Analysis” under the caption “Compensation Committee Report.” | |
Compensation Committee which held four meetings during fiscal year 2019, currently consists of Interlocks and Insider Participation
Robert E. Knowling, Jr. (Chair), Louis P. Miramontes, and
Katherine Quinn. The Board has determined that each of these individuals is an independent director underKate B. Quinn served on the
NYSE listing standards and satisfies the additional independence requirements of the NYSE listing standards for compensation committee members. See the section entitled "Corporate Governance—Director Independence" above. The functionsCompensation Committee during fiscal year 2021. During fiscal year 2021, no member of the Compensation Committee include the following:
•Administering Rite Aid's stock option and other equity incentive plans;
•Reviewing and approving the base salarieswas an employee, former employee, or executive officer of the Company's executive officers and reviewing and recommending to the Board the base salary of the CEO;
•Reviewing and approving the Company's goals and objectives relevant to the incentive-based compensation of the Company's executive officers (including the CEO), evaluating the
Company, nor does any such member have any interlocking relationships as defined by applicable SEC rules.
RITE AID CORPORATIONTable of Contents The Compensation Committee reviews the performance of the Company's executive personnel, including the Company's named executive officers, 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, and stock-based awards. The details of the processes and procedures for the consideration and determination of the compensation of our named executive officers are described in the section entitled "Executive Compensation—Compensation Discussion and Analysis." 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, to reward performance, and to fix a portion of compensation to the outcome of the Company's performance.
As provided in its charter, the Compensation Committee has the authority to engage an external compensation consultant and to determine the scope of any services provided. The Compensation Committee may terminate the engagement at any time. The external compensation consultant reports to the Compensation Committee Chair.
Since June 2010, the Compensation Committee has utilized Exequity LLP as its independent consultant. With respect to fiscal year 2019, Exequity LLP reviewed recommendations and analysis prepared by management and provided advice and counsel to the Compensation Committee. Exequity LLP does not provide any other services to the Company. The Compensation Committee has assessed the independence of Exequity LLP, taking into consideration the factors set forth in the NYSE listing standards and SEC rules, and determined that the engagement of Exequity LLP does not raise any conflicts of interest.
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CORPORATE GOVERNANCE AND BOARD MATTERS
| | | NOMINATING AND GOVERNANCE COMMITTEE | | | Meetings in Fiscal 2021: 2 | | |
| | Members | |
| | •
Kevin E. Lofton, Chair | | | •
Bruce G. Bodaken | | | •
Bari Harlam | | | •
Kate B. Quinn | |
| | The Board has determined that each member of the Nominating and Governance Committee is an independent director under the NYSE listing standards. See the section entitled “Corporate Governance—Director Independence” above. | |
| | Principal Responsibilities The functions of the Nominating and Governance Committee include the following: •
Identifying and recommending to the Board individuals qualified to serve as Rite Aid directors; •
Recommending to the Board individual directors to serve on committees of the Board; •
Advising the Board with respect to matters of Board composition and procedures; •
Developing and recommending to the Board a set of corporate governance principles applicable to Rite Aid and overseeing corporate governance matters generally; | | | •
Overseeing the annual evaluation of the Board and management; •
Reviewing and approving or ratifying related person transactions in which the Company is a participant; and •
Overseeing the environmental, social and corporate governance policies, trends and activities of the Company. Charter For additional information, see the Nominating and Governance Committee’s charter on our website at www.riteaid.com, under the headings “Corporate—Governance—Our Policies—Corporate Governance Committees—Nominating and Governance Committee Charter.” | |
| | | EXECUTIVE COMMITTEE | | | Meetings in 2021: 0 | | |
| | Members | |
| | •
Bruce G. Bodaken, Chair | | | •
Heyward Donigan | | | •
Kevin E. Lofton | | | •
Arun Nayar | |
| | Principal Responsibilities | | | Charter | |
| | The Executive Committee did not meet during fiscal year 2021. The Executive Committee, except as limited by Delaware law, is empowered to exercise all of the powers of the Board of Directors. | | | For additional information, see the Executive Committee’s charter on our website at www.riteaid.com, under the headings “Corporate—Governance—Our Policies—Corporate Governance Committees—Executive Committee Charter.” | |
Board Committee Refreshment
The Nominating and Governance Committee which held eight meetings during fiscal year 2019, currently consistsconsiders the periodic rotation of Kevin Lofton (Chair), Bruce G. Bodaken,Committee members and Marcy Syms. The Board has determined that each of these individuals is an independent director underCommittee Chairs to introduce fresh perspectives and to broaden and diversify the NYSE listing standards. Seeviews and experience represented on the section entitled "Corporate Governance—Director Independence" above. The functions ofCommittees. Through this periodic refreshment, the Nominating and Governance Committee includeconsiders, among other things, the following:
•Identifyingbenefits from continuity and recommending todepth of experience with the Board individuals qualified to serve as Rite Aid directors;
•Recommending to the Board individualbenefits of fresh perspectives and exposing our directors to serve on committeesdifferent aspects of the Board;our business.
BOARD MEETING ATTENDANCE
•Advising theThe Board with respect to matters of Board composition and procedures;
•Developing and recommending to the Board a set of corporate governance principles applicable to Rite Aid and overseeing corporate governance matters generally;
•Overseeing the annual evaluation of the Board and management; and
•Reviewing and approving or ratifying related person transactions in which the Company is a participant.
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Executive Committee. The members of the Executive Committee currently are Bruce G. Bodaken (Chair), Arun Nayar, and John T. Standley. The Executive Committee did not meetDirectors held 10 meetings during fiscal year 2019. The Executive Committee, except as limited by Delaware law, is empowered to exercise all2021. Each director attended at least 75% of the powersaggregate number of meetings of the Board of Directors.Directors and meetings held by all committees on which such director served during the period for which such director served.
NominationIt is our policy that directors are invited and encouraged to attend the annual meeting of Directorsstockholders. All directors serving on the Board or nominated to serve on the Board at the time of the meeting attended the 2020 Annual Meeting of Stockholders.24 | RITE AID CORPORATION 2021 Proxy Statement
CORPORATE GOVERNANCE AND BOARD MATTERS
The Nominating and Governance Committee identifies potential candidates by asking current directors and executive officers to notify the committee if they become aware of persons, meeting the criteria described below, who have had a change in circumstances that might make them available to serve on the Board—for example, retirement as a CEO or CFO of a public company or exiting government or military service. The Nominating and Governance Committee also, from time to time, may engage firms that specialize in identifying director candidates. Bari Harlam, who became an independent director in September 2020, was referred to the Nominating and Governance Committee by the director search firm Spencer Stuart.
The Nominating and Governance Committee will consider director candidates recommended by stockholders. In considering such recommendations, the Nominating and Governance Committee will take into consideration the needs of the Board and the qualifications of the candidate. The Nominating and Governance Committee may also take into consideration the number of shares held by the recommending stockholder and the length of time that such shares have been held. To have a candidate considered by the Nominating and Governance Committee, a stockholder must submit the recommendation in writing and must include the following information:
•
The name of the stockholder and evidence of the person'sperson’s ownership of Rite Aid stock, including the number of shares owned and the length of time of ownership; and
•
•The name of the candidate, the candidate'scandidate’s resume or a listing of his or her qualifications to be a Rite Aid director, and the person'sperson’s consent to be named as a director if selected by the Nominating and Governance Committee and nominated by the Board.
The stockholder recommendation and information described above must be sent to Rite Aid Corporation, 30 Hunter Lane, Camp Hill, Pennsylvania 17011, Attention: Corporate Secretary. The Nominating and Governance Committee will accept recommendations of director candidates throughout the year. Generally, in order for a recommended director candidate to be considered for nomination to stand for election at an upcoming annual meeting of stockholders, the recommendation must be received by the Secretary not fewer than 120 days prior to the anniversary date of Rite Aid'sAid’s most recent annual meeting of stockholders. In the event an annual meeting is held on a date that is not within 25 days of such anniversary date, recommendations will be considered by the Nominating and Governance Committee in due course. The Board seeks to maintain an engaged, independent Board with broad experience and judgment that is committed to representing the long-term interests of our stockholders. The Nominating and Governance Committee believes that the minimum qualifications for serving as a Rite Aid director are that a candidate demonstrate, by significant accomplishment in his or her field, an ability to make a meaningful contribution to the Board's oversight of Rite Aid's business and affairs and have an impeccable record and reputation for honest and ethical conduct in his or her professional and personal activities. In addition, the Nominating and Governance Committee examines a candidate's specific experiences and skills, availability in light of other commitments, potential conflicts of interest, and independence from management and the Company. The Nominating and Governance Committee also takes into account a candidate's ability to contribute to the diversity of background and experience represented by the Board. The Nominating and Governance Committee assesses its achievement of diversity through the review of Board composition as part of the Board's annual self-assessment process.
The Nominating and Governance Committee identifies potential candidates by asking current directors and executive officers to notify the committee if they become aware of persons, meeting the criteria described above, who have had a change in circumstances that might make them available to serve on the Board—for example, retirement as a CEO or CFO of a public company or exiting government or military service. The Nominating and Governance Committee also, from time to time, may engage firms that specialize in identifying director candidates. As described above, the committee will also consider candidates recommended by stockholders.
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The Nominating and Governance Committee may review publicly available information, conduct an interview and/or check references to assess the person'sperson’s accomplishments and qualifications in light of the needs of the Board and the accomplishments and qualifications of any other candidates that the committee might be considering. The committee'scommittee’s evaluation process does not vary based on whether or not a candidate is recommended by a stockholder, although, as stated above, the Board may take into consideration the number of shares held by the recommending stockholder and the length of time that such shares have been held.
Russell Reynolds Associates,
The Board seeks to maintain an executive search consulting firm, assistedengaged, independent Board with broad experience and judgment that is committed to representing the long-term interests of our stockholders. The Nominating and Governance Committee believes that the minimum qualifications for serving as a Rite Aid director are:
•
that a candidate demonstrates, by significant accomplishment in his or her field, an ability to make a meaningful contribution to the Board’s oversight of Rite Aid’s business and affairs, and
•
that a candidate has an impeccable record and reputation for honest and ethical conduct in his or her professional and personal activities.
In addition, the Nominating and Governance Committee examines a candidate’s specific experiences and skills, availability in sourcing director candidateslight of other commitments, potential conflicts of interest, and independence from management and the Company. The Nominating and Governance Committee also takes into account a candidate’s ability to contribute to the diversity of background and experience represented by the Board. The Nominating and Governance Committee assesses its achievement of diversity through the review of Board composition as part of the continuation of the Board's accelerated refreshmentBoard’s annual self-assessment process. With respect to the two additions to the Board in April 2019, Busy Burr and Katherine Quinn were both vetted and recommended by Russell Reynolds Associates to the Nominating and Governance Committee for the Committee's consideration for appointment as independent directors. Executive Sessions of Non-Management DirectorsEXECUTIVE SESSIONS OF NON-MANAGEMENT DIRECTORSIn order to promote discussion among the non-management directors, regularly scheduled executive sessions (i.e., meetings(meetings of non-management directors without management present) are held to review such topics as the non-management directors determine.regularly. Mr. Bodaken, our ChairmanChair of the Board, presides at our executive sessions. The non-management directors met in executive session 14 times during fiscal year 2019.Communications with the Board of Directors
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CORPORATE GOVERNANCE AND BOARD MATTERS
COMMUNICATIONS WITH THE BOARD OF DIRECTORS
The Board has established a process to receive communications from stockholders and other interested parties. Stockholders and other interested parties may contact any member (or all members) of the Board, any Board committee, or any chair of any such committee by mail or electronically. To communicate with the Board of Directors, the non-management directors, a committee of directors, or any individual directors, including our Independent Chairman of the Board, correspondencemail. Correspondence should be addressed to the Board of Directors or any such individual directors, or committee of directors by either name or title. All such correspondence should be sent to Rite Aid Corporation, c/o Secretary, P.O. Box 3165, Harrisburg, Pennsylvania 17105. To communicate with any of the directors electronically, stockholders should go to our website at
| | | All such correspondence should be sent to: | | | | | | Rite Aid Corporation
c/o Corporate Secretary
30 Hunter Lane
Harrisburg, Pennsylvania 17105 | | |
www.riteaid.com. Under the headings "Corporate Info—Governance—Board of Directors—Contact the Board of Directors" you will find an on-line form, as well as an email address, that may be used for writing an electronic message to the Board, the non-management directors, any individual directors, or any committee of directors. Please follow the instructions on the website in order to send your message.All communications received as set forth above will be opened by the Corporate Secretary for the purpose of determining whether the contents represent a messagelegitimate communication to the directors,directors. Such communications, other than business solicitations or advertisements, junk mail and depending on the factsmass mailings, new product suggestions, product complaints, product inquiries, resumes and circumstances outlined in the communication,other forms of job inquiries, spam, and surveys, will be distributed to the Board, the non-management directors, an individual director, or a committee of directors, as appropriate. The Secretary will make sufficient copies of the contents to send to each director who is a member of the Board or of the committee to which the envelope or email is addressed.
Directors' Attendance at Board, Committee, and Annual MeetingsENVIRONMENTAL, SOCIAL & GOVERNANCE MATTERS The Board of Directors held 26 meetings during fiscal year 2019. Each incumbent director attended at least 75% of the aggregate of the meetings of the Board of Directors and meetings held by all committees on which such director served, during the period for which such director served.
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It is our policy that directors are invited and encouraged to attend the annual meeting of stockholders. Eight of our nine directors serving on the Board or nominated to serve on the Board at the time of the meeting attended the 2018 Annual Meeting of Stockholders.
Sustainability
At the 2018 Annual Meeting, stockholders approved a proposal requesting that Rite Aid prepare ais committed to embedding sustainability report describingthroughout our business and the Company's environmental, social, and governance (ESG) risks and opportunities. A report describing the Company's ESG risks and opportunities will be released prior to the Annual Meeting. When available, the report will be posted on our website atwww.riteaid.com under the headings "Corporate Info—Investor Relations."
At Rite Aid,communities we serve. We are dedicated to integrating Environmental, Social and Governance (ESG) initiatives into our operations, not onlystriving to retaincreate long term value for our shareholders, our customers, and our associates, but also because "integrity inmeet the growing expectations of all we do" is one of our core values.
We havestakeholders.
In 2019, Rite Aid formed a corporate social responsibility committee comprised of senior level leadership stakeholdersCorporate Sustainability Committee, with crossrepresentation from multiple functional representationleaders within the Company. The corporate social responsibility committeeorganization, which produces our annual CSRESG report each June and leads progressevaluates our current ESG initiatives, risks and opportunities on sustainability initiativesa regular basis.
In 2020, we made a concerted effort to further enhance our strategy and programs throughout the company.overall approach to sustainability. Our corporatestrategy was influenced by reporting frameworks, engagements with investors, stakeholder expectations and emerging trends. We identified several key areas of opportunity to expand our environmental, social responsibility committee provides corporate social responsibility updates to our Board. Our Codeand governance commitments, most notably around climate change, board oversight of Business EthicsESG matters, and Conduct outlines our core valuesdiversity, equity and describes additional corporate policies on ESG issues, including policesinclusion (which is discussed in more detail in the areas“Diversity, Equity and Inclusion Efforts” section of among others, customer and worker safety and environmental management, including energy and waste minimization. the Proxy Statement Summary above).
We expect our officers, directors, and associatescontinue to uphold the standards set forth in the Code of Business Ethics and Conduct at work every day. We conduct our business in compliance with applicable environmental, health, and safety regulations. We view conserving energy, avoiding the unnecessary generation of waste, and carrying out company activities in ways that preserve and promote a clean, safe, and healthy environment as the environmental and social sustainability priorities for our business.
We view adopting green business principles as part of our overall business strategy and believe it is a conscientious decision for our business, our community, and the environment. Over the past five years, we have mademake significant investments into improve energy efficiency and waste reduction initiatives and have committed to building new and remodeled stores to meet or exceed the national building code standards for energy efficiency. For example, in striving to conserve energy and avoid the unnecessary generation of waste,fleet fuel economy. In 2020, we have installed LED lighting to reduce our annual electric consumption by 18 million KWh, completed a redesign of our Thrifty Ice Cream Plant in El Monte, California, which included upgrades to a safer refrigeration system and to lighting and HVAC systems to reduce our annual electric consumption by eight million kWh, and installed a 1098 kW solar system at our distribution center in Lancaster, California that produces 30% of the location's power needs. Over the past three years, we have seen a steady decrease in energy consumption in our retail stores and have reduced our total energy consumption in our retail stores during that period by 19,031,630 kWhcapitalized on a comparable store basis. In addition, Rite Aid utilizes best-in-class architectural and engineering design firms that employ Building Council LEED™-accredited staff in order to help us develop our new store designs that meet or exceed the national building code standards for energy efficiency.
We have established a Chemical Policy and, in 2018, we expanded our Restricted Substances List as part of our ongoing efforts to meet customer expectations for chemical management and product safety. We have been working closely with our supplier partners to eliminate eight chemicals of high concern from formulated private brand items since 2016, and we expect to eliminate these chemicals from our private brand items by 2020. We have also expanded our Restricted Substances List to bring
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the total number of restricted chemicals from eight to 69. To assist stakeholders in understanding the impact of these initiatives, in 2019 we will begin reporting progress towards 100% elimination of the eight chemicals of high concern from our private brand products and the number of new products launched in a year that are free of the eight chemicals of high concern. Our long-term goal is to extend the Chemical Policy to cover all of the products sold in our stores. In 2019, we plan to extend the chemical program to cover formulated products like over-the-counter medications, vitamins and supplements, as well as food and beverages.
We have also implemented "Responsible Sourcing Guidelines" (and objectives) to promote supply chains that support responsible forest management, the appropriate use of recycled content and responsible sourcing, including transparency, protocols, and mechanisms to track the wood fiber in the supply chain from its origin to the forest products supplied to Rite Aid and its customers. Our initial goal is to address the largest volume of forest products used in Rite Aid's daily business operations, such as advertising circular papers, copy and print paper and the pharmacy bags and labels used by our pharmacy and distribution centers. We have already made significant progress in achieving our goal, with 100% of the paper purchased for our advertising circulars being sourced from responsibly managed, forest-based suppliers that are compliant with independent forest certification standards.
Further information about our commitment to sustainability is available on our website under the headings "Corporate Info—Environmental Responsibility"greater transparency and "Corporate Info—Chemical Policy."
Opioid Matter Oversight
The Board, the Company's management, and the Company's employees recognize the opioid epidemic that is afflicting Americans across the United States as a serious public health issue, and we have publicly expressed our commitment to addressing opioid abuse in the communities we serve. At the 2018 Annual Meeting, stockholders approved a proposal requesting that Rite Aid prepare a report describing the corporate governance changes the Company has implemented since 2012 to more effectively monitor and manage financial and reputational risks relatedaccountability around climate risk by reporting to the opioid crisis. The Company anticipates thatCDP climate change questionnaire for the first time, where we scored a B-. We have developed a formal climate change strategy, focused on three pillars: reducing energy demand, transitioning to lower carbon energy sources, and integrating climate risk into our business process. We performed our first climate risk assessment to assess and prepare for both the physical threat of climate change and a global economy’s transition to net zero. We also have adopted the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and will publish our first report describingaligned to the Company's approachTCFD’s recommendations this year.
Governance and board oversight is an essential part of managing our sustainability agenda and aligning with our broader vision and business strategy. Our Corporate Sustainability Committee met twice last year and provided updates to oversight of opioid matters will be released by October 1, 2019. Thethe Board and, management review the Company's plans and processes for managing risk at least annually. The Board oversees risk management and considers specific risk topics on an ongoing basis, including the risks associated with opioid medications. The Board also receives periodicgoing forward, will provide quarterly updates from internal subject matter experts with regard to the overall effectiveness of the Company's risk management programNominating and significant areas of risk to the Company, focusing on the five primary areas of risk set forth above as well as other areas of risk identified from time to time by the Board, a Board committee, or management, and including risks related to opioid dispensing and the status of ongoing initiatives to combat addiction risk in the communities Rite Aid serves. In addition, each Board committee regularly reports to the full Board on risks within their respective areas of responsibility. For example, the CompensationGovernance Committee. The Corporate Sustainability Committee annually reviews the Company's compensation plans, programs, and policies as they relate to the Company's risk management. Rite Aid management will continue to keepstay engaged with both our executive leadership team and the Board updated on a regular basis concerning opioid dispensing-related activities and initiativesas our program continues to combat addiction.
progress.
| | | | Further information about our commitment to sustainability is available on our website under the headings “Corporate—Corporate Social Responsibility.” Website content is not incorporated into this proxy statement. | | |
26 | RITE AID CORPORATION 2021 Proxy Statement
CORPORATE GOVERNANCE AND BOARD MATTERS
OPIOIDS AND OUR COMMUNITIES
At Rite Aid, we take our role as a community healthcarehealth care provider very seriously. This means goingIn that regard, the Board, along with the Company’s senior management, recognizes and is deeply concerned about the impact of the current opioid crisis on families and communities. We believe it is important to go beyond simply complying with state and federal laws and regulations to also raise awareness about important issues likeof prescription drug safety and drug abuse prevention. We are also committed to raising awareness about important issues like drug abuse prevention and prescription drug safety while advocating for increased access to education, treatment and proper medication disposal. As one of health care's most accessible practitioners, pharmacists are uniquely positionedWe have dedicated extensive efforts to help educate their patientsconsidering how best to manage risks relating to the opioid crisis and communities about promoting prescription safety.remain committed to continuing to evaluate our programs and policies and to strengthen our risk management. We are committed to working with our customers,
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local community groups, law enforcement community groups, and both federal and state agencies to help reducecombat the opioid epidemiccrisis that is impacting ourfamilies and communities throughout the United States. Rite Aid's
| | | Strategy to Address Opioid Abuse and Misuse | | |
| | | Rite Aid’s comprehensive strategy to respond to and address prescription opioid and other drug abuse and misuse includes the following kinds of measures: | | |
| | | At Rite Aid pharmacies, we take the following measures: •
We educate our patients by providing mandatory prescription counseling from a Rite Aid pharmacist to patients with new opioid prescriptions and to other patients with certain risk factors. •
We make DisposeRx, an opioid disposal solution, available at all of Rite Aid’s pharmacies nationwide. Rite Aid provides DisposeRx packets to patients, free of charge, with new opioid prescriptions and to patients with chronic opioid prescriptions every six months. •
We make naloxone, a medication that can be used to reverse the effects of an opioid overdose, available without a prescription at all of Rite Aid’s pharmacies nationwide. In 2019, all stores were listed on the naloxone locator tool in Google Maps. •
We counsel patients in accordance with HHS Guide for Clinicians on the Appropriate Dosage Reduction or Discontinuation of Long-Term Opioid Analgesics issued in 2019. •
We provide ongoing education and training to Rite Aid pharmacists, including with respect to risk factors for opioid abuse, how to identify symptoms of an overdose and what to do in the event of an overdose, available naloxone therapies and the proper administration of each, and recommendations for follow-up care. •
We participate in prescription drug monitoring programs, requiring that all pharmacists are registered for the programs in their respective state(s) of practice. •
Our pharmacists follow a “red flag” process when dispensing high-risk prescriptions. •
We implemented NarxCare, a tool that helps our pharmacists make responsible dispensing decisions while mitigating possible controlled substance misuse or abuse, in states where Narxcare is available. •
We provide resources on drug safety and disposal at www.riteaid.com/pharmacy/drug-information/medication-disposal-and-safety. •
We continue our process to identify prescribers with questionable prescription writing practices and, when appropriate, proactively discontinue filling controlled substances for certain prescribers. •
We support National Take-Back Days to encourage our patients to bring their unused or unwanted medications to designated sites sponsored by local law enforcement and the DEA for proper handling. •
We partner with state agencies to participate in free Naloxone Distribution Day events to support local communities. •
We provide Safe Medication Disposal units in 204 Rite Aid stores. | | | Through work at Elixir, we take the following measures: •
The Elixir Clinical team developed a pain management solution that goes beyond industry guidelines. The solution helps individuals manage pain safely through communication, education and outreach. This multifaceted program actively engages the member and their care team to become an advocate for the member and effectuate positive therapy changes. •
Each year, Elixir’s clinical safeguards help prevent unsafe use of opioid analgesics. In 2020, Elixir reduced the length of use for first-time opioid prescriptions by 95% through required clinical reviews and reduced the use of high-dose opioid therapies by 40%. •
In 2020, Elixir representatives participated in a summit meeting with the Centers for Medicare & Medicaid Services, as well as the Office of Inspector General, to collaborate on identification of dangerous opioid trends. •
Elixir follows the Centers for Disease Control and Prevention guidelines for prescribing opioids, including limiting acute opioid prescriptions to a seven-day supply, limiting the daily dosage of opioids dispensed based on the strength of the opioid, and requiring the use of immediate-release formulations of opioids before extended-release opioids are dispensed, for all plans that do not opt out. | | |
RITE AID CORPORATION 2021 Proxy Statement | 27
CORPORATE GOVERNANCE AND BOARD MATTERS
| | | | Further information about medication safety and disposal is available at www.riteaid.com/pharmacy/drug-information/medication-disposal-and-safety. Website content is not incorporated into this proxy statement. Our annual CSR Reports also discuss the Company’s continuing approach to opioids in our communities. | | |
CORPORATE GOVERNANCE MATERIALS
Website Access to address opioidCorporate Governance Materials
| | | | Our corporate governance information and materials are posted on our website at riteaid.com/corporate/governance. The information on our website is not, and shall not be deemed, a part of this proxy statement. | | |
| | | | | | | | | | | |
| | •
CORPORATE GOVERNANCE GUIDELINES | | | | •
AUDIT COMMITTEE CHARTER | | | | •
COMPENSATION COMMITTEE CHARTER | |
| | •
EXECUTIVE COMMITTEE
CHARTER | | | | •
NOMINATING AND GOVERNANCE COMMITTEE CHARTER | | | | •
CODE OF ETHICS FOR THE CEO AND SENIOR FINANCIAL OFFICERS | |
| | •
CODE OF ETHICS AND BUSINESS CONDUCT | | | | •
STOCK OWNERSHIP
GUIDELINES | | | | •
RELATED PERSON TRANSACTION POLICY | |
| | •
INSIDER TRADING
POLICY | | | | •
CERTIFICATE OF
INCORPORATION | | | | •
BY-LAWS OF RITE AID
CORPORATION | |
| | •
BOARD REPORT ON OPIOIDS OVERSIGHT | | | | •
NYSE DOCUMENTS—ANNUAL CEO CERTIFICATION | | | | •
NYSE DOCUMENTS—SECTION 303A WRITTEN AFFIRMATIONS OF COMPLIANCE | |
| | | These documents are also available in print upon request, free of charge, by writing to: | | | | | | Rite Aid Corporation
Attention: Corporate Secretary
30 Hunter Lane
Camp Hill, Pennsylvania 17011 | | |
The Board regularly reviews corporate governance developments and other drug abusewill modify these materials and misuse includes:•- practices from time to time as warranted.
EducatingCERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Review and Approval of Related Person Transactions
Under our patients sowritten policy, the Nominating and Governance Committee is responsible for the review, approval, or ratification of “related person transactions” between the Company or its subsidiaries and related persons. Under SEC rules, a related person is, or any time since the beginning of the last fiscal year was, a director, an executive officer, a nominee for director, a more than 5% stockholder of the Company, or an immediate family member (as defined under applicable SEC rules) of any of the foregoing. A related person transaction is any transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which the Company or a subsidiary is a participant, the amount involved exceeds $120,000, and a related person had, has or will have a direct or indirect material interest.
Directors, executive officers and nominees must complete an annual questionnaire and disclose all potential related person transactions involving themselves and their immediate family members that are known to them.
28 | RITE AID CORPORATION 2021 Proxy Statement
CORPORATE GOVERNANCE AND BOARD MATTERS
Throughout the year, directors and executive officers must notify the Corporate Secretary and Chief Accounting Officer of any potential related person transactions as soon as they understandbecome aware of any such transaction. The Corporate Secretary and Chief Accounting Officer inform the risksNominating and Governance Committee of opioid abuse startingany related person transaction of which they are aware. The Corporate Secretary and Chief Accounting Officer are responsible for conducting a preliminary analysis and review of potential related person transactions and presentation to the Nominating and Governance Committee for review, including provision of additional information to enable proper consideration by the Nominating and Governance Committee.
The Corporate Secretary and Chief Accounting Officer determine whether the proposed transaction should be submitted to the Nominating and Governance Committee for consideration at the next committee meeting or, if the Corporate Secretary and Chief Accounting Officer, in consultation with their first opioid prescription, including providing all patients with new opioid prescriptions with mandatory counselingthe Chief Executive Officer or Chief Financial Officer, determine that it is not practicable or desirable for the Company to wait until the next committee meeting, to the Chair of the Nominating and Governance Committee (who will possess delegated authority to act between committee meetings). As necessary, the Nominating and Governance Committee reviews approved related person transactions on their prescription froma periodic basis throughout the duration of the transaction to ensure that the transactions remain in the best interests of the Company. The Nominating and Governance Committee may, in its discretion, engage outside counsel to review certain related person transactions. In addition, the Nominating and Governance Committee may request that the full Board of Directors consider the approval or ratification of related person transactions if the Nominating and Governance Committee deems it advisable.
| | | | A copy of our full policy concerning transactions with related persons is available on the Governance section of our website at www.riteaid.com under the headings “Corporate—Governance—Our Policies—Related Person Transactions.” Website content is not incorporated into this proxy statement. | | |
Related Person Transactions
The brother of the Company’s Executive Vice President, Chief Financial Officer, Matthew Schroeder, is a partner in the law firm of Littler Mendelson P.C. The Company paid the law firm approximately $476,000 in fiscal year 2021 for employment and labor legal services. These legal services are provided to Rite Aid pharmacists.
•Making DisposeRx, a first-of-its-kind opioid disposal solution, available at allon an arm’s length basis. Mr. Schroeder has never had any role or involvement in the supervision of these services provided to Rite Aid or in any decisions regarding the retention of Littler Mendelson. The Company’s relationship with Littler Mendelson pre-dates Mr. Schroeder becoming an executive officer of Rite Aid's pharmacies nationwide.Aid. The Nominating and Governance Committee has reviewed the Company’s ongoing relationship with Littler Mendelson to ensure that it remains in the best interests of the Company.The sister of the Company’s Executive Vice President, Secretary and General Counsel, Paul Gilbert, is a partner in the law firm of Bradley Arant Boult Cummings LLP (“Bradley Arant”). The Company paid the law firm approximately $160,000 in fiscal year 2021 for certain opioid litigation-related matters. These legal services are provided to Rite Aid provides DisposeRx packets to patients with new opioid prescriptions and offers DisposeRx packets to patients with chronic opioid prescriptions every six months. DisposeRx packets containon an arm’s length basis. Mr. Gilbert has not had a biodegradable powder that, when mixed with waterrole in the prescription vial, dissolves drugs, forming a viscous geldecision regarding the retention of Bradley Arant, which may be safely discardedpre-dates Mr. Gilbert becoming an associate and executive officer of Rite Aid. The Nominating and Governance Committee has reviewed the Company’s ongoing relationship with Bradley Arant to ensure that it remains in the trash.
•Making naloxone, a medication that can be used to reverse the effects of an opioid overdose, available without a prescription at all of Rite Aid's pharmacies nationwide.
•Supporting the Centers for Disease Control and Prevention guidelines for prescribing opioids, including limiting acute opioid prescriptions to a seven-day supply, limiting the daily dosage of opioids dispensed based on the strengthbest interests of the opioid, and requiring the use of immediate-release formulations of opioids before extended-release opioids are dispensed.Company.RITE AID CORPORATION
•Providing ongoing education and training of Rite Aid pharmacists, including risk factors for opioid abuse, how to identify symptoms of an overdose and what to do in the event of an overdose, an overview of the naloxone therapies available, and proper administration of each and recommendations for follow-up care.
•Participating in prescription drug monitoring programs, assuring that all pharmacists are registered for the programs in their respective state(s) of practice, and including a "red flag" process for pharmacists to regularly review prescriptions for patients.
•Adding resources on drug safety and disposal onwww.riteaid.com 2021 Proxy Statement under the headings "Pharmacy & Immunizations—Drug Safety & Disposal." Visitors can search for a disposal site| 29
CORPORATE GOVERNANCE AND BOARD MATTERS
| | Non-Management Director Service | | | Annual Cash Retainer(1)
($) | |
| | Non-management director | | | | | 100,000 | | |
| | Additional annual retainers, for service as: | | | | | | | |
| | Chair of the Board | | | | | 100,000 | | |
| | Committee Chairs | | | | | | | |
| | •
Audit Committee | | | | | 20,000 | | |
| | •
Compensation Committee | | | | | 10,000 | | |
| | •
Nominating and Governance Committee | | | | | 10,000 | | |
| | Audit Committee Member (other than the Chair) | | | | | 10,000 | | |
(1)
Fees payable quarterly in their community, learn how to properly dispose of medication at home, access resources provided by the Food and Drug Administration and the Drug Enforcement Administration ("DEA"), and find information on treatment for drug abuse and addiction.arrears.
•Continuing its process to identify physicians with questionable prescription writing practices and, when appropriate, proactively discontinuing filling controlled substances for certain prescribers.
•Continuing to support National Take-Back Days to encourage our patients to bring their unused or unwanted medications to designated sites sponsored by local law enforcement and the DEA for proper handling.
•Developing the KidsCents Safe Medication Disposal program that is supported through the Rite Aid Foundation, which provides medication disposal units, free of charge, to local and state law enforcement agencies and enables individuals to drop off unwanted or expired medications in secure, safe locations. The Rite Aid Foundation committed $1 million to this initiative and, to date, over 450 units have been installed across the country since the launch of the program in August 2017.
•Adding 100 new Safe Medication Disposal units in select Rite Aid stores nationwide.
•Through the Rite Aid Foundation, committing $1.7 million over three years in partnership with EVERFI, a leading education technology company, to educate high school students to make safe and healthy decisions about prescription drugs. The digital prescription drug abuse prevention
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Further information about medication safety and disposal is available on our website under the headings "Pharmacy & Immunizations—Drug Safety & Disposal."
Directors' Compensation
EachAs shown, each non-management director receives an annual cash payment of $100,000, in cash, payable quarterly in arrears. In addition, (i) the Lead Independent Director received an additional annual payment of $25,000 (for so long as the Board had a Lead Independent Director); (ii) the Independent ChairmanChair of the Board receives an additional annual cash payment of $100,000; (iii)(ii) the Chair of the Audit Committee receives an additional annual cash payment of $20,000; (iv)(iii) the Chairs of the Compensation Committee and the Nominating and Governance Committee each receive an additional annual cash payment of $10,000; and (v)(iv) each member of the Audit Committee (other than the Chair) receives an additional annual cash payment of $10,000. Non-management directors also receive an annual award of restricted stock units valued at $120,000 (with the number of shares subject to the grant calculated by dividing 120,000 by the closing price of our common stock on the day before the date of grant, rounded to the nearest whole share). Prior to 2019, the
The annual grant provided for vesting with respect to 80% on the first anniversaryaward of the grant and 10% on each of the second and third anniversaries of the grant. The Compensation Committee undertook a review of non-management director compensation in December 2018. The Compensation Committee engaged with independent compensation consultant Exequity LLP to provide a recommendation of our overall director compensation as compared to our new peer group as discussed in the section entitled "The Compensation Committee's Process—Assessment of Company performance." As a result of the recommendation to, and approval by, the Board of Directors,restricted stock units for fiscal year 2019 the amount of each of the annual cash retainer and annual stock-based award described above remain unchanged. The annual stock-based award for fiscal year 2019 vests2021 vested on the date of grant and the shares subject to the grant will become payable on a deferred basis upon the separation from service of the director.
A non-management director may also defer cash fees under the Rite Aid Corporation Director Deferred Compensation Plan established by the Company for compensation earned on or after April 1, 2020. Cash fees deferred are allocated to a bookkeeping account for the non-management director and notionally invested in accordance with the director’s election among a subset of investment funds available under the Company’s 401(k) savings plan. A non-management director’s deferral is paid on the director’s separation from service in a single lump sum. For fiscal year 2021, solely Ms. Harlam elected to participate in the Director Deferred Compensation Plan upon her appointment during our 2021 fiscal year, and except for fees in her initial month of service, 100% of Ms. Harlam’s cash fees were deferred until separation from service pursuant to the plan.
Directors who are officers and/or Rite Aid associates 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 and Board committee meetings. Non-management directors are subject to our Stock Ownership Guidelines discussed on pages 51 to 52.in the Compensation Discussion and Analysis under the caption “Director and Officer Stock Ownership Guidelines.”
CORPORATE GOVERNANCE AND BOARD MATTERS
DIRECTOR COMPENSATION TABLE FOR FISCAL YEAR 2019
FISCAL YEAR 2021
The following Director Compensation Table sets forth fees, awards, and other compensation paid to or earned by our non-management directors who served during the fiscal year ended March 2, 2019:February 27, 2021:
| | Name | | | Fees Earned
or Paid in
Cash
($) | | | Stock
Awards
($)(1)(2) | | | Option
Awards
($) | | | Non-Equity
Incentive
Plan
Compensation
($) | | | Change In
Nonqualified
Deferred
Compensation
($) | | | All Other
Compensation
($) | | | Total
($) | |
| | Bruce G. Bodaken | | | | | 200,000 | | | | | | 120,008 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 320,008 | | |
| | Elizabeth “Busy” Burr | | | | | 110,000 | | | | | | 120,008 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 230,008 | | |
| | Bari Harlam(3) | | | | | 58,132 | | | | | | 119,164 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 177,296 | | |
| | Robert E. Knowling, Jr. | | | | | 110,000 | | | | | | 120,008 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 230,008 | | |
| | Kevin E. Lofton | | | | | 110,000 | | | | | | 120,008 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 230,008 | | |
| | Louis P. Miramontes | | | | | 120,000 | | | | | | 120,008 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 240,008 | | |
| | Arun Nayar | | | | | 110,000 | | | | | | 120,008 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 230,008 | | |
| | Kate B. Quinn | | | | | 100,000 | | | | | | 120,008 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 220,008 | | |
| | Marcy Syms(4) | | | | | 50,000 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 50,000 | | |
| | | | | | | | | | | | | | | | | | | | | | |
Name | | Fees
Paid in
Cash ($) | | Stock
Awards
($)(1)(2) | | Option
Awards
($) | | Non-Equity
Incentive Plan
Compensation
($) | | Change In
Nonqualified
Deferred
Compensation
($) | | All Other
Compensation
($) | | Total ($) | |
|---|
Joseph B. Anderson, Jr. | | | 108,288 | | | 120,000 | | | — | | | — | | | — | | | — | | | 228,288 | |
Bruce G. Bodaken | | | 117,120 | | | 120,000 | | | — | | | — | | | — | | | — | | | 237,120 | |
Robert E. Knowling | | | 18,832 | | | 120,000 | | | — | | | — | | | — | | | — | | | 138,832 | |
Kevin E. Lofton | | | 110,000 | | | 120,000 | | | — | | | — | | | — | | | — | | | 230,000 | |
Louis P. Miramontes | | | 25,524 | | | 120,000 | | | — | | | — | | | — | | | — | | | 145,524 | |
Arun Nayar | | | 18,832 | | | 120,000 | | | — | | | — | | | — | | | — | | | 138,832 | |
Michael N. Regan | | | 130,973 | | | 120,000 | | | — | | | — | | | — | | | — | | | 250,973 | |
Marcy Syms | | | 112,163 | | | 120,000 | | | — | | | — | | | — | | | — | | | 232,163 | |
David R. Jessick(3) | | | 99,457 | | | — | | | — | | | — | | | — | | | — | | | 99,457 | |
Myrtle Potter(3) | | | 82,880 | | | — | | | — | | | — | | | — | | | — | | | 82,880 | |
Frank A. Savage(3) | | | 82,880 | | | — | | | — | | | — | | | — | | | — | | | 82,880 | |
(1)(1)- Represents the grant date fair value of stock awards granted in
February 2019 in respect of fiscal year 20192021 in accordance with Financial Accounting Standards Board ("FASB"(“FASB”) Topic 718. For information regarding the assumptions used in determining the fair value of an award, please refer to Note 1718 to our financial statements contained in the Company'sCompany’s Annual Report on Form 10-K asfor the fiscal year ended February 27, 2021, filed with the SEC on April 25, 2019.27, 2021. Delivery of the shares underlying the restricted stock unit awards is deferredare immediately vested upon grant; however, shares are held until the directors'directors’ separation from services.service.
(2)
(2)The numberAs of February 27, 2021, no unvested restricted stock unit awards outstanding asand no stock option awards were held by any director.
(3)
Bari Harlam was appointed to the Board of March 2, 2019 for each director is detailed in the table below.Directors effective September 1, 2020. | | | | | | | |
(4)
Name
| | Grant Date | | Number of
Stock
Awards (#) | |
|---|
Joseph B. Anderson, Jr.
| | | June 22, 2016 | | | 77 | |
| | | July 17, 2017 | | | 519 | |
Bruce G. Bodaken
| | | June 22, 2016 | | | 77 | |
| | | July 17, 2017 | | | 519 | |
Kevin E. Lofton
| | | June 22, 2016 | | | 77 | |
| | | July 17, 2017 | | | 519 | |
Michael N. Regan
| | | June 22, 2016 | | | 77 | |
| | | July 17, 2017 | | | 519 | |
Marcy Syms | | | June 22, 2016 | | | 77 | |
| | | July 17, 2017 | | | 519 | |
David R. Jessick(3)
| | | — | | | — | |
Myrtle Potter(3)
| | | — | | | — | |
Frank A. Savage(3)
| | | — | | | — | |
(3)Each of Ms. Potter and Messrs. Jessick and Savage served as a member of the Board through the date of our 2018 Annual Meeting. Any outstanding, unvested shares were cancelled upon theirJuly 8, 2020. Upon her separation from the Board.
Board, Ms. Syms became vested in 259 shares of our stock remaining from the grant of RSUs made on July 17, 2017.
RITE AID CORPORATION 2021 Proxy Statement | 31
| | | | | | PROPOSAL 2—RATIFICATION OF THE
APPOINTMENT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM | | |
PROPOSAL NO. 2
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The accounting firm of Deloitte & Touche LLP ("(“Deloitte & Touche"Touche”) has been selected as the independent registered public accounting firm for the Company for the fiscal year ending February 29, 2020.26, 2022. Deloitte & Touche has audited the accounts and records of Rite Aid and its subsidiaries since 2000. Although the selection of accounting firms 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 Audit Committee will consider the appointment of another independent registered public accounting firm. A representative of Deloitte & Touche will be present at the Annual Meeting, will have the opportunity to make a statement, and will be available to respond to appropriate questions.
| | | | | | The Board of Directors unanimously recommends that you vote FOR the ratification of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for fiscal year 2022. | | |
As outlined in the table below, we incurred the following fees, including expenses billed to the Company for the fiscal years ended February 27, 2021 and February 29, 2020 by our independent registered public accounting firm, Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu and their respective affiliates.
| | | | | Year Ended | |
| | Fee Category | | | February 27, 2021
($ millions) | | | February 29, 2020
($ millions) | |
| | Audit fees(1) | | | | | 2.4 | | | | | | 2.3 | | |
| | Audit-related fees(2) | | | | | 0.2 | | | | | | 0.2 | | |
| | Tax fees(3) | | | | | — | | | | | | — | | |
| | All other fees | | | | | — | | | | | | — | | |
| | Total fees | | | | | 2.6 | | | | | | 2.5 | | |
(1)
Audit fees.RECOMMENDATION Represents fees for audit of annual financial statements and reviews of interim financial statements, registration statement filings and comfort letters related to various refinancing activities.
(2)
Audit-related fees. Represents fees for acquisition-related due diligence procedures and audits of employee benefit plans’ financial statements.
(3)
THE BOARD
Tax fees. Represents fees for tax compliance advice and planning.
The Board of Directors has adopted a written charter of the Audit Committee which describes the role of the Audit Committee. The Audit Committee, among other things, appoints and engages our independent registered public accounting firm and oversees our financial reporting and internal control over financial reporting processes on behalf of the Board. Management has the primary responsibility for our financial statements, our accounting principles and our internal control over financial reporting. Our independent registered public accounting firm is responsible for auditing our financial statements and expressing an opinion as to their conformity with accounting principles generally accepted in the United States. Our independent registered public accounting firm also is responsible for expressing an opinion on the effectiveness of our internal control over financial reporting.
32 | RITE AID CORPORATION 2021 Proxy Statement
PROPOSAL 2—RATIFICATION OF
DELOITTE & TOUCHE LLP AS THE
COMPANY'SAPPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
FOR FISCAL YEAR 2020.
In fulfilling its oversight responsibilities, the Audit Committee met six times during fiscal year 2021. •
Met with our internal auditors and independent registered public accounting firm, with and without management present, to discuss the overall scope and plans for their respective audits, the results of Contentstheir examinations, their evaluations of our internal control over financial reporting and the overall quality of our financial reporting.
•
Reviewed and discussed with management and our independent registered public accounting firm, for their respective purposes, the audited financial statements included in our Annual Report on Form 10-K for fiscal year 2021. The discussions included the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements and the Annual Report on Form 10-K for fiscal year 2021.
•
Reviewed the unaudited interim financial statements and Forms 10-Q prepared each quarter by the Company.
•
Received management representations that the Company’s financial statements were prepared in accordance with accounting principles generally accepted in the United States of America.
•
Reviewed the Audit Committee charter.
•
Reviewed and discussed with our independent registered public accounting firm those matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board (“PCAOB”) and the SEC.
•
Discussed with our independent registered public accounting firm matters relating to their independence and received the written disclosures and the letter from our independent registered public accounting firm required by applicable requirements of the PCAOB regarding the independent accountant’s communications with the Audit Committee concerning independence. The Audit Committee has considered whether the level of non-audit related services provided by our independent registered public accounting firm is consistent with maintaining their independence.
•
Pre-approved audit, other audit-related, and tax services performed by our independent registered public accounting firm.
In addition to pre-approving the audit and other audit-related and tax services performed by our independent registered public accounting firm, the Audit Committee requests fee estimates associated with each proposed service. Providing a fee estimate for a service incorporates appropriate oversight and control of the independent registered public accounting firm relationship. On a quarterly basis, the Audit Committee reviews the status of services and fees incurred year-to-date against pre-approved services and fee estimates.
Based on the review and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in our Annual Report on Form 10-K for the fiscal year ended February 27, 2021 for filing with the SEC.
Louis P. Miramontes, Chair
Elizabeth Burr
Arun Nayar
RITE AID CORPORATION 2021 Proxy Statement | 33
| | | | | | PROPOSAL 3—ADVISORY VOTE ON THE
COMPENSATION OF OUR NAMED EXECUTIVE
OFFICERS | | |
PROPOSAL NO. 3
ADVISORY VOTE ON THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS
In accordance with the requirements of Section 14A of the Exchange Act, we are including in this proxy statement a resolution, subject to stockholder vote,stockholders have the opportunity to approve on a non-binding,an advisory, nonbinding basis the compensation of our Named Executive Officers (as definedthe named executive officers disclosed in this proxy statement. This is commonly referred to as a “say on pay” advisory vote. The Board of Directors recommends that you vote “FOR” this proposal.
As discussed in greater detail in the section entitled "Executive Compensation—Compensation“Compensation Discussion and Analysis"). Prior to voting, stockholders should carefully review our discussionAnalysis” (CD&A) section of thethis proxy statement, we pay compensation of our Named Executive Officers, as presented in the Compensation Discussion and Analysis, tables, and narrative disclosure on pages 33 to 66, as well as the discussion of modifications made as a result of stockholder outreach efforts on pages 36 to 37, and the discussion regarding the Compensation Committee on pages 17 to 18.
The Company's primary compensation goals for our Named Executive Officers are to attract, motivate, and retain the most talented and dedicated executives and to align the interests of our Named Executive Officersnamed executive officers, as designed, with the interests of our stockholders. The Company'sCompany’s compensation programs are designed to to:
•
reward our Named Executive Officersnamed executive officers for the achievement of annual and long-term strategic and operational goals and the achievement of increased total stockholder return, while at the same time avoidingand
•
avoid the encouragement of unnecessary or excessive risk-taking.
The Company encourages stockholders to review the executive compensation disclosure in the Compensation Discussion and Analysis sectionCD&A and executive compensation tables in this proxy statement for complete details of its compensation program for its Named Executive Officers, changes made since the prior fiscal year,named executive officers and how the program is designed to achieve the Company'sCompany’s compensation objectives. We believe that the Company's compensation programs for its Named Executive Officers have operated to appropriately align pay with performance and enabled the Company to attract and retain talented executives within our industry, while at the same time avoiding the encouragement of unnecessary or excessive risk-taking.
We are asking our stockholders to indicate their support for the compensation of our Named Executive Officersnamed executive officers as described in this proxy statement. This proposal, commonly known as a "say-on-pay" proposal, gives you as a stockholder the opportunity to express your views on our fiscal year 2019 compensation for our Named Executive Officers. This vote is not intended to address any specific item of compensation; rather, the vote relates to the overall compensation of our Named Executive Officersnamed executive officers as described in this proxy statement in accordance withstatement.
The Board is presenting this proposal, which gives stockholders the compensation disclosure rulesopportunity to endorse or not endorse our executive pay program, on an advisory basis, by voting on the following resolution:
“RESOLVED, that the stockholders of the SEC. Accordingly, the following resolution is submitted for a stockholder vote at the Annual Meeting:
"RESOLVED, that the stockholdersCompany approve, on an advisory basis, the compensation paid toof the Company'sCompany’s named executive officers, as disclosed in the Company's Proxy Statement for the 2019 Annual Meeting of Stockholders pursuant to the compensation disclosure rulesItem 402 of the Securities and Exchange Commission Regulation S-K, including the Compensation Discussion and Analysis, the compensation tables and the narrative discussion."
disclosures.”
Although this is anthe advisory vote which will not be binding onis non-binding, the Board values the opinions of stockholders. The Compensation Committee or the Board, the Compensation Committee and the Board will carefully review the results of the stockholder vote. The Compensation Committeevote and will consider stockholders'stockholders’ concerns and take them into account in future determinations concerning compensation of its Named Executive Officers. The Board therefore recommends that you indicate your support for the compensationoutcome of the Company's Named Executive Offices in fiscal year 2019, as outlined in the above resolution.vote when considering future decisions concerning our executive compensation program.
| | | | | | The Board of Directors unanimously recommends that you vote FOR the approval of the compensation of its named executive officers, as disclosed in this proxy statement. | | |
34 | RITE AID CORPORATION 2021 Proxy Statement
| | | | | | EXECUTIVE COMPENSATION | | |
COMPENSATION DISCUSSION AND ANALYSIS
RITE AID CORPORATION 2021 Proxy StatementRECOMMENDATION | 35THE BOARD
EXECUTIVE
OFFICERS,AS DISCLOSED IN THIS PROXY STATEMENT.COMPENSATION
| | | | | | Letter from the Chair of Our Compensation
Committee | | |
STOCKHOLDER PROPOSAL
We expect the following proposal (Proposal No. 4 on the proxy card) to be presented by stockholders at the Annual Meeting. The proposal and supporting statement may contain assertions about Rite Aid or other statements that we believe are incorrect. We have not attempted to refute all of these inaccuracies, and the Company is not responsible for the contentOn behalf of the proposal. The Board has recommended a vote againstCompensation Committee of the proposal for the reasons set forth following the proposal.
PROPOSAL NO. 4
STOCKHOLDER PROPOSAL—SEEKING A BY-LAW AMENDMENT FOR A 10% OWNERSHIP
THRESHOLD FOR STOCKHOLDERS TO CALL SPECIAL MEETINGS
Steven Krol, who owns approximately 12,763 shares of common stock (based on information provided to us by Mr. Krol and adjusted to reflect the reverse stock split that occurred in April 2019) and whose address will be provided by the Company promptly upon oral or written request, has notified us that he intends to present the following proposal at the Annual Meeting. The Board of Directors strongly opposes adoption of Rite Aid, I would like to share with you the proposalCommittee’s perspective on our stockholder engagement efforts, our approach to executive compensation, recent developments impacting our business and asksour strategic transformation.
Compensation Program and Stockholder Outreach
We strive to create an appropriate compensation program to align senior leaders with the goal of creating value for our stockholders to review the Board's response, which follows the proposal and the proponent's supporting statement below.Stockholder Proposal and Supporting Statement
RESOLVED, shareholders recommend our board amend the bylaws and other necessary governing documents to give holders in the aggregate of 10% ofstakeholders by growing our outstanding common stock the power to call a special shareholder meeting. Numerous Fortune 500 companies allow this,Rite Aid, Elixir and in this percentage. This proposal does not impact the existing board/senior management's sole power to call such a special meeting, now denied other shareholders in our company by-laws, although otherwise permitted under Delaware law.
Special meetings allow shareholders to vote on important matters, such as electing new directors, that can arise between annual meetings, the lack of which canHealth Dialog customer base and have negatively impacted our stock price over the recent years. Our recent resignation of 3 directors could have easily occurred much sooner than the October 2018 Annual Meeting, which was already delayed more than 15 months since the prior Annual Meeting. Delaware law requires an Annual Meeting take place no later than 13 months from the previous Meeting. While our board has indicated a desire to continue to refresh the board, there appears no urgency to do so,by offering improved services, products and certainly not before an Annual Meeting.
The Albertsons merger announcement couldsolutions. These past few years have been abandoned soon after February 2018 at a Special Meeting, rather than wasting double digit millions of shareholder dollar assetsjourney, as we have reached out to close a seriously flawed merger attempt, even accordingour stockholders and other stakeholders to ISSunderstand their perspectives on our pay programs, and Glass Lewis, which was not terminated until less than 24 hours before the vote! Millions of dollars in retention bonuses, and millions more in stock options bestowed on senior management recently couldwe have likewise been avoided altogether.
The 2018 proxies revealed the board's private discussions with many of the top holders after the termination of the Albertsons merger, whose specific conversations were not divulgedutilized their feedback to all other stockholders. A special meeting, many months before this could have allowed all attending stockholders, large and small, their inputfurther align our pay programs with the board and places investors in a much better and timely position to ask for immediate improvements, such as director replacement.
Please vote "FOR" Proposal # 4 to increase management accountability to all its shareholders and enhance shareholder value.
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THE BOARD OF DIRECTORS' STATEMENT IN OPPOSITION
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"AGAINST" THIS
PROPOSAL FOR THE FOLLOWING REASONS:
The Board believes this stockholder proposal is unnecessary as our stockholders already have the right to call special meetings.
As discussed on pages 7 to 8 of this proxy statement, the Company has had a more robust stockholder engagement program in recent months. After carefully considering feedback from our stockholders, in April 2019, the Board amended our By-Laws to permit special meetings of the stockholders to be called by stockholders of record holding at least 20% of the Company's common stock. The Board believes that a 20% ownership threshold for the right to call special meetings strikes a reasonable and appropriate balance between enhancing stockholder rights and protecting against the risk that a small group of stockholders, including stockholders with special interests could call special meetings.
Allowing a small group of stockholders to call special meetings could be detrimental to the interests of a majority of our stockholders and other stakeholders.
We were disappointed with the low level of stockholder support for our say on pay resolution.
With respect to the low support for our executive pay, we received feedback that stockholders wanted to better understand the Company’s engagement with stockholders on compensation and other related matters. Through subsequent conversations with stockholders following the 2020 Annual Meeting, we came to understand that while stockholders generally agreed with the changes made to the Company’s compensation plan since the negative say on pay votes in 2018 and disappointing levels of stockholder support in 2019 and 2020, stockholders desired additional outreach from the Company. As a result, members of Rite Aid management, including our CEO, CFO, SVP of Investor Relations, and I reached out to stockholders representing over 50% of our outstanding stock to gather feedback. We engaged with stockholders who responded to our outreach and held virtual meetings to gather feedback on governance, executive pay, and our commitment to ESG and DEI. This outreach has become a standard practice now, and the Compensation Committee considers the feedback from these sessions in making executive compensation decisions.
Impact of the Pandemic on Business Results and Pay Decisions
The Company's current 20% ownership threshold provides a reasonable numberimpact of stockholders with a meaningful right to requirethe pandemic on the Company to hold a special meeting without exposingwas both positive and negative. Initially, the pandemic gave the Company momentum as customers rushed to stores to buy products. However, the decline in acute prescriptions and, cough, cold and flu remedies, and additional operational costs due to the pandemic were a few of the challenges resulting in Rite Aid missing the minimum threshold Adjusted EBITDA for the purposes of funding all of the bonus plans (Corporate, Store, and Supply Chain). The Company, at the direction of the Compensation Committee, undertook a detailed analysis to determine the extent to which the pandemic impacted both its stockholdersthreshold and target Adjusted EBITDA. As with other organizations dealing with the financial consequences of the pandemic, we had a difficult dilemma regarding what to unreasonable expensedo in a year where the Rite Aid team worked tirelessly to develop strategies to support communities by ensuring necessary supplies were stocked, administering COVID-19 testing and disruption. These costs can be significant, includingproviding COVID-19 vaccines. Even with some benefits from COVID-19, the costsoverall negative financial impact of preparingthe pandemic resulted in the Company missing two of its three targets. The analysis clearly pointed out that the higher expenses and distributing proxy materialslower volumes were due to COVID-19 and caused the target miss.
We strongly believe that pay should align with performance, and this focus is reflected in our executive compensation program. The majority of our executive team’s pay is at-risk and is based on meeting performance
36 | RITE AID CORPORATION 2021 Proxy Statement
objectives aligned to our financial results and the diversionCompany’s strategy; however, it did not seem in alignment this year with the extremely unique circumstances surrounding the COVID-19 pandemic.
At the beginning of the pandemic, due to the unknown financial effects of the pandemic, the decision was made to give no base pay increases to our executives with the exception of Mr. Schroeder. Because Mr. Schroeder’s base pay fell below the median to the peer group, the Compensation Committee decided to not allow his base pay to fall farther behind.
Due to the dedication of the Company’s associates and extraordinary services to our communities during the pandemic, the Compensation Committee recommended to the Board and management attention from the oversight and management of our business. Because special meetings require a considerable investment in resources, they should be limited to circumstances where a meaningful number of stockholders believe a matter is sufficiently urgent or extraordinary that it must be addressed between annual meetings. We believe a 20% threshold strikes the necessary balance between enhancing our stockholders' ability to act on important matters in between annual meetings and protecting the Company and other stockholders by allowing only a meaningful group of stockholders to exercise this right. The Board believesDirectors that the Company's current special meeting stockholder right should be evaluated inBoard exercise discretion to allow for a portion of the context of our demonstrated commitmentCompany’s annual bonus plans to best practices and accountability and responsivenesspay out to our stockholders. Our governance practices, including ways to communicate with our Board, are described on pages 14 to 24 of this proxy statement. In particular, as described on page 20 of this proxy statement, stockholders and other interested parties may contact any member (or all members)associates. The independent members of the Board, meeting in executive session without Ms. Donigan, accepted the Compensation Committee’s recommendation. No discretion was exercised for any Board committeeadditional performance-based plans (i.e., long-term incentive plans) and no additional perk or any chairretention payments were made.
The decision to exercise discretion to pay annual bonuses was not taken lightly. Members of any such committee by mail or electronically. We actively engagethe Compensation Committee met with our stockholders throughout the year,management and we share feedback from those discussions with our entire Board. At times, our directors participate in those discussions and speak to stockholders directly. Following engagement with our stockholders, the Board accelerated the Board refreshment process, nominating three new independent directors at the 2018 Annual Meetingof Directors on several occasions to discuss this situation and appointing two new independent directors in April 2019. In addition, the Board has a history of being responsive to stockholders, amending our By-Laws in April 2015 to adopt a proxy access right and in December 2018 to requireensure that the Chairman of the Board be an independent director. Additionally, following the 2018 annual meeting, the Company is working to produce reports on the Company's consideration of sustainability matters and the Company's approach to oversight of opioid matters, which are discussed on pages 21 to 24 of this proxy statement.
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In view of the existing right of stockholders to call special meetings and our other sound governance practices that ensure accountability of the Board and management to stockholders, the Board believes this stockholder proposal is unnecessary and notdecision was in the best interests of Rite Aid and our stockholders.
Additional Stockholder Feedback
RECOMMENDATION
FOR THE REASONS SET FORTH ABOVE, THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT YOU VOTE "AGAINST" THE STOCKHOLDER PROPOSAL SEEKING A
BY-LAW AMENDMENT FOR A 10% OWNERSHIP THRESHOLD FOR STOCKHOLDERS TO CALL
SPECIAL MEETINGS.
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EXECUTIVE OFFICERS
Officers are appointed annuallyESG and DEI transparency was a topic raised by the Board of Directorsseveral stockholders during our engagements. The Company is committed to increasing ESG and serve at the discretion of the Board of Directors. Set forth below is information, as of May 31, 2019, regarding the current executive officers ofDEI disclosure and, in 2020, we published our second annual corporate social responsibility report, highlighting significant progress across ESG efforts, and demonstrating Rite Aid.
Aid’s commitment to promoting whole health and better for you products to help our customers, associates and communities thrive.
| | | | | |
NameIn Closing
| | Age | | Position with Rite Aid |
|---|
John T. Standley(1)
| | | 56 | | Chief Executive Officer |
Bryan B. Everett
| | | 46 | | Chief Operating Officer |
Matthew Schroeder
| | | 49 | | Chief Financial Officer |
Jocelyn Z. Konrad
| | | 49 | | Executive Vice President, Pharmacy and Retail Operations |
Brian Hoover
| | | 54 | | Chief Accounting Officer |
Ben Bulkley
| | | 56 | | Chief Executive Officer of EnvisionRxOptions |
(1)On March 12, 2019,Over the last few years, Rite Aid put in place a new leadership team, including our new CEO, CFO, and COO, as well as a new Chief Pharmacy Officer, to promote a new vision for the Company. In fiscal year 2021, the new team began implementing our RxEvolution strategy to transform Rite Aid into the leading whole health destination that treats mind, body and spirit. To kick off the transformation, in November, 2020, the Company announced that the Board was commencing a search process foran integrated rebranding effort, including a new Chief Executive Officer.
John T. Standley. Mr. Standley, Chief Executive Officer, has been Chief Executive Officer since June 2010logo, refreshed digital experience, whole health merchandise, and was President from September 2008 until June 2013. Mr. Standley served as Chairman of the Board from June 21, 2012 through October 30, 2018. He was the Chief Operating Officer from September 2008 until June 2010. He also served as a consultant to Rite Aid from July 2008 to September 2008. From August 2005 through December 2007, Mr. Standley served as Chief Executive Officernew Store-of-the-Future prototype piloting in select markets. This strategic transformation is aimed at growing our business and was a member of the board of directors of Pathmark Stores, Inc. From June 2002 to August 2005, he served as Senior Executive Vice President and Chief Administrative Officer of Rite Aid and, in addition, in January 2004 was appointed Chief Financial Officer of Rite Aid. He had served as Senior Executive Vice President and Chief Financial Officer of Rite Aid from September 2000 to June 2002 and had served as Executive Vice President and Chief Financial Officer of Rite Aid from December 1999 until September 2000. Mr. Standley served on the SUPERVALU INC. board of directors from May 2013 to July 2015 and on the board of directors of CarMax, Inc. from August 2017 to January 2018. Mr. Standley currently serves on the National Association of Chain Drug Stores' board of directors and is a member of the Board's Executive Committee.
Bryan B. Everett. Mr. Everett was appointed Chief Operating Officer as of March 12, 2019. Prior to his promotion to this position, Mr. Everett served as Chief Operating Officer of Rite Aid Stores since September 1, 2017. Prior to that position, Mr. Everett served as the Executive Vice President of Store Operations since joiningpositioning the Company on August 3, 2015. Previously, Mr. Everett served as the Senior Vice President of Store Operations at Target Corporation, overseeing the support functions and strategy for all stores. From February 2011 to March 2014, Mr. Everett served as the Senior Vice President of Target stores in the north region, with responsibility for total operations of 457 stores. Mr. Everett held multiple senior leadership positions in stores, operations, and merchandising at Target since 2002. Prior to joining Target, Mr. Everett held leadership positions in the grocery industry with Aldi Foods and Fleming Wholesale.our sustainable future.
Jocelyn Z. Konrad.Sincerely,
Robert E. Knowling, Jr.
Compensation Committee Chair
RITE AID CORPORATION 2021 Proxy Statement Ms. Konrad was appointed Executive Vice President, Pharmacy and Retail Operations effective March 12, 2019, after serving in the role as Executive Vice President, Pharmacy since August 3, 2015. Prior positions at Rite Aid include Regional Pharmacy Vice President, President of Healthcare Initiatives and most recently, Group Vice President of Pharmacy Initiatives and Clinical Services. Prior to joining Rite Aid, Ms. Konrad served as a District Manager for Eckerd Pharmacy from 1997 through 2007. From 1992 to 1997, she served as a pharmacist for Thrift Drug Pharmacy. Ms. Konrad is a registered pharmacist and holds a Bachelor of Science degree from Philadelphia College of Pharmacy and Science.| 37
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Matthew Schroeder. Mr. Schroeder was appointed Chief Financial Officer as of March 12, 2019. Prior to his promotion to this position, Mr. Schroeder served as Senior Vice President, Chief Accounting Officer and Treasurer of Rite Aid Corporation since 2017. Mr. Schroeder joined Rite Aid in 2000 as Vice President of Financial Accounting and served as Group Vice President of Strategy, Investor Relations and Treasurer from 2010 to 2017. Prior to joining the Company, Mr. Schroeder worked for Arthur Andersen, LLP, where he held several positions of increasing responsibility, including audit senior and audit manager. He also currently serves as treasurer and a member of the board of directors of The Rite Aid Foundation.
Brian Hoover. Mr. Hoover was appointed Chief Accounting Officer as of March 12, 2019. Prior to his promotion to this position, Mr. Hoover served as Group Vice President and Controller of the Company since 2017. Prior to that position, Mr. Hoover served as Vice President, Financial Reporting and Accounting from 2008 to 2017. Over the past 24 years, Mr. Hoover has served in various positions of increasing responsibility at the Company in financial analysis, category management and marketing, budgeting, and accounting.
Ben Bulkley. Mr. Bulkley was appointed Chief Executive Officer of EnvisionRxOptions as of February 21, 2019. Prior to joining the Company, he most recently served as chief executive officer and co-founder of Trellis Rx, a private equity-backed company that builds specialty pharmacies for health systems. Prior to Trellis Rx, Mr. Bulkley led the specialty businesses of Aetna Inc., including its pharmacy, behavioral health, and TPA businesses. Mr. Bulkley has also served as chief operating officer of Allscripts Health Solutions, Inc., a healthcare IT platform provider focused on connected care; senior vice president of global commercial operations at Invitrogen, a provider of life sciences technologies for disease research and drug discovery; and vice president and general manager of global services in the IT division of General Electric Company's Healthcare business.
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TABLE OF CONTENTS
COMPENSATION DISCUSSION AND ANALYSIS
Introduction
We encourage you to read this Compensation Discussion and Analysis for a detailed discussion and analysis of our fiscal year 20192021 executive compensation program for the individuals named below. We refer to these individuals throughout this Compensation Discussion and Analysis and the accompanying tables as our "Named“Named Executive Officers."
Officers” or “NEOs.”
| | Heyward Donigan | |
Name
| | Title |
|---|
John T. Standley
| | Chief Executive Officer | | | James J. Peters | | | | | | Matthew Schroeder | |
Kermit Crawford(1)
| | President and Chief Executive Officer (“CEO”) | | | | | | Chief Operating Officer |
Darren W. Karst(2)
(“COO”) | | Senior | | | | Executive Vice President, Chief Financial Officer and Chief Administrative Officer(“CFO”) | |
| | Jocelyn Z. Konrad | | | | | | Justin Mennen | | | | | | Daniel Robson(1) | |
Bryan B. Everett(3)
| | Chief Operating Officer, Rite Aid Stores |
Jocelyn Z. Konrad(4)
| | Executive Vice President, Chief Pharmacy Officer | | | | | | Executive Vice President, Chief Information Officer (“CIO”) | | | | | | Former President of Elixir | |
(1)
Mr. Robson ceased to be employed by us as of January 27, 2021.
Rite Aid Corporation is on the front lines of delivering health care services and retail products to more than 1 million customers daily. We provide an array of whole health products and services for the entire family through more than 2,500 retail pharmacy locations across 17 states and our pharmacists are uniquely positioned to engage with customers and improve their health outcomes. Through Elixir, we provide pharmacy benefits and services to approximately 3.3 million members nationwide.
Leadership Team Growth and RxEvolution Execution
Over the last two fiscal years, Rite Aid has made significant changes to its executive leadership team, bringing in senior leaders from across the health care and retail industries to build and drive the Company’s transformation plan, RxEvolution. In August 2020, Paul Gilbert joined the Company and its executive leadership team as General Counsel and Corporate Secretary. In addition to the evolution of the executive leadership team, the Company also added 13 new leaders to the Company’s senior leadership team, bringing in specific expertise in the areas of health care strategic initiatives, pharmacy benefits management, eCommerce, enterprise technology, retail operations, supply chain and investor relations.
Together, in the course of a year, this leadership team moved with urgency to execute the Company’s RxEvolution strategy and transform Rite Aid into the leading whole health destination that treats mind, body and spirit. In November 2020, the Company launched its integrated rebranding effort. The brand refresh includes a new logo and brand identity that is rolling out across the chain, a refreshed digital experience, whole health merchandise, and its new Store-of-the-Future prototype piloting in select markets. In addition, the Company rebranded its Pharmacy Services segment, Elixir, to signal the move to crafted Rx solutions for target customers. The Company also launched a new member portal for Elixir customers in January 2021, and integrated Elixir and Rite Aid to realize operational synergies and take advantage of complementary businesses. The battle against the COVID-19 pandemic validated the Company’s plans to elevate the role of pharmacists. These trusted and accessible health care experts have proven essential in our communities by administering COVID-19 tests and vaccines, while also supporting customers with whole health advice as certified integrated pharmacy specialists.
| | | |
| | | | | | | | | | | | | | | |
| | New logo | | | | Enhanced digital experience | | | | Whole health merchandise | | | | New store prototype | |
38 | RITE AID CORPORATION 2021 Proxy Statement
(1)Mr. Crawford leftOur role as a health care provider was particularly important in addressing the impact of the COVID-19 global pandemic on our customers, employees, and communities where we do business. In response to the global pandemic, the Company took several steps to support the health and safety of our associates and communities, as executed by Rite Aid management including the Named Executive Officers:
•
Formed a COVID-19 Task Force of March 12, 2019.
(2)Mr. Karst leftCompany leaders to monitor and address the evolving COVID-19 pandemic and ensure the Company aswas investing in and implementing measures to maintain the safety of May 31, 2019.customers and associates.
•
(3)Mr. Everett was promotedAs of April 15, 2021, operated over 1,200 COVID-19 testing sites through its partnership with the U.S. Department of Health and Human Services, enabling access for customers to Chief Operating Officerreceive a test at no cost.
•
As of the Company effective March 12, 2019.
(4)Ms. Konrad was promoted to Executive Vice President, Pharmacy and Retail Operations effective March 12, 2019.
Executive Summary
Rite Aid is the third largest retail drugstore chainApril 15, 2021, administered 2.5 million COVID-19 vaccines across 19 jurisdictions in the United States based on revenues and numbernearly half of our stores and has Pharmacy Benefits Management ("PBM") operations through EnvisionRxOptionsover 700 clinics, including clinics for vulnerable or underserved populations.
•
Committed approximately $47.9 million in safety and its affiliates. As of March 2, 2019, we operated 2,469 retail drugstores in 18 states across the country. We, along with the retail pharmacy industry as a whole, continue to face challenges in relying significantly on third party payors. Over the past several years, third party payors, including the Medicare Part D plans and the state-sponsored Medicaid and related managed care Medicaid agencies, have changed the eligibility requirements of participants and have successfully reduced reimbursement rates, causing a reduction in our Adjusted EBITDA.
Fiscal year 2019 was impacted by two significant events:
•The Albertsons Companies, Inc. Transaction, and
•The Walgreens Boots Alliance, Inc. ("WBA") Transactions.
Additionally, after fiscal year end, we implemented a leadership transition plan that will significantly change our Named Executive Officers for fiscal year 2020.
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Albertsons Companies, Inc. Transaction
On February 18, 2018, Rite Aid entered into an Agreement and Plan of Merger (the "Merger Agreement") with Albertsons Companies, Inc. and the Merger Subs. Based on the lack of our stockholder support, on August 8, 2018, Rite Aid, Albertsons, and the Merger Subs entered into a Merger Termination Agreement pursuant to which the parties mutually agreed to terminate the Merger Agreement. Subject to limited customary exceptions, the Merger Termination Agreement mutually released the parties from any claims of liability to one another relating to the contemplated merger. With the termination of the merger, Rite Aid is no longer subject to the interim operating covenants and restrictions in the Merger Agreement.
On September 18, 2017, we entered into an Amended and Restated Asset Purchase Agreement ("APA") with WBA. Pursuant to the terms and subject to the conditions set forth in the APA, WBA agreed to purchase from Rite Aid 1,932 stores, three distribution centers, related inventory, and other specified assets and liabilities related thereto for a purchase price of approximately $4.375 billion, on a cash-free, debt-free basis.
We completed the store transfer process in March of 2018, which resulted in the transfer of all 1,932 stores and related assets to WBA and have received cash proceeds of $4.157 billion. On September 13, 2018, we completed the sale of one of our distribution centers and related assets to WBA for proceeds of $61.2 million. The transfer of the two remaining distribution centers and related assets remains subject to minimal customary closing conditions applicable only to the distribution centers being transferred at such distribution center closings, as specified in the APA.
We have agreed to provide transition services under the Transitional Services Agreement ("TSA") to WBA for up to three years after the initial closing of the sale. Under the terms of the TSA, we provide various services on behalf of WBA,associate pay measures, including but not limited to Hero Pay and Hero Bonuses, the purchasetemporary administrative leave program, the temporary Pandemic Pay program, enhanced cleaning and distributionsanitization, provision of personal protective equipment, temporary enhancements in the associate discount, and provision of other pandemic-related supplies (such as touchless infrared thermometers and the installation of clear plastic barriers).
Stockholder Vote on Executive Compensation and Stockholder Engagement
The Board has resolved to hold an advisory say on pay vote every year in connection with our annual meeting of stockholders and consistent with the preference of our stockholders.
At our 2020 Annual Meeting, approximately 50.2% of shares voted in favor of the compensation of our NEOs. The Board and Compensation Committee were disappointed and concerned about this result. Rite Aid management and the Board immediately went to work to reach out to stockholders to learn more about their concerns. A team of members of management, including our CFO, SVP of Investor Relations and in several cases the CEO, as well as our Compensation Committee Chair, Robert E. Knowling, Jr., reached out to owners of 50% of our stock to gather feedback on our pay and governance policies and practices. Our meetings were conducted virtually through online video conferencing or teleconference due to COVID-19 pandemic restrictions. We met with stockholders representing over 25% of our outstanding stock to gather feedback on governance, executive pay, and our commitment to ESG and DEI. Also following the 2020 Annual Meeting, Rite Aid held an Investor Presentation in July 2020.
Based on the 2020 say on pay voting result and the feedback we received over the past couple of years from stockholders, the Company has modified its compensation programs to address common items of feedback that we have heard from certain stockholders to ensure a strong alignment with stockholder interests.
Actions taken include:
•
Significantly increased stockholder outreach;
•
Revised metrics in the annual incentive plan to add two additional metrics to Adjusted EBITDA;
•
Differentiated metrics between the annual incentive plan and the long-term incentive plan;
•
Sought additional perspectives related to executive compensation resulting in the selection of a new Compensation Committee consultant; and
•
Accelerated Diversity, Equality and Inclusion (DEI) by hiring a VP of Diversity, Equity & Inclusion and amending the Compensation Committee Charter to include oversight of diversity and inclusion initiatives.
RITE AID CORPORATION 2021 Proxy Statement | 39
The Compensation Committee will continue to review the results of future advisory say on pay votes and will consider stockholder concerns in future determinations regarding the compensation of our NEOs and governance practices.
| | What We Heard From Stockholders | | | Response to Stockholders | |
| | Lack of stockholder outreach | | | Significantly increased stockholder outreach as noted above | |
| | Drive appropriate performance through the use of more than one performance metric in annual incentive plan | | | Added Free Cash Flow and Adjusted Pharmacy Script Comparable as annual performance metrics in addition to Adjusted EBITDA. Fiscal year 2021 metrics and weightings were: •
60% Adjusted EBITDA •
20% Free Cash Flow (new for fiscal year 2021) •
20% Adjusted Pharmacy Script Comparable (new for fiscal year 2021) | |
| | Minimize overlapping annual incentive and long-term incentive metrics | | | Eliminated EBITDA from the long-term incentive plan and added revenue and cumulative scripts metrics in addition to the leverage ratio metric. Fiscal year 2021 long-term incentive plan metrics and weightings were: •
50% Leverage Ratio (continued from fiscal year 2020) •
25% Cumulative Revenue (new for fiscal year 2021) •
25% Cumulative Scripts (new for fiscal year 2021) | |
| | Disclose long-term incentive metrics | | | Enhanced disclosure of metrics, including results for completed periods | |
| | Ensure board level oversight of ESG strategy and enhance disclosure on current state and future plans to address ESG issues | | | Made an ongoing commitment to cleaner, less toxic ingredients in our products; investing in a product assortment that is consistent with our strategy of holistic health and wellness; and reducing our environmental footprint through renewable energy opportunities and waste reduction initiatives. Also took the following actions: •
Adopted plan to issue TCFD report in 2021 •
Moved ESG oversight to the Nominating and Governance Committee •
Created a cross-functional environmental sustainability steering committee that will meet regularly to execute and oversee implementation of climate strategy •
Strengthened governance of climate risk as part of Enterprise Risk Management program | |
| | Ensure board level oversight of DEI strategy and disclose plans to address issues and enhance ongoing practices on DEI | | | •
Confirmed Compensation Committee to oversee DEI initiatives •
CEO issued a public statement about the Company’s position on and intolerance of discrimination and racial injustice, which is posted on the front door of each store •
Hired VP to develop and execute DEI strategy •
Increased associate awareness and engagement around DEI | |
40 | RITE AID CORPORATION 2021 Proxy Statement
Future Stockholder Engagement Efforts
The Company intends to engage with stockholders in fiscal year 2022, as follows:
•
Solicit feedback and seek to understand investor perspectives on issues of importance to them
•
Hold quarterly earnings calls
•
Monitor investor relations website and other related correspondence
•
Attend analyst conferences and participate in meetings with current stockholders and potential investors
Late Spring / Early Summer Efforts
•
Distribute our annual report and proxy statement to our stockholders
•
Extend first biannual invitation to our largest stockholders (together constituting holders of 50% or more of our outstanding shares of common stock) to discuss matters to be voted on at our upcoming annual meeting of stockholders
•
Discuss with stockholders topics of interest such as company performance, executive compensation, governance, DEI and ESG
Late Summer / Early Fall Efforts
•
Evaluate results of stockholder voting including our annual say on pay proposal and proxy advisor recommendations to establish the priorities for our stockholder engagement and to ensure that any significant concerns are identified and addressed
•
Assess results and review recommendations based on the Company’s strategic priorities
Late Fall / Early Winter Efforts
•
Review stockholder and proxy advisory policy changes and recent feedback to identify common concerns and themes
Late Winter / Early Spring Efforts
•
Respond to stockholder feedback or concerns and evolving practices by modifying our programs or enhancing our disclosure as appropriate
•
Extend second biannual invitation to discuss current concerns with our largest stockholders (together constituting holders of 50% or more of our outstanding shares of common stock)
RITE AID CORPORATION 2021 Proxy Statement | 41
2021 Fiscal Year Key Business Highlights
In fiscal year 2021, Rite Aid made significant progress to position the Company for future growth. The management team developed a differentiated “go forward” strategy, its RxEvolution. The Company implemented LEAN initiatives to both reduce working capital tied to inventory and virtually all selling, general,improve our retail pharmacists’ productivity. These efforts led to an approximately $180 million reduction in inventory, a 25% increase in front-end inventory turns and administrative activities. The initial term of the TSA wasallowed our pharmacists to continue until October 17, 2019. On May 1, 2019, WBA provided Rite Aidadminister additional clinical services, COVID-19 testing and COVID-19 vaccines with written notice that it was extending the TSA for twominimal additional six-month periods, which extends the end date of the TSA to October 17, 2020. Pursuant to the TSA, WBA paid TSA fees of $80.2 million during the fifty-two week period ended March 2, 2019 and $8.4 million in the fifty-two week period ended March 3, 2018, which are reflected as a reduction to selling, general, and administrative expenses. As previously announced, since the close of the 2019 fiscal year, we have executed on a leadership transition plan and an organizational restructuring to better align our Company's structure with the Company's size and operations and to reduce costs. As part of the leadership transition, the Board has commenced a search process for a new CEO. John Standley will remain CEO until the appointment of his successor. Bryan Everett, Chief Operating Officer of Rite Aid Stores, has been promoted to Chief Operating Officer of the Company, succeeding Kermit Crawford, who has left the Company. Matt Schroeder, formerly our Chief Accounting Officer and Treasurer, has been promoted to Chief Financial Officer. Mr. Schroeder succeeded Darren Karst, who left the Company this spring after supporting a brief transition. Jocelyn Konrad, Executive Vice President, Pharmacy, has been promoted to Executive Vice President, Pharmacy and Retail Operations.staffing. In addition, the Company announced actions that will reduce managerial layersenhanced its merchandise assortment with 75% of its categories being reset to new elevated merchandising standards which support whole health. The combination of these initiatives allowed the Company to achieve its highest-ever customer satisfaction score of 3.8 out of 5. Rite Aid strengthened its balance sheet by refinancing and consolidate roles across the organization, resulting in the eliminationextending a significant portion of approximately 400 full-time positions, or more than 20%debt, while also executing on a number of the corporate positions located at the Company's headquarterssale leaseback opportunities to generate cash and across the field organization.
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Despite our executive leadership team's continued focus on driving our business, we were faced with continued prescription reimbursement rate challenges that we were unable to fully offset, which is an issue that hasfurther its debt reduction initiatives. The Company also impacted the broader retail pharmacy industry and which has negatively impacted our Adjusted EBITDA. Additionally, the extended duration of the WBA merger and asset sale process, the establishment of TSA services, the attempted merger with Albertsons, and the resulting uncertainty had a negative impact on ourended fiscal year 2019 results. 2021 with $1.7 billion in liquidity.
Below is additional detailare the details related to key financial indicators used as performance measures in our incentive programs for fiscal year 2019. All amounts, unless stated otherwise, are for continuing operations:•Adjusted EBITDA was $563 million or 2.6% of revenues for fiscal year 2019 compared to $560 million or 2.6% of revenues for the prior year. See the discussion under the caption "Cash Incentive Bonuses" below for more detail on how Adjusted EBITDA was used. While overall Adjusted EBITDA was relatively neutral, the Retail Pharmacy segment improved by $17 million, which was offset by a $13 million reduction in the Pharmacy Services segment. The increase in the Retail Pharmacy Segment Adjusted EBITDA was driven primarily by the $80 million of fees earned through the TSA and paid by WBA, as well as by lower salaries and benefits, partially offset by lower front-end and pharmacy gross profit and increased distribution costs caused partially by the realignment of stores within our distribution network. The decrease in the Pharmacy Services segment Adjusted EBITDA was driven by compression in our commercial business and other operating investments to support current year and further growth. 2021:
| | | Adjusted EBITDA: | | | Free Cash Flow: | | |
| | | •
Our Adjusted EBITDA from continuing operations for fiscal 2021 was $437.7 million or 1.8 percent of revenues, compared to $538.2 million or 2.5 percent of revenues for fiscal year 2020. •
Front-end gross profit benefited from increased sales volume during the first quarter relating to the COVID-19 pandemic, partially offset by a nearly 37 percent decline in cough, cold and flu related categories during the fourth quarter. •
The decrease in the Retail Pharmacy Segment Adjusted EBITDA was driven by higher SG&A expenses partially offset by increased Adjusted EBITDA gross profit. SG&A expenses were negatively impacted by incremental costs associated with the COVID-19 pandemic and the completion of services provided under the Transition Services Agreement with Walgreens. •
Pharmacy gross profit benefited from an increase in maintenance prescription counts, partially offset by lower acute prescriptions resulting from the pandemic and continued reimbursement rate pressures. •
The decrease in Adjusted EBITDA from continuing operations was due primarily to a decrease of $90.5 million in the Retail Pharmacy segment and a decrease of $10.0 million in the Pharmacy Services segment. •
The improvement in Adjusted EBITDA gross profit relates to improvements in both pharmacy and front end. •
The decrease in the Pharmacy Services Segment Adjusted EBITDA was due to increased drug costs within Medicare Part D, a decrease in gross profit within the segment’s small group business and SG&A spend related to an increase in Medicare Part D members. | | | •
Our Free Cash Flow for fiscal year 2021 was $393 million. Free Cash Flow was impacted by the reduction in adjusted EBITDA, which was offset by inventory reductions of $185 million driven by the reset of our merchandise assortment as part of our RxEvolution strategy. •
In addition, capital expenditures were $232 million as we continued to invest in store renovations, prescription file buys and information technology initiatives. Adjusted Script Comparable: •
The number of prescriptions filled in same stores, adjusted to 30-day equivalents, increased 1.3 percent over the prior year driven by increases in maintenance prescriptions, supported by personalized Medication Therapy Management interventions and home deliveries. This was partially offset by a pandemic-influenced reduction in acute prescriptions of 9.0 percent. •
Our fiscal year 2021 Adjusted Script Comparable was 1.66%, which was impacted by the deferral of elective procedures and related acute prescription volume decrease due to COVID-19. | | |
| | | See Appendix A for a reconciliation of our Adjusted EBITDA, which is a non-GAAP measure, to net income under GAAP. | | |
42 | RITE AID CORPORATION 2021 Proxy Statement
EXECUTIVE COMPENSATION•Our return on net assets for fiscal year 2019 was –0.1% as compared to 0.8% for fiscal year 2018. This ratio is a measure of the effective deployment of our assets within our business. Our Executive Compensation Philosophy
We believe strongly that pay should align with performance, and this focus is reflected in our executive compensation programs.program. We seek to provide our Named Executive OfficersNEOs with opportunities to earn total direct compensation (base salary, annual incentives, and long-term incentives) that is generally comparable to compensation levels provided to peer company executives and executives within other similarly sizedsimilarly-sized retailers and health services companies more broadly. With the compensation programs' strong focus on performance and the continued operating pressures related to the WBA and Albertsons transactions, prior to fiscal year 2019, we provided some of our executive officers with retention awards in an effort to retain them during the time of uncertainty. See the Wind-Down of Retention section on pages 49 to 50 for further discussion of these efforts. Because of our desire to reinforce a performance-based culture, the Company emphasizes a regular compensation mix that is comprised primarily of variable pay. As a result, base salary makes up the smallest portion of total direct compensation for the Named Executive Officers,NEOs, with variable pay in the form of annual and long-term incentives comprising the large, remaininglargest portion. The compensation mix varies by position, taking into account each position'sposition’s ability to influence Company results, as well as competitive practice. See page 42 for a graphical representation of pay mix by executive.
Table of Contents In July of 2017, our stockholders voted to hold an advisory vote on executive compensation every year. Consistent with that vote, the Board resolved to hold an advisory "say-on-pay" vote every year in connection with its annual meeting of stockholders.
At our 2018 Annual Meeting, held October 30, 2018 after the termination of the Albertsons transaction, approximately 16.5% of shares voted in favor of the compensation of our Named Executive Officers. The Compensation Committee took the disapproval of our executive compensation by our stockholders very seriously. The outcome of our 2018 say-on-pay vote was a clear signal that our stockholders took issue with some aspects of ourOur executive compensation program aims to appropriately balance the mix of cash and equity compensation, the mix of currently-paid and longer-term compensation, and the security of base benefits in a way that best furthers the compensation objectives discussed above. However, based on share usage constraints over the past few years, the mix of pay for our top executives has necessarily been weighted less toward equity compensation than is typical of our peers. Commencing in fiscal year 2021, we were determined to understand stockholder perspectives on this program and committed to making constructive changes in response.
Afterincreased the terminationrelative weighting of the Albertsons transaction, we engaged in enhancedequity portion of executives’ target total remuneration opportunities to ensure greater alignment with stockholder outreach efforts. Investors' main concern with mattersinterests and promote the retention of compensation waskey new executive talent. Those equity opportunities consist of both performance-based equity that rewards executives based on Rite Aid’s financial achievements, and time-vested equity to promote the useretention of retention awardscritical executive talent and appropriately enhance current ownership levels.
The charts below show the mid-year adjustment to theoverall mix of base salary, target annual incentives, and target long-term incentives for our active NEOs, Ms. Donigan, Messrs. Peters and Schroeder, Ms. Konrad and Mr. Mennen, for fiscal year 2018 annual incentive performance target. At that time, while2021.
The majority of our NEOs’ target total direct compensation opportunity in fiscal year 2021 was provided in the Compensation Committee was focusedform of performance-based compensation (variable pay), 89% for Ms. Donigan and 76% on a performance-based culture, it also recognizedaverage for our remaining NEOs serving at the importance of keeping management engaged during a time of significant challenges, including supporting the TSA processes, and entering into the Albertsons Merger Agreement. The decision to use retention awards was also made with the knowledge that muchend of the previously granted performance-based awards were trackingprior fiscal year.
Total Target Compensation
RITE AID CORPORATION 2021 Proxy Statement | 43
Compensation Governance and Best Practices
The table below target metricssummarizes compensation governance and had a high likelihood of not having any realizable value, which heightened the risk that we would be unable to attract and retain the talent needed to run our business. For a comparison of the Named Executive Officers' realized long-term performance pay to the compensation shown in the Summary Compensation Table disclosure, see the discussion under the caption "Realized Long-Term Incentive Awards" on pages 42 to 43. We have continued to engage with stockholders since August 2018 and following the 2018 Annual Meeting, including on compensation matters. Based on the "say-on-pay" voting results and the feedback we received from stockholders, the Company took action to review all compensation programs in place and incorporate design changes into the compensation structures to ensure stronger stockholder alignment going forward.
best practices Rite Aid follows.
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| | | | | | | | |
What We Heard from Stockholders
| |
| | Actions We Took in Response
|
|---|
| | | | | | | | | |
| | •WHAT WE DOOur stockholders generally did not approve of the use of retention awards.
| | | | •
We did not enter into any new individual retention agreements with any of our Named Executive Officers in fiscal year 2019 and have no plans to enter into any such new retention agreements in fiscal year 2020.
| | |
| | | | | | | | |
| | •
Our stockholders generally did not approve of a mid-year adjustment to our fiscal year 2018 annual incentive plan to reflect the impact of the significant events and operational challenges occurring in the first half of fiscal year 2018.
| | | | •
We did not make any adjustments to our incentive plans for fiscal year 2019 and do not intend to make any mid-year adjustments to our incentive plans for fiscal year 2020.
| | |
| | | | | | | | WHAT WE DON’T DO | |
| | Conduct annual stockholder advisory vote on the compensation of our named executive officers Maintain dialogue with stockholders on various topics, including executive pay practices Retain an independent executive compensation consultant to the Compensation Committee Ensure that a significant portion of executive officer total target remuneration is at risk Provide annual and long-term incentive plans with performance targets aligned to business goals | | |
| | •
Our stockholders expressedRequire a general discomfort withdesignated level of stock ownership for all named executive officers Require equity awards to have a lackdouble trigger (qualifying termination of alignment between Company performanceemployment and pay.
| | | | •
While we understand the concern based on reported pay, the realized value of our performance-based long-term pay was aligned with stockholder return. See the impact on Realized Long-Term Incentives on pages 42 to 43.
•
We refined our peer groupchange in control) Complete an annual incentive compensation risk assessment Maintain a formal clawback policy for fiscal year 2020 to (among other changes) remove CVS Health Corp. and Walgreens Boots Alliance, Inc.; even though each organization is a direct competitor from both business and talent acquisition perspectives, the Compensation Committee determined that these organizations are no longer appropriate peers given their significantly larger scope of operations.•
We increased the emphasis on performance-based long-term incentives in fiscal year 2019, such that Performance-Based Restricted Cash Units represented 70% of the total long-term incentive opportunity, and time-based restricted stock represented 30% of the total long-term incentive opportunity.
| | |
| executive officers | | | | | | Provide gross-up payments to cover personal income taxes or excise taxes related to executive severance benefits. Permit executives to engage in hedging or pledging of Rite Aid securities Reward executives for imprudent, inappropriate, or unnecessary risk-taking Allow the repricing of equity awards without stockholder approval | | |
As in the past, the Compensation Committee will continue to review the results of future advisory say-on-pay votes and will consider stockholder concerns and take them into account in future determinations regarding the compensation of our Named Executive Officers.
Our Fiscal Year
20192021 Pay Decisions
We used Adjusted EBITDA as the primary financial metric in our annual incentive plan and long-term performance awards in fiscal year 2019. We believe this was appropriate because EBITDA growth has historically shown a strong positive correlation with three-year and five-year total stockholder return for Rite Aid and its peer group and represented the best indicator of Rite Aid's operating performance based on our financial situation and corporate structure.
In establishing performance measures for our fiscal year 20192021 incentive programs, we recognized that therediversified our financial metrics between our annual bonus and our three-year long-term incentive plans, in part in response to stockholder feedback. Although the COVID-19 pandemic negatively impacted the Company’s performance, the Compensation Committee did not make any changes to the long-term incentive plans. However, the Committee did recommend to the Board the exercise of discretion to adjust the payouts under the annual bonus plan to compensate associates for their hard work and effective response to the challenges of the pandemic. Only one Named Executive Officer received a base salary increase in 2021, which was a merit increase given his salary was significantly below the peer group median for the position.
Annual bonus plan. The Rite Aid annual bonus plan metrics were substantial reductions in prescription reimbursement rates that would have to be overcome.
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Our Consolidated Adjusted EBITDA (which consists of(60%); Free Cash Flow (20%) and Adjusted Script Comparable (20%). In addition, the Rite Aid annual bonus plan has a “trigger” which establishes that the plan must meet the Adjusted EBITDA from continuing operations plusthreshold for any participants to receive any payments under the plan.
The metrics for Elixir’s annual bonus plan, in which Dan Robson participated, were Adjusted EBITDA from(75%) and Revenue (25%).
For fiscal year 2021, Rite Aid’s bonus plan established an Adjusted EBITDA threshold of $468.0 million, a Free Cash Flow threshold of $316 million, and an Adjusted Script Comparable threshold of 3.20%.
The Elixir bonus plan established an Adjusted EBITDA threshold of $164.5 million and revenue threshold of $3,230.0 million.
Our Adjusted EBITDA for the stores sold to Walgreens up to each store's respective sale date), for short-term incentiveRite Aid annual bonus plan calculation purposes, for fiscal year 20192021 was $563$440.2 million, which was below our annual plan targetthreshold of $645$468.0 million; Free Cash Flow was $393.2 million, butwhich was above the target performance of $370.0 million; and Adjusted Script Comparable was 1.66% which, was below our threshold performance level of $548 million.3.20%. Based on performance against the goal, and as described in more detail below under "Cash“Cash Incentive Bonuses,"” our Named Executive Officers were paidnot eligible for payment under the plan due to not meeting the plan “trigger” which is attainment of the Adjusted EBITDA threshold. However, the Compensation Committee took into account the unforeseeable nature of the global pandemic and its impact on the financial performance of the Company against the pre-established metrics (as discussed further below) and the dedication of the
44 | RITE AID CORPORATION 2021 Proxy Statement
Company’s executives and extraordinary services to our communities during the pandemic. With the assistance of the Compensation Committee consultant, the Committee determined that recommending to the Board the use of discretion in determining the final bonus payments was warranted. The independent members of the Board, meeting in executive session without Ms. Donigan, accepted the Compensation Committee’s recommendation.
The table below illustrates the performance targets that were set under the annual bonus plan and the actual performance against such targets in fiscal year 2021.
| | Performance Level | | | Threshold
(50%) | | | Target
(100%) | | | Maximum
(200%) | | | Actual
Performance | | | % of Target
Attainment | |
| | Adjusted EBITDA (millions) | | | | $ | 468 | | | | | $ | 520 | | | | | $ | 572 | | | | | $ | 440.2 | | | | | | 0% | | |
| | Free Cash Flow (millions) | | | | $ | 316 | | | | | $ | 370 | | | | | $ | 426 | | | | | $ | 393.2 | | | | | | 113% | | |
| | Adjusted Script Comparable | | | | | 3.20% | | | | | | 3.70% | | | | | | 4.20% | | | | | | 1.66% | | | | | | 0% | | |
| | Total Resulting Payout | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 0% | | |
The Compensation Committee held several meetings with management to review the actual financial performance compared to the estimated financial performance without the challenging effects of COVID-19. Due to the effects of the pandemic, net income was negatively impacted by increased SG&A expenses to keep our associates and customers safe, and decreases in our Retail Pharmacy segment and Pharmacy Services segment, as discussed above under the caption “2021 Fiscal Year Key Business Highlights.” It was determined that without the net negative effects of COVID-19 on our fiscal 2021 performance, the Adjusted EBITDA threshold would have been met, therefore the Board, at the Compensation Committee’s recommendation, treated the Adjusted EBITDA threshold of $468 million as though it had been achieved, and permitted the other two metrics to operate as originally designed (which included achieving above-target Free Cash Flow at 113% of target).
Specifically, without the financial effects of COVID-19, the annual bonus plan was estimated to payout at 72%. After a thorough and lengthy deliberation and in consultation with the Board of Directors and Mercer, the Compensation Committee recommended to the Board of Directors that the Board exercise discretion to pay annual bonuses at 58% of target for fiscal year 20192021 performance. The independent members of the Board, meeting in executive session without Ms. Donigan, accepted the Compensation Committee’s recommendation. The 58% payout corresponds to the payout level that would have been authorized had Rite Aid achieved the threshold level of Adjusted EBITDA and applying the actual level of performance for the Free Cash Flow and Adjusted Script Comparable metrics.
In making this determination, the Compensation Committee took into account the nature of the pandemic, which could not have been foreseen by our management team, the negative impacts of the pandemic, which were not the fault of management’s action or inaction, and management’s performance during the year, which included work in development and implementation of the RxEvolution strategy for growth and the Company’s initiatives to both reduce working capital tied to inventory and improve our retail pharmacists’ productivity. These efforts led to an approximately $180 million reduction in inventory and a 25% increase in front-end inventory turns. The Compensation Committee also considered the Named Executive Officers’ rapid response to the needs of our associates and customers (as highlighted under the caption “Our Response to COVID-19”). See Appendix A for a reconciliation of our Adjusted EBITDA, which is a non-GAAP measure, to net income under GAAP. With respect
The Elixir annual incentive plan, which applied to long-termMr. Robson, is a calendar year plan (fiscal year 2020 for Elixir). The Elixir Adjusted EBITDA for the annual bonus plan calculation purposes for fiscal year 2021 was $157.5 million, which was below our threshold of $164.5 million and Revenue was $4,658.8 million which was above the maximum of $4,370.0 million. The Elixir plan paid out at 50% of target based on exceeding the maximum for one of the two performance targets.
Long-term incentive plan. Rite Aid and Elixir leaders participated in the Long-Term Incentive Plan that was structured to include 45% restricted stock and 55% share-settled performance units for our Named Executive Officers. The restricted stock portion vests 1/3 each year. The performance units have a three-year cliff vesting schedule. The performance units are conditioned on performance against three performance metrics: Leverage
RITE AID CORPORATION 2021 Proxy Statement | 45
Ratio (50%); Cumulative Revenue (25%); and Cumulative Scripts (25%). These metrics are distinct from the metrics for Rite Aid’s annual bonus plan. Also, performance awards a return on net asset ratio continuedare subject to be a component of the performance assessment. The Compensation Committee believes that return on net assets is a key indicator of our corporate performance, as it measures how efficiently and effectively we deploy our assets (return on net assets) and focuses management on the need to improve the Company's financial condition over time. Additionally, the Compensation Committee has maintained a plan provision subjecting the long-term performance award to positive or negative modification based on ourwhether three-year relative stockholder return versus the Russell 3000 Index overwas positive or negative measured at the end of the performance period. The three-year performance period. Thegoal for leverage ratio was set at the time of the grants; however, due to the volatility related to the pandemic, the decision was made to set a two-year performance targetsgoal for Cumulative Revenue and Cumulative Scripts metrics in 2022. See “Long-Term Incentive Program—
Performance Awards.” For fiscal year 2021 and beyond, the long-term incentive awards grantedCompensation Committee believes that it is increasingly critical to our Named Executive Officersensure that the executive team is properly-aligned with stockholder interests. For that purpose, we will leverage the equity plan we are asking stockholders to approve at the Annual Meeting as we aim to deliver an increasing proportion of target total compensation opportunities in the form of performance stockperformance-based equity that rewards executives based on Rite Aid’s financial achievements, and time-vested equity that will promote the retention of critical executive talent and appropriately build current ownership levels. Fiscal Year 2021 CEO Pay for Performance. Our CEO’s pay decreased by almost 15% year over year from fiscal 2020 to fiscal 2021, from $9.6 million to $8.2 million. This was primarily due to a decrease in Ms. Donigan’s annual cash award since she received a new hire award in fiscal 2020. During fiscal 2021, the first full fiscal year 2019 are discussedof Ms. Donigan’s tenure as CEO, Rite Aid’s one-year total stockholder return outperformed our GICS industry peers and the broader Russell 3000 index, as noted in detailthe graphic below. See "Long-Term Incentive Program—Performance Awards"
![[MISSING IMAGE: tm217739d2_bc-1yrtsrpn.jpg]](https://capedge.com/proxy/DEF 14A/0001104659-21-069882/tm217739d2_bc-1yrtsrpn.jpg)
In addition, this positive performance under Ms. Donigan’s and her team’s leadership contributed to the Compensation Committee’s decision to exercise discretion to award bonuses at 58% of target even though the Company did not meet the threshold level of achievement with respect to the EBITDA trigger for the plan. The Compensation Committee considered the effectiveness of Ms. Donigan’s leadership in addressing the challenges of the pandemic, including developing and implementing the RxEvolution strategy for growth and the Company’s initiatives to both reduce working capital tied to inventory and improve our retail pharmacists’ productivity. Other achievements under Ms. Donigan’s leadership in fiscal 2021, included:
•
Implemented LEAN initiatives to reduce working capital tied to inventory, which resulted in improved inventory turns and reduced inventory by approximately $180 million
•
Increased front-end inventory turns by 25%
•
Enhanced merchandise assortment with 75% of categories being reset to new elevated merchandising standards that support whole health
•
Achieved our highest-ever customer satisfaction score of 3.8 out of 5
•
Strengthened our balance sheet by refinancing and extending a significant portion of debt
•
Executed on pages 47a number of sale leaseback opportunities to 49.generate cash and further reduce debt
•
Ended fiscal year 2021 with $1.7 billion in liquidity
46 | RITE AID CORPORATION 2021 Proxy Statement
The 58% payout under the annual incentive plan corresponds to the payout level that would have been authorized had Rite Aid achieved the threshold level of Adjusted EBITDA and applying the actual level of performance for the Free Cash Flow and Adjusted Script Comparable metrics.
Objectives of Our Executive Compensation Program
All of our executive compensation and executive benefits programs are within the purview of the Compensation Committee, which bases these programs on the same objectives that guide the Company in establishing all of its compensation programs. The Compensation Committee also administers the Company'sCompany’s equity incentive compensation plans. In establishing or approving the compensation of our Named Executive Officers in any given year, the Compensation Committee is generally guided by the following objectives: •
Compensation should be based on the level of job responsibility, individual performance, and corporate performance, and should foster the long-term focus required for success in the pharmacy, health care services and retail drugstorehealth care industry. As associates progress to higher levels in the organization, an increasing proportion of their pay is linked to Company performance and stockholder returns and to longer-term performance because they are in a position to have greater influence on longer-term results.
•
•Compensation should reflect the value of the job in the marketplace. To attract and retain a highly skilled, diverse work force, we must remain competitive with the pay of other employers who compete with us for talent.
•
•Compensation should reward performance. Our programs should deliver compensation that is related to our corporate performance. Where corporate performance falls short of expectations, the programs should deliver lower-tier compensation. In addition, the objectives of pay-for-performance and retention must be balanced. Even in periods of temporary downturns in overall corporate performance, the programs should continue to ensure that successful, high-achieving associates will remain motivated and committed to the Company to support the stability and future needs of the Company.
•
•To be effective, performance-based compensation programs should enable associates to easily understand how their efforts can affect their pay, both directly through individual performance accomplishments and indirectly through contributing to the Company'sCompany’s achievement of its strategic and operational goals.
•
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•Compensation and benefit programs should reward performance relative to consistent measures and goals at all levels of the organization. While the programs and individual pay levels will always reflect differences in job responsibilities, geographies, and marketplace considerations, the overall structure of compensation and benefit programs should be broadly similar across the organization.
•
•Compensation and benefit programs should attract and retain associates who are interested in being a career atpart of the Rite Aid.The Aid team.
Compensation
Committee'sCommittee’s Processes
The
In making executive pay decisions, the Compensation Committee has establishedassesses Company performance and reviews competitive compensation levels at a numberpeer group of processescompanies to assist it in ensuring thatensure the Company'sCompany’s executive compensation program is achieving its objectives. Among those are: Assessment of Company performance.The Compensation Committee uses Company performance measures in two ways.ways: First, in
•
In assessing the linkage between actual total compensation and performance, the Compensation Committee considers various measures of Company and industry performance, such as comparable store sales and script count growth, pharmacy services segment revenue growth, EBITDA growth, return on sales, debt leverage ratios, return on average invested capital and net assets, relevant strategic initiatives, and total stockholder return. In determining performance relative to the Company'sCompany’s peer group (as discussed further below), the Compensation Committee does not apply a formula or assign these performance measures relative weights. Instead, it makes a subjective determination after considering such measures collectively. Second, as described in more detail below, the
•
The Compensation Committee has established specific Company target incentive/award levels and performance measures that determine the size of payouts under the Company'sCompany’s two formula-based incentive programs—the annual cash incentive bonus program and performance awards granted under the Company's long-term incentive program.
RITE AID CORPORATION Assessment of competitive compensation levels. 2021 Proxy Statement The| 47
Peer Group and Competitive Pay
For fiscal year 2021, the Compensation Committee, with the help of its independent compensation consultant at the time, Exequity LLP, assessesassessed the Company'sCompany’s programs relative to a peer group of organizations and published survey data. The peer group, updated in fiscal year 2018 to reflect the reduction in size of Rite Aid following the planned divestiture of stores and distribution centers to WBA, was approved by the Compensation Committee in September 2017 after a comprehensive review. Because the Company has a limited number of publicly-traded direct competitors and because pharmacy sales (which account for over two-thirds of the Company'sCompany’s retail revenue) are governed by third-party contracts, we reviewed potential peers relative to multiple criteria including: •
Competitors for executive talent, such as grocery store chains, discount department stores, pharmacy benefits managers, companies engaged in pharmaceutical distribution, and healthcarehealth care services organizations;
•
•Competitors for investment capital, such as companies considered peers by financial analysts, companies with a similar capital structure or companies whose stock price movement correlated most directly with Rite Aid;
•
•Companies with which Rite Aid competes for customers that have pharmacy operations, offer similar merchandise as Rite Aid, or provide healthcarehealth care services; and
•
•Companies of similar size based on revenue, EBITDA as well asand enterprise value.
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The resulting peer companies, which are considered to be the best representation of our target labor market, are listed below.
Fiscal Year 20192021 Peer Group
(1)
| | Peer Company | | | Revenues
($ Millions)(1) | | | EBITDA
($ Millions)(1) | | | Enterprise Value
($ Millions)(2) | |
| | Best Buy Co., Inc. | | | | | 43,638 | | | | | | 2,865 | | | | | | 21,417 | | |
| | Macy’s, Inc. | | | | | 25,331 | | | | | | 1,889 | | | | | | 10,814 | | |
| | Dollar General Corp. | | | | | 27,754 | | | | | | 2,842 | | | | | | 49,723 | | |
| | Dollar Tree, Inc. | | | | | 23,611 | | | | | | 2,230 | | | | | | 29,142 | | |
| | AutoNation, Inc. | | | | | 21,336 | | | | | | 963 | | | | | | 6,231 | | |
| | Kohl’s Corporation | | | | | 19,974 | | | | | | 2,129 | | | | | | 11,531 | | |
| | The Gap, Inc. | | | | | 16,383 | | | | | | 1,637 | | | | | | 11,372 | | |
| | Nordstrom | | | | | 15,524 | | | | | | 1,445 | | | | | | 9,329 | | |
| | Laboratory Corporation of America Holdings | | | | | 11,555 | | | | | | 1,969 | | | | | | 23,885 | | |
| | Community Health Systems, Inc. | | | | | 13,210 | | | | | | 1,391 | | | | | | 14,978 | | |
| | LBrands | | | | | 12,914 | | | | | | 1,829 | | | | | | 13,592 | | |
| | Bed Bath & Beyond Inc. | | | | | 11,159 | | | | | | 287 | | | | | | 4,275 | | |
| | J.C. Penney Company, Inc.(3) | | | | | 11,167 | | | | | | 610 | | | | | | 4,262 | | |
| | DaVita Inc. | | | | | 11,388 | | | | | | 2,371 | | | | | | 21,177 | | |
| | Office Depot Inc. | | | | | 10,647 | | | | | | 500 | | | | | | 2,805 | | |
| | Owens & Minor, Inc. | | | | | 9,211 | | | | | | 187 | | | | | | 2,020 | | |
| | | |
| | 75th Percentile | | | | | 21,904 | | | | | | 2,154 | | | | | | 21,237 | | |
| | Median | | | | | 14,367 | | | | | | 1,733 | | | | | | 11,452 | | |
| | 25th Percentile | | | | | 11,333 | | | | | | 875 | | | | | | 5,742 | | |
| | | |
| | Rite Aid | | | | | 21,928 | | | | | | 573 | | | | | | 7,280 | | |
| | Percentile Rank | | | | | 75% | | | | | | 18% | | | | | | 29% | | |
| | | | |
Peer Company
| | Revenues
($ Millions) | |
|---|
CVS Health Corp
| | | 184,765 | |
Walgreens Boots Alliance, Inc.
| | | 120,453 | |
Best Buy Co., Inc.
| | | 42,151 | |
Macy's, Inc.
| | | 24,837 | |
Dollar General Corp.
| | | 23,471 | |
Dollar Tree, Inc.
| | | 22,246 | |
AutoNation, Inc.
| | | 21,535 | |
Kohl's Corporation
| | | 19,095 | |
Sears Holdings Corp.
| | | 16,702 | |
SuperValu, Inc.
| | | 14,649 | |
J.C. Penney Company, Inc.
| | | 12,506 | |
Bed Bath & Beyond Inc.
| | | 12,167 | |
DaVita Inc.
| | | 10,884 | |
Office Depot Inc.
| | | 10,240 | |
LabCorp Holdings
| | | 10,206 | |
Owens & Minor, Inc.
| | | 9,686 | |
The peer group was further reviewed, updated, and approved byRepresents the Compensation Committee in February 2019 to reflect the changes in the peer group, as a resultlast 12 months of mergers and delisting of certain members of the fiscal year 2019 peer group, and further consideration of relevant size using Company comparisons to revenue, market capitalization, and EBITDA. Among other changes, we decided to remove CVS Health Corp. and Walgreens Boots Alliance, Inc. from the peer group, even though each organization is a direct competitor from both business and talent acquisition perspectives, because the Compensation Committee determined that these organizations are no longer appropriate peers given their significantly larger scope of operations.
Updated Fiscal Year 2020 Peer Group(1)
| | | | |
Peer Company
| | Revenues
($ Millions) | |
|---|
Best Buy Co., Inc.
| | | 43,441 | |
Macy's, Inc.
| | | 25,141 | |
Dollar General Corp.
| | | 25,105 | |
Dollar Tree, Inc.
| | | 22,979 | |
AutoNation, Inc.
| | | 21,685 | |
Kohl's Corporation
| | | 19,474 | |
The Gap.
| | | 16,735 | |
Laboratory Corporation of America Holdings
| | | 14,060 | |
Community Health Systems, Inc.
| | | 13,760 | |
Bed Bath & Beyond Inc.
| | | 12,437 | |
J.C. Penney Company, Inc.
| | | 12,001 | |
DaVita Inc.
| | | 11,365 | |
Office Depot Inc.
| | | 10,928 | |
Owens & Minor, Inc.
| | | 9,686 | |
(1)Revenue reflects trailing 12-month data through February 2018 as available per2020 from Standard & Poor'sPoor’s Capital IQ.
IQ
(2)
Table of ContentsRepresents the Current Enterprise Value as reported by Bloomberg on 2/28/2020
(3)
Now known as Old COPPER Company, Inc.
The Compensation Committee compares the compensation levels of Rite Aid's Named Executive OfficersAid’s NEOs to peer company compensation levels in the aggregate, and also compares the pay of individual executives if the jobs are sufficiently similar to make the comparison meaningful. Had the updated fiscal year 2020 peer group been used for all fiscal year 2019 compensation decisions, the analysis would have supported like decisions being made.
48 | RITE AID CORPORATION 2021 Proxy Statement
In addition to peer group data, the Compensation Committee reviews market data based on specific functional responsibility for each executive from published survey data. The survey analysis targets data from similarly sized retail organizations based on each executive'sexecutive’s functional responsibility. The surveys used in the analysis include Mercer'sMercer’s 20182020 Executive Remuneration Suite, Mercer'sMercer’s 20182020 Retail Compensation and Benefits Survey, and Willis Towers Watson'sWatson’s 20182020 Survey Report on Top Management Compensation. The Compensation Committee usesconsiders peer group and survey data primarily to ensure thatevaluate the degree to which the executive compensation program as a whole is competitive, meaningand generally within 25%aims to establish target total direct compensation opportunities that are appropriately-aligned with the medians of the median range of comparative pay of the market when Rite Aid achieves targeted performance levels.these comparator groups. The incentive plans were further designed in such a way thatso executives can earn above competitive pay levels for superior performance and below competitive pay levels if performance is below expectations. The Compensation Committee assesses overall alignment of the compensation program rather than benchmarking a specific target position with consideration of factors, such as Company and individual performance, how executive roles function within Rite Aid, concerns about executive retention, and availability of equity compensation. The Compensation Committee assesses Rite Aid'sAid’s performance relative to its peer group on both a one- and three-year basis and observed alignment of performance with actual total direct compensation levels for the executives in the aggregate. In fiscal year 2019,
From 2010 until November 2020, management engaged Mercer, a compensation consultant, and a wholly-owned subsidiary of Marsh & McLennan Companies (“MMC”), to provide management with compensation information for certain executive officers. Pursuant to the terms of its retention, Mercer reported directly to management, although the Compensation Committee did reviewreviewed Mercer’s recommendations and an analysis prepared by management and Mercer in determining fiscal year 20192021 compensation for the Named Executive Officers. From June 2010 until November 2020, Exequity LLP served as the Compensation Committee’s independent consultant.
To gain a fresh perspective on executive compensation matters, in December 2020, the Compensation Committee retained Mercer as its independent consultant. Although Rite Aid management previously engaged Mercer in fiscal year 2021, when the Compensation Committee selected Mercer for its independent compensation consultant, management ceased retaining Mercer for executive compensation services. For the time management used Mercer for compensation services in fiscal year 2021, Mercer received approximately $357,000 in consulting fees. In addition, Rite Aid management retained an MMC affiliate for risk management and business consulting services resulting in fees of approximately $2.9 million. The Compensation Committee has conducted independence assessments of Exequity, LLP and Mercer, including considering the fees for other services provided by Mercer to the Company, consistent with NYSE listing standards and concluded that the engagements of Mercer and Exequity, LLP did not raise any conflicts of interest or similar concerns.
With respect to fiscal year 2021, Mercer and Exequity LLP reviewed recommendations and analysis prepared by management and provided advice and counsel to the Compensation Committee for the applicable periods during which they were engaged. Exequity LLP did not provide any other services to the Company.
Total compensation review. The Compensation Committee reviews each named executive'sexecutive’s base pay, annual bonus, and long-term incentives annually with the guidance ofinput from the Compensation Committee'sCommittee’s independent compensation consultant. Following the fiscal year 20192021 review, the Compensation Committee determined that the target level and components of compensation for fiscal year 20192021 were competitive and reasonable in the aggregate. RITE AID CORPORATION 2021 Proxy Statement | 49
Components of Executive Compensation for Fiscal Year
20192021
For fiscal year 2019,2021, the regular compensation program for our Named Executive Officers consisted of four primary components: (i) base salary, (ii) a cash incentive bonus opportunity under the Company'sCompany’s annual incentive bonus plan, (iii) long-term incentives consisting of restricted stock and performance-based restricted cash units, and (iv) a benefits package, including retirement and welfare benefits (which are generally provided to all associates of Rite Aid on a supplemental executive retirement program ("SERP"). The Company terminated the SERP as of March of 2019.non-discriminatory basis), and limited perquisites. A significant portion of total compensation under the fiscal year 20192021 program is variable, meaning a significant portionit is subject to meeting specified performance goals and is comprised of target annual incentives and target long-term incentives. The
Our executive compensation program was intendedaims to appropriately balance the mix of cash and equity compensation, the mix of currently-paid and longer-term compensation, and the security of base benefits in a way that best furthersconsistent with the compensation objectives discussed above. The chart below showsHowever, based on share usage constraints over the overallpast few years, the mix of base salary, target annual incentives, target long-term incentives, and contributions underpay for our top executives has necessarily been weighted less toward equity compensation than is typical of our peers. For fiscal year 2021, we leveraged the SERP for Messrs. Standley, Crawford, Karst, Everett, and Ms. Konrad.
Tableequity plan stockholders approved at the 2020 Annual Meeting to increase the relative weighting of Contents
Target Total Remuneration(1)
Compensation Component as a % of Total Remuneration for Fiscal Year 2019
(1)Target Total Remuneration represents the sum of base salary, target annual incentives, target long-term incentives, and SERP contributions. Target Total Compensation does not include (i) the value of broad-based benefits provided to all employees, (ii) components of all other compensation (except the SERP) shown in the Summary Compensation Table, and (iii) retention awards. The Company terminated the SERP as of March of 2019.
Realized Long-Term Incentive Awards
A significantequity portion of our long-term incentive awards are subjectexecutives’ target total remuneration opportunities to performance metrics. This is an important aspectensure greater alignment with stockholder interests and promote the retention of our Named Executive Officers'key new executive talent. Our NEOs’ equity opportunities consist of both performance-based equity that rewards executives based on Rite Aid’s financial achievements, and other executives' compensation aligning their interests with thosetime-vested equity that promotes retention of our stockholders. While equity-based awards are reported in the summary compensation table at target value in the year granted, the value realized is dependent on the actual performance over the measurement period. The realized value from our performance-based long-term
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equity awards where the measurement period ended during thecritical executive talent and enhances current reported results are as noted in the chart below.
ownership levels.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| |
| | Standley(1)
| |
| | Crawford(2)
| |
| | Karst
| |
| | Everett(3)
| |
| | Konrad(4)
| |
|
|---|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total Target Value of Performance Awards Reported in Summary Compensation Table in fiscal years 2015 - 2017 | | | | $ | 16,986,250 | | | | n/a | | | | $ | 1,915,750 | | | | $ | 345,938 | | | | n/a | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total Realized Value in fiscal years 2017 - 2019 of Performance Awards Reported in Compensation Summary Compensation Table in fiscal years 2015 - 2017 | | | |
$ |
2,661,291 | | | | n/a | | | |
$ |
— | | | |
$ |
— | | | | n/a | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1)Mr. Standley's results include the special performance award granted in fiscal year 2016 related to the integration of EnvisionRx, which was realized in July 2017 with a then market value of $2,661,291.
(2)Mr. Crawford was first employed by Rite Aid in fiscal year 2018 and did not receive any performance awards for fiscal years 2015-2017.
(3)Mr. Everett's results reflect compensation reported for fiscal year 2017 only, the year in which he became a Named Executive Officer.
(4)Ms. Konrad was not a Named Executive Officer for fiscal years 2015-2017.
Base Salary
Base salary is one element of an executive'sexecutive’s annual cash compensation during employment. The value of base salaryand reflects the executive'sexecutive’s long-term performance, skill set, and the market value of that skill set. In setting base salaries for fiscal year 2019,2021, the Compensation Committee considered the following factors: Pay•
Base salary levels at comparable companies. As noted above, the Compensation Committee uses peer group datacompanies to test for the reasonableness and competitiveness of base salaries, but it also exercises subjective
•
Subjective judgment in view of the Company'sCompany’s compensation objectives.objectives
Internal relativity.•
Meaning the relativeRelative internal pay differences for different job levels.levels and pay equity
•
Individual performance.performance
Except for increases associated with promotions•
Promotions or increased responsibility increases in base salary for executives from year to year are generally limited to minimal adjustments to reflect individual performance.
Consideration of the•
Overall pay mix of overall compensation.
•
Preference towards increased performance-based pay
Consistent with our compensation objectives, as executives progress to higher levels in the organization, a greater proportion of overall compensation is directly linked to Company performance and stockholder returns. Mr. Standley'sFor example, Ms. Donigan’s target total direct compensation for example, is more heavily weighted toward short- and long-term incentive compensation (approximately 85% in the aggregate as shown in the bar chart above)(89%) than that of the other Named Executive Officers.Officers (76% on average). The
| | | | | | | | |
Executive | | Base Salary at
End of FY 2018 | | Increase or
Change from
Prior Fiscal Year | | Rationale |
|---|
John T. Standley | | $ | 1,220,550 | | | — | | Potential merger |
Kermit Crawford | | $ | 1,000,000 | | | — | | Potential merger |
Darren W. Karst | | $ | 850,750 | | | 2.5 | % | Performance |
Bryan B. Everett | | $ | 618,000 | | | 3.0 | % | Performance |
Jocelyn Z. Konrad | | $ | 461,250 | | | 2.5 | % | Performance |
50 | RITE AID CORPORATION 2021 Proxy Statement
Cash
| | Executive | | | Base Salary at
End of FY 2020 | | | Base Salary
at End of
FY 2021 | | | Change from
Prior Fiscal
Year | | | Rationale | |
| | Heyward Donigan | | | | $ | 1,000,000 | | | | | $ | 1,000,000 | | | | | | 0% | | | | Due to unknown financial
volatility related to COVID-19 | |
| | James J. Peters | | | | $ | 750,000 | | | | | $ | 750,000 | | | | | | 0% | | | | Due to unknown financial
volatility related to COVID-19 | |
| | Matthew Schroeder | | | | $ | 550,000 | | | | | $ | 650,100 | | | | | | 18.2% | | | | Merit increase in light of salary
significantly below median for the position | |
| | Jocelyn Z. Konrad | | | | $ | 600,000 | | | | | $ | 600,000 | | | | | | 0% | | | | Due to unknown financial
volatility related to COVID-19 | |
| | Justin Mennen | | | | $ | 500,000 | | | | | $ | 500,000 | | | | | | 0% | | | | Due to unknown financial
volatility related to COVID-19 | |
Annual Incentive
BonusesAwards
The Company established anCompany’s annual incentive plan in orderis designed to incentivizereward the Named Executive Officers to meetNEOs for meeting the Company's Adjusted EBITDA target forCompany’s financial objectives. For each fiscal year, 2019. Thethe Compensation Committee establishes a target percentage of salary for each participant at the beginning of the fiscal year and approves the financial goals required for the Company to pay an award. Payouts for the Named Executive OfficersNEOs are then determined bybased on the Company'sCompany’s financial results for the year relative to the predetermined performance measures. As shown in the Summary Compensation Table under "Non-Equity Incentive Plan Compensation," incentives were paid to Named Executive Officers for fiscal year 2019 performance. BonusAnnual incentive targets. Targets for each Named Executive OfficerNEO were determined based on job responsibilities, internal relativity, and peer group and survey data. The Compensation Committee'sCommittee’s objective was to set bonus targets such thatso total annual cash compensation (including base salary and annual incentive assuming a target payout) was generally aligned with the market with a substantial portion of that compensation linked to corporate performance. Consistent with our executive compensation philosophy, individuals with greater job responsibilities had a greater proportion of their total cash compensation tied to Company performance through the incentive plan. The Compensation Committee, as a result, established the following targets for fiscal year 2019:
Annual Incentive Opportunity
| | | | | | | | | | |
Executive | | Threshold Payout
(as a % of Salary) | | Target Payout
(as a % of Salary) | | Maximum Payout
(as a % of Salary) | |
|---|
John T. Standley | | | 100 | % | | 200 | % | | 400 | % |
Kermit Crawford | | | 87.5 | % | | 175 | % | | 350 | % |
Darren W. Karst | | | 62.5 | % | | 125 | % | | 250 | % |
Bryan B. Everett | | | 50 | % | | 100 | % | | 200 | % |
Jocelyn Z. Konrad | | | 37.5 | % | | 75 | % | | 150 | % |
The Compensation Committee believes that using Adjusted EBITDA as the measure for the annual incentive plan appropriately encourages officers, including the Named Executive Officers, to focus on improving operating results which ultimately drive stockholder value. EBITDA growth has historically shown a strong positive correlation with three-year and five-year total stockholder return for Rite Aid and its peer group. The majority of Rite Aid's peer companies use an EBITDA measure in their annual incentive plans. Based on Rite Aid's current financial situation and capital structure, the Compensation Committee believes that Adjusted EBITDA is the best indicator of Rite Aid's operating performance. The measure is tracked regularly and is clearly understood by the officers. Officers can impact the measure by taking actions to improve the operating performance of our stores. In addition, the Company regularly communicates Adjusted EBITDA to the investment community.
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Under the plan formula, payouts can range from 0% to 200% of bonus targetstarget depending on Company performance. We adjusted the payout that could be achieved at threshold from 25% to 50% to better align with the market. The Compensation Committee established an Adjusted EBITDA performancethe following threshold, target and maximum payouts as a percentage of $645 millionbase salary for fiscal year 2019, based on2021:
Annual Incentive Opportunity
| | Executive | | | Threshold Payout
(as a % of Salary) | | | Target Payout
(as a % of Salary) | | | Maximum Payout
(as a % of Salary) | |
| | Heyward Donigan | | | | | 100% | | | | | | 200% | | | | | | 400% | | |
| | James J. Peters | | | | | 62.5% | | | | | | 125% | | | | | | 250% | | |
| | Matthew Schroeder | | | | | 50% | | | | | | 100% | | | | | | 200% | | |
| | Jocelyn Z. Konrad | | | | | 50% | | | | | | 100% | | | | | | 200% | | |
| | Justin Mennen | | | | | 37.5% | | | | | | 75% | | | | | | 150% | | |
| | Daniel Robson | | | | | 50% | | | | | | 100% | | | | | | 200% | | |
Annual Incentive Plan Metrics. To drive appropriate performance through the financialAnnual Incentive Plan and to respond to stock holders concerns that the plan targets. Thisshould use more than a single performance level target, based on the financial plan, was 15% above our fiscal year 2018 performance of $560 million. Because of the recognized prescription reimbursement rate challenges,metric, the Compensation Committee added Free Cash Flow and Adjusted Pharmacy Script Comparable as performance metrics in addition to EBITDA. FY 2021 metrics and weightings are: 60% Adjusted EBITDA, 20% Free Cash Flow (New for FY21) and 20% Adjusted Pharmacy Script Comparable (New for FY21). This diversification of metrics and minimizing of overlapping metrics between the annual and long-term incentive plans is intended to decrease the risks associated with placing too much emphasis on a single metric. Our fiscal year 2021 was a unique year, as discussed above under the caption “Our Fiscal 2021 Pay Decisions,” but we expect to also established inapply three metrics for FY 2022.
RITE AID CORPORATION 2021 Proxy Statement | 51
| | Annual Incentive
Plan Metrics | | | Weighting | | | Description | |
| | Consolidated Adjusted EBITDA | | | | | | Adjusted EBITDA is the most heavily weighted measure because it appropriately encourages the NEOs to focus on improving operating results which ultimately drive stockholder value. EBITDA growth has historically shown a strong positive correlation with three-year and five-year total stockholder return for Rite Aid and its peer group. The majority of Rite Aid’s peer companies use an EBITDA measure in their annual incentive plans. Based on Rite Aid’s current financial situation and capital structure, the Compensation Committee believes that Adjusted EBITDA is the best indicator of Rite Aid’s operating performance. The measure is tracked regularly and is clearly understood by the officers and they can impact the measure by taking actions to improve the operating performance of our stores. In addition, the Company regularly communicates Adjusted EBITDA to the investment community. The Compensation Committee established an Adjusted EBITDA performance target of $520.0 million for fiscal year 2021, based on the financial plan targets. Because of prescription reimbursement rate challenges, the competitive environment in which the Company operates, and the variability around the timing of benefits from the Company’s RxEvolution strategic initiatives, the Compensation Committee also established a threshold at which management could be rewarded at 50% of bonus target at achievement of Adjusted EBITDA of $468.0 million (90% of target), and a maximum at which management could be rewarded at 200% of bonus target at achievement of Adjusted EBITDA of $572.0 million (110% of target). In fiscal year 2021, challenges caused by the COVID-19 pandemic had a negative impact on our fiscal year 2021 results, and Rite Aid’s annual bonus plan calculated Consolidated Adjusted EBITDA was $440.2 million, which was below threshold. Consolidated Adjusted EBITDA consists of Adjusted EBITDA from continuing operations. As discussed in greater detail in Appendix A, we define Adjusted EBITDA as net income (loss) excluding the impact of income taxes, interest expense, depreciation and amortization, LIFO adjustments, charges or credits for facility closing and impairment, goodwill and intangible asset impairment charges, inventory write-downs related to store closings, gains or losses on debt retirements, the WBA merger termination fee, and other items (including stock-based compensation expense, merger and acquisition-related costs, non-recurring litigation settlement, severance, restructuring-related costs and costs related to facility closures and gain or loss on sale of assets). We reference this particular non-GAAP financial measure as a basis for incentive compensation and also in our corporate decision-making because it provides supplemental information that facilitates internal comparisons to the historical operating performance of prior periods and external comparisons to competitors’ historical operating performance. | |
| | Free Cash Flow | | | | | | Free cash flow is defined as Adjusted EBITDA plus or minus changes in inventory (on a FIFO basis) minus capital expenditures. Free Cash Flow is a critical metric for our Company as it represents the cash we generate after accounting for capital expenditures to support and grow our business, and includes benefits generated from ongoing inventory and working capital management. A key aspect of our market value and future opportunities are derived from our ability to continue to reduce total debt outstanding and our corresponding leverage ratio. Based on our current debt position, we believe Free Cash Flow is the best indicator of our ability to continue to meet our debt obligations, pay down debt and to enhance the Company’s capital structure. The use of Free Cash Flow aligns our management to the key objective of improving our leverage ratio and delivering enhanced stockholder value. | |
52 | RITE AID CORPORATION 2021 Proxy Statement
| | Annual Incentive
Plan Metrics | | | Weighting | | | Description | |
| | Free Cash Flow (continued) | | | | | | The Compensation Committee established a Free Cash Flow performance target of $370.0 million for fiscal year 2021, based on the financial plan targets. In addition, the Compensation Committee established a threshold at which management could be rewarded at 50% of bonus target at achievement of Free Cash Flow of $316.0 million (85% of target), and a maximum at which management could be rewarded at 200% of bonus target at achievement of Free Cash Flow of $426 million (115% of target). In fiscal year 2021, Free Cash Flow was $393 million. Free Cash Flow was impacted by the reduction in adjusted EBITDA, which was offset by inventory reductions of $185 million driven by the reset of our merchandise assortment as part of our RxEvolution strategy. In addition, capital expenditures were $232 million as we continued to invest in store renovations, prescription file buys and information technology initiatives. | |
| | Adjusted Script Comparable | | | | | | The Adjusted Script Growth is based on Rite Aid’s comparable store script count growth rate for 30 day equivalent scripts without controlled substances. Rite Aid believes that a key component to increasing shareholder value is company growth. As a health care company with a large retail pharmacy footprint, increasing pharmacy customers and the number of prescriptions filled is a key factor in that growth, bringing not only higher revenue to the pharmacy but also increasing foot traffic and front-end sales in our stores. For this reason, the Company deems adjusted comparable scripts to be vital to our business, and using this measurement in the bonus structure is critical to aligning our management objectives with the goal of increased stockholder value. The number of prescriptions filled in same stores, adjusted to 30-day equivalents, increased 1.3 percent over the prior year driven by increases in maintenance prescriptions, supported by personalized Medication Therapy Management interventions and home deliveries, partially offset by a pandemic influenced reduction in acute prescriptions of 9.0 percent. | |
The threshold, target, maximum and actual performance against the goals for the annual incentive plan for fiscal year 2019 a threshold at which management could be rewarded at 50% of bonus target at achievement of2021 are each set out in the table below. For fiscal year 2021, our Adjusted EBITDA of $548 million (85% of target), andfor the Compensation Committee approved a maximum at which management could be rewarded at 200% ofRite Aid annual bonus target at achievement of Adjusted EBITDA of $710 million (110% of target). In fiscal year 2019, challenges caused by the uncertainty of the proposed Albertsons merger as well as the ultimate termination of the merger agreement, the WBA Transactions, as well as continued prescription reimbursement rate pressures all had a negative impact on our fiscal year 2019 results, and Rite Aid's actual Consolidated Adjusted EBITDAplan calculation was $563$440.2 million, which was below theour threshold of $468.0 million; Free Cash Flow was $393.2 million, which was above target performance level, but above theand Adjusted Script Comparable was 1.66%, which was below our threshold performance level, resulting in bonus payments at 58% of the performance target. Consolidated Adjusted EBITDA consists of Adjusted EBITDA from continuing operations plus Adjusted EBITDA from the stores sold to Walgreens up to each store's respective sale date. As discussed in greater detail in Appendix A, we define Adjusted EBITDA as net income (loss) excluding the impact of income taxes, interest expense, depreciation and amortization, LIFO adjustments, charges or credits for facility closing and impairment, goodwill impairment, inventory write-downs related to store closings, debt retirements, the WBA merger termination fee, and other items (including stock-based compensation expense, merger and acquisition-related costs, severance and costs related to distribution center closures, gain or loss on sale of assets, and revenue deferrals related to our customer loyalty program)3.20%. We reference this particular non-GAAP financial measure not only as a basis for incentive compensation but also in our corporate decision-making because it provides supplemental information that facilitates internal comparisons to the historical operating performance of prior periods and external comparisons to competitors' historical operating performance.
Fiscal Year 20192021 Rite Aid Annual Incentive Plan Performance Goal
| | Performance Level | | | Weighting | | | Threshold
(50%) | | | Target
(100%) | | | Maximum
(200%) | | | | Actual
Performance | | | Resulting Payout
as a % of
Target Award | |
| | Adjusted EBITDA (millions) | | | | | 60% | | | | | $ | 468 | | | | | $ | 520 | | | | | $ | 572 | | | | | | $ | 440.2 | | | | | | 0% | | |
| | Free Cash Flow (millions) | | | | | 20% | | | | | $ | 316 | | | | | $ | 370 | | | | | $ | 426 | | | | | | $ | 393.2 | | | | | | 141% | | |
| | Adjusted Script Comparable | | | | | 20% | | | | | | 3.20% | | | | | | 3.70% | | | | | | 4.20% | | | | | | | 1.66% | | | | | | 0% | | |
| | Total Resulting Payout | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 0% | | |
Based on performance against the goal, our Named Executive Officers were not eligible for payment under the plan due to not meeting the plan “trigger” which is attainment of the Adjusted EBITDA threshold. However, the Compensation Committee took into account the unforeseeable nature of the global pandemic and its impact on the financial performance of the Company against the pre-established metrics and, with the assistance of the Compensation Committee consultant, recommended to the Board that the use of discretion in determining the final bonus payments was warranted. The independent members of the Board, meeting in executive session without Ms. Donigan, accepted the Compensation Committee’s recommendation.
| | | | | | | |
Performance Level | | Adjusted EBITDA
Goal (millions) | | Resulting Payout
as a % of
Target Award | |
|---|
Threshold | | $ | 548 | | | 50 | % |
Target | | $ | 645 | | | 100 | % |
Maximum | | $ | 710 | | | 200 | % |
Actual Performance | | $ | 563 | | | 58 | % |
RITE AID CORPORATION 2021 Proxy Statement | 53
The Compensation Committee held several meetings with management to review the actual financial performance compared to the estimated financial performance without the challenging effects of COVID-19. It was determined that without the effects of COVID-19, the financial performance for purposes of the Rite Aid annual incentive plan would have been between threshold and target levels of the plan. It was determined that without the effects of COVID-19, the Adjusted EBITDA threshold would have been met and the financial performance for purposes of the Rite Aid annual incentive plan would have fallen between threshold and target levels of the plan based on achieving above target Free Cash Flow of 113% of target. Without the effects of COVID-19, the plan was estimated to payout at 72%. After long deliberation and in consultation with the Board of Directors and Mercer, the Compensation Committee recommended that the Board exercise discretion to pay bonus at 58% of target for fiscal year 2021 performance. The independent members of the Board, meeting in executive session without Ms. Donigan, accepted the Compensation Committee’s recommendation. See Appendix A for a reconciliation of our Adjusted EBITDA, which is a non-GAAP measure, to net income under GAAP.
As discussed above under the caption “Our Fiscal 2021 Pay Decisions,” although the annual incentive plan did not payout due to the challenges posed by the pandemic, the decision was taken with due care (and consideration of individual contributions) to make discretionary bonus payments to participants in the program, including our active named executive officers.
Each of our NEOs demonstrated effective leadership during a very difficult year and the Compensation Committee determined providing annual bonuses at 58% of target was prudent to continue to motivate and retain our management team. The Committee considered the following contributions and achievements in deciding to exercise discretion to award a bonus to the NEOs:
•
Implemented LEAN initiatives to reduce working capital tied to inventory
•
Improved our retail pharmacists’ productivity
•
Reduced inventory by approximately $180 million
•
Increased front-end inventory turns by 25%
•
Enhanced merchandise assortment with 75% of categories being reset to new elevated merchandising standards that support whole health
•
Achieved our highest-ever customer satisfaction score of 3.8 out of 5
•
Strengthened our balance sheet by refinancing and extending a significant portion of debt
•
Executed on a number of sale leaseback opportunities to generate cash and further debt reduction
•
Ended fiscal year 2021 with $1.7 billion in liquidity
The actual plan payouts and their percentage of target for fiscal year 2021 are set out in the table below:
Fiscal Year 2021 Rite Aid Annual Incentive Plan Payouts
| | Executive | | | Target Bonus Opportunity | | | Discretionary Payout
as a % of Target | | | Calculated Payout | |
| | Heyward Donigan | | | | $ | 2,000,000 | | | | | | 58% | | | | | $ | 1,160,000 | | |
| | James J. Peters | | | | $ | 937,500 | | | | | | 58% | | | | | $ | 543,750 | | |
| | Matthew Schroeder | | | | $ | 650,100 | | | | | | 58% | | | | | $ | 377,058 | | |
| | Jocelyn Z. Konrad | | | | $ | 600,000 | | | | | | 58% | | | | | $ | 348,000 | | |
| | Justin Mennen | | | | $ | 500,000 | | | | | | 58% | | | | | $ | 290,000 | | |
The Elixir annual incentive plan, which applied to Mr. Robson, is a calendar year plan (fiscal year 2020 for Elixir). The Elixir Adjusted EBITDA for the annual bonus plan calculation purposes for fiscal year 2021 was $157.5 million, which was below our threshold of $164.5 million and Revenue was $4,658.8 million, which was above the maximum of $4,370.0 million. The Elixir plan paid out at 50% of target based on exceeding the maximum for one of the two performance targets.
54 | RITE AID CORPORATION 2021 Proxy Statement
The threshold, target, maximum and actual performance against the goals for the annual incentive plan for Mr. Robson for fiscal year 2020 are set out in the table below:
Fiscal Year 2020 Elixir Annual Incentive Plan Performance Goal
| | Performance Level | | | Weighting | | | Threshold
(50%) | | | Target
(100%) | | | Maximum
(200%) | | | | Actual
Performance | | | Resulting Payout
as a % of
Target Award | |
| | Adjusted EBITDA (millions) | | | | | 75% | | | | | $ | 164.5 | | | | | $ | 182.8 | | | | | $ | 210.2 | | | | | | $ | 157.5 | | | | | | 0% | | |
| | Revenue (millions) | | | | | 25% | | | | | $ | 3,230.0 | | | | | $ | 3,800.0 | | | | | $ | 4,370.0 | | | | | | $ | 4,658.8 | | | | | | 200% | | |
| | Total Resulting Payout | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 50% | | |
The actual plan payouts resulting from the above referenced performance and their percentage of target for fiscal year 2021 are set out in the table below:
Fiscal Year 2020 Elixir Annual Incentive Plan Payouts
| | Executive | | |
Target Bonus Opportunity | | | Payout as a % of Target | | | Calculated Payout | |
| | Daniel Robson | | | | $ | 550,000 | | | | | | 50% | | | | | $ | 275,000 | | |
Long-Term Incentive Program
Long-term incentive target opportunity.The purpose of the regular long-term incentive program is to support the long-term perspective necessary for continued success in our business and focus our Named Executive OfficersNEOs on creating long-term, sustainable stockholder value.
Long-term incentive target opportunity. Our annual long-term
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incentive ("LTI"(“LTI”) target opportunities for each Named Executive Officer as of the date of grant on January 4, 2019NEO are shown below:
Long-Term Incentive Target Opportunities
| | Executive | | | |
Executive
| | Target Opportunity
(as a % of Salary) | |
|---|
John T. Standley
| | | 500 | % |
Kermit Crawford
| Heyward Donigan | | 425 | | | 600% | | |
Darren W. Karst
| James J. Peters | | 250 | | | 300% | | |
Bryan B. Everett
| Matthew Schroeder | | 200 | | | 250% | | |
| Jocelyn Z. Konrad | | | | | 225% | | |
| | Justin Mennen | | | | | 150% | | |
| | Daniel Robson(1) | | | | | 225% | | |
(1)
Mr. Robson is no longer eligible for the FY 2021-2023 long-term performance-based unit award and two-thirds of the restricted stock granted on July 8, 2020 as a result of his separation from employment with the Company on January 27, 2021.
The Compensation Committee reviewed available peer group data and found that the design of the long-term incentive program is reasonably aligned with general retail industry market practice. Target grant values for individual executive officers were established based on individual performance,
ability to effect results and internal relativity. Consistent with the
Company'sCompany’s compensation philosophy, executive officers at higher levels received a greater proportion of total pay in the form of long-term incentives.
For fiscal year 2021, the Company increased the NEOs’ target opportunities in order to provide a larger portion of their total target compensation in the form of equity to create better alignment to performance of the Company and stockholders’ interests.
Long-term incentive mix. Under the LTI plan, we grant performance-based units and restricted stock. In fiscal year 20192021, we used the following types of awards and increaseddecreased the percentage of the awardperformance-based units from 70% to 55% due to the limited number of shares available that is subjectcould be issued in respect to performance:variable awards. We will leverage the equity plan we RITE AID CORPORATION 2021 Proxy Statement | 55
are asking stockholders to approve at the Annual Meeting as we aim to deliver an increasing proportion of target total compensation opportunities in the form of performance-based equity that rewards executives based on Rite Aid’s financial achievements. Restricted stock grants generally vest over a multi-year period (three years or longer) and are tied to the value of our stock.
| | Vehicle | | | Approximate Proportion of
2021 Long-Term Incentive
Target Opportunity | | | Purpose | |
Vehicle
| | Approximate
Proportion of 2019
Long-Term
Incentive Target
Opportunity | | Purpose |
|---|
| Performance-Based Cash Units | | | 70 | % | | Links compensation to multi-year operating results on key measures tied to stockholder value creation.creation | |
| Restricted Stock | | | 30 | % | | Supports retention and provides a vehicle with more stability and less risk. Aligns executive and stockholder interests and focuses executives on value creation.creation | |
In determining the overall mix of long-term incentive vehicles, the following factors were considered: •
Risk/reward tradeoffs: Using multiple long-term incentive vehicles can balance the need for a strong performance-based program against risk to executives.
•
•Performance measurement: Using a combination of vehicles allows the Company to focus executives on both stock price appreciation and achievement of consistent operating results, (as indicated by Adjusted EBITDA and other measures), which we believe leads to creation of value for stockholders.
•
•Management of share usage and market practice: Rite Aid considers market practice concerning both share usage and competitive long-term incentive levels. Rite Aid uses either a stock-based performance vehicle or a cash-based performance vehicle which is aligned with peer companies and retailers of similar size. The target LTI mix has been selected to align the compensation opportunity for executives and associates with our stockholder return.
The Compensation Committee'sCommittee’s process for setting grant dates is discussed below. On the approval date, those values are converted to the equivalent number of shares based on the closing price of the Company'sCompany’s common stock on the date of approval.
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Grant timing. The Compensation Committee has a policy that, in the normal course, annual long-term incentive awards (other than special or new hire grants) will be approved by the Compensation Committee once a year at its annual meeting held in connection with the annual stockholders'stockholders’ meeting, with a grant date equal toof the later of the second business day after release of the Company'sCompany’s first quarter earnings or the date of approval. Grants are made to the Named Executive OfficersNEOs at the same time as awards are made to all other associates as part of the annual grant process. With the delay in our fiscal year 2018 annual stockholders meeting and the changing of board members, resulting in new members of the Compensation Committee, the Committee took action in its December, 2018 meeting to grant fiscal year 2019 awards with an effective date of January 4, 2019.
Special awards. From time to time, the Company may make grants in addition to the annual equity grant, including those to Named Executive Officers.NEOs. Typically, these grants include awards to new hires such as inducement awards, promotional awards, or retention awards. Special awards can also be utilized to provide special performance incentives in connection with specific corporate or financial goals of the Company. No special awards of this latter type were made to our Named Executive OfficersNEOs in fiscal year 2019.2021.
Performance Awards
Performance awards granted to the Named Executive Officers under the regular long-term incentive program are in the form of units, which are denominated in a target number of shares and payable in Company stock or cash, if designated, or are denominated with a target unit value equal to $1.00. Company performance goals are established and achievable over the prescribed performance period. Payouts can range from 0% (for performance below threshold) to 250% of target (for performance at or above maximum).
Performance awards are intended to align interests of executives with those of stockholders through the use of measures the Company believes drive its long-term success. Performance awards are normally granted annually and are structured as a targeted number of units based on the
Company'sCompany’s achievement of specific performance levels with payout
generally occurring after a three-year period.
For the 2017 performance award grants (the "2017-2019 Plan"), the Compensation Committee based 80% of the award on the achievement of three-year (fiscal year 2017-fiscal year 2019) cumulative Adjusted EBITDA goals and the remaining 20% on three-year (fiscal year 2017-fiscal year 2019) return on net asset goals. The Compensation Committee also added a provision for each cycle, subjecting the award to modification based on our relative stockholder return versus the Russell 3000 Index over the respective three-year measuring periods. The Compensation Committee believes this provision further aligns the interests of our executives with those of our stockholders and adds an additional incentive for them to create sustainable long-term value for the Company.
Under the 2017-2019 Plan, participants had the opportunity to earn shares of Rite Aid stock, contingent on cumulative Company financial performance for the three-year period spanning fiscal year 2017-fiscal year 2019. Such financial performance is based 80% on the Adjusted EBITDA goals and 20% on return on net asset goals. In addition, in order to further align the interests of our executives with those of our stockholders and add an additional incentive for them to create sustainable long-term value for the Company, the Compensation Committee also determined to subject the award to modification of +/–25% based on our relative stockholder return versus the Russell 3000 Index over the three-year measuring period. For fiscal years 2017-2019, actual Adjusted EBITDA of $1,871 million was below the three-year performance threshold of $3,135 million. Actual return on net assets was 1.5% compared to a target of 5.1%. Accordingly, no awards were earned under the 2017-2019 Plan.
56 | RITE AID CORPORATION 2021 Proxy Statement
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For the 2018 performance award grants ("2018-2020 Plan"), the Compensation Committee also based 80% of the award on the achievement of Adjusted EBITDA goals and the remaining 20% on return on net assets performance. However, due to the significant uncertainty during the transition of our business in 2018, the 2018-2020 Plan financial performance goals are based on the accumulation of one-year goals set for
2019
and 2020 only. As in prior cycles, the Compensation Committee added a provision subjecting the award to modification based on our relative stockholder return versus the Russell 3000 Index over the full 2018-2020 performance period. Under the 2018-2020 Plan, participants have the opportunity to earn cash payments after the end of fiscal year 2020, contingent on performance relative to accumulated one-year Company financial performance goals for each of fiscal year 2019 and fiscal year 2020. Such financial performance is based 80% on the Adjusted EBITDA goals and 20% on return on net asset goals. The value of a unit is tied to the stock price with a maximum value of 300% of the grant date stock price. This aligns the interests of our executives with those of our stockholders. In addition, in order to further align the interests of our executives with those of our stockholders and add an additional incentive for them to create sustainable long-term value for the Company, the Compensation Committee also determined to subject the award to modification of +/– 25% based on our relative stockholder return versus the Russell 3000 Index over the three-year vesting period.
2019 Performance AwardsFor the 2019 performance award grants ("(“2019-2021 Plan"Plan”), the Compensation Committee also based 80% of the award on the achievement of Adjusted EBITDA goals and the remaining 20% on return on net assets performance. However, due to the delay in grant timing and the significant uncertainty during the transition of our business in 2019, as well as prescription reimbursement rate challenges, the 2019-2021 Plan financial performance goals arewere based on the accumulation of one-year goals set for 2020 and 2021 only. As in prior cycles, the Compensation Committee added a provision subjecting the award to modification (+/- 25%) based on our relative stockholder return versus the Russell 3000 Index over the full 2019-2021 performance period.
As shown in the table below, payouts can range from 0% (for performance below threshold) to 250% of the target number of units (for performance at or above maximum) and 37.5% of the target unit award can be earned for performance at threshold levels.
The following charts summarize the financial performance calculation and the cash payment that was earned:
Financial Performance Calculation: EVP 2019-2021 Plan
| | Component
Metric | | | Component
Weighting | | | Threshold
Performance
(50% Payout) | | | Target
Performance
(100% Payout) | | | Maximum
Performance
(200% Payout) | | | Actual
Performance | | | Component
Payout % | |
| | 2020-2021
Adjusted EBITDA | | | | | | | $ | 839,320 | | | | | $ | 1,049,150 | | | | | $ | 1,258,980 | | | | | $ | 978,411 | | | | | | 82.5% | | |
| | 2020-2021 RONA | | | | | | | | 1.76% | | | | | | 2.2% | | | | | | 2.64% | | | | | | 0.4% | | | | | | 0% | | |
| | Weighted Sub-Total | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 66% | | |
| | TSR Relative to Russell 3000 | | | Modifier | | | | | | | | | | | | | | | | | | | | | See Note (a) below. | | | +25% | |
| | Final Calculated
Payout | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 82.5% | | |
(a)
The TSR of 50% over the performance period ended Feb. 26, 2021 corresponded to a percentile rank of 72nd (746 out of 2691), which was in the top third and resulted in a TSR multiple of 1.25x.
2019-2021 EVP Plan Payouts
| | Executive | | | Target Award
$ | | | Payout
% | | | Calculated
Payout | |
| | Jocelyn Z. Konrad | | | | $ | 484,300 | | | | | | 82.5% | | | | | $ | 399,547.50 | | |
For the 2019-2021 performance award grants awarded to associates who were Senior Vice Presidents of the Company (the “SVP 2019-2021 Plan”), participants had the opportunity to earn cash payments after the end of fiscal year 2021, contingent on performance relative to accumulated two-year Company financial performance goals for each of fiscal year 2020 and fiscal year 2021. Such financial performance was based 80% on the Adjusted EBITDA and 20% Return on Net Assets (“RONA”) goals. Mr. Schroeder participated in the SVP 2019-2021 Plan. The following charts summarize the financial performance calculation and the cash payment that was earned:
RITE AID CORPORATION 2021 Proxy Statement | 57
Financial Performance Calculation: SVP 2019-2021 Plan
| | Component Metric | | | Component
Weighting | | | Threshold
Performance
(50% Payout) | | | Target
Performance
(100% Payout) | | | Maximum
Performance
(200% Payout) | | | Actual
Performance | | | Component
Payout % | |
| | 2020-2021 Adjusted EBITDA | | | | | | | $ | 839,320 | | | | | $ | 1,049,150 | | | | | $ | 1,258,980 | | | | | $ | 978,411 | | | | | | 82.5% | | |
| | 2020-2021 RONA | | | | | | | | 1.76% | | | | | | 2.2% | | | | | | 2.64% | | | | | | 0.4% | | | | | | 0% | | |
| | Weighted Sub-Total | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 66% | | |
| | Final Calculated Payout | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 66% | | |
SVP 2019-2020 Plan Payouts
| | Executive | | | Target Award
$ | | | Payout
% | | | Calculated
Payout | |
| | Matthew Schroeder | | | | $ | 208,200 | | | | | | 66% | | | | | $ | 137,412 | | |
2020 Performance-based Units
For the 2020 performance-based unit grants (“2020-2022 Plan”), the Compensation Committee based 50% of the award on the achievement of cumulative Adjusted EBITDA goals, 25% on the achievement of EBITDA contribution from specific strategic initiatives (measured on an annual basis and then aggregated over three years), and the remaining 25% on the achievement of specific cumulative leverage ratio goals. As in prior cycles, the Compensation Committee added a provision subjecting the award to modification based on our relative stockholder return versus the Russell 3000 Index over the full 2019-20212020-2022 performance period. Under the 2019-20212020-2022 Plan, participants have the opportunity to earn cash payments after the end of fiscal year 2021,2022, contingent on performance relative to accumulated one-year Company financial performance goals for each of fiscal year 2020 and fiscal year 2021. Such financial performance is based 80% on thecumulative Adjusted EBITDA, goalsEBITDA contribution from specific strategic initiatives, and 20% on return on net asset goals.cumulative leverage ratio. The value of a unit granted under the 2020-2022 Plan is equal to $1.00. These performance targets align the interests of our executives with those of our stockholders. In addition, in order to further align the interests of our executives with those of our stockholders and add an additional incentive for them to create sustainable long-term value for the Company, the Compensation Committee also determined to subject the award to modification of +/–− 25% based on our relative stockholder return versus the Russell 3000 Index over the three-year vesting period. As shown in the table below, payouts can range from 0% (for performance below threshold) to 250% of the target number of units (for performance at or above maximum). and 37.5% of the target unit award can be earned for performance at threshold levels.
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2019-2021 Plan: Performance Units
| | | | | | | | | | |
Executive(a) | | Threshold
Award
($) | | Target
Award
($) | | Maximum
Award
($) | |
|---|
John T. Standley(1) | | $ | 1,601,963 | | $ | 4,271,900 | | $ | 10,679,750 | |
Kermit Crawford(2) | | $ | 1,115,625 | | $ | 2,975,000 | | $ | 7,437,500 | |
Darren W. Karst(2) | | $ | 558,300 | | $ | 1,488,800 | | $ | 3,722,000 | |
Bryan B. Everett | | $ | 324,450 | | $ | 865,200 | | $ | 2,163,000 | |
Jocelyn Z. Konrad | | $ | 181,613 | | $ | 484,300 | | $ | 1,210,750 | |
| | Executive | | | Threshold Award
($) | | | Target Award
($) | | | Maximum Award
($) | |
| | Heyward Donigan | | | | | N/A | | | | | | N/A | | | | | | N/A | | |
| | James J. Peters | | | | | N/A | | | | | | N/A | | | | | | N/A | | |
| | Matthew Schroeder | | | | | 216,563 | | | | | | 577,500 | | | | | | 1,443,750 | | |
| | Jocelyn Z. Konrad | | | | | 315,000 | | | | | | 840,000 | | | | | | 2,100,000 | | |
| | Justin Mennen | | | | | 164,063 | | | | | | 437,500 | | | | | | 1,039,750 | | |
| | Daniel Robson(1) | | | | | 25,780 | | | | | | 68,750 | | | | | | 171,875 | | |
Mr. Standley will forfeit thisRobson is not eligible for the 2020-2022 long-term performance-based cash award upongranted on July 17, 2019 as a result of his departureseparation from the Company.
(2)Mr. Crawford forfeited this awardemployment with his departure from the Company on March 12, 2019,January 27, 2021.
58 | RITE AID CORPORATION 2021 Proxy Statement
2021 Performance-based Units
For the 2021 performance-based unit grants (“2021-2023 Plan”), the Compensation Committee eliminated EBITDA from the LTIP and added revenue and cumulative scripts metrics in addition to the leverage ratio metric to avoid overlapping metrics with the annual incentive plan in part in response to stockholder feedback. By diversifying the performance metrics across Rite Aid’s performance-based program of annual and long-term incentives, the Company seeks to ensure that the program drives Company performance across multiple metrics and that the variable pay components are suitably challenging. The 2021 awards are based on the following performance metrics:
•
Three-year Leverage Ratio weighted 50% (continued from FY20 Plan Design but increased from 25% to 50%)
•
Two-Year Cumulative Revenue weighted 25% (New for FY21 Plan Design)
•
Two-Year Cumulative Scripts weighted 25% (New for FY21 Plan Design)
Leverage Ratio was selected as a metric because it is recognized as a leading indicator of a company's financial health. A reduction in the leverage ratio allows management to not only focus on EBITDA growth but also reducing the Company's debt level. In addition, Cumulative Revenue and Cumulative Scripts were selected to ensure appropriate growth opportunities for the Company. As a health care company with a large retail pharmacy footprint, increasing pharmacy customers and the number of prescriptions filled is a key factor in growth, bringing not only higher revenue to the pharmacy but increasing the front-end sales in our stores.
The two-year goals will be set by the Compensation Committee in 2022 to allow the Compensation Committee to smooth volatility and the flexibility to require performance in line with the needs of Rite Aid’s business. These performance targets are intended to align the interests of our executives with those of our stockholders. As in prior years, to further align the interests of our executives with those of our stockholders and add an additional incentive for them to create sustainable long-term value for the Company, the Compensation Committee also determined to subject the award to modification of +/− 25% based on our relative stockholder return versus the Russell 3000 Index over the three-year cliff vesting period, which ends after certification of fiscal year 2023 results.
As shown in the table below, payouts can range from 0% (for performance below threshold) to 187.5% of the target number of units (for performance at or above maximum), with 37.5% earned for performance at the threshold levels.
2021-2023 Plan: Performance-based Units
| | Executive | | | Threshold Award
($) | | | Target Award
($) | | | Maximum Award
($) | |
| | Heyward Donigan | | | | | 1,237,500 | | | | | | 3,300,000 | | | | | | 6,187,500 | | |
| | James J. Peters | | | | | 464,063 | | | | | | 1,237,500 | | | | | | 2,320,313 | | |
| | Matthew Schroeder | | | | | 335,156 | | | | | | 893,750 | | | | | | 1,675,781 | | |
| | Jocelyn Z. Konrad | | | | | 278,438 | | | | | | 742,500 | | | | | | 1,392,188 | | |
| | Justin Mennen | | | | | 154,688 | | | | | | 412,500 | | | | | | 773,438 | | |
| | Daniel Robson(1) | | | | | 255,234 | | | | | | 680,625 | | | | | | 1,276,172 | | |
(1)
Mr. Karst forfeited thisRobson was not eligible to earn the FY 2021-2023 long-term performance-based unit award uponas a result of his departureseparation from employment with the Company on May 31, 2019.January 27, 2021.
Restricted
StockStock—Awards Under Fiscal Year 2021 Plan
Restricted stock grants are intended to support retention of executives and focus them on long-term performance because they generally vest over a multi-year period (three years or longer) and are tied to the value of our stock. The risk profile of restricted stock is aligned with stockholders, as it can motivate executives to both increase and preserve stock price. The table below summarizes 20192021 restricted stock awards:
RITE AID CORPORATION 2021 Proxy Statement | 59
EXECUTIVE COMPENSATION
2019
2021 Restricted Stock Awards
| | Executive | | | Award Value
($) | | | Number of Shares
(#) | |
| | Heyward Donigan | | | | | 2,700,000 | | | | | | 150,334 | | |
| | James J. Peters | | | | | 1,012,500 | | | | | | 56,375 | | |
| | Matthew Schroeder | | | | | 731,250 | | | | | | 40,715 | | |
| | Jocelyn Z. Konrad | | | | | 607,500 | | | | | | 33,825 | | |
| | Justin Mennen | | | | | 337,500 | | | | | | 18,792 | | |
| | Daniel Robson(1) | | | | | 556,875 | | | | | | 31,006 | | |
| | | | | | | |
Executive | | Award Value
($) | | # of Shares | |
|---|
John T. Standley | | $ | 1,830,829 | | | 118,885 | |
Kermit Crawford(1) | | $ | 1,274,966 | | | 82,790 | |
Darren W. Karst(2) | | $ | 638,099 | | | 41,435 | |
Bryan B. Everett | | $ | 370,832 | | | 24,080 | |
Jocelyn Z. Konrad | | $ | 207,592 | | | 13,480 | |
(1)(1)- Mr.
Crawford forfeited this award with his departure fromRobson is not eligible for two-thirds of the Companyrestricted stock awards granted on March 12, 2019.
(2)Mr. Karst forfeitedJuly 8, 2020 as a portionresult of this award pursuant to his separation agreement upon his departure from the Company on May 31, 2019.
Winding Down Retention Efforts in Fiscal Year 2019
In addition to the fiscal year 2018 regular compensation program for the Named Executive Officers, Rite Aid also entered into individual retention agreements with each of the Named Executive Officers, as well as other key associates who are not named executive officers, to enhance employee retention and promote corporate performance, amidst significant volatility and uncertainty related to restructuring the company. The retention agreements with each Named Executive Officer, other than Messrs. Standley and Crawford, generally provided for the lump-sum payment of the retention awards
(a)Because Mr. Crawford did not commence employment with the Company until after the date the 2018- 2020 Plan was established, he did not participate in the 2018-2020 Plan. As previously disclosed, on his October 2, 2017 start date, Mr. Crawford received 1,000,000 stock options and 975,610 restricted shares.
January 27, 2021.
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in equal installments on August 1, 2018 and May 1, 2019, subject to continued employment through such retention date or upon an earlier qualifying termination.
The retention agreement with Mr. Crawford generally provided for the lump-sum payment of the retention award on October 1, 2019, subject to continued employment through such retention date or an earlier qualifying termination of employment. Mr. Crawford forfeited this award with his departure on March 12, 2019.
The retention agreement with Mr. Standley generally provided for the lump-sum payment of the retention award (x) on the completion of the Albertson's merger if Mr. Standley has not been appointed to serve as chief executive officer of the combined company or (y) on the date that the Rite Aid Board of Directors determines that the transactions contemplated by the Merger Agreement will not be consummated, in each case, subject to continued employment through each such retention date or an earlier qualifying termination of employment. Due to the termination of the Merger Agreement on August 8, 2018, Mr. Standley received the $3,000,000 retention payment to which he was entitled under his retention agreement.
Under the remaining retention agreements granted in fiscal year 2018, in the aggregate, Mr. Karst earned a retention payment of $830,250, Mr. Everett earned a retention payment of $600,000 and Ms. Konrad earned a retention payment of $450,000. 50% of the retention amount for each officer, other than Messers. Standley and Crawford, was paid in fiscal year 2019 based on continued employment on August 1, 2018, and the remaining 50% was paid based on continued employment on May 1, 2019.
Based on stockholder discussions and clarity around the business strategy, Rite Aid did not enter into any new individual retention agreements for any of the Named Executive Officers in fiscal year 2019 and does not believe it will enter into any new retention agreements in fiscal year 2020.
Post-Retirement Benefits
Supplemental Executive Retirement Program. During fiscal year 2019, each of the Named Executive Officers received benefits under a defined contribution supplemental executive retirement plan or SERP. Under the SERP, Rite Aid credited each participant with a specific sum to an individual account established for each participant, on a monthly basis while the participant is employed. The amount credited was equal to 2% of the participant's annual base compensation. The participants are able to select among a choice of earnings indexes, and their accounts are credited with earnings that mirror the investment results of such indexes. Participants vested in their accounts at the rate of 20% per year for each calendar year of participation in the SERP at a five-year rolling rate with the entire account balance for each participant vesting upon death or total disability of the participant, termination without cause during the 12-month period following a "change in control" of the Company as defined in the SERP or upon termination of employment at age 60 or greater with at least five years of participation in the SERP. Effective February 25, 2019, the Company terminated the SERP such that there will be no future contributions or accruals as of March 2019. Existing SERP benefits have been fully vested and will be paid out in accordance with plan terms. SERP payments may be delayed due to certain tax rules or deferral elections made by the executive.
Other Post-Employment and Change in Control Benefits
To attract highly skilled executives and to provide for certainty of rights and obligations, Rite Aid has historically provided employment agreements to its executive officers, including our Named Executive Officers. The terms of the employment agreements are described in more detail under the caption "Executive“Executive Employment Agreements."” Additional information regarding the severance and change in control benefits provided under the employment agreements is described under the section entitled "Executive“Executive Compensation—Potential Payments Upon Termination or Change in Control."” Mr. Robson’s employment terminated without cause under circumstances entitling him to severance under his employment agreement with us. Additional information regarding Mr. Robson’s departure is provided under the caption “Executive Compensation, Executive Employment Agreement” and the caption “Executive Compensation—Potential Payments Upon Termination or Change in Control—Named Executive Officer Departure During Fiscal Year 2021.”
Deductibility Cap on Executive Compensation
The Compensation Committee is aware that
To maintain flexibility and the ability to pay competitive compensation, we do not require all compensation to be deductible. Section 162(m) of the Internal Revenue Code
generally limits to $1.0 million the amount of
1986, as amended (the "Code"), treats certain elements of executive compensation in excess of $1,000,000 a year payable to our Chief Executive Officer and three other most highly compensated executives (and, effective beginning in 2018, our Chief Financial Officer) as an expense not deductible byremuneration that the Company
may deduct in any calendar year for
federalcertain executive officers. Prior to 2018, we structured our annual incentive awards and long-term incentive awards with the intention of meeting the exception to this limitation for “performance-based” compensation, as defined in Section 162(m), so that these amounts could be fully deductible for income tax purposes. The
exception providing that payments to these individuals in excess of the $1,000,000 limit will be deductible if such payments are performance-based was repealed beginning in 2018, as further described below. H.R.1, formally known as the "Tax Cuts and Jobs Act," enacted on December 22, 2017, substantially modifies Section 162(m) by, among other things, eliminating the performance-based exception to the $1 million deduction limitwas eliminated effective as of January 1, 2018. As a result, beginning in 2018, and compensation paid to our Named Executive OfficersNEOs in excess of $1$1.0 million will generallynot be nondeductible, whether ordeductible unless it qualifies for transition relief applicable to certain arrangements in place as of, and not it is performance-based. While the Compensation Committee plans to continue taking actions intended to limit the impact of Section 162(m), it also believes that tax deductibility is only one of several relevant considerations in setting compensation. Therefore, in order tomodified after, November 2, 2017. To maintain the flexibility to provide compensation programs for our Named Executive OfficersNEOs that will best incentivize them to achieve our key business objectives and create sustainable long-term stockholder value, the Compensation Committee reserves the right to pay compensation that may not be deductible to the Company if it determines that doing so would be in the best interests of the Company.
H.R.1 also includes a transition rule under which the changes to Section 162(m) described above will not apply to compensation payable pursuant to a written binding contract that was in effect on November 2, 2017 and is not subsequently materially modified. To the extent applicable to our existing contracts and awards, the Compensation Committee may choose to avail itself of the transition rule.
60 | RITE AID CORPORATION 2021 Proxy Statement
Policy Regarding Recoupment of Certain Compensation
The Company has adopted a formal compensation recovery or "clawback"“clawback” policy for its executive officers, including all Named Executive Officers. Pursuant to thisNEOs, which covers all compensation paid or awarded. Under the policy, the Board of Directors may seek to recoup from executives certain incentive compensation, including cash bonuses and equity incentive awards paid based uponon the achievement of financial performance metrics, from executives in the event that the Company is required to restate its financial statements. In March 2020, the Board amended the Company’s clawback policy to (1) expand its scope to cover executive officers’ misconduct in violation of law, Company policy or the code of conduct, including an executive officer’s material failure to exercise his or her assigned oversight responsibilities, that results in material financial, operational or reputational harm to the Company (collectively, “Detrimental Harm”) and (2) require public disclosure of recoupment of compensation where the underlying facts are disclosed, subject to certain legal and privacy rights considerations. The Board of Directors may seek to recoup, or cause to be forfeited, all or a portion of the bonus, incentive compensation or equity-based compensation received by, or awarded in respect of the period of misconduct in cases of Detrimental Harm.
Prohibition on Margin Accounts and Hedging and Similar Transactions
Our executivedirectors, officers and directors, includingother associates are prohibited from engaging in hedging or monetization transactions, such as zero-cost collars, equity swaps, exchange funds and forward sale contracts, with respect to our securities. Because hedging transactions might allow a director, officer or other associate to continue to own our securities, whether obtained through our equity compensation plans or otherwise, without the Named Executive Officers,full risks and rewards of ownership, such hedging transactions are subject to an insider trading policy that, amongprohibited. Directors, officers and other things, prohibits thememployees are also prohibited from holding Company securities in a margin account, and also prohibits them from engaging in put or call options, short selling, or similar hedging activities involving our stock. We prohibit these transactions because they may reduce the individual's incentive to improve our performance, focus the individual on short-term performance at the expense of long-term objectives, and misalign the individual's interests with those of our stockholders generally.otherwise pledging, Company securities as collateral for a loan.
Director and Officer Stock Ownership Guidelines
Our Stock Ownership Guidelines have been established in order to further the investment of our non-management directors, executive officers, and Senior Vice Presidents in the success of the Company and to encourage a long-term perspective in managing the Company. During the 2019 fiscal
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year, except for the Non-Management Directors which increased from two to five times annual cash retainer in our January 2019 board meeting, the stock ownership requirements were as follows:
| | |
Position
| | Minimum Ownership Requirements (Number of Share Equivalents) |
|---|
Chief Executive Officer | | lesser of 1,400,000 share equivalents or 5 times base salary |
President(1) | | lesser of 700,000 share equivalents or 3 times base salary |
Senior Executive Vice Presidents | | lesser of 700,000 share equivalents or 3 times base salary |
Executive Vice Presidents | | lesser of 200,000 share equivalents or 2 times base salary |
Senior Vice Presidents | | lesser of 100,000 share equivalents or 1 times base salary |
Non-Management Directors(2) | | lesser of 150,000 share equivalents or 5 times annual cash retainer |
(1)If the President is also the Chief Executive Officer, the Chief Executive Officer amount will apply.
(2)Other than an Executive Chairman, who will be subject to the same requirement as the Chief Executive Officer.
EffectiveFollowing a comprehensive governance review, effective as of April 10, 2019, we have revised our stock ownership guidelines to removebe in line with the referencemarket. The ownership requirement for non-management directors was also increased to a specific number of shares to be held.five times the annual cash retainer. The current stock ownership requirements are:
| | Position | |
Position
| | | | Minimum Ownership Requirements | |
|---|
| Chief Executive Officer | | | 5 times base salary | |
| Chief Operating Officer | | | 3 times base salary | |
| Senior Executive Vice Presidents | | | 3 times base salary | |
| Executive Vice Presidents | | | 2 times base salary | |
| Senior Vice Presidents | | | 1 times base salary | |
| Non-Management Directors | | | 5 times annual cash retainer | |
Newly appointed or promoted executives who are or become subject to our Stock Ownership Guidelines and newly elected non-management directors have five years from the time they are appointed, promoted, or elected, as the case may be, to meet the stock ownership requirements.
Currently, allGiven how new each of our Named Executive Officers
have achievedis in his or her role, and how modest current equity holdings are as a result, it will be critical to continue to promote the
minimum holding ownership requirement or have not yet served for five years.alignment of our Named Executives Officers’ interests with those of our stockholders. Therefore, as noted earlier in this Compensation Discussion and Analysis, we will aim to increasingly emphasize equity components of compensation going forward, through efficient use of the equity plan. We are asking stockholders to approve an amendment and restatement of the Rite Aid Corporation 2020 Omnibus Equity Incentive Plan at the Annual Meeting. For more information about the plan proposal, see “Proposal No. 4—Approval of the Rite Aid Corporation Amended and Restated 2020 Omnibus Equity Incentive Plan.”
RITE AID CORPORATION 2021 Proxy Statement | 61
For purposes of determining stock ownership levels, the following forms of equity interests in the Company are included: •
Shares owned outright by the participant or his or her immediate family members residing in the same household;
•
•Restricted stock and restricted stock units whether or not vested; and
•
•Shares underlying Rite Aid stock options whether or not vested.
Restricted stock and restricted stock units, whether or not vested, and shares owned count as one (1) share equivalent per share beneficially owned and stock options, whether or not vested, count as one-half (.5) share equivalent per stock option. The Compensation Committee is responsible for interpreting and administering the Stock Ownership Guidelines, and may, from time to time, reevaluate and revise the Stock Ownership Guidelines, including when there are changes to the Company'sCompany’s capital structure or where implementation of the Stock Ownership Guidelines would cause a non-management director, executive officer, or Senior Vice President to incur a hardship due to his or her unique financial circumstances.
62 | RITE AID CORPORATION 2021 Proxy Statement
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors has reviewed and discussed the foregoing Compensation Discussion and Analysis with management and, based on that review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement. Robert E. Knowling, Jr., ChairBruce G. Bodaken*Louis P. Miramontes
*Mr. Bodaken served on the Compensation Committee throughout our 2019 fiscal year and until April 10, 2019. Ms. Katherine
Kate B. Quinn joined the Compensation Committee and the Board on April 10, 2019, but did not participate in the review or recommendation of the Compensation Discussion and Analysis. RITE AID CORPORATION 2021 Proxy Statement | 63
SUMMARY COMPENSATION TABLE
The following summary compensation table sets forth the cash and non-cash compensation for the fiscal yearsyear ended March 2, 2019, March 3, 2018, and March 4, 2017, respectively,February 27, 2021 paid to or earned by (i) all persons who served as our principal executive officer, (ii) all persons who served as our principal financial officer, and (iii) the three most highly compensated executive officers of the Company other than the principal executive officer or the principal financial officer who were serving at the end of the 20192021 fiscal year, and (iv) one additional former executive officer who would have been among such three most highly compensated executive officers of the Company had he continued to serve at the end of the 2021 fiscal year (collectively, the "Named“Named Executive Officers"Officers”). The summary compensation table also sets forth the cash and non-cash compensation for the fiscal years ended February 29, 2020 and March 2, 2019, respectively, for the individuals who were considered Named Executive Officers in the applicable fiscal year.
| | Name and
Principal Position | | | Fiscal
Year | | | Salary
($) | | | Bonus
($)(1) | | | Stock
Awards
($)(2) | | | Option
Awards
($)(2) | | | Non-Equity
Incentive
Plan
Compensation
($)(3) | | | Change In
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)(4) | | | All Other
Compensation
($)(5) | | | Total
($) | |
| | Heyward Donigan(6)
(President and CEO) | | | | | 2021 | | | | | | 1,000,000 | | | | | | 1,160,000 | | | | | | 7,389,087 | | | | | | — | | | | | | — | | | | | | — | | | | | | 22,000 | | | | | | 9,571,087 | | |
| | | | 2020 | | | | | | 538,462 | | | | | | 3,203,234 | | | | | | 1,999,998 | | | | | | 1,999,646 | | | | | | 777,000 | | | | | | — | | | | | | 101,000 | | | | | | 8,619,340 | | |
| | James J. Peters(7)
(COO) | | | | | 2021 | | | | | | 750,000 | | | | | | 543,750 | | | | | | 2,770,908 | | | | | | — | | | | | | — | | | | | | — | | | | | | 17,000 | | | | | | 4,081,658 | | |
| | | | 2020 | | | | | | 288,462 | | | | | | — | | | | | | 499,770 | | | | | | 499,969 | | | | | | 260,156 | | | | | | — | | | | | | 10,000 | | | | | | 1,558,356 | | |
| | Matthew Schroeder(8)
(Executive VP, CFO) | | | | | 2021 | | | | | | 648,177 | | | | | | 377,058 | | | | | | 2,001,211 | | | | | | — | | | | | | 137,412 | | | | | | — | | | | | | 12,000 | | | | | | 3,175,858 | | |
| | | | 2020 | | | | | | 544,098 | | | | | | — | | | | | | 247,722 | | | | | | — | | | | | | 366,300 | | | | | | 258,466 | | | | | | 215,700 | | | | | | 1,632,286 | | |
| | Jocelyn Z. Konrad
(Executive VP, Chief
Pharmacy Officer) | | | | | 2021 | | | | | | 600,000 | | | | | | 348,000 | | | | | | 1,662,545 | | | | | | — | | | | | | 399,548 | | | | | | — | | | | | | 17,000 | | | | | | 3,027,093 | | |
| | | | 2020 | | | | | | 594,663 | | | | | | — | | | | | | 359,898 | | | | | | — | | | | | | 399,660 | | | | | | 32,310 | | | | | | 250,969 | | | | | | 1,637,500 | | |
| | | | 2019 | | | | | | 461,034 | | | | | | — | | | | | | 207,592 | | | | | | — | | | | | | 204,103 | | | | | | — | | | | | | 358,250 | | | | | | 1,230,979 | | |
| | Justin Mennen(9)
(Executive VP, Chief
Information Officer) | | | | | 2021 | | | | | | 500,000 | | | | | | 217,500 | | | | | | 923,636 | | | | | | — | | | | | | — | | | | | | — | | | | | | 13,655 | | | | | | 1,654,791 | | |
| | Daniel Robson(10)
(Former President of Elixir) | | | | | 2021 | | | | | | 559,244 | | | | | | | | | | | | 1,523,999 | | | | | | — | | | | | | 275,000 | | | | | | — | | | | | | 96,207 | | | | | | 2,454,450 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name and Principal Position(1) | | Fiscal
Year | | Salary
($) | | Bonus
($) | | Stock
Awards
($)(2) | | Option
Awards
($)(2) | | Non-Equity
Incentive
Plan
Compensation
($)(3) | | Change In
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)(4) | | All Other
Compensation
($)(5) | | Total
($) | |
|---|
John T. Standley | | | 2019 | | | 1,220,550 | | | — | | | 1,830,829 | | | — | | | 1,440,249 | | | 53,994 | | | 3,320,207 | | | 7,865,829 | |
(CEO) | | | 2018 | | | 1,219,857 | | | — | | | 5,640,243 | | | — | | | 1,825,943 | | | 314,545 | | | 319,874 | | | 9,320,462 | |
| | | 2017 | | | 1,184,500 | | | — | | | 6,095,121 | | | — | | | — | | | 481,309 | | | 311,025 | | | 8,071,955 | |
Kermit Crawford | | |
2019 | | |
1,000,000 | | |
— | | |
1,274,966 | | |
— | | |
1,032,500 | | |
— | | |
252,000 | | |
3,559,466 | |
(President & COO) | | | 2018 | | | 403,846 | | | — | | | 2,000,000 | | | 1,080,000 | | | 729,167 | | | 18,921 | | | 1,175,000 | | | 5,406,934 | |
Darren W. Karst | | |
2019 | | |
850,356 | | |
— | | |
638,099 | | |
— | | |
627,428 | | |
— | | |
707,424 | | |
2,823,306 | |
(Senior Executive VP, | | | 2018 | | | 829,856 | | | — | | | 1,534,638 | | | — | | | 776,284 | | | 49,056 | | | 782,185 | | | 3,972,019 | |
CFO & CAO) | | | 2017 | | | 809,751 | | | — | | | 1,667,368 | | | — | | | — | | | 52,907 | | | 269,584 | | | 2,799,610 | |
Bryan B. Everett | | |
2019 | | |
617,654 | | |
— | | |
370,832 | | |
— | | |
364,620 | | |
— | | |
475,600 | | |
1,828,706 | |
(COO, Rite Aid Stores) | | | 2018 | | | 533,784 | | | — | | | 1,626,434 | | | — | | | 392,700 | | | 17,891 | | | 413,475 | | | 2,984,284 | |
| | | 2017 | | | 461,250 | | | — | | | 712,768 | | | — | | | — | | | 16,768 | | | 151,086 | | | 1,341,872 | |
Jocelyn Z. Konrad | | |
2019 | | |
461,034 | | |
— | | |
207,592 | | |
— | | |
204,103 | | |
— | | |
358,250 | | |
1,230,979 | |
(Executive VP, Pharmacy) | | | 2018 | | | 427,846 | | | — | | | 571,326 | | | — | | | 252,450 | | | 33,665 | | | 124,000 | | | 1,409,287 | |
(1)(1)Mr. Standley entered into a separation agreementExcept as expressly noted, the amounts reported reflect the discretionary cash bonuses paid to the Named Executive Officers with the Company as of March 12, 2019 and, pursuantrespect to that agreement, will remain in his current role until a successor is named or until his earlier termination. Mr. Crawford left the Company effective March 12, 2019. Mr. Karst entered into a separation agreement with the Company as of March 12, 2019 and pursuant to that agreement, left the Company as of May 31, 2019 after a transition period. For a description of the separation agreements entered into with Messrs. Standley, Crawford, and Karst, please see the narrative under the caption "Potential Payments Upon Termination or Change in Control."fiscal year 2021.
(2)
(2)The amounts reported reflect the aggregate grant date fair value of each stock award and option award computed in accordance with FASB ASC Topic 718.718 or under the assumptions noted. For information regarding the assumptions used in determining the fair value of an award shown in this column, please refer to Note 18 of the Company’s Annual Report on Form 10-K as filed with the SEC on April 27, 2021. Note 17 of the Company'sCompany’s Annual Report on Form 10-K as filed with the SEC on April 27, 2020, and Note 17 of the Company’s Annual Report on Form 10-K as filed with the SEC on April 25, 2019, Note 172019. The 2021 stock award includes the grant date fair value of restricted stock awards and performance awards at target, as shown in the chart below. Assuming the maximum level of achievement under the performance awards, the grant date fair value of such awards for each of the Company's Annual Report on Form 10-KNamed Executive Officers would be as filed withfollows: Ms. Donigan, $6,187,500; Mr. Peters, $2,320,313; Mr. Schroeder, $1,675,781; Ms. Konrad, $1,392,188; Mr. Mennen, $773,438; and Mr. Robson, $1,276,172. The performance awards are subject to liability accounting under FASB ASC Topic 718 and the SEC on April 26, 2018,value reported represents the value determined utilizing the Monte Carlo simulation technique as measured for the reporting period ended February 27 2021, assuming the stock price of $25.52.
64 | RITE AID CORPORATION 2021 Proxy Statement
| | Name | | | Restricted Stock Award
($) | | | Performance Award
Target Performance
($) | | | Total Stock Award
($) | |
| | Ms. Donigan | | | | | 2,700,000 | | | | | | 4,689,087 | | | | | | 7,389,087 | | |
| | Mr. Peters | | | | | 1,012,500 | | | | | | 1,758,408 | | | | | | 2,770,908 | | |
| | Mr. Schroeder | | | | | 731,250 | | | | | | 1,269,961 | | | | | | 2,001,211 | | |
| | Ms. Konrad | | | | | 607,500 | | | | | | 1,055,045 | | | | | | 1,662,545 | | |
| | Mr. Mennen | | | | | 337,500 | | | | | | 586,136 | | | | | | 923,636 | | |
| | Mr. Robson(a) | | | | | 556,875 | | | | | | 967,124 | | | | | | 1,523,999 | | |
(a)
Mr. Robson forfeited the performance award shown and Note 16certain unvested restricted stock awards upon his termination of the Company's Annual Report on Form 10-K as filed with the SEC on May 3, 2017.employment.
(3)
(3)TheRepresent amounts earned under cash Performance Units that were granted in the "Non-Equity Incentive Plan Compensation" column for fiscal year 2019 represent annual cash incentive bonuses for performanceand vested in fiscal year 2019.2021 for Mr. Schroeder and Ms. Konrad and amounts earned under the 2020 Elixir Annual Incentive Plan for Mr. Robson. See award details under the caption “Components of Executive Compensation for Fiscal Year 2021.”
(4)
(4)Represents above-market earnings (over 120% of the "applicable“applicable federal rate"rate”), if applicable, under the Company'sCompany’s defined contribution supplemental executive retirement plans.plan, which was terminated as of March 2019.
(5)
(5)The amounts in the "All“All Other Compensation"Compensation” column for fiscal year 20192021 consist of the following:
| | Name | | | Financial
Planning
($) | | | Severance
Paid or Accrued
($)(a) | | | Automobile
Allowance
($) | | | Cell Phone
Stipend
($) | | | Other Fringe
Benefits
($) | |
| | Ms. Donigan | | | | | 10,000 | | | | | | — | | | | | | 12,000 | | | | | | — | | | | | | — | | |
| | Mr. Peters | | | | | 5,000 | | | | | | — | | | | | | 12,000 | | | | | | — | | | | | | — | | |
| | Mr. Schroeder | | | | | — | | | | | | — | | | | | | 12,000 | | | | | | — | | | | | | — | | |
| | Ms. Konrad | | | | | 5,000 | | | | | | — | | | | | | 12,000 | | | | | | — | | | | | | — | | |
| | Mr. Mennen | | | | | 1,655 | | | | | | — | | | | | | 12,000 | | | | | | — | | | | | | — | | |
| | Mr. Robson(a) | | | | | — | | | | | | 81,647 | | | | | | 12,000 | | | | | | 1,500 | | | | | | 1,060 | | |
(a)
Mr. Robson departed the company on January 27, 2021, his separation details are provided below under the caption “Potential Payments Upon Termination or Change in Control—Named Executive Officer Departure During Fiscal Year 2021.”
(6)
Ms. Donigan joined the Company on August 12, 2019.
(7)
Mr. Peters joined the Company on October 7, 2019.
(8)
Mr. Schroeder first became a Named Executive Officer of the Company in fiscal year 2020.
(9)
Mr. Mennen joined the company on January 2, 2019 and first became a Named Executive Officer of the Company for fiscal year 2021.
(10)
Mr. Robson ceased to be employed by us as of January 27, 2021. See the narrative under the caption “Executive Employment Agreements, Employment Agreement with Daniel Robson” for additional information. For a description of the separation agreement entered into with Mr. Robson, please see the narrative under the caption “Potential Payments Upon Termination or Change in Control—Named Executive Officer Departure During Fiscal Year 2021.”
| | | | | | | | | | | | | | | | | | | |
Name | | Financial
Planning
($) | | Supplemental
Executive
Retirement
Plan
Allocations
($) | | Housing/
Transportation
Expenses
($)(a) | | Automobile
Allowance
($) | | 401(k)
Matching
Contributions
($) | | Retention/
Inducement
Award Paid
($) | |
|---|
Mr. Standley | | | 4,275 | | | 292,932 | | | — | | | 12,000 | | | 11,000 | | | 3,000,000 | |
Mr. Crawford | | | — | | | 240,000 | | | — | | | 12,000 | | | — | | | — | |
Mr. Karst | | | 5,000 | | | 203,360 | | | 60,778 | | | 12,000 | | | 11,000 | | | 415,000 | |
Mr. Everett | | | 5,000 | | | 147,600 | | | — | | | 12,000 | | | 11,000 | | | 300,000 | |
Ms. Konrad | | | — | | | 110,250 | | | — | | | 12,000 | | | 11,000 | | | 225,000 | |
RITE AID CORPORATION 2021 Proxy Statement | 65
(a)Mr. Karst is reimbursed for certain housing and transportation expenses pursuant to his employment agreement. The Company determines the incremental cost of said expenses based on the out-of-pocket amounts paid for rent, utilities, and travel.
The following table summarizes grants of plan-based awards made to Named Executive Officers during our fiscal year ended March 2, 2019. As previously announced, we implemented a reverse stock split of our common stock at a reverse stock split ratio of 1-for-20. Our common stock began trading on a split-adjusted basis onFebruary 27, 2021.
| | | | | | | | | | | Estimated Future Payouts
Under Non-Equity
Incentive Plan Awards(1) | | | Estimated Future
Payouts Under Equity
Incentive Plan Awards(2) | | | All
Other
Stock
Awards
(#)(3) | | | All
Other
Option
Awards
(#) | | | Exercise
or Base
Price of
Option
Awards
($/Sh) | | | Grant Date
Fair Value
of Stock
and Option
Awards
($)(4) | |
| | Name | | | Grant
Date | | | Threshold
($) | | | Target
($) | | | Max
($) | | | Threshold
(#) | | | Target
(#) | | | Max
(#) | |
| | Heyward Donigan | | | | | 7/08/2020 | | | | | | — | | | | | | — | | | | | | — | | | | | | 68,903 | | | | | | 183,742 | | | | | | 344,516 | | | | | | | | | | | | — | | | | | | — | | | | | | 4,689,087 | | |
| | | | 7/08/2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 150,334 | | | | | | | | | | | | | | | | | | 2,700,000 | | |
| | | | | | | | | | 1,000,000 | | | | | | 2,000,000 | | | | | | 4,000,000 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | | | |
| | James J. Peters | | | | | 7/08/2020 | | | | | | — | | | | | | — | | | | | | — | | | | | | 25,839 | | | | | | 68,903 | | | | | | 129,193 | | | | | | | | | | | | — | | | | | | — | | | | | | 1,758,408 | | |
| | | | 7/08/2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 56,375 | | | | | | | | | | | | | | | | | | 1,012,500 | | |
| | | | | | | | | | 468,750 | | | | | | 937,500 | | | | | | 1,875,000 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | | | |
| | Matthew Schroeder | | | | | 7/08/2020 | | | | | | — | | | | | | — | | | | | | — | | | | | | 18,661 | | | | | | 49,763 | | | | | | 93,306 | | | | | | | | | | | | — | | | | | | — | | | | | | 1,269,961 | | |
| | | | 7/08/2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 40,715 | | | | | | | | | | | | | | | | | | 731,250 | | |
| | | | | | | | | | 325,050 | | | | | | 650,100 | | | | | | 1,300,200 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | | | |
| | Jocelyn Z. Konrad | | | | | 7/08/2020 | | | | | | — | | | | | | — | | | | | | — | | | | | | 15,503 | | | | | | 41,342 | | | | | | 77,516 | | | | | | | | | | | | — | | | | | | — | | | | | | 1,055,045 | | |
| | | | 7/08/2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 33,825 | | | | | | | | | | | | | | | | | | 607,500 | | |
| | | | | | | | | | 300,000 | | | | | | 600,000 | | | | | | 1,200,000 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | | | |
| | Justin Mennen | | | | | 7/08/2020 | | | | | | — | | | | | | — | | | | | | — | | | | | | 8,613 | | | | | | 22,968 | | | | | | 43,064 | | | | | | | | | | | | — | | | | | | — | | | | | | 586,136 | | |
| | | | 7/08/2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 18,792 | | | | | | | | | | | | | | | | | | 337,500 | | |
| | | | | | | | | | 250,000 | | | | | | 500,000 | | | | | | 1,000,000 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | | | |
| | Daniel Robson(5) | | | | | 7/08/2020 | | | | | | — | | | | | | — | | | | | | — | | | | | | 14,211 | | | | | | 37,897 | | | | | | 71,056 | | | | | | | | | | | | — | | | | | | — | | | | | | 967,124 | | |
| | | | 7/08/2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 31,006 | | | | | | | | | | | | | | | | | | 556,875 | | |
| | | | | | | | | | 275,000 | | | | | | 550,000 | | | | | | 1,100,000 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | | | |
(1)
Reflects each such officer’s opportunity to earn an annual cash incentive bonus, as discussed in the NYSE atCompensation Discussion and Analysis under the market open on April 22, 2019. Accordingly, all share amounts presented reflectcaption “Cash Incentive Bonuses.” Actual annual cash incentives earned for the reverse stock split.fiscal year are reflected in the Summary Compensation Table and discussed in the Compensation Discussion and Analysis section under the caption “Cash Incentive Bonuses.”
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| | Grant
Date
Fair
Value
of Stock
and
Option
Awards
($)(3) | |
|---|
| |
| |
| | Estimated Future Payouts
Under Non-Equity
Incentive Plan Awards(1) | | Estimated Future
Payouts Under Equity
Incentive Plan Awards | |
| |
| | Exercise
or Base
Price of
Option
Awards
($/Sh) | |
|---|
| |
| |
| | All
Other
Stock
Awards
(#)(2) | | All
Other
Option
Awards
(#) | |
|---|
Name | | Grant
Date | | Date of
Board
Action | | Threshold
($) | | Target
($) | | Max
($) | | Threshold
(#) | | Target
(#) | | Max
(#) | |
|---|
John T. Standley(6) | | | 1/4/2019 | | | 12/6/2018 | | | 1,601,963 | | | 4,271,900 | | | 10,679,750 | | | — | | | — | | | — | | | 118,885 | | | — | | | — | | | 1,830,829 | |
| | | | | | | | | 1,220,550 | | | 2,441,100 | | | 4,882,200 | | | — | | | — | | | — | | | | | | | | | | | | | |
Kermit Crawford(4) | | | 1/4/2019 | | | 12/6/2018 | | | 1,115,625 | | | 2,975,000 | | | 7,437,500 | | | — | | | — | | | — | | | 82,790 | | | — | | | — | | | 1,274,966 | |
| | | | | | | | | 875,000 | | | 1,750,000 | | | 3,500,000 | | | — | | | — | | | — | | | | | | | | | | | | | |
Darren W. Karst(5) | | | 1/4/2019 | | | 12/6/2018 | | | 558,300 | | | 1,488,800 | | | 3,722,000 | | | — | | | — | | | — | | | 41,435 | | | — | | | — | | | 638,099 | |
| | | | | | | | | 531,719 | | | 1,063,438 | | | 2,126,875 | | | — | | | — | | | — | | | | | | | | | | | | | |
Bryan B. Everett | | | 1/4/2019 | | | 12/6/2018 | | | 324,450 | | | 865,200 | | | 2,163,000 | | | — | | | — | | | — | | | 24,080 | | | — | | | — | | | 370,832 | |
| | | | | | | | | 309,000 | | | 618,000 | | | 1,236,000 | | | — | | | — | | | — | | | | | | | | | | | | | |
Jocelyn Z. Konrad | | | 1/4/2019 | | | 12/6/2018 | | | 181,613 | | | 484,300 | | | 1,210,750 | | | — | | | — | | | — | | | 13,480 | | | — | | | — | | | 207,592 | |
| | | | | | | | | 172,969 | | | 345,938 | | | 691,875 | | | — | | | — | | | — | | | | | | | | | | | | | |
On January 4, 2019,July 8, 2020, each Named Executive Officer received a grant of cash-based performance stock units that will be earned at the end of the Company’s 2022 fiscal year based upon the achievement of an Adjusted EBITDAa three-year leverage ratio goal, for fiscal years 2020two-year cumulative revenue goal and 2021. Vesting for the performance units will occur, provided the performance targets have been met, on February 27, 2021 (the end of the Company's fiscal year 2021),two-year cumulative scripts goal, subject to a +/- 25% TSR modifier, provided that the Named Executive Officer is continuously employed at the Company through the date of the earnings release. The second row of the table reflects the opportunity for each Named Executive Officer to earn an annual cash incentive bonus, as discussed in the Compensation Discussion and Analysis under the caption "Cash Incentive Bonuses." Actual cash incentives earned for the fiscal year are shown in the Summary Compensation Table above.
(3)
(2)On January 4, 2019,July 8, 2020, the Named Executive Officers received a grant of restricted stock, as described in the Compensation Discussion and Analysis, under the caption "Components“Components of Executive Compensation for Fiscal Year 2019—2021—Restricted Stock."” These restricted sharesgrants will vest as follows based on continued employment:employment with respect to one third on each of the first three anniversaries of the grant date. | | | | | |
(4)
Name
| | Restricted
Shares
(#) | | Vesting Schedule |
|---|
Mr. Standley
| | | 118,885 | | One-third on each of first three anniversaries of grant date |
Mr. Crawford
| | | 82,790 | | One-third on each of first three anniversaries of grant date |
Mr. Karst
| | | 41,435 | | One-third on each of first three anniversaries of grant date |
Mr. Everett
| | | 24,080 | | One-third on each of first three anniversaries of grant date |
Ms. Konrad
| | | 13,480 | | One-third on each of first three anniversaries of grant date |
(3)- Represents the grant date fair value, measured in accordance with FASB ASC Topic 718 of stock awards made in fiscal year
2019.2021. Grant date fair values are calculated pursuant to assumptions set forth in Note 1718 of the Company's 2019Company’s Annual Report on form 10-K filed with the SEC on April 25, 2019.27, 2021. See also The Summary Compensation Table under “Stock Awards” and the accompanying footnote to the table relating to the performance stock unit awards.
(5)
(4)Mr. CrawfordRobson vested in one third of the shares of restricted stock shown with the remainder being forfeited his 2019 plan based awards with his departure on March 12, 2019.
(5)Mr. Karst forfeited his January 4, 2019 non-equity incentive plan award,as a portionresult of his separation from employment with the Company on January 4, 2019 restricted stock grant,27, 2021, and iswas eligible for a prorated portion of any earned fiscal year 20202021 annual cash incentive, pursuant toincentive. Mr. Robson forfeited his March 12, 2019 separation agreement.
(6)Mr. Standley will forfeit his January 4, 2019 non-equity incentive plan award and be eligible forperformance share units as a prorated portionresult of any earned fiscal year 2020 annual cash incentive upon his departure and pursuant to his March 12, 2019 separation agreement.will not receive a payout under the equity incentive plan awards shown.
66 | RITE AID CORPORATION 2021 Proxy Statement
EXECUTIVE EMPLOYMENT AND SEPARATION AGREEMENTS
Rite Aid entered into employment agreements with each of the Named Executive Officers, which govern the material terms of their employment and were in effect during the Company'sCompany’s last completed fiscal year. Employment Agreement with Heyward Donigan.
Term; Base Salary; Incentives. The Company entered into an employment agreement with Ms. Donigan, dated as of August 8, 2019. The employment agreement has an initial term of two (2) years commencing August 12, 2019, and thereafter will automatically renew for successive one (1) year terms unless either she or the Company gives prior notice of nonrenewal. Pursuant to her employment agreement, Ms. Donigan will be paid an annual base salary of $1,000,000, she will be eligible for a target annual cash bonus opportunity equal to 200% of her base salary and, beginning in the Company’s 2021 fiscal year, she will be granted annual long-term equity incentive awards with a grant date fair value equal to 600% of her base salary, consistent with the award issuances to other senior executives of the Company.
Employment Agreement with James J. Peters.
Term; Base Salary; Incentives. The Company entered into an employment agreement with Mr. Peters, dated as of October 2, 2019. The employment agreement has an initial term of two (2) years commencing October 7, 2019, and thereafter will automatically renew for successive one (1) year terms unless either he or the Company gives prior notice of nonrenewal. Pursuant to his employment agreement, Mr. Peters will be paid an annual base salary of $750,000, he will be eligible for a target annual cash bonus opportunity equal to 125% of his base salary and, beginning in the Company’s 2021 fiscal year, he will be granted annual long-term equity incentive awards with a grant date fair value equal to 300% of his base salary, consistent with the award issuances to other senior executives of the Company.
Employment Agreements with Matthew Schroeder, Justin Mennen and Jocelyn Z. Konrad.
In General. Each of the employment agreements entered into with Messrs. Schroeder, Mennen and Ms. Konrad, respectively, provide for a term of employment that is automatically renewed from year to year, unless either party provides the other with 120 (180 for Mr. Schroeder) days’ notice of an intent not to renew.
Salary and Incentive Bonus.Incentives. The respective agreements provide each executive with a base salary and an incentive compensation target (which may be reviewed periodically for increase by the Compensation Committee). As part ofThe following base salary amounts and incentive targets applied to the announced leadership transition, Bryan Everett was promoted to Chief Operating Officer as of March 12, 2019. Effective as of March 12, 2019,Named Executive Officers during fiscal year 2021. Mr. Everett's annualSchroeder’s base salary was increased to $750,000, Mr. Everett's$648,177, his target annual bonus opportunity was set at 125%100% of his base salary, and his target long-term incentive compensation award opportunity was set at 250% of his base salary. Jocelyn KonradMr. Mennen’s base salary was promotedincreased to the position$500,000, his target annual bonus opportunity was set at 75% of Executive Vice President, Pharmacy & Retail Operations, effective March 12, 2019. In connection with this promotion,base salary, and his target long-term incentive compensation award opportunity was set at 150% of his base salary. Ms. Konrad'sKonrad’s base salary was increased to $600,000, her target annual bonus opportunity was set at 100% of base salary, and her target long-term incentive compensation award opportunity was set at 200%225% of her base salary. Employment Agreement with Daniel Robson; Separation.
Term; Base Salary; Incentives. RXOptions, LLC (now Elixir), a subsidiary of the Company, entered into an employment agreement with Mr. Robson, dated as of December 12, 2019, which was subsequently terminated. Pursuant to his employment agreement, Mr. Robson was paid an initial annual base salary of $550,000, and he was eligible for a target annual cash bonus opportunity equal to 100% of his base salary. Mr. Robson also participated in the Company’s annual long-term equity incentive plan, and was eligible to receive awards with a grant date fair value equal to 200% of his base salary, consistent with the award issuances to other senior executives of the Company. Mr. Robson’s base salary for fiscal year 2021 was increased to $559,244.
RITE AID CORPORATION 2021 Proxy Statement | 67
Mr. Robson ceased serving as the President of Elixir effective as of January 27, 2021 in connection with our elimination of this position and the assumption by Ms. Donigan, our Chief Executive Officer, of the duties of this role at Elixir. Mr. Robson’s termination was governed by his employment agreement as a termination without cause. In connection with his departure, the Company and Mr. Robson entered into a separation agreement, which is discussed below under the caption “Named Executive Officer Departure During Fiscal Year 2021.”
Terms Applicable to All Named Executive Officers Under Employment Agreements.
Other Benefits. Pursuant to their employment agreements, while employed, each of the Named Executive Officers is also entitled to participate in Rite Aid'sAid’s tax-qualified savings plan, welfare benefits, fringe benefit and perquisite programs and savings plans. Term Under Active Employment Agreements. The term of employment for each of Mr. Everett and Ms. Konrad commenced on the effective date of his or her employment agreement, as follows: Mr. Everett, June 22, 2015; and Ms. Konrad, August 3, 2015. The employment agreement for each of Mr. Everett and Ms. Konrad has an initial term of two years (each such period, the "Initial Term"). These agreements will automatically renew for successive one-year terms (each, a "Renewal Term"), unless either the executive or Rite Aid provides the other with a notice of nonrenewal at least 180 days, with respectin effect from time to Ms. Konrad, and 120 days, with respect to Mr. Everett, prior to the expiration of the Initial Term or a Renewal Term, as applicable.time.
Restrictive Covenants. The employment agreement of each Named Executive Officer prohibits the officer from competing with Rite Aid during his or her employment period and for a period of one year (two years for Mr. Schroeder) thereafter. Termination and Change in Control Benefits. The provisions of the employment agreements relating to termination of employment and the terms of the separation agreements entered into with each of Messrs. Standley, Crawford, and Karst, are described under the caption "Potential“Potential Payments Upon Termination or Change in Control"Control” below. The terms of the separation agreement entered into with Mr. Robson is also described under the caption “Named Executive Officer Departure During Fiscal year 2021” included in the “Potential Payments Upon Termination or Change in Control” section below.
68 | RITE AID CORPORATION 2021 Proxy Statement
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR
20192021 YEAR-END
The following table summarizes the number of securities underlying outstanding equity awards for the Named Executive Officers. As previously announced, we implemented a reverse stock split of our common stock at a reverse stock split ratio of 1-for-20. Our common stock began trading on a split-adjusted basis on the NYSE at the market open on April 22, 2019. Accordingly, allAll share amounts and option exercise prices presented reflect the reverse stock split.split, implemented by the company as of April 22, 2019, including awards made prior to April 22, 2019.
| | | | | Option Awards | | | Stock Awards | |
| | Name | | | Date of
Grant | | | Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable | | | Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable(1)(2) | | | Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#) | | | Option
Exercise
Price
($) | | | Option
Expiration
Date | | | Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)(1)(3) | | | Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)(4) | | | Equity
Incentive
Plan
Awards:
# of
Unearned
Shares or
Units That
Have Not
Vested
(#)(1)(5) | | | Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares or
Units of
Stock That
Have Not
Vested
($)(4) | |
| | Heyward Donigan | | | | | 8/12/2019 | | | | | | 125,729 | | | | | | 377,184 | | | | | | — | | | | | | 7.02 | | | | | | 8/12/2029 | | | | | | 189,933 | | | | | | 3,718,888 | | | | | | — | | | | | | — | | |
| | | | 7/8/2020 | | | | | | — | | | | | | — | | | | | | — | | | | | | | | | | | | | | | | | | 150,334 | | | | | | 2,943,540 | | | | | | 183,742 | | | | | | 3,597,668 | | |
| | James J. Peters | | | | | 10/7/2019 | | | | | | 36,300 | | | | | | 72,600 | | | | | | — | | | | | | 8.10 | | | | | | 10/7/2029 | | | | | | 41,133 | | | | | | 805,384 | | | | | | — | | | | | | — | | |
| | | | 7/8/2020 | | | | | | — | | | | | | — | | | | | | — | | | | | | | | | | | | | | | | | | 56,375 | | | | | | 1,103,823 | | | | | | 68,903 | | | | | | 1,349,121 | | |
| | Matthew Schroeder | | | | | 6/25/2012 | | | | | | 1,213 | | | | | | — | | | | | | — | | | | | | 26.40 | | | | | | 6/25/2022 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| | | | 6/24/2013 | | | | | | 694 | | | | | | — | | | | | | — | | | | | | 55.20 | | | | | | 6/24/2023 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| | | | 6/23/2014 | | | | | | 740 | | | | | | — | | | | | | — | | | | | | 141.60 | | | | | | 6/23/2024 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| | | | 6/24/2015 | | | | | | 745 | | | | | | — | | | | | | — | | | | | | 173.60 | | | | | | 6/24/2025 | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 1/4//2019 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | | | | | | | 1,931 | | | | | | 37,809 | | | | | | | | | | | | | | |
| | | | 7/17/2019 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | | | | | | | 21,200 | | | | | | 415,096 | | | | | | | | | | | | | | |
| | | | 7/8/2020 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | | | | | | | 40,715 | | | | | | 797,200 | | | | | | 49,763 | | | | | | 974,360 | | |
| | Jocelyn Z. Konrad | | | | | 6/27/2011 | | | | | | 1,655 | | | | | | — | | | | | | — | | | | | | 24.80 | | | | | | 6/27/2021 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| | | | 6/25/2012 | | | | | | 1,690 | | | | | | — | | | | | | — | | | | | | 26.40 | | | | | | 6/25/2022 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| | | | 6/24/2013 | | | | | | 675 | | | | | | — | | | | | | — | | | | | | 55.20 | | | | | | 6/24/2023 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| | | | 6/23/2014 | | | | | | 330 | | | | | | — | | | | | | — | | | | | | 141.60 | | | | | | 6/23/2024 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| | | | 6/24/2015 | | | | | | 580 | | | | | | — | | | | | | — | | | | | | 173.60 | | | | | | 6/24/2025 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| | | | 7/17/2017 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| | | | 1/4/2019 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 4,493 | | | | | | 87,973 | | | | | | | | | | | | | | |
| | | | 7/17/2019 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 30,800 | | | | | | 603,064 | | | | | | — | | | | | | — | | |
| | | | 7/8/2020 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 33,825 | | | | | | 662,294 | | | | | | 41,342 | | | | | | 809,476 | | |
| | Justin Mennen | | | | | 1/2/2019 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 5,411 | | | | | | 105,947 | | | | | | — | | | | | | — | | |
| | | | 7/17/2019 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | ��� | — | | | | | | 16,066 | | | | | | 314,572 | | | | | | — | | | | | | — | | |
| | | | 7/8/2020 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 18,792 | | | | | | 367,947 | | | | | | 22,968 | | | | | | 449,713 | | |
| | Daniel Robson | | | | | 1/4/2019 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| | | | 7/17/2019 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 5,866 | | | | | | 114,856 | | | | | | — | | | | | | — | | |
| | | | 12/16/2019 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 43,266 | | | | | | 847,148 | | | | | | — | | | | | | — | | |
| | | | 7/8/2020 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 31,006 | | | | | | 607,097 | | | | | | 37,897 | | | | | | 742,023 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Option Awards | | Stock Awards | |
|---|
Name | | Date of
Grant | | Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable | | Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable(1)(2) | | Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#) | | Option
Exercise
Price
($) | | Option
Expiration
Date | | Number
of
Shares
or
Units of
Stock
That
Have
Not
Vested
(#)(1)(3) | | Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)(4) | | Equity
Incentive
Plan
Awards:
# of
Unearned
Shares or
Units That
Have Not
Vested
(#)(1)(5) | | Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares or
Units of
Stock That
Have Not
Vested
($)(4) | |
|---|
John T. Standley | | | 6/25/2009 | | | 29,030 | | | — | | | — | | | 24.80 | | | 6/25/2019 | | | — | | | — | | | — | | | — | |
| | | 1/21/2010 | | | 127,750 | | | — | | | — | | | 30.40 | | | 1/21/2020 | | | — | | | — | | | — | | | — | |
| | | 6/23/2010 | | | 71,430 | | | — | | | — | | | 21.40 | | | 6/23/2020 | | | — | | | — | | | — | | | — | |
| | | 6/27/2011 | | | 118,079 | | | — | | | — | | | 24.80 | | | 6/27/2021 | | | — | | | — | | | — | | | — | |
| | | 6/27/2011 | | | 70,175 | | | — | | | — | | | 24.80 | | | 6/27/2021 | | | — | | | — | | | — | | | — | |
| | | 6/25/2012 | | | 68,965 | | | — | | | — | | | 26.40 | | | 6/25/2022 | | | — | | | — | | | — | | | — | |
| | | 6/24/2013 | | | 46,815 | | | — | | | — | | | 55.20 | | | 6/24/2023 | | | — | | | — | | | — | | | — | |
| | | 6/23/2014 | | | 33,925 | | | — | | | — | | | 141.60 | | | 6/23/2024 | | | — | | | — | | | — | | | — | |
| | | 6/24/2015 | | | 21,349 | | | 7,116 | | | — | | | 173.60 | | | 6/24/2025 | | | — | | | — | | | — | | | — | |
| | | 6/22/2016 | | | — | | | — | | | — | | | — | | | — | | | 6,385 | | | 93,221 | | | — | | | — | |
| | | 7/17/2017 | | | — | | | — | | | — | | | — | | | | | | 44,030 | | | 642,838 | | | 66,045 | | | 964,257 | |
| | | 1/4/2019 | | | — | | | — | | | — | | | — | | | | | | 118,885 | | | 1,735,721 | | | — | | | — | |
Kermit Crawford | | |
10/2/2017 | | |
12,500 | | |
37,500 | | |
— | | |
41.00 | | |
10/2/2027 | | |
32,520 | | |
474,796 | | |
— | | |
— | |
| | | 1/4/2019 | | | — | | | — | | | — | | | — | | | 1/4/2029 | | | 82,790 | | | 1,208,734 | | | — | | | — | |
Darren W. Karst | | |
8/20/2014 | | |
10,390 | | |
— | | |
— | | |
128.60 | | |
8/20/2024 | | |
— | | |
— | | |
— | | |
— | |
| | | 6/24/2015 | | | 5,865 | | | 1,955 | | | — | | | 173.60 | | | 6/24/2025 | | | — | | | — | | | — | | | — | |
| | | 6/22/2016 | | | — | | | — | | | — | | | — | | | | | | 1,747 | | | 25,501 | | | | | | | |
| | | 7/17/2017 | | | — | | | — | | | — | | | — | | | | | | 11,980 | | | 174,908 | | | 17,970 | | | 262,362 | |
| | | 1/4/2019 | | | — | | | — | | | — | | | — | | | | | | 41,435 | | | 604,951 | | | — | | | — | |
Bryan Everett | | |
6/24/2015 | | |
2,505 | | |
835 | | |
— | | |
173.60 | | |
6/24/2025 | | |
— | | |
— | | |
— | | |
— | |
| | | 6/22/2016 | | | — | | | — | | | — | | | — | | | | | | 747 | | | 10,901 | | | | | | | |
| | | 7/17/2017 | | | — | | | — | | | — | | | — | | | | | | 5,140 | | | 75,044 | | | 7,710 | | | 112,566 | |
| | | 9/6/2017 | | | — | | | — | | | — | | | — | | | | | | 13,333 | | | 194,666 | | | — | | | — | |
| | | 1/4/2019 | | | — | | | — | | | — | | | — | | | | | | 24,080 | | | 351,568 | | | — | | | — | |
Jocelyn Z. Konrad | | |
6/25/2009 | | |
300 | | |
— | | |
— | | |
24.80 | | |
6/25/2019 | | |
— | | |
— | | |
— | | |
— | |
| | | 6/27/2011 | | | 1,655 | | | — | | | — | | | 24.80 | | | 6/27/2021 | | | — | | | — | | | — | | | — | |
| | | 6/25/2012 | | | 1,690 | | | — | | | — | | | 26.40 | | | 6/25/2022 | | | — | | | — | | | — | | | — | |
| | | 6/24/2013 | | | 675 | | | — | | | — | | | 55.20 | | | 6/24/2023 | | | — | | | — | | | — | | | — | |
| | | 6/23/2014 | | | 330 | | | — | | | — | | | 141.60 | | | 6/23/2024 | | | — | | | — | | | — | | | — | |
| | | 6/24/2015 | | | 435 | | | 145 | | | | | | 173.60 | | | 6/24/2025 | | | — | | | — | | | — | | | — | |
| | | 6/22/2016 | | | — | | | — | | | — | | | — | | | | | | 647 | | | 9,441 | | | | | | | |
| | | 7/17/2017 | | | — | | | — | | | — | | | — | | | | | | 4,460 | | | 65,116 | | | 6,690 | | | 97,674 | |
| | | 1/4/2019 | | | — | | | — | | | — | | | — | | | | | | 13,480 | | | 196,808 | | | — | | | — | |
(1)(1)- Refer to
"Potential“Potential Payments Upon Termination or Change in Control"Control” below for circumstances under which the terms of the vesting of equity awards would be accelerated.
(2)
(2)StockThe stock options granted to Ms. Donigan will generally vest in equal installments on each of the first four anniversaries of the grant date, based on continued employment. With respectand the stock options granted to the restricted stock awards listed above, one-third of the restricted sharesMr. Peters will vest in equal installments on each of the first three anniversaries of the grant date, in each case, based on continued employment.
(3)
(3)Restricted shares will generally vest one-third on each of the first three anniversaries of the grant date.date, based on continued employment.
(4)
(4)Determined with reference to $14.60,$19.58, the closing price of a share of Rite Aid common stock on the last trading day before March 3, 2019 to reflectFebruary 27, 2021.
(5)
For a discussion of the reverse stock split.
(5)Performanceterms and conditions of the performance units granted on July 17, 2017 will be earned based upon the achievement of an Adjusted EBITDA8, 2020, see “Compensation Discussion and Return on Net Assets goals for fiscal years 2019 and 2020. Vesting for the performance units will occur, provided the performance target has been met, on February 29, 2020 (the end of the Company's fiscal year 2020), provided that the Named Executive Officer is continuously employed at the Company through the date of the earnings release for fiscal year 2020.Analysis, Long-Term Incentives, 2021-2023 Plan.”
RITE AID CORPORATION 2021 Proxy Statement | 69
OPTION EXERCISES AND STOCK VESTED TABLE FOR FISCAL YEAR 2019
2021 The following table summarizes for each Named Executive Officer the stock option exercises and shares vested during fiscal year 2019. As previously announced, we implemented2021.
| | | | | Option Awards | | | Stock Awards | |
| | Name | | | Number of Shares
Acquired on Exercise
(#) | | | Value Realized on
Exercise
($) | | | Number of Shares
Acquired on Vesting
(#) | | | Value Realized on
Vesting
($) | |
| | Heyward Donigan | | | | | — | | | | | | — | | | | | | 94,967 | | | | | | 1,406,461 | | |
| | James J. Peters | | | | | — | | | | | | — | | | | | | 20,567 | | | | | | 212,046 | | |
| | Matthew Schroeder | | | | | — | | | | | | — | | | | | | 13,105 | | | | | | 207,870 | | |
| | Jocelyn Z. Konrad | | | | | — | | | | | | — | | | | | | 22,123 | | | | | | 351,430 | | |
| | Justin Mennen | | | | | — | | | | | | — | | | | | | 13,445 | | | | | | 213,892 | | |
| | Daniel Robson | | | | | — | | | | | | — | | | | | | 59,720 | | | | | | 1,402,956 | | |
PENSION; NONQUALIFIED DEFERRED COMPENSATION
The Company does not maintain a reverse stock split of our common stock at a reverse stock split ratio of 1-for-20. Our common stock began trading on a split-adjusted basis on the NYSE at the market open on April 22, 2019. As the following information reports transactions that occurred during the fiscal year 2019, the number of shares and options disclosed are on a pre-reverse stock split basis. Any stock holdings resulting from the below transactions, as of April 22, 2019, have been adjustednon-qualified deferred compensation plan for the reverse stock split accordingly. | | | | | | | | | | | | | |
| | Option Awards | | Stock Awards | |
|---|
Name | | Number of Shares
Acquired on
Exercise (#) | | Value
Realized on
Exercise ($) | | Number of Shares
Acquired on
Vesting (#) | | Value
Realized on
Vesting ($) | |
|---|
John T. Standley | | | 168,800 | | | 43,888 | | | 623,200 | | $ | 1,104,759 | |
Kermit Crawford | | | — | | | — | | | 325,204 | | $ | 373,985 | |
Darren W. Karst | | | — | | | — | | | 169,899 | | $ | 301,266 | |
Bryan B. Everett | | | — | | | — | | | 199,667 | | $ | 281,337 | |
Jocelyn Z. Konrad | | | — | | | — | | | 57,533 | | $ | 100,607 | |
NONQUALIFIED DEFERRED COMPENSATION FOR FISCAL YEAR 2019
The following table sets forth the nonqualified deferred compensation activity for each Named Executive Officer during fiscal year 2019:
| | | | | | | | | | | | | | | | |
Name | | Executive
Contributions in
Last FY ($) | | Registrant
Contributions in
Last FY ($)(2) | | Aggregate
Earnings in
Last FY
($)(2) | | Aggregate
Withdrawals /
Forfeitures ($) | | Aggregate
Balance at Last
FYE ($) | |
|---|
John T. Standley(1) | | | — | | | 292,932 | | | 176,028 | | | — | | | 4,259,058 | |
Kermit Crawford(1) | | | — | | | 240,000 | | | (16,385 | ) | | — | | | 323,768 | |
Darren W. Karst(1) | | | — | | | 203,360 | | | (4,061 | ) | | — | | | 993,583 | |
Bryan B. Everett(1) | | | — | | | 147,600 | | | (11,488 | ) | | — | | | 478,692 | |
Jocelyn Z. Konrad(1) | | | — | | | 110,250 | | | 1,066 | | | — | | | 547,644 | |
(1)Amounts shown relate to a defined contribution supplemental executive retirement plan coveringbenefit of the Named Executive Officers in the fiscal year. Please refer to the Compensation Discussion and Analysis under the caption "Post-Retirement Benefits" for a descriptionnone of the material terms of this plan.
(2)Amounts shown were reported toNamed Executive Officers participate in a defined benefit pension plan maintained by the extent required in the "All Other Compensation" column of the Summary Compensation Table for fiscal year 2019.
Company.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
As discussed above under the caption "Executive“Executive Employment Agreements,"” the Company has entered into employment agreements with each of the Named Executive Officers. Upon written notice, the employment agreement of each of the Named Executive Officers is terminable by either Rite Aid or the individual officer seeking termination. SinceThe circumstances resulting in severance entitlements under the end ofemployment agreements is discussed below. During the last completed fiscal year, the Company has entered into a separation agreementsagreement with certain of ourone former Named Executive Officers,Officer, which areis discussed below as applicable.under the caption “Named Executive Officer Departure During Fiscal Year 2021.”
Table of ContentsMr. John Standley
Circumstances Resulting in Severance. Pursuant to hisher employment agreement with the Company, if Mr. Standley had beenMs. Donigan is terminated by the CompanyRite Aid without "cause"“cause” or if he had terminated hisshe terminates her employment for "good reason"“good reason” (as such terms are defined in his employment agreement), then he would have been entitled to receive:
•a severance amount equal to two times the sum of his annual base salary and target bonus, a pro-rata bonus for the fiscal year of termination and any accrued but unpaid salary and benefits. The severance amount would have been payable in installments over the two-year period following the termination;
•continued health benefits for two years following the termination; and
•all outstanding stock options would have immediately vested and become exercisable, generally, for a period of one year following the termination of employment and the restrictions on the restricted common stock would have immediately lapsed to the extent the restrictions would have lapsed had he remained employed by Rite Aid for three years following the termination.
Pursuant to the separation agreement entered into on March 12, 2019, Mr. Standley will be entitled to the severance benefits described above under the caption "Circumstances Resulting in Severance" upon selection of his successor in the role of Chief Executive Officer and the termination of his employment.
If Rite Aid had terminated Mr. Standley for "cause," or he had terminated his employment without "good reason":
•Rite Aid would have paid Mr. Standley all accrued but unpaid salary and benefits;
•any portion of any then-outstanding stock option grant that was not exercised prior to the date of termination would have immediately terminated (provided that if he terminated his employment without good reason, any options that would have vested and become exercisable prior to the date of termination would generally have remained exercisable for a period of 90 days); and
•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 would have been forfeited.
If Mr. Standley's employment had been terminated as a result of his death or "disability" (as such term is defined in his employment agreement), he (or his estate, as the case may be) would have been entitled to receive all accrued but unpaid salary and benefits payable under death or disability benefit plans in which he participates, a pro-rata bonus (paid at the same time it is paid to other eligible participants in the bonus plan and based on actual achievement of performance targets for the fiscal year), continued health insurance (or reimbursement for the cost of such benefits) for two years for Mr. Standley and/or his or her immediate family, as applicable, vesting of all stock options, and vesting of an amount of restricted stock that would have vested had he remained employed for three years following the date of termination.
Mr. Kermit Crawford
Mr. Kermit Crawford, former President and Chief Operating Officer of the Company, departed the Company by mutual agreement pursuant to the leadership transition effectuated on March 12, 2019. The Separation Agreement with Mr. Crawford provides for a separation payment equal to $5,000,000 payable in equal installments over a 24 month period subject to executing a general release of claims in favor of the Company. Mr. Crawford was also relieved of his obligation to repay $520,073
Table of Contents
to the Company, which represents the repayment obligation with respect to the cash-based inducement award paid to Mr. Crawford upon his hire.
Circumstances Resulting in Severance. Pursuant to his employment agreement with the Company, if Mr. Crawford had been terminated by Rite Aid without "cause" or if he had terminated his employment for "good reason" (as such terms are defined in theMs. Donigan’s employment agreement), then:
•
he would have beenshe will be entitled to receive a severance amount equal to two times the sum of the annual base salary and target bonus, a pro-rata bonus for the fiscal year of termination based on actual performance, and any accrued but unpaid salary and benefits.benefits through the date of termination. The severance amount would have beenbe payable in installments over the two-year period following the termination;
•he any pro-rata bonus for the fiscal year would have beenbe paid following determination of performance at the same time that payments are made to other bonus-eligible associates;
•
she will be entitled to receive a payment equal to the cost of continued health benefits under COBRA for two years following the termination;termination, paid in a lump sum; and
•
•all outstandingany unvested stock options would havewill immediately vestedvest and becomebe exercisable, generally, for a period of 90 days following the termination of employment and the restrictions on thetime-based restricted common stock would have will
70 | RITE AID CORPORATION 2021 Proxy Statement
immediately lapsedlapse, each to the extent the options would have vested and restrictions would have lapsed, in each case, had heshe remained employed by Rite Aid for two years following the termination. The foregoing severance benefits are subject to Ms. Donigan’s execution of a general release of claims in favor of the Company and compliance with restrictive covenants.
Mr.
Darren KarstJames J. Peters
Circumstances Resulting in Severance. Pursuant to his employment agreement with the Company, if Mr. Karst had been terminated by Rite Aid without "cause" or if he were to terminate his employment for "good reason" (as such terms are defined in the employment agreement), then:•he would have been entitled to receive a severance amount equal to two times the sum of the annual base salary and target bonus, a pro-rata bonus for the fiscal year of termination, and any accrued but unpaid salary and benefits. The severance amount would be payable in installments over the two-year period following the termination;
•he would have been entitled to receive continued health benefits for two years following the termination; and
•all outstanding stock options would immediately vest and become exercisable, generally, for a period of 90 days following the termination of employment and the restrictions on the restricted common stock would immediately lapse to the extent the options would have vested and restrictions would have lapsed, in each case, had he remained employed by Rite Aid for two years following the termination.
Pursuant to the separation agreement entered into on March 12, 2019, Mr. Karst became entitled to the severance benefits described above under the caption "Circumstances Resulting in Severance" upon the termination of his transition period of employment on May 31, 2019.
Mr. Bryan Everett
Circumstances Resulting in Severance. Pursuant to his employment agreement with the Company, if Mr. EverettPeters is terminated by Rite Aid without "cause"“cause” or if he terminates his employment for "good reason" (as“good reason” (as such terms are defined in the applicableMr. Peters’ employment agreement), then:
•
he will be entitled to receive a severance amount equal to two times the sum of the annual base salary and target bonus, a pro-rata bonus for the fiscal year of termination based on actual performance, and any accrued but unpaid salary and benefits.benefits through the date of termination. The severance amount would be payable in installments over the two-year period following the termination; any pro-rata bonus for the fiscal year would be paid following determination of performance at the same time that payments are made to other bonus-eligible associates;
•
•
any unvested stock options will immediately vest and be exercisable, generally, for a period of 90 days following the termination of employment and the restrictions on time-based restricted stock will immediately lapse, each to the extent the options would have vested and restrictions would have lapsed, had he remained employed by Rite Aid for two years following the termination.
The foregoing severance benefits are subject to Mr. Peters’ execution of a general release of claims in favor of the Company and compliance with restrictive covenants.
Circumstances Resulting in Severance. Pursuant to his employment agreement with the Company, if Mr. Schroeder is terminated by Rite Aid without “cause” or if he terminates his employment for “good reason” (as such terms are defined in Mr. Schroeder’s employment agreement), then:
•
he will be entitled to receive a severance amount equal to two times the sum of the annual base salary and target bonus, a pro-rata target bonus for the fiscal year of termination, and any accrued but unpaid salary and benefits through the date of termination. The severance amount would be payable in installments over the two-year period following the termination; any pro-rata bonus for the fiscal year would be paid at the same time that payments are made to other bonus-eligible associates;
•
he will be entitled to receive continued health benefits for two years following the termination; and
•
any unvested stock options will immediately vest and be exercisable, generally, for a period of 90 days following the termination of employment to the extent the options would have vested had he remained employed by Rite Aid for two years following the termination.
Circumstances Resulting in Severance. Pursuant to her employment agreement with the Company, if Ms. Konrad is terminated by Rite Aid without “cause” or if she terminates her employment for “good reason” (as such terms are defined in her employment agreement), then:
•
she will be entitled to receive a severance amount equal to two times annual base salary as of the date of termination of employment, a pro-rata bonus for the fiscal year of termination based on actual performance, and any accrued but unpaid salary and benefits through the date of termination. The severance amount would be payable in installments over the two-year period following the termination;
RITE AID CORPORATION 2021 Proxy Statement
| 71
any pro-rata bonus for the fiscal year would be paid following determination of performance at the same time that payments are made to other bonus-eligible associates;
•all outstanding
she will be entitled to receive continued health benefits for two years following the termination; and
•
any unvested 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, each to the extent the options would have vested and restrictions would have lapsed, in each case, had heshe remained employed by Rite Aid for two years following the termination.In addition,
The foregoing severance benefits are subject to Ms. Konrad’s execution of a general release of claims in favor of the Company and compliance with restrictive covenants.
Mr.
Everett's employment agreement provides that if termination occurs following the start of Rite Aid's fiscal year and if the Board of Directors determines that Rite Aid achieved or exceeded its annual performance targets for the fiscal year, Mr. Everett is entitled to an amount equal to his target annual bonus, pro-rated to reflect the number of days in the fiscal year prior to the termination.Justin Mennen
Ms. Jocelyn KonradCircumstances Resulting in Severance. Pursuant to herhis employment agreement with the Company, if Ms. KonradMr. Mennen is terminated by Rite Aid without "cause"“cause” or if shehe terminates herhis employment for "good reason" (as“good reason” (as such terms are defined in the applicablehis employment agreement), then:
•
shehe will be entitled to receive a severance amount equal to two times his annual base salary as of the date of termination of employment, a pro-rata bonus for the fiscal year of termination based on actual performance, and any accrued but unpaid salary and benefits through the date of termination. The severance amount would be payable in installments over the two-year period following the termination; any pro-rata bonus for the fiscal year would be paid following determination of performance at the same time that payments are made to other bonus-eligible associates;
•
•shehe will be entitled to receive continued health benefits for two yearsone year following the termination; and
•
•all outstandingany unvested 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, each to the extent the options would have vested and restrictions would have lapsed, in each case, had shehe remained employed by Rite Aid for two yearsone year following the termination.In addition, Ms. Konrad's
The foregoing severance benefits are subject to Mr. Mennen’s execution of a general release of claims in favor of the Company and compliance with restrictive covenants.
Circumstances Resulting in Severance. Pursuant to his employment agreement provides that ifwith the Company, upon a termination occurs following the start of Rite Aid's fiscal year and if the Board of Directors determines thatMr. Robson’s employment by Rite Aid achievedwithout “cause” or exceeded itsif he were to terminate his employment for “good reason” (as such terms are defined in the employment agreement), then:
•
he becomes entitled to receive a severance amount equal to one times his annual performance targetsbase salary as of the date of termination of employment, a pro-rata bonus for the fiscal year she is entitled to an amount equal to her target annual bonus, pro-rated to reflect the number of days in the fiscal year prior to the termination. Termination for Cause or Without Good Reason. If Rite Aid were to terminatetermination based on actual performance, and any of the Named Executive Officers for "cause," or if any of the Named Executive Officers were to terminate his or her employment without "good reason" (with the exception of Mr. Standley, whose termination provisions are described above):
•Rite Aid would pay the officer all accrued but unpaid salary and benefits;
•any portion of any then-outstanding stock option grant that was not exercised prior tobenefits through the date of terminationtermination. The severance amount is payable in installments over the one-year period following the termination; any pro-rata bonus for the fiscal year would be paid following determination of performance at the same time that payments are made to other bonus-eligible associates;
•
he becomes entitled to receive continued health benefits for one year following the termination; and
•
all outstanding stock options immediately terminate (provided that if the officer terminates his or her employment without good reason, any options that have vestedvest and become exercisable, prior to the date of termination will generally, remain exercisable for a period of 90 days);days following the termination of employment and
•any portion of any restricted stock award, or other long-term incentive award, as to which the restrictions on the restricted common stock immediately lapse to the extent the options would nothave vested and restrictions would have lapsed, or as to which any other conditions were not satisfied priorin each case, had he remained employed by Rite Aid for one year following the termination.
Pursuant to the date of termination would be forfeited. Treatment of Final Tranche of Retention Awards. If the employment of Messrs. Karst and Everett and Ms. Konrad had been terminated by the Company without "cause" or by the executive with "good reason" as of March 2, 2019, then the retention amounts of $415,125, $300,000, and $225,000
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respectively, would have been paid outseparation agreement entered into on January 27, 2021, Mr. Robson became entitled to the executivesseverance benefits described above under the executives' respective retention agreements prior tocaption “Circumstances Resulting in Severance” upon the scheduled payment datetermination of May 1, 2019.
his employment on January 27, 2021.
72 | RITE AID CORPORATION 2021 Proxy Statement
Named Executive Officer Termination as a Result of Death or Disability.
If the employment of any of the Named Executive Officers (with the exception of Mr. Standley, whose termination provisions are described above) were to be terminated as a result of death or "disability" (as“disability” (as such term is defined in each employment agreement), the officer will be entitled to receive all accrued but unpaid salary and benefits payable under death or disability benefit plans in which the officer participates, continued health insurance (or reimbursement for the cost of such benefits) for two years for the officer and/or his or her immediate family (one year for Mr. Mennen), as applicable, vesting of all stock options and, for all Named Executive Officers other than Mr. Schroeder, vesting of an amount of restricted stock that, in each case, would have vested had the officer remained employed for two years (one year for Mr. Mennen) following the date of termination. Messrs. Karst and Crawford will also be entitled to receive a pro-rata bonus, based on actual achievement of performance targets for the fiscal year, which is paid at the same time that it is paid to other eligible participants in the bonus plan. Distributions Upon Termination. Upon the termination of employment of any of the Named Executive Officers, the officer would generally become entitled to receive a distribution of his or her vested account balance under the supplemental executive retirement plan, which has been terminated by the Company. Pursuant to applicable tax regulations, any such distributions will generally be delayed for a period of six months following the Named Executive Officer's separation from service. The account balance of each Named Executive Officer is shown in the "Nonqualified Deferred Compensation for Fiscal Year 2019" table above. For more information regarding the supplemental executive retirement plan, refer to the Compensation Discussion and Analysis under the caption "Post-Retirement Benefits."
Change in Control Arrangements.
Under Employment Agreements.Agreements—Double Trigger Arrangements. Under Mr. Standley's employment agreement, upon a change in control, all of his stock options awarded pursuant to his employment agreement and all stock options awarded pursuant to the Company's executive equity program then held by him will immediately vest and become exercisable. Severance benefits wouldare not be triggered pursuant to a change in control unless itthe change in control is followed by Mr. Standley'sa termination of the Named Executive Officer’s employment under the circumstances resulting in severance described above. Similarly, severance benefits would not be triggered pursuant to a change in control unless it is followed by Mr. Karst's, Mr. Crawford's, Mr. Everett's, or Ms. Konrad's termination of employment, respectively, under the circumstances resulting in severance described above. For purposes of the employment agreements with the Named Executive Officers, where applicable, the term "change“change in control"control” generally means an acquisition of 35% or more of the Company'sCompany’s combined voting power; the incumbent directors (generally including current directors and future directors whose election or nomination is approved by the Board) ceasing to constitute a majority of the Board; the consummation of a merger or similar transaction, other than (i) such a transaction in which the voting securities outstanding immediately prior to such transaction continue to represent at least 60% of the voting power of the Company immediately after the transaction or (ii) a recapitalization or similar transaction in which no person becomes the beneficial owner of 35% or more of the Company'sCompany’s combined voting power; or the stockholders approve a plan of complete liquidation or dissolution of the Company. Mr. Standley's employment agreement provides that he will receive an additional payment to reimburse him for any excise taxes imposed pursuant to Section 4999 of the Code, together with reimbursement for any additional taxes incurred by reason of such payments.
The employment agreements with Messrs. Karst, Crawford, and Everett and Ms. Konradthe Named Executive Officers provide that any portion of any payment that is subject to tax imposed by Section 4999 of the Code will be reduced to the extent
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necessary so that the Named Executive Officer would retain a greater amount on an after-tax basis than had the excise tax been imposed on the unreduced amount of the payments.
Under Rite Aid'sAid’s Equity Program. Pursuant to the terms of the Company's equity program,Company’s 2020 Omnibus Equity Plan, unless otherwise provided in a Named Executive Officer'sOfficer’s employment agreement or individual award agreement, if outstanding equity awards are assumed or substituted in connection with a change in control, the change in control will not cause the vesting of such awards to accelerate unless the change in control is followed by a qualifying termination of employment within the 24-month period following the change in control. In the event of a qualifying termination of employment within the 24-month period following a change in control, all outstanding awards granted pursuant to the Company’s equity program will become fully vested and exercisable, free of applicable restrictions, and all awards that are subject to performance-based conditions will vest pro-rata based on the participant’s service during the applicable performance period. All outstanding equity awards granted pursuant to the Company'sCompany’s equity program that are not assumed or substituted in connection with a change in control transaction will become fully vested and exercisable, free of applicable restrictions, and all performance criteriaawards that are subject to performance-based conditions will be deemed to have beenbe achieved at target levels,levels. The foregoing treatment upon the occurrence of thea change in control.control is reflected in the form of award agreements currently utilized in connection with long-term incentive awards under the Company’s 2020 Omnibus Equity Plan. In addition, the employment agreements maintained by Rite Aid do not provide for accelerated vesting of any performance-based awards, including upon qualifying termination of employment (with or without a change in control). For purposes of Rite Aid'sAid’s equity program, including any inducement awards, a "change“change in control"control” means, in general: (i) a person or entity acquires securities of Rite Aid representing 50% or more of the combined voting power of Rite Aid; (ii) an unapproved change in the majority membership of the Board; (iii) consummation of a merger or consolidation of Rite Aid or any subsidiary of Rite Aid, other than a merger or consolidation that results in the Rite Aid voting securities continuing to represent at least 60% of the combined voting power of the surviving entity or its parent, or a merger or consolidation effected to implement a recapitalization or similar transaction involving Rite Aid in which no person or entity acquires at least 35% of the combined voting power of Rite Aid; or (iv) stockholder approval of a plan of complete liquidation or dissolution of Rite Aid or the
RITE AID CORPORATION 2021 Proxy Statement | 73
consummation of an agreement for the sale or disposition of all or substantially all of Rite Aid'sAid’s assets, other than a sale or disposition to an entity, at least 60% of the combined voting power of which is owned by Rite Aid stockholders in substantially the same proportions as their ownership of Rite Aid immediately prior to such sale. For more information regarding the equity program, refer to the Compensation Discussion and Analysis under the caption "Long-Term“Long-Term Incentive Program."”
Quantification of Payments Described.
The tables below quantify the termination and change in control payments that would have been made to the Named Executive Officers (other than the Named Executive Officers who were no longer serving at the end of the fiscal year), had their employment been terminated as of March 2, 2019February 27, 2021 under the circumstances described in the tables below are quantified in the tables below. | | | | | | | | | | | | | |
John T. Standley(1) | | Death ($) | | Disability ($) | | Termination
Without Cause
or Quit for
Good Reason
($) | | Termination Without
Cause or Quit for Good
Reason Following a
Change in Control
($) | |
|---|
2 × Base Salary | | | n/a | | | n/a | | | 2,441,100 | | | 2,441,100 | |
2 × Bonus | | | n/a | | | n/a | | | 4,882,200 | | | 4,882,200 | |
Pro-Rated Incentive Bonus for Past Fiscal Year | | | 1,440,249 | | | 1,440,249 | | | 1,440,249 | | | 1,440,249 | |
Benefits | | | 29,850 | | | 29,850 | | | 29,850 | | | 29,850 | |
Vesting of Equity(2) | | | 3,960,011 | | | 3,960,011 | | | 3,960,011 | | | 7,987,600 | (3) |
280G Gross Up | | | n/a | | | n/a | | | n/a | | | — | |
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| | | | | | | | | | | | | |
Kermit Crawford(1) | | Death ($) | | Disability ($) | | Termination
Without Cause
or Quit for
Good Reason
($) | | Termination Without
Cause or Quit for Good
Reason Following a
Change in Control
($) | |
|---|
2 × Base Salary | | | n/a | | | n/a | | | 2,000,000 | | | 2,000,000 | |
2 × Bonus | | | n/a | | | n/a | | | 3,500,000 | | | 3,500,000 | |
Pro-Rated Incentive Bonus for Past Fiscal Year | | | 1,032,500 | | | 1,032,500 | | | 1,032,500 | | | 1,032,500 | |
Benefits | | | 20,101 | | | 20,101 | | | 20,101 | | | 20,101 | |
Vesting of Equity(2) | | | 1,955,755 | | | 1,955,755 | | | 1,955,755 | | | 4,658,531 | (3) |
280G Gross Up | | | n/a | | | n/a | | | n/a | | | n/a | |
| | | | | | | | | | | | | |
Darren W. Karst(1) | | Death ($) | | Disability ($) | | Termination
Without Cause
or Quit for
Good Reason
($) | | Termination Without
Cause or Quit for Good
Reason Following a
Change in Control
($) | |
|---|
2 × Base Salary | | | n/a | | | n/a | | | 1,701,500 | | | 1,701,500 | |
2 × Bonus | | | n/a | | | n/a | | | 2,126,875 | | | 2,126,875 | |
Pro-Rated Incentive Bonus for Past Fiscal Year | | | 627,428 | | | 627,428 | | | 627,428 | | | 627,428 | |
Benefits | | | 21,580 | | | 21,580 | | | 21,580 | | | 21,580 | |
Vesting of Equity(2) | | | 1,274,855 | | | 1,274,855 | | | 1,274,855 | | | 2,633,026 | (3) |
280G Gross Up | | | n/a | | | n/a | | | n/a | | | n/a | |
| | | | | | | | | | | | | |
Bryan B. Everett | | Death ($) | | Disability ($) | | Termination
Without Cause
or Quit for
Good Reason
($) | | Termination Without
Cause or Quit for Good
Reason Following a
Change in Control
($) | |
|---|
2 × Base Salary | | | n/a | | | n/a | | | 1,236,000 | | | 1,236,000 | |
2 × Bonus | | | n/a | | | n/a | | | 1,236,000 | | | 1,236,000 | |
Pro-Rated Incentive Bonus for Past Fiscal Year | | | 364,620 | | | 364,620 | | | 364,620 | | | 364,620 | |
Benefits | | | 28,575 | | | 28,575 | | | 28,575 | | | 28,575 | |
Vesting of Equity(2) | | | 878,434 | | | 878,434 | | | 878,434 | | | 1,642,649 | (3) |
280G Gross Up | | | n/a | | | n/a | | | n/a | | | n/a | |
| | | | | | | | | | | | | |
Jocelyn Z. Konrad | | Death ($) | | Disability ($) | | Termination
Without Cause
or Quit for
Good Reason
($) | | Termination Without
Cause or Quit for Good
Reason Following a
Change in Control
($) | |
|---|
2 × Base Salary | | | n/a | | | n/a | | | 922,500 | | | 922,500 | |
2 × Bonus | | | n/a | | | n/a | | | n/a | | | n/a | |
Pro-Rated Incentive Bonus for Past Fiscal Year | | | 204,103 | | | 204,103 | | | 204,103 | | | 204,103 | |
Benefits | | | 28,055 | | | 28,055 | | | 28,055 | | | 28,055 | |
Vesting of Equity(2) | | | 432,312 | | | 432,312 | | | 432,312 | | | 881,663 | (3) |
280G Gross Up | | | n/a | | | n/a | | | n/a | | | n/a | |
(1)Pursuant to the Company's restructuring initiative implemented in March of 2019, Messrs. Standley, Crawford, and Karst have entered into The separation agreements which will govern termination payments, subject to the execution of a general release of claims in favor of the
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Company. Amounts payable to Messrs. Standley and Karst in connectionarrangement with their separations will be governed by their respective employment agreements under the terms described aboveMr. Robson is also discussed below under the caption "Circumstances Resulting in Severance." The separation agreement with Mr. Crawford provides for a separation payment equal to $5,000,000 payable in equal installments over a 24-month period subject to the execution of a general release of claims in favor of the Company. Mr. Crawford was also relieved of his obligation to repay $520,073 to the Company, which represents the repayment obligation with respect to the cash-based inducement award paid to Mr. Crawford upon his hire.
(2)- “Named Executive Officer Departure.”
| | Heyward Donigan | | | Death
($) | | | Disability
($) | | | Termination Without
Cause or Quit for
Good Reason
($) | | | Termination Without
Cause or Quit for Good
Reason Following a
Change in Control
($) | |
| | 2 × Base Salary | | | | | n/a | | | | | | n/a | | | | | | 2,000,000 | | | | | | 2,000,000 | | |
| | 2 × Bonus | | | | | n/a | | | | | | n/a | | | | | | 4,000,000 | | | | | | 4,000,000 | | |
| | Pro-Rated Incentive Bonus
for Past Fiscal Year | | | | | 1,160,000 | | | | | | 1,160,000 | | | | | | 1,160,000 | | | | | | 1,160,000 | | |
| | Benefits | | | | | 50,496 | | | | | | 50,496 | | | | | | 50,496 | | | | | | 50,496 | | |
| | Vesting of Equity(1) | | | | | 10,418,686 | | | | | | 10,418,686 | | | | | | 10,418,686 | | | | | | 14,699,859(2) | | |
| | James J. Peters | | | Death
($) | | | Disability
($) | | | Termination Without
Cause or Quit for
Good Reason
($) | | | Termination Without
Cause or Quit for Good
Reason Following a
Change in Control
($) | |
| | 2 × Base Salary | | | | | n/a | | | | | | n/a | | | | | | 1,500,000 | | | | | | 1,500,000 | | |
| | 2 × Bonus | | | | | n/a | | | | | | n/a | | | | | | 1,875,000 | | | | | | 1,875,000 | | |
| | Pro-Rated Incentive Bonus
for Past Fiscal Year | | | | | 543,750 | | | | | | 543,750 | | | | | | 543,750 | | | | | | 543,750 | | |
| | Benefits (2 years) | | | | | 51,036 | | | | | | 51,036 | | | | | | 51,036 | | | | | | 51,036 | | |
| | Vesting of Equity(1) | | | | | 2,374,727 | | | | | | 2,374,727 | | | | | | 2,374,727 | | | | | | 3,980,155(2) | | |
| | Matthew Schroeder | | | Death
($) | | | Disability
($) | | | Termination Without
Causeor Quit for
Good Reason
($) | | | Termination Without
Cause or Quit for Good
Reason Following a
Change in Control
($) | |
| | 2 × Base Salary | | | | | n/a | | | | | | n/a | | | | | | 1,300,200 | | | | | | 1,300,200 | | |
| | 2 × Bonus | | | | | n/a | | | | | | n/a | | | | | | 1,300,200 | | | | | | 1,300,200 | | |
| | Pro-Rated Incentive Bonus
for Past Fiscal Year | | | | | 731,250 | | | | | | 731,250 | | | | | | 731,250 | | | | | | 731,250 | | |
| | Benefits (2 years) | | | | | 53,235 | | | | | | 53,235 | | | | | | 53,235 | | | | | | 53,235 | | |
| | Vesting of Equity(1) | | | | | 984,385 | | | | | | 984,385 | | | | | | 984,385 | | | | | | 2,143,855(2) | | |
74 | RITE AID CORPORATION 2021 Proxy Statement
| | Jocelyn Z. Konrad | | | Death
($) | | | Disability
($) | | | Termination Without
Cause or Quit for
Good Reason
($) | | | Termination Without
Cause or Quit for Good
Reason Following a
Change in Control
($) | |
| | 2 × Base Salary | | | | | n/a | | | | | | n/a | | | | | | 1,200,000 | | | | | | 1,200,000 | | |
| | 2 × Bonus | | | | | n/a | | | | | | n/a | | | | | | n/a | | | | | | n/a | | |
| | Pro-Rated Incentive Bonus
for Past Fiscal Year | | | | | 607,500 | | | | | | 607,500 | | | | | | 607,500 | | | | | | 607,500 | | |
| | Benefits (2 years) | | | | | 50,496 | | | | | | 50,496 | | | | | | 50,496 | | | | | | 50,496 | | |
| | Vesting of Equity(1) | | | | | 1,132,566 | | | | | | 1,132,566 | | | | | | 1,132,566 | | | | | | 2,095,830(2) | | |
| | Justin Mennen | | | Death
($) | | | Disability
($) | | | Termination Without
Cause or Quit for
Good Reason
($) | | | Termination Without
Cause or Quit for Good
Reason Following a
Change in Control
($) | |
| | 1 × Base Salary | | | | | n/a | | | | | | n/a | | | | | | 500,000 | | | | | | 500,000 | | |
| | 1 × Bonus | | | | | n/a | | | | | | n/a | | | | | | n/a | | | | | | n/a | | |
| | Pro-Rated Incentive Bonus
for Past Fiscal Year | | | | | 337,500 | | | | | | 337,500 | | | | | | 337,500 | | | | | | 337,500 | | |
| | Benefits (1 year) | | | | | 25,518 | | | | | | 25,518 | | | | | | 25,518 | | | | | | 25,518 | | |
| | Vesting of Equity(1) | | | | | 385,883 | | | | | | 385,883 | | | | | | 385,883 | | | | | | 1,200,967(2) | | |
(1)
Includes the value of equity awards and performance awards held by the officer that would become vested under the applicable circumstances. The value of stock options shown is based on the excess of $0.73,$19.58, the closing price of a share of Rite Aid common stock on the last trading day before March 2, 2019,February 27, 2021, over the exercise price of such options, multiplied by the number of unvested stock options held by the officer that would become vested under the applicable circumstances. The value of restricted stock and performance awards that are settled in stock shown is determined by multiplying $0.73,$19.58, the closing price of a share of Rite Aid common stock on the last trading day before March 2, 2019February 27, 2021 and the number of shares of restricted stock and the number of performance awardsstock units that are settled in stock held by the officer that would become vested under the applicable circumstances.
(2)
(3)The value would also apply upon a change in control under the assumption that outstanding equity awards are not assumed or substituted in the change in control transaction, resulting in full vesting upon the change in control, as described above in the "Potential“Potential Payments Upon Termination or Change in Control—Change in Control Arrangements"Arrangements” narrative.
RITE AID CORPORATION 2021 Proxy Statement | 75
Named Executive Officer Departure During Fiscal Year 2021
Separation Agreement with Mr. Daniel Robson
Pursuant to the separation agreement entered into on January 27, 2021, Mr. Robson became entitled to the following contractual severance benefits upon his departure from the Company on January 27, 2021: (i) $550,000 representing one times his base salary, payable in equal installments over a one-year period, (ii) $16,282 representing the cost of continued health benefits for a period of one year following separation, (iii) $45,205 representing 30 days’ base salary for pay in lieu of notice, (iv) accelerated vesting with respect to time-based restricted stock awards that would have vested within the one-year period following the termination (a total of 34,902 shares, which had a value of $982,491 based on the closing price of our shares on January 27, 2021 of $28.15) and (v) a pro-rata bonus for fiscal year 2021 based on actual performance (as shown in in the Summary Compensation Table), payable at the same time as bonuses are paid to Rite Aid’s executive team generally. In addition, Rite Aid agreed to pay Mr. Robson additional consideration of $25,000 in the course of negotiating his release, which the Company determined was a reasonable payment of a relatively immaterial amount in light of the large value in performance-based awards that were forfeited upon his termination. The foregoing severance benefits were subject to Mr. Robson’s execution of a general release of claims in favor of the Company and continuing compliance with restrictive covenants.
76 | RITE AID CORPORATION 2021 Proxy Statement
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K under the Exchange Act, we are providing the following information about the relationship of the annual total compensation of our employees other than our Chief Executive Officer (our "CEO"“CEO”) and the annual total compensation of our CEO. This pay ratio is a reasonable estimate calculated in a manner consistent with SEC rules based on our payroll and employment records and the methodology described below. Of our total employee base of 53,594 associates employed as of March 2, 2019 (i.e., the last day of the 2019 fiscal year, consistent with our use of March 3, 2018, the last day of the 2018 fiscal year, with respect to our 2018 pay ratio disclosure), weWe determined that the 20192021 annual total compensation of the median employee, other than our CEO, was $31,025$33,212 and our CEO's 2019CEO’s 2021 annual total compensation was $7,880,751.$9,590,796. The ratio of these amounts is 254:289:1. To identify the median employee among our associates other than the CEO, we used wages taxable for federal medical health insurance purposes for the period from March 4, 2018 through March 2, 2019,calendar year 2020, with such amounts annualized for those permanent employees who were hired during the year. After identifying the median employee (who is a full-time Picker at our Liverpool, New York Distribution Center),full time Pharmacy Tech in Training) as of December 31, 2020, we calculated annual total compensation for such employee using the same methodology we use to determine Mr. Standley'sNamed Executive Officer annual total compensation in the Summary Compensation Table for fiscal year 2019. Previously, in order to calculate annual total compensation of the median employee in our 2018 disclosure,2021, except that we also took into account the compensation provided under non-discriminatory benefit plans by including the actuarial value of health and welfare plans by including actual contributions to a union-sponsored health fundbenefits for the median employee,employee. As discussed below and as required by SEC rules, for Mr. Standley,Ms. Donigan, we then also took into account the actuarial value of the health and welfare benefits for salaried employees who are self-insured by the Company.
For fiscal year 2021, the total compensation as reported in the “Total” column of the “Summary Compensation Table” above for our Chief Executive Officer, Ms. Donigan, was $9,571,087. For purposes of determining the pay ratio above, we calculated her total annual compensation for pay ratio purposes by (i) taking her total compensation as reported in the Summary Compensation Table and (ii) adding the actuarial value of the health and welfare benefits for salaried employees that are self-insured by the Company. For this year's disclosure, we choseThis calculation resulted in the simplest permitted method of calculatingtotal annual total compensation using the rules for completing the Summary Compensation
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Table, because the union-sponsored health fund was not applicable to the median employee forMs. Donigan in fiscal year 2019.
2021 of $9,590,796 for purposes of the pay ratio provided in the first paragraph above.
The SEC rules for identifying the median employee and calculating the pay ratio based on that employee'semployee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their compensation practices. As such, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies may have different employment and compensation practices and may utilizeuse different methodologies, exclusions, estimates, and assumptions in calculating their own pay ratios.
RITE AID CORPORATION 2021 Proxy Statement | 77
| | | | | | PROPOSAL 4—APPROVAL OF THE RITE AID CORPORATION AMENDED AND RESTATED 2020 OMNIBUS EQUITY INCENTIVE PLAN | | |
In determining the scope of the Audit Committee which further describesshare increase of 2,700,000 shares, bringing the roletotal number of shares authorized for issuance under the Amended and Restated Plan to 6,050,000 shares (plus the number of shares that remained available for issuance under certain prior equity plans under the terms of the Audit Committee.2020 Plan), management and the Compensation Committee, in consultation with an independent compensation consultant, carefully evaluated share usage, dilution, overhang, burn rate, and the existing terms of outstanding equity awards, as discussed further below. The AuditPlan is intended to attract, motivate and retain highly competent, effective and loyal officers, associates and non-employee directors in order to create per share intrinsic value for stockholders. The purpose of amending and restating the 2020 Plan is to ensure that an adequate number of shares of our common stock are available for the grants of restricted stock, restricted stock units, phantom units, stock appreciation rights, stock options, stock bonus awards and other equity-based awards to our officers, associates and non-employee directors of Rite Aid or any affiliate of Rite Aid who are selected by our Compensation Committee (or, in the case of non-employee directors, the Board of Directors) for participation in the Amended and Restated 2020 Plan.
If stockholders approve this Proposal 4, the material amendment included in the Amended and Restated 2020 Plan would increase the number of shares of common stock of the Company reserved for issuance under the Amended and Restated 2020 Plan by 2,700,000 shares. If this proposal is not approved by stockholders, the total number of shares authorized and reserved for issuance under the 2020 Plan as of its effective date will remain at 3,930,000 shares of Common Stock (which includes 580,000 shares of common stock that remained available under the 2014 Plan as of July 8, 2020), of which approximately 1,862,000 shares of common stock remained available for issuance as of February 27, 2021. The Compensation Committee estimates that our remaining share reserve will not be sufficient to permit us to make annual and ordinary course equity grants for our 2022 fiscal year and beyond. Without an increase in the number of shares reserved for issuance under the Plan, the Company will be unable to provide competitive equity-based incentive opportunities in order to continue to retain, attract and motivate highly qualified individuals. The Compensation Committee believes that the Amended and Restated 2020 Plan will help ensure that Rite Aid has a reasonable number of additional shares available for future equity-based incentive awards to attract and retain Rite Aid’s key personnel and officers, as well as reward such individuals for the attainment of long-term achievements, and compensate non-employee directors for service on the Board of Directors utilizing equity compensation consistent with market practice.
All figures referring to aggregate share and option totals in this proposal have been rounded to the nearest thousand.
| | | | | | The Board of Directors unanimously recommends that you vote FOR the approval of the Rite Aid Corporation Amended and Restated 2020 Omnibus Equity Incentive Plan. | | |
78 | RITE AID CORPORATION 2021 Proxy Statement
PROPOSAL 4—APPROVAL OF THE ADOPTION OF THE RITE AID CORPORATION 2020 OMNIBUS EQUITY INCENTIVE
The 2020 Plan was previously approved by the Board of Directors on April 15, 2020, and approved by stockholders with an effective date of July 8, 2020. The 2020 Plan provides for the issuance of equity-based awards in various forms to eligible participants, as described in greater detail below under “Description of Principal Features of the Amended and Restated 2020 Plan.”
The Compensation Committee views equity ownership as a significant motivation for its executives and associates to maximize value for its stockholders. The Compensation Committee believes that grants of stock-based awards provide a long-term incentive for associates and officers to contribute to the growth of Rite Aid. In addition, the Compensation Committee values performance-based awards that establish a direct link between compensation and stockholder return, such as stock options (which only yield value to the extent that our stock price appreciates) and performance-conditioned stock awards (which require the attainment of specified performance goals in order for the recipient to realize value). Our executive compensation program aims to appropriately balance the mix of cash and equity compensation, the mix of currently paid and longer-term compensation, and the security of fixed pay, such as base salary, in a way that best furthers the compensation objectives discussed above. However, based on share usage constraints over the past few years, the mix of pay for our top executives has necessarily been weighted more to cash and less toward equity compensation than is typical of our peers.
Reasons for Seeking Stockholder Approval
We use equity compensation as a key tool for the attraction, retention and motivation of the best available talent. We anticipate that the number of shares available for issuance under the 2020 Plan, which was limited to only 1,862,000 shares at the end of the last completed fiscal year, will be insufficient to cover the needs of the compensation program going forward. Accordingly, approval of the Amended and Restated 2020 Plan to increase the share reserve is critical to ensuring that we have adequate shares available to provide an appropriate mix of equity-based versus cash compensation and to continue to attract, retain and motivate top talent.
In addition, we are seeking approval of the Amended and Restated 2020 Plan in order, among other things, appoints and engages our independent registered public accounting firm and oversees our financial reporting and internal control over financial reporting processes on behalfto: (i) comply with NYSE rules requiring stockholder approval of material amendments to equity compensation plans; (ii) allow the Compensation Committee to be more effective with the mix of equity awards through continued utilization of the Board. Management hasfungible design; and (iii) continue to allow the primary responsibility for our financial statements, our accounting principles and our internal control over financial reporting. Our independent registered public accounting firm is responsible for auditing our financial statements and expressing an opinion asCompensation Committee to their conformity with accounting principles generally acceptedgrant incentive stock options (ISOs) to participants who are associates in the United States. Our independent registered public accounting firm alsoAmended and Restated 2020 Plan if such awards are deemed appropriate in the future.
Amended and Restated Plan Share Reserve Information
| | | | | Fiscal Year 2021 | |
| | A. Total Shares Available as of February 27, 2021 | | | | | 1,862,000 | | |
| | B. Additional Share Request Under Proposal 4 | | | | | 2,700,000 | | |
| | Shares Remaining Available After Annual Meeting (A + B) | | | | | 4,562,000 | | |
Historical Overhang and Annual Share Usage. While the use of equity is responsible for expressing an opinion on the effectivenessimportant part of our internal control over financial reporting. In fulfillingcompensation program, we are mindful of our responsibility to our stockholders to exercise judgment in the granting of equity awards. As a result, we evaluated both our “overhang percentage” and annual share usage, or “burn rate,” in considering the advisability of proposing the Amended and Restated 2020 Plan and its oversight responsibilities,potential impact on our stockholders.
•
Overhang. As of the
Audit Committee met nine times duringend of the 2021 fiscal year,
2019. During those meetings,we had 2.073 million shares of common stock subject to outstanding equity awards of which 780,000 shares relate to stock options and 1.293 million shares relate to unvested awards other than stock options (not including 526,464 shares underlying unvested, stock-settled performance stock units). Additionally, 1.862 million shares are collectively available for future equity awards under the Audit Committee:
•- 2020 Plan, of which only 1.284 million shares were available for the grant of awards other than stock options as a result of the Plan’s fungible ratio. The 2.073 million share overhang represents approximately 3.8% of fully diluted common stock outstanding as of the end of
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fiscal year 2021 (or, the “overhang percentage”). The 2.7 million new shares proposed to be included in the share reserve under the Amended and Restated 2020 Plan, along with our internal auditors and independent registered public accounting firm, with and without management present,the 1.862 million shares remaining available for issuance under the 2020 Plan, would increase the overhang percentage by an additional 8.24% to discussapproximately 12.04%. For additional information, see the overall scope and plans for their respective audits, the results“Equity Compensation Plan Information Table.” The 1.293 million shares of their examinations, their evaluationsrestricted stock constitute outstanding shares of our internal control over financial reporting,common stock which are subject to forfeiture conditions and, as a result, there is no dilution when the overall qualityshares of our financial reporting.
•Reviewedrestricted stock become vested. During fiscal year 2021, 526,464 performance stock units were granted under the 2020 Plan linked to a three-year leverage ratio goal, a two-year cumulative revenue goal and discussed with managementa two-year cumulative scripts goal. Under GAAP, there has been no grant date for accounting purposes in respect of the PSUs since the two-year goals have not been established and, our independent registered publicuntil the two-year goals are set in fiscal year 2022, the Company will follow liability accounting firm, for their respective purposes, the audited financial statements included in ourawards. The liability expense is adjusted by the Company on a quarterly basis. Once an accounting grant date is set for the performance stock units, the Company will move from liability accounting to equity accounting, the previously accrued liability will be appropriately reclassified and a final grant date value will be established. See Note 18 of the Company’s Annual Report on Form 10-K as filed with the SEC on April 27, 2021 for information regarding compensation expense for the performance stock units.•
Annual Share Usage. The annual share usage, or burn rate, under the Company’s equity compensation program for the last three fiscal years was as follows:
| | | | | Fiscal
Year
2021(a)
(‘000s) | | | Fiscal
Year
2020
(‘000s) | | | Fiscal
Year
2019
(‘000s) | | | Three-
Year
Average
(‘000s) | |
| | A Stock Options Granted | | | | | 0 | | | | | | 612 | | | | | | 0 | | | | | | 204 | | |
| | B Restricted Stock Awards and Units Granted | | | | | 780 | | | | | | 1,402 | | | | | | 700 | | | | | | 961 | | |
| | C Total Options and Shares Granted (A+B) | | | | | 780 | | | | | | 2,014 | | | | | | 700 | | | | | | 1,165 | | |
| | D Basic Weighted Average Common Shares Outstanding | | | | | 53,653 | | | | | | 53,228 | | | | | | 52,854 | | | | | | 53,245 | | |
| | E Annual Share Usage (C/D) | | | 1.5% | | | 3.8% | | | 1.3% | | | 2.2% | |
(a)
Share-settled PSUs were granted; however, they were not earned and are not included in the table.
Although our future annual share usage will depend upon and be influenced by a number of factors, such as the number of plan participants, the price per share of our common stock and the methodology used to establish the equity award mix, if approved, the additional 2,700,000 shares of common stock reserved for issuance under the Amended and Restated 2020 Plan will enable us to continue to utilize equity awards as an important component of our compensation program and help meet our objectives to attract, retain and incentivize talented personnel. The calculation of the share reserve took into account, among other things, our stock price and volatility, our share burn rate and overhang, the existing terms of our outstanding awards, and our proposed fungible share rate of 1.45 for full-share awards under the Amended and Restated 2020 Plan. The results of this analysis were presented to our Compensation Committee of our Board for their consideration, in consultation with an independent compensation consultant, and based on the foregoing, believe that the increase in the share reserve is appropriate and necessary to continue to permit the Company to grant competitive equity incentive compensation to officers, associates, and non-employee directors. In addition, we anticipate that the fungible design will continue to permit an efficient and effective use of those shares for future equity awards. Upon approval of the proposal, based on the factors described above, we estimate that the pool of available shares would last for approximately two years.
Highlights of the Amended and Restated 2020 Plan
The Amended and Restated 2020 Plan is intended to promote the interests of Rite Aid and its stockholders by providing officers and other key associates with equity-based incentives and rewards to encourage them to enter into and continue in the employ of Rite Aid and to acquire a proprietary interest in the long-term success of Rite Aid, thereby aligning their interests with those of Rite Aid’s stockholders, to compensate non-employee directors for their services while further aligning their interests with the interests of stockholders, and to reward the performance of individual officers and other key associates in fulfilling their personal responsibilities for long-range achievements. As of February 27, 2021, Rite Aid had approximately 7,586 exempt personnel and, based
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on the compensation program established by the Compensation Committee, approximately 116 associates generally at the level of vice presidents and above, and eight non-employee directors are eligible to receive awards under the Amended and Restated 2020 Plan as selected by the Compensation Committee in its sole discretion. See also the discussion under the caption “Description of Principal Features of the Amended and Restated 2020 Plan, Eligibility” below.
The maximum number of shares reserved for issuance under the Amended and Restated 2020 Plan will be 6,050,000 shares plus (i) the number of shares that remain available for issuance under the 2014 Plan (which may include shares that return to the pool of available shares based on the termination, cancelation or forfeiture of awards under the Company’s 2012 Omnibus Equity Plan, 2010 Omnibus Equity Plan, 2006 Omnibus Equity Plan, 2004 Omnibus Equity Plan, 2001 Stock Option Plan, 2000 Omnibus Equity Plan and 1999 Stock Option Plan (collectively, the “Prior Equity Plans”)) as of the Effective Date and (ii) the number of shares that are subject to awards as of the Effective Date that, in the future, are forfeited, cancelled, exchanged, surrendered or terminate under the terms of the Prior Equity Plans, without a distribution of shares to the recipient.
Additional considerations which demonstrate Rite Aid’s commitment to governance best practices are highlighted below:
•
No Repricing. The Amended and Restated 2020 Plan prohibits repricing and exchange of underwater options and stock appreciation rights for cash or shares without stockholder approval. The Amended and Restated 2020 Plan also prohibits use of reload options and discounted options.
•
Minimum Vesting Periods for Awards. The majority of awards granted under the 2020 Plan, including performance-based awards and awards vesting solely on continued service, are subject to a minimum vesting period of one year.
•
Director Limits. No participant who is a non-employee director may be granted awards during any calendar year that, when aggregate with such non-employee director’s cash fees with respect to such calendar year, exceed $750,000 in total value.
•
Fungible Share Counting Provision. The Amended and Restated 2020 Plan provides for fungible share counting. Pursuant to this provision, each grant of a full value award such as restricted stock or phantom units will reduce the number of shares available for issuance by 1.45 shares.
•
No Single-Trigger Vesting Upon a Change in Control. The Amended and Restated 2020 Plan does not provide for vesting of equity awards based solely on the occurrence of a change in control, without an accompanying job loss, or unless awards are not assumed or substituted in connection with the change in control.
•
The Company Intends to Utilize Performance-Based Awards. Although the Amended and Restated 2020 Plan permits a number of types of equity and cash long-term incentives, the Company intends to continue to have a long-term incentive program with a strong focus on our performance. In fiscal year 2019. The discussions included2020, we delivered the quality, not justmajority of long-term incentive value to our executives through stock options, which serve to align executive and stockholder interests by rewarding executives for appreciation in stock price, and cash settled performance awards, which only vest if certain performance targets are met. Beginning in fiscal year 2021, we intend to increase the acceptability,relative weighting of the accounting principles,equity portion of executives’ target total remuneration opportunities to ensure greater alignment with stockholder interests in the reasonablenessform of significant judgments,performance-based restricted stock units and restricted stock units.
•
Dividends and Dividend Equivalents Subject to Same Vesting as Underlying Award. Dividend or dividend equivalents on awards are subject to the same vesting restrictions as the underlying awards and are never distributed unless the underlying award vests.
•
Recoupment Policy. The Company maintains a recoupment policy as described in the section of this Proxy Statement titled “Policy Regarding Recoupment of Certain Compensation.”
•
Stock Ownership Guidelines Apply to Directors and Senior Executives. Rite Aid directors and senior executives are also subject to stock ownership guidelines as described in the section of this Proxy Statement titled “Director and Officer Stock Ownership Guidelines.”
A form of the Amended and Restated 2020 Plan is attached as Appendix B to this proxy statement, and the clarityfollowing description of disclosuresthe material terms of the Amended and Restated 2020 Plan is qualified in its entirety by the complete text of the plan.
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Description of Principal Features of the Amended and Restated
2020 Plan
Participants in the financial statementsAmended and Restated 2020 Plan will continue to be eligible for annual long-term awards which may include performance shares, stock options, restricted stock and restricted stock units (or other awards permitted under the Annual Report on Form 10-K for fiscal year 2019.
•Reviewed the unaudited interim financial statementsAmended and Forms 10-Q prepared each quarterRestated 2020 Plan). The level and types of awards will be fixed by the Company.Compensation Committee in light of the participants’ targeted long-term incentive level which is expressed as a percentage of base salary (LTIP percentage). The Compensation Committee may impose additional conditions or restrictions to the vesting of such awards as it deems appropriate, including, but not limited to, the achievement of performance goals based on one or more business criteria. For more information regarding the Company’s long-term incentive compensation program, refer to the Compensation Discussion and Analysis under the caption “Long-Term Incentive Program.”Types of Awards.
•Received management representations The following types of awards may continue to be granted under the Amended and Restated 2020 Plan: stock options (including both incentive stock options (“ISOs”) within the meaning of Section 422 of the Internal Revenue Code and nonqualified options (“NQSOs”), which are options that do not qualify as ISOs), stock appreciation rights, restricted stock, restricted stock units, phantom units, stock bonus awards, and other equity-based awards valued in whole or in part by reference to, or otherwise based on, Rite Aid’s common stock.Shares Available; Certain Limitations. Subject to stockholder approval of the Company's financial statementsproposed amendment, the total number of shares of the Company’s common stock reserved for issuance with respect to awards under the 2020 Plan will be increased from 3,350,000 shares to 6,050,000 shares.
As of February 27, 2021, there were prepared in accordance with accounting principles generally accepted1,862,000 shares of common stock in the United Statesaggregate that remained available for grant under the 2020 Plan. In addition, the number of America.
•Reviewed and updated the Audit Committee charter.
•Reviewed and discussed withshares of common stock that are subject to awards under our independent registered public accounting firm those matters required to be communicated by the standardsPrior Equity Plans as of the Public Company Accounting Oversight Board ("PCAOB"),Effective Date that, in the future, are forfeited, cancelled, exchanged or surrendered or terminate (in each case, other than due to the expiration of stock options on the options’ expiration date) under the Prior Equity Plans without a distribution of shares to the participant, will be added to the number of shares available for grant under the Amended and Restated 2020 Plan. As of February 27, 2021, there were 780,000 shares of common stock subject to outstanding options and 1,293,000 shares of common stock subject to other types of awards issued under the 2020 Plan and Prior Equity Plans (not including 526,464 shares underlying unvested, stock-settled performance stock units). The options outstanding as of February 27, 2021 have a weighted average exercise price of $18.56 and a weighted average remaining life of 6.99 years.Shares of common stock subject to an award under the Amended and Restated 2020 Plan that remain unissued upon the cancellation or termination of the award will again become available for award under the Amended and Restated 2020 Plan. However, shares of common stock that are exchanged by a participant or withheld by Rite Aid as full or partial payment in connection with any award under the Amended and Restated 2020 Plan, as well as critical accounting policiesany shares of common stock exchanged by a participant or withheld by Rite Aid to satisfy the tax withholding obligations related to any award, will not be available for subsequent awards under the Amended and practices, alternative accounting treatments,Restated 2020 Plan. To the extent an award is paid or settled in cash, the number of shares of common stock previously subject to the award will again be available for grants pursuant to the Amended and other material written communications between managementRestated 2020 Plan. To the extent that an award can only be settled in cash, such award will not be counted against the total number of shares of common stock available for grant under the Amended and our independent registered public accounting firm, as requiredRestated 2020 Plan.
All shares underlying stock appreciation rights (as opposed to only the net number of shares issued to settle an award) will be counted against the various limits under the Amended and Restated 2020 Plan. The market price of Rite Aid’s common stock on the last trading day before fiscal year end of February 27, 2021 was $19.58 per share.
No participant who is a non-employee director may be granted awards during any calendar year that, when aggregate with such non-employee director’s cash fees with respect to such calendar year, exceed $750,000 in total value.
Administration. The Amended and Restated 2020 Plan will continue to be administered by the Compensation Committee. Each member of the Compensation Committee is a “non-employee director” (within the meaning
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of Rule 2-0716b-3 promulgated under Section 16 of Regulation S-X under the Securities Exchange Act of 1934,1934) and an “independent director” (within the meaning of the New York Stock Exchange listed company manual).
Eligibility. Officers of Rite Aid or any affiliate of Rite Aid, including the named executive officers listed in the summary compensation table in this proxy statement, associates, and non-employee directors of Rite Aid or any affiliate of Rite Aid will continue to be eligible to receive awards under the Amended and Restated 2020 Plan as amended.selected in the discretion of the Compensation Committee (or, in the case of non-employee directors, the Board of Directors). As of February 27, 2021, Rite Aid had approximately 7,586 exempt personnel, eight non-employee directors and, based on the compensation program established by the Compensation Committee, approximately 116 associates, generally at the level of vice presidents and above, that are eligible to receive awards under the Amended and Restated 2020 Plan as selected by the Compensation Committee in its sole discretion.
Exercisability and Vesting.
•Discussed Awards will become exercisable or otherwise vest at the times and upon the conditions that the Compensation Committee may determine, as reflected in an applicable agreement. In general, options, stock appreciation rights, restricted stock, restricted stock units, phantom units, and other awards authorized under the Amended and Restated 2020 Plan may not fully vest prior to the first anniversary of the grant date (except with our independent registered public accounting firmrespect to no more than 5% of the mattersaggregate number of shares of common stock authorized under the Amended and Restated 2020 Plan). The Compensation Committee has the authority to accelerate the vesting and/or exercisability of any outstanding award at such times and under such circumstances as it deems appropriate.Performance Goals. The vesting of awards that are intended to qualify as performance-based compensation will be based upon one or more business criteria selected by the Board of Directors or the Compensation Committee, as applicable, in its sole discretion, which may include, without limitation, one or more of the following criteria: return on total stockholder equity; earnings or book value per share of common stock; net income (before or after taxes); earnings before all or any interest, taxes, depreciation and amortization and/or other adjustments; inventory goals; return on assets, capital or investment; market share; cost reduction goals; earnings from continuing operations; levels of expense, costs or liabilities; store level performance; operating profit; sales or revenues; stock price appreciation; total stockholder return; implementation or completion of critical projects or processes; prescription counts; customer service or customer service satisfaction; associate satisfaction; clinics opened; stores remodeled or constructed; cost of capital; Accountable Care Organization results; medical services delivered; leverage ratio; or any combination of the foregoing. The business criteria may be expressed in terms of attaining a specified level of the particular criteria or the attainment of a percentage increase or decrease in the particular criteria, and may be applied to Rite Aid, an affiliate, a division or strategic business unit of Rite Aid, or may be applied to the performance of Rite Aid relative to a market index, a group of other companies or a combination thereof, all as determined by the Compensation Committee. The business criteria may also be subject to a threshold level of performance below which no payment will be made, levels of performance at which specified payments will be made, and a maximum level of performance above which no additional payment will be made.
Stock Options. Options entitle the participant to purchase shares of common stock during a specified period at a purchase price specified by the Compensation Committee (at a price not less than 100% of the fair market value of the common stock on the day the option is granted). Each option granted under the Amended and Restated 2020 Plan will have a maximum term of 10 years from the date of grant, or such lesser period as the Compensation Committee shall determine. Options may be exercised in whole or in part by the payment in cash of the full option price, by tendering shares of common stock with a fair market value equal to the option price or by other methods in the discretion of the Compensation Committee. Options granted under the Amended and Restated 2020 Plan may not be re-priced to lower the exercise price or be cancelled in exchange for another type of award or cash payment without stockholder approval, nor may they provide for automatic “re-load” grants upon the exercise of an option with shares of common stock.
Stock Appreciation Rights. A stock appreciation right may be granted in connection with an option, either at the time of grant or at any time thereafter during the term of the option, or may be granted unrelated to an option. Stock appreciation rights generally permit the participant to receive cash or shares of common stock equal to the difference between the exercise price of the stock appreciation right (which must equal or exceed the fair market value of the common stock at the date of grant) and the fair market value of the common stock on the date of exercise for a period of no more than ten years. Stock appreciation rights granted under the Amended and
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Restated 2020 Plan may not be re-priced to lower the exercise price or be cancelled in exchange for another type of award or cash payment without stockholder approval.
Restricted Stock. The Compensation Committee may grant restricted shares of common stock to such persons, in such amounts, and subject to such terms and conditions (including the attainment of performance goals) as the Compensation Committee may determine in its discretion. Except for restrictions on transfer and such other restrictions as the Compensation Committee may impose, participants will have all the rights of a stockholder with respect to the restricted stock.
Restricted Stock Units. A restricted stock unit is an award to receive a number of shares of Company stock subject to certain restrictions that lapse at the end of a specified period or periods. Restricted units may also be fully vested at grant and settlement may be deferred in accordance with the requirements of Section 409A of the Internal Revenue Code. After the vesting period, unless deferred, restricted stock units are settled in shares of Company stock subject to withholding for taxes under applicable laws.
Phantom Units. A phantom unit award is an award of the right to receive an amount of cash or common stock at a future date based upon the value of the common stock at the time of vesting of the award, or if the award is denominated in cash, the right to receive an amount of cash per unit that is determined by the Compensation Committee.
Stock Bonus Awards. A stock bonus award is an award of common stock made at the discretion of the Compensation Committee upon such terms and conditions (if any) as the Compensation Committee may determine.
Other Awards. Other forms of awards valued in whole or in part by reference to, or otherwise based on, common stock, including but not limited to dividend equivalents, may be granted either alone or in addition to other awards under the Amended and Restated 2020 Plan. For example, the Amended and Restated 2020 Plan will permit the grant of performance-based awards denominated in cash, and performance-based awards denominated in shares and with respect to which participants may earn a range of shares, depending upon the actual level of performance. Subject to the provisions of the Amended and Restated 2020 Plan, the Compensation Committee shall have sole and complete authority to determine the persons to whom and the time or times at which such other awards shall be granted, the number of shares of common stock to be granted pursuant to such other awards and all other terms and conditions of such awards.
Change in Control. Unless otherwise set forth in an agreement or provided by the Compensation Committee, following a change in control of Rite Aid (as described below):
(i) each outstanding time-based award that is assumed or substituted in connection with the change in control will become fully vested and exercisable, free of all applicable restrictions if the participant’s employment or service is terminated pursuant to a qualifying termination (as defined in the Amended and Restated 2020 Plan) within the 24-month period following the change in control; (ii) in the event of the participant’s employment or service is terminated pursuant to a qualifying termination within the 24-month period following the change in control, each outstanding performance-based award that is assumed or substituted in connection with the change in control will vest in a number of shares equal to the product of (x) the number of shares subject to the award assuming target level of performance and (y) a fraction, the numerator of which is the number of days elapsed from the first day of the performance period through and including the date of the qualifying termination; and (iii) each outstanding award that is not assumed or substituted in connection with the change in control will become fully vested and exercisable, free of all applicable restrictions, and all applicable performance criteria will be deemed to be achieved at target levels immediately upon the occurrence of the change in control. In addition, the Compensation Committee may, in its discretion, cancel outstanding awards in exchange for a payment in cash, shares of common stock, or any combination thereof, equal to the value of the award based on the price per share received by other Rite Aid stockholders.
For purposes of the Amended and Restated 2020 Plan a “change in control” means, in general: (i) a person or entity is or becomes the beneficial owner, directly or indirectly, of securities of Rite Aid representing 50% or more of the combined voting power of Rite Aid; (ii) an unapproved change in the majority membership of the Board of Directors; (iii) consummation of a merger or consolidation of Rite Aid or any subsidiary of Rite Aid, other than a merger or consolidation that results in the voting securities of Rite Aid continuing to represent at least 50%
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of the combined voting power of the surviving entity or its parent, or a merger or consolidation effected to implement a recapitalization or similar transaction involving Rite Aid in which no person or entity becomes the beneficial owner, directly or indirectly, of 35% or more of the combined voting power of Rite Aid; or (iv) stockholder approval of a plan of complete liquidation or dissolution of Rite Aid or the consummation of an agreement for the sale or disposition of all or substantially all of Rite Aid’s assets, other than a sale or disposition to an entity, at least 60% of the combined voting power of which is owned by Rite Aid stockholders in substantially the same proportions as their ownership of Rite Aid immediately prior to such sale.
Amendment and Termination of the Amended and Restated Plan. The Amended and Restated 2020 Plan may be amended by the Board of Directors, subject to stockholder approval where necessary to satisfy legal or regulatory requirements.
The Amended and Restated 2020 Plan will terminate not later than the tenth anniversary of the 2020 Plan’s Effective Date. However, awards granted before the termination of the Amended and Restated 2020 Plan may extend beyond that date in accordance with their terms.
Certain Federal Income Tax Consequences
Set forth below is a discussion of certain United States federal income tax consequences with respect to certain awards that may be granted pursuant to the Amended and Restated 2020 Plan. The following discussion is a brief summary only, and reference is made to the Internal Revenue Code and the regulations and interpretations issued thereunder for a complete statement of all relevant federal tax consequences. This summary is not intended to be exhaustive and does not describe state, local or foreign tax consequences of participation in the Amended and Restated 2020 Plan.
Incentive Stock Options. In general, no taxable income is realized by a participant upon the grant of an ISO. If shares of common stock are issued to a participant pursuant to the exercise of an ISO, then, generally (i) the participant will not realize ordinary income with respect to the exercise of the option, (ii) upon sale of the underlying shares acquired upon the exercise of an ISO, any amount realized in excess of the exercise price paid for the shares will be taxed to the participant as capital gain and (iii) Rite Aid will not be entitled to a deduction. The amount by which the fair market value of the stock on the exercise date of an ISO exceeds the purchase price generally will, however, constitute an item which increases the participant’s income for purposes of the alternative minimum tax to the extent it applies. However, if the participant disposes of the shares acquired on exercise before the later of the second anniversary of the date of grant or one year after the receipt of the shares by the participant (a “disqualifying disposition”), the participant generally would include in ordinary income in the year of the disqualifying disposition an amount equal to the excess of the fair market value of the shares at the time of exercise (or, if less, the amount realized on the disposition of the shares), over the exercise price paid for the shares. If ordinary income is recognized due to a disqualifying disposition, Rite Aid would generally be entitled to a deduction in the same amount. Subject to certain exceptions, an ISO generally will not be treated as an ISO if it is exercised more than three months following termination of employment. If an ISO is exercised at a time when it no longer qualifies as an ISO, it will be treated for tax purposes as a nonqualified stock option, or “NQSO,” as discussed below.
Nonqualified Stock Options. In general, no taxable income is realized by a participant upon the grant of an NQSO. Upon exercise of an NQSO, the participant generally would include in ordinary income at the time of exercise an amount equal to the excess, if any, of the fair market value of the shares at the time of exercise over the exercise price paid for the shares. At the time the participant recognizes ordinary income, Rite Aid generally will be entitled to a deduction in the same amount. In the event of a subsequent sale of shares received upon the exercise of an NQSO, any appreciation after the date on which taxable income is realized by the participant in respect of the option exercise should be taxed as capital gain in an amount equal to the excess of the sales proceeds for the shares over the participant’s basis in such shares. The participant’s basis in the shares will generally equal the amount paid for the shares plus the amount included in ordinary income by the participant upon exercise of the NQSO.
Stock Appreciation Rights. In general, the grant of a stock appreciation right will not result in income for the participant or in a tax deduction for Rite Aid. Upon the settlement of a stock appreciation right, the participant will recognize ordinary income equal to the aggregate value of the payment received, and Rite Aid generally will be entitled to a tax deduction at such time in the same amount.
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Restricted Stock. In general, a participant will not recognize any income upon the grant of restricted stock, unless the participant elects under Section 83(b) of the Internal Revenue Code, within thirty days after such grant, to recognize ordinary income in an amount equal to the fair market value of the restricted stock at the time of grant, less any amount paid for the shares. If the election is made, the participant will not be allowed a deduction for amounts subsequently required to be discussed by Statementreturned to Rite Aid. If the election is not made, the participant will generally recognize ordinary income on Auditing Standards No. 1301,the date that the restrictions to which the restricted stock lapse, in an amount equal to the fair market value of such shares on such date, less any amount paid for the shares. At the time the participant recognizes ordinary income, Rite Aid generally will be entitled to a deduction in the same amount. Generally, upon a sale or other disposition of restricted stock with respect to which the participant has recognized ordinary income (i.e., where a Section 83(b) election was previously made or the restrictions were previously removed), the participant will recognize capital gain or loss in an amount equal to the difference between the amount realized on such sale or other disposition and the participant’s basis in such shares.
Restricted stock units.Communications with Audit Committees, In general, a participant will not recognize any income upon the grant of restricted stock units. Rather, upon the settlement of the restricted stock units, the participant will recognize ordinary income equal to the fair market value of common stock received, as adoptedapplicable. The Company will generally be entitled to a tax deduction at such time equal to the amount of income recognized by the PCAOB.participant.
Phantom Units.
•Discussed with our independent registered public accounting firm matters relating to their independence and received In general, a participant will not recognize any income upon the written disclosures andgrant of phantom units. Rather, upon the letter from our independent registered public accounting firm required by applicable requirementssettlement of the PCAOB regardingphantom units, the independent accountant's communicationsparticipant will recognize ordinary income equal to the amount of cash or the fair market value of common stock received, as applicable. The Company will generally be entitled to a tax deduction at such time equal to the amount of income recognized by the participant.Stock Bonus Awards. In general, a participant will recognize ordinary income upon the receipt of a vested stock bonus award granted under the Amended and Restated 2020 Plan equal to the fair market value of the shares of common stock received, and Rite Aid will become entitled to a deduction at such time equal to the amount of income recognized by the participant.
Other Awards. In general, a participant will recognize ordinary income upon the receipt of shares or cash with respect to other awards granted under the AuditAmended and Restated 2020 Plan and Rite Aid will become entitled to a deduction at such time equal to the amount of income recognized by the participant.
No awards made under the Amended and Restated 2020 Plan prior to the date of the Annual Meeting were granted subject to stockholder approval of this Proposal 4. The awards to be made under the Amended and Restated 2020 Plan are subject to the discretion of the Compensation Committee concerning independence. and therefore are not determinable at this time. Moreover, the number of units that would be earned with respect to any grant may vary based on the achievement of any applicable performance goals, which is not determinable at this time. Finally, the ultimate value of any grants that are made will depend on the value of the underlying shares of common stock at the time of settlement, which likewise is not currently determinable. However, the table below illustrates awards that are anticipated to be made under the Amended and Restated 2020 Plan based on each officer’s target LTIP percentage that is in effect for the Company’s 2022 fiscal year:
86 | RITE AID CORPORATION 2021 Proxy Statement
PROPOSAL 4—APPROVAL OF THE ADOPTION OF THE RITE AID CORPORATION 2020 OMNIBUS EQUITY INCENTIVE
Amended and Restated 2020 Plan
| | Name and principal position | | | Dollar value(1)
($) | | | Number of units(2)
(#) | |
| | Heyward Donigan
(President and CEO) | | | | $ | 6,900,000 | | | | | | 352,400 | | |
| | James J. Peters
(COO) | | | | $ | 2,475,000 | | | | | | 126,404 | | |
| | Matthew Schroeder
(Executive VP, CFO) | | | | $ | 1,870,000 | | | | | | 95,506 | | |
| | Jocelyn Z. Konrad
(Executive VP, Chief Pharmacy Officer) | | | | $ | 1,377,000 | | | | | | 70,327 | | |
| | Justin Mennen
(Executive VP, Chief Information Officer | | | | $ | 765,000 | | | | | | 39,070 | | |
| | Daniel Robson
(Former President of Elixir) | | | | | N/A | | | | | | N/A | | |
| | All current executive officers as a group (9 people) | | | | $ | 15,962,834 | | | | | | 815,262 | | |
| | All current directors who are not executive officers as
a group (8 people) | | | | $ | 960,000 | | | | | | 49,030 | | |
| | All employees, including all current officers who are not executive officers, as a group | | | | $ | 11,586,117 | | | | | | 591,732 | | |
(1)
Figures are calculated based on $19.58, the closing price of Company common stock on the last trading day before February 27, 2021.
(2)
Figures for each named executive officer represent grants that are anticipated to be made in the 2022 fiscal year under the Amended and Restated 2020 Plan, subject to stockholder approval at the Annual Meeting, applying each officer’s LTIP target percentage approved for the Company’s 2022 fiscal year, as follows: Ms. Donigan, 600%; Mr. Peters, 300%; Mr. Schroeder, 250%; Ms. Konrad, 225% and Mr. Mennen, 150%. If the Amended and Restated 2020 Plan is not approved by stockholders at the Annual Meeting, the current plan (prior to such proposed amendment) will remain in effect and we will consider other ways to appropriately compensate associates and non-employee directors as necessary and appropriate in light of the shares that remain available for issuance. Actual grants to be made in the future are entirely in the discretion of the Compensation Committee (or in the discretion of the Board in the case of awards to our non-employee directors).
Additional Plan Information
The Audit Committee has considered whether the levelaggregate number of non-audit related services provided by our independent registered public accounting firm is consistent with maintaining their independence.
Table of Contents
•Pre-approved audit, other audit-related, and tax services performed by our independent registered public accounting firm.
In additionShares subject to pre-approving the auditstock options and other audit-related and tax services performed by our independent registered public accounting firm,equity awards under the Audit Committee requests fee estimates associated with each proposed service. Providing a fee estimate for a service incorporates appropriate oversight and control of the independent registered public accounting firm relationship. On a quarterly basis, the Audit Committee reviews the status of services and fees incurred year-to-date against pre-approved services and fee estimates.
As outlinedPlan since its inception through February 27, 2021 is set forth in the table below, we incurredwhich includes the following fees, including expenses billed toawards reflected in the Company forNew Plan Benefits table above. On the last trading day before fiscal years ended March 2, 2019 and March 3, 2018 byyear end of February 27, 2021, the closing price of the underlying shares of our independent registered public accounting firm, Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates.
| | | | | | | |
| | Year Ended | |
|---|
Description of Fees | | March 2,
2019 | | March 3,
2018 | |
|---|
| | (Amounts in
millions)
| |
|---|
Audit Fees, including audit of annual financial statements and reviews of interim financial statements, registration statement filings, and comfort letters related to various refinancing activities | | $ | 2.4 | | $ | 3.4 | |
Audit-Related Fees, acquisition-related due diligence procedures and audits of employee benefit plans' financial statements | | $ | 0.2 | | $ | 1.0 | |
Tax Fees, tax compliance advice and planning | | $ | 0.0 | | $ | 0.1 | |
All Other Fees | | $ | 0.0 | | $ | 0.0 | |
Total | | $ | 2.6 | | $ | 4.5 | |
BasedCommon Stock traded on the review and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in our Annual Report on Form 10-K for the fiscal year ended March 2, 2019 for filing with the SEC.
Louis P. Miramontes, ChairNYSE was $19.58 per share.
RITE AID CORPORATION 2021 Proxy Statement | 87
*Ms. Busy Burr joined the Audit Committee and the Board on April 10, 2019, but did not participate
PROPOSAL 4—APPROVAL OF THE ADOPTION OF THE RITE AID CORPORATION 2020 OMNIBUS EQUITY INCENTIVE
| | Name and principal position | | | Number of
Options
Granted | | | Average Per
Share Exercise
Price
($) | | | Number of Shares
Subject to Other
Stock Awards(1) | | | Dollar Value of
Shares Subject to
Stock Awards
($) | |
| | Heyward Donigan
(President and CEO) | | | | | — | | | | | | — | | | | | | 334,076 | | | | | $ | 6,541,208 | | |
| | James J. Peters
(COO) | | | | | — | | | | | | — | | | | | | 125,278 | | | | | | 2,452,943 | | |
| | Matthew Schroeder
(Executive VP, CFO) | | | | | — | | | | | | — | | | | | | 90,478 | | | | | | 1,771,559 | | |
| | Jocelyn Z. Konrad
(Executive VP, Chief Pharmacy Officer) | | | | | — | | | | | | — | | | | | | 75,167 | | | | | | 1,471,770 | | |
| | Justin Mennen
(Executive VP, Chief Pharmacy Officer) | | | | | — | | | | | | — | | | | | | 41,760 | | | | | | 817,661 | | |
| | Daniel Robson
(Former President of Elixir) | | | | | — | | | | | | — | | | | | | 68,903 | | | | | | 1,349,121 | | |
| | All current executive officers as a group
(10 persons) | | | | | — | | | | | | — | | | | | | 856,319 | | | | | | 16,766,726 | | |
| | All current directors who are not
executive officers as a group (8 persons) | | | | | — | | | | | | — | | | | | | 59,174 | | | | | | 1,158,627 | | |
| | Each nominee for election as a director | | | | | — | | | | | | — | | | | | | N/A | | | | | | N/A | | |
| | Each associate of any such directors, executive officer or nominees | | | | | — | | | | | | — | | | | | | N/A | | | | | | N/A | | |
| | Each other person who received or is to
receive 5 percent of such options,
warrants or rights | | | | | — | | | | | | — | | | | | | N/A | | | | | | N/A | | |
| | All employees, including all current officers who are not executive officers, as a group (92 persons) | | | | | — | | | | | | — | | | | | | 489,514 | | | | | | 9,760,904 | | |
(1)
Other stock awards were in the review or recommendationform of RSA, RSU and PSU awards. Performance-based awards are reflected assuming “target” performance. Please see the audited financial statements included in our Annual Report“Compensation Discussion and Analysis” section of this Proxy Statement for additional details on Form 10-K for the fiscal year ended March 2, 2019.PSU awards.
Equity Compensation Plan Information Table
Table of Contents
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of March 2, 2019,February 27, 2021, with respect to the compensation plans under which our common stock may be issued. As previously announced, we implemented a reverse stock split of our common stock at a reverse stock split ratio of 1-for-20. Our common stock began trading on a split-adjusted basis on the NYSE at the market open on April 22, 2019. Accordingly, all share amounts presentedThe table does not reflect the reverseadditional shares subject to stockholder approval of this Proposal 4.
| | Plan Category | | | Number of Securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(a)(1) | | | Weighted-Average
exercise price of
outstanding options,
warrants and rights
(b)(2) | | | Number of Securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in
column (a))
(c) | |
| | Equity Compensation plans approved by
stockholders | | | | | 1,011,422 | | | | | $ | 39.53 | | | | | | 1,862,000 | | |
| | Equity compensation plans not approved
by stockholders(3) | | | | | 502,913 | | | | | $ | 7.02 | | | | | | 0 | | |
| | Total(4) | | | | | 1,514,335 | | | | | $ | 18.56 | | | | | | 1,862,000 | | |
(1)
Pursuant to the Company’s 2020 Omnibus Equity Incentive Plan and Prior Equity Plans. Includes 0 shares issuable with respect to outstanding unvested restricted stock split.units (“RSUs”), 208,048 vested Director RSUs, which settle upon
| | | | | | | | | | |
Plan Category | | Number of Securities
to be Issued Upon
Exercise of
Outstanding Options,
Warrants and Rights | | Weighted-Average
Exercise Price of
Outstanding
Options, Warrants
and Rights | | Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(Excluding Securities
Reflected in Column (a)) | |
|---|
| | (a)
| | (b)
| | (c)
| |
|---|
Equity compensation plans approved by stockholders | | | 1,035,886 | | $ | 50.13 | | | 1,343,329 | |
Equity compensation plans not approved by stockholders(1) | | | — | | | — | | | — | |
Total(2) | | | 1,035,886 | | $ | 50.13 | | | 1,343,329 | |
88 | RITE AID CORPORATION 2021 Proxy Statement
(1)These plans includePROPOSAL 4—APPROVAL OF THE ADOPTION OF THE RITE AID CORPORATION 2020 OMNIBUS EQUITY INCENTIVE
separation from service, and 526,464 unvested, unearned performance stock units (“PSUs”). The remaining balance consists of outstanding stock options.
(2)
The weighted average exercise price does not take into account the Company's 1999 Plan, undershares issuable upon settlement of outstanding RSUs, or PSUs, which 500,000 shares of commonhave no exercise price.
(3)
Includes nonqualified stock are authorizedoptions granted pursuant to the Employment Inducement Award Agreement for Ms. Donigan, which is exempt from stockholder approval requirements pursuant to NYSE Listed Company Manual Rule 303A.08. The Employment Inducement Award Agreement provided for the grantaward of nonqualified stock options atto Ms. Donigan in connection with her recruitment by us, as previously disclosed, and the discretionoptions will vest and become exercisable in equal installments on each of the Compensation Committee, and the 2001 Plan, under which 1,000,000 sharesfour (4) successive anniversaries of common stock are authorized for the grant of stock options, also at the discretion of the Compensation Committee. Both plans provide for the Compensation Committee to determine both when and in what manner options may be exercised; however, option terms may not extend for more than 10 years from the applicableher commencement date of grant. The plans provide that stock options may only be granted with exercise prices that are not less than the fair market value of a share of common stock on the date of grant. No securities remain available for future issuance under either the 1999 Plan or the 2001 Plan.August 12, 2019.
(4)
(2)On a fully diluted basis, which reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, the number of shares of common stock outstanding was 54,016,056.53,652,846.
Of the 1,343,3291,862,000 shares remaining,shown in column (c), there are 926,4341,284,138 shares available for the grant of awards other than stock options or stock appreciation rights.
rights, applying the fungible share ratio of 1.45 set forth in the 2020 Plan.SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a)
We believe strongly that the approval of the Exchange Act requires Rite Aid's executive officers, directors,Amended and persons who own more than 10% of Rite Aid common stockRestated 2020 Plan is important to file reports of ownership and changes in ownership with 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 reviewcontinued success of the copiesCompany. Such approval would help ensure that the Company may continue to use equity incentives to attract, retain and motivate top talent, who are essential to the Company’s long-term success. The Compensation Committee estimates that our remaining share reserve will not be sufficient to permit us to make annual and ordinary course equity grants for our 2022 and 2023 fiscal years. The 2020 Plan was originally effective as of July 8, 2020. If the Amended and Restated 2020 Plan is approved by the stockholders, the Amended and Restated 2020 Plan will be effective as of the date of such forms furnishedapproval. If the Amended and Restated 2020 Plan is not approved by the stockholders, we may continue to Rite Aid, we have determined that during fiscal year 2019, no personsmake awards under the 2020 Plan, subject to Section 16(a) reporting submitted late filings.its existing terms and conditions.
RITE AID CORPORATION 2021 Proxy Statement | 89
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of May 31, 201910, 2021 (except as otherwise noted), certain information concerning the beneficial ownership of (a) each director and nominee for director, (b) each of our "Named“Named Executive Officers"Officers” (as such term is defined in Item 402(a)(3) of Regulation S-K under the Exchange Act), (c) each holder known to us to beneficially own more than 5% of our common stock and (d) all current directors and executive officers as a group (based on 53,855,71655,103,742 shares of common stock outstanding as of May 31, 2019)10, 2021). Each of the persons named below has sole voting power and sole investment power with respect to the shares set forth opposite his or her name, except as otherwise noted.
| | Beneficial Owners | | | Number of Common Shares
Beneficially Owned(1) | | | Percentage
of Class | |
| | Named Executive Officers and Directors: | | | | | | | | | | | | | |
| | Bruce G. Bodaken | | | | | 36,336(2) | | | | | | * | | |
| | Elizabeth “Busy” Burr | | | | | 22,082(3) | | | | | | * | | |
| | Heyward Donigan | | | | | 521,929(4) | | | | | | * | | |
| | Bari Harlam | | | | | 12,400(5) | | | | | | * | | |
| | Robert E. Knowling, Jr. | | | | | 29,874(6) | | | | | | * | | |
| | Jocelyn Z. Konrad | | | | | 96,274(7) | | | | | | * | | |
| | Kevin E. Lofton | | | | | 35,576(8) | | | | | | * | | |
| | Justin Mennen | | | | | 53,048 | | | | | | * | | |
| | Louis P. Miramontes | | | | | 29,874(9) | | | | | | * | | |
| | Arun Nayar | | | | | 29,874(10) | | | | | | * | | |
| | James J. Peters | | | | | 148,517(11) | | | | | | * | | |
| | Kate B. Quinn | | | | | 22,082(12) | | | | | | * | | |
| | Daniel D. Robson | | | | | 0 | | | | | | * | | |
| | Matthew Schroeder | | | | | 73,344(13) | | | | | | * | | |
| | All Executive Officers and Directors (17 persons) | | | | | 1,244,089(14) | | | | | | 2.26% | | |
| | 5% Stockholders: | | | | | | | | | | | | | |
| | BlackRock, Inc.
55 East 52nd Street
New York, NY 10055 | | | | | 4,211,927(15) | | | | | | 7.60% | | |
| | The Vanguard Group
100 Vanguard Blvd.
Malvern, PA 19355 | | | | | 4,991,730(16) | | | | | | 9.06% | | |
| | Invesco Ltd.
1555 Peachtree Street NE, Suite 1800
Atlanta, GA 30309 | | | | | 2,780,873(17) | | | | | | 5.05% | | |
| | | | | | | |
Beneficial Owners | | Number of
Common Shares
Beneficially Owned(1) | | Percentage
of Class | |
|---|
Named Executive Officers and Directors: | | | | | | | |
Bruce G. Bodaken | | | 14,255 | (2) | | * | |
Busy Burr | | | 0 | | | * | |
Kermit Crawford | | | 24,056 | (3) | | * | |
Bryan B. Everett | | | 56,088 | (4) | | * | |
Darren W. Karst | | | 73,372 | (5) | | * | |
Robert E. Knowling, Jr. | | | 7,792 | (6) | | * | |
Jocelyn Z. Konrad | | | 28,124 | (7) | | * | |
Kevin E. Lofton | | | 13,495 | (8) | | * | |
Louis P. Miramontes | | | 7,792 | (9) | | * | |
Arun Nayar | | | 7,792 | (10) | | * | |
Katherine Quinn | | | 0 | | | * | |
John T. Standley | | | 930,768 | (11) | | 1.73 | % |
Marcy Syms | | | 27,555 | (12) | | * | |
All Executive Officers and Directors (14 persons) | | | 1,133,801 | (13) | | 2.11 | % |
5% Stockholders: | | | | | | | |
BlackRock, Inc. | | | 3,772,186 | (14) | | 7.00 | % |
55 East 52nd Street | | | | | | | |
New York, NY 10055 | | | | | | | |
The Vanguard Group | | | 3,434,229 | (15) | | 6.38 | % |
100 Vanguard Blvd. | | | | | | | |
Malvern, PA 19355 | | | | | | | |
**- Percentage less than 1% of class.
(1)
(1)Beneficial ownership has been determined in accordance with Rule 13d-3 under the Exchange Act, thereby including options exercisable within 60 days of May 31, 2019.10, 2021.
(2)
(2)This amount represents 9,35436,336 restricted stock units that have vested or will vest before July 30, 20199, 2021, at which time said units will be payable in shares of common stock when Mr. Bodaken leaves the Board.
(3)
This amount represents 22,082 restricted stock units that have vested or will vest before July 9, 2021, at which time said units will be payable in shares of common stock when Ms. Burr leaves the Board.
(4)
(3)This amount includes 12,500125,729 shares which may be acquired within 60 days by exercising stock options.
(4)This amount includes 2,505 shares which may be acquired within 60 days by exercising stock options.
(5)This amount includes 18,210 shares which may be acquired within 60 days by exercising stock options.
(5)
Table of Contents(6)- This amount represents
7,79212,400 restricted stock units that have vested or will vest before July 30, 20199, 2021, at which time said units will be payable in shares of common stock when Ms. Harlam leaves the Board.
90 | RITE AID CORPORATION 2021 Proxy Statement
(6)
This amount represents 29,874 restricted stock units that have vested or will vest before July 9, 2021, at which time said units will be payable in shares of common stock when Mr. Knowling leaves the Board.
(7)
(7)This amount includes 5,0854,930 shares which may be acquired within 60 days by exercising stock options.
(8)
(8)This amount represents 8,34435,326 restricted stock units that have vested or will vest before July 30, 20199, 2021, at which time said units will be payable in shares of common stock when Mr. Lofton leaves the Board.
(9)
(9)This amount represents 7,79229,874 restricted stock units that have vested or will vest before July 30, 20199, 2021, at which time said units will be payable in shares of common stock when Mr. Miramontes leaves the Board.
(10)
(10)This amount represents 7,79229,874 restricted stock units that have vested or will vest before July 30, 20199, 2021, at which time said units will be payable in shares of common stock when Mr. Nayar leaves the Board.
(11)
(11)This amount includes 587,51836,300 shares which may be acquired within 60 days by exercising stock options.
(12)
(12)This amount includes 25,892represents 22,082 restricted stock units that have vested or will vest before July 30, 20199, 2021, at which time said units will be payable in shares of common stock when Ms. SymsQuinn leaves the Board.
(13)
(13)This amount includes 600,1993,390 shares which may be acquired within sixty (60)60 days by exercising stock options.
(14)
This amount includes 173,494 shares which may be acquired within 60 days by exercising stock options by all directors and executive officers and 66,966217,848 restricted stock units that have vested or will best before July 9, 2021 and will be payable in shares of common stock when the directors leave the Rite Aid boardBoard of directors.Directors.
(15)
(14)This information is as of December 31, 20182020 and based solely on a Schedule 13G13G/A filed by BlackRock, Inc. with the SEC on February 8, 2019 and adjusted to reflect the reverse stock split that occurred in April 2019.1, 2021.
(16)
(15)This information is as of December 31, 20182020 and based solely on a Schedule 13G/A filed by The Vanguard Group with the SEC on February 12, 201910, 2021.
(17)
This information is as of December 31, 2020 and adjustedbased solely on a Schedule 13G filed by Invesco Ltd. with the SEC on February 16, 2021.
RITE AID CORPORATION 2021 Proxy Statement | 91
| | | | | | INFORMATION ABOUT THE ANNUAL MEETING AND VOTING | | |
| | | | | Why did I receive a “Notice of Internet Availability of Proxy Materials” but no proxy materials? | |
We distribute our proxy materials to reflectstockholders via the reverse stock split that occurred in April 2019.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ReviewInternet under the “Notice and ApprovalAccess” approach permitted by the rules of Related Person Transactionsthe U.S. Securities and Exchange Commission (the “SEC”). This approach expedites stockholders’ receipt of proxy materials while conserving natural resources and reducing our distribution costs. On or about May 20, 2021, we mailed a Notice of Internet Availability of Proxy Materials containing instructions on how to access the proxy materials on the Internet to participating stockholders.
| | | | | Who may attend the Annual Meeting? | |
In light of the continuing public health concerns regarding the COVID-19 pandemic and to support the health and well-being of our associates and stockholders, this year’s Annual Meeting will be held “virtually” through a live audio webcast on Wednesday, July 7, 2021, at 11:30 a.m., Eastern Daylight Time. There will be no physical meeting location. The meeting will only be conducted via an audio webcast. We have adopteddesigned the format of the virtual Annual Meeting to ensure that stockholders who attend the meeting will be afforded comparable rights and opportunities to participate as they would at an in-person meeting.
All stockholders are invited to attend the virtual Annual Meeting. Persons who are not stockholders may attend only if invited by the Board of Directors. If you are the beneficial owner of shares held in the name of your broker, bank, or other nominee and do not have a written policy concerningcontrol number, please contact your broker, bank, or other nominee as soon as possible and no later than June 30, 2021, so that you can be provided with a control number.
| | | | | How can I attend the Annual Meeting? | |
As this year’s Annual Meeting will be held “virtually” through a live audio webcast on Wednesday, July 7, 2021, at 11:30 a.m., Eastern Daylight Time, there will be no physical meeting location.
Online access to the review, approval,audio webcast of the Annual Meeting will open approximately 15 minutes prior to the start of the meeting to allow time for you to log in and test the computer audio system. We encourage our stockholders to access the meeting prior to the start time.
To attend the virtual Annual Meeting, log in at www.virtualshareholdermeeting.com/RAD2021. Stockholders will need their unique control number which appears on the Notice of Internet Availability of Proxy Materials or, ratificationif you received a paper copy of transactionsthe proxy materials, the proxy card (printed in the box and marked by the arrow) or the instructions that accompanied the proxy materials. In the event that you do not have a control number, please contact your broker, bank, or other nominee as soon as possible and no later than June 30, 2021, so that you can be provided with related persons. The Nominatinga control number and Governance Committee is responsible for review, approval,gain access to the meeting.
92 | RITE AID CORPORATION 2021 Proxy Statement
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
| | | | | Who is entitled to vote at the Annual Meeting? | |
Holders of Rite Aid common stock as of the close of business on the record date, May 10, 2021, will receive notice of, and be eligible to vote at, the Annual Meeting and any adjournment or ratificationpostponement of "related person transactions" betweenthe Annual Meeting. At the close of business on the record date, Rite Aid had outstanding and entitled to vote 55,103,742 shares of common stock. No other shares of Rite Aid capital stock are entitled to notice of and to vote at the Annual Meeting.
| | | | | How can I vote during the Annual Meeting? | |
To log in to the Annual Meeting and to cast your vote electronically during the meeting, you will need the unique control number which appears on the Notice of Internet Availability of Proxy Materials or, if you received a paper copy of the proxy materials, the proxy card (printed in the box and marked by the arrow) or the instructions that accompanied the proxy materials. In the event that you are the beneficial owner of shares held in the name of your broker, bank, or other nominee and do not have a control number, please contact your broker, bank, or other nominee as soon as possible and no later than June 30, 2021, so that you can be provided with a control number.
| | | | | How can I submit a question at the Annual Meeting? | |
Stockholders may submit questions in writing during the Annual Meeting on www.virtualshareholdermeeting.com/RAD2021. Stockholders will need their unique control number which appears on their Notice of Internet Availability of Proxy Materials or, if you received a paper copy of the proxy materials, the proxy card (printed in the box and marked by the arrow) or the instructions that accompanied the proxy materials.
As part of the Annual Meeting, we intend to answer questions that are submitted during the meeting in accordance with the annual meeting procedures and are pertinent to the Company and the meeting matters, as time permits. Questions and answers may be grouped by topic and substantially similar questions may be grouped and answered as one. Questions and answers to any pertinent questions not addressed during the Annual Meeting will be published following the Annual Meeting on our website at https://investors.riteaid.com.
| | | | | What if I need technical assistance? | |
Beginning 15 minutes prior to the start of and during the virtual Annual Meeting, we will have a support team ready to assist stockholders with any technical difficulties they may have accessing or its subsidiarieshearing the virtual meeting. If you encounter any difficulties accessing the virtual meeting during the check-in or meeting time, you should call our support team at the phone number listed on the login page located at www.virtualshareholdermeeting.com/RAD2021.
| | | | | Will a replay of the Annual Meeting be available? | |
A replay of the Annual Meeting will be made publicly available 48 hours after the meeting at www.virtualshareholdermeeting.com/RAD2021 and related persons. Under SEC rules, a related person is,will be available for one year following the Annual Meeting.
RITE AID CORPORATION 2021 Proxy Statement | 93
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
| | | | | What matters will be voted on at the Annual Meeting, and how does the Board recommend that I vote? | |
There are four proposals that are scheduled to be considered and voted on at the Annual Meeting:
| | Proposal | | | Board Recommendation | | | For More
Information | |
| | 1 | | | Election of nine directors to hold office until the 2022 Annual Meeting of Stockholders and until their respective successors are duly elected and qualified | | | | | | FOR all nominees | | | | |
| | 2 | | | Ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm | | | | | | FOR | | | | |
| | 3 | | | Advisory vote to approve the compensation of our named executive officers | | | | | | FOR | | | | |
| | 4 | | | Approval of the Rite Aid Corporation Amended and Restated 2020 Omnibus Equity Incentive Plan | | | | | | FOR | | | | |
Stockholders also will be asked to consider and vote at the Annual Meeting on any other matter that may properly come before the Annual Meeting or any time since the beginningadjournment or postponement of the last fiscal year was, a director, an executive officer, a nominee for director, a moreAnnual Meeting.
At this time, the Board of Directors is unaware of any matters, other than 5% stockholderthose set forth above and the possible submission of the Company,Krol Proposal, as described in the section entitled “Other Matters,” that may properly come before the Annual Meeting. If any other matters properly come before the Annual Meeting, the persons named in the enclosed proxy, or an immediate family member (as defined under applicable SEC rules)their duly constituted substitutes acting at the Annual Meeting or any adjournment or postponement of the Annual Meeting, will be deemed authorized to vote or otherwise act on such matters in accordance with their judgment.
| | | | | What is the difference between holding shares as a stockholder of record and as a beneficial owner? | |
If your shares are registered directly in your name with our transfer agent, Broadridge Corporate Issuer Services, you are the “stockholder of record” with respect to those shares.
If your shares are held in a stock brokerage account or by a bank or other nominee, those shares are held in “street name” and you are considered the “beneficial owner” of the shares. As the beneficial owner of those shares, you have the right to direct your broker, bank, or nominee how to vote your shares, and you will receive separate instructions from your broker, bank, or other holder of record describing how to vote your shares.
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INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
| | | | | How can I vote my shares before the Annual Meeting? | |
If you hold your shares in your own name, you may submit a proxy by telephone, via the Internet, by tablet or smartphone by scanning the QR code, or by mail.
Have your proxy card in hand, with your individual control number, and follow the instructions.
| | PHONE | | | INTERNET | | | MOBILE DEVICE | | | MAIL | |
| | Call
1-800-690-6903
(toll-free), 24/7 | | | Visit
www.proxyvote.com,
24/7 | | | Scan the
QR code | | | | | | Mark, sign and date your proxy card and return it in the postage-paid envelope | |
•
Submitting a Proxy by Telephone. You can submit a proxy for your shares by telephone until 11:59 p.m. Eastern Time on July 6, 2021, by calling the toll-free telephone number on the enclosed proxy card, 1-800-690-6903. Telephone proxy submission is available 24 hours a day. Easy-to-follow voice prompts allow you to submit a proxy for your shares and confirm that your instructions have been properly recorded. Our telephone proxy submission procedures are designed to authenticate stockholders’ identities by using individual control numbers.
•
Submitting a Proxy via the Internet.You can submit a proxy for your shares via the Internet until 11:59 p.m. Eastern Daylight Time on July 6, 2021, by accessing the website listed on the enclosed proxy card, www.proxyvote.com, and following the instructions you will find on the website. Internet proxy submission is available 24 hours a day. As with telephone proxy submission, you will be given the opportunity to confirm that your instructions have been properly recorded.
•
Submitting a Proxy by Tablet or Smartphone. You can submit a proxy for your shares online with your tablet or smartphone until 11:59 p.m. Eastern Daylight Time on July 6, 2021 by scanning the QR code above and following the instructions. Proxy submission via the QR code is available 24 hours a day. As with telephone and internet proxy submission, you will be given the opportunity to confirm that your instructions have been properly recorded.
•
Submitting a Proxy by Mail. If you choose to submit a proxy for your shares by mail, simply mark the enclosed proxy card if you received a paper copy, date and sign it, and return it in the postage paid envelope provided.
By casting your vote in any of the foregoing. A related person transactionways listed above, you are authorizing the individuals listed on the proxy to vote your shares in accordance with your instructions. You may also attend and vote at the virtual Annual Meeting.
If your shares are held in the name of a bank, broker or other nominee, you will receive instructions from the holder of record that you must follow for your shares to be voted. The availability of telephonic or Internet voting will depend on the bank’s, broker’s, or other nominee’s voting process. Please check with your bank, broker, or other nominee and follow the voting procedures your bank, broker, or other nominee provides to vote your shares. The 16-digit control number that grants access to the virtual meeting will also empower you to vote at the virtual meeting. In the event that you are the beneficial owner of shares held in the name of your broker, bank or other nominee and do not have a control number, please contact your broker, bank, or other nominee as soon as possible and no later than June 30, 2021, so that you can be provided with a control number.
| | | | | If I am the beneficial owner of shares held in “street name” by my broker, will my broker automatically vote my shares for me? | |
New York Stock Exchange (“NYSE”) rules applicable to brokers grant your broker discretionary authority to vote your shares without receiving your instructions on certain matters. Your broker has discretionary voting authority
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INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
under NYSE rules to vote your shares on the ratification of Deloitte & Touche LLP as our independent registered public accounting firm. However, unless you provide voting instructions to your broker, your broker does not have discretionary authority to vote on the election of directors, the advisory vote on the compensation of our named executive officers, or the approval of the Rite Aid Corporation Amended and Restated 2020 Omnibus Equity Incentive Plan. Accordingly, it is particularly important that beneficial owners instruct their brokers how they wish to vote their shares.
| | | | | Is there a list of registered stockholders entitled to vote at the Annual Meeting? | |
The names of registered stockholders entitled to vote at the Annual Meeting will be available for 10 days prior to the Annual Meeting for any transaction, arrangement,purpose germane to the Annual Meeting, during normal business hours, at Rite Aid Investor Relations, 30 Hunter Lane Camp Hill, Pennsylvania 17011, by contacting our Corporate Secretary. Due to the COVID-19 pandemic, registered stockholders must make an appointment and must comply with the company’s COVID-19 protocols.
The list will be available during the Annual Meeting on the Annual Meeting website at www.virtualshareholdermeeting.com/RAD2021. Only those persons logging into the Annual Meeting as a registered stockholder will be able to access the list and you will be required to provide the control number that appears on your Notice of Internet Availability of Proxy Materials or, relationship (or any seriesif you received a paper copy of similar transactions, arrangements,the proxy materials, the proxy card (printed in the box and marked by the arrow) or relationships)the instructions that accompanied the proxy materials.
| | | | | How will my shares be voted if I give my proxy but do not specify how my shares should be voted? | |
If you provide specific voting instructions, your shares will be voted at the Annual Meeting in whichaccordance with your instructions. If you hold shares in your name and sign and return a proxy card without giving specific voting instructions, your shares will be voted:
1.
On the Company orelection of directors, your shares will be voted FOR all nominees;
2.
On ratification of our independent registered public accounting firm, your shares will be voted FOR;
3.
On the advisory vote to approve the compensation of our named executive officers, your shares will be voted FOR; and
4.
On approval of the Rite Aid Corporation Amended and Restated 2020 Omnibus Equity Incentive Pan, your shares will be voted FOR.
| | | | | What is an “abstention” and how would it affect the vote? | |
An “abstention” occurs when a subsidiarystockholder sends in a proxy with explicit instructions to decline to vote regarding a particular matter. Abstentions are counted as present for purposes of determining a quorum. An abstention with respect to the election of directors is neither a participant,vote cast “for” a nominee nor a vote cast “against” the amount involved exceeds $120,000,nominee and, a related person had, has ortherefore, will have a direct or indirect material interest. Directors,no effect on the outcome of the vote. Abstentions with respect to the ratification of Deloitte & Touche LLP as our independent registered public accounting firm, the advisory vote on the compensation of our named executive officers, and nominees must complete an annual questionnairethe approval of the Rite Aid Corporation Amended and disclose all potential related person transactions involving themselvesRestated 2020 Omnibus Equity Incentive Plan will have the same effect as voting “AGAINST” the proposal.
| | | | | What is a broker “non-vote” and how would it affect the vote? | |
A broker non-vote occurs when a broker or other nominee who holds shares for the beneficial owner is unable to vote those shares for the beneficial owner because the broker or other nominee does not have discretionary
96 | RITE AID CORPORATION 2021 Proxy Statement
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
voting power for the proposal and their immediate family membershas not received voting instructions from the beneficial owner of the shares. Brokers will have discretionary voting power to vote shares for which no voting instructions have been provided by the beneficial owner only with respect to the ratification of Deloitte & Touche LLP as our independent registered public accounting firm. Brokers will not have such discretionary voting power to vote shares with respect to the election of directors, the advisory vote on the compensation of our named executive officers, or the approval of the Rite Aid Corporation Amended and Restated 2020 Omnibus Equity Incentive Plan . Shares that are knownthe subject of a broker non-vote are included for quorum purposes, but a broker non-vote with respect to them. Throughouta proposal will not be counted as a vote cast and will not be counted as a vote represented at the year, directorsmeeting and entitled to vote and, consequently, will have no effect on the outcome of the vote. Accordingly, it is particularly important that beneficial owners of Rite Aid shares instruct their brokers how to vote their shares.
| | | | | What are the quorum and voting requirements for the proposals? | |
In deciding the proposals that are scheduled for a vote at the Annual Meeting, each holder of common stock as of the record date is entitled to one vote per share of common stock. In order to take action on the proposals, a quorum, consisting of the holders of 27,551,872 shares (a majority of the aggregate number of shares of Rite Aid common stock) issued and outstanding and entitled to vote as of the record date for the Annual Meeting, must be present in person or by proxy. This is referred to as a “quorum.” In accordance with Delaware law and our By-Laws, stockholders and proxy holders attending the virtual annual meeting will be deemed present “in person.” Proxies marked “Abstain” and broker non-votes will be treated as shares that are present for purposes of determining the presence of a quorum.
•
Proposal No. 1—Election of Directors
The affirmative vote of a majority of the total number of votes cast is required for the election of each director nominee named in Proposal No. 1. This means that the votes cast “for” that nominee must exceed the votes cast “against” that nominee. Any shares not voted (whether by abstention, broker non-vote or otherwise) will not be counted as votes cast and will have no effect on the outcome of the vote.
•
Proposal No. 2—Ratification of Independent Registered Public Accounting Firm
The affirmative vote of a majority of the shares represented at the meeting and entitled to vote thereon is required for the ratification of Deloitte & Touche LLP as our independent registered public accounting firm in Proposal No. 2. Any shares represented at the meeting and entitled to vote on the matter and not voted (whether by abstention or otherwise) will have the same effect as a vote “against” the proposal.
•
Proposal No. 3—Advisory Vote on Compensation of Named Executive Officers
The affirmative vote of a majority of the shares represented at the meeting and entitled to vote thereon is required for the approval of the advisory vote on the compensation of our named executive officers must notifyin Proposal No. 3. Any shares represented at the Corporate Secretarymeeting and Chief Accounting Officer of any potential related person transactionsentitled to vote on the matter and not voted (whether by abstention or otherwise) will have the same effect as soon as they
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become aware of any such transaction. The Corporate Secretary and Chief Accounting Officer informa vote “against” the Nominating and Governance Committee of any related person transaction of which they are aware. The Corporate Secretary and Chief Accounting Officer are responsible for conducting a preliminary analysis and review of potential related person transactions and presentationproposal. Any broker non-votes with respect to the Nominatingadvisory vote on the compensation of our named executive officers will not be counted as shares represented at the meeting and Governance Committeeentitled to vote and, consequently, will have no effect on the outcome of the vote.
•
Proposal No. 4—Approval of the Rite Aid Corporation Amended and Restated 2020 Omnibus Equity Incentive Plan
The affirmative vote of a majority of the shares represented at the meeting and entitled to vote thereon is required for review, including provisionthe approval of the Rite Aid Corporation Amended and Restated 2020 Omnibus Equity Incentive Plan in Proposal No. 4. Any shares represented at the meeting and entitled to vote on the matter and not voted (whether by abstention or otherwise) will have the same effect as a vote “against” the proposal. Any broker non-votes with respect to the approval of the Rite Aid Corporation Amended and Restated 2020 Omnibus Equity Incentive Plan will not be counted as shares represented at the meeting and entitled to vote and, consequently, will have no effect on the outcome of the vote.
RITE AID CORPORATION 2021 Proxy Statement | 97
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
| | | | | What happens if a quorum is not present at the Annual Meeting? | |
If the shares present in person or represented by proxy at the virtual Annual Meeting are not sufficient to constitute a quorum, the stockholders by a vote of the holders of a majority of votes present in person or represented by proxy (which may be voted by the proxyholders) may, without further notice to any stockholder (unless a new record date is set), adjourn the meeting to a different time and place to permit further solicitations of proxies sufficient to constitute a quorum.
| | | | | Who will count the votes? | |
Representatives of Broadridge Financial Solutions, Inc. will tabulate the votes and act as inspectors of election.
| | | | | How can I change my vote? | |
You may revoke your proxy at any time before it is exercised by:
•
Delivering to the Secretary a written notice of revocation, dated later than the proxy, before the vote is taken at the Annual Meeting;
•
Delivering to the Secretary an executed proxy bearing a later date, before the vote is taken at the Annual Meeting;
•
Submitting a proxy on a later date by telephone, via the Internet or by tablet or smartphone by scanning the QR code (only your last such proxy will be counted), before 11:59 p.m. Eastern Daylight Time on July 6, 2021; or
•
Attending the virtual Annual Meeting and voting (your attendance at the Annual 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
Attention: Corporate Secretary
30 Hunter Lane
Camp Hill, Pennsylvania 17011 | | |
If your shares of Rite Aid common stock are held by a bank, broker, or other nominee, you must follow the instructions provided by the bank, broker or other nominee if you wish to change your vote.
| | | | | Who will conduct the proxy solicitation and how much will it cost? | |
We are soliciting proxies from stockholders on behalf of our Board and will pay for all costs incurred by it in connection with the solicitation. In addition to solicitation by mail, the directors, officers and associates of Rite Aid and its subsidiaries may solicit proxies from stockholders of Rite Aid in person or by telephone, facsimile, or email without additional compensation other than reimbursement for their actual expenses.
We have retained Morrow Sodali, LLC, a proxy solicitation firm, to assist us in the solicitation of proxies for the Annual Meeting. Rite Aid will pay Morrow Sodali a fee of approximately $20,000, plus reasonable out-of-pocket expenses.
Arrangements also will be made with brokerage firms and other custodians, nominees, and fiduciaries for the forwarding of solicitation material to the beneficial owners of stock held of record by such persons, and we will reimburse such custodians, nominees, and fiduciaries for their reasonable out-of-pocket expenses in connection with the forwarding of solicitation materials to the beneficial owners of our stock.
98 | RITE AID CORPORATION 2021 Proxy Statement
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
| | | If you have any questions about voting your shares or attending the Annual Meeting, please call our Investor Relations Department: | | | | | | (717) 975-3710 | | |
IMPORTANT NOTICE REGARDING DELIVERY OF STOCKHOLDER DOCUMENTS
The SEC has adopted rules that permit companies and intermediaries such as brokers to satisfy proxy material delivery requirements with respect to two or more stockholders sharing the same address by delivering a single copy of the proxy materials addressed to those stockholders. This process, which is referred to as “householding,” potentially provides extra convenience for stockholders and reduces printing and postage costs for companies. Rite Aid and some brokers utilize the householding process for proxy materials. In accordance with a notice sent to certain stockholders who share a single address, only one copy of the proxy materials is being sent to that address, unless we received contrary instructions from any stockholder at that address. Householding will continue until you are notified otherwise or until one or more stockholders at your address revokes consent. If you revoke consent, you will be removed from the householding program within 30 days of receipt of the revocation. If you hold your Rite Aid stock in “street name,” additional information regarding householding of proxy materials should be forwarded to enable proper considerationyou by the Nominating and Governance Committee. If the Corporate Secretary and Chief Accounting Officer determine that the proposed transaction shall be submittedyour broker.
However, if you wish to the Nominating and Governance Committee for consideration at the next committee meeting or, in those instances in which the Corporate Secretary and Chief Accounting Officer, in consultation with the Chief Executive Officer or Chief Financial Officer, determine that it is not practicable or desirable for the Company to wait until the next committee meeting, to the Chairreceive a separate copy of the Nominatingproxy materials, we will promptly deliver one to you upon request.
| | | You can notify us by sending a written request to: | | | | | | Rite Aid Corporation
Attention: Corporate Secretary
30 Hunter Lane
Camp Hill, Pennsylvania 17011 | | |
| | | | | |
| | | Or by calling the Corporate Secretary at: | | | | | | (717) 761-2633 | | |
In addition, if you would like to receive separate proxy statements and Governance Committee (who will possess delegated authority to act between committee meetings). As necessary, the Nominating and Governance Committee shall review approved related person transactions on a periodic basis throughout the durationannual reports of the transaction to ensure that the transactions remainRite Aid in the best interestsfuture, or if you are receiving multiple copies of the Company. The Nominatingannual reports and Governance Committee may,proxy statements at an address shared with another stockholder and would like to participate in its discretion, engage outside counsel to review certain related person transactions. In addition, the Nominating and Governance Committee may request that the full Board of Directors consider the approvalhouseholding, please notify your broker if your shares are held in a brokerage account or ratification of related person transactionsus if the Nominating and Governance Committee deems it advisable. A copy of our full policy concerning transactions with related persons is available on the Governance section of our website atyou hold registered shares.
RITE AID CORPORATIONwww.riteaid.com 2021 Proxy Statement under the headings "Corporate Info—Governance—Related Person Transactions."| Related Person Transactions99
Matthew Schroeder's brother is a partner in the law firm of Littler Mendelson P.C. The Company paid the law firm approximately $1.5 million in fiscal year 2019 for employment and labor legal services. These legal services are provided to Rite Aid on an arm's length basis. Mr. Schroeder has never had any role or involvement in the supervision of these services provided to Rite Aid or in any decisions regarding the retention of Littler Mendelson. The Company's relationship with Littler Mendelson pre-dates Mr. Schroeder becoming an executive officer of Rite Aid. The Nominating and Governance Committee has reviewed the Company's ongoing relationship with Littler Mendelson to ensure that it remains in the best interests of the Company.
TABLE OF CONTENTSCOMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Robert E. Knowling (Chair), Louis P. Miramontes, and Katherine Quinn. Bruce G. Bodaken, Michael N. Regan, and Marcy Syms also served on the Compensation Committee during fiscal year 2019. During fiscal year 2019, no member of the Compensation Committee was an employee, former employee, or executive officer of the Company.
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STOCKHOLDER PROPOSALS FOR
THE 20202022 ANNUAL MEETING OF STOCKHOLDERS
Any stockholder desiring to present a proposal for inclusion in Rite Aid'sAid’s proxy statement for the 20202022 Annual Meeting of Stockholders must deliver the proposal to the Secretary at the address below not later than February 8, 2020.January 20, 2022. However, if the date of our 20202022 Annual Meeting of Stockholders is changed by more than 30 days from the date of the previous year'syear’s meeting, then Rite Aid will disclose the new deadline in a document filed with the SEC. Only those proposals that comply with the requirements of Rule 14a-8 under the Exchange Act will be included in Rite Aid'sAid’s proxy statement for the 20202022 Annual Meeting. In order for proposals of stockholders made outside of Rule 14a-8 under the Exchange Act to be considered "timely"“timely” within the meaning of Rule 14a-4(c) under the Exchange Act, such proposals must be received by the Secretary at the address below by April 18, 20208, 2022 (subject to the discussion below). Stockholders may present proposals that are proper subjects for consideration at an annual meeting, even if the proposal is not submitted by the deadline for inclusion in the proxy statement. To do so, the stockholder must comply with the procedures specified in Rite Aid'sAid’s By-Laws. The By-Laws, which are available upon request from the Secretary, require all stockholders who intend to make proposals at an annual meeting of stockholders to submit their proposals to the Secretary not fewer than 90 and not more than 120 days before the anniversary date of the previous year'syear’s annual meeting of stockholders. The By-Laws also provide that nominations for director may only be made by the Board of Directors (or an authorized Board committee) or, unless made under the proxy access provisions of the By-Laws described below, by a stockholder of record entitled to vote who sends notice to the Secretary not fewer than 90 nor more than 120 days before the anniversary date of the previous year'syear’s annual meeting of stockholders. Any such nomination by a stockholder must comply with the procedures specified in Rite Aid'sAid’s By-Laws. To be eligible for consideration at the 20202022 Annual Meeting, proposals which have not been submitted by the deadline for inclusion in the proxy statement and any nominations for director other than those under the proxy access provisions of the By-Laws must be received by the Secretary between March 19, 20209, 2022 and April 18, 2020.8, 2022. This advance notice period is intended to allow all stockholders an opportunity to consider all business and nominees expected to be considered at the meeting. However, if the Company holds its annual meeting on a date that is not within 25 days before or after the anniversary date of the previous year'syear’s annual meeting of stockholders, the Company must receive the notice no later than the close of business on the tenth day following the day on which notice of the date of the annual meeting was mailed or public disclosure of the date of the annual meeting was made, whichever first occurs. In addition, Rite
Aid'sAid’s By-Laws provide that, under certain circumstances, a stockholder or group of stockholders may include director candidates that they have nominated in our annual meeting proxy materials. The proxy access provisions of the By-Laws provide, among other things, that a stockholder or group of up to 20 stockholders seeking to include director candidates in our annual meeting proxy materials must own 3% or more of Rite
Aid'sAid’s outstanding common stock continuously for at least the previous three years. The number of stockholder-nominated candidates appearing in any annual meeting proxy statement cannot exceed 20% of the number of directors then serving on the Board. If the 20% calculation does not result in a whole number, the maximum number of stockholder nominees included in our proxy statement would be the closest whole number below 20%. If the number of stockholder-nominated candidates exceeds 20%, each nominating stockholder or group of stockholders may select one nominee for inclusion in our proxy materials until the maximum number is reached. The order of selection would be determined by the amount (largest to smallest) of shares of Rite Aid common stock held by each nominating stockholder or group of stockholders. The nominating stockholder or group of stockholders also must deliver the information required by Rite
Aid'sAid’s By-Laws and comply with the procedures specified therein, and each nominee must meet the qualifications required by the By-Laws. Requests to include stockholder-nominated candidates in our proxy materials
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for the 20202022 Annual Meeting must be received by the Secretary no earlier than January 9, 2020December 21, 2021 and no later than February 8, 2020.January 20, 2022. However, if the Company holds its annual meeting on a date that is more than 30 days before or more than 60 days after the anniversary date of the previous year'syear’s annual meeting of stockholders, the Company must receive the request not more than 165 days prior to the date of the annual meeting and not later than the close of business on the later of (x) the
100 | RITE AID CORPORATION 2021 Proxy Statement
135th day prior to the date of the annual meeting or (y) the tenth day following the day on which notice of the date of the annual meeting was mailed or public disclosure of the date of the annual meeting was made, whichever occurs first. All submissions to the Secretary should be made to:
Rite Aid Corporation
30 Hunter Lane
Camp Hill, Pennsylvania 17011
Attention: James J. Comitale, Secretary
| | | All submissions to the Secretary should be made to: | | | | | | Rite Aid Corporation
Attention: Corporate Secretary
30 Hunter Lane
Camp Hill, Pennsylvania 17011 | | |
INCORPORATION BY REFERENCE
In accordance with SEC rules, notwithstanding anything to the contrary set forth in any of our previous or future filings under the Securities Act of 1933, as amended, or the Exchange Act, that might incorporate this proxy statement or future filings made by Rite Aid under those statutes, the information included under the caption
"Compensation“Compensation Committee
Report"Report” and those portions of the information included under the caption
"Audit“Audit Committee
Report"Report” required by the
SEC'sSEC’s rules to be included therein, shall not be deemed to be
"soliciting material"“soliciting material” or
"filed"“filed” with the SEC and shall not be deemed incorporated by reference into any of those prior filings or into any future filings made by Rite Aid under those statutes, except to the extent we specifically incorporate these items by reference.
RITE AID CORPORATION 2021 Proxy Statement | 101
The Board of Directors knows of no other matters that have been submitted for consideration at the Annual Meeting other than those referred to in this proxy statement.statement and the possible submission of the Krol Proposal, discussed below, which is not included in this proxy statement, but may be presented by Steven Krol at the Annual Meeting. If the Krol Proposal is presented at the Annual Meeting, the persons named in the proxy (the “proxy holders”) will have discretionary authority pursuant to Rule 14a-4(c) under the Exchange Act with respect to the Krol Proposal and intend to exercise such discretion to vote “AGAINST” the proposal. If any other matters come before stockholders at the Annual Meeting, the proxy holders intend to vote the shares they represent in accordance with their best judgment.
IMPORTANT NOTICE REGARDING DELIVERY
OF STOCKHOLDER DOCUMENTS
Steven Krol has advised the Company that he plans to present a proposal (the “Krol Proposal”) at the Annual Meeting. The SEC has adopted rulesproposal requests that permit companiesthe Board of Directors report in the annual proxy statement on the Company’s latest J.D. Power customer satisfaction ranking (or equally respected independent source) and intermediaries such as brokerssteps to satisfy proxy material delivery requirements with respect tobe implemented if the Company is not ranked in the top two or more stockholders sharing the same address by delivering a single copybrick and mortar pharmacies. The Krol Proposal was not submitted under Rule 14a-8 of the Exchange Act, and Mr. Krol did not seek to have the Krol Proposal included in this proxy materials addressed to those stockholders. This process, which is referred to as "householding," potentially provides extra convenience for stockholders and reduces printing and postage costs for companies.
Rite Aid and some brokers utilizestatement. If presented at the householding process for proxy materials. In accordance with a notice sent to certain stockholders who share a single address, only one copyAnnual Meeting, the adoption of the proxy materials is being sent to that address, unless we received contrary instructions from any stockholder at that address. Householding will continue until you are notified otherwise or until one or more stockholders at your address revokes consent. If you revoke consent, you will be removed fromKrol Proposal would require the householding program within 30 days of receiptapproval of the revocation. If you hold your Rite Aid stock in "street name," additional information regarding householdingaffirmative vote of proxy materials should be forwardeda majority of shares represented at the meeting and entitled to vote.
We have either mailed to you by your broker. However, if you wish to receivewith this proxy statement a separate copy of this copy of the proxy materials, we will promptly deliver one to you upon request. You can notify us by sending a written request to Rite Aid
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Corporation, 30 Hunter Lane, Camp Hill, Pennsylvania 17011, Attention: James J. Comitale, Secretary, or by calling the Secretary at (717) 761-2633. In addition, if you would like to receive separate proxy statements and annual reports of Rite Aid in the future, or if you are receiving multiple copies of annual reports and proxy statements at an address shared with another stockholder and would like to participate in householding, please notify your broker if your shares are held in a brokerage account or us if you hold registered shares.
ANNUAL REPORT
A copy of Rite Aid'sAid’s Annual Report on Form 10-K for fiscal year 2019 is being mailed together2021 or sent you a Notice of Internet Availability of Proxy Materials with this proxy statement to all stockholders entitled to noticethe web address for accessing Rite Aid’s Annual Report on Form 10-K for fiscal year 2021 online. Copies of and to votethese materials are also available online through the SEC at the Annual Meeting.www.sec.gov.
| | HELP SUPPORT OUR SUSTAINABILITY
EFFORTS—CHOOSE ELECTRONIC DELIVERY | | | | |
| | We encourage our stockholders to elect to receive future proxy and annual report materials electronically by e-mail to help support to our sustainability efforts. There is no charge for requesting a copy. You will need your 16-digit control number included on your proxy card or the instructions that accompanied your proxy materials. | |
| | Voting by Registered Holders | |
| | | | | By Internet | | | www.proxyvote.com | |
| | | | | By Phone | | | 1-800-690-6903 | |
| | | | | By Email | | | sendmaterial@proxyvote.com
Send a blank e-mail with your 16-digit control number in the subject line | |
| | Voting by Beneficial Owners | |
| | Contact your bank, broker, or other nominee | |
| | | A copy of our Annual Report on Form 10-K, including the financial statements included therein, is also available without charge by visiting the Company’s website or upon written request to: | | | | | | Rite Aid Corporation
Attention: Corporate Secretary
30 Hunter Lane
Camp Hill, Pennsylvania 17011 | | |
102 | RITE AID CORPORATION 2021 Proxy Statement
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
These proxy materials, as well as our other public filings or public statements, include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are often identified by terms and phrases such as “anticipate,” “believe,” “intend,” “estimate,” “expect,” “continue,” “should,” “could,” “may,” “plan,” “project,” “predict,” “will,” and similar expressions and include references to assumptions and relate to our future prospects, developments, and business strategies.
Factors that could cause actual results to differ materially from those expressed or implied in such forward-looking statements include, but are not limited to:
•
the impact of widespread health developments, including the continued impact of the global coronavirus (“COVID-19”) pandemic, and the responses thereto (such as quarantines, shut downs and other restrictions on travel and commercial, social and other activities), including changing consumer behavior and preferences and the reinstitution of more stringent regulations (including mandatory stay at home orders and the availability, rollout and supply chain of vaccines to treat the virus), which could materially and adversely affect, among other things, the economic, financial and labor markets in which we operate, access to credit, our front end and pharmaceutical operations, supply chain, associates and executive and administrative personnel. These widespread health developments, or an increase in the number of cases, could also materially and adversely affect our third-party service providers, including suppliers, vendors and business partners, and customers. The COVID-19 pandemic has resulted in recessionary economic conditions which could negatively impact our sales. Any of these developments could result in a material adverse effect on our business, financial conditions and results of operations;
•
our ability to successfully implement RxEvolution, attract and retain a sufficient number of our target consumers, integrate acquisitions, our ability to obtain permits required for store remodels, and improve the operating performance of our stores;
•
our high level of indebtedness, the ability to refinance such indebtedness on acceptable terms, and our ability to satisfy our obligations and the other covenants contained in our debt agreements;
•
the nature, cost and outcome of pending and future litigation, other legal or regulatory proceedings, or governmental investigations, including those related to opioids, “usual and customary” pricing or other matters;
•
general competitive, economic, industry, market, political (including health care reform) and regulatory conditions, civil unrest (including any resulting store closures, damage, or loss of inventory), as well as other factors specific to the markets in which we operate;
•
the severity and resulting impact of the cough, cold and flu season;
•
the impact on retail pharmacy business as pharmacy benefit management (“PBM”) payors incent or mandate movement away from retail pharmacies to PBM mail order pharmacies;
•
our ability to achieve the benefits of our efforts to reduce the costs of our generic and other drugs;
•
the risk that changes in federal or state laws or regulations, including to those relating to labor or wages, the Health Care Education Affordability Reconciliation Act, the repeal of all or part of the Patient Protection and the Affordable Care Act (or “ACA”), and decisions of the United States Supreme Court regarding those and other matters relevant to the Company or its operations, and any regulations enacted thereunder may occur;
•
the impact of the loss of one or more major third party payor contracts and the risk that providers and state contract changes may occur;
•
the risk that we may need to take further impairment charges if our future results do not meet our expectations;
•
our ability to sell our Centers of Medicare and Medicaid Services (“CMS”) receivables, in whole or in part, which could negatively impact our leverage ratio if we do not consummate a sale;
•
our ability to grow prescription count and realize front-end sales growth;
RITE AID CORPORATION 2021 Proxy Statement | 103
•
our ability to achieve cost savings and the other benefits of our organizational restructuring within our anticipated timeframe, if at all;
•
decisions to close additional stores and distribution centers or undertake additional refinancing activities, which could result in further charges;
•
our ability to manage expenses and our investments in working capital;
•
the continued impact of gross margin pressure in the PBM industries due to continued consolidation and client demand for lower prices while providing enhanced service offerings;
•
risks related to breaches of our information or payment systems or unauthorized access to confidential or personal information of our associates or customers;
•
our ability to maintain our current pharmacy services business and obtain new pharmacy services business, including maintaining renewals of expiring contracts, avoiding contract termination rights that may permit certain of our clients to terminate their contracts prior to their expiration, early price renegotiations prior to contract expirations and the risk that we cannot meet client guarantees;
•
our ability to manage our Medicare Part D Plan medical loss ratio (“MLR”) and meet the financial obligations of the plan;
•
the risk that we could experience deterioration in our current Star rating with the CMS or incur CMS penalties and/or sanctions;
•
the expiration or termination of our Medicare or Medicaid managed care contracts by federal or state governments;
•
changes in future exchange or interest rates or credit ratings, changes in tax laws, regulations, rates and policies;
•
the nature, cost and outcome of pending and future litigation and other legal or regulatory proceedings, and governmental investigations;
•
other risks and uncertainties described from time to time in our filings with the Securities and Exchange Commission (the “SEC”).
We undertake no obligation to update or revise the forward-looking statements included in these proxy materials, whether as a result of new information, future events or otherwise, after the date of these proxy materials. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors that could cause or contribute to such differences are discussed in the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Continuing Operations—Overview and Factors Affecting Our Future Prospects” included in our Annual Report includingon Form 10-K for fiscal year 2021. Additionally, the financial statements included therein, is also available without charge by visitingcontinued impact of COVID-19 could heighten many of the Company's website or upon written requestrisk factors described herein.
104 | RITE AID CORPORATION 2021 Proxy Statement
| | | | | | APPENDIX A—NON-GAAP FINANCIAL MEASURES | | |
ADJUSTED EBITDA, ADJUSTED NET INCOME (LOSS), ADJUSTED NET INCOME (LOSS) PER DILUTED SHARE AND OTHER NON-GAAP MEASURES
In addition to Rite Aid Corporation, 30 Hunter Lane, Camp Hill, Pennsylvania 17011, Attention: James J. Comitale, Secretary.
Table of Contents
APPENDIX A
ADJUSTED EBITDA, ADJUSTED NET INCOME (LOSS), ADJUSTED NET INCOME (LOSS) PER DILUTED SHARE AND OTHER NON-GAAP MEASURES
Wenet income (loss) determined in accordance with GAAP, we use certain non-GAAP measures, such as "Adjusted EBITDA"“Adjusted EBITDA”, in assessing our operating performance. We believe the non-GAAP measures serve as an appropriate measure in evaluating the performance of our business. We define Adjusted EBITDA as net income (loss) excluding the impact of income taxes, interest expense, depreciation and amortization, LIFO adjustments (which removes the entire impact of LIFO, and effectively reflects the results as if we were on a FIFO inventory basis), charges or credits for facility closing and impairment, goodwill and intangible asset impairment charges, inventory write-downs related to store closings, lossgains or losses on debt modifications and retirements, the WBAWalgreens Boots Alliance, Inc. (WBA) merger termination fee, and other items (including stock-based compensation expense, merger and acquisition-related costs, a non-recurring litigation settlement (as further discussed below), severance, restructuring-related costs and costs related to facility closures, gain on the Bartell Drugs acquisition and gain or loss on sale of assets). We reference this particular non-GAAP financial measure frequently in our decision-making because it provides supplemental information that facilitates internal comparisons to the historical periods and external comparisons to competitors. In addition, incentive compensation is primarily based on Adjusted EBITDA and we base certain of our forward-looking estimates on Adjusted EBITDA to facilitate quantification of planned business activities and enhance subsequent follow-up with comparisons of actual to planned Adjusted EBITDA.
The following is a reconciliation of our net (loss) incomeloss to Adjusted EBITDA for fiscal years 2019, 2018,2021, 2020 and 2017:2019:
| | | | | February 27, 2021
(52 weeks) | | | February 29, 2020
(52 weeks) | | | March 2, 2019
(52 weeks) | |
| | | | | (Dollars in thousands) | |
| | Net loss from continuing operations | | | | $ | (100,070) | | | | | $ | (469,219) | | | | | $ | (666,954) | | |
| | Interest expense | | | | | 201,388 | | | | | | 229,657 | | | | | | 227,728 | | |
| | Income tax (benefit) expense | | | | | (20,157) | | | | | | 387,607 | | | | | | 77,477 | | |
| | Depreciation and amortization | | | | | 327,124 | | | | | | 328,277 | | | | | | 357,882 | | |
| | LIFO (credit) charge | | | | | (51,692) | | | | | | (64,804) | | | | | | 23,354 | | |
| | Lease termination and impairment charges | | | | | 58,403 | | | | | | 42,843 | | | | | | 107,994 | | |
| | Goodwill and intangible asset impairment charges | | | | | 29,852 | | | | | | — | | | | | | 375,190 | | |
| | (Gain) loss on debt retirements, net | | | | | (5,274) | | | | | | (55,692) | | | | | | 554 | | |
| | Merger and Acquisition-related costs | | | | | 10,549 | | | | | | 3,599 | | | | | | 37,821 | | |
| | Stock-based compensation expense | | | | | 13,003 | | | | | | 16,087 | | | | | | 12,115 | | |
| | Restructuring-related costs | | | | | 84,552 | | | | | | 105,642 | | | | | | 4,704 | | |
| | Inventory write-downs related to store closings | | | | | 3,709 | | | | | | 4,652 | | | | | | 13,487 | | |
| | Litigation settlement | | | | | — | | | | | | — | | | | | | 18,000 | | |
| | (Gain) loss on sale of assets, net | | | | | (69,300) | | | | | | 4,226 | | | | | | (38,012) | | |
| | Gain on Bartell Drugs acquisition | | | | | (47,705) | | | | | | — | | | | | | — | | |
| | Other | | | | | 3,283 | | | | | | 5,336 | | | | | | 12,104 | | |
| | Adjusted EBITDA from continuing operations | | | | $ | 437,665 | | | | | $ | 538,211 | | | | | $ | 563,444 | | |
| | | | | | | | | | |
| | March 2,
2019
(52 weeks) | | March 3,
2018
(52 weeks)(a) | | March 4,
2017
(53 weeks)(a) | |
|---|
| | (Dollars in thousands)
| |
|---|
Net (loss) income—continuing operations | | $ | (666,954 | ) | $ | (349,532 | ) | $ | 4,080 | |
Interest expense | | | 227,728 | | | 202,768 | | | 200,065 | |
Income tax expense | | | 77,477 | | | 305,987 | | | 44,438 | |
Depreciation and amortization | | | 357,882 | | | 386,057 | | | 407,366 | |
LIFO charge (credit) | | | 23,354 | | | (28,827 | ) | | (3,721 | ) |
Lease termination and impairment charges | | | 107,994 | | | 58,765 | | | 45,778 | |
Goodwill and intangible asset impairment charges | | | 375,190 | | | 261,727 | | | — | |
Loss on debt retirements, net | | | 554 | | | — | | | — | |
Merger and Acquisition-related costs | | | 37,821 | | | 24,283 | | | 14,066 | |
Stock-based compensation expense | | | 12,115 | | | 25,793 | | | 23,482 | |
Restructuring-related costs | | | 4,704 | | | — | | | — | |
Inventory write-downs related to store closings | | | 13,487 | | | 7,586 | | | 5,925 | |
Litigation settlement | | | 18,000 | | | — | | | — | |
Gain on sale of assets, net | | | (38,012 | ) | | (25,872 | ) | | (6,649 | ) |
Walgreens Boots Alliance merger termination fee | | | — | | | (325,000 | ) | | — | |
Other | | | 12,104 | | | 16,119 | | | 13,058 | |
| | | | | | | | | | | |
Adjusted EBITDA—continuing operations | | $ | 563,444 | | $ | 559,854 | | $ | 747,888 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
(a)During fiscal year 2019, we revised our definition of Adjusted EBITDA to no longer exclude the impact of revenue deferrals related to our customer loyalty program and further revised our disclosure by presenting certain amounts previously included within
Table of Contents
Other as separate reconciling items. Consequently, we revised Adjusted EBITDA for fiscal years 2018 and 2017 to conform with the revised definition and present separate reconciling items previously included with Other.
The following is a reconciliation of our net income (loss)loss from continuing operations to Adjusted Net Income (Loss) Income and Adjusted Net Income (Loss) Income per Diluted Share for fiscal years 2019, 2018,2021, 2020 and 2017.2019. Adjusted Net Income (Loss) is defined as net income (loss) excluding the impact of amortization expense, merger and acquisition-related costs, a non-recurring litigation settlement (as further discussed below), lossgains or losses on debt modifications and retirements, LIFO adjustments (which removes the entire impact of LIFO, and effectively reflects the results as if we were on a FIFO inventory basis), goodwill and intangible asset impairment charges, restructuring-related costs, gain on the Bartell Drugs acquisition and the WBA merger termination fee. We calculate Adjusted Net Income (Loss) per Diluted Share using our above-referenced definition of Adjusted Net Income (Loss). We believe Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Diluted Share are useful indicators of
RITE AID CORPORATION 2021 Proxy Statement | A-1
APPENDIX A—NON-GAAP FINANCIAL MEASURES
our operating performance over multiple periods. Adjusted Net Income (Loss) per Diluted Share is calculated using our above-referenced definition of Adjusted Net Income (Loss):
| | | | | February 27, 2021
(52 weeks) | | | February 29, 2020
(52 weeks) | | | March 2, 2019
(52 weeks) | |
| | | | | (Dollars in thousands) | |
| | Net loss | | | | $ | (100,070) | | | | | $ | (469,219) | | | | | $ | (666,954) | | |
| | Add back—Income tax (benefit) expense | | | | | (20,157) | | | | | | 387,607 | | | | | | 77,477 | | |
| | Loss before income taxes | | | | | (120,227) | | | | | | (81,612) | | | | | | (589,477) | | |
| | Adjustments: | | | | | | | | | | | | | | | | | | | |
| | Amortization expense | | | | | 89,020 | | | | | | 103,941 | | | | | | 125,640 | | |
| | LIFO (credit) charge | | | | | (51,692) | | | | | | (64,804) | | | | | | 23,354 | | |
| | Goodwill and intangible asset impairment charges | | | | | 29,852 | | | | | | — | | | | | | 375,190 | | |
| | (Gain) loss on debt modifications and retirements, net | | | | | (5,274) | | | | | | (55,692) | | | | | | 554 | | |
| | Merger and Acquisition-related costs | | | | | 10,549 | | | | | | 3,599 | | | | | | 37,821 | | |
| | Restructuring-related costs | | | | | 84,552 | | | | | | 105,642 | | | | | | 4,704 | | |
| | Gain on Bartell Drug acquisition | | | | | (47,705) | | | | | | — | | | | | | — | | |
| | Litigation settlement | | | | | — | | | | | | — | | | | | | 18,000 | | |
| | Adjusted (loss) income before income taxes | | | | | (10,925) | | | | | | 11,074 | | | | | | (4,214) | | |
| | Adjusted income tax (benefit) expense(a) | | | | | (2,873) | | | | | | 3,061 | | | | | | (1,163) | | |
| | Adjusted net (loss) income | | | | | (8,052) | | | | | | 8,013 | | | | | | (3,051) | | |
| | Net loss per diluted share | | | | | (1.87) | | | | | | (8.82) | | | | | | (12.62) | | |
| | Adjusted net (loss) income per diluted share | | | | $ | (0.15) | | | | | $ | 0.15 | | | | | $ | (0.06) | | |
| | | | | | | | | | |
| | March 2,
2019
(52 weeks) | | March 3,
2018
(52 weeks)(b) | | March 4,
2017
(53 weeks)(b) | |
|---|
| | (Dollars in thousands)
| |
|---|
Net (loss) income from continuing operations | | $ | (666,954 | ) | $ | (349,532 | ) | $ | 4,080 | |
Add back—Income tax expense | | | 77,477 | | | 305,987 | | | 44,438 | |
| | | | | | | | | | | |
(Loss) income before income taxes—continuing operations | | | (589,477 | ) | | (43,545 | ) | | 48,518 | |
Adjustments: | | | | | | | | | | |
Amortization expense | | | 125,640 | | | 147,739 | | | 165,579 | |
LIFO charge (credit) | | | 23,354 | | | (28,827 | ) | | (3,721 | ) |
Goodwill and intangible asset impairment charges | | | 375,190 | | | 261,727 | | | — | |
Loss on debt retirements, net | | | 554 | | | — | | | — | |
Merger and Acquisition-related costs | | | 37,821 | | | 24,283 | | | 14,066 | |
Restructuring-related costs | | | 4,704 | | | — | | | — | |
Litigation settlement | | | 18,000 | | | — | | | — | |
Walgreens Boots Alliance merger termination fee | | | — | | | (325,000 | ) | | — | |
| | | | | | | | | | | |
Adjusted (loss) income before income taxes—continuing operations | | | (4,214 | ) | | 36,377 | | | 224,442 | |
Adjusted income tax (benefit) expense(a) | | | (1,163 | ) | | 13,937 | | | 90,710 | |
| | | | | | | | | | | |
Adjusted net (loss) income from continuing operations | | | (3,051 | ) | $ | 22,440 | | $ | 133,732 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Net (loss) income per diluted share—continuing operations | | $ | (12.62 | ) | $ | (6.66 | ) | $ | 0.08 | |
Adjusted net (loss) income per diluted share—continuing operations | | $ | (0.06 | ) | $ | 0.42 | | $ | 2.52 | |
(a)(a)- The fiscal year
2019, 2018,2021, 2020 and 20172019 annual effective tax rates, calculated using a federal rate plus a net state rate that excluded the impact of state NOL's,NOLs, state credits and valuation allowance, arewas used for the fifty-two weeks ended February 27, 2021, the fifty-two weeks ended February 29, 2020 and the fifty-two weeks ended March 2, 2019, the fifty-two weeks ended March 3, 2018, and the fifty-three weeks ended March 4, 2017, respectively.
(b)During fiscal year 2019, we revised our definition of Adjusted Net Loss and Adjusted Net Loss per Diluted Share to exclude the impact of all amortization expense rather than only the impact of amortization expense related to the EnvisionRx intangible assets. Consequently, we have updated the Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Diluted Share for fiscal years 2018 and 2017 to be reflective of our modified definition.
Table of ContentsWe have in the past and may in the future be involved in litigation, claims and proceedings that result in legal settlements or similar payments. We have historically not made adjustments for amounts related to these matters when calculating Adjusted EBITDA and Adjusted Net Income (Loss). Given the nature of a material legal settlement incurred in the second quarter of fiscal year 2019, for comparability purposes we have added the amount of this settlement back to net income when calculating Adjusted EBITDA and Adjusted Net Income (Loss) for the fifty-two week period ended March 2, 2019 to help investors better compare our operating performance over multiple periods. For additional information regarding the settlement see Note 2122 to ourthe consolidated financial statements contained in the Company'sCompany’s Annual Report on Form 10-K as filed with the SEC on April 25, 2019.
27, 2021.In addition to Adjusted EBITDA, Adjusted Net (Loss) Income and Adjusted Net (Loss) Income per Diluted Share, we occasionally refer to several other Non-GAAP measures, on a less frequent basis, in order to describe certain components of our business and how we utilize them to describe our results. These measures include but are not limited to Adjusted EBITDA Gross Margin and Gross Profit (gross margin/gross profit excluding non-Adjusted EBITDA items), Adjusted EBITDA SG&A (SG&A expenses excluding non-Adjusted EBITDA items), FIFO Gross Margin and FIFO Gross Profit (gross margin/gross profit before LIFO charges), and Free Cash Flow (Adjusted EBITDA less cash paid for interest, rent on closed stores, capital expenditures, restructuring-related costs and the change in working capital).
We include these non-GAAP financial measures in order to provide transparency to our investors and enable investors to better compare our operating performance with the operating performance of our competitors including with those of our competitors having different capital structures. Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted Share or other non-GAAP measures should not be considered in isolation from, and are not intended to represent an alternative measure of, operating results.
A-2 | RITE AID CORPORATION 2021 Proxy Statement
| | | | | | APPENDIX B—RITE AID CORPORATION AMENDED AND RESTATED 2020 OMNIBUS EQUITY INCENTIVE PLAN | | |
Rite Aid Corporation Amended and Restated 2020 Omnibus Equity Incentive Plan
1.
Purpose; Establishment.
The Rite Aid Corporation 2020 Omnibus Equity Plan (the “Plan”) is intended to promote the interests of Contentsthe Company and its stockholders by providing officers and other associates of the Company and its Affiliates (including directors who are also associates of the Company or its Affiliates) with appropriate incentives and rewards to encourage them to enter into and continue in the employ of the Company and its Affiliates and to acquire a proprietary interest in the long-term success of the Company; and to reward the performance of individual officers, other associates and non-employee directors in fulfilling their personal responsibilities for long-range achievements. The Plan is also designed to encourage stock ownership by such persons, thereby aligning their interest with those of the Company’s stockholders. The Plan has been adopted and approved by the Board of Directors (defined below) and shall become effective as of July 8, 2020, subject to the approval of the stockholders of the Company. 2.
Definitions.
As used in the Plan, the following definitions apply to the terms indicated below: (a)
“Affiliate” means any entity if, at the time of granting of an Award (1) the Company, directly or indirectly, owns at least 50% of the combined voting power of all classes of stock of such entity or at least 50% of the ownership interests in such entity or (2) such entity, directly or indirectly, owns at least 50% of the combined voting power of all classes of stock of the Company.
(b)
“Agreement” shall mean the writing evidencing an Award or a notice of an Award delivered to a Participant by the Company.
(c)
“Award” shall mean any Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Phantom Unit, Stock Bonus or Other Award granted pursuant to the terms of the Plan.
(d)
“Board of Directors” shall mean the Board of Directors of the Company.
(e)
“Business Criteria” shall mean performance goals based on criteria selected by the Board or the Committee, as applicable, in its sole discretion, including, without limitation, one or more of the following criteria: (1) return on total stockholder equity; (2) earnings or book value per share of Company Stock; (3) net income (before or after taxes); (4) earnings before all or any interest, taxes, depreciation and/or amortization (“EBIT”, “EBITA” or “EBITDA”), including a non-GAAP measure of adjusted EBITDA (“Adjusted EBITDA”); (5) inventory goals; (6) return on assets, capital or investment; (7) market share; (8) cost reduction goals; (9) earnings from continuing operations; (10) levels of expense, costs or liabilities; (11) store level performance; (12) operating profit; (13) sales or revenues; (14) stock price appreciation; (15) total stockholder return; (16) implementation or completion of critical projects or processes; (17) prescription counts; (18) customer service or customer service satisfaction; (19) associate satisfaction; (20) clinics opened; (21) stores remodeled or constructed; (22) cost of capital; (23) Accountable Care Organization results; (24) medical services delivered; (25) leverage ratio or (26) any combination of the foregoing. Where applicable, Business Criteria may be expressed in terms of attaining a specified level of the particular criteria or the attainment of a percentage increase or decrease in the particular criteria, and may be applied to one or more of the Company, an Affiliate, or a division or strategic business unit of the Company, or may be applied to the performance of the Company relative to a market index, a group of other companies or a combination thereof, all as determined by the Committee. The Business Criteria may be subject to a threshold level of performance below which no payment will be made (or no vesting will occur), levels of performance at which specified payments will be made (or specified vesting will occur), and a maximum level of performance above which no additional payment will be made (or at which full vesting will occur). The Committee shall have the authority to make equitable adjustments to the Business Criteria in recognition of unusual or non-recurring events affecting the Company or any Affiliate or the financial statements of the Company or any Affiliate, in response to changes in applicable laws or
RITE AID CORPORATION 2021 Proxy StatementCAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS | B-1
APPENDIX B—RITE AID CORPORATION AMENDED AND RESTATED 2020 OMNIBUS EQUITY INCENTIVE PLAN
regulations, or to account for items of gain, loss or expense determined to be extraordinary or unusual in nature or infrequent in occurrence or related to the disposal of a segment of a business or related to a change in accounting principles. This proxy statement,
(f)
“Cause” shall have meaning set forth in the Participant’s employment agreement with the Company; provided that if no such agreement or definition exists, “Cause” shall mean, unless otherwise specified in an Agreement, (i) the Participant’s willful misconduct or gross negligence which materially and demonstrably results in financial harm to the Company; (ii) a material breach by the Participant of the Participant’s fiduciary duty or duty of loyalty to the Company or any affiliate which demonstrably results in financial harm to the Company; (iii) the Participant’s misappropriation of funds or other property of the Company or any Subsidiary or the plea of guilty by the Participant to or conviction of the Participant for the commission of a felony; or (iv) the conduct by the Participant which is a material violation of Company policy or which materially interferes with the Participant’s ability to perform his or her duties.
(g)
“Change in Control” shall have the meaning set forth in Section 14(d).
(h)
“Code” shall mean the Internal Revenue Code of 1986, as wellamended from time to time, and any regulations promulgated thereunder.
(i)
“Committee” shall mean a committee of the Board of Directors, which shall consist of two or more persons, each of whom shall qualify as our other public filings or public statements, include forward-looking statementsa “nonemployee director” within the meaning of Rule 16b-3 and an “independent director” within the meaning of the PrivateNew York Stock Exchange Listed Company Manual.
(j)
“Company” shall mean Rite Aid Corporation, a Delaware corporation, and, where appropriate, each of its Affiliates.
(k)
“Company Stock” shall mean the common stock of the Company, par value $1.00 per share.
(l)
“Effective Date” shall mean July 8, 2020.
(m)
“Exchange Act” shall mean the Securities Litigation ReformExchange Act of 1995. These forward-looking statements are often identified by terms and phrases such1934, as "anticipate," "believe," "intend," "estimate," "expect," "continue," "should," "could," "may," "plan," "project," "predict," "will," and similar expressions and include referencesamended from time to assumptions and relate to our future prospects, developments, and business strategies. Factors that could cause actual results to differ materially from those expressed or implied in such forward-looking statements include, but are not limited to:
our high level of indebtedness and our ability to make interest and principal payments on our debt and satisfy the other covenants contained in our credit facilities and other debt agreements;(n)
•the ongoing impact of private and public third party payors' continued reduction in prescription drug reimbursement rates and their efforts to limit access to payor networks, including through mail order;
•our ability to achieve the benefits of our efforts to reduce the costs of our generic and other drugs, and our ability to achieve and sustain drug pricing efficiencies;
•the risk that changes in federal or state laws or regulations, including the Health Care Education Affordability Reconciliation Act, the repeal of all or part of the Patient Protection and the Affordable Care Act (or "ACA") and any regulations enacted thereunder may occur;
•the impact of the loss of one or more major third party payor contracts;
•the inability to complete the sale of remaining distribution centers to Walgreens Boots Alliance, Inc. ("WBA") due to the failure to satisfy the minimal remaining conditions applicable only to the distribution centers being transferred at such distribution center closing;
•the impact on our business, operating results, and relationships“Fair Market Value” shall mean, with customers, suppliers, third party payors, and employees resulting from our efforts over the past several years to consummate significant transactions with WBA and Albertsons Companies, Inc. ("Albertsons");
•the risk that we will not be able to meet our obligations under our Transition Services Agreement ("TSA") with WBA, which could expose us to significant financial penalties;
•the risk that we cannot reduce our selling, general, and administrative expenses enough to offset lost income from the TSA as the amount of stores serviced under the agreement decreases;
•the risk that we may need to take further impairment charges if our future results do not meet our expectations;
•our ability to refinance our indebtedness on terms favorable to us;
•our ability to improve the operating performance of our stores in accordance with our long-term strategy;
•our ability to grow prescription count and realize front-end sales growth;
•our ability to successfully execute and achieve benefits from our leadership transition plan and organizational restructuring, including our chief executive officer search process, and to manage the transitionrespect to a new chief executive officer and other management;
•our ability to hire and retain qualified personnel;
•our ability to achieve cost savings throughshare of Company Stock, on a particular date (i) the organizational restructurings within our anticipated timeframe, if at all;
•decisions to close additional stores and distribution centers or undertake additional refinancing activities, which could result in further charges;
Tableclosing price of Contents
•our ability to manage expenses and working capital;
•continued consolidationCompany Stock as quoted on the composite tape of the drugstore and the pharmacy benefit management ("PBM") industries;
•the risk that provider and state contract changes may occur;
•risks related to compromises of our information or payment systems or unauthorized access to confidential or personal information of our associates or customers;
•our ability to maintain our current pharmacy services business and obtain new pharmacy services business, including maintaining renewals of expiring contracts, avoiding contract termination rights that may permit certain of our clients to terminate their contracts prior to their expiration, early price renegotiations prior to contract expirations, and the risk that we cannot meet client guarantees;
•the continued impact of gross margin pressure in the PBM industry due to increased market competition and client demand for lower prices while providing enhanced service offerings;
•our ability to maintain our current Medicare Part D business and obtain new Medicare Part D business, as a result of the annual Medicare Part D competitive bidding process and meet the financial obligations of our bid;
•the expiration or termination of our Medicare or Medicaid managed care contracts by federal or state governments;
•risks related to other business effects, including the effects of industry, market, economic, political or regulatory conditions, future exchange or interest rates or credit ratings, changes in tax laws, regulations, rates, and policies or competitive development including aggressive promotional activity from our competitors;
•the risk that we could experience deterioration in our current Star rating with the Centers of Medicare and Medicaid Services ("CMS") or incur CMS penalties and/or sanctions;
•the nature, cost, and outcome of pending and future litigation and other legal proceedings or governmental investigations, including any such proceedings related to the sale of stores to WBA and instituted against us and others;
•the potential reputational risk to our business during the period in which WBA is operating the stores acquired by WBA under the Rite Aid banner;
•the inability to fully realize the benefits of our tax attributes;
•our ability to maintain the listing of our common stock on the New York Stock Exchange (the "NYSE"and published in The Wall Street Journal with respect to such date, or if there is no trading of Company Stock on such date, such price on the next preceding date on which there was trading in such shares of Company Stock or (ii) if the shares of Company Stock are then traded in an over-the-counter market, the average of the closing bid and asked prices for the shares of Company Stock in such over-the-counter market for the last preceding date on which there was a sale of such Stock in such market, or (iii) if the shares of Company Stock are not then listed on a national securities exchange or traded in an over-the-counter market, such value as the Committee, in its sole discretion, shall determine in good faith using a reasonable method in accordance with Section 409A of the Code.
(o)
“Good Reason” shall have meaning set forth in the Participant’s employment agreement with the Company; and if no such agreement or definition exists, “Good Reason” shall not apply to the Participant unless otherwise specified in an Agreement.
(p)
“Incentive Stock Option” shall mean an Option that qualifies as an “incentive stock option” within the meaning of Section 422 of the Code, or any successor provision, and which is designated by the Committee as an Incentive Stock Option.
(q)
“Nonqualified Stock Option” shall mean an Option other than an Incentive Stock Option.
(r)
“Option” shall mean an option to purchase shares of Company Stock granted pursuant to Section 7.
(s)
“Other Award” shall mean an Award granted pursuant to Section 13 hereof.
(t)
“Participant” shall mean an associate or non-employee director of the Company to whom an Award is granted pursuant to the Plan.
(u)
“Phantom Unit” shall mean the right, granted pursuant to Section 11, to receive in cash or shares of Company Stock the Fair Market Value of a share of Company Stock or, in the case of an Award denominated in cash, to receive the amount of cash per unit that is determined by the Committee in connection with the Award.
(v)
“Prior Equity Plans” shall mean, collectively, the Rite Aid Corporation 1999 Stock Option Plan, the Rite Aid Corporation 2000 Omnibus Equity Plan, the Rite Aid Corporation 2001 Stock Option Plan, the Rite Aid Corporation 2004 Omnibus Equity Plan, the Rite Aid Corporation 2006 Omnibus Equity Plan, the Rite Aid Corporation 2010 Omnibus Equity Plan, the Rite Aid Corporation 2012 Omnibus Equity Plan and the Rite Aid Corporation 2014 Omnibus Equity Plan.
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(w)
“Qualifying Termination” shall mean a termination of employment by the Company other than for Cause or by the Participant with Good Reason (if applicable).
(x)
“Restricted Stock” shall mean a share of Company Stock which is granted pursuant to the terms of Section 9 hereof and which is subject to restrictions as set forth in Section 9(d).
(y)
“Restricted Stock Unit” shall mean the right, granted pursuant to Section 10 hereof, to receive a number of shares of Company Stock subject to certain restrictions that lapse at the end of a specified period or periods.
(z)
“Retirement” shall mean the participant’s voluntary termination of employment with the Company after having attained age sixty (60) or having completed five (5) years of current, continuous service with the Company (measured from the Participant’s most recent first day of employment with the Company), whichever is later.
(aa)
“Rule 16b-3” shall mean the Rule 16b-3 promulgated under the Exchange Act, as amended from time to time.
(bb)
“Securities Act” shall mean the Securities Act of 1933, as amended from time to time.
(cc)
“Stock Appreciation Right” shall mean the right to receive, upon exercise of the right, the applicable amounts as described in Section 8.
(dd)
“Stock Bonus” shall mean a bonus payable in shares of Company Stock granted pursuant to Section 12.
(ee)
“Subsidiary” shall mean a “subsidiary corporation” of the Company within the meaning of Section 424(f) of the Code.
3.
Stock Subject to the Plan.
(a)
Shares Available for Awards; Certain Limitations. The maximum number of shares of Company Stock reserved for issuance under the Plan shall be 6,050,000 shares of Company Stock plus any shares of Company Stock remaining available for grant under the Prior Equity Plans as of the Effective Date (in each case, subject to adjustment as provided by Section 3(b)), all of which may be granted as Incentive Stock Options. Any shares of Company Stock granted in connection with Options and Stock Appreciation Rights shall be counted against this limit as one (1) share for every one (1) Option or Stock Appreciation Right awarded. Any shares of Company Stock granted in connection with Awards other than Options and Stock Appreciation Rights shall be counted against this limit as 1.45 shares for every one (1) share granted in connection with such Award or by which the Award is valued. Such shares of Company Stock may be authorized but unissued shares of Company Stock or authorized and issued shares of Company Stock held in the Company’s treasury. In addition, the number of shares of Company Stock that are subject to awards as of the Effective Date under the Prior Equity Plans that, in the future, are forfeited, cancelled, exchanged or surrendered or terminate (in each case, other than due to the expiration of Options on the expiration date of such Options) under the Prior Equity Plans without a distribution of shares to the Participant, shall be added to the number of shares of Company Stock available for grant under the Plan. Upon the approval of the Plan by the stockholders of the Company, no further awards shall be made under the Prior Equity Plans.
(b)
Adjustment for Change in Capitalization. In the event that any special or extraordinary dividend or other extraordinary distribution is declared (whether in the form of cash, Company Stock, or other property), or there occurs any recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, spin-off, combination, repurchase, share exchange or other similar corporate transaction or event, the Committee shall adjust, as it deems necessary or appropriate, (1) the number and kind of shares of stock which may thereafter be issued in connection with Awards, (2) the number and kind of shares of stock or other property, including cash, issued or issuable in respect of outstanding Awards, (3) the exercise price, grant price or purchase price relating to any Award, and (4) the limitations set forth in Section 3(a); provided that, with respect to Incentive Stock Options, such adjustment shall be made in accordance with Section 424 of the Code, and provided further that no such adjustment shall cause any Award hereunder which is or becomes subject to Section 409A of the Code to fail to comply with the requirements of such section. The determinations made by the Committee pursuant to this Section 4(b) shall be final, binding and conclusive.
(c)
Reuse of Shares. If any shares of Company Stock subject to an Award are forfeited, cancelled, exchanged or surrendered or if an Award otherwise terminates or expires without a distribution of shares to the Participant, the shares of Company Stock with respect to such Award shall, to the extent of any such forfeiture, cancellation, exchange, surrender, termination or expiration, again be available for Awards under the Plan. Notwithstanding the foregoing, shares of Company Stock that are exchanged by a Participant or withheld by the Company as full or partial payment in connection with any Award under the Plan, shares repurchased by the Company using stock option exercise proceeds, as well as any shares of Company Stock exchanged by a Participant or withheld by the Company or any Subsidiary to satisfy the tax withholding obligations related to any Award under the Plan, shall not be available for subsequent Awards under the Plan, and notwithstanding that a Stock Appreciation Right is settled by the delivery of a net number of shares of Company Stock, the full number of shares of Company Stock underlying such Stock Appreciation Right shall not be available for subsequent Awards under the Plan. Upon the exercise of any Award granted in tandem with any other Awards, such related Awards
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shall be cancelled to the extent of the number of shares of Company Stock as to which the Award is exercised and, notwithstanding the foregoing, such number of shares shall no longer be available for Awards under the Plan. In addition, (i) to the extent an Award is paid or settled in cash, the number of shares of Company Stock with respect to which such payment or settlement is made shall again be available for grants of Awards pursuant to the Plan and (ii) shares of Company Stock underlying Awards that can only be settled in cash shall not be counted against the aggregate number of shares of Company Stock available for Awards under the Plan.
(d)
Effect of Plans Operated by Acquired Companies. If a company acquired by the Company or any subsidiary or with which the Company or any Subsidiary combines has shares available under a pre-existing plan approved by stockholders and not adopted in contemplation of such acquisition or combination, the shares available for grant pursuant to the terms of the pre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio used in such acquisition or combination to determine the relative value of the acquired company’s stock or to determine the consideration payable to the holders of common stock of the acquired company) may be used for Awards under the Plan and shall not reduce the shares authorized for grant under the Plan. Awards using such available shares shall not be made after the date awards or grants could have been made under the terms of the pre-existing plan, and shall only be made to individuals who were not employees or non-employee directors of the Company prior to such acquisition or combination.
(e)
Director Limits. In connection with service as a non-employee director of the Company, no Participant who is a non-employee director shall be granted Awards during any calendar year that, when aggregated with such non-employee director’s cash fees with respect to such calendar year, exceed $750,000 in total value (calculating the value of any such Awards based on the grant date fair value of such Awards for the Company’s financial reporting purposes).
(f)
No dividend or dividend equivalent awarded in respect of an Award under the Plan shall be paid or settled until such underlying Award becomes vested pursuant to the terms of the Plan and the applicable Agreement.
(g)
Notwithstanding anything in the Plan to the contrary excluding Section 14, (other than Awards made with respect to no more than 5% of the aggregate shares of Company Stock authorized under the Plan pursuant to Section 3(a)), Awards made pursuant to Sections 7, 8, 9, 10, 11 or 13 of the Plan shall be granted subject to a minimum vesting period of at least twelve (12) months. For the avoidance of doubt, Awards made pursuant to Section 12 of the Plan shall count against the 5% referenced in the first sentence above.
4.
Administration of the Plan.
(a)
The Plan shall be administered by the Committee. The Committee shall have the authority in its sole discretion, subject to and not inconsistent with the express provisions of the Plan, to administer the Plan and to exercise all the powers and authorities either specifically granted to it under the Plan or necessary or advisable in the administration of the Plan, including, without limitation, the authority to grant Awards; to determine the persons to whom and the time or times at which Awards shall be granted; to determine the type and number of Awards to be granted, the number of shares of Company Stock or cash or other property to which an Award may relate and the terms, conditions, restrictions and performance criteria relating to any Award; to determine whether, to what extent, and under what circumstances an Award may be settled, cancelled, forfeited, exchanged, or surrendered; to determine whether an Award may be settled in cash and/or shares of Company Stock; to construe and interpret the Plan and any Award; to prescribe, amend and rescind rules and regulations relating to the Plan; to determine the terms and provisions of Agreements; and to make all other determinations deemed necessary or advisable for the administration of the Plan. The Committee may, in its sole and absolute discretion, without amendment to the Plan, (a) accelerate the date on which any Option or Stock Appreciation Right becomes exercisable, (b) waive or amend the operation of Plan provisions respecting exercise after termination of employment (provided that the term of an Option or Stock Appreciation Right may not be extended beyond ten years from the date of grant or the original term of the Option or Stock Appreciation Right, if less), (c) accelerate the vesting date, or waive any condition imposed hereunder, with respect to any Award, and (d) otherwise adjust any of the terms applicable to any such Award in a manner consistent with the terms of the Plan and applicable law. Notwithstanding anything in the Plan to the contrary, the powers and authority of the Committee shall be exercised by the Board of Directors in the case of Awards made to non-employee directors.
(b)
The Committee’s interpretation of the Plan, any Awards granted pursuant to the Plan or any Agreement and all decisions and determinations by the Committee with respect to the Plan shall be final, binding, and conclusive on all parties. No member of the Board of Directors or the Committee, nor any officer or employee of the Company or any Subsidiary thereof acting on behalf of the Board of Directors or the Committee, shall be personally liable for any action, omission, determination, or interpretation taken or made in good faith with respect to the Plan, and all members of the Board of Directors or the Committee and each and any officer or employee of the Company and of any Subsidiary thereof acting on their behalf shall, to the maximum extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, omission, determination or interpretation.
(c)
To the extent permitted by applicable law or the rules of any securities exchange or automated quotation system on which the shares of Company Stock are listed, quoted or traded, the Board of Directors or Committee may from time to
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time delegate to a committee of one or more members of the Board of Directors, or to the Chief Executive Officer of the Company the authority to grant or amend Awards or to take other administrative actions pursuant to this Section 4; provided, however, that in no event shall such individuals be delegated the authority to grant Awards to, or amend Awards held by, the following individuals: (a) individuals who are subject to Section 16 of the Exchange Act or (b) officers of the Company (or non-employee directors) to whom authority to grant or amend Awards has been delegated hereunder; provided further, that any delegation of administrative authority shall only be permitted to the extent it is permissible under applicable securities laws or the rules of any securities exchange or automated quotation system on which the shares of Company Stock are listed, quoted or traded. Any delegation hereunder shall be subject to the restrictions and limits that the Board of Directors or Committee specifies at the time of such delegation, and the Board of Directors or Committee, as the case may be, may at any time rescind the authority so delegated or appoint a new delegatee.
5.
Eligibility.
The persons who shall be eligible to receive Awards pursuant to the Plan shall be such associates of the Company or any Affiliate of the Company (including officers of the Company or any Affiliate of the Company, whether or not they are directors of the Company or any Affiliate of the Company), and non-employee directors of the resulting impactCompany or any Affiliate of the Company, in each case as the Committee (or, in the case of non-employee directors, the Board of Directors) shall select from time to time. The grant of an Award hereunder in any year to any associate or non-employee director shall not entitle such person to a grant of an Award in any future year.
6.
Awards Under the Plan; Agreement.
The Committee may grant Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Phantom Units, Stock Bonuses and Other Awards in such amounts and with such terms and conditions as the Committee shall determine, subject to the provisions of the Plan. Each Award granted under the Plan (except an unconditional Stock Bonus) shall be evidenced by an Agreement which shall contain such provisions as the Committee may in its sole discretion deem necessary or desirable and which are not in conflict with the terms of the Plan. By accepting an Award, a Participant shall be deemed to agree that the Award shall be subject to all of the terms and provisions of the Plan and the applicable Agreement.
7.
Options.
(a)
Identification of Options. Each Option shall be clearly identified in the applicable Agreement as either an Incentive Stock Option or a delistingNonqualified Stock Option. All Options shall be non-transferable, except by will or remedies takenthe laws of descent and distribution or except as otherwise determined by the Committee for estate planning purposes with respect to prevent a delisting wouldNonqualified Stock Option.
(b)
Exercise Price. Each Agreement with respect to an Option shall set forth the amount per share (the “option exercise price”) payable by the Participant to the Company upon exercise of the Option. The option exercise price shall be equal to or greater than the Fair Market Value of a share of Company Stock on the date of grant. Other than with respect to an adjustment described in Section 3, in no event shall the option exercise price be reduced following the grant of an Option, nor shall an Option be cancelled in exchange for a replacement Option with a lower exercise price or in exchange for another type of Award or cash payment without stockholder approval. In addition, the Committee shall not have the authority to grant an Option which provides that the Participant will be granted a new Option (sometimes referred to as a “reload option”) for a number of shares equal to the number of shares surrendered by the Participant upon exercise of all or a part of the original Option.
(c)
Term and Exercise of Options.
(i)
Each Option shall become exercisable at the time determined by the Committee and set forth in the applicable Agreement. At the time of grant of an Option, the Committee may impose such restrictions or conditions to the exercisability of the Option as it, in its absolute discretion, deems appropriate, including, but not limited to, achievement of performance goals including goals based on our resultsone or more Business Criteria. Subject to Section 7(d) hereof, the Committee shall determine and set forth in the applicable Agreement the expiration date of operationseach Option, which shall be no later than the tenth anniversary of the date of grant of the Option.
(ii)
An Option shall be exercised by delivering the form of notice of exercise provided by the Company. Payment for shares of Company Stock purchased upon the exercise of an Option shall be made on the effective date of such exercise by one or a combination of the following means: (A) in cash or by personal check, certified check, bank cashier’s check or wire transfer; (B) in shares of Company Stock owned by the Participant and financial condition; and
•valued at their Fair Market Value on the effective date of such exercise; (C) by withholding shares of Company Stock otherwise deliverable upon exercise of an Option; or (D) by any such other risks and uncertainties describedmethods (including broker assisted cashless exercise) as the Committee may from time to time authorize; provided, however, that in our filingsthe case of a Participant who is subject to Section 16 of the Exchange Act, the method of making such payment shall be in compliance with applicable law. Except as authorized by the Committee, any payment in shares of Company Stock shall be effected by the delivery of such shares to the Secretary of the Company, duly endorsed in blank or accompanied by stock
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powers duly executed in blank, together with any other documents and evidences as the Secretary of the Company shall require. If the Committee decides that payment will be made in shares of Company Stock, and the amount payable results in a fractional share, payment for the fractional share will be made in cash.
(iii)
Certificates for shares of Company Stock purchased upon the exercise of an Option shall be issued in the name of or for the account of the Participant or other person entitled to receive such shares, and delivered to the Participant or such other person as soon as practicable following the effective date on which the Option is exercised.
(d)
Provisions Relating to Incentive Stock Options. Incentive Stock Options may only be granted to associates of the Company and its Affiliates, in accordance with the Securitiesprovisions of Section 422 of the Code. To the extent that the aggregate Fair Market Value of shares of Company Stock with respect to which Incentive Stock Options are exercisable for the first time by a Participant during any calendar year under the Plan and Exchange Commission (the "SEC"any other stock option plan of the Company or a Subsidiary shall exceed $100,000, such Options shall be treated as Nonqualified Stock Options. For purposes of this Section 7(d), Fair Market Value shall be determined as of the date on which each such Incentive Stock Option is granted. No Incentive Stock Option may be granted to an individual if, at the time of the proposed grant, such individual owns (or is deemed to own under the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company unless (A) the exercise price of such Incentive Stock Option is at least one hundred and ten percent (110%) of the Fair Market Value of a share of Company Stock at the time such Incentive Stock Option is granted and (B) such Incentive Stock Option is not exercisable after the expiration of five years from the date such Incentive Stock Option is granted.
(e)
Effect of Termination of Employment (or Provision of Services). We undertake
Except as may otherwise be provided in the applicable Agreement, and subject to the Committee’s authority pursuant to Section 4 hereof: (i) in the event that the employment of a Participant with the Company (or the Participant’s service to the Company) shall terminate for any reason other than Cause, death, disability or Retirement, each Option granted to such Participant, to the extent that it is exercisable at the time of such termination, shall remain exercisable for the 90 day period following such termination, but in no obligationevent following the expiration of its term, and each Option that remains unexercisable as of the date of such a termination shall be terminated at the time of such termination, (ii) in the event that the employment of a Participant with the Company (or the Participant’s service to updatethe Company) shall terminate on account of the death of the Participant, each Option granted to such Participant that is outstanding as of the date of death shall become fully exercisable and shall remain exercisable by the Participant’s legal representatives, heirs or reviselegatees for the forward-looking statements includedone year period following such termination, but in no event following the expiration of its term and (iii) in the event that the employment of a Participant with the Company (or the Participant’s service to the Company) shall terminate on account of the disability or Retirement of the Participant (in each case as determined by the Committee), each Option granted to such Participant that is outstanding and vested as of the date of such termination shall remain exercisable by the Participant (or such Participant’s legal representatives) for the one year period following such termination, but in no event following the expiration of its term and each Option that remains unexercisable as of the date of a termination due to disability or Retirement shall be terminated at the time of such termination. In the event of the termination of a Participant’s employment for Cause, each outstanding Option granted to such Participant shall terminate at the commencement of business on the date of such termination.
(f)
Leave of Absence. In the case of any Participant on an approved leave of absence, the Committee may make such provision respecting the continuance of the Option while in the employ or service of the Company as it may deem equitable, except that in no event may an Option be exercised after the expiration of its term.
8.
Stock Appreciation Rights.
(a)
A Stock Appreciation Right may be granted in connection with an Option, either at the time of grant or, with respect to a Nonqualified Stock Option, at any time thereafter during the term of the Option, or may be granted unrelated to an Option. At the time of grant of a Stock Appreciation Right, the Committee may impose such restrictions or conditions to the exercisability of the Stock Appreciation Right as it, in its absolute discretion, deems appropriate, including, but not limited to, achievement of performance goals including goals based on one or more Business Criteria. The term of a Stock Appreciation Right granted without relationship to an Option shall not exceed ten years from the date of grant. In addition, the exercise price of a Stock Appreciation Right shall be equal to or greater than the Fair Market Value of a share of Company Stock on the date of grant.
(b)
A Stock Appreciation Right related to an Option shall require the holder, upon exercise, to surrender such Option with respect to the number of shares as to which such Stock Appreciation Right is exercised, in order to receive payment of any amount computed pursuant to Section 8(d). Such Option will, to the extent surrendered, then cease to be exercisable.
(c)
Subject to Section 8(i) and to such rules and restrictions as the Committee may impose, a Stock Appreciation Right granted in connection with an Option will be exercisable at such time or times, and only to the extent that a related Option is exercisable. All Stock Appreciation Rights shall be non-transferable (except to the extent that such related Option may be transferable), except by will or the laws of descent and distribution or except as otherwise determined by the Committee for estate planning purposes.
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(d)
Upon the exercise of a Stock Appreciation Right whether related or unrelated to an Option, the holder will be entitled to receive payment of an amount determined by multiplying:
(i)
the excess of the Fair Market Value of a share of Company Stock on the date of exercise of such Stock Appreciation Right over the exercise price of the Stock Appreciation Right, by
(ii)
the number of shares as to which such Stock Appreciation Right is exercised.
(e)
Notwithstanding subsection (d) above, the Committee may place a limitation on the amount payable upon exercise of a Stock Appreciation Right. Any such limitation must be determined as of the date of grant and noted in the applicable Agreement.
(f)
Payment of the amount determined under subsection (d) above may be made solely in whole shares of Company Stock valued at their Fair Market Value on the date of exercise of the Stock Appreciation Right or alternatively, in the sole discretion of the Committee, solely in cash or a combination of cash and shares. Except as authorized by the Committee, any payment in shares of Company Stock shall be effected by the delivery of such shares to the Secretary of the Company, duly endorsed in blank or accompanied by stock powers duly executed in blank, together with any other documents and evidences as the Secretary of the Company shall require. If the Committee decides that payment will be made in shares of Company Stock, and the amount payable results in a fractional share, payment for the fractional share will be made in cash.
(g)
Other than with respect to an adjustment described in Section 3, in no event shall the exercise price with respect to a Stock Appreciation Right be reduced following the grant of a Stock Appreciation Right, nor shall a Stock Appreciation Right be cancelled in exchange for a replacement Stock Appreciation Right with a lower exercise price or in exchange for another type of Award or cash payment without stockholder approval.
(h)
Except as may otherwise be provided in the applicable Agreement, and subject to the Committee’s authority pursuant to Section 4 hereof, (i) in the event that the employment of a Participant with the Company (or the Participant’s service to the Company) shall terminate for any reason other than Cause, death or disability or Retirement, each Stock Appreciation Right granted to such Participant, to the extent that it is exercisable at the time of such termination, shall remain exercisable for the 90 day period following such termination, but in no event following the expiration of its term, and any Stock Appreciation Right that is not exercisable as of the date of such a termination shall be terminated at the time of such termination (except as may be otherwise determined by the Committee), (ii) in the event that the employment of a Participant with the Company (or the Participant’s service to the Company) shall terminate on account of the death of the Participant, each Stock Appreciation Right granted to such Participant that is outstanding as of the date of death shall become fully exercisable and shall remain exercisable by the Participant’s legal representatives, heirs or legatees for the one year period following such termination, but in no event following the expiration of its term and (iii) in the event that the employment of a Participant with the Company (or the Participant’s service to the Company) shall terminate on account of the disability or Retirement of the Participant (in each case as determined by the Committee), each Stock Appreciation Right granted to such Participant that is outstanding and vested as of the date of such termination shall remain exercisable by the Participant (or such Participant’s legal representatives) for the one year period following such termination, but in no event following the expiration of its term, and each Stock Appreciation Right that remains unexercisable as of the date of a termination due to disability or Retirement shall be terminated at the time of such termination. In the event of the termination of a Participant’s employment for Cause, each outstanding Stock Appreciation Right granted to such Participant shall terminate at the commencement of business on the date of such termination.
(i)
Leave of Absence. In the case of any Participant on an approved leave of absence, the Committee may make such provision respecting the continuance of the Stock Appreciation Right while in the employ or service of the Company as it may deem equitable, except that in no event may a Stock Appreciation Right be exercised after the expiration of its term.
9.
Restricted Stock.
(a)
Price. At the time of the grant of shares of Restricted Stock, the Committee shall determine the price, if any, to be paid by the Participant for each share of Restricted Stock subject to the Award.
(b)
Vesting Date. At the time of the grant of shares of Restricted Stock, the Committee shall establish a vesting date or vesting dates with respect to such shares. The Committee may divide such shares into classes and assign a different vesting date for each class. Provided that all conditions to the vesting of a share of Restricted Stock are satisfied, and subject to Section 9(h), upon the occurrence of the vesting date with respect to a share of Restricted Stock, such share shall vest and the restrictions of Section 9(d) shall lapse.
(c)
Conditions to Vesting. At the time of the grant of shares of Restricted Stock, the Committee may impose such restrictions or conditions to the vesting of such shares as it, in its absolute discretion, deems appropriate, including, but not limited to, achievement of performance goals including goals based on one or more Business Criteria. The Committee may also provide that the vesting or forfeiture of shares of Restricted Stock may be based upon the achievement of, or failure to
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achieve, certain levels of performance and may provide for partial vesting of Restricted Stock in the event that the maximum level of performance is not met if the minimum level of performance has been equaled or exceeded. Notwithstanding anything in this proxy statement,Section 9(c) to the contrary, unless otherwise provided by the Committee pursuant to Section 9(h) or Section 14, Restricted Stock which vests based on achievement of performance goals or levels of performance may not become fully vested prior to the first anniversary of the date upon which such Restricted Stock is granted.
(d)
Restrictions on Transfer Prior to Vesting. Prior to the vesting of a share of Restricted Stock, such Restricted Stock may not be transferred, assigned or otherwise disposed of, and no transfer of a Participant’s rights with respect to such Restricted Stock, whether as a resultvoluntary or involuntary, by operation of new information, future events,law or otherwise, shall be permitted. Immediately upon any attempt to transfer such rights, such shares, and all of the rights related thereto, shall be forfeited by the Participant.
(e)
Dividends on Restricted Stock. Any dividends paid on shares of Restricted Stock shall be held in escrow until all restrictions on such shares have lapsed.
(f)
Issuance of Certificates. The Committee may, upon such terms and conditions as it determines, provide that (1) a certificate or certificates representing the shares underlying a Restricted Stock Award shall be registered in the Participant’s name and bear an appropriate legend specifying that such shares are not transferable and are subject to the provisions of the Plan and the restrictions, terms and conditions set forth in the applicable Agreement, (2) such certificate or certificates shall be held in escrow by the Company on behalf of the Participant until such shares become vested or are forfeited or (3) the Participant’s ownership of the Restricted Stock shall be registered by the Company in book entry form.
(g)
Consequences of Vesting. Upon the vesting of a share of Restricted Stock pursuant to the terms hereof, the restrictions of Section 9(d) shall lapse with respect to such share. Following the date on which a share of Restricted Stock vests, the Company shall, as determined by the Committee, make a book entry record of such share or cause to be delivered to the Participant to whom such shares were granted, a certificate evidencing such share, which may bear a restrictive legend, if the Committee determines such a legend to be appropriate.
(h)
Effect of Termination of Employment (or Provision of Services). Except as may otherwise be provided in the applicable Agreement, and subject to the Committee’s authority under Section 4 hereof, upon the termination of a Participant’s employment (or upon cessation of such Participant’s services to the Company) for any reason, any and all shares to which restrictions on transferability apply shall be immediately forfeited by the Participant and transferred to, and reacquired by, the Company. In the event of a forfeiture of shares pursuant to this section, the Company shall repay to the Participant (or the Participant’s estate) any amount paid by the Participant for such shares. In the event that the Company requires a return of shares, it shall also have the right to require the return of all dividends paid on such shares, whether by termination of any escrow arrangement under which such dividends are held or otherwise.
10.
Restricted Stock Units.
(a)
Vesting Date. At the time of the grant of an Award of Restricted Stock Units, the Committee shall establish a vesting date or vesting dates with respect to such Restricted Stock Units. Provided that all conditions to the vesting of an Award of Restricted Stock Units are satisfied, and subject to Section 10(g), upon the occurrence of the vesting date with respect to a share of Restricted Stock, such share shall vest and the restrictions of Section 10(c) shall lapse.
(b)
Conditions to Vesting. At the time of the grant of an Award of Restricted Stock Units, the Committee may impose such restrictions or conditions to the vesting of such Restricted Stock Units as it, in its absolute discretion, deems appropriate, including, but not limited to, achievement of performance goals including goals based on one or more Business Criteria. The Committee may also provide that the vesting or forfeiture of Restricted Stock Units may be based upon the achievement of, or failure to achieve, certain levels of performance and may provide for partial vesting of Restricted Stock Units in the event that the maximum level of performance is not met if the minimum level of performance has been equaled or exceeded. Notwithstanding anything in this Section 10(b) to the contrary, unless otherwise provided by the Committee pursuant to Section 10(g) or Section 14, Restricted Stock Units which vests based on achievement of performance goals or levels of performance may not become fully vested prior to the first anniversary of the date upon which such Restricted Stock Unit is granted.
(c)
Restrictions on Transfer Prior to Vesting. Prior to the vesting of an Award of Restricted Stock Units, such Restricted Stock Units may not be transferred, assigned or otherwise disposed of, and no transfer of a Participant’s rights with respect to such Restricted Stock Units, whether voluntary or involuntary, by operation of law or otherwise, shall be permitted. Immediately upon any attempt to transfer such rights, such Restricted Stock Units, and all of the rights related thereto, shall be forfeited by the Participant.
(d)
Dividends on Restricted Stock Units. Any dividends paid on shares of Company Stock subject to Restricted Stock Units shall solely be credited in the form of dividend equivalents and shall in no event be settled until all restrictions on Restricted Stock Units have lapsed and the underlying shares of Company Stock are settled.
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APPENDIX B—RITE AID CORPORATION AMENDED AND RESTATED 2020 OMNIBUS EQUITY INCENTIVE PLAN
(e)
Consequences of Vesting. Upon the vesting of an Award of Restricted Stock Units pursuant to the terms hereof, the restrictions of Section 10(c) shall lapse with respect to such Restricted Stock Units and stock certificates in respect of the shares of Company Stock underlying such Restricted Stock Units may, in the Company’s sole discretion, be delivered to the Participant, or his or her legal representative, in a number equal to the number of shares of Company Stock underlying the Award of Restricted Stock Units. Following the date on which an Award of Restricted Stock Units vests and is settled in shares of Company Stock, the Company shall, as determined by the Committee, make a book entry record of such shares or cause to be delivered to the Participant to whom such shares were delivered, a certificate evidencing such share, which may bear a restrictive legend, if the Committee determines such a legend to be appropriate.
(f)
Effect of Termination of Employment (or Provision of Services). Except as may otherwise be provided in the applicable Agreement, and subject to the Committee’s authority under Section 4 hereof, upon the termination of a Participant’s employment (or upon cessation of such Participant’s services to the Company) for any reason, any and all Restricted Stock Units to which restrictions and conditions apply, together with any dividend equivalents deemed to have been credited with respect to such unvested Restricted Stock Units, shall be immediately forfeited upon the Participant’s termination of employment (or upon cessation of such Participant’s services to the Company) for any reason.
(g)
Settlement. Notwithstanding anything in the Plan to the contrary, with respect to Restricted Stock Units, upon the lapse of all applicable restrictions and conditions, shares of Company Stock (either in certificated or uncertificated form) shall promptly be issued to the Participant, unless otherwise deferred in accordance with procedures established by the Company in accordance with Section 409A of the Code, and such issuance or payment shall in any event be made no later than March 15th of the calendar year following the year of vesting or within such other period as is required to avoid accelerated taxation and/or tax penalties under Section 409A of the Code.
11.
Phantom Units.
(a)
Vesting Date. At the time of the grant of Phantom Units, the Committee shall establish a vesting date or vesting dates with respect to such units. The Committee may divide such units into classes and assign a different vesting date for each class. Provided that all conditions to the vesting of the Phantom Units imposed pursuant to Section 11(c) are satisfied, and subject to Section 11(d), upon the occurrence of the vesting date with respect to the Phantom Units, such units shall vest.
(b)
Benefit Upon Vesting. Unless otherwise provided in an Agreement, upon the vesting of Phantom Units, the Participant shall be paid, within 30 days of the date on which such units vest, an amount, in cash and/or shares of Company Stock, as determined by the Committee. In the case of Awards denominated in shares of Company Stock, the amount per Phantom Unit shall be equal to the sum of (1) the Fair Market Value of a share of Company Stock on the date on which such Phantom Units vest and (2) the aggregate amount of cash dividends paid with respect to a share of Company Stock during the period commencing on the date on which the Phantom Units were granted and terminating on the date on which such units vest. In the case of Awards denominated in cash, the amount per Phantom Unit shall be equal to the cash value of the Phantom Unit on the date on which such Phantom Units vest.
(c)
Conditions to Vesting. At the time of the grant of Phantom Units, the Committee may impose such restrictions or conditions to the vesting of such units as it, in its absolute discretion, deems appropriate, including, but not limited to, achievement of performance goals including goals based on one or more Business Criteria. Notwithstanding anything in this Section 11(c) to the contrary, unless otherwise provided by the Committee pursuant to Section 11(d) or Section 14, Phantom Units which vest based on achievement of performance goals may not become fully vested prior to the first anniversary of the date upon which such Phantom Units are granted.
(d)
Effect of Termination of Employment (or Provision of Services). Except as may otherwise be provided in the applicable Agreement, and subject to the Committee’s authority pursuant to Section 4 hereof, Phantom Units that have not vested, together with any dividend equivalents deemed to have been credited with respect to such unvested units, shall be forfeited upon the Participant’s termination of employment (or upon cessation of such Participant’s services to the Company) for any reason.
12.
Stock Bonuses.
In the event that the Committee grants a Stock Bonus, a certificate for the shares of Company Stock constituting such Stock Bonus shall be issued in the name of the Participant to whom such grant was made and delivered to such Participant as soon as practicable after the date on which such Stock Bonus is payable, or, as determined by the Committee, the Company shall make a book entry record of such share.
13.
Other Awards, Including Cash-Based and Other Stock-Based Awards.
Other forms of Awards (“Other Awards”) valued in whole or in part by reference to, or otherwise based on, Company Stock, including but not limited to dividend equivalents or cash incentive awards, may be granted either alone or in addition to other Awards (other than in connection with Options or Stock Appreciation Rights) under the Plan. Any dividend or dividend equivalent
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APPENDIX B—RITE AID CORPORATION AMENDED AND RESTATED 2020 OMNIBUS EQUITY INCENTIVE PLAN
awarded under the Plan shall be subject to the same restrictions, conditions and risks of forfeiture as the underlying Award and shall only become payable if (and to the extent) the underlying Awards vest. No dividend or dividend equivalent awarded in respect of an Award under the Plan shall be paid or settled until such underlying Award becomes vested pursuant to the terms of the Plan and the applicable Agreement. Cash incentive awards may be denominated in units that have a dollar value established by the Committee as of the date of grant. Subject to the provisions of the Plan, the Committee shall have sole and complete authority to determine the persons to whom and the time or times at which such Other Awards shall be granted, the number of shares of Company Stock to be granted pursuant to such Other Awards, or the manner in which such Other Awards shall be settled (e.g., in shares of Company Stock or cash), or the conditions to the vesting and/or payment or settlement of such Other Awards (which may include, but not be limited to, achievement of performance goals including goals based on one or more Business Criteria) and all other terms and conditions of such Other Awards. If a cash incentive award is not by its terms exempt from Code Section 409A, then the applicable Agreement shall contain terms and conditions intended to avoid adverse tax consequences specified in Code Section 409A.
14.
Change in Control Provisions.
(a)
Unless otherwise provided by the Committee or in the applicable Agreement, and subject to Section 3(b), in the event of a Change in Control:
(i)
With respect to each outstanding time-based Award that is assumed or substituted in connection with a Change in Control, in the event of a Qualifying Termination of a Participant’s employment or service during the 24-month period following such Change of Control, (i) such Award shall become fully vested and exercisable and (ii) the restrictions, payment conditions, and forfeiture conditions applicable to any such Award granted shall lapse. With respect to each outstanding performance-based Award that is assumed or substituted in connection with a Change in Control, in the event of a Qualifying Termination of a Participant’s employment or service during the 24-month period following such Change of Control, the Participant shall vest in a number of Shares subject to such performance-based Award equal to the product of (i) the number of Shares subject to the performance-based Award assuming the target level of performance and (ii) a fraction, the numerator of which is the number of days elapsed from the first day of the performance period through and including the date of the Qualifying Termination, and the denominator of which is the total number of days in the performance period.
(ii)
With respect to each outstanding Award that is not assumed or substituted in connection with a Change in Control, immediately upon the occurrence of the Change of Control, (i) such Award shall become fully vested and exercisable, (ii) the restrictions, payment conditions, and forfeiture conditions applicable to any such Award granted shall lapse, and (iii) and any performance conditions imposed with respect to such Award shall be deemed to be achieved at target performance levels.
(iii)
For purposes of this proxy statement. Our actual results, performanceSection 14, an Award shall be considered assumed or achievements could differ materiallysubstituted for if, following the Change in Control, (A) the Award is of comparable value and remains subject to the same terms and conditions that were applicable to the Award immediately prior to the Change in Control except that, if the Award related to shares of Company Stock, the Award instead confers the right to receive common stock of the acquiring or ultimate parent entity and (B) the securities of the acquiring or ultimate parent entity underlying the Award after such assumption or substitution are freely tradable on a domestic stock exchange.
(iv)
Notwithstanding any other provision of the Plan, in the event of a Change in Control, except as would otherwise result in adverse tax consequences under Section 409A of the Code, the Committee may, in its discretion, provide that each Award shall, immediately upon the occurrence of a Change in Control, be cancelled in exchange for a payment in cash or securities in an amount equal to (i) the excess of the consideration paid per share of Company Stock in the Change in Control over the exercise or purchase price (if any) per share of Company Stock subject to the Award multiplied by (ii) the number of shares of Company Stock granted under the Award. If the amount determined pursuant to the immediately preceding sentence is zero, such Award may be cancelled pursuant to this Section 14(a) without payment of any consideration to the affected Participant. The Committee shall not be required to treat all Awards similarly for purposes of this Section 14(a). Payment of amounts under this Section 14(a) shall be made in such form, on such terms and subject to such conditions as the Committee determines in its discretion, which may or may not be the same as the form, terms and conditions applicable to payments to the Company’s stockholders in connection with the Change in Control and may, in the Committee’s discretion, include subjecting such payments to vesting conditions comparable to the Awards surrendered, subjecting such payments to escrow or holdback provisions comparable to those imposed upon the Company’s stockholders in connection with the Change in Control, or calculating and paying the present value of payments that would otherwise be subject to escrow or holdback terms.
(b)
Notwithstanding the foregoing, for each Award that constitutes nonqualified deferred compensation under Section 409A of the Code, if required to avoid accelerated taxation and/or tax penalties under Section 409A of the Code, a Change in Control shall be deemed to have occurred for purposes of the payment or settlement of such Award under the Plan only if a “change in the ownership of the corporation,” a “change in effective control of the corporation” or a “change in the ownership of a substantial portion of the assets of the corporation,” within the meaning of Section 409A(a)(2)(A)(v) of the Code shall also be deemed to have occurred under Section 409A of the Code.
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APPENDIX B—RITE AID CORPORATION AMENDED AND RESTATED 2020 OMNIBUS EQUITY INCENTIVE PLAN
(c)
The obligations of the Company under the Plan shall be binding upon any successor corporation or organization resulting from the results expressedmerger, consolidation or other reorganization of the Company, or upon any successor corporation or organization succeeding to substantially all of the assets and business of the Company.
(d)
A “Change in Control” of the Company shall be deemed to have occurred, as the result of a single transaction or a series of transactions, if the events set forth in any one of the following paragraphs shall have occurred:
(i)
Any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company’s then outstanding voting securities;
(ii)
Incumbent Directors cease at any time and for any reason to constitute a majority of the number of directors then serving on the Board of Directors. “Incumbent Directors” shall mean directors who either are directors of the Company as of the Effective Date or are elected, or nominated for election, to the Board of Directors with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination but shall not include an individual whose election or nomination is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors to the Board of Directors;
(iii)
There is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent, either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof, more than 50% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately alter such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Company or similar transaction in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 35% or more of the combined voting power of the Company’s then outstanding voting securities; or
(iv)
The stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated of an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale.
(e)
“Affiliate” shall have the meaning set forth in Rule 12b-2 under Section 12 of the Exchange Act.
(f)
“Beneficial Owner” shall have the meaning set forth in Rule 13d-3 under the Exchange Act, except that a Person shall not be deemed to be the Beneficial Owner of any securities which are properly filed on a Form 13G.
(g)
“Exchange Act” shall mean the Securities Exchange Act of 1934. as amended from time to time.
(h)
“Person” shall have the meaning given in Section 3a9 of the Exchange Act as modified and used in Sections 13d and 14d thereof, except, that such term shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of the stock of the Company.
15.
Rights as a Stockholder.
No person shall have any rights as a stockholder with respect to any shares of Company Stock covered by or relating to any Award until the date of record issuance of such shares of Company Stock in the books of the Company or the issuance of a stock certificate with respect to such shares. Except for adjustments provided in Section 3(b), no adjustment to any Award shall be made for dividends or other rights for which the record date occurs prior to the date such book entry is made or stock certificate is issued.
16.
No Employment Rights; No Right to Award.
Nothing contained in the Plan or any Agreement shall confer upon any Participant any right with respect to the continuation of employment by or provision of services to the Company or interfere in any way with the right of the Company, subject to the terms of any separate agreement to the contrary, at any time to terminate such employment or service or to increase or decrease the compensation of the Participant. No person shall have any claim or right to receive an Award hereunder. The Committee’s granting of an Award to a Participant at any time shall neither require the Committee to grant any other Award to such Participant or other person at any time nor preclude the Committee from making subsequent grants to such Participant or any other person.
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APPENDIX B—RITE AID CORPORATION AMENDED AND RESTATED 2020 OMNIBUS EQUITY INCENTIVE PLAN
17.
Securities Matters and Regulations.
(a)
Notwithstanding anything herein to the contrary, the obligation of the Company to sell or deliver Company Stock with respect to any Award granted under the Plan shall be subject to all applicable laws, rules and regulations, including all applicable federal and state securities laws, and the obtaining of all such approvals by governmental agencies as may be deemed necessary or appropriate by the Committee. The Committee may require, as a condition of the issuance and delivery of certificates evidencing shares of Company Stock pursuant to the terms hereof, that the recipient of such shares make such agreements and representations, and that such certificates bear such legends, as the Committee, in its sole discretion, deems necessary or advisable.
(b)
Each Award is subject to the requirement that, if at any time the Committee determines, in its absolute discretion, that the listing, registration or qualification of Company Stock issuable pursuant to the Plan is required by any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the grant of an Award or the issuance of Company Stock, no such Award shall be granted or payment made or Company Stock issued, in whole or in part, unless listing, registration, qualification, consent or approval has been effected or obtained free of any conditions not acceptable to the Committee.
(c)
In the event that the disposition of Company Stock acquired pursuant to the Plan is not covered by a then current registration statement under the Securities Act and is not otherwise exempt from such registration, such Company Stock shall be restricted against transfer to the extent required by the Securities Act or regulations thereunder, and the Committee may require a Participant receiving Company Stock pursuant to the Plan, as a condition precedent to receipt of such Company Stock, to represent to the Company in writing that the Company Stock acquired by such Participant is acquired for investment only and not with a view to distribution.
18.
Withholding Taxes.
Whenever cash is to be paid pursuant to an Award, the Company shall have the right to deduct therefrom an amount sufficient to satisfy any federal, state and local withholding tax requirements related thereto. Whenever shares of Company Stock are to be delivered pursuant to an Award, the Company shall have the right to require the Participant to remit to the Company in cash an amount sufficient to satisfy any federal, state and local withholding tax requirements related thereto. With the approval of the Committee, a Participant may satisfy the foregoing requirement by electing to have the Company withhold from delivery shares of Company Stock having a value equal to the maximum amount of tax required to be withheld. Such shares shall be valued at their Fair Market Value on the date of which the amount of tax to be withheld is determined. Fractional share amounts shall be settled in cash. Such a withholding election may be made with respect to all or any portion of the shares to be delivered pursuant to an Award.
19.
Notification of Election Under Section 83(b) of the Code.
If any Participant shall, in connection with the acquisition of shares of Company Stock under the Plan, make the election permitted under Section 83(b) of the Code, such Participant shall notify the Company of such election within 10 days of filing notice of the election with the Internal Revenue Service.
20.
Notification Upon Disqualifying Disposition Under Section 421(b) of the Code.
Each Agreement with respect to an Incentive Stock Option shall require the Participant to notify the Company of any disposition of shares of Company Stock issued pursuant to the exercise of such Option under the circumstances described in Section 421(b) of the Code (relating to certain disqualifying dispositions), within 10 days of such disposition.
21.
Voting Proxy
The Company reserves the right to require the Participant, to the fullest extent permitted by applicable law, to appoint such Person as shall be determined by the Board in its sole discretion as the Participant’s proxy with respect to all applicable unvested Awards of which the Participant may be the record holder of from time to time to (A) attend all meetings of the holders of the shares of Company Stock, with full power to vote and act for the Participant with respect to such Awards in the same manner and extent that the Participant might were the Participant personally present at such meetings, and (B) execute and deliver, on behalf of the Participant, any written consent in lieu of a meeting of the holders of the shares of Company Stock in the same manner and extent that the Participant might but for the proxy granted pursuant to this sentence.
22.
Amendment or Termination of the Plan.
The Board of Directors may, at any time, suspend or terminate the Plan or revise or amend it in any respect whatsoever; provided, however, that stockholder approval shall be required for any such amendment if and to the extent such approval is required in order to comply with applicable law or stock exchange listing requirement. Nothing herein shall restrict the Committee’s ability to exercise its discretionary authority pursuant to Sections 3 and 4, which discretion may be exercised without amendment to the Plan. No action hereunder may, without the consent of a Participant, reduce the Participant’s rights under any outstanding Award.
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APPENDIX B—RITE AID CORPORATION AMENDED AND RESTATED 2020 OMNIBUS EQUITY INCENTIVE PLAN
23.
Transfer of Awards.
Until such time as the Awards are fully vested and/or exercisable in accordance with the Plan or an Agreement, no purported sale, assignment, mortgage, hypothecation, transfer, charge, pledge, encumbrance, gift, transfer in trust (voting or other) or other disposition of, or creation of a security interest in or impliedlien on, any Award or any agreement or commitment to do any of the foregoing (each, a “Transfer”) by these forward-looking statements. Factors that could causeany holder thereof in violation of the provisions of the Plan or contributean Agreement will be valid, except with the prior written consent of the Committee, which consent may be granted or withheld in the sole discretion of the Committee. Any purported Transfer of an Award or any economic benefit or interest therein in violation of the Plan or an Award Agreement shall be null and void ab initio, and shall not create any obligation or liability of the Company, and any Person purportedly acquiring any Award or any economic benefit or interest therein transferred in violation of the Plan or an Agreement shall not be entitled to be recognized as a holder of any shares of Common Stock or other property underlying such Award. Unless otherwise determined by the Committee in accordance with the provisions of the immediately preceding sentence, an Option or Stock Appreciation Right may be exercised, during the lifetime of the Participant, only by the Participant or, during any period during which the Participant is under a legal disability, by the Participant’s guardian or legal representative. Upon the death of a Participant, outstanding Awards granted to such differencesParticipant may be exercised only by the executor or administrator of the Participant’s estate or by a person who shall have acquired the right to such exercise by will or by the laws of descent and distribution. No transfer of an Award by will or the laws of descent and distribution shall be effective to bind the Company unless the Committee shall have been furnished with (a) written notice thereof and with a copy of the will and/or such evidence as the Committee may deem necessary to establish the validity of the transfer and (b) an agreement by the transferee to comply with all the terms and conditions of the Award that are discussedor would have been applicable to the Participant and to be bound by the acknowledgments made by the Participant in connection with the grant of the Award.
24.
Expenses and Receipts.
The expenses of the Plan shall be paid by the Company. Any proceeds received by the Company in connection with any Award may be used for general corporate purposes.
25.
Effective Date and Term of Plan.
The Plan shall be subject to the requisite approval of the stockholders of the Company. In the absence of such approval, any Awards shall be null and void. Unless earlier terminated by the Board of Directors, the right to grant Awards under the Plan shall terminate on the tenth anniversary of the Effective Date. Awards outstanding at Plan termination shall remain in effect according to their terms and the provisions of the Plan.
26.
Participant Rights.
No Participant shall have any claim to be granted any award under the Plan, and there is no obligation for uniformity of treatment for Participants.
27.
Unfunded Status of Awards.
The Plan is intended to constitute an “unfunded” plan for incentive and deferred compensation. With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the sections entitled "Risk Factors"Plan or any Agreement shall give any such Participant any rights that are greater than those of a general creditor of the Company.
28.
No Fractional Shares.
No fractional shares of Company Stock shall be issued or delivered pursuant to the Plan. The Committee shall determine whether cash, other Awards, or other property shall be issued or paid in lieu of such fractional shares or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated.
29.
Beneficiary.
A Participant may file with the Committee a written designation of a beneficiary on such form as may be prescribed by the Committee and "Management's Discussion and Analysismay, from time to time, amend or revoke such designation. If no designated beneficiary survives the Participant, the executor or administrator of Financial Condition and Resultsthe Participant’s estate shall be deemed to be the Participant’s beneficiary.
30.
Paperless Administration.
In the event that the Company establishes, for itself or using the services of Continuing Operations—Overview and Factors Affecting Our Future Prospects"a third party, an automated system for the documentation, granting or exercise of Awards, such as a system using an internet website or interactive voice response, then the paperless documentation, granting or exercise of Awards by a Participant may be permitted through the use of such an automated system.
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APPENDIX B—RITE AID CORPORATION AMENDED AND RESTATED 2020 OMNIBUS EQUITY INCENTIVE PLAN
31.
Severability.
If any provision of the Plan is held to be invalid or unenforceable, the other provisions of the Plan shall not be affected but shall be applied as if the invalid or unenforceable provision had not been included in our Annual Reportthe Plan.
32.
Applicable Law.
Except to the extent preempted by any applicable federal law, the Plan shall be construed and administered in accordance with the laws of the State of Delaware without reference to its principles of conflicts of law.
33.
Section 409A Compliance.
The Plan as well as payments and benefits under the Plan are intended to be exempt from, or to the extent subject thereto, to comply with Section 409A of the Code, and, accordingly, to the maximum extent permitted, the Plan shall be interpreted in accordance therewith. Notwithstanding anything contained herein to the contrary, to the extent required in order to avoid accelerated taxation and/or tax penalties under Section 409A of the Code, the Participant shall not be considered to have terminated employment or service with the Company for purposes of the Plan and no payment shall be due to the Participant under the Plan or any Award until the Participant would be considered to have incurred a “separation from service” from the Company and its Affiliates within the meaning of Section 409A of the Code. Any payments described in the Plan that are due within the “short term deferral period” as defined in Section 409A of the Code shall not be treated as deferred compensation unless applicable law requires otherwise. Notwithstanding anything to the contrary in the Plan, to the extent that any Awards (or any other amounts payable under any plan, program or arrangement of the Company or any of its Affiliates) are payable upon a separation from service and such payment would result in the imposition of any individual tax and penalty interest charges imposed under Section 409A of the Code, the settlement and payment of such Awards (or other amounts) shall instead be made on Form 10-Kthe first business day after the date that is six (6) months following such separation from service (or upon the Participant’s death, if earlier). Each amount to be paid or benefit to be provided under this Plan shall be construed as a separate identified payment for fiscal year 2019.
purposes of Section 409A of the Code. The Company makes no representation that any or all of the payments or benefits described in this Plan will be exempt from or comply with Section 409A of the Code and makes no undertaking to preclude Section 409A of the Code from applying to any such payment. The Participant shall be solely responsible for the payment of any taxes and penalties incurred under Section 409A of the Code. Forfeiture and Compensation Recovery.
(a)
The Committee may specify in an Agreement that the Participant’s rights, payments and benefits with respect to an Award will be subject to reduction, cancellation or forfeiture or recovery by the Company upon the occurrence of certain specified events, in addition to any otherwise applicable vesting or performance conditions of the Award. Such events may include termination of employment or service for Cause, violation of material Company policies, breach of noncompetition or other restrictive covenants that apply to the Participant, a determination that the payment of the Award was based on an incorrect determination that financial or other criteria were met or other conduct by the Participant that is detrimental to the business or reputation of the Company or its Affiliates.
(b)
Awards and any payments or compensation associated therewith may be made subject to forfeiture or recovery by the Company or other action pursuant to any compensation recovery or recoupment policy adopted by the Board of Directors or the Committee at any time, including without limitation in response to requirements of Section 10D of the Exchange Act and any implementing rules and regulations thereunder, or as otherwise required by law. Any Agreement may be unilaterally amended by the Committee to comply with such compensation recovery or recoupment policy.
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VIEW MATERIALS & VOTE w SCAN TO B-14 | RITE AID CORPORATION 2021 Proxy Statement
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ITE AID CORPORATION ATTN: BYRON PURCELL 30 HUNTER LANE CAMP HILL, PA 17011 VOTE BY INTERNET -Before The Meeting — Go to www.proxyvote.com or scan the QR Barcode above Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Daylight Time, July 16, 2019.6, 2021. Have your proxy card in hand when you access the web sitewebsite and follow the instructions to obtain your records and to create an electronic voting instruction form. During The Meeting — Go to www.virtualshareholdermeeting.com/RAD2021 You may attend the meeting via the Internet and vote during the meeting. Have the information that is printed in the box marked by the arrow available and follow the instructions. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE - PHONE—1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Daylight Time, July 16, 2019.6, 2021. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. Yo u c an ob tai n dir ec ti ons t o t he Ann ual M eet in g b y c on tac t ing Ri te Ai d' s Investor Relations Department at (717) 975-3710.D55052-P56982 TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: E81023-P26618 KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. DETACH AND RETURN THIS PORTION ONLY RITE AID CORPORATION The Board of Directors unanimously recommends that you vote FOR the following: 1. Election of Directors Nominees: For Against Abstain ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! 1a. Bruce G. Bodaken 1b. Elizabeth ‘Busy’ Burr 1c. Heyward Donigan 1d. Bari Harlam 1e. Robert E. Knowling, Jr. 1f. Kevin E. Lofton 1g. Louis P. Miramontes 1h. Arun Nayar 1i. Katherine ‘Kate’ B. Quinn Abstain Against For The Board of Directors unanimously recommends that you vote FOR Proposals 2, 3 and 3. For Against Abstain ! ! For ! ! Against ! ! Abstain 1b. Elizabeth 'Busy' Burr4. 2. Ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm. 1c. Robert E. Knowling, Jr. 3. Approve, on an advisory basis, the compensation of our named executive officers as presented in the proxy statement. 1d. Kevin E. Lofton The Board of Directors unanimously recommends that you vote AGAINST Proposal 4. ! ! ! 4. Consider a stockholder proposal, if properly presented atApprove the Annual Meeting, seeking a By-Law amendment for a 10% ownership threshold for stockholders to call special meetings. 1e. Louis P. Miramontes 1f. Arun NayarRite Aid Corporation Amended and Restated 2020 Omnibus Equity Incentive Plan. NOTE: Such other business as may properly come before the meeting or any adjournment thereof. 1g. Katherine Quinn 1h. Marcy Syms For address changes and/or comments, please check this box and write them on the back where indicated. ! Yes ! No Please indicate if you plan to attend this meeting.Against Abstain Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
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Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Notice and Proxy Statement and Form 10-K are available at www.proxyvote.com. E81024-P26618D55053-P56982 RITE AID CORPORATION Annual Meeting of Stockholders July 17, 20197, 2021 at 8:11:30 AM, Eastern Daylight Time This proxy is solicited by the Board of Directors The stockholder(s) hereby appoint(s) Heyward Donigan, Matthew Schroeder and James J. Comitale,Peters, or any of them, as proxies, each with the power to appoint hisa substitute, and hereby authorize(s) them to represent and to vote, as designated on the reverse side of this proxy card, all of the shares of common stock of RITE AID CORPORATION that the stockholder(s) is/are entitledareentitled to vote at the Annual Meeting of Stockholders to be held at 8:11:30 AM, EDTEastern Daylight Time on July 17, 2019 at the office of Skadden, Arps, Slate, Meagher & Flom LLP, Four Times Square, New York, NY 10036 and any adjournment or postponement thereof.7, 2021 atwww.virtualshareholdermeeting.com/RAD2021. If applicable, the proxy shall also govern the voting stock held for the account of the undersigned in the Company's Investment Opportunity Plan, or any applicable employee benefit plan. The validity of this proxy is governed by the laws of the State of Delaware. This proxy does not revoke any prior powers of attorney except for prior proxies given in connection with the Annual Meeting of Stockholders. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS SPECIFIED, OR, IF NO SPECIFICATIONS ARE MADE, WILL BE VOTED IN ACCORDANCE WITH THE BOARD OF DIRECTORS'DIRECTORS’ RECOMMENDATIONS. IF ANY OTHER MATTER IS PROPERLY PRESENTED AT THE ANNUAL MEETING OF STOCKHOLDERS, THIS PROXY WILL BE VOTED IN THE NAMED PROXIES'PROXIES’ DISCRETION ON SUCH MATTER. PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. (If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.) Continued and to be signed on reverse side Address Changes/Comments:
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