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TABLE OF CONTENTS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrantý | |||||
Filed by a Party other than the Registranto | |||||
Check the appropriate box: | |||||
ý | Preliminary Proxy Statement | ||||
o | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | ||||
o | Definitive Proxy Statement | ||||
o | Definitive Additional Materials | ||||
o | Soliciting Material |
RITE AID CORPORATION | ||||||||
(Name of Registrant as Specified In Its Charter) | ||||||||
(Name of Person(s) Filing Proxy Statement, if other than the Registrant) | ||||||||
Payment of Filing Fee (Check the appropriate box): | ||||||||
ý | No fee required. | |||||||
o | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. | |||||||
(1) | Title of each class of securities to which transaction applies: | |||||||
(2) | Aggregate number of securities to which transaction applies: | |||||||
(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): | |||||||
(4) | Proposed maximum aggregate value of transaction: | |||||||
(5) | Total fee paid: | |||||||
o | Fee paid previously with preliminary materials. | |||||||
o | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. | |||||||
(1) | Amount Previously Paid: | |||||||
(2) | Form, Schedule or Registration Statement No.: | |||||||
(3) | Filing Party: | |||||||
(4) | Date Filed: |
PRELIMINARY COPY—SUBJECT TO COMPLETION
[ · ], 2019
Dear Fellow Stockholders:
On behalf of the Board of Directors (the "Board") of Rite Aid Corporation ("Rite Aid" or the "Company"), you are cordially invited to attend a Special Meeting of Stockholders to be held at 8:30 a.m., local time, on March 21, 2019, at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, Four Times Square, New York, New York 10036.
At the Special Meeting, stockholders will consider and vote on a proposal to adopt and approve an amendment to our Amended and Restated Certificate of Incorporation that effects (a) a reverse stock split of our outstanding shares of common stock, at a reverse stock split ratio of 1-for-10, 1-for-15 or 1-for-20, as determined by our Board at a later date, and (b) a reduction in the number of authorized shares of Rite Aid's common stock by a corresponding ratio.
The proxy statement attached to this letter provides you with information about the proposed reverse stock split amendment. Please read the entire proxy statement carefully. You may obtain additional information about the Company from documents we file with the Securities and Exchange Commission.
It is important that your shares be represented and voted at the meeting. Please vote as soon as possible even if you plan to attend the Special Meeting. We appreciate your continued ownership of Rite Aid shares and your support regarding this matter.
Sincerely, | ||
Bruce G. Bodaken |
PRELIMINARY COPY—SUBJECT TO COMPLETION
RITE AID CORPORATION
P.O. BOX 3165
HARRISBURG, PENNSYLVANIA 17105
Notice of Annual Meeting of StockholdersNOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held on June 25, 2009March 21, 2019
To Our Stockholders:
What: | ||||
When: | ||||
Where: | Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 | |||
Why: | At this | |||
In addition, the holders
Proposal No. 1: | A proposal, which we refer to as the "reverse stock split proposal," to adopt and approve an amendment to our Amended and Restated Certificate of Incorporation to effect (a) a reverse stock split of our outstanding shares of common stock, at a reverse stock split ratio of 1-for-10, 1-for-15 or 1-for-20, as determined by our Board of Directors at a later date, and (b) a reduction in the number of authorized shares of Rite Aid's common stock by a corresponding ratio. | ||
Proposal No. 2 | A proposal, which we refer to as the "adjournment proposal," to approve, if necessary, the adjournment of the Special Meeting to solicit additional proxies in favor of the reverse stock split proposal. |
Notwithstanding approval of the 7% Series G Cumulative Convertible Pay-in-Kind Preferred Stock and 6% Series H Cumulative Convertible Pay-in-Kind Preferred Stock, voting together as a single class, separately fromreverse stock split proposal by our stockholders, the holdersBoard of Common Stock, will voteDirectors reserves its right to elect one directornot to hold office untilproceed with implementing the 2010 Annual Meetingreverse stock split proposal at any time prior to the date on which the amendment to our Amended and Restated Certificate of Stockholders (or untilIncorporation becomes effective pursuant the 2012 Annual MeetingGeneral Corporation Law of Stockholdersthe State of Delaware (the "DGCL"), if Proposal No. 1it determines, in its sole discretion, that the reverse stock split proposal is not approved, as describedno longer in the attached proxy statement) and until a successor is duly elected and qualified.best interests of the Company or its stockholders.
The close of business on April 28, 2009February 5, 2019 has been fixed as the record date for determining those Rite Aid stockholders entitled to vote at the AnnualSpecial 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 AnnualSpecial Meeting and any adjournment or postponement of the AnnualSpecial Meeting. The above items of business for the AnnualSpecial Meeting are more fully described in the proxy statement accompanyingthat accompanies this notice.
Your vote is important.Please read the proxy statement and the instructions on the enclosed proxy card and then, whether or not you plan to attend the AnnualSpecial Meeting in person, and no matter how
many shares you own, please submit your proxy promptly by telephone or via the Internet in accordance with the instructions on the enclosed proxy card, or by completing, dating and returning
your proxy card in the envelope provided. This will not prevent you from voting in person at the AnnualSpecial Meeting. It will, however, help to assure a quorum and to avoid added proxy solicitation costs.
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 AnnualSpecial Meeting, in which case your prior proxy would be disregarded.
By order of the Board of Directors | ||
James J. Comitale | ||
Camp Hill, Pennsylvania [ |
PRELIMINARY COPY—SUBJECT TO COMPLETION
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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING | 3 | |||
PROPOSAL NO. 1 THE REVERSE STOCK SPLIT PROPOSAL | 8 | |||
General | 8 | |||
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Certain | 10 | |||
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Effect on Rite Aid's Stock Plans | 13 | |||
Reduction In Stated Capital | 13 | |||
No Going Private Transaction | 13 | |||
Shares Held in Book-Entry and Through a Broker, Bank or Other Holder of Record | 13 | |||
Shares Held in Certificated Form | 14 | |||
Vote Required | 14 | |||
No Appraisal Rights | 14 | |||
Interest of Certain Persons in Matters to be Acted Upon | 14 | |||
Certain U.S. Federal Income Tax Consequences of the Reverse Stock Split | 14 | |||
PROPOSAL NO. 2 THE ADJOURNMENT PROPOSAL | 17 | |||
General | 17 | |||
Vote Required | 17 | |||
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF RITE AID | 18 | |||
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS | 20 | |||
STOCKHOLDER PROPOSALS FOR THE 2019 ANNUAL MEETING OF STOCKHOLDERS | 21 | |||
IMPORTANT NOTICE REGARDING DELIVERY OF STOCKHOLDER DOCUMENTS | 23 | |||
OTHER MATTERS | 24 | |||
ANNEX A | A-1 |
i
PRELIMINARY COPY—SUBJECT TO COMPLETION
RITE AID CORPORATION
P.O. BOX 3165
HARRISBURG, PENNSYLVANIA 17105
PROXY STATEMENT
FOR THE ANNUALSPECIAL MEETING OF STOCKHOLDERS
To Be Held on June 25, 2009
GENERAL INFORMATIONMarch 21, 2019
Important Notice Regarding the Availability of Proxy Materials for theStockholderSpecial Meeting to be Held on June 25, 2009:March 21, 2019:
The proxy statement and annual report are available athttp: .
Also available on the website are the Company's proxy card, as well as instruction cardsare available atand related materials for voting shares of common stock held in the Company's 401(k) plans.www.proxyvote.com.
This proxy statement is being furnished to you by the Board of Directors (the "Board" or "Board of Directors") of Rite Aid Corporation (the "Company" or "Rite Aid") to solicit your proxy to vote your shares at our 2009 AnnualSpecial Meeting of Stockholders.Stockholders (the "Special Meeting"). The AnnualSpecial Meeting will be held on June 25, 2009March 21, 2019 at 10:8:30 a.m., local time, at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, Four Times Square, 37th Floor, New York, New York.York 10036.
This proxy statement, the foregoing notice and the accompanying proxy card are first being mailedmade available on or about May [14], 2009[ · ], 2019 to all holders of our common stock, par value $1.00 per share, and 7% Series G Cumulative Convertible Pay-in-Kind Preferred Stock and 6% Series H Cumulative Convertible Pay-in-Kind Preferred Stock, entitled to vote at the AnnualSpecial Meeting.
Purpose of the Special Meeting
The purpose of the Special Meeting is to consider and vote on the following proposals:
Proposal No. 1: | A proposal, which we refer to as the "reverse stock split proposal," to adopt and approve an amendment to our Amended and Restated Certificate of Incorporation to effect (a) a reverse stock split of our outstanding shares of common stock, at a reverse stock split ratio of 1-for-10, 1-for-15 or 1-for-20, as determined by our Board of Directors at a later date (the "Reverse Stock Split"), and (b) a reduction in the number of authorized shares of Rite Aid's common stock by a corresponding ratio (the "Authorized Share Reduction"). | ||
Proposal No. 2: | A proposal, which we refer to as the "adjournment proposal," to approve, if necessary, the adjournment of the Special Meeting to solicit additional proxies in favor of the reverse stock split proposal. |
If the reverse stock split proposal is approved by the Company's stockholders at the Special Meeting, it will be effected, if at all, only upon a subsequent determination by the Board of Directors that the Reverse Stock Split and Authorized Share Reduction are in the best interests of the Company and our stockholders at the time the reverse stock split proposal is effected. The Board may make this
determination as soon as immediately following the conclusion of the Special Meeting, and the Reverse Stock Split and Authorized Share Reduction could become effective as soon as the business day immediately following the Special Meeting.
Notwithstanding approval of the reverse stock split proposal by our stockholders, the Board of Directors reserves its right to elect not to proceed with implementing the reverse stock split proposal at any time prior to the date on which the amendment to our Amended and Restated Certificate of Incorporation becomes effective pursuant the DGCL, if it determines, in its sole discretion, that the reverse stock split proposal is no longer in the best interests of the Company or its stockholders.
QUESTIONS AND ANSWERS ABOUT THE ANNUALSPECIAL MEETING
Who is entitled to vote at the AnnualSpecial Meeting?
Holders of Rite Aid common stock and shares of 7% Series G Cumulative Convertible Pay-in-Kind Preferred Stock and 6% Series H Cumulative Convertible Pay-in-Kind Preferred Stock, which are collectively referred to in this proxy statement as the "LGP preferred stock," as of the close of business on the record date, April 28, 2009,February 5, 2019, will receive notice of, and be eligible to vote at, the AnnualSpecial Meeting and any adjournment or postponement of the AnnualSpecial Meeting. At the close of business on the record date, Rite Aid had outstanding and entitled to vote [ · ] shares of common stock and 1,434,990.0325 shares of LGP preferred stock (which, on an as-if-converted basis, are entitled to an aggregate of 26,090,728 votes).stock. No other shares of Rite Aid capital stock are entitled to notice of and to vote at the AnnualSpecial Meeting.
What matters will be voted on at the AnnualSpecial Meeting?
There are fourThe two proposals that are scheduled to be considered and voted on at the Annual Meeting:
In addition, the holders of the LGP Preferred Stock, voting separately as a class, will vote to elect one director (the "LGP Preferred Director") to hold office until the 2010 Annual Meeting of Stockholders (or until the 2012 Annual Meeting of Stockholders if Proposal No. 1 is not approved) and until his successor is duly elected and qualified.
Stockholders will also be asked to consider and vote at the Annual Meeting 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.proposal.
What are the Board's voting recommendations?
The Board of Directors recommends that you vote "FOR" the Amendmentreverse stock split proposal and "FOR" the adjournment proposal.
Why does Rite Aid need to hold this vote?
On January 3, 2019, we were notified in writing by The New York Stock Exchange, Inc. (the "NYSE") that the average closing trading price of our common stock was below the criteria of the NYSE's continued listing standards, as the average per share closing price of our common stock over a consecutive 30-trading day period was less than $1.00. In the letter, the NYSE stated that we have a six-month cure period that started on January 3, 2019 to bring the price of our common stock and the 30-trading day average closing price of our common stock above $1.00. In the letter, the NYSE further stated that in the event a $1.00 share price and a $1.00 average share price over the preceding 30 trading days are not attained at the expiration of the six-month cure period, the NYSE will commence suspension and delisting procedures. The NYSE has reserved the right to reevaluate its continued listing determinations relating to companies who are notified of non-compliance like Rite Aid with respect to the NYSE's qualitative listing standards, including if our shares trade at sustained levels that are considered to be abnormally low. On January 7, 2019, we provided written notice to the NYSE of the Board of Directors' approval to pursue a reverse stock split in order to bring our share price and average share price back above $1.00 within the six-month cure period, if necessary.
Our Board of Directors has determined that an amendment to our Amended and Restated Certificate of Incorporation to declassifyeffect the Reverse Stock Split and the Authorized Share Reduction may be necessary to promote the continued listing of our common stock on the NYSE and is in the best interests of our stockholders. If approved and implemented, the Board of Directors will select a reverse stock split ratio of 1-for-10, 1-for-15 or 1-for-20, at a later date based on various factors, including the then prevailing market conditions and the existing and expected per share trading prices of our common stock. Pursuant to the law of our state of incorporation, Delaware, our Board of Directors.
TheDirectors must adopt any amendment to our Amended and Restated Certificate of Incorporation and submit the amendment to stockholders for approval. Accordingly, our Board recommends that youof Directors is requesting your proxy to vote "FOR" the nomineesreverse stock split proposal and "FOR" the adjournment proposal.
In addition to bringing the per share trading price of our common stock back above $1.00, we also believe that the Reverse Stock Split will make our common stock more attractive to a broader range of institutional and other investors, as we have been advised that the current per share trading price of our common stock may affect its acceptability to certain institutional investors, professional investors and other members of the Boardinvesting public. Many brokerage houses and institutional investors have internal policies and practices that either prohibit them from investing in low-priced stocks or tend to
discourage individual brokers from recommending low-priced stocks to their customers. In addition, some of those policies and practices may function to make the electionprocessing of directors.
The Board recommends that you vote "AGAINST" the stockholder proposal.
The Board recommends that you vote for "FOR" the ratification of Deloitte & Touche LLP as the Company's independent registered public accounting firm.trades in low-priced stocks economically unattractive to brokers.
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, American Stock Transfer & Trust Company,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, trusteebank 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 AnnualSpecial Meeting?
If you hold your shares in your own name,you may submit a proxy by telephone, via the Internet or by mail.
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 AnnualSpecial 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 or broker's voting process. Please check with your bank or broker and follow the voting procedures your bank or broker provides to vote your shares. Also, please note that if the holder of record of your shares is a bank, broker bank or other nominee and you wish to vote in person at the AnnualSpecial 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 AnnualSpecial Meeting; otherwise, you will not be able to vote in person at the Special 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")Under NYSE rules, applicablethe reverse stock split proposal and the adjournment proposal are considered "discretionary" items. Consequently, for both proposals, a broker will have discretion to broker-dealers grantvote your broker discretionary authority to
shares and, therefore, may vote your shares without receivingwith respect to both proposals if you do not provide your broker with instructions on certain matters, which include the election of directors and the ratification of the appointment of our independent registered public accounting firm. However, your broker does not have discretionary authority to vote your shares for certain other types of matters.such proposal.
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 AnnualSpecial 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 Amendment of our Restated Certificate of Incorporation to declassify our Board of Directors, "FOR" the nominees of the Board in the election of directors, "AGAINST" the stockholderreverse stock split proposal requesting an advisory vote on executive compensation, and "FOR" the ratification of the appointment of Deloitte & Touche LLP as the Company's independent registered public accounting firm for fiscal year 2010.
Table of Contentsadjournment proposal.
How do I vote my shares held in one ofWho may attend the Rite Aid 401(k) plans? What happens if I do not vote my 401(k) plan shares?Special Meeting?
All stockholders are invited to attend the Special Meeting. Persons who are not stockholders may attend only if invited by the Board of Directors. If you are a participant in onethe beneficial owner of Rite Aid's 401(k) plans, the voter instruction card sent to you will serve as a voting instruction card to the trustee of the 401(k) plans for all shares of our common stock you own through the applicable 401(k) plan. You are entitled to instruct the plan trustee on how to vote your shares in the 401(k) plan by telephone, via the Internet or by mail as described above, except that, if you vote by mail, the card that you use will be a voting instruction card rather than a proxy card. The trustee will vote your shares held in the plansname of your broker, bank or other nominee, you must bring proof of ownership (e.g., a current broker's statement) in accordance with your instructions. Your instructions willorder to be kept confidentialadmitted to the meeting. You can obtain directions to the Special Meeting by the trustee and will not be disclosed to Rite Aid. Any shares held by a 401(k) plan participant for which timely instructions are not received by the trustee will be voted by the trustee in its sole discretion.
Could other matters be decidedcontacting our Investor Relations Department at the Annual Meeting?
At this time, we are unaware of any matters, other than as 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.(717) 975-3710.
Can I vote in person at the AnnualSpecial Meeting?
Yes. If you hold shares in your own name as a stockholder of record, you may come to the AnnualSpecial 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. You can obtain directionsmeeting; otherwise, you will not be able to vote in person at the annual meeting by contacting Investor Relations at (717) 975-3710.Special Meeting.
How can I change my vote?
You may revoke your proxy at any time before it is exercised by:
Any written notice of revocation, or later dated proxy, should be delivered to:
Rite Aid Corporation
30 Hunter Lane
Camp Hill, Pennsylvania 17011
Attention: Marc A. Strassler,James J. Comitale, Secretary
Alternatively, you may hand deliver a written revocation notice, or a later dated proxy, to the Secretary at the AnnualSpecial 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 are the quorum and voting requirements for the proposals?
In order to take action on the proposals, a quorum, consisting of the holders of [ · ] 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 Special Meeting, must be present in person or by proxy. This is referred to as a "quorum." Proxies marked "Abstain" and broker non-votes (as further discussed below) will be treated as shares that are present for purposes of determining the presence of a quorum.
The affirmative vote of the holders of a majority of the shares entitled to vote at the Special Meeting is required to adopt and approve the reverse stock split proposal.
The affirmative vote of a majority of the votes present in person or represented by proxy at the Special Meeting is required to approve the adjournment proposal.
What happens if a quorum is not present at the Special Meeting?
If the shares present in person or represented by proxy at the Special 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.
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 abstentionAbstentions with respect to the election of directors is neither a vote cast "for" a nominee or a vote case "against"reverse stock split proposal and the nominee and, therefore, will have no effect on the outcome of the vote. Abstentions with respect to any otheradjournment proposal will have the same effect as voting "against"a vote "Against" the proposal.proposals.
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 another person does not vote on a particular proposal because that holder does not have discretionary voting power for the proposal and has not received voting instructions from the beneficial owner of the shares so the broker is unable to vote those uninstructed shares. Brokers will have discretionary voting power to vote shares for which no voting instructions have been provided by the beneficial owner with respect to the proposal to amend the Restated Certificate of Incorporation, the election of directorson both proposals so we do not anticipate any broker non-votes.
Because adoption and the ratificationapproval of the appointmentreverse stock split proposal requires a majority of the independent registered public accounting firm. Brokers will not have such discretionary voting power to voteoutstanding shares, with respect to the stockholder proposal. Shares that are the subject of a broker non-vote are included for quorum purposes, butwill have the same effect as a vote "Against" the reverse stock split proposal.
Because approval of the adjournment proposal requires an affirmative vote of a majority of the votes present in person or represented by proxy at the Special Meeting, a broker non-vote with respect to a proposal will not be counted as a vote represented at the meeting and entitled to vote. Broker non-votes with respect to the stockholder proposal will have no effect on the outcome of the vote.
What arevote with regards to 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 and each holder of LGP preferred stock as of the record date is entitled to approximately 18.18 votes per share of LGP preferred stock (one vote per share of common stock issuable upon conversion of the LGP preferred stock). As of the record date, the LGP preferred stock was convertible into an aggregate of 26,090,728 shares of common stock. The holders of the common stock and LGP preferred stock vote together as a single class, except for those matters on which the holders of LGP preferred stock are entitled to vote as a separate class.
In order to take action on the proposals, a quorum, consisting of the holders of shares (a majority of the aggregate number of shares of Rite Aid common stock and LGP preferred stock (on an as-if-converted basis) 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," if any, will be treated as shares that are present for purposes of determining the presence of a quorum.
Proposal No. 1—Amendment of our Restated Certificate of Incorporation to Declassify the Board of Directors
The affirmative vote of a majority of the outstanding shares (with Rite Aid common stock and LGP preferred stock voting together as a single class) is required to approve the amendment of our Restated Certificate of Incorporation to declassify our Board of Directors in Proposal No. 1. Any shares not voted (whether by abstention or otherwise) will have the same effect as a vote "against" the proposal.
Proposal No. 2—Election of Directors
The affirmative vote of a majority of the total number of votes cast (with Rite Aid common stock and LGP preferred stock voting together as a single class) is required for the election of each director
nominee named in Proposal No. 2. This means that the votes cast "for" that nominee must exceed the votes cast "against" that nominee. Any shares not voted (whether by abstention 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 "Corporate Governance—Majority Voting Standard and Policy."
Proposal No. 3—Stockholder Proposal—Advisory Vote on Executive Compensation
The affirmative vote of a majority of the shares represented at the meeting and entitled to vote (with Rite Aid common stock and LGP preferred stock voting together as a single class) is required for the approval of the stockholder proposal in Proposal No. 3. Any shares represented at the meeting and not voted (whether by abstention or otherwise) will have the same effect as a vote "against" the proposal.
Proposal No. 4—Ratification of Independent Registered Public Accounting Firm
The affirmative vote of a majority of the shares represented at the meeting and entitled to vote (with Rite Aid common stock and LGP preferred stock voting together as a single class) is required for the ratification of the appointment of our independent registered public accounting firm in Proposal No. 4. Any shares represented at the meeting and not voted (whether by abstention or otherwise) will have the same effect as a vote "against" theadjournment proposal.
What happens if a quorum is not presentCould other matters be decided at the AnnualSpecial Meeting?
IfOther than the shares present in person or representedreverse stock split proposal and the adjournment proposal, no other matters will be presented for action by proxythe stockholders 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.Special Meeting.
Who will count the votes?
OfficersRepresentatives of Rite AidBroadridge Financial Solutions, Inc. will servetabulate the votes and act as proxy tabulator and count the votes. The results will be certified by the inspectors of election.
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 employeesassociates 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 The Altman Group,Morrow Sodali LLC, a proxy solicitation firm, to assist us in the solicitation of proxies for the AnnualSpecial Meeting. Rite Aid will pay The Altman GroupMorrow Sodali LLC a fee of approximately $6,500 and reimburse the firm for$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 aboutor need assistance voting your shares or attending the Annual Meeting,of Rite Aid common stock, please call our Investor Relations Department at (717) 975-3710.contact Morrow Sodali LLC, Rite Aid's proxy solicitor, by calling (800) 662-5200 toll-free.
PROPOSAL NO. 1
THE REVERSE STOCK SPLIT PROPOSAL
Rite Aid is asking stockholders to adopt and approve a proposed amendment to our Amended Restated Certificate of Incorporation to effect the Reverse Stock Split and the Authorized Share Reduction. Our Board of Directors has unanimously approved and declared advisable the proposed amendment, and recommends that our stockholders adopt and approve the proposed amendment. The foregoing description of the proposed amendment is a summary and is subject to the full text of the proposed amendment, which is attached to this proxy statement as Annex A.
If stockholders approve this proposal, the Board of Directors will cause the Certificate of Amendment to be filed with the Delaware Secretary of State and effect the Reverse Stock Split and the Authorized Share Reduction only if the Board of Directors determines that the Reverse Stock Split and the Authorized Share Reduction would be in the best interests of Rite Aid and its stockholders. The Reverse Stock Split and Authorized Share Reduction could become effective as soon as the business day immediately following the Special Meeting. The Board of Directors also may determine in its discretion not to effect the Reverse Stock Split and the Authorized Share Reduction and not to file the Certificate of Amendment. Rite Aid will not effect the Reverse Stock Split without also effecting the Authorized Share Reduction, and vice versa. No further action on the part of stockholders will be required to either implement or abandon the Reverse Stock Split or the Authorized Share Reduction.
The proposed amendment, if effected, will effect a Reverse Stock Split of the outstanding shares of Rite Aid's common stock at a reverse stock split ratio of 1-for-10, 1-for-15 or 1-for-20, as determined by our Board of Directors at a later date. As of the February 5, 2019 record date, [ · ] shares of our common stock were issued and outstanding. Based on such number of shares of our common stock issued and outstanding, immediately following the effectiveness of the Reverse Stock Split (and without giving any effect to the payment of cash in lieu of fractional shares), we will have, depending on the reverse stock split ratio selected by our Board of Directors, issued and outstanding shares of stock as illustrated in the table under the caption "—Effects of the Reverse Stock Split and the Authorized Share Reduction—Effect on Shares of Common Stock".
The proposed amendment will result in a reduction of the total number of shares of Rite Aid's common stock that Rite Aid is authorized to issue by a corresponding ratio. See "—Effects of the Reverse Stock Split and the Authorized Share Reduction—Effect on Shares of Common Stock" for the number of shares of common stock authorized but not outstanding or reserved that will remain available for issuance immediately following the effectiveness of the Reverse Stock Split and the Authorized Share Reduction.
All holders of Rite Aid's common stock will be affected proportionately by the Reverse Stock Split and the Authorized Share Reduction.
No fractional shares of common stock will be issued as a result of the Reverse Stock Split. Instead, any stockholder who would have been entitled to receive a fractional share as a result of the Reverse Stock Split will receive cash payments in lieu of such fractional shares. Each common stockholder will hold the same percentage of the outstanding common stock immediately following the Reverse Stock Split as that stockholder did immediately prior to the Reverse Stock Split, except to the extent that the Reverse Stock Split results in stockholders receiving cash in lieu of fractional shares. The par value of our common stock will continue to be $1.00 per share (see "—Effects of the Reverse Stock Split and the Authorized Share Reduction—Reduction in Stated Capital").
Reasons for the Reverse Stock Split and the Authorized Share Reduction
Reverse Stock Split. Our Board of Directors has determined that it is in the best interests of Rite Aid and its stockholders to combine our shares of common stock at one of three reverse stock split ratios, as determined by the Board of Directors at a later date, in order to reduce the number of shares of common stock outstanding. Our Board of Directors authorized the reverse split of our common stock with the primary intent of increasing the per share trading price of our common stock in order to meet the NYSE's price criteria for continued listing on that exchange. Our common stock is publicly traded and listed on the NYSE under the symbol "RAD." Accordingly, for these and other reasons discussed below, we believe that effecting the Reverse Stock Split is in Rite Aid's and our stockholders' best interests.
On January 3, 2019, we were notified in writing by the NYSE that the average closing trading price of our common stock was below the criteria of the NYSE's continued listing standards, as the average per share closing price of our common stock over a consecutive 30-trading day period was less than $1.00. In the letter, the NYSE stated that we have a six-month cure period that started on January 3, 2019 to bring the price of our common stock and the 30-trading day average closing price of our common stock above $1.00. In the letter, the NYSE further stated that in the event a $1.00 share price and a $1.00 average share price over the preceding 30 trading days are not attained at the expiration of the six-month cure period, the NYSE will commence suspension and delisting procedures. The NYSE has reserved the right to reevaluate its continued listing determinations relating to companies who are notified of non-compliance like Rite Aid with respect to the NYSE's qualitative listing standards, including if our shares trade at sustained levels that are considered to be abnormally low. On January 7, 2019, we provided written notice to the NYSE of the Board of Directors' approval to pursue a reverse stock split in order to bring our share price and average share price back above $1.00 within the six-month cure period, if necessary.
In addition to bringing the per share trading price of our common stock back above $1.00, we also believe that the Reverse Stock Split will make our common stock more attractive to a broader range of institutional and other investors, as we have been advised that the current per share trading price of our common stock may affect its acceptability to certain institutional investors, professional investors and other members of the investing public. Many brokerage houses and institutional investors have internal policies and practices that either prohibit them from investing in low-priced stocks or tend to discourage individual brokers from recommending low-priced stocks to their customers. In addition, some of those policies and practices may function to make the processing of trades in low-priced stocks economically unattractive to brokers.
Reducing the number of outstanding shares of our common stock through the Reverse Stock Split is intended, absent other factors, to increase the per share trading price of our common stock. However, other factors, such as our financial results, market conditions and the market perception of our business may adversely affect the per share trading price of our common stock. As a result, there can be no assurance that the Reverse Stock Split, if completed, will result in the intended benefits described above, that the per share trading price of our common stock will increase following the Reverse Stock Split or that the per share trading price of our common stock will not decrease in the future.
Authorized Share Reduction. As a matter of Delaware law, the implementation of the Reverse Stock Split does not require a reduction in the total number of authorized shares of our common stock. However, if stockholders adopt and approve the amendment to the Amended and Restated Certificate of Incorporation to effect the Reverse Stock Split and the Authorized Share Reduction and the Reverse Stock Split is implemented, the authorized number of shares of our common stock also would be reduced by a corresponding ratio.
Criteria to be Used for Determining Whether to Implement Reverse Stock Split
In determining whether to implement the Reverse Stock Split and which reverse stock split ratio to implement, if any, following receipt of stockholder approval of the amendment to our Amended and Restated Certificate of Incorporation to effect the Reverse Stock Split and the Authorized Share Reduction, the Board of Directors may consider, among other things, various factors, such as:
Certain Risks and Potential Disadvantages Associated with the Reverse Stock Split and the Authorized Share Reduction
We cannot assure you that the proposed Reverse Stock Split will increase our stock price. We expect that the Reverse Stock Split will increase the per share trading price of our common stock. However, the effect of the Reverse Stock Split on the per share trading price of our common stock cannot be predicted with any certainty, and the history of reverse stock splits for other companies is varied, particularly since some investors may view a reverse stock split negatively. It is possible that the per share trading price of our common stock after the Reverse Stock Split will not increase in the same proportion as the reduction in the number of our outstanding shares of common stock following the Reverse Stock Split, and the Reverse Stock Split may not result in a per share trading price that would attract investors who do not trade in lower priced stocks. In addition, although we believe the Reverse Stock Split may enhance the marketability of our common stock to certain potential investors, we cannot assure you that, if implemented, our common stock will be more attractive to investors. Even if we implement the Reverse Stock Split, the per share trading price of our common stock may decrease due to factors unrelated to the Reverse Stock Split, including our future performance. If the Reverse Stock Split is consummated and the per share trading price of the common stock declines, the percentage decline as an absolute number and as a percentage of our overall market capitalization may be greater than would occur in the absence of the Reverse Stock Split.
The proposed Reverse Stock Split may decrease the liquidity of our common stock and result in higher transaction costs. The liquidity of our common stock may be negatively impacted by the Reverse Stock Split, given the reduced number of shares that would be outstanding after the Reverse Stock Split, particularly if the per share trading price does not increase as a result of the Reverse Stock Split. In addition, if the Reverse Stock Split is implemented, it will increase the number of our stockholders who own "odd lots" of fewer than 100 shares of common stock. Brokerage commission and other costs of transactions in odd lots are generally higher than the costs of transactions of more than 100 shares of common stock. Accordingly, the Reverse Stock Split may not achieve the desired results of increasing marketability of our common stock as described above.
The effective time of the Reverse Stock Split and the Authorized Share Reduction (the "Effective Time"), if approved by stockholders and implemented by Rite Aid, will be the date and time set forth in the Certificate of Amendment that is filed with the Delaware Secretary of State. It is expected that such filing will take place promptly following the Special Meeting, assuming the stockholders approve the amendment. The Effective Time could occur as soon as the business day immediately following the Special Meeting. However, the exact timing of the filing of the amendment will be determined by our
Board of Directors based on its evaluation as to when such action will be the most advantageous to the Company and our stockholders.
If, at any time prior to the filing of the Certificate of Amendment with the Delaware Secretary of State, notwithstanding stockholder approval, and without further action by the stockholders, the Board of Directors, in its sole discretion, determines that it is in Rite Aid's best interests and the best interests of Rite Aid's stockholders to delay the filing of the Certificate of Amendment or abandon the Reverse Stock Split and the Authorized Share Reduction, the Reverse Stock Split and the Authorized Share Reduction may be delayed or abandoned.
Stockholders will not receive fractional shares of common stock in connection with the Reverse Stock Split. Instead, the transfer agent will aggregate all fractional shares and sell them as soon as practicable after the Effective Time at the then-prevailing prices on the open market, on behalf of those stockholders who would otherwise be entitled to receive a fractional share as a result of the Reverse Stock Split. We expect that the transfer agent will conduct the sale in an orderly fashion at a reasonable pace and that it may take several days to sell all of the aggregated fractional shares of our common stock. After the transfer agent's completion of such sale, stockholders who would have been entitled to a fractional share will instead receive a cash payment from the transfer agent in an amount equal to their respective pro rata shares of the total proceeds of that sale net of any brokerage costs incurred by the transfer agent to sell such stock.
Stockholders will not be entitled to receive interest for the period of time between the Effective Time and the date payment is made for their fractional share interest. You should also be aware that, under the escheat laws of certain jurisdictions, sums due for fractional interests that are not timely claimed after the funds are made available may be required to be paid to the designated agent for each such jurisdiction. Thereafter, stockholders otherwise entitled to receive such funds may have to obtain the funds directly from the state to which they were paid.
If you believe that you may not hold sufficient shares of Rite Aid's common stock at the Effective Time to receive at least one share in the Reverse Stock Split and you want to continue to hold Rite Aid's common stock after the Reverse Stock Split, you may do so by either:
in each case, so that you hold a number of shares of our common stock in your account prior to the Reverse Stock Split that would entitle you to receive at least one share of common stock in the Reverse Stock Split. Shares of our common stock held in registered form and shares of our common stock held in "street name" (that is, through a broker, bank or other holder of record) for the same stockholder will be considered held in separate accounts and will not be aggregated when effecting the Reverse Stock Split.
Effects of the Reverse Stock Split and the Authorized Share Reduction
After the effective date of the Reverse Stock Split and the Authorized Share Reduction, if implemented by the Board of Directors, each stockholder will own a reduced number of shares of common stock. The principal effect of the Reverse Stock Split and the Authorized Share Reduction will be to proportionately decrease the number of outstanding shares of our common stock based on the reverse stock split ratio selected by our Board of Directors.
Voting rights and other rights of the holders of our common stock will not be affected by the Reverse Stock Split, other than as a result of the treatment of fractional shares as described above. For example, a holder of 2% of the voting power of the outstanding shares of our common stock immediately prior to the effectiveness of the Reverse Stock Split will generally continue to hold 2% (assuming there is no impact as a result of the payment of cash in lieu of issuing fractional shares) of the voting power of the outstanding shares of our common stock after the Reverse Stock Split. The number of stockholders of record will not be affected by the Reverse Stock Split (except to the extent any are cashed out as a result of holding fractional shares). If approved and implemented, the Reverse Stock Split may result in some stockholders owning "odd lots" of less than 100 shares of our common stock. Odd lot shares may be more difficult to sell, and brokerage commissions and other costs of transactions in odd lots are generally somewhat higher than the costs of transactions in "round lots" of even multiples of 100 shares. Our Board of Directors believes, however, that these potential effects are outweighed by the benefits of the Reverse Stock Split.
The following table contains approximate information, based on share information as of February 5, 2019, relating to our outstanding common stock based on the proposed reverse stock split ratios and information regarding our authorized shares assuming that the proposal is approved and the Reverse Stock Split and the Authorized Share Reduction are implemented:
Status | Number of Shares of Common Stock Authorized | Number of Shares of Common Stock Issued and Outstanding | Number of Shares of Common Stock Reserved for Future Issuance | Number of Shares of Common Stock Authorized but Not Outstanding or Reserved | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Pre-Reverse Stock Split | 1,500,000,000 | [ · ] | [ · ] | [ · ] | |||||||||
Post-Reverse Stock Split 1:10 | 150,000,000 | [ · ] | [ · ] | [ · ] | |||||||||
Post-Reverse Stock Split 1:15 | 100,000,000 | [ · ] | [ · ] | [ · ] | |||||||||
Post-Reverse Stock Split 1:20 | 75,000,000 | [ · ] | [ · ] | [ · ] |
After the effective date of the Reverse Stock Split that our Board of Directors elects to implement, our common stock would have a new committee on uniform securities identification procedures, or CUSIP number, a number used to identify our common stock.
Our common stock is currently registered under Section 12(b) of the Securities Exchange Act of 1934, or the Exchange Act, and we are subject to the periodic reporting and other requirements of the Exchange Act. The reverse stock split will not affect the registration of our common stock under the Exchange Act or the listing of our common stock on the NYSE. Following the reverse stock split, our common stock will continue to be listed on the NYSE under the symbol "RAD," although it will be considered a new listing with a new CUSIP number.
Pursuant to our Amend and Restated Certificate of Incorporation, our capital stock consists of 20,000,000 shares of Preferred Stock, par value $1.00 per share, and 1,500,000,000 shares of common stock. The proposed amendment to our Amended and Restated Certificate of Incorporation to effect the Reverse Stock Split and the Authorized Share Reduction would not impact the total authorized number of shares of preferred stock or the par value of the preferred stock.
The proposed amendments to our Amended and Restated Certificate of Incorporation will not affect the par value of our common stock, which will remain at $1.00.
As a result of the Reverse Stock Split, upon the Effective Time, the stated capital on our balance sheet attributable to our common stock, which consists of the par value per share of our common stock multiplied by the aggregate number of shares of our common stock issued and outstanding, will be reduced in proportion to the size of the Reverse Stock Split, subject to a minor adjustment in respect of the treatment of fractional shares, and the additional paid-in capital account will be credited with the amount by which the stated capital is reduced. Our stockholders' equity, in the aggregate, will remain unchanged.
As of February 5, 2019, we had approximately [ · ] shares subject to stock options, [ · ] shares of unvested restricted stock and [ · ] shares subject to unvested restricted stock units (including performance-based units) outstanding under our stock incentive plans. Under our 2000 Omnibus Equity Plan (the "2000 Plan"), 2001 Omnibus Equity Plan (the "2001 Plan"), 2004 Omnibus Equity Plan (the "2004 Plan"), 2006 Omnibus Equity Plan (the "2006 Plan"), 2010 Omnibus Equity Plan (the "2010 Plan"), 2012 Omnibus Equity Plan (the "2012 Plan") and 2014 Omnibus Equity Plan (the "2014 Plan" and, together with the 2000 Plan, the 2001 Plan, the 2004 Plan, the 2006 Plan, the 2010 Plan and the 2012 Plan, the "Stock Plans"), the Compensation Committee of our Board of Directors (the "Compensation Committee") has sole discretion to determine the appropriate adjustment to the awards granted under our Stock Plans in the event of a reverse stock split. Accordingly, if the Reverse Stock Split is effected, the number of shares available for issuance under the 2014 Plan, as well as the number of shares subject to any outstanding award under the Stock Plans, and the exercise price, grant price or purchase price relating to any such award under the Stock Plans, are expected to be proportionately adjusted by the Compensation Committee to reflect the Reverse Stock Split. The Compensation Committee will also determine the treatment of fractional shares subject to stock options and other outstanding awards under the Stock Plans. In addition, pursuant to the authority provided under the Stock Plans, the Compensation Committee is expected to authorize the Company to effect any other changes necessary, desirable or appropriate to give effect to the Reverse Stock Split, including any applicable technical, conforming changes to our Stock Plans.
For illustrative purposes only, if a 1-for-10 reverse stock split is effected, the [ · ] shares that remain available for issuance under the 2014 Plan as of February 5, 2019, are expected to be adjusted to [ · ] shares, subject to increase as and when awards made under the Stock Plans, expire or are forfeited and are returned per the terms of the Stock Plans. Further, for illustrative purposes only, if a 1-for-10 reverse stock split is effected, an outstanding stock option for 10,000 shares of common stock, exercisable at $7.08 per share, would be adjusted as a result of a 1-for-10 split ratio into an option exercisable for 1,000 shares of common stock at an exercise price of $70.80 per share.
Notwithstanding the decrease in the number of outstanding shares following the proposed Reverse Stock Split, our Board of Directors does not intend for this transaction to be the first step in a "going private transaction" within the meaning of Rule 13e-3 of the Exchange Act.
If you hold registered shares of our common stock in a book-entry form, you do not need to take any action to receive your post-Reverse Stock Split shares of our common stock in registered book-entry form or your cash payment in lieu of fractional shares, if applicable. If you are entitled to post-Reverse Stock Split shares of our common stock, a transaction statement will automatically be sent to your address of record as soon as practicable after the Effective Time indicating the number of shares of our common stock you hold. In addition, if you are entitled to a payment of cash in lieu of fractional shares, a check will be mailed to you at your registered address as soon as practicable after the Effective Time. By signing and cashing this check, you will warrant that you owned the shares of Rite Aid's common stock for which you received a cash payment.
At the Effective Time, we intend to treat stockholders holding shares of our common stock in "street name" (that is, through a broker, bank or other holder of record) in the same manner as registered stockholders whose shares of our common stock are registered in their names. Brokers, banks or other holders of record will be instructed to effect the Reverse Stock Split for their beneficial holders holding shares of our common stock in "street name"; however, these brokers, banks or other holders of record may apply their own specific procedures for processing the Reverse Stock Split. If you hold your shares of our common stock with a broker, bank or other holder of record, and you have any questions in this regard, we encourage you to contact your holder of record.
If you hold any of your shares of our common stock in certificated form (the "Old Certificate(s)"), you will receive a transmittal letter from our transfer agent as soon as practicable after the Effective Time. The transmittal letter will be accompanied by instructions specifying how you can deliver your Old Certificate(s) so that you are in a position to freely trade your post-Reverse Stock Split shares of our common stock, which will be in a book-entry form, evidenced by a transaction statement that will be sent to your address of record as soon as practicable after your delivery of a letter of transmittal indicating the number of shares of our common stock you hold, together with any payment of cash in lieu of fractional shares to which you are entitled. Until surrendered as contemplated herein, a stockholder's Old Certificate(s) shall be deemed at and after the Effective Time to represent the number of full shares of our common stock resulting from the Reverse Stock Split.
YOU SHOULD NOT SEND YOUR OLD CERTIFICATES NOW. YOU SHOULD SEND THEM ONLY AFTER YOU RECEIVE THE LETTER OF TRANSMITTAL FROM OUR TRANSFER AGENT.
Under Delaware law, the affirmative vote of the holders of a majority of the shares entitled to vote at the Special Meeting is required to adopt and approve the amendment to our Amended and Restated Certificate of Incorporation to effect the Reverse Stock Split and the Authorized Share Reduction. Because adoption and approval of the amendment to our Amended and Restated Certificate of Incorporation to effect the Reverse Stock Split and the Authorized Share Reduction requires a majority of the outstanding shares, an abstention with respect to the reverse stock split proposal will have the same effect as a vote "Against" the proposal.
The Rite Aid Board of Directors recommends that you vote "FOR" the reverse stock split proposal.
Under the Delaware General Corporation Law, our stockholders are not entitled to dissenter's rights or appraisal rights with respect to the reverse stock split described in this proposal and we will not independently provide our stockholders with any such rights.
Interest of Certain Persons in Matters to be Acted Upon
No officer or director has any substantial interest, direct or indirect, by security holdings or otherwise, in the Reverse Stock Split or the Authorized Share Reduction that is not shared by all of our other stockholders.
Certain U.S. Federal Income Tax Consequences of the Reverse Stock Split
The following discussion is a general summary of certain U.S. federal income tax consequences of the Reverse Stock Split that may be relevant to holders of our common stock that hold such stock as a
capital asset for U.S. federal income tax purposes(generally, property held for investment). This summary is based upon the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), Treasury regulations promulgated thereunder, administrative rulings and judicial decisions as of the date hereof, all of which may change, possibly with retroactive effect, resulting in U.S. federal income tax consequences that may differ from those discussed below.
This discussion applies only to holders that are U.S. Holders (as defined below) and does not address all aspects of federal income taxation that may be relevant to such holders in light of their particular circumstances or to holders that may be subject to special tax rules, including: (i) holders subject to the alternative minimum tax; (ii) banks, insurance companies, or other financial institutions; (iii) tax-exempt organizations; (iv) dealers in securities or commodities; (v) regulated investment companies or real estate investment trusts; (vi) partnerships (or other flow-through entities for U.S. federal income tax purposes and their partners or members); (vii) traders in securities that elect to use a mark-to-market method of accounting for their securities holdings; (viii) U.S. Holders (as defined below) whose "functional currency" is not the U.S. dollar; (ix) persons holding our common stock as a position in a hedging transaction, "straddle," "conversion transaction" or other risk reduction transaction; (x) persons who acquire shares of our common stock in connection with employment or other performance of services; or (xi) U.S. expatriates. If a partnership (including any entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds shares of our common stock, the tax treatment of a holder that is a partner in the partnership generally will depend upon the status of the partner and the activities of the partnership.
We have not sought, and will not seek, an opinion of counsel or a ruling from the Internal Revenue Service ("IRS") regarding the U.S. federal income tax consequences of the Reverse Stock Split and there can be no assurance that the IRS will not challenge the statements and conclusions set forth below or a court would not sustain any such challenge. The following summary does not address any U.S. state or local or any foreign tax consequences, any estate, gift or other non-U.S. federal income tax consequences, or the Medicare tax on net investment income.
EACH HOLDER OF COMMON STOCK SHOULD CONSULT SUCH HOLDER'S TAX ADVISOR WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT TO SUCH HOLDER.
For purposes of the discussion below, a "U.S. Holder" is a beneficial owner of shares of our common stock that for U.S. federal income tax purposes is: (1) an individual citizen or resident of the United States; (2) a corporation (including any entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state or political subdivision thereof; (3) an estate the income of which is subject to U.S. federal income taxation regardless of its source; or (4) a trust, if (i) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (ii) the trust has a valid election in effect to be treated as a U.S. person.
The Reverse Stock Split is intended to be treated as a "recapitalization" for U.S. federal income tax purposes. As a result, a U.S. Holder generally should not recognize gain or loss upon the Reverse Stock Split, except with respect to cash received in lieu of a fractional share of our common stock, as discussed below. A U.S. Holder's aggregate tax basis in the shares of our common stock received pursuant to the Reverse Stock Split should equal the aggregate tax basis of the shares of our common stock surrendered (excluding any portion of such basis that is allocated to any fractional share of our common stock), and such U.S. Holder's holding period in the shares of our common stock received should include the holding period in the shares of our common stock surrendered. Treasury regulations promulgated under the Code provide detailed rules for allocating the tax basis and holding period of the shares of our common stock surrendered to the shares of our common stock received pursuant to
the Reverse Stock Split. Holders of shares of our common stock acquired on different dates and at different prices should consult their tax advisors regarding the allocation of the tax basis and holding period of such shares.
A U.S. Holder that receives cash in lieu of a fractional share of our common stock pursuant to the Reverse Stock Split should recognize capital gain or loss in an amount equal to the difference between the amount of cash received and the U.S. Holder's tax basis in the shares of our common stock surrendered that is allocated to such fractional share. Such capital gain or loss should be long term capital gain or loss if the U.S. Holder's holding period for our common stock surrendered exceeded one year at the Effective Time.
THE RITE AID BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE REVERSE STOCK SPLIT PROPOSAL.
PROPOSAL NO. 12APPROVAL OF THE AMENDMENT OF OUR RESTATED CERTIFICATE OF INCORPORATIONADJOURNMENT PROPOSALTO DECLASSIFY OUR BOARD OF DIRECTORS
Our Board of Directors has unanimously adopted andRite Aid is submitting for stockholder approval an amendment of our Restated Certificate of Incorporation (the "Charter Amendment") that would phase-in the declassification of our Board of Directors and provide instead for the annual election of directors.
Our current classified board structure has been in place since 1976. The Board believes that its classified structure has helped assure continuityasking stockholders to approve, if necessary, adjournment of the Company's business strategies and has reinforced a commitmentSpecial Meeting to long-term stockholder value. Although these are important benefits, the Board recognized the growing sentiment among stockholders and the investment communitysolicit additional proxies in favor of annual elections. After careful consideration, the Board determined that it is appropriate to propose declassifying the Board, commencing with the 2009 Annual Meeting.
Currently, members of our Board are elected for staggered terms of three years. If the Charter Amendment is approved, commencing with the class of directors standing for election at the 2009 Annual Meeting, directors will stand for election for one year terms, expiring at the next succeeding annual meeting of stockholders. The directors who were elected at the 2008 Annual Meeting, whose terms will expire in 2011, and the directors who were elected at the 2007 Annual Meeting, whose terms will expire in 2010, will continue to hold office until the endreverse stock split proposal. Any adjournment of the termsSpecial Meeting for which they were elected. A majoritythe purpose of our directorssoliciting additional proxies will stand for electionallow stockholders who have already sent in their proxies to revoke them at the 2010 Annual Meeting and all directors will be elected on an annual basis beginning with the 2011 Annual Meeting. In all cases, each director will hold office until his or her successor has been elected and qualified or until the director's earlier resignation or removal. If the Charter Amendment is approved, the Board will adopt corresponding amendments to our Amended and Restated By-Laws.
If the Amendment is not approved by stockholders, the Board of Directors will remain classified, and each of the directors elected at the 2009 Annual Meeting will be elected for a three-year term expiring in 2012.
Presently, because the terms of the directors are staggered, the directors are removable only for cause. Upon adoption of the Charter Amendment, directors serving terms to which they were electedany time prior to the 2009 Annual Meeting would continue to be removable only for cause untiltime that the completion of their current terms and, consistent withproxies are used.
Under Delaware law, for corporations without classified boards, directors elected at the 2009 Annual Meeting and thereafter will be removable "with or without cause" upon the affirmative vote of a majority of the outstanding shares entitled to vote generallyvotes present in person or represented by proxy at the election of directors.
Appendix A shows the proposed changes to Section 1 of Article Eighth of the Restated Certificate of Incorporation, with deletions indicated by strikeouts and additions indicated by underlining.
The affirmative vote of a majority of the outstanding shares (with Rite Aid common stock and LGP Preferred Stock voting together as a single class)Special Meeting is required to approve the amendment toadjournment proposal. Abstentions with respect the Restated Certificate of Incorporation. Abstentionsadjournment proposal will have the same effect as votes "against"a vote "Against" the proposal.
RECOMMENDATION
THE RITE AID BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
YOU VOTE "FOR" THE AMENDMENT OF OUR RESTATED CERTIFICATE OF INCORPORATIONTO DECLASSIFY OUR BOARD OF DIRECTORS
PROPOSAL NO. 2ELECTION 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. On April 8, 2009, the Board of Directors increased the number of directors from 14 to 15. Our Board of Directors currently is divided into three classes, with each class to be as nearly equal in number as possible. The Board of Directors currently consists of five directors whose terms expire this year, four directors whose terms expire in 2010 and five directors whose terms expire in 2011. Subject to approval of Proposal No. 1, commencing with the 2009 Annual Meeting, the Board of Directors will be declassified and directors will be elected annually for one year terms, except that directors elected prior to the 2009 Annual Meeting will continue to serve the balance of their existing three year terms. If Proposal No. 1 is not approved, directors elected at the 2009 Annual Meeting will be elected for three year terms, except as otherwise described below.
George G. Golleher, who served as a director of the Company since 2002, retired from the Board of Directors on April 14, 2009. The Board of Directors expresses its gratitude to Mr. Golleher for his valuable contributions during his tenure on the Board. Effective April 14, 2009, the Board appointed David R. Jessick to fill the vacancy created by Mr. Golleher's resignation, and he will serve the remainder of Mr. Golleher's term, which expires in 2010.
John T. Standley has been nominated to fill the vacancy created by the increase in the size of the Board of Directors and, so that each class of directors will be equal in number, he has been nominated to the class of directors whose terms expire in 2010.
Director Nominees
The Board of Directors, based on the recommendation of the Nominating and Governance Committee, has nominated Joseph B. Anderson, Jr., Michel Coutu, James L. Donald, John T. Standley and Marcy Syms to be elected directors at the Annual Meeting. The holder of the LGP Preferred Stock has informed the Company that it will elect Jonathan D. Sokoloff as the LGP Preferred Director. Each of the nominees for director to be elected at the Annual Meeting, except for Mr. Standley, currently serves as a director of the Company. Michel Coutu was designated by The Jean Coutu Group (PJC) Inc., or Jean Coutu Group, to the Nominating and Governance Committee as a director nominee pursuant to the terms of the stockholder agreement with Jean Coutu Group, effective June 4, 2007, the date of our acquisition of the Brooks and Eckerd drugstore chains (the "Brooks Eckerd Transaction").
Each director elected at the Annual Meeting will hold office until the 2010 Annual Meeting of Stockholders or, if Proposal No. 1 is not approved, until the 2012 Annual Meeting of Stockholders (other than Mr. Standley, who, if elected, will hold office until the 2010 Annual Meeting of Stockholders). Each director elected at the Annual Meeting will serve until his or her successor is duly elected and qualified. The other directors will remain in office for the remainder of their respective terms, as indicated below.
If any nominee at the time of election is unable or unwilling to serve or is otherwise unavailable for election, and as a consequence thereof other nominees are designated, then the persons named in the proxy or their substitutes will have the discretion and authority to vote or to refrain from voting for other nominees in accordance with their judgment.
RECOMMENDATION
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THATYOU VOTE "FOR" THE ELECTION OF EACH OF THE NOMINEES LISTED ABOVEADJOURNMENT PROPOSAL.
The following table sets forth certain information with respect to our directors and director nominees as of the record date.
Name | Age | Position with Rite Aid | Year First Became Director | Term as Director Will Expire(1) | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Mary F. Sammons | 62 | Chairman and Chief Executive Officer | 1999 | 2010 | ||||||||
Michel Coutu | 55 | Non-Executive Co-Chairman | 2007 | 2009 | ||||||||
Joseph B. Anderson, Jr. | 66 | Director | 2005 | 2009 | ||||||||
André Belzile | 47 | Director | 2007 | 2010 | ||||||||
François J. Coutu | 54 | Director | 2007 | 2011 | ||||||||
James L. Donald | 55 | Director | 2008 | 2009 | ||||||||
Michael A. Friedman, MD | 65 | Director | 2004 | 2011 | ||||||||
David R. Jessick | 55 | Director | 2009 | 2010 | ||||||||
Robert G. Miller | 65 | Director | 1999 | 2011 | ||||||||
Michael N. Regan | 61 | Director | 2007 | 2011 | ||||||||
Philip G. Satre | 60 | Director | 2005 | 2010 | ||||||||
Jonathan D. Sokoloff | 51 | Director | 1999 | 2009 | ||||||||
John T. Standley | 46 | President and Chief Operating Officer | — | 2010 | ||||||||
Marcy Syms | 58 | Director | 2005 | 2009 | ||||||||
Dennis Wood | 70 | Director | 2007 | 2011 |
Following are the biographies for our director nominees and our directors who will continue to serve after the 2009 Annual Meeting:
Mary F. Sammons. Ms. Sammons has been Chairman of the Board of the Company since June 2007 and has been a member of Rite Aid's Board of Directors since December 5, 1999 and Chief Executive Officer since June 2003. Ms. Sammons was President of Rite Aid from December 1999 to September 2008. From April 1999 to December 1999, Ms. Sammons served as President and Chief Executive Officer of Fred Meyer Stores, Inc., a subsidiary of The Kroger Company. From January 1998 to April 1999, Ms. Sammons served as President and Chief Executive Officer of Fred Meyer Stores, Inc., a subsidiary of Fred Meyer, Inc. From 1985 through 1997, Ms. Sammons held several senior level positions with Fred Meyer Stores, Inc., the last being that of Executive Vice President. Ms. Sammons is also a member of the Board of the National Association of Chain Drug Stores, a trade association, is a director of StanCorp Financial Group, Inc. and is the President and a director of The Rite Aid Foundation.
Michel Coutu. Mr. Michel Coutu has served as the Non-Executive Co-Chairman of the Board since June 2007. He served as President of the U.S. operations of Jean Coutu Group and Chief Executive Officer of Jean Coutu USA from August 1986 until June 2007. He has also served as a member of the Board of Directors of Jean Coutu Group since December 1985. Mr. Coutu holds a degree in finance and a license in law from the University of Sherbrooke and a Masters in Business Administration from the Simon School of Business at the University of Rochester.
Joseph B. Anderson, Jr. Mr. Anderson has been the Chairman of the Board and Chief Executive Officer of TAG Holdings, LLC, a manufacturing, service and technology business since January 2002. Mr. Anderson was Chairman of the Board and Chief Executive Officer of Chivas Industries, LLC from 1994 to 2002. Mr. Anderson also serves as a director of Quaker Chemical Corporation,
ArvinMeritor, Inc., Valassis Communications, Inc. and Nevada Energy (formerly Sierra Pacific Resources).
André Belzile. Mr. Belzile has been the Senior Vice President, Finance and Corporate Affairs of Jean Coutu Group since May 2004. Prior to serving in this position, from 1992 until May 2004 he served as Vice President and Chief Financial Officer of Cascades Inc., a producer and marketer of packaging products. Mr. Belzile is a chartered accountant who earned a bachelor's degree at Les Hautes Études Commerciales (HEC MONTRÉAL).
François J. Coutu. Mr. François J. Coutu has served as President and Chief Executive Officer of Jean Coutu Group since October 2007. Previously, Mr. Coutu held the positions of President of Canadian Operations and Vice Chairman of the Board from 2005 to 2007, President and Chief Executive Officer from 2002 to 2005 and President and Chief Operating Officer of Jean Coutu Group from 1992 to 2002. Mr. Coutu has been a member of the Board of Directors of Jean Coutu Group since 1985. He is a pharmacist by profession, holds a Bachelor's Degree in Administration from McGill University and a Bachelor's Degree in Pharmacy from Samford University. He was a director and chair of the Canadian Association of Chain Drug Stores, a trade association, and previously served as a member of the Board of Directors of the National Bank of Canada, where he was a member of the Human Resources and Credit Committees.
James L. Donald. Mr. Donald is currently a self-employed private investor. Mr. Donald was President and Chief Executive Officer and a director of Starbucks Corporation from April 2005 to January 2008. From October 2004 to April 2005, Mr. Donald served as Starbuck's CEO designate. From October 2002 to October 2004, Mr. Donald served as President of Starbucks, North America. From October 1996 to October 2002, Mr. Donald served as Chairman, President and Chief Executive Officer of Pathmark Stores, Inc. and prior to that time he held a variety of senior management positions with Albertson's, Inc., Safeway, Inc. and Wal-Mart Stores, Inc.
Michael A. Friedman, MD. Dr. Friedman has been President and Chief Executive Officer of City of Hope, a National Cancer Institute-designated Comprehensive Cancer Center since May 2003. From October 2001 to April 2003, Dr. Friedman served as Chief Medical Officer for Biomedical Preparedness for the Pharmaceutical Research and Manufacturers of America, a pharmaceutical trade association. Additionally, he held the position of Senior Vice President of Research and Development, Medical and Public Policy for Pharmacia. He also has held executive positions in government and public health organizations. In addition to serving as Acting Commissioner of the U.S. Food and Drug Administration from 1997 to 1998, he was Associate Director of the Cancer Therapy Evaluation Program at the National Cancer Institute, National Institutes of Health from 1988 to 1995. He joined the National Cancer Institute in 1983 as Chief of the Clinical Investigations Branch of the Division of Cancer Treatment. Before that he spent nearly a decade at the University of California at San Francisco Medical Center in various positions, from Assistant Professor of Medicine in 1975 to Interim Director of the Cancer Research Institute from 1981 to 1983. Author of more than 150 scientific papers and books, Dr. Friedman has received commendations, including the Surgeon General's Medallion in 1999.
David R. Jessick. Mr. Jessick has served as a director of Rite Aid since April 2009. From July 2002 to February 2005, Mr. Jessick served as a consultant to Rite Aid's Chief Executive Officer and senior management and was Senior Executive Vice President, Chief Administrative Officer of Rite Aid from December 1999 to July 2002. From January 1997 to July 1999, Mr. Jessick was Chief Financial Officer and Executive Vice President, Finance and Investor Relations of Fred Meyer, Inc. Prior to joining Fred Meyer, Inc., Mr. Jessick spent 17 years with Thrifty PayLess Holdings, Inc., with his last position being Executive Vice President and Chief Financial Officer. Before that, he worked as an auditor with KPMG. Mr. Jessick currently serves as a director of Source Interlink Companies, Inc.,
Dollar Financial Corp. and Big 5 Sporting Goods Corp. He also served as Chairman of the Board of Pathmark Stores, Inc. from August 2005 to December 2007.
Robert G. Miller. Mr. Miller has been Chief Executive Officer of Albertsons LLC since June 2006. Mr. Miller has been a member of Rite Aid's Board of Directors since December 1999, serving as our Chairman of the Board from December 1999 until June 2007. From December 1999 until June 2003, Mr. Miller was also Rite Aid's Chief Executive Officer. Previously, Mr. Miller served as Vice Chairman and Chief Operating Officer of The Kroger Company, a retail food company. Mr. Miller joined the Kroger Company in March 1999, when Kroger acquired Fred Meyer, Inc., a food, drug and general merchandise chain. From 1991 until the March 1999 acquisition, he served as Chief Executive Officer of Fred Meyer, Inc. Mr. Miller also is a director of Nordstrom, Inc.
Michael N. Regan. Mr. Regan is currently a self-employed private equity investor. Mr. Regan served as Chief Financial Officer of The St. Joe Company, a major real estate development company based in Florida, from November 2006 to May 2007. From 1997 to November 2006, he served as Senior Vice President, Finance and held various other positions with The St. Joe Company and was a member of the senior management team. Prior to joining St. Joe's, he served as Vice President and Controller of Harrah's Entertainment from 1991 to 1997. From 1980 until 1991 he held a series of progressively more responsible positions for Harrah's Entertainment, Inc. and its prior parent companies, Holiday Corporation and The Promus Companies.
Philip G. Satre. Mr. Satre is currently a self-employed private investor. Mr. Satre served as Chief Executive Officer of Harrah's Entertainment, Inc. from 1993 to January 2003. Mr. Satre was a director of Harrah's from 1988 through 2004, serving as Chairman of the Board of Harrah's from 1997 until his retirement in 2005. He presently serves as Chairman of the Board of Directors of NV Energy, Inc. and of the National Center for Responsible Gaming, and serves as a director of Nordstrom, Inc., International Game Technology and The National World War II Museum,, and is a trustee of Stanford University.
Jonathan D. Sokoloff. Mr. Sokoloff has been a Managing Partner of Leonard Green & Partners, L.P. since 1994. Leonard Green & Partners, L.P. is an affiliate of Green Equity Investors III, L.P. and is a private equity firm based in Los Angeles, California. Since 1990, Mr. Sokoloff has also been a partner in a merchant banking firm affiliated with Leonard Green & Partners, L.P. Mr. Sokoloff previously was elected as a director pursuant to director nomination rights granted to Green Equity Investors III, L.P. under an October 27, 1999 agreement between Rite Aid and Green Equity Investors with respect to the purchase of 3,000,000 shares of Rite Aid preferred stock.
John T. Standley. Mr. Standley was appointed President and Chief Operating Officer in September 2008. He was a consultant to Rite Aid from July 2008 to September 2008 and a self-employed private investor from January 2008 to July, 2008. Previously, Mr. Standley had served as Chief Executive Officer of Pathmark Stores, Inc. from August 2005 through December 2007. 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. Previously, he was Executive Vice President and Chief Financial Officer of Fleming Companies, Inc., a food marketing and distribution company from May 1999 to December 1999. Between July 1998 and May 1999, Mr. Standley was Senior Vice President and Chief Financial Officer of Fred Meyer, Inc. Mr. Standley served as Senior Vice President and Chief Financial Officer of Ralphs Grocery Company between January 1997 and July 1998. Mr. Standley also served as Senior Vice President of Administration at Smith's Food & Drug Stores, Inc. from May 1996
to February of 1997 and as Chief Financial Officer of Smitty's Supervalue, Inc. from December 1994 to May 1996.
Marcy Syms. Ms. Syms has been Chief Executive Officer and a director of Syms Corp, a chain of retail clothing stores, since 1983. She currently serves on the Boards of Directors of the New Jersey Economic Growth Council. Ms. Syms also is a founding member of the Board of Directors of the Syms School of Business at Yeshiva University.
Dennis Wood, O.C. Mr. Wood is Chairman, President and Chief Executive Officer of Dennis Wood Holdings Inc., a privately owned portfolio company, a position he has held since 1973. Since April 2005, he has served as Interim President and Chief Executive Officer of GBO Inc. (formerly Groupe Bocenor Inc.), a window and door manufacturer, and also serves as a director and as Chair of its Executive Committee. Between 1992 and 2001, Mr. Wood served as Chairman, President and Chief Executive Officer of C-MAC Industries Inc., a designer and manufacturer of integrated electronic manufacturing solutions. Mr. Wood has been a member of the Board of Jean Coutu Group since March 2004. In April 2007, he was appointed Chairman of the Board of Azimut Exploration Inc. and serves as Chairman of the Board of 5N Plus Inc. Furthermore, Mr. Wood serves on the boards of National Bank Trust, Transat A.T. Inc. and Blue Mountain Wallcoverings Inc., a privately held company. He has been awarded Canada's top honor, the Order of Canada and has an honorary degree from the University of Sherbrooke.
Corporate Governance
We recognize that good corporate governance is an important means of protecting the interests of our stockholders, associates, customers, suppliers and the community. The Board of Directors, through the Nominating and Governance Committee, monitors corporate governance developments and proposed legislative, regulatory and stock exchange corporate governance reforms.
Website Access to Corporate Governance Materials. Our corporate governance information and materials, including our Certificate of Incorporation, By-Laws, Corporate Governance Guidelines, current charters for each of the Audit Committee, Compensation Committee and Nominating and Governance Committee, Code of Ethics for the Chief Executive Officer and Senior Financial Officers, Code of Ethics and Business Conduct, and our Related Person Transactions Approval Policy, are posted on our website atwww.riteaid.comunder the headings "Our Company—Corporate Governance" and are available in print upon request to Rite Aid Corporation, 30 Hunter Lane, Camp Hill, Pennsylvania 17011, Attention: Secretary. The Board regularly reviews corporate governance developments and will modify these materials and practices from time to time as warranted.
Codes of 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.comunder the headings "Our Company—Corporate Governance—Code of Ethics."
Director Independence. For a director to be considered independent under the New York Stock Exchange corporate governance listing standards, the Board of Directors must affirmatively determine that the director does not have any direct or indirect material relationship with the 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.
As 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: Joseph B. Anderson, Jr., André Belzile, François J. Coutu, James L. Donald, Michael A. Friedman, MD, George G. Golleher (served until April 14, 2009), David R. Jessick, Michael N. Regan, Philip G. Satre, Marcy Syms and Dennis Wood. 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 NYSE requirements for audit committee members. In determining each individual's status as an independent director, the Board considered the following transactions, relationships and arrangements:
There is no family relationship between any of the nominees, continuing directors and executive officers of Rite Aid, except that directors François Coutu and Michel Coutu are brothers.
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 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 has nominated a person for election to the Board in compliance with the advance notice requirements for stockholder nominees for director set forth in the By-Laws and (ii) such nomination has not been withdrawn by such stockholder 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 (the "Guidelines"), a director who fails to receive the required number of votes for re-election 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.
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 atwww.riteaid.comunder the headings "Our Company—Corporate Governance—Committee Charters."
Audit Committee. The Audit Committee, which held eleven meetings during fiscal year 2009, currently consists of Philip G. Satre (Chairman), André Belzile, Michael N. Regan and Marcy Syms. 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 Philip G. Satre qualifies as an "audit committee financial expert" as that term is defined under applicable SEC rules. It is expected that David R. Jessick will be appointed to the Audit Committee.
The functions of the Audit Committee include the following:
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.comunder the headings "Our Company—Corporate Governance."
Compensation Committee. The Compensation Committee, which met eight times during fiscal year 2009, currently consists of James L. Donald, Michael A. Friedman, MD and Dennis Wood. The Board has determined that each of these individuals is an independent director under the NYSE listing standards. See the section entitled "Corporate Governance—Director Independence" above. George G. Golleher served as Chairman of the Compensation Committee until his resignation from the Board in April 2009.
The functions of the Compensation Committee include the following:
The Compensation Committee reviews the performance of the Company's executive personnel and develops and makes recommendations to the Board of Directors with respect to executive compensation policies. The Compensation Committee is empowered by the Board of Directors to award to executive officers appropriate bonuses, stock options, stock appreciation rights ("SARs") and stock-based awards. The details of the processes and procedures for the consideration and determination of executive and director compensation are described in the section entitled "Compensation Discussion and Analysis."
The Compensation Committee also has access to independent compensation data and from time to time engages outside compensation consultants. In fiscal year 2009, the Compensation Committee considered the report of outside compensation consultants with respect to executive compensation and equity compensation strategy.
The objectives of the Compensation Committee are to support the achievement of desired company performance, to provide compensation and benefits that will attract and retain superior talent and reward performance and to fix a portion of compensation to the outcome of the Company's performance.
Nominating and Governance Committee. The Nominating and Governance Committee, which held two meetings during fiscal year 2009, currently consists of Joseph B. Anderson, Jr. (Chairman), François J. Coutu and Michael A. Friedman, MD. The Board has determined that each of these individuals is an independent director under the NYSE listing standards. See the section entitled "Corporate Governance—Director Independence" above.
The functions of the Nominating and Governance Committee include the following:
Executive Committee. The members of the Executive Committee currently are Michel Coutu, Robert G. Miller, Mary F. Sammons and Philip G. Satre. The Executive Committee did not meet during fiscal year 2009. However, on four occasions, the Executive Committee acted by Unanimous Written Consent. The Executive Committee, except as limited by Delaware law, is empowered to exercise all of the powers of the Board of Directors.
Nomination of Directors
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 stockholder recommendation and information described above must be sent to Rite Aid Corporation, 30 Hunter Lane, Camp Hill, Pennsylvania 17011, Attention: Secretary. The Nominating and Governance Committee will accept recommendations of director candidates throughout the year; however, 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 less than 120 days prior to the anniversary date of Rite Aid's most recent annual meeting of 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, time availability in light of other commitments, potential conflicts of interest and independence from management and the Company. The Nominating and Governance Committee also seeks to have the Board represent a diversity of backgrounds and experience.
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.
Once a person has been identified by the Nominating and Governance Committee as a potential candidate, the committee may collect and review publicly available information regarding the person to assess whether the person should be considered further. If the Nominating and Governance Committee determines that the candidate warrants further consideration, the Chairman or another member of the committee contacts the person. Generally, if the person expresses a willingness to be considered and to serve on the Board, the Nominating and Governance Committee requests information from the candidate, reviews the person's accomplishments and qualifications, including in light of any other candidates that the committee might be considering, and conducts one or more interviews with the candidate. In certain instances, committee members may contact one or more references provided by the candidate or may contact other members of the business community or other persons that may have greater first-hand knowledge of the candidate's accomplishments. The committee'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.
James Donald and David R. Jessick were appointed to the Board of Directors in May 2008 and April 2009, respectively, on the recommendation of the Nominating and Governance Committee. Messrs. Donald and Jessick were recommended for consideration by the Nominating and Governance Committee by Mary Sammons, our Chairman and Chief Executive Officer.
Executive Sessions of Non-Management Directors
In order to promote discussion among the non-management directors, regularly scheduled executive sessions (i.e., meetings of non-management directors without management present) are held to review such topics as the non-management directors determine. The non-management directors met in executive session seven times during fiscal year 2009 and were presided over by the Non-Executive Co-Chairman of the Board of Directors.
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, any individual directors or committee of directors, 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 atwww.riteaid.com. Under the headings "Our Company—Corporate Governance—Contact Our Board" you will find an on-line form 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 web site in order to send your message.
All communications received as set forth above will be opened by the Secretary for the purpose of determining whether the contents represent a message to the directors, and depending on the facts and circumstances outlined in the communication, will be distributed to the Board, the non-management directors, an individual director, or 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 e-mail is addressed.
Directors' Attendance at Board, Committee and Annual Meetings
The Board of Directors held ten meetings during fiscal year 2009. 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.
It is our policy that directors are invited and encouraged to attend the annual meeting of stockholders. Twelve of our fourteen directors attended the 2008 Annual Meeting of Stockholders.
Directors' Compensation
Except for Robert G. Miller, whose compensation arrangements are discussed in the section below entitled "Agreement with Mr. Miller," and except as noted below under the director compensation plan, each non-employee director other than Mr. Sokoloff (who is affiliated with Leonard Green & Partners L.P., an entity that provides services to Rite Aid, as discussed under "Certain Relationships and Related Transactions") receives an annual payment of $70,000 in cash, payable quarterly in arrears, except that the annual payment to each non-employee director who is a member of the Audit Committee is $80,000 and the annual payment to Michel Coutu in his capacity as Non-Executive Co-Chairman is $500,000. In addition, the chair of the Audit Committee receives an additional annual payment of $10,000. Each non-employee director who chairs a committee of the Board other than the Audit Committee receives an additional annual payment of $7,500. Directors who are officers and full-time Rite Aid employees and Mr. Sokoloff receive no separate compensation for service as directors or committee members. Directors are reimbursed for travel and lodging expenses associated with attending Board of Directors meetings.
Each person who was first elected or appointed as a director after January 1, 2002 and who is eligible to receive compensation for serving as a director shall, on the date first elected or appointed, receive non-qualified stock options to purchase 100,000 shares of common stock. In addition, non-employee directors other than Mr. Sokoloff are entitled to annually receive 20,000 shares of restricted stock. All of the options received by the directors vest ratably and the restrictions applicable to the restricted stock shall lapse over a three-year period beginning on the first anniversary of the date they were granted. None of such options vests after the non-employee director ceases to be a director, except in the case of a director whose service terminates after he or she reaches age 72, in which case such options will vest immediately upon termination. All of the options vest immediately upon a change in control. In accordance with the foregoing, the following number of shares of restricted stock were issued under Rite Aid's 2006 Omnibus Equity Plan to the following directors: on September 24, 2008, Ms. Syms and Messrs. Anderson, Belzile, François Coutu, Michel Coutu, Friedman, Golleher, Miller, Regan, Satre and Wood each received 20,000 shares of restricted stock. On May 13, 2008, James L. Donald was appointed to the Board of Directors and received non-qualified stock options to purchase 100,000 shares with an exercise price equal to the market price of the Company's common stock as of the close of business on the date of grant.
In fiscal year 2009, Rite Aid's non-employee directors also received $2,000 for each Board of Directors meeting attended, $1,000 for each committee meeting attended or $2,500 for each meeting attended at which such non-employee director served as the chairman of a committee, except that Mr. Sokoloff received no such compensation.
DIRECTOR COMPENSATION TABLE FOR FISCAL YEAR 2009
The following Director Compensation Table sets forth fees, awards and other compensation paid to or earned by our directors (other than Named Executive Officers) who served during the fiscal year ended February 28, 2009:
Name | Fees Earned or Paid in Cash ($) | Stock Awards ($)(4)(6) | Option Awards ($)(5)(7) | All Other Compensation ($) | Total | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Joseph B. Anderson, Jr. | 104,500 | 2,667 | 54,167 | 161,334 | ||||||||||||
André Belzile | 115,000 | 2,667 | 108,333 | 226,000 | ||||||||||||
François J. Coutu | 94,000 | 2,667 | 108,333 | 205,000 | ||||||||||||
Michel Coutu | 522,000 | 2,667 | 108,333 | 633,000 | ||||||||||||
James L. Donald | 67,231 | — | 35,667 | 102,898 | ||||||||||||
Michael A. Friedman, MD | 103,000 | 2,667 | 54,167 | 159,834 | ||||||||||||
George G. Golleher | 124,500 | 2,667 | 54,167 | 181,334 | ||||||||||||
Robert A. Mariano(1) | 21,000 | — | 4,514 | 25,514 | ||||||||||||
Robert G. Miller(2) | 154,731 | 2,667 | 54,167 | 507,544 | (3) | 719,109 | ||||||||||
Michael N. Regan | 115,000 | 2,667 | 108,333 | 226,000 | ||||||||||||
Philip G. Satre | 141,500 | 2,667 | 54,167 | — | 198,334 | |||||||||||
Jonathan D. Sokoloff | — | — | — | — | ||||||||||||
Marcy Syms | 114,000 | 2,667 | 54,167 | 170,834 | ||||||||||||
Dennis Wood | 102,000 | 2,667 | 108,333 | — | 213,000 |
Name | Grant Date | Number of Stock Awards (#) | Grant Date Fair Value ($) | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Joseph B. Anderson, Jr. | 9/24/2008 | 20,000 | 0.96 | |||||||
André Belzile | 9/24/2008 | 20,000 | 0.96 | |||||||
François J. Coutu | 9/24/2008 | 20,000 | 0.96 | |||||||
Michel Coutu | 9/24/2008 | 20,000 | 0.96 | |||||||
James L. Donald | 9/24/2008 | 20,000 | 0.96 | |||||||
Michael A. Friedman, MD | 9/24/2008 | 20,000 | 0.96 | |||||||
George G. Golleher | 9/24/2008 | 20,000 | 0.96 | |||||||
Robert G. Miller | 9/24/2008 | 20,000 | 0.96 | |||||||
Michael N. Regan | 9/24/2008 | 20,000 | 0.96 | |||||||
Philip G. Satre | 9/24/2008 | 20,000 | 0.96 | |||||||
Marcy Syms | 9/24/2008 | 20,000 | 0.96 | |||||||
Dennis Wood | 9/24/2008 | 20,000 | 0.96 |
Name | Grant Date | Exercise Price ($) | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Grant Date Fair Value ($) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Joseph B. Anderson, Jr. | 9/21/2005 | 3.65 | 100,000 | — | — | ||||||||||||
6/21/2006 | 4.55 | 50,000 | — | — | |||||||||||||
6/27/2007 | 6.15 | 16,667 | 33,333 | 3.25 | |||||||||||||
André Belzile | 6/4/2007 | 6.55 | 33,334 | 66,666 | 3.25 | ||||||||||||
François J. Coutu | 6/4/2007 | 6.55 | 33,334 | 66,666 | 3.25 | ||||||||||||
Michel Coutu | 6/4/2007 | 6.55 | 33,334 | 66,666 | 3.25 | ||||||||||||
James L. Donald | 5/13/2008 | 2.40 | — | 100,000 | 1.07 | ||||||||||||
Michael A. Friedman, MD | 10/7/2004 | 3.53 | 100,000 | — | — | ||||||||||||
6/23/2005 | 4.11 | 50,000 | — | — | |||||||||||||
6/21/2006 | 4.55 | 50,000 | — | — | |||||||||||||
6/27/2007 | 6.15 | 16,667 | 33,333 | 3.25 | |||||||||||||
George G. Golleher | 1/30/2002 | 2.26 | 100,000 | — | — | ||||||||||||
12/11/2002 | 2.10 | 50,000 | — | — | |||||||||||||
4/7/2004 | 5.40 | 50,000 | — | — | |||||||||||||
6/23/2005 | 4.11 | 50,000 | — | — | |||||||||||||
6/21/2006 | 4.55 | 50,000 | — | — | |||||||||||||
6/27/2007 | 6.15 | 16,667 | 33,333 | 3.25 | |||||||||||||
Robert G. Miller | 11/20/2000 | 2.75 | 4,200,000 | — | — | ||||||||||||
2/13/2001 | 4.05 | 4,500,000 | — | — | |||||||||||||
6/24/2004 | 5.38 | 50,000 | — | — | |||||||||||||
6/23/2005 | 4.11 | 50,000 | — | — | |||||||||||||
6/21/2006 | 4.55 | 50,000 | — | — | |||||||||||||
6/27/2007 | 6.15 | 16,667 | 33,333 | 3.25 | |||||||||||||
Michael N. Regan | 6/27/2007 | 6.15 | 33,334 | 66,666 | 3.25 |
Name | Grant Date | Exercise Price ($) | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Grant Date Fair Value ($) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Philip G. Satre | 4/6/2005 | 3.77 | 100,000 | — | — | ||||||||||||
6/23/2005 | 4.11 | 50,000 | — | — | |||||||||||||
6/21/2006 | 4.55 | 50,000 | — | — | |||||||||||||
6/27/2007 | 6.15 | 16,667 | 33,333 | 3.25 | |||||||||||||
Marcy Syms | 9/21/2005 | 3.65 | 100,000 | — | — | ||||||||||||
6/21/2006 | 4.55 | 50,000 | — | — | |||||||||||||
6/27/2007 | 6.15 | 16,667 | 33,333 | 3.25 | |||||||||||||
Dennis Wood | 6/4/2007 | 6.55 | 33,334 | 66,666 | 3.25 |
Agreement with Mr. Miller
Mr. Miller's April 9, 2003 employment agreement was amended on April 28, 2005, pursuant to which, effective as of June 23, 2005, Mr. Miller continued serving solely as Chairman of the Board. On November 28, 2006, Rite Aid amended the April 9, 2003 agreement with Mr. Miller pursuant to which Mr. Miller stepped down as Chairman upon the closing of the Brooks Eckerd Transaction and continued to serve solely as a director through the date of the 2008 annual meeting, and the parties agreed that the Brooks Eckerd Transaction would not trigger change in control benefits. An additional amendment to Mr. Miller's employment agreement, pursuant to which Mr. Miller will continue to serve as a director until the Company's 2011 Annual Meeting of Stockholders, became effective on his re-election to the Board of Directors at the 2008 annual meeting. Additional terms of this agreement are as follows:
Salary and incentive bonus. Through June 25, 2008, the date of the 2008 Annual Meeting of Shareholders, Mr. Miller received annual base pay of $350,000 and was entitled to continued benefits, in their entirety, including participation in Rite Aid's fringe benefit and perquisite programs and savings plans, and continued deferred compensation as provided under the December 5, 1999 employment agreement. However, he was not entitled to participate in any incentive compensation or bonus plans. For the period starting on June 26, 2008 and ending on the later of (i) June 30, 2009 and (ii) the one year anniversary of the 2008 annual meeting (the "Term"), Mr. Miller receives a monthly base salary of $5,000 (pro-rated for any partial month) and continues to be eligible to participate in certain of the Company's fringe benefit and perquisite programs in which he was entitled to participate prior to the 2008 annual meeting, and continues to remain entitled to defer compensation as provided under the December 5, 1999 employment agreement. The Term may be extended at the mutual agreement of the parties. If the Term is not extended, Mr. Miller shall be entitled to receive solely the fees which are paid to our non-employee directors through the end of his service as a director.
Restricted stock and options. During his service as a director, Mr. Miller is eligible to receive option and restricted stock awards in accordance with Rite Aid's policy for members of the Board of Directors as in effect from time to time. Mr. Miller's existing stock options and shares of restricted stock continue to vest and be fully exercisable for the remainder of their stated terms.
Termination of employment and change in control arrangements. The termination provisions of the April 9, 2003 employment agreement became effective immediately and remain in effect until the agreement expires. Pursuant to the April 28, 2005 amendment to the April 9, 2003 agreement, if Mr. Miller was not re-elected as Chairman, he could be terminated and receive one year's base salary (as compared to three years provided under the previous agreements for a termination without cause). Under the November 28, 2006 agreement, Mr. Miller waived any right he would have pursuant to his
employment agreement upon his ceasing to serve as Chairman or a change in control triggered by the Brooks Eckerd Transaction.
Agreement with Michel Coutu
Effective as of June 27, 2007, Michel Coutu was appointed as a director of Rite Aid and non-executive co-chairman of the Board of Directors for a term of two years following the completion of the Brooks Eckerd Transaction. In this capacity, Mr. Coutu is entitled to receive an annual retainer of $500,000, payable quarterly in arrears. In addition, Mr. Coutu is also entitled to receive certain benefits and annual equity awards to the same extent as our other directors, as described under the caption "Directors' Compensation," above. On April 8, 2009, the Board extended this agreement with Mr. Coutu, on the same terms, through the date of the 2010 annual meeting of stockholders.
PROPOSAL NO. 3STOCKHOLDER PROPOSAL—ADVISORY VOTE ON EXECUTIVE COMPENSATION
The Comptroller of the City of New York, custodian and trustee of the New York City Employees' Retirement System and the New York City Teachers' Retirement System, which collectively own approximately 1,131,141 shares of Common Stock (based on information provided to us by the Comptroller of the City of New York), has notified the Company that it intends to present the following proposal at the Annual Meeting:
RESOLVED, that shareholders of Rite Aid Corporation request the Board of Directors to adopt a policy that provides shareholders the opportunity at each annual shareholder meeting to vote on an advisory resolution, proposed by management, to ratify the compensation of the named executive officers ("NEOs") set forth in the proxy statement's Summary Compensation Table (the "SCT") and the accompanying narrative disclosure of material factors provided to understand the SCT (but not the Compensation Discussion and Analysis). The proposal submitted to shareholders should make clear that the vote is non-binding and would not affect any compensation paid or awarded to any NEO.
Supporting Statement
Investors are increasingly concerned about mushrooming executive compensation especially when it is insufficiently linked to performance. In 2008, shareholders filed close to 100 "Say on Pay" resolutions. Votes on these resolutions have averaged 43% in favor, with ten votes over 50%, demonstrating strong shareholder support for this reform.
An Advisory Vote establishes an annual referendum process for shareholders about senior executive compensation. We believe the results of this vote would provide the board and management with useful information about shareholder views on the company's senior executive compensation.
In its 2008 proxy Aflac submitted an Advisory Vote resulting in a 93% vote in favor, indicating strong investor support for good disclosure and a reasonable compensation package. Daniel Amos, Chairman and CEO said, "An advisory vote on our compensation report is a helpful avenue for our shareholders to provide feedback on our pay-for-performance compensation philosophy and pay package."
To date eight other companies have also agreed to an Advisory Vote, including Verizon, MBIA, H&R Block, Blockbuster, and Tech Data. TIAA-CREF, the country's largest pension fund, has successfully utilized the Advisory Vote twice.
Influential proxy voting service RiskMetrics Group recommends votes in favor, noting: "RiskMetrics encourages companies to allow shareholders to express their opinions of executive compensation practices by establishing an annual referendum process. An advisory vote on executive compensation is another step forward in enhancing board accountability."
The Council of Institutional Investors has endorsed advisory votes and a bill to allow annual advisory votes passed the House of Representatives by a 2-to-1 margin. As presidential candidates, Senators Obama and McCain supported the Advisory Vote.
We believe that existing U.S. Securities and Exchange Commission rules and stock exchange listing standards do not provide shareholders with sufficient mechanisms for providing input to boards on senior executive compensation. In contrast, in the Untied Kingdom, public companies allow shareholders to cast a vote on the "directors' remuneration report," which discloses executive compensation. Such a vote isn't binding, but gives shareholders a clear voice that could help shape senior executive compensation.
We believe that a company that has a clearly explained compensation philosophy and metrics, reasonably links pay to performance, and communicates effectively to investors would find a management sponsored Advisory Vote a helpful tool.
We urge our board to allow shareholders to express their opinion about senior executive compensation through an Advisory Vote.
THE BOARD OF DIRECTORS' STATEMENT IN OPPOSITION
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "AGAINST" THISPROPOSAL TO ADOPT AN ADVISORY VOTE ON EXECUTIVE COMPENSATION FORTHE FOLLOWING REASONS:
The Board has given careful consideration to this proposal and has concluded for the reasons described below that the adoption of this resolution is unnecessary and is not in the best interests of Rite Aid and its stockholders.
The Board recognizes the importance of executive compensation to the overall long-term performance of Rite Aid. Rite Aid's compensation philosophy is to pay for performance that supports Rite Aid's business strategies and to pay competitively. In the "Compensation Discussion & Analysis" ("CD&A") section of this proxy statement, Rite Aid provides stockholders with a detailed and thorough description of the Company's compensation program, including the philosophy and strategy underpinning the program, the individual elements of the compensation program and how Rite Aid's compensation plans are administered. Rite Aid's compensation programs contain consistent elements designed to reward achievement of the Company's long-term objectives.
Rite Aid's Compensation Committee, composed entirely of independent directors, is responsible for reviewing and approving the compensation of Rite Aid's chief executive officer and reviewing and recommending to the Board other senior officers' compensation levels. The Compensation Committee considers a variety of information to determine the appropriate level of competitive and equitable executive pay. By their very nature, compensation decisions require a knowledge of executive performance and confidential and sensitive strategic and operational information; expertise regarding competitive conditions and compensation practices and a familiarity with other confidential and proprietary information unavailable to stockholders.
Some of the information could not be made available to stockholders without also providing proprietary competitive data to the Company's competitors. As proposed, stockholders would be asked to endorse or reject compensation decisions without complete information, or alternatively, the Company would have to disclose competitive information in a public document in order for stockholders to make an informed vote.
In addition, the Compensation Committee retains an independent outside executive compensation consultant to conduct pay for performance reviews, which are performed annually after the end of the fiscal year using peer group data to benchmark Rite Aid's compensation programs and performance. While the Compensation Committee is able to use this information to timely evaluate and make recommendations regarding executive pay for the relevant performance period, an advisory stockholder vote would take place approximately four (4) months after the relevant performance period has ended. Therefore, an advisory vote is likely to be more reflective of current market conditions, rather than a consideration of the compensation awarded or recommended by the Compensation Committee for the relevant performance period that was based on information and analysis available to the Compensation Committee at the time.
Even if the proposal were adopted, the result of the requested advisory vote cannot be expected to provide the Company with meaningful results. If stockholders do not ratify compensation decisions, the Company will understand that stockholders are dissatisfied. However, the source of the stockholder dissatisfaction will not necessarily be clear, much less the action that should be taken to address their concerns.
The proposal states that the United Kingdom allows an advisory vote on executive compensation. The Board believes that comparing U.S. compensation practices to those in the United Kingdom is inappropriate. Because an advisory stockholder vote on executive compensation is mandatory for all public United Kingdom companies, no one United Kingdom company is competitively disadvantaged by this requirement. Rite Aid, on the other hand, could find it more difficult to recruit and retain executive talent if it became one of the small number of U.S. companies to adopt an advisory vote, as the practice could lead to a perception that compensation opportunities at Rite Aid may be limited or negatively affected compared to opportunities at other companies that have not adopted this practice. Moreover, we have found no evidence of increased investor satisfaction with United Kingdom pay practices and we are not aware of any company in Rite Aid's peer group (as identified in the CD&A) that has adopted this practice.
The Board believes that the Compensation Committee is in the best position to consider the extensive information and factors necessary to make independent, objective and competitive compensation recommendations and decisions that are in the best interest of Rite Aid and its stockholders. The Compensation Committee should have flexibility in making the appropriate compensation recommendations and decisions so that Rite Aid can motivate and competitively compensate Rite Aid executives in alignment with Rite Aid's performance. The Board appreciates that stockholders are a crucial stakeholder whose views must be heard and valued. Stockholders who wish to express their opinion on the Company's executive compensation strategy or any other matter are encouraged to do so in writing to the Board pursuant to the process described in the "Communications with the Board of Directors" section of this proxy statement. The Board believes that this approach facilitates a sharing of stockholder views and is ultimately more meaningful and useful to the Board than a non-binding advisory vote that is based on incomplete information.
RECOMMENDATION
FOR THE REASONS STATED ABOVE, THE BOARD OF DIRECTORS UNANIMOUSLYRECOMMENDS THAT YOU VOTE "AGAINST" THIS STOCKHOLDER PROPOSAL.
PROPOSAL NO. 4RATIFICATION OF THE APPOINTMENT OF INDEPENDENTREGISTERED PUBLIC ACCOUNTING FIRM
The accounting firm of Deloitte & Touche LLP ("Deloitte & Touche") has been selected as the independent registered public accounting firm for the Company for the fiscal year ending February 27,
2010. 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 Board of Directors will consider the appointment of another independent registered public accounting firm. A representative of Deloitte & Touche will be present at the Annual Meeting and will have the opportunity to make a statement and will be available to respond to appropriate questions.
RECOMMENDATION
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"THE RATIFICATION OF DELOITTE & TOUCHE LLP AS THE COMPANY'SINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL YEAR 2010
Officers are appointed annually by the Board of Directors and serve at the discretion of the Board of Directors. Set forth below is information regarding the current executive officers of Rite Aid.
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Frank G. Vitrano. Mr. Vitrano was appointed Senior Executive Vice President, Chief Financial Officer and Chief Administrative Officer in September 2008. He was a self-employed private investor from January 2008 to September 2008. Previously, Mr. Vitrano spent 35 years at Pathmark Stores, Inc., where most recently he served as President, Chief Financial Officer and Treasurer from October 2002 through December 2007. Prior to serving as President, Chief Financial Officer and Treasurer, Mr. Vitrano served in a variety of positions at Pathmark. Mr. Vitrano was a Director of Pathmark Stores, Inc. from 2000 to 2005.
Kenneth A. Martindale. Mr. Martindale was appointed Senior Executive Vice President, Chief Merchandising, Marketing and Logistics Officer in December 2008. He was a self-employed private investor from January 2008 to December 2008. Previously, Mr. Martindale served as Co-President, Chief Merchandising and Marketing Officer for Pathmark Stores, Inc. from January 2006 until December 2007. In January 2000, Mr. Martindale joined the Board of Directors of Intesource, Inc.; became Chairman of the Board in March 2004; and served as President, Chief Executive Officer and Chairman of the Board from November 2004 until January 2006. From September 1999 until
November 2004, Mr. Martindale was Principal of Martindale Development Group, L.L.C. In September 1999 until July 2003, Mr. Martindale was Managing Director/CEO of Orchard Street, Inc., a privately held specialty food retailer which he founded and owned. Mr. Martindale was Executive Vice President of Sales and Procurement with Fred Meyer, Inc. from January 1998 until September 1999 and was Senior Vice President of Sales and Procurement with Smith's Food & Drug Centers, Inc. in June 1996 until January 1998.
Brian R. Fiala. Mr. Fiala was appointed Executive Vice President of Store Operations in June 2007. He was a self employed private investor from July 2006 to June 2007. Previously, Mr. Fiala spent 24 years with Target Corporation, where most recently he served as Senior Vice President on the East Coast until July 2006. Mr. Fiala joined Target in 1983 as a management trainee, was promoted into various positions including Store Team Leader, Regional Merchandise Manager, District Team Leader, and Regional Director. In 1998, Mr. Fiala was named Regional Vice President for the Northeast and in 2001 was promoted to Senior Vice President of Target.
Marc A. Strassler. Mr. Strassler was appointed Executive Vice President, General Counsel and Secretary in March 2009. From January 2008 until March 2009, Mr. Strassler was a self-employed private investor. Previously, Mr. Strassler served as Senior Vice President, General Counsel and Corporate Secretary with Pathmark Stores, Inc. from 1997 until its acquisition by the Great Atlantic & Pacific Tea Company in December 2007. From 1987 until 1997, he served as Vice President, General Counsel and Secretary of Pathmark. From 1974 until 1987, Mr. Strassler served in a variety of legal positions at Pathmark.
Douglas E. Donley. Mr. Donley was appointed Senior Vice President, Chief Accounting Officer in October 2005. He had been Group Vice President, Corporate Controller from 1999 to October 2005. Mr. Donley served as the acting principal financial officer of the Company from October 7 to October 8, 2008, and as a financial analyst for the Company from 1996 to 1999. He was an internal auditor for Harsco Corporation from 1994 to 1996. Prior to joining Harsco, he was an auditor for KPMG Peat Marwick. In March 2007, pursuant to a plea agreement, Mr. Donley pled guilty to state misdemeanor offenses related to driving under the influence. Mr. Donley has subsequently satisfied all terms of the plea agreement. The Company believes that this matter does not adversely affect Mr. Donley's fitness to serve as an officer.
COMPENSATION DISCUSSION AND ANALYSIS
Introduction
Rite Aid Corporation is the third largest retail drugstore chain in the United States based on revenues and number of stores, operating approximately 4,900 stores in 31 states and the District of Columbia. A primary component of the Company's human resource strategy is to attract, motivate and retain highly talented individuals at all levels of the organization who are committed to the Company's core values of excellence, integrity and respect for people and have the ability to execute the Company's strategic and operational priorities.
Objectives of Executive Compensation
All executive compensation and 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, outlined below. The Compensation Committee also administers the Company's equity incentive compensation plans. In establishing or approving the compensation of our Chief Executive Officer and the other executive officers named in the Summary Compensation Table
(the "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 company performance, and should foster the long-term focus required for success in the retail drugstore industry. As associates progress to higher levels in the organization, an increasing proportion of their pay should be linked to company performance and shareholder 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 in relationship to company performance. Where company 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 company performance, the programs should continue to ensure that successful, high-achieving employees 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's achievement of its strategic and operational goals.
Compensation and benefit programs should be set across 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 associates who are interested in a career at Rite Aid.
The Committee's Processes
The Compensation Committee has established a number of processes to assist it in ensuring that the Company'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. First, in establishing total compensation ranges, the Compensation Committee considers various measures of Company and industry performance, including, but not limited to, comparable store sales growth, Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization and certain other adjustments), earnings growth, return on sales, return on average invested capital and assets and total shareholder return. In determining relative performance to the Company's peer group, 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 Compensation Committee has established specific Company target incentive/award levels and performance measures that determine the size of payouts under the Company's two formula-based incentive programs—the cash incentive bonus program and the long-term incentive program.
Assessment of individual performance. Individual performance has a strong impact on the compensation of all employees, including the CEO and the other executive officers. With respect to the CEO, the independent directors meet with the CEO in executive session annually at the beginning of the year to agree upon the CEO's performance objectives (both individual and Company objectives) for the year. At the end of the year, the independent directors meet in executive session to conduct a performance review of the CEO based on his or her achievement of the agreed-upon objectives, contribution to the Company's performance, and other leadership accomplishments. This evaluation is shared with the CEO and is provided to the Compensation Committee for its consideration in setting the CEO's compensation.
For the other Named Executive Officers, the Compensation Committee receives a performance assessment and compensation recommendation from the CEO and also exercises its judgment based on the Board of Directors' interactions with the executive officer. As with the CEO, the performance evaluation of these executives is based on achievement of pre-agreed objectives by the executive and his or her organization, his or her contribution to the Company's performance, and other leadership accomplishments.
Benchmarking. The Compensation Committee benchmarks the Company's programs with a peer group of retail organizations via external survey and compensation recommendations from Mercer Human Resources Consulting, a qualified, independent compensation consultant that reports its findings directly to the Compensation Committee. The independent compensation consultant is retained by the Compensation Committee to select the peer group of companies and conduct a market assessment of all components of executive compensation For the Company's 2009 fiscal year, this peer group consisted of the following companies: BJ's Wholesale; Costco; CVS/Caremark; Family Dollar Stores; Great Atlantic & Pacific Tea Co.; Home Depot; Longs Drug Store; Lowe's Companies; Safeway, Inc.; Target Corp. and Walgreen Co. The peer group companies that were selected fall within a similar revenue range and industry as Rite Aid. The Compensation Committee compares the peer group companies' executive compensation programs as a whole, and also compares the pay of individual executives if the jobs are sufficiently similar to make the comparison meaningful. The Compensation Committee uses the peer group data primarily to ensure that the executive compensation program as a whole is competitive, meaning generally within the broad middle range of comparative pay of the peer group companies when the Company achieves the targeted performance levels. The independent compensation consultant assessed Rite Aid's performance relative to its peer group and observed alignment of performance with actual total direct compensation levels.
Total compensation review. The Compensation Committee reviews each executive's base pay, bonus, long-term incentives and retirement benefits annually with the guidance of the Compensation Committee's independent consultant. Following the fiscal year 2009 review, the Compensation Committee determined that these elements of compensation were reasonable in the aggregate.
Components of Executive Compensation for Fiscal Year 2009
For fiscal year 2009, the compensation of executives consisted of four primary components—base salary, a cash incentive bonus award under the Company's annual incentive bonus plan, long-term incentives consisting of stock options, restricted stock and performance units and a benefits package. The Compensation Committee believes that this program balances both 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 furthers the compensation objectives discussed above. Following is a discussion of the Compensation Committee's considerations in establishing each of the components for the executive officers.
Base Salary
Base salary is one element of an executive's annual cash compensation during employment. The value of base salary reflects the employee's long-term performance, skill set and the market value of that skill set. In setting base salaries for fiscal year 2009, the Compensation Committee considered the following factors:
The median of comparable companies. The Compensation Committee generally attempts to provide base compensation approximating the median of the selected group of peer companies listed above. In April 2008, the Compensation Committee reviewed the base salaries of the Named Executive Officers relative to the peer companies and approved minimal adjustments to the base salaries of certain of the Named Executive Officers as set forth below.
Internal relativity, meaning the relative pay differences for different job levels.
Individual performance. Except for increases associated with promotions or increased responsibility, increases in base salary for executives from year to year are generally limited to minimal adjustments to reflect individual performance.
Peer group data specific to the executive's position, where applicable. As noted above, we used the peer group data to test for reasonableness and competitiveness of base salaries, but we also exercised subjective judgment in view of our compensation objectives.
Consideration of the mix of overall compensation. 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. Thus, for example, Ms. Sammons' overall compensation is more heavily weighted toward incentive compensation and equity compensation than that of the other executive officers.
In establishing Ms. Sammons' base salary for fiscal year 2009, the Compensation Committee applied the principles described above under "The Committee's Processes." In an executive session including all independent directors, the Compensation Committee assessed Ms. Sammons' fiscal year 2008 performance. They considered the Company's and Ms. Sammons' accomplishment of objectives that had been established at the beginning of the year and its own subjective assessment of her performance. They noted that under Ms. Sammons' leadership, in fiscal year 2008 the Company completed the acquisition of Brooks Eckerd, performed integration and conversion activities in the acquired stores, improved customer satisfaction and continued to develop and execute its strategic plan to deliver long-term shareholder value. In recognition of her continued strong leadership in fiscal year 2008, the Compensation Committee set Ms. Sammons' base salary for fiscal year 2009 at $1,000,000, the same level that it was for fiscal years 2004 through 2008.
The Compensation Committee reviewed similar considerations for each of the other Named Executive Officers and approved increases based upon a subjective assessment of their respective performance. The Compensation Committee approved Mr. Standley's annual salary upon his appointment as President and Chief Operating Officer in September 2008 and Mr. Vitrano's annual salary upon his appointment as Senior Executive Vice President, Chief Financial Officer and Chief Administrative Officer in September 2008. The Compensation Committee increased the annual salary for Mr. Twomey by three percent for fiscal year 2009 in consideration for his performance as Executive Vice President, Chief Financial Officer. Mr. Twomey subsequently left the Company in September 2008. The Compensation Committee did not increase the annual salary for fiscal year 2009 for Mr. Legault as Chief Administrative Officer, who left the Company in September 2008. The Compensation Committee increased the annual salary for Mr. Easley by five percent for fiscal year 2009 in consideration for his performance as Chief Operating Officer. Mr. Easley subsequently left the Company in September 2008. The Compensation Committee
increased Mr. Donley's annual salary by four percent in fiscal year 2009 based upon his performance as Senior Vice President, Chief Accounting Officer. The Compensation Committee increased Mr. Fiala's annual salary by four percent in fiscal year 2009 based upon his performance as Executive Vice President, Store Operations. The Compensation Committee increased Mr. Sari's annual salary by four percent in fiscal year 2009 based upon his performance as Executive Vice President, General Counsel. Mr. Sari subsequently left the Company on April 8, 2009.
Cash Incentive Bonuses
The Company has established an annual incentive bonus plan in order to incentivize associates to meet the Company's Adjusted EBITDA and customer satisfaction targets for fiscal year 2009. Named Executive Officers, other executive officers and key managers of the Company participate in this cash bonus plan. The bonuses paid for fiscal year 2009 appear in the Summary Compensation Table under the "Non-Equity Incentive Plan Compensation" column. Under the plan, bonus target amounts, expressed as a percentage of base salary, are established for participants at the beginning of each fiscal year. Bonus payouts for the year are then determined by the Company's financial and customer satisfaction results for the year relative to predetermined performance measures. The Compensation Committee considered the following when establishing the awards for fiscal year 2009:
Bonus targets. Bonus targets as a percentage of base salary for each individual were based on job responsibilities, internal relativity, and peer group data. Our objective was to set bonus targets such that total annual cash compensation was within the broad middle range of peer group companies and a substantial portion of that compensation was linked to company performance. Consistent with our executive compensation policy, individuals with greater job responsibilities had a greater proportion of their total cash compensation tied to company performance through the bonus plan. Thus, the Compensation Committee established the following bonus targets for fiscal year 2009 (expressed as a percentage of base salary): Ms. Sammons, 200 percent; Mr. Standley, 125 percent; Mr. Vitrano, 110 percent; Mr. Martindale, 100 percent; Messrs. Fiala and Sari, 60 percent; and Mr. Donley, 50 percent.
Company performance measures. For all participants in the annual incentive bonus plan, including the Named Executive Officers, the Compensation Committee established fiscal year 2009 company performance measures between the minimum ($1,005 million) and the maximum ($1,105 million) Adjusted EBITDA targets and the minimum (71%) and maximum (80%) of overall customer satisfaction survey targets. The measures were determined in April 2008, near the beginning of the fiscal year. The Compensation Committee believes that this mix of performance measures encourages associates to focus appropriately on improving both operating results and customer service. The measures are also effective motivators because they are easy to track and clearly understood by associates. Under the plan formula, payouts can range from zero to 200 percent of bonus targets depending on company performance. In establishing the performance target for Adjusted EBITDA and customer satisfaction, the Compensation Committee considered the expected fiscal year 2009 performance of these measures. Although no earnings bonuses were paid in fiscal year 2009, a bonus for improvement in customer satisfaction (calculated based upon achievement of 98.7% of the customer satisfaction survey targets, which equates to a bonus payout equal to 17.2% of the fiscal year 2009 bonus target), was paid to field management and corporate personnel, including the Named Executive Officers, except for Ms. Sammons who declined her bonus in the amount of $344,000 for fiscal year 2009.
Long-Term Incentive Program
In fiscal year 2009, we employed three forms of long term incentives: performance awards, stock options and restricted stock. For the executive officers, performance awards comprised 60 percent, stock option grants comprised 25 percent, and restricted stock comprised 15 percent of the total
long-term incentive level established by the Compensation Committee. These incentives foster the long-term perspective necessary for continued success in our business. They also ensure that our leaders are properly focused on shareholder value. Stock options and restricted stock have traditionally been granted broadly and deeply within the organization, with approximately 1,500 management and field associates now participating in our long-term incentive program. In determining the value of grants for executives, the Compensation Committee's overall objective was to set combined grant values of stock options, restricted stock and performance awards that were competitive within the broad middle range of peer company long-term incentive grant amounts. The Compensation Committee's process for setting grant dates is discussed below. Then, on the grant date those values are converted to the equivalent number of shares based on the closing price of the Company's common stock on the date of grant for restricted shares and performance units, and using the Black-Scholes valuation method for stock options.
Grant timing and price. The Compensation Committee's procedure for timing of these grants (performance awards, restricted stock and stock options) provides assurance that grant timing is not being manipulated to result in a price that is favorable to associates. The annual grant date is typically in late June, however, for fiscal year 2009 the grant date for all eligible employees including the Named Executive Officers (approximately 1,500 associates) was changed to early October so that the long-term incentive program could be redesigned to provide for a closer pay for performance alignment, especially for the Named Executive Officers. The Compensation Committee plans to return to a late June grant timing for fiscal year 2010.
For fiscal year 2009, the Compensation Committee decided that total grant values should remain unchanged from the prior fiscal year for each eligible position, having determined that there is appropriate alignment with long-term incentive target levels. In making this determination, the Compensation Committee reviewed available peer group data and found that the design of the long-term incentive program is reasonably aligned with those of the general retail industry market practice. Grant values for individual executive officers were determined by individual performance and internal relativity. Consistent with the Company's compensation philosophy, executive officers at higher levels received a greater proportion of total pay in the form of long-term incentives.
Performance Awards
Performance awards provide the Named Executive Officers and other executives with units, payable in cash if the designated Company performance goals are achieved, aligning interests of executives with those of shareholders. The awards, normally granted annually, are structured as a targeted number of units based on the Company's achievement of specific Adjusted EBITDA levels over a three-year period. The Company granted performance awards for fiscal year 2009 to the Named Executive Officers with possible payouts ranging from zero to 200 percent of the target number of units, depending on Adjusted EBITDA as compared to the target, set annually, for fiscal years 2009, 2010 and 2011. The Adjusted EBITDA target for fiscal 2009 was set at $1,005 million. The awards are paid in cash at the end of the three-year performance period.
The Compensation Committee approved the terms of the fiscal year 2009 performance awards in October 2008, and took into consideration the following:
Target grant size. As noted above under "Long-Term Incentive Program," performance awards were 60 percent of the total grant values established by the Compensation Committee. The Compensation Committee decided that total grant values should remain unchanged from fiscal year 2008, but the percentage representing long-term performance-based awards should be increased to 60% of such total.
Company performance measure. As in previous years, the Compensation Committee established the performance measure as Adjusted EBITDA for each fiscal year over a three-year period. The Compensation Committee believes Adjusted EBITDA is an effective motivator because it is closely linked to shareholder value and has the greater ability to be impacted by the executives. In setting the target Adjusted EBITDA for fiscal year 2009, the Compensation Committee considered the expected earnings performance of the Company. Pursuant to the performance plan adopted on June 20, 2006 and based on the Company's attainment of 96% of the combined Adjusted EBITDA target for the 2007, 2008 and 2009 fiscal years, cash performance awards were made in the 2009 fiscal year to senior management, including the Named Executive Officers, except for Ms. Sammons who declined her award in the amount of $27,446 for fiscal year 2009. Mr. Sari received an award of $6,099 and Mr. Donley received an award of $3,344. The other Named Executive Officers were not eligible for this award since they were not employed by the Company for the entire performance cycle. The value of these awards for the eligible Named Executive Officers was based upon the number of performance units earned by each officer multiplied by the closing price of our common stock on April 1, 2009.
Longer-term focus and retention considerations. To enhance the performance awards' incentives for longer-term focus and retention, the awards to Named Executive Officers for fiscal year 2009 are payable in cash that is subject to forfeiture if the executive leaves the Company prior to February 2011 or such later date that Adjusted EBITDA performance for the period is determined, except by reason of death, disability, retirement, or by consent of the Compensation Committee.
Stock Options
Stock options align associate incentives with the interests of shareholders because options have value only if the stock price increases over time. The Company's ten-year options, granted at the market price on the date of grant, help focus employees on long-term growth. In addition, options are intended to help retain key associates because they vest over a four-year period, which also helps keep employees focused on long-term performance. The Company does not reprice options; likewise, if the stock price declines after the grant date, we do not replace options.
The Compensation Committee considered the following in establishing the fiscal year 2009 option grants to executive officers:
Grant size. As noted above under "Equity Incentive Program," stock option grants comprised 25 percent of the total equity grant values (measured in accordance with SFAS No. 123R) established by the Compensation Committee. The total grant values were unchanged from fiscal year 2008, but the percentage representing stock options was decreased to 25% of such total.
Restricted Stock
Restricted stock grants are intended to help retain key associates because they generally vest over a three-year period, which also helps keep employees focused on long-term performance. Combined grants (restricted stock, performance awards and stock options) provide a better balance for executive officers between risk and potential reward as compared to a grant consisting solely of stock options.
The Compensation Committee considered the following in establishing the fiscal year 2009 restricted stock grants to executive officers:
Grant size. As noted above under "Long-Term Incentive Program," restricted stock grants were 15 percent of the total equity grant values (measured in accordance with SFAS No. 123R) established by the Compensation Committee. The total grant values were unchanged from fiscal year 2008, but the percentage representing restricted stock was decreased to 15% of such total.
Post-Retirement Benefits
Supplemental Executive Retirement Plans. The Company has established retirement plans for its executive officers, including the Named Executive Officers, to provide a predetermined benefit upon retirement. Ms. Sammons and Mr. Miller receive benefits under a defined contribution supplemental retirement plan (the "SERP"). Each month, $20,000 is credited for investment for each of Ms. Sammons and Mr. Miller, respectively. Under the SERP, the participants are able to direct the deemed investment of the amounts by selecting one or more investment vehicles from a group of deemed investments offered pursuant to the plan. These deemed investments are made each month during the term of the participants' service with Rite Aid. Each of Ms. Sammons and Mr. Miller is fully vested at all times in their accounts under the SERP and will receive their vested account balance (or payment in installments in such election was made) upon the earlier to occur of: (i) termination of employment (or service as a director in the case of Mr. Miller) with the Company, including due to death or disability; and (ii) a hardship withdrawal pursuant to the terms of the SERP.
Messrs. Standley, Vitrano, Fiala, Sari, Donley, Easley, Legault and Twomey receive benefits under a defined contribution supplemental executive retirement plan ("Supplemental Plan"), which is different from the plan maintained for Ms. Sammons and Mr. Miller noted above. Under the Supplemental Plan, Rite Aid credits a specific sum to an individual account established for Messrs. Standley, Easley, Vitrano, Legault, Twomey, Fiala, Sari and Donley and other participating executive officers, on a monthly basis while such officer is employed. The amount credited is equal to 2% of the executive officer's annual base compensation, up to a maximum of $15,000 per month. The participants are able to select among a choice of earnings indexes, and their accounts are credited with earnings which mirror the investment results of such indexes. Annually Rite Aid makes investments for all participants in the Supplemental Plan. Participants vest in their accounts at the rate of 20% per year for each full year of participation in the Supplemental Plan at a five-year rolling rate, provided that the entire account balance for each participant shall vest upon a "change in control" of the Company, as defined in the Supplemental Plan, only if such participant is involuntarily terminated without cause within twelve months of the change in control. Participants will receive their vested account balance upon the earliest to occur of: (i) their retirement at age 60 or greater, with at least five years of participation in the Plan; (ii) termination of employment with the Company (including due to death or disability); and (iii) a hardship withdrawal pursuant to the terms of the Supplemental Plan.
Other Post-Employment and Change in Control Benefits
To attract and retain highly skilled executives and to provide for certainty of rights and obligations, Rite Aid has historically provided employment agreements to its executive officers and certain other key employees. On December 5, 1999, Rite Aid entered into an employment agreement with Ms. Sammons, which was subsequently amended on May 7, 2001, September 30, 2003, October 11, 2006, September 24 2008 and December 30, 2008. On September 24, 2008, Rite Aid entered into an employment agreement with Mr. Standley; on September 24, 2008, Rite Aid entered into an employment agreement with Mr. Vitrano; on June 26, 2007, Rite Aid entered into an employment agreement with Mr. Fiala, which was subsequently amended on December 18, 2008; on February 28, 2001, Rite Aid entered into an employment agreement with Mr. Sari, which was subsequently amended on December 18, 2008; on August 1, 2000, Rite Aid entered into an employment agreement with Mr. Donley, which was subsequently amended on December 18, 2008; on August 20, 2007, Rite Aid entered into an employment agreement with Mr. Easley; on February 2, 2007, Rite Aid entered into an employment agreement, effective as of June 4, 2007, with Mr. Legault; on September 1, 2003, Rite Aid entered into an employment agreement with Mr. Twomey. The terms of the employment agreements are described in more detail under the caption "Executive Employment Agreements." Under Ms. Sammons's employment agreement, any termination of employment by Ms. Sammons within the six month period commencing on the date of a change in control of Rite Aid will be treated as a
termination of employment by the Executive for "good reason," as defined in the agreement. Additional information regarding the severance and change in control benefits provided under the employment agreements is described under the caption "Potential Payments Upon Termination or Change in Control."
Deductibility Cap on Executive Compensation
The Compensation Committee is aware that Section 162(m) of the Internal Revenue Code of 1986, as amended, treats certain elements of executive compensation in excess of $1,000,000 a year as an expense not deductible by the Company for federal income tax purposes. Payments in excess of the $1,000,000 limit will be deductible if they meet the definition of "performance-based compensation" as defined in Section 162(m). However, certain payments made to the Named Executive Officers will not qualify as performance-based compensation under Section 162(m). The Compensation Committee reserves the right to pay compensation that may be non-deductible to the Company if it determines that it would be in the best interests of the Company.
Changes to Executive Compensation for Fiscal Year 2010
For fiscal year 2010 (commencing March 1, 2009), base salary for the Named Executive Officers and other executive officers of the Company will remain unchanged from fiscal year 2009. Although the executives performed well on an individual basis, the focus will continue on the potential value that these executives might gain through the performance-based cash incentive bonus and the long-term incentive program. The Compensation Committee supports this salary freeze, which increases the alignment of compensation with Company performance and the objectives of our stockholders.
The performance measures for the cash incentive bonus opportunity for the Named Executive Officers and other executive officers of the Company for fiscal year 2010 will be based solely on the attainment of Adjusted EBITDA thresholds and will not contain a customer satisfaction component or target. Although improvements in customer satisfaction continue to be a focus of the Company, this change more closely aligns compensation with the Company's financial performance goals.
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.
George G. Golleher, Chairman (fiscal year 2009)James L. DonaldMichael A. Friedman, MDDennis Wood
The following summary compensation table sets forth the cash and non-cash compensation for the fiscal years ended February 28, 2009, March 1, 2008 and March 3, 2007, respectively, paid to or earned by (i) our principal executive officer, (ii) all individuals serving as the principal financial officer during fiscal year 2009, and (iii) the other three most highly compensated executive officers of the Company (collectively, the "Named Executive Officers"), as well as two additional individuals for whom disclosure would have been required under the SEC's rules but for the fact that the individual was not serving as an executive officer of the Company at the end of our last completed fiscal year.
Name and Principal Position | Fiscal Year | Salary ($) | Bonus ($)(1) | Stock Awards ($)(2) | Option Awards ($)(3) | Non-Equity Incentive Plan Compensation ($)(4) | Change In Nonqualified Deferred Compensation Earnings ($)(5) | All Other Compensation ($)(6) | Total ($) | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mary F. Sammons | 2009 | 1,000,000 | — | 582,494 | 597,695 | — | — | 356,207 | (7) | 2,536,396 | |||||||||||||||||||
(Chairman & CEO) | 2008 | 1,000,000 | 1,500,000 | 1,169,975 | 674,521 | 322,000 | 16,355 | 565,125 | (8) | 5,247,976 | |||||||||||||||||||
2007 | 1,000,000 | — | 666,569 | 602,593 | 1,543,631 | 6,719 | 451,454 | (9) | 4,270,966 | ||||||||||||||||||||
John T. Standley | 2009 | 373,846 | (10) | — | 6,317 | 205,737 | 96,750 | — | 72,840 | (11) | 755,490 | ||||||||||||||||||
(President & COO) | |||||||||||||||||||||||||||||
Frank G. Vitrano | 2009 | 290,769 | (12) | — | 4,907 | 85,643 | 66,220 | — | 67,944 | (13) | 515,483 | ||||||||||||||||||
(Senior Executive VP, CAO & CFO) | |||||||||||||||||||||||||||||
Brian R. Fiala | 2009 | 457,261 | — | 125,354 | 209,160 | 47,224 | — | 74,637 | (13) | 913,636 | |||||||||||||||||||
(Executive VP, Store Operations) | |||||||||||||||||||||||||||||
Robert B. Sari | 2009 | 448,118 | — | 84,130 | 112,512 | 209,648 | — | 135,413 | (14) | 989,821 | |||||||||||||||||||
(Exec VP, GC) | 2008 | 415,694 | 424,800 | 167,177 | 121,121 | 40,186 | — | 182,280 | (15) | 1,351,258 | |||||||||||||||||||
Douglas E. Donley | 2009 | 330,725 | — | 54,428 | 67,780 | 28,463 | — | 58,302 | (16) | 539,698 | |||||||||||||||||||
(Sr VP, Chief Accounting Officer) | |||||||||||||||||||||||||||||
Robert J. Easley | 2009 | 468,750 | (17) | — | 435,029 | 603,112 | — | — | 3,476,417 | (18) | 4,983,308 | ||||||||||||||||||
(Former COO) | |||||||||||||||||||||||||||||
Pierre Legault | 2009 | 447,115 | (19) | — | 698,900 | 900,662 | — | — | 3,180,332 | (20) | 5,227,009 | ||||||||||||||||||
(Former Executive | 2008 | 504,807 | 7,500 | 209,964 | 300,220 | 99,619 | — | 135,357 | (21) | 1,257,467 | |||||||||||||||||||
VP, Chief Admin. Officer) | |||||||||||||||||||||||||||||
Kevin Twomey | 2009 | 279,283 | (22) | — | 128,332 | 233,819 | — | — | 1,676,999 | (23) | 2,318,433 | ||||||||||||||||||
(Former Executive | 2008 | 454,936 | 436,578 | 184,872 | 128,365 | 43,978 | 44,868 | 152,676 | (24) | 1,446,273 | |||||||||||||||||||
VP & CFO) | 2007 | 437,505 | — | 109,769 | 97,288 | 270,290 | — | 147,328 | (25) | 1,062,180 |
GRANTS OF PLAN-BASED AWARDS TABLE FOR FISCAL 2009
The following table summarizes grants of plan-based awards made to Named Executive Officers during our fiscal year ended February 28, 2009. Awards under the first row of Non-Equity Incentive Plans relate to cash incentive bonuses as discussed in the Compensation Discussion and Analysis under the caption "Cash Incentive Bonuses." Awards under the second row of Non-Equity Incentive Plans relate to performance awards that may be earned based on Company performance as further described in Note 1 below. All Other Stock Awards and All Other Option Awards relate to restricted share grants and stock option grants, respectively.
| | 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 ($) | Grant Date Fair Value of Stock and Option Awards ($)(4) | |||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | All Other Stock Awards (#)(2) | All Other Option Awards (#)(3) | |||||||||||||||||||||||||||||||
Name | Grant Date | Threshold 50% ($) | Target 100% ($) | Max 200% ($) | Threshold (#) | Target (#) | Max (#) | |||||||||||||||||||||||||||
Mary F. Sammons | 10/2/2008 | 1.000,000 | 2,000,000 | 4,000,000 | — | — | — | 202,700 | 669,600 | 0.89 | 461,635 | |||||||||||||||||||||||
450,000 | 900,000 | 1,800,000 | ||||||||||||||||||||||||||||||||
John T. Standley | 9/24/2008 | — | — | — | — | — | — | — | 3,500,000 | 0.96 | 1,575,000 | |||||||||||||||||||||||
10/2/2008 | 562,500 | 1,125,000 | 2,250,000 | 51,100 | 168,800 | 0.89 | 116,375 | |||||||||||||||||||||||||||
113,400 | 226,800 | 453,600 | ||||||||||||||||||||||||||||||||
Frank G. Vitrano | 9/24/2008 | — | — | — | — | — | — | — | 1,400,000 | 0.96 | 630,000 | |||||||||||||||||||||||
10/2/2008 | 385,000 | 770,000 | 1,540,000 | 39,700 | 131,300 | 0.89 | 90,479 | |||||||||||||||||||||||||||
88,200 | 176,400 | 352,800 | ||||||||||||||||||||||||||||||||
Brian R. Fiala | 10/2/2008 | 137,280 | 274,560 | 549,120 | — | — | — | 52,600 | 173,600 | 0.89 | 119,726 | |||||||||||||||||||||||
116,700 | 233,400 | 466,800 | ||||||||||||||||||||||||||||||||
Robert B. Sari | 10/2/2008 | 165,000 | 330,000 | 660,000 | — | — | — | 49,700 | 164,200 | 0.89 | 113,197 | |||||||||||||||||||||||
110,300 | 220,600 | 441,200 | ||||||||||||||||||||||||||||||||
Douglas E. Donley | 10/2/2008 | 82,742 | 165,485 | 330,970 | — | — | — | 26,800 | 88,700 | 0.89 | 61,106 | |||||||||||||||||||||||
59,550 | 119,100 | 238,200 | ||||||||||||||||||||||||||||||||
Robert J. Easley | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Pierre Legault(5) | 6/24/2008 | — | — | — | — | — | — | 100,000 | — | 1.72 | 172,000 | |||||||||||||||||||||||
Kevin Twomey | — | — | — | — | — | — | — | — | — | — |
EXECUTIVE EMPLOYMENT AGREEMENTS
Rite Aid has entered into employment agreements with each of the Named Executive Officers, the material terms of which are described below.
Term. The term of each executive's employment agreement commenced on the effective date of his or her employment agreement, as set forth in the "Other Post-Employment and Change in Control Benefits" section of the Compensation Discussion and Analysis, above. Unless terminated earlier, each employment agreement, other than in the case of Ms. Sammons, will terminate on its third anniversary and in the case of Messrs. Standley, Vitrano, Fiala, Sari and Donley's employment agreements, the agreements will terminate on the second anniversary (such respective period, the "Initial Term"). Each agreement will automatically renew for an additional one year term (the "Renewal Term"), unless either the executive or Rite Aid provides the other with notice of non-renewal at least 180 days (120 days in the case of Mr. Fiala) prior to the expiration of the Initial Term or a Renewal Term, as applicable.
Salary and Incentive Bonus. The respective agreements provide each executive with a base salary and incentive compensation (which may be reviewed periodically for increase by the Compensation Committee) that includes, with respect to fiscal year 2009:
Other Benefits. Pursuant to their employment agreements, each of the Named Executive Officers is also entitled to participate in Rite Aid's welfare benefits, fringe benefit and perquisite programs and savings plans.
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 two years, or with respect to Ms. Sammons and Messrs. Standley and Vitrano, one year, thereafter.
Termination and Change in Control Benefits. The provisions of the employment agreements relating to termination of employment are described under the caption "Potential Payments Upon Termination or Change in Control" below.
OUTSTANDING EQUITY AWARDS AT FISCAL 2009 YEAR-END
The following table summarizes the number of securities underlying outstanding equity awards for the Named Executive Officers as of February 28, 2009:
| Option Awards | Stock Awards | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable (1)(2) | Option Exercise price ($) | Option Expiration Date | Number of Shares or Units of Stock that Have Not Vested (#)(1)(2) | Market Value of Shares or Units of Stock That Have Not Vested ($)(3) | Equity Incentive Plan Awards: # of Unearned Shares or Units That Have Not Vested (#)(1) | Equity Incentive Plan Awards: Market or Payout Value of Shares or Units of Stock That Have Not Vested ($)(3) | |||||||||||||||||
Mary F. Sammons | 1,800,000 | 2.75 | 12/5/2009 | 66,500 | 18,620 | 61,779 | 17,298 | ||||||||||||||||||
1,050,000 | 2.75 | 6/29/2010 | 8,144 | 2,280 | |||||||||||||||||||||
3,500,000 | 4.05 | 2/13/2011 | 41,186 | 11,532 | |||||||||||||||||||||
497,216 | 2.26 | 1/30/2012 | 202,700 | 56,756 | |||||||||||||||||||||
500,000 | 2.10 | 12/11/2012 | |||||||||||||||||||||||
292,208 | 5.38 | 6/24/2014 | |||||||||||||||||||||||
200,251 | 66,750 | 4.11 | 6/23/2015 | ||||||||||||||||||||||
139,972 | 139,971 | 4.42 | 6/20/2016 | ||||||||||||||||||||||
61,780 | 185,337 | 6.07 | 6/26/2017 | ||||||||||||||||||||||
669,600 | 0.89 | 10/2/2018 | |||||||||||||||||||||||
John T. Standley | 312,700 | 2.75 | 12/5/2009 | 51,100 | 14,308 | ||||||||||||||||||||
3,500,000 | 0.96 | 9/24/2018 | |||||||||||||||||||||||
168,800 | 0.89 | 10/2/2018 | |||||||||||||||||||||||
Frank G. Vitrano | 1,400,000 | 0.96 | 9/24/2018 | 39,700 | 11,116 | ||||||||||||||||||||
131,300 | 0.89 | 10/2/2018 | |||||||||||||||||||||||
Brian R. Fiala | 61,553 | 184,658 | 6.07 | 6/26/2017 | 41,035 | 11,490 | 11,553 | 3,235 | |||||||||||||||||
173,600 | 0.89 | 10/2/2018 | 52,600 | 14,728 | |||||||||||||||||||||
Robert B. Sari | 10,500 | 5.38 | 11/10/2009 | 9,708 | 2,718 | 14,563 | 4,078 | ||||||||||||||||||
139,500 | 4.05 | 2/13/2011 | 49,700 | 13,916 | |||||||||||||||||||||
37,380 | 5.40 | 4/7/2014 | |||||||||||||||||||||||
26,949 | 8,982 | 4.11 | 6/23/2015 | ||||||||||||||||||||||
31,106 | 31,104 | 4.42 | 6/20/2016 | ||||||||||||||||||||||
14,564 | 43,690 | 6.07 | 6/26/2017 | ||||||||||||||||||||||
164,200 | 0.89 | 10/2/2018 | |||||||||||||||||||||||
Douglas E. Donley | 58,000 | 23.00 | 4/16/2009 | 6,234 | 1,746 | 7,864 | 2,202 | ||||||||||||||||||
64,000 | 5.38 | 11/10/2009 | 992 | 278 | |||||||||||||||||||||
75,000 | 4.05 | 2/13/2011 | 5,242 | 1,468 | |||||||||||||||||||||
25,000 | 2.10 | 12/11/2012 | 26,800 | 7,504 | |||||||||||||||||||||
24,173 | 5.40 | 4/7/2014 | |||||||||||||||||||||||
24,511 | 8,170 | 4.11 | 6/23/2015 | ||||||||||||||||||||||
17,054 | 17,052 | 4.42 | 6/20/2016 | ||||||||||||||||||||||
7,865 | 23,592 | 6.07 | 6/26/2017 | ||||||||||||||||||||||
88,700 | 0.89 | 10/2/2018 |
OPTIONS EXERCISES AND STOCK VESTED TABLE FOR FISCAL 2009
The following table summarizes for each Named Executive Officer the stock option exercises and shares vested during fiscal year 2009:
| 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 ($) | |||||||||
Mary F. Sammons | — | — | 257,136 | 598,772 | |||||||||
John T. Standley | — | — | — | — | |||||||||
Frank G. Vitrano | — | — | — | — | |||||||||
Brian R. Fiala | — | — | 20,518 | 27,699 | |||||||||
Robert B. Sari | — | — | 23,967 | 48,983 | |||||||||
Douglas E. Donley | — | — | 23,640 | 54,147 | |||||||||
Robert J. Easley | — | — | 110,297 | 114,885 | |||||||||
Pierre Legault | — | — | 189,834 | 227,253 | |||||||||
Kevin Twomey | — | — | 63,189 | 113,632 |
NONQUALIFIED DEFERRED COMPENSATION FOR FISCAL 2009
The following table provides information concerning the non-qualified defined contribution and deferred compensation of each of the Named Executive Officers in the 2009 fiscal year:
Name | Executive Contributions in Last FY ($) | Registrant Contributions in Last FY ($) | Aggregate Earnings (Loss) in Last FY ($) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last FYE ($)(3) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mary F. Sammons | — | 240,000 | (1,037,566 | ) | — | 1,623,587 | ||||||||||
John T. Standley | — | 75,000 | (143,267 | ) | (234,875 | ) | 197,652 | |||||||||
Frank G. Vitrano | — | 70,000 | (10,548 | ) | — | 59,452 | ||||||||||
Brian R. Fiala | — | 109,120 | 476 | — | 183,180 | |||||||||||
Robert B. Sari | — | 105,515 | 6,437 | — | 754,263 | |||||||||||
Douglas E. Donley | — | 78,924 | (309,733 | ) | 359,471 | |||||||||||
Robert J. Easley | — | 105,000 | (28,272 | ) | (176,807 | ) | 8,523 | |||||||||
Pierre Legault | — | 105,000 | (18,048 | ) | (163,303 | ) | 7,661 | |||||||||
Kevin Twomey | — | 65,646 | (646 | ) | (287,471 | ) | 478,529 |
Rite Aid established a defined contribution supplemental executive retirement plan for the benefit of Mr. Miller and Ms. Sammons, which is described in Compensation Discussion and Analysis above. Messrs. Standley, Vitrano, Fiala, Sari and Donley receive benefits under a different defined contribution supplemental executive retirement plan, which is also described in the Compensation Discussion and Analysis above.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
As discussed above under the caption "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.
�� If Ms. Sammons is terminated by Rite Aid without "cause" or if she terminates her employment for "good reason" (as such terms are defined in Ms. Sammons' employment agreement), then:
If Ms. Sammons' employment is terminated as a result of her death or "disability" (as such term is defined in her employment agreement), she (or her estate as the case may be) will be entitled to an amount equal to her pro-rated bonus for the fiscal year of termination (determined with reference to the maximum amount payable for such year), and continued medical benefits (or reimbursement for the cost of such benefits) for her life or the life of her spouse, payment of any accrued but unpaid salary and bonus and full vesting of all outstanding stock options, restricted stock and other equity incentive awards (with performance goals being deemed to have been satisfied at targeted levels).
Upon termination of employment for any reason other than "cause" (as such term is defined in her employment agreement), Ms. Sammons is entitled to receive an annual payment following termination and continuing for life (and the life of her spouse) equal to the cost of purchasing medical coverage comparable to the coverage provided to the Company's senior executives immediately prior to such termination, excepting payments for periods that the Company provides such coverage described above.
Pursuant to their employment agreements with the Company, if any of Messrs. Standley, Vitrano, Fiala, Sari, Donley, Easley, Legault and Twomey is terminated by Rite Aid without "cause" or if such
officer's employment is terminated by the officer for "good reason" (as such terms are defined in the applicable employment agreement), then the officer will be entitled to receive:
If Rite Aid terminates any of the Named Executive Officers for "cause," or if any of the Named Executive Officers terminates his or her employment without "good reason" (with the exception of Ms. Sammons, whose termination provision is described above):
If the employment of any of the Named Executive Officers is terminated as a result of death or "disability" (other than Ms. Sammons, whose benefits upon such a termination are described above), 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 for two years and vesting of an amount of stock options and restricted stock as would have vested had the officer remained employed for two years following the date of termination.
Upon Mr. Easley's ceasing to be employed by the Company in September 2008, he became entitled to receive a total of $3,307,500 in severance under his employment agreement with us, based on the triggering event of a termination by the Company without cause. As of February 28, 2009, the end of our last completed fiscal year, Mr. Easley had received $505,817 of this amount, as shown in the "All Other Compensation" column of the Summary Compensation Table. The remainder of this severance amount will be paid to Mr. Easley in substantially equal bi-weekly installments, subject to his compliance with restrictive covenants. Because Mr. Easley was not employed by us as of the end of fiscal year 2009, no table quantifying the potential payments that would have been made based on a termination of employment on the last day of fiscal year 2009 is provided.
Upon Mr. Legault's ceasing to be employed by the Company in September 2008, he became entitled to receive a total of $3,150,000 in severance under his employment agreement with us, based on the triggering event of a termination by the Company without cause. As of February 28, 2009, the end of our last completed fiscal year, Mr. Legault had received $460,000 of this amount, as shown in the "All Other Compensation" column of the Summary Compensation Table. The remainder of this severance amount will be paid to Mr. Legault in substantially equal bi-weekly installments, subject to his compliance with restrictive covenants. Because Mr. Legault was not employed by us as of the end of fiscal year 2009, no table quantifying the potential payments that would have been made based on a termination of employment on the last day of fiscal year 2009 is provided.
Upon Mr. Twomey's ceasing to be employed by the Company in September 2008, he became entitled to receive a total of $1,641,212 in severance under his employment agreement with us, based on the triggering event of a termination by the Company without cause. As of February 28, 2009, the
end of our last completed fiscal year, Mr. Twomey had received $310,207 of this amount, as shown in the "All Other Compensation" column of the Summary Compensation Table. The remainder of this severance amount will be paid to Mr. Twomey in substantially equal bi-weekly installments, subject to his compliance with restrictive covenants. Because Mr. Twomey was not employed by us as of the end of fiscal year 2009, no table quantifying the potential payments that would have been made based on a termination of employment on the last day of fiscal year 2009 is provided.
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 nonqualified deferred compensation plans maintained 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 2009 table, above.
Change in Control Arrangements. Under Ms. Sammons' December 5, 1999 employment agreement, any termination of employment by the executive within the six month period commencing on the date of a "change in control" of Rite Aid (as such term is defined below) will be treated as a termination of employment by the executive for "good reason." On October 11, 2006, Ms. Sammons' Employment Agreement was amended to provide that the Brooks Eckerd Transaction would not trigger the change in control benefits described above.
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 shall immediately vest and be exercisable. Under Mr. Vitrano's employment agreement, upon a change in control, all stock options awarded pursuant to his employment agreement would immediately vest and be exercisable. Under Messrs. Fiala, Legault and Easley's employment agreements, upon a change in control, all of their stock options awarded pursuant to the employment agreement would immediately vest and be exercisable and any restrictions on restricted stock awarded pursuant to the employment agreement would immediately lapse. Under Mr. Sari's employment agreement, upon a "change in control," all of his stock options held as of the date of his employment agreement would have immediately vested and become exercisable and any restrictions on restricted stock would have immediately lapsed. Under Mr. Twomey's employment agreement, upon a "change in control," any restrictions on restricted stock granted pursuant to his employment agreement would have immediately lapsed.
Each employment agreement provides that the Named Executive Officer will receive an additional payment to reimburse the officer for any excise taxes imposed pursuant to Section 4999 of the Internal Revenue Code, together with reimbursement for any additional taxes incurred by reason of such payments.
The unvested account balance of the supplemental executive retirement plan in which Messrs. Standley, Vitrano, Fiala, Sari, Donley, Easley, Legault and Twomey participate will vest upon a change in control of the Company as defined in the supplemental executive retirement plan, only if such Named Executive Officer is involuntarily terminated without cause within twelve months of the change in control. For more information regarding the supplemental executive retirement plan, refer to the Compensation Discussion and Analysis under the caption "Post-Retirement Benefits."
Mr. Donley has no change in control benefits under his employment agreement, as amended.
For purposes of the employment agreements with the Named Executive Officers, where applicable, the term "change in control" generally means an acquisition of 25% percent (35% in the case of Messrs. Vitrano and Standley) or more of the Company'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 25% (35% in the case of Mr. Vitrano and Mr. Standley) or more of the Company's combined voting power; or the stockholders approve a plan of complete liquidation or dissolution of the Company.
Quantification
The termination and change in control payments that would have been made to the Named Executive Officers had their employment been terminated as of February 28, 2009 under the circumstances described in the tables below are quantified in the tables below.
Mary F. Sammons | Death ($) | Disability ($) | Change in Control ($) | Termination by the Company Without Cause or by the Executive for Good Reason ($) | Voluntary Termination of Employment by the Executive Within Six Months After Change in Control ($) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
3 × Base Salary | N/A | N/A | N/A | 3,000,000 | 3,000,000 | |||||||||||
3 × Bonus | N/A | N/A | N/A | 6,000,000 | 6,000,000 | |||||||||||
Pro-Rated Bonus for Fiscal Year of Termination | — | — | N/A | — | — | |||||||||||
Continued Health Benefits(a) | 190,000 | 190,000 | N/A | 190,000 | 190,000 | |||||||||||
SERP Contribution Continuation for 3 Years | 720,000 | 720,000 | N/A | 720,000 | 720,000 | |||||||||||
Vesting of Options and Restricted Stock(1) | 89,188 | 89,188 | 89,188 | 89,188 | 89,188 | |||||||||||
Excise Tax Gross-up | N/A | N/A | 0 | 3,654,000 | (b) | 3,654,000 |
John T. Standley | Death ($) | Disability ($) | Change in Control ($) | Termination by the Company Without Cause or by the Executive for Good Reason ($) | Voluntary Termination of Employment by the Executive Within Six Months After Change in Control ($) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2 × Base Salary | N/A | N/A | N/A | 1,800,000 | 1,800,000 | |||||||||||
2 × Bonus | N/A | N/A | N/A | 2,250,000 | 2,250,000 | |||||||||||
Pro-Rated Bonus for Fiscal Year of Termination | 96,750 | 96,750 | N/A | 96,750 | 96,750 | |||||||||||
Continued Health Benefits | 18,084 | 18,084 | N/A | 18,084 | 18,084 | |||||||||||
SERP Vesting | 56,765 | 56,765 | 56,765 | 56,765 | 56,765 | |||||||||||
Vesting of Options and Restricted Stock(1) | 9,539 | 9,539 | 9,539 | 9,539 | 9,539 | |||||||||||
Excise Tax Gross-up | N/A | N/A | N/A | 1,553,000 | 1,553,000 |
Frank G. Vitrano | Death ($) | Disability ($) | Change in Control ($) | Termination by the Company Without Cause or by the Executive for Good Reason ($) | Voluntary Termination of Employment by the Executive Within Six Months After Change in Control ($) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2 × Base Salary | N/A | N/A | N/A | 1,400,000 | 1,400,000 | |||||||||||
2 × Bonus | N/A | N/A | N/A | 1,540,000 | 1,540,000 | |||||||||||
Pro-Rated Bonus for Fiscal Year of Termination | 66,220 | 66,220 | N/A | 66,220 | 66,220 | |||||||||||
Continued Health Benefits | 14,352 | 14,352 | N/A | 14,352 | 14,352 | |||||||||||
SERP Vesting | 52,511 | 52,511 | 52,511 | 52,511 | 52,511 | |||||||||||
Vesting of Options and Restricted Stock(1) | 7,411 | 7,411 | 7,411 | 7,411 | 7,411 | |||||||||||
Excise Tax Gross-up | N/A | N/A | N/A | 1,269,000 | 1,269,000 |
Brian R. Fiala | Death ($) | Disability ($) | Change in Control ($) | Termination by the Company Without Cause or by the Executive for Good Reason ($) | Voluntary Termination of Employment by the Executive Within Six Months After Change in Control ($) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2 × Base Salary | N/A | N/A | N/A | 915,200 | 915,200 | |||||||||||
2 × Bonus | N/A | N/A | N/A | N/A | N/A | |||||||||||
Pro-Rated Bonus for Fiscal Year of Termination | N/A | N/A | N/A | N/A | N/A | |||||||||||
Continued Health Benefits | 32,481 | 32,481 | N/A | 32,481 | 32,481 | |||||||||||
SERP Vesting | 139,034 | 139,034 | 139,034 | 139,034 | 139,034 | |||||||||||
Vesting of Options and Restricted Stock(1) | 9,819 | 9,819 | 9,819 | 9,819 | 9,819 | |||||||||||
Excise Tax Gross-up | N/A | N/A | N/A | N/A | N/A |
Robert Sari | Death ($) | Disability ($) | Change in Control ($) | Termination by the Company Without Cause or by the Executive for Good Reason ($) | Voluntary Termination of Employment by the Executive Within Six Months After Change in Control ($) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2 × Base Salary | N/A | N/A | N/A | 1,100,000 | 1,100,000 | |||||||||||
2 × Bonus | N/A | N/A | N/A | 660,000 | 660,000 | |||||||||||
Pro-Rated Bonus for Fiscal Year of Termination | 44,648 | 44,648 | N/A | 44,648 | 44,648 | |||||||||||
Continued Health Benefits | 31,878 | 31,878 | N/A | 31,878 | 31,878 | |||||||||||
SERP Vesting | 131,986 | 131,986 | 131,986 | 131,986 | 131,986 | |||||||||||
Vesting of Options and Restricted Stock(1) | 11,996 | 11,996 | 11,996 | 11,996 | 11,996 | |||||||||||
Excise Tax Gross-up | N/A | N/A | N/A | N/A | N/A |
Douglas E. Donley | Death ($) | Disability ($) | Change in Control ($) | Termination by the Company Without Cause or by the Executive for Good Reason ($) | Voluntary Termination of Employment by the Executive Within Six Months After Change in Control ($) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2 × Base Salary | N/A | N/A | N/A | 661,939 | 661,939 | |||||||||||
2 × Bonus | N/A | N/A | N/A | 330,970 | 330,970 | |||||||||||
Pro-Rated Bonus for Fiscal Year of Termination | 28,463 | 28,463 | N/A | 28,463 | 28,463 | |||||||||||
Life Benefits | 16,269 | 16,269 | N/A | 16,269 | 16,269 | |||||||||||
SERP Vesting | 8,216 | 8,216 | 8,216 | 8,216 | 8,216 | |||||||||||
Vesting of Options and Restricted Stock(1) | N/A | N/A | N/A | N/A | N/A | |||||||||||
Excise Tax Gross-up | N/A | N/A | 0 | 0 | N/A |
The Board of Directors has adopted a written charter of the Audit Committee which further 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.
In fulfilling its oversight responsibilities, the Audit Committee met eleven times during fiscal year 2009.
During those meetings the Audit Committee:
level of non-audit related services provided by our independent registered public accounting firm is consistent with maintaining their independence.
In addition to pre-approving the audit, 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.
As outlined in the table below, we incurred the following fees, including expenses billed to the Company for the fiscal years ended February 28, 2009 and March 1, 2008 by 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 | Feb. 28, 2009 | March 1, 2008 | ||||||
| (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 | $ | 2.8 | $ | 3.9 | ||||
Audit-Related Fees: | ||||||||
Acquisition due diligence fees and audits of employee benefit plans' financial statements | 0.2 | 0.2 | ||||||
Tax Fees, tax compliance advice and planning | 0.4 | 0.3 | ||||||
Total | $ | 3.4 | $ | 4.4 | ||||
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 28, 2009 for filing with the SEC.
Philip G. Satre, ChairmanAndré BelzileMichael N. ReganMarcy Syms
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of February 28, 2009, with respect to the compensation plans under which our common stock may be issued:
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 Further Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| (a) | (b) | (c) | ||||||||
Equity compensation plans approved by stockholders | 46,330,187 | $ | 3.65 | 28,544,954 | |||||||
Equity compensation plans not approved by stockholders* | 24,015,906 | $ | 4.10 | 5,005,593 | |||||||
Total | 70,346,093 | 33,550,547 |
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires Rite Aid's executive officers, directors and persons who own more than 10% of Rite Aid common stock 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 review of the copies of such forms furnished to Rite Aid, we have determined that during fiscal year 2009, no persons subject to Section 16(a) reporting submitted late filings under Section 16(a) of the Exchange Act.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS
AND MANAGEMENT OF RITE AID
The following table sets forth, as of [April 28, 2009]January 18, 2019 (except as otherwise noted), certain information concerning the beneficial shareholdingsownership of (a) each director, (b) each Jean Coutu Group director designee, (c) each of our "named executive officers""Named Executive Officers" (as such term is defined in Item 402(a)(3) of Regulation S-K under the Exchange Act), (d)(c) each holder ofknown to us to beneficially own more than five percent5% of theour common stock and (e)(d) all directors and executive officers and Jean Coutu Group director designees as a group (based on [830,490,174]1,080,197,300 shares of common stock outstanding as [April 28, 2009], plus the number of shares of common stock into which the outstanding shares of LGP preferred stock are convertible)January 18, 2019). 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: | ||||||
Joseph B. Anderson, Jr. | 203,334 | (2) | * | |||
André Belzile | 86,667 | (3) | * | |||
François J. Coutu | 86,667 | (4) | * | |||
Michel Coutu | 86,667 | (5) | * | |||
James Donald | 33,334 | (6) | * | |||
Douglas Donley | 335,213 | (7) | * | |||
Robert Easley | 65,540 | (8) | * | |||
Brian Fiala | 237,259 | (9) | * | |||
Michael A. Friedman, MD | 253,334 | (10) | * | |||
David R. Jessick | 0 | |||||
Pierre Legault | 114,285 | (11) | * | |||
Robert G. Miller | 9,442,912 | (12) | 1.06% | |||
Michael Regan | 86,667 | (13) | * | |||
Mary F. Sammons | 10,248,673 | (14) | 1.15% | |||
Robert B. Sari | 415,014 | (15) | * | |||
Philip G. Satre | 361,834 | (16) | * | |||
Jonathan D. Sokoloff | 26,796,164 | (17) | 2.94% | |||
John T. Standley | 568,782 | (18) | * | |||
Marcy Syms | 203,334 | (19) | * | |||
Kevin Twomey | 97,254 | (20) | * | |||
Frank Vitrano | 39,700 | (21) | * | |||
Dennis Wood | 86,667 | (22) | * | |||
| ||||||
All Executive Officers and Directors | ||||||
24 persons | 50,080,842 | 5.38% | ||||
| ||||||
5% Stockholders: | ||||||
Green Equity Investors III, L.P. | 26,090,728 | (23) | 2.86% | |||
11111 Santa Monica Blvd. | ||||||
Suite 2000 | ||||||
Los Angeles, CA 90025 | ||||||
| ||||||
FMR Corp | 40,260,919 | (24) | 4.699% | |||
82 Devonshire St | ||||||
Boston, MA 02109 | ||||||
| ||||||
Thornburg Investment Management Inc. | 62,097,198 | (25) | 7.34% | |||
119 E. Marcy Street | ||||||
Santa Fe, NM 87501 | ||||||
| ||||||
The Jean Coutu Group (PJC), Inc | 251,975,262 | (26) | 28.44% | |||
530 Bériault Street | ||||||
Longueuil, Quebec J4G 1S8 |
Beneficial Owners | Number of Common Shares Beneficially Owned(1) | Percentage of Class | |||||
---|---|---|---|---|---|---|---|
Named Executive Officers and Directors: | |||||||
Joseph B. Anderson, Jr. | 395,288 | (2) | * | ||||
Bruce G. Bodaken | 129,276 | (3) | * | ||||
Kermit Crawford | 2,787,328 | (4) | * | ||||
Bryan B. Everett | 1,212,770 | (5) | * | ||||
Darren W. Karst | 1,816,365 | (6) | * | ||||
Robert E. Knowling, Jr. | 0 | * | |||||
Jocelyn Z. Konrad | 562,492 | (7) | * | ||||
Kevin E. Lofton | 114,074 | (8) | * | ||||
Louis P. Miramontes | 0 | * | |||||
Arun Nayar | 0 | * | |||||
Michael N. Regan | 395,288 | (9) | * | ||||
John T. Standley | 18,615,381 | (10) | 1.72 | % | |||
Marcy Syms | 395,288 | (11) | * | ||||
All Executive Officers and Directors (13 persons) | 27,541,540 | (12) | 2.55 | % | |||
5% Stockholders: | |||||||
The Vanguard Group | 87,936,346 | (13) | 8.14 | % | |||
100 Vanguard Blvd. | |||||||
Malvern, PA 19355 |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Review and Approval of Related Person Transactions
We have adopted a written policy concerning the review, approval or ratification of transactions with related persons. The Nominating and Governance Committee is responsible for 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 anytime since the beginning of the last fiscal year was, a director, officer, nominee for director, an immediate family member (as defined under applicable SEC rules) of such persons, or a 5% stockholder of the Company. A related person transaction is any transaction or series of transactions in which the Company or a subsidiary is a participant, the amount involved exceeds $120,000, and a related person has 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. 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 become aware of any such transaction. The Corporate Secretary and Chief Accounting Officer inform 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 presentation to the Nominating and Governance Committee for review including provision of additional information to enable proper consideration by the Committee. As necessary, the Nominating and Governance Committee shall review approved related person transactions on a periodic basis throughout the duration of the transaction to ensure that the transactions remains 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 it deems advisable. A copy of our full policy concerning transactions with related persons is available on the Corporate Governance section of our website atwww.riteaid.com.
Agreement with John T. Standley
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
PriorStatements in this proxy statement that are not historical, are forward-looking statements made pursuant to being employed by the Company,safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements regarding Rite Aid's intent to solicit approval of the proposal to effect a reverse stock split and an authorized share reduction, the timing of the reverse stock split, the potential benefits of a reverse stock split, including but not limited to increased investor interest, continued listing on the New York Stock Exchange, the potential for a higher stock price, the timing and effects of the proposed amendments to our Amended and Restated Certificate of Incorporation, and any assumptions underlying any of the foregoing. Words such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project," "should," and "will" and variations of such words and similar expressions are intended to identify such forward-looking statements.
These forward-looking statements are not guarantees of future performance and involve risks, assumptions and uncertainties, including, but 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 debt agreements; general economic, industry, market, competitive, regulatory and political conditions; our ability to improve the operating performance of our stores in accordance with our long term strategy; the impact of private and public third-party payers continued reduction in prescription drug reimbursements and efforts to encourage mail order; our ability to manage expenses and our investments in working capital; outcomes of legal and regulatory matters; changes in legislation or regulations, including healthcare reform; our ability to achieve the benefits of our efforts to reduce the costs of our generic and other drugs; risks related to the pending sale of the remaining Rite Aid paid Mr. Standley a feedistribution centers and related assets to Walgreens Boots Alliance, Inc., including the possibility that the transactions may not close, or the business of $32,500 per week for consulting services rendered in July, August and September 2008. The consulting agreement was on a week-to-week basis, which also provided for the reimbursement of out-of-pocket expenses incurred by Mr. Standley. During fiscal year 2009 and prior to his employment as President and Chief Operating Officer, Rite Aid paid Mr. Standley a consulting fee of $293,551.
Deferred Compensation for David R. Jessick's Prior Service
Pursuant to the terms of a deferred compensation program in place during Mr. Jessick's prior service with the Company, Mr. Jessick received a payment of approximately $109,000 in fiscal 2009 and a final payment of approximately $61,000 in March 2009.
Relationship with Leonard Green & Partners L.P.
Rite Aid has entered into a one-year agreement with Leonard Green & Partners L.P., or Leonard Green, effective January 1, 2006, whereby Rite Aid has agreed to pay Leonard Green a fee of $300,000 per year (reduced to $150,000 per year on June 4, 2007 when John Danhakl ceased to be a director on the Company's Board of Directors) for its consulting services. The consulting agreement was extended effective January 1, 2007 on a month-to-month basis, which also provides for the reimbursement of out-of-pocket expenses incurred by Leonard Green. This agreement is an extension of Rite Aid's existing consulting agreement with Leonard Green. Pursuant to the consulting agreement, Rite Aid may engage Leonard Green to provide financial advisory and investment banking services in connection with major financial transactions that it undertakes insuffer as a result of uncertainty surrounding the future. During fiscal year 2009, Rite Aid paid Leonard Green a consulting fee of $137,500. This transaction was reviewed and ratified by our Board in April 2007 under our related person transactions approval policy described above. Jonathan D. Sokoloff, a director of Rite Aid, is an equity owner of Leonard Green.
Agreements with Jean Coutu Group
In connection with Rite Aid's acquisitionpending transactions; risks resulting from the termination of the Brooks and Eckerd drugstore chains from Jean Coutu Group, Rite Aid and Jean Coutu Group became a party to a series of agreements which are described below.
Stock Purchase Agreement
Rite Aid entered into a stock purchase agreementproposed merger with Jean Coutu Group to acquire all ofAlbertsons Companies, Inc. ("ACI"), including the capital stock of The Jean Coutu Group (PJC) USA, Inc., or Jean Coutu USA, which was a wholly-owned subsidiary of Jean Coutu Group andrisk that the holding company for the Brooks and Eckerd drugstore chains. Pursuant to the stock purchase agreement, certain of the provisions extend beyond the closing of the Brooks Eckerd Transaction.
Non-Competition Covenant. Jean Coutu Group has agreed that for five years after the closing of the Brooks Eckerd Transaction it will not (other than as a stockholder of Rite Aid and through its designeestermination could have an adverse effect on Rite Aid's Boardability to retain customers and retain and hire key personnel and maintain relationships with suppliers and customers and on our operating results and businesses generally; the risk of Directors) engage inlitigation related to the retail pharmacy business intermination of the United Statesmerger agreement with ACI or the pharmacy benefits managementproposed merger; and potential changes to our strategy following the termination of the proposed merger with ACI, which may include delaying or reducing capital or other expenditures, selling assets or other operations, attempting to restructure or refinance our debt, or seeking additional capital, and other business effects. These and other risks, assumptions and uncertainties are more fully described in Item 1A (Risk Factors) of our most recent Annual Report on Form 10-K and in other documents that we file or furnish with the United States. In a related agreement, Michel Coutu, our Non-Executive Co-Chairman, has agreed that for three yearsSEC, which you are encouraged to read. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. Accordingly, you are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made. Rite Aid expressly disclaims any current intention to update publicly any forward-looking statement after the closingdistribution of the Brooks Eckerd Transaction, he will not (other thanthis proxy statement, whether as a stockholderresult of Rite Aid andnew information, future events, changes in his capacity as a Rite Aid director), engage in the retail pharmacy business in the United Statesassumptions or the pharmacy benefits management business in the United States.
Indemnification.otherwise. The stock purchase agreement provides for indemnification for losses arising from breaches of representations and warranties, breaches of covenants and certain actions relating to
the conduct of the business of Jean Coutu Group (other than Jean Coutu USA). Each party's indemnification obligation for breaches of representations and warranties is subject to a $35 million deductible and each party's indemnification obligation for breaches of representations and warranties and for breaches of covenants is subject to an aggregate cap of $450 million. The deductible and cap do not apply to losses arising from or relating to the conduct of the business of Jean Coutu Group. No claim for a breach of a representation and warranty may be brought by either party or included in the aggregate losses for purposes of satisfying the deductible unless it exceeds a minimum threshold of $10,000.
Jean Coutu Group also has agreed to indemnify Rite Aid for losses arising from pre-closing taxes of Jean Coutu USA, any breaches of tax representations and warranties or breaches of tax covenants and for half of any transfer taxes resulting from the transaction. The deductible and cap do not apply to losses arising from tax matters.
Stockholder Agreement
Concurrently with entering into the stock purchase agreement, Rite Aid, Jean Coutu Group and certain Coutu family members entered into a stockholder agreement. The stockholder agreement contains provisions relating to board and board committee composition, corporate governance, stock ownership, stock purchase rights, transfer restrictions, voting arrangements and other matters.
Board and Board Committee Representation. The stockholder agreement provides that Jean Coutu Group initially will have the right to designate four members of Rite Aid's Board of Directors. Thereafter, Jean Coutu Group will have the right to designate a certain number of director nominees for election to our Board, taking into account Jean Coutu Group designees then serving in a class or classes of directors whose terms are not yet expiring, subject to Jean Coutu Group's maintenance of specified percentage thresholds of Rite Aid total voting power.
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For so long as Jean Coutu Group is entitled to designate at least two directors and subject to NYSE independence requirements for directors, Jean Coutu Group will have the right to designate one of its designees to each of the Audit, Compensation and Nominating and Governance Committees of the Rite Aid Board. In the event that only one of Jean Coutu Group's designees qualifies as an independent director of Rite Aid, that designee will be appointed to one of the three committees and other Jean Coutu Group designees will be provided "observer status" to attend committee meetings (subject to the committees meeting in executive session) of the other two committees.
Voting Arrangements. The stockholder agreement provides that for a period of five years after the closing of the Brooks Eckerd Transaction, Jean Coutu Group agrees to vote its shares for each Rite Aid director nominee recommended by the Board. Thereafter, Jean Coutu Group will vote its shares for each Rite Aid director nominee it designated and, in its discretion, either for each other Rite Aid director nominee recommended by the Board or for each other Rite Aid director nominee recommended by the Board and for nominees recommended by other persons in the same proportion as votes cast by all other Rite Aid stockholders for those nominees.
Right to Purchase Securities. For so long as Jean Coutu Group owns at least 20% of the total Rite Aid voting power, Jean Coutu Group will have the right to purchase securities in future issuances of Rite Aid voting securities (other than in certain types of issuances described below) to permit Jean
Coutu Group to maintain the same percentage of total voting power it held prior to the issuance. These purchase rights will not apply to issuances of Rite Aid stock in connection with conversions of convertible preferred stock, equity compensation plan awards, acquisitions by Rite Aid, equity-for-debt exchanges and certain other types of issuances. Subject to certain conditions, under circumstances in which Jean Coutu Group is not permitted to purchase voting securities in a Rite Aid issuance of voting securities, Jean Coutu Group will be permitted to make open market purchases of Rite Aid common stock in order to maintain the same percentage of total voting power it held prior to the issuance.
Standstill Restrictions. For so long as Jean Coutu Group (or any Coutu family stockholder or group of Coutu family stockholders) owns at least 5% of the total voting power of Rite Aid and for nine months thereafter, Jean Coutu Group or such Coutu family stockholders or group of Coutu family stockholders will be subject to restrictions on the acquisition of additional Rite Aid voting securities, other than with Rite Aid's consent or through the stock purchase rights discussed above, as well as restrictions on taking certain actions relating to Rite Aid.
Transfer Restrictions. For so long as Jean Coutu Group owns 5% or more of the voting power of Rite Aid's securities and for nine months thereafter, Rite Aid voting securities owned by Jean Coutu Group will be subject to restrictions on transfer included in the stockholder agreement, other than transfers in accordance with Rule 144, in a registered public offering, in connection with a pro rata dividend, spinoff or distribution to Jean Coutu Group stockholders and certain other permitted transfers.
In addition, subject to the foregoing, Jean Coutu Group may not transfer shares to someone who, as a result of the transfer, would own more than 5% of the outstanding shares of Rite Aid common stock.
Supermajority Board Approval. For so long as Jean Coutu Group owns at least 25% of the total voting power of Rite Aid, certain matters will require the approval of two-thirds of all of the Rite Aid Board of Directors, including increases in the number of authorized shares, significant issuances of Rite Aid equity securities, mergers, reorganizations, consolidations or similar business combinations involving Rite Aid, significant asset sales and certain other actions specified in the stockholder agreement.
Registration Rights Agreement
Concurrently with entering into the stock purchase agreement, Rite Aid, Jean Coutu Group and certain Coutu family members entered into a registration rights agreement. Pursuant to the registration rights agreement, subject to certain conditions, Jean Coutu Group has the right, on six occasions, to demand that Rite Aid register shares of Rite Aid common stock held by Jean Coutu Group for resale in an underwritten public offering, provided that the anticipated aggregate offering price would exceed $100 million or the registration is for at least 25% of the Rite Aid common stock held by Jean Coutu Group. Jean Coutu Group also may request that Rite Aid include those shares in certain registration statements that Rite Aid may file in the future in connection with underwritten offerings.
Transition Services Agreement
Effective as of June 4, 2007, Rite Aid and Jean Coutu Group entered into a transition services agreement consistent with certain principles set forth in the stock purchase agreement. Pursuant to the transition services agreement, Jean Coutu Group provided for a period of up to nine months following the closing date, subject to up to three, three-month extensions, certain transition services, including information technology, network and support services, to Jean Coutu USA to facilitate the transition of the businesses to Rite Aid. The Company has exercised all of the extensions available under the transition services agreement, which terminated in September 2008.
The transactions with Jean Coutu Group were reviewed by our Board in connection with the closing of the Brooks Eckerd Transaction and ratified under our related person transactions approval policy described above.
STOCKHOLDER PROPOSALS FOR
THE 20102019 ANNUAL MEETING OF STOCKHOLDERS
Whether or not the amendments to our Amended and Restated Certificate of Incorporation are approved, we will hold our regular annual meeting of stockholders in 2019. As disclosed in our Current Report on Form 8-K, filed with the SEC on January 8, 2018, the Board of Directors has established July 17, 2019 as the date of the Company's 2019 annual meeting of stockholders (the "2019 Annual Meeting"). This date represents a change of more than 25 days from the anniversary date of the Company's 2018 annual meeting of stockholders held on October 30, 2018 (the "2018 Annual Meeting").
Any stockholder desiring to present a proposal for inclusion in Rite Aid's proxy statement for the 20102019 Annual Meeting of Stockholders must deliver the proposal to the Secretary at the address below not later than [January 14, 2010].the close of business on February 8, 2019. Only those proposals that comply with the requirements of Rule 14a-8 under the Exchange Act will be included in Rite Aid's proxy statement for the 20102019 Annual Meeting.
In order for proposals of stockholders made outside of Rule 14a-8 under the Exchange Act to be considered "timely" within the meaning of Rule 14a-4(c) under the Exchange Act, such proposals must behave been received by the Secretary at the address below by March 27, 2010.the close of business on January 18, 2019.
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.meeting. To do so, the stockholder must comply with the procedures specified in Rite Aid's by-laws.By-Laws. The by-laws,By-Laws, which are available on Rite Aid's website atwww.riteaid.com under "Our Company—Corporate Governance—By-Laws" and in print 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's annual meeting of stockholders. The by-lawsBy-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's annual meeting of stockholders. Any such nomination by a stockholder must comply with the procedures specified in Rite Aid's by-laws. ToBy-Laws. 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's annual meeting of stockholders, the Company must receive the notice of proposals or nominations 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. Therefore, to be eligible for consideration at the 20102019 Annual Meeting, proposals which have not been submitted by the deadline for inclusion in the proxy statement(other than under Rule 14a-8) and any nominations for director (other than those under the proxy access provisions of the By-Laws) must have been received by the Secretary by January 18, 2019.
In addition, Rite Aid'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'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'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 for the 2019 Annual Meeting must be received by the Secretary betweenno earlier than February 25, 20102, 2019 and no later than the close of business on March 27, 2010. 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.4, 2019.
All submissions to or requests from, the Secretary should be made to:
Rite Aid Corporation
30 Hunter Lane
Camp Hill, Pennsylvania 17011
Attention: Marc A. Strassler,James J. Comitale, Secretary
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 Committee Report" and those portions of the information included under the caption "Audit Committee Report" required by the SEC's rules to be included therein, shall not be deemed to be "soliciting material" or "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.
The Board of Directors knows of no other matters that have been submitted for consideration at this Annual Meeting. If any other matters come before stockholders at this Annual Meeting, the persons named on the enclosed proxy intend to vote the shares they represent in accordance with their best judgment.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP served as Rite Aid's independent registered public accounting firm for fiscal year 2009 and Rite Aid's Audit Committee is in the process of negotiating with Deloitte & Touche LLP the terms of an arrangement to audit the consolidated financial statements of the Company and its subsidiaries for fiscal year 2010. A representative of Deloitte & Touche LLP is expected to be present at the Annual Meeting, and the representative will have the opportunity to make a statement and will be available to respond to appropriate questions.
IMPORTANT NOTICE REGARDING DELIVERY
OF STOCKHOLDER DOCUMENTS
The SEC has adopted rules that permit companies and intermediaries such as brokers to satisfy proxy material delivery requirements with respect to two or more stockholders sharing the same address by delivering a single proxy statement addressed to those stockholders. This process, which is referred to as "householding," potentially provides extra convenience for stockholders and reduces printing and postage costs for companies.
Rite Aid and some brokers utilize the householding process for proxy materials. In accordance with a notice sent to certain stockholders who share a single address, only one copy of this proxy statement is being sent to that address, unless we received contrary instructions from any stockholder at that address. Stockholders who participate in householding will continue to receive separate proxy cards. Householding will continue until you are notified otherwise or until one or more stockholders at your address revokes consent. If you revoke consent, you will be removed from the householding program within 30 days of receipt of the revocation. If you hold your Rite Aid stock in "street name," additional information regarding householding of proxy materials should be forwarded to you by your broker.
However, if you wish to receive a separate copy of this proxy statement, we will promptly deliver one to you upon request. You can notify us by sending a written request to Rite Aid 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. You can notify us by sending a written request to Rite Aid Corporation, 30 Hunter Lane, Camp Hill, Pennsylvania 17011, Attention: Marc A. Strassler, Secretary, or by calling the Secretary at (717) 975-5833.
A copy of Rite Aid's Annual Report on Form 10-KNo matters, other than the reverse stock split proposal and the adjournment proposal, will be presented for fiscal year 2009 is being mailed together with this proxy statement to all stockholders entitled to notice of and to voteaction at the AnnualSpecial Meeting.
Proposed CERTIFICATE OF AMENDMENT
TO THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
RITE AID CORPORATION
Pursuant to Sections 228 and 242 of
the General Corporation Law of the
State of Delaware
RITE AID CORPORATION, a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (the "Corporation"), does hereby certify as follows:
FIRST: Upon the filing and effectiveness (the "Effective Time") pursuant to the General Corporation Law of the State of Delaware (the "DGCL") of this Certificate of Amendment to the Restated Certificate of Incorporationto Declassify Our Board of Directors (Proposal No. 1)
The text below is the portion of ourAmended and Restated Certificate of Incorporation proposedof the Corporation, each 10, 15 or 20 shares of the Corporation's Common Stock, par value $1.00 per share, issued and outstanding immediately prior to the Effective Time shall automatically be combined into one (1) validly issued, fully paid and non-assessable share of Common Stock without any further action by the Corporation or the holder thereof, subject to the treatment of fractional share interests as described below (the "Reverse Stock Split"). No fractional shares shall be issued at the Effective Time and, in lieu thereof, the Corporation's transfer agent shall aggregate all fractional shares and sell them as soon as practicable after the Effective Time at the then-prevailing prices on the open market, on behalf of those stockholders who would otherwise be entitled to receive a fractional share, and after the transfer agent's completion of such sale, stockholders shall receive a cash payment (without interest or deduction) from the transfer agent in an amount equal to their respective pro rata shares of the total net proceeds of that sale and, where shares are held in certificated form, upon the surrender of the stockholder's Old Certificates (as defined below). Each certificate that immediately prior to the Effective Time represented shares of Common Stock ("Old Certificates"), shall thereafter represent that number of shares of Common Stock into which the shares of Common Stock represented by the Old Certificate shall have been combined, subject to the elimination of fractional share interests as described above.
SECOND: Upon the Effective Time, the first paragraph of Article FOURTH of the Corporation's Amended and Restated Certificate of Incorporation, relating to the capital structure of the Corporation, is hereby amended to read in its entirety as set forth below:
FOURTH: The total number of shares of stock which the corporation shall have authority to issue shall beone billion five hundred twenty million (1,520,000,000) [[·] ([·])](1) shares of whichone billion five hundred million (1,500,000,000)[[·] ([·])](2) shares shall be Common Stock of the par value of $1.00 per share, and twenty million (20,000,000) shares shall be Preferred Stock of the par value of $1.00 per share.
THIRD: This Certificate of Amendment shall become effective as of [ ], 2019 at [ ] [a.m./p.m.].
EIGHTH: For the managementBoard of Directors.
FOURTH: This Certificate of Amendment was duly adopted in accordance with Section 242 of the businessDGCL. The Board of Directors duly adopted resolutions setting forth and declaring advisable this Certificate of Amendment and directed that the proposed amendments be considered by the stockholders of the Corporation. A special meeting of stockholders was duly called upon notice in accordance with Section 222 of the DGCL and held on March 21, 2019, at which meeting the necessary number of shares were voted in favor of the proposed amendments. The stockholders of the Corporation duly adopted this Certificate of Amendment.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be duly executed in its corporate name as of the [ ] day of [ ], 2019.
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If you would like to reduce the costs incurred by our company in mailing proxy materials, Use any touch-tone telephone to transmit your voting instructions. Vote by 11:59 P.M. ET 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, 123,456,789,012.12345 TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. The Board of Directors recommends you vote FOR proposals 1 and 2. 1A proposal, which we refer to as the reverse stock split proposal, to adopt and approve an amendment to our Amended and Restated Certificate of Incorporation to effect (a) a reverse stock split of our outstanding shares of common stock, at a reverse stock split ratio of 1-for-10, 1-for-15 or 1-for-20, as determined by our Board of Directors at a later date, and (b) a reduction in the number of authorized shares of Rite Aids common stock by a corresponding ratio. 2A proposal, which we refer to as the adjournment proposal, to approve, if necessary, the adjournment of the Special Meeting to solicit additional proxies in favor of the reverse stock split proposal. For 0 Against 0 Abstain 0 0 0 0 (see reverse for instructions) Yes No Investor Address Line 3 John Sample attorney, executor, administrator, or other fiduciary, please give full ANY CITY, ON A1A 1A1 partnership name, by authorized officer. Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date 02 0000000000 1 OF 1 1 2 0000394643_1 R1.0.1.18 For address change/comments, mark here. 0 Please indicate if you plan to attend this meeting00 Please sign exactly as your name(s) appear(s) hereon. When signing as title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or Investor Address Line 1 Investor Address Line 2 Investor Address Line 4 Investor Address Line 5 1234 ANYWHERE STREET SHARES CUSIP # JOB #SEQUENCE # VOTE BY INTERNET - www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information. Vote by 11:59 P.M. ET on 03/20/2019. Have your proxy card in hand when you access the conduct ofweb site and follow the affairs ofinstructions to obtain your records and to create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the corporation,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 further definition, limitationfuture years. VOTE BY PHONE - 1-800-690-6903 on 03/20/2019. Have your proxy card in hand when you call and regulation ofthen follow the powers of the corporation and of its directors and stockholders, or any class thereof, as the case may be, it is further provided:instructions. John Sample 234567VOTE BY MAIL 1234567 1234567NY 11717. NAME THE COMPANY NAME INC. - COMMON THE COMPANY NAME INC. - CLASS A THE COMPANY NAME INC. - CLASS B THE COMPANY NAME INC. - CLASS C THE COMPANY NAME INC. - CLASS D THE COMPANY NAME INC. - CLASS E THE COMPANY NAME INC. - CLASS F THE COMPA N Y NAME INC. - 401 K CONTROL # SHARES123,456,789,012.12345 123,456,789,012.12345 123,456,789,012.12345 123,456,789,012.12345 123,456,789,012.12345 123,456,789,012.12345 123,456,789,012.12345 x PAGE1 OF 2 RITE AID CORPORATION ATTN: BYRON PURCELL 30 HUNTER LANE CAMP HILL, PA 17011 Investor Address Line 1 Investor Address Line 2 Investor Address Line 3 Investor Address Line 4 Investor Address Line 5 8 8 8 1 1234 ANYWHERE STREET ANY CITY, ON A1A 1A1 234567 234567 234567 234567
1.
Important Notice Regarding the Availability of Proxy Materials for the Special Meeting: The managementNotice & Proxy Statement is available at www.proxyvote.com RITE AID CORPORATION Special Meeting of the business and the conduct of the affairs of the corporation, including the election of the Chairman ofShareholders March 21, 2019 8:30 AM This proxy is solicited by the Board of Directors if any, the President, the Treasurer, the Secretary,The stockholder(s) hereby appoints John Standley, Darren Karst and other principal officers of the corporation, shall be vested in its Board of Directors. The number of Directors of the corporation shall be fixed by the By-Laws of the corporation and may be altered from time to time as provided therein, but in no event shall the number of directors of the corporation be less than three nor more than fifteen. A director shall be elected to hold office until the expiration of the term for which such person is elected, and until such person's successor shall be duly elected and qualified.Commencing at the annual meeting of stockholders that is held in calendar year 2009 (the "2009 Annual Meeting"),Tthe directors of the corporation shall bedivided into three classes, as nearly equal in number as possible, designated Class I, Class II and Class III. The term of office of the initial Class I directors shall expire at the annual meeting of stockholders to be held in 1977; the term of office of the initial Class II directors shall expire at the annual meeting of stockholders to be held in 1978; and the term of office of the initial Class III directors shall expire at the annual meeting of stockholders to be held in 1979.elected annually for terms of one year, except that any director in office at the 2009 Annual Meeting whose term expires at the annual meeting of stockholders in calendar year 2010 or calendar year 2011 (a "Continuing Classified Director") shall continue to hold office until the end of the term for which such director was elected and until such director's successor shall have been elected and qualified. Accordingly, at each annual meeting of stockholderscommencing with the annual meeting to be held in 1977 for the purpose of electing a class of directors, persons shall be elected to hold office as such class of directors for a period of three years and until the third succeeding annual meeting of stockholders following the meeting at which they are elected. When the number of directors is changed, any newly created directorshipsJim Comitale, or any decrease in directorships shall be so apportioned among the classes so as to make all classes as nearly equal in number as possibleafter the terms of all Continuing Classified Directors have expired, all directors shall be elected for terms expiring at the next annual meeting of stockholders and until such directors' successors shall have been elected and qualified. Any vacancies created in the Board of Directors throughan increase in the number of directors or otherwise, may be filled in accordance with the By-Laws of the corporation and the applicable laws of the State of Delaware. Election of directors need not be by written ballot.Any director, or the entire Board of Directors, may be removed, with or without cause, by the holders of a majority of the votes of capital stock then entitled to vote in the election of directors at a meeting of stockholders called for that purpose, except that Continuing Classified Directors and any director appointed to fill a vacancy of any Continuing Classified Director may be removed only for cause.
PRELIMINARY COPY
RITE AID CORPORATION
PROXY
FOR ANNUAL MEETING OF STOCKHOLDERS — JUNE 25, 2009
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert G. Miller, Frank G. Vitranoand Marc A. Strassler, or any one of them, as proxies, each with fullthe power of substitution,to appoint his substitute, and hereby authorize 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 (the “Company”), as set forth below,RITE AID CORPORATION that the undersigned would bestockholder(s) is/are entitled to vote if personally present at the AnnualSpecial Meeting of Stockholders of the Company to be held at 8:30 AM, EDT on March 21, 2019 at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, Four Times Square, 37th Floor, New York, New York at 10:30 a.m., local time, on June 25, 2009, and at any adjournmentsadjournment or postponementspostponement thereof. If applicable, the proxy shall also govern the voting of stock held for the account of the undersigned in the Company’sCompany's Investment Opportunity Plan, or any applicable employee benefit plan.
The Company provides its annual reports andvalidity of this proxy solicitation materials, including notices to stockholders of annual meetings and proxy statements, overis governed by the Internet. If you give your consent to access these documents over the Internet, the Company will advise you when these documents become available on the Internet. Providing these documents over the Internet will reduce the Company’s printing and postage costs. Once you give your consent, it will remain in effect until you notify the Company that you wish to resume mail deliverylaws of the annual reports and proxy statement. Even though you give your consent, you still have the right at any time to request copiesState of these documents.
THIS PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS EXERCISED.Delaware. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS SPECIFIED, OR, IF NO SPECIFICATIONS ARE MADE, WILL BE VOTED (1) “FOR”IN ACCORDANCE WITH THE AMENDMENT OF THE COMPANY’S RESTATED CERTIFICATE OF INCORPORATION TO DECLASSIFY OUR BOARD OF DIRECTORS, (2) “FOR” THE ELECTION OF ALL THE NOMINEES OF THE BOARD IN THE ELECTION OF DIRECTORS, (3) “AGAINST” THE STOCKHOLDER PROPOSAL AND (4) “FOR” THE RATIFICATION OF THE APPOINTMENT OF OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. IF ANY OTHER MATTER IS PROPERLY PRESENTED AT THE ANNUAL MEETING OF STOCKHOLDERS, THIS PROXY WILL BE VOTED IN THE NAMED PROXIES’ DISCRETION ON SUCH MATTERS.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF MEETING AND PROXY STATEMENT FURNISHED HEREWITH, AND HEREBY CONFIRMS THAT THIS PROXY SHALL BE VALID AND MAY BE VOTED WHETHER OR NOT THE STOCKHOLDER’S NAME IS SET FORTH BELOW OR A SEAL IS AFFIXED OR THE DESCRIPTION, AUTHORITY OR CAPACITY OF THE PERSON SIGNING IS GIVEN OR OTHER DEFECT OF SIGNATURE EXISTS.
DIRECTORS' RECOMMENDATIONS. PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.POSTAGE-PAID ENVELOPE Address change/comments: (If you noted any Address Changes and/or Comments above, please mark corresponding box on the reverse side.) Continued and to be signed on reverse side 0000394643_2 R1.0.1.18
THIS PROXY IS CONTINUED ON THE REVERSE SIDE
ANNUAL MEETING OF STOCKHOLDERS OF
RITE AID CORPORATION
June 25, 2009
Please sign, date and mail
your proxy card in the
envelope provided as soon
as possible.
Please detach along perforated line and mail in the envelope provided.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” PROPOSAL 1.
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Please mark, sign, date, and return this voting instruction card promptly in the enclosed postage paid envelope. If you receive more than one proxy card please vote with respect to each card you receive.
ELECTRONIC ACCESS TO FUTURE DOCUMENTS
If you would like to receive future shareholder communications over the Internet exclusively, and no longer receive any material by mail please visit http://www.amstock.com. Click on Shareholder Account Access to enroll. Please enter your account number and tax identification number to log in, then select Receive Company Mailings via E-Mail and provide your e-mail address.
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