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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant ☒
Filed by a Party other than the Registrant ☐
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Filed by the Registrantý |
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| Preliminary Proxy Statement |
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| Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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| Definitive Proxy Statement |
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| Definitive Additional Materials |
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| Soliciting Material under §240.14a-12
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RITE AID CORPORATION |
(Name of Registrant as Specified In Its Charter) |
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant) |
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| | | (4) | | | Proposed maximum aggregate value of transaction:
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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. |
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[ · ], 2019
May 26, 2020
Dear Fellow Stockholders:
On behalf of the Board of Directors (the "Board"“Board”) of Rite Aid Corporation, ("Rite Aid" or the "Company"),I want to take this opportunity to invite you are cordially invited to attend a Specialour 2020 Annual Meeting of Stockholders toStockholders. The meeting will be held at 8:309:00 a.m., local time,Eastern Time, on Wednesday, July 8, 2020. In light of ongoing public health concerns regarding the COVID-19 pandemic and to support the health and well-being of our associates and stockholders, this year’s Annual Meeting will be a virtual meeting of stockholders, conducted via live audio webcast. The virtual format provides the opportunity for participation by a broader group of our stockholders and enables stockholders to participate fully, and equally, from any location, at no cost. You can attend the meeting via the Internet at www.virtualshareholdermeeting.com/RAD2020 by using the 16-digit control number, which appears on your Notice of Internet Availability of Proxy Materials or, if you received a paper copy of the proxy materials, your proxy card (printed in the box and marked by the arrow) or the instructions that accompanied your proxy materials. You will have the ability to submit questions during the meeting via the meeting website. At the meeting, stockholders will vote on the proposals set forth in the Notice of Annual Meeting and the accompanying proxy statement.
At Rite Aid, we remain focused on taking actions to best position the Company for the future. We have made significant changes to our leadership and governance, including by:
Significantly refreshing our Board: Over the past two years, seven directors have retired and six new directors have joined the Board. As a result, six of our eight director nominees have been on the Rite Aid Board for less than two years and bring fresh perspectives to the boardroom. Following these changes, half of our director nominees are racially or ethnically diverse and thirty-eight percent of our director nominees are women. In addition to enhancing our Board’s racial, ethnic and gender diversity, these changes bring a diversity of thought and experience to the Board.
Hiring a new CEO: As we have said before, one of the Board’s most important tasks is choosing the Company’s Chief Executive Officer. After a thorough and deliberate search process, we announced Heyward Donigan’s appointment as CEO in August 2019. The Board determined that Ms. Donigan’s strong senior executive experience, proven leadership capabilities and consistent track record of driving profitable growth, as well as her broad healthcare knowledge and digital technology expertise, would be invaluable as the Company works to deliver on the full potential of our business and create additional long-term value for our stockholders, associates, customers and patients. Nine months into Ms. Donigan’s tenure, we remain confident that she is the right person to lead the Company in this next chapter.
Enhancing our corporate governance and ESG practices and disclosures: We have also continued to evaluate and take steps to enhance certain corporate governance practices. For example, as a result of further stockholder engagement and evaluation of trends and developments, we recently amended the Company’s By-Laws to reduce the threshold to permit special meetings of the stockholders of the Company to be called by stockholders holding at least 10% of the Company’s common stock. In addition, we have made significant progress in our environmental, social and governance efforts. Our initiatives include an ongoing commitment to cleaner, less toxic ingredients in our products and investing in a product assortment that aligns with whole being health.
Together with the new management team, the Board has been focused on the Company’s recently announced strategic plan and initiatives, named “RxEvolution,” which include significant rebranding, merchandising, marketing, integration and operational initiatives. The implementation of these initiatives should enable Rite Aid to thrive as a significant healthcare services company, with a retail footprint, in an ever-changing marketplace.
In closing, it is important to acknowledge how COVID-19 has upended all of our lives. The worldwide pandemic has created significant challenges that none of us could have foreseen. At Rite Aid, however, we are focused on meeting those challenges, dedicating ourselves to the health and well-being of customers, associates, and the business. We hope you and your families are safe and well. Thank you for your investment in Rite Aid.
| | | Sincerely, |
| | | |
| | | |
| | | Bruce G. Bodaken |
| | | Chairman of the Board |
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May 26, 2020
Dear Stockholders:
I am proud to lead Rite Aid as its Chief Executive Officer. As I reflect on my first nine months in this role, we have made tremendous strides in beginning the turnaround of our iconic brand. After a detailed strategic review of our business, we unveiled our plan for returning Rite Aid to a market leader position at our March 21, 2019,16th Analyst Day. This plan―our RxEvolution―will dramatically and visibly change our business to focus on meeting the health and wellness needs of our customers. Helping them to thrive. Those changes will come in a variety of forms, including customer engagement with our pharmacists, via our digital/omnichannel capabilities, with our new “better for you” merchandising and our new retail and pharmacy benefits management (“PBM”) experience.
I believe we have the opportunity to serve a new growing customer base, strengthen the power of our iconic brand, allow our pharmacists to operate at the
officestop of
Skadden, Arps, Slate, Meagher & Flom LLP, Four Times Square, New York, New York 10036. At the Special Meeting, stockholders will considertheir licenses and vote on a proposalgrow our EnvisionRxOptions (soon 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. Yoube Elixir) pharmacy services business. Although many 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 ownershipthink of Rite Aid sharesas a retailer, we are, at our core, a healthcare company, serving more than a million customers every day. Healthcare is a crucial and yourgrowing business, and our personal connection to our customers through our trusted pharmacists is an important part of the future of healthcare in America. The current pandemic confirms our belief that pharmacists are, indeed, the last mile connectors between the healthcare system and consumers.
For some companies, COVID-19 and the related economic challenges have been obstacles to executing long-term strategic goals. Rite Aid, on the other hand, has stepped up to deliver on our core mission of keeping our communities healthy and thriving, while also continuing to reposition our Company. We are proud to be fighting on the front lines of this global health emergency by playing a vital role in the country’s path to recovery―in maintaining supply chains for taking care of customers, providing COVID-19 testing sites, and supplying critical resources for the communities we serve―while also protecting the safety and well-being of our associates.
This past year, we made key changes to our leadership team, developed a differentiated go-forward strategy, reduced our debt and improved our leverage ratio, instilled an acute focus on execution and innovation, and re-branded with two new logos and brand identities for the pharmacy services and retail pharmacy businesses. We continue to make great progress in modernizing the technology platforms that power our Company, and we are executing on our digital and omnichannel initiatives. As our economy normalizes, the Company should be better positioned to execute on our key initiatives to enhance revenue, achieve efficiencies across our business, drive Adjusted EBITDA growth and generate cash flow to invest in our business and further reduce our debt.
As we look to the future, the Company’s strategy for evolving the business and revitalizing the brand will focus on innovation in three key areas:
Becoming the PBM of choice for middle market employers and regional health plans: EnvisionRxOptions (soon to be Elixir) will offer curated solutions that improve its competitive positioning and deliver high quality retail and mail-order pharmacy service while demonstrating superior clinical outcomes. Now the only payor-agnostic PBM with a retail pharmacy footprint, EnvisionRxOptions is poised for strong growth and improved profits.
Unlocking the value of Rite Aid’s pharmacists: We are doubling down on our pharmacy business and renewing our commitment to leveraging the power of our trusted pharmacists to revitalize the Company’s position as a leader in meeting the health and wellness needs of customers. Rite Aid’s innovations across all of its retail and mail-order pharmacy channels, including its PBM and suite of pharmacy service solutions, will enable Rite Aid pharmacists to better consult with our customers and showcase a targeted array of over-the-counter, clinical, and holistic health and wellness solutions so that our customers can be beyond healthy—so that they can thrive.
Revitalizing Rite Aid’s retail and digital experience: As consumers increasingly seek a balance between traditional health and holistic wellness, Rite Aid will be a destination for mind, body and spirit wellness. To introduce new generations to our iconic brand, Rite Aid is elevating its in-store experience, increasing personalized digital engagement and refreshing our merchandise to include a wide assortment of clean, modern products with attributes that resonate with more consumers.
For these and other reasons, I look forward to continuing to work with the outstanding Rite Aid team to support regarding this matter.the needs of our customers and patients and drive growth, improved performance and stockholder value.
| | | Sincerely, |
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| | | |
| | | Heyward Donigan |
| | | President, Chief Executive Officer and Director |
Refer to the section titled “Cautionary Statement Regarding Forward-Looking Statements” for a discussion of risks and uncertainties that could cause actual results to differ materially from those projected.
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| NOTICE OF ANNUAL MEETING OF STOCKHOLDERS | Sincerely, |
| | Bruce G. Bodaken
Chairman of the Board |
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RITE AID CORPORATION
P.O. BOX 3165
HARRISBURG, PENNSYLVANIA 17105
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held on
March 21, 2019July 8, 2020
To Our Stockholders:
What: | | |
What: | | SpecialOur 2020 Annual Meeting of Stockholders |
When: | |
March 21, 2019 | July 8, 2020 at 8:309:00 a.m., local timeEastern Time |
Where: | | | This year’s meeting is a virtual stockholders meeting at Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036www.virtualshareholdermeeting.com/RAD2020 |
Why: | | | At this SpecialAnnual Meeting, stockholders will be asked to: |
| | | 1. | | | Elect eight directors to hold office until the 2021 Annual Meeting of Stockholders and until their respective successors are duly elected and qualified; |
| | | 2. | | | Ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm; |
| | | 3. | | | Approve, on an advisory basis, the compensation of our named executive officers as presented in the proxy statement; |
| | | 4. | | | Approve the adoption of the Rite Aid Corporation 2020 Omnibus Equity Incentive Plan; and |
| | | 5. | | | Transact such other business as may properly come before the Annual Meeting or any adjournment or postponement of the SpecialAnnual Meeting. |
RECORD DATE: | | | The close of business on May 11, 2020 has been fixed as the record date for determining those Rite Aid stockholders entitled to vote at the Annual Meeting. Accordingly, only stockholders of record at the close of business on that date will receive this notice of, and be eligible to vote at, the Annual Meeting weand any adjournment or postponement of the Annual Meeting. The above items of business for the Annual Meeting are more fully described in the proxy statement accompanying this notice. |
PROXY VOTING: | | | 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 considerattend the virtual Annual Meeting, and vote uponno matter how many shares you own, please submit your proxy promptly by telephone or via the proposals listed below. |
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| Proposal No. 1: | | A proposal, which we refer to asInternet in accordance with the "reverse stock split proposal," to adoptinstructions on the enclosed proxy card, or by completing, dating 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 reductionreturning your proxy card in the number of authorized shares of Rite Aid's common stock byenvelope provided. This will not prevent you from voting at the virtual Annual Meeting. It will, however, help to assure a corresponding ratio. |
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Proposal No. 2 |
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A proposal, which we referquorum and 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.avoid added proxy solicitation costs. |
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 General Corporation Law of the State of Delaware (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.
The close of business on February 5, 2019 has been fixed as the record date for determining those Rite Aid stockholders entitled to vote at the Special 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 Special Meeting and any adjournment or postponement of the Special Meeting. The above items of business for the Special Meeting are more fully described in the proxy statement that 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 Special 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
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your proxy card in the envelope provided. This will not prevent you from voting in person at the Special 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
Specialvirtual Annual Meeting, in which case your prior proxy would be disregarded.
| | |
| | By order of the Board of Directors |
| | James J. Comitale
| Secretary
|
| | | Heyward Donigan |
| | | President, Chief Executive Officer and Director |
| | | Camp Hill, Pennsylvania
[ · ], 2019 |
| | | May 26, 2020 |
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QUESTIONS AND ANSWERS ABOUT THE SPECIALANNUAL MEETING | | | | |
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Criteria to be Used for Determining Whether to Implement Reverse Stock Split
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Certain Risks and Potential Disadvantages Associated with the Reverse Stock Split and the Authorized Share Reduction
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Effective Time
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Fractional Shares
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Effects of the Reverse Stock Split and the Authorized Share Reduction
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General
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Effect on Shares of Common Stock
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Effect on Preferred Stock
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Effect on Par Value
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Effect on Rite Aid's Stock Plans
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Reduction In Stated Capital
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No Going Private Transaction
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Shares Held in Book-Entry and Through a Broker, Bank or Other Holder of Record
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Shares Held in Certificated Form
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Vote Required
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No Appraisal Rights
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Interest of Certain Persons in Matters to be Acted Upon
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Certain U.S. Federal Income Tax Consequences of the Reverse Stock Split
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PROPOSAL NO. 2 RATIFICATION OF THE ADJOURNMENT PROPOSAL APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | | | | |
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STOCKHOLDER PROPOSALS FOR THE 20192021 ANNUAL MEETING OF STOCKHOLDERS | | | | |
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RITE AID CORPORATION
P.O. BOX 3165
HARRISBURG, PENNSYLVANIA 17105
FOR THE
SPECIALANNUAL MEETING
OF STOCKHOLDERSTo Be Held on March 21, 2019
July 8, 2020
Important Notice Regarding the Availability of Proxy Materials for the
SpecialStockholder Meeting to be Held on
March 21, 2019:July 8, 2020:
The proxy statement and annual report, as well as the Company'sCompany’s proxy card, are available at
www.proxyvote.com.www.proxyvote.com.
This proxy statement is being furnished to you by the Board of Directors (the
"Board"“Board” or
"Board“Board of
Directors"Directors”) of Rite Aid Corporation
(the "Company" or "Rite Aid") to solicit your proxy to vote your shares at our
Special2020 Annual Meeting of Stockholders (the
"Special Meeting"“Annual Meeting”). The
SpecialAnnual Meeting will be held on
March 21, 2019July 8, 2020 at
8:309:00 a.m.,
local time,Eastern Time, by live audio webcast at
the offices of Skadden, Arps, Slate, Meagher & Flom LLP, Four Times Square, New York, New York 10036.www.virtualshareholdermeeting.com/RAD2020.
This proxy statement, the foregoing notice and the accompanying proxy card are first being made available on or about
[ · ], 2019May 26, 2020 to all holders of our common stock, par value $1.00 per share, entitled to vote at the SpecialAnnual Meeting. Purpose of References to “Rite Aid,” “Rite Aid Corporation,” the Special Meeting
The purpose of the Special Meeting is to consider and vote on the following proposals:
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| 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"). |
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Proposal No. 2: |
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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“Company,” “we,” “us,” or “our” 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
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determination as soon as immediately following the conclusion of the Special Meeting, proxy statement and the Reverse Stock Splitaccompanying notice 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 ourletters to stockholders the Board of Directors reserves its rightrefer 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 Rite Aid Corporation and/or its stockholders.
affiliates. Rite Aid Corporation, a Delaware corporation, owns multiple subsidiary companies which operate Rite Aid stores and pharmacies and other affiliated companies. The term “affiliates” means direct and indirect subsidiaries of Rite Aid Corporation and partnerships and joint ventures in which such subsidiaries are partners. References herein to “associates” refer to employees of our affiliates.
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QUESTIONS AND ANSWERS ABOUT THE SPECIALANNUAL MEETING
Why did I receive a “Notice of Internet Availability of Proxy Materials” but no proxy materials?
We distribute our proxy materials to stockholders via the Internet under the “Notice and Access” approach permitted by the rules of the U.S. Securities and Exchange Commission (the “SEC”). This approach expedites stockholders’ receipt of proxy materials while conserving natural resources and reducing our distribution costs. On or about May 26, 2020, we mailed a Notice of Internet Availability of Proxy Materials containing instructions on how to access the proxy materials on the Internet to participating stockholders.
Who may attend the Annual Meeting?
All stockholders are invited to attend the virtual Annual Meeting. Persons who are not stockholders may attend only if invited by the Board of Directors. If you are the beneficial owner of shares held in the name of your broker, bank, or other nominee and do not have a control number, please contact your broker, bank, or other nominee as soon as possible and no later than July 1, 2020, so that you can be provided with a control number.
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How can I attend the Annual Meeting?
In light of public health concerns regarding the COVID-19 pandemic and to support the health and well-being of our associates and stockholders, this year’s Annual Meeting will be held “virtually” through a live audio webcast on Wednesday, July 8, 2020, at 9:00 a.m. Eastern Time. There will be no physical meeting location. The meeting will only be conducted via an audio webcast.
Online access to the audio webcast will open approximately 15 minutes prior to the start of the Annual Meeting to allow time for you to log in and test the computer audio system. We encourage our stockholders to access the meeting prior to the start time.
To attend the virtual Annual Meeting, log in at www.virtualshareholdermeeting.com/RAD2020. Stockholders will need their unique control number which appears on the Notice of Internet Availability of Proxy Materials or, if you received a paper copy of the proxy materials, the proxy card (printed in the box and marked by the arrow) or the instructions that accompanied the proxy materials. In the event that you do not have a control number, please contact your broker, bank, or other nominee as soon as possible and no later than July 1, 2020, so that you can be provided with a control number and gain access to the meeting.
Who is entitled to vote at the
SpecialAnnual Meeting?
Holders of Rite Aid common stock as of the close of business on the record date, February 5, 2019,May 11, 2020, will receive notice of, and be eligible to vote at, the SpecialAnnual Meeting and any adjournment or postponement of the SpecialAnnual Meeting. At the close of business on the record date, Rite Aid had outstanding and entitled to vote [ · ]54,703,393 shares of common stock. No other shares of Rite Aid capital stock are entitled to notice of and to vote at the SpecialAnnual Meeting.
How can I vote during the Annual Meeting?
To log in to the Annual Meeting and to cast your vote electronically during the meeting, you will need the unique control number which appears on the Notice of Internet Availability of Proxy Materials or, if you received a paper copy of the proxy materials, the proxy card (printed in the box and marked by the arrow) or the instructions that accompanied the proxy materials. In the event that you are the beneficial owner of shares held in the name of your broker, bank, or other nominee and do not have a control number, please contact your broker, bank, or other nominee as soon as possible and no later than July 1, 2020, so that you can be provided with a control number.
How can I submit a question at the Annual Meeting?
Stockholders may submit questions in writing during the Annual Meeting on www.virtualshareholdermeeting.com/RAD2020. Stockholders will need their unique control number which appears on their Notice of Internet Availability of Proxy Materials or, if you received a paper copy of the proxy materials, the proxy card (printed in the box and marked by the arrow) or the instructions that accompanied the proxy materials.
As part of the Annual Meeting, we intend to answer questions submitted during the meeting in accordance with the annual meeting procedures which are pertinent to the Company and the meeting matters, as time permits. Questions and answers may be grouped by topic and substantially similar questions may be grouped and answered as one.
What if I need technical assistance?
Beginning 15 minutes prior to the start of and during the virtual Annual Meeting, we will have a support team ready to assist stockholders with any technical difficulties they may have accessing or hearing the virtual meeting. If you encounter any difficulties accessing the virtual meeting during the check-in or meeting time, you should call our support team at the phone number listed on the login page located at www.virtualshareholdermeeting.com/RAD2020.
Will a replay of the Annual Meeting be available?
A replay of the Annual Meeting will be made publicly available 48 hours after the meeting at www.virtualshareholdermeeting.com/RAD2020 and will be available for one year following the Annual Meeting.
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What matters will be voted on at the
SpecialAnnual Meeting?
The two
There are four proposals that are scheduled to be considered and voted on at the SpecialAnnual Meeting:
Proposal No. 1: Elect eight directors to hold office until the 2021 Annual Meeting of Stockholders and until their respective successors are duly elected and qualified;
Proposal No. 2: Ratify the reverse stock split proposalappointment of Deloitte & Touche LLP as our independent registered public accounting firm;
Proposal No. 3: Approve, on an advisory basis, the compensation of our named executive officers as presented in this proxy statement; and
Proposal No. 4: Approve the adoption of the Rite Aid Corporation 2020 Omnibus Equity Incentive Plan.
Stockholders also will be asked to consider and vote at the Annual Meeting on any other matter that may properly come before the Annual Meeting or any 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 and the
adjournment proposal.possible submission of the Krol Proposal, as described in the section entitled “Other Matters,” that may properly come before the Annual Meeting.
What are the
Board'sBoard’s voting recommendations?
The Board
of Directors recommends that you vote
"FOR"“FOR” the
reverse 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 NYSEnominees of the Board in the election of Directors'directors, “FOR” the ratification of Deloitte & Touche LLP as the Company’s independent registered public accounting firm, “FOR” the approval, to pursue a reverse stock split in order to bring our share price and average share price back above $1.00 withinon an advisory basis, of 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 effect the Reverse Stock Split and the Authorized Share Reduction may be necessary to promote the continued listingcompensation of our common stock onnamed executive officers as presented in this proxy statement and “FOR” 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 must adopt any amendment to our Amended and Restated Certificate of Incorporation and submit the amendment to stockholders for approval. Accordingly, our Board of Directors is requesting your proxy to vote "FOR" the reverse 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 membersadoption 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
Rite Aid Corporation 2020 Omnibus Equity Incentive Plan.
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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.
What is the difference between holding shares as a stockholder of record and as a beneficial owner?
If your shares are registered directly in your name with our transfer agent, Broadridge Corporate Issuer Services, you are
considered the
"stockholder“stockholder of
record"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"“street name” and you are considered the
"beneficial owner"“beneficial owner” of the shares. As the beneficial owner of those shares, you have the right to direct your broker, bank, or nominee how to vote your shares, and you will receive separate instructions from your broker, bank, or other holder of record describing how to vote your shares.
How can I vote my shares before the
SpecialAnnual Meeting?
If you hold your shares in your own name
, you may submit a proxy by telephone, via the Internet, or by mail.Submitting a Proxy by Telephone: You can submit a proxy for your shares by telephone until 11:59 p.m. Eastern Daylight Time on March 20, 2019,July 7, 2020, by calling the toll-free telephone number on the enclosed proxy card, 1-800-690-6903. Telephone proxy submission is available 24 hours a day. Easy-to-follow voice prompts allow you to submit a proxy for your shares and confirm that your instructions have been properly recorded. Our telephone proxy submission procedures are designed to authenticate stockholdersstockholders’ identities by using individual control numbers.
•Submitting a Proxy via the Internet:You can submit a proxy for your shares via the Internet until 11:59 p.m. Eastern Daylight Time on March 20, 2019,July 7, 2020, by accessing the website listed on the enclosed proxy card,www.proxyvote.comwww.proxyvote.com, and following the instructions you will find on the website. Internet proxy submission is available 24 hours a day. As with telephone proxy submission, you will be given the opportunity to confirm that your instructions have been properly recorded.
•Submitting a Proxy by Mail:If you choose to submit a proxy for your shares by mail, simply mark the enclosed proxy card, date and sign it, and return it in the postage paid envelope provided.
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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 Special Meeting and vote
in person.at the virtual Annual Meeting.
If your shares are held in the name of a bank, broker, or other nominee,
, you will receive instructions from the holder of record that you must follow for your shares to be voted. The availability of telephonic or Internet voting will depend on the bank'sbank’s, broker’s, or broker'sother nominee’s voting process. Please check with your bank, broker, or brokerother nominee and follow the voting procedures your bank, broker, or brokerother nominee provides to vote your shares. Also, please noteThe 16-digit control number that ifgrants access to the holdervirtual meeting will also empower you to vote at the virtual meeting. In the event that you are the beneficial owner of recordshares held in the name of your shares is abroker, bank broker or other nominee and you wish to vote in person at the Special Meeting, you must requestdo not have a legal proxy fromcontrol number, please contact your broker, bank, broker or other nominee as soon as possible and no later than July 1, 2020, so that holds your shares and present that proxy and proof of identification at the Special Meeting; otherwise, you will notcan be able to vote in person at the Special Meeting.provided with a control number.
If I am the beneficial owner of shares held in
"street name"“street name” by my broker, will my broker automatically vote my shares for me?
Under NYSE
New York Stock Exchange (“NYSE”) rules
the reverse stock split proposal and the adjournment proposal are considered "discretionary" items. Consequently, for both proposals, aapplicable to brokers grant your broker
will have discretiondiscretionary authority to
vote your
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shares and, therefore, may vote your shares with respectwithout receiving your instructions on certain matters. Your broker has discretionary voting authority under NYSE rules to both proposals ifvote your shares on the ratification of Deloitte & Touche LLP as our independent registered public accounting firm. However, unless you do not provide voting instructions to your broker, with instructionsyour broker does not have discretionary authority to vote on such proposal.
the election of directors, the advisory vote on the compensation of our named executive officers, and the adoption of the Rite Aid Corporation 2020 Omnibus Equity Incentive Plan. Accordingly, it is particularly important that beneficial owners instruct their brokers how they wish to vote their shares.
How will my shares be voted if I give my proxy but do not specify how my shares should be voted?
If you provide specific voting instructions, your shares will be voted at the SpecialAnnual 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"“FOR” the reverse stock splitnominees of the Board in the election of directors, “FOR” the ratification of Deloitte & Touche LLP as the Company’s independent registered public accounting firm, “FOR” the approval, on an advisory basis, of the compensation of our named executive officers, and “FOR” the adoption of the Rite Aid Corporation 2020 Omnibus Equity Incentive Plan.
Could other matters be decided at the Annual Meeting?
At this time, we are unaware of any matters, other than those set forth above and the possible submission of the Krol Proposal, as described in the section entitled “Other Matters,” that may properly come before the Annual Meeting. If any other matters properly come before the Annual Meeting, the persons named in the enclosed proxy, or their duly constituted substitutes acting at the Annual Meeting or any adjournment or postponement of the Annual Meeting, will be deemed authorized to vote or otherwise act on such matters in accordance with their judgment.
What is an “abstention” and how would it affect the vote?
An “abstention” occurs when a stockholder sends in a proxy with explicit instructions to decline to vote regarding a particular matter. Abstentions are counted as present for purposes of determining a quorum. An abstention with respect to the election of directors is neither a vote cast “for” a nominee nor a vote cast “against” the nominee and, therefore, will have no effect on the outcome of the vote. Abstentions with respect to the ratification of Deloitte & Touche LLP as our independent registered public accounting firm, the advisory vote on compensation of our named executive officers, and the adoption of the Rite Aid Corporation 2020 Omnibus Equity Incentive Plan will have the same effect as voting “against” the proposal.
What is a broker “non-vote” and how would it affect the vote?
A broker non-vote occurs when a broker or other nominee who holds shares for the beneficial owner is unable to vote those shares for the beneficial owner because the broker or other nominee does not have discretionary voting power for the proposal and
"FOR" the adjournment proposal.Who may attend the Special Meeting?
All stockholders are invited to attend the Special Meeting. Persons who arehas not stockholders may attend only if invited by the Board of Directors. If you arereceived voting instructions from the beneficial owner of the shares. Brokers will have discretionary voting power to vote shares held in for which no voting instructions have been provided by
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the
name of your broker, bank or other nominee, you must bring proof of ownership (e.g., a current broker's statement) in order to be admittedbeneficial owner only with respect to the
meeting. You can obtain directionsratification of Deloitte & Touche LLP as our independent registered public accounting firm. Brokers will not have such discretionary voting power to vote shares with respect to the
Special Meeting by contactingelection of directors, the advisory vote on the compensation of our
Investor Relations Department at (717) 975-3710.Can I vote in person atnamed executive officers, and the Special Meeting?
Yes. If you hold shares in your own nameadoption of the Rite Aid Corporation 2020 Omnibus Equity Incentive Plan. Shares that are the subject of a broker non-vote are included for quorum purposes, but a broker non-vote with respect to a proposal will not be counted as a stockholder of record, you may come to the Special Meetingvote cast and cast yourwill not be counted as a vote represented 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 rightentitled to vote those shares and, submit that proxy along with a properly completed ballot atconsequently, will have no effect on the meeting; otherwise, you will not be able to vote in person atoutcome of the Special Meeting.
How can I change my vote?
You may revoke your proxy at any time beforevote. Accordingly, it is exercised by:
•Delivering to the Secretary a written notice of revocation, dated later than the proxy, before the vote is taken at the Special Meeting;
•Delivering to the Secretary an executed proxy bearing a later date, before the vote is taken at the Special Meeting;
•Submitting a proxy on a later date by telephone or via the Internet (only your last telephone or Internet proxy will be counted), before 11:59 p.m. Eastern Daylight Time on March 20, 2019; or
•Attending the Special Meeting and voting in person (your attendance at the Special Meeting, in and of itself, will not revoke the proxy).
Any written notice of revocation, or later dated proxy, should be delivered to:
Rite Aid Corporation
30 Hunter Lane
Camp Hill, Pennsylvania 17011
Attention: James J. Comitale, Secretary
Alternatively, you may hand deliver a written revocation notice, or a later dated proxy, to the Secretary at the Special Meeting before we begin voting.
If your sharesparticularly important that beneficial owners 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 wishshares instruct their brokers how to change your vote.
vote their shares.
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What are the quorum and voting requirements for the proposals?
In deciding the proposals that are scheduled for a vote at the Annual Meeting, each holder of common stock as of the record date is entitled to one vote per share of common stock. In order to take action on the proposals, a quorum, consisting of the holders of
[ · ]27,351,697 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 SpecialAnnual Meeting, must be present in person or by proxy. This is referred to as a "quorum."“quorum.” In accordance with Delaware law and our By-Laws, stockholders and proxy holders attending the virtual annual meeting will be deemed present “in person.” Proxies marked "Abstain"“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
Proposal No. 1—Election 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.Directors
The affirmative vote of a majority of the total number of votes presentcast is required for the election of each director nominee named in personProposal No. 1. This means that the votes cast “for” that nominee must exceed the votes cast “against” that nominee. Any shares not voted (whether by abstention, broker non-vote or otherwise) will not be counted as votes cast and will have no effect on the outcome of the vote. For more information on the operation of our majority voting standard, see the section entitled “Board of Directors—Corporate Governance—Majority Voting Standard and Policy.”
Proposal No. 2—Ratification of Independent Registered Public Accounting Firm
The affirmative vote of a majority of the shares represented by proxy at the Special Meetingmeeting and entitled to vote is required for the ratification of Deloitte & Touche LLP as our independent registered public accounting firm in Proposal No. 2. Any shares represented and entitled to approvevote at the adjournmentmeeting and not voted (whether by abstention or otherwise) will have the same effect as a vote “against” the proposal.
Proposal No. 3—Advisory Vote on Compensation of Named Executive Officers
The affirmative vote of a majority of the shares represented at the meeting and entitled to vote is required for the approval of the advisory vote on the compensation of our named executive officers in Proposal No. 3. Any shares represented and entitled to vote at the meeting and not voted (whether by abstention or otherwise) will have the same effect as a vote “against” the proposal. Any broker non-votes with respect to the advisory vote on the compensation of our named executive officers will not be counted as shares represented at the meeting and entitled to vote and, consequently, will have no effect on the outcome of the vote.
Proposal No. 4—Approval of the Adoption of the Rite Aid Corporation 2020 Omnibus Equity Incentive Plan
The affirmative vote of a majority of the shares represented at the meeting and entitled to vote is required for the approval of the Rite Aid Corporation 2020 Omnibus Equity Incentive Plan in Proposal No. 4. Any shares represented and entitled to vote at the meeting and not voted (whether by abstention or otherwise) will have the same effect as a vote “against” the proposal. Any broker non-votes with respect to the adoption of the Rite Aid Corporation 2020 Omnibus Equity Incentive Plan will not be counted as shares represented at the meeting and entitled to vote and, consequently, will have no effect on the outcome of the vote.
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What happens if a quorum is not present at the
SpecialAnnual Meeting?
If the shares present in person or represented by proxy at the
Specialvirtual 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.
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. Abstentions with respect to the reverse stock split proposal and the adjournment proposal will have the same effect as a vote "Against" the 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 on both proposals so we do not anticipate any broker non-votes.
Because adoption and approval of the reverse stock split proposal requires a majority of the outstanding shares, a broker non-vote will 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 will have no effect on the outcome of the vote with regards to the adjournment proposal.
Could other matters be decided at the Special Meeting?
Other than the reverse stock split proposal and the adjournment proposal, no other matters will be presented for action by the stockholders at the Special Meeting.
Who will count the votes?
Representatives of Broadridge Financial Solutions, Inc. will tabulate the votes and act as inspectors of election.
How can I change my vote?
TableYou may revoke your proxy at any time before it is exercised by:
Delivering to the Secretary a written notice of
Contentsrevocation, dated later than the proxy, before the vote is taken at the Annual Meeting;
Delivering to the Secretary an executed proxy bearing a later date, before the vote is taken at the Annual Meeting;
Submitting a proxy on a later date by telephone or via the Internet (only your last telephone or Internet proxy will be counted), before 11:59 p.m. Eastern Time on July 7, 2020; or
Attending the virtual Annual Meeting and voting (your attendance at the Annual Meeting, in and of itself, will not revoke the proxy).
Any written notice of revocation, or later dated proxy, should be delivered to:
Rite Aid Corporation
30 Hunter Lane
Camp Hill, Pennsylvania 17011
Attention: Corporate Secretary
If your shares of Rite Aid common stock are held by a bank, broker, or other nominee, you must follow the instructions provided by the bank, broker, or other nominee if you wish to change your vote.
Who will conduct the proxy solicitation and how much will it cost?
We are soliciting proxies from stockholders on behalf of our Board and will pay for all costs incurred by it in connection with the solicitation. In addition to solicitation by mail, the directors, officers and associates of Rite Aid and its subsidiaries may solicit proxies from stockholders of Rite Aid in person or by telephone, facsimile, or email without additional compensation other than reimbursement for their actual expenses.
We have retained Morrow Sodali, LLC, a proxy solicitation firm, to assist us in the solicitation of proxies for the
SpecialAnnual Meeting. Rite Aid will pay Morrow Sodali
LLC a fee of approximately $20,000, plus reasonable out-of-pocket expenses.
Arrangements also will be made with brokerage firms and other custodians, nominees, and fiduciaries for the forwarding of solicitation material to the beneficial owners of stock held of record by such persons, and we will reimburse such custodians, nominees, and fiduciaries for their reasonable out-of-pocket expenses in connection with the forwarding of solicitation materials to the beneficial owners of our stock.
If you have any questions or need assistanceabout voting your shares or attending the Annual Meeting, please call our Investor Relations Department at (717) 975-3710.
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RECENT LEADERSHIP AND GOVERNANCE HIGHLIGHTS Board Composition
Over the past two years, seven of our directors have retired or determined not to stand for re-election, and six new directors have joined the Board. As a result, six of our eight director nominees have been on the Rite Aid Board for less than two years and bring fresh perspectives to the boardroom. Following these changes, half of the director nominees are racially or ethnically diverse and thirty-eight percent of our director nominees are women. In addition to enhancing our Board’s racial, ethnic and gender diversity, these changes bring a diversity of thought and experience to the Board. Additional details regarding the changes the Company has undertaken in recent years to refresh the Board and its leadership, including the amendment to the Company’s By-Laws to provide that the Chairman of the Board shall be a director who is independent under the NYSE listing standards and the Company’s Corporate Governance Guidelines, as well as the Board’s approach to selecting and recruiting director candidates, are described in the sections entitled “Board of Directors—Board Composition” and “Board of Directors—Board Leadership.”
New Chief Executive Officer and Other Management Changes
One of the Board’s most important tasks is choosing the Company’s Chief Executive Officer. In March 2019, the Company announced that the Board was commencing a search process for a new Chief Executive Officer. In August 2019, the Company announced that the Board had appointed Ms. Donigan as Chief Executive Officer. Following a thorough search, the Company’s Board determined that Ms. Donigan’s strong senior executive experience, proven leadership capabilities and consistent track record of driving profitable growth, as well as her broad healthcare knowledge and digital technology expertise, would be invaluable as the Company works to deliver on the full potential of our business and create additional long-term value for our stockholders, associates, customers, and patients. In continuing to build the management team, in October 2019, the Company announced the appointment of James J. Peters as the Company’s Chief Operating Officer. By bringing together a combination of experienced Rite Aid leaders, including the Chief Financial Officer, Chief Pharmacy Officer, and Chief Human Resources Officer, and others from external organizations, the Company has created a senior leadership team that provides Rite Aid with deep expertise and diversity.
Additional Corporate Governance Changes Over the past few years, we have engaged in enhanced stockholder outreach efforts, and investor feedback has informed the steps the Board has taken to evaluate and refresh the Company’s leadership, at both the Board and management levels, and to make certain significant corporate governance changes, including corporate social responsibility efforts. These efforts have provided an opportunity for independent directors to hear from stockholders regarding their perspectives and concerns. In addition, management has communicated with many stockholders and received their feedback. The pertinent feedback has been summarized, shared, and considered by the Nominating and Governance Committee and the full Board.
Informed by this stockholder engagement, over the past few years the Board has considered and taken action with respect to certain corporate governance practices. As a result of interaction with stockholders and monitoring of recent trends and developments, in April 2019, the Board amended the Company’s By-Laws to permit special meetings of the stockholders of the Company to be called by stockholders holding at least 20% of the Company’s common stock, please contact Morrow Sodali LLC,stock. As a result of further stockholder engagement and evaluation of recent trends and developments, in April 2020, the Board further amended the Company’s By-Laws to reduce that threshold to permit special meetings of the stockholders of the Company to be called by stockholders holding at least 10% of the Company’s common stock.
Corporate Social Responsibility. At Rite Aid's proxy solicitor,Aid, one of our goals is to fundamentally change our role in healthcare and become the industry leader in whole being health. We are radically changing our business to help our customers radiate wellness and get thriving. Sustainable business practices and energy efficiency are integral to fulfilling this holistic health mission, and, “integrity in all we do” is one of our core values.
We have made significant progress in our environmental, social and governance (“ESG”) efforts. Our initiatives include an ongoing commitment to cleaner, less toxic ingredients in our products and investing in a product assortment that aligns with whole being health. We are also reducing our environmental footprint through renewable energy opportunities and waste reduction initiatives. This benefits our environment, our associates, our customers, our communities and our stakeholders.
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Rite Aid has demonstrated industry leadership. This past year, Rite Aid was named the #1 Pharmacy for management of toxic chemicals by calling (800) 662-5200 toll-free.the Safer Chemicals, Healthy Families 2019 Mind the Store campaign. Our efforts continue across a broad spectrum of initiatives from waste reduction to supply chain integrity, to improving patient access, affordability and patient health outcomes and continued involvement in our communities, where we are dedicated to building a healthier next generation.
We significantly enhanced disclosure and provide greater insight into our ongoing commitment to operating our business in a sustainable and socially responsible manner. In June 2019, the Company publicly released our inaugural corporate social responsibility report (“CSR Report”) detailing the Company’s ESG risks and opportunities on our website, www.riteaid.com under the headings “Corporate—Corporate Social Sustainability,” and we are set to release our second annual CSR Report publicly on our website in June 2020.
Opioid Matter Oversight. In addition, on September 30, 2019, the Company released a dedicated report describing the Company’s leadership approach to ensuring the appropriate governance and oversight of opioid dispensing, treatment assistance, and disposal, which is available on our website at www.riteaid.com under the headings “Corporate—Governance—Board Report on Opioids Oversight.” The Board is committed to ensuring that the Company is developing cutting edge solutions to curb prescription opioid abuse through the development and expansion of education, safe prescription drug disposal, and industry leading pharmacy safeguards, as outlined in more detail in the section entitled “Board of Directors—Opioid Matter Oversight.”
COVID-19 Response
The Company has also gathered a group of leaders to form a COVID-19 Task Force. The Task Force monitors and addresses the evolving COVID-19 pandemic by ensuring the Company is investing in and implementing measures to maintain the safety of customers and associates.
As of May 26, 2020, the Company operated 71 COVID-19 testing sites through its partnership with the U.S. Department of Health and Human Services (“HHS”). On May 11, 2020, Rite Aid expanded COVID-19 testing criteria to include adults who are not exhibiting any symptoms of the virus, enabling more access for customers to receive a test at no cost. All Rite Aid COVID-19 testing locations utilize self-swab nasal tests overseen by Rite Aid pharmacists.
As of May 26, 2020, the Company has committed approximately $45 million in safety and associate pay measures. These measures have included, but are not limited to, enhanced measures related to cleaning and sanitization, physical distancing protocols, provision of personal protective equipment, temperature screening for associates, and installation of plexiglass barriers. In addition, we instituted programs to assist our associates during this time, including the implementation of temporary Hero Pay and Bonus measures, the creation of a temporary Pandemic Pay program and an administrative leave option for associates, and temporary enhancements to the associate discount.
The Rite Aid Foundation has also mobilized $2 million through the Associate Relief Fund to support associates facing extraordinary financial hardships due to the COVID-19 pandemic. Grants of up to $1,000 are available for a broad range of use, including medical, childcare, household and special expenses. The Rite Aid Foundation has also issued $4 million in assistance to community organizations with COVID-19 relief funds and organizations in pandemic hot spots.
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PROPOSAL NO. 1
THE REVERSE STOCK SPLIT PROPOSAL
— ELECTION OF DIRECTORS
General
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 recommendsBy-Laws provide 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 causemay be composed of up to 15 members, with the Certificate of Amendmentnumber to be filedfixed from time to time by the Board. The Board has fixed the number of directors at eight effective as of the Annual Meeting, and there are eight nominees for director at our Annual Meeting.
Director Nominees
The Board of Directors, based on the recommendation of the Nominating and Governance Committee, has nominated Bruce G. Bodaken, Elizabeth ‘Busy’ Burr, Heyward Donigan, Robert E. Knowling, Jr., Kevin E. Lofton, Louis P. Miramontes, Arun Nayar, and Katherine B. Quinn to be elected directors at the Annual Meeting. Each of the nominees for director to be elected at the Annual Meeting currently serves as a director of the Company.
Each director elected at the Annual Meeting will hold office until the 2021 Annual Meeting of Stockholders. Each director elected at the Annual Meeting will serve until his or her successor is duly elected and qualified.
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, or the Board may reduce the size of the Board.
RECOMMENDATION
| FOR ✔ | | | THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF EACH OF THE NOMINEES LISTED ABOVE. | |
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The following table sets forth certain information as of April 30, 2020 with respect to our director nominees. If elected, the term of each of the following persons will expire at the 2021 Annual Meeting of Stockholders.
| Heyward Donigan | | | 59 | | | President, Chief Executive Officer and Director | | | 2019 | |
| Bruce G. Bodaken | | | 68 | | | Chairman | | | 2013 | |
| Elizabeth ‘Busy’ Burr | | | 58 | | | Director | | | 2019 | |
| Robert E. Knowling, Jr. | | | 64 | | | Director | | | 2018 | |
| Kevin E. Lofton | | | 65 | | | Director | | | 2013 | |
| Louis P. Miramontes | | | 65 | | | Director | | | 2018 | |
| Arun Nayar | | | 69 | | | Director | | | 2018 | |
| Katherine B. Quinn | | | 55 | | | Director | | | 2019 | |
Board Composition
The Board is committed to ensuring that it is composed of a highly capable and diverse group of directors who are well-equipped to oversee the success of the business and effectively represent the interests of stockholders. As discussed in the section entitled “Recent Leadership and Governance Highlights” above, the Board has significantly accelerated its efforts to change the composition of the Board over the past two years. As a result of these changes, half of the director nominees are racially or ethnically diverse and thirty-eight percent of the director nominees are women. In addition to enhancing the Board’s racial, ethnic and gender diversity, these changes bring a diversity of thought and experience to the Board. All of the nominees of the Board, other than Ms. Donigan, are independent directors.
Director Tenure* | | | Board Racial and Ethnic Diversity* |
| | | |
Board Gender Diversity* |
|
*
| The compositions depicted illustrate calculations effective following the Annual Meeting. |
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In assessing Board composition and selecting and recruiting director candidates, the Board seeks to maintain an engaged, independent Board with broad experience and judgment that is committed to representing the long-term interests of our stockholders. The Nominating and Governance Committee considers a wide range of factors, including the size of the Board, the experience and expertise of existing Board members, other positions the director candidate has held or holds (including other board memberships), and the candidate’s independence. In addition, the Nominating and Governance Committee takes into account a candidate’s ability to contribute to the diversity of background and experience represented on the Board, and it reviews its effectiveness in balancing these considerations when assessing the composition of the Board.
The chart below summarizes the qualifications, attributes, and skills for each of our director nominees. The fact that we do not list a particular experience or qualification for a director nominee does not mean that nominee does not possess that particular experience or qualification.
| Bruce G. Bodaken Chairman | | | 68 | | | 2013 | | | ✔ | | | ✔ | | | | | | ✔ | | | | | | ✔ | |
| Elizabeth ‘Busy’ Burr Director | | | 58 | | | 2019 | | | ✔ | | | ✔ | | | ✔ | | | ✔ | | | ✔ | | | ✔ | |
| Heyward Donigan President, Chief Executive Officer and Director | | | 59 | | | 2019 | | | ✔ | | | ✔ | | | | | | ✔ | | | | | | ✔ | |
| Robert E. Knowling, Jr. Director | | | 64 | | | 2018 | | | ✔ | | | ✔ | | | | | | | | | | | | ✔ | |
| Kevin E. Lofton Director | | | 65 | | | 2013 | | | ✔ | | | ✔ | | | | | | ✔ | | | | | | ✔ | |
| Louis P. Miramontes Director | | | 65 | | | 2018 | | | | | | ✔ | | | | | | | | | ✔ | | | ✔ | |
| Arun Nayar Director | | | 69 | | | 2018 | | | | | | ✔ | | | | | | | | | ✔ | | | ✔ | |
| Katherine B. Quinn Director | | | 55 | | | 2019 | | | | | | ✔ | | | ✔ | | | ✔ | | | | | | ✔ | |
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Director Biographies
Following are the biographies for our director nominees, including information concerning the particular experience, qualifications, attributes, or skills that led the Nominating and Governance Committee and the Board to conclude that such person should serve on the Board:
Bruce G. BodakenAge: 68Director Since: 2013Committees:• Nominating and Governance• Executive (Chair) | | | Mr. Bodaken served as Chairman and Chief Executive Officer of Blue Shield of California from 2000 through 2012. Previously, Mr. Bodaken served as President and Chief Operating Officer of Blue Shield of California from 1995 to 2000, and as Executive Vice President and Chief Operating Officer from 1994 to 1995. Prior to joining Blue Shield of California, Mr. Bodaken served as Senior Vice President and Associate Chief Operating Officer of F.H.P., Inc., a managed care provider, from 1990 to 1994 and held various positions at F.H.P. from 1980 to 1990. Mr. Bodaken is currently a director and member of the compensation committee of iRhythm Technologies, Inc. Previously, Mr. Bodaken was a director on the board of WageWorks, Inc. and a member of its audit committee.
Mr. Bodaken brings to the Board in-depth knowledge of the health insurance and managed care industries and more than 20 years of executive leadership skills. |
Elizabeth ‘Busy’ BurrAge: 58Director Since: 2019Committees:• Audit | | | Ms. Burr was named president and chief commercial officer of Carrot Inc. on November 6, 2019. Carrot Inc. is a digital healthcare company which offers mobile technology solutions, coaching, and support services for users to quit smoking. Prior to Carrot Inc., Ms. Burr served as the chief innovation officer and vice president of healthcare trend and innovation at Humana where she was responsible for driving the design, build, and adoption of new product platforms in digital health, provider experience, and telemedicine to improve health outcomes, create superior member experiences, and improve healthcare costs. She also founded Humana’s strategic investing practice, Humana Health Ventures. Prior to joining Humana in 2015, Ms. Burr was managing director of Citi Ventures and led large-scale business transformation efforts as the global head of Citi’s Business Incubation Function—DesignWorks. Earlier in her career, Ms. Burr spent seven years in investment banking at Morgan Stanley and Credit Suisse First Boston and previously served as vice president of global brand management at Gap, Inc. Ms. Burr holds an MBA from Stanford University and a bachelor’s degree in economics from Smith College. Ms. Burr serves on the Boards of Mr. Cooper Group and Satellite Healthcare.
Ms. Burr brings to the Board extensive experience in the health industry, innovation, business strategy, and brand management. Her experience and insights in these areas are directly relevant to the Company’s business. |
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Heyward DoniganAge: 59Director Since: 2019Committees:• Executive | | | Ms. Donigan, President, Chief Executive Officer and Director, has been Chief Executive Officer since August 2019 and President and Chief Executive Officer since February 2020. Before joining Rite Aid, Ms. Donigan was president and chief executive officer of Sapphire Digital, which designs and develops omni-channel platforms that help consumers choose their best fit healthcare providers. In that role, Ms. Donigan led Sapphire Digital’s strategy and operations to record growth and consumer engagement. Prior to joining Sapphire Digital in 2015, Ms. Donigan was the president and chief executive officer of ValueOptions, Inc., then the nation’s largest independent behavioral health improvement company, where she drove innovation through disciplined execution and grew company revenues to over $1 billion. Previously, Ms. Donigan served as executive vice president and chief marketing officer at Premera Blue Cross, where she was responsible for driving profitable growth across the individual, small group, mid-market, and national account businesses and helped the company achieve record growth and profits. Earlier in her career, Ms. Donigan served as senior vice president of all operations at Cigna Healthcare. She also held executive roles at General Electric, Empire BCBS, and U.S. Healthcare, and previously served on the Board of Directors at several public companies, including Kindred Healthcare, NxStage Medical, Inc., and SI-BONE, Inc. Ms. Donigan holds a master’s of public administration from New York University. She graduated with a bachelor’s degree in English from the University of Virginia.
Ms. Donigan brings to the Board strong senior executive experience, proven leadership capabilities, and a consistent track record of driving profitable growth, as well as broad healthcare knowledge and digital technology expertise. |
Robert E. Knowling, Jr.Age: 64Director Since: 2018Committees:• Compensation (Chair) | | | Mr. Knowling is currently Chairman of Eagles Landing Partners, which specializes in helping senior management formulate strategy, lead organizational transformations, and re-engineer businesses. Mr. Knowling also serves as an advisor-coach to chief executive officers. Mr. Knowling previously served as Chief Executive Officer of Telwares, a provider of telecommunications expense management solutions, from 2005 to 2009. From 2001 to 2005, Mr. Knowling was Chief Executive Officer of the New York City Leadership Academy, an independent nonprofit corporation created by Chancellor Joel I. Klein and Mayor Michael R. Bloomberg that is chartered with developing the next generation of principals in the New York City public school system. From 2001 to 2003, Mr. Knowling was Chairman and Chief Executive Officer of SimDesk Technologies, Inc. Prior to this, Mr. Knowling was Chairman, President and Chief Executive Officer of Covad Communications, a Warburg Pincus private equity-backed start-up company. Mr. Knowling currently serves on the board of directors of K12 Inc., Roper Technologies Inc., and Stream Companies. Mr. Knowling previously served as a director of Convergys Corporation until 2018, Ariba, Inc. until 2012, Heidrick & Struggles International, Inc. until 2015, Hewlett-Packard Company until 2005, and The Immune Response Corporation until 2005.
Mr. Knowling brings to the Board extensive experience in executive management and leadership roles, including experience leading companies through periods of high growth and organizational turnaround. In addition, his service on other boards of directors of a number of publicly-traded companies enables Mr. Knowling to share insights with the Board regarding corporate governance best practices. |
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Kevin E. LoftonAge: 65Director Since: 2013Committees: • Nominating and Governance (Chair)
• Executive
| | | Mr. Lofton is the Chief Executive Officer of Chicago-based CommonSpirit Health (“CSH”), one of the largest health delivery systems in the United States. The $29 billion CSH was formed in February 2019 following the merger between Catholic Health Initiatives (“CHI”) and Dignity Health. Mr. Lofton is scheduled to retire June 30, 2020. Mr. Lofton joined CHI in 1998 and served as CEO from 2003 until 2019. Mr. Lofton previously served as CEO of UAB Hospital and Howard University Hospital. Mr. Lofton is the Lead Independent Director, Chairman of the nominating and governance committee, and a member of the audit and compensation committees of Gilead Sciences, Inc. He previously served as chairman of the board of the American Hospital Association.
Mr. Lofton brings to the Board an in-depth knowledge and understanding of the healthcare industry and valuable executive leadership skills from senior management and leadership roles in healthcare systems and hospitals. He is recognized for his leadership in eliminating health disparities and creating healthy communities. |
Louis P. MiramontesAge: 65Director Since: 2018Committees:• Audit (Chair) • Compensation
| | | Mr. Miramontes worked at KPMG LLP from 1976 to 2014, where he served in many leadership roles, including Managing Partner of the San Francisco office and Senior Partner for KPMG’s Latin American region. Mr. Miramontes was also an audit partner directly involved with providing audit services to public and private companies, which included working with client boards of directors and audit committees regarding financial reporting, auditing matters, SEC compliance, and Sarbanes-Oxley regulations. Mr. Miramontes currently serves on the board of directors of Lithia Motors, Inc., one of the largest providers of personal transportation solutions in the U.S., and Oportun Financial Corporation, a mission driven financial services company.
Mr. Miramontes brings to the Board extensive experience in accounting, financial reporting, and corporate governance. His experience as an audit partner provides useful insights into financial and regulatory matters relevant to the Company’s business. |
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Arun NayarAge: 69Director Since: 2018Committees:• Audit• Executive | | | Mr. Nayar retired in December 2015 as Executive Vice President and Chief Financial Officer of Tyco International, a $10+ billion fire protection and security company, where he was responsible for managing the company’s financial risks and overseeing its global finance functions, including its tax, treasury, mergers and acquisitions, audit, and investor relations teams. Mr. Nayar joined Tyco as Senior Vice President and Treasurer in 2008, and was also Chief Financial Officer of Tyco’s ADT Worldwide. From 2010 until 2012, Mr. Nayar was Senior Vice President, Financial Planning & Analysis, Investor Relations, and Treasurer. Prior to joining Tyco, Mr. Nayar spent six years at PepsiCo, Inc., most recently as Chief Financial Officer of Global Operations and, before that, as Vice President and Assistant Treasurer—Corporate Finance. Mr. Nayar currently serves on the board of directors of Amcor Plc, a manufacturer of responsible packaging products, TFI International Inc., a leader in the transportation and logistics industry and GFL Environmental Inc., a leading North American environmental services company. Mr. Nayar is also a Senior Advisor to McKinsey & Company. He was previously a Senior Advisor to a private equity firm, BC Partners, from October 2016 to March 2020.
Mr. Nayar brings over 35 years of financial experience to the Board. His experience as a chief financial officer provides useful insights into operational and financial metrics relevant to the Company’s business. |
Katherine B. QuinnAge: 55Director Since: 2019Committees:• Compensation | | | Ms. Quinn has served as vice chairman and chief administrative officer of U.S. Bancorp since April 2017 and is responsible for leading human resources, strategy, and corporate affairs at the company. Ms. Quinn joined U.S. Bancorp in 2013 as executive vice president and chief strategy and reputation officer. Prior to joining U.S. Bancorp, Ms. Quinn most recently served as senior vice president and chief marketing officer at Anthem, a health benefits company, where she directed the company’s marketing, customer communications, digital, customer experience, and retail strategies. She previously served as Anthem’s vice president of corporate marketing. Earlier in her career, Ms. Quinn served as chief marketing and strategy officer at a division of The Hartford, following leadership roles in strategy and product development at CIGNA and PacifiCare Health Systems, respectively. Ms. Quinn earned an MBA from University of Phoenix and a bachelor’s degree from Hunter College. In addition to her role at U.S. Bancorp, Ms. Quinn presently serves as a member of the Board of Directors of Taylor Corporation and the Board of Trustees for both United Way U.S.A. and Fraser, a non-profit organization serving children and adults with special needs. She previously served as a member of the Board of Trustees for Minnesota Public Radio until May 2019.
Ms. Quinn brings to the Board extensive experience in business strategy, marketing, customer experience, and health benefits. Her experience and insights in these areas are directly relevant to the Company’s business. |
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Board Leadership
Mr. Bodaken became Chairman of the Board effective as of the 2018 Annual Meeting. The Board has determined that Mr. Bodaken will continue to serve as Chairman of the Board.
In December 2018, the Board amended the Company’s By-Laws to provide that the Chairman of the Board shall be a director who is independent under the NYSE listing standards and the Company’s Corporate Governance Guidelines. The Board believes that separation of the Chairman of the Board and Chief Executive Officer positions best serves the needs of the Company and its stockholders. The Board believes that Mr. Bodaken will continue to provide excellent independent leadership of the Board in his role as Chairman.
As Chairman, Mr. Bodaken’s responsibilities subsume the responsibilities of the Lead Independent Director and include:
presiding at all meetings of the Board, including executive sessions of the non-management directors;
the authority to call meetings of the Board and of the non-management directors;
serving as a liaison between the Chief Executive Officer and independent directors and facilitating communications between other members of the Board and the Chief Executive Officer (any director is free to communicate directly with the Delaware SecretaryChief Executive Officer; the Chair’s role is to attempt to improve such communications if they are not entirely satisfactory);
working with the Chief Executive Officer in the preparation of State and effect the Reverse Stock Splitapproving Board meeting agendas and schedules, and the Authorized Share Reduction only information to be provided to the Board;
chairing the periodic review of the performance of the Chief Executive Officer;
otherwise consulting with the Chief Executive Officer on matters relating to corporate governance and Board performance; and
if requested by major stockholders, ensuring that he is available, when appropriate, for consultation and direct communication.
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, including through the Nominating and Governance Committee, monitors corporate governance developments and proposed legislative, regulatory, and stock exchange corporate governance reforms. In April 2019, the Board enhanced our corporate governance by amending the Company’s By-Laws to permit special meetings of stockholders of the Company to be called by stockholders holding at least 20% of the Company’s common stock. In April 2020, the Board further amended the Company’s By-Laws to reduce that threshold to permit special meetings of the stockholders of the Company to be called by stockholders holding at least 10% of the Company’s common stock.
Website Access to Corporate Governance Materials. Our corporate governance information and materials, including our Corporate Governance Guidelines, current charters for each of the Audit Committee, Compensation Committee, Nominating and Governance Committee, and Executive Committee, our Code of Ethics for the CEO and Senior Financial Officers, our Code of Ethics and Business Conduct, our Stock Ownership Guidelines, and our Related Person Transaction Policy are posted on our website at www.riteaid.com under the headings “Corporate—Governance” and are available in print upon request to Rite Aid Corporation, 30 Hunter Lane, Camp Hill, Pennsylvania 17011, Attention: Corporate Secretary. The information on our website is not, and shall not be deemed, a part of this proxy statement. The Board regularly reviews corporate governance developments and will modify these materials and practices from time to time as warranted.
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 at www.riteaid.com under the headings “Corporate—Governance—Code of Ethics.”
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Director Independence. For a director to be considered independent under the NYSE corporate governance listing standards, the Board of Directors determinesmust affirmatively determine that the Reverse Stock Splitdirector 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 Authorized Share Reduction wouldNominating and Governance Committee, satisfy the independence requirements of the NYSE listing standards: Bruce G. Bodaken, Elizabeth ‘Busy’ Burr, Robert E. Knowling, Jr., Kevin E. Lofton, Louis P. Miramontes, Arun Nayar, and Katherine B. Quinn. The Board also previously determined that Joseph B. Anderson, Jr. and Michael N. Regan, who served as directors until April 2019, and Marcy Syms, who will serve as a director until the Annual Meeting, satisfied the independence requirements of the NYSE listing standards. The Board also determined that the members of the Audit Committee satisfy the additional independence requirements of Rule 10A-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the additional NYSE independence requirements for audit committee members. In addition, the Board has determined that the members of the Compensation Committee satisfy the additional NYSE independence requirements for compensation committee members.
There is no family relationship between any of the nominees and executive officers of Rite Aid.
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 (or group of stockholders) has nominated a person for election to the Board in compliance with the advance notice requirements for stockholder nominees for director or the proxy access requirements, in each case as set forth in the best interestsBy-Laws and (ii) such nomination has not been withdrawn by such stockholder (or group of stockholders) on or prior to the 14th day preceding the date the Company first mails its notice of meeting for such meeting to the stockholders.
Under the Company’s Corporate Governance Guidelines, a director who fails to receive the required number of votes for reelection in accordance with the By-Laws will, within five days following certification of the stockholder vote, tender his or her written resignation to the Chairman of the Board for consideration by the Board, subject to the procedures set forth in the guidelines.
Anti-Hedging and Anti-Pledging Policies. The Company’s directors, officers and other associates are prohibited from engaging in hedging or monetization transactions, such as zero-cost collars, equity swaps, exchange funds and forward sale contracts, with respect to our securities. Because hedging transactions might allow a director, officer or other associate to continue to own our securities, whether obtained through our equity compensation plans or otherwise, without the full risks and rewards of ownership, such hedging transactions are prohibited. Directors, officers and other employees are also prohibited from holding in a margin account, or otherwise pledging, Company securities as collateral for a loan.
Board Oversight of Risk Management
The Board of Directors, as a whole and through the various committees of the Board, oversees the Company’s management of risk, focusing primarily on five areas of risk: operational, financial performance, financial reporting, legal and regulatory, and strategic and reputational.
Management of the Company is responsible for developing and implementing the Company’s plans and processes for risk management. The Board believes that its leadership structure, described above, supports the risk oversight function of the Board. The Board of Directors, at least annually, reviews with management its plans and processes for managing risk. The Board also receives periodic updates from the Company’s compliance and internal assurance services department with regard to the overall effectiveness of the Company’s risk management program and significant areas of risk to the Company, focusing on the five primary areas of risk set forth above as well as other areas of risk identified from time to time by either the Board, a Board committee, or management.
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In addition, the Board and the Audit Committee receive periodic updates from the Company’s Chief Financial Officer, Chief Information Officer, or Chief Information Security Officer on cybersecurity matters, including information services security and security controls over credit card, customer, associate, and patient data. These updates also include information regarding the Rite Aid Information Security Program, managed by Rite Aid’s Chief Information Security Officer, which is designed to protect information and critical resources from a wide range of threats in order to ensure business continuity, minimize business risk, and maximize return on investments and business opportunities. The objective in the development and implementation of the Information Security Program is to create effective administrative, technical, and physical safeguards in order to protect the data of Rite Aid and its stockholders. subsidiaries and the data of any customers and clients of these entities.
In addition, other Board committees consider risks within their respective areas of responsibility and advise the Board of any significant risks. For example, the Compensation Committee considers risks relating to the Company’s compensation programs and policies and the Audit Committee focuses on assessing and mitigating financial reporting risks, including risks related to internal control over financial reporting and legal and compliance risks.
Compensation-Related Risk Assessment
The Reverse Compensation Committee reviews all incentive plans relative to established criteria and conducts an assessment to ensure that none of our incentive plans encourage excessive risk-taking by our executives or associates. Together with executive management, the Compensation Committee has considered the risks arising from the Company’s compensation policies and practices for its executives and associates and has concluded that the compensation policies and practices are not reasonably likely to have a material adverse effect on the Company.
The Compensation Committee reviews the risk profile and the relationship between the Company’s compensation programs to the overall risk profile of the Company. Some of the features of our compensation incentive programs that limit risk include:
Delivery of compensation through an appropriate mix of base salary, short-term cash incentive awards, long-term awards, and benefits.
Use of a mix of long-term incentive vehicles that reward both stock price appreciation and financial operating performance and have different risk profiles.
Incorporation of measures in the performance awards to assess how efficiently and effectively we deploy our assets (return on net assets) and to compare our stock performance against the Russell 3000 Index (total stockholder return).
Stock Split and Authorized Share Reduction could become effective as soon asownership guidelines that promote executive stock ownership.
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Committees of the business day immediately following the Special Meeting. Board of Directors
The Board of Directors has four standing committees: the Audit Committee, the Compensation Committee, the Nominating and Governance Committee, and the Executive Committee. Current copies of the charters for each of these committees are available on our website at www.riteaid.com under the headings “Corporate—Governance—Corporate Governance Committees—Committee Charters.”
The current members of the committees are identified in the following table.
| Bruce G. Bodaken | | | | | | | | | | | | | |
| Elizabeth ‘Busy’ Burr | | | | | | | | | | | | | |
| Heyward Donigan | | | | | | | | | | | | | |
| Robert E. Knowling, Jr. | | | | | | | | | | | | | |
| Kevin E. Lofton | | | | | | | | | | | | | |
| Louis P. Miramontes | | | | | | | | | | | | | |
| Arun Nayar | | | | | | | | | | | | | |
| Katherine B. Quinn* | | | | | | | | | | | | | |
| Marcy Syms* | | | | | | | | | | | | | |
*
| Effective as of the Annual Meeting, Ms. Syms will cease to serve on the Nominating and Governance Committee and Ms. Quinn will begin serving on the Nominating and Governance Committee. |
Audit Committee. The Audit Committee, which held eight meetings during fiscal year 2020, currently consists of Louis P. Miramontes (Chair), Elizabeth ‘Busy’ Burr, and Arun Nayar. The Board has determined that each of these individuals is an independent director under the NYSE listing standards and satisfies the additional independence requirements of Rule 10A-3 under the Exchange Act and the additional requirements of the NYSE listing standards for audit committee members. See the section entitled “Corporate Governance—Director Independence” above. The Board has determined that each of these individuals is also may determine“financially literate” under the applicable NYSE listing standards. The Board has determined that both Louis P. Miramontes and Arun Nayar qualify as an “audit committee financial expert” as that term is defined under applicable SEC rules. In addition, the Board has determined that, considering all of the relevant facts and circumstances of which the Board has knowledge, including Mr. Nayar’s experience as a retired Chief Financial Officer and his strong attendance record at Board and committee meetings, Mr. Nayar’s simultaneous service on the audit committees of three other public companies does not impair his ability to effectively serve on our Audit Committee. The functions of the Audit Committee include the following:
Appointing, compensating, and overseeing our independent registered public accounting firm (“independent auditors”);
Overseeing management’s fulfillment of its responsibilities for financial reporting and internal control over financial reporting; and
Overseeing the activities of the Company’s internal audit function.
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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 at www.riteaid.com under the headings “Corporate—Governance—Corporate Governance Committees—Committee Charters.”
Compensation Committee. The Compensation Committee, which held six meetings during fiscal year 2020, currently consists of Robert E. Knowling, Jr. (Chair), Louis P. Miramontes, and Katherine B. Quinn. 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 the NYSE listing standards for compensation committee members. See the section entitled “Corporate Governance—Director Independence” above. The functions of the Compensation Committee include the following:
Administering Rite Aid’s stock option and other equity incentive plans;
Reviewing and approving the base salaries of the Company’s executive officers and reviewing and recommending to the Board the base salary of the CEO;
Reviewing and approving the Company’s goals and objectives relevant to the incentive-based compensation of the Company’s executive officers (including the CEO), evaluating the performance of the Company’s executive officers (including the CEO) in light of these goals and objectives, and determining and approving the incentive-based compensation of the Company’s executive officers (including the CEO) based on such evaluation;
Setting corporate performance targets under all annual bonus and long-term incentive compensation plans as appropriate and determining annually the individual bonus award opportunities for the Company’s executive officers; and
Reviewing and approving all executive officers’ employment agreements and severance arrangements.
The Compensation Committee reviews the performance of the Company’s executive personnel, including the Company’s named executive officers, and develops and makes recommendations to the Board of Directors with respect to executive compensation policies. The Compensation Committee is empowered by the Board of Directors to award executive officers with appropriate bonuses, stock options, stock appreciation rights, and stock-based awards. The details of the processes and procedures for the consideration and determination of the compensation of our named executive officers are described in the section entitled “Executive Compensation—Compensation Discussion and Analysis.” The objectives of the Compensation Committee are to support the achievement of desired Company performance, to provide compensation and benefits that will attract and retain superior talent, to reward performance and to fix a portion of compensation to the outcome of the Company’s performance.
As provided in its discretioncharter, the Compensation Committee has the authority to engage an external compensation consultant and to determine the scope of any services provided. The Compensation Committee may terminate the engagement at any time. The external compensation consultant reports to the Compensation Committee Chair.
Since June 2010, the Compensation Committee has utilized Exequity LLP as its independent consultant. With respect to fiscal year 2020, Exequity LLP reviewed recommendations and analysis prepared by management and provided advice and counsel to the Compensation Committee. Exequity LLP does not
provide any other services to
effect the
Reverse Stock SplitCompany. The Compensation Committee has assessed the independence of Exequity LLP, taking into consideration the factors set forth in the NYSE listing standards and SEC rules, and determined that the engagement of Exequity LLP does not raise any conflicts of interest. Compensation Committee Interlocks and Insider Participation. The Compensation Committee currently consists of Robert E. Knowling, Jr. (Chair), Louis P. Miramontes, and Katherine B. Quinn. Bruce G. Bodaken also served on the Compensation Committee at the commencement of the 2020 fiscal year until April 10, 2019, at which time Ms. Quinn joined the Compensation Committee and the Authorized Share ReductionBoard. During fiscal year 2020, no member of the Compensation Committee was an employee, former employee, or executive officer of the Company.
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Nominating and notGovernance Committee. The Nominating and Governance Committee, which held three meetings during fiscal year 2020, currently consists of Kevin E. Lofton (Chair), Bruce G. Bodaken, and Marcy Syms. The Board has determined that Katherine B. Quinn will serve on the Nominating and Governance Committee effective as of the Annual Meeting. 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:
Identifying and recommending to file the Certificate of Amendment.Board individuals qualified to serve as Rite Aid directors;
Recommending to the Board individual directors to serve on committees of the Board;
Advising the Board with respect to matters of Board composition and procedures;
Developing and recommending to the Board a set of corporate governance principles applicable to Rite Aid and overseeing corporate governance matters generally;
Overseeing the annual evaluation of the Board and management; and
Reviewing and approving or ratifying related person transactions in which the Company is a participant.
Executive Committee. The members of the Executive Committee currently are Bruce G. Bodaken (Chair), Heyward Donigan, Kevin E. Lofton, and Arun Nayar. The Executive Committee did not meet during fiscal year 2020. 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 name of the stockholder and evidence of the person’s ownership of Rite Aid stock, including the number of shares owned and the length of time of ownership; and
The name of the candidate, the candidate’s resume or a listing of his or her qualifications to be a Rite Aid director, and the person’s consent to be named as a director if selected by the Nominating and Governance Committee and nominated by the Board.
The stockholder recommendation and information described above must be sent to Rite Aid Corporation, 30 Hunter Lane, Camp Hill, Pennsylvania 17011, Attention: Corporate Secretary. The Nominating and Governance Committee will accept recommendations of director candidates throughout the year. Generally, in order for a recommended director candidate to be considered for nomination to stand for election at an upcoming annual meeting of stockholders, the recommendation must be received by the Secretary not fewer than 120 days prior to the anniversary date of Rite Aid’s most recent annual meeting of stockholders. In the event an annual meeting is held on a date that is not within 25 days of such anniversary date, recommendations will be considered by the Nominating and Governance Committee in due course.
The Board seeks to maintain an engaged, independent Board with broad experience and judgment that is committed to representing the long-term interests of our stockholders. The Nominating and Governance Committee believes that the minimum qualifications for serving as a Rite Aid director are that a candidate demonstrates, by significant accomplishment in his or her field, an ability to make a meaningful contribution to the Board’s oversight of Rite Aid’s business and affairs and have an impeccable record and reputation for honest and ethical conduct in his or her professional and personal activities. In addition, the Nominating and Governance Committee examines a candidate’s specific experiences and skills, availability in light of other commitments, potential conflicts of interest, and independence from management and the Company. The Nominating and Governance Committee also takes
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into account a candidate’s ability to contribute to the diversity of background and experience represented by the Board. The Nominating and Governance Committee assesses its achievement of diversity through the review of Board composition as part of the Board’s annual self-assessment process.
The Nominating and Governance Committee identifies potential candidates by asking current directors and executive officers to notify the committee if they become aware of persons, meeting the criteria described above, who have had a change in circumstances that might make them available to serve on the Board—for example, retirement as a CEO or CFO of a public company or exiting government or military service. The Nominating and Governance Committee also, from time to time, may engage firms that specialize in identifying director candidates. As described above, the committee will also consider candidates recommended by stockholders.
The Nominating and Governance Committee may review publicly available information, conduct an interview and/or check references to assess the person’s accomplishments and qualifications in light of the needs of the Board and the accomplishments and qualifications of any other candidates that the committee might be considering. The committee’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.
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. Mr. Bodaken, our Chairman of the Board, presides at our executive sessions. The non-management directors met in executive session six times during fiscal year 2020.
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. To communicate with the Board of Directors, the non-management directors, a committee of directors, or any individual directors, including our Independent Chairman of the Board, 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 Corporate Secretary, P.O. Box 3165, Harrisburg, Pennsylvania 17105.
All communications received as set forth above will be opened by the Corporate Secretary for the purpose of determining whether the contents represent a legitimate communication to the directors. Such communications, other than business solicitations or advertisements, junk mail and mass mailings, new product suggestions, product complaints, product inquiries, resumes and other forms of job inquiries, spam, and surveys, will be distributed to the Board, the non-management directors, an individual director, or a committee of directors, as appropriate.
Directors’ Attendance at Board, Committee, and Annual Meetings
The Board of Directors held nine meetings during fiscal year 2020. 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. All directors serving on the Board or nominated to serve on the Board at the time of the meeting attended the 2019 Annual Meeting of Stockholders.
Corporate Social Responsibility
We have made significant progress in our ESG efforts. We formed a Corporate Social Responsibility Committee with representation from multiple functional leaders to develop and evaluate our current ESG initiatives, risks and opportunities on a regular basis. We significantly enhanced disclosure and provide greater insight into our ongoing commitment to operating our business in a sustainable and socially responsible manner. In June 2019,
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the Company publicly released our inaugural CSR Report detailing the Company’s ESG risks and opportunities on our website, www.riteaid.com under the headings “Corporate—Corporate Social Sustainability,” and we are set to release our second annual CSR Report publicly on our website in June 2020.
Rite Aid has demonstrated industry leadership. This past year, Rite Aid was named the #1 Pharmacy for management of toxic chemicals by the Safer Chemicals, Healthy Families 2019 Mind the Store campaign. Our efforts continue across a broad spectrum of initiatives from waste reduction to supply chain integrity, to improving patient access, affordability and patient health outcomes and continued involvement in our communities, where we are dedicated to building a healthier next generation.
Our business is responding to our stakeholders’ interest in working with or investing in companies that clearly demonstrate sustainability as part of their business strategy. We have elevated ESG to be a key strategic initiative for the Company and know our commitment to sustainability resonates strongly with our targeted growth customer. We are now shifting our merchandise assortment to cleaner, less toxic product ingredients and are eliminating broad categories of offerings that do not lend themselves to whole being health. We are also offering “better for you” overall selections of immunity, organic and natural remedies.
In addition, we are reducing our environmental footprint through in-store energy efficient opportunities and waste reduction initiatives. For example, through our ongoing LED light installation project, we have decreased annual electric consumption by 24 million kWh. We also continue to explore opportunities in renewable energy. At the end of fiscal year 2020, we demonstrated our commitment by providing 50% renewable energy to stores in Southern California, with plans to expand in fiscal year 2021. Additionally, as a result of four individual recycling programs, we diverted more than 51,000 tons of materials from landfills in 2019.
Governance is an essential part of managing our sustainability agenda and aligning with our broader vision and business strategy. Our Corporate Social Responsibility Committee met quarterly last year and provided updates to the Board of Directors. The Corporate Social Responsibility Committee will continue to stay engaged with both our executive leadership team and the Board as our program continues to evolve and progress.
After issuing our inaugural CSR Report in 2019, we performed a gap assessment and rating analysis to measure our first-year performance and identify key opportunities to help guide our sustainability journey over the next several years. We continue to seek alignment with reporting frameworks, such as the Sustainability Accounting Standards Board. In 2020, we will be working towards better alignment with the Task Force on Climate-Related Financial Disclosure, and we plan to formally benchmark our climate risks and opportunities by reporting to The Carbon Disclosure Project.
Further information about our commitment to sustainability is available on our website under the headings “Corporate—Corporate Social Sustainability” and “Corporate—Chemical Policy.”
Opioid Matter Oversight
On September 30, 2019, the Company released a formal report describing the Company’s leadership approach to ensuring the appropriate governance and oversight of opioid dispensing, treatment assistance, and disposal. The report is available on our website at www.riteaid.com under the headings “Corporate—Governance—Board Report on Opioids Oversight.” Our second annual CSR Report also will discuss the Company’s continuing approach to oversight on opioid matters.
The Board’s oversight of risk management and plans and processes for consideration of specific risk topics, which include risks associated with prescription opioids, are described above under the heading “Board Oversight of Risk Management.” The Audit Committee oversees the Company’s compliance program and therefore has the primary oversight role with respect to many of the risks related to the opioid crisis. Through the Audit Committee, the Board is committed to ensuring that the Company is developing cutting edge solutions to curb prescription opioid abuse through the development and expansion of education, safe prescription drug disposal and pharmacy safeguards, as further described below.
At Rite Aid, we take our role as a community healthcare provider very seriously. In that regard, the Board, along with the Company’s senior management, recognizes and is deeply concerned about the impact of the current opioid crisis on families and communities. We believe it is important to go beyond simply complying with state and federal laws and regulations to also raise awareness about important issues of prescription drug safety and drug
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abuse prevention and advocating for increased access to education, treatment and proper medication disposal. We have dedicated extensive efforts to considering how best to manage risks relating to the opioid crisis and remain committed to continuing to evaluate our programs and policies and to strengthen our risk management. We are committed to working with our customers, community groups, law enforcement, and federal and state agencies to help combat the opioid crisis that is impacting families and communities throughout the United States. Rite Aid’s comprehensive strategy to respond to and address prescription opioid and other drug abuse and misuse includes:
Educating our patients so they understand the risks of opioid abuse starting with their first opioid prescription, including providing mandatory prescription counseling from a Rite Aid pharmacist to all patients with new opioid prescriptions and to other patients with certain risk factors.
Making DisposeRx, a first-of-its-kind opioid disposal solution, available at all of Rite Aid’s pharmacies nationwide. Rite Aid provides DisposeRx packets to patients with new opioid prescriptions and offers DisposeRx packets to patients with chronic opioid prescriptions every six months. DisposeRx packets contain a biodegradable powder that, when mixed with water in the prescription vial, dissolves drugs, forming a viscous gel which may be safely discarded in the trash.
Making naloxone, a medication that can be used to reverse the effects of an opioid overdose, available without a prescription at all of Rite Aid’s pharmacies nationwide. In 2019, all stores were listed on the naloxone locator tool in Google Maps.
Supporting the Centers for Disease Control and Prevention guidelines for prescribing opioids, including limiting acute opioid prescriptions to a seven-day supply, limiting the daily dosage of opioids dispensed based on the strength of the opioid, and requiring the use of immediate-release formulations of opioids before extended-release opioids are dispensed.
Supporting HHS by counseling our patients on the HHS Guide for Clinicians on the Appropriate Dosage Reduction or Discontinuation of Long-Term Opioid Analgesics issued in 2019.
Providing ongoing education and training of Rite Aid pharmacists, including risk factors for opioid abuse, how to identify symptoms of an overdose and what to do in the event of an overdose, an overview of the naloxone therapies available, and proper administration of each and recommendations for follow-up care.
Participating in prescription drug monitoring programs, requiring that all pharmacists are registered for the programs in their respective state(s) of practice, and including a “red flag” process for pharmacists to regularly review prescriptions for certain patients. In 2019, we implemented NarxCare, a tool that helps our pharmacists make responsible dispensing decisions while mitigating possible controlled substance misuse or abuse.
Adding resources on drug safety and disposal on www.riteaid.com under the headings “Pharmacy—Drug Safety & Disposal.” Visitors can search for a disposal site in their community, learn how to properly dispose of medication at home, access resources provided by the Food and Drug Administration and the Drug Enforcement Administration (“DEA”), and find information on treatment for drug abuse and addiction.
Continuing its process to identify prescribers with questionable prescription writing practices and, when appropriate, proactively discontinuing filling controlled substances for certain prescribers.
Continuing to support National Take-Back Days to encourage our patients to bring their unused or unwanted medications to designated sites sponsored by local law enforcement and the DEA for proper handling.
Partnering with state agencies to participate in free Naloxone Distribution Day events to support local communities.
Developing the KidsCents Safe Medication Disposal program that is supported through the Rite Aid Foundation, which provides medication disposal units, free of charge, to local and state law enforcement
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agencies and enables individuals to drop off unwanted or expired medications in secure, safe locations. The Rite Aid Foundation committed $1 million to this initiative and, to date, over 630 units have been installed across the country since the launch of the program in August 2017. In 2019, these units became searchable on Google Maps.
Adding 109 Safe Medication Disposal units in select Rite Aid stores nationwide.
Through the Rite Aid Foundation, committing $1.8 million over three years in partnership with EVERFI, a leading education technology company, to educate high school students to make safe and healthy decisions about prescription drugs. The digital prescription drug abuse prevention course is the flagship initiative of the Prescription Drug Safety Network, the nation’s first public-private initiative to combat prescription drug abuse by providing prevention education to schools.
Further information about medication safety and disposal is available on our website under the headings “Pharmacy—Drug Safety & Disposal.”
Directors’ Compensation
Each non-management director receives an annual cash payment of $100,000, payable quarterly in arrears. In addition, (i) the Independent Chairman of the Board receives an additional annual cash payment of $100,000; (ii) the Chair of the Audit Committee receives an additional annual cash payment of $20,000; (iii) the Chairs of the Compensation Committee and the Nominating and Governance Committee each receive an additional annual cash payment of $10,000; and (iv) each member of the Audit Committee (other than the Chair) receives an additional annual cash payment of $10,000. Non-management directors also receive an annual award of restricted stock units valued at $120,000 (with the number of shares subject to the grant calculated by dividing 120,000 by the closing price of our common stock on the date of grant, rounded to the nearest whole share).
The annual stock-based award for fiscal year 2020 vested on the date of grant and the shares subject to the grant became payable on a deferred basis upon the separation from service of the director.
A non-management director may also defer cash fees under the Rite Aid Corporation Director Deferred Compensation Plan established by the Company for compensation earned on or after April 1, 2020. Cash fees deferred will be allocated to a bookkeeping account for the non-management director and notionally invested in accordance with the director’s election among a subset of investment funds available under the Company’s 401(k) savings plan. A non-management director’s deferral will be paid on the director’s separation from service in a single lump sum. The plan was not in place for fiscal year 2020 and none of our non-employee directors have elected to participate in the plan as of the present date.
Directors who are officers and/or Rite Aid associates receive no separate compensation for service as directors or committee members. Directors are reimbursed for travel and lodging expenses associated with attending Board of Directors and Board committee meetings.
Non-management directors are subject to our Stock Ownership Guidelines discussed on pages 58 to 59.
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DIRECTOR COMPENSATION TABLE FOR FISCAL YEAR 2020 The following Director Compensation Table sets forth fees, awards, and other compensation paid to or earned by our non-management directors who served during the fiscal year ended February 29, 2020:
| Elizabeth ‘Busy’ Burr | | | 79,750 | | | 119,966 | | | | | | | | | | | | | | | | |
| Bruce G. Bodaken | | | 200,000 | | | 119,966 | | | — | | | — | | | — | | | — | | | | |
| Robert E. Knowling, Jr. | | | 110,000 | | | 119,966 | | | — | | | — | | | — | | | — | | | | |
| Kevin E. Lofton | | | 110,000 | | | 119,966 | | | — | | | — | | | — | | | — | | | | |
| Louis P. Miramontes | | | 120,000 | | | 119,966 | | | — | | | — | | | — | | | — | | | | |
| Arun Nayar | | | 110,000 | | | 119,966 | | | — | | | — | | | — | | | — | | | | |
| Katherine B. Quinn | | | 72,500 | | | 119,966 | | | | | | | | | | | | | | | | |
| Marcy Syms | | | 100,000 | | | 119,966 | | | — | | | — | | | — | | | — | | | | |
| Joseph B. Anderson, Jr.(3) | | | 27,750 | | | — | | | — | | | — | | | — | | | — | | | | |
| Michael N. Regan(3) | | | 30,525 | | | — | | | — | | | — | | | — | | | — | | | | |
(1)
| Represents the grant date fair value of stock awards granted in fiscal year 2020 in accordance with Financial Accounting Standards Board (“FASB”) Topic 718. For information regarding the assumptions used in determining the fair value of an award, please refer to Note 17 to our financial statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended February 29, 2020, filed with the SEC on April 27, 2020. Delivery of the shares underlying the stock awards is deferred until the directors’ separation from services. |
(2)
| The number of unvested restricted stock awards outstanding as of February 29, 2020 for each director is detailed in the table below. |
| Elizabeth ‘Busy’ Burr | | | | | | — | |
| Bruce G. Bodaken | | | July 17, 2017 | | | 259 | |
| Kevin E. Lofton | | | July 17, 2017 | | | 259 | |
| Louis P. Miramontes | | | | | | — | |
| Katherine B. Quinn | | | | | | — | |
| Marcy Syms | | | July 17, 2017 | | | 259 | |
| Joseph B. Anderson, Jr. | | | | | | — | |
| Michael N. Regan | | | | | | — | |
(3)
| Each of Mr. Anderson and Mr. Regan served as a member of the Board through April 10, 2019. Upon their separation from the Board, each of Mr. Anderson and Mr. Regan became vested in 259 shares of our stock remaining from the grant of RSUs made on July 17, 2017. |
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PROPOSAL NO. 2 — RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED 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, 2021. Deloitte & Touche has audited the accounts and records of Rite Aid and its subsidiaries since 2000. Although the selection of accounting firms does not require ratification, the Board of Directors has directed that the appointment of Deloitte & Touche be submitted to the stockholders for ratification due to the significance of their appointment by the Company. If the stockholders do not ratify the appointment of Deloitte & Touche, the Audit Committee will consider the appointment of another independent registered public accounting firm. A representative of Deloitte & Touche will be present at the Annual Meeting, will have the opportunity to make a statement, and will be available to respond to appropriate questions.
RECOMMENDATION
| FOR ✔ | | | THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE RATIFICATION OF DELOITTE & TOUCHE LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL YEAR 2021. | |
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PROPOSAL NO. 3 — ADVISORY VOTE ON THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS In accordance with the requirements of Section 14A of the Exchange Act, we are including in this proxy statement a resolution, subject to stockholder vote, to approve, on a non-binding, advisory basis, the compensation of our Named Executive Officers (as defined in the section entitled “Executive Compensation—Compensation Discussion and Analysis”).
Prior to voting, stockholders should carefully review our discussion of the compensation of our Named Executive Officers, as presented in the Compensation Discussion and Analysis, tables, and narrative disclosure on pages 40 to 74, as well as the discussion of modifications made as a result of stockholder outreach efforts on page 43, and the discussion regarding the Compensation Committee on page 20.
The Company’s primary compensation goals for our Named Executive Officers are to attract, motivate, and retain the most talented and dedicated executives and to align the interests of our Named Executive Officers with the interests of our stockholders. The Company’s compensation programs are designed to reward our Named Executive Officers for the achievement of annual and long-term strategic and operational goals and the achievement of increased total stockholder return, while at the same time avoiding the encouragement of unnecessary or excessive risk-taking. The Company encourages stockholders to review the executive compensation disclosure in the Compensation Discussion and Analysis section and executive compensation tables in this proxy statement for complete details of its compensation program for its Named Executive Officers, changes made since the prior fiscal year, and how the program is designed to achieve the Company’s compensation objectives.
We believe that the Company’s compensation programs for its Named Executive Officers have operated to appropriately align pay with performance and enabled the Company to attract and retain talented executives within our industry, while at the same time avoiding the encouragement of unnecessary or excessive risk-taking.
We are asking our stockholders to indicate their support for the compensation of our Named Executive Officers as described in this proxy statement. This proposal, commonly known as a “say-on-pay” proposal, gives you as a stockholder the opportunity to express your views on our fiscal year 2020 compensation for our Named Executive Officers. This vote is not intended to address any specific item of compensation; rather, the vote relates to the overall compensation of our Named Executive Officers as described in this proxy statement in accordance with the compensation disclosure rules of the SEC.
Accordingly, the following resolution is submitted for a stockholder vote at the Annual Meeting:
“RESOLVED, that the stockholders approve, on an advisory basis, the compensation paid to the Company’s named executive officers, as disclosed in the Company’s Proxy Statement for the 2020 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the compensation tables, and the narrative discussion.”
Although this is an advisory vote which will not effect the Reverse Stock Split without also effecting the Authorized Share Reduction, and vice versa. No further actionbe binding on the Compensation Committee or the Board, the Compensation Committee and the Board will carefully review the results of the stockholder vote. The Compensation Committee will consider stockholders’ concerns and take them into account in future determinations concerning compensation of its Named Executive Officers. The Board therefore recommends that you indicate your support for the compensation of the Company’s Named Executive Offices in fiscal year 2020, as outlined in the above resolution.
RECOMMENDATION
| FOR ✔ | | | THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE APPROVAL OF THE COMPENSATION OF ITS NAMED EXECUTIVE OFFICERS, AS DISCLOSED IN THIS PROXY STATEMENT. | |
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PROPOSAL NO. 4 — APPROVAL OF THE ADOPTION OF THE RITE AID CORPORATION 2020 OMNIBUS EQUITY INCENTIVE PLAN Introduction
The Rite Aid Corporation 2020 Omnibus Equity Incentive Plan, which we refer to below as the “2020 Plan”, was adopted by our Board of Directors on April 15, 2020, subject to approval by our stockholders at our 2020 annual stockholders’ meeting. The 2020 Plan will become effective as of July 8, 2020 (the “Effective Date”) if it is approved by our stockholders, and it will not become effective if such approval is not received. The 2020 Plan provides for the issuance of equity-based awards in various forms to eligible participants, as described in greater detail below under “Description of Principal Features of the 2020 Plan,” and it will expire on the tenth anniversary of the Effective Date.
The Compensation Committee views equity ownership as a significant motivation for its executives and associates to maximize value for its stockholders. The Compensation Committee believes that grants of stock-based awards provide a long-term incentive for associates and officers to contribute to the growth of Rite Aid. In addition, the Compensation Committee values performance-based awards that establish a direct link between compensation and stockholder return, such as stock options (which only yield value to the extent that our stock price appreciates) and performance-conditioned stock awards (which require the attainment of specified performance goals in order for the recipient to realize value). As discussed in the Compensation Discussion and Analysis section of this proxy on pages 40 to 59, our executive compensation program aims to appropriately balance the mix of cash and equity compensation, the mix of currently-paid and longer-term compensation, and the security of fixed pay, such as base salary, in a way that best furthers the compensation objectives discussed above. However, based on share usage constraints over the past few years, the mix of pay for our top executives has necessarily been weighted more to cash and less toward equity compensation than is typical of our peers. Going forward, we intend to leverage the 2020 Plan to focus on increasing the relative weighting of the equity portion of executives’ target total remuneration opportunities to ensure greater alignment with stockholder interests and promote the retention of key new executive talent. The Compensation Committee believes that the new plan will help ensure that Rite Aid has a reasonable number of additional shares available for future equity-based incentive awards to attract and retain Rite Aid’s key personnel and officers, as well as reward such individuals for the attainment of long-term achievements, and compensate non-employee directors for service on the Board of Directors.
All figures referring to aggregate share and option totals in this proposal have been rounded to the nearest thousand.
Reasons for Seeking Stockholder Approval
We use equity compensation as a key tool for the attraction, retention and motivation of the best available talent. We anticipate that the number of shares available for issuance under our previously approved 2014 Omnibus Equity Incentive Plan, which was limited to only 580,000 shares at the end of the last completed fiscal year, will be insufficient to cover the needs of the compensation program going forward. Accordingly, approval of the 2020 Omnibus Equity Incentive Plan (referred to herein as the “2020 Plan”) is critical to ensuring that we have adequate shares available to provide an appropriate mix of equity-based versus cash compensation and to continue to attract, retain and motivate top talent.
In addition, we are seeking approval of the 2020 Plan in order, among other things, to: (i) comply with NYSE rules requiring stockholder approval of equity compensation plans; (ii) allow the Compensation Committee to be more effective with the mix of equity awards through continued utilization of the fungible design; and (iii) continue to allow the Compensation Committee to grant incentive stock options (ISOs) to participants who are associates in the 2020 Plan if such awards are deemed appropriate in the future.
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Historical Overhang and Annual Share Usage
While the use of equity is an important part of
our compensation program, we are mindful of our responsibility to our stockholders
will be required to
either implementexercise judgment in the granting of equity awards. As a result, we evaluated both our “overhang percentage” and annual share usage, or
abandon“burn rate,” in considering the
Reverse Stock Split or the Authorized Share Reduction. The proposed amendment, if effected, will effect a Reverse Stock Splitadvisability of the outstanding2020 Plan and its potential impact on our stockholders.
Overhang. As of the end of the 2020 fiscal year, we had 2.548 million shares of Rite Aid'scommon stock subject to outstanding equity awards of which 1.295 million shares relate to stock options and 1.253 million shares relate to unvested awards other than stock options. Additionally, 580,000 shares are collectively available for future equity awards under the 2014 Plan, of which only 400,000 were available for the grant of awards other than stock options as a result of the Plan’s fungible ratio. The 2.548 million share overhang represents approximately 4.7% of fully diluted common stock outstanding as of the end of fiscal year 2020 (or, the “overhang percentage”). The 3.35 million new shares proposed to be included in the share reserve under the 2020 Plan, along with the 580,000 shares remaining available for issuance under the 2014 Plan that would be available for grant under the 2020 Plan assuming stockholder approval, would increase the overhang percentage by an additional 7.3% to approximately 12.0%. For additional information, see the section entitled “Equity Compensation Plan Information” on page 77.
Annual Share Usage. The annual share usage, or burn rate, under the Company’s equity compensation program for the last three fiscal years was as follows:
| A Stock Options Granted | | | 612 | | | 0 | | | 50 | | | 221 | |
| B Restricted Stock Awards and Units Granted | | | 1,402 | | | 700 | | | 693 | | | 932 | |
| C Total Options and Shares Granted (A+B) | | | 2,014 | | | 700 | | | 743 | | | 1,152 | |
| D Basic Weighted Average Common Shares Outstanding | | | 53,228 | | | 52,854 | | | 52,481 | | | 52,854 | |
| E Annual Share Usage (C/D) | | | 3.8% | | | 1.3% | | | 1.4% | | | 2.2% | |
As previously announced, we implemented a reverse stock split of our common stock at a reverse stock split ratio of
1-for-10, 1-for-15 or 1-for-20,1-for-20. Our common stock began trading on a split-adjusted basis on the NYSE at the market open on April 22, 2019. Accordingly, all share amounts and option exercise prices presented in the chart above reflect the reverse stock split, including awards made prior to April 22, 2019. Although our future annual share usage will depend upon and be influenced by a number of factors, such as
determined by our Boardthe number of
Directors at a later date. As ofplan participants, the
February 5, 2019 record date, [ · ] sharesprice per share 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 ofmethodology used to establish the total number of shares of Rite Aid's common stock that Rite Aid is authorized to issue by a corresponding ratio. See "—Effects ofequity award mix, the Reverse Stock Split and the Authorized Share Reduction—Effect on Shares of Common Stock" for the number of3.35 million shares of common stock authorized but not outstanding or reserved that will remain available for issuance immediately followingunder the effectiveness2020 Plan will enable us to continue to utilize equity awards as an important component of our compensation program and help meet our objectives to attract, retain and incentivize talented personnel. The calculation of the Reverse Stock Splitshare reserve took into account, among other things, our stock price and volatility, our share burn rate and overhang, the Authorized Share Reduction.
All holdersexisting terms of Rite Aid's common stock will be affected proportionately byour outstanding awards, and our proposed fungible share rate of 1.45:1 for full-share awards under the Reverse Stock Split and the Authorized Share Reduction.
No fractional shares2020 Plan. The results of common stock will be issued as a resultthis analysis were presented to our Compensation Committee 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 extentour Board for their consideration. In addition, we anticipate that the Reverse Stock Split results in stockholders receiving cash in lieu of fractional shares. The par value of our common stockfungible design will continue to be $1.00 per share (see "—Effectspermit an efficient and effective use of those shares for future equity awards. Upon approval of the Reverse Stock Split andproposal, based on the Authorized Share Reduction—Reduction in Stated Capital").
Tablefactors described above, we estimate that the pool of Contents
Reasonsavailable shares would last for fiscal year 2021.
Highlights of the Reverse Stock Split and2020 Plan
On April 15, 2020, the
Authorized Share Reduction Reverse Stock Split. Our Board of Directors, has determined that itupon the recommendation of the Compensation Committee, unanimously approved the 2020 Plan, subject to stockholder approval.
The 2020 Plan is inintended to promote the best interests of Rite Aid and its stockholders by providing officers and other key associates with equity-based incentives and rewards to combine our sharesencourage them to enter into and continue in the employ of common stock at oneRite Aid and to acquire a proprietary interest in the long-term success of three reverse stock split ratios, as determinedRite Aid, thereby aligning their interests with those of Rite Aid’s stockholders, to compensate non-employee directors for their services while further aligning their interests with the interests of stockholders, and to reward the performance of individual officers and
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other key associates in fulfilling their personal responsibilities for long-range achievements. As of February 29, 2020, Rite Aid had approximately 5,866 exempt personnel and, based on the compensation program established by the BoardCompensation Committee, approximately 90 associates, generally at the level of Directorsvice presidents and above, and seven non-employee directors are eligible to receive awards under the 2020 Plan as selected by the Compensation Committee in its sole discretion. See also the discussion under the caption “Description of Material Features of the 2020 Plan, Eligibility” below.
If this proposal is approved at
a later date, in order to reduce the
Annual Meeting, the maximum 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.
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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:
•the historical trading price and trading volume of our common stock;
•the NYSE Continued Listing Standards requirements;
•the then-prevailing trading price and trading volume of our common stock and the expected impact of the Reverse Stock Split on the trading market for our common stock in the short- and long-term; and
•prevailing general market and economic conditions.
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.
Effective Time
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
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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.
Fractional Shares
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:
•purchasing a sufficient number of shares of Rite Aid's common stock; or
•if you have shares of Rite Aid's common stock in more than one account, consolidating your accounts;
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.
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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.
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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 20142020 Plan as well aswill be 3.35 million plus (i) 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 (which may include shares that return to the pool of available shares based on the termination, cancelation or forfeiture of awards under the Company’s 2012 Omnibus Equity Plan, 2010 Omnibus Equity Plan, 2006 Omnibus Equity Plan, 2004 Omnibus Equity Plan, 2001 Stock Option Plan, 2000 Omnibus Equity Plan and 1999 Stock Option Plan (collectively, the “Prior Equity Plans”)) as of February 5, 2019,the Effective Date and (ii) the number of shares that are expected to be adjusted to [ · ] shares, subject to increaseawards as and when awards made underof the Stock Plans, expire orEffective Date that, in the future, are forfeited, and are returned percancelled, exchanged, surrendered or terminate under the terms of the Prior Equity Plans, without a distribution of shares to the recipient. If the 2020 Plan is approved at the Annual Meeting, the Company will not grant any new awards under our 2014 Plan. If the 2020 Plan is not approved at the Annual Meeting, the Company may continue to utilize the shares previously approved for issuance under our 2014 Plan.
Additional considerations which demonstrate Rite Aid’s commitment to governance best practices and which are relevant to the adoption of the 2020 Plan are highlighted below:
No Repricing. The 2020 Plan prohibits repricing and exchange of underwater options and stock appreciation rights for cash or shares without stockholder approval. The 2020 Plan also prohibits use of reload options and discounted options.
Minimum Vesting Periods for Awards. The majority of awards granted under the 2020 Plan, including performance-based awards and awards vesting solely on continued service, are subject to a minimum vesting period of one year.
Director Limits. No participant who is a non-employee director may be granted awards during any calendar year that, when aggregate with such non-employee director’s cash fees with respect to such calendar year, exceed $750,000 in total value.
Fungible Share Counting Provision. The 2020 Plan provides for fungible share counting. Pursuant to this provision, each grant of a full value award such as restricted stock or phantom units will reduce the number of shares available for issuance by 1.45 shares.
No Single-Trigger Vesting Upon a Change in Control. The 2020 Plan does not provide for vesting of equity awards based solely on the occurrence of a change in control, without an accompanying job loss, or unless awards are not assumed or substituted in connection with the change in control.
The Company Intends to Utilize Performance-Based Awards. Although the 2020 Plan permits a number of types of equity and cash long-term incentives, the Company intends to continue to have a long-term incentive program with a strong focus on our performance. In fiscal year 2020, we delivered the majority of long-term incentive value to our executives through stock options, which serve to align executive and stockholder interests by rewarding executives for appreciation in stock price, and cash settled performance awards, which only vest if certain performance targets are met. Beginning in fiscal year 2021, we intend to increase the relative weighting of the equity portion of executives’ target total remuneration opportunities to ensure greater alignment with stockholder interests in the form of performance-based restricted stock units and restricted stock units.
Dividends and Dividend Equivalents Subject to Same Vesting as Underlying Award. Dividend or dividend equivalents on awards are subject to the same vesting restrictions as the underlying awards and are never distributed unless the underlying award vests.
Recoupment Policy. The Company maintains a recoupment policy as described on pages 57 to 58.
Stock Plans. Further, for illustrative purposes only, if a 1-for-10 reverseOwnership Guidelines Apply to Directors and Senior Executives. Rite Aid directors and senior executives are also subject to stock splitownership guidelines as described on pages 58 to 59.
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A form of the 2020 Plan is effected, an outstandingattached as Appendix B to this proxy statement and the following description of the material terms of the 2020 Plan is qualified in its entirety by the complete text of the plan.
Description of Principal Features of the 2020 Plan
Types of Awards. The following types of awards may be granted under the 2020 Plan: stock option for 10,000options (including both incentive stock options (“ISOs”) within the meaning of Section 422 of the Internal Revenue Code and nonqualified options (“NQSOs”), which are options that do not qualify as ISOs), stock appreciation rights, restricted stock, restricted stock units, phantom units, stock bonus awards, and other equity-based awards valued in whole or in part by reference to, or otherwise based on, Rite Aid’s common stock.
Shares Available; Certain Limitations. The number of shares of common stock exercisable at $7.08 perin the aggregate that are reserved for issuance under the 2020 Plan include 3.35 million shares plus any shares remaining available for grant under the 2014 Plan as of the Effective Date, in each case, subject to equitable adjustment upon the occurrence of any extraordinary dividend or other distribution, recapitalization, stock split, reorganization, merger, consolidation, combination, repurchase, or share would be adjusted as a resultexchange, or other similar corporate transaction or event. As of a 1-for-10 split ratio into an option exercisable for 1,000February 29, 2020, there were 580,000 shares of common stock at an exercise price of $70.80 per share. Notwithstanding the decrease in the number of outstanding shares followingaggregate that remained available for grant under 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.
Shares Held in Book-Entry and Through a Broker, Bank or Other Holder of Record
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 indicating2014 Plan. In addition, the number of shares of our common stock you hold. In addition, if youthat are entitledsubject to awards under our Prior Equity Plans as of the Effective Date that, in the future, are forfeited, cancelled, exchanged or surrendered or terminate (in each case, other than due to the expiration of stock options on the options’ expiration date) under the Prior Equity Plans without a paymentdistribution of cash in lieu of fractional shares a checkto the participant, will be mailedadded 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 ownednumber of shares available for grant under the 2020 Plan. As of February 29, 2020, there were 1.295 million shares of Rite Aid's common stock for which you received a cash payment.
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At the Effective Time, we intendsubject to treat stockholders holdingoutstanding options and 1.253 million shares of our common stock in "street name" (that is, throughsubject to other types of awards under the Prior Equity Plans. The options outstanding as of February 29, 2020 have a broker, bankweighted average exercise price of $30.29 and a weighted average remaining life of 5.61 years.
Shares of common stock subject to an award under the 2020 Plan that remain unissued upon the cancellation or
other holdertermination of
record) in the
same manner as registered stockholders whoseaward will again become available for award under the 2020 Plan. However, shares of
our common stock
that are
registeredexchanged by a participant or withheld by Rite Aid as full or partial payment in
their names. Brokers, banks or other holders of record will be instructed to effectconnection with any award under the
Reverse Stock Split for their beneficial holders holding2020 Plan, as well as any 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, evidencedexchanged by a transaction statement thatparticipant or withheld by Rite Aid to satisfy the tax withholding obligations related to any award, will not be sent to your address of record as soon as practicable after your delivery of a letter of transmittal indicatingavailable for subsequent awards under the 2020 Plan. To the extent an award is paid or settled in cash, the number of shares of our common stock you hold, together with any payment ofpreviously subject to the award will again be available for grants pursuant to the 2020 Plan. To the extent that an award can only be settled in cash, in lieu of fractional shares to which you are entitled. Until surrendered as contemplated herein, a stockholder's Old Certificate(s) shallsuch award will not be deemed at and aftercounted against the Effective Time to represent thetotal number of full shares of our common stock resultingavailable for grant under the 2020 Plan.
All shares underlying stock appreciation rights (as opposed to only the net number of shares issued to settle an award) will be counted against the various limits under the 2020 Plan. The market price of Rite Aid’s common stock on February 28, 2020 was $13.62 per share.
No participant who is a non-employee director may be granted awards during any calendar year that, when aggregate with such non-employee director’s cash fees with respect to such calendar year, exceed $750,000 in total value.
Administration. The 2020 Plan will be administered by the Compensation Committee. Each member of the Compensation Committee is a “non-employee director” (within the meaning of Rule 16b-3 promulgated under Section 16 of the Securities Exchange Act of 1934) and an “independent director” (within the meaning of the New York Stock Exchange listed company manual).
Eligibility. Officers of Rite Aid or any affiliate of Rite Aid, including the named executive officers listed in the summary compensation table in this proxy statement, associates, and non-employee directors of Rite Aid or any affiliate of Rite Aid are eligible to receive awards under the 2020 Plan as selected in the discretion of the Compensation Committee (or, in the case of non-employee directors, the Board of Directors). As of February 29, 2020, Rite Aid had approximately 5,866 exempt personnel and seven non-employee directors and, based on the compensation program established by the Compensation Committee, approximately 90 associates, generally at the level of vice presidents and above, and seven non-employee directors are eligible to receive awards under the 2020 Plan as selected by the Compensation Committee in its sole discretion.
Exercisability and Vesting. Awards will become exercisable or otherwise vest at the times and upon the conditions that the Compensation Committee may determine, as reflected in an applicable agreement. In general, options, stock appreciation rights, restricted stock, restricted stock units, phantom units, and other awards authorized under the 2020 Plan may not fully vest prior to the first anniversary of the grant date (except with respect to no
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more than 5% of the aggregate number of shares of common stock authorized under the 2020 Plan). The Compensation Committee has the authority to accelerate the vesting and/or exercisability of any outstanding award at such times and under such circumstances as it deems appropriate.
Performance Goals. The vesting of awards that are intended to qualify as performance-based compensation will be based upon one or more business criteria selected by the Board of Directors or the Compensation Committee, as applicable, in its sole discretion, which may include, without limitation, one or more of the following criteria: return on total stockholder equity; earnings or book value per share of common stock; net income (before or after taxes); earnings before all or any interest, taxes, depreciation and amortization and/or other adjustments; inventory goals; return on assets, capital or investment; market share; cost reduction goals; earnings from continuing operations; levels of expense, costs or liabilities; store level performance; operating profit; sales or revenues; stock price appreciation; total stockholder return; implementation or completion of critical projects or processes; prescription counts; customer service or customer service satisfaction; associate satisfaction; clinics opened; stores remodeled or constructed; cost of capital; Accountable Care Organization results; medical services delivered; leverage ratio; or any combination of the foregoing. The business criteria may be expressed in terms of attaining a specified level of the particular criteria or the attainment of a percentage increase or decrease in the particular criteria, and may be applied to Rite Aid, an affiliate, a division or strategic business unit of Rite Aid, or may be applied to the performance of Rite Aid relative to a market index, a group of other companies or a combination thereof, all as determined by the Compensation Committee. The business criteria may also be subject to a threshold level of performance below which no payment will be made, levels of performance at which specified payments will be made, and a maximum level of performance above which no additional payment will be made.
Stock Options. Options entitle the participant to purchase shares of common stock during a specified period at a purchase price specified by the Compensation Committee (at a price not less than 100% of the fair market value of the common stock on the day the option is granted). Each option granted under the 2020 Plan will have a maximum term of 10 years 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.
Vote Required
Under Delaware law,date of grant, or such lesser period as the affirmative voteCompensation Committee shall determine. Options may be exercised in whole or in part by the payment in cash of the holdersfull option price, by tendering shares of common stock with a fair market value equal to the option price or by other methods in the discretion of the Compensation Committee. Options granted under the 2020 Plan may not be re-priced to lower the exercise price or be cancelled in exchange for another type of award or cash payment without stockholder approval, nor may they provide for automatic “re-load” grants upon the exercise of an option with shares of common stock.
Stock Appreciation Rights. A stock appreciation right may be granted in connection with an option, either at the time of grant or at any time thereafter during the term of the option, or may be granted unrelated to an option. Stock appreciation rights generally permit the participant to receive cash or shares of common stock equal to the difference between the exercise price of the stock appreciation right (which must equal or exceed the fair market value of the common stock at the date of grant) and the fair market value of the common stock on the date of exercise for a period of no more than ten years. Stock appreciation rights granted under the 2020 Plan may not be re-priced to lower the exercise price or be cancelled in exchange for another type of award or cash payment without stockholder approval.
Restricted Stock. The Compensation Committee may grant restricted shares of common stock to such persons, in such amounts, and subject to such terms and conditions (including the attainment of performance goals) as the Compensation Committee may determine in its discretion. Except for restrictions on transfer and such other restrictions as the Compensation Committee may impose, participants will have all the rights of a 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 abstentionstockholder with respect to the reverserestricted stock.
Restricted Stock Units. A restricted stock split proposalunit is an award to receive a number of shares of Company stock subject to certain restrictions that lapse at the end of a specified period or periods. Restricted units may also be fully vested at grant and settlement may be deferred in accordance with the requirements of Section 409A of the Internal Revenue Code. After the vesting period, unless deferred, restricted stock units are settled in shares of Company stock subject to withholding for taxes under applicable laws.
Phantom Units. A phantom unit award is an award of the right to receive an amount of cash or common stock at a future date based upon the value of the common stock at the time of vesting of the award, or if the award is denominated in cash, the right to receive an amount of cash per unit that is determined by the Compensation Committee.
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Stock Bonus Awards. A stock bonus award is an award of common stock made at the discretion of the Compensation Committee upon such terms and conditions (if any) as the Compensation Committee may determine.
Other Awards. Other forms of awards valued in whole or in part by reference to, or otherwise based on, common stock, including but not limited to dividend equivalents, may be granted either alone or in addition to other awards under the 2020 Plan. For example, the 2020 Plan will permit the grant of performance-based awards denominated in cash, and performance-based awards denominated in shares and with respect to which participants may earn a range of shares, depending upon the actual level of performance. Subject to the provisions of the 2020 Plan, the Compensation Committee shall have sole and complete authority to determine the persons to whom and the time or times at which such other awards shall be granted, the number of shares of common stock to be granted pursuant to such other awards and all other terms and conditions of such awards.
Change in Control. Unless otherwise set forth in an agreement or provided by the Compensation Committee, following a change in control of Rite Aid (as described below):
(i) each outstanding time-based award that is assumed or substituted in connection with the change in control will become fully vested and exercisable, free of all applicable restrictions if the participant’s employment or service is terminated pursuant to a qualifying termination (as defined in the 2020 Plan) within the 24-month period following the change in control; (ii) in the event of the participant’s employment or service is terminated pursuant to a qualifying termination within the 24-month period following the change in control, each outstanding performance-based award that is assumed or substituted in connection with the change in control will vest in a number of shares equal to the product of (x) the number of shares subject to the award assuming target level of performance and (y) a fraction, the numerator of which is the number of days elapsed from the first day of the performance period through and including the date of the qualifying termination; and (iii) each outstanding award that is not assumed or substituted in connection with the change in control will become fully vested and exercisable, free of all applicable restrictions, and all applicable performance criteria will be deemed to be achieved at target levels immediately upon the occurrence of the change in control. In addition, the Compensation Committee may, in its discretion, cancel outstanding awards in exchange for a payment in cash, shares of common stock, or any combination thereof, equal to the value of the award based on the price per share received by other Rite Aid stockholders.
For purposes of the 2020 Plan a “change in control” means, in general: (i) a person or entity is or becomes the beneficial owner, directly or indirectly, of securities of Rite Aid representing 50% or more of the combined voting power of Rite Aid; (ii) an unapproved change in the majority membership of the Board of Directors; (iii) consummation of a merger or consolidation of Rite Aid or any subsidiary of Rite Aid, other than a merger or consolidation that results in the voting securities of Rite Aid continuing to represent at least 50% of the combined voting power of the surviving entity or its parent, or a merger or consolidation effected to implement a recapitalization or similar transaction involving Rite Aid in which no person or entity becomes the beneficial owner, directly or indirectly, of 35% or more of the combined voting power of Rite Aid; or (iv) stockholder approval of a plan of complete liquidation or dissolution of Rite Aid or the consummation of an agreement for the sale or disposition of all or substantially all of Rite Aid’s assets, other than a sale or disposition to an entity, at least 60% of the combined voting power of which is owned by Rite Aid stockholders in substantially the same effectproportions as a vote "Against"their ownership of Rite Aid immediately prior to such sale.
Amendment and Termination of the
proposal.Plan. The Rite Aid2020 Plan may be amended by the Board of Directors, recommendssubject to stockholder approval where necessary to satisfy legal or regulatory requirements.
The 2020 Plan will terminate not later than the tenth anniversary of its Effective Date. However, awards granted before the termination of the 2020 Plan may extend beyond that
you vote "FOR" the reverse stock split proposal. No Appraisal Rights
Under the Delaware General Corporation Law, our stockholders are not entitled to dissenter's rights or appraisal rightsdate in accordance with their terms.
Certain Federal Income Tax Consequences
Set forth below is a discussion of certain United States federal income tax consequences with respect to
certain awards that may be granted pursuant to the
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
2020 Plan. The following discussion is a generalbrief summary only, and reference is made to the Internal Revenue Code and the regulations and interpretations issued thereunder for a complete statement of certain U.S.all relevant federal incometax consequences. This summary is not intended to be exhaustive and does not describe state, local or foreign tax consequences of participation in the Reverse2020 Plan.
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Incentive Stock
Split that may be relevant to holdersOptions. In general, no taxable income is realized by a participant upon the grant of ouran ISO. If shares of common stock that hold such stock asare issued to a
Table participant pursuant to the exercise of Contents
capital asset for U.S. federalan ISO, then, generally (i) the participant will not realize ordinary income tax purposes(generally, property held for investment). This summary is basedwith respect to the exercise of the option, (ii) upon sale of the underlying shares acquired upon the provisionsexercise of an ISO, any amount realized in excess of the exercise price paid for the shares will be taxed to the participant as capital gain and (iii) Rite Aid will not be entitled to a deduction. The amount by which the fair market value of the stock on the exercise date of an ISO exceeds the purchase price generally will, however, constitute an item which increases the participant’s income for purposes of the alternative minimum tax to the extent it applies. However, if the participant disposes of the shares acquired on exercise before the later of the second anniversary of the date of grant or one year after the receipt of the shares by the participant (a “disqualifying disposition”), the participant generally would include in ordinary income in the year of the disqualifying disposition an amount equal to the excess of the fair market value of the shares at the time of exercise (or, if less, the amount realized on the disposition of the shares), over the exercise price paid for the shares. If ordinary income is recognized due to a disqualifying disposition, Rite Aid would generally be entitled to a deduction in the same amount. Subject to certain exceptions, an ISO generally will not be treated as an ISO if it is exercised more than three months following termination of employment. If an ISO is exercised at a time when it no longer qualifies as an ISO, it will be treated for tax purposes as a nonqualified stock option, or “NQSO,” as discussed below.
Nonqualified Stock Options. In general, no taxable income is realized by a participant upon the grant of an NQSO. Upon exercise of an NQSO, the participant generally would include in ordinary income at the time of exercise an amount equal to the excess, if any, of the fair market value of the shares at the time of exercise over the exercise price paid for the shares. At the time the participant recognizes ordinary income, Rite Aid generally will be entitled to a deduction in the same amount. In the event of a subsequent sale of shares received upon the exercise of an NQSO, any appreciation after the date on which taxable income is realized by the participant in respect of the option exercise should be taxed as capital gain in an amount equal to the excess of the sales proceeds for the shares over the participant’s basis in such shares. The participant’s basis in the shares will generally equal the amount paid for the shares plus the amount included in ordinary income by the participant upon exercise of the NQSO.
Stock Appreciation Rights. In general, the grant of a stock appreciation right will not result in income for the participant or in a tax deduction for Rite Aid. Upon the settlement of a stock appreciation right, the participant will recognize ordinary income equal to the aggregate value of the payment received, and Rite Aid generally will be entitled to a tax deduction at such time in the same amount.
Restricted Stock. In general, a participant will not recognize any income upon the grant of restricted stock, unless the participant elects under Section 83(b) of the Internal Revenue Code, of 1986, as amended (the "Code"), Treasury regulations promulgated thereunder, administrative rulings and judicial decisions aswithin thirty days after such grant, to recognize ordinary income in an amount equal to the fair market value of the restricted stock at the time of grant, less any amount paid for the shares. If the election is made, the participant will not be allowed a deduction for amounts subsequently required to be returned to Rite Aid. If the election is not made, the participant will generally recognize ordinary income on the date hereof, all ofthat the restrictions to which may change, possibly with retroactive effect, resultingthe restricted stock lapse, 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 subjectan amount equal to the alternative minimum tax; (ii) banks, insurance companies,fair market value of such shares on such date, less any amount paid for the shares. At the time the participant recognizes ordinary income, Rite Aid generally will be entitled to a deduction in the same amount. Generally, upon a sale or other 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 methoddisposition 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 commonrestricted 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 ofwhich the participant has recognized ordinary income (i.e., where a fractional share of our common stock, as discussed below. A U.S. Holder's aggregate tax basis inSection 83(b) election was previously made or the shares of our common stock received pursuant torestrictions were previously removed), 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
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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 shouldparticipant will recognize capital gain or loss in an amount equal to the difference between the amount realized on such sale or other disposition and the participant’s basis in such shares.
Restricted stock units. In general, a participant will not recognize any income upon the grant of restricted stock units. Rather, upon the settlement of the restricted stock units, the participant will recognize ordinary income equal to the fair market value of common stock received, as applicable. The Company will generally be entitled to a tax deduction at such time equal to the amount of income recognized by the participant.
Phantom Units. In general, a participant will not recognize any income upon the grant of phantom units. Rather, upon the settlement of the phantom units, the participant will recognize ordinary income equal to the amount of cash or the fair market value of common stock received, andas applicable. The Company will generally be entitled to a tax deduction at such time equal to the U.S. Holder's tax basis inamount of income recognized by the participant.
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Stock Bonus Awards. In general, a participant will recognize ordinary income upon the receipt of a vested stock bonus award granted under the 2020 Plan equal to the fair market value of the shares of our common stock surrenderedreceived, and Rite Aid will become entitled to a deduction at such time equal to the amount of income recognized by the participant.
Other Awards. In general, a participant will recognize ordinary income upon the receipt of shares or cash with respect to other awards granted under the 2020 Plan and Rite Aid will become entitled to a deduction at such time equal to the amount of income recognized by the participant.
New Plan Benefits
The 2020 Plan was designed by the Compensation Committee, with the assistance of an outside compensation consultant, as part of a comprehensive compensation strategy to provide a long-term broad based incentive for associates and executives to contribute to the growth of Rite Aid and attain specified performance goals.
If approved by the stockholders, participants in the 2020 Plan will be eligible for annual long-term awards which may include performance shares, stock options, restricted stock and restricted stock units (or other awards permitted under the 2020 Plan). The level and types of awards will be fixed by the Compensation Committee in light of the participants’ targeted long-term incentive level which is expressed as a percentage of base salary (LTIP percentage). The Compensation Committee may impose additional conditions or restrictions to the vesting of such awards as it deems appropriate, including, but not limited to, the achievement of performance goals based on one or more business criteria. For more information regarding the Company’s long-term incentive compensation program, refer to the Compensation Discussion and Analysis under the caption “Long-Term Incentive Program” on pages 51 to 52.
Awards under the 2020 Plan are made in the discretion of the Compensation Committee and therefore are not determinable at this time. Moreover, the number of units that would be earned with respect to any grant may vary based on the achievement of any applicable performance goals, which is not determinable at this time. Finally, the ultimate value of any grants that are made will depend on the value of the underlying shares of common stock at the time of settlement, which likewise is not currently determinable. However, the table below illustrates the awards that would have been granted under the 2020 Plan based on each officer’s target LTIP percentage that is allocated toin effect for the Company’s 2021 fiscal year, assuming that the 2020 Plan and such fractional share. Such capital gain or loss should be long term capital gain or loss iftargets had been in effect for fiscal year 2020:
New Plan Benefits
| Heyward Donigan (President and CEO) | | | $6,000,000 | | | 418,702 | |
| James J. Peters (COO) | | | $2,250,000 | | | 157,013 | |
| Matthew Schroeder (Executive VP, CFO) | | | $1,625,000 | | | 113,398 | |
| Jocelyn Z. Konrad (Executive VP, Chief Pharmacy Officer) | | | $1,350,000 | | | 94,208 | |
| Current executive officers as a group (9 people) | | | $14,776,000 | | | 1,031,124 | |
| Current directors other than executive officers as a group (7 people) | | | $960,000 | | | 66,992 | |
| Current employees other than executive officers as a group | | | $7,727,000 | | | 539,218 | |
(1)
| Figures for each named executive officer represent grants that would be made under the 2020 Plan, subject to stockholder approval at the Annual Meeting, applying each officer's LTIP target percentage approved for the Company's 2021 fiscal year, as follows: Ms. Donigan, 600%; Mr. Peters, 300%; Mr. Schroeder, 250%; and Ms. Konrad, 225%. If the 2020 Plan is not approved by stockholders at the Annual Meeting, no grants will be made under the 2020 Plan and the 2014 Plan will remain in effect. Actual grants to be made in the future are entirely in the discretion of the Compensation Committee (or in the discretion of the Board in the case of awards to our non-employee directors). |
(2)
| Figures are calculated based on $14.33, the closing price of Company common stock on April 30, 2020. |
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Please note Messrs. Standley, Crawford, Karst and Everett are excluded from the
U.S. Holder's holding period for our common stock surrendered exceeded one year atabove illustrative table as they have left the
Effective Time.THE RITE AID BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE REVERSE STOCK SPLIT PROPOSAL.
Company, as described more fully in the Compensation Discussion and Analysis section of this proxy, and will not receive awards under the 2020 Plan. In addition, Mr. Comitale has left the Company as of May 21, 2020 and will not receive awards under the 2020 Plan.
Vote Required and Board of Directors Recommendation
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PROPOSAL NO. 2
THE ADJOURNMENT PROPOSAL
General
Rite Aid is asking stockholders to approve, if necessary, adjournmentApproval of the Special Meeting to solicit additional proxies in favoradoption of the reverse stock split proposal. Any adjournment of the Special Meeting for the purpose of soliciting additional proxies will allow stockholders who have already sent in their proxies to revoke them at any time prior to the time that the proxies are used.
Vote Required
Under Delaware law,2020 Plan requires the affirmative vote of a majority of the votes present in person orshares represented by proxy at the Special Meeting is requiredmeeting and entitled to approvevote. Any shares represented and entitled to vote at the adjournment proposal. Abstentions with respect the adjournment proposalmeeting and not voted (whether by abstention or otherwise) will have the same effect as a vote "Against"“against” the proposal.
Any broker non-votes with respect to the adoption of the 2020 Plan will not be counted as shares represented at the meeting and entitled to vote and, consequently, will have no effect on the outcome of the vote. Accordingly, it is particularly important that beneficial owners of Rite Aid shares instruct their brokers or nominees how to vote their shares. If the 2020 Plan is not approved by the stockholders, the 2020 Plan will not become effective.RECOMMENDATION
| FOR ✔ | | | THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” APPROVAL OF THE ADOPTION OF THE RITE AID CORPORATION 2020 OMNIBUS EQUITY INCENTIVE PLAN. | |
THE RITE AID BOARDTABLE OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ADJOURNMENT PROPOSAL.CONTENTS
Officers are appointed annually by the Board of Directors and serve at the discretion of the Board of Directors. Set forth below is information, as of April 30, 2020, regarding the current executive officers of Rite Aid.
| Heyward Donigan(1) | | | 59 | | | President and Chief Executive Officer | |
| James J. Peters(2) | | | 48 | | | Chief Operating Officer | |
| Matthew Schroeder | | | 50 | | | Executive Vice President and Chief Financial Officer | |
| Jessica Kazmaier | | | 43 | | | Executive Vice President and Chief Human Resources Officer | |
| Jocelyn Z. Konrad | | | 50 | | | Executive Vice President and Chief Pharmacy Officer | |
| Brian T. Hoover | | | 55 | | | Chief Accounting Officer | |
| Justin Mennen | | | 39 | | | Executive Vice President and Chief Information Officer | |
| Andre Persaud(3) | | | 51 | | | Executive Vice President, Retail | |
| Daniel D. Robson(4) | | | 59 | | | President of EnvisionRxOptions (soon to be Elixir) | |
(1)
| Ms. Donigan’s biographical information is provided above in the section identifying the Board of Directors. Ms. Donigan joined Rite Aid on August 12, 2019. |
(2)
| Mr. Peters joined Rite Aid on October 7, 2019. |
(3)
| Mr. Persaud joined Rite Aid on February 3, 2020. |
(4)
| Mr. Robson joined Rite Aid as President of EnvisionRxOptions on December 12, 2019. |
James J. Peters. Mr. Peters was appointed Chief Operating Officer in October 2019. Mr. Peters is a recognized leader with 25 years of broad healthcare and industry experience. Most recently, Mr. Peters served as chief executive officer of Skyward Health, a strategic healthcare advisory firm, from 2016 until 2019. Prior to joining Skyward Health in 2016, Mr. Peters was a 12-year senior executive at Geisinger Health System, helping establish Geisinger’s national reputation for healthcare innovation. At Geisinger, Mr. Peters held roles including chief executive officer of Geisinger Medical Management Corporation, managing partner of Geisinger Ventures and senior vice president, chief strategic partnerships officer. Prior to joining Geisinger, Mr. Peters served as principal at Updata Capital, a venture capital firm focused on software, data analytics and health information technology, from 2002 to 2004. Mr. Peters is a member of the American College of Corporate Directors, and from 2016 until its recent acquisition in 2019, Mr. Peters was an independent director of NxStage Medical, Inc. In 2020, Mr. Peters was elected as a board member of the National Association of Chain Drug Stores and elected to its executive committee. Since 2004, Mr. Peters has served as an adjunct lecturer at Lehigh University and has been a guest lecturer for the Wharton School at the University of Pennsylvania. Mr. Peters earned a master of business administration in finance from the Wharton School at the University of Pennsylvania and a bachelor of arts degree in architecture from Lehigh University.
Matthew Schroeder. Mr. Schroeder was appointed Chief Financial Officer of Rite Aid Corporation in March 2019 and was named Executive Vice President in September 2019. Prior to his promotion to this position, Mr. Schroeder served as Senior Vice President, Chief Accounting Officer and Treasurer from November 2017 until March 2019. Mr. Schroeder joined Rite Aid in 2000 as Vice President of Financial Accounting and served as Group Vice President of Strategy, Investor Relations and Treasurer from 2010 to 2017. Prior to joining the Company, Mr. Schroeder worked for Arthur Andersen, LLP, where he held several positions of increasing responsibility, including audit senior and audit manager. Mr. Schroeder earned his bachelor’s degree in accounting from Indiana University of Pennsylvania. He also currently serves as a member of the board of directors of The Rite Aid Foundation.
Jessica Kazmaier. Ms. Kazmaier has been the Chief Human Resources Officer at Rite Aid since March 2019 and was named Executive Vice President of Rite Aid in September 2019 and President of The Rite Aid Foundation in October 2019. Ms. Kazmaier leads all aspects of the human resources strategy, including talent management, associate engagement, incentives and labor relations. Ms. Kazmaier joined Rite Aid in 2001 in the associate benefits function and has held various human resources positions of increasing responsibility, including Vice President, Total Rewards; and Group Vice President, Compensation, Benefits and Human Resources Corporate Services. In this role, Ms. Kazmaier focused on total rewards strategy, enterprise-wide human resources policies, tools and compliance, and corporate headquarters talent acquisition and employee relations. Ms. Kazmaier also previously served as retirement manager at Harsco Corporation where she managed the company’s 401(k) and pension plans. Ms. Kazmaier earned a dual bachelor’s degree in business administration and psychology from the University of Pittsburgh and her Certified Employee Benefits Specialist designation from the Wharton School of the University of Pennsylvania and International Foundation of Employee Benefits Plans.
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Jocelyn Z. Konrad. Ms. Konrad was appointed Executive Vice President and Chief Pharmacy Officer of Rite Aid effective September 2019. Prior positions at Rite Aid include Regional Pharmacy Vice President; Vice President of Healthcare Initiatives; Group Vice President of Pharmacy Initiatives and Clinical Services; Executive Vice President, Pharmacy; and most recently, Executive Vice President, Pharmacy and Retail Operations. Prior to joining Rite Aid, Ms. Konrad served as a District Manager for Eckerd Pharmacy from 1997 through 2007. From 1992 to 1997, she served as a pharmacist for Thrift Drug Pharmacy. Ms. Konrad is a registered pharmacist and holds a Bachelor of Science degree from Philadelphia College of Pharmacy and Science.
Brian T. Hoover. Mr. Hoover was appointed Chief Accounting Officer in March 2019. Prior to his promotion to this position, Mr. Hoover served as Group Vice President and Controller of the Company since 2017. Prior to that position, Mr. Hoover served as Vice President, Financial Reporting and Accounting from 2008 to 2017. Prior to that role, Mr. Hoover served in various positions of increasing responsibility at the Company in financial analysis, category management and marketing, budgeting and accounting. Mr. Hoover served for six years in public accounting at KPMG in which he performed various audit related duties prior to joining the Company in 1995. Mr. Hoover holds a Bachelor of Science degree in accounting from the University of Delaware.
Justin Mennen. Mr. Mennen was appointed Chief Information Officer in December 2018 and was named Executive Vice President in October 2019. Mr. Mennen joined Rite Aid in December 2018 as Senior Vice President, Chief Information Officer. Prior to joining Rite Aid, Mr. Mennen served as chief digital officer and chief information officer for CompuCom Systems Inc. In this role, he led the CompuCom digital business, and was responsible for digital strategy, innovation, digital consulting services, digital buildings, product engineering and enterprise architecture. Before CompuCom, Mr. Mennen led technology organizations across several industries, most recently as the vice president of enterprise architecture and technology innovation for Estée Lauder Companies Inc. He also served as the regional chief information officer for Asia Pacific and Japan at Dell, Inc., based in Malaysia. Mr. Mennen earned a bachelor’s degree in business administration from the University of Kansas, Lawrence.
Andre Persaud. Mr. Persaud was appointed Executive Vice President, Retail for Rite Aid in February 2020. Mr. Persaud is an accomplished senior executive with more than 25 years of diverse and broad retail experience across varied channels and formats for public and private equity owned companies in both the U.S. and Canada. Most recently, Mr. Persaud was an executive consultant with Wakefern Food Corporation, the nation’s largest retailer-owned cooperative, where he worked with the leadership team on the company’s ongoing strategic transformation. Prior to Wakefern, Mr. Persaud was the principal of The AVNP Group LLC, which provided executive advisory and management consulting services to drive organization transformations. Mr. Persaud also served as executive vice president, retail, for Shopko Stores Operating Company with direct responsibility for all operating divisions and banners across retail, pharmacy and optical. Previously, Mr. Persaud served as senior vice president, store operations for Burlington Stores; and prior to that, he served as senior vice president, central operations and merchandising, for Loblaw Companies Limited, Canada’s leading grocery business. Prior to Loblaw Companies Limited, Mr. Persaud served in multiple senior operational leadership roles for Shoppers Drug Mart. He began his career as a pharmacist and served in progressive leadership roles to eventually lead drug store operations for Walmart Canada. Mr. Persaud has served on the National Association of Chain Drug Stores’ board of directors and as a board advisor for Profitect, an AI and prescriptive analytics company. He holds both a bachelor of pharmacy degree and an MBA from the State University of New York at Buffalo.
Daniel D. Robson. Mr. Robson was appointed President, EnvisionRxOptions (soon to be Elixir) in December 2019. Mr. Robson is a recognized leader with 30 years of healthcare and industry experience. Most recently, Mr. Robson served as president of MedTrakRx, a national PBM company that offers flexible and custom PBM services for small to mid-size self-insured businesses. Mr. Robson held that role from June 2019 to December 2019. Before assuming the role as President of MedTrakRx, Mr. Robson was the general manager of sales for the organization from March 2016 to June 2019. Prior to MedTrakRx, Mr. Robson was President & CEO of ExecConsult, LLC from July 2015 to March 2016, where he led a consulting company which provided strategic consulting services to clients. Prior to ExecConsult, LLC, Mr. Robson was a senior executive with Physicians Reference Laboratory, LLC from February 2012 to July 2015, where he led overall direction and revenue growth for the organization. At Physicians Reference Laboratory, LLC, Mr. Robson held roles including chief business development officer and director of sales and marketing. Prior to Physicians Reference Laboratory, LLC, Mr. Robson served as district business manager at Pfizer and began his career in physician clinics and hospital sales with Bristol-Myers Squibb. Mr. Robson holds an MBA in business administration from Baker University. He graduated with a Bachelor of Science in business marketing from Kansas State University.
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COMPENSATION DISCUSSION AND ANALYSIS Introduction
We encourage you to read this Compensation Discussion and Analysis for a detailed discussion and analysis of our fiscal year 2020 executive compensation program for the individuals named below. We refer to these individuals throughout this Compensation Discussion and Analysis and the accompanying tables as our “Named Executive Officers.”
| Heyward Donigan(1) | | | President and Chief Executive Officer | |
| James J. Peters(2) | | | Chief Operating Officer | |
| Matthew Schroeder(3) | | | Executive Vice President, Chief Financial Officer | |
| Jocelyn Z. Konrad(4) | | | Executive Vice President, Chief Pharmacy Officer | |
| James J. Comitale(5) | | | Former Executive Vice President, General Counsel and Secretary | |
| John T. Standley(6) | | | Former Chief Executive Officer | |
| Kermit R. Crawford(7) | | | Former President and Chief Operating Officer | |
| Darren W. Karst(8) | | | Former Senior Executive Vice President, Chief Financial Officer and Chief Administrative Officer | |
| Bryan B. Everett(9) | | | Former Chief Operating Officer | |
(1)
| Ms. Donigan joined Rite Aid on August 12, 2019. |
(2)
| Mr. Peters joined Rite Aid on October 7, 2019. |
(3)
| Mr. Schroeder was promoted to Chief Financial Officer effective March 12, 2019. |
(4)
| Ms. Konrad was promoted to Executive Vice President, Pharmacy and Retail Operations effective March 12, 2019, and subsequently transitioned to Chief Pharmacy Officer effective September 17, 2019. |
(5)
| Mr. Comitale left the Company on May 21, 2020. |
(6)
| Mr. Standley left the Company after a brief transition period that ended on August 14, 2019. |
(7)
| Mr. Crawford left the Company on March 12, 2019. |
(8)
| Mr. Karst left the Company after a brief transition period that ended on May 31, 2019. |
(9)
| Mr. Everett left the Company on October 11, 2019. |
Executive Summary
Our Company
Rite Aid Corporation is on the front lines of delivering healthcare services and retail products to over 1.6 million Americans daily. The Company has over 6,400 pharmacists who are uniquely positioned to engage with consumers and improve their health outcomes. We provide an array of whole being health products and services for the entire family at over 2,400 retail pharmacies. EnvisionRxOptions (soon to be Elixir), our pharmacy benefits management company, is a unique and multi-faceted pharmacy care platform that generates over $6 billion in annual revenue, manages 85 million claims per year for 1,500 clients, and provides pharmacy benefit management services to approximately 4 million members nationwide. Rite Aid also owns Health Dialog, a population health management business, and RediClinic, which operates convenient care clinics in Texas and Pennsylvania. At Rite Aid’s Analyst Day on March 16, 2020, the Company announced its new strategic plans and initiatives, referred to as its “RxEvolution,” which includes significant rebranding, merchandising, marketing, integration, and operational initiatives, in both its retail pharmacy and pharmacy services segments. The execution of these initiatives will result in the reintroduction of our trusted and iconic brand to a new generation of customers, to maintain relevance in an ever-changing marketplace, and thrive as a significant healthcare services company with a retail footprint. Our initiatives are focused on three primary areas, (1) becoming the dominant mid-market pharmacy benefit manager (“PBM”), (2) unlocking the value of our pharmacists, and (3) renewing our retail and digital experience.
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Leadership Transition
During fiscal 2020, Rite Aid made significant changes to its executive leadership team in connection with its leadership transition plan. The Board of Directors appointed Heyward Donigan to serve as the Company’s Chief Executive Officer effective August 12, 2019 after an extensive search process. Subsequently, the Board of Directors appointed Ms. Donigan to the additional role of President of the Company, effective as of February 5, 2020, such that she holds the title of President and Chief Executive Officer. Ms. Donigan has over 30 years of experience in the healthcare industry. John T. Standley, the Company’s former Chief Executive Officer, served in the role until Ms. Donigan’s appointment.
James J. Peters was appointed to serve as the Company’s Chief Operating Officer effective October 3, 2019. Mr. Peters has over 25 years of healthcare and healthcare technology experience. Bryan B. Everett, the Company’s former Chief Operating Officer, departed the Company shortly after this appointment.
Matthew Schroeder was appointed to serve as the Company’s Executive Vice President and Chief Financial Officer effective as of March 12, 2019. Mr. Schroeder has been with Rite Aid for 20 years and has held leadership positions in accounting, treasury, finance and investor relations. Darren W. Karst, the former Senior Executive Vice President, Chief Financial Officer and Chief Administrative Officer, ceased to serve in those roles effective as of March 12, 2019 and left the Company on May 31, 2019 following a transition period.
Jocelyn Z. Konrad was promoted to Executive Vice President, Pharmacy and Retail Operations effective March 12, 2019 and was appointed Chief Pharmacy Office in September 2019. Ms. Konrad is a registered pharmacist and has over 25 years of experience in retail pharmacy.
Key Business Achievements and Fiscal Year 2020 Performance Measures for Incentive Programs
In fiscal 2020, Rite Aid made significant progress to position the Company for future growth. The new management team developed a differentiated “go forward” strategy, its RxEvolution, while also demonstrating improved business performance. Financial improvements include strong script growth, improved front-end sales trends, and improved PBM performance. The Company implemented LEAN initiatives to both reduce working capital tied to inventory and improve our retail pharmacists’ productivity. The Company also focused on expense control and reducing corporate expenses by $55 million on an annual run rate basis. Rite Aid strengthened its balance sheet, reducing debt and improving the capital structure. The Company repurchased bonds which resulted in a debt reduction of $60 million and the securitization of the 2019 CMS receivable of EnvisionRxOptions (soon to be Elixir) freed up $450 million that was used to pay down debt. As a result, Rite Aid’s pro forma leverage ratio improved from 5.7 times at the end of fiscal 2019 (and down from its peak of 6.8 times at the end of the second quarter of fiscal 2020) to a year-end fiscal 2020 pro forma leverage ratio of 5.3 times. The Company also ended fiscal 2020 with over $2 billion in liquidity.
Below are the details related to key financial indicators used as performance measures in our incentive programs for fiscal year 2020:
Adjusted EBITDA was $538.2 million or 2.5% of revenues for fiscal year 2020 compared to $563.4 million or 2.6% of revenues for the prior year. See the discussion under the caption “Cash Incentive Bonuses” below for more detail on how Adjusted EBITDA was used. The decrease in Adjusted EBITDA was due to a decrease of $34.8 million in the Retail Pharmacy segment, partially offset by a $9.5 million increase in the Pharmacy Services segment. The decrease in the Retail Pharmacy segment Adjusted EBITDA was driven by a $42.4 million reduction in Transition Services Agreement fee income from Walgreens Boots Alliance, Inc. Also contributing to the reduction in Adjusted EBITDA was a decrease in Adjusted EBITDA gross profit resulting from reimbursement rate pressures that were not fully offset by generic drug purchasing efficiencies, a reduction in vendor promotional funds and a decline in front-end same-store sales. These negative variances were partially offset by same-store prescription count growth and lower selling, general and administrative expenses due to strong labor and benefits expense control. The improvement in the Pharmacy Services segment EBITDA was due to increased revenue and improvements in pharmacy network management. See Appendix A for a reconciliation of our Adjusted EBITDA, which is a non-GAAP measure, to net income under GAAP.
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Our Executive Compensation Philosophy
We believe strongly that pay should align with performance, and this focus is reflected in our executive compensation programs. We seek to provide our Named Executive Officers with opportunities to earn total direct compensation (base salary, annual incentives, and long-term incentives) that is generally comparable to compensation levels provided to peer company executives and executives within other similarly sized retailers more broadly. Because of our desire to reinforce a performance-based culture, the Company emphasizes a regular compensation mix that is comprised primarily of variable pay. As a result, base salary makes up the smallest portion of total direct compensation for the Named Executive Officers, with variable pay in the form of annual and long-term incentives comprising the large, remaining portion. The compensation mix varies by position, taking into account each position’s ability to influence Company results, as well as competitive practice. See page 47 for a graphical representation of pay mix by executive. Within this context, the table below summarizes compensation governance and best practices Rite Aid follows.
Compensation Governance and Best Practices
| ✔ | | | Conduct annual stockholder advisory vote on the compensation of our named executive officers | | | ✘ | | | We do not provide gross-up payments to cover personal income taxes or excise taxes related to executive severance benefits | |
| ✔ | | | Maintain dialogue with stockholders on various topics, including executive pay practices | | | ✘ | | | We do not have “single trigger” provisions that provide for accelerated vesting of equity awards upon a Change in Control. | |
| ✔ | | | Maintain a Compensation Committee composed entirely of independent directors | | | ✘ | | | We do not permit directors or executives to engage in hedging or pledging of Rite Aid securities | |
| ✔ | | | Retain an independent executive compensation consultant to the Compensation Committee | | | ✘ | | | We do not reward executives for imprudent, inappropriate, or unnecessary risk-taking | |
| ✔ | | | Ensure that a significant portion of executive officer total target remuneration is at risk | | | ✘ | | | We do not allow the repricing of equity awards without stockholder approval | |
| ✔ | | | Provide annual and long-term incentive plans with performance targets aligned to business goals | | | | | | | |
| ✔ | | | Require stock ownership for all named executive officers and board members | | | | | | | |
| ✔ | | | Maintain an Insider Trading Policy requiring directors and executive officers to trade only during established windows after contacting Rite Aid’s Legal Department prior to any sales or purchases of Company stock | | | | | | | |
| ✔ | | | Require equity awards to have a double trigger (qualifying termination of employment and change in control) | | | | | | | |
| ✔ | | | Complete an annual incentive compensation risk assessment | | | | | | | |
| ✔ | | | Maintain a formal clawback policy for executive officers | | | | | | | |
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Consideration of Stockholder Votes on Executive Compensation
In July of 2017, our stockholders voted to hold an advisory vote on executive compensation every year. Consistent with that vote, the Board resolved to hold an advisory “say-on-pay” vote every year in connection with its annual meeting of stockholders.
At our 2019 Annual Meeting, held July 17, 2019, approximately 68.69% of shares voted in favor of the compensation of our Named Executive Officers. Although this level of support reflects a significant majority, Rite Aid ideally would prefer even stronger stockholder support for the Company’s executive compensation programs. However, given that the 2019 vote was an improvement over the vote regarding the compensation of our Named Executive Officers at the 2018 Annual Meeting, we believe the increased support at the 2019 Annual Meeting indicates that stockholders generally believed that actions taken for fiscal year 2020 were positive developments that merited support.
Based on the 2018 and 2019 “say-on-pay” voting results and the feedback we received from stockholders, the Company has conducted an ongoing review of all compensation programs and has incorporated and maintained design changes into the compensation structures to ensure a strong alignment with stockholder interests.
Within that context, the table below summarizes stockholder feedback and details specific executive compensation-related actions Rite Aid has taken to ensure stronger stockholder alignment going forward.
| • | | | Our stockholders generally did not approve of the use of retention awards. | | | • | | | We did not enter into any new individual retention agreements with any of our Named Executive Officers in fiscal year 2020. | |
| • | | | Our stockholders generally did not approve of a mid-year adjustment to our fiscal year 2018 annual incentive plan to reflect the impact of the significant events and operational challenges occurring in the first half of fiscal year 2018. | | | • | | | We did not make any in-cycle adjustments to our incentive plans for fiscal year 2020. | |
| • | | | Our stockholders expressed a general discomfort with a lack of alignment between Company performance and pay. | | | • | | | We refined our peer group for fiscal year 2020 to (among other changes) remove CVS Health Corp. and Walgreens Boots Alliance, Inc.; even though each organization is a direct competitor from both business and talent acquisition perspectives, the Compensation Committee determined that these organizations are no longer appropriate peers given their significantly larger scope of operations. | |
| | | | | | | • | | | We maintained the emphasis on performance-based long-term incentives in fiscal year 2020, such that a significant portion of the total long-term incentive opportunity for the regular compensation program is delivered in the form of Performance-Based Restricted Cash Units. | |
The Compensation Committee will continue to review the results of future advisory say-on-pay votes and will consider stockholder concerns and take them into account in future determinations regarding the compensation of our Named Executive Officers.
Our Fiscal Year 2020 Pay Decisions
In establishing performance measures for our fiscal year 2020 incentive programs, we used Adjusted EBITDA as the only financial metric in our annual incentive plan, and as a 50% portion for the purposes of measuring performance under our 3-year consolidated Adjusted EBITDA long-term performance-based cash units conveyed. We also tied portions (25% each) of the long-term incentive award to leverage ratio and strategic goals to align leadership to transformation initiatives for the future growth of the organization, and maintained a plan provision subjecting the long-term performance award to positive or negative modification based on our relative stockholder return versus the Russell 3000 Index over the three-year performance period.
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EBITDA growth has historically shown a strong positive correlation with three-year and five-year total stockholder return for Rite Aid and its peer group and represented the best indicator of Rite Aid’s operating performance based on our financial situation and capital structure.
Our Consolidated Adjusted EBITDA for short-term incentive calculation purposes, for fiscal year 2020 was $538.2 million, which was below our target of $557.0 million, but above the threshold performance level of $500.0 million. Based on performance against the goal, and as described in more detail below under “Cash Incentive Bonuses,” our Named Executive Officers were paid bonuses at 66.6% of target for fiscal year 2020 performance. See Appendix A for a reconciliation of our Adjusted EBITDA, which is a non-GAAP measure, to net income under GAAP.
The long-term incentive awards granted to our Named Executive Officers in the form of performance stock in fiscal year 2020 are discussed in detail below. See “Long-Term Incentive Program—Performance Awards” on pages 52 to 55. For fiscal year 2021 and beyond, it is going to be increasingly critical that we ensure that the new executive team is properly-aligned with stockholder interests. For that purpose, we will leverage the equity plan we are asking stockholders to approve at the Annual Meeting as we aim to deliver an increasing portion of target total compensation opportunities in the form of performance-based equity that reward executives based on Rite Aid’s financial achievements, and time-vested equity that will promote the retention of critical executive talent and appropriately build current ownership levels.
Objectives of Our Executive Compensation Program
All of our executive compensation and executive benefits programs are within the purview of the Compensation Committee, which bases these programs on the same objectives that guide the Company in establishing all of its compensation programs. The Compensation Committee also administers the Company’s equity incentive compensation plans. In establishing or approving the compensation of our Named Executive Officers in any given year, the Compensation Committee is generally guided by the following objectives:
Compensation should be based on the level of job responsibility, individual performance, and corporate performance, and should foster the long-term focus required for success in the pharmacy, healthcare services and retail healthcare industry. As associates progress to higher levels in the organization, an increasing proportion of their pay is linked to Company performance and stockholder returns and to longer-term performance because they are in a position to have greater influence on longer-term results.
Compensation should reflect the value of the job in the marketplace. To attract and retain a highly skilled, diverse work force, we must remain competitive with the pay of other employers who compete with us for talent.
Compensation should reward performance. Our programs should deliver compensation that is related to our corporate performance. Where corporate performance falls short of expectations, the programs should deliver lower-tier compensation. In addition, the objectives of pay-for-performance and retention must be balanced. Even in periods of temporary downturns in overall corporate performance, the programs should continue to ensure that successful, high-achieving associates will remain motivated and committed to the Company to support the stability and future needs of the Company.
To be effective, performance-based compensation programs should enable associates to easily understand how their efforts can affect their pay, both directly through individual performance accomplishments and indirectly through contributing to the Company’s achievement of its strategic and operational goals.
Compensation and benefit programs should reward performance relative to consistent measures and goals at all levels of the organization. While the programs and individual pay levels will always reflect differences in job responsibilities, geographies, and marketplace considerations, the overall structure of compensation and benefit programs should be broadly similar across the organization.
Compensation and benefit programs should attract and retain associates who are interested in being a part of the Rite Aid team.
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The Compensation 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 while remaining competitive with the Company’s peer group. Among those are:
Assessment of Company performance. The Compensation Committee uses Company performance measures in two ways.
First, in assessing the linkage between actual total compensation and performance, the Compensation Committee considers various measures of Company and industry performance, such as comparable store sales and script count growth, pharmacy services segment revenue growth, EBITDA growth, debt leverage ratios, return on average invested capital and net assets, relevant strategic initiatives, and total stockholder return. In determining performance relative to the Company’s peer group (as discussed further below), the Compensation Committee does not apply a formula or assign these performance measures relative weights. Instead, it makes a subjective determination after considering such measures collectively.
Second, as described in more detail below, the 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 annual cash incentive bonus program and long-term performance-based cash units granted under the Company’s long-term incentive program.
Assessment of competitive compensation levels. The Compensation Committee, with the help of its independent compensation consultant Exequity LLP, assesses the Company’s programs relative to a peer group of organizations and published survey data. The peer group, updated in fiscal year 2020, was approved by the Compensation Committee in February 2019 after a comprehensive review. Because the Company has a limited number of publicly-traded direct competitors and because pharmacy sales (which account for over two-thirds of the Company’s retail revenue) are governed by third-party contracts, we reviewed potential peers relative to multiple criteria including:
Competitors for executive talent, such as grocery store chains, discount department stores, pharmacy benefits managers, companies engaged in pharmaceutical distribution, and healthcare services organizations;
Competitors for investment capital, such as companies considered peers by financial analysts, companies with a similar capital structure or companies whose stock price movement correlated most directly with Rite Aid;
Companies with which Rite Aid competes for customers that have pharmacy operations, offer similar merchandise as Rite Aid, or provide healthcare services; and
Companies of similar size based on revenue, EBITDA as well as enterprise value.
The resulting peer companies, which are considered to be the best representation of our target labor market, are listed below. Among other changes as compared to the fiscal year 2019 peer group, we decided to remove CVS Health Corp. and Walgreens Boots Alliance, Inc. from the peer group, even though each organization is a direct competitor from both business and talent acquisition perspectives, because the Compensation Committee determined that these organizations are no longer appropriate peers given their significantly larger scope of operations. In connection with its diligence in February 2020 to establish the fiscal year 2021 peer group, the Compensation Committee determined that no changes to the 2020 peer group were necessary for 2021.
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Fiscal Year 2020 Peer Group(1)
| Best Buy Co., Inc. | | | 43,441 | |
| Macy’s, Inc. | | | 25,141 | |
| Dollar General Corp. | | | 25,105 | |
| Dollar Tree, Inc. | | | 22,979 | |
| AutoNation, Inc. | | | 21,685 | |
| Kohl’s Corporation | | | 19,474 | |
| The Gap, Inc. | | | 16,735 | |
| Nordstrom | | | 16,079 | |
| Laboratory Corporation of America Holdings | | | 14,060 | |
| Community Health Systems, Inc. | | | 13,760 | |
| LBrands | | | 13,237 | |
| Bed Bath & Beyond Inc. | | | 12,437 | |
| J.C. Penney Company, Inc. | | | 12,001 | |
| DaVita Inc. | | | 11,365 | |
| Office Depot Inc. | | | 10,928 | |
| Owens & Minor, Inc. | | | 9,686 | |
(1)
| Revenue reflects trailing 12-month data through February 2019 as available per Standard & Poor’s Capital IQ. |
The Compensation Committee compares the compensation levels of Rite Aid’s Named Executive Officers to peer company compensation levels in the aggregate, and also compares the pay of individual executives if the jobs are sufficiently similar to make the comparison meaningful.
In addition to peer group data, the Compensation Committee reviews market data based on specific functional responsibility for each executive from published survey data. The survey analysis targets data from similarly sized retail organizations based on each executive’s functional responsibility. The surveys used in the analysis include Mercer’s 2019 Executive Remuneration Suite, Mercer’s 2019 Retail Compensation and Benefits Survey, and Towers Watson’s 2019 Survey Report on Top Management Compensation.
The Compensation Committee considers peer group and survey data to evaluate the degree to which the executive compensation program as a whole is competitive, and generally aims to establish target total direct compensation opportunities that are appropriately-aligned with the medians of these comparator groups. The incentive plans were further designed in such a way that executives can earn above competitive levels for superior performance and below competitive levels if performance is below expectations. The Compensation Committee assesses overall alignment of the compensation program rather than benchmarking a specific target position with consideration of factors, such as Company and individual performance, how executive roles function within Rite Aid, concerns about executive retention, and availability of equity compensation. The Compensation Committee assesses Rite Aid’s performance relative to its peer group on both a one- and three-year basis and observed alignment of performance with actual total direct compensation levels for the executives in the aggregate.
In fiscal year 2020, management engaged Mercer, a compensation consultant, to provide management with compensation information for certain executive officers. Pursuant to the terms of its retention, Mercer reported directly to management, although the Compensation Committee did review recommendations and an analysis prepared by management and Mercer in determining fiscal year 2020 compensation for the Named Executive Officers.
Total compensation review. The Compensation Committee reviews each named executive’s base pay, annual bonus, and long-term incentives annually with input from the Compensation Committee’s independent compensation consultant. Following the fiscal year 2020 review, the Compensation Committee determined that the target level and components of compensation for fiscal year 2020 were competitive and reasonable in the aggregate.
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Components of Executive Compensation for Fiscal Year 2020
For fiscal year 2020, the regular compensation program for our Named Executive Officers consisted of four primary components: (i) base salary, (ii) a cash incentive bonus opportunity under the Company’s annual incentive bonus plan, (iii) long-term incentives consisting of restricted stock and performance-based restricted cash units, and (iv) a benefits package, including retirement and welfare benefits that are generally provided to all associates of Rite Aid on a non-discriminatory basis and limited perquisites. A significant portion of total compensation under the fiscal year 2020 program is variable, meaning a significant portion is subject to performance and is comprised of target annual incentives and target long-term incentives.
Our executive compensation program aims to appropriately balance the mix of cash and equity compensation, the mix of currently-paid and longer-term compensation, and the security of base benefits in a way that best furthers the compensation objectives discussed above. However, based on share usage constraints over the past few years, the mix of pay for our top executives has necessarily been weighted less toward equity compensation than is typical of our peers. Going forward, we intend to leverage the equity plan we are asking stockholders to approve at the Annual Meeting to focus on increasing the relative weighting of the equity portion of executives’ target total remuneration opportunities to ensure greater alignment with stockholder interests and promote the retention of key new executive talent. Those equity opportunities will consist of both performance-based equity that reward executives based on Rite Aid’s financial achievements, and time-vested equity that will promote the retention of critical executive talent and appropriately enhance current ownership levels.
The chart below shows the overall mix of base salary, target annual incentives, and target long-term incentives for Ms. Donigan, Messrs. Peters and Schroeder, Ms. Konrad and Mr. Comitale for fiscal year 2020. Former officers, Messrs. Standley, Crawford, Karst, and Everett, have been excluded from the graph below because annual cash compensation components for each executive were prorated based on service, and all but Mr. Everett did not receive long-term incentives, so the mix of target compensation is not indicative of the pay practices described herein.
Target Total Remuneration(1)(2) Compensation Component as a % of Total Remuneration for Fiscal Year 2020
(1)
| Target Total Remuneration for the Company’s regular executive compensation program represents the sum of (a) annual base salary rate (rather than base salary actually paid for partial year service), (b) target annual incentives (rather than target bonus opportunity prorated for partial year service), and (c) target long term incentives under the Company’s long-term incentive program (rather than awards made in connection with recruitment to the Company). Target Total Compensation does not include (i) the value of broad based benefits provided to all employees, (ii) components of all other compensation shown in the Summary Compensation Table, and (iii) inducement awards. |
(2)
| Totals may not equal 100 due to rounding. |
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Base Salary
Base salary is one element of an executive’s annual cash compensation during employment. The value of base salary reflects the executive’s long-term performance, skill set, and the market value of that skill set. In setting base salaries for fiscal year 2020, the Compensation Committee considered the following factors:
Pay levels at comparable companies. As noted above, the Compensation Committee uses peer group data to test for the reasonableness and competitiveness of base salaries, but it also exercises subjective judgment in view of the Company’s compensation objectives.
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.
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. Ms. Donigan’s target total compensation, for example, is more heavily weighted toward short- and long-term incentive compensation (approximately 87.6% in the aggregate as shown in the bar chart above) than that of the other Named Executive Officers.
Throughout the course of fiscal year 2020, in connection with the leadership transition plan, the Compensation Committee reviewed and approved the Named Executive Officers’ base salaries, considering the principles described above under “The Compensation Committee’s Processes.” The chart below details base salaries as of the end of fiscal year 2020, including any changes from the prior fiscal year and the rationale for the base salary decisions highlighted below.
| Heyward Donigan | | | $1,000,000 | | | N/A | | | Joined 8/12/2019 | |
| James J. Peters | | | $750,000 | | | N/A | | | Joined 10/7/2019 | |
| Matthew Schroeder | | | $550,000 | | | +39% | | | Additional/new responsibilities due to promotion | |
| Jocelyn Z. Konrad | | | $600,000 | | | +30% | | | Additional/new responsibilities due to promotion | |
| James J. Comitale | | | $567,500 | | | +10% | | | Market adjustment for role | |
| John T. Standley | | | $1,220,550 | | | None | | | Leadership transition plan | |
| Kermit R. Crawford | | | $1,000,000 | | | None | | | Leadership transition plan | |
| Darren W. Karst | | | $850,750 | | | None | | | Leadership transition plan | |
| Bryan B. Everett | | | $750,000 | | | +25% | | | Additional/new responsibilities due to promotion | |
Cash Incentive Bonuses
The Company established an annual incentive plan in order to incentivize the Named Executive Officers to meet the Company’s financial objectives for fiscal year 2020. The Compensation Committee establishes a target percentage of salary for each participant at the beginning of the fiscal year and approves the financial goals required for the Company to pay an award. Payouts for the Named Executive Officers are then determined by the Company’s financial results for the year relative to the predetermined performance measures. As shown in the Summary Compensation Table under “Non-Equity Incentive Plan Compensation,” incentives were paid to Named Executive Officers for fiscal year 2020 performance.
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Bonus targets. Targets for each Named Executive Officer were determined based on job responsibilities, internal relativity, and peer group and survey data. The Compensation Committee’s objective was to set bonus targets such that total annual cash compensation (including base salary and annual incentive assuming a target payout) was generally aligned with the market with a substantial portion of Contentsthat compensation linked to corporate performance. Consistent with our executive compensation philosophy, individuals with greater job responsibilities had a greater proportion of their total cash compensation tied to Company performance through the incentive plan. The Compensation Committee, as a result, established the following targets for fiscal year 2020:
Annual Incentive Opportunity
| Heyward Donigan(1) | | | 50% | | | 200% | | | 400% | |
| James J. Peters(2) | | | 31.25% | | | 125% | | | 250% | |
| Matthew Schroeder | | | 25% | | | 100% | | | 200% | |
| Jocelyn Z. Konrad | | | 25% | | | 100% | | | 200% | |
| James J. Comitale | | | 12.5% | | | 50% | | | 100% | |
| John T. Standley | | | 50% | | | 200% | | | 400% | |
| Kermit R. Crawford | | | 43.75% | | | 175% | | | 350% | |
| Darren W. Karst | | | 31.25% | | | 125% | | | 250% | |
| Bryan B. Everett | | | 31.25% | | | 125% | | | 250% | |
(1)
| Reflects opportunity for a full fiscal year. Ms. Donigan’s opportunity was prorated based on the number of months in which she provided service pursuant to her employment agreement. |
(2)
| Reflects opportunity for a full fiscal year. Mr. Peters’ opportunity was prorated based on the number of months in which he provided service pursuant to his employment agreement. |
The Rite Aid Corporate Bonus Plan. The Compensation Committee believes that using Adjusted EBITDA as the measure for the Corporate Bonus Plan appropriately encourages officers, including the Named Executive Officers, to focus on improving operating results which ultimately drive stockholder value. EBITDA growth has historically shown a strong positive correlation with three-year and five-year total stockholder return for Rite Aid and its peer group. The majority of Rite Aid’s peer companies use an EBITDA measure in their annual incentive plans. Based on Rite Aid’s current financial situation and capital structure, the Compensation Committee believes that Adjusted EBITDA is the best indicator of Rite Aid’s operating performance. The measure is tracked regularly and is clearly understood by the officers. Officers can impact the measure by taking actions to improve the operating performance of our stores. In addition, the Company regularly communicates Adjusted EBITDA to the investment community.
Under the plan formula, payouts can range from 0% to 200% of bonus targets depending on Company performance. The Compensation Committee established an Adjusted EBITDA performance target of $557.0 million for fiscal year 2020, based on the financial plan targets. Because of the recognized prescription reimbursement rate challenges, the Compensation Committee also established in the performance target for fiscal year 2020 a threshold at which management could be rewarded at 25% of bonus target at achievement of Adjusted EBITDA of $500.0 million (90% of target), and the Compensation Committee approved a maximum at which management could be rewarded at 200% of bonus target at achievement of Adjusted EBITDA of $600 million (108% of target).
In fiscal year 2020, challenges caused by continued prescription reimbursement rate pressures and a reduction in TSA fee income had a negative impact on our fiscal year 2020 results, and Rite Aid’s actual Consolidated Adjusted EBITDA was $538.2 million, which was below the target performance level, but above the threshold performance level, resulting in bonus payments at 66.6% of the performance target. Consolidated Adjusted EBITDA consists of Adjusted EBITDA from continuing operations. As discussed in greater detail in Appendix A, we define Adjusted EBITDA as net income (loss) excluding the impact of income taxes, interest expense, depreciation and amortization, LIFO adjustments, charges or credits for facility closing and impairment, goodwill and intangible asset impairment charges, inventory write-downs related to store closings, gains or losses on debt retirements, the WBA merger termination fee, and other items (including stock-based compensation expense, merger and acquisition-related costs, non-recurring litigation settlement, severance, restructuring-related costs
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and costs related to facility closures and gain or loss on sale of assets). We reference this particular non-GAAP financial measure not only as a basis for incentive compensation but also in our corporate decision-making because it provides supplemental information that facilitates internal comparisons to the historical operating performance of prior periods and external comparisons to competitors’ historical operating performance.
Fiscal Year 2020 Annual Incentive Plan Performance Goal
| Threshold | | | $500.0 | | | 25% | |
| Target | | | $557.0 | | | 100% | |
| Maximum | | | $600.0 | | | 200% | |
| Actual Performance | | | $538.2 | | | 66.6% | |
Fiscal Year 2020 Annual Incentive Plan Payouts
| Heyward Donigan | | | $1,166,667(1) | | | 66.6% | | | $777,000 | |
| James J. Peters | | | $390,625(2) | | | 66.6% | | | $260,156 | |
| Matthew Schroeder | | | $550,000 | | | 66.6% | | | $366,300 | |
| Jocelyn Z. Konrad | | | $600,000 | | | 66.6% | | | $399,600 | |
| James J. Comitale | | | $283,750 | | | 66.6% | | | $188,977 | |
| John T. Standley | | | $2,441,100 | | | 66.6% | | | $734,938(3) | |
| Kermit R. Crawford | | | N/A | | | N/A | | | N/A(4) | |
| Darren W. Karst | | | $1,488,813 | | | 66.6% | | | $249,924(5) | |
| Bryan B. Everett | | | $750,000 | | | 66.6% | | | $383,178(6) | |
(1)
| Reflects Ms. Donigan’s prorated target annual incentive opportunity under her employment agreement, based on joining Rite Aid on August 12, 2019. |
(2)
| Reflects Mr. Peters’ prorated target annual incentive opportunity under his employment agreement, based on joining Rite Aid on October 7, 2019. |
(3)
| Pursuant to the terms of his Separation Agreement, Mr. Standley was eligible to receive a pro rata annual incentive payout for fiscal year 2020. He left the Company on August 14, 2019, and, accordingly, his payout was prorated by approximately 45% to reflect the period of employment. |
(4)
| Pursuant to the terms of his Separation Agreement, Mr. Crawford was not eligible to earn an annual incentive in fiscal year 2020. |
(5)
| Pursuant to the terms of his Separation Agreement, Mr. Karst was eligible to receive a pro rata annual incentive payout for fiscal year 2020. He left the Company on May 31, 2019, and, accordingly, his payout was prorated by approximately 25% to reflect the period of employment. |
(6)
| Pursuant to the terms of his Separation Agreement, Mr. Everett was eligible to receive a pro rata annual incentive payout for fiscal year 2020. He left the Company on October 11, 2019, and, accordingly, his payout was prorated by approximately 76% to reflect the period of employment. |
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Long-Term Incentive Program Long-term incentive target opportunity. The purpose of the regular long-term incentive program is to support the long-term perspective necessary for continued success in our business and focus our Named Executive Officers on creating long-term, sustainable stockholder value. Our annual long-term incentive (“LTI”) target opportunities for each Named Executive Officer are shown below:
Long-Term Incentive Target Opportunities
| Heyward Donigan(1) | | | 450% | |
| James J. Peters(2) | | | 250% | |
| Matthew Schroeder | | | 150% | |
| Jocelyn Z. Konrad | | | 200% | |
| James J. Comitale(3) | | | 125% | |
| Bryan B. Everett(3) | | | 250% | |
(1)
| Pursuant to the terms of her Employment Agreement, Ms. Donigan will participate in Rite Aid’s long-term incentive program beginning in the Company’s 2021 fiscal year. |
(2)
| Pursuant to the terms of his Employment Agreement, Mr. Peters will participate in Rite Aid’s long-term incentive program beginning in the Company’s 2021 fiscal year. |
(3)
| Mr. Comitale is no longer eligible for the 2020-2022 long-term performance-based cash award and one-third of the restricted stock units granted on July 17, 2019 as a result of his separation from employment with the Company on May 21, 2020. Mr. Everett is no longer eligible for the 2020-2022 long-term performance-based cash award and one-third of the restricted stock units granted on July 17, 2019 as a result of his separation from employment with the Company on October 11, 2019. |
The Compensation Committee reviewed available peer group data and found that the design of the long-term incentive program is reasonably aligned with general retail industry market practice. Target grant values for individual executive officers were established based on individual performance 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.
Long-term incentive mix. In fiscal year 2020 we used the following types of awards and maintained the same percentage of the award that is subject to performance as was the case in fiscal year 2019:
| Performance-Based Cash Units | | | 70% | | | Links compensation to multi-year operating results on key measures tied to stockholder value creation. | |
| Restricted Stock | | | 30% | | | Supports retention and provides a vehicle with more stability and less risk. Aligns executive and stockholder interests and focuses executives on value creation. | |
In determining the overall mix of long-term incentive vehicles, the following factors were considered:
Risk/reward tradeoffs: Using multiple long-term incentive vehicles can balance the need for a strong performance-based program against risk to executives.
Performance measurement: Using a combination of vehicles allows the Company to focus executives on both stock price appreciation and achievement of consistent operating results (as indicated by Adjusted EBITDA and other measures), which we believe leads to creation of value for stockholders.
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Management of share usage and market practice: Rite Aid considers market practice concerning both share usage and competitive long-term incentive levels. Rite Aid uses either a stock-based performance vehicle or a cash-based performance vehicle which is aligned with peer companies and retailers of similar size. The target LTI mix has been selected to align the compensation opportunity for executives and associates with our stockholder return.
The Compensation Committee’s process for setting grant dates is discussed below. On the approval date, those values are converted to the equivalent number of shares based on the closing price of the Company’s common stock on the date of approval.
Grant timing. The Compensation Committee has a policy that, in the normal course, annual long-term incentive awards (other than special or new hire grants) will be approved by the Compensation Committee once a year at its annual meeting held in connection with the annual stockholders’ meeting, with a grant date of the later of the second business day after release of the Company’s first quarter earnings or the date of approval. Grants are made to the Named Executive Officers at the same time as awards are made to all other associates as part of the annual grant process.
Special awards. From time to time, the Company may make grants in addition to the annual equity grant, including those to Named Executive Officers. Typically, these grants include awards to new hires such as inducement awards, promotional awards, or retention awards. Special awards can also be utilized to provide particular performance incentives in connection with specific corporate or financial goals of the Company. No special awards of this latter type were made to our Named Executive Officers in fiscal year 2020. See below for a discussion of inducement awards for Heyward Donigan and James J. Peters. Inducement Awards for Heyward Donigan and James J. Peters.
In connection with Rite Aid’s Leadership Transition Plan, and to facilitate the Company’s recruitment of Ms. Donigan as Chief Executive Officer, Ms. Donigan received an inducement award consisting of a restricted stock award in respect of 284,900 shares of Company stock, which will vest in equal annual installments on each of the three (3) successive anniversaries of her commencement date of August 12, 2019, and a grant of 502,913 nonqualified stock options, which will vest and become exercisable in equal installments on each of the four (4) successive anniversaries of her commencement date, a cash inducement award equal to $3,200,000, and an $85,000 relocation subsidy. The cash inducement award and the relocation subsidy, respectively, must be repaid by Ms. Donigan in full in the event of certain terminations of her employment occurring on or prior to the first anniversary of her commencement date; or with respect to $1,200,000 of the cash inducement award in the event of certain terminations of her employment occurring between the first and the second anniversary of her commencement date.
In connection with Rite Aid’s Leadership Transition Plan, and to facilitate the Company’s recruitment of Mr. Peters as Chief Operating Officer, Mr. Peters received an inducement award consisting of a restricted stock award in respect of 61,700 shares of Company stock, which will vest in equal annual installments on each of the three (3) successive anniversaries of his commencement date of October 7, 2019, and a grant of 108,900 nonqualified stock options, which will vest and become exercisable in equal installments on each of the three (3) successive anniversaries of his commencement date.
Performance Awards
Performance awards granted to the Named Executive Officers under the regular long-term incentive program are in the form of units, which are denominated in a target number of shares and payable in Company stock or cash, if designated, or are denominated with a target unit value equal to $1.00. Company performance goals are established and achievable over the prescribed performance period. Payouts can range from 0% (for performance below threshold) to 250% of target (for performance at or above maximum). Performance awards are intended to align interests of executives with those of stockholders through the use of measures the Company believes drive its long-term success. Performance awards are normally granted annually and are structured as a targeted number of units based on the Company’s achievement of specific performance levels with payout occurring after a three-year period.
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2018 Performance Awards
For the 2018 performance award grants awarded to associates at the Executive Vice President level and above (the “EVP 2018-2020 Plan”), the Compensation Committee based 80% of the award on the achievement of Adjusted EBITDA goals and the remaining 20% on return on net assets performance. Due to the significant uncertainty during the transition of our business in 2018, the 2018-2020 Plan financial performance goals were based on the accumulation of two-year goals set for 2019 and 2020 only. As in prior cycles, the Compensation Committee added a provision subjecting the award to modification based on our relative stockholder return versus the Russell 3000 Index over the performance period.
Due to significant turnover at the senior executive level since our fiscal year 2018, including under the March 2019 Leadership Transition Plan, the only remaining participant at the time of payout of the EVP 2018-2020 Plan was Ms. Konrad.
Under the EVP 2018-2020 Plan, Ms. Konrad had the opportunity to earn cash payment after the end of fiscal year 2020, contingent on performance relative to accumulated two-year Company financial performance goals for each of fiscal year 2019 and fiscal year 2020. The value of a unit was tied to the Company’s stock price with a maximum value of 300% of the grant date stock price. The plan was designed to align the interests of our executives with those of our stockholders and add an additional incentive for them to create sustainable long-term value for the Company. In addition, for this group of executives the Compensation Committee determined to subject the award to modification of +/- 25% based on our relative stockholder return versus the Russell 3000 Index during the performance period. For fiscal years 2019-2020, actual Adjusted EBITDA of $1.102 billion was 94% of the target performance amount of $1.174 billion. Actual return on net assets (“RONA”) was -22.2% compared to a target of -2.6%. Finally, an adjustment of -25% was applied to the calculated award due to relative stockholder return falling in the bottom third of the Russell 3000 Index. The following charts summarize the financial performance calculation and the cash payment that was earned:
Financial Performance Calculation: EVP 2018–2020 Plan
| 2019–2020 Adjusted EBITDA | | | 80% | | | $938,938 | | | $1,173,672 | | | $1,408,406 | | | $1,101,655 | | | 85% | |
| 2019–2020 RONA | | | 20% | | | -3.12% | | | -2.6% | | | -2.08% | | | -22.2% | | | 0% | |
| Weighted Sub-Total | | | | | | | | | | | | | | | | | | 68% | |
| TSR Relative to Russell 3000 | | | Modifier | | | | | | | | | | | | | | | -25% | |
| Final Calculated Payout | | | | | | | | | | | | | | | | | | 51% | |
2018–2020 EVP Plan Payouts
| Jocelyn Z. Konrad | | | $309,078 | | | 6,690 | | | 51.0% | | | 3,411.9 | | | $46,470 | |
(1)
| Reflects grant date stock price, adjusted for 1:20 split, which occurred on April 22, 2019. |
(2)
| Based on stock price of $13.62 as of February 28, 2020. |
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For the 2018-2020 performance award grants awarded to associates who were Senior Vice Presidents of the Company (the “SVP 2018-2020 Plan”), participants had the opportunity to earn cash payments after the end of fiscal year 2020, contingent on performance relative to accumulated one-year Company financial performance goals for each of fiscal year 2019 and fiscal year 2020. Such financial performance was based 100% on the Adjusted EBITDA goals. The value of a unit was also tied to the Company’s stock price with a maximum value of 300% of the grant date stock price. Each of Mr. Schroeder and Mr. Comitale participated in the SVP 2018-2020 Plan. For fiscal years 2019-2020, actual Adjusted EBITDA of $1.102 billion was 94% of the two-year performance target of approximately $1.174 billion. The following charts summarize the financial performance calculation and the cash payment that was earned:
Financial Performance Calculation: SVP 2018–2020 Plan
| 2019–2020 Adjusted EBITDA | | | $938,938 | | | $1,173,672 | | | $1,408,406 | | | $1,101,655 | | | 85% | |
SVP 2018–2020 Plan Payouts
| Matthew Schroeder | | | $79,464 | | | 1,720 | | | 85.0% | | | 1,462 | | | $19,912 | |
| James J. Comitale | | | $168,861 | | | 3,655 | | | 85.0% | | | 3,106.75 | | | $42,314 | |
(1)
| Reflects grant date stock price, adjusted for 1:20 split, which occurred on April 22, 2019. |
(2)
| Based on stock price of $13.62 as of February 28, 2020. |
2019 Performance Awards
For the 2019 performance award grants (“2019-2021 Plan”), the Compensation Committee also based 80% of the award on the achievement of Adjusted EBITDA goals and the remaining 20% on return on net assets performance. However, due to the delay in grant timing and the significant uncertainty during the transition of our business in 2019, as well as prescription reimbursement rate challenges, the 2019-2021 Plan financial performance goals are based on the accumulation of one-year goals set for 2020 and 2021 only. As in prior cycles, the Compensation Committee added a provision subjecting the award to modification based on our relative stockholder return versus the Russell 3000 Index over the full 2019-2021 performance period.
Under the 2019-2021 Plan, participants have the opportunity to earn cash payments after the end of fiscal year 2021, contingent on performance relative to accumulated one-year Company financial performance goals for each of fiscal year 2020 and fiscal year 2021. Such financial performance is based 80% on the Adjusted EBITDA goals and 20% on return on net asset goals. The value of a unit is equal to $1.00. These performance targets align the interests of our executives with those of our stockholders. In addition, in order to further align the interests of our executives with those of our stockholders and add an additional incentive for them to create sustainable long-term value for the Company, the Compensation Committee also determined to subject the award to modification of +/− 25% based on our relative stockholder return versus the Russell 3000 Index over the three-year vesting period. As shown in the table below, payouts can range from 0% (for performance below threshold) to 250% of the target number of units (for performance at or above maximum). 37.5% of the target unit award can be earned for performance at threshold levels.
2020 Performance Awards
For the 2020 performance award grants (“2020-2022 Plan”), the Compensation Committee based 50% of the award on the achievement of cumulative Adjusted EBITDA goals, 25% on the achievement of EBITDA contribution from specific strategic initiatives (measured on an annual basis and then aggregated over three years), and the remaining 25% on the achievement of specific cumulative leverage ratio goals. As in prior cycles, the Compensation Committee added a provision subjecting the award to modification based on our relative stockholder return versus the Russell 3000 Index over the full 2020-2022 performance period.
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Under the 2020-2022 Plan, participants have the opportunity to earn cash payments after the end of fiscal year 2022, contingent on cumulative Adjusted EBITDA, EBITDA contribution from specific strategic initiatives, and cumulative leverage ratio. The value of a unit is equal to $1.00. These performance targets align the interests of our executives with those of our stockholders. In addition, in order to further align the interests of our executives with those of our stockholders and add an additional incentive for them to create sustainable long-term value for the Company, the Compensation Committee also determined to subject the award to modification of +/− 25% based on our relative stockholder return versus the Russell 3000 Index over the three-year vesting period. As shown in the table below, payouts can range from 0% (for performance below threshold) to 250% of the target number of units (for performance at or above maximum). 37.5% of the target unit award can be earned for performance at threshold levels. 2020-2022 Plan: Performance Units
| Heyward Donigan(1) | | | N/A | | | N/A | | | N/A | |
| James J. Peters(2) | | | N/A | | | N/A | | | N/A | |
| Matthew Schroeder | | | 216,563 | | | 577,500 | | | 1,443,750 | |
| Jocelyn Z. Konrad | | | 315,000 | | | 840,000 | | | 2,100,000 | |
| James J. Comitale(3) | | | 186,211 | | | 496,562 | | | 1,241,405 | |
| Bryan B. Everett(3) | | | 492,188 | | | 1,312,500 | | | 3,281,250 | |
| John T. Standley(4) | | | — | | | — | | | — | |
| Kermit R. Crawford(4) | | | — | | | — | | | — | |
| Darren W. Karst(4) | | | — | | | — | | | — | |
(1)
| Pursuant to the terms of her Employment Agreement, Ms. Donigan will participate in Rite Aid’s long-term incentive program beginning in the Company’s 2021 fiscal year. |
(2)
| Pursuant to the terms of his Employment Agreement, Mr. Peters will participate in Rite Aid’s long-term incentive program beginning in the Company’s 2021 fiscal year. |
(3)
| Mr. Comitale is not eligible for the 2020-2022 long-term performance-based cash award and one-third of the restricted stock units granted on July 17, 2019 as a result of his separation from employment with the Company on May 21, 2020. Mr. Everett is not eligible for the 2020-2022 long-term performance-based cash award and one-third of the restricted stock units granted on July 17, 2019 as a result of his separation from employment with the Company on October 11, 2019. |
(4)
| In connection with the leadership transition plan, Messrs. Standley, Crawford, and Karst did not participate in Rite Aid’s fiscal year 2020 long-term incentive program. |
Restricted Stock (Includes Awards Under Fiscal Year 2020 Plan and Inducement Awards)
Restricted stock grants are intended to support retention of executives and focus them on long-term performance because they generally vest over a multi-year period (three years or longer) and are tied to the value of our stock. The risk profile of restricted stock is aligned with stockholders, as it can motivate executives to both increase and preserve stock price. The table below summarizes 2020 restricted stock awards:
2020 Restricted Stock Awards
| Heyward Donigan(1) | | | 1,999,998 | | | 284,900 | |
| James J. Peters(2) | | | 499,770 | | | 61,700 | |
| Matthew Schroeder | | | 247,722 | | | 31,800 | |
| Jocelyn Z. Konrad | | | 359,898 | | | 46,200 | |
| James J. Comitale(3) | | | 212,667 | | | 27,300 | |
| John T. Standley(4) | | | — | | | — | |
| Kermit R. Crawford(4) | | | — | | | — | |
| Darren W. Karst(4) | | | — | | | — | |
| Bryan B. Everett(5) | | | 562,438 | | | 72,200 | |
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(1)
| Reflects inducement award conveyed to facilitate the Company’s recruitment of Ms. Donigan as Chief Executive Officer; Ms. Donigan will participate in Rite Aid’s long-term incentive program beginning in the Company’s 2021 fiscal year. |
(2)
| Reflects inducement award conveyed to facilitate the Company’s recruitment of Mr. Peters as Chief Operating Officer; Mr. Peters will participate in Rite Aid’s long-term incentive program beginning in the Company’s 2021 fiscal year. |
(3)
| Mr. Comitale is not eligible for one-third of the restricted stock units granted on July 17, 2019 as a result of his separation from employment with the Company on May 21, 2020. |
(4)
| In connection with the leadership transition plan, Messrs. Standley, Crawford, and Karst did not participate in Rite Aid’s fiscal year 2020 long-term incentive program. |
(5)
| Mr. Everett is not eligible for one-third of the restricted stock units granted on July 17, 2019 as a result of his separation from employment with the Company on October 11, 2019. |
Stock Options: Inducement Awards to Ms. Donigan and Mr. Peters
Stock option awards are intended to directly align executives with the interests of stockholders by emphasizing long-term performance because the price of Company stock must appreciate to generate value for the executives. Further, stock options also support the retention of executives because they vest over a four-year period. Accordingly, the Compensation Committee believed the use of stock options was appropriate for the purposes of inducement awards to Ms. Donigan and Mr. Peters, as summarized in the table below:
2020 Inducement Stock Option Awards
| Heyward Donigan(1) | | | 1,999,646 | | | 502,913 | |
| James J. Peters(2) | | | 499,969 | | | 108,900 | |
(1)
| Reflects inducement award conveyed to facilitate the Company’s recruitment of Ms. Donigan as Chief Executive Officer; Ms. Donigan will participate in Rite Aid’s long-term incentive program beginning in the Company’s 2021 fiscal year. |
(2)
| Reflects inducement award conveyed to facilitate the Company’s recruitment of Mr. Peters as Chief Operating Officer; Mr. Peters will participate in Rite Aid’s long-term incentive program beginning in the Company’s 2021 fiscal year. |
Retention Efforts Completed in Fiscal Year 2020
During our 2018 fiscal year, Rite Aid entered into individual retention agreements with Mr. Schroeder, Ms. Konrad, Mr. Comitale, Mr. Karst and Mr. Everett, as well as other key associates who are not Named Executive Officers, to enhance employee retention and promote corporate performance, amidst significant volatility and uncertainty related to restructuring the company. The retention agreements with each such Named Executive Officer generally provided for the lump-sum payment of the retention awards in equal installments on August 1, 2018 and May 1, 2019, subject to continued employment through such retention date or upon an earlier qualifying termination.
For each of Mr. Schroeder, Ms. Konrad, Mr. Comitale, Mr. Karst and Mr. Everett, under the retention agreements granted in fiscal year 2018, in the aggregate, Mr. Schroeder earned an aggregate retention payment of $385,000, Ms. Konrad earned an aggregate retention payment of $450,000, Mr. Comitale earned an aggregate retention payment of $500,000, Mr. Karst earned an aggregate retention payment of $830,250 and Mr. Everett earned an aggregate retention payments of $600,000. Fifty percent (50%) of the retention amount for each officer was previously paid in fiscal year 2019 based on continued employment on August 1, 2018, and the remaining 50% was paid in fiscal year 2020 based on continued employment on May 1, 2019. Specifically, following retention payments for Named Executive Officers are disclosed in the Summary Compensation Table under “All Other Compensation” and detailed in the appropriate footnote to that table: Mr. Schroeder ($192,500), Ms. Konrad ($225,000), Mr. Comitale ($250,000), Mr. Karst ($415,125), and Mr. Everett ($300,000).
Based on stockholder discussions and clarity around the business strategy, Rite Aid did not enter into any new individual retention agreements for any of the Named Executive Officers in fiscal year 2019 or in fiscal year 2020.
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Post-Retirement Benefits
Supplemental Executive Retirement Program. Prior to fiscal year 2020, Rite Aid maintained a defined contribution supplemental executive retirement plan or SERP in which certain of our Named Executive Officers participated. The SERP was terminated in the beginning of fiscal year 2020 such that there were no contributions or accruals during fiscal year 2020. Prior to the termination of the SERP, Rite Aid credited each participant with a specific sum to an individual account established for each participant, on a monthly basis while the participant is employed. The amount credited was equal to 2% of the participant’s annual base compensation. The participants were able to select among a choice of earnings indexes, and their accounts were credited with earnings that mirror the investment results of such indexes. Participants vested in their accounts at the rate of 20% per year for each calendar year of participation in the SERP at a five-year rolling rate, with the entire account balance for each participant vesting upon death or total disability of the participant, termination without cause during the 12-month period following a “change in control” of the Company as defined in the SERP or upon termination of employment at age 60 or greater with at least five years of participation in the SERP. Earnings in respect of the fiscal year and distributions of existing SERP benefits are shown below under the caption “Nonqualified Deferred Compensation for Fiscal Year 2020.”
Other Post-Employment and Change in Control Benefits
To attract highly skilled executives and to provide for certainty of rights and obligations, Rite Aid has historically provided employment agreements to its executive officers, including our Named Executive Officers. The terms of the employment agreements are described in more detail under the caption “Executive Employment and Separation Agreements.” Additional information regarding the severance and change in control benefits provided under the employment agreements is described under the section entitled “Executive Compensation—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 (the “Code”), treats certain elements of executive compensation in excess of $1,000,000 a year payable to our Chief Executive Officer, our Chief Financial Officer and three other most highly compensated executives as an expense not deductible by the Company for federal income tax purposes. The exception providing that payments to these “covered employees” in excess of the $1,000,000 limit will be deductible if such payments are performance-based was repealed beginning in 2018, as further described below.
H.R.1, formally known as the “Tax Cuts and Jobs Act,” enacted on December 22, 2017, substantially modifies Section 162(m) by, among other things, eliminating the performance-based exception to the $1 million deduction limit and providing that the covered employees are permanently subject to the limitation (even after termination of employment) effective as of January 1, 2018. As a result of these changes, beginning in 2018, compensation paid to our Named Executive Officers in excess of $1 million will generally be nondeductible, whether or not it is performance-based and irrespective of the time it is paid. While the Compensation Committee plans to continue taking actions intended to limit the impact of Section 162(m), it also believes that tax deductibility is only one of several relevant considerations in setting compensation. Therefore, in order to maintain the flexibility to provide compensation programs for our Named Executive Officers that will best incentivize them to achieve our key business objectives and create sustainable long-term stockholder value, the Compensation Committee reserves the right to pay compensation that may not be deductible to the Company if it determines that doing so would be in the best interests of the Company.
H.R.1 also includes a transition rule under which the changes to Section 162(m) described above will not apply to compensation payable pursuant to a written binding contract that was in effect on November 2, 2017 and is not subsequently materially modified. To the extent applicable to our existing contracts and awards, the Compensation Committee may choose to avail itself of the transition rule.
Policy Regarding Recoupment of Certain Compensation The Company has adopted a formal compensation recovery or “clawback” policy for its executive officers, including all Named Executive Officers, which covers all compensation paid or awarded. Pursuant to this policy, the Board of Directors may seek to recoup certain incentive compensation, including cash bonuses and equity incentive awards paid based upon the achievement of financial performance metrics, from executives in the event
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that the Company is required to restate its financial statements. In March 2020, the Board amended the Company’s clawback policy to (1) expand its scope to cover executive officers’ misconduct in violation of law, Company policy or the code of conduct, including an executive officer’s material failure to exercise his or her assigned oversight responsibilities, that results in material financial, operational or reputational harm to the Company (collectively, “Detrimental Harm”) and (2) require public disclosure of recoupment of compensation where the underlying facts are disclosed, subject to certain legal and privacy rights considerations. The Board of Directors may seek to recoup, or cause to be forfeited, all or a portion of the bonus, incentive compensation or equity-based compensation received by, or awarded in respect of the period of misconduct in cases of Detrimental Harm. Prohibition on Margin Accounts and Hedging and Similar Transactions
Our directors, officers and other associates are prohibited from engaging in hedging or monetization transactions, such as zero-cost collars, equity swaps, exchange funds and forward sale contracts, with respect to our securities. Because hedging transactions might allow a director, officer or other associate to continue to own our securities, whether obtained through our equity compensation plans or otherwise, without the full risks and rewards of ownership, such hedging transactions are prohibited. Directors, officers and other employees are also prohibited from holding in a margin account, or otherwise pledging, Company securities as collateral for a loan.
Director and Officer Stock Ownership Guidelines Our Stock Ownership Guidelines have been established in order to further the investment of our non-management directors, executive officers, and Senior Vice Presidents in the success of the Company and to encourage a long-term perspective in managing the Company.
Following a comprehensive governance review, effective as of April 10, 2019, we have revised our stock ownership guidelines to be in line with the market. The ownership requirement for non-management directors was also increased to five times the annual cash retainer. The current stock ownership requirements are:
| Chief Executive Officer | | | 5 times base salary | |
| Chief Operating Officer | | | 3 times base salary | |
| Senior Executive Vice Presidents | | | 3 times base salary | |
| Executive Vice Presidents | | | 2 times base salary | |
| Senior Vice Presidents | | | 1 times base salary | |
| Non-Management Directors | | | 5 times annual cash retainer | |
Newly appointed or promoted executives who are or become subject to our Stock Ownership Guidelines and newly elected non-management directors have five years from the time they are appointed, promoted, or elected, as the case may be, to meet the stock ownership requirements. Currently, all of our Named Executive Officers are in the process of meeting the ownership requirements due to being new to role and not yet serving in their respective positions for five years. Given how new each of our Named Executive Officers is in his or her role, and how modest current equity holdings are as a result, it will be critical to continue to promote the alignment of our Named Executives Officers’ interests with those of our stockholders. Therefore, as noted earlier in this Compensation Discussion and Analysis, we will aim to increasingly emphasize equity components of compensation going forward, through efficient use of the equity plan we are asking stockholders to approve at the Annual Meeting. For more information about the plan proposal, see “Proposal No. 4 - Approval of the Adoption of the Rite Aid Corporation 2020 Omnibus Equity Incentive Plan” on pages 29 to 37.
For the purposes of determining stock ownership levels, the following forms of equity interests in the Company are included:
Shares owned outright by the participant or his or her immediate family members residing in the same household;
Restricted stock and restricted stock units whether or not vested; and
Shares underlying Rite Aid stock options whether or not vested.
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Restricted stock and restricted stock units, whether or not vested, and shares owned count as one (1) share equivalent per share beneficially owned and stock options, whether or not vested, count as one-half (.5) share equivalent per stock option.
The Compensation Committee is responsible for interpreting and administering the Stock Ownership Guidelines, and may, from time to time, reevaluate and revise the Stock Ownership Guidelines, including when there are changes to the Company’s capital structure or where implementation of the Stock Ownership Guidelines would cause a non-management director, executive officer, or Senior Vice President to incur a hardship due to his or her unique financial circumstances. COMPENSATION COMMITTEE REPORT The Compensation Committee of the Board of Directors has reviewed and discussed the foregoing Compensation Discussion and Analysis with management and, based on that review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.
Robert E. Knowling, Jr., Chair
Louis P. Miramontes
Katherine B. Quinn*
*
| Mr. Bodaken served on the Compensation Committee at the commencement of the 2020 fiscal year until April 10, 2019, at which time Ms. Quinn joined the Compensation Committee and the Board. |
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SUMMARY COMPENSATION TABLE The following summary compensation table sets forth the cash and non-cash compensation for the fiscal year ended February 29, 2020 paid to or earned by (i) all persons who served as our principal executive officer, (ii) all persons who served as our principal financial officer, (iii) the three most highly compensated executive officers of the Company other than the principal executive officer or the principal financial officer who were serving at the end of the 2020 fiscal year, and (iv) two additional former executive officers who would have been among such three most highly compensated executive officers of the Company had they continued to serve at the end of the 2020 fiscal year (collectively, the “Named Executive Officers”). The summary compensation table also sets forth the cash and non-cash compensation for the fiscal years ended March 2, 2019 and March 3, 2018, respectively, for the individuals who were considered Named Executive Officers in the applicable fiscal year.
| Heyward Donigan (President and CEO) | | | 2020 | | | 538,462 | | | 3,203,234 | | | 1,999,998 | | | 1,999,646 | | | 777,000 | | | — | | | 101,000 | | | 8,619,340 | |
| James J. Peters (COO) | | | 2020 | | | 288,462 | | | — | | | 499,770 | | | 499,969 | | | 260,156 | | | — | | | 10,000 | | | 1,558,356 | |
| Matthew Schroeder (Executive VP, CFO) | | | 2020 | | | 544,098 | | | — | | | 247,722 | | | — | | | 366,300 | | | 258,466 | | | 215,700 | | | 1,632,286 | |
| Jocelyn Z. Konrad (Executive VP, Chief Pharmacy Officer) | | | 2020 | | | 594,663 | | | — | | | 359,898 | | | — | | | 399,660 | | | 32,310 | | | 250,969 | | | 1,637,500 | |
| 2019 | | | 461,034 | | | — | | | 207,592 | | | — | | | 204,103 | | | — | | | 358,250 | | | 1,230,979 | |
| 2018 | | | 427,846 | | | — | | | 571,326 | | | — | | | 252,450 | | | 33,665 | | | 124,000 | | | 1,409,287 | |
| James J. Comitale (Former Executive VP, General Counsel and Secretary) | | | 2020 | | | 565,577 | | | — | | | 212,667 | | | — | | | 188,977 | | | 63,302 | | | 275,477 | | | 1,306,001 | |
| John T. Standley (Former CEO) | | | 2020 | | | 600,886 | | | — | | | — | | | — | | | 734,938 | | | 580,182 | | | 2,063,139 | | | 3,979,146 | |
| 2019 | | | 1,220,550 | | | — | | | 1,830,829 | | | — | | | 1,440,249 | | | 53,994 | | | 3,320,207 | | | 7,865,829 | |
| 2018 | | | 1,219,857 | | | — | | | 5,640,243 | | | — | | | 1,825,943 | | | 314,545 | | | 319,874 | | | 9,320,462 | |
| Kermit R. Crawford (Former President and COO) | | | 2020 | | | 96,154 | | | — | | | — | | | — | | | — | | | — | | | 2,356,770 | | | 2,452,924 | |
| 2019 | | | 1,000,000 | | | — | | | 1,274,966 | | | — | | | 1,032,500 | | | — | | | 252,000 | | | 3,559,466 | |
| 2018 | | | 403,846 | | | — | | | 2,000,000 | | | 1,080,000 | | | 729,167 | | | 18,921 | | | 1,175,000 | | | 5,406,934 | |
| Darren W. Karst (Former Senior Executive VP,CFO and CAO) | | | 2020 | | | 294,490 | | | — | | | — | | | — | | | 249,924 | | | 39,347 | | | 1,849,343 | | | 2,433,104 | |
| 2019 | | | 850,356 | | | — | | | 638,099 | | | — | | | 627,428 | | | | | | 707,424 | | | 2,823,307 | |
| 2018 | | | 829,856 | | | — | | | 1,534,638 | | | — | | | 776,284 | | | 49,056 | | | 782,185 | | | 3,972,019 | |
| Bryan B. Everett (Former COO) | | | 2020 | | | 590,221 | | | — | | | 562,438 | | | | | | 383,178 | | | 10,053 | | | 1,015,787 | | | 2,561,676 | |
| 2019 | | | 617,654 | | | — | | | 370,832 | | | — | | | 364,620 | | | — | | | 475,600 | | | 1,828,706 | |
| 2018 | | | 533,784 | | | — | | | 1,626,434 | | | — | | | 392,700 | | | 17,891 | | | 413,475 | | | 2,984,284 | |
(1)
| Ms. Donigan and Mr. Peters joined the Company on August 12, 2019 and October 7, 2019, respectively. Messrs. Schroeder and Comitale first became Named Executive Officers of the Company in fiscal year 2020. Mr. Comitale left the Company as of May 21, 2020. Mr. Standley left the Company as of August 14, 2019. Mr. Crawford left the Company as of March 12, 2019. Mr. Karst left the Company as of May 31, 2019. Mr. Everett left the Company as of October 11, 2019. For a description of the separation agreements entered into with Messrs. Standley, Crawford, Karst, and Everett, please see the narrative under the caption “Potential Payments Upon Termination or Change in Control, Named Executive Officer Departures.” |
(2)
| The amounts reported reflect the aggregate grant date fair value of each stock award and option award computed in accordance with FASB ASC Topic 718. For information regarding the assumptions used in determining the fair value of an award, please refer to Note 17 of the Company’s Annual Report on Form 10-K as filed with the SEC on April 27, 2020, Note 17 of the Company’s Annual Report on Form 10-K as filed with the SEC on April 25, 2019, and Note 17 of the Company’s Annual Report on Form 10-K as filed with the SEC on April 26, 2018. |
(3)
| The amounts in the “Non-Equity Incentive Plan Compensation” column for fiscal year 2020 represent annual cash incentive bonuses earned for performance in fiscal year 2020. |
(4)
| Represents above-market earnings (over 120% of the “applicable federal rate”), if applicable, under the Company’s defined contribution supplemental executive retirement plan, which was terminated as of March 2019. |
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(5)
| The amounts in the “All Other Compensation” column for fiscal year 2020 consist of the following: |
| Ms. Donigan | | | 10,000 | | | — | | | 85,000 | | | — | | | 6,000 | | | — | | | — | | | — | |
| Mr. Peters | | | 5,000 | | | — | | | — | | | — | | | 5,000 | | | — | | | — | | | — | |
| Mr. Schroeder | | | — | | | — | | | — | | | — | | | 12,000 | | | 11,200 | | | 192,500 | | | — | |
| Ms. Konrad | | | 2,769 | | | — | | | — | | | — | | | 12,000 | | | 11,200 | | | 225,000 | | | — | |
| Mr. Comitale | | | 2,277 | | | — | | | — | | | — | | | 12,000 | | | 11,200 | | | 250,000 | | | — | |
| Mr. Standley | | | 8,975 | | | 1,928,164 | | | — | | | — | | | 6,000 | | | — | | | — | | | 120,000 | |
| Mr. Crawford | | | — | | | 2,355,770 | | | — | | | — | | | 1,000 | | | — | | | — | | | — | |
| Mr. Karst | | | — | | | 1,398,829 | | | 21,188 | | | — | | | 3,000 | | | 11,200 | | | 415,125 | | | — | |
| Mr. Everett | | | 5,000 | | | 616,587 | | | — | | | — | | | 8,000 | | | 11,200 | | | 300,000 | | | 75,000 | |
(a)
| Ms. Donigan received a fixed amount of relocation assistance in connection with her recruitment to the Company pursuant to her employment agreement. Mr. Karst was reimbursed for certain housing and transportation expenses pursuant to his employment agreement. The Company determines the incremental cost of said expenses based on the out-of-pocket amounts paid for rent, utilities, and travel. The Company determines the incremental cost of said expenses based on the out-of-pocket amounts paid for rent and utilities. |
(b)
| Represents final payment of retention awards granted in fiscal year 2018. |
(c)
| Represents consulting fees paid during fiscal year 2020 pursuant to consulting agreements between the Company and (i) Avalon Retail Consulting, Inc., pursuant to which Mr. Standley provided consulting services to the Company for the principal purpose of assisting in the orderly transition of his previous role and responsibilities; and (ii) Mr. Everett, pursuant to which Mr. Everett provided consulting services to the Company for the principal purpose of assisting in the orderly transition of his previous role and responsibilities. |
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GRANTS OF PLAN-BASED AWARDS TABLE FOR FISCAL YEAR 2020 The following table summarizes grants of plan-based awards made to Named Executive Officers during our fiscal year ended February 29, 2020.
| Heyward Donigan | | | 8/12/2019 | | | — | | | — | | | — | | | — | | | — | | | — | | | 284,900 | | | 502,913 | | | 7.02 | | | 3,999,998 | |
| | | | | | | 291,667 | | | 1,166,667 | | | 2,333,333 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| James J. Peters | | | 10/7/2019 | | | — | | | — | | | — | | | — | | | — | | | — | | | 61,700 | | | 108,900 | | | 8.10 | | | 999,739 | |
| | | | | | | 97,656 | | | 390,625 | | | 781,250 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Matthew Schroeder | | | 7/17/2019 | | | 216,563 | | | 577,500 | | | 1,443,750 | | | — | | | — | | | — | | | 31,800 | | | — | | | — | | | 247,722 | |
| | | | | | | 137,500 | | | 550,000 | | | 1,100,000 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Jocelyn Z. Konrad | | | 7/17/2019 | | | 315,000 | | | 840,000 | | | 2,100,000 | | | — | | | — | | | — | | | 46,200 | | | — | | | — | | | 359,898 | |
| | | | | | | 150,000 | | | 600,000 | | | 1,200,000 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| James J. Comitale | | | 7/17/2019 | | | 186,211 | | | 496,562 | | | 1,241,405 | | | — | | | — | | | — | | | 27,300 | | | — | | | — | | | 212,667 | |
| | | | | | | 70,938 | | | 283,750 | | | 567,500 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| John T. Standley(5) | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | 610,275 | | | 2,441,100 | | | 4,882,200 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Kermit R. Crawford(6) | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Darren W. Karst(7) | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | 372,203 | | | 1,488,813 | | | 2,977,625 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Bryan B. Everett(8) | | | 7/17/2019 | | | 492,188 | | | 1,312,500 | | | 3,281,250 | | | — | | | — | | | — | | | 72,200 | | | — | | | — | | | 562,438 | |
| | | | | | | 234,375 | | | 937,500 | | | 1,875,000 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
(1)
| On July 17, 2019, each Named Executive Officer received a grant of cash-based performance units that will be earned at the end of the Company’s 2022 fiscal year based upon the achievement of cumulative Adjusted EBITDA, EBITDA contribution from specific strategic initiatives and cumulative leverage ratio, subject to modification +/-25% based on our relative stockholder return versus the Russell 3000 Index over the three-year vesting period; provided that the Named Executive Officer is continuously employed at the Company through the date of the earnings release. The second row of the table for each Named Executive Officer reflects each such officer’s opportunity to earn an annual cash incentive bonus, as discussed in the Compensation Discussion and Analysis under the caption “Cash Incentive Bonuses.” For Ms. Donigan and Mr. Peters, who were each recruited to the Company in fiscal year 2020, pursuant to their employment agreements with the Company, the opportunity reflects the threshold, target and maximum amounts as prorated for the number of months in the fiscal year in which they served, which could have been earned at threshold, target and maximum performance. Actual annual cash incentives earned for the fiscal year are shown in the Summary Compensation Table above. |
(2)
| Except as noted below, grants were made under the Company’s 2014 Omnibus Equity Plan. On July 17, 2019, certain of the Named Executive Officers received a grant of restricted stock, as described in the Compensation Discussion and Analysis, under the caption “Components of Executive Compensation for Fiscal Year 2020—Restricted Stock.” The grants to Ms. Donigan and Mr. Peters were inducement awards upon their recruitment to Rite Aid which were granted on August 12, 2019 and October 7, 2019, respectively. Ms. Donigan’s restricted stock award was made under her Employment Inducement Award Plan dated August 12, 2019. |
The restricted shares will vest as follows based on continued employment:
| Ms. Donigan | | | 284,900 | | | One-third on each of first three anniversaries of grant date | |
| Mr. Peters | | | 61,700 | | | One-third on each of first three anniversaries of grant date | |
| Mr. Schroeder | | | 31,800 | | | One-third on each of first three anniversaries of grant date | |
| Ms. Konrad | | | 46,200 | | | One-third on each of first three anniversaries of grant date | |
| Mr. Comitale | | | 27,300 | | | One-third on each of first three anniversaries of grant date | |
| Mr. Standley | | | | | | N/A | |
| Mr. Crawford | | | | | | N/A | |
| Mr. Karst | | | | | | N/A | |
| Mr. Everett | | | 72,200 | | | One-third on each of first three anniversaries of grant date | |
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(3)
| Each of Ms. Donigan and Mr. Peters received an inducement award of stock options upon their recruitment to Rite Aid. Ms. Donigan’s award will vest with respect to one-quarter of the award on each of first four anniversaries of grant date. Mr. Peters’ award will vest with respect to one-third on each of first three anniversaries of grant date. Ms. Donigan’s stock option award was made under her Employment Inducement Award Plan dated August 12, 2019. |
(4)
| Represents the grant date fair value, measured in accordance with FASB ASC Topic 718 of stock awards made in fiscal year 2020. Grant date fair values are calculated pursuant to assumptions set forth in Note 17 of the Company’s Annual Report on form 10-K filed with the SEC on April 27, 2020. |
(5)
| Mr. Standley did not receive an equity award for fiscal year 2020 and was eligible for a prorated portion of any earned fiscal year 2020 annual cash incentive upon his departure and pursuant to his March 12, 2019 separation agreement. |
(6)
| Mr. Crawford did not receive any plan-based award for fiscal year 2020. |
(7)
| Mr. Karst did not receive an equity award for fiscal year 2020 and was eligible for a prorated portion of any earned fiscal year 2020 annual cash incentive, pursuant to his March 12, 2019 separation agreement. |
(8)
| Mr. Everett is not eligible for the 2020-2022 long-term performance-based cash award and one-third of the restricted stock units granted on July 17, 2019 as a result of his separation from employment with the Company on October 11, 2019, and was eligible for a prorated portion of any earned fiscal year 2020 annual cash incentive upon his departure and pursuant to his October 2, 2019 separation agreement. |
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EXECUTIVE EMPLOYMENT AND SEPARATION AGREEMENTS Rite Aid entered into employment agreements with each of the Named Executive Officers, which govern the material terms of their employment and were in effect during the Company’s last completed fiscal year.
Employment Agreement with Heyward Donigan.
Term; Base Salary; Incentives. The Company entered into an employment agreement with Ms. Donigan, dated as of August 8, 2019. The employment agreement has an initial term of two (2) years commencing August 12, 2019, and thereafter will automatically renew for successive one (1) year terms unless either she or the Company gives prior notice of nonrenewal. Pursuant to her employment agreement, Ms. Donigan will be paid an annual base salary of $1,000,000, she will be eligible for a target annual cash bonus opportunity equal to 200% of her base salary (pro-rated for the current 2020 fiscal year), and, beginning in the Company’s 2021 fiscal year, she will be granted annual long-term equity incentive awards with a grant date fair value equal to 450% of her base salary, consistent with the award issuances to other senior executives of the Company.
Inducement Awards. In connection of the Company’s recruitment of Ms. Donigan, Ms. Donigan received an inducement award consisting of a restricted stock award in respect of 284,900 shares of Company stock, which will vest in equal annual installments on each of the three (3) successive anniversaries of her commencement date of August 12, 2019, and a grant of 502,913 nonqualified stock options, which will vest and become exercisable in equal installments on each of the four (4) successive anniversaries of her commencement date, a cash inducement award equal to $3,200,000, reimbursement of one-month’s COBRA cost relating to prior employment and an $85,000 relocation subsidy. The cash inducement award and the relocation subsidy, respectively, must be repaid by Ms. Donigan in full in the event of certain terminations of her employment occurring on or prior to the first anniversary of her commencement date; or with respect to $1,200,000 of the cash inducement award in the event of certain terminations of her employment occurring between the first and the second anniversary of her commencement date.
Employment Agreement with James J. Peters.
Term; Base Salary; Incentives. The Company entered into an employment agreement with Mr. Peters, dated as of October 2, 2019. The employment agreement has an initial term of two (2) years commencing October 7, 2019, and thereafter will automatically renew for successive one (1) year terms unless either he or the Company gives prior notice of nonrenewal. Pursuant to his employment agreement, Mr. Peters will be paid an annual base salary of $750,000, he will be eligible for a target annual cash bonus opportunity equal to 125% of his base salary (pro-rated for the current 2020 fiscal year), and, beginning in the Company’s 2021 fiscal year, he will be granted annual long-term equity incentive awards with a grant date fair value equal to 250% of his base salary, consistent with the award issuances to other senior executives of the Company.
Inducement Awards. In connection of the Company’s recruitment of Mr. Peters, Mr. Peters received an inducement award consisting of a restricted stock award in respect of 61,700 shares of Company stock, which will vest in equal annual installments on each of the three (3) successive anniversaries of his commencement date of October 7, 2019, and a grant of 108,900 nonqualified stock options, which will vest and become exercisable in equal installments on each of the three (3) successive anniversaries of his commencement date.
Employment Agreements with Matthew Schroeder, Jocelyn Z. Konrad and James J. Comitale.
In General. Each of the employment agreements entered into with Mr. Schroeder, Ms. Konrad and Mr. Comitale, respectively, provide for a term of employment that is automatically renewed from year to year, unless either party provides the other with 120 (180 for Mr. Schroeder) days’ notice of an intent not to renew.
Salary and Incentives. The respective agreements provide each executive with a base salary and an incentive compensation target (which may be reviewed periodically for increase by the Compensation Committee). The following base salary amounts and incentive targets applied to the Named Executive Officers during fiscal year 2020. As part of the announced leadership transition, Mr. Schroeder was promoted to Chief Financial Officer, effective March 12, 2019. In connection with this promotion, effective as of March 12, 2019, Mr. Schroeder’s base salary was increased to $550,000, his target annual bonus opportunity was set at 100% of base salary, and his target long-term incentive compensation award opportunity was set at 150% of his base salary. Also as part of the announced leadership transition, Ms. Konrad was promoted to the position of Executive Vice President, Pharmacy
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& Retail Operations, effective March 12, 2019. In connection with this promotion, Ms. Konrad’s base salary was increased to $600,000, her target annual bonus opportunity was set at 100% of base salary, and her target long-term incentive compensation award opportunity was set at 200% of her base salary. Mr. Comitale was also promoted to Executive Vice President and General Counsel during fiscal year 2020. The preceding tables reflect Mr. Comitale’s base salary of $567,500 (effective September 18, 2019), a target annual bonus opportunity of 50% of base salary and a target long-term incentive compensation award opportunity of 125% of base salary.
Terms Applicable to All NEOs Under Employment Agreements.
Other Benefits. Pursuant to their employment agreements, while employed each of the Named Executive Officers is also entitled to participate in Rite Aid’s savings plan, welfare benefits, fringe benefit and perquisite programs as in effect from time to time.
Restrictive Covenants. The employment agreement of each Named Executive Officer prohibits the officer from competing with Rite Aid during his or her employment period and for a period of one year (two years for Mr. Schroeder) thereafter.
Termination and Change in Control Benefits. The provisions of the employment agreements relating to termination of employment are described under the caption “Potential Payments Upon Termination or Change in Control” below. The terms of the separation agreements entered into with each of Messrs. Standley, Crawford, Karst and Everett, are also described under the caption “Potential Payments Upon Termination or Change in Control” below.
Post-Employment Consulting. As previously noted, Mr. Standley ceased serving as the Chief Executive Officer of the Company effective as of August 12, 2019, in connection with the appointment of Ms. Donigan as Chief Executive Officer of the Company. On August 14, 2019, the Company entered into a consulting agreement with Avalon Retail Consulting, Inc., through its president, Mr. Standley, pursuant to which Mr. Standley provided consulting services to the Company for the principal purpose of assisting in the orderly transition of his previous roles and responsibilities to Ms. Donigan. Mr. Standley received a total of $120,000 pursuant to the terms of the consulting agreement, which was terminated in November of 2019.
As previously noted, Mr. Everett ceased serving as the Chief Operating Officer of the Company effective as of October 11, 2019. In connection with his separation, the Company entered into a consulting agreement with Mr. Everett, pursuant to which Mr. Everett provided consulting services to the Company for the principal purpose of assisting in the orderly transition of his previous role and responsibilities. Under the terms of the consulting agreement, for the two-month period commencing on October 14, 2019 and ending on December 14, 2019, Mr. Everett received $37,500 per month in exchange for providing such consulting services for up to ten hours per week.
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OUTSTANDING EQUITY AWARDS AT FISCAL YEAR 2020 YEAR-END The following table summarizes the number of securities underlying outstanding equity awards for the Named Executive Officers. As previously announced, we implemented a reverse stock split of our common stock at a reverse stock split ratio of 1-for-20. Our common stock began trading on a split-adjusted basis on the NYSE at the market open on April 22, 2019. Accordingly, all share amounts and option exercise prices presented reflect the reverse stock split, including awards made prior to April 22, 2019.
| Heyward Donigan | | | 8/12/2019 | | | — | | | 502,913 | | | — | | | 7.02 | | | 8/12/2029 | | | 284,900 | | | 3,880,338 | | | — | | | — | |
| James J. Peters | | | 10/7/2019 | | | — | | | 108,900 | | | — | | | 8.10 | | | 10/7/2029 | | | 61,700 | | | 840,354 | | | — | | | — | |
| Matthew Schroeder | | | 6/25/2012 | | | 1,213 | | | — | | | — | | | 26.40 | | | 6/25/2022 | | | — | | | — | | | — | | | — | |
| | | | 6/24/2013 | | | 694 | | | — | | | — | | | 55.20 | | | 6/24/2023 | | | — | | | — | | | — | | | — | |
| | | | 6/23/2014 | | | 740 | | | — | | | — | | | 141.60 | | | 6/23/2024 | | | — | | | — | | | — | | | — | |
| | | | 6/24/2015 | | | 745 | | | — | | | — | | | 173.60 | | | 6/24/2025 | | | | | | | | | | | | | |
| | | | 7/17/2017 | | | | | | | | | | | | | | | | | | 573 | | | 7,804 | | | 1,720 | | | 23,426 | |
| | | | 7/17/2019 | | | — | | | — | | | — | | | — | | | — | | | 3,863 | | | 52,614 | | | | | | | |
| | | | 1/4/2019 | | | — | | | — | | | — | | | — | | | — | | | 31,800 | | | 433,116 | | | | | | | |
| Jocelyn Z. Konrad | | | 6/27/2011 | | | 1,655 | | | — | | | — | | | 24.80 | | | 6/27/2021 | | | — | | | — | | | — | | | — | |
| | | | 6/25/2012 | | | 1,690 | | | — | | | — | | | 26.40 | | | 6/25/2022 | | | — | | | — | | | — | | | — | |
| | | | 6/24/2013 | | | 675 | | | — | | | — | | | 55.20 | | | 6/24/2023 | | | — | | | — | | | — | | | — | |
| | | | 6/23/2014 | | | 330 | | | — | | | — | | | 141.60 | | | 6/23/2024 | | | — | | | — | | | — | | | — | |
| | | | 6/24/2015 | | | 580 | | | — | | | | | | 173.60 | | | 6/24/2025 | | | — | | | — | | | — | | | — | |
| | | | 7/17/2017 | | | — | | | — | | | — | | | — | | | — | | | 2,230 | | | 30,373 | | | 6,690 | | | 91,118 | |
| | | | 1/4/2019 | | | — | | | — | | | — | | | — | | | — | | | 8,986 | | | 122,389 | | | | | | | |
| | | | 7/17/2019 | | | — | | | — | | | — | | | — | | | — | | | 46,200 | | | 629,244 | | | | | | | |
| James J. Comitale | | | 6/25/2012 | | | 1,210 | | | — | | | — | | | 26.40 | | | 6/25/2022(6) | | | — | | | — | | | — | | | — | |
| | | | 6/24/2013 | | | 930 | | | — | | | — | | | 55.20 | | | 6/24/2023(6) | | | — | | | — | | | — | | | — | |
| | | | 6/23/2014 | | | 450 | | | — | | | — | | | 141.60 | | | 6/23/2024(6) | | | — | | | — | | | — | | | — | |
| | | | 6/24/2015 | | | 375 | | | — | | | — | | | 173.60 | | | 6/24/2025(6) | | | — | | | — | | | — | | | — | |
| | | | 7/17/2017 | | | — | | | — | | | — | | | — | | | — | | | 1,218 | | | 16,589 | | | 3,655 | | | 49,781 | |
| | | | 1/4/2019 | | | — | | | — | | | — | | | — | | | — | | | 6,720 | | | 91,526 | | | | | | | |
| | | | 7/17/2019 | | | — | | | — | | | — | | | — | | | — | | | 27,300 | | | 371,826 | | | | | | | |
| John T. Standley | | | 6/23/2010 | | | 71,430 | | | — | | | — | | | 21.40 | | | 6/23/2020 | | | — | | | — | | | — | | | — | |
| | | | 6/27/2011 | | | 118,079 | | | — | | | — | | | 24.80 | | | 8/14/2020 | | | — | | | — | | | — | | | — | |
| | | | 6/27/2011 | | | 70,175 | | | — | | | — | | | 24.80 | | | 8/14/2020 | | | — | | | — | | | — | | | — | |
| | | | 6/25/2012 | | | 68,965 | | | — | | | — | | | 26.40 | | | 8/14/2020 | | | — | | | — | | | — | | | — | |
| | | | 6/24/2013 | | | 46,815 | | | — | | | — | | | 55.20 | | | 8/14/2020 | | | — | | | — | | | — | | | — | |
| | | | 6/23/2014 | | | 33,925 | | | — | | | — | | | 141.60 | | | 8/14/2020 | | | — | | | — | | | — | | | — | |
| | | | 6/24/2015 | | | 28,465 | | | — | | | — | | | 173.60 | | | 8/14/2020 | | | — | | | — | | | — | | | — | |
| Kermit R. Crawford | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Darren W. Karst | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Bryan B. Everett | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
(1)
| Refer to “Potential Payments Upon Termination or Change in Control” below for circumstances under which the terms of the vesting of equity awards would be accelerated. |
(2)
| The stock options granted to Ms. Donigan will vest in equal installments on each of the first four anniversaries of the grant date, and the stock options granted to Mr. Peters will vest in equal installments on each of the first three anniversaries of the grant date, in each case, based on continued employment. |
(3)
| Restricted shares will generally vest one-third on each of the first three anniversaries of the grant date, based on continued employment. |
(4)
| Determined with reference to $13.62, the closing price of a share of Rite Aid common stock on the last trading day before February 29, 2020. |
(5)
| For a discussion of the terms and conditions of the performance units granted on July 17, 2017, see “Compensation Discussion and Analysis, Long-Term Incentives, 2018-2020 Plan.” |
(6)
| These stock options will expire on August 21, 2020 based on Mr. Comitale’s departure on May 21, 2020. |
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OPTION EXERCISES AND STOCK VESTED TABLE FOR FISCAL YEAR 2020 The following table summarizes for each Named Executive Officer the stock option exercises and shares vested during fiscal year 2020.
| Heyward Donigan | | | — | | | — | | | — | | | — | |
| James J. Peters | | | — | | | — | | | — | | | — | |
| Matthew Schroeder | | | — | | | — | | | 2,671 | | | 21,587 | |
| Jocelyn Z. Konrad | | | — | | | — | | | 7,370 | | | 58,936 | |
| James J. Comitale | | | — | | | — | | | 4,921 | | | 39,630 | |
| John T. Standley | | | — | | | — | | | 169,300 | | | 1,032,714 | |
| Kermit R. Crawford | | | — | | | — | | | — | | | — | |
| Darren W. Karst | | | — | | | — | | | 33,614 | | | 257,483 | |
| Bryan B. Everett | | | — | | | — | | | 115,499 | | | 1,035,893 | |
NONQUALIFIED DEFERRED COMPENSATION FOR FISCAL YEAR 2020 The following table sets forth the nonqualified deferred compensation activity for each Named Executive Officer during fiscal year 2020:
| Heyward Donigan | | | — | | | — | | | — | | | — | | | — | |
| James J. Peters | | | — | | | — | | | — | | | — | | | — | |
| Matthew Schroeder(1) | | | — | | | — | | | 301,459 | | | 2,348,752 | | | — | |
| Jocelyn Z. Konrad(1) | | | — | | | — | | | 43,810 | | | 591,454 | | | — | |
| James J. Comitale(1) | | | — | | | — | | | 91,533 | | | 1,435,861 | | | — | |
| John T. Standley(1) | | | — | | | — | | | 669,623 | | | 4,928,681 | | | — | |
| Kermit R. Crawford(1) | | | — | | | — | | | 5,011 | | | 328,779 | | | — | |
| Darren W. Karst(1) | | | — | | | — | | | 60,212 | | | 1,053,794 | | | — | |
| Bryan B. Everett(1) | | | — | | | — | | | 30,066 | | | 508,758 | | | — | |
(1)
| Amounts shown relate to a defined contribution supplemental executive retirement plan which covered certain Named Executive Officers and was terminated by the Company effective February 25, 2019, such that no further accruals or contributions were made in the 2020 fiscal year. Please refer to the Compensation Discussion and Analysis under the caption “Post-Retirement Benefits” for a description of the material terms of this plan. |
(2)
| Amounts shown were reported to the extent required in the “All Other Compensation” column of the Summary Compensation Table for fiscal year 2019. |
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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. The circumstances resulting in severance entitlements under the employment agreements is discussed below. During the last completed fiscal year, the Company has entered into separation agreements with four former Named Executive Officers, which are discussed below in the caption “Named Executive Officer Departures.”
Individual Agreements.
Ms. Heyward Donigan
Circumstances Resulting in Severance. Pursuant to her employment agreement with the Company, if Ms. Donigan is terminated by Rite Aid without “cause” or if she terminates her employment for “good reason” (as such terms are defined in Ms. Donigan’s employment agreement), then:
she will be entitled to receive a severance amount equal to two times the sum of the annual base salary and target bonus, a pro-rata bonus for the fiscal year of termination based on actual performance, and any accrued but unpaid salary and benefits through the date of termination. The severance amount would be payable in installments over the two-year period following the termination; any pro-rata bonus for the fiscal year would be paid following determination of performance at the same time that payments are made to other bonus-eligible associates;
she will be entitled to receive a payment equal to the cost of continued health benefits under COBRA for two years following the termination, paid in a lump sum; and
outstanding stock options will immediately vest and be exercisable, generally, for a period of 90 days following the termination of employment and the restrictions on time-based restricted stock will immediately lapse, each to the extent the options would have vested and restrictions would have lapsed, had she remained employed by Rite Aid for two years following the termination.
The foregoing severance benefits are subject to Ms. Donigan’s execution of a general release of claims in favor of the Company and compliance with restrictive covenants.
Mr. James J. Peters
Circumstances Resulting in Severance. Pursuant to his employment agreement with the Company, if Mr. Peters is terminated by Rite Aid without “cause” or if he terminates his employment for “good reason” (as such terms are defined in Mr. Peters’ employment agreement), then:
he will be entitled to receive a severance amount equal to two times the sum of the annual base salary and target bonus, a pro-rata bonus for the fiscal year of termination based on actual performance, and any accrued but unpaid salary and benefits through the date of termination. The severance amount would be payable in installments over the two-year period following the termination; any pro-rata bonus for the fiscal year would be paid following determination of performance at the same time that payments are made to other bonus-eligible associates;
he will be entitled to receive a payment equal to the cost of continued health benefits under COBRA for eighteen months following the termination, paid in a lump sum; and
outstanding stock options will immediately vest and be exercisable, generally, for a period of 90 days following the termination of employment and the restrictions on time-based restricted stock will immediately lapse, each to the extent the options would have vested and restrictions would have lapsed, had he remained employed by Rite Aid for two years following the termination.
The foregoing severance benefits are subject to Mr. Peters’ execution of a general release of claims in favor of the Company and compliance with restrictive covenants.
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Mr. Matthew Schroeder
Circumstances Resulting in Severance. Pursuant to his employment agreement with the Company, if Mr. Schroeder is terminated by Rite Aid without “cause” or if he terminates his employment for “good reason” (as such terms are defined in Mr. Schroeder’s employment agreement), then:
he will be entitled to receive a severance amount equal to two times the sum of the annual base salary and target bonus, a pro-rata target bonus for the fiscal year of termination, and any accrued but unpaid salary and benefits through the date of termination. The severance amount would be payable in installments over the two-year period following the termination; any pro-rata bonus for the fiscal year would be paid at the same time that payments are made to other bonus-eligible associates;
he will be entitled to receive continued health benefits for two years following the termination; and
outstanding stock options will immediately vest and be exercisable, generally, for a period of 90 days following the termination of employment to the extent the options would have vested had he remained employed by Rite Aid for two years following the termination.
Ms. Jocelyn Z. Konrad
Circumstances Resulting in Severance. Pursuant to her employment agreement with the Company, if Ms. Konrad is terminated by Rite Aid without “cause” or if she terminates her employment for “good reason” (as such terms are defined in the applicable employment agreement), then:
she will be entitled to receive a severance amount equal to two times annual base salary as of the date of termination of employment, a pro-rata bonus for the fiscal year of termination based on actual performance, and any accrued but unpaid salary and benefits through the date of termination. The severance amount would be payable in installments over the two-year period following the termination; any pro-rata bonus for the fiscal year would be paid following determination of performance at the same time that payments are made to other bonus-eligible associates;
she will be entitled to receive continued health benefits for two years following the termination; and
outstanding stock options will immediately vest and be exercisable, generally, for a period of 90 days following the termination of employment and the restrictions on the restricted common stock will immediately lapse, each to the extent the options would have vested and restrictions would have lapsed, in each case, had she remained employed by Rite Aid for two years following the termination.
The foregoing severance benefits are subject to Ms. Konrad’s execution of a general release of claims in favor of the Company and compliance with restrictive covenants.
Circumstances Resulting in Severance. Pursuant to his employment agreement with the Company, if Mr. Comitale is terminated by Rite Aid without “cause” or if he terminates his employment for “good reason” (as such terms are defined in the applicable employment agreement), then:
he will be entitled to receive a severance amount equal to two times the sum of the annual base salary and target bonus, a pro-rata bonus for the fiscal year of termination based on actual performance, and any accrued but unpaid salary and benefits through the date of termination. The severance amount would be payable in installments over the two-year period following the termination; any pro-rata bonus for the fiscal year would be paid following determination of performance at the same time that payments are made to other bonus-eligible associates;
he will be entitled to receive continued health benefits for two years following the termination; and
all outstanding stock options will immediately vest and be exercisable, generally, for a period of 90 days following the termination of employment and the restrictions on the restricted common stock will immediately lapse, each to the extent the options would have vested and restrictions would have lapsed, in each case, had he remained employed by Rite Aid for two years following the termination.
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The foregoing severance benefits are subject to Mr. Comitale’s execution of a general release of claims in favor of the Company and compliance with restrictive covenants. As noted with respect to the quantification table below for Mr. Comitale at page 72, Mr. Comitale left the Company as of May 21, 2020.
Termination for Cause or Without Good Reason. If Rite Aid were to terminate any of the Named Executive Officers for “cause,” or if any of the Named Executive Officers were to terminate his or her employment without “good reason”:
Rite Aid would pay the officer all accrued but unpaid salary and benefits;
any portion of any then-outstanding stock option grant that was not exercised prior to the date of termination would immediately terminate (provided that if the officer terminates his or her employment without good reason, any options that have vested and become exercisable prior to the date of termination will generally remain exercisable for a period of 90 days); and
any portion of any restricted stock award, or other long-term incentive award, as to which the restrictions would not have lapsed or as to which any other conditions were not satisfied prior to the date of termination would be forfeited.
Termination as a Result of Death or Disability. If the employment of any of the Named Executive Officers were to be terminated as a result of death or “disability” (as such term is defined in each employment agreement), the officer will be entitled to receive all accrued but unpaid salary and benefits payable under death or disability benefit plans in which the officer participates, continued health insurance (or reimbursement for the cost of such benefits) for two years for the officer and/or his or her immediate family, as applicable, vesting of all stock options and, for all Named Executive Officers other than Mr. Schroeder, vesting of an amount of restricted stock that, in each case, would have vested had the officer remained employed for two years following the date of termination.
Distributions Upon Termination. Upon the termination of employment of any of the Named Executive Officers, the officer would generally have become entitled to receive a distribution of his or her vested account balance under the supplemental executive retirement plan, which was terminated by the Company in February of 2019 with distributions to the officers at the end of February 2020 as provided for in the plan. The individual distribution to each Named Executive Officer is shown in the “Nonqualified Deferred Compensation for Fiscal Year 2020” table above. For more information regarding the supplemental executive retirement plan, refer to the Compensation Discussion and Analysis under the caption “Post-Retirement Benefits.”
Change in Control Arrangements.
Under Employment Agreements – Double Trigger Arrangements. Severance benefits are not triggered pursuant to a change in control unless the change in control is followed by a termination of the Named Executive Officer’s employment under the circumstances resulting in severance described above.
For purposes of the employment agreements with the Named Executive Officers, where applicable, the term “change in control” generally means an acquisition of 35% 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 35% or more of the Company’s combined voting power; or the stockholders approve a plan of complete liquidation or dissolution of the Company.
The employment agreements with Ms. Donigan, Mr. Peters, Mr. Schroeder, Ms. Konrad and Mr. Comitale provide that any portion of any payment that is subject to tax imposed by Section 4999 of the Code will be reduced to the extent necessary so that the Named Executive Officer would retain a greater amount on an after-tax basis than had the excise tax been imposed on the unreduced amount of the payments.
Under Rite Aid’s Equity Program. Pursuant to the terms of the Company’s 2014 Omnibus Equity Plan, unless otherwise provided in a Named Executive Officer’s employment agreement or individual award agreement, if outstanding equity awards are assumed or substituted in connection with a change in control, the change in control will not cause the vesting of such awards to accelerate unless the change in control is followed by a qualifying termination of employment within the 24-month period following the change in control. All outstanding equity awards granted pursuant to the Company’s equity program that are not assumed or substituted in connection with a change
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in control transaction will become fully vested and exercisable, free of applicable restrictions, and all performance criteria will be deemed to have been achieved at target levels, upon the occurrence of the change in control. The 2020 Plan provides for the same terms except that awards that are subject to performance-based conditions would only vest pro-rata based on the participant’s service during the applicable performance period. For more information regarding the 2020 Plan, refer to “Proposal No. 4 - Approval of the Adoption of the Rite Aid Corporation 2020 Omnibus Equity Incentive Plan” beginning on page 29.
For purposes of Rite Aid’s equity program, including any inducement awards, a “change in control” means, in general: (i) a person or entity acquires securities of Rite Aid representing 50% or more of the combined voting power of Rite Aid; (ii) an unapproved change in the majority membership of the Board; (iii) consummation of a merger or consolidation of Rite Aid or any subsidiary of Rite Aid, other than a merger or consolidation that results in the Rite Aid voting securities continuing to represent at least 60% of the combined voting power of the surviving entity or its parent, or a merger or consolidation effected to implement a recapitalization or similar transaction involving Rite Aid in which no person or entity acquires at least 35% of the combined voting power of Rite Aid; or (iv) stockholder approval of a plan of complete liquidation or dissolution of Rite Aid or the consummation of an agreement for the sale or disposition of all or substantially all of Rite Aid’s assets, other than a sale or disposition to an entity, at least 60% of the combined voting power of which is owned by Rite Aid stockholders in substantially the same proportions as their ownership of Rite Aid immediately prior to such sale. For more information regarding the equity program, refer to the Compensation Discussion and Analysis under the caption “Long-Term Incentive Program.”
Quantification of Payments Described.
The tables below quantify the termination and change in control payments that would have been made to the Named Executive Officers (other than the Named Executive Officers who were no longer serving at the end of the fiscal year), had their employment been terminated as of February 29, 2020 under the circumstances described in the tables below. The separation arrangements with Messrs. Standley, Crawford, Karst and Everett are also discussed below under the caption “Named Executive Officer Departures.”
| 2 × Base Salary | | | n/a | | | n/a | | | 2,000,000 | | | 2,000,000 | |
| 2 × Bonus | | | n/a | | | n/a | | | 4,000,000 | | | 4,000,000 | |
| Pro-Rated Incentive Bonus for Past Fiscal Year | | | 777,000 | | | 777,000 | | | 777,000 | | | 777,000 | |
| Benefits | | | 31,841 | | | 31,841 | | | 31,841 | | | 31,841 | |
| Vesting of Equity(1) | | | 4,246,505 | | | 4,246,505 | | | 4,246,505 | | | 7,199,564(2) | |
| 2 × Base Salary | | | n/a | | | n/a | | | 1,500,000 | | | 1,500,000 | |
| 2 × Bonus | | | n/a | | | n/a | | | 1,875,000 | | | 1,875,000 | |
| Pro-Rated Incentive Bonus for Past Fiscal Year | | | 260,156 | | | 260,156 | | | 260,156 | | | 260,156 | |
| Benefits | | | 31,007 | | | 31,007 | | | 31,007 | | | 31,007 | |
| Vesting of Equity(1) | | | 960,988 | | | 960,988 | | | 960,988 | | | 1,223,064(2) | |
| 2 × Base Salary | | | n/a | | | n/a | | | 1,100,000 | | | 1,100,000 | |
| 2 × Bonus | | | n/a | | | n/a | | | 1,100,000 | | | 1,100,000 | |
| Pro-Rated Incentive Bonus for Past Fiscal Year | | | 366,300 | | | 366,300 | | | 366,300 | | | 366,300 | |
| Benefits | | | 30,339 | | | 30,339 | | | 30,339 | | | 30,339 | |
| Vesting of Equity(1) | | | 349,162 | | | 349,162 | | | 349,162 | | | 385,398(2) | |
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| 2 × Base Salary | | | n/a | | | n/a | | | 1,200,000 | | | 1,200,000 | |
| 2 × Bonus | | | n/a | | | n/a | | | n/a | | | n/a | |
| Pro-Rated Incentive Bonus for Past Fiscal Year | | | 399,600 | | | 399,600 | | | 399,600 | | | 399,600 | |
| Benefits | | | 30,505 | | | 30,505 | | | 30,505 | | | 30,505 | |
| Vesting of Equity(1) | | | 572,258 | | | 572,258 | | | 572,258 | | | 629,674(2) | |
| 2 × Base Salary | | | n/a | | | n/a | | | 1,135,000 | | | 1,135,000 | |
| 2 × Bonus | | | n/a | | | n/a | | | 567,500 | | | 567,500 | |
| Pro-Rated Incentive Bonus for Past Fiscal Year | | | 188,977 | | | 188,977 | | | 188,977 | | | 188,977 | |
| Benefits | | | 30,399 | | | 30,399 | | | 30,399 | | | 30,399 | |
| Vesting of Equity(1) | | | 356,000 | | | 356,000 | | | 356,000 | | | 391,238(2) | |
(a)
| Mr. Comitale will be entitled to receive the benefits payable upon a termination without cause as governed by his employment agreement, based on his base salary and target annual bonus as of May 21, 2020, the date of his departure. |
(1)
| Includes the value of equity awards and performance awards held by the officer that would become vested under the applicable circumstances. The value of stock options shown is based on the excess of $13.62, the closing price of a share of Rite Aid common stock on the last trading day before February 29, 2020, over the exercise price of such options, multiplied by the number of unvested stock options held by the officer that would become vested under the applicable circumstances. The value of restricted stock and performance awards that are settled in stock shown is determined by multiplying $13.62, the closing price of a share of Rite Aid common stock on the last trading day before February 29, 2020 and the number of shares of restricted stock and the number of performance awards that are settled in stock held by the officer that would become vested under the applicable circumstances. |
(2)
| The value would also apply upon a change in control under the assumption that outstanding equity awards are not assumed or substituted in the change in control transaction, resulting in full vesting upon the change in control, as described above in the “Potential Payments Upon Termination or Change in Control—Change in Control Arrangements” narrative. |
Named Executive Officer Departures During Fiscal Year 2020
Separation Agreement with Mr. John T. Standley
Pursuant to the separation agreement entered into on March 12, 2019, Mr. Standley became entitled to the following severance benefits upon his departure from the Company on August 14, 2019 in connection with the appointment of his successor: (i) $7,333,300 representing two times the sum of his annual base salary and target bonus, payable in equal installments over 24 months, (ii) a pro-rata bonus for the fiscal year of termination based on actual performance, payable at the same time as bonuses are paid to Rite Aid’s executive team generally, (iii) continued health benefits for two years following the termination (with an aggregate value of approximately $22,932) and (iv) accelerated vesting with respect to those stock options and time-based restricted stock awards that would have vested within the three (3) year period following the termination (with an aggregate value of $818,629 at the time of vesting). The foregoing severance benefits were subject to Mr. Standley’s execution of a general release of claims in favor of the Company and continuing compliance with restrictive covenants.
Separation Agreement with Mr. Kermit R. Crawford
Pursuant to the separation agreement entered into on March 12, 2019, Mr. Crawford became entitled to the following severance benefits upon his departure from the Company as of March 12, 2019: (i) $5,000,000, payable in equal installments over 24 months and (ii) forgiveness of Mr. Crawford’s obligation to repay $520,073 to the Company, which represents the repayment obligation with respect to the cash-based inducement award paid to Mr. Crawford upon his hire. The foregoing severance benefits were subject to Mr. Crawford’s execution of a general release of claims in favor of the Company and compliance with restrictive covenants.
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Separation Agreement with Mr. Darren W. Karst
Pursuant to the separation agreement entered into on March 12, 2019, Mr. Karst became entitled to the following severance benefits upon his departure from the Company following a brief transition period on May 31, 2019: (i) $3,828,375 representing two times the sum of his annual base salary and target bonus, payable in equal installments over 24 months, (ii) a pro-rata bonus for the fiscal year of termination based on actual performance, payable at the same time as bonuses are paid to Rite Aid’s executive team generally, (iii) continued health benefits for two years following the termination (with an aggregate value of approximately $16,748), and (iv) accelerated vesting with respect to those stock options and time-based restricted stock awards that would have vested within the two (2) year period following the termination (with an aggregate value of $316,741 at the time of vesting). The foregoing severance benefits were subject to Mr. Karst’s execution of a general release of claims in favor of the Company and continuing compliance with restrictive covenants.
Separation Agreement with Mr. Bryan B. Everett
Pursuant to the separation agreement entered into on October 2, 2019, Mr. Everett became entitled to the following severance benefits upon his departure from the Company as of October 11, 2019: (i) $3,375,000 representing two times the sum of his annual base salary and target bonus, payable in equal installments over 24 months, (ii) a pro rata annual bonus for the fiscal year of termination based on actual performance, payable at the same time as bonuses are paid to Rite Aid’s executive team generally, (iii) continued health benefits for two years following the termination (with an aggregate value of approximately $49,638), (iv) accelerated vesting with respect to those stock options and time-based restricted stock awards that would have vested within the two (2) year period following the termination (with an aggregate value of $963,361 at the time of vesting), and (v) an additional sum of $61,644 representing pay in lieu of 30 days’ notice. The foregoing severance benefits were subject to Mr. Everett’s execution of a general release of claims in favor of the Company and continuing compliance with restrictive covenants.
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As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K under the Exchange Act, we are providing the following information about the relationship of the annual total compensation of our employees other than our Chief Executive Officer (our “CEO”) and the annual total compensation of our CEO. This pay ratio is a reasonable estimate calculated in a manner consistent with SEC rules based on our payroll and employment records and the methodology described below. Of our total employee base of 52,186 associates employed as of February 29, 2020, we determined that the 2020 annual total compensation of the median employee, other than our CEO, was $38,394 and our CEO’s 2020 annual total compensation was $9,657,799. The ratio of these amounts is 252:1.
To identify the median employee among our associates other than the CEO, we used wages taxable for federal medical health insurance purposes for the calendar year 2019, with such amounts annualized for those permanent employees who were hired during the year. After identifying the median employee (who is a full time Shift Supervisor employed in the Rego Park, New York area and a member of SEIU 1199) as of December 31, 2019, we calculated annual total compensation for such employee using the same methodology we use to determine Named Executive Officer annual total compensation in the Summary Compensation Table for fiscal year 2020, except that we also took into account the compensation provided under non-discriminatory benefit plans by including the actuarial value of health and welfare benefits for the median employee. As discussed below and as required by SEC rules, for Ms. Donigan, we then also took into account the actuarial value of the health and welfare benefits for salaried employees that are self-insured by the Company.
For fiscal year 2020, the total compensation as reported in the “Total” column of the “Summary Compensation Table” above for our Chief Executive Officer, Ms. Donigan, was $8,619,340. Since Ms. Donigan was appointed as our Chief Executive Officer effective as of August 12, 2019, for purposes of determining the pay ratio above, we calculated her total annual compensation for pay ratio purposes by (i) annualizing her base salary, non-equity incentive plan compensation earned for fiscal year 2020 (assuming an annual base salary of $1,000,000 and the annual incentive award that would have been earned for the full year equal to $1,332,000) and automobile allowance equal to $12,000, (ii) adding the total value of Ms. Donigan’s inducement awards in connection with her appointment as President and Chief Executive Officer (as described in “Compensation Discussion and Analysis” above) and (iii) adding the actuarial value of the health and welfare benefits for salaried employees that are self-insured by the Company. This calculation resulted in the assumed total annual compensation for Ms. Donigan in fiscal year 2020 of $9,657,799 for purposes of the pay ratio provided in the first paragraph above.
The SEC rules for identifying the median employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their compensation practices. As such, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies may have different employment and compensation practices and may utilize different methodologies, exclusions, estimates, and assumptions in calculating their own pay ratios.
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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 eight times during fiscal year 2020.
During those meetings, the Audit Committee:
Met with our internal auditors and independent registered public accounting firm, with and without management present, to discuss the overall scope and plans for their respective audits, the results of their examinations, their evaluations of our internal control over financial reporting and the overall quality of our financial reporting.
Reviewed and discussed with management and our independent registered public accounting firm, for their respective purposes, the audited financial statements included in our Annual Report on Form 10-K for fiscal year 2020. The discussions included the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements and the Annual Report on Form 10-K for fiscal year 2020.
Reviewed the unaudited interim financial statements and Forms 10-Q prepared each quarter by the Company.
Received management representations that the Company’s financial statements were prepared in accordance with accounting principles generally accepted in the United States of America.
Reviewed and updated the Audit Committee charter.
Reviewed and discussed with our independent registered public accounting firm those matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board (“PCAOB”) and the SEC.
Discussed with our independent registered public accounting firm matters relating to their independence and received the written disclosures and the letter from our independent registered public accounting firm required by applicable requirements of the PCAOB regarding the independent accountant’s communications with the Audit Committee concerning independence. The Audit Committee has considered whether the level of non-audit related services provided by our independent registered public accounting firm is consistent with maintaining their independence.
Pre-approved audit, other audit-related, and tax services performed by our independent registered public accounting firm.
In addition to pre-approving the audit and other audit-related and tax services performed by our independent registered public accounting firm, the Audit Committee requests fee estimates associated with each proposed service. Providing a fee estimate for a service incorporates appropriate oversight and control of the independent registered public accounting firm relationship. On a quarterly basis, the Audit Committee reviews the status of services and fees incurred year-to-date against pre-approved services and fee estimates.
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As outlined in the table below, we incurred the following fees, including expenses billed to the Company for the fiscal years ended February 29, 2020 and March 2, 2019 by our independent registered public accounting firm, Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates.
| 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 | | | $2.3 | | | $2.4 | |
| Audit-Related Fees, acquisition-related due diligence procedures and audits of employee benefit plans’ financial statements | | | $0.2 | | | $0.2 | |
| Tax Fees, tax compliance advice and planning | | | $0.0 | | | $0.0 | |
| All Other Fees | | | $0.0 | | | $0.0 | |
| Total | | | $2.5 | | | $2.6 | |
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 29, 2020 for filing with the SEC.
Louis P. Miramontes, Chair
Elizabeth Burr
Arun Nayar
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EQUITY COMPENSATION PLAN INFORMATION The following table provides information as of February 29, 2020, with respect to the compensation plans under which our common stock may be issued.
| Equity compensation plans approved by stockholders | | | 2,749,240(1) | | | $30.29(2) | | | 580,253 | |
| Equity compensation plans not approved by stockholders | | | — | | | — | | | — | |
| Total(3) | | | 2,749,240(1) | | | $30.29(2) | | | 580,253 | |
(1)
| Includes 1.253 million shares issuable with respect to outstanding unvested restricted stock units (“RSUs”) and 201,698 vested Director RSUs. The remaining balance consists of outstanding stock options. |
(2)
| The weighted average exercise price does not take into account the shares issuable upon settlement of outstanding RSUs, which have no exercise price. |
(3)
| On a fully diluted basis, which reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, the number of shares of common stock outstanding was 54,005,000. |
Of the 580,253 shares remaining shown in column (c), there are 400,174 shares available for the grant of awards other than stock options or stock appreciation rights.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
OF RITE AIDThe following table sets forth, as of January 18, 2019May 11, 2020 (except as otherwise noted), certain information concerning the beneficial ownership of (a) each director and nominee for director, (b) each of our "Named“Named Executive Officers"Officers” (as such term is defined in Item 402(a)(3) of Regulation S-K under the Exchange Act), (c) each holder known to us to beneficially own more than 5% of our common stock and (d) all current directors and executive officers as a group (based on 1,080,197,30054,703,393 shares of common stock outstanding as of January 18, 2019)May 11, 2020). 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.
| Named Executive Officers and Directors:
| | | | | | | |
| Bruce G. Bodaken | | | 29,654(2) | | | * | |
| Elizabeth ‘Busy’ Burr | | | 15,400(3) | | | * | |
| James J. Comitale | | | 46,733(4) | | | * | |
| Kermit R. Crawford | | | 0 | | | * | |
| Heyward Donigan | | | 284,900 | | | * | |
| Bryan B. Everett | | | 102 | | | * | |
| Darren W. Karst | | | 9,572 | | | * | |
| Robert E. Knowling, Jr. | | | 23,192(5) | | | * | |
| Jocelyn Z. Konrad | | | 72,069(6) | | | * | |
| Kevin E. Lofton | | | 28,894(7) | | | * | |
| Louis P. Miramontes | | | 23,192(8) | | | * | |
| Arun Nayar | | | 23,192(9) | | | * | |
| James J. Peters | | | 54,450 | | | * | |
| Katherine B. Quinn | | | 15,400(10) | | | * | |
| Matthew Schroeder | | | 38,423(11) | | | * | |
| John T. Standley | | | 706,304(12) | | | 1.29% | |
| Marcy Syms | | | 43,551(13) | | | * | |
| All Executive Officers and Directors (17 persons) | | | 832,139(14) | | | 1.52% | |
| 5% Stockholders:
| | | | | | | |
| BlackRock, Inc. 55 East 52nd Street New York, NY 10055 | | | 4,322,536(15) | | | 7.90% | |
| The Vanguard Group 100 Vanguard Blvd. Malvern, PA 19355 | | | 5,494,828(16) | | | 10.04% | |
*
| Percentage less than 1% of class. |
(1)
| Beneficial ownership has been determined in accordance with Rule 13d-3 under the Exchange Act, thereby including options exercisable within 60 days of May 11, 2020. |
(2)
| This amount represents 29,395 restricted stock units that have vested or will vest before July 10, 2020 at which time said units will be payable in shares of common stock when Mr. Bodaken leaves the Board. |
(3)
| This amount represents 15,400 restricted stock units that have vested or will vest before July 10, 2020 at which time said units will be payable in shares of common stock when Ms. Burr leaves the Board. |
(4)
| This amount includes 2,965 shares which may be acquired within 60 days by exercising stock options. |
(5)
| This amount represents 23,192 restricted stock units that have vested or will vest before July 10, 2020 at which time said units will be payable in shares of common stock when Mr. Knowling leaves the Board. |
(6)
| This amount includes 4,930 shares which may be acquired within 60 days by exercising stock options. |
| | | | | | | |
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 | | | | | | | |
*Percentage less than 1% of class.
(1)Beneficial ownership has been determined in accordance with Rule 13d-3 under the Exchange Act, thereby including options exercisable within 60 days of January 18, 2019.
(2)This amount includes 355,288 restricted stock units that have vested or will vest within 60 days of January 18, 2019, at which time said units will be payable in shares of common stock when Mr. Anderson Jr. leaves the Board.
(3)This amount represents 31,250 restricted stock units that have vested or will vest within 60 days of January 18, 2019, at which time said units will be payable in shares of common stock when Mr. Bodaken leaves the Board.
(4)This amount includes 250,000 shares which may be acquired within 60 days by exercising stock options.
(5)This amount includes 50,100 shares which may be acquired within 60 days by exercising stock options.
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(6)This amount includes 325,100 shares which may be acquired within 60 days by exercising stock options.
(7)This amount includes 101,700 shares which may be acquired within 60 days by exercising stock options.
(8)This amount represents 11,048 restricted stock units that have vested or will vest within 60 days of January 18, 2019, at which time said units will be payable in shares of common stock when Mr. Lofton leaves the Board.
(9)This amount includes 355,288 restricted stock units that have vested or will vest within 60 days of January 18, 2019, at which time said units will be payable in shares of common stock when Mr. Regan leaves the Board.
(10)This amount includes 11,750,360 shares which may be acquired within 60 days by exercising stock options.
(11)This amount includes 355,288 restricted stock units that have vested or will vest within 60 days of January 18, 2019, at which time said units will be payable in shares of common stock when Ms. Syms leaves the Board.
(12)This amount includes 12,763,985(7)
| This amount represents 28,385 restricted stock units that have vested or will vest before July 10, 2020 at which time said units will be payable in shares of common stock when Mr. Lofton leaves the Board. |
(8)
| This amount represents 23,192 restricted stock units that have vested or will vest before July 10, 2020 at which time said units will be payable in shares of common stock when Mr. Miramontes leaves the Board. |
(9)
| This amount represents 23,192 restricted stock units that have vested or will vest before July 10, 2020 at which time said units will be payable in shares of common stock when Mr. Nayar leaves the Board. |
(10)
| This amount represents 15,400 restricted stock units that have vested or will vest before July 10, 2020 at which time said units will be payable in shares of common stock when Ms. Quinn leaves the Board. |
(11)
| This amount includes 3,392 shares which may be acquired within 60 days by exercising stock options. |
(12)
| This amount includes 437,854 shares which may be acquired within 60 days by exercising stock options. |
(13)
| This amount represents 43,551 restricted stock units that have vested or will vest before July 10, 2020 at which time said units will be payable in shares of common stock when Ms. Syms leaves the Board. |
(14)
| This amount includes 11,467 shares which may be acquired within 60 days by exercising stock options by all directors and executive officers and 201,707 restricted stock units that have vested and will be payable in shares of common stock when the directors leave the Rite Aid Board of Directors. |
(15)
| This information is as of December 31, 2019 and based solely on a Schedule 13G filed by BlackRock, Inc. with the SEC on February 6, 2020. |
(16)
| This information is as of April 30, 2020 and based solely on a Schedule 13G/A filed by The Vanguard Group with the SEC on May 8, 2020. |