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TABLE OF CONTENTS
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy
Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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Filed by the Registrant
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Filed by a Party other than the Registrant
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Check the appropriate box:
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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
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Payment of Filing Fee (Check the appropriate box):
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No fee required.
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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(1)
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Title of each class of securities to which transaction applies:
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(2)
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Aggregate number of securities to which transaction applies:
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(3)
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
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(4)
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Proposed maximum aggregate value of transaction:
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(5)
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Total fee paid:
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Fee paid previously with preliminary materials.
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
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(1)
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Amount Previously Paid:
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(2)
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Form, Schedule or Registration Statement No.:
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(3)
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Filing Party:
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(4)
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Date Filed:
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Table of Contents
RITE AID CORPORATION
P.O. BOX 3165
HARRISBURG, PENNSYLVANIA 17105
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on July 17, 2017
To Our Stockholders:
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What:
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Our 2017 Annual Meeting of Stockholders
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When:
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July 17, 2017 at 8:30 a.m., local time
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Where:
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Hilton Harrisburg
1 N. 2
nd
Street
Harrisburg, PA 17101
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Why:
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At this Annual Meeting, stockholders will be asked to:
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1.
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Elect nine directors to hold office until the 2018 Annual Meeting of Stockholders and until their respective successors are duly elected and
qualified;
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2.
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Ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm;
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3.
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Approve, on an advisory basis, the compensation of our named executive officers as presented in the proxy statement;
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4.
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Recommend, on an advisory basis, the frequency of future advisory votes to approve the compensation of our named executive officers; and
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5.
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Transact such other business as may properly come before the Annual Meeting or any adjournment or postponement of the Annual Meeting.
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The
close of business on May 31, 2017 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 and 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.
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 Annual Meeting in person, and no matter how many shares you own, please submit your proxy promptly by telephone or via the Internet in accordance with the instructions on the enclosed proxy card,
or by completing, dating and returning your proxy card in the envelope provided. This will not prevent you from voting in person at the Annual 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 Annual Meeting, in which case your prior proxy would be disregarded.
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By order of the Board of Directors
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James J. Comitale
Secretary
Camp Hill, Pennsylvania
June 7, 2017
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Table of Contents
TABLE OF CONTENTS
Table of Contents
RITE AID CORPORATION
P.O. BOX 3165
HARRISBURG, PENNSYLVANIA 17105
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
To Be Held on July 17, 2017
Important Notice Regarding the Availability of Proxy Materials for the
Stockholder Meeting to be Held on July 17, 2017:
The proxy statement and annual report, as well as the Company's proxy card, are available at
www.proxyvote.com.
This
proxy statement is being furnished to you by the Board of Directors (the "Board" or "Board of Directors") of Rite Aid Corporation (the "Company" or "Rite Aid") to solicit your proxy
to vote your
shares at our 2017 Annual Meeting of Stockholders (the "Annual Meeting"). The Annual Meeting will be held on July 17, 2017 at 8:30 a.m., local time, at the Hilton Harrisburg, 1 N.
2
nd
Street, Harrisburg, PA 17101.
This
proxy statement, the foregoing notice and the accompanying proxy card are first being made available on or about June 7, 2017 to all holders of our common stock, par value
$1.00 per share, entitled to vote at the Annual Meeting. At Rite Aid and in this proxy statement, we refer to our employees as associates.
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
Who is entitled to vote at the Annual Meeting?
Holders of Rite Aid common stock as of the close of business on the record date, May 31, 2017, will receive notice of, and be eligible to
vote at, the Annual Meeting and any adjournment or postponement of the Annual Meeting. At the close of business on the record date, Rite Aid had outstanding and entitled to vote 1,053,674,129 shares
of common stock. No other shares of Rite Aid capital stock are entitled to notice of and to vote at the Annual Meeting.
What matters will be voted on at the Annual Meeting?
There are four proposals that are scheduled to be considered and voted on at the Annual Meeting:
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Proposal No. 1: Elect nine directors to hold office until the 2018 Annual Meeting of Stockholders and until their respective successors
are duly elected and qualified;
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Proposal No. 2: Ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm;
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Proposal No. 3: Conduct an advisory vote to approve the compensation of our named executive officers as presented in this proxy
statement; and
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Proposal No. 4: Conduct an advisory vote as to the frequency of future advisory votes to approve the compensation of our named executive
officers.
Stockholders
will also be asked to consider and vote at the Annual Meeting on any other matter that may properly come before the Annual Meeting or any adjournment or postponement of the
Annual Meeting. At this time, the Board of Directors is unaware of any other matters that may properly come before the Annual Meeting.
What are the Board's voting recommendations?
The Board recommends that you vote "FOR" the nominees of the Board in the election of directors, "FOR" the ratification of Deloitte &
Touche LLP as the Company's independent registered public accounting firm, "FOR" the approval, on an advisory basis, of the compensation of our named executive officers as presented in this
proxy statement and that you vote for holding future advisory votes to approve the compensation of our named executive officers every "ONE YEAR."
What is the difference between holding shares as a stockholder of record and as a beneficial owner?
If your shares are registered directly in your name with our transfer agent, Broadridge Corporate Issuer Services, you are considered the
"stockholder of record" with respect to those shares.
If
your shares are held in a stock brokerage account or by a bank or other nominee, those shares are held in "street name" and you are considered the "beneficial owner" of the shares. As
the beneficial owner of those shares, you have the right to direct your broker, bank or nominee how to vote your shares, and you will receive separate instructions from your broker, bank or other
holder of record describing how to vote your shares.
How can I vote my shares before the Annual Meeting?
If you hold your shares in your own name,
you may submit a proxy by telephone, via the Internet
or by mail.
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Submitting a Proxy by Telephone:
You can submit a proxy for your shares by
telephone until 11:59 p.m. Eastern Daylight Time on July 16, 2017, by calling the toll-free telephone number on the enclosed proxy card, 1-800-690-6903. Telephone proxy submission is
available 24 hours a day. Easy-to-follow voice prompts allow you to submit a proxy for your shares and confirm that your instructions have been properly recorded. Our telephone proxy submission
procedures are designed to authenticate stockholders by using individual control numbers.
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Submitting a Proxy via the Internet:
You can submit a proxy for your shares
via the Internet until 11:59 p.m. Eastern Daylight Time on July 16, 2017, by accessing the website listed on the enclosed proxy card,
www.proxyvote.com
, and following the instructions you will
find on the website. Internet proxy submission is available 24 hours a day. As with
telephone proxy submission, you will be given the opportunity to confirm that your instructions have been properly recorded.
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Submitting a Proxy by Mail:
If you choose to submit a proxy for your shares
by mail, simply mark the enclosed proxy card, date and sign it, and return it in the postage paid envelope provided.
By
casting your vote in any of the three ways listed above, you are authorizing the individuals listed on the proxy to vote your shares in accordance with your instructions. You may also
attend the Annual Meeting and vote in person.
If your shares are held in the name of a bank, broker or other nominee,
you will receive instructions from the holder of record that you
must follow for your shares to be voted. The availability of telephonic or Internet voting will depend on the bank's or broker's voting process. Please check with
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your
bank or broker and follow the voting procedures your bank or broker provides to vote your shares. Also, please note that if the holder of record of your shares is a bank, broker or other nominee
and you wish to vote in person at the Annual Meeting, you must request a legal proxy from your bank, broker or other nominee that holds your shares and present that proxy and proof of identification
at the Annual Meeting; otherwise, you will not be able to vote in person at the Annual Meeting.
If I am the beneficial owner of shares held in "street name" by my broker, will my broker automatically
vote my shares for me?
New York Stock Exchange ("NYSE") rules applicable to brokers grant your broker discretionary authority to vote your shares without receiving
your instructions on certain matters. Your broker has discretionary voting authority under NYSE rules to vote your shares on the ratification of Deloitte & Touche LLP as our independent
registered public accounting firm. However, unless you provide voting instructions to your broker, your broker does not have discretionary authority to vote on the election of directors, the advisory
vote on the compensation of our named executive officers and the advisory vote on the frequency of future advisory votes to approve the compensation of our named executive officers.
Accordingly, it is particularly important
that beneficial owners instruct their brokers how they wish to vote their shares.
How will my shares be voted if I give my proxy but do not specify how my shares should be voted?
If you provide specific voting instructions, your shares will be voted at the Annual Meeting in accordance with your instructions. If you hold
shares in your name and sign and return a proxy card without giving specific voting instructions, your shares will be voted "FOR" the nominees of the Board in the election of directors, "FOR" the
ratification of Deloitte & Touche LLP as the Company's independent registered public accounting firm, "FOR" the approval, on an advisory basis, of the compensation of our named executive
officers and for every "ONE YEAR" with respect to the frequency of future advisory votes to approve the compensation of our named executive officers.
Could other matters be decided at the Annual Meeting?
At this time, we are unaware of any matters, other than those set forth above, that may properly come before the Annual Meeting. If any other
matters properly come before the Annual Meeting, the persons named in the enclosed proxy, or their duly constituted substitutes acting at the Annual Meeting or any adjournment or postponement of the
Annual Meeting, will be deemed authorized to vote or otherwise act on such matters in accordance with their judgment.
Who may attend the Annual Meeting?
All stockholders are invited to attend the Annual Meeting. Persons who are not stockholders may attend only if invited by the Board of
Directors. If you are the beneficial owner of shares held in the name of your broker, bank or other nominee, you must bring proof of ownership (e.g., a current broker's statement) in order to
be admitted to the meeting. You can obtain directions to the Annual Meeting by contacting our Investor Relations Department at (717) 975-3710.
Can I vote in person at the Annual Meeting?
Yes. If you hold shares in your own name as a stockholder of record, you may come to the Annual Meeting and cast your vote at the meeting by
properly completing and submitting a ballot.
If you are the beneficial owner of shares held in the name of your broker, bank or other nominee, you must first obtain a legal
proxy from your broker, bank or other nominee giving you the right to vote those shares and submit that proxy along with a properly completed ballot at the meeting; otherwise, you will not be able to
vote in person at the Annual Meeting.
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How can I change my vote?
You may revoke your proxy at any time before it is exercised by:
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Delivering to the Secretary a written notice of revocation, dated later than the proxy, before the vote is taken at the Annual Meeting;
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Delivering to the Secretary an executed proxy bearing a later date, before the vote is taken at the Annual Meeting;
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Submitting a proxy on a later date by telephone or via the Internet (only your last telephone or Internet proxy will be counted), before
11:59 p.m. Eastern Daylight Time on July 16, 2017; or
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Attending the Annual Meeting and voting in person (your attendance at the Annual Meeting, in and of itself, will not revoke the proxy).
Any
written notice of revocation, or later dated proxy, should be delivered to:
Rite
Aid Corporation
30 Hunter Lane
Camp Hill, Pennsylvania 17011
Attention: James J. Comitale, Secretary
Alternatively,
you may hand deliver a written revocation notice, or a later dated proxy, to the Secretary at the Annual Meeting before we begin voting.
If
your shares of Rite Aid common stock are held by a bank, broker or other nominee, you must follow the instructions provided by the bank, broker or other nominee if you wish to change
your vote.
What is an "abstention" and how would it affect the vote?
An "abstention" occurs when a stockholder sends in a proxy with explicit instructions to decline to vote regarding a particular matter.
Abstentions are counted as present for purposes of determining a quorum. An abstention with respect to the election of directors is neither a vote cast "for" a nominee nor a vote cast "against" the
nominee and, therefore, will have no effect on the outcome of the vote. Abstentions with respect to the ratification of Deloitte & Touche LLP as our independent registered public
accounting firm and the advisory vote on compensation of our named executive officers will have the same effect as voting "against" the proposal. Abstentions will not affect the outcome of the
advisory vote to approve the frequency of future advisory votes on the compensation of our named executive officers.
What is a broker "non-vote" and how would it affect the vote?
A broker non-vote occurs when a broker or other nominee who holds shares for the beneficial owner is unable to vote those shares for the
beneficial owner because the broker or other nominee does not have discretionary voting power for the proposal and has not received voting instructions from the beneficial owner of the shares. Brokers
will have discretionary voting power to vote shares for which no voting instructions have been provided by the beneficial owner only with respect to the ratification of Deloitte &
Touche LLP as our independent registered public accounting firm. Brokers will not have such discretionary voting power to vote shares with respect to the election of directors, the advisory
vote on the compensation of our named executive officers and the advisory vote on the frequency of future advisory votes on the compensation of our named executive officers. Shares that are the
subject of a broker non-vote are included for quorum purposes, but a broker non-vote with respect to a proposal will not be counted as a vote cast and will not be counted as a vote represented at the
meeting and entitled to vote and, consequently, will have no effect on the outcome of the vote.
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Accordingly,
it is particularly important that beneficial owners of Rite Aid shares instruct their brokers how to vote their shares.
What are the quorum and voting requirements for the proposals?
In deciding the proposals that are scheduled for a vote at the Annual Meeting, each holder of common stock as of the record date is entitled to
one vote per share of common stock. In order to take action on the proposals, a quorum, consisting of the holders of 526,837,065 shares (a majority of the aggregate number of shares of Rite Aid common
stock) issued and outstanding and entitled to vote as of the record date for the Annual Meeting, must be present in person or by proxy. This is referred to as a "quorum." Proxies marked "Abstain" and
broker non-votes will be treated as shares that are present for purposes of determining the presence of a quorum.
The affirmative vote of a majority of the total number of votes cast is required for the election of each director nominee named in Proposal
No. 1. This means that the votes cast "for" that nominee must exceed the votes cast "against" that nominee. Any shares not voted (whether by abstention, broker non-vote or otherwise) will not
be counted as votes cast and will have no effect on the outcome of the vote. For more information on the operation of our majority voting standard, see the section entitled "Board of
DirectorsCorporate GovernanceMajority Voting Standard and Policy."
The affirmative vote of a majority of the shares represented at the meeting and entitled to vote is required for the ratification of
Deloitte & Touche LLP as our independent registered public accounting firm in Proposal No. 2. Any shares represented and entitled to vote at the meeting and not voted (whether by
abstention or otherwise) will have the same effect as a vote "against" the proposal.
The affirmative vote of a majority of the shares represented at the meeting and entitled to vote is required for the approval of the advisory
vote on the compensation of our named executive officers in Proposal No. 3. Any shares represented and entitled to vote at the meeting and not voted (whether by abstention or otherwise) will
have the same effect as a vote "against" the proposal. Any broker non-votes with respect to the advisory vote on the compensation of our named executive officers will not be counted as shares
represented at the meeting and entitled to vote and, consequently, will have no effect on the outcome of the vote.
Proposal No. 4Advisory Vote on the Frequency of Future Advisory Votes on
Compensation of Named Executive Officers
The frequency (every one, two or three years) receiving the greatest number of votes, even if not a majority, will be considered the preference
of our stockholders. Abstentions and broker non-votes are not counted for the advisory vote on the frequency of future advisory votes on the compensation of our named executive officers and,
therefore, will have no effect on the outcome of the proposal.
What happens if a quorum is not present at the Annual Meeting?
If the shares present in person or represented by proxy at the Annual Meeting are not sufficient to constitute a quorum, the stockholders by a
vote of the holders of a majority of votes present in person or represented by proxy (which may be voted by the proxyholders) may, without further notice to any stockholder (unless a new record date
is set), adjourn the meeting to a different time and place to permit further solicitations of proxies sufficient to constitute a quorum.
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Who will count the votes?
Representatives of Broadridge Financial Solutions, Inc. will tabulate the votes and act as inspectors of election.
Who will conduct the proxy solicitation and how much will it cost?
We are soliciting proxies from stockholders on behalf of our Board and will pay for all costs incurred by it in connection with the
solicitation. In addition to solicitation by mail, the directors, officers and associates of Rite Aid and its subsidiaries may solicit proxies from stockholders of Rite Aid in person or by telephone,
facsimile or email without additional compensation other than reimbursement for their actual expenses.
We
have retained Morrow Sodali, LLC, a proxy solicitation firm, to assist us in the solicitation of proxies for the Annual Meeting. Rite Aid will pay Morrow Sodali a fee of
approximately $20,000 and reimburse the firm for approximately $10,000 of 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.
Why did I receive a "Notice of Internet Availability of Proxy Materials" but no proxy materials?
We distribute our proxy materials to certain 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
June 7, 2017, 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.
If you have any questions about voting your shares or attending the Annual Meeting, please call our Investor Relations Department at
(717) 975-3710.
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PROPOSAL NO. 1
ELECTION OF DIRECTORS
General
Our By-Laws provide that the Board of Directors may be composed of up to 15 members, with the number to be fixed from time to time by the Board.
The Board has fixed the number of directors at nine, and there are nine 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 Joseph B. Anderson, Jr., Bruce G.
Bodaken, David R. Jessick, Kevin E. Lofton, Myrtle S. Potter, Michael N. Regan, Frank A. Savage, John T. Standley and Marcy Syms 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. In selecting Mr. Anderson as a nominee, the Board considered the challenges to recruiting new
directors in light of the pending Merger and voted to waive the requirement that a nominee has not yet reached the age of 72 because of Mr. Anderson's extensive knowledge and experience, his
valuable contributions as a Board member and his leadership as Chair of the Nominating and Governance Committee.
Each
director elected at the Annual Meeting will hold office until the 2018 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.
RECOMMENDATION
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR"
THE ELECTION OF EACH OF THE NOMINEES LISTED ABOVE.
BOARD OF DIRECTORS
The following table sets forth certain information as of May 31, 2017 with respect to our director nominees. If elected, each of the
following person's terms will expire at the 2018 Annual Meeting of Stockholders.
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Name
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Age
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Position with Rite Aid
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Year First
Became
Director
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John T. Standley
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54
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Chairman and Chief Executive Officer
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2009
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Joseph B. Anderson, Jr.
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74
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Director
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2005
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Bruce G. Bodaken
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65
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Director
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2013
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David R. Jessick
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63
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Director
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2009
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Kevin E. Lofton
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62
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Director
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2013
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Myrtle S. Potter
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58
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Director
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2013
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Michael N. Regan
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69
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Director
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2007
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Frank A. Savage
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69
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Director
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2015
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Marcy Syms
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66
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Director
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2005
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Board Composition
The Board is committed to ensuring that it is composed of a highly capable and diverse group of directors who are well-equipped to oversee the
success of the business and effectively represent the interests of stockholders. In addition, the Board believes that having directors with a mix of tenures on the Board helps transition the knowledge
of the more experienced directors while providing a broad, fresh set of perspectives and a Board with a diversity of experiences and viewpoints.
Director Tenure(1)
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(1)
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As
of the date of the Annual Meeting.
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Board Gender Diversity
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Board Racial Diversity
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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.
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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.
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Skills and Experience
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Standley
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Anderson
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Bodaken
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Jessick
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Lofton
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Potter
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Regan
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Savage
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Syms
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Current/Former CEO
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X
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X
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X
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X
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X
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Management/Business Operations
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X
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X
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X
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X
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X
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X
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X
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X
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X
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Retail Industry
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X
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X
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X
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Healthcare Industry
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X
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X
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X
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Finance/Accounting
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X
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X
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X
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X
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X
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Board/Corporate Governance
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X
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X
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X
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X
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X
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X
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X
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X
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X
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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:
John T. Standley.
Mr. Standley, Chairman and Chief Executive Officer, has been Chairman of the Board since June 21, 2012,
Chief
Executive Officer since June 2010 and was President from September 2008 until June 2013. Mr. Standley served as the Chief Operating Officer from September 2008 until June 2010. He also served
as a consultant to Rite Aid from July 2008 to September 2008. From August 2005 through December 2007, Mr. Standley served as Chief Executive Officer and was a member of the board of directors
of Pathmark Stores, Inc. From June 2002 to August 2005, he served as Senior Executive Vice President and Chief Administrative Officer of Rite Aid and, in addition, in January 2004 was appointed
Chief Financial Officer of Rite Aid. He had served as Senior Executive Vice President and Chief Financial Officer of Rite Aid from September 2000 to June 2002 and had served as Executive Vice
President and Chief Financial Officer of Rite Aid from December 1999 until September 2000. Mr. Standley served on the SUPERVALU INC. board of directors from May 2013 to July 2015.
Mr. Standley currently serves on the National Association of Chain Drug Stores' board of directors and is a member of the Board's Executive Committee. He also serves on the board of directors
of CarMax, Inc.
As
the Company's Chief Executive Officer, with more than 20 years of retail, financial and executive experience, Mr. Standley brings to the Board an in-depth understanding
of all aspects of the Company, including its customers, operations and key business drivers. In addition, his experience serving as a chief financial officer of a number of companies, including the
Company, provides the Board with additional insights into financial and accounting matters relevant to the Company's operations.
Joseph B. Anderson, Jr.
Mr. Anderson has been the Chairman of the Board and Chief Executive Officer of TAG Holdings, LLC, a
manufacturing, service and technology business, since January 2002. Mr. Anderson was Chairman of the Board and Chief Executive Officer of Chivas Industries, LLC from 1994 to 2002.
Mr. Anderson served as a director of Meritor, Inc. until January 2017. Mr. Anderson also previously served as a director of NV Energy Inc. until December 2013,
Valassis Communications, Inc. until February 2014 and Quaker Chemical Corporation until May 2016.
Mr. Anderson
has a broad base of experience, including 20 years of chief executive officer experience at manufacturing, service and technology companies. From this
experience, Mr. Anderson brings an array of skills, including in the areas of strategic, business and financial planning and corporate development.
In addition, his service on the boards of directors of a number of publicly-traded companies provides the Board with insights into how boards at other companies have addressed issues similar to those
faced by the Company.
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Bruce G. Bodaken.
From 2000 through December 2012, Mr. Bodaken served as Chairman and Chief Executive Officer of Blue Shield of
California.
Mr. Bodaken also previously served as President and Chief Operating Officer of Blue Shield of California from 1995 to 2000 and 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, including Regional Vice President. Mr. Bodaken is currently a director and a member of the audit committee of WageWorks, Inc.
He also is a Visiting Lecturer in the Department of Public Health at UC Berkeley.
Mr. Bodaken
brings to the Board an in-depth knowledge of the health insurance and managed care industries and more than 20 years of executive leadership skills.
David R. Jessick.
Self-employed since 2005, Mr. Jessick served as a consultant to Rite Aid's Chief Executive Officer and senior
financial
staff from July 2002 until February 2005 and was Senior Executive Vice President, Chief Administrative Officer of Rite Aid from December 1999 to July 2002. From July 1998 to June 1999,
Mr. Jessick was Executive Vice President, Finance and Investor Relations of Fred Meyer, Inc., and from February 1997 to July 1998, Mr. Jessick was Chief Financial Officer of Fred
Meyer, Inc. From 1979 to 1996, he held various financial positions including Executive Vice President and Chief Financial Officer at Thrifty Payless Holdings, Inc. Mr. Jessick
began his career as a Certified Public Accountant for Peat, Marwick, Mitchell & Co. Mr. Jessick is currently a director and audit committee chairman of Big 5 Sporting Goods
Corporation. In addition, he previously served as a director of DFC Global Corp. from 2005 to 2014.
Mr. Jessick
brings over 35 years of retail, executive and financial experience to the Board. His familiarity with our business and his experience as a chief financial
officer provide useful insights into operational and financial matters relevant to the Company's business. In addition, his service on other boards of directors enables Mr. Jessick to share
insights with the Board regarding corporate governance best practices.
Kevin E. Lofton.
Mr. Lofton has served as the Chief Executive Officer of Catholic Health Initiatives ("CHI"), a healthcare system
operating
the full continuum of services from hospitals to home health agencies nationwide since 2003 and as President and CEO of CHI from 2003 through January 2014. Mr. Lofton previously served as Chief
Executive Officer of the University of Alabama at Birmingham Hospital and Howard University Hospital in Washington, D.C. Mr. Lofton is also a director and member of the audit and compensation
committees of Gilead Sciences, Inc.
Mr. Lofton
brings to the Board an in-depth knowledge and understanding of the healthcare industry and valuable executive leadership skills from senior management and leadership
roles in healthcare systems and hospitals.
Myrtle S. Potter.
Ms. Potter has served since 2005 as the Chief Executive Officer of Myrtle Potter & Company, LLC, a
private
consulting firm she founded, and from 2009 to 2014 as the Chief Executive Officer of Myrtle Potter Media, Inc., a consumer healthcare content company she founded. Ms. Potter previously
served at Genentech, Inc., as President of Commercial Operations from 2004 to 2005 and as Executive Vice President, Commercial Operations and Chief Operating Officer from 2000 to 2004. From
1998 to 2000 Ms. Potter served as President of Bristol-Myers Squibb, Inc.'s Cardiovascular Metabolic U.S. operations. Ms. Potter serves as a director of Liberty Mutual Holding
Company, Inc., Insmed, Inc. and Proteus Digital Health, Inc. and as a trustee of The University of Chicago. Ms. Potter served on the board of Everyday Health, Inc.
from September 2010 until December 2016 and on the board of Medco Health Solutions, Inc. from December 2007 until its acquisition by Express Scripts, Inc. in April 2012. She continued on
the board at Express Scripts until June 2012.
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Ms. Potter
brings to the Board extensive experience in executive management and leadership roles in the healthcare industry. She also brings valuable experience as a consultant to
global life science, biopharmaceutical and biotechnical companies regarding corporate strategy, customer engagement, commercialization, product development and as a former board member of two leading
pharmacy benefits management companies.
Michael N. Regan.
From August 2014 to March 2017, Mr. Regan has served as Executive Vice President and Chief Financial Officer of
Outrigger
Enterprises Group, a privately held hospitality company. Prior to that, Mr. Regan served as the Hold Separate Manager on behalf of the Federal Trade Commission, overseeing the Lumiere Place
Casino and Hotel and Four Seasons Hotel in St. Louis, Missouri from
August 2013 through its sale in spring 2014 and prior to that as Chief Financial Officer of Indianapolis Downs LLC, a casino and horse track complex located near Indianapolis, Indiana during
its bankruptcy from January 2012 through its sale in February 2013. From May 2007 through December 2011, Mr. Regan was a self-employed private equity investor. Prior thereto, Mr. Regan
served as Chief Financial Officer of The St. Joe Company, a major real estate development company based in Florida, from November 2006 to May 2007. From 1997 to November 2006, he served as
Senior Vice President, Finance and held various other positions with The St. Joe Company and was a member of the senior management team. Prior to joining The St. Joe Company, he served
in various financial management functions at Harrah's Entertainment from 1980 through 1997, including as Vice President and controller from 1991 to 1997.
Mr. Regan's
over 30 years of experience, including serving as a chief financial officer and as a senior vice president of finance, provides the Board with additional
perspectives on financial, operational and strategic planning, and real estate matters relevant to the Company.
Frank A. Savage.
Mr. Savage has been a senior advisor to investment banking firm Lazard Ltd. ("Lazard") since January 1,
2014
and served as Vice Chairman of U.S. Investment Banking at Lazard from 2009 to December 31, 2013. He was the Co-Head of Lazard's Restructuring Group from June 1999 to December 31, 2013
and also served on Lazard's Deputy Chairman Committee from 2006 to December 2013. Prior to joining Lazard, Mr. Savage served as Co-Head of the Restructuring Practice at investment banking firm
BT Alex. Brown Inc. and before that was the Head of the Restructuring Group at investment bank UBS AG. Mr. Savage is currently a director and member of the Corporate Governance and
Nominating Committee of SUPERVALU INC.
Mr. Savage
brings to the Board extensive financial and investment banking experience.
Marcy Syms.
Ms. Syms served as a director of Syms Corp., a chain of retail clothing stores, from 1983, when she was named
President and COO,
until 2012. Ms. Syms became CEO of Syms Corp. in 1998 and was named Chair in 2010. In November 2011, Syms Corp. and its subsidiaries filed voluntary petitions for relief under Chapter 11
of the United States Bankruptcy Code and ceased all retail operations. Ms. Syms is also a founding member of the board of directors of the Syms School of Business at Yeshiva University.
Currently, Ms. Syms serves as President of the Sy Syms Foundation and Founder and President of the TPD Group LLC, a multi-generational succession planning company.
Ms. Syms
brings to the Board over 18 years of experience as a chief executive officer of a chain of retail stores, including an array of skills in strategic planning,
marketing and human resources matters similar to those faced by the Company.
Board Leadership
Mr. Standley serves as Chairman of the Board and Chief Executive Officer. Mr. Regan has served as our Lead Independent Director
since 2011 and it is expected that he will continue in that role.
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The
Company's governance framework provides the Board with flexibility to select the appropriate leadership structure for the Company. In connection with the 2012 Annual Meeting, the
Board reviewed its leadership structure in light of the Company's operating and governance environment and determined that Mr. Standley should serve as the Chairman of the Board effective as of
the 2012 Annual Meeting, based on the Board's belief that Mr. Standley's in-depth knowledge of the Company, keen understanding of the Company's operations and proven leadership and vision
positioned him to provide strong and effective leadership to the Board. The Board has determined to maintain its current leadership structure, taking into account the foregoing factors as well as the
evaluation of Mr. Standley's performance as Chief Executive Officer, his very positive relationships with other members of the Board and the leadership and strategic vision he has brought to
the Chairman position.
The
Board has no policy mandating the combination or separation of the Chairman of the Board and Chief Executive Officer positions and believes that, given the dynamic and competitive
environment in which we operate, the right leadership structure may vary from time to time based on changes in circumstances. The Board makes this determination based on what it believes best serves
the needs of the Company and its stockholders at any particular time. For the reasons described above, the Board continues to believe that Mr. Standley provides excellent leadership of the
Board in the performance of its duties and that a unified structure provides decisive and effective leadership both within and outside the Company.
In
addition, the Board continues to maintain the position of Lead Independent Director that it created in 2009. Under our Corporate Governance Guidelines, in the event that the Chairman
of the Board is also the Chief Executive Officer or otherwise is not an independent director, the independent members of the Board will choose an independent director to serve as Lead Independent
Director. The Lead Independent Director, who is expected to serve at least one year, has the following responsibilities, which are described in our Corporate Governance
Guidelines:
-
-
presides at all meetings of the Board at which the Chairman of the Board is not present, including executive sessions of the non-management
directors;
-
-
has the authority to call meetings of the non-management directors;
-
-
serves as a liaison between the Chairman of the Board and/or Chief Executive Officer and independent directors and facilitates communications
between other members of the Board and the Chairman and/or Chief Executive Officer (any director is free to communicate directly with the Chairman and/or Chief Executive Officer; the lead director's
role is to attempt to improve such communications if they are not entirely satisfactory);
-
-
works with the Chairman and/or Chief Executive Officer in the preparation of, and approves, Board meeting agendas and schedules and the
information to be provided to the Board;
-
-
chairs the annual review of the performance of the Chief Executive Officer;
-
-
otherwise consults with the Chairman and/or Chief Executive Officer on matters relating to corporate governance and Board performance; and
-
-
if requested by major stockholders, ensures that he/she 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, through the Nominating and Governance Committee, monitors corporate governance developments and proposed legislative, regulatory and stock exchange
corporate governance reforms.
12
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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
InfoGovernance" and are available in print upon request to Rite Aid Corporation, 30 Hunter
Lane, Camp Hill, Pennsylvania 17011, Attention: Secretary. The information on our website is not, and shall not be deemed, a part of this proxy statement. The Board regularly reviews corporate
governance developments and will modify these materials and practices from time to time as warranted.
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 InfoGovernanceCode of Ethics."
Director Independence.
For a director to be considered independent under the NYSE corporate governance listing standards, the
Board of Directors must
affirmatively determine that the director does not have any direct or indirect material relationship with the Company, including any of the relationships specifically proscribed by the NYSE
independence standards. The Board considers all relevant facts and circumstances in making its independence determinations. Only independent directors may serve on our Audit Committee, Compensation
Committee and Nominating and Governance Committee.
As
a result of this review, the Board affirmatively determined that the following directors, including each director serving on the Audit Committee, the Compensation Committee and the
Nominating and Governance Committee, satisfy the independence requirements of the NYSE listing standards: Joseph B. Anderson, Jr., Bruce G. Bodaken, David R. Jessick, Kevin E. Lofton, Myrtle S.
Potter, Michael N. Regan, Frank A. Savage and Marcy Syms. 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 By-Laws and (ii) such nomination has not been withdrawn by such stockholder (or group of stockholders) on or prior to the 14
th
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 re-election in accordance with the By-Laws will, within five days
following certification of the stockholder vote, tender his or her written resignation to the Chairman of the Board for consideration by the Board, subject to the procedures set forth in the
guidelines.
13
Table of Contents
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 Chief Compliance Officer 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. In addition, the Board
receives periodic updates from the Company's Senior Executive Vice President, Chief Financial Officer and Chief Administrative Officer on cybersecurity matters, including information services security
and security controls over credit card, customer, associate and patient data.
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 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 programs for its executives and associates and has concluded that the compensation policies are not reasonably likely to have
a material adverse effect on the Company.
The
Compensation Committee reviews the risk profile and the relationship between the Company's compensation programs to the overall risk profile of the Company. Some of the features of
our incentive programs that limit risk include:
-
-
Delivery of compensation through an appropriate mix of base salary, cash incentive bonuses, 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 new 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 ownership guidelines that promote executive stock ownership.
Committees of the Board of Directors
The Board of Directors has four standing committees: the Audit Committee, the Compensation Committee, the Nominating and Governance Committee
and the Executive Committee. Current copies of the charters for each of these committees are available on our website at
www.riteaid.com
under the
headings "Corporate
InfoGovernanceCorporate Governance CommitteesCommittee Charters."
14
Table of Contents
The
current members of the committees are identified in the following table.
|
|
|
|
|
|
|
|
|
Director
|
|
Audit
|
|
Compensation
|
|
Nominating and
Governance
|
|
Executive
|
John T. Standley
|
|
|
|
|
|
|
|
Chair
|
Joseph B. Anderson, Jr.
|
|
|
|
|
|
Chair
|
|
|
Bruce G. Bodaken
|
|
|
|
X
|
|
|
|
|
David R. Jessick
|
|
Chair
|
|
|
|
|
|
X
|
Kevin E. Lofton
|
|
X
|
|
|
|
|
|
|
Myrtle S. Potter
|
|
|
|
|
|
X
|
|
|
Michael N. Regan
|
|
X
|
|
X
|
|
|
|
X
|
Frank A. Savage
|
|
|
|
|
|
X
|
|
|
Marcy Syms
|
|
|
|
Chair
|
|
|
|
|
Audit Committee.
The Audit Committee, which held eight meetings during fiscal year 2017, currently consists of David R. Jessick
(Chair), Kevin E.
Lofton and Michael N. Regan. 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
GovernanceDirector Independence" above. The Board has determined that each of these individuals is also "financially literate" under the applicable NYSE listing standards. The Board has
determined that David R. Jessick qualifies as an "audit committee financial expert" as that term is defined under applicable SEC rules.
The
functions of the Audit Committee include the following:
-
-
Appointing, compensating and overseeing our independent registered public accounting firm ("independent auditors");
-
-
Overseeing management's fulfillment of its responsibilities for financial reporting and internal control over financial reporting; and
-
-
Overseeing the activities of the Company's internal audit function.
The
independent auditors and internal auditors meet with the Audit Committee with and without the presence of management representatives. For additional information, see the section
entitled "Audit Committee Report," as well as the Audit Committee's charter, which is posted on our website at
www.riteaid.com
under the headings
"Corporate InfoGovernanceCorporate Governance CommitteesCommittee Charters."
Compensation Committee.
The Compensation Committee, which held four meetings during fiscal year 2017, currently consists of
Marcy Syms (Chair), Bruce
G. Bodaken and Michael N. Regan. 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 GovernanceDirector 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
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Table of Contents
The
Compensation Committee reviews the performance of the Company's executive personnel, including the Company's named executive officers, and develops and makes recommendations to the
Board of Directors with respect to executive compensation policies. The Compensation Committee is empowered by the Board of Directors to award to executive officers appropriate bonuses, stock options,
stock appreciation rights and stock-based awards. The details of the processes and procedures for the consideration and determination of the compensation of our named executive officers are described
in the section entitled "Executive CompensationCompensation 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, reward performance and to fix a portion of compensation to the outcome of the Company's performance.
As
provided in its charter, the Compensation Committee has the authority to engage an external compensation consultant and to determine the scope of any services provided. The
Compensation Committee may terminate the engagement at any time. The external compensation consultant reports to the Compensation Committee Chair.
Since
June 2010, the Compensation Committee has utilized Exequity LLP as its independent consultant. With respect to fiscal year 2017, Exequity LLP reviewed recommendations
and analysis prepared by management and provided advice and counsel to the Compensation Committee. Exequity LLP does not provide any other services to the Company. The Compensation Committee
has assessed the independence of Exequity LLP, taking into consideration the factors set forth in the NYSE listing standards and SEC rules, and determined that the engagement of
Exequity LLP does not raise any conflicts of interest.
Nominating and Governance Committee.
The Nominating and Governance Committee, which held two meetings during fiscal year 2017,
currently consists of
Joseph B. Anderson, Jr. (Chair), Myrtle S. Potter and Frank A. Savage. The Board has determined that each of these individuals is an independent director under the NYSE listing standards. See the
section entitled "Corporate GovernanceDirector Independence" above.
The
functions of the Nominating and Governance Committee include the following:
-
-
Identifying and recommending to the Board individuals qualified to serve as Rite Aid directors;
-
-
Recommending to the Board individual directors to serve on committees of the Board;
-
-
Advising the Board with respect to matters of Board composition and procedures;
-
-
Developing and recommending to the Board a set of corporate governance principles applicable to Rite Aid and overseeing corporate governance
matters generally;
-
-
Overseeing the annual evaluation of the Board and management; and
-
-
Reviewing and approving or ratifying related person transactions in which the Company is a participant.
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Table of Contents
Executive Committee.
The members of the Executive Committee currently are John T. Standley (Chair), David R. Jessick and Michael
N. Regan. The
Executive Committee did not meet during fiscal year 2017. 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: Secretary. The Nominating
and Governance Committee will accept recommendations of director candidates throughout the year; however, in order for a recommended director candidate to be considered for nomination to stand for
election at an upcoming annual meeting of stockholders, the recommendation must be received by the Secretary not fewer than 120 days prior to the anniversary date of Rite Aid's most recent
annual meeting of stockholders.
The
Nominating and Governance Committee believes that the minimum qualifications for serving as a Rite Aid director are that a candidate demonstrate, by significant accomplishment in his
or her field, an ability to make a meaningful contribution to the Board's oversight of Rite Aid's business and affairs and have an impeccable record and reputation for honest and ethical conduct in
his or her professional and personal activities. In addition, the Nominating and Governance Committee examines a candidate's specific experiences and skills, availability in light of other
commitments, potential conflicts of interest and independence from management and the Company. The Nominating and Governance Committee also seeks to have the Board represent a diversity of backgrounds
and experience. The Nominating and Governance Committee 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 Boardfor 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
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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. Regan, our Lead Independent Director, presides at our
executive sessions. The non-management directors met in executive session 14 times during fiscal year 2017.
Communications with the Board of Directors
The Board has established a process to receive communications from stockholders and other interested parties. Stockholders and other interested
parties may contact any member (or all members) of the Board, any Board committee or any chair of any such committee by mail or electronically. To communicate with the Board of Directors, the
non-management directors, a committee of directors or any individual directors, including our Lead Independent Director, correspondence should be addressed to the Board of Directors or any such
individual directors or committee of directors by either name or title. All such correspondence should be sent to Rite Aid Corporation, c/o Secretary, P.O. Box 3165, Harrisburg,
Pennsylvania 17105. To communicate with any of the directors electronically, stockholders should go to our website at
www.riteaid.com
. Under the
headings "Corporate InfoGovernanceBoard of DirectorsContact the Board of Directors" you will find an on-line form, as well as an email address, that may be used
for writing an electronic message to the Board, the non-management directors, any individual directors, or any committee of directors. Please follow the instructions on the website in order to send
your message.
All
communications received as set forth above will be opened by the Secretary for the purpose of determining whether the contents represent a message to the directors, and depending on
the facts and circumstances outlined in the communication, will be distributed to the Board, the non-management directors, an individual director or committee of directors, as appropriate. The
Secretary will make
sufficient copies of the contents to send to each director who is a member of the Board or of the committee to which the envelope or e-mail is addressed.
Directors' Attendance at Board, Committee and Annual Meetings
The Board of Directors held 20 meetings during fiscal year 2017. 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 nine of our nine directors serving on the Board or nominated to serve on the
Board at the time of the meeting attended the 2016 Annual Meeting of Stockholders.
Directors' Compensation
Each non-management director receives an annual payment of $100,000 in cash, payable quarterly in arrears. In addition, (i) the Lead
Independent Director receives an additional annual payment of $25,000; (ii) the Chair of the Audit Committee receives an additional annual payment of $20,000; (iii) the Chairs of the
Compensation Committee and the Nominating and Governance Committee each receive an additional annual payment of $10,000; and (iv) each member of the Audit Committee (other than the Chair)
receives an additional annual payment of $10,000. Non-management directors also received an annual award of restricted stock or restricted stock units valued at $120,000. The annual grant vests 80% on
the first anniversary of the grant and 10% on each of the second and third anniversaries of the grant. Directors who are officers and/or Rite Aid associates receive no separate compensation for
service as directors or committee members. Directors are reimbursed for travel and lodging expenses associated with attending Board of Directors and Board committee meetings.
Non-management
directors are subject to our Stock Ownership Guidelines discussed on pages 41-42.
18
Table of Contents
DIRECTOR COMPENSATION TABLE FOR FISCAL YEAR 2017
The following Director Compensation Table sets forth fees, awards and other compensation paid to or earned by our non-management directors who
served during the fiscal year ended March 4, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Fees
Paid in
Cash ($)
|
|
Stock
Awards
($)(1)(2)
|
|
Option
Awards
($)(3)
|
|
Non-Equity
Incentive Plan
Compensation
($)
|
|
Change In
Nonqualified
Deferred
Compensation
($)
|
|
All Other
Compensation
($)
|
|
Total ($)
|
|
Joseph B. Anderson, Jr.
|
|
|
110,000.00
|
|
|
120,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
230,000.00
|
|
Bruce G. Bodaken
|
|
|
100,000.00
|
|
|
120,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
220,000.00
|
|
David R. Jessick
|
|
|
120,000.00
|
|
|
120,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
240,000.00
|
|
Kevin E. Lofton
|
|
|
110,000.00
|
|
|
120,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
230,000.00
|
|
Myrtle S. Potter
|
|
|
100,000.00
|
|
|
120,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
220,000.00
|
|
Michael N. Regan
|
|
|
135,075.00
|
|
|
120,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
255,075.00
|
|
Frank A. Savage
|
|
|
100,166.16
|
|
|
120,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
220,166.16
|
|
Marcy Syms
|
|
|
110,000.00
|
|
|
120,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
230,000.00
|
|
-
(1)
-
Represents
the grant date fair value of awards in fiscal year 2017 in accordance with FASB Topic 718. For information regarding the assumptions used in
determining the fair value of an award, please refer to Note 16 to our financial statements contained in our Annual Report on Form 10-K for the fiscal year ended March 4, 2017. We
recognize expense ratably over the three-year vesting period.
-
(2)
-
The
number of unvested restricted stock awards outstanding as of March 4, 2017 for each director is detailed in the table below.
|
|
|
|
|
|
|
|
Name
|
|
Grant Date
|
|
Number of
Stock
Awards (#)
|
|
Joseph B. Anderson, Jr.
|
|
|
June 19, 2014
|
|
|
1,671
|
|
|
|
|
June 25, 2015
|
|
|
2,764
|
|
|
|
|
June 22, 2016
|
|
|
15,504
|
|
Bruce G. Bodaken
|
|
|
June 19, 2014
|
|
|
1,671
|
|
|
|
|
June 25, 2015
|
|
|
2,764
|
|
|
|
|
June 22, 2016
|
|
|
15,504
|
|
David R. Jessick
|
|
|
June 19, 2014
|
|
|
1,671
|
|
|
|
|
June 25, 2015
|
|
|
2,764
|
|
|
|
|
June 22, 2016
|
|
|
15,504
|
|
Kevin E. Lofton
|
|
|
June 19, 2014
|
|
|
1,671
|
|
|
|
|
June 25, 2015
|
|
|
2,764
|
|
|
|
|
June 22, 2016
|
|
|
15,504
|
|
Myrtle S. Potter
|
|
|
June 19, 2014
|
|
|
1,671
|
|
|
|
|
June 25, 2015
|
|
|
2,764
|
|
|
|
|
June 22, 2016
|
|
|
15,504
|
|
Michael N. Regan
|
|
|
June 19, 2014
|
|
|
1,671
|
|
|
|
|
June 25, 2015
|
|
|
2,764
|
|
|
|
|
June 22, 2016
|
|
|
15,504
|
|
Frank A. Savage
|
|
|
June 25, 2015
|
|
|
2,764
|
|
|
|
|
June 22, 2016
|
|
|
15,504
|
|
Marcy Syms
|
|
|
June 19, 2014
|
|
|
1,671
|
|
|
|
|
June 25, 2015
|
|
|
2,764
|
|
|
|
|
June 22, 2016
|
|
|
15,504
|
|
19
Table of Contents
-
(3)
-
The
number of unexercised options outstanding as of March 4, 2017 for each director is detailed in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Grant Date
|
|
Exercise
Price($)
|
|
Outstanding(#)
|
|
Number of
Securities
Underlying
Unexercised
Options(#)
Exercisable
|
|
Number of
Securities
Underlying
Unexercised
Options(#)
Unexercisable
|
|
Joseph B. Anderson, Jr.
|
|
|
6/27/2007
|
|
|
6.15
|
|
|
50,000
|
|
|
50,000
|
|
|
|
|
Bruce G. Bodaken
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David R. Jessick
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin E. Lofton
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Myrtle S. Potter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael N. Regan
|
|
|
6/27/2007
|
|
|
6.15
|
|
|
100,000
|
|
|
100,000
|
|
|
|
|
Frank A. Savage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marcy Syms
|
|
|
6/27/2007
|
|
|
6.15
|
|
|
50,000
|
|
|
50,000
|
|
|
|
|
20
Table of Contents
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 March 3, 2018. 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
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 2018.
21
Table of Contents
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 CompensationCompensation
Discussion and Analysis").
Prior
to voting, stockholders may wish to 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 26-42, as well as the discussion regarding the Compensation Committee on pages 15-16.
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 how its compensation policies and procedures for its Named Executive Officers operate and are designed to achieve the Company's compensation objectives.
We
believe that the Company's compensation programs for its Named Executive Officers have been effective at promoting the achievement of positive results, appropriately aligning pay and
performance and in enabling the Company to attract and retain very 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 2017 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 2017 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 be 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 2017, as outlined in the above resolution.
RECOMMENDATION
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.
22
Table of Contents
PROPOSAL NO. 4
ADVISORY VOTE AS TO THE FREQUENCY OF FUTURE ADVISORY VOTES ON THE
COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS
Section 14A of the Exchange Act also requires that we include in this proxy statement a separate, non-binding stockholder vote on whether
future advisory votes on the
compensation of our Named Executive Officers should occur every one, two or three years. Stockholders have the option to vote for any one of the three options, or to abstain on the matter. In June
2011, our stockholders voted to hold an advisory vote on executive compensation every year. For the reasons discussed below, the Board recommends that future advisory votes on the compensation of our
Named Executive Officers take place every "ONE YEAR."
After
careful consideration and input from our stockholders, our Board has determined that an advisory vote on executive compensation that occurs annually is the most appropriate
alternative for the Company. In formulating its recommendation, our Board considered that an annual advisory vote on executive compensation will allow stockholders to provide us with their direct
input on our compensation philosophy, policies and practices as disclosed in the proxy statement every year. Additionally, an annual advisory vote on executive compensation is consistent with our
policy of seeking input from, and engaging in discussions with, our stockholders on corporate governance matters and our executive compensation philosophy, policies and practices. We will continue to
engage with our stockholders regarding our executive pay programs between stockholder advisory votes as part of our governance process.
The
Company recognizes that stockholders may have different views as to the best approach for the Company, and therefore the Company and Board encourage stockholders to express their
preferences as to the frequency of an advisory vote on the compensation of our Named Executive Officers.
This
vote is advisory and not binding on the Company or the Board, but the Board and the Compensation Committee will take into account the outcome of the vote when making decisions about
how often the Company conducts advisory votes on the compensation of our Named Executive Officers.
The
proxy card provides stockholders with the opportunity to choose among four options (holding the vote every one, two or three years, or abstaining). The frequency (every one, two or
three years) receiving the greatest number of votes, even if not a majority, will be considered the preference of our stockholders.
RECOMMENDATION
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO HOLD THE ADVISORY VOTE ON EXECUTIVE COMPENSATION EVERY "ONE YEAR".
23
Table of Contents
EXECUTIVE OFFICERS
Officers are appointed annually by the Board of Directors and serve at the discretion of the Board of Directors. Set forth below is information,
as of May 31, 2017, regarding the current executive officers of Rite Aid.
|
|
|
|
|
|
Name
|
|
Age
|
|
Position with Rite Aid
|
John T. Standley(1)
|
|
|
54
|
|
Chairman and Chief Executive Officer
|
Kenneth A. Martindale
|
|
|
57
|
|
President of Rite Aid Corporation and CEO of Rite Aid Stores
|
Darren W. Karst
|
|
|
57
|
|
Senior Executive Vice President, Chief Financial Officer and Chief Administrative Officer
|
Enio Anthony Montini, Jr.
|
|
|
64
|
|
Executive Vice President, Merchandising & Distribution
|
Bryan Everett
|
|
|
44
|
|
Executive Vice President, Store Operations
|
Jocelyn Konrad
|
|
|
47
|
|
Executive Vice President, Pharmacy
|
David Abelman
|
|
|
57
|
|
Executive Vice President, Marketing
|
Douglas E. Donley
|
|
|
54
|
|
Senior Vice President and Chief Accounting Officer
|
-
(1)
-
Mr. Standley's
biographical information is provided above in the section identifying the Board of Directors.
Kenneth A. Martindale.
Mr. Martindale was appointed CEO of Rite Aid Stores effective August 3, 2015. Mr. Martindale
continues to
serve as President, the title he has held since June 2013. He has previously served as Rite Aid's Chief Operating Officer since June 2010. From December 2008 until June 2010, he served as Rite Aid's
Senior Executive Vice President and Chief Merchandising, Marketing and Logistics Officer. Mr. Martindale served as Co-President, Chief Merchandising and Marketing Officer for Pathmark
Stores, Inc. from January 2006 until its acquisition by the Great Atlantic & Pacific Tea Company in December 2007. In January 2000, Mr. Martindale joined the board of directors of
Intesource, Inc.; became Chairman of the Board in March 2004; and served as President, Chief Executive Officer and Chairman of the Board from November 2004 until January 2006. From September
1999 until November 2004, Mr. Martindale was Principal of Martindale Development Group, L.L.C. From September 1999 until July 2003, Mr. Martindale was Managing Director/CEO of Orchard
Street, Inc., a privately held specialty food retailer which he founded and owned. Mr. Martindale was Executive Vice President of Sales and Procurement with Fred Meyer, Inc. from
January 1998 until September 1999 and was Senior Vice President of Sales and Procurement with Smith's Food & Drug Centers, Inc. from June 1996 until January 1998. Mr. Martindale
joined the board of directors of Fairway Holdings, a privately-held supermarket headquartered in New York, NY, in July 2016. Mr. Martindale currently serves on the board of directors of the
National Association of Chain Drug Stores.
Darren W. Karst.
Mr. Karst was appointed Senior Executive Vice President, Chief Financial Officer and Chief Administrative Officer
effective
October 25, 2015. Prior to this appointment, Mr. Karst served as Executive Vice President and Chief Financial Officer since August 2014. Prior to joining Rite Aid, from 2002 until 2014,
Mr. Karst served as Executive Vice President, Chief Financial Officer and Assistant Secretary with Roundy's, Inc., a Wisconsin-based supermarket chain. From March 1995 until March 1996,
Mr. Karst served as Senior Vice President, Chief Financial Officer, Secretary and Director of Dominick's Supermarkets, Inc. and from March 1996 until the acquisition of Dominick's by
Safeway in 1998, Mr. Karst served as Executive Vice President, Finance and Administration, Chief Financial Officer, Secretary and Director. Mr. Karst was a partner at the Yucaipa
Companies, a private equity investment firm, from 1991 to 2002.
24
Table of Contents
Enio Anthony Montini, Jr.
Mr. Montini was appointed Executive Vice President, Merchandising & Distribution effective
August 3,
2015. Prior to this position, he served as Executive Vice President, Merchandising since April 2011, and from February 2010 to April 2011, he served as Senior Vice President, Category Management. From
February 2008 until January 2010 he served as Executive Vice President, Chief Operating Officer with MARC USA, a privately held company. From February 2005 until January 2008, Mr. Montini was
Senior Vice President of Operations with MARC USA and from September 2004 until January 2005, he served as Senior Vice President, Channel Marketing with MARC USA.
Bryan Everett.
Mr. Everett was appointed Executive Vice President of Store Operations effective August 3, 2015. Previously,
Mr. Everett served as the Senior Vice President of Store Operations at Target Corporation overseeing the support functions and strategy for all stores. From February 2011 to March 2014,
Mr. Everett served as the Senior Vice President of Target stores in the north region, with responsibility for total operations of 457 stores. Mr. Everett held multiple senior leadership
positions in stores, operations and merchandising at Target since 2002. Prior to joining Target, Mr. Everett held leadership positions in the grocery industry with Aldi Foods and Fleming
Wholesale.
Jocelyn Konrad.
Ms. Konrad was appointed Executive Vice President, Pharmacy effective August 3, 2015. Prior positions at Rite
Aid
include Regional Pharmacy Vice President, President of Healthcare Initiatives and most recently, Group Vice President of Pharmacy Initiatives and Clinical Services. Prior to joining Rite Aid,
Ms. Konrad served as a District Manager for Eckerd Pharmacy from 1997 through 2007. From 1992 to 1997, she served as a pharmacist for Thrift Drug Pharmacy. Ms. Konrad is a registered
pharmacist and holds a Bachelor of Science degree from Philadelphia College of Pharmacy and Science.
David Abelman.
Mr. Abelman was appointed Executive Vice President of Marketing effective August 3, 2015. Prior to this
position, he
served as our Senior Vice President of Brand Development & Innovation since April 2014. Prior to joining Rite Aid, Mr. Abelman was CEO and co-founder of Self Health Nation.
Mr. Abelman also served as Executive Vice President and Chief Marketing & Merchandising Officer at AC Moore from May 2009 through December 2011 and Senior Vice President of Marketing for
Michael's from August 2005 through December 2007. He has also held senior marketing positions at Office Depot, Daymon Associates and the Great Atlantic & Pacific Tea Company.
Douglas E. Donley.
Mr. Donley has served as our Senior Vice President, Chief Accounting Officer since October 2005. He had been
Group Vice
President, Corporate Controller from 1999 to October 2005.
Mr. Donley served as the acting principal financial officer of the Company from October 7 to October 8, 2008, and as a financial analyst for the Company from 1996 to 1999. He was
an internal auditor for Harsco Corporation from 1994 to 1996. Prior to joining Harsco, he was an auditor for KPMG Peat Marwick.
25
Table of Contents
EXECUTIVE COMPENSATION
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 2017 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."
|
|
|
Name
|
|
Title
|
John T. Standley
|
|
Chairman and Chief Executive Officer
|
Kenneth A. Martindale
|
|
President of Rite Aid Corporation and CEO of Rite Aid Stores
|
Darren W. Karst
|
|
Senior Executive Vice President, Chief Financial Officer and Chief Administrative Officer
|
Enio Anthony Montini, Jr.
|
|
Executive Vice President, Merchandising & Distribution
|
Bryan Everett
|
|
Executive Vice President, Store Operations
|
Dedra N. Castle(1)
|
|
Executive Vice President, Chief Human Resources Officer
|
-
(1)
-
Ms. Castle
was no longer employed by us as of January 20, 2017.
Executive Summary
Rite Aid Corporation is the third largest retail drugstore chain in the United States based on revenues and number of stores, operating 4,536
stores as of March 4, 2017 in 31 states and the District of Columbia. In fiscal year 2016 we acquired EnvisionRx, a Pharmacy Benefit Management (PBM) provider, as we continued our transition
into a retail healthcare company. Our goals are to consistently understand and exceed the expectations of our customers by providing them with the best products, services and advice to meet their
unique needs, thereby allowing us to meet our key business objectives and ultimately provide sustainable long-term value to our stockholders.
We
believe that accomplishing these goals starts with our ability to attract, retain and appropriately motivate executive officers who have the knowledge, experience and leadership
ability to manage our business and promote a culture of teamwork and development that inspires each and every one of our associates to give their best effort every day.
We
feel that we have assembled a very strong team of executives, which has in turn resulted in our ability to attract and retain highly talented individuals at all levels of the
organization who are committed to our core values of excellence, integrity and respect for people and have the ability to execute our strategic and operational priorities. This combination of strong
executive leadership and a highly talented and motivated supporting team has enabled us to build a robust suite of assets that are both strong and unique in the retail healthcare space.
Despite our executive leadership team's continued focus on growing our business, the extended duration of the merger process had a negative
impact on our fiscal year 2017 results. We also faced pharmacy reimbursement rate challenges that we were unable to offset with reductions in drug
26
Table of Contents
purchasing
costs. Below is additional detail related to key financial indicators used as performance measures in our incentive programs for fiscal year 2017:
-
-
Adjusted EBITDA was $1,137.1 million or 3.5% of revenues for fiscal year 2017 compared to $1,402.3 million or 4.6% of revenues
for the prior year. See the discussion under the caption "Cash Incentive Bonuses" below for more detail on how we calculate Adjusted EBITDA. See Appendix A for a reconciliation of our
Adjusted EBITDA, which is a non-GAAP measure, to net income under GAAP. The decline in Adjusted EBITDA is due to a decrease of $352.0 million in the Retail Pharmacy Segment, resulting from
lower pharmacy gross profit due to lower reimbursement rates that we were unable to offset with reductions in drug purchasing costs. The decline in Retail Pharmacy Segment Adjusted EBITDA was
partially offset by an increase of $86.9 million of Pharmacy Services Segment Adjusted EBITDA. This increase was due to strong operating results in fiscal year 2017 and the fact that the prior
year's Pharmacy Services Segment results do not reflect a full year's ownership of EnvisionRx.
-
-
We had adjusted net income of $66.8 million, or $0.06 per diluted share compared to the prior year's adjusted net income of
$255.2 million or $0.24 per diluted share. This decline in adjusted net income resulted primarily from our decline in Adjusted EBITDA, partially offset by lower income tax expense.
See Appendix A for a reconciliation of our adjusted net income and adjusted net income per diluted share, which are non-GAAP measures, to net income under GAAP.
-
-
Our leverage ratio, which is a measure of our ability to meet our financial obligations, was 6.44, which was an increase over our fiscal year
2016 leverage ratio of 4.87 as a result of our decline in Adjusted EBITDA.
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 are generally aligned with compensation levels provided to peer company
executives and executives within similarly-sized retailers more broadly.
Because
of our desire to reinforce a performance-based culture, the Company emphasizes a pay 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 remaining portion. The mix varies by
position, taking into account each position's ability to influence Company results, as well as competitive practice. See page 33 for a graphical representation of pay mix by executive.
It
is also important to acknowledge that certain elements of our compensation program are guided by the terms of the Merger Agreement, including parameters for base salary increases as
well as limiting equity compensation vehicles to restricted stock and performance-based restricted stock units.
In
June 2011, 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. As noted in Proposal 4 in this proxy statement, the Board continues to recommend that the advisory vote on executive
compensation be held every year.
At
our 2015 Annual Meeting, the advisory stockholder proposal on acceleration on vesting of performance awards in connection with a change in control received the support of a majority
of votes cast. Although the Merger Agreement that was entered into on October 27, 2015 and amended on
27
Table of Contents
January 27,
2017 provided for the assumption of performance awards without vesting and therefore substantially implemented the proposal, the Board has further considered the stockholder
proposal through its engagement with major shareholders and has adopted the policy. The policy provides that
for any future long-term performance awards granted to any senior executive of the Company, in the event of a change in control (other than the transactions contemplated by the Merger Agreement
mentioned above), the Compensation Committee will provide in the applicable award agreement (in addition to the other qualifications for the award determined in the discretion of the Compensation
Committee) that the award will not accelerate upon such change in control; provided, however, that upon a qualifying termination of employment (as defined by the applicable award agreement or the
senior executive's employment agreement, as applicable) following a change in control, a pro rata portion of the award may vest based on the number of days the senior executive was employed during the
applicable performance period as of the date of such qualifying termination. The performance award policy will not affect any contractual rights in existence prior to the date of adoption of the
policy.
At
our 2016 Annual Meeting approximately 52% of shares voting on the proposal voted in favor of the compensation of our Named Executive Officers on a non-binding, advisory basis.
Although our 2016 "say-on-pay" proposal received support from a majority of the votes cast, we acknowledge that such support was low in relation to the level of shareholder support in prior years.
Rite Aid representatives have engaged with major shareholders to better understand their concerns. In addition to the new policy on a change in control vesting of performance-based awards, our
shareholder outreach efforts revealed a concern with respect to the magnitude of the long-term special performance award conveyed to Mr. Standley in fiscal year 2016. The Compensation Committee
deemed this special performance award to Mr. Standley to be appropriate in light of the fact that Mr. Standley's historical compensation levels in relation to peer benchmarks were
consistently well below median, Mr. Standley's leadership was and is critical to the success of our company, and the continued successful integration of EnvisionRx (the performance criteria
upon which Mr. Standley's special award is based) was and is a critical strategic priority for the Company. Further, the Compensation Committee deemed this special performance award to be a
two-year award. The 2016 special awards to Mr. Standley and Mr. Martindale served their purpose at that critical juncture. Accordingly, the Compensation Committee determined that it
would not consider additional awards of this nature in fiscal year 2017 and will carefully consider the future use of special awards. The Compensation Committee believes strongly that the other
elements of compensation and the resulting magnitudes of compensation as described herein remain appropriate in light of current business conditions and fiscal year 2017 operational and financial
performance results.
At
our 2016 special shareholder meeting, 89% of votes cast by our stockholders approved, by means of non-binding, advisory vote, compensation that will or may become payable by Rite Aid
to its named executive officers in connection with the Merger, if the Merger is consummated. As in the past, the Compensation Committee will continue to review the results of future advisory
say-on-pay votes and will consider stockholders' concerns and take them into account in future determinations concerning the compensation of our Named Executive Officers.
We used Adjusted EBITDA as the primary financial metric in our annual incentive plan and long-term performance awards in fiscal year 2017. We
believe this was appropriate because EBITDA growth has historically shown a strong positive correlation with three-year and five-year total stockholder return for Rite Aid and its peer group, and that
it represented the best indicator of Rite Aid's operating performance based on our financial situation and corporate structure. With respect to long-term performance awards, the Compensation Committee
replaced the leverage ratio with a return on net asset ratio as the performance metric over the three-year performance period. The
28
Table of Contents
Compensation
Committee believes that return on net assets is a key indicator of our corporate performance, as it measures how efficiently and effectively we deploy our assets (return on net assets)
and focuses management on the need to improve the Company's financial condition over time. Additionally, with respect to our executive officers, including our Named Executive Officers, the
Compensation Committee included a 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 measuring period.
Our
Adjusted EBITDA for fiscal year 2017 was $1,137 million, which was below our annual plan target of $1,505 million. Based on performance against the adjusted goal, and
as described in more detail below under "Cash Incentive Bonuses," we did not pay annual incentives to our Named Executive Officers in respect of fiscal year 2017 performance.
See Appendix A for a reconciliation of our Adjusted EBITDA, which is a non-GAAP measure, to net income under GAAP.
The
performance targets for the long-term incentive awards granted to our Named Executive Officers in the form of performance stock in fiscal year 2017 are discussed in detail below. See
"Components of Executive Compensation for Fiscal Year 2017Long-Term Incentive Program, Performance Awards" on pages 36-39. Pursuant to the Merger Agreement that was entered into on
October 27, 2015, as amended on January 29, 2017, performance awards that are granted after October 27, 2015 will not provide for accelerated vesting in connection with a change
in control, and the pending Merger will not constitute the first trigger in connection with any "double trigger" vesting provisions.
Objectives of Our Executive Compensation Program
All of our executive compensation and benefits programs are within the purview of the Compensation Committee, which bases these programs on the
same objectives that guide the Company in establishing all of its compensation programs. 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 retail drugstore 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
29
Table of Contents
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. 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 growth, EBITDA growth, return on
sales, debt leverage ratios, return on average invested capital and net assets 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 programsthe annual cash incentive bonus program and
performance awards 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 retail organizations and published survey data. The peer group was originally approved by the Compensation Committee in
January 2015 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
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, and companies engaged in
pharmaceutical distribution;
-
-
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 or offer similar merchandise as Rite Aid; and
-
-
Companies of similar size based on revenue 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.
30
Table of Contents
Fiscal Year 2017 Peer Group
|
|
|
|
|
Peer Company
|
|
Revenues
($ Millions)
|
|
CVS Health Corporation.
|
|
|
177,526
|
|
AmerisourceBergen Corp.
|
|
|
148,310
|
|
Walgreen Boots Alliance, Inc
|
|
|
116,081
|
|
The Home Depot, Inc.
|
|
|
94,595
|
|
Target Corp.
|
|
|
69,495
|
|
Lowe's Companies, Inc.
|
|
|
65,017
|
|
The TJX Companies, Inc.
|
|
|
33,184
|
|
Macy's, Inc.
|
|
|
25,778
|
|
Sears Holdings Corp.
|
|
|
22,138
|
|
Dollar General Corp.
|
|
|
21,987
|
|
Dollar Tree, Inc.
|
|
|
20,719
|
|
Staples Inc.
|
|
|
18,247
|
|
Whole Foods Market, Inc.
|
|
|
15,813
|
|
J.C. Penney Company, Inc.
|
|
|
12,547
|
|
Supervalu Inc.
|
|
|
12,480
|
|
Office Depot Inc.
|
|
|
11,021
|
|
-
Note:
-
Revenue
reflects trailing 12 month data through February 2017 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
Global
Premium Executive Remuneration Suite
and Towers Watson's
Survey Report on Top Management Compensation
.
The
Compensation Committee uses peer group and survey data primarily to ensure that the executive compensation program as a whole is competitive, meaning generally within 25% of the
median range of comparative pay of the market when Rite Aid achieves the targeted performance levels. The Compensation Committee further designed the incentive plans 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 2017, 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, and not to the Compensation Committee, although the Compensation Committee did review recommendations and analysis prepared by management and
Mercer in determining fiscal year 2017 compensation for the Named Executive Officers.
31
Table of Contents
Total compensation review.
The Compensation Committee reviews each executive's base pay, annual bonus, and long-term incentives
annually with the
guidance of the Compensation Committee's independent compensation consultant. Following the fiscal year 2017 review, the Compensation Committee determined that the target level and components of
compensation for fiscal year 2017 were reasonable in the aggregate and changes in compensation for our executives remained within the parameters established in the Merger Agreement.
Components of Executive Compensation for Fiscal Year 2017
For fiscal year 2017, the 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 stock
units and (iv) a benefits package, including a Supplemental Executive Retirement Program ("SERP"). A significant portion of total compensation is variable, meaning a significant portion is
subject to performance and is comprised of target annual incentives and target long-term incentives.
The
Compensation Committee believes that this program appropriately balances 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. The chart below shows the overall mix of base salary, target annual incentives, target long-term
incentives, and contributions under the SERP for Messrs. Standley, Martindale, Karst and Montini and Ms. Castle.
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Table of Contents
Target Total Remuneration(1)
Compensation Component as a % of Total Remuneration for Fiscal Year 2017
-
(1)
-
Target
Total Remuneration represents the sum of base salary, target annual incentives, target long-term incentives, and SERP contributions. Target Total Compensation
does not include (i) the value of broad-based benefits provided to all employees, (ii) components of all other compensation (except the SERP) shown in the Summary Compensation Table and
(iii) retention awards negotiated with Walgreens Boots Alliance in connection with, and contingent upon the consummation of, the Merger.
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 2017, 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.
33
Table of Contents
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. Mr. Standley's overall compensation, for example, is more heavily
weighted toward short- and long-term incentive compensation (approximately 85% in the aggregate as shown in the bar chart above) than that of the other Named Executive Officers.
The
Compensation Committee reviewed the Named Executive Officers' base salaries in April of fiscal year 2017 and considered the principles described above under "The Compensation
Committee's Processes" in establishing Named Executive Officers' base salaries for the fiscal year as noted in the chart below.
|
|
|
|
|
|
|
|
|
Executive
|
|
Base Salary at
End of FY 2017
|
|
Increase or
Change from
Prior Fiscal Year
|
|
Rationale
|
John T. Standley
|
|
$
|
1,184,500
|
|
|
3.0
|
%
|
Performance
|
Kenneth A. Martindale
|
|
$
|
927,000
|
|
|
3.0
|
%
|
Performance
|
Darren W. Karst
|
|
$
|
809,750
|
|
|
2.5
|
%
|
Performance
|
Enio Anthony Montini, Jr.
|
|
$
|
471,500
|
|
|
2.5
|
%
|
Performance
|
Bryan Everett
|
|
$
|
461,250
|
|
|
2.5
|
%
|
Performance
|
Dedra N. Castle
|
|
$
|
435,625
|
|
|
2.5
|
%
|
Performance
|
Cash Incentive Bonuses
The Company established an annual incentive plan in order to incentivize the Named Executive Officers to meet the Company's Adjusted EBITDA
target for fiscal year 2017. 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 2017 performance.
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 that compensation linked to corporate performance. Consistent with our executive compensation philosophy, individuals with greater job
responsibilities had a greater proportion of their
34
Table of Contents
total
cash compensation tied to Company performance through the incentive plan. The Compensation Committee, as a result, established the following targets for fiscal year 2017:
Annual Incentive Opportunity
|
|
|
|
|
|
|
|
|
|
|
Executive
|
|
Threshold Payout
(as a % of Salary)
|
|
Target Payout
(as a % of Salary)
|
|
Maximum Payout
(as a % of Salary)
|
|
John T. Standley
|
|
|
100
|
%
|
|
200
|
%
|
|
400
|
%
|
Kenneth A. Martindale
|
|
|
75
|
%
|
|
150
|
%
|
|
300
|
%
|
Darren W. Karst
|
|
|
62.5
|
%
|
|
125
|
%
|
|
250
|
%
|
Enio Anthony Montini, Jr.
|
|
|
37.5
|
%
|
|
75
|
%
|
|
150
|
%
|
Bryan Everett
|
|
|
37.5
|
%
|
|
75
|
%
|
|
150
|
%
|
Dedra N. Castle
|
|
|
37.5
|
%
|
|
75
|
%
|
|
150
|
%
|
The
Compensation Committee believes that using Adjusted EBITDA as the measure for the annual incentive plan appropriately encourages officers, including the Named Executive Officers, to
focus on improving operating results which ultimately drive stockholder value. EBITDA growth has historically shown a strong positive correlation with three-year and five-year total stockholder return
for Rite Aid and its peer group. The majority of Rite Aid's peer companies use an EBITDA measure in their annual incentive plans. Based on Rite Aid's current financial situation and capital structure,
the 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. We established an Adjusted EBITDA performance target of $1,505 million
for fiscal year 2017. This performance level target was above our fiscal year 2016 performance of $1,402 million as a result of the inclusion of our Pharmacy Services Business for the fiscal
year. We recognized the challenges within our target related to continued pharmacy reimbursement rate pressure and, as such, reinstated a threshold whereby management could be rewarded at 50% of bonus
target at achievement of Adjusted EBITDA of $1,280 million.
In
fiscal year 2017, however, challenges associated with the extended duration of the merger process and pharmacy reimbursement rate pressures had a substantial negative impact on our
fiscal year 2017 results, and Rite Aid's actual Adjusted EBITDA was $1,137 million, which was below the threshold performance level, resulting in no bonus payments. As discussed in greater
detail in our Annual Report on Form 10-K, we define Adjusted EBITDA as net income excluding the impact of income taxes (and any corresponding adjustments to tax indemnification asset), interest
expense, depreciation and amortization, LIFO adjustments, charges or credits for facility closing and impairment, inventory write-downs related to store closings, debt retirements and other items
(including stock-based compensation expense, sale of assets and investments and revenue deferrals related to our customer loyalty program). 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.
35
Table of Contents
Fiscal Year 2017 Annual Incentive Plan Performance Goal
|
|
|
|
|
|
|
|
Performance Level
|
|
Adjusted EBITDA
Goal (millions)
|
|
Resulting Payout
as a % of Target
Award
|
|
Threshold
|
|
$
|
1,280
|
|
|
50
|
%
|
Target
|
|
$
|
1,505
|
|
|
100
|
%
|
Maximum
|
|
$
|
1,655
|
|
|
200
|
%
|
Actual Performance
|
|
$
|
1,137
|
|
|
0
|
%
|
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 targets for each Named Executive Officer
as of the date of grant (June 22, 2016) are shown below:
Long-Term Incentive Targets
|
|
|
|
|
Executive
|
|
Target
(as a % of Salary)
|
|
John T. Standley
|
|
|
500
|
%
|
Kenneth A. Martindale
|
|
|
400
|
%
|
Darren W. Karst
|
|
|
200
|
%
|
Enio Anthony Montini, Jr.
|
|
|
150
|
%
|
Bryan Everett
|
|
|
150
|
%
|
Dedra N. Castle
|
|
|
150
|
%
|
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 2017 we used the following types of awards:
|
|
|
|
|
|
Vehicle
|
|
Approximate
Proportion of 2017
Long-Term
Incentive Target
Opportunity
|
|
Purpose
|
Performance-Based Restricted Stock Units
|
|
|
50
|
%
|
Links compensation to multi-year operating results on key measures tied to stockholder value creation.
|
Restricted Stock
|
|
|
50
|
%
|
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.
36
Table of Contents
-
-
Performance measurement:
Using a combination of vehicles allows the Company
to focus executives on both stock price appreciation and achievement of consistent operating results (as indicated by Adjusted EBITDA and other measures) which we believe leads to creation of value
for stockholders.
-
-
Management of share usage and market practice:
Rite Aid considers market
practice concerning both share usage and competitive long-term incentive levels. Rite Aid uses a stock-based performance vehicle which allows the delivery of a long-term incentive opportunity which is
aligned with peer companies and retailers of similar size. The target LTI mix has been selected to align the maximum opportunity for executives and associates with our shareholder return.
-
-
Merger Agreement:
Due to the restrictions on award structure for fiscal
year 2017 pursuant to the terms of the Merger Agreement, stock options were not utilized and the allocation of the award was established as summarized above.
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 annual long-term incentive awards (other than special or new hire grants)
will be approved
by the Committee once a year at its annual meeting held in connection with the annual stockholders meeting, with a grant date equal to 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, promotional awards, or retention awards. Special awards can also be utilized to provide special performance incentives in connection with specific
corporate or financial goals of the Company. No special awards were made to our Named Executive Officers in fiscal year 2017.
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 if the designated Company performance goals are achieved 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.
For
the 2015 performance award grants ("2015-2017 Plan"), the Compensation Committee based 80% of the award on the achievement of three-year (fiscal year 2015-fiscal year 2017)
cumulative Adjusted EBITDA goals and the remaining 20% on three-year (fiscal year 2015-fiscal year 2017) leverage ratio goals; for the 2016 and 2017 performance award grants ("2016-2018 Plan" and
"2017-2019 Plan"), the Compensation Committee based 80% of the award on the achievement of cumulative three-year Adjusted EBITDA goals and the remaining 20% on three-year return on net assets
performance. In addition, the Compensation Committee also added a provision for each cycle, subjecting the award to modification based on our relative stockholder return versus the Russell 3000 Index
over the respective three-year measuring periods. The Compensation Committee believes this provision further aligns the interests of our executives with those of our stockholders and adds an
additional incentive for them to create sustainable long-term value for the Company.
37
Table of Contents
2015-2017 Plan.
The 2015-2017 Plan is based 80% on the Adjusted EBITDA goals and 20% on leverage ratio goals to be determined over the
three-year
performance period. 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 based on our relative stockholder return versus the Russell 3000 Index over the three-year measuring
period. For fiscal years 2015-2017, actual Adjusted EBITDA of 3,866 million was below the three-year performance threshold of $4,028 million. Actual leverage ratio was 5.21 compared to
target of 4.45. Accordingly, no awards were earned under the 2015-2017 Plan.
2015-2017 Plan: Payout
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
|
|
Weight
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Actual
|
|
Adjusted EBITDA
|
|
|
80
|
%
|
$
|
4,028
|
|
|
4,240
|
|
|
4,876
|
|
$
|
3,866
|
|
Leverage Ratio
|
|
|
20
|
%
|
|
4.68
|
|
|
4.45
|
|
|
3.78
|
|
|
5.21
|
|
Payout as a % of Target
|
|
|
|
|
|
50
|
%
|
|
100
|
%
|
|
250
|
%
|
|
0
|
%
|
2016-2018 Plan.
Under the 2016-2018 Plan, participants have the opportunity to earn shares of Rite Aid stock, contingent on cumulative
Company
financial performance for the three-year period spanning fiscal year 2017 through fiscal year 2019. Such financial performance is based 80% on the Adjusted EBITDA goals and 20% on return on net asset
goals. The Compensation Committee set a three-year cumulative target for both metrics. 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 based on our relative stockholder
return versus the Russell 3000 Index over the three-year measuring period. Cumulative results projected based on fiscal year 2016 and fiscal year 2017 are tracking below the threshold of performance
expected to earn the award.
2017-2019 Plan.
Under the 2017-2019 Plan, participants have the opportunity to earn shares of Rite Aid stock, contingent on cumulative
Company
financial performance for the three-year period spanning fiscal year 2017- fiscal year 2019. Such financial performance is based 80% on the Adjusted EBITDA goals and 20% on return on net asset goals.
In addition, in order to further align the interests of our executives with those of our stockholders and add an additional incentive for them to create sustainable long-term value for the Company,
the Compensation Committee also determined to subject the award to modification based on our relative stockholder return versus the Russell 3000 Index over the three-year measuring period. Actual
results for fiscal year 2017 are tracking below the threshold of performance expected to earn the award. As shown in the table below, payouts can range from 0% (for performance below threshold) to
250% of target (for performance at or above maximum). 37.5% of the target share award can be earned for performance at threshold levels.
2017-2019 Plan: Performance-Based Restricted Stock Units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
|
|
Target Award
($)
|
|
Threshold Award
(# of Shares)
|
|
Target Award
(# of Shares)
|
|
Maximum Award
(# of Shares)
|
|
John T. Standley
|
|
$
|
3,133,758
|
|
|
143,663
|
|
|
383,100
|
|
|
957,750
|
|
Kenneth A. Martindale
|
|
$
|
1,961,564
|
|
|
89,925
|
|
|
239,800
|
|
|
599,500
|
|
Darren W. Karst
|
|
$
|
857,264
|
|
|
39,300
|
|
|
104,800
|
|
|
262,000
|
|
Enio Anthony Montini, Jr.
|
|
$
|
373,826
|
|
|
17,138
|
|
|
45,700
|
|
|
114,250
|
|
Bryan Everett
|
|
$
|
366,464
|
|
|
16,800
|
|
|
44,800
|
|
|
112,000
|
|
Dedra N. Castle
|
|
$
|
346,014
|
|
|
15,863
|
|
|
42,300
|
|
|
105,750
|
|
38
Table of Contents
Special Performance Awards for Fiscal Year 2016.
On June 24, 2015, the Company granted special performance awards to
Messrs. Standley
and Martindale to assist with retention and provide focus on key performance components and business integration goals important to the success of the Company. The Committee identified that
Mr. Standley's historical compensation has been below the median level of our peer group and survey data, and his leadership is critical to the success of our company, including the integration
of EnvisionRx. The special award granted to Mr. Standley will vest on June 24, 2017, subject to his continued employment through such date, based on the achievement of the successful
integration of EnvisionRx and its business units into the Company.
The
Committee recognized the importance of Mr. Martindale's role in leading our store operations through significant management changes, including executives in pharmacy, store
operations, logistics and marketing. A special award was granted to Mr. Martindale to provide focus on delivery of company net income and to retain him over the three-year measurement period.
The special award granted to Mr. Martindale will vest on the earlier of the date of reporting of fiscal year 2018 results or the date of the Company's 2018 Annual Meeting of Stockholders,
subject to his continued employment through such date, based on the achievement of cumulative adjusted net income criteria over the three-year performance period. See Appendix A for a
reconciliation of our adjusted net income and adjusted net income per diluted share, which are non-GAAP measures, to net income under GAAP. Mr. Martindale is eligible to receive 200% of the
target number of shares awarded if the cumulative adjusted net income meets or exceeds 120% of the target level of performance. No portion of Mr. Martindale's special award will vest where the
achievement is less than 80% of the target level of performance. See Footnote 6 to the Summary Compensation Table for additional information regarding the special performance awards. Cumulative
results projected based on fiscal year 2016 and fiscal year 2017 are tracking below the threshold of performance expected to earn the award.
Restricted Stock
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 2017 restricted stock awards:
2017 Restricted Stock Awards
|
|
|
|
|
|
|
|
Executive
|
|
Target Award
($)
|
|
Target Award
(# of Shares)
|
|
John T. Standley
|
|
$
|
2,961,363
|
|
|
383,100
|
|
Kenneth A. Martindale
|
|
$
|
1,853,654
|
|
|
239,800
|
|
Darren W. Karst
|
|
$
|
810,104
|
|
|
104,800
|
|
Enio Anthony Montini, Jr.
|
|
$
|
353,261
|
|
|
45,700
|
|
Bryan Everett
|
|
$
|
346,304
|
|
|
44,800
|
|
Dedra N. Castle
|
|
$
|
326,979
|
|
|
42,300
|
|
Retention Awards
As disclosed on Rite Aid's Current Report on Form 8-K, filed with the SEC on January 7, 2016, Rite Aid entered into individual
retention agreements with Messrs. Karst, Montini and Everett and Ms. Castle, as well as other key officers who are not named executive officers, to enhance employee retention and
corporate performance through the closing of the Merger. Neither Mr. Standley nor Mr. Martindale received a retention award. The retention agreements generally provide for the lump-sum
payment of the retention awards on the 120th day following the closing of the Merger, subject to continued employment through such retention date or upon an earlier qualifying termination.
39
Table of Contents
No
payments will be made under the retention agreements in the even that the Merger is not consummated. Under the retention agreements, Mr. Karst could earn a retention payment of $1,000,000
and each of Mr. Montini, Mr. Everett and Ms. Castle could earn a retention payment of $500,000. In connection with Ms. Castle's qualifying termination as of
January 20, 2017, Ms. Castle received payment with respect to the retention award in accordance with its terms.
Given
that these retention awards remained outstanding, conditioned upon the closing of the Merger, no such additional awards were conveyed in fiscal year 2017.
Post-Retirement Benefits
Supplemental Executive Retirement Program.
Each of the Named Executive Officers receives benefits under a defined contribution
supplemental executive
retirement plan ("SERP"). Under the SERP, Rite Aid credits each participant with a specific sum to an individual account established for the participant, on a monthly basis while the participant is
employed. The amount credited is equal to 2% of the executive officer's annual base compensation. The participants are able to select among a choice of earnings indexes, and their accounts are
credited with earnings that mirror the investment results of such indexes. Participants vest 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. SERP payments may be delayed due
to certain tax rules or deferral elections made by the executive.
Other Post-Employment and Change in Control Benefits
To attract and retain highly skilled executives and to provide for certainty of rights and obligations, Rite Aid has historically provided
employment agreements to its executive officers,
including our Named Executive Officers. The terms of the employment agreements are described in more detail under the caption "Executive Employment Agreements." Additional information regarding the
severance and change in control benefits provided under the employment agreements is described under the section entitled "Executive CompensationPotential 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 and three other most highly compensated executives (other than our Chief Financial Officer) as
an expense not deductible by the Company for federal income tax purposes. Payments to these individuals in excess of the $1,000,000 limit will be deductible if they meet the definition of
"performance-based compensation" as defined in Section 162(m) of the Code.
While
the Compensation Committee plans to continue taking actions intended to limit the impact of Section 162(m), it also believes that the tax deduction 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 shareholder 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. Based on the Company's current tax situation, compliance with Section 162(m) of the Code is not a significant concern.
40
Table of Contents
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.
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 that the Company is required to restate its financial statements.
Prohibition on Margin Accounts and Hedging and Similar Transactions
Our executive officers and directors, including the Named Executive Officers, are subject to an insider trading policy that, among other things,
prohibits them from holding Company securities in a margin account, and also prohibits them from engaging in put or call options, short selling or similar hedging activities involving our stock. We
prohibit these transactions because they may reduce the individual's incentive to improve our performance, focus the individual on short-term performance at the expense of long-term objectives and
misalign the individual's interests with those of our stockholders generally.
Director and Officer Stock Ownership Guidelines
In June 2014, we revised our Stock Ownership Guidelines 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. The stock ownership requirements are:
|
|
|
Position
|
|
Minimum Ownership Requirements (Number of Share Equivalents)
|
Chief Executive Officer
|
|
lesser of 1,400,000 share equivalents or 5 times base salary
|
President(1)
|
|
lesser of 700,000 share equivalents or 3 times base salary
|
Senior Executive Vice Presidents
|
|
lesser of 700,000 share equivalents or 3 times base salary
|
Executive Vice Presidents
|
|
lesser of 200,000 share equivalents or 2 times base salary
|
Senior Vice Presidents
|
|
lesser of 100,000 share equivalents or 1 times base salary
|
Non-Management Directors(2)
|
|
lesser of 150,000 share equivalents or 2 times annual cash retainer
|
-
(1)
-
If
the President is also the Chief Executive Officer, the Chief Executive Officer amount shall apply.
-
(2)
-
Other
than an Executive Chairman, who shall be subject to the same requirement as the Chief Executive Officer.
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 those persons subject to the guidelines, including all Named Executive Officers and
senior vice presidents, have achieved the minimum holding ownership requirement or have not yet served for five years.
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.
41
Table of Contents
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.
42
Table of Contents
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.
Marcy
Syms, Chair
Bruce G. Bodaken
Michael N. Regan
43
Table of Contents
SUMMARY COMPENSATION TABLE
The following summary compensation table sets forth the cash and non-cash compensation for the fiscal years ended March 4, 2017,
February 27, 2016, and February 28, 2015, respectively, paid to or earned by (i) our principal executive officer, (ii) 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 2016 fiscal year and
(iv) one former executive officer who would have been among the three most highly compensated executive officers of the Company if she served as an executive officer at the end of the 2017
fiscal year (collectively, the "Named Executive Officers").
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and Principal Position
|
|
Fiscal
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Stock
Awards
($)(2)
|
|
Option
Awards
($)(2)
|
|
Non-Equity
Incentive
Plan
Compensation
($)
|
|
Change In
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)(3)
|
|
All Other
Compensation
($)(4)
|
|
Total
($)
|
|
John T. Standley
|
|
|
2017
|
|
|
1,184,500
|
|
|
|
|
|
6,095,121
|
|
|
|
|
|
|
|
|
481,309
|
|
|
311,025
|
|
|
8,071,955
|
|
(CEO)
|
|
|
2016
|
|
|
1,150,000
|
|
|
|
|
|
13,672,926
|
|
|
2,533,385
|
|
|
4,705,038
|
|
|
0
|
|
|
304,923
|
|
|
22,366,272
|
|
|
|
|
2015
|
|
|
1,150,000
|
|
|
|
|
|
3,411,852
|
|
|
3,032,895
|
|
|
2,991,291
|
|
|
128,354
|
|
|
291,279
|
|
|
11,005,671
|
|
Kenneth A. Martindale
|
|
|
2017
|
|
|
927,000
|
|
|
|
|
|
3,815,218
|
|
|
|
|
|
|
|
|
242,464
|
|
|
336,310
|
|
|
5,320,992
|
|
(President of Rite Aid Corporation &
|
|
|
2016
|
|
|
900,000
|
|
|
|
|
|
9,799,850
|
|
|
1,585,980
|
|
|
2,555,424
|
|
|
0
|
|
|
322,786
|
|
|
15,164,040
|
|
CEO of Rite Aid Stores)
|
|
|
2015
|
|
|
900,000
|
|
|
|
|
|
2,847,576
|
|
|
949,428
|
|
|
1,583,050
|
|
|
32,359
|
|
|
321,012
|
|
|
6,633,425
|
|
Darren W. Karst
|
|
|
2017
|
|
|
809,751
|
|
|
|
|
|
1,667,368
|
|
|
|
|
|
|
|
|
52,907
|
|
|
269,584
|
|
|
2,799,610
|
|
(Senior Executive VP, CFO &
|
|
|
2016
|
|
|
790,005
|
|
|
|
|
|
1,009,008
|
|
|
695,980
|
|
|
924,136
|
|
|
0
|
|
|
279,138
|
|
|
3,698,267
|
|
CAO)
|
|
|
2015
|
|
|
419,310
|
|
|
|
|
|
2,891,198
|
|
|
812,498
|
|
|
275,775
|
|
|
1,802
|
|
|
126,309
|
|
|
4,526,892
|
|
Enio Anthony Montini, Jr.
|
|
|
2017
|
|
|
471,500
|
|
|
|
|
|
727,087
|
|
|
|
|
|
|
|
|
159,086
|
|
|
136,545
|
|
|
1,494,218
|
|
(Executive VP, Merchandising
|
|
|
2016
|
|
|
450,303
|
|
|
|
|
|
418,548
|
|
|
288,805
|
|
|
658,332
|
|
|
0
|
|
|
131,225
|
|
|
1,947,213
|
|
& Distribution)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bryan Everett
|
|
|
2017
|
|
|
461,250
|
|
|
|
|
|
712,768
|
|
|
|
|
|
|
|
|
16,768
|
|
|
151,086
|
|
|
1,341,872
|
|
(Executive VP, Store Operations)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dedra N. Castle
|
|
|
2017
|
|
|
410,494
|
|
|
|
|
|
672,993
|
|
|
|
|
|
|
|
|
5,705
|
|
|
1,489,050
|
|
|
2,578,242
|
|
(Executive VP, Chief
|
|
|
2016
|
|
|
425,006
|
|
|
|
|
|
407,460
|
|
|
280,795
|
|
|
357,956
|
|
|
0
|
|
|
231,385
|
|
|
1,702,602
|
|
Human Resources Officer)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Ms. Castle,
who has served the Company in her position since fiscal year 2015, ceased to be employed by us effective January 20, 2017.
-
(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 16 of the Company's Annual Report on Form 10-K as filed with the SEC on
May 3, 2017, Note 16 of the Company's Annual Report on Form 10-K as filed with the SEC on April 25, 2016 and Note 15 of the Company's Annual Report on
Form 10-K as filed with the SEC on April 23, 2015, as applicable. The 2017 stock award includes the grant date fair value of the performance awards at target, as shown in the chart
below. Based upon the maximum level of achievement under the performance awards, the grant date fair value of such awards would increase for the Named Executive Officers as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Restricted Stock
Award ($)
|
|
Performance Award
Target
Performance ($)
|
|
Total Stock Award
($)
|
|
Max Performance
Award
Achievement ($)
|
|
Mr. Standley
|
|
|
2,961,363
|
|
|
3,133,758
|
|
|
6,095,121
|
|
|
7,834,395
|
|
Mr. Martindale
|
|
|
1,853,654
|
|
|
1,961,564
|
|
|
3,815,218
|
|
|
4,903,910
|
|
Mr. Karst
|
|
|
810,104
|
|
|
857,264
|
|
|
1,667,368
|
|
|
2,143,160
|
|
Mr. Montini
|
|
|
353,261
|
|
|
373,826
|
|
|
727,087
|
|
|
934,565
|
|
Mr. Everett
|
|
|
346,304
|
|
|
366,464
|
|
|
712,768
|
|
|
916,160
|
|
Ms. Castle
|
|
|
326,979
|
|
|
346,014
|
|
|
672,993
|
|
|
865,035
|
|
-
(3)
-
Represents
above-market earnings (over 120% of the "applicable federal rate"), if applicable, under the Company's defined contribution supplemental executive
retirement plans.
44
Table of Contents
-
(4)
-
The
amounts in the "All Other Compensation" column for fiscal year 2017 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Financial
Planning
($)
|
|
Personal
Use of
Company
Aircraft
($)(A)
|
|
Supplemental
Executive
Retirement
Plan
Allocations
($)
|
|
Housing/
Transportation
Expenses
($)(B)
|
|
Employer
Paid
Taxes
($)(C)
|
|
Automobile
Allowance
($)
|
|
401(k)
Matching
Contributions
($)
|
|
Retention
Bonus
(D)
|
|
Paid /
Accrued
Severance
Payments
($)(E)
|
|
Mr. Standley
|
|
|
6,015
|
|
|
|
|
|
282,210
|
|
|
|
|
|
|
|
|
12,000
|
|
|
10,800
|
|
|
|
|
|
|
|
Mr. Martindale
|
|
|
5,000
|
|
|
|
|
|
220,860
|
|
|
52,727
|
|
|
34,923
|
|
|
12,000
|
|
|
10,800
|
|
|
|
|
|
|
|
Mr. Karst
|
|
|
5,000
|
|
|
|
|
|
193,155
|
|
|
48,629
|
|
|
|
|
|
12,000
|
|
|
10,800
|
|
|
|
|
|
|
|
Mr. Montini
|
|
|
1,275
|
|
|
|
|
|
112,470
|
|
|
|
|
|
|
|
|
12,000
|
|
|
10,800
|
|
|
|
|
|
|
|
Mr. Everett
|
|
|
7,887
|
|
|
|
|
|
110,025
|
|
|
10,374
|
|
|
|
|
|
12,000
|
|
|
10,800
|
|
|
|
|
|
|
|
Ms. Castle
|
|
|
800
|
|
|
|
|
|
95,200
|
|
|
|
|
|
|
|
|
11,000
|
|
|
10,800
|
|
|
500,000
|
|
|
871,250
|
|
-
(A)
-
With
respect to personal use of aircraft, the Company determines the incremental cost of an officer's aircraft usage by calculating the variable flight-hour cost
associated with the particular aircraft. Variable cost in general includes fuel, landing fees, maintenance costs per flight, per hour and catering.
-
(B)
-
Each
of Messrs. Martindale, Karst and Everett is reimbursed for certain housing and transportation expenses pursuant to his respective employment agreement.
The Company determines the incremental cost of said expenses based on the out-of-pocket amounts paid for rent, utilities, and travel.
-
(C)
-
Figures
in this column represent the Company-paid taxes related to housing and transportation expenses reimbursed by the Company for Mr. Martindale.
-
(D)
-
Ms. Castle
was awarded her retention bonus in connection with the pending Merger upon separation, consistent with the terms of the retention agreement.
-
(E)
-
Ms. Castle
was provided severance upon her separation on January 20, 2017, of which $33,509 was paid during the fiscal year and $837,741 remained
accrued.
45
Table of Contents
GRANTS OF PLAN-BASED AWARDS TABLE FOR FISCAL YEAR 2017
The following table summarizes grants of plan-based awards made to Named Executive Officers during our fiscal year ended March 4, 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future Payouts
Under Non-Equity
Incentive Plan Awards(1)
|
|
Estimated Future
Payouts Under Equity
Incentive Plan Awards(2)
|
|
All
Other
Stock
|
|
All
Other
Option
|
|
Exercise
or Base
Price of
Option
|
|
Grant
Date
Fair
Value
of Stock
and
Option
|
|
Name
|
|
Grant
Date
|
|
Threshold
50% ($)
|
|
Target
100% ($)
|
|
Max
200%($)
|
|
Threshold
(#)
|
|
Target
(#)
|
|
Max
(#)
|
|
Awards
(#)(3)
|
|
Awards
(#)
|
|
Awards
($/Sh)
|
|
Awards
($)(4)
|
|
John T. Standley
|
|
|
|
|
|
1,184,500
|
|
|
2,369,001
|
|
|
4,738,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6/22/2016
|
|
|
|
|
|
|
|
|
|
|
|
143,663
|
|
|
383,100
|
|
|
957,750
|
|
|
383,100
|
|
|
0
|
|
|
|
|
|
6,095,121
|
|
Kenneth A. Martindale
|
|
|
|
|
|
695,250
|
|
|
1,390,500
|
|
|
2,781,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6/22/2016
|
|
|
|
|
|
|
|
|
|
|
|
89,925
|
|
|
239,800
|
|
|
599,500
|
|
|
239,800
|
|
|
0
|
|
|
|
|
|
3,815,218
|
|
Darren W. Karst
|
|
|
|
|
|
506,094
|
|
|
1,012,188
|
|
|
2,024,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6/22/2016
|
|
|
|
|
|
|
|
|
|
|
|
39,300
|
|
|
104,800
|
|
|
262,000
|
|
|
104,800
|
|
|
0
|
|
|
|
|
|
1,667,368
|
|
Enio Anthony Montini, Jr.
|
|
|
|
|
|
177,000
|
|
|
354,000
|
|
|
708,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6/22/2016
|
|
|
|
|
|
|
|
|
|
|
|
17,138
|
|
|
45,700
|
|
|
114,250
|
|
|
45,700
|
|
|
0
|
|
|
|
|
|
727,087
|
|
Bryan Everett
|
|
|
|
|
|
172,969
|
|
|
345,938
|
|
|
691,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6/22/2016
|
|
|
|
|
|
|
|
|
|
|
|
16,800
|
|
|
44,800
|
|
|
112,000
|
|
|
44,800
|
|
|
0
|
|
|
|
|
|
712,768
|
|
Dedra N. Castle
|
|
|
|
|
|
163,359
|
|
|
326,719
|
|
|
653,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6/22/2016
|
|
|
|
|
|
|
|
|
|
|
|
15,863
|
|
|
42,300
|
|
|
105,750
|
|
|
42,300
|
|
|
0
|
|
|
|
|
|
672,993
|
|
-
(1)
-
The
first amount for each Named Executive Officer relates to the opportunity to earn an annual cash incentive bonus, as discussed in the Compensation Discussion and
Analysis under the caption "Cash Incentive Bonuses." No cash incentive bonus was awarded in respect of performance in fiscal year 2016.
-
(2)
-
On
June 22, 2016, each Named Executive Officer received a grant of performance based units that will be earned based upon the achievement of an Adjusted
EBITDA goal for fiscal years 2017, 2018 and 2019. Vesting for the performance units will occur, provided the performance target has been met, on March 2, 2019 (the end of the Company's fiscal
year 2019), provided that the Named Executive Officer is continuously employed at the Company through the date of the earnings release for fiscal year 2019.
-
(3)
-
On
June 22, 2016, 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 2017Restricted Stock." These restricted shares will vest as follows based on continued employment:
|
|
|
|
|
|
|
|
Name
|
|
Restricted
Shares
(#)
|
|
Vesting Schedule
|
|
Mr. Standley
|
|
|
383,100
|
|
|
One-third on each of first three anniversaries of grant date
|
|
Mr. Martindale
|
|
|
239,800
|
|
|
One-third on each of first three anniversaries of grant date
|
|
Mr. Karst
|
|
|
104,800
|
|
|
One-third on each of first three anniversaries of grant date
|
|
Mr. Montini
|
|
|
45,700
|
|
|
One-third on each of first three anniversaries of grant date
|
|
Mr. Everett
|
|
|
44,800
|
|
|
One-third on each of first three anniversaries of grant date
|
|
Ms. Castle
|
|
|
42,300
|
|
|
One-third on each of first three anniversaries of grant date
|
|
-
(4)
-
Represents
the grant date fair value, measured in accordance with FASB ASC Topic 718 of stock and option awards made in fiscal year 2016. Grant date fair values are
calculated pursuant to assumptions set forth in Note 16 of the Company's 2016 Annual Report on Form 10-K filed with the SEC on May 3, 2017.
46
Table of Contents
EXECUTIVE EMPLOYMENT AGREEMENTS
Rite Aid has entered into employment agreements with each of the Named Executive Officers, the material terms of which are described below.
-
-
Mr. Standley serves as Chairman of the Board and Chief Executive Officer;
-
-
Mr. Martindale serves as President of Rite Aid Corporation and CEO of Rite Aid Stores;
-
-
Mr. Karst serves as Senior Executive Vice President, Chief Financial Officer and Chief Administrative Officer, a role he assumed on
October 25, 2015;
-
-
Mr. Montini serves as Executive Vice President, Merchandising and Distribution, a role he assumed on August 7, 2015;
-
-
Mr. Everett serves as Executive Vice President, Store Operations; and
-
-
Ms. Castle served as Executive Vice President, Chief Human Resources Officer until January 20, 2017.
Term for Active Officers.
Except for Mr. Karst and Mr. Montini, whose terms commenced on August 20, 2014 and
February 15,
2010, respectively, the term of each executive's employment commenced on the effective date of his employment agreement, as follows: Mr. Standley, September 24, 2008 (as amended and
restated as of January 21, 2010); Mr. Martindale, December 3, 2008 (as amended as of October 26, 2015); and Mr. Everett, June 22, 2015. Each employment
agreement has an initial term of two years, other than in the case of Mr. Standley, whose agreement has an initial term of three years (each such period, the "Initial Term"). Each agreement
will automatically renew for successive one-year terms, other than in the case of Mr. Montini, whose agreement will automatically renew for successive two-year terms (each, a "Renewal Term"),
unless either the executive or Rite Aid provides the other with notice of nonrenewal at least 180 days (120 days with respect to Messrs. Montini and Everett) prior to the
expiration of the Initial Term or a Renewal Term, as applicable.
Salary and Incentive Bonus.
The respective agreements provide each executive with a base salary and an incentive compensation target
(which may be
reviewed periodically for increase by the Compensation Committee).
Other Benefits.
Pursuant to their employment agreements, each of the Named Executive Officers is also entitled to participate in Rite
Aid's welfare
benefits, fringe benefit and perquisite programs, and savings plans.
Restrictive Covenants.
The employment agreement of each Named Executive Officer prohibits the officer from competing with Rite Aid
during his or her
employment period and for a period of one year, or with respect to Ms. Castle, two years in the event of termination without "cause" or for "good reason" (as such terms are defined in
Ms. Castle's employment agreement), 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.
47
Table of Contents
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR 2017 YEAR-END
The following table summarizes the number of securities underlying outstanding equity awards for the Named Executive Officers as of
March 4, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
Name
|
|
Date of
Grant
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
|
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable(1)(2)
|
|
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
|
|
Option
Exercise
Price
($)
|
|
Option
Expiration
Date
|
|
Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)(1)
|
|
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)(3)
|
|
Equity
Incentive
Plan
Awards:
# of
Unearned
Shares or
Units That
Have Not
Vested
(#)(1)
|
|
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares or
Units of
Stock That
Have Not
Vested
($)(3)
|
|
John T. Standley
|
|
|
10/02/2008
|
|
|
168,800
|
|
|
|
|
|
|
|
|
0.89
|
|
|
10/02/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
06/25/2009
|
|
|
580,600
|
|
|
|
|
|
|
|
|
1.24
|
|
|
06/25/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
01/21/2010
|
|
|
2,555,000
|
|
|
|
|
|
|
|
|
1.52
|
|
|
01/21/2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
06/23/2010
|
|
|
1,428,600
|
|
|
|
|
|
|
|
|
1.07
|
|
|
06/23/2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
06/27/2011
|
|
|
3,765,085
|
|
|
|
|
|
|
|
|
1.24
|
|
|
06/27/2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
06/25/2012
|
|
|
1,379,300
|
|
|
|
|
|
|
|
|
1.32
|
|
|
06/25/2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
06/24/2013
|
|
|
702,225
|
|
|
234,075
|
|
|
|
|
|
2.76
|
|
|
06/24/2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
06/23/2014
|
|
|
339,250
|
|
|
339,250
|
|
|
|
|
|
7.08
|
|
|
06/23/2024
|
|
|
66,933
|
|
|
364,785
|
|
|
|
|
|
|
|
|
|
|
06/24/2015
|
|
|
142,325
|
|
|
426,975
|
|
|
|
|
|
8.68
|
|
|
06/24/2025
|
|
|
110,400
|
|
|
601,680
|
|
|
231,900
|
(4)
|
|
1,263,855
|
|
|
|
|
06/24/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
06/24/2025
|
|
|
|
|
|
|
|
|
1,152,074
|
(6)
|
|
6,278,803
|
|
|
|
|
06/22/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
06/22/2026
|
|
|
383,100
|
|
|
2,087,895
|
|
|
383,100
|
(5)
|
|
2,087,895
|
|
Kenneth A. Martindale
|
|
|
06/23/2010
|
|
|
1,400,000
|
|
|
|
|
|
|
|
|
1.07
|
|
|
06/23/2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
06/27/2011
|
|
|
1,416,761
|
|
|
|
|
|
|
|
|
1.24
|
|
|
06/27/2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
06/25/2012
|
|
|
603,600
|
|
|
|
|
|
|
|
|
1.32
|
|
|
06/25/2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
06/24/2013
|
|
|
343,950
|
|
|
114,650
|
|
|
|
|
|
2.76
|
|
|
06/24/2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
06/23/2014
|
|
|
106,200
|
|
|
106,200
|
|
|
|
|
|
7.08
|
|
|
06/23/2024
|
|
|
104,733
|
|
|
570,795
|
|
|
|
|
|
|
|
|
|
|
06/24/2015
|
|
|
89,100
|
|
|
267,300
|
|
|
|
|
|
8.68
|
|
|
06/24/2025
|
|
|
69,133
|
|
|
376,775
|
|
|
145,200
|
(4)
|
|
791,340
|
|
|
|
|
06/24/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
06/24/2025
|
|
|
|
|
|
|
|
|
864,056
|
(7)
|
|
4,709,105
|
|
|
|
|
06/22/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
06/22/2026
|
|
|
239,800
|
|
|
1,306,910
|
|
|
239,800
|
(5)
|
|
1,306,910
|
|
Darren W. Karst
|
|
|
08/20/2014
|
|
|
103,900
|
|
|
103,900
|
|
|
|
|
|
6.43
|
|
|
08/20/2024
|
|
|
77,148
|
|
|
420,457
|
|
|
|
|
|
|
|
|
|
|
06/24/2015
|
|
|
39,100
|
|
|
117,300
|
|
|
|
|
|
8.68
|
|
|
06/24/2025
|
|
|
30,333
|
|
|
165,315
|
|
|
63,700
|
(4)
|
|
347,165
|
|
|
|
|
06/22/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
06/22/2026
|
|
|
104,800
|
|
|
571,160
|
|
|
104,800
|
(5)
|
|
571,160
|
|
Enio Anthony Montini, Jr.
|
|
|
06/25/2012
|
|
|
60,675
|
|
|
|
|
|
|
|
|
1.32
|
|
|
06/25/2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
06/24/2013
|
|
|
29,875
|
|
|
29,875
|
|
|
|
|
|
2.76
|
|
|
06/24/2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
06/23/2014
|
|
|
38,700
|
|
|
38,700
|
|
|
|
|
|
7.08
|
|
|
06/23/2024
|
|
|
7,633
|
|
|
41,600
|
|
|
|
|
|
|
|
|
|
|
06/24/2015
|
|
|
16,225
|
|
|
48,675
|
|
|
|
|
|
8.68
|
|
|
06/24/2025
|
|
|
12,600
|
|
|
68,670
|
|
|
26,400
|
(4)
|
|
143,880
|
|
|
|
|
06/22/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
06/22/2026
|
|
|
45,700
|
|
|
249,065
|
|
|
45,700
|
(5)
|
|
249,065
|
|
Bryan Everett
|
|
|
06/24/2015
|
|
|
16,700
|
|
|
50,100
|
|
|
|
|
|
8.68
|
|
|
06/24/2025
|
|
|
|
|
|
|
|
|
27,200
|
(5)
|
|
148,240
|
|
|
|
|
06/22/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
06/22/2026
|
|
|
44,800
|
|
|
244,160
|
|
|
44,800
|
(5)
|
|
244,160
|
|
Dedra N. Castle
|
|
|
03/24/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
03/24/2024
|
|
|
21,728
|
|
|
118,418
|
|
|
|
|
|
|
|
|
|
|
06/23/2014
|
|
|
75,200
|
|
|
|
|
|
|
|
|
7.08
|
|
|
06/23/2024
|
|
|
7,433
|
|
|
40,510
|
|
|
|
|
|
|
|
|
|
|
06/24/2015
|
|
|
47,325
|
|
|
|
|
|
|
|
|
8.68
|
|
|
06/24/2025
|
|
|
12,266
|
|
|
66,850
|
|
|
|
|
|
|
|
|
|
|
06/22/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
06/22/2026
|
|
|
42,300
|
|
|
230,535
|
|
|
|
|
|
|
|
-
(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)
-
Stock
options will generally vest in equal installments on each of the first four anniversaries of the grant date, based on continued employment. With respect to the
restricted stock awards listed above, one-third of the restricted shares will vest on each of the first three anniversaries of the grant date, based on continued employment.
-
(3)
-
Determined
with reference to $5.45, the closing price of a share of Rite Aid common stock on the last trading day before March 4, 2017.
-
(4)
-
Performance
units granted on June 24, 2015 generally vest based upon achievement of Adjusted EBITDA and return on net asset goals for fiscal years 2016, 2017
and 2018. Vesting for the performance units will occur, provided the performance target has been met, on March 3, 2018, subject to continued employment through the date of the earnings release
for fiscal year 2018.
-
(5)
-
Performance
units granted on June 22, 2016 will be earned based upon the achievement of an Adjusted EBITDA goal for fiscal years 2017, 2018 and 2019. Vesting
for the performance units will occur, provided the performance target has been met, on March 2, 2019 (the end of the Company's fiscal year 2019), provided that the Named Executive Officer is
continuously employed at the Company through the date of the earnings release for fiscal year 2019.
-
(6)
-
The
performance units vest based upon achievement of the successful integration of EnvisionRx and its business units into the Company, as determined at the sole
discretion of the Compensation Committee. Vesting for the performance units will occur, provided the performance target has been met, on the earlier of June 24, 2017 or the date of the
Company's 2017 Annual Meeting of Stockholders, subject to continued employment through such date.
-
(7)
-
The
performance units vest based on the achievement of a cumulative adjusted net income goal for fiscal years 2016, 2017 and 2018. Vesting for the performance units
will occur, provided the performance target has been met, on the earlier of the date of reporting of fiscal year 2018 results or the date of the Company's 2018 Annual Meeting of Stockholders, subject
to continued employment through such date.
48
Table of Contents
OPTION EXERCISES AND STOCK VESTED TABLE FOR FISCAL YEAR 2017
The following table summarizes for each Named Executive Officer the stock option exercises and shares vested during fiscal year 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
|
|
|
Value
Realized on
Exercise
($)
|
|
Name
|
|
Number of Shares
Acquired on
Exercise (#)
|
|
Number of Shares
Acquired on
Vesting (#)
|
|
Value
Realized on
Vesting ($)
|
|
John T. Standley
|
|
|
|
|
|
|
|
|
219,966
|
|
|
1,699,954
|
|
Kenneth A. Martindale
|
|
|
|
|
|
|
|
|
187,233
|
|
|
1,449,850
|
|
Darren W. Karst
|
|
|
|
|
|
|
|
|
15,167
|
|
|
116,938
|
|
Enio Anthony Montini, Jr.
|
|
|
|
|
|
|
|
|
26,433
|
|
|
204,256
|
|
Bryan Everett
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dedra N. Castle
|
|
|
|
|
|
|
|
|
35,295
|
|
|
280,393
|
|
NONQUALIFIED DEFERRED COMPENSATION FOR FISCAL YEAR 2017
The following table sets forth the nonqualified deferred compensation activity for each Named Executive Officer during fiscal year 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Executive
Contributions in
Last FY ($)
|
|
Registrant
Contributions in
Last FY ($)(2)
|
|
Aggregate
Earnings in
Last FY
($)(2)
|
|
Aggregate
Withdrawals /
Forfeitures ($)
|
|
Aggregate
Balance at Last
FYE ($)
|
|
John T. Standley(1)
|
|
|
|
|
|
282,210
|
|
|
540,675
|
|
|
|
|
|
3,085,280
|
|
Kenneth A. Martindale(1)
|
|
|
|
|
|
220,860
|
|
|
283,222
|
|
|
|
|
|
2,043,774
|
|
Darren W. Karst(1)
|
|
|
|
|
|
193,155
|
|
|
62,028
|
|
|
|
|
|
527,888
|
|
Enio Anthony Montini, Jr.(1)
|
|
|
|
|
|
112,470
|
|
|
176,738
|
|
|
|
|
|
947,624
|
|
Bryan Everett(1)
|
|
|
|
|
|
110,025
|
|
|
19,409
|
|
|
|
|
|
181,340
|
|
Dedra N. Castle(1)
|
|
|
|
|
|
95,200
|
|
|
271,936
|
|
|
(208,000
|
)
|
|
342,498
|
|
-
(1)
-
Amounts
shown relate to a defined contribution supplemental executive retirement plan covering the Named Executive Officers. 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 2017.
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.
Pursuant
to his employment agreement with the Company, if Mr. Standley is terminated by the Company without "cause," if he terminates his employment for "good reason" (as such
terms are defined in his employment agreement) or if the Company provides a notice of nonrenewal at least 180 days prior to the expiration of his employment agreement, a "Company Nonrenewal,"
and such Company Nonrenewal occurs within six months of a change in control, then he will be entitled to receive:
-
-
a severance amount equal to two times the sum of his annual base salary and target bonus (one times the sum in the case of a Company
Nonrenewal), a pro-rata bonus for the fiscal year of
49
Table of Contents
If
Rite Aid terminates Mr. Standley for "cause," or he terminates his employment without "good reason":
-
-
Rite Aid shall pay Mr. Standley all accrued but unpaid salary and benefits;
-
-
any portion of any then-outstanding stock option grant that was not exercised prior to the date of termination will immediately terminate
(provided that if he terminates his 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 equity incentive award, as to which the restrictions have not lapsed or as to which any
other conditions were not satisfied prior to the date of termination will be forfeited.
If
Mr. Standley's employment is terminated as a result of his death or "disability" (as such term is defined in his employment agreement), he (or his estate, as the case may be)
will be entitled to receive all accrued but unpaid salary and benefits payable under death or disability benefit plans in which he participates, a pro-rata bonus (paid at the same time it is paid to
other eligible participants in the bonus plan and based on actual achievement of performance targets for the fiscal year), continued health insurance (or reimbursement for the cost of such benefits)
for two years for Mr. Standley and/or his immediate family, as applicable, vesting of all stock options and vesting of an amount of restricted stock that would have vested had he remained
employed for three years following the date of termination.
Pursuant
to their employment agreements with the Company, if either of Messrs. Martindale or Karst is terminated by Rite Aid without "cause" or if such officer's employment is
terminated by the officer for "good reason" (as such terms are defined in the applicable employment agreement), then the officer will be entitled to receive:
-
-
a severance amount equal to two times the sum of the annual base salary and target bonus, a pro-rata bonus for the fiscal year of termination
and any accrued but unpaid salary and benefits. The severance amount is payable in installments over the two-year period following the termination;
-
-
continued health benefits for two years following the termination; and
-
-
all outstanding stock options will immediately vest and be exercisable, generally, for a period of 90 days following the termination of
employment and the restrictions on the restricted common stock will immediately lapse to the extent the options would have vested and restrictions would have lapsed, in each case, had the officer
remained employed by Rite Aid for two years following the termination.
Pursuant
to their employment agreements with the Company, if Mr. Montini, Mr. Everett or Ms. Castle is terminated by Rite Aid without "cause" or if such officer's
employment is terminated by
50
Table of Contents
the
officer for "good reason" (as such terms are defined in the applicable employment agreement), then the officer will be entitled to receive:
-
-
a severance amount equal to two times annual base salary as of the date of termination of employment, payable in installments over the two-year
period following the termination;
-
-
continued health benefits for two years following the termination; and
-
-
all outstanding stock options 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 the
officer remained employed by Rite Aid for two years following the termination.
In
addition, Mr. Everett's employment agreement provides that if termination occurs following the start of Rite Aid's fiscal year and if the Board of Directors determines that
Rite Aid achieved or exceeded its annual performance targets for the fiscal year, Mr. Everett is entitled to an amount equal to his target annual bonus, prorated to reflect the number of days
in the fiscal year prior to the termination.
The
employment of Ms. Castle was terminated effective January 20, 2017, resulting in a cash severance commitment of $871,250 and two years continued benefits valued at
$27,500. In addition, 83,727 shares of restricted stock awards valued at $624,603 and 84,925 shares of stock options with no value at termination accelerated in accordance with the terms described
above. The value of accelerated awards was determined using the market price of $7.46 as of January 20, 2017. In addition, the retention award granted to Ms. Castle, in the amount of
$500,000, was paid to her under the terms of the retention agreement in connection with her qualifying termination.
If
Rite Aid terminates any of the Named Executive Officers for "cause," or if any of the Named Executive Officers terminates his employment without "good reason" (with the exception of
Mr. Standley, whose termination provisions are described above):
-
-
Rite Aid shall 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 will immediately terminate
(provided that if the officer terminates his 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 equity incentive award, as to which the restrictions have not lapsed or as to which any
other conditions were not satisfied prior to the date of termination will be forfeited.
If
the employment of any of the Named Executive Officers (other than Mr. Standley whose benefits upon such termination are described above) is 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 immediate family, as applicable (other than
Mr. Montini, who will receive continued coverage for one year), vesting of all stock options and vesting of an amount of restricted stock that would have vested had the officer remained
employed for two years following the date of termination. Messrs. Martindale and Karst will also be entitled to receive a pro-rata bonus, based on actual achievement of performance targets for
the fiscal year, that is paid at the same time that it is paid to other eligible participants in the bonus plan.
51
Table of Contents
Upon
the termination of employment of any of the Named Executive Officers, the officer would generally become entitled to receive a distribution of his vested account balance under the
nonqualified deferred compensation plans maintained by the Company. Pursuant to applicable tax regulations, any such distributions will generally be delayed for a period of six months following the
Named Executive Officer's separation from service. The account balance of each Named Executive Officer is shown in the "Nonqualified Deferred Compensation for Fiscal Year 2016" table above.
Under Employment Agreements.
Under Mr. Standley's employment agreement, upon a change in control, all of his stock options awarded
pursuant to
his employment agreement and all stock options awarded pursuant to the Company's executive equity program then held by him will immediately vest and become exercisable. Severance benefits would not be
triggered pursuant to a change in control unless it is followed by Mr. Standley's termination of employment under the circumstances described above. Similarly, severance benefits would not be
triggered pursuant to a change in control unless it is followed by Mr. Martindale's, Mr. Karst's, Mr. Montini's, Ms. Castle's or Mr. Everett's termination of
employment, respectively, under the circumstances 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.
Mr. Standley's
employment agreement provides that he will receive an additional payment to reimburse him for any excise taxes imposed pursuant to Section 4999 of the Code,
together with reimbursement for any additional taxes incurred by reason of such payments. The employment agreements with Messrs. Martindale, Karst, Montini and Everett and Ms. Castle
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 equity program, 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 in control 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.
For
purposes of Rite Aid's equity program, 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
52
Table of Contents
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."
Under Rite Aid's Supplemental Retirement Plan.
The unvested account balance of the supplemental executive retirement plan in which the
Named
Executive Officers participate will vest upon a change in control of the Company as defined in the supplemental executive retirement plan, only if such Named Executive Officer is involuntarily
terminated without cause within 12 months of the change in control. For more information regarding the supplemental executive retirement plan, refer to the Compensation Discussion and Analysis
under the caption "Post-Retirement Benefits."
Under Retention Award Agreements.
The retention agreements provided to Messrs. Karst, Montini and Everett generally provide for
the lump-sum
payment of the retention awards on the 120th day following the closing of the Merger, subject to continued employment through such retention date or upon an earlier qualifying termination. In
the event that the Merger is not consummated, no payments will be made pursuant to the terms of the retention agreements.
Quantification of Payments Described.
The termination and change in control payments that would have been made to the Named Executive
Officers had
their employment been terminated as of March 4, 2017 under the circumstances described in the tables below are quantified in the tables below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John T. Standley
|
|
Death ($)
|
|
Disability ($)
|
|
Termination
Without Cause
or Quit for
Good Reason
($)(a)
|
|
Termination Without
Cause or Quit for Good
Reason Following a
Change in Control
($)(a)
|
|
2 × Base Salary
|
|
|
N/A
|
|
|
N/A
|
|
|
2,369,000
|
|
|
2,369,000
|
|
2 × Bonus
|
|
|
N/A
|
|
|
N/A
|
|
|
4,738,001
|
|
|
4,738,001
|
|
Pro-Rated Incentive Bonus for Past Fiscal Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits
|
|
|
29,016
|
|
|
29,016
|
|
|
29,016
|
|
|
29,016
|
|
SERP Vesting
|
|
|
680,221
|
|
|
680,221
|
|
|
680,221
|
|
|
680,221
|
|
Vesting of Equity(1)
|
|
|
3,684,222
|
|
|
3,684,222
|
|
|
3,684,222
|
|
|
11,226,680
|
(2)
|
280G Gross Up
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
Retention Award Vesting
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
-
(a)
-
As
discussed above, in the event of a Company Nonrenewal, Mr. Standley's termination payments are as follows: (i) severance is equal to 1x base salary
and bonus, plus a pro-rated incentive bonus; (ii) health benefits will continue for one year; (iii) the unvested account balance in his SERP will vest; and (iv) options will vest
and become exercisable and the restrictions with respect to awards of restricted stock will lapse to the extent such restrictions would have lapsed had Mr. Standley remained employed for one
year. If a Company Nonrenewal occurs within six months of a change
53
Table of Contents
in
control, the severance formula is the same as termination by the Company without Cause or by Mr. Standley for Good Reason, as reflected in the table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kenneth A. Martindale
|
|
Death ($)
|
|
Disability ($)
|
|
Termination
Without Cause
or Quit for
Good Reason
($)
|
|
Termination Without
Cause or Quit for Good
Reason Following a
Change in Control
($)
|
|
2 × Base Salary
|
|
|
N/A
|
|
|
N/A
|
|
|
1,854,000
|
|
|
1,854,000
|
|
2 × Bonus
|
|
|
N/A
|
|
|
N/A
|
|
|
2,781,000
|
|
|
2,781,000
|
|
Pro-Rated Incentive Bonus for Past Fiscal Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits
|
|
|
19,718
|
|
|
19,718
|
|
|
19,718
|
|
|
19,718
|
|
SERP Vesting
|
|
|
517,257
|
|
|
517,257
|
|
|
517,257
|
|
|
517,257
|
|
Vesting of Equity(1)
|
|
|
2,127,253
|
|
|
2,127,253
|
|
|
2,127,253
|
|
|
7,627,699
|
(2)
|
280G Gross Up
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Darren W. Karst
|
|
Death ($)
|
|
Disability ($)
|
|
Termination
Without Cause
or Quit for
Good Reason
($)
|
|
Termination Without
Cause or Quit for Good
Reason Following a
Change in Control
($)
|
|
2 × Base Salary
|
|
|
N/A
|
|
|
N/A
|
|
|
1,619,500
|
|
|
1,619,500
|
|
2 × Bonus
|
|
|
N/A
|
|
|
N/A
|
|
|
2,024,376
|
|
|
2,024,376
|
|
Pro-Rated Incentive Bonus for Past Fiscal Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits
|
|
|
20,543
|
|
|
20,543
|
|
|
20,543
|
|
|
20,543
|
|
SERP Vesting
|
|
|
358,073
|
|
|
358,073
|
|
|
358,073
|
|
|
358,073
|
|
Vesting of Equity(1)
|
|
|
966,547
|
|
|
966,547
|
|
|
966,547
|
|
|
1,313,712
|
(2)
|
280G Gross Up
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enio Anthony Montini, Jr.
|
|
Death ($)
|
|
Disability ($)
|
|
Termination
Without Cause
or Quit for
Good Reason
($)
|
|
Termination Without
Cause or Quit for Good
Reason Following a
Change in Control
($)
|
|
2 × Base Salary
|
|
N/A
|
|
N/A
|
|
|
943,000
|
|
|
943,000
|
|
2 × Bonus
|
|
N/A
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Pro-Rated Incentive Bonus for Past Fiscal Year
|
|
N/A
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Benefits
|
|
18,047
|
|
18,047
|
|
|
18,047
|
|
|
18,047
|
|
SERP Vesting
|
|
|
|
|
|
|
|
|
|
|
|
Vesting of Equity(1)
|
|
356,679
|
|
356,679
|
|
|
356,679
|
|
|
500,559
|
(2)
|
280G Gross Up
|
|
N/A
|
|
N/A
|
|
|
N/A
|
|
|
|
|
54
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
Bryan Everett
|
|
Death ($)
|
|
Disability ($)
|
|
Termination
Without Cause
or Quit for
Good Reason
($)
|
|
Termination Without
Cause or Quit for Good
Reason Following a
Change in Control
($)
|
|
2 × Base Salary
|
|
N/A
|
|
N/A
|
|
|
922,500
|
|
|
922,500
|
|
2 × Bonus
|
|
N/A
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Pro-Rated Incentive Bonus for Past Fiscal Year
|
|
N/A
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Benefits
|
|
27,040
|
|
27,040
|
|
|
27,040
|
|
|
27,040
|
|
SERP Vesting
|
|
140,930
|
|
140,930
|
|
|
140,930
|
|
|
140,930
|
|
Vesting of Equity(1)
|
|
162,775
|
|
162,775
|
|
|
162,775
|
|
|
311,015
|
(2)
|
280G Gross Up
|
|
N/A
|
|
N/A
|
|
|
N/A
|
|
|
|
|
-
(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 $5.45, the closing price of a share of Rite Aid common stock on the last trading day before March 4, 2017, 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 $5.45, the closing price of a share of Rite Aid common stock on the last trading day before March 4, 2017 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 ControlChange in Control Arrangements"
narrative.
55
Table of Contents
AUDIT COMMITTEE REPORT
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 2017.
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 2017. 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 2017.
-
-
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 communicated by the standards of the
Public Company Accounting Oversight Board ("PCAOB"), as well as critical accounting policies and practices, alternative accounting treatments, and other material written communications between
management and our independent registered public accounting firm, as required by Rule 2-07 of Regulation S-X under the Securities Exchange Act of 1934, as amended.
-
-
Discussed with our independent registered public accounting firm the matters required to be discussed by Statement on Auditing Standards
No. 1301,
Communications with Audit Committees
, as adopted by the PCAOB.
-
-
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.
56
Table of Contents
-
-
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.
As
outlined in the table below, we incurred the following fees, including expenses billed to the Company for the fiscal years ended March 4, 2017 and February 27, 2016 by
our independent registered public accounting firm, Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates.
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
Description of Fees
|
|
March 4, 2017
|
|
Feb. 27, 2016
|
|
|
|
(Amounts in millions)
|
|
Audit Fees,
including audit of annual financial statements and reviews of interim financial statements, registration statement
filings and comfort letters related to various refinancing activities
|
|
$
|
3.3
|
|
$
|
3.2
|
|
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
|
|
$
|
0.1
|
|
All Other Fees
|
|
$
|
0.0
|
|
$
|
0.0
|
|
Total
|
|
$
|
3.5
|
|
$
|
3.5
|
|
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 March 4, 2017 for filing with the SEC.
David
R. Jessick, Chair
Kevin E. Lofton
Michael N. Regan
57
Table of Contents
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of March 4, 2017, with respect to the compensation plans under which our common stock may be
issued:
|
|
|
|
|
|
|
|
|
|
|
Plan Category
|
|
Number of Securities
to be Issued Upon
Exercise of
Outstanding Options,
Warrants and Rights
|
|
Weighted-Average
Exercise Price of
Outstanding
Options, Warrants
and Rights
|
|
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(Excluding Securities
Reflected in Column (a))
|
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
Equity compensation plans approved by stockholders
|
|
|
46,767,551
|
|
$
|
2.72
|
|
|
54,336,928
|
|
Equity compensation plans not approved by stockholders(1)
|
|
|
|
|
|
|
|
|
|
|
Total(2)(3)
|
|
|
46,767,551
|
|
$
|
2.72
|
|
|
54,336,928
|
|
-
(1)
-
These
plans include the Company's 1999 Plan, under which 10,000,000 shares of common stock are authorized for the grant of stock options at the discretion of the
Compensation Committee, and the 2001 Plan, under which 20,000,000 shares of common stock are authorized for the grant of stock options, also at the discretion of the Compensation Committee. Both plans
provide for the Compensation Committee to determine both when and in what manner options may be exercised; however, option terms may not extend for more than 10 years from the applicable date
of grant. The plans provide that stock options may only be granted with exercise prices that are not less than the fair market value of a share of common stock on the date of grant. No securities
remain available for future issuance under either the 1999 Plan or the 2001 Plan.
-
(2)
-
On
a fully diluted basis, which reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted
into common stock, the number of shares outstanding was 1,053,689,249.
-
(3)
-
Of
the 54,336,928 shares remaining, there are 37,473,743 shares available for the grant of awards other than stock options or stock appreciation rights.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires Rite Aid's executive officers, directors and persons who own more than 10% of Rite Aid common
stock to file reports of ownership and changes in ownership with the SEC and the NYSE. Such persons are required by SEC regulations to furnish Rite Aid with copies of all Section 16(a) forms
they file. Based solely on a review of the copies of such forms furnished to Rite Aid, we have determined that during fiscal year 2017, no persons subject to Section 16(a) reporting submitted
late filings.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of May 31, 2017 (except as otherwise noted), certain information concerning the beneficial ownership
of (a) each director and nominee for director, (b) each of our "Named Executive 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 directors and executive officers as a group (based on 1,053,674,129 shares of common
stock outstanding as of May 31, 2017). Each of the persons named below has sole voting power and sole
58
Table of Contents
investment
power with respect to the shares set forth opposite his or her name, except as otherwise noted.
|
|
|
|
|
|
|
|
Beneficial Owners
|
|
Number of
Common Shares
Beneficially Owned(1)
|
|
Percentage
of Class
|
|
Named Executive Officers, Directors and Nominee for Director:
|
|
|
|
|
|
|
|
Joseph B. Anderson, Jr.
|
|
|
385,311
|
(2)
|
|
*
|
|
Bruce G. Bodaken
|
|
|
77,292
|
(3)
|
|
*
|
|
Dedra N. Castle
|
|
|
250,644
|
(4)
|
|
*
|
|
Bryan Everett
|
|
|
93,354
|
(5)
|
|
*
|
|
David R. Jessick
|
|
|
295,311
|
(6)
|
|
*
|
|
Darren W. Karst
|
|
|
580,691
|
(7)
|
|
*
|
|
Kevin E. Lofton
|
|
|
57,090
|
(8)
|
|
*
|
|
Kenneth A. Martindale
|
|
|
5,562,779
|
(9)
|
|
*
|
|
Enio Anthony Montini, Jr.
|
|
|
510,883
|
(10)
|
|
*
|
|
Myrtle S. Potter
|
|
|
54,995
|
(11)
|
|
*
|
|
Michael N. Regan
|
|
|
435,311
|
(12)
|
|
*
|
|
Frank A. Savage
|
|
|
11,061
|
(13)
|
|
*
|
|
John T. Standley
|
|
|
14,333,219
|
(14)
|
|
1.36
|
%
|
Marcy Syms
|
|
|
385,311
|
(15)
|
|
*
|
|
All Executive Officers and Directors
(16 persons)
|
|
|
24,149,213
|
|
|
2.29
|
%
|
5% Stockholders:
|
|
|
|
|
|
|
|
The Vanguard Group
|
|
|
81,014,698
|
(16)
|
|
7.70
|
%
|
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 as of July 30,
2017.
-
(2)
-
This
amount includes 50,000 shares which may be acquired within 60 days by exercising stock options and 295,311 restricted stock units that have vested or
will vest before July 30, 2017 at which time said units will be payable in shares of common stock when Mr. Anderson leaves the Board.
-
(3)
-
This
amount represents 31,250 restricted stock units that have vested or will vest before July 30, 2017 at which time said units will be payable in shares of
common stock when Mr. Bodaken leaves the Board.
-
(4)
-
This
amount includes 122,525 shares which may be acquired within 60 days by exercising stock options.
-
(5)
-
This
amount includes 33,400 shares which may be acquired within 60 days by exercising stock options.
-
(6)
-
This
amount includes 295,311 restricted stock units that have vested or will vest before July 30, 2017 at which time said units will be payable in shares of
common stock when Mr. Jessick leaves the Board.
-
(7)
-
This
amount includes 182,100 shares which may be acquired within 60 days by exercising stock options.
59
Table of Contents
-
(8)
-
This
amount represents 11,048 restricted stock units that will vest before July 30, 2017 at which time said units will be payable in shares of common stock
when Mr. Lofton leaves the Board.
-
(9)
-
This
amount includes 4,216,461 shares which may be acquired within 60 days by exercising stock options.
-
(10)
-
This
amount includes 210,925 shares which may be acquired within 60 days by exercising stock options.
-
(11)
-
This
amount represents 8,953 restricted stock units that will vest before July 30, 2017 at which time said units will be payable in shares of common stock
when Ms. Potter leaves the Board.
-
(12)
-
This
amount includes 100,000 shares which may be acquired within 60 days by exercising stock options and 295,311 restricted stock units that have vested or
will vest before July 30, 2017 at which time said units will be payable in shares of common stock when Mr. Regan leaves the Board.
-
(13)
-
This
amount includes 11,061 restricted stock units that have vested or will vest before July 30, 2017 at which time said units will be payable in shares of
common stock when Mr. Savage leaves the Board.
-
(14)
-
This
amount includes 11,607,210 shares which may be acquired within 60 days by exercising stock options.
-
(15)
-
This
amount includes 50,000 shares which may be acquired within 60 days by exercising stock options and 295,311 restricted stock units that have vested or
will vest before July 30, 2017 at which time said units will be payable in shares of common stock when Marcy Syms leaves the Board.
-
(16)
-
This
information is as of December 31, 2016 and based solely on a Schedule 13G/A filed by The Vanguard Group with the SEC on February 10, 2017.
CHANGES IN CONTROL
On October 27, 2015, we entered into an Agreement and Plan of Merger with Walgreens Boots Alliance, Inc., a Delaware corporation
("Walgreens Boots Alliance" or "WBA"), and Victoria Merger Sub, Inc., a Delaware corporation and a wholly-owned direct subsidiary of WBA ("Victoria Merger Sub"), pursuant to which, subject to
the terms and conditions set forth therein, Victoria Merger Sub will merge with and into Rite Aid (the "Merger"), with Rite Aid surviving the Merger as a 100% owned direct subsidiary of WBA. On
January 29, 2017, we, WBA, and Victoria Merger Sub entered into Amendment No. 1 to the Merger Agreement. Consummation of the Merger is subject to various closing conditions, including
but not limited to (i) the expiration or earlier termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (ii) the absence of any law
or order prohibiting the Merger, (iii) the absence of a material adverse effect on us, as defined in the Merger Agreement and (iv) shareholder approval. There can be no assurance that
the closing conditions will be satisfied and that the Merger will be consummated.
Under
the terms of the Merger Agreement, at the effective time of the Merger, each share of our common stock, par value $1.00 per share, issued and outstanding immediately prior to the
effective time (other than shares owned by (i) WBA, Victoria Merger Sub or Rite Aid (which will be cancelled), (ii) stockholders who have properly exercised and perfected appraisal
rights under Delaware law, or (iii) any direct or indirect wholly owned subsidiary of Rite Aid or WBA (which will be converted into shares of common stock of the surviving corporation)) will be
converted into the right to receive cash (the "Per Share Merger Consideration") in a maximum amount of $7.00 in cash per share and a minimum amount of $6.50 in cash per share. The exact Per Share
Merger Consideration will be determined based on the number of retail stores that WBA agrees to sell, transfer, dispose of, divest or
60
Table of Contents
hold
separate in connection with the parties' efforts to obtain the required regulatory approvals for the Merger, with the Per Share Merger Consideration set at $7.00 in cash per share if WBA agrees
to divest 1,000 or fewer stores and at $6.50 in cash per share if WBA agrees to divest 1,200 or more stores. If WBA agrees to divest a number of stores between 1,000 and 1,200, the Per Share Merger
Consideration will be ratably adjusted accordingly. While the exact per share merger consideration is not known as of the date of this proxy statement, based on discussions with the FTC regarding
potential remedies, if the proposed Merger is completed, Rite Aid believes that the per share merger consideration would likely be $6.50 per share.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Review and Approval of Related Person Transactions
We have adopted a written policy concerning the review, approval or ratification of transactions with related persons. The Nominating and
Governance Committee is responsible for review, approval or ratification of "related person transactions" between the Company or its subsidiaries and related persons. Under SEC rules, a related person
is, or any time since the beginning of the last fiscal year was, a director, an executive officer, a nominee for director, a 5% stockholder of the Company or an immediate family member (as defined
under applicable SEC rules) of any of the foregoing. A related person transaction is any transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships)
in which the Company or a subsidiary is a participant, the amount involved exceeds $120,000, and a related person had, has or will have a direct or indirect material interest.
Directors,
executive officers and nominees must complete an annual questionnaire and disclose all potential related person transactions involving themselves and their immediate family
members that are known to them. Throughout the year, directors and executive officers must notify the Corporate Secretary and Chief Accounting Officer of any potential related person transactions as
soon as they become aware of any such transaction. The Corporate Secretary and Chief Accounting Officer inform the Nominating and Governance Committee of any related person transaction of which they
are aware. The Corporate Secretary and Chief Accounting Officer are responsible for conducting a preliminary analysis and review of potential related person transactions and presentation to the
Nominating and Governance Committee for review including provision of additional information to enable proper consideration by the Nominating and Governance Committee. As necessary, the Nominating and
Governance Committee shall review approved related person transactions on a periodic basis throughout the duration of the transaction to ensure that the transactions remain in the best interests of
the Company. The Nominating and Governance Committee may, in its discretion, engage outside counsel to review certain related person transactions. In addition, the Nominating and Governance Committee
may request that the full Board of Directors consider the approval or ratification of related person transactions if the Nominating and Governance Committee deems it advisable. A copy of our full
policy concerning transactions with related persons is available on the Governance section of our website at
www.riteaid.com
under the headings
"Corporate InfoGovernanceRelated Person Transactions."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Marcy Syms (Chair), Bruce G. Bodaken and Michael N. Regan. During fiscal year 2017, no member
of the Compensation Committee was an employee or former employee or executive officer of the Company.
61
Table of Contents
STOCKHOLDER PROPOSALS FOR
THE 2018 ANNUAL MEETING OF STOCKHOLDERS
Any stockholder desiring to present a proposal for inclusion in Rite Aid's proxy statement for the 2018 Annual Meeting of Stockholders must
deliver the proposal to the Secretary at the address below not later than February 7, 2018. Only those proposals that comply with the requirements of Rule 14a-8 under the Exchange Act
will be included in Rite Aid's proxy statement for the 2018 Annual Meeting. In order for proposals of stockholders made outside of Rule 14a-8 under the Exchange Act to be considered "timely"
within the meaning of Rule 14a-4(c) under the Exchange Act, such proposals must be received by the Secretary at the address below by April 18, 2018.
Stockholders
may present proposals that are proper subjects for consideration at an annual meeting, even if the proposal is not submitted by the deadline for inclusion in the proxy
statement. To do so, the stockholder must comply with the procedures specified in Rite Aid's By-Laws. The By-Laws, which are available upon request from the Secretary, require all stockholders who
intend to make proposals at an annual meeting of stockholders to submit their proposals to the Secretary not fewer than 90 and not more than 120 days before the anniversary date of the previous
year's annual meeting of stockholders. The By-Laws also provide that nominations for director may only be made by the Board of Directors (or an authorized Board committee) or, unless made under the
proxy access provisions of the By-Laws described below, by a stockholder of record entitled to vote who sends notice to the Secretary not fewer than 90 nor more than 120 days before the
anniversary date of the previous year's annual meeting of stockholders. Any such nomination by a stockholder must comply with the procedures specified in Rite Aid's By-Laws. To be eligible for
consideration at the 2018 Annual Meeting, proposals which have not been submitted by the deadline for inclusion in the proxy statement and any nominations for director other than those under the proxy
access provisions of the By-Laws must be received by the Secretary between March 19, 2018 and April 18, 2018. This advance notice period is intended to allow all
stockholders an opportunity to consider all business and nominees expected to be considered at the meeting.
In
addition, Rite Aid's By-Laws provide that, under certain circumstances, a stockholder or group of stockholders may include director candidates that they have nominated in our annual
meeting proxy materials. The proxy access provisions of the By-Laws provide, among other things, that a stockholder or group of up to 20 stockholders seeking to include director candidates in our
annual meeting proxy materials must own 3% or more of Rite Aid's outstanding common stock continuously for at least the previous three years. The number of stockholder-nominated candidates appearing
in any annual meeting proxy statement cannot exceed 20% of the number of directors then serving on the Board. If the 20% calculation does not result in a whole number, the maximum number of
stockholder nominees included in our proxy statement would be the closest whole number below 20%. If the number of stockholder-nominated candidates exceeds 20%, each nominating stockholder or group of
stockholders may select one nominee for inclusion in our proxy materials until the maximum number is reached. The order of selection would be determined by the amount (largest to smallest) of shares
of Rite Aid common stock held by each nominating stockholder or group of stockholders. The nominating stockholder or group of stockholders also must deliver the information required by Rite Aid's
By-Laws and comply with the procedures specified therein, and each nominee must meet the qualifications required by the By-Laws. Requests to include stockholder-nominated candidates in our proxy
materials for the 2018 Annual Meeting must be received by the Secretary no earlier than January 8, 2018 and no later than February 7, 2018.
All
submissions to the Secretary should be made to:
Rite
Aid Corporation
30 Hunter Lane
Camp Hill, Pennsylvania 17011
Attention: James J. Comitale, Secretary
62
Table of Contents
INCORPORATION BY REFERENCE
In accordance with SEC rules, notwithstanding anything to the contrary set forth in any of our previous or future filings under the Securities
Act of 1933, as amended, or the Exchange Act, that might incorporate this proxy statement or future filings made by Rite Aid under those statutes, the information included under the caption
"Compensation Committee Report" and those portions of the information included under the caption "Audit Committee Report" required by the SEC's rules to be included therein, shall not be deemed to be
"soliciting material" or "filed" with the SEC and shall not be deemed incorporated by reference into any of those prior filings or into any future filings made by Rite Aid under those statutes, except
to the extent we specifically incorporate these items by reference.
OTHER MATTERS
The Board of Directors knows of no other matters that have been submitted for consideration at the Annual Meeting other than those referred to
in this proxy statement. If any other matters come before stockholders at the Annual Meeting, the proxy holders intend to vote the shares they represent in accordance with their best judgment.
IMPORTANT NOTICE REGARDING DELIVERY
OF STOCKHOLDER DOCUMENTS
The SEC has adopted rules that permit companies and intermediaries such as brokers to satisfy proxy material delivery requirements with respect
to two or more stockholders sharing the same address by delivering a single proxy statement addressed to those stockholders. This process, which is referred to as "householding," potentially provides
extra convenience for stockholders and reduces printing and postage costs for companies.
Rite
Aid and some brokers utilize the householding process for proxy materials. In accordance with a notice sent to certain stockholders who share a single address, only one copy of this
proxy statement is being sent to that address, unless we received contrary instructions from any stockholder at that address. Stockholders who participate in householding will continue to receive
separate proxy cards. Householding will continue until you are notified otherwise or until one or more stockholders at your address revokes consent. If you revoke consent, you will be removed from the
householding program
within 30 days of receipt of the revocation. If you hold your Rite Aid stock in "street name," additional information regarding householding of proxy materials should be forwarded to you by
your broker.
However,
if you wish to receive a separate copy of this proxy statement, we will promptly deliver one to you upon request. You can notify us by sending a written request to Rite Aid
Corporation, 30 Hunter Lane, Camp Hill, Pennsylvania 17011, Attention: James J. Comitale, Secretary, or by calling the Secretary at (717) 761-2633. In addition, if you would like to
receive separate proxy statements and annual reports of Rite Aid in the future, or if you are receiving multiple copies of annual reports and proxy statements at an address shared with another
stockholder and would like to participate in householding, please notify your broker if your shares are held in a brokerage account or us if you hold registered shares.
ANNUAL REPORT
A copy of Rite Aid's Annual Report on Form 10-K for fiscal year 2017 is being made available together with this proxy statement to all
stockholders entitled to notice of and to vote at the Annual Meeting.
A copy of our Annual Report, including the financial statements included therein, is also available
without charge by visiting the Company's website or upon written request to Rite Aid Corporation, 30 Hunter Lane, Camp Hill, Pennsylvania 17011, Attention: James J. Comitale,
Secretary.
63
Table of Contents
APPENDIX A
FINANCIAL MEASURES
We use certain non-GAAP measures, such as "Adjusted EBITDA", in assessing our operating performance. We believe the non-GAAP metrics serve as an
appropriate measure in evaluating the performance of our business. We define Adjusted EBITDA as net income excluding the impact of income taxes, interest expense, depreciation and amortization, LIFO
adjustments, charges or credits for facility closing and impairment, inventory write-downs related to store closings, debt retirements, and other items (including stock-based compensation expense,
severance for distribution center closures, gain or loss on sale of assets, and revenue deferrals related to our customer loyalty program). We reference this particular non-GAAP financial measure
frequently in our decision-making because it provides supplemental information that facilitates internal comparisons to the historical periods and external comparisons to competitors. In addition,
incentive compensation is primarily based on Adjusted EBITDA and we base certain of our forward-looking estimates on Adjusted EBITDA to facilitate quantification of planned business activities and
enhance subsequent follow-up with comparisons of actual to planned Adjusted EBITDA.
The
following is a reconciliation of our net income to Adjusted EBITDA for fiscal 2017, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 4,
2017
(53 weeks)
|
|
February 27,
2016
(52 weeks)
|
|
February 28,
2015
(52 weeks)
|
|
|
|
(Dollars in thousands)
|
|
Net income
|
|
$
|
4,053
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|
$
|
165,465
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|
$
|
2,109,173
|
|
Interest expense
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|
|
431,991
|
|
|
449,574
|
|
|
397,612
|
|
Income tax expense
|
|
|
29,689
|
|
|
139,297
|
|
|
158,951
|
|
Income tax valuation allowance increase (release)
|
|
|
14,703
|
|
|
(26,358
|
)
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|
(1,841,304
|
)
|
Depreciation and amortization expense
|
|
|
568,231
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|
|
509,212
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|
|
416,628
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|
LIFO (credit) charge
|
|
|
(6,620
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)
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|
11,163
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|
|
(18,857
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)
|
Lease termination and impairment charges
|
|
|
55,294
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|
|
48,423
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|
|
41,945
|
|
Loss on debt retirements, net
|
|
|
|
|
|
33,205
|
|
|
18,512
|
|
Other
|
|
|
39,800
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|
|
72,281
|
|
|
40,183
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
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|
$
|
1,137,141
|
|
$
|
1,402,262
|
|
$
|
1,322,843
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|
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The
following is a reconciliation of our net income to Adjusted Net Income and Adjusted Net Income per Diluted Share for fiscal 2017, 2016 and 2015. Adjusted Net Income is defined as net
income excluding the impact of amortization of EnvisionRx intangible assets, merger and acquisition-related costs, loss on debt retirements and LIFO adjustments. We calculate Adjusted Net Income per
Diluted Share using our above-referenced definition of Adjusted Net Income. We believe Adjusted Net Income and Adjusted Net Income per Diluted Share serve as appropriate measures to be used in
evaluating the performance of our business and help our investors better compare our operating
Table of Contents
performance
over multiple periods. The following is a reconciliation of our net income to our Adjusted Net Income for fiscal 2017, 2016 and 2015:
|
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|
|
|
|
|
|
|
|
|
|
March 4,
2017
(53 weeks)
|
|
February 27,
2016
(52 weeks)
|
|
February 28,
2015
(52 weeks)
|
|
|
|
(Dollars in thousands)
|
|
Net income
|
|
$
|
4,053
|
|
$
|
165,465
|
|
$
|
2,109,173
|
|
Add backIncome tax expense (benefit)
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44,392
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112,939
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(1,682,353
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)
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Income before income taxes
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48,445
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278,404
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426,820
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|
Adjustments:
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Amortization of EnvisionRx intangible assets
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83,022
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|
55,527
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|
|
|
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LIFO (credit) charge
|
|
|
(6,620
|
)
|
|
11,163
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|
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(18,857
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)
|
Loss on debt retirements, net
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33,205
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18,512
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|
Merger and Acquisition-related costs
|
|
|
14,066
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|
|
27,482
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|
|
8,309
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|
|
|
|
|
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|
Adjusted income before income taxes
|
|
|
138,913
|
|
|
405,781
|
|
|
434,784
|
|
Adjusted income tax expense(a)
|
|
|
72,096
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|
|
150,545
|
|
|
161,740
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|
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|
|
Adjusted net income
|
|
$
|
66,817
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|
$
|
255,236
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|
$
|
273,044
|
|
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Net income per diluted share
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$
|
0.00
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|
$
|
0.16
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|
$
|
2.08
|
|
Adjusted net income per diluted share
|
|
$
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0.06
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|
$
|
0.24
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$
|
0.27
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|
-
(a)
-
The
fiscal year 2017 and 2016 annual effective tax rates, adjusted to exclude amortization of EnvisionRx intangible assets, LIFO (credits) charges, loss on debt
retirements and Merger and Acquisition-related costs from book income, are used for the fifty-three weeks ended March 4, 2017 and the fifty-two weeks ended February 27, 2016,
respectively. The estimated annualized effective tax rate used for the fifty-two weeks ended February 28, 2015 is adjusted for the income tax valuation allowance reduction of
$1.841 billion.
A-2
VOTE BY INTERNET - www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Daylight Time, July 16, 2017. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Daylight Time, July 16, 2017. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. You can obtain directions to the Annual Meeting by contacting Rite Aid's Investor Relations Department at (717) 975-3710. RITE AID CORPORATION ATTN: BYRON PURCELL 30 HUNTER LANE CAMP HILL, PA 17011 TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: E30612-P95008 KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. RITE AID CORPORATION The Board of Directors unanimously recommends that you vote FOR the following: 1. Election of Directors Nominees: For ! ! ! ! ! ! ! ! ! Against ! ! ! ! ! ! ! ! ! Abstain ! ! ! ! ! ! ! ! ! ! 1a. John T. Standley 1b. Joseph B. Anderson, Jr. The Board of Directors unanimously recommends that you vote FOR Proposals 2 and 3. For Against Abstain ! ! ! ! ! ! 1c. Bruce G. Bodaken 2. Ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm. Approve, on an advisory basis, the compensation of our named executive officers as presented in the proxy statement. 1d. David R. Jessick 3. 1e. Kevin E. Lofton 1f. Myrtle S. Potter The Board of Directors unanimously recommends 1 Year 2 Years that you vote 1 YEAR on the following Proposal: 3 Years Abstain ! ! ! ! 1g. Michael N. Regan 4. Vote, on an advisory basis, as to the frequency of future advisory votes to approve the compensation of our named executive officers. 1h. Frank A. Savage NOTE: Such other business as may properly come before the meeting or any adjournment thereof. 1i. Marcy Syms For address changes and/or comments, please check this box and write them on the back where indicated. ! Yes ! No Please indicate if you plan to attend this meeting. Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date V.1.1
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Notice and Proxy Statement and Form 10-K are available at www.proxyvote.com. E30613-P95008 RITE AID CORPORATION Annual Meeting of Stockholders July 17, 2017 at 8:30 AM This proxy is solicited by the Board of Directors The stockholder(s) hereby appoint(s) John T. Standley, Darren Karst, and Jim Comitale, or any of them, as proxies, each with the power to appoint his substitute, and hereby authorize(s) them to represent and to vote, as designated on the reverse side of this proxy card, all of the shares of common stock of RITE AID CORPORATION that the stockholder(s) is/are entitled to vote at the Annual Meeting of Stockholders to be held at 8:30 AM, EDT on July 17, 2017 at the Hilton Harrisburg, 1 N. 2nd Street, Harrisburg, PA 17101, and any adjournment or postponement thereof. If applicable, the proxy shall also govern the voting stock held for the account of the undersigned in the Company's Investment Opportunity Plan, or any applicable employee benefit plan. The validity of this proxy is governed by the laws of the State of Delaware. This proxy does not revoke any prior powers of attorney except for prior proxies given in connection with the Annual Meeting of Stockholders. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS SPECIFIED, OR, IF NO SPECIFICATIONS ARE MADE, WILL BE VOTED IN ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. IF ANY OTHER MATTER IS PROPERLY PRESENTED AT THE ANNUAL MEETING OF STOCKHOLDERS, THIS PROXY WILL BE VOTED IN THE NAMED PROXIES' DISCRETION ON SUCH MATTER. PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. (If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.) Continued and to be signed on reverse side V.1.1 Address Changes/Comments:
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